ADB backs DOF’s 'progressive' excise tax reforms

  • February 18, 2017

MANILA, Feb. 18 - The Asian Development Bank (ADB) has expressed its support for the proposed reforms in the excise taxes of automobiles and petroleum products being pushed by the Department of Finance (DOF) as these are highly “progressive tax measures” that would help support President Duterte’s 10-point socioeconomic agenda.

 

In his recent meeting with Finance Secretary Carlos Dominguez III, ADB President Takehiko Nakao said the Bank is also looking forward to the Philippines’ hosting of its 51st annual meeting of the Board of Governors that will be held in Manila on May 3-6 in 2018.

 

The ADB head also updated Dominguez on the preparations for the Bank’s  50th annual meeting, which will be held on May 4-7 this year in Yokohama, Japan.

 

In his letter sent earlier to Nakao, Dominguez, on behalf of the government, said that  “Following the Bank’s milestone of celebrating its 50th anniversary, it will be [the Philippines’] pleasure to host the succeeding annual meeting and launch the Bank’s proposed vision for the coming years.”

 

Discussing a wide range of issues with Dominguez during the meeting, Nakao said he agrees with the DOF proposal to adjust the excise taxes on automobiles and petroleum products and acknowledged that these are “progressive tax measures.”

 

The Bank also projected that the DOF’s proposed tax reform program would improve the business environment and sustain further growth and that revenue losses from the proposed reductions in personal income taxes (PIT) will be offset by broadening the value-added tax (VAT) base and increasing oil excise taxes.

 

For the second half of 2017, the ADB forecasts an expansionary fiscal policy for the Philippines with a budget spending net increase of 11.6% over the 2016 level.

 

"If successfully implemented, the new government's development agenda to step up spending on infrastructure, implement tax reforms, and cut red tape will sustain high growth rates and increase job creation," ADB country director for the Philippines Richard Bolt had said in earlier projecting the country’s 2017 GDP growth at 6.2 percent.

 

An ADB study has shown that excise tax collections in the Philippines have experienced a “dramatic decline” from 1997 to 2009.

 

The ADB has proposed an increased excise tax rates on fuel and tobacco and alcohol products, among other tax reform measures to broaden the tax base and increase revenue collections.  

 

“The country's overall tax system is relatively regressive compared with other countries in the region,” the ADB said in its 2011 assessment of the Philippines’ fiscal policy.

 

At the onset of the Duterte administration, the DOF immediately buckled down to work to craft a tax reform plan that would make the current system simpler, fairer and more efficient while raising additional revenues for the Duterte administration’s unprecedented public spending on infrastructure, human capital and social protection for the poor.

 

The first package of the DOF-proposed tax reform program is contained in House Bill No. 4774, which was filed last January by Rep Dakila Carlo Cua, who chairs the ways and means committee. 

 

HB 4774 consists of a significant reduction in personal income tax (PIT) rates plus a corresponding set of revenue-compensating measures, which include lowering the rates for estate and donor’s taxes, expanding the value-added tax (VAT) base but retaining exemptions for senior citizens and persons with disabilities, and adjusting automobile and fuel excise taxes.

 

In the meeting, Nakao also expressed his deepest condolences to the victims of the recent earthquake in Surigao and reiterated  ADB’s offer of assistance in mobilizing resources to help the affected communities.

 

Dominguez and Nakao also briefly discussed President Duterte’s  0-10 point socioeconomic agenda,  the emerging China-led Regional Comprehensive Economic Partnership (RCEP), the rise of China’s economy, and the resurgence of populist policies across the globe.

 

Nakao said the ADB welcomes the RCEP initiative and views this as a positive development if it would succeed in further opening up trade in Asia.

 

As for the rise of populist and protectionist policies, Nakao said he believes that sovereign states should prepare for such developments and acknowledged that they have a responsibility to provide social services to the people without overly relying on donor agencies. (DOF)  

 


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