DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Tax Reform for
Acceleration and Inclusion
Revised package 1
As of January 30, 2017 3:02 PM
(Full presentation)
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Vision for the Philippines
By 2022 (6 years from now)
o Poverty rate reduced from 21.6 to 14% (or some 6 million
Filipinos uplifted from poverty).
o Law abiding country.
o Peace within the country and with our neighbors.
o Achieve high-middle income status, where per capita gross
national income (GNI) increases from USD 3,500 to at least
China are today).
By 2040 (24 years or one generation from now)
o Extreme poverty eradicated.
o Inclusive economic and political institutions where everyone
has equal opportunities.
o Achieve high income status, where per capita GNI increases
(where Malaysia and South Korea are today).
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
How to achieve the vision
Over the long-term, all these investments require additional funds of around 1
trillion pesos per year in 2016 prices on top of the current 1.7 trillion pesos.
Over the medium term, the government will need to raise some 366 billion per
year between 2016 and 2022 (or 2.2 trillion pesos in total).
Source: Department of Budget and Management
This can be sustainably achieved through tax reform, which is integral to the
larger goals of the administration and crucial for achieving the vision of a
prosperous country.
In addition, complementary economic reforms are crucial: secure property
rights, enhance competition, improve food security, and simplify regulations.
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
In summary, tax reform is needed to
fund the ten-point socioeconomic agenda
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Expanding the VAT base by
limiting exemptions
The following exemptions will be removed, unless sold by firms
whose gross sales fall below the VAT threshold:
o
o
o
o
o
o
o
Exemptions found in special laws, except senior citizens and PWDs
Cooperatives, except those selling raw agriculture produce.
Low cost and socialized housing.
Lease of residential units.
Power transmission (replace the franchise tax with VAT).
Domestic shipping importation.
Boy scouts and girl scouts.
Limit the VAT zero-rating to direct exporters who actually export
goods out of the country. This will be implemented together with the
VAT refund starting in 2018. Remove the following zero-ratings:
o Indirect exporters and agents.
o Move renewable energy from zero-rated to exempt.
Low-income and vulnerable households will be protected through a higher
VAT threshold of 3 million pesos (i.e., business with gross sales below 3
million pesos, such as sari-sari stores, will be exempt from VAT) and targeted
transfers to poor and vulnerable households.
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Oil excise rates
Pesos per liter 2017 H1
Diesel and
essentials
Gas and
nonessentials
Excise rates
2017 H2
2018
2019
2020
0.00
3.00
5.00
6.00
6.24
4.35
7.00
9.00
10.00
10.40
Annual indexation of 4% starting 2020, except if Dubai crude exceeds $100/barrel
Pump price (USD 53.72 per barrel)
Pesos per liter 2017 H1
2017 H2
2018
2019
2020
Diesel
32
35
37
38
38.24
Gas
46
53
55
56
56.40
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Auto excise rates
Net manufacturing/
importation price in
pesos
Up to 600,000
Over 600,000 to 1.1
Million
Over 1.1 M to 2.1 M
Over 2.1 M
Current (in pesos)
Proposed
2%
4%
12,000 + 20% in
excess of 600,000
24,000 + 40% in
excess of 600,000
112,000 + 40% in
excess of 1.1 M
512,000 + 60% in
excess of 2.1 M
224,000 + 100% in
excess of 1.1 M
1,224,000 + 200%
in excess of 2.1 M
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
High end revenue impact in 2018
(PHP billion and percent of GDP)
Tax package
Package 1: PIT and consumption
Lower personal income tax rate
Estate and donor tax
VAT base expansion
Automobile excise
Excise tax on petroleum
Complementary revenues
Loss
-139.6
-137.9
-1.7
Tax package
Package 1: PIT and consumption
Lower personal income tax rate
Estate and donor tax
VAT base expansion
Automobile excise
Excise tax on petroleum
Complementary revenues
Loss
-0.8
-0.8
0.0
Gain
302.1
Net
162.5
92.5
31.4
120.9
57.4
Gain
1.7
Net
0.9
0.5
0.2
0.7
0.3
Subject the change based on updated data
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Gains from the lower PIT regime are more than enough
to offset additional expenses from higher oil prices, car
loan payments, and inflation.
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Protecting the poor and
low income Filipinos: VAT
VAT threshold for marginal establishment can be
increased from 1.9 to around 3 million pesos, thereby
exempting their goods from VAT.
o Cooperatives below the threshold will still be exempt
o Raw agricultural products will continue to be VAT exempt.
Higher oil excise: targeted transfers, pantawid pasada,
and jeep modernization.
To use the tax system to protect the poor and low
income earners results into massive leakages.
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Combined tax-transfer effect*
Targeted transfers will be crucial in protecting the poor from
shocks and can help improve the progressivity of the tax reform.
Combined effect
Decile/
percentile
Description
Package 1 change in annual take home pay (in pesos)
2018 projected
monthly
household
total income*
Personal
income tax
Valueadded
tax
Petrol and
transportation
Automobile**
Net tax
Inflationary
due
effect***
Change in
Change in Transfer
take home
take home
(full
pay after
pay
year)
transfer
D1
Subsistence poor
5,233
2
(374)
(160)
(532)
(522)
(1,054)
3,600
2,546
D2
Subsistence poor
8,362
86
(438)
(251)
(603)
(797)
(1,400)
3,600
2,200
D3
D4
Poor
Near poor
10,741
13,076
400
1,051
(502)
(601)
(339)
(427)
(441)
23
(950)
(1,093)
(1,391)
(1,070)
3,600
3,600
2,209
2,530
D5
Near poor
15,826
2,281
(766)
(557)
958
(1,263)
(305)
3,600
3,295
D6
Informal worker
19,375
3,924
(1,025)
(695)
2,204
(1,434)
771
1,500
2,271
D7
Minimum wage worker
24,502
7,364
(1,981)
(904)
4,479
(1,667)
2,811
1,500
4,311
D8
Above minimum wage
32,482
14,010
(3,930)
(1,183)
8,898
(1,988)
6,910
1,500
D9
Professional
47,424
26,774
(6,090)
(1,673)
(1,701)
17,310
(2,458)
14,852
14,852
26,515
8,410
D10
Middle class
112,781
56,187
(12,011)
(4,316)
(9,029)
30,831
(4,316)
26,515
P100
Executive
287,685
75,555
(23,288)
(9,150)
(27,710)
15,406
(6,382)
9,024
9,024
T1000
CEO
626,703
(34,637)
(30,821)
(10,674)
(177,841)
(253,973)
(8,022)
(261,995)
(261,995)
Top taxpayer A
1,376,147
(325,459)
(67,679)
(23,438)
(517,932)
(934,507)
(14,720)
(949,227)
(949,227)
Top taxpayer B
2,752,294
(862,156)
(135,358)
(46,876)
(517,932)
(1,562,321)
(22,080)
(1,584,401)
(1,584,401)
Source: DOF staff estimates using 2015 Family Income and Expenditure Survey
& January 2016 Labor Force Survey
Notes:
Each household has about two income earners
* Total household income includes compensation income, income from entrepreneurial activities (i.e. businesses), and other sources of income (i.e. cash transfers)
**Automobile excise tax impact were computed using 2016 prices
***The inflationary effect was computed as a function of income, MPC, and estimates on the price effect of the increased oil excise on food.
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
After the tax-transfer reform,
the poor benefits the most.
% increase in household income
5%
4.1%
3%
2.2% 1.7% 1.6% 1.7%
1%
1.0% 1.5%
2.2% 2.6% 2.0%
0.3%
-1%
-3%
-3.5%
-5%
-5.7%
-7%
-4.8%
*based on FIES 2015 data
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Price effect of excise on inflation
2017 H2 to 2018
Commodity
Share
of CPI
(%)
Food
Transportation
6
Electricity
Others
Total
Share of
petroleum
CPI
products
2015
as input
(%) 1
Net impact of excise to prices
(%)2,3
Diesel Gasoline LPG Kerosene
Inflation
rate (%)4,5
159
10
1.9
1.2
1
14
16
129
30
5.7
3.5
4
2
8
1.3
0.8
0.8
0
1
1.2
0.7
0.7
0.9
0
131
51
131
100
141
6
1.5
Notes:
1. Transportation share is the daily average of jeepney and bus operation in Metro Manila based on the National Tax Research Center computation. Electricity
Diesel
18.6%
share is based on the Department of Energy power statistics.
Gasoline
11.2%
2. The net impact of the excise is obtained by multiplying the share of oil as input and the price increase as a result of the excise.
LPG
10.5%
Kerosene
13.3%
3. Below is the increase in the price of the petro products as a result of an increase in excise tax using the prevailing
Diesel
64.5%
petro prices in Metro Manila as of Dec. 13
Gas
29.4%
4. Weighted net impact of the increase in excise tax on each commodity computed based on weights below using HECS 2011
LPG
4.7%
Kerosene
1.3%
5. Overall inflation computed from the weighted average of commodity inflation based on the share of CPI
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
A comparison
RVAT 2005 and oil price shock 2011:
We survived and became much stronger.
VAT reform
Indicator
Oil price shock
2004
2005
2006
2010
2011
2012
Effective VAT rate
0
10
12
12
12
12
Dubai crude (US dollars)
34
49
61
78
106
109
GDP growth
6.7
4.8
5.2
7.6
3.7
6.7
Consumption
6.0
4.4
4.2
3.4
5.6
6.6
Overall Inflation
4.8
6.5
5.5
3.8
4.6
3.2
Food inflation
6.0
6.4
5.2
4.0
5.5
2.4
Transport inflation
11.5
16.8
10.7
3.7
6.0
2.3
Electricity inflation
3.8
7.5
5.9
5.1
5.2
4.6
Gasoline (in pesos)
20.1
26.5
30.0
35.5
48.1
48.6
Diesel (in pesos)
18.0
25.9
30.2
31.4
41.3
41.7
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Cars increase every year
despite oil price fluctuations
70
2
1.8
60
1.6
1.4
1.2
40
1
30
0.8
Millions
PHP
50
0.6
20
0.4
10
0.2
0
0
Unleaded pump price (LHS)
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Diesel pump price (LHS)
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New car registrations (RHS)
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