Government backs down on plan to tax senior citizens amid uproar

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  • Higher taxes on tobacco, alcohol and fuel pushed instead
  • No lower income taxes until other measures passed - DOF

Metro Manila (CNN Philippines) — The Duterte administration is backing down from its plan to scrap senior citizen discounts after it was met with fierce opposition from both taxpayers and lawmakers.

Instead, the Department of Finance (DoF) aims to raise revenues through higher taxes on tobacco, alcohol and petroleum products.

"What the legislators have told us is that for us to recompute. Maybe if we could increase sin tax or index the oil excise tax, then maybe we don't need to remove the 12% exemption for senior citizens," Finance Spokesperson Paola Alvarez told CNN Philippines on Thursday.

Read: Gov't asks for 'small sacrifice' from senior citizens

The DoF had initially hoped to limit the value-added tax (VAT) exemptions of senior citizens to basic necessities like raw food, medicine and education. All other discounts -- which cover hotel, restaurant, entertainment and burial expenses -- would be removed.

The proposal, as expected, was poorly received. But the DoF is hard-pressed to find other sources of revenues, as it aims to lower the personal income tax rate to 25% from 32%. The income tax cut is estimated to cost the government about P170 billion.

"Our priority is to make up that loss by expanding the VAT base and removing exemptions," Alvarez said.

"But based on our discussions from lawmakers, that is their last option. They want us to explore other measures that will raise revenues without hitting consumers hard."

The DoF is now setting its sights on hiking excise taxes, which are levied on sin products and petroleum products.

The sin tax increase will build on the previous increase in 2013. It aims to discourage drinking and smoking, with revenues going to a fund for Philhealth.

Watch: Government to push for higher sin, petroleum taxes

Petroleum taxes, meanwhile, will be raised for the first time since 1997. The rates will be adjusted to account for the change in prices in the last 20 years.

"We still expect opposition for these measures, especially from businesses and industry groups," Alvarez said.

"But it will be a weighing game, I guess. If we really want the personal income tax lowered, then we will have to increase other taxes."

The DoF will bundle the three measures together when it passes the bill to Congress: lower personal income taxes, higher excise taxes on sin and petroleum products.

One cannot be passed without the other, Alvarez emphasized. The Duterte administration has repeatedly assured investors and credit raters it wouldn't let revenue collections slip despite championing income tax reform.

"Some legislators could be hesitant about raising any kind of tax. But I think once we show them the numbers, the losses we'll get and the projects we'll be unable to fund, then I think they will support us," she said.

However, with the change of strategy, the DoF is still working on the tax reform package it will submit to Congress. It had initially planned to file the bill this month, but the DoF spokesperson admitted the date would be pushed back to end-2016 or early 2017 instead.

Read: Government won't spend beyond its means - Dominguez