DOF: Tax reform law, exempting millions from income tax, 'big Christmas gift' to Filipinos

MANILA, Philippines —The signing into law of a comprehensive tax reform bill, expected to raise billions of pesos to fund ambitious government programs, is big Christmas gift to Filipinos as it would usher in a "real positive change" for the Philippines next year.

Both Finance Secretary Carlos Dominguez III and Sen. Juan Edgardo Angara, chairman of the Senate ways and means panel, framed President Rodrigo Duterte's signing into law of the landmark tax reform measure as a means to provide working Filipinos relief and a boost to their living standards.

“This is the biggest Christmas and New Year’s gift that the Duterte administration is giving to the people,” Dominguez said.

Echoing the finance secretary, Angara said in Filipino, "This is to help our countrymen to improve their lives. This is the best Christmas gift that the government could give to each Filipino family."

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This relief will most likely come from the adjustments to the personal income tax rates in the country, with the newly-signed law shifting the burden of taxation from low-income segments to the richest individuals.

The tax reform law exempts those earning an annual taxable income of P250,000 or below. It also raised exemption for 13th month pay and other bonuses to P90,000.

To offset lost money to exemptions in personal income tax, the government is relying on the expansion of the value-added tax base and additional taxes on petroleum products, vehicles and sugar-sweetened beverages, among others.

Dominguez said that the new law, based on initial computations, could generate almost P150 billion that would be used to fund the government's ambitious infrastructure program and social services. This money however was lower than the initial P162 billion that the government of President Rodrigo Duterte sought.

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The finance secretary said that the passage of the measure showed the "maturity" of the Philippine economy and its readiness to meet the challenges of structural problems and inequities in taxation.

“I think it’s a sign of maturity for our country. It is also the first of five packages that will once and for all start fixing the structural problems of the tax system that has become unfair, complex and inefficient. This tax reform will also raise the revenues needed to make real positive change for our people,” Dominguez said.

This was also the first time that an overhaul of the country's tax system was not brought about by a crisis or external pressure as the law was enacted at a time of strong macroeconomic fundamentals, sound fiscal policy and high gross domestic product rate, the finance secretary said.

Dominguez said that the current measure was equivalent to about two-thirds of the programmed incremental revenue needed by the government. The remaining one-third is expected to be passed by Congress in early 2018, he said.

The remaining one-third involves provisions on estate tax amnesty, general tax amnesty, adjustments in the Motor Vehicle Users Charge and amendments to the bank secrecy law and automatic exchange of information.

The finance chief said that 70 percent of the revenues to be raised will finance the government's infrastructure and modernization program, including additional funding for military and law-enforcement capabilities while the rest would go to social services and other anti-poverty measures such as cash transfers to the poor.

"We congratulate the Duterte administration and both houses of Congress for the passage of this law that would raise workers' take-home pay and jumpstart infrastructure projects in the country which would help improve the lives of every Filipino," Angara said.

Critics however have blasted the new tax law, claiming that it would lead result in higher prices that would most likely affect lower-income families.

Some have already signified their intention to question the measure before the Supreme Court, in an attempt to prevent it from being implemented.

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