Gov’t spending to spike in 2018- -Finance Dep’t

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Gov’t spending to spike in 2018- -Finance Dep’t

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Lull in the government spending had drawn back the country’s spot in the competitiveness roadmap between ASEAN neighbors, thus challenging the current administration to spike government spending to be able to achieve the vision of a sustainable economy by 2040.

Department of Finance Assistant Sec. Paola Alvarez explained that President Rodrigo Duterte intends to reduce poverty rate from 21.6 percent to 14 percent or around six million Filipinos uplifted from poverty and achieve high-middle income status where per capita gross national income (GNI) increases from US$3,500 to at least US$4,000 by 2022 which is the current status of Thailand and China.

Addressing government underspending and reforming the tax system have been considered the major step to achieving these vision.

As there is no shortcut to achieve this vision, starting the work today will help the country achieve better growth rate by 2022, according to Alvarez.

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She also said the complementing House Bill 4774 or the Tax Reform for Acceleration and Inclusion (TRAIN) filed by Quirino Rep. Dakila Cua and House Bill 4888, proposing Tax Administration Reform Act (TARA), filed by Albay 2ndDistrict Rep. Joey Salceda will be significant to start the simplification of the country’s tax system that will pave to achieving the goal.

Captioned TARA na sa TRAIN, the two bills are expected to hit the plenary on first reading on Monday.

Salceda, who is the vice-chair of the House Committee on Economic Affairs that Third District Rep. Arthur Yap chairs, presented the TARA na sa TRAIN to members of the Bohol Chamber of Commerce and Industry (BCCI), members of Philippine Chamber of Commerce and Industry (PCCI) from Misamis Oriental and Iloilo, Philippine Exporters Confederation, and Employers Confederation of the Philippines, CSR-Philippines during a forum at The Bellevue Resort last Friday, together with partners from Tax Management Association of the Philippines, Financial Executives of the Philippines, DoF, BIR, and the Bureau of Customs.

With TARA, the government can increase the GDP from 7 to 10 percent in the following years that could reduce the poverty rate.

Establishing the GDP increase at this rate annually through a simplified tax system will allow the country to sustain the poverty reduction and achieve extreme poverty reduction by 2040 or “one generation from now”, according to Alvarez.

“Compared to Thailand and Vietnam, the Philippines is underspending by around 10 percent of GDP annually,” as the finance department data shows.

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“Even with substantial improvements in tax administration, underspending addressed, and sustainable borrowing, P366 Trillion or 2.3 percent of GDP annually is still needed to catch up starting 2017,” Alvarez added.

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Investment deficit will be financed from tax administration, customs administrations, 100 percent spending efficiency, borrowing, tax policy reform.

This is in reference to the data from the Department of Finance, PSA, and Department of Budget and Management.

Alvarez also noted that the investment deficit was estimated as the difference between the investment levels of the Philippines and Thailand as benchmark country.

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“The difference of around 10 percent of GDP which is equivalent to P1.7 Trillion in 2017 can be funded by improvements in tax and customs administration, spending efficiency and borrowing. However, these are not enough. The country needs an additional P366 Billion or 2.3 percent of GDP from tax policy reform to fully fund the gap,” Alvarez explained.

The national government also aims to establish “inclusive economic and political institutions where everyone has equal opportunities” that will benefit the country by 2040.

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For the long-term goal, the government needs an additional funds of P1 Trillion a year in 2016 prices on top of the current P1.7 Trillion that Congress will be allocating.

“Over the medium term, the government will need to raise P366 Billion per year between 2016 and 2022 or P2.2 Trillion in total,” according to Alvarez.

The funds will be invested on infrastructure, education and training, health, social protection, welfare and employment.

Alvarez explained that the proposed tax reform program aims to provide the needed additional revenues that would be invested on infrastructure.

The government will be concreting 3,714 kilometers of national gravel roads, also 10,473 kilometers of national asphalt roads, 30,209 kilometers of local gravel roads; irrigate 1.3 million hectares of land; and provide 7,834 isolated barangays and 23,293 isolated sitios with road access.

Some of the DPWH infrastructure projects to be funded are the Bonifacio Global City-Ortigas Center Link Road, UP-Miriam-Ateneo Viaduct along C-5 Katipunan, Panay-Guimaras-Negros Link, EDSA-Taft Flyover, C-5 Kalayaan-Bagong Ilog Improvement, Dalton Pass East Alignment Alternative Road, Central Luzon Link Expressway in Cabanatuan, San Jose, Isabela; Pasig-Marikina River Channel Improvement, Marikina Dam, and Flood Mitigation Project in the East Mangahan Floodway Area.

The administration also aims to achieve 100 percent enrolment and completion rates, build 113,553 more classrooms, hire 181,980 more teachers between 2017 and 2020, upgrade 704 local hospitals, establish 25 local hospitals, achieve 100 percent PhilHealth coverage at higher quality of services, upgrade and/or relocate 263 rural and urban health units to disaster-resilient facilities, build 15,988 new barangay health stations, build 2,424 new rural health units and urban health centers.

Also between 2017 and 2020, the government will also hire an additional 2,424 doctors; 39,466 nurses; 1,114 dentists; 3,288 pharmacists; 2,862 medical technologists; 911 public health associates; and 2,497 UHC implementers.

Alvarez said the tax reform is needed to fund the ten-point socioeconomic agenda of the administration.

The TRAIN bill will address problems in the tax system or tax policy itself and the TARA bill will address inefficiencies in administration and implementation.

Yap had earlier filed House Bill 36 that seeks “to lower corporate tax rates imposed on corporations to remove the incentive for corporate taxpayers to resort to tax evasion and encourage them to voluntarily pay their tax liabilities, and to compete in funneling investors upon the ASEAN regional economic integration as well”.

“Nobody likes to pay taxes. But we have to because it is the lifeblood of our government and of our economy as BCCI President Albert Uy has said, infrastructure spending comes from taxes. But in our case there seems to be a problem. There is already a perception that taxes are not properly used.

Or if they are used, they are used for the wrong things, for the wrong projects, for the wrong programs,” Yap said.

Yap added that the problem is aggravated by the fact that “the tax system has not been reformed for more than two decades. That’s a critical problem right now”.

“People who were used to be taxed before at P500,000 which we thought were rich at that time are not exactly that rich today. So, there’s already a bracket creep. Those that we are trying to tax right now that we thought used to be rich 20 years ago may not be necessarily rich today. This is an important issue,” Yap explained.

He also cited apprehensions that if the government cut taxes, funds for the infrastructure projects might be a problem.

However, he pointed out that by simplifying the tax system and reducing the tax rates for low-income earners and making it equitable as Salceda has proposed, it would encourage people to pay taxes and make it easy for the BIR and the Bureau of Customs to collect taxes.

“In order for our economy to sustain its growth, in order for us to grow, we need to be spending around five to six percent of our GDP in infrastructure spending for the coming five to 10 years. We need to raise about P300 Billion in taxes every year. So if we lower the income taxes on people, on corporations, where are we going to get that from? The tax system needs to be updated,” according to Yap.     

He added that the House Committee on Economic Affairs is also finding ways to address the concerns of the agriculture sector.

“The agriculture sector right now is 12.5 percent of the Philippine GDP and more than 40 million continue to stay in the rural countryside. Right now, this is a sector that is being affected by 30-40 tropical cyclones in a year without the credit infrastructure to support it. And we will be needing more funds, and yet we want to return the spending power back to companies and back to individuals,” Yap added.

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