Duterte tax reform medicine: Bitter or sweet?

Patrick Quintos, Trishia Billones, Katrina Domingo and Joel Guinto ABS-CBN News

Posted at Jul 19 2017 05:57 PM

People and vehicles share the road on Doroteo Jose in Sta. Cruz, Manila. A busy metropolis is a sign of a burgeoning economy but problems related to urbanization are straining many Philippine cities. Jonathan Cellona, ABS-CBN News

MANILA - Stuck in yet another rush hour gridlock, taxi driver Rolando Calachan ponders how higher fuel taxes will affect his shrinking income, already squeezed by competition from shiny Uber and Grab cars.

But the fatalistic 61-year-old, who witnessed how traffic jams worsened in his 2 decades as a driver, said Filipino resilience would help him pull through, expressing support for President Rodrigo Duterte's tax reform effort.

"Ang Pilipino, magaling mag-adjust," Calachan told ABS-CBN News.

"Inaabot ko na lang ang pera sa asawa ko, bahala na siya mag-budget," he said, chuckling.

(I give the day's earnings to my wife. She knows what to do.)

Motorists are stuck in traffic along the main thoroughfare, EDSA. The daily occurrence is costing the economy at least P2.3-billion a day, according to a JICA study. Jonathan Cellona, ABS-CBN News

It's the same paralyzing traffic that the tax reform hopes to address. Revenues from the new duties will be used to fund up to P9 trillion in new roads, railways and airports, the cornerstone of "Dutertenomics."

Duterte is lowering income tax rates for the middle class and shifting the burden to the ultra-rich in an overhaul that the government says is long overdue.

But this will come at the cost of higher fuel taxes, P6 per liter spread over 3 years, and a P10 per liter duty on sugar-sweetened drinks, including soft drinks and instant coffee, raising concern that it would affect the poor.

"Sino ba ang kumokonsumo nito? Not the rich people. Ito yung mga pangunahing commodity na binibili at kinokonsumo ng normal na Pilipino," said Polytechnic University of the Philippines student council president Elijah San Fernando.

(Who consumes these? Not the rich people. These are the basic commodities that are bought by normal Filipinos)

Sachets of powdered drinks hang in a stall in Quezon City. The Duterte administration's tax reform program includes an P10-per-liter duty on sweetened drinks. Mark Demayo, ABS-CBN News

Vegetable vendor Brenda Sta. Ana said it might be time to kick her caffeine addiction. Her husband, Carlito, said he would ask for fare money from their children if transportation costs rise due to fuel taxes.

"Dapat lang, okay yun," the 61-year Carlito told ABS-CBN News in an interview at the couple's store in Nepa Q-Mart. "Kasi, mahirap naman taasan ng buwis ang mahihirap. Sila ang malaki ang kita e," he said.

(It's just right. It's okay. You can't raise taxes on the poor. It's the rich who are earning big.)

Minimum wage earners and small businessmen like the Calachan and the Sta. Ana couple don't pay income taxes so they will not directly benefit from the revised rates.

However, they will feel the pinch if consumer prices increase, which the government insists will be minimal, spiking inflation by 0.9 point.

Architect Mark Paul Rañada advanced the purchase of his first car, a grey Mazda 2, fearing he would end up paying higher excise tax.

"If I’d be living in a different reality wherein the proposed excise tax was nothing but an imagination, I’d probably be getting a vehicle 2 years from now," he told ABS-CBN News.

According to finance department simulations, while the tax on sub-compacts like the Mazda 2 would be P12,000 higher, the income tax of those who could afford it would be reduced by P20,000.


President Duterte leads the inauguration of the Miranda Bridge II which connects the Municipality of Carmen and the City of Tagum in Davao del Norte. Infrastructure such as these are targeted to improve transport of agriculture products as well as mass transit. Malacañang Photo

Finance undersecretary Karl Kendrick Chua said that for the first time, the Philippines is pushing for higher taxes to investment on the future, not to address current shortfalls, in a testament to the strength of the economy.

Chua said former President Gloria Arroyo's decision to raise the value-added tax rate to 12 percent in 2005 was "bitter medicine" but left the country twice as rich a decade later.

"We now have the capacity to think very long term. The policies now are about long term development," said Chua, a former World Bank economist.

Rebuilding the country's infrastructure to spur business in the countryside is crucial to the government's plan to lift millions from poverty, he said.

"Without tax reform the poor will likely remain poor," Chua told ABS-CBN News. "We don't want business as usual. We want to grow and become prosperous."

Economic managers have billed tax reform as justice for the middle class as higher taxes will be shifted to the ultra-rich, who comprise just 1 percent of the population.

Jeepneys transport millions of passengers a day in Manila. The Duterte administration is eyeing a phaseout of the old jeepneys and the introduction a more modern and efficient version. Jonathan Cellona, ABS-CBN News

Chua rejected criticism that the package was anti-poor.

Jeepney drivers will be given fuel subsidies and aid to convert to more fuel-efficient engines, doubling their mileage per liter to 8 kilometers from 4 kilometers.

Cash transfers to the poorest of the poor will also be increased by P1,200 per year, given in 2 separate P600 installments, he said.

He said fares should not rise as fuel accounts for just 13 percent of the fare. He said this would affect mostly the rich, who account for 51 percent of fuel consumption.

"The economy is so diverse, so strong that it can absorb a price increase. Changes in crude price have little impact on the real economy," he said.


People file taxes at the Bureau of Internal Revenue Office in Quezon City. Jonathan Cellona, ABS-CBN News

While not necessarily anti-poor, higher duties on fuel and sweetened drinks would raise the cost of living of the masses, said tax consultant Mon Abrea.

"Anything that the poor will buy will definitely impact their budget," he said.

Former Socio-economic Planning Secretary Solita Monsod said the 4-year cash transfer program might not be enough to help the poor deal with higher consumption taxes.

"You can hide income, but you cannot hide consumption." Monsod said. "They can push for more sin taxes but not the tax on soft drinks because that will affect the poor more."

Monsod the government should instead look at raising taxes on mining. 

The government should also focus on pursuing tax evasion cases, which could generate as much as P76 billion, said Freedom from Debt Coalition president Eduardo Tadem.

The economic team should also put more work into curbing smuggling, which can generate P400 billion in revenues, Tadem said. 

"The poor do not pay personal income taxes in the first place. They get nothing from it," Tadem said.

-- with a report from Jekki Pascual, ABS-CBN News