NOT everyone is happy with the Tax Reform for Acceleration and Inclusion (TRAIN) bill that may soon be enacted into law.
One of those who raised concern on the bill is Rey Calooy, an entrepreneur and president of the Filipino-Cebuano Business Club Inc. (FCBCI).
The TRAIN, he said, is expected to push up the prices of some goods, especially sugar-sweetened beverages.
“Any tax increase could lead to price adjustments for products and services. Taxes on fuel and sugary food will affect every Filipino who loves to eat and drink sweets,” he said.
Under the bicam-approved version of the bill, a sweetened beverage tax of P6 per liter will be levied on drinks using artificial sweeteners. Drinks using high-fructose corn syrup will be imposed a P12-per-liter tax. All kinds of milk, natural fruit and vegetable juices, instant coffee, and medically indicated beverages, however, are exempted from the sweetened beverage tax.
Higher prices
“MSMEs will have no choice but to adjust prices. Otherwise, many MSMEs will struggle in the years to come,” Calooy added.
The finance department has said that raising taxes on sugar-sweetened beverage is meant to address the rising number of diabetes and obesity cases in the country, while raising revenue for complementary health programs that address these problems.
Car dealers, too, will be affected by the looming increase in excise taxes on automobiles. The bicameral conference committee has approved a four-tier tax scheme for automobiles that will raise tax by four percent for non-hybrid cars priced P600,000 and below, and up to 50 percent excise tax for cars priced over P4 million.
“Now, we have jitters with the effect of the excise tax, but that won’t stop us. We are still optimistic of the future,” said Gateway Motors executive vice president Michael Goho, the Kia, Nissan, and BMW dealer in Cebu.
Exempted from additional taxes are pick-up trucks and electric vehicles. Simultaneously, there will be incremental price increases for diesel, liquified petroleum gas (LPG), and gasoline over a three-year period, at P6, P3, and P10 per liter, respectively, by 2020.
Exporters’ refunds
The export sector also has its reservations on the TRAIN as this will remove the zero-VAT rating on local inputs for export goods, although it promises “reimbursement.”
According to Philippine Exporters Confederation Inc. (Philexport) Cebu Executive Director Fred Escalona, the current situation allows exporters to enjoy a VAT exemption on local inputs on materials that are part of the finished goods that are exported.
“In its place is a refunding of VAT on locally purchased inputs. We are concerned that this will put undue pressure on exports’ cash flows because now they have to pay the VAT and wait for their refund later. We do not know how long the wait will be (for the) reimbursements,” he said.
The DOF said that while the Philippines has one of the highest VAT rates in Southeast Asia, it also the highest number of exemptions. For instance, the country has 59 lines of exemptions in the tax code, so much more than Indonesia with 37, Thailand with 35, Vietnam with 25, and Malaysia with only 14.
“These tax exemptions have been given to many sectors and were supposedly very well-meaning. However, these exemptions have also created much confusion, complexity, and discretion in our tax system resulting in leakages and opening doors for negotiation, corruption, and tax evasion,” the finance department said in a primer.
The banking sector is also anticipating an increase in taxes, according to a local banker.
Cebu Bankers Club past president Maximo Rey Eleccion said the TRAIN will increase the withholding tax on interest on Foreign Currency Deposits from 7.5 percent to 10 percent. Meanwhile, interest on peso deposits has not been subject to changes and remains at 20 percent.
Good for property
Personally, however, the banker expressed support for tax reform, along with some other local business owners.
“We hope the tax reform program will soon be adopted to help address the high cost of doing business and contribute to our global competitiveness. We eagerly anticipate the current administration’s plan under President Rodrigo Duterte to overhaul our tax system,” said Cebu Chamber of Commerce and Industry (CCCI) President Melanie Ng.
Colliers International Philippines also described TRAIN as a measure supportive of the real estate sector, specifically identifying the reduction of personal income tax rates. This could translate to more real estate purchases among Filipinos.
Overall, one of the most anticipated features of the TRAIN is the new income tax rate. Individuals with an annual salary of P250,000, or those earning roughly P22,000 monthly and below, will be exempted from paying income tax.
On the other hand, self-employed professionals will also enjoy new tax rates with the introduction of an eight percent flat tax on gross sales or receipts instead of income tax and percentage tax to be filed once a year.