Hot issues on the tax-reform package


THE Comprehensive Tax Reform Package (CTRP) or House Bill 4774 is expected to be approved both by the House of Representatives and the Senate by June 2017 of this year. This could mean its implementation targeted in the second half of the year will push through. The response from the public and from what I hear wherever I go is mixed. There are those who welcome it, those who are apprehensive and those who do not know at all and take a nonchalant attitude.

The hot CTRP topics are the good news, which are the lowering of personal income tax by increasing the exemption to P250,000 and lowering of the estate and donor tax to 6 percent. The bad news is mainly the excise tax on oil and automobiles. Many of the discussions therefore are a mix of good news and bad. Apprehension usually comes from people who say that even if the tax on their income is lowered, it might not translate to better living conditions for them at all if the price of oil and, consequently, transport fares, will increase. But are these apprehensions valid?

One cannot blame the public, because in the past, whenever there is an increase in oil prices, there is always an increase in transport fare and an increase in commodities prices resulting to a higher cost of living. Still, a simple sweeping conclusion like this may not always be true.

In the CTRP, the increase in the fuel tax goes hand-in-hand with the lowering of the income tax, which favors more those with lower income (comprising the majority of those who take public transportation), which means more take-home pay. The Department of Finance (DOF) estimated that the tax increase on fuel is staggered from P3 per liter (presently, there is no tax on diesel) in second half of this year, to P5 per liter in 2018 and P6 per liter in 2019 should only result to a P0.21 increase in the minimum fare in the second half of the year with the P3-per-liter increase. Government estimates the inflation rate for 2018 should still be within the target of 3 percent notwithstanding the excise tax on fuel.

On the other hand, according to our economic and finance leaders, the CTRP may not mean an automatic increase in commodities prices. With the increase of the value-added tax (VAT) threshold to P3 million and the imposition of a flat 8-percent tax in lieu of VAT, it can be an incentive to micro and small enterprises to improve production and increase supply as a buffer against price increases due to higher fuel prices. The lowering of income tax on low-income earners could also increase consumption and demand, which are further incentives to smaller enterprises. 

I am emphasizing micro enterprises, because those earning P2 million and higher a year (and are not microenterprises) will be levied a 32-percent income tax and those over P5 million with 35 percent. 

In other words, the larger businesses and manufacturers will not enjoy lower taxes and this begs the question of whether supply will really increase to counteract any increase in prices caused by the ripple impact of the fuel-price hikes.

There are also certain sectors that think the micro enterprise will suffer a net loss, since the 8-percent flat rate is based on gross income. The salaried employee is better off with an exemption of P250,000. But I should say that the risk of doing business and one cannot possibly have it all.

The CTRP is meant to underwrite the infrastructure projects of the country (which I think we sorely need) and other government projects. We just hope the government, particularly the DOF, has extensively studied all aspects of the package to ensure that the objective of improving the living condition of the poor while at the same time generate the funds needed for infrastructure and other priority projects of the government will be attained.

These are valid apprehensions but, ultimately, everyone is crossing their fingers that the proposed tax reforms will work for the good of the economy and the country. For who does not want progress, even if the CTRP cannot possibly please everybody.

Wilma Miranda is the managing partner of Inventor, Miranda & Associates, CPAs and a BOD member of KPS Outsourcing Services Inc. The views expressed herein do not necessarily reflect the opinion of these institutions.

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