DAVAO CITY (MindaNews / 22 May) – Finance Secretary Carlos G. Dominguez said the inflation rate was unfairly blamed on the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law and maintained that the spike can be partly attributed to the rapid expansion of the economy.
“By our estimates, fully two-thirds of last April’s 4.5-percent inflation rate is typical of a rapidly expanding economy,” Dominguez said in his speech during the First Congressional Hearing on the Package 2 of the tax reform on Tuesday.
The finance chief explained that the spike could also be attributed to the sharp increases in key imported commodities like oil, realignment of currency exchange rates, and robust increase in domestic demand.
He said the implementation of package 1 of TRAIN contributes only “four-tenths of a percent to the inflation rate,” explaining that for “every additional peso our people have to spend, only 9 centavos can be attributed to TRAIN.”
But Dominguez said the inflationary effect of TRAIN is expected to diminish over the next few months.
Dominguez noted that tobacco and sugary beverages were the products heavily affected by TRAIN but he explained that tax rate for these products are intentionally “punitive to improve the health of Filipinos.”
He said the TRAIN’s package 1, which was the first time the country’s economic managers pursued tax reforms in the absence of any compelling crisis, brought immediate relief to 99 percent of wage earners in the form of personal income tax rate reductions amounting to P12 billion a month.
He added target collections in the first quarter for the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) have already been surpassed while the law continues the fiscal consolidation that results in a succession of credit rating upgrades.
“With everyone’s continued support of the comprehensive tax reform program, we expect to be upgraded once more in the coming rating periods. This massive fiscal reform can only be good for our country’s economic growth prospects, which would translate into better lives for each Filipino,” Dominguez said.
He said the improved revenue flow would enable the country to fund more infrastructure program, education, and health care. It will also support the Conditional Cash Transfer (CCT) program of the government for the poor Filipinos.
“The general economic strategy we are pursuing, after all, has the final goal of reducing poverty dramatically over the next few years,” he added.
Dominguez added that the TRAIN’s package 2 “aspires to build a more competitive and transparent business environment” by rationalizing incentive systems to reduce overlaps, hidden subsidies that benefit a few, and loopholes that unfairly distribute business advantages.
He said the government wants to effect reforms to deliver a more even playing field, simplify collection procedures, bring greater transparency, and reward genuine efficiency.
Dominguez also discussed structural defects that hinder the country from attracting direct investments, which included, among others, the corporate income tax rate, the highest in the ASEAN region, and complicated tax system.
Under package 2, he said they seek to lower corporate income tax rates while modernizing the fiscal incentives regime; propose tax code amendments to improve tax compliance and harmonize all incentives through the Fiscal Incentives Review Board and improvements in the Tax Incentives Management and Transparency Act (TIMTA) Law to ensure transparency and accountability of incentives; harmonize the incentives regime by proposing amendment or repeal of 123 special laws on investment incentives and consolidate them into one omnibus incentive code or strategic investment priority plan.
Dominguez said they will also address the disparity between enterprises operating under the standard rate and those enjoying incentives; and propose that value added tax (VAT) be treated purely as a consumption tax in accordance with international best practices. (Antonio L. Colina IV / MindaNews)