MANILA (3rd UPDATE) - The House of Representatives on Wednesday passed on third and final reading President Rodrigo Duterte's tax reform bill, in a boost to his efforts to rebuild the country's infrastructure.
The final vote was 246 in the affirmative, 9 in the negative and 1 abstention.
The measure seeks new duties on petroleum products and sweetened beverages to offset a reduction in personal income taxes that Duterte promised during last year's campaign.
The Senate will need to pass counterpart legislation and reconcile it with the House bill before Duterte can sign it into law.
The measure is expected to generate P82 billion in annual revenues, half the projected P162 billion in the original proposal from the Department of Finance.
Duterte, who certified the bill as urgent, has set an ambitious P8-trillion plan to build new roads, railways, bridges and airports.
Here are key points of House Bill 5636 or the Tax Reform for Acceleration and Inclusion Act:
Effective January 1, 2018 to 2020, those earning no more that P250,000 annually are exempted from income tax, while the tax schedule is as follows:
P250,000 to P400,000-- 20 percent of the excess over P250,000; P400,000 to P800,000-- P30,000 plus 25 percent of the excess over P400,000;
P800,000 to P2,000,000— P130,000 plus 30 percent of the excess of P800,000;
P2,000,000 to P5,000,000—P490,000 plus 32 percent of the excess of P2,000,000;
Over P5,000,000—P1,450,000 plus 35 percent of the excess over P5,000,000.
The tax rates will be lowered further from January 1, 2021:
P250,000 to P400,000—15 percent of the excess over P250,000;
P400,000 to P800,000—P22,500 plus 20 percent of the excess over P400,000;
P800,000 to P2,000,000— P102,500 plus 25 percent of the excess of P800,000;
P2,000,000 to P5,000,000—P402,500 plus 30 percent of the excess of P2,000,000;
Over 5,000,000—P1,302,050 plus 35 percent of the excess over P5,000,000.
After 2022, the taxable income levels and base shall be adjusted once every 3 years by the Department of Finance (DOF) based on inflation.
For the self-employed and professionals within the VAT threshold of P3 million, the substitute bill requires them to pay an 8 percent tax on gross sales or receipts in lieu of the income and percentage taxes. The tax for those above this VAT threshold will be based on the 30 percent corporate income tax rate with minimum tax.
Taxable income is defined as gross income minus the authorized deductions like SSS or GSIS, PhilHealth, Pag-IBIG fund and other allowed exemptions like the exemption for the 13th month pay and other bonuses.
The exemption for the 13th month pay and other bonuses has been raised to P100,000.
Fringe benefits will be considered part of gross income by 2022.
The following sectors will keep their VAT exemptions:
- agricultural cooperatives;
- gross receipts from lending activities by credit or multipurpose cooperatives;
- sales by non-agricultural non-electric and non-credit cooperatives duly registered with the cooperatives development authority provided that the share of the capital contribution of each member does not exceed P15,000;
- export sales by persons who are not VAT registered;
- socialized housing;
- lease rental of less than P10,000 provided that it will be adjusted every three years after 2009 according to inflation;
- exemptions for senior citizens, and persons with disabilities.
A P10-per-liter excise tax will be imposed on non-alcoholic sweetened beverages, in liquid, powder or concentrate forms. These include all carbonated drinks, flavored water, energy drinks, sports drinks, juices, teas, coffee, and cereal and grain-based drinks.
A first time P3-per-liter excise tax on diesel and liquefied petroleum gas and higher duties on gasoline and kerosene will be imposed.
A flat rate of 6 percent will also be imposed for estate and donor taxes.
It also adopted the Department of Finance proposal to subject lottery and sweepstakes winnings from the Philippine Charity Sweepstakes Office (PCSO) to a 20 percent passive income tax in lieu of the lower 5 percent prize fund tax.
Tax reform bill draws flak
While government allies championed the bill’s “pro-poor” amendments to existing tax mechanisms, Makabayan bloc lawmakers slammed the approved measure.
ACT Teachers Rep. Antonio Tinio said that the excise taxes on fuel stayed in the revised bill, which might not be beneficial to consumers. He also questioned if the infrastructure to be fueled by the income generated by the revised tax scheme will indeed benefit the poor.
Bayan Muna Rep. Carlos Zarate also said in a statement released to media that the new measure shifts the burden to citizens. Despite income tax exemptions, fringe benefits will be taxed, and consumers will have to shoulder taxes on fuel, sugary beverages, and property.
The term “reform” is also deceptive, said Gabriela Party-list Rep. Emmy de Jesus, because commodity taxes will eat up any gains that consumers will get concerning their take-home pay.
It is up to the Department of Social Welfare and Development (DSWD) to ensure that the government’s unconditional cash transfer program and others can cushion the impact of any increases in the price of commodities, Siquijor Rep. Rav Rocamora said. --with reports from RG Cruz, ABS-CBN News