MANILA, Philippines — Acting Socioeconomic Planning Secretary Karl Chua on Wednesday said the government must pursue its tax reform program or it might be forced to borrow more money to finance its response to the new coronavirus pandemic.
Borrowed money “does not come free from heaven” and must be paid through taxes, he said during the daily Laging Handa briefing. “What that means is our children and grandchildren will be paying the money we borrow [today].”
“The decision whether to borrow money or to raise taxes would need to be studied to find the right balance,” he added.
Chua, who was the chief tax reform lobbyist when he was finance undersecretary, is now the acting head of the National Economic and Development Authority (Neda), the state planning agency.
Under the Duterte administration’s P1.49-trillion socioeconomic strategy against COVID-19, the government planned to borrow P310 billion from multilateral lenders and bilateral development partners to augment funds.
These borrowings will jack up the share of the national government’s debt to gross domestic product (GDP) to 46.7 percent, from 41 percent at end-2019.
Finance Secretary Carlos Dominguez III had earlier said that even with the higher debt-to-GDP ratio, it would still be “low” compared with those of the Philippines’ neighbors.
Chua said the country’s tax system had to be changed because it was beset with so many problems and was “too complicated, unfair and very inefficient.”
“If we won’t change it, we would not have a simpler, fairer and more efficient system of taxation,” he said.
He said that both the Department of Finance (DOF) and the Neda would provide their inputs on the economic impact of the tax reform. “I believe that the comprehensive tax reform should be continued, but maybe with a few additions or changes to help those affected by COVID,” he said.
One reform package, the proposed Corporate Income Tax and Incentives Reform Act (Citira), still needed to be passed, although as some business groups and industries have sought to retain the fiscal perks they are currently enjoying amid the COVID-19 crisis, he added.
Citira aims to rationalize tax incentives while reducing the income tax rate for businesses to 20 percent over a 10-year period from the present 30 percent—the highest in Southeast Asia. It is part of the Duterte administration’s comprehensive tax reform program.
The bill has been passed by the House of Representatives, but it still pending in the Senate amid concerns by some senators that it may drive investors out of the country, resulting in job losses.
Sought for comment, Dominguez said the DOF was still studying possible tweaks to the proposed law.
“But one idea worth exploring is the possibility of granting the FIRB [Fiscal Incentives Review Board] the flexibility of tailoring programs to the needs of individual companies,” he said.
At present, the DOF-chaired board only grants tax subsidies to state-run corporations.
If passed into law, Citira will not only empower the FIRB to green-light investors’ tax perks but also make it the oversight body for the 13 investment promotion agencies that give fiscal incentives.
Dominguez said the possible deferment of the gradual reduction in corporate income taxes under Citira was “still under study” as the government struggled to collect revenue during the pandemic.
Pending tax bills
Besides Citira, also still pending in Congress are two other tax measures—the Passive Income and Financial Intermediary Taxation Act (Pifita), and the real property valuation reform bill.
The comprehensive tax reform program began with the Tax Reform for Acceleration and Inclusion Act in 2018, which jacked up or slapped new taxes on consumption while bringing down the personal income tax rate.
That law also triggered the ongoing amnesties on delinquencies and estate taxes, and higher excise on cigarettes, e-cigarettes and alcoholic drinks, which took effect this year.
—WITH A REPORT FROM LEILA B. SALAVERRIA
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