Tax Reform and its Role in Infrastructure Program

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Department-of-Finance
With the Three year Rolling Infrastructure Program (TRIP), also known as the ‘Build, Build, Build’ program amounting to P3.6 trillion from 2018 to 2020, Duterte’s administration has pointed out the important role of the tax reform under House Bill 5636.

With the Three year Rolling Infrastructure Program (TRIP), also known as the ‘Build, Build, Build’ program amounting to P3.6 trillion from 2018 to 2020, Duterte’s administration has pointed out the important role of the tax reform under House Bill 5636.

The Tax Reform for Acceleration and Inclusion (TRAIN), more commonly known as the Comprehensive Tax Reform Program under House Bill 5636 was passed last May 31, 2017 after being introduced in the House of Representative last January.

The tax reform program will raise funds to support the infrastructural projects that will be rolled out by the government for the next 6 years.

Finance Secretary Carlos G. Dominguez has stated that the project will not be realized if the comprehensive tax reform program will not be passed. With only little amount of support from development partners like China and Japan, the government will need local funds for the rest to support the high-budgeted infrastructure projects.

Next year alone, the government plans to spend more than P1 trillion and a total of more than P9 trillion until 2022 for the infrastructure program. Without additional revenue generating measures, there will be a three percent breach in the budget deficit allocated for the infrastructure spending.The tax reform will help preserve the government’s budgetary responsibility while increasing the infrastructure spending’s’.

There are already about 60 identified projects under the program and 11 of them has already been approved, these include:

  • Mindanao Railway Project (MRP) Phase 1 Tagum-Davao-Digos Segment
  • Malolos-Clark Railway Project (PNR North 2)
  • Cavite Industrial Area Flood Risk Management Project
  • Clark International Airport (CIA) Expansion Project
  • Education Pathways to Peace in Conflict-Affected Areas of Mindanao (PATHWAYS)
  • Australia Awards and Alumni Engagement Program – Philippines
  • Project Approval and Change in Financing of Chico River Pump Irrigation Project
  • New Communications, Navigation and Surveillance/Air Traffic Management (CNS/ATM) Systems Development Project: 30-Month Loan Validity Extension and Reallocation of Funds
  • New Configuration of the LRT Line 1 North Extension Project – Common Station / Unified Grand Central Station (North Extension Project)
  • Change in Scope, Cost, and Financing Arrangements for the Arterial Road Bypass Project Phase II
  • Change in Financing of the New Centennial Water Source – Kaliwa Dam Project

The Duterte administration plans to raise the infrastructure spending by 7 percent from the average 2.9 percent set by the former Aquino administration to 5.4 percent by 2022.

The tax reforms will also include the reduction of  the personal income tax by 25 percent for those under the five million taxable income, zero tax to those with 250,000 earnings per year and a raise to 35 percent of those who earn more than five million a year.

There would also be the expansion of the value added tax base by cutting exemptions. Our country has the highest exemption at the peak of 12 percent compared to our neighboring countries. There are 54 exemption lines plus the 84 via special laws. With the help of the tax reform program, the exemptions will be cut off to necessities only which will include raw food, education and health.

An increase in the oil and automobile excise tax will also be applied. The additional revenue that will be collected for the automobile tax will fund the improvement of traffic management solutions and climate change-resilient infrastructures. As for the oil excise tax, it will be used to fund targeted transfers, the Pantawid Pasada Program, and the Jeepney modernization plan of the government.

With the introduction of the sugar sweetened beverage tax the revenue will raise P65.8 billion more on top of its P43.8 billion tax administration measures.

The tax reform will only be used for five programs only and these are; health, education, housing, social protection and infrastructure (rural and urban). It will also continue to support the currentadministration’s programs like K-12, ‘Build, Build, Build’ and the ten-point economic agenda.

Finance Undersecretary Karl Kendrick Chua reminds everyone that this tax reform is an investment for our future. He adds that there will be a lot of challenges ahead, but if we push through this reform, then the gains are going to be big.