June 2nd, 2022
The last day caps what has been one of the most difficult periods in our country’s recent history. As Chairman of the House Committee on Ways and Means, I am proud of several policy innovations that we have introduced in the law books, or at least in the public discourse.
First, we stuck to the idea that tax breaks are tax expenditures, and should therefore justify their costs through overriding economic gains. Fiscal incentives reform has been a fight I have been doing since the 1990s, when I first proposed the Subsidy Council Act, which became the core of the CREATE Law. The idea that fiscal incentives should only be given when their benefits significantly exceed their costs, and only when they absolutely necessary to trigger a certain desirable economic outcome, is now in our law books.
We have also introduce the idea of accountability in tax incentives in the law. There is a clawback clause in CREATE: If you bloat your promised benefits to get tax incentives, you have to pay the state back when those benefits fail to materialize.
Second, we have increased revenues significantly, to the tune of around P229 billion annually, through successive tax reforms. The idea that fiscal space should be expanded in good times (2019) so that we have something to lean on during bad times (COVID era in 2020-2022) is now a principle that fiscal and economic managers can abide in succeeding administrations. This was not the mindset during the Aquino era, or even prior. Back then, we only raised taxes once the crisis was impending.
Third, we introduced taxes on POGO and proposed taxes on e-sabong, taking into account the increasingly digital nature of gaming. The “legal fiction” that POGOs are “doing business in the Philippines” and could therefore be subject to applicable taxes, is now enshrined in the law. You can use that principle for all sorts of other taxable areas, such as the digital economy. In principle, if something like POGO is “doing business in the Philippines,” anything that is based in the Philippines but provides services to customers abroad can be imposed some degree of taxes, probably on income.
Fourth, we were very strict about the use of taxation as an equity-promoting tool. My proposal for the Motor Vehicle Users’ Charge, for example, is to increases charges on cars which cause congestion, but to exempt motorcycles and tricycles from it, as well as to increase the PUV modernization program subsidy to P500,000. That took into account distributional impacts very seriously and struck a balance among all stakeholders.
Fifth, we tried, with Ease of Paying Taxes, to initiate a tax reform program that was pro-taxpayer compliance. The idea that the way to increase tax collections is by making it easier to pay tax, as opposed to, say being constrictive with taxpayers, is still very novel in our laws. I hope to do more of that principle next Congress.
The Committee on Ways and Means did its homework and was serious about its role as a partner of the Executive. We were able to do more tax administration changes than tax policy changes – and our tax policy accomplishments were already quite historic. That is testament to how closely and constructively we worked with the tax agencies. The result is that tax collection efficiency and tax effort did not decline despite the pandemic – and unlike past crises. I am very proud of the Committee’s work and the efforts of my partners, the Vice Chairs, and all our stakeholders.