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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. Tax Reform for Acceleration and Inclusion Revised package 1 As

Tax Reform for Acceleration and Inclusion

Revised package 1

As of January 30, 2017 3:02 PM

(Full presentation)

TO CHANGE. Tax Reform for Acceleration and Inclusion Revised package 1 As of January 30, 2017
1 As of January 30, 2017 3:02 PM (Full presentation) DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

Vision for the Philippines

By 2022 (6 years from now)DISCUSSION. SUBJECT TO CHANGE. Vision for the Philippines o Poverty rate reduced from 21.6 to 14%

o

Poverty rate reduced from 21.6 to 14% (or some 6 million Filipinos uplifted from poverty).

o

Law abiding country.

o

Peace within the country and with our neighbors.

o

Achieve high-middle income status, where per capita gross national income (GNI) increases from USD 3,500 to at least

China are today).

China are today).

By 2040 (24 years or one generation from now)increases from USD 3,500 to at least China are today). o Extreme poverty eradicated. o Inclusive

o

Extreme poverty eradicated.

o

Inclusive economic and political institutions where everyone has equal opportunities.

o

Achieve high income status, where per capita GNI increases

(where Malaysia and South Korea are today).

(where Malaysia and South Korea are today).

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. How to achieve the vision Over the long-term, all

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

How to achieve the vision

Over the long-term, all these investments require additional funds of around 1 trillion pesos per year in 2016 prices on top of the current 1.7 trillion pesos.FOR DISCUSSION. SUBJECT TO CHANGE. How to achieve the vision Over the medium term, the government

Over the medium term, the government will need to raise some 366 billion per year between 2016 and 2022 (or 2.2 trillion pesos in total).in 2016 prices on top of the current 1.7 trillion pesos. Source: Department of Budget and

year between 2016 and 2022 (or 2.2 trillion pesos in total). Source: Department of Budget and

Source: Department of Budget and Management

This can be sustainably achieved through tax reform, which is integral to the larger goals of the administration and crucial for achieving the vision of a prosperous country.pesos in total). Source: Department of Budget and Management In addition, complementary economic reforms are crucial:

In addition, complementary economic reforms are crucial: secure property rights, enhance competition, improve food security, and simplify regulations.which is integral to the larger goals of the administration and crucial for achieving the vision

reforms are crucial: secure property rights, enhance competition, improve food security, and simplify regulations.
reforms are crucial: secure property rights, enhance competition, improve food security, and simplify regulations.
reforms are crucial: secure property rights, enhance competition, improve food security, and simplify regulations.
reforms are crucial: secure property rights, enhance competition, improve food security, and simplify regulations.
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. In summary, tax reform is needed to fund the
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. In summary, tax reform is needed to fund the
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. In summary, tax reform is needed to fund the
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. In summary, tax reform is needed to fund the

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

In summary, tax reform is needed to fund the ten-point socioeconomic agenda

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. In summary, tax reform is needed to fund the ten-point
1/30/2017 DEPARTMENT OF FINANCE 29 1/30/2017 DEPARTMENT OF FINANCE 30

1/30/2017

DEPARTMENT OF FINANCE

29

1/30/2017 DEPARTMENT OF FINANCE 29 1/30/2017 DEPARTMENT OF FINANCE 30

1/30/2017

DEPARTMENT OF FINANCE

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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. 1/30/2017 DEPARTMENT OF FINANCE 35
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. 1/30/2017 DEPARTMENT OF FINANCE 35
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. 1/30/2017 DEPARTMENT OF FINANCE 35

1/30/2017

DEPARTMENT OF FINANCE

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1/30/2017 DEPARTMENT OF FINANCE 36 Expanding the VAT base by limiting exemptions The following exemptions

1/30/2017

DEPARTMENT OF FINANCE

36

1/30/2017 DEPARTMENT OF FINANCE 36 Expanding the VAT base by limiting exemptions The following exemptions will

Expanding the VAT base by limiting exemptions

The following exemptions will be removed , unless sold by firms whose gross sales fall below the exemptions will be removed, unless sold by firms whose gross sales fall below the VAT threshold:

o

Exemptions found in special laws, except senior citizens and PWDs

o

Cooperatives, except those selling raw agriculture produce.

o

Low cost and socialized housing.

o

Lease of residential units.

o

Power transmission (replace the franchise tax with VAT).

o

Domestic shipping importation.

o

Boy scouts and girl scouts.

Limit the VAT zero-rating to direct exporters who actually export goods out of the country. This will be implemented together with the who actually export goods out of the country. This will be implemented together with the VAT refund starting in 2018. Remove the following zero-ratings:

o

Indirect exporters and agents.

o

Move renewable energy from zero-rated to exempt.

Low-income and vulnerable households will be protected through a higher VAT threshold of 3 million pesos (i.e., business with gross sales below 3 a higher VAT threshold of 3 million pesos (i.e., business with gross sales below 3 million pesos, such as sari-sari stores, will be exempt from VAT) and targeted transfers to poor and vulnerable households.

Oil excise rates   Excise rates   Pesos per liter 2017 H1 2017 H2 2018

Oil excise rates

 

Excise rates

 

Pesos per liter

2017

H1

2017

H2

2018

2019

2020

Diesel and

0.00

3.00

5.00

6.00

6.24

essentials

Gas and nonessentials

4.35

7.00

9.00

10.00

10.40

Annual indexation of 4% starting 2020, except if Dubai crude exceeds $100/barrel

 

Pump price (USD 53.72 per barrel)

 

Pesos per liter

2017

H1

2017

H2

2018

2019

2020

Diesel

32

35

37

38

38.24

Gas

46

53

55

56

56.40

Diesel 32 35 37 38 38.24 Gas 46 53 55 56 56.40 1/30/2017 DEPARTMENT OF FINANCE
Diesel 32 35 37 38 38.24 Gas 46 53 55 56 56.40 1/30/2017 DEPARTMENT OF FINANCE

1/30/2017

DEPARTMENT OF FINANCE

39

Auto excise rates Net manufacturing/ importation price in pesos Current (in pesos) Proposed Up to

Auto excise rates

Net manufacturing/ importation price in pesos

Current (in pesos)

Proposed

Up to 600,000

2%

4%

Over 600,000 to 1.1 Million

12,000 + 20% in excess of 600,000

24,000 + 40% in excess of 600,000

Over 1.1 M to 2.1 M

112,000 + 40% in excess of 1.1 M

224,000 + 100% in excess of 1.1 M

Over 2.1 M

512,000 + 60% in excess of 2.1 M

1,224,000 + 200% in excess of 2.1 M

2.1 M 512,000 + 60% in excess of 2.1 M 1,224,000 + 200% in excess of
2.1 M 512,000 + 60% in excess of 2.1 M 1,224,000 + 200% in excess of

1/30/2017

DEPARTMENT OF FINANCE

41

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. High end revenue impact in 2018 (PHP billion and

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

High end revenue impact in 2018 (PHP billion and percent of GDP)

Tax package

Loss

Gain

Net

Package 1: PIT and consumption Lower personal income tax rate Estate and donor tax VAT base expansion Automobile excise Excise tax on petroleum Complementary revenues

-139.6

302.1

162.5

-137.9

-1.7

 

92.5

31.4

120.9

57.4

Tax package

Loss

Gain

Net

Package 1: PIT and consumption Lower personal income tax rate Estate and donor tax VAT base expansion Automobile excise Excise tax on petroleum Complementary revenues

-0.8

1.7

0.9

-0.8

0.0

 

0.5

0.2

0.7

0.3

Subject the change based on updated data

0.2 0.7 0.3 Subject the change based on updated data Gains from the lower PIT regime
0.2 0.7 0.3 Subject the change based on updated data Gains from the lower PIT regime

Gains from the lower PIT regime are more than enough

to offset additional expenses from higher oil prices, car loan payments, and inflation.

PIT regime are more than enough to offset additional expenses from higher oil prices, car loan
PIT regime are more than enough to offset additional expenses from higher oil prices, car loan
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. Protecting the poor and low income Filipinos: VAT VAT

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

Protecting the poor and low income Filipinos: VAT

VAT threshold for marginal establishment can be increased from 1.9 to around 3 million pesos, thereby exempting for marginal establishment can be increased from 1.9 to around 3 million pesos, thereby exempting their goods from VAT.

o

Cooperatives below the threshold will still be exempt

o

Raw agricultural products will continue to be VAT exempt.

Higher oil excise: targeted transfers, pantawid pasada, and jeep modernization. targeted transfers, pantawid pasada, and jeep modernization.

To use the tax system to protect the poor and low income earners results into massive leakages.

poor and low income earners results into massive leakages. DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. Combined

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

Combined tax-transfer effect*

Targeted transfers will be crucial in protecting the poor from shocks and can help improve the progressivity of the tax reform.

 

Combined effect

Package 1 change in annual take home pay (in pesos)

     

Decile/

percentile Description

2018 projected

monthly

Personal

Value-

added

Petrol and

Automobile**

Net tax

Inflationary

Change in

take home

   

Transfer

(full

Change in

take home

household

income tax

transportation

due

effect***

pay after

 

total income*

tax

pay

 

year)

transfer

D1

Subsistence poor

5,233

2

(374)

(160)

 

(532)

(522)

(1,054)

3,600

2,546

D2

Subsistence poor

8,362

86

(438)

(251)

(603)

(797)

(1,400)

3,600

2,200

D3

Poor

10,741

400

(502)

(339)

(441)

(950)

(1,391)

3,600

2,209

D4

Near poor

13,076

1,051

(601)

(427)

23

(1,093)

(1,070)

3,600

2,530

D5

Near poor

15,826

2,281

(766)

(557)

958

(1,263)

(305)

3,600

3,295

D6

Informal worker

19,375

3,924

(1,025)

(695)

 

2,204

(1,434)

771

1,500

2,271

D7

Minimum wage worker

24,502

7,364

(1,981)

(904)

4,479

(1,667)

2,811

1,500

4,311

D8

Above minimum wage

32,482

14,010

(3,930)

(1,183)

8,898

(1,988)

6,910

1,500

8,410

D9

Professional

47,424

26,774

(6,090)

(1,673)

(1,701)

17,310

(2,458)

14,852

 

14,852

D10

Middle class

112,781

56,187

(12,011)

(4,316)

(9,029)

30,831

(4,316)

26,515

26,515

P100

Executive

287,685

75,555

(23,288)

(9,150)

(27,710)

15,406

(6,382)

9,024

9,024

T1000

CEO

626,703

(34,637)

(30,821)

(10,674)

(177,841)

(253,973)

(8,022)

(261,995)

(261,995)

Top taxpayer A

1,376,147

(325,459)

(67,679)

(23,438)

(517,932)

(934,507)

(14,720)

(949,227)

(949,227)

Top taxpayer B

2,752,294

(862,156)

(135,358)

(46,876)

(517,932)

(1,562,321)

(22,080)

(1,584,401)

(1,584,401)

Source: DOF staff estimates using 2015 Family Income and Expenditure Survey & January 2016 Labor Force Survey

Notes:

Each household has about two income earners * Total household income includes compensation income, income from entrepreneurial activities (i.e. businesses), and other sources of income (i.e. cash transfers)

**Automobile excise tax impact were computed using 2016 prices

***The inflationary effect was computed as a function of income, MPC, and estimates on the price effect of the increased oil excise on food.

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. After the tax-transfer reform, the poor benefits the most.

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

After the tax-transfer reform, the poor benefits the most.

% increase in household income

5% 4.1% 3% 2.2% 1.7% 1.6% 1.7% 1.0% 1.5% 2.2% 2.6% 2.0% 0.3% 1% -1%
5%
4.1%
3%
2.2% 1.7% 1.6% 1.7% 1.0% 1.5% 2.2% 2.6% 2.0%
0.3%
1%
-1%
-3%
-3.5%
-5%
-7%
-5.7% -4.8%
*based on FIES 2015 data
-3% -3.5% -5% -7% -5.7% -4.8% *based on FIES 2015 data Price effect of excise on
-3% -3.5% -5% -7% -5.7% -4.8% *based on FIES 2015 data Price effect of excise on

Price effect of excise on inflation

2017 H2 to 2018

 

Share of

Net impact of excise to prices (%) 2,3

 

Commodity

Share

of CPI

CPI

2015

petroleum

products

Inflation rate (%) 4,5

(%)

as input

Diesel

Gasoline

LPG

Kerosene

 

(%) 1

 

Food

Food 159 10 1.9 1.2 1 1 4 1 6
Food 159 10 1.9 1.2 1 1 4 1 6

159

10

1.9

1.2

1Food 159 10 1.9 1.2 1 4 1 6

1 4

1 4

1 6

1 6

Transportation

6

129

30

5.7

3.5

4Transportation 6 129 30 5.7 3.5 2 8

2Transportation 6 129 30 5.7 3.5 4 8

8Transportation 6 129 30 5.7 3.5 4 2

Electricity

Electricity 131 1.3 0.8 0.8 0 1

131

Electricity 131 1.3 0.8 0.8 0 1

1.3

0.8

0.8

0Electricity 131 1.3 0.8 0.8 1

1Electricity 131 1.3 0.8 0.8 0

Others

51

131

6

1.2

0.7

0.7

0.9

0Others 51 131 6 1.2 0.7 0.7 0.9

Total

100

141

         

1.5

Notes:

1. Transportation share is the daily average of jeepney and bus operation in Metro Manila based on the National Tax Research Center computation. Electricity share is based on the Department of Energy power statistics.

2. The net impact of the excise is obtained by multiplying the share of oil as input and the price increase as a result of the excise.

3. Below is the increase in the price of the petro products as a result of an increase in excise tax using the prevailing

Diesel

Gasoline

LPG

Kerosene

18.6%

11.2%

10.5%

13.3%

petro prices in Metro Manila as of Dec. 13

4. Weighted net impact of the increase in excise tax on each commodity computed based on weights below using HECS 2011

5. Overall inflation computed from the weighted average of commodity inflation based on the share of CPI

Diesel

64.5%

Gas

29.4%

LPG

4.7%

Kerosene

1.3%

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. A comparison RVAT 2005 and oil price shock 2011:

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

A comparison

RVAT 2005 and oil price shock 2011:

We survived and became much stronger.

 

VAT reform

Oil price shock

Indicator

2004

2005

2006

2010

2011

2012

Effective VAT rate

0

10

12

12

12

12

Dubai crude (US dollars)

34

49

61

78

106

109

GDP growth

6.7

4.8

5.2

7.6

3.7

6.7

Consumption

6.0

4.4

4.2

3.4

5.6

6.6

Overall Inflation

4.8

6.5

5.5

3.8

4.6

3.2

Food inflation

6.0

6.4

5.2

4.0

5.5

2.4

Transport inflation

11.5

16.8

10.7

3.7

6.0

2.3

Electricity inflation

3.8

7.5

5.9

5.1

5.2

4.6

Gasoline (in pesos)

20.1

26.5

30.0

35.5

48.1

48.6

Diesel (in pesos)

18.0

25.9

30.2

31.4

41.3

41.7

(in pesos) 18.0 25.9 30.2 31.4 41.3 41.7 DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. Cars increase
(in pesos) 18.0 25.9 30.2 31.4 41.3 41.7 DRAFT FOR DISCUSSION. SUBJECT TO CHANGE. Cars increase

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

Cars increase every year despite oil price fluctuations

70 2 1.8 60 1.6 50 1.4 1.2 40 1 30 0.8 0.6 20 0.4
70
2
1.8
60
1.6
50
1.4
1.2
40
1
30
0.8
0.6
20
0.4
10
0.2
0
0
Unleaded pump price (LHS)
Diesel pump price (LHS)
New car registrations (RHS)
PHP
Millions
20 0.4 10 0.2 0 0 Unleaded pump price (LHS) Diesel pump price (LHS) New car