Business buoyant over prospects of deeper reforms

THE last six months of the Aquino administration recorded a 7.0-percent economic expansion as a result of the Philippines’ strong fundamentals.

The new administration took office on June 30 promising to continue the macroeconomic policies of the previous administration, but the official numbers have yet to tell whether the economy has continued moving up significantly.

Today, Oct. 7 marks the 100th day in office of President Rodrigo Duterte, 71, the seven-time mayor of Davao City.

But Bank of the Philippine Islands associate economist Nicholas Antonio Mapa says it’s still too early to gauge how the economy performed during Duterte’s first 100 days.

“The GDP [gross domestic product] numbers are yet to be reported, but preliminary data show that imports continue to outpace exports as corporates gear for more expansionary activity,” Mapa said in an e-mail to Manila Standard.

“We’ve seen, however, a slowdown in remittances and a slight uptick in inflation, which could slow our consumption juggernaut to some extent,” Mapa said. 

“However, all other indicators still look buoyant with domestic liquidity growing and bank lending up.”

Data from the Philippine Statistics Authority showed that the inflation rate in the third quarter of 2016, the start of the Duterte administration, rose to 2 percent against 1.53 percent in the last quarter in office of the previous administration.

Duterte has said he will continue the economic policies by his predecessor.

He appointed former Agriculture secretary Carlos Dominguez III as Finance chief and economics professor emeritus at the University of the Philippines Ernesto Pernia as chief economist.

“By the time this presidency bows out of office in 2022, we aspire to reduce the nation’s poverty rate from the current 26 percent of our total population to around 17 percent,” Dominguez said.

Pernia says the formulation of the next Philippine Development Plan will contain new indicators for poverty employment, rural development, culture and the arts, science and technology, migrants’ rights, climate change resiliency, peace and order, maternal health, housing, gender equality and energy security, among many others.

“If you remember, the Philippine Development Plan 2010-2016 included a multidimensional poverty index or MPI. We definitely want to continue this initiative and develop a multidimensional and trans-disciplinary approach in addressing the multiple facets of poverty,” Pernia said.

 “Note that the Duterte administration aims to reduce the poverty incidence in the country to as low as 17 percent by the end of his term. That will require a lot of effort from the economy side and the population side.”

To reduce poverty, the economic team aims to increase its focus on infrastructure development, something that the previous administration failed to do.

With just three months in office, the National Economic and Development Authority Board led by the President has already approved nine infrastructure projects worth P171.4 billion.

The Investment Coordination Committee–Cabinet Committee endorsed seven infrastructure projects amounting to P52.2 billion for the Neda Board’s approval.

“These projects will ensure the realization of the Duterte administration’s goals to reduce poverty and inequality by focusing on regional, rural and agricultural development,” Pernia said.

As infrastructure development needs massive funds, the Duterte administration is allocating P860.7 billion or about 5.4 percent of the P3.35-trillion proposed budget for 2017.

And to finance this ambitious infrastructure development, the government will need additional revenues, hence the Finance Department is speeding up the approval of the tax reform proposal package it had submitted to Congress.

The tax plan’s Package One covers cuts in personal income tax payments under a simplified, modified gross income system plus revenue measures to offset the losses from such PIT reductions.

“Without reforming our tax system so that it becomes fairer, simpler and more efficient, government cannot undertake the volume of spending required in achieving our goals,” Dominguez said.

Data from the Bureau of Internal Revenue show that almost 40 percent of the 4,659,173 taxpayers who will benefit from income tax exemptions beginning 2018 are minimum wage earners.

Of the total tax base for individuals totaling 5.6 million, minimum wage workers comprise a little more than a third of all taxpayers.

Finance’s reformed personal income tax system proposes six brackets in which those earning zero to P250,000 would pay zero tax beginning 2018, the planned first year of its implementation.

Of the total tax base for individuals numbering 5,612,777, 1,752,009 or 31.2 percent  are minimum wage earners.

In the second bracket of the Finance-proposed income tax system are another half-million taxpayers earning P250,000 to P400,000 per year who will pay only 20 percent of their annual gross income in excess of P250,000.

They comprise 10 percent of the total tax base for individual taxpayers.

From 2019 and onwards, those in the second bracket would have to pay a personal income tax of only 15 percent.

A total of 539,465 individual taxpayers would benefit from this lower tax rate under the second bracket.

The third bracket covers those earning P400,000 to P800,000 who will pay P30,000 in tax  plus 25 percent of their annual gross income in excess of P400,000. This bracket consists of 232,232 taxpayers representing 4 percent of the total tax base for individuals.

The tax would be adjusted in 2019 and onwards so that those belonging to this bracket would pay a lower rate of P22,500 plus 20 percent in excess of P400,000.

Those earning P800,000 to P2 million per year would pay a tax of P130,000 plus 30 percent in excess of P800,000. These taxpayers belong to the fourth bracket comprising 148,215 individuals or 3 percent of the tax base.

In 2019 and onwards, the rate would be reduced to P102,500 plus 25 percent in excess of P800,000.

Some 28,000 individuals earning P2 million to P5 million or 1 percent of the tax base would be taxed P490,000 plus 32 percent of their annual gross income in excess of P2 million.

They would benefit from a lower tax rate of P402,500 plus 30 percent in excess of P2 million from 2019 and onwards.

The last bracket of ultra-rich taxpayers comprising less than 6,000 individuals earning over P5 million would have to pay a tax of P1.45 million plus 35 percent in excess of P5 million.

From 2019 and onwards, the tax rate would be dropped to P1,302,500 plus 35 percent in excess of P5 million.

After 2019, the taxable income levels shall be adjusted every five years through rules and regulations issued by the secretary of Finance upon the recommendation of the BIR commissioner, taking into account among other factors, the effect of the five-year cumulative inflation rate.

Dominguez says Finance envisions its comprehensive tax reform plan to be the catalyst of an ambitious government program to raise an extra P1 trillion yearly for unparalleled public investments meant to free some 10 million Filipinos from poverty in six years’ time and eventually transform the Philippines into a high-income state by 2040. 

Topics: Aquino administration , Economic expansion , Strong fundamentals , Duterte administration , Economy
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