DSWD stand on Finance Dept’s tax reform package: We have deep reservations because of its impact on the poor

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Sec. Judy M. Taguiwalo of the Department of Social Welfare and Development (DSWD) today stated the department’s position on the Department of Finance’s proposed tax reform scheme. She said that when she and the executive officials of the DSWD analyzed and scrutinized the proposal, they “put the lens in favor of the poor and the vulnerable.”

“In analyzing and offering its comments to the tax reform package under House Bill No. 4774, the DSWD used its decades of experience of working with the poor, marginalized, and the vulnerable of our society,” she said.

Sec. Taguiwalo welcomed the initiative of the House of Representatives to reform the current Philippine tax structure and said that it was an opportunity to review and revise the country’s outdated income tax.

“It has to be said that our country has the second highest personal income tax in the whole ASEAN, and it constricts economic activity and growth. Our economic managers are well aware of this,” she said.

Upon implementation, the DOF expects its proposal to result in revenues that will enable the administration to fund the priority infrastructure, education, health and social protection programs of the government.  Among many alternatives of revenue generation, through heightened household economic activity and consumption to efficient tax collection system, the DOF conveniently chose to propose an increase in excise tax of oil and gasoline products and expansion of the value-added tax base.

The official said that while it is understood that the tax reform package aims to fund the President’s 10-point socioeconomic agenda and massive infrastructure plan, there are included proposals that are likely to be inimical to the poor.

“We have deep reservations concerning two major items in the tax reform package because they will  effectively increase prices of consumer goods, food, services, transportation, etc; these, namely: 1) the proposal to expand the VAT on the sale of services and use or lease of properties; and 2) the imposition of the higher excise tax on oil and gasoline products.  We also register our disapproval of the   planned one-year unconditional cash transfer as cushion to the commodity and public utility price increases brought about by the two general tax increases,” she said.

Impact on the poor and DSWD beneficiaries

HBN 4774 proposes to expand coverage of the value-added tax (VAT) for sale or exchange of services particularly on sales by CDA-registered agricultural cooperatives, credit or multi-purpose cooperatives, and non-agricultural, non-electric, and non-credit cooperatives. It also removed exemptions on the sale of real properties utilized for low-cost and socialized housing and lease of a residential unit with a monthly rental not exceeding ten thousand pesos (P10,000).  Finally, the bill included money remittance centers that should remit 12% VAT.

“On the money remittance centers’ VAT, we ask: What is the proponents’ definition of “money remittance centers”? Would it include our Pantawid Pamilyang Pilipino Program bank conduits? If so, who do they pass the tax burden to: the DSWD or the Pantawid beneficiaries?”, she asked.

Sec. Taguiwalo explained that DSWD’s Sustainable Livelihood Program (SLP) and Kalahi-CIDSS seek to empower the poor and marginalized through community organizing.

“We lament that the proposed tax package may discourage our stakeholders from creating cooperatives. We also wish to point out that cooperatives play a large role in the social and economic lives of rural Filipinos. We hope that government would not remove whatever relief they have from existing VAT laws,” she said.

Based on Philippine Statistics Authority (PSA) data, one in five Filipinos were poor in 2015. On the family level, 16.5% of Filipino families, or 3.8 million families, were poor. This means that these families have an average monthly income below P9,100. Sixty percent of their income goes to food expenditures. Twelve percent of income goes to utilities and transportation combined. In the end, they have very little, no savings, or even negative savings (for the first decile).

“With such existing conditions of the Filipino poor, what should we expect from these indirect and consumption tax increases?,” Sec Taguiwalo asked.

The value of human dignity

Sec. Taguiwalo also pointed out that the DOF itself acknowledges that food, public utilities, transportation, and other commodities’ prices will increase as an outcome of the excise and value-added tax increase. It will affect the lives of all Filipinos, the poor and vulnerable, most especially.

“The DOF proposes cash transfers to ten million households and cash cards to public utility vehicles for one year.  This scenario is as ominous as it is demeaning to Filipinos. DSWD values human dignity in its development of social welfare programs. We cannot fathom allowing a year of long queues for card applications, for cash payouts, for grievances and complaints of loan sharks waiting for willing prey, of local and national government offices turning into markets during cash payouts. And what to do about those who will be excluded from the cash transfers due to the arbitrary target and inherent errors in the targeting system?,” she said.

She also said that the DOF’s low inflation assumption forwarded to Congress was debunked by the recent inflation rate recorded by the PSA.

“The PSA reported a 3.3% inflation rate in February from a 2.7% level in January.  The trajectory for an increased inflation environment seems to be taking its roots now. DOF estimates that the tax reform will provide an additional 1.5% inflation. The US finance authorities have also signaled to increase their interest rates. Using these information, are we looking at the Philippine bubble, bolstered by low interest rate regime and inflation targeting, ready to burst? Are we courting an economic crisis with this tax reform package?,” she said.

The official said that the DSWD stands for its Pantawid beneficiaries whom we aim to help in their struggle to overcome poverty in the next five years.

“Inflation in the past eight years has already eroded the real value of the cash grants. If at all, DOF’s planned additional 300 pesos per month for one year cash transfer would only cover the lost real value, not the price increases.  Also, the DOF in its tax reform package missed a scenario for natural or human-induced disasters. Experience has told us otherwise. Hydro-meteorological disasters are the new normal in these times. Price increases brought by the excise and sales taxes will exert much pressure to DSWD’s supply chain of relief good production, warehousing, and transportation.  But this is the least of our concerns. We stand for the poor, marginalized, the indigenous peoples who are most vulnerable to disasters. They, who will bear the brunt of the taxes, would be doubly victimized by coming natural calamities,” she said.

In the end, Sec. Taguiwalo appealed to lawmakers to prudently and conscientiously deliberate DOF’s tax reform proposal.

“We have not envisioned the Philippines as a country of dole outs, of coupons, or of cash cards. Filipinos are worth more than that.  This tax reform discussion presents us an opportunity to examine different alternatives to earn public revenue and to scrutinize the tax collection system and policies. We believe that we should not be limited with the DOF’s tax proposals for revenue generation. We reiterate the call of other stakeholders to improve tax collection efficiencies and stronger political will to bring to justice those who have brazenly ignored and undermined the effectiveness of our tax courts,” she said. #