PRESSES PNoy FOR ECONOMIC REFORMS
MANILA, MARCH 22, 2012
(TRIBUNE) DIOKNO WARNS OF PUBLIC UNREST - As if rising prices of
commodities were not enough, the prospect of more and higher taxes looms by next
year as an International Monetary Fund (IMF) study commissioned by the
government had proposed reforms in the local tax system to be fast-tracked that
include increases in the so-called sin tax and a possible tax on mobile phone
text messages.
The IMF proposals contained in the "Philippines: Technical Assistance Report
on Road Map for a Pro-Growth and Equitable Tax System" report also sought the
tax rate adjustments to be implemented as soon as possible.
"Many excise rates need to be increased in order to recover the lost revenue
which amounts to 1.8 percent of gross domestic product (GDP) since 1997. This
revenue loss is due to a lack of indexation of the specific taxes on tobacco and
alcohol products, use of old prices in classifying such products, and reduction
in excise on petroleum products," the report stated.
Public temper is already rising with the successive rounds of fuel price
increases and the resulting increase in the prices of commodities.
UP School of Economics professor Benjamin Diokno, a former budget secretary,
also warned the Aquino administration to immediately address complaints of
rising fuel and commodity prices or face public unrest.
Also yesterday, local oil companies hiked anew fuel prices with Pilipinas
Shell increasing the prices of premium gasoline (including unleaded) by P0.70
per liter and regular gasoline, diesel and kerosene by P0.60 per liter effective
12:01 a.m.
Total Philippines and Eastern Petroleum Philippine announced the same price
increase on its products effective 6 a.m. along with Petron Corp. and Chevron
Philippines.
The price hike was 10th in the last seven weeks. So far this year only two
price rollbacks have been implemented as opposed to 10 hikes (including today)
on petroleum products.
Rising international market prices were cited as the reason for the latest
fuel hike.
The minimum fare for jeepneys, the basic public transport, were also raised
50 centavos to P8.50 yesterday and the government indicated that mass rail
transit fares may also have to be jacked up.
The IMF report said that while a Department of Finance (DoF) proposal
to adjust the excise tax on liquor and cigarettes, it indicated that it was
desirable to start the rate adjustments not later than the beginning of 2012 and
to use the consumer price index (CPI), from which the inflation rate is based,
to adjust the excise rates periodically instead of an index of cigarette prices
"since cigarette prices may decline due to industry competition and price
strategies employed by the producers even when inflation is up".
It added that the specific rates on tobacco products should be adjusted to
reach the excise on tobacco products to GDP ratio attained in 1997 and to
complete the adjustment within three years.
It also urged the government to move to a unified specific rate on tobacco
products in the medium-term and maintain a tax burden (all taxes) on cigarettes
no less than 50 percent of the retail price.
"Excise on petroleum products needs to be increased after the sin tax reform
bill is approved at the Congress. The specific rate on gasoline should be
increased from its current levels and an excise should be levied on diesel," it
added.
The IMF report also suggested that the government "initiate a study on the
revenue and economic effects of an excise on short messaging services (SMS) and
other mobile phone services".
It expressed a view that the excise on telecommunications should be
considered as proxying a tax on economic rent obtained from services provided by
a few operators.
"A very low rate applied to a broad range of services can mitigate the
effects that may be argued as regressive. The total number of SMS in the
Philippines in a year could be estimated as 600 billion in 2010. The revenue
raised by an excise of 10 centavos per text would be P60 billion," it added.
The IMF report also sought the removal of the income tax holidays and the
five percent tax on gross income earned (GIE) imposed on local companies "so as
to considerably cut the corporate income tax (CIT) rate to at least 25 percent."
It added another option for the government is a significant rationalization
of incentives.
It proposed changes in the granting of tax incentives such as limiting the
period for all incentives to no more than 10 years; providing only two rate
options—an income tax holiday followed by a 7.5 percent tax on gross income
earned (GIE), or simply the tax on GIE.
It added for existing recipients of tax incentives, the government should
allow time-bound incentives to expire, and phase out those that are not
time-bound, remove the value added tax (VAT) zero-rating for suppliers outside
the zones to exporters within the zones; reduce the list of Investment Priority
Plan activities eligible for incentives and include a sunset clause, of no more
than five years, for all incentive laws.
It also proposed other reforms to the corporate income tax (CIT) system that
could be made to better align the tax system with international practice such as
taxing capital gains on the sale of shares and real estate not used in the
company's business as ordinary income as is the case for other capital gains and
introducing transfer pricing and thin capitalization rules.
It noted the tax treatment of cooperatives in the Philippines is very
generous compared to international practice.
"While there is merit in encouraging these cooperatives, the current tax
exemptions place commercial businesses run through cooperatives at a competitive
advantage relative to other businesses, and may also be leading to unnecessary
revenue leakage," it noted.
Therefore, it is recommended that cooperatives be subject to CIT and VAT,
with distributions to members subject to withholding tax, the IMF said.
"As to small cooperatives, with turnover below the VAT threshold, the three
percent percentage tax or a de minimus rule
should be considered in order to reduce the administrative burden," the
report added.
It noted that many excise rates needed to be increased in order to recover
the lost revenue which amounts to 1.8 percent of GDP since 1997.
"This revenue loss is due to a lack of indexation of the specific taxes on
tobacco and alcohol products, use of old prices in classifying such products,
and reduction in excise on petroleum products," it added.
The report added it is desirable to index the rate schedule to inflation
accumulated since 1997 in order to retain the progressivity of the tax system in
the medium term and reduce the number of brackets to make the rate schedule
simpler.
"In the short term, broadening the lowest tax rate band to the income bracket
to which a 10 percent rate is currently applicable, would be appropriate to
mitigate partly the projected increase in the tax burden on low income taxpayers
caused by indexing excises as proposed by the DOF," it added.
It also proposed to limit the Optional Standard Deduction (OSD) to those
whose sales or receipts are less than the VAT threshold.
"While the OSD may reduce costs of the self-employed in calculating taxable
income, a VAT taxpayer has to calculate input credits based on invoices," it
said.
Thus, the compliance cost of VAT taxpayers will not change even if he or she
opted for the OSD. Alternatively, as the House Bill 3992 proposes, the amount of
standard deduction should be reduced to 20 percent or less, it said.
It also urged the aligment of the lower interest withholding tax rates on
Foreign Currency Deposit Units (FDCUs) and deposits with long maturity with the
standard interest withholding tax rate of 20 percent.
On taxes imposed on mining firms, the study said the existing fiscal regime
on mining operations can be characterized as a regime that levies a high royalty
rate of five percent royalty rate plus two percent excise.
"Also additional national and local government taxes and fees are not
conducive to the development of the mining industry as a source of growth. Thus,
the regime overlooks the basic design features of a progressive system that can
capture resource rents," it said.
In addition, the calculation of the net mining revenues (NMR) discriminates
against capital as capital charges are not included in the calculation of NMR.
"Even though the additional government share? is an attempt to tax resource
rent, it does not have the progressivity features of fiscal regimes used by many
countries to increase the government's take in excess profits," it said.
To design the mining taxation regime that fits the Philippines, further work
needs to be done by a specific tax policy mission on mining. The revenue impact
of various fiscal regimes should be estimated to determine the best choice of
mining fiscal regime for the Philippines, the IMF said. Chito Lozada
Initiate economic reforms, WB presses Noy gov't By
Michaela P. del Callar 03/20/2012
President Aquino must be prepared to undertake immediate and critical
economic reforms to meet his poverty reduction targets in the remaining four
years of his term, the World Bank (WB) yesterday said.
In its quarterly report, the WB noted that "reforms are urgently needed to
achieve higher growth to improve the lives of more poor Filipinos" as envisioned
in Aquino's Philippine Development Plan 2011-2016.
It said Manila should strengthen public finances and overall competitiveness
to attain rapid and sustained growth of above 5 percent in the decades to come.
This was the level of growth achieved by neighboring countries that led to
greater poverty reduction and improvement in the lives of the poor, the WB
added.
Although Philippine growth has been "generally higher" in the last decade,
poverty, inequality and unemployment lacked improvement.
More than a quarter of the Philippine population lives below the official
poverty threshold and half of the population are vulnerable to poverty, the WB
said.
The middle class remains small at about 15 percent of the population of which
about a third resides or works abroad. Inequality, on the other hand, has
worsened in the last decade and the quality of employment remains much weaker
relative to the country's potential and when compared to countries with similar
level of development.
To address these problems, the WB said the government must focus on several
key reform areas such as strengthening public financial management, increasing
tax revenues and enhancing competitiveness through stronger regulatory capacity.
Manila, it added, should also enhance competition by reducing the cost of
doing business, address infrastructure and service delivery bottlenecks, and
improve the skills of Filipino workers to make them more employable.
World Bank Country Director Motoo Konishi said the government must take
advantage of the "huge window of opportunity" that currently exists for speeding
up the much-needed critical reforms.
"It's an opportune time for the country to move up to the next level,"
Konishi said.
"Putting greater urgency into these efforts — as well as showing more support
from other stakeholders including the policymakers, implementers, civil society
and the private sector for these reforms — will go a long way in boosting growth
that benefits the poor," he said.
While the Philippines was spared from the backlash of global financial
crunch, it would have to drum up investments and increase public spending to
achieve the country's growth targets for 2012 and beyond, said Karl Kendrick
Chua, WB country economist and main author of the report.
Aquino has been criticized for underspending in the first two years of his
term, which caused slower economic growth and created a labor vacuum.
"Successful implementation of these reforms would allow the country to take
advantage of new opportunities arising from the global economic rebalancing and
attract more investments as multinational companies relocate to other countries
given rising production costs in China and other middle income countries," Chua
said.
Chua said "accelerating structural reforms to enhance global competitiveness
will improve the level and quality of employment in the country."
Higher spending, particularly on infrastructure, and the continued growth in
the business processing outsourcing (BPO) sector, would lead to high employment,
World Bank Lead Economist Rogier J. E. van den Brink said.
"Higher infrastructure spending is expected to create tens of thousands of
new jobs in the construction and trade sub-sectors while continuous growth of
the BPO industry is expected to generate 100,000 new jobs this year. However,
structural reforms are needed to create more and better jobs in the year ahead,"
Van den Brink said.
The WB underscored the importance and urgency of domestic job creation as the
global slowdown may affect employment prospects in the exports sector, in
particular electronics, which accounts for half a million jobs and several
hundreds of thousands in indirect jobs in suppliers of exporters and allied
services. The WB also foresees slower deployment of overseas Filipino workers.
In 2011, the economy grew by 3.7 percent owing to lower government spending
and weaker demand for the country's exports by the troubled economies of the
rich world, particularly Euro zone countries, Japan and the United States.
Chief News Editor: Sol
Jose Vanzi
© Copyright, 2012 by PHILIPPINE HEADLINE
NEWS ONLINE
All rights reserved
PHILIPPINE HEADLINE NEWS
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