Economic reform agenda advances in 2019

Published December 28, 2019, 12:00 AM

by manilabulletin_admin


Halfway through the Duterte administration, the economic managers pushed for and continues to pursue the comprehensive tax reform program (CTRP) while intensifying tax monitoring and enforcement to ensure the national government has sufficient funding to support its projects.


In 2019, the Department of Finance (DOF), the National Economic and Development Authority (NEDA) as well as the Department of Budget and Management (DBM) carefully steered the country out of high inflation and slowing economic output.

After the sky-high inflation in 2018, the rate of increase in consumer prices finally softened this year, easing to its lowest rate recorded in more than three years in October. The rice tariffication law was the primary reason for the favorable inflation.

But while inflation has slowed markedly during the year, the Philippine economy was moving behind expectations of Finance Secretary Carlos G. Dominguez III, Socioeconomic Planning Secretary Ernesto M. Pernia and former Budget Secretary Benjamin E. Diokno.

Diokno, who was appointed as central bank chief in March following the untimely-death of Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla Jr., immediately blamed the delayed budget approval as the main culprit for lower than expected economic growth.

The three-way impasse between the upper and lower chambers of Congress and the executive branch in 2018 stalled the approval of this year’s national budget and restricted more than ₱1 billion spending per day on public goods and services during the first quarter.

The economic team already cut its 2019 gross domestic product (GDP) target from 6.0 percent to 7.0 percent to between 6.0 percent and 6.5 percent after the economy slowed to an average of 5.8 percent at end-September because of budget delay.

But Dominguez is confident the reenacted budget was just a “one-off” event because the Congress now knows how harmful these delays can be to the country’s economic performance.

The proposed ₱4.1-trillion 2020 general appropriations act is now up for President Rodrigo R. Duterte’s approval after both houses of Congress ratified the final version of the national budget before the Christmas break.

Along with the budget, one of the measures under the CTRP covering the increase in alcohol and tobacco taxes is also awaiting the President’s signature.

The Package 2+ of CTRP that imposes a fresh round of excise tax increase on alcohol, heated tobacco and vapor products was ratified by the Senate and House of Representatives before the 18th Congress adjourned in 2019.

But while the DOF recognizes the lawmakers’ swift approval of crucial economic measures, such the new sin tax law, the fiscal authorities also pointed out that the Congress-approved tax rates would not yield enough to fund the universal health care program.

In 2020, the latest sin tax law would raise only ₱22.2 billion, below DOF’s original proposal that would have raised ₱36.5 billion in revenues next year.

Still, Dominguez said that while the amount to be raised from the Package 2+ is significantly less than expected, it is still better than nothing.

Another CTRP package that was enacted in 2019 was Package 1B, but with line veto. The measure covers provisions on the general tax amnesty, but without safeguards against tax evasion and the tax amnesty on delinquency.
President Duterte thumbed down the grant of general tax amnesty and some provisions under estate tax amnesty.

With the passage of Packages 1B and 2+, there are still three remaining CTRP-related bills pending in Congress.

These include Package 2, or the Corporate Income Tax and Incentives Rationalization Act, Package 3 or the Real Property Valuation Reform bill, and Package 4 or the Passive Income and Financial Intermediary Taxation Act.

Apart from new tax measures, the Duterte administration also intensified its tax monitoring and enforcement programs, from illegal manufacturers of cigarettes to unscrupulous service providers for offshore gaming casinos.

In 2019, the Bureau of Internal Revenue seized counterfeit tax stamps and several units of machines used for printing and packaging bogus cigarette brands as well as closed down three unregistered service providers for Philippine offshore gaming operators (POGO).