Jasmin Star Ornillo

EAPP
First Draft
The proposed tax policy reform in the Philippines
The Comprehensive Tax Reform Program (CTRP) is needed to accelerate
poverty reduction and to sustainably address inequality, in order to attain the
President’s promise of “tunay na pagbabago”. By making the tax system simpler,
fairer, and more efficient, additional – and a more sustainable stream of – revenues
will be generated to make meaningful investments in our people and infrastructure,
which will help achieve our vision for the Philippines. The Philippines
macroeconomic fundamentals are good, thanks to prudent macroeconomic fiscal
management by the current and previous administrations. With tax reform, we can
further strengthen our macroeconomic position to create an environment more
conducive to high growth and investment, strong job creation, and faster poverty
reduction. If we only pass the popular reforms, we risk our current macroeconomic
stability. Rating agencies have warned against the stalling of the tax reform and a
possible downgrade. Tax reform will allow the government to invest in the Filipino
people through infrastructure, education, health, housing, and social protection .
Fears of spikes in inflation are unfounded. Inflation will still be within the 2-4%
target of the Bangko Sentral ng Pilipinas, and monetary policy tools can be used to
target inflation. ( Department of Finance, 2019).
Sweeping reforms at the Bureaus of Internal Revenue (BIR) and of Customs
(BOC) are underway to improve taxpayer satisfaction, arrest official corruption
and restore public trust in the government’s main revenue-generating agencies,
according to the Department of Finance (DOF). Finance Secretary Carlos
Dominguez III said both the BIR and BOC can carry out these reforms from their
end without any need for prior congressional approval, which is why both agencies
had begun putting them in place within the first six months of the Duterte
presidency. Also, the BIR has started simplifying forms and procedures for small
taxpayers to encourage tax compliance and ease payments, along with improving
its electronic payment systems and enforcing risk-based audits “to make the tax
process more transparent and easier for taxpayers to comply with. The BOC, for its
part, is now completing the implementing rules and regulations (IRR) of the
Customs Modernization and Tariff Act (CMTA), he said, to further step up both its
anti-corruption and anti-smuggling operations, while improving the facilitation of
trade. Electronic systems at the BOC are also being upgraded to pave the way for
paperless transactions that will, in turn, reduce opportunities for corruption.
(Department of Finance, 2017).
Republic Act No. 10963 provides for new tax deadlines, new tax rate tables,
removal of individual exemptions and limitations on qualifications for preferential
tax rates. The changes in the income tax rates will negatively impact high income
earners while low- to middle-income earners will see an increase in net pay. The
new law may lead to significant changes in international assignment costs for
employers with assignees in the Philippines. New withholding tax rates on
compensation have also been released by the Bureau of Internal Revenue (BIR)
and need to be applied by all employers beginning 1 January 2018. ( R.G.
Manabat, 2018). For resident citizens, non-resident citizens, resident aliens, and
non-resident aliens engaged in trade or business, income tax is calculated on the
basis of net taxable income at graduated rates ranging from 0 percent to a
maximum of 35 percent. Non-resident aliens not engaged in trade or business are
subject to tax at 25 percent of their gross income. ( KMPG, 2021).
The PDP 2017–2022 largely stems from the 0-10 point Socioeconomic
Agenda. It is the first of four medium-term plans that will work towards realizing
AmBisyon Natin 2040, the collective vision of Filipinos over the next 25 years.
The PDP has 21 chapters aimed at laying a strong foundation for inclusive growth,
a high-trust and resilient society, and a globally competitive economy—all of
which will enable Filipinos to achieve their aspiration of a “matatag, maginhawa,
at panatag na buhay.” The said plan is structured along the pillars of malasakit ,
pagbabago , and patuloy na pag-unlad. The PDP has set targets that the
government aims to achieve. By 2022, the Philippines will be an upper-middle
income country.  The growth rate of GDP is set at 7 to 8 percent in the medium
term. Overall poverty rate is targeted to decline from 21.6 percent in 2015 to 14
percent by 2022. Poverty incidence in rural areas is intended to decrease from 30
percent to 20 percent for the same period. The unemployment rate will also go
down to 3-5 percent by 2022 from 5.5 percent in 2016. Other targets are higher
trust in government and society, more resilient individuals and communities, and a
greater drive for innovation. Embedded in the PDP are bedrock strategies that
provide the necessary environment for the plan to work. These include achieving
peace and security, accelerating infrastructure development, building resilient
communities, and ensuring ecological integrity. ( NEDA, 2017).
 The performance of the economy during the past administration, though
impressive, actually fell short of the targets set in the PDP 2011-2016. In contrast,
those pertaining to the social dimension – reducing poverty incidence and
unemployment rate – surpassed the target. The target to significantly reduce
underemployment, however, remains elusive. The target to reduce poverty
incidence was also met. From a baseline of 26.3 percent poverty incidence in 2009,
the target was to reduce this to 22.5 percent in 2015 but the actual rate was 21.6
percent. This was due to the 82 percent increase in per capita income among the
bottom three deciles, which was much higher than the 29 percent increase in the
poverty line. Subsistence incidence also declined from 10.9 percent of individuals
in 2009 to 8.1 percent in 2015. The Philippines will have a high level of human
development by 2022.3 This will be supported by improvements in education and
health outcomes and the significant increase in incomes indicated above. There
will be greater trust in government and in society. The indicators for this will need
to be developed and then measured by the Philippine Statistics Authority for 2017
and 2022 ( NEDA, 2017 ).
TRAIN corrects and simplifies the current tax system, as well as make it
fairer by lowering the PIT, reducing VAT exemptions, and adjusting excise tax
rates on petroleum products and automobiles.
Through this tax reform, we have been and will continue to increase
spending in public investment, such as by constructing school buildings, roads, and
bridges, and funding basic social services and social protection. All these will
stimulate the economy more and benefit the poor. This is a more inclusive way of
spending our shared resources, rather than merely boosting individual consumption
spending by lowering all taxes. Every P100 spent by the government on social
services, such as health and education, will have a multiplier effect of 1.9% and
1.2%, respectively on the economy; while spending P100 on infrastructure will
yield a higher return of more than 2.0%. We must balance investment spending and
consumption spending if we want to create a more equitable society where
everyone feels change. However, addressing underspending alone will not be
enough to support the vision of this administration for a prosperous country with
zero extreme poverty and a better quality of life for all Filipinos. Although the
overall goal of the tax reform is to address the inequity of the current tax system, it
will also help achieve this administration’s vision through additional investments
in social services, health, education, and infrastructure. ( Department of Finance,
2017)
 It is inevitable that taxation will impose costs beyond the actual sums that
are raised and can be used to fund public spending. There are administrative costs
to government and taxpayers in running the system, and welfare losses as people
change their behaviour to reduce the tax they pay. The challenge in this review has
been to design a tax system that can raise the revenue that government needs to
achieve its spending and distributional ambitions whilst minimizing economic and
administrative inefficiency, keeping the system as simple and transparent as
possible, and avoiding arbitrary tax differentiation across people and forms of
economic activity. In this section, we draw together our discussions in the rest of
the book to outline the overall properties of a good tax system. The core though not
the entirety of our proposal is for a progressive, neutral tax system. Each of the
three key words of that formula ‘progressive’, ‘neutral’, and ‘system’ is important.
A good tax system should be structured to meet overall spending needs.
Earmarking of revenues for particular purposes should be avoided. There is no
reason for spending on particular items to be tied to receipts from particular taxes.
And earmarking of revenues that does not impose a binding constraint on spending
is empty rhetoric: ‘an exercise in deceiving voters that their tax payments [control]
government spending in a way which they simply will not misleading taxpayers
rather than expanding democracy. ( I.F.S., 1993)

REFERENCE
Department of Finance TaxReform, 2017 About Tax Reform |
Comprehensive Tax Reform Program • #TaxReformNow (dof.gov.ph)
 TaxReform Improvements in BIR, BOC in place as part of tax reform
measures 2017 Improvements in BIR, BOC in place as part of tax reform measures
| Comprehensive Tax Reform Program • #TaxReformNow (dof.gov.ph)
KMPG 2018 Philippines–Tax Reform Brings Changes for Individuals - KPMG
Global (home.kpmg)
KMPG 2021 Residence Rules Philippines – Taxation of international
executives - KPMG Global (home.kpmg)
Development Plan 2017 NEDA LAUNCHES THE PHILIPPINE
DEVELOPMENT PLAN - The National Economic and Development Authority
Philippine Development Plan 2017-2022 Overall Framework Chapter-4-
3292017.pdf (neda.gov.ph)
TaxReform Department of Finance “Lowering Personal Income Taxes” TRAIN
Tax Myths | Comprehensive Tax Reform Program • #TaxReformNow (dof.gov.ph)
Institute for Fiscal Studies, 1993, 64-65. Good Tax System Microsoft Word -
Judith prelims.docx (ifs.org.uk)