ECONOMIC MANAGERS warned of spending reductions due to weaker revenue prospects of the second tax reform package, amid attempts to keep military pensions under control and a Supreme Court ruling calling for more funding for local governments.
“TRAIN 2 is supposed to be revenue-natural,” Budget Secretary Benjamin E. Diokno said in a briefing on Wednesday, meaning that any foregone revenue needs to be offset by savings elsewhere, thereby preserving the spending program.
He was referring to the second package of the tax reform program, formerly known as Tax Reform for Acceleration and Inclusion (TRAIN) but now rebranded after modification in the House as Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO).
Commenting on the apparent change in emphasis in the House to focus on jobs, Mr. Diokno said TRAIN 2 was already expected “to attract more workers.”
The version that the House committee on ways and means approved on Tuesday did not include the Finance department’s proposal to index corporate income tax cuts to the savings generated from streamlining fiscal incentives.
Finance Undersecretary Karl Kendrick T. Chua said that in the first year of implementing the measure would cost about P62 billion.
“We’re not sure if that will stick. If it’s revenue negative, that’s serious. So we will try to convince them to try to make it at least revenue neutral,” he said, noting that the proposal has yet to pass through the House plenary. Other opportunities to modify the legislation are in the Senate, which must also pass its own version, and the bicameral conference committee, where the two versions must be reconciled.
“That is a serious fiscal breach. It could result in a higher deficit. We don’t want that to happen or we will have to cut back on our expenditures, which we also do not want to happen,” he added.
The House bill proposes to cut the corporate income tax rate to 20% from 30% gradually, or a 2 percentage-point reduction every other year beginning 2021.
It also proposed to limit incentives to a single menu, with perks capped for five years. The menu will only be available to industries included in the annual Strategic Investments Priority Plan (SIPP), and those availing of the perks must satisfy performance targets as determined by the Board of Investments. The bill also includes a sunset period of two to five years depending on the contracts that firms enjoying incentives have with investment-promotion agencies (IPAs).
Mr. Chua said: “It would be better if (tax rate cuts) are conditional to ensure revenue neutrality. We are not sure the version passed will be revenue neutral, but we will try our best.”
Mr. Diokno said government revenue is already under pressure because of a Supreme Court ruling ordering the automatic and prospective release of local government claims on national government revenue. The claims are known as internal revenue allotments (IRAs), which the court ruled are based on all national government taxes, including those collected by the Bureau of Customs. The current practice is to share out taxes collected by the Bureau of Internal Revenue.
He said during a Senate hearing yesterday that complying with the ruling would cost the government P195 billion on top of the funds already allocated for local government units (LGUs) this year.
Mr. Diokno said that the government through the Office of the Solicitor General submitted yesterday its motion for reconsideration to the high court, seeking clarification on which taxes are to be included in the computation of the IRA.
He added that giving LGUs the expanded share of national revenue will expand the fiscal deficit to 4% of the economy from 3% currently. He said that in the event the ruling is final and executory, the government will devolve some functions to LGUs to keep its fiscal position intact.
“We cannot afford a higher deficit, we cannot risk it.”
Mr. Diokno also identified the growing pension liabilities for uniformed personnel as a fiscal risk.
Finance Secretary Carlos G. Dominguez III in the same Senate hearing said that economic managers will submit to Congress a draft that will create a new contributory pension scheme, as the government budget currently shoulders over P33 billion of retiree’s pensions annually.
“We will be presenting the package to the President for his approval (and proceed to) legislation… to address the pension issue. It’s a very difficult problem and I’m not sure we can solve it all, but at least we are going to start solving it,” Mr. Dominguez said.
“He gave us until the end of the month for the package,” he added.
He said that the government’s outstanding liabilities to military retirees are at P4 trillion.
“For every position, we are paying two and a half people who are retired. You have the guy who is doing the job, and there are two more guys who are retired, and getting the pay of this guy now,” he said, referring to the indexing of retiree pensions to the levels enjoyed by active-duty personnel. — Elijah Joseph C. Tubayan
http://www.bworldonline.com/house-version-of-tax-reform-bill-could-dampen-expenditure/
“TRAIN 2 is supposed to be revenue-natural,” Budget Secretary Benjamin E. Diokno said in a briefing on Wednesday, meaning that any foregone revenue needs to be offset by savings elsewhere, thereby preserving the spending program.
He was referring to the second package of the tax reform program, formerly known as Tax Reform for Acceleration and Inclusion (TRAIN) but now rebranded after modification in the House as Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO).
Commenting on the apparent change in emphasis in the House to focus on jobs, Mr. Diokno said TRAIN 2 was already expected “to attract more workers.”
The version that the House committee on ways and means approved on Tuesday did not include the Finance department’s proposal to index corporate income tax cuts to the savings generated from streamlining fiscal incentives.
Finance Undersecretary Karl Kendrick T. Chua said that in the first year of implementing the measure would cost about P62 billion.
“We’re not sure if that will stick. If it’s revenue negative, that’s serious. So we will try to convince them to try to make it at least revenue neutral,” he said, noting that the proposal has yet to pass through the House plenary. Other opportunities to modify the legislation are in the Senate, which must also pass its own version, and the bicameral conference committee, where the two versions must be reconciled.
“That is a serious fiscal breach. It could result in a higher deficit. We don’t want that to happen or we will have to cut back on our expenditures, which we also do not want to happen,” he added.
The House bill proposes to cut the corporate income tax rate to 20% from 30% gradually, or a 2 percentage-point reduction every other year beginning 2021.
It also proposed to limit incentives to a single menu, with perks capped for five years. The menu will only be available to industries included in the annual Strategic Investments Priority Plan (SIPP), and those availing of the perks must satisfy performance targets as determined by the Board of Investments. The bill also includes a sunset period of two to five years depending on the contracts that firms enjoying incentives have with investment-promotion agencies (IPAs).
Mr. Chua said: “It would be better if (tax rate cuts) are conditional to ensure revenue neutrality. We are not sure the version passed will be revenue neutral, but we will try our best.”
Mr. Diokno said government revenue is already under pressure because of a Supreme Court ruling ordering the automatic and prospective release of local government claims on national government revenue. The claims are known as internal revenue allotments (IRAs), which the court ruled are based on all national government taxes, including those collected by the Bureau of Customs. The current practice is to share out taxes collected by the Bureau of Internal Revenue.
He said during a Senate hearing yesterday that complying with the ruling would cost the government P195 billion on top of the funds already allocated for local government units (LGUs) this year.
Mr. Diokno said that the government through the Office of the Solicitor General submitted yesterday its motion for reconsideration to the high court, seeking clarification on which taxes are to be included in the computation of the IRA.
He added that giving LGUs the expanded share of national revenue will expand the fiscal deficit to 4% of the economy from 3% currently. He said that in the event the ruling is final and executory, the government will devolve some functions to LGUs to keep its fiscal position intact.
“We cannot afford a higher deficit, we cannot risk it.”
Mr. Diokno also identified the growing pension liabilities for uniformed personnel as a fiscal risk.
Finance Secretary Carlos G. Dominguez III in the same Senate hearing said that economic managers will submit to Congress a draft that will create a new contributory pension scheme, as the government budget currently shoulders over P33 billion of retiree’s pensions annually.
“We will be presenting the package to the President for his approval (and proceed to) legislation… to address the pension issue. It’s a very difficult problem and I’m not sure we can solve it all, but at least we are going to start solving it,” Mr. Dominguez said.
“He gave us until the end of the month for the package,” he added.
He said that the government’s outstanding liabilities to military retirees are at P4 trillion.
“For every position, we are paying two and a half people who are retired. You have the guy who is doing the job, and there are two more guys who are retired, and getting the pay of this guy now,” he said, referring to the indexing of retiree pensions to the levels enjoyed by active-duty personnel. — Elijah Joseph C. Tubayan
http://www.bworldonline.com/house-version-of-tax-reform-bill-could-dampen-expenditure/
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