Press Releases

Salceda on IMF tax report: Focus on ‘progressive, efficient’ tax measures; House tax chair says no to higher PUJ taxes, nixes IMF recommendation to shift away from luxury taxation of cars

December 29th, 2022

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) says that the House tax panel will focus on tax measures that “are progressive and will make the tax system more efficient” in response to the International Monetary Fund (IMF) report on selected issues in the Philippines. Salceda says this will mean that the House tax panel will focus on “avoidable or substitutable consumption” rather than taxing “say, older cars which tend to be jeepneys, or other goods and services that the poor cannot avoid to consume.”

As such, Salceda says, the House tax panel will “study, but is indisposed to the IMF recommendation to shift away from the luxury-based system of taxing automobiles,” and towards an emissions-based system.

“I can’t justify taxing a low-emission luxury car at a lower rate than a public utility jeepney – especially during elevated inflation and the return of face-to-face engagements,” Salceda said.

“I can’t justify that to the Filipino commuter, or to the PUJ driver, who was impoverished by the COVID-19 restrictions on travel,” Salceda added.

Instead, Salceda says, he prefers “an updating of the rates of motor vehicle users taxes, based on gross vehicle weight – since it also accounts for the externality that is road damage and congestion. At the same time, to address environmental concerns without burdening the poor, I insist on significant earmarking towards direct subsidies for purchasing new units of cleaner jeepneys.”

“That was the 18th Congress version of the Motor Vehicle Users Tax, and that is also what we are disposed towards, this time around.”

Focus on tax measures with big revenue gains, no damage to growth

Salceda however agrees with the IMF that further reforms could be explored in excise tax collections and broadening the VAT base.

Salceda says that in this regard, “we are exploring getting rid of the de minimis for VAT and duty-free importation. We suspect that to be one of the bigger sources of technical smuggling.”

Salceda also agrees with the IMF report’s recommendation to focus on measures with higher revenue gains.

The IMF report suggested that “Any reform should exclude policies that are difficult to implement and administer, or that have a negligible revenue impact.”

“We agree with that. Congress has limited session time, and as with any tax, the administration also has a budget for its political capital.”

Salceda also agreed with the IMF report’s suggestion that “it is important to avoid measures that adversely impact economic efficiency, raise negligible amounts of revenue or are difficult to enforce.”

“As much as possible, we won’t pass anything that will stifle growth,” Salceda said.

PIT reduction should be coupled with easier tax compliance

Salceda adds that the personal income tax reduction scheduled under the TRAIN law, which would result “in a tax reduction of around 5% of income for those affected,” should be coupled with the enactment of the Ease of Paying Taxes Act.

“Low income taxes should be coupled with higher tax collection efficiency. The crucial link is easier tax compliance. Even if we lower rates, if compliance is still difficult, taxpayers will not comply faithfully.”

“So, to mitigate the revenue reduction resulting from the scheduled PIT cuts, we need more taxpayers happily complying with their taxes.”

“I am optimistic we can have that with the Ease of Paying Taxes Act, which the Senate is now extensively discussing.”

“I think we will have it in the law books by Q2 2023,” Salceda concluded.

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