After a 2-year bout with Covid-19, the Philippines now faces a new hurdle: paying off ₱12.3 trillion in debt. With the government incurring a ₱ 3.2 trillion bill for its pandemic response, it now needs to raise an additional ₱ 249 billion each year to meet its obligations.
So, what’s the government’s plan to raise that money? Raising taxes of course.
The Consequences
While raising taxes will always be unpopular, these proposals are necessary for our economy to recover from the pandemic. The Department of Finance’s (DOF) head himself has stated that there may be “serious and spiraling consequences” to the country’s economy if these proposals are not implemented.
Even economists from the Philippines’ biggest banks agree with the sentiment.
Rizal Commercial Banking Corp Chief Economist Michael Ricafort stated that the proposed measures were needed to keep the country’s credit rating intact.
And, UnionBank’s Chief Economist, Ruber Asuncion also made a similar statement adding that while the proposals may not be popular, they are necessary.
The Plan
The Department of Finance seeks to roll out three tax reform packages from 2023 to 2025 in a bid to quickly address our growing debt. These measures will generate an average of ₱ 350 billion per year from 2023 to 2027.
Package 1
Package 1 is targeted to be in place by 2023 and is estimated to bring in tax revenues of ₱ 247.8 billion per year. Containing 13 proposals, this is the biggest package to be proposed.
Personal Income Tax
This measure will impact the average Filipino taxpayer the most. Under the TRAIN Law, personal income tax rates were set to be reduced further by January 1, 2023. Instead, the DOF has proposed to move the reduction to 2025.
Under TRAIN, taxpayers earning more than ₱250,000 but less than ₱8 million must pay lower tax rates of 15-30% starting January 2023. The current tax rates are at 20-32%.
According to the DOF, this measure alone will bring the government tax revenues of ₱ 97.7 billion per year.
The table below breaks down the originally planned reduction.
| TRAIN Law Personal Income Tax Rates | ||
| Annual Incomes | 2018-2022 | 2023 Onward (Planned) |
| ₱250,000 and below | 0% | 0% |
| ₱250,001 to ₱400,000 | 20% of excess over ₱250,000 | 15% of excess over ₱250,000 |
| ₱400,001 to ₱800,000 | ₱30,000 + 25% of excess over ₱400,000 | ₱22,500 + 20% of excess over ₱400,000 |
| ₱800,001 to ₱2,000,000 | ₱130,000 + 30% of excess over ₱800,000 | ₱102,500 + 25% of excess over ₱800,000 |
| ₱2,000,001 to ₱8,000,000 | ₱490,000 + 32% of excess over ₱2,000,000 | ₱402,500 + 30% of excess over ₱2,000,000 |
| Above ₱8,000,000 | ₱2,410,000 + 35% of excess over ₱8 million | ₱2,202,500 + 35% of the excess over ₱8,000,000 |
Value Added Tax
The DOF is also mulling expanding the value-added tax (VAT) base by removing exemptions such as those provided to senior citizens and persons with disabilities. However, exemptions will still be retained for sectors such as education, agriculture, health, finance, and raw food.
Expanding the VAT base also means slapping digital services with VAT. So, if you’re currently subscribed to services like Netflix and Spotify, you may be paying more soon.
All is not lost though as the agency is amenable to a reduction of the VAT rate from 10% to 12% should their proposal to remove exemptions be implemented.
DOF’s VAT reform proposal is expected to add ₱142.5 billion to the country’s annual revenue.
Other Measures Under Package 1
The DOF further recommends imposing excise taxes on the following:
- Motorcycles
- Pick-up trucks
- Single-use plastics
- Luxury goods
- Casino gaming
This means that the cost of purchasing the above items and services may increase too. If you’re planning to buy that pick-up truck or motorcycle soon, you may want to think of buying it sooner.
If you want to know what else is included in Package 1, the images below from Rappler detail all of the finance agency’s proposals.
Package 2
The second package is set to be implemented in 2024 and is estimated to generate ₱349.3 billion in tax revenues.
Health Tax Reform
If you like sugary drinks and alcopops (i.e. low alcohol content beverages), then they may be due for a price increase. The DOF plans to tax alcopops the same as regular liquor and impose a standard ₱12/liter excise tax on sweetened beverages.
On top of this, they’re also seeking to raise the excise tax on both cigarettes and e-cigarettes.
Petroleum Tax
Gas and diesel prices are now at their highest since the 2008 financial crisis. But that’s not stopping the DOF from planning to increase the petroleum excise tax by ₱1 per liter. Let’s hope that the global markets for petroleum will stabilize if or when this proposal gets implemented.
Cryptocurrency Tax
We’ve actually covered cryptocurrency taxation extensively in one of our blogs. To keep it short, no law or regulation exists right now in the Philippines that dictates how crypto should be taxed. Do we apply Capital Gains Tax or do we apply a Withholding Tax? We just don’t know. So, until the government finally decides on how they want to tax crypto, the general recommendation right now is to declare your earnings once your crypto is converted into fiat.
But that ambiguity may be resolved in the near future. Given that DOF is prioritizing taxing cryptocurrencies, we can expect that laws will be enacted soon to remedy the lack of clarity.
Excise tax on domestic and imported coal
The DOF seeks to impose an excise tax on domestic coal and increase the already existing excise tax on imported coal.
According to the Department of Energy, coal accounts for 54% of the country’s power generation mix. This means that it is possible that electricity rates may be seeing a hike too.
Package 3
Implementing Carbon Tax is the only proposal under Package 3.
A Carbon Tax is a fee imposed on burning carbon-based fuels such as coal, oil, and gas. Since we’re in a climate emergency now, it makes sense that we finally get users of carbon fuels to pay for the damage they’ve caused.
As of 2022, 27 countries have already implemented a carbon tax.
Nothing’s approved… yet
It’s easy to get riled up over the thought of increased taxes but we have to remind ourselves that these proposals still need to be approved by the next administration. It is possible that some of the proposals mentioned earlier won’t see the light of day.
And, if the alternative is economic ruin, raising taxes is a reasonable course of action.
Lastly, we can expect that the Philippines’ tax policies may change a lot over the next couple of years. But you don’t need to worry. Taxpayers like you can always rely on Taxumo to stay on top of the latest tax policies.