Train 1

Tax Reform for Acceleration
and Inclusion (TRAIN)

Package 1A (RA 10963)
As of February 2, 2018 5:40 PM
(Full presentation)
Table of contents
1. Vision for the Philippines
2. Key tax policy issues
3. The tax policy reform program: Package 1A
4. Impact on the people (micro)
5. Impact on the economy (macro)
6. How to make this happen: Being partners for
change
2/2/18 DEPARTMENT OF FINANCE 2

Vision for the
Philippines

Our mandate
• President Duterte’s promise to the people is tunay na
pagbabago—positive change that the people can feel.
• This includes more inclusive growth, improved public
services; safe, healthy, and peaceful communities, more
money in the people’s pockets, and a more comfortable
life for all.
• With a solid 80% trust rating by the people,* the
President and his administration are well placed to lead
and to enact big reforms to steer the country.
*Pulse Asia as of December 2017

Vision for the Philippines
By 2022 By 2040
(5 years from now) (23 years or one generation
from now)
21.6% 13-15%
Poverty rate reduced
Extreme poverty
(6 million Filipinos uplifted) eradicated
3,500 5,000 3,500
at least
11,000
USD USD USD USD
Increase in Gross National Income Increase in Gross National Income
(GNI) (GNI)
(Achieve upper-middle income status (Achieve high income status where
where Thailand and China are today) Malaysia and South Korea are today)

How to achieve the vision
• Sustain economic growth of at least 7% every year for one
generation.
• Shift the source of growth from consumption to investment
o From 80% consumption and 20% investment.
o To 70% consumption and 30% investment.
• Massively invest in
o The people to become globally competitive.
o Infrastructure to raise productivity.
• Focus investment on
o Health.
o Education.
o Life-long training.
o Social protection.
o Infrastructure.
o Research and development.

• Investment-led growth of 7 to 10 percent
• 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.
• 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).
Current and additional investment needed per year

Ways to raise additional Complementary
investments economic reforms
Sustainable
Budget reforms Secure property Enhance
borrowings
rights competition
Tax & customs Tax policy Improve food Simplify

administration reform security regulations
reform

How to fund the investment deficit
• Compared to Thailand or
Vietnam, the Philippines is Tax policy reform Tax administration
underinvesting by around 10 ₱366 billion (22%) ₱433 billion (26%)
percent of GDP annually. [2.3% of [2.7% of
GDP] GDP]
• Even with substantial Investment
deficit compared
improvements in tax and to Thailand:
customs administration,
underspending addressed, and ₱1.7 trillion Customs
Borrowing administration
sustainable borrowing, PHP ₱478 billion ₱208 billion (12%)
366 billion (2.3 percent of GDP) (28%) [1.3% of GDP]
annually is still needed to [3% of GDP] 100% spending

efficiency
catch-up starting 2017. ₱188 billion (11%)
[1.2% of GDP]
Sources: DBM, PSA, DOF staff estimates

Note: The investment deficit was estimated as the difference between the investment levels of the Philippines and a benchmark country (Thailand). The difference of
around 10 percent of GDP, which is equivalent to 1.7 trillion in 2017, can be funded by improvements in tax and customs administration, spending efficiency, and
borrowing. However, these are not enough. The country needs an additional PHP 366 billion or 2.3 percent of GDP from tax policy reform to fully fund the gap.

How to raise the needed funds
• Tax policy reform to create a simpler, fairer, and
more efficient tax system characterized by low rates
and a broad base that can promote investment, job
creation, and poverty reduction.
• Tax administration reforms in BIR and BOC.
• Budget reforms to improve the pace, efficiency, and
transparency of spending.
• All three are needed. Higher chances of tax policy
reform succeeding if done together with other
reforms.

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

Source: https://scottdeutschtalks.files.wordpress.com/2016/05/who-wants-change.jpg
Key tax
policy issues

Why tax policy reform is
needed: A deficient tax system
Cause Effect Outcome
Inflation High tax rates Inequity
Special
treatment and
Narrow tax base Complexity
exemptions
(only about half
Lack of of the economy
information is taxed) Inefficiency
(e.g., bank
secrecy)

Revenue eroding measures since 1987
Revenue eroding Republic Acts (RAs), and the 2 VAT reform RAs enacted into law
Total before 58 Total after 23
22 21
R-VAT reform: 20 RA 20 R-VAT reform: RA RA
RA
7859
19 RA
RA
118 RAs, or an
9519 19
216 RAs, or an 7875 9238 9520 9904
RA
average of 12 annually
7183
7277
7876
7884
14
RA
8461
9003
9010
9243
9245 average of 12 annually
9521
9576
9966
9994 10368
16
13 7278 7900
7903 RA
8468 9029 9257 9593 9998 10378 RA
RA
7279
12 7906
8479 9040 9260 9640 9999 10390 10742
8282
11
7291 9045 9261 9647 10001 10583
8492 10744
7908 9267
6977 7306 RA 7910 8291 8498 9054
9272
9648 10002 10584 10747
6982 7308 7686 7913 8292 8502 9055 RA 9679 10026 10585 10752
9 7076 7352
7353
7692 7916 8298 8525 9064
9083
9273
9275 9367
9717
9718
10028
10066
10591 10754
7917 8547 9281 9369 10594 10771
RA 7079 7696 8365 9719
7354 7918
8367
8548 9122 9289 9379 7 9720
10067 10595 10800
6
6847 7103 7355 7716 7925 8550 9136 9290
9395 RA
9721 10068 7 10596 10801
6848 7109 7356 7718 7942 8370 8557
5
9138
9141
9299
9399
9722 10071
RA
10597
6 10816
RA 6938 7111
7151
7371
7373 4
7719
7783
7953
8042
8371
8407
8562
8563 RA 4 9142 4 9294
9295 9400
9497
9500
9728
9744
10072
10073 10165
10598
10599 5 RA
10817
10846
6715 6948
7432
RA 7798
8044
3 8423 8612 8550 RA
9146 RA 9301
9402 9746 10083 10174 10600 RA 10653 10863
2 6734 6958 7156
7459 8047
RA 8628 8763
9147
9167
9311
2 9403
9501
9832 10085 10228 10601 10638 10654 10864
RA
6766 6963
6971
7157
7160
7471
7583
7653
7660
7818
7820 +38 8180
8324
8436
8650
8748
8749 8794
9151
9157 9174 1 9312
9313
1 RA 9442
9504
9505
9847
9852
10086
10121
10229
10230
10604
10605
10641 10659 10865
6768 8651 10644 10687 10884
6657 6973 7166 7600 7665 7833 RAs 8193 8438 8756 8800 9158 9178 RA 9314 RA 9343 9486 9511 9854
10142 10231 10618 10646 10693
0 6675
6807
6810 6975 7168 7605 7666 7844 8241 8446
8659
8758 9080 9159 9182 9207
9334
9337 9361 9490 9513
9856
10143 0 10349 10629 10650 10699
10900
10919
16 5
RA 7844 - RA 9504 - Min
RA 10644 -
Export RA 9337 wage PIT
Go negosyo act
development exemption,
15 act
RA 9010 - R-VAT increased
RA 8241 - RA 8748 - Defered reform
imposition of personal
Imposition of Special
RA 6810 - VAT on certain exemption for
the value- economic zone
14 Magna carta services all CE 4
added tax act
for countryside
and barangay
(VAT)
RA 7278 - RA 9178 - RA 9257 - SC
business An act defining tax exemption RA 10653 -
13 enterprises
RA 7942 - BMBEs RA 9520 - Total
Percent of GDP
the powers and Philippine exemption (i.e., PIT) tax exemption Expansion of
RA 8756 -
Percent of GDP
purposes of the mining act from all taxes RA 9442 - PWD for all coops 13th month
Preferential tax
Boy scouts of additional tax and other
rates for
12 RA 6971 -
the Philippines
ROHQs deductions bonus tax 3
exemption to
Productivity PHP 82,000
incentives act RA 9994 - VAT
RA 9136 - VAT RA 9513 - Tax exemption for
11 38 RAs granting exemptions for
zero-rating for SCs
franchises to renewable RA 10644 -
electricity
broadcasting generators energy Sugarcane
firms producers industry
10 development 2
act
Tax to GDP ratio, left VAT to GDP ratio, right

8 1
Sources: DOF, BTr, a nd PSA
Note: The major revenue eroding measures are highlighted in bold red. In 2005, RA 9337 was enacted. This increased the VAT from 10 to 12 percent, but it also came with some revenue eroding measures such as the reduction of the corporate income tax rate from 35 to 30 percent.
2/2/18
Petroleum excise tax: not increased
since 1997 despite high progressivity
• Of 20 million households, the top 2 million households
(richest 10%) consume around 50 percent of petroleum
products.
• The richest 200,000 households (richest 1%) consume
around 13 percent of petroleum products.
• This is tantamount to at least a 50% leakage.
Source: Department of Energy

Source: FIES 2015
Consequence: 72% of newly-registered
SUVs are diesel-powered, which is
tantamount to exempting the rich
75%
Share of private SUVs by fuel type
65%
55%
45%
35%
25%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total gas powered SUV Total diesel powered SUV

Newly-registered gas powered SUV Newly registered diesel powered SUV
Source: LTO annual statistics

Real property tax: richer LGUs tend not
to adjust valuations for up to 20 years
Source: Bureau of Local Government Finance, FIES 2015

Sample computation of real property tax
Higher valuation
Item Current situation
(proposed)
Actual market value 3,000,000 3,000,000
Market value estimated by LGU 1,500,000 3,000,000
Assessed value (20%) 300,000 600,000
Real property tax (2%) 6,000 12,000
Effective tax rate 0.20% 0.40%
Age of property valuation as of 2016
Base of year property valuations of cities
20
17
16
15
Number of cities
12
10 10
10
7 7 7
6 6
5 5 5 5
5 4 4
3 3 3
2 2 2 2
1
0
Source: Bureau of Local Government Finance database on SMVs
For instance, assessed LGU market value on Ayala Avenue is

P40,000 per sqm, while actual market value is at least P400,000 per sqm.
Corporate income tax: significant forgone
revenues from incentives that are not
time-bound, leading to inequity
Revenue loss: some 50 billion pesos per year in income tax holidays
among large firms; some 50 billion pesos in forgone taxes from the
special rate regime among large firms (corporate and other taxes).
Total of 1 to 1.5% of GDP loss according to DOF-WB for all firms.
Amount of tax paid for every

1,000 peso in revenue (effective tax rate)
Manufacturing Services
Special rate
8 pesos 36 pesos
(5% on gross income)
Regular rate
23 pesos 121 pesos
(30% on profit)
Source: BIR large taxpayer data

Value-added tax: 84 special
laws that lead to further leakages
AGRICULTURE ECOZONES BOI
1 CARP/CARP Extension 27 Bases and Conversion Act 57 Iron and Steel
2 Seed Industry Subic Special Ecozone 58 BOT law amendment
3 National Dairy Clark 59 Book Publishing
4 High Value Crops Poro Point
60 Halal Export
5 Agriculture and Fisheries Modernization Act Morong
POWER SECTOR
6 Philippine Fisheries John Hay
61 Mini-Hydro Electric Power
7 Coconut Farming 28 Zamboanga City Special Ecozone
29 PEZA 62 NGCP
8 Farm Tourism
30 Cagayan Special Ecozone 63 RE
9 Organic Agriculture
31 Aurora Special Ecozone 64 Downstream Oil
HEALTH
10 32 Tourism Act 65 Coal Development Act
Traditional and Alternative Medicine Act
33 Bataan Freeport HOUSING
11 Rare Diseases
MSMEs/ Coop 66 Urban Devt and Housing
12 Philippine Red Cross
EDUCATION SHIPPING
34 Countryside and Barangay Business Enterprises
13 67 Philippine Overseas Shipping
Davao Oriental State College of Science and 35 Cooperative Code
Technology
68 Domestic Shipping
36 Small Enterprises amendment
14 Aklan State College of Agriculture OTHERS
37 Credit Surety Fund Coop
15 Eastern Visayas Science High School Government Agencies and GOCCs
69 Manlilikha ng Bayan
16 Philippine State College of Aeronautics 38 PAGCOR 70 Investors and Inventions
17 UP Radio and TV Stations 39 Philippine Sports Commission 71 Jewelry Industry
18 Higher Education (CHED) 40 PTV Network 72 ROHQ
19 Aklan State University 41 Postal Service 73 Ecological Solid Waste
20 Batangas State University 42 National Commission for the Arts 74 Clean Water Act
21 Sta. Rosa Science and Technology High School 43 Central Bank 75 Veterans Federation
22 Guimaras State College 44 NHIA
76 Footwear, Leather and Tannery
23 Negros Occidental Agicultural College 45 SSS
77 Science Act
24 UP Charter of 2008 46 GSIS
78 PWD
25 PNU Modernization 47 Natl Museum
48 Civil Aviation
79 Senior Citizens
26 Mindanao University and Technology
49 PDIC Insurance Coverage 80 Green Jobs
50 HDMF 81 Natl Blood Services
51 AFP Modernization 82 Special Purpose Vehicle
52 OWWA 83 CMTA
53 Partido Dev't 84 International Carriers
54 Girl Scouts
55 Boy Scout
56 National Historical Commission of the Philippines
Source: National Internal Revenue Code (NIRC)
Low tax efficiency relative to the region
For instance, the Philippines has a 12% VAT rate while Thailand has a 7% VAT
rate, yet both collect roughly the same VAT revenues as share of GDP, since
Thailand has a broader VAT base (35 lines of exemptions only compared to 59
lines in the Philippines by NIRC provisions).
East Asia Low-Mid

Philippines Indonesia Thailand Vietnam Malaysia World
and Pacific Income
Total Tax Revenues/GDP 13.6 12.0 17.2 24.3 15.3 16.3 17.3 17.9
Value Added Tax (VAT)

Tax rate 12.0 10.0 7.0 10.0 6.0 8.4 14.0 13.8
Revenue as share of GDP 4.3 3.9 4.1 6.1 1.0 5.2 6.6 6.1
Tax efficiency** 35.7 38.8 59.0 61.0 16.7 62.0 47.1 44.2
Corporate Income Tax (CIT)

Tax rate 30.0 25.0 20.0 20.0 24.0 22.0 23.0 24.0
Tax efficiency** 12.3 16.5 25.2 36.5 35.4 20.0 16.1 13.8
Personal Income Tax (PIT)

Tax rate 32.0 30.0 35.0 35.0 28.0 26.8 25.5 27.9
Tax efficiency** 7.3 3.5 5.2 25.1 8.2 22.8 18.4 19.7
Sources : USAID, KPMG, IMF Worl d Revenue Longi tudi na l da ta, PWC, BIR, a nd Botma n, Kl emm a nd Ba qi r
Note: Ta x effi ci ency i s ca l cul a ted a s the ra ti on of tax revenue a s a s ha re of GDP di vi ded by the tax ra te. For countri es other tha n the Phi l i ppi nes , tax ra tes a re ba s ed on
KPMGs da taba s e on tax ra tes a s of 2016, whi l e tax revenues a re a re ba s ed on IMF's Worl d Revenue Longi tudi na l da ta wi th 2014 a s the l a tes t a va i l a bl e yea r.

Personal income tax: high rates yet very narrow
base among self-employed and professionals.
Less than 40% of income comes from self-employed and professionals, but they
pay only 15% of income taxes, and BIR cannot fully audit them due to bank
secrecy.
Share of unincorporated income and contributions in individual income taxes

100
90
80
70
60
Percent
50
40
30
20
10
0
Share of income Share of contributions in individual income taxes
Self-employed and professionals Compensation earners

Source: BIR, FIES-LFS

Capital income tax: high rates
for the poor, low rates for the rich

Tax reform for
acceleration and
inclusion
Package 1A: RA 10963

Personal income tax
• Those with net taxable income 250,00 and below
are exempt from income tax.
• In addition, the first PHP 90,000 of the 13th month
pay and other bonuses will be exempt from income
tax.
• Furthermore, the effective tax rates will be lowered
for 99% taxpayers except the richest with taxable
income above PHP 8 million, who will face a tax
rate of 35%.

Government employees across all salary grades
will benefit with the tax reform program
Current Proposed Change in
Annual
Salary Monthly Net Effective Net Effective annual
1
gross Net take Net take
grade income taxable Tax due tax rate taxable Tax due tax rate take home
income 2 home pay3 4 home pay3
income (percent) income (percent)4 pay
1 10,510 187,183 0 0 187,183 0 0 0 187,183 0 0
2 11,200 197,240 0 0 197,240 0 0 0 197,240 0 0
3 11,914 207,647 0 0 207,647 0 0 0 207,647 0 0
4 12,647 218,724 0 0 218,724 0 0 0 218,724 0 0
5 13,481 230,486 0 0 230,486 0 0 0 230,486 0 0
6 14,340 243,006 0 0 243,006 0 0 0 243,006 0 0
7 15,254 256,327 0 0 256,327 0 0 0 256,327 0 0
8 16,282 271,310 74,199 9,340 261,970 13 174,199 0 271,310 0 9,340
9 17,473 288,669 87,055 11,911 276,758 14 187,055 0 288,669 0 11,911
10 18,718 306,815 100,501 14,600 292,215 15 200,501 0 306,815 0 14,600
11 20,179 328,109 116,155 17,731 310,378 15 216,155 0 328,109 0 17,731
12 22,149 356,822 137,367 21,973 334,848 16 237,367 0 356,822 0 21,973
13 24,224 387,065 159,726 27,432 359,633 17 259,726 1,945 385,120 1 25,486
14 26,494 420,150 184,214 33,554 386,596 18 284,214 6,843 413,307 2 26,711
15 29,010 456,821 211,239 40,310 416,511 19 311,239 12,248 444,573 4 28,062
16 31,765 496,975 241,024 47,756 449,219 20 341,024 18,205 478,770 5 29,551
17 34,781 540,933 281,070 59,321 481,612 21 373,509 24,702 516,231 7 34,619
18 38,085 589,089 325,507 72,652 516,437 22 417,507 34,377 554,712 8 38,275
19 42,099 647,593 379,676 88,903 558,690 23 471,676 47,919 599,674 10 40,984
20 47,037 719,564 446,314 108,894 610,670 24 538,314 64,579 654,986 12 44,316

Government employees across all salary grades
will benefit with the tax reform program
Current Proposed Change in
Annual
Salary Monthly Net Effective Net Effective annual
1
gross Net take Net take
grade income taxable Tax due tax rate taxable Tax due tax rate take home
income 2 home pay3 home pay3
income (percent)4 income (percent)4 pay
21 52,554 799,975 520,766 131,645 668,329 25 612,766 83,192 716,783 14 48,454
22 58,717 889,800 603,936 158,259 731,541 26 695,936 103,984 785,816 15 54,276
23 65,604 990,178 696,876 188,000 802,178 27 788,876 127,219 862,959 16 60,781
24 73,299 1,102,333 800,720 221,230 881,103 28 892,720 157,816 944,517 18 63,414
25 82,439 1,235,548 924,064 260,701 974,848 28 1,016,064 194,819 1,040,729 19 65,881
26 92,108 1,376,474 1,054,547 302,455 1,074,019 29 1,146,547 233,964 1,142,510 20 68,491
27 102,910 1,533,913 1,200,320 349,103 1,184,811 29 1,292,320 277,696 1,256,217 21 71,406
28 114,981 1,709,848 1,363,219 401,230 1,308,618 29 1,455,219 326,566 1,383,282 22 74,664
29 128,467 1,906,407 1,545,212 459,468 1,446,939 30 1,637,212 381,164 1,525,243 23 78,304
30 143,534 2,126,008 1,748,541 524,533 1,601,475 30 1,840,541 442,162 1,683,846 24 82,371
31 198,168 2,922,299 2,485,827 760,465 2,161,834 31 2,577,827 674,905 2,247,394 26 85,560
32 233,857 3,442,466 2,967,450 914,584 2,527,882 31 3,059,450 829,024 2,613,442 27 85,560
33 289,401 4,252,020 3,717,016 1,154,445 3,097,574 31 3,809,016 1,068,885 3,183,134 28 85,560
Source: DOF staff estimates
Notes:
1. Monthly basic salary is based on the third tranche (2018) of the Salary Standardization Law of 2015.
2. Annual Gross income includes basic salary, 13th and 14th month pay, de minimis (P10,000), PERA (P24,000) and PBB (minimum amount of
P10,000 for conservative computation).
3. Net take home pay is equal to annual gross income less mandatory contributions (GSIS, PHILHEALTH and Pag-ibig) and tax due.
4. ETR is computed as: tax due/net taxable income.
5. The computations for the present personal income taxes assume 2 dependents.

Estate tax and donor’s tax
• Estate tax – Lowered from the highest 20% rate to a
single rate of 6% for net estate with standard
deduction of PHP 5 million to simplify the system as
well as exemption for the first PHP 10 million for
the family home.
• Donor’s tax – Lowered from the highest 15% rate to
a single rate of 6% of net donations above PHP
250,000 yearly.

Expanding the VAT base by limiting exemptions and
using the budget to provide subsidies to the poor
The following exemptions will be removed: 29. Philhealth PHIC
1. National Dairy 30. SSS No. of VAT
2. High Value Crops 31. GSIS
3. Organic Agriculture 32. Natl Museum
Sectors/Institutions special laws
4. Coconut 33. PDIC Insurance Coverage repealed
5. Seed Industry 34. HDMF
6. Philippine Fisheries 35. AFP Modernization Agriculture 6
7. Traditional and Alternative Medicine 36. OWWA
Education (SUCs and High
8. Rare Diseases 37. Civil Aviation CAAP 14
9. Davao Oriental State College of Science and Tech. 38. National Historical Commission of the PHL Schools)
10. Aklan State College of Agriculture 39. Downstream oil deregulation MSMEs/Cooperatives 0
11. Eastern Visayas Science High School 40. NGCP
12. Philippine State College of Aeronautics 41. Urban Devt and Housing
Govt Agencies and GOCCs 16
13. UP Radio and TV Stations 42. Urban Devt and Housing Amendment Investment 5
14. Higher Education 43. Iron and Steel Power Sector 2
15. Aklan State University 44. BOT law amendment
Housing Sector 2
16. Batangas State University 45. Ecological Solid Waste
17. Sta. Rosa Science and Technology High School 46. Green Jobs Health 2
18. Guimaras State College 47. Halal
19. Negros Occidental Agricultural College 48. Veterans Federation
Others 7
20. UP Charter of 2008 49. Manlilikha ng Bayan
21. PNU Modernization
Total 54
50. Investors and Inventions
22. Mindanao University of Science and Technology 51. ROHQ
23. PSCA 52. Clean Water
24. Boy Scout 53. Science Act
25. PTV 54. Jewelry Industry
26. Postal Service
27. National Commission for the Arts
28. New Central Bank

Expanding the VAT base by limiting exemptions and
using the budget to provide subsidies to the poor
• Low-income and vulnerable

households can be protected
through a higher VAT threshold
• Limit the VAT zero-rating to
of 3 million pesos (i.e., sales of
exporter. This will be
business with gross sales below 3
implemented together with the million pesos, such as sari-sari
VAT refund starting 2019.
stores, will be exempt from VAT).
• Targeted transfers to poor and
vulnerable households.
* Note: VAT Exemptions are not always pro-poor, as marginal businesses, which cannot
claim input VAT typically pass this on in the form of higher prices.
Indicative pump prices and effective tax rates
Dec 2017 Jan 2018 Jan 2019 Jan 2020
Diesel (PHP per L) 36.35 39.15 41.39 43.07
Diesel (ETR, percent) 0.0 7.2 12.2 15.6
Gasoline (PHP per L) 47.85 50.65 52.89 54.57
Gasoline (ETR, percent) 10.1 15.5 19.1 20.5
Sources: DOE and DOF staff estimates
Note: Dec 2017 prices are based on mid-December common prices of diesel and gasoline from the DOE. The data is available at:
https://www.doe.gov.ph/sites/default/files/pdf/price_watch/petro_mm_2017_december_19.pdf
DEPARTMENT OF FINANCE 45
2/2/18
Estimated price change for
top car models, RA 10963

List of major infrastructure projects
started or completed since 2004
Actual Target Type (Purely
List of major infrastructure projects Estimated Project cost
completion completion government
started or completed since 2004 start date (PHP billion)
date date funded or PPP)
Fully completed projects
LRT 2 Mar 1996 Oct 2004 47.3 PPP
SCTEX Apr 2005 Jun 2008 34.9 PPP
C5 elevated u-turn Dec 2008 Apr 2009 0.3 Govt funded
Balara-Luzon flyover 2010 2012 0.6 Govt funded
NAIA expressway May 2011 Apr 2017 20.5 PPP
MCX May 2013 Jul 2015 2.0 PPP
Star tollway expansion connection to SLEX July 2013 July 2015 2.3 PPP
Sub-total 107.9
Projects in the pipeline or partially completed
TPLEX Jul 2010 Apr 2018 24.4 PPP
LRT 2 extension Oct 2011 Dec 2019 9.5 PPP
NLEX harbor link May 2014 May 2018 9.0 PPP
Skyway extension Jan 2015 Jan 2018 37.4 PPP
Star tollway extension to Lucena 2016 2019 16.7 PPP
MRT 7 Apr 2016 Q4 2019 62.7 PPP
Cavitex-C5 link May 2016 2020 12.0 PPP
NLEX-SLEX connector road 3Q 2017 2020 23.3 PPP
Sub-total 195.0
Grand total 302.9
Sources: DPWH, PPP center, and various news articles
SSB price estimates (per container, 1/2)
New selling
price per
Rank Excise
Volume Current VAT container,
(SSB Brand Packaging Type of sugar used tax ETR (%)
(ml) price (PHP) (PHP) including
sales) (PHP)
VAT and
excise (PHP)
1 Coca-Cola can 330 HFCS 22.0 4.0 2.8 26.4 25.7
2 Pepsi can 330 HFCS 21.5 4.0 2.8 25.9 26.0
3 Mountain Dew can 355 HFCS 21.5 4.3 2.8 26.3 26.9
4 Sprite can 355 HFCS 22.2 4.3 2.9 26.9 26.5
5 Royal Tru-Orange can 330 HFCS 22.2 4.0 2.8 26.6 25.6
6 RC Cola plastic bottle 355 HFCS 22.1 4.3 2.9 26.9 26.6
7 Cobra plastic bottle 350 Caloric 19.5 2.1 2.3 21.9 20.3
8 C2 plastic bottle 355 Caloric and HFCS 15.8 4.3 2.2 20.5 31.5
9 Gatorade plastic bottle 355 Caloric 24.7 2.1 2.9 27.1 18.6
10 Del Monte can 240 Caloric 25.0 1.4 2.9 26.6 16.1
11 Zest-O pouch 200 Caloric and HFCS 5.6 2.4 0.9 8.3 39.7
12 Sparkle glass bottle 355 HFCS 12.0 4.3 1.8 16.8 36.1
13 7-Up can 355 HFCS 22.2 4.3 2.9 26.9 26.5
14 Sting plastic bottle 330 Caloric 17.0 2.0 2.1 19.2 21.0
15 Coca-Cola Zero can 355 Non-caloric 22.8 2.1 2.7 25.1 19.2
Source: Euromonitor and DOF staff estimates
Excise rates: Php 6/liter for purely caloric and purely non-caloric, or mix of both
Php 12/liter for HFCS or in combination with any caloric/non-caloric sweetener

SSB price estimates (per container, 2/2)
New selling
price per
Rank Excise
Volume Current VAT container,
(SSB Brand Packaging Type of sugar used tax ETR (%)
(ml) price (PHP) (PHP) including
sales) (PHP)
VAT and
excise (PHP)
16 Tropicana Twister plastic bottle 355 HFCS 23.5 4.3 3.0 28.3 18.9
17 Coca-Cola Light can 355 Non-caloric 22.8 2.1 2.7 25.1 19.2
18 Sun Glo pouch 200 Caloric and HFCS 5.6 2.4 0.9 8.3 28.0
19 Big 250 pouch 250 Non-caloric 6.0 1.5 0.8 7.6 30.4
20 Plus! pouch 250 Caloric 6.0 1.5 0.8 7.7 30.2
21 Pop Cola glass bottle 240 HFCS 8.0 2.9 1.2 11.2 36.4
22 Minute Maid plastic bottle 250 Caloric and non-caloric 12.1 1.5 1.5 13.8 21.6
23 Sarsi glass bottle 240 HFCS 8.0 2.9 1.2 11.2 36.4
24 Pepsi Max plastic bottle 330 Non-caloric and HFCS 21.5 2.0 2.5 23.7 26.0
25 Gina can 250 Caloric 27.7 1.5 3.1 29.4 15.8
26 Mirinda can 330 HFCS 24.5 4.0 3.1 28.9 24.4
27 Sunkist pouch 235 Caloric 16.1 1.4 1.9 17.7 18.7
28 Lipton plastic bottle 200 Non-caloric 18.8 1.2 2.2 20.1 16.7
29 Real Leaf plastic bottle 250 Non-caloric 19.0 1.5 2.2 20.6 18.0
30 ONE plastic bottle 355 Non-caloric 18.5 2.1 2.2 20.9 20.9

SSB price estimates (per liter, 1/2)
New selling
Implied price per
Rank
price per Excise VAT liter,
(SSB Brand Packaging Type of sugar used ETR (%)
liter tax (PHP) (PHP) including VAT
sales)
(PHP) and excise
(PHP)
1 Coca-Cola can HFCS 66.5 12.0 8.6 80.0 25.7
2 Pepsi can HFCS 65.2 12.0 8.4 78.6 26.0
3 Mountain Dew can HFCS 60.6 12.0 7.9 74.0 26.9
4 Sprite can HFCS 62.4 12.0 8.1 75.8 26.5
5 Royal Tru-Orange can HFCS 67.1 12.0 8.6 80.6 25.6
6 RC Cola plastic bottle HFCS 62.3 12.0 8.1 75.7 26.6
7 Cobra plastic bottle Caloric 55.7 6.0 6.7 62.4 20.3
8 C2 plastic bottle Caloric and HFCS 44.4 12.0 6.2 57.8 31.5
9 Gatorade plastic bottle Caloric 69.6 6.0 8.2 76.3 18.6
10 Del Monte can Caloric 104.2 6.0 11.9 110.9 16.1
11 Zest-O pouch Caloric and HFCS 28.0 12.0 4.4 41.4 39.7
12 Sparkle glass bottle HFCS 33.8 12.0 5.1 47.2 36.1
13 7-Up can HFCS 62.4 12.0 8.1 75.8 26.5
14 Sting plastic bottle Caloric 51.5 6.0 6.2 58.2 21.0
15 Coca-Cola Zero can Non-caloric 64.1 6.0 7.6 70.8 19.2
SSB price estimates (per liter, 2/2)
New selling
Implied price per
Rank
price per Excise VAT liter,
(SSB Brand Packaging Type of sugar used ETR (%)
liter tax (PHP) (PHP) including VAT
sales)
(PHP) and excise
(PHP)
16 Tropicana Twister plastic bottle HFCS 66.2 6.0 7.8 72.9 18.9
17 Coca-Cola Light can Non-caloric 64.1 6.0 7.6 70.8 19.2
18 Sun Glo pouch Caloric and HFCS 28.0 6.0 3.7 34.7 28.0
19 Big 250 pouch Non-caloric 23.8 6.0 3.3 30.5 30.4
20 Plus! pouch Caloric 24.0 6.0 3.3 30.7 30.2
21 Pop Cola glass bottle HFCS 33.3 12.0 5.0 46.8 36.4
22 Minute Maid plastic bottle Caloric and non-caloric 48.4 6.0 5.9 55.1 21.6
23 Sarsi glass bottle HFCS 33.3 12.0 5.0 46.8 36.4
24 Pepsi Max plastic bottle Non-caloric and HFCS 65.2 12.0 8.4 78.6 26.0
25 Gina can Caloric 110.8 6.0 12.6 117.5 15.8
26 Mirinda can HFCS 74.2 12.0 9.4 87.7 24.4
27 Sunkist pouch Caloric 68.5 6.0 8.1 75.2 18.7
28 Lipton plastic bottle Non-caloric 93.8 6.0 10.8 100.5 16.7
29 Real Leaf plastic bottle Non-caloric 75.8 6.0 8.8 82.5 18.0
30 ONE plastic bottle Non-caloric 52.1 6.0 6.3 58.8 20.9

Tax administration and tax policy reforms are
both needed for the BIR and BOC to succeed

5-year summary of the revenue impact
(in billions of pesos, unless indicated otherwise)
Provisions RA 10963
2018 2019 2020 2021 2022 Total
Personal income tax -146.6 -161.0 -177.1 -195.0 -214.4 -894.2
Corporate income tax (PCSO) 0.5 0.5 0.6 0.7 0.7 3.0
Estate tax -2.1 -2.1 -2.1 -2.1 -2.1 -10.5
Donors' tax -1.7 -1.8 -2.0 -2.2 -2.4 -10.0
VAT 39.2 48.7 58.1 58.4 45.8 250.3
Oil excise 60.2 101.8 131.9 134.4 136.6 564.8
Automobile excise 14.4 15.3 16.2 17.2 18.2 81.3
Sugar-sweetened beverage tax 54.5 58.2 61.5 65.1 68.8 308.1
Tax administration 26.6 35.0 42.3 50.7 60.4 215.1
Others 44.9 49.6 58.2 59.5 66.3 278.5
Subtotal (tax policy) 63.3 109.2 145.4 136.0 117.4 571.3
Subtotal (legislated tax admin) 26.6 35.0 42.3 50.7 60.4 215.1
Total (tax policy and admin) 89.9 144.2 187.7 186.8 177.8 786.4
Total as percent of GDP 0.5 0.8 0.9 0.8 0.7 NA
Deficit 3.3 3.5 3.5 3.4 3.4 NA
Package 1B 38.9 30.9 34.0 37.5 41.4 182.7
Subtotal (additional revenues) 38.9 30.9 34.0 37.5 41.4 182.7
Grand total 128.8 175.1 221.7 224.3 219.2 969.2
Total as percent of GDP 0.7 0.9 1.1 1.0 0.9 NA
Deficit 3.0 3.4 3.3 3.2 3.3 NA

Benefits of the tax reform
• More money for the people in terms of lower income taxes,
which is more than enough to offset the increase in consumption
taxes.
• Improve equity of tax system: shift burden to the rich.
• Around 5% more IRA for LGUs by 2021
• 70% to fund infrastructure projects and 30% to fund social
services
o Social benefits card to determine qualified beneficiaries once instituted
in 2020
– Fuel vouchers to qualified franchise holders of Public Utility Jeepneys (PUJs)
– Fare discount from all public utility vehicles (except trucks for hire and school
transport service) in the amount equivalent to ten percent (10%) of the
authorized fare;
– Discounted purchase of National Food Authority (NFA) rice from accredited
retail stores in the amount equivalent to ten percent (10%) of the net retail
prices, up to a maximum of twenty (20) kilos per month; and
– Free skills training under a program implemented by the Technical Skills and
Development Authority (TESDA).

Gains from the lower PIT regime are more than enough
to offset additional expenses from higher oil prices, car
loan payments, and inflation.
Vios buyer Innova buyer
} PHP 80,030
savings
} PHP 26,914
savings

Impact on the
people (micro)

DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
“The money we generate from the rich, who

do not need exemptions and subsidies,
will be transferred back to the poor and used to
fund more and better services.”

Combined tax-transfer effect, 2018*
Targeted transfers will be crucial in protecting the poor from
shocks and can help improve the progressivity of the tax reform.
Package 1 change in take home pay (in pesos)
Change in annual VAT and excise taxes Change in Percentage

2018 projected Change in Change in annual
Description annual take change in
Decile/ monthly annual spending due to Transfer
(assumes a family of 5 home pay annual
percentile household total personal Value-added increase in (full year)
members) Fuel Automobile** SSB Sin Net tax due after household
income* income tax tax prices***
transfers income
D1 Subsistence poor 7,724 47 -14 -56 -74 -4 -102 -498 2,400 1,800 1.9
D2 Subsistence poor 10,711 290 -20 -88 -96 -7 79 -726 2,400 1,753 1.4
D3 Poor 12,835 744 -26 -119 -123 -4 471 -869 2,400 2,002 1.3
D4 Near poor 15,132 1,891 -33 -140 -164 -3 1,551 -1,023 2,400 2,928 1.6
D5 Near poor 17,309 3,277 -40 -174 -192 -3 2,868 -1,182 2,400 4,086 2.0
D6 Unskilled 21,119 6,424 -50 -233 -225 -5 5,912 -1,374 4,538 1.8
D7 Partly skilled 25,239 10,117 -56 -268 -251 -5 9,537 -1,657 7,879 2.6
D8 Skilled 32,032 17,068 -71 -351 -307 -3 16,337 -2,019 14,318 3.7
D9 Professional 45,342 30,313 -318 -505 -2,096 -365 -3 27,027 -2,681 24,346 4.5
D10 Middle class 104,170 106,961 -1,032 -1,283 -7,920 -424 -3 96,298 -5,505 90,793 7.3
P100 Executive 253,695 100,142 -3,047 -2,531 -25,400 -492 -11 68,660 -10,222 58,438 1.9
T1000 CEO 494,471 142,270 -3,976 -1,876 -34,720 -415 -100 101,183 -12,615 88,568 1.5
Top taxpayer ATop taxpayer A 1,376,147 -1,206,745 -8,561 -5,221 -153,500 -385 -704 -1,375,117 -35,107 -1,410,224 -8.5
Top taxpayer BTop taxpayer B 2,752,294 -3,051,713 -15,472 -10,443 -277,120 -272 -976 -3,355,996 -70,214 -3,426,210 -10.4
Source: DOF staff estimates using the Family Income and Expenditure Survey - Labor Force Survey 2015
Notes:
This table is updated as of Dec. 21, 2017. 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
**Automobile excise tax impact were computed using car prices as of Dec. 1, 2017, assuming 1 to 5 years of amortization.
***The inflationary effect captures the increase in prices of food, transportation, and electricity due to higher fuel excise tax.

Change in annual VAT and excise taxes Change in Percentage

2019 projected Change in Change in annual
Description annual take change in
Decile/ monthly annual spending due to Transfer
(assumes a family of 5 home pay annual
percentile household total personal Value-added increase in (full year)
members) Fuel Automobile** SSB Sin Net tax due after household
income* income tax tax prices***
transfers income
D3 Poor 14,207 903 -56 -390 -131 -4 323 -695 3,600 3,227 1.9
D4 Near poor 16,700 2,151 -67 -453 -168 -3 1,460 -817 3,600 4,243 2.1
D5 Near poor 19,091 3,936 -78 -534 -191 -3 3,129 -943 3,600 5,786 2.5
D6 Unskilled 23,130 6,557 -102 -719 -230 -5 5,502 -1,094 4,408 1.6
D7 Partly skilled 27,113 9,894 -112 -797 -246 -5 8,734 -1,317 7,417 2.3
D8 Skilled 34,048 15,121 -146 -1,055 -306 -3 13,610 -1,602 12,008 2.9
D9 Professional 47,699 23,982 -450 -1,547 -2,285 -364 -3 19,334 -2,127 17,207 3.0
D10 Middle class 107,927 56,361 -1,131 -3,922 -6,203 -427 -3 44,675 -4,342 40,334 3.1
P100 Executive 263,644 101,444 -3,059 -7,743 -20,306 -495 -11 69,830 -7,960 61,870 2.0
T1000 CEO 511,248 127,342 -3,730 -6,297 -28,005 -411 -101 88,798 -9,799 78,998 1.3
Top taxpayer A 1,500,000 -1,430,157 -8,213 -18,477 -133,655 -402 -777 -1,591,680 -28,752 -1,620,432 -9.0
Top taxpayer B 3,000,000 -3,498,537 -14,628 -36,953 -234,741 -284 -1,075 -3,786,218 -57,503 -3,843,721 -10.7
Notes:
* Total household income includes compensation income, income from entrepreneurial activities (i.e. businesses), and other sources of income (i.e. cash transfers).

Change in annual VAT and excise taxes Percentage

2020 projected Change in Change in annual Change in
Description Rice and change in
Decile/ monthly annual spending due to Transfer annual take
(assumes a family of 5 transport annual
percentile household total personal Value-added increase in (full year) home pay after
members) Fuel Automobile** SSB Sin Net tax due subsidies household
income* income tax tax prices*** transfers
income
D1 Subsistence poor 9,393 90 -25 -150 -80 -6 -171 -220 548 3,600 3,757 3.3
D2 Subsistence poor 13,263 660 -36 -228 -99 -11 286 -313 616 3,600 4,189 2.6
D3 Poor 15,795 1,724 -48 -305 -136 -6 1,231 -372 648 3,600 5,107 2.7
D4 Near poor 18,555 3,409 -59 -376 -173 -5 2,795 -437 725 3,600 6,684 3.0
D5 Near poor 21,255 5,794 -70 -456 -194 -4 5,070 -503 846 3,600 9,013 3.5
D6 Unskilled 25,361 8,787 -91 -617 -228 -7 7,844 -583 7,261 2.4
D7 Partly skilled 29,320 12,558 -101 -694 -245 -6 11,510 -702 10,808 3.1
D8 Skilled 36,311 18,067 -128 -890 -304 -5 16,739 -853 15,887 3.6
D9 Professional 50,026 26,899 -1,156 -1,279 -9,149 -361 -4 14,950 -1,130 13,820 2.3
D10 Middle class 112,182 59,475 -843 -3,100 -4,331 -430 -5 50,767 -2,292 48,475 3.6
P100 Executive 272,119 102,846 -2,252 -5,756 -14,754 -492 -16 79,577 -4,142 75,435 2.3
T1000 CEO 531,446 121,100 -2,710 -4,042 -20,685 -413 -149 93,101 -5,066 88,035 1.4
Top taxpayer A 1,635,000 -1,667,819 -6,739 -12,435 -112,024 -424 -914 -1,800,355 -15,587 -1,815,942 -9.3
Top taxpayer B 3,270,000 -3,973,862 -11,518 -24,871 -188,547 -299 -1,290 -4,200,387 -31,174 -4,231,561 -10.8
Notes:
* Total household income includes compensation income, income from entrepreneurial activities (i.e. businesses), and other sources of income (i.e. cash transfers).

The richest 10% will pay as much or more
than the poorest 8 deciles combined
Increase in VAT payment by Increase in oil expenditure
decile (in pesos, annually) by decile (in pesos,
annually)
Richest 10% Bottom 80% Richest 10% Bottom 80%

₱1,032 ₱306 ₱1,283 ₱1,429
62% 19% 40% 44%
Second richest 10%

Second richest 10%
₱318
₱505
19%
16%
Note: D1 refers to the first decile or the poorest 10% of households based on the preliminary
2015 Family Income and Expenditure Survey (FIES). Each succeeding decile consists of the
next 10% of households based on total household income.
Protecting the poor and
low income Filipinos: VAT
• VAT threshold for marginal establishment will be increased from 1.9 to
around 3 million pesos, thereby exempting the sale of goods from VAT.
Note:
o Raw agricultural products will continue to be VAT exempt.
• To mitigate the impact of higher oil excise:
o Targeted transfers: 200 pesos per month for 1 year to the poorest 50% of
households (around 10 million households) to mitigate the temporary and
moderate increase in prices in 2018, and 300 pesos per month in 2019 and
2020.
o Rice and transport subsidies, once the social benefit card is instituted in 2020.
To use the tax system to protect the poor and low income earners results into massive
leakages. A better system is to use budget subsidies.
After the tax-transfer reform, everyone
except the richest will be better off.
Percentag e increase in household income
10
8 7.3
6 4.5
3.7
Percentag e point chang e
4 2.6
1.9 1.6 2.0 1.8 1.9 1.5
2 1.4 1.3
0
-2
-4
-6
-8
- 10 - 8.5
- 12 - 10.4
Household
Note: D1 refers to the first deciles or the poorest 10% of households based on the preliminary 2015 Family
Income and Expenditure Survey (FIES). Each succeeding decile consists of the next 10% of households based
on total household income. The figures above are averages for each decile.
Impact on the
economy (macro)

Is the tax reform anti-poor?
Two key concerns
• Tax reform and the economy (deficit impact)
o A deficit above 3% courts a credit downgrade and will
ultimately impoverish the people.
• Tax reform and the people (price impact)

o Price impact is small to moderate.
o If the idea is to have everyone benefit, then all taxes
must be eliminated, but we all know that is clearly not
right.

If no or diluted tax reform, there are only 2
choices that will lead to the same outcome
Less budget Poverty
Breach the Credit rating Higher debt
and fewer Malnutrition
deficit downgrade servicing
investments Traffic
No or
diluted tax
reform
Low gov’t Fewer Poverty

spending to investments Malnutrition
maintain deficit Traffic

S&P warns against the tax
reform agenda stalling
“Standard and Poor’s…

may even cut the rating if
the government’s reform
agenda stalls.”

Moody’s also notes
risk to credit outlook
“…lack of clarity in the
government’s revenue
improvement… could pose a
risk to the Philippines’ credit
outlook.”

The tax reform can fund
the following over 5-years:
• 629,120 public school classrooms, or
• 2,685,101 public school teachers, or
• 60,483 rural health units, or
• 484,326 barangay health stations, or
• 1,324 provincial hospitals, or
• 35,745 km of paved roads, or
• 786,400 km of temporary bridge upgrades, or
• 2,665,763 hectares of irrigated land.

Stocks respond to the tax reform
Tax reform milestones and the PSEi
8,600
SP
Pimentel
8,500 filed SB
1408
SCGD
quoted
8,400
on tax
reform:
i) WACM House In his SONA,
"Its now
8,300 Hearing passes Duterte
or
on SSBs, tax calls on
never."
TRAIN, reform Senate to
and other bill HB pass the tax
8,200
additional 5636 reform in
taxes* SB 1592 is
full and with passed
ii) CA haste
8,100 rejects
PSEi points
Gina
Lopez
8,000 appoint-
ment Bicam
starts
7,900
Senate
committee Bill is
7,800 endorses ratified by
SB 1592 both
Hous e houses
7,700 Appro
Commi ttee
a pproved PRRD signs
the
RA 10963
7,600 ea rmarking
provi sions into law
of TRAIN
7,500
Sources: DOF, PSE, and WSJ

Self-rated poverty and crude
oil prices are not correlated
• From 2000 to 2017 Q3, correlation is -0.4, indicating very weak relationship.
Self-rated poverty and crude oil prices

70 6,000
Self-rated poverty (SWS)
Crude oil price per barrel (right)
65 5,000
60 4,000
PHP per barrel

Percent
55 3,000
50 2,000
45 1,000
40 0
Sources: SWS and World Bank

Price effect of excise on inflation
2018 (maximum effect)
Share of Net impact of excise to prices (%)2,3
Share of CPI petroleum Inflation
Commodity
CPI (%) 2016 products as rate (%)4,5,6
input (%) 1 Diesel Gasoline LPG Kerosene
Food 36 163 10 0.9 0.6 0.2 0.9 0.3

Transportation 6 128 30 2.8 1.8 0.5 2.7 0.1
Electricity 7 124 7 0.7 0.4 0.1 0.6 0.0
Others 51 135 6 0.6 0.4% 0.1 0.6 0.3
Total 100 144 0.7
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. The increase in the price of the petro products as a result of an increase in excise tax using the petro prices in Metro Manila in 2016
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
6. Percentage point on top of the BSP projected inflation.
Commodity
CPI (%) 2016 products as rate (%)4,5
Food 36 163 10 0.6 0.5 0.2 0.3 0.2

Transportation 6 128 30 1.9 1.4 0.5 0.8 0.1
Electricity 7 124 7 0.5 0.3 0.1 0.2 0.0
Others 51 135 6 0.4 0.3 0.1 0.2 0.2
Total 100 144 0.5
Notes:
3. The increase in the price of the petro products as a result of an increase in excise tax using the assumed
petro prices in Metro Manila as of December 2018
Commodity
CPI (%) 2016 products as rate (%)4,5
Food 36 163 10 0.3 0.3 0.2 0.3 0.1

Transportation 6 128 30 0.9 1.0 0.5 0.8 0.1
Electricity 7 124 7 0.2 0.2 0.1 0.2 0.0
Others 51 135 6 0.2 0.2 0.1 0.2 0.1
Total 100 144 0.3
Notes:
3. The increase in the price of the petro products as a result of an increase in excise tax using the assumed
petro prices in Metro Manila as of December 2019
Lessons from the past
Inflation remains low and stable despite significant
increase in diesel prices in 2016
Sources: PSA, DOE

*January y-o-y change
in diesel price
Jan 25-29 2016: 18.25
Jan 29 2017: 32.10
Rice price is not driven by oil price
Percent growth Change in price (Php) Remarks

NFA rice (Regular milled) -0.08 36.77 to 36.74 no impact
NFA rice (Well milled) 0.65 41.58 to 41.85 minimal impact
Diesel 47.08 20.75 to 30.52

Corn vs. diesel prices
Corn (yellow) vs diesel prices, 2016 Corn (white) vs diesel prices, 2016
29 24 29 28
Corn price (in PHP per kilogram)

Corn price (in PHP per kilogram)
27 27
Diesel price (in PHP per liter)
Oil price (in PHP per liter)

25 25
22
23 23
23
21 21
20 19
19 Diesel (left) Diesel (left)
17 Corn yellow (right) 17 Corn white (right)
15 18 15 18
Source: DOE, PSA

Source: DOE, PSA
Legend
Percent growth Change in price (php) Remarks Percent change Correlation
Corn (yellow) -4.8 190.16 to 188.33 minimal correlation ≤ 0 No correlation
> 0 and ≤ 5 Minimal correlation
Corn (white) -4.9 139.11 to 140.25 minimal correlation > 5 and ≤ 20 Mild correlation
>20 Moderate correlation
Diesel 47.1 20.75 to 30.52

Fish price is not driven by oil price
Bangus vs. gas prices, 2016 Tilapia vs. gas prices, 2016
45 130 45 120
Tilapia price (PHP per kilogram)

Bangus price (PHP per kilogram)
120 110
Diesel price (PHP per liter)

110
40 100
40
100
90
90
80 35 Gas (left) 80
35
Gas (left) Tilapia (right)
70 70
Bangus (right)
60
30 60
30 50
Source: DOE, PSA

Source: DOE, PSA
Percent growth Change in price (php) Remarks Percent change

Legend
Correlation
Bangus -3.1 128.84 to 124.79 no correlation ≤ 0 No correlation
Tilapia -2.1 108.66 to 106.4 no correlation > 5 and ≤ 20 Mild correlation
Gasoline 13.3 20.75 to 30.52

Fish price is not driven by oil price
Galunggong vs. gas prices, 2016 Alumahan vs. gas prices, 2016
45 140 45
Galunggng price (PHP per kilogram)
Alumahan price (PHP per kilogram)

160
120

140
100
40 40
120
80
100
60
35 Gas (left) 35 80
40 Gas (left)
Galunggong (right) Alumahan (right)
20 60
30 0 30 40
Source: DOE, PSA Source: DOE, PSA
Legend
Percent growth Change in price (php) Remarks Percent change Correlation
Galunggong -0.9 121.77 to 120.65 no correlation ≤ 0 No correlation
Alumahan 2.7 140.39 to 144.2 minimal correlation > 5 and ≤ 20 Mild correlation
Gasoline 13.3 20.75 to 30.52

Estimated effect of oil excise on
various food items: very small impact
Share of fuel Fuel Potential Potential
Unit Increase in
to gross component price increase in
Food item Unit price fuel cost
output of price increase price
(peso) (percent)
(percent) (peso) (peso) (percent)
Regular milled
1kg 36 1.6 0.6 11.1 0.1 0.2
rice
Pork lean meat 1kg 188 0.5 0.9 11.1 0.1 0.1
Refined sugar 1kg 51 0.7 0.4 11.1 0.0 0.1
Galunggong 1kg 121 4.1 4.9 6.6 0.3 0.3
Tilapia 1kg 106 0.0 0.0 6.6 0.0 0.0
Corned beef 150g can 29 0.5 0.1 11.1 0.0 0.1
Sardines 155g can 15 0.5 0.1 11.1 0.0 0.1
Bread 450g loaf 35 1.0 0.3 11.1 0.0 0.1

Sources: PSA, LTO, NTRC, DOE, DOF staff estimates
Note: The share of fuel in the price of various commodities are based on the input-output table published by the PSA. Most food items primarily use
diesel as an input. However, some specific items/industries, such as fishing, primarily use gasoline over diesel.

Estimated effect of oil excise on various
modes of transport: moderate impact
Share of fuel Potential
Fuel Increase in Potential
Type of Fare to gross fare
component of fuel cost increase in
transportation (peso) revenue increase
fare (peso) (percent) fare (percent)
(percent) (peso)
Jeep 8 30.0 2.4 11.1 0.3 3.3
AUV 40 37.0 14.8 11.1 1.6 4.1
Bus 11 30.7 3.4 11.1 0.4 3.4
Rail 15 8.8 1.3 11.1 0.1 1.0
Tricycle 25 13.0 3.3 6.6 0.2 0.9
Taxi 135 36.0 48.6 6.6 3.2 2.4

Airline 5,500 27.6 1,518.0 8.6 130.5 2.4
Habal-habal 35 25.7 9.0 6.6 0.6 1.7
Note: The share of fuel in the fare of various types of transport are based on the IO table and interviews conducted by the NTRC. Jeeps,
AUVs, buses, and rails primarily use diesel, tricycles and taxis primarily use gasoline, while airlines primarily use jet fuel.

Estimated effect of oil excise
on freight: moderate impact
Potential Potential
Service Share of fuel to Increase in
Fuel cost fee increase in
Type of freight fee gross revenue fuel cost
(peso) increase total price
(peso) (percent) (percent)
(peso) (percent)
Trucking 14,128 12.1 1,715 11.1 190 1.3
Shipping 70,000 20.3 14,128 18.8 2,663 3.8

Note: The share of fuel in the fees of various types of freight are based on the input-output table published by the PSA.

Estimated effect of oil excise on
vulnerable sectors: small impact
Increase in
Annual Annual Share of fuel Increase in
Increase in fuel cost as a
Vulnerable gross fuel expense to annual fuel
fuel cost share of
sector income expense revenue expense
(percent) gross income
(peso) (peso) (percent) (pesos)
(percent)
Farmers 200,000 10,908 5.5 11.1 1,210 0.6
Fishermen 144,000 16,533 11.5 6.6 1,089 0.8

Note: The share of fuel in the expenses of farmers and fishermen are based on the input-output table published by the PSA.

There will be minimal increase
in electricity rates due to excise
Grid (Meralco)
6,000
70
Current charges Potential increase in cost
5,000
56
4,000
42
3,000
PHP
28
2,000
1,000 14
Monthly kWh consumption

Sources: DOE, Kuryente.org, and DOF staff estimates
Estimates are based on the following assumptions: i) An additional PHP 2.50 increase in the excise tax of diesel and bunker fuel, ii) an
increase to PHP 50 per MT of coal, and iii) removal of VAT exemptions on transmission charges and CDA-registered cooperatives.

There will be minimal increase in
electricity rates due to excise (breakdown)
Breakdown of potential cost increase, Grid (Meralco)
80
Potential increase in cost due to coal excise
70 Potential increase in cost due to oil excise
60 Potential increase in cost (other sources)
50 42.77
40
PHP
34.22
30 25.66
20 17.11
22.01
17.61
10 8.55 13.21
8.80
4.40 3.00 4.00 5.00
0 1.00 2.00
Monthly kWh consumption

Estimates are based on the following assumptions: i) An additional PHP 2.50 increase in the excise tax of diesel and bunker fuel, ii) an
increase to PHP 50 per MT of coal, and iii) removal of VAT exemptions on transmission charges and CDA-registered cooperatives.

Grid (non-Meralco, NEA) Grid (non-Meralco, CDA)
6,000 6,000
Current charges Current charges
5,000 Potential increase in cost 5,000 Potential increase in cost
58 94
4,000 4,000 75
47
3,000 35 3,000 57
PHP
PHP
2,000 23 2,000 38
12 19
1,000 1,000
0 0
Monthly kWh consumption Monthly kWh consumption

Estimates are based on the following assumptions: i) An additional PHP 2.50 increase in the excise
Estimates are based on the following assumptions: i) An additional PHP 2.50 increase in the excise
tax of diesel and bunker fuel, ii) an increase to PHP 50 per MT of coal, and iii) removal of VAT
tax of diesel and bunker fuel, ii) an increase to PHP 50 per MT of coal, and iii) removal of VAT
exemptions on transmission charges and CDA-registered cooperatives.

Breakdown of potential cost increase, Breakdown of potential cost increase,
Grid (non-Meralco, NEA) Grid (non-Meralco, CDA)
70 100
Potential increase in cost (other sources) Potential increase in cost (other sources)
Potential increase in cost due to oil excise 90
60 Potential increase in cost due to oil excise
Potential increase in cost due to coal excise 80 Potential increase in cost due to coal excise
50 70
31.44 60 67.35
40
25.15 50 53.88
PHP
PHP
30 40
18.87 40.41
20 30
12.58 22.01 26.94
17.61 20
10 13.21 22.01
6.29 13.47 17.61
8.80 10 13.21
4.40 8.80
2.00 3.00 4.00 5.00 4.40 3.00 4.00 5.00
0 1.00 0 1.00 2.00

Sources: DOE, Kuryente.org, and DOF staff estimates Sources: DOE, Kuryente.org, and DOF staff estimates
Estimates are based on the following assumptions: i) An additional PHP 2.50 increase in the excise Estimates are based on the following assumptions: i) An additional PHP 2.50 increase in the excise
tax of diesel and bunker fuel, ii) an increase to PHP 50 per MT of coal, and iii) removal of VAT tax of diesel and bunker fuel, ii) an increase to PHP 50 per MT of coal, and iii) removal of VAT
exemptions on transmission charges and CDA-registered cooperatives. exemptions on transmission charges and CDA-registered cooperatives.

SPUG (NEA, coal powered) SPUG (CDA, coal powered)
6,000 12 6,000 63
5,000 Potential increase in cost 5,000 Potential increase in cost
10 50
4,000 4,000
7 38
3,000 3,000
PHP
PHP
5 25
2,000 2,000
2 13
1,000 1,000
0 0


SPUG (NEA, coal powered) SPUG (CDA, coal powered)
14 70
Potential increase in cost (other sources) Potential increase in cost (other sources)
12 Potential increase in cost due to coal excise 60 Potential increase in cost due to coal excise
1.88
10 50
1.50
8 40
52.73
PHP
PHP
1.13
6 30 42.18
10.00
0.75 31.64
4 8.00 20
6.00 21.09
2 0.38 4.00 10
10.55
2.00 8.00 10.00
4.00 6.00
0 0 2.00


SPUG (NEA, diesel/bunker powered, full pass-through) SPUG (CDA, diesel/bunker powered, full pass-through)
7,000
7,000
Current charges Current charges 406
6,000
355 6,000 Potential increase in cost
Potential increase in cost
5,000 5,000 325

284
4,000 4,000
213 244
PHP
PHP
3,000 3,000
142 162
2,000 2,000
71 81
1,000 1,000
0 0


SPUG (NEA, diesel/bunker powered, full pass-through) SPUG (CDA, diesel/bunker powered, full pass-through)
400 450
Potential increase in cost (other sources)
Potential increase in cost due to oil excise 400
350 Potential increase in cost due to oil excise 50.85
300 350
300 40.68
250
250
200 30.51
PHP
PHP
355.00 200
150 355.00
284.00 150 20.34 284.00
100 213.00
100 213.00
142.00 10.17 142.00
50 50
71.00 71.00
0 0


SPUG (NEA, diesel/bunker powered, subsidized) SPUG (CDA, diesel/bunker powered, subsidized)
7,000 7,000
6,000 Potential increase in cost 2 6,000 Potential increase in cost 53
5,000 2 5,000 42
4,000 4,000
1 32
PHP
PHP
3,000 3,000
1 21
2,000 2,000
0 11
1,000 1,000
0 0


SPUG (NEA, diesel/bunker powered, subsidized) SPUG (CDA, diesel/bunker powered, subsidized)
5.0 60
4.5 Potential increase in cost (other sources) Potential increase in cost (other sources)
50
4.0
3.5
40
3.0
2.5 30
PHP
PHP
52.73
2.0
20 42.18
1.5
31.64
1.0 1.88 21.09
1.50 10
0.5 1.13 10.55
0.75
0.38
0.0 0


A comparison
Reform of VAT in 2005 and oil price shock in 2011:
We managed well 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
Inflation remained moderate even with the increase
in VAT and a significant increase in crude price
Cars increase every year despite a
more than doubling of oil prices
70 2
1.8
60
1.6
50 1.4
1.2
40
Millions
PHP
1
30
0.8
20 0.6
0.4
10
0.2
0 0
Unleaded pump price (LHS) Diesel pump price (LHS) New car registrations (RHS)
Notes on DSGE
• DSGE stands for Dynamic Stochastic General Equilibrium:
o Dynamic: the model deals with economic variables that evolve over
time.
o Stochastic: the model deals with random shocks that affect these
variables.
o General Equilibrium: these variables are assumed to eventually
achieve a state of general equilibrium.
• DSGE is used to analyze the long-term impact of the tax
reform package on the economy.
• DSGE simulates over several time periods while the
older/simpler Computable General Equilibrium (CGE) model
simulates for only one time period.
• The simulations are performed using MATLAB.

Fiscal policy summary
Capital: CIT, CaIT, Consumption: VAT, sugar, tobacco,
Labor: PIT
RPT alcohol, and oil excises
Lump sum and others Education

Tax-financing
Tariffs Health
Consumption
Social services
Fiscal policy Investment
Infrastructure
Transfers (e.g., CCT)

Debt-financing
Local borrowings Foreign borrowings

Fiscal policy impact
External economy
Current account balance, gross international
Tax-financing reserves, foreign direct investments, and
portfolio investments
Real economy
Gross domestic product (consumption,
Debt-financing investment, exports, imports), jobs, income, and
poverty
Monetary sector
Government
Money supply and demand,
Expenditures
and interest rates

Cases (percent of GDP unless otherwise specified)
Base case RA 10963
TRAIN as signed by
Description No policy change
President Duterte
2.4, transfers of 0.1 for

Additional investment
1.1, no transfers 2018, and 0.2 for
target
2019-2020
Tax policy financed 0 0.7
Tax admin financed 0.1 0.2
Deficit financed 1.0 1.5
Public investment
60 percent 80 percent
efficiency
Increase in risk
10 basis points None
premium
GDP: RA 10963 shows higher GDP growth as
more tax revenues are invested into the economy.
Real GDP
9
Percent diff. from steady state
8
7
6
5
4
3
2
1
0
…
RA10963 Base

Consumption: Consumption initially slows down due to
higher consumption taxes but later on catches up as
investments make people more productive, and people realize
additional savings from the PIT reduction.
Real consumption
5
4
3
2
1
0
-1
-2
RA10963 Base

Government spending: RA 10963 represents both an
increase in the level and efficiency of government spending
(i.e., spending leads to asset accumulation).
Government spending
21
19
17
15
13
11
9
7
5
…
RA10963 Base

Investment: Over the longer-term, public
investment stimulates private investment in RA 10963.
Real investment
8
-2
-4
RA10963 Base

Inflation with monetary response: But higher
inflation can be moderated by appropriate monetary
policy and the BSP has an excellent track record.
Inflation with monetary response
1.6
1.4
PPT diff. from steady state
1.2
1
0.8
0.6
0.4
0.2
0
-0.2
…
RA10963 Base

Real interest rate: RA 10963 shows lower long-term
interest rate as tax financing does not crowd out capital.
Real interest rates
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
…
RA10963 Base

Real wages: Tax-financed public investments
encourages more job-generating private
investment that raises productivity and wages.
Real wages
7
6
5
4
3
2
1
0
-1
…
RA10963 Base

Government debt: RA 10963, which relies
on tax financing, achieves a sustainable debt path.
Debt to GDP ratio
25
20
15
10
RA10963 Base …

Current account: The deficit is higher with RA 10963 due
to capital importation to support an investment-led growth.
Current account
2
1.5
0.5
-0.5
-1
…
RA10963 Base

How to make this happen:
Being partners for change
Let’s work it out

Becoming partners for change
• In the mean time, we are working hard so that people already feel
change. This includes:
o Implementing the EO on Freedom of Information
o Significantly cutting red-tape; increasing ease of doing business, beginning with
longer validity of passport and licenses
o Bringing down internet cost and/or raising internet speed
o Increasing coverage and benefits of PhilHealth
o Increasing amount of conditional cash transfer (4P program) coupled with
training and livelihood programs
o Reducing traffic congestion and enhancing train system
o Addressing crime and drugs
• All these can help generate public support for the tax reform.

Becoming partners for change
• If we do this for 6 years, we can become a high
middle income country and reduce poverty by 6
million people.
• If we do this for one generation, we can become a
high income country and eradicate extreme
poverty.
• Let’s be Partners for Change.

Tax reform is really about INVESTING
in every Filipino’s FUTURE.

We need tax reform because we
want all Filipinos to rise above
poverty and be prosperous by 2040.

The tax reform is crucial
for the Philippines to achieve the
Ambisyon Natin 2040 vision.
“Matatag, maginhawa at
panatag na buhay para
sa lahat.”

No tax reform means:
The poor will likely remain poor
No significant investments in infrastructure, education, and health

It is crucial for the success of the
“golden age of infrastructure”.

Far less budget for rural development
Such as badly needed farm to market roads and irrigation

Little improvements in public transportation
More time in traffic, less productive people, less time for love ones

Access to quality education evades many
Classrooms will continue to be cramped and teachers
overworked, hampering our children’s learning potential
Quality health care escapes the poor
The poor are likely to get sick and not be attended well,
draining their income and chances of succeeding.

Key messages
1. Tax reform when seen as a package provides
benefits to 99% of Filipinos.
2. More important than the tax is how we spend the
money to benefit poor Filipinos.
3. The tax reform is an investment in our future. No
investment is easy. There are short term
challenges but everyone benefits in the long
term.

Tax reform as bridging the future
Source: https://www.pinterest.com/explore/social-stratification/

This administration can make a lasting
difference in each Filipino’s life

"... I think if people will realize that the money will be
put into good use, and really spent for the purpose it is
envisioned to be collected, and then they would give us
time.
Kasi, may mga pangako nga ako na dapat matupad.
Government runs on taxes. 'Yan ang gasolina ng
gobyerno."
- President Duterte

#TaxReformNow!

Let’s be partners for change!
For more information, please visit:
@DOFPH @DOF_PH dof.gov.ph/taxreform
For questions, you may directly email us at:
doftaxreform@dof.gov.ph

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Tax Reform for Acceleration

and Inclusion (TRAIN)

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Current and additional investment needed per year

2/2/18 DEPARTMENT OF FINANCE 7

Tax & customs Tax policy Improve food Simplify

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annually is still needed to [3% of GDP] 100% spending

Sources: DBM, PSA, DOF staff estimates

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Tax to GDP ratio, left VAT to GDP ratio, right

Source: Department of Energy

Total gas powered SUV Total diesel powered SUV

Source: LTO annual statistics

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Source: Bureau of Local Government Finance, FIES 2015

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Source: Bureau of Local Government Finance database on SMVs

For instance, assessed LGU market value on Ayala Avenue is

Amount of tax paid for every

2/2/18 DEPARTMENT OF FINANCE 24

East Asia Low-Mid

Value Added Tax (VAT)

Corporate Income Tax (CIT)

Personal Income Tax (PIT)

2/2/18 DEPARTMENT OF FINANCE 26

Share of unincorporated income and contributions in individual income taxes

Share of income Share of contributions in individual income taxes

Self-employed and professionals Compensation earners

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• Low-income and vulnerable

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“The money we generate from the rich, who

2/2/18 DEPARTMENT OF FINANCE 66

Package 1 change in take home pay (in pesos)

Change in annual VAT and excise taxes Change in Percentage

2/2/18 DEPARTMENT OF FINANCE 67

Package 1 change in take home pay (in pesos)

Change in annual VAT and excise taxes Change in Percentage

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