Duterte's Philippine tax reform pledge gets boost from Purisima

[MANILA] Incoming Philippine President Rodrigo Duterte'spledge to reform taxes is getting a boost from Finance Secretary Cesar Purisimawho is bequeathing his successor with a proposal that could yield as much as US$3 billion of revenue annually.

The proposal includes lowering income and corporate taxes while lifting the sales tax, Mr Purisima said in a May 20 interview. It also suggests increasing the excise tax on oil, removing exemptions for the sales tax, and lifting bank deposit secrecy, all of which could yield as much as 141 billion pesos ($4.1 billion) in the first year of implementation, he said.

"They can look at how we planned to approach tax reform and mix it with whatever their concepts are," Mr Purisima, whose six- year term ends in June, said at his home in Manila. "We wanted to do it, but we ran out of time."

While outgoing President Benigno Aquino has almost doubled state earnings by hunting tax evaders and curbing corruption, Fitch Ratings estimated general government revenue remains low at about 20 per cent of gross domestic product in 2015, compared with the 28.6 per cent median for similarly rated nations.

PRESIDENT'S EAR

Reforming the country's tax regime forms part of Mr Duterte's economic agenda outlined by incoming Finance Secretary Carlos Dominguez on May 12.

Mr Purisima said he is confident in the skills of his successor, who he met for lunch before the interview, citing Mr Dominguez's previous stint as Agriculture Secretary, deep business experience and strong support from Duterte.

"Having the president's ear is crucial" if you want to push for reforms, Purisima said.

The tax reform package suggests cutting personal and corporate income tax rates to 25 per cent within six years, and exempting workers earning 1 million pesos and below a year from paying taxes, said Mr Purisima.

It also suggests reducing incentives for industries like real estate and allowing revenue agencies to retain part of their collection to modernise and fund personnel enhancement, according to a summary of the study obtained by Bloomberg.

SIMILAR PLAN

The proposal is similar to a plan unveiled by incoming Economic Planning Secretary Ernesto Pernia. The new economic team plans to cut personal income taxes to benefit low-income earners, while the corporate income tax can be patterned to neighbours in Southeast Asia where the rate is about 25 per cent, Mr Pernia said by phone on May 20.

At present, the corporate tax rate is 30 per cent while income tax rates are as high as 32 per cent, among the highest in the region, according to the International Monetary Fund.

There's also a plan to lift bank deposit secrecy and reduce tax perks to offset foregone revenue due to lower income taxes, said Mr Pernia, professor at the University of the Philippines' School of Economics who was previously lead economist at the Asian Development Bank.

The Philippines must ensure any tax reductions are offset by revenue-enhancing measures to protect fiscal gains and fund pro-poor programmes, Mr Purisima said. Under Mr Aquino, the nation won its first-ever investment grade ratings and had its best period of growth since the 1970s.

"We're turning over a country in a better position, a country now with wind beneath its wings," said Mr Purisima.

BLOOMBERG