DoF eyes yearend deadline for tax reform

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Metro Manila (CNN Philippines, May 31) — The country's tax system could face a major overhaul by yearend, after the President called on lawmakers to immediately approve the tax reform bill.

"The President's backing sends a strong message to Congress that tax reform is a priority of the administration," Finance Secretary Ma. Teresa Habitan said in an interview on Tuesday.

Habitan expects the House of Representatives to pass the bill on Wednesday - the last day of Congress' first regular session. Once approved at the lower chamber, the Senate can then begin hearings on the bill in July when the second regular session opens.

Even now, she said, members of the Department of Finance (DoF) are already meeting with senators to explain the rationale and main provisions of the tax reform. This should help the bill progress much faster in the upper house.

"We are going to have several hearings, but I think we are also hoping to see a final law signed by the end of the year or prior to that," Habitan said.

The DoF filed the Tax Reform and Inclusion Act (TRAIN) in Congress last September. Habitan said that despite the intense scrutiny the bill has faced, it has made significant ground - especially considering it is a major overhaul of the tax system. The last time the National Internal Revenue Code was updated was 20 years ago.

The TRAIN aims to lower personal income taxes from 32% to 25%, but raise taxes on other goods such as fuel, cars and sugary drinks.

It also sought to remove tax exemptions of cooperatives and socialized housing, but these provisions were struck down by the House after strong lobbying. Habitan said the DoF will fight to reincorporate those provisions once Senate hearings begin.

It will also push for the automatic adjustment of fuel taxes for inflation. The House only agreed to raise fuel taxes by P3 per liter in 2018, P2 per liter in 2019 and P1 per liter in 2020, but with no increases scheduled afterwards.

TRAIN is expected to bring in an additional P163 billion in revenues for the government next year. It wants to shore up roughly P1 trillion in extra revenues by 2022 so it can pursue a "high growth strategy."

Bulk of this funding will go to the Duterte administration's ambitious infrastructure program. Budget Secretary Benjamin Diokno estimates the government should spend about P8 trillion for much-needed infrastructure over the next six years.

More than that, though, Habitan said the long-term vision of tax reform is to improve the country's complicated and outdated tax system.

"This is not just a short-term vision, not simply a revenue-raising exercise. It's really trying to formulate a more sustainable tax system, make it simple, make it rational, make it fair," she said.