Tax reform: down to the wire? (2)

PHILIPPINES - In Brief 29 Sep 2017 by Romeo Bernardo

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In the first installment on this subject last week, we noted the wide gap between the finance department’s tax reform proposal, originally estimated to yield P157 billion in incremental revenues in the first full year of implementation, and Senate bill 1592 drafted by the ways and means committee which reportedly would cut year 1 incremental revenues down to P55 billion. We have yet to see an itemized comparison of estimated gains vs. losses but a comparison of the features of the two versions reveals the following major differences that would likely account for most of the revenue losses:1. Of the 143 lines of exemptions to the 12% value added tax (VAT) in the Philippines, the DoF proposes to bring back 70 lines under the VAT net while the Senate is consenting to only 37 lines. The former is estimated to yield P61 billion vs. the latter’s P10 billion, or a difference of P51 billion.2. The executive proposes to stagger oil excise tax increases over 3 years following a 3-2-1 formula (i.e., P3/liter in year 1, P2 in year 2, P3 in year 3) while the Senate proposal involves varying backloaded formulas by type of fuel (e.g., 1.75- 2- 2.25 for diesel). While the two proposals are expected to generate similar revenues from oil products by the third year, the Senate's version would clearly yield much less in year 1 vs. the executive's P74 billion target. 3. The DoF proposal has an optional 8% flat tax for self-employed individuals and professionals whose gross income fell below the P3 million VAT threshold. The Senate expanded this option to higher-income individuals as well, which the DoF expects will cost P20 billion. To make up for lost revenues, the Senate adjusted the per...