New tax proposals seen to yield P213 billion revenue

MANILA, Philippines — The Marcos administration expects to generate P213 billion over the next five years from the priority tax proposals of the Department of Finance.

DOF Secretary Ralph Recto said the five priority measures of the department are expected to generate P212.9 billion in revenues starting this year until the end of the Marcos administration in 2028. 

As such, Recto said the DOF aims to pass all priority reforms within the year to achieve the government’s fiscal targets outlined in the medium-term fiscal framework. 

All five tax measures have been filed and are in various stages in both the House of Representatives and the Senate. These measures were also among the priorities of former finance secretary Benjamin Diokno.

“We have worked to review all proposals and have reconsidered some key provisions,” Recto said.

“This is in consideration of the economic situation, where some proposals might have unintended consequences in terms of inflation or in terms of possibly hindering growth in some sectors,” he said.

Among the proposed taxes, the value-added tax on digital service providers (DSP) is expected to generate the highest income at P83.8 billion. However, this is lower than the earlier estimate of the DOF of P96.72 billion.

The measure will effectively amend the Tax Code and impose a 12-percent VAT on digital transactions coming from digital advertising, subscription-based services, and other services using information and communication technology-enabled infrastructure, among others.

VAT is the largest source of tax revenue on average in the Philippines and the Asia-Pacific is the fastest growing e-commerce region in the world.

The VAT on digital transactions also aims to level the playing field between local and foreign DSP by clarifying that services provided by the latter in the Philippines are subject to VAT.

Another priority measure is the rationalization of the mining fiscal regime to encourage growth, while ensuring that the government still gets its fair share of the profits from mining activities. 

The proposal is seen generating P47 billion in revenues from 2024 to 2028, also lower than the P52.6 billion previously estimated. 

The DOF is also tweaking the reform on the motor vehicle users’ charge to consider the impact of the new rates on inflation, particularly in the transportation and logistics sectors.

The revised reform will generate P36 billion until 2028, significantly lower than the P151 billion earlier expected.

The pending measure aims to come up with a structured taxation plan based on their type and gross vehicle weight.

Recto earlier argued that motorists are now paying a lot of taxes, such as excise and value-added tax on oil as well as on the vehicles themselves.

“Today, 50 percent or thereabouts, of vehicles are unregistered. And if you impose higher taxes, maybe more vehicles will not register,” Recto said.

“So I think we have to temper some of these increases because like I said, they’re also inflationary. And it’s all about timing as well,” he said.

Further, the DOF seeks to curb the high volume of mismanaged plastics by imposing an excise tax on certain single-use plastics, which could generate a total of P33.9 billion in revenues from 2024 to 2028.

The Passive Income and Financial Intermediary Taxation Act (PIFITA) is likewise included in the priority measures as it seeks to encourage growth in key financial markets by simplifying the tax structure on passive income, and on certain instruments and other financial products.

The fourth and last tax reform package introduced by the Duterte administration is expected to bring in some P12.2 billion in revenues.

“The DOF seeks to maintain the structure of some products and instruments while deferring the implementation of certain provisions by 2028 or when the government will have been in a better fiscal position,” Recto said.

“Considering these reforms altogether, we expect total revenues to grow from 15.5 percent of gross domestic product in 2024 to 16.8 percent of GDP in 2028,” he said.

Recto reiterated that the DOF would have no new tax proposals and would instead recalibrate existing priority tax measures to guarantee that these taxes are fairer, easier to collect, and more practical.