Tax reform program to cost government P21.5B

The government will try to cushion the impact of its tax reform program, but mitigating measures would cost a total of P21.5 billion in foregone revenues in 2006, data from the Department of Finance (DOF) show.

Estimates made by the DOF indicate that the total revenues for 2006 would be shaved off by over P20 billion as the government retained certain tax exemptions of such products as kerosene, diesel and agricultural products.

The DOF said the Bureau of Internal Revenues (BIR) would forego a total of P14.725 billion in taxes while the Bureau of Customs (BOC) would forego a total of P6.775 billion in 2006.

The so-called mitigating measures included the reduction in the excise tax on kerosene and diesel fuel which would take out a total of P13.55 billion from total excise taxes.

On the other hand, the increase in marginal threshold would also cost a total of P4.12 billion in foregone revenues while the repeal of the franchise tax on power distribution would result in revenues foregone totaling P3.1 billion.

The mitigating measures also include the repeal of the common carrier tax on domestic transport and international transport of passengers which would cost a total of P40 million and P350 million respectively.

The last item in the package is the increase in the presumptive input tax for agro-processing to ensure that the prices of processed food products would not surge as a result of the increase in the value-added tax (VAT) rate. This would cost the government a total of P150 million in foregone revenues.

These mitigating measures would not completely offset the tax burden of the public but finance officials expressed hopes that they would, at least, soften the impact on the domestic prices of basic commodities.

On the other side of the tax reform package, the Arroyo administration has increased the VAT rate from 10 percent to 12 percent, a move that was projected to generate P30.437 billion in incremental revenues for the government.

Starting November last year, the government also removed the VAT exemption of certain products such as natural gas and other indigenous fuels, coal, petroleum products and raw materials for petroleum products.

Also lifted were the exemption of the electric power industry, electric cooperatives, domestic transport, medical and legal services, passenger cargo vessels and non-food agricultural products.