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    Assessment of the 2017 Tax Reform for Acceleration and Inclusion

    Manasan, Rosario G. | August 2017
    Abstract
    Despite various reform efforts over the years, the tax system in the Philippines continues to suffer from chronic weaknesses. Tax rates are high relative to the country’s ASEAN neighbors, yet revenue productivity remains low. Filipino individual taxpayers are overburdened by personal income tax brackets that have not been indexed to inflation, resulting in bracket creep. The real value of excise tax rates on petroleum products have likewise been eroded by inflation, and the schedule is characterized by a number of exemptions and rates that are low by international standards. The value-added tax base has narrowed from excessive exemptions. The Duterte administration is pursuing a simpler, more efficient, and more equitable tax system to support its economic growth strategy. The administration’s Comprehensive Tax Reform Program was filed as House Bill (HB) No. 4774 in January 2017 at the lower house and Senate Bill (SB) No. 1408 at Senate. These bills represent the first of several reform packages that will each focus on different areas of tax policy. The House of Representatives approved a compromise bill, House Bill No. 5636, titled “Tax Reform for Acceleration and Inclusion” or TRAIN in May 2017. HB 4774, HB 5636 and SB 1408 seek to reform the structure of the personal income tax, value-added tax, and excise tax on petroleum products and automobiles, while improving the progressivity of the tax system. A portion of the additional revenues generated will be earmarked for investments in education, infrastructure, and health to stimulate long-term growth. This paper aims to assess the implications of these bills on the distribution of tax burden across income groups, economic incentives in affected sectors, national government revenues, and likely impact on tax compliance. Overall, the proposed reforms are projected to generate additional revenues of PhP 51.3 billion in 2018, PhP 96.5 billion in 2019, and PhP 99.9 billion from 2020 onwards. However, the high estimates are unlikely to be achieved due to an increased risk of noncompliance among SEPs who are expected to face higher effective tax rates under all three bills in comparison to those under the current system. If tax compliance/ efficiency in collecting PIT from SEPs deteriorates, the overall revenue take of national government is likely to be considerably lower than these high estimates. In terms of incidence, the change in the tax burden as a percentage of household income that will result from HB 4774/ HB 5636 and SB 1408 is highest for the poorest income decile and declines as income rises. This reflects the regressive character of the reform when one abstracts from the proposed targeted subsidies intended to mitigate the adverse impact of the reform on the poorer segments of the population. Furthermore, these three bills are estimated to give rise to a net income transfer from households in deciles 1 to 8 in favor of deciles 9 to 10. The results suggest the need to compensate poorer deciles, e.g., the poorest two or four deciles, through targeted subsidies for a longer period than that proposed under HB 4774 and HB 1408.
    Citation
    Manasan, Rosario G.. 2017. Assessment of the 2017 Tax Reform for Acceleration and Inclusion. © Philippine Institute for Development Studies. http://hdl.handle.net/11540/7481.
    Keywords
    Public Accounting
    Business Financing
    Subsidies
    Social Equity
    Economic Equity
    Project Risks
    Project Impact
    Public Administration
    Corporations
    Taxation
    Public Debt
    Local Government
    Debt Management
    Taxation
    Public Accounting
    National Budget
    Municipal Bonds
    Local Government
    Local Taxes
    International Monetary Relations
    International Financial Market
    International Banking
    Central Banks
    Business Financing
    Financial Aspects
    Fiscal Policy
    Regional Development Finance
    Public Scrutiny of City Finances
    Non-Bank Financial Institutions
    Local Government Finance
    Government Financial Institutions
    Foreign and Domestic Financing
    Financial Risk Management
    Assessing Corporate Governance
    Good Governance
    Governance Approach
    Urban Development Finance
    Trade Finance
    Small Business Finance
    Rural Finance
    Roundtable on International Trade and Finance
    Regional Development Finance
    Investment Requirements
    Banks
    |Taxing power
    Tax administration and procedure
    Tax policy
    Effect of taxation on labor supply
    Decentralization in government
    Community power
    Corporate divestment
    Civil government
    Delegation of powers
    Equality
    Neighborhood government
    Subnational governments
    Delivery of government services
    Local taxation
    Options
    Government
    Local government
    Taxation
    Grants
    Loans
    Use tax
    Taxing power
    State of taxation
    Tax-sales
    Tax revenue estimating
    Tax planning
    Spendings tax
    Special assessments
    Tax administration and procedure
    Sales tax
    Real property and taxation
    Progressive taxation
    Effect of taxation on land use
    Effect of taxation on labor supply
    Intergovernmental tax relations
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    Citable URI
    http://hdl.handle.net/11540/7481
    Metadata
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    pidsdps1727_rev.pdf (1.304Mb)
    Author
    Manasan, Rosario G.
    Theme
    Finance
    Governance
    Small Medium Business
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise