Personal Taxes

Duterte admin’s personal revenue tax effort of two.4% highest since 1986 —DOF │ GMA Information On-line

The Duterte administration’s personal income tax (PIT) effort reached its highest level since 1986, despite lowering of rates for 99% of individual taxpayers starting in 2018 and the pandemic-induced economic slowdown, the Department of Finance (DOF) said Friday.

In a statement, the DOF said the PIT effort or personal income tax collections as a share of gross domestic product (GDP) averaged 2.4% covering the period from 2017 to 2021.

The Finance department said the record PIT effort in the first five years of the current administration has been attributed to the Comprehensive Tax Reform Program (CTRP) implement since President Rodrigo Duterte assumed office in 2016.

Citing a report to Finance Secretary Carlos Dominguez III by its Domestic Finance Group (DFG), the DOF said the PIT effort under President Duterte “was achieved even with the economy’s downturn in 2020 and 2021 arising from the strict mobility restrictions to contain the spread of COVID-19.”

Finance Assistant Secretary Valery Brion of the DFG said the high PIT effort can be attributed to “better compliance and an increase in registered taxpayers” that followed the enactment in 2018 of the Tax Reform for Acceleration and Inclusion (TRAIN) Law that benefited almost all individual taxpayers.

“The PIT reform under TRAIN made income taxation more equitable and a win-win for taxpayers, especially the low-income earners,” said Brion.

In comparison, the DOF said during the administration of the late President Benigno Aquino III from 2011 to 2016, the Finance department computed an average PIT effort of 2.1% of GDP, which was slightly higher than the average of 1.9% under both the Arroyo ( 2001 to 2010) and the Ramos presidencies (1993 to 1998).

Second to the Duterte administration’s average PIT effort was the 2.2% rate during President Joseph Estrada’s term.

The administration of the late President Corazon Aquino averaged 1.1%.

Meanwhile, the Duterte administration’s emerging average corporate income tax (CIT) effort covering the period of 2017 to 2021 is at 3.1%, and is second only to the Aquino III administration’s 3.4% despite the substantial reduction in the CIT from 30% to 20% for micro, small and medium enterprises (MSMEs) and to 25% for all other businesses beginning the pandemic year of 2020, the DOF said.

The previous CIT rate of 30% was the highest in the region, which made the Philippines less attractive to prospective investors.

“The share of CIT revenues to GDP could have reached 3.2% without the pandemic. The CIT remains to be the highest source of Bureau of Internal Revenue (BIR) collections, which accounts for around 22% on average of total tax revenues,” said Brion.

For excise tax collections, the Duterte presidency’s average tax effort of 2.2% nearly doubles the 1.2% of the preceding administrations of Aquino III and Arroyo, and is also higher than the 1.8% under Estrada and the 2% under Ramos, according to the Finance department.

It said the ratio could have been higher at 2.3% without the pandemic which would have been at par with the highest average excise tax effort of 2.3% during the Corazon Aquino administration.

“The increase under the Duterte administration is owed to the tax reform measures successfully legislated, such as TRAIN and the two ‘sin’ tax reform laws. The fuel marking program, which is one of the tax administration measures under TRAIN, also contributed to the high excise tax effort,” said Brion.

She pointed out that TRAIN also imposed an excise tax on sweetened beverages and cosmetic procedures and increased the excise tax on cigarettes, petroleum products, coal, mining, and automobiles.

“This led to an increase in the total BIR and BOC (Bureau of Customs) excise tax effort to 2.1% in 2018 from 1.6% in 2017. Moreover, the implementation of the two ‘sin’ tax laws in 2020 further improved the excise tax effort to 2.4 percent from 2.3 percent in 2019 despite it being the first year of the pandemic,” added Brion.

On the VAT effort, the Duterte administration’s emerging average is the highest since 1988 at 4.11%, which could have jumped to 4.36% if not for the pandemic-induced business shutdowns.

The next highest average is 4.05% under Aquino III, followed by 3.2% under Arroyo, 2.77% under Ramos, and 2.67% under Estrada, according to the DOF.

Under the Corazon Aquino presidency, when the VAT was introduced under Executive Order (EO) No. 273 covering a limited number of goods and services, the VAT effort was 1.91%.

“On average, total VAT collections by BIR and BOC account for about a third of total tax revenues. It is the third-highest revenue source for BIR while it is the highest for BOC,” said Brion.

The Finance official said the DOF’s DFG attributed the record VAT effort under the Duterte administration to the TRAIN law which expanded the VAT base by removing 56 lines of VAT exemptions contained in several other laws; and the improved tax administration, including the ongoing digital reforms and the BOC’s enhanced valuation system.—AOL, GMA News

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