Benjamin E. Diokno, the Philippine’s next budget chief, disclosed that the next set of economic managers is considering reducing tax rates, both individual and corporate, to 25 percent. The proposed tax reform package aims to ease the burden of paying taxes, especially for earners with up to P1 million annual gross income.

The University of the Philippines (UP)  School of Economics professor said that he spoke with incoming Finance Secretary Carlos G. “Sonny” Dominguez III about the tax reforms. They are targeting a competitive and efficient tax system by reducing income tax brackets and considering value-added tax (VAT) rate inflation.

He plans to go for a maximum of 15 percent VAT which he thinks can be worked out after two years. 

“My personal position is that it’s better to tax consumption than income, for as long as food, in its original state, is exempted from VAT,” Business Mirror reported Diokno as saying.

“It is in this sense that our VAT system is slightly progressive, the burden is heavier on the rich. But this is the call of the incoming finance secretary,” he added.

The tax reform exempts the first P1-million annual salary of every individual wage earner from income tax. This will result in P151 billion to P215 billion of foregone revenues for the government.

The said plan is similar to the tax reform proposal by outgoing Finance Secretary Cesar V. Purisima, which was unveiled in May. It also suggests the reduction of tax rates to 25 percent, as long as consumption taxes are increased and a tax effort benchmark is achieved.

This will retain the optional standard deduction or the allowable itemized deductions on gross income. However, it will remove all other deductions, including personal and additional ones.

Diokno, who was also a Budget secretary under former President Joseph E. Estrada, said the 30 percent corporate income tax rate and the 32 percent tax rate imposed on workers earning P500,000 annually, has long been outdated because these were set nearly 20 years ago.

The VAT imposed on most consumer goods and services was last adjusted in 2006. It happened when former President Gloria Macapagal-Arroyo raised the tariff from the original 10 percent rate in 1988.

“I think what we should look at is... your burden if you pay the tax and your benefit from government spending,” Business World reported Diokno as saying.

“If you pay a little bit more VAT but you get a lot of returns in terms of government expenditure on education, health, nutrition and better peace and order. I think you are better off,” he added.