In the next three weeks, Filipino consumers will have higher take-home pay, but they have to brace for higher tax on sugar-sweetened beverages, more expensive fuel, and higher tobacco prices, among others.
Last night, the Bicameral Conference Committee (bicam) was able to finalize the proposed Tax Reform for Acceleration and Inclusion (TRAIN) measure which is expected to generate P130 billion, of which 70 percent would be used to fund the Duterte governmentâ€™s ambitious infrastructure â€œBuild, Build, Buildâ€ program.
The Senate and House of Representatives took at least five meetings to reconcile their different versions of the proposed tax reform program which has been considered a priority measure of the Duterte administration.
Both chambers are expected to ratify the bicam report on the measure anytime this week before they send the final version to the President for his signature. The government is targeting its implementation on Jan. 1, 2018. Congress is set to go on break starting Dec. 15, 2017.
Higher income tax
Lawmakers have agreed to exempt the first P250,000 annual taxable income and raise the tax exemption for 13th month pay and other bonuses to P90,000. This translates to an approximate tax exempt monthly income of P22,000.
For self-employed and professionals (SEPs), lawmakers introduced a flat 8 percent tax. This was made optional for those earning below the value-added tax (VAT) threshold of P3 million so they can choose which tax scheme â€“ either 8 percent flat tax or scheduler personal income tax rate with deductions â€“ is more favorable to them.
SEPs earning P250,000 and below will be exempted from income tax and those with gross sales or receipts of P500,000 and below will be exempt from paying the 3 percentage tax.
The lawmakers have also made it easier for SEPs to comply by allowing the filing of VAT and percentage tax returns quarterly. Currently, SEPs are required to file VAT and percentage tax returns monthly. They also simplified the income tax returns by shortening the forms to four pages only.
A government teacher with a monthly income of P20,179 and pays P28,717 in taxes yearly at a rate of 25 percent would, under the new proposed tax scheme, be already exempted from payment of taxes, enabling him or her to take home a bigger pay and save P2,393 monthly.
Meanwhile, a call center agent earning about P30,168 a month and currently taxed at 30 percent, would, under the TRAIN program, have his or her annual tax due reduced to 20 percent or P18,660 or one-third of his or her current taxes of P55,490, resulting to approximately P36,830 annual savings.
Lawmakers, on the other hand, provided for a varied tax increase per petroleum product but kept a minimum increase on the prices of liquefied petroleum gas (LPG), diesel, and gasoline â€“ all of which are commonly used in households.
Diesel, which at present is not taxed, would be imposed with a P2.50 tax in 2018; P4.50 in 2019; and P6 per liter in 2020 and onwards.
LPG, which is also not taxed, would be imposed P1 in 2018; P2 in 2019; and P3 per liter in 2020.
Regular and unleaded premium gasoline, which is currently taxed at P4.35 would be imposed P7 in 2018; P9 in 2019; and P10 per liter in 2020.
The Department of Finance (DOF) originally proposed a straight out R6 increase per liter, while the House provided for a phased implementation of 3-2-1, while the Senate provided a 1.75-2-2.25 increase.
Lawmakers provided for a safeguard provision that would suspend the petroleum excise tax increase if Dubai crude oil exceeds $80 per barrel.
Congress likewise granted to DOF the authority to require fuel marking to combat oil smuggling.
Congress also imposed a P6 tax per liter for beverages using caloric and non-caloric sweeteners and P12 per liter for beverages using high fructose corn syrup (HFCS).
All milk â€“ plain, infant formula, growing up milk; powdered, ready to drink, flavored and fermented milk â€“ were excluded from higher taxes given its nutritional value.
Also excluded are coffee (ground and 3-in-1) since it is one of the most consumed food items of ordinary Filipinos and survey showed 90 percent of consumers of 3-in-1 coffees are low income earners.
Other excluded beverages include 100 percent natural fruit and vegetable juices, meal replacement and medically indicated beverages. Sweetened beverages that used coco sugar and stevia are also excluded.
Automobile excise tax
For cars, the bicam approved a rate of 4 percent for up to P600,000 net manufacturerâ€™s price; 10 percent for P600,000 to P1 million; 20 percent for P1 million to P4 million; and 50 percent for above P4-million net manufacturerâ€™s price.
Electric cars would be exempt while hybrid cars will be taxed at half the rates. This is to encourage greener and cleaner transportation. Pick-ups, which are commonly used by businessmen and entrepreneurs for commercial and agricultural purposes, will be exempt as well.
The bicam also approved to increase coal excise tax from P10 per metric ton to P50 per metric ton in the first year of implementation, P100 in the second year, and P150 in the third and succeeding years.
Senate Ways and Means Committee chair Sen. Juan Edgardo â€œSonnyâ€ Angara said the P10 coal excise tax rate has remained unchanged since 1988 while the local industry has been exempted from paying excise tax since 1976.
Tobacco excise tax
Contentious also was the bicamâ€™s approval of a tobacco excise tax from the current P30 to P32.50 from January to June 2018; P35 from July to December 2018 to 2019; P37.50 from 2020 to 2021; P40 from 2022 to 2023 and a 4 percent annual indexation come 2023 onwards.
The Philippine Tobacco Growers Association lamented at this last-minute decision that emanated from the House. â€œItâ€™s a sad Christmas for tobacco farmers and our families thanks to the huge cigarette excise tax gift we got from Congress,â€ they said in a statement.
â€œOur appeal to our representatives to give our industry a respite from successive tax hikes has fallen on deaf ears. Our production has seen a significant drop from 68 million kilograms in 2013 to 52 million kilograms in 2015 and this alarming trend would only get worse with this massive 16% increase beginning Jan. 1,â€ they pointed out.
Excise taxes on tobacco should have been part of the TRAINâ€™s second package but made its way to the first package of the program during the bicam.
â€œAs we struggle with reduced demand, we hope we will get the support we need for the livelihood of our farmers and their communities,â€ they said.
The bicam also agreed to levy cosmetic procedures, surgeries, body enhancement directed solely toward improving, altering or enhancing oneâ€™s appearance with a 5 percent excise tax.
But cosmetic procedures arising from a deformity, congenital, or developmental defect or abnormality, injury, disease would be exempted from tax.
VAT base expansion
The bicam also increased the VAT threshold from P1.9 million to P3 million, exempting small business with total annual sales of P3 million and below from paying VAT.
Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension will be VAT-free starting 2019.
Congress also retained the VAT exemption of socialized housing priced at P450,000 and below and of low-cost housing amounting to P3 million for the next 3 years so as not to exacerbate the current 6 million housing backlog.
Starting 2021, socialized housing and mass housing projects that are worth P2 million and below located both in and outside of Metro Manila will continue to be VAT-exempt. Leases below P15,000 per month and condominium association dues will also be VAT-exempt.
Meanwhile, VAT exemption of government-owned and -controlled corporations, state universities and colleges (SUCs), and national government agencies will shift to a form of subsidy through the tax expenditure fund (TEF) under the national budget.
The bicam also reduced and simplified donorâ€™s tax to a flat tax rate of 6 percent on net donations for gifts exceeding P250,000 regardless of relationship between donor and recipient.
It also doubled the prevailing documentary stamp tax rates on documents, instruments, loan agreements and papers such as bank checks from P1.50 to P3. (With a report from Ben R. Rosario)