Updated 11:03 AM PHT Wed, March 22, 2017
Metro Manila (CNN Philippines) — The tax reforms proposed by the Duterte administration will benefit the economy, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco said.
"We've done our own studies on the potential impact of the proposed tax reforms, and the results of our studies show that on balance, overall, on the medium term, there will be a... net benefit for the economy," Tetangco told CNN Philippines' "The Source" on Tuesday.
Tax reforms were necessary now. "I think the better option is to implement the tax reforms that are being proposed by the government," he said.
The Tax Reform for Acceleration and Inclusion bill, the first of four tax reform packages sponsored by the Department of Finance, is pending before the House of Representatives' Ways and Means Committee.
The proposed bill, filed by Represenative Dakila Carlo Cua in coordination with the Finance Department, exempts taxpayers earning P250, 000 and below from paying personal income tax. They comprise 83 percent or eight in 10 taxpaying Filipinos.
The maximum tax rate will also be cut from 32 percent to 25 percent, except for high-income earners, or those who earn more than P800, 000.
The proposed reductions in taxes are expected to cost the government up to P139.6 billion. To make up for the loss in revenues, the government plans to raise excise tax on cars and fuels.
Tetangco agrees this is the best way to sustain the country's financial operation and fiscal health.
"[Y]ou've got to maintain fiscal discipline also. That's important," Tetangco said.
"We look at the entire package, because there are elements of the tax reform program that would tend to offset the impact of the other, in certain cases," he added.
Should the tax reform bill be enacted, tax on unleaded gasoline and aviation turbo fuel will rise from P4.35 to P7 beginning July 1. It will go up to P9 in 2018 and to P10 in 2019.
Previously untaxed kerosene, diesel, and LPG will then have an excise tax of P3 beginning this year, P5 in 2018 and P6 in 2019.
Meanwhile taxes for cars will also increase from 2 to 4 percent for those with a net manufacturing or importation price of up to P600,000.
Tetangco has headed the BSP for nearly 12 years. He is recognized as one of Asia's best central bankers.
He is set to leave his post this July.
President Rodrigo Duterte previously said he was considering giving Tetangco an unprecedented third term as central bank governor - but that move would require Congress to amend the BSP's charter.
CNN Philippines' Regine Cabato contributed to this report.