Metro Manila (CNN Philippines) — Thunderous applause greeted President Rodrigo Duterte’s promise to cut income taxes in his State of the Nation Address, but the noise it could make if his economic managers fumble in raising revenues could be louder.
Duterte did not say by how much he plans to reduce income taxes. The Department of Finance (DoF) is considering lowering tax rates and giving tax exemptions to those making P25,000 or less a month.
DoF spokesperson Paola Alvarez said the government will not raise the 12 percent value-added tax (VAT) to make up for any revenue loss because that will hurt most consumers. Instead, they are looking at raising the tax on luxury goods, junk food, sugar, and petroleum products.
They are also planning to relax the bank secrecy law and make tax evasion a more serious offense with higher penalties in the hope of encouraging compliance.
Benedict Tugonon, president of the Tax Management Association of the Philippines, supports these moves, including plans to collect more money from big time depositors.
“There’s really nowhere you can hide your money or your income because anyway, the government will see it when the bank secrecy law is lifted,” he explained.
For Bank of the Philippine Islands economist Emilio Neri, the planned alternative revenue sources are unstable and insufficient.
According to a DoF study under former Secretary Cesar Purisima, the country could lose P158 billion to P222 billion if income taxes are lowered. On the other hand, the country could earn about P132 billion from hiking the excise taxes on petroleum products.
The country’s economic growth would be hampered if the government doesn’t raise enough revenues, Neri said.
“We could have problems even in credit ratings from the ratings agencies. If you lower the tax rate, you have to be able to get it (money) from elsewhere,” Neri said.
Neri suggested raising the VAT and improving tax collections to fill the gap.
For those down the economic ladder, any tax increase is unwelcome. “Kabawasan na naman sa kita iyon,” said jeepney driver Juanito Serapion.
[Translation: That would mean more cuts to my earnings.]
“Dadagdagan din iyong presyo (ng mga panininda kong tsitsirya),” said sari-sari store owner Carlos Sobremente.
[Translation: That will increase the prices (of the snacks I am selling).]
