Veto message shows Duterte removed 5 tax reform provisions

Dharel Placido, ABS-CBN Newss

Posted at Dec 22 2017 09:30 PM | Updated as of Dec 22 2017 11:28 PM

President Rodrigo Duterte is flanked by lawmakers as he signs the Tax Reform Acceleration and Inclusion (TRAIN) law and the 2018 General Appropriations Act (GAA) at the Malacañang Palace on December 19, 2017. Rey Baniquet, Malacañang Photo

MANILA - President Rodrigo Duterte exercised his veto power over the first package of the tax reform law, removing five provisions such as those concerning the tobacco excise tax, personal income tax, and tax perks for people working in the business process outsourcing industry.

The measure, which Duterte signed into law Tuesday, lowers personal income taxes while raising duties on fuel, cars, coal and sugar-sweetened drinks. Revenues will help fund the President's P8-trillion infrastructure program.

Finance Secretary Carlos Dominguez III said the President’s veto would raise projected revenues from the first tax reform package to about P90 billion from the original P82.3 billion under the version approved by Congress.

The Constitution allows the President to veto any particular provision in an appropriation, revenue or tariff bill.

Duterte rejected the item that retained the reduced tax rate of employees of regional headquarters, regional operating headquarters, offshore banking units, and petroleum service contractors and subcontractors. 

Those covered are employees of the business process outsourcing industry, a sector that has helped fuel economic growth in the Philippines.

Duterte said Section 6 (F) of the bill effectively maintained the special tax rate of 15 percent of gross income for said employees, which he said violated equal protection under the law.

“While I understand the laudable objective of the proposal, the provision is violative of the equal protection of the laws,” Duterte said in his veto message.

“In line with this, [the] overriding consideration is the promotion of fairness of the tax system for individuals performing similar work. Given the significant reduction in the personal income tax, the employees of these firms should follow the regular tax rates applicable to other individual taxpayers.”

The President also removed the earmarking of incremental tobacco tax revenues.

Duterte vetoed lines 20 to 29 of Sec. 82 of the bill which states: “Notwithstanding any provisions herein to the contrary, the incremental revenues from tobacco taxes under this act shall be subject to Section 3 of Republic Act No. 7171, otherwise known as ‘An Act to Promote the Development of the Farmer in the Virginia Tobacco Producing Provinces’, and Section 8 of Republic Act No. 8240, otherwise known as ‘An Act Amending Sections 138, 140, and 142 of the National Internal Revenue Code, as amended, and for other purposes.”

The President said this provision effectively amends the Sin Tax Law that provides for guaranteed funds for universal health care.

“The provision will effectively diminish the share of the health sector in the proposed allocation,” the President said.

He also vetoed the item granting exemption from the percentage tax of gross sales/receipts to professionals and self-employed individuals with earnings not exceeding P500,000.

Duterte said he had to veto line 12 of Section 38 of the enrolled bill since this would result in the “unnecessary erosion of revenues and would lead to abuse and leakages.”

“The subject taxpayers under this provision are already exempt from VAT (value-added tax), thus, the lower three percent percentage tax on gross sales or gross receipts is considered as their fair share in contributing to the revenue base of the country,” Duterte said.

The President also vetoed excise tax exemption for various petroleum products when used as input, feedstock, or as raw material in the manufacture of petrochemical products or in refining petroleum products, or as replacement fuel for natural gas fired combined cycle power plants.

“The provision runs the risk of being too general, covering all types of petroleum products, which may be subject to abuse by taxpayers, and thus lead to massive revenue erosion,” Duterte said.

“At any rate, the tax code already identifies which petroleum products can be exempt.”

The President also vetoed the zero-rating of goods and services to separate customs territory and tourism enterprise zones, saying it goes against the “principle of limiting the VAT zero-rating to direct exporters.”