(CTRP)
Package 1 and 2
Philippine Economic Briefing | 13 April 2018
Clark, Angeles City, Pampanga
Contents
•Package 1
• Key provisions
• Fiscal impact
•Package 2
• Rationale of the reform
• DOF proposal
Grid (Meralco) 100 7.80 780.00 2.00 4.40 8.18 0.00 0.38 14.96 794.96 1.92
Grid (non-Meralco, NEA) 100 8.80 880.00 2.00 4.40 5.91 0.00 0.38 12.69 892.69 1.44
Grid (non-Meralco, CDA) 100 8.80 880.00 2.00 4.40 5.91 7.18 0.38 19.87 899.87 2.26
SPUG (NEA, coal powered) 100 11.30 1130.00 4.00 0.00 0.00 0.00 0.38 4.38 1134.38 0.39
SPUG (CDA, coal powered) 100 11.30 1130.00 4.00 0.00 0.00 10.17 0.38 14.55 1144.55 1.29
SPUG (NEA, diesel/bunker powered, full pass-through) 100 11.30 1130.00 0.00 71.00 0.00 0.00 0.00 71.00 1201.00 6.28
SPUG (CDA, diesel/bunker powered, full pass-through) 100 11.30 1130.00 0.00 71.00 0.00 10.17 0.00 81.17 1211.17 7.18
SPUG (NEA, diesel/bunker powered, subsidized) 100 11.30 1130.00 0.00 0.00 0.00 0.00 0.38 0.38 1130.38 0.03
SPUG (CDA, diesel/bunker powered, subsidized) 100 11.30 1130.00 0.00 0.00 0.00 10.17 0.38 10.55 1140.55 0.93
Sources : DOE, Kuryente.org, a nd DOF s taff es tima tes
Notes : Es tima tes a re ba s ed on the fol l owi ng a s s umptions :
i ) An a ddi tiona l PHP 2.50 per l i ter i ncrea s e i n the exci s e tax of di es el a nd bunker fuel .
i i ) An a vera ge i ncrea s e to PHP 100 i n exci s e tax per MT of coa l .
i i i ) Remova l of VAT exemptions on tra ns mi s s i on cha rges a nd CDA-regi s tered coopera tives .
DEPARTMENT OF FINANCE 12
4/13/2018 DEPARTMENT OF FINANCE 13
4/13/2018 DEPARTMENT OF FINANCE 14
Value added tax
• Repeal of 54 out of 61 special laws with non-essential VAT
exemptions, thereby making the VAT system fairer.
o Exceptions in tax code: cooperatives (except electric coops),
and condo and association dues. VAT on medicines for
diabetes, high cholesterol, and hypertension exempted
starting 2019.
o Exceptions in special laws: PAGCOR and casino, domestic
coal, renewable energy, credit surety, countryside barangay
business enterprise, mini-hydro, and tourism.
• Purchases of senior citizens and people with disability
continue to be exempted from the VAT.
• For the average Filipino, this will not have an impact as
the VAT exemption removal will only affect groups
enjoying exemptions.
4/13/2018 DEPARTMENT OF FINANCE 15
Other taxes: excises
• Mining excise tax – double the rates from 2%
to 4%.
• Cosmetic excise tax – a new tax at 5% of gross
receipts.
• Tobacco excise tax – increase the rate from
PHP 31.2 per pack in 2018 to
o PHP 32.5 between January to June 2018,
o PHP 35 per pack from July 2018 to December 2019,
o PHP 37.5 per pack in 2020 and 2021, and
o PHP 40 per pack in 2022 and 2023, followed by
annual indexation of 4%.
30%
30%
25%
25% 24% 24%
15%
10%
5%
0%
Singapore Cambodia Thailand Vietnam Lao PDR Malaysia Indonesia Philippines
8.0
7.0
6.1
6.0
5.0
4.0 3.7
3.0
2.3 2.3
2.0
2.0
1.0
-
Philippines Thailand Indonesia Malaysia Vietnam Lao PDR Cambodia
51
50
4.0 47
49
45
46 47 46 47
43 40
3.4
35
Percent of GDP
37
PHP trillions
35
32 32 30
2.8 31
29 28
28 28 25
20
2.2
15
Exports (total, PHP trillions), left 10
1.6
Exports (total, percent of GDP), right
5
1.0 0
100
Percent of GDP
80
60
40
20
Targeted
To minimize leakages and distortion in the tax system, tax incentives
should be given to activities with significant positive externalities as
specified in the strategic investments priority plan (SIPP).
Time bound
There should be sunset provision in the grant of tax incentives.
Transparent
Monitoring of tax incentives should be institutionalized and reported
by government.
Proposed reform
• Governance of incentives
o The Fiscal Incentives Review Board’s (FIRB) function is expanded
as follows:
– To serve as the overall administrator of all IPAs and
incentives
– To review all IPA policy decisions
– To approve all IPA grant of investment tax incentives
– To grant tax subsidies to GOCCs and government offices
(current function).
o The DOF, as chair of FIRB, shall have veto power as the custodian
of fiscal prudence and responsibility. The Secretary of Finance
can cancel or suspend the grant of incentives upon the review
and recommendation of the FIRB.
o DOF to be co-chair of BOI, PEZA, and all other IPAs.
o NEDA to be a member in all 14 IPAs.
Proposed reform
• Broaden the tax base
oRepeal of 123 special laws on investment tax
incentives and consolidate into a single omnibus
incentives law.
oRepeal NIRC exemptions of GOCCs, proprietary
educational institutions and hospitals, RHQs,
ROHQs, income of resident foreign corporation from
foreign currency transactions, nonresident
cinematographic film owner, lessor or distributor
and owner or lessor, vessels, aircraft, machineries
and other equipment.
Proposed reform
• Rationalize investment tax incentives
o One single menu of incentives applicable to all IPAs.
o No double registration of activities.
o Only new investment/activities shall be granted income tax incentives.
Expansions are signs of profitability and need not be given incentives.
o Expansions can avail only of exemption from customs duty of capital
equipment.
o Definition of exporter: at least 90% of sales are actually shipped out to
a foreign country.
o Domestic firms allowed if in the strategic investments priority plan.
o One-year relocation incentive for firms moving out of Mega Manila.
o Superior incentives for lagging regions, conflict and calamity-stricken
regions.
Proposed reform
o Incentives menu
– Income tax holiday
– Replace the 5% gross income earned (GIE) tax in lieu of all taxes with a
reduced corporate income tax rate of 15% based on net taxable
income.
– Other income-based incentives: investment tax allowance, double
deduction for research and development and training expenses, 50%
deduction for labor, deduction for infrastructure and reinvestment of
profit.
– Exemption from customs duty.
– No more VAT incentives: All firms to pay VAT and prove they export to
be able to get a refund.
The VAT will not no longer be used as an investment incentive and
cannot be used in the separate customs territory argument,
especially for vertical zones (i.e., buildings).
– No more local tax incentives: LGU local business tax will not be
committed by NG.
Proposed reform