Philippines: Department of Finance certifies tax reform bill

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The Department of Finance (DoF) declared that, the proposed second package of the Comprehensive Tax Reform Program (CTRP) will be submitted to the Congress by the fourth quarter of the year. According to the DoF government’s plan to introduce a fuel marking and monitoring system in the local downstream oil industry as a way to curb fuel smuggling that has been costing the government an estimated P26.9 billion to P43.8 billion in foregone revenues each year.

The comprehensive tax reform package proposed by the executive department requires considerable cuts in personal income tax rates, extension of the value added tax base, and adjustments of excise taxes on oil, automobiles and other products. The original proposal is expected to generate P162.5 billion.

The key features of the substitute bill include the following:

  • Lower PIT rates as proposed by the DOF but indexed to cumulative Consumer Price Index (CPI) inflation every three years;
  • A flat rate of 6%  for the estate and donor’s taxes;
  • Broadening the tax base by removing special laws on VAT exemptions, including those for cooperatives, housing and leasing, but retaining exemptions for senior citizens and persons with disabilities;
  • Staggered “3-2-1” excise tax increase for petroleum products from 2018 to 2020 but with no indexation to inflation, and liquefied petroleum gas (LPG) used as feedstock to be exempted from the hike;
  • A five-bracket excise tax structure for automobiles with a two-year phase-in period for the tax increases;
  • A tax on sugar-sweetened beverages or SSBs equivalent to P10 per liter; and
  • Earmarking of 40% of the proceeds from the fuel excise tax increase for social protection programs for the first three years of the tax reform measure’s implementation.

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