Senate OKs tax reform bill on final reading

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Metro Manila (CNN Philippines, November 28) — The Senate has approved on third and final reading its version of the tax reform package that will fund government infrastructure projects and reduce income tax rates for roughly 99 percent of taxpayers.

The bill also raises prices of consumer goods such as sweetened beverages, fuel, and Liquefied petroleum gas (LPG).

Voting, 17-1, the  Senate passed Senate Bill 1592, also known as Tax Reform for Acceleration and Inclusion (TRAIN), on second and third reading on Tuesday.

TRAIN is the first package of the comprehensive tax reform program spearheaded by the Duterte administration. Its goal is to create a more just, simple, and more effective system of tax collection.

Under the Senate version of the package, taxpayers with an income of 250,000 and below annually will be tax-exempt starting 2018. This includes self-employed individuals and professionals.

The House of Representatives' version of the tax reform package also has a tax exemption ceiling of 250,000.

"Sa kasaysayan ng pagbubuwis sa bansa, ito na ang pinakamalaking income tax relief na maipagkakaloob natin sa mga manggagawa," bill sponsor and Senate Ways and Means Committee Sen. Sonny Angara said.

[Translation: This is the biggest income tax relief we've given to workers in the country's history of taxation.]

This translates to income tax exemptions for those earning approximately 21,000 or less per month.

Under the current tax scheme, a taxpayer earning 250,000 per year pays an income tax of 50,000 annually.

Senate estimates the bill will spare 6.8 million of 7.5 million individual income taxpayers from paying taxes. This is more than triple the 2 million minimum wage earners currently exempt from tax.

Aside from exempting millions from income taxes, the new scheme will also lower income tax rates for those earning P2 million and below.

It will retain rates for taxpayers earning more than P2 million but not over P8 million, and increase by three percentage points tax rates for those with incomes above P8 million.

The bill also retained the P82,000 tax exemption for 13th month pay and other bonuses.

Angara said the tax reform would "put more money in the pockets of Filipinos."

"Gusto nating gawing patas ang ating income tax system na naging hindi makatarungan sa pagdaan ng panahon," he said.

(Translation: We want to make our income tax system fair because it became inequitable with the passing of time.)

3-in1 coffee, milk exempted from tax

The Senate TRAIN bill also outlined provisions --including some exemptions-- for the government's proposed tax on sweetened beverages.

Under Senate's tax reform bill, all kinds of milk are tax-exempt given their nutritional value. Three-in-one coffee is also exempt from taxes, as Senators say most of its consumers are low income earners.

Other beverages excluded from tax include natural fruit and vegetable juices, unsweetened tea and sweetened beverages that use coco sugar and stevia. 

Meanwhile, beverages using caloric and non-caloric sweeteners will be taxed at P4.50 per liter and beverages using high fructose corn syrup at P9 per liter.

This differs from the Lower House's proposed P10 per liter tax for beverages using local sugar, and P20 per liter tax for those using other sweeteners, as Senate said this would violate an international trade rule that bars taxing imported products at higher rates to favor local products.

LPG, fuel taxes, additional taxes

Kerosene is likewise excluded from excise tax, as some 3 million households in far-flung areas use it as fuel for cooking and lighting.

However, the Senate has levied taxes over other fuels and products.

The Senate spread the P3 rate increase for Liquefied petroleum gas (LPG), which is used for cooking, over three years. This will result in a 1 peso per year increase from 2018 to 2020.

Meanwhile, the proposed P6 increase in diesel and bunker fuel will be collected in 3 tranches - P1.75 next year, P2 in 2019 and P2.25 in 2020. Diesel and bunker fuel oil are mostly used for transportation.

The Senate also modified existing automobile excise taxes in favor of a simpler two-tier scheme. It said only 80 percent of Filipino households own cars.

Under the new scheme, cars priced up to P1 million will be charged 10 percent tax, while those worth more than 1 million will now be taxed at a 20 percent rate.

The TRAIN bill will also increase coal excise tax from P10 per metric ton to P300 per metric ton in a span of three years. The increase will be in increments of P100, starting from P100 in 2018.

Meanwhile, cosmetic procedures done for aesthetic purposes will be levied with a 10 percent tax.

The excise tax rates for all non-metallic minerals and quarry resources, and all metallic minerals were also raised from the current 2 percent to 4 percent.

VAT exemptions

The TRAIN bill, however, exempts small businesses with total annual sales of 3 million pesos and below from VAT. This, as small and micro businesses represent 98 percent of all registered businesses in the country.

VAT exemptions for raw food or agricultural products, health and education, as well as of senior citizens, Persons with Disability (PWDs), business process outsourcing (BPOs), and cooperatives will be retained.

The sale of prescription drugs and medicines will be VAT-free for all. 

"Alam naman natin na pag nagkasakit ang isang tao, minsan talagang nababangkarote ang buong pamilya... Palagay ko, kapag binawasan mo ng 12 percent VAT, ang laking ginhawa," Angara said in an interview before the readings.

(Translation: We know that when someone gets sick, families can get bankrupt… I believe reducing the 12 percent VAT will be a huge help to them.)

Mass housing projects that are worth 2 million pesos and below located outside of Metro Manila will also continue to enjoy VAT exemption.

Revenue to go to infrastructure, social protection, military

Following its approval in the Senate, the TRAIN bill is set to be tackled by the Senate and the House of Representatives in the bicameral conference committee.

According to Senate Minority Leader Frank Drilon, this may be the "real battleground" as lawmakers tackle contentious provisions of the bill.

This includes differing Senate and House provisions on petroleum, automobile, and sweetened beverage taxes, among others.

Critics of the tax reform program have also expressed concern it may burden the poor due to additional taxes on goods.

The Finance Department estimates the government can generate up to P130 billion additional revenue from the Senate's version of TRAIN.

This revenue is pegged to fund government projects-- especially the administration's ambitious "Build, build, build" program, which is forecast to spend up to P9 trillion for infrastructure projects till 2022.

Under the Senate bill, revenue generated from the tax reform will be allocated to infrastructure programs (60 percent), social protection programs (27 percent) and military modernization programs (13 percent).

Senate President Koko Pimentel said the tax reforms are necessary to fund long-term investments by the government.

"Like any investments, we must look beyond the short-term challenges this measure poses and focus on the significant, tangible, and long-termbenefits that countless Filipinos today, and in the future, will enjoy," the Senate President said.