WATCH | Senate OKs initial tax reform bundle on third and final reading

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MANILA – (UPDATED) On a vote of 17-1, the Senate on Tuesday passed on third and final reading an initial package that forms part of the Duterte Administration’s comprehensive tax reform initiative, also known as Tax Reform for Acceleration and Inclusion (TRAIN).

The first of up to five tax reform packages of the Duterte administration will be implemented starting 2018 in order to help finance an P8.44-trillion infrastructure development plan till 2022.

The senators who voted in favor of TRAIN are: Senate President Aquilino “Koko” Pimentel III, Senate President Pro Tempore Ralph Recto, Majority Leader Vicente “Tito” Sotto III, Minority Leader Franklin Drilon, Senators Grace Poe, Joel Villanueva, Senator Sonny Angara, who chairs the Senate ways and means committee; Francis Escudero, Cynthia Villar, Richard Gordon, Nancy Binay, Loren Legarda, JV Ejercito, Manny Pacquiao, Gringo Honasan, Sherwin Gatchalian, and Juan Miguel Zubiri.

Opposition Senator Risa Hontiveros voted against the measure. “I feel that not enough effort has been put into making sure that the TRAIN becomes more than just a tally of new revenue flows and another burdensome law to tax the people,” she said.

Hontiveros was dismayed by the thumbing down of her bid to lower value added tax from 12 to 10 percent, something she said would be offset by the reduction in the list of VAT-exempted entities. The non-binding nature and the reduction of the so-called earmarks – money allocated for social protection – also disappointed her.

“I am also disheartened by notions that the safety nets and mitigating measures in TRAIN might be treated as mere suggestions by the Executive. It is unfortunate that the amendments that I and some of my fellow Senators sought to introduce to strengthen the safety net procedures didn’t seem to warrant collegial deliberations. The lowering of the VAT rate was my bottomline. The non-expansion, worse, the lowering of earmarks meant for social protection programs was the deal breaker,” Hontiveros said.

Income tax exemption

This Senate version of TRAIN exempts individuals earning an annual income of P250,000 and below from paying income tax.

This corresponds to an estimated 90 percent of the country’s taxpayers, according to the main sponsor, Sen. Juan Edgardo Angara, chairman of the ways and means committee.

To compensate, a package of additional and excise taxes is envisioned to enhance the country’s revenue picture.

In one of its last amendments, SB 1592 added a provision that doubles the excise tax rate for non-metallic minerals and quarry resources to four percent from two percent currently. “Excise tax rates on metallic and non-metallic minerals and quarry resources were last amended through Republic Act No. 7729 of 1994,” read a brief provided by Mr. Angara’s office.

In the wake of news of this latest amendment, introduced last Monday night, the mining and oil sectoral index performed the worst among the Philippine Stock Exchange’s (PSE) six sub-indices, dropping 615.65 points or 5.07% to 11,526.59.

SB 1592 already also increases the coal excise tax from P10 per metric ton (/MT) currently to P100/MT in the first year of implementation, P200/MT in the second year and P300/MT starting the third year.

Ronald S. Recidoro, executive director of the Chamber of Mines of the Philippines, said in a telephone interview that he “cannot comment yet” as the group has yet to study the final version.

Other tax changes

SB 1592 also doubles prevailing documentary stamp tax rates on bank checks (to P3 from P1.50), sale or transfer of shares of stock (to P1.50 from P0.75), certificate of profit or interest in property transactions (to P1 from P0.50); increases the final tax on foreign currency deposit units to 15% from 7.5% and the capital gains tax for stocks not traded on the PSE to 15% from 5% or 10% currently; and imposes a 10% excise tax on cosmetic procedures “and body enhancements undertaken for aesthetic reasons”.

The donor’s and estate tax systems will also be simplified, with current rates reduced to a flat six percent of net donations for gifts exceeding P250,000 in value and of net value of estate, respectively.

Those add to lower personal income tax rates, whose projected foregone revenues will be offset by bigger collections from reduced value added tax exemptions, higher excise taxes on cars and on oil products, as well as an excise levy on sugar-sweetened drinks except milk, coffee as well as fruit and vegetable juice.

SB 1592’s approved version cuts to P130 billion projected revenues for the first year of implementation from P159.5 billion just last week, as well as compares to HB 5636’s P119.4 billion and the DoF proposal’s P149.6 billion.

Battle shifts to bicameral conference panel

The two chambers of Congress will then designate their respective panels in the bicameral conference committee to thresh out the differences in the versions of the House of Representatives and the Senate.

Here, Senate Minority Leader Franklin Drilon sees a tough battle for TRAIN, as lawmakers have to reconcile rather serious differences between the versions of the two chambers in certain key provisions.

The House of Representatives had earlier approved its version, House Bill No. 5636, on March 31 after that measure was filed in the chamber in January. The Finance department (DoF) submitted its draft to Congress in September last year. – With Arjay L. Balinbin, BusinessWorld