December 12, 2017 | MANILA, PHILIPPINES

Roadblocks to tax reform

The country’s economic development blueprint for the next five years was unveiled this week during the Dutertenomics Forum anchored on the government’s 10-point socioeconomic agenda. Co-presented by the Department of Finance (DoF) and the Presidential Communications Operations Office, the event was held at Conrad Hotel in the Mall of Asia Complex, Pasay City.

Highlighting the forum was the launch of “Build Build Build” -- a joint project of the DoF, the Department of Transportation (DoTr), the Department of Budget and Management (DBM), the Department of Public Works and Highways (DPWH), the National Economic and Development Authority (NEDA), and the Bases Conversion and Development Authority (BCDA).

This ambitious P3.6-trillion program of the Duterte administration is envisioned to transform the Philippines into an upper-middle-income economy by 2022. It will also usher in a “golden age of infrastructure” to be financed mainly by the comprehensive tax reform program (CTRP) bill now pending in the House of Representatives.

A wide spectrum of Filipino organizations from both public and private sectors have endorsed the CTRP, as exemplified by the support of the Bangko Sentral ng Pilipinas (BSP) for tax reform.

BSP Deputy Governor Diwa C. Guinigundo told a recent Senate hearing that bringing down personal income tax rates would boost gross domestic product growth by nearly one percentage point in the next two years. He said tax reform will translate to higher consumption and have an immediate impact on investment as well.

It seems the opposition to the CTRP emanates mostly from the leftists. Bayan Muna party-list Representative Carlos I. Zarate slammed the program, saying it will hit the poor rather than the rich. The same sentiment was shared by the IBON Foundation, a Left-leaning nongovernment research group that believes tax reform will worsen inequality in the country.

Within the Duterte Cabinet, the only vocal opponent of tax reform is Department of Social Welfare and Development (DSWD) Secretary-designate Judy M. Taguiwalo. An activist professor at the University of the Philippines (UP) before joining the government, she was a political prisoner for almost a dozen years during martial law and recently served as Chairperson of IBON Foundation’s board of trustees.

Her objections against tax reform are primarily because of the CTRP bill’s revenue-enhancing provisions imposing higher taxes on oil products and expanding the value-added tax (VAT) that “are likely to be inimical to the poor’s welfare.” She has also gone on record opposing the government’s conditional cash transfer (CCT) program that her department administers under the Pantawid Pamilyang Pilipino Program, otherwise known as the 4Ps.

But UP School of Economics senior lecturer Jan Carlo B. Punongbayan has refuted the DSWD chief’s claims. He said tax reform will not be anti-poor despite some inflationary impacts of which he is confident that the BSP would rein in, remarking that “on the whole, it will even put more money in our pockets.”

Mr. Punongbayan cited the country’s benign experience in 2005 when VAT was first expanded from 10% to 12%, with inflation immediately increasing by just 1.7 percentage points and going down by 1.0 percentage point the following year. His contention is that the short-term inflation spike would be cushioned partly by increased fuel excise taxes.

Regarding the CCT program, he estimated about P36 billion in new revenues from tax reform measures would go to the poorest 10 million households in the Philippines via income transfers.

Not only will CCT beneficiaries be getting larger transfers as proposed by the bill. Other impoverished households that are not covered by the 4Ps would also receive unconditional cash transfers, while a parallel program called Pantawid Pasada is being planned to offset higher transport costs by giving cash cards to operators of public utility vehicles.

Proponents of the cash transfer program contend that it is merely a means for people to rise above poverty, and not an end. They equate the 4Ps to meal allowances given to poor schoolchildren that would assist them in achieving improved learning outcomes.

BusinessWorld columnist Filomeno S. Sta Ana III, an economist of the think tank Action for Economic Reforms, pointed out the irony in the DSWD’s objection to targeted transfers due to administrative problems encountered. He lamented that “the DSWD can sabotage the whole CTRP by objecting to the unconditional cash transfer. For this, Secretary Taguiwalo must be made accountable.”

J. Albert Gamboa is chief financial officer of Asian Center for Legal Excellence and Senior Advisor of KSearch Asia Consulting, Inc.