Duterte vetoes 5 items in tax reform measure
President Rodrigo Duterte has vetoed five items in the new tax reform measure, which he signed into law on Dec. 19.
Duterte's action to veto some provisions of the Tax Reform for Acceleration and Inclusion (TRAIN) Act was in accordance with paragraph 2, Section 27, Article VI of the 1987 Constitution, which states that "the President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill."
The Palace released Duterte's veto message, which was signed on December 19, on Wednesday.
In an earlier press conference, Finance Secretary Carlos Dominguez III said with Duterte's veto on certain provisions of the TRAIN Act, the government could generate additional P8 billion revenue from the expected net amount of P82.3 billion.
Duterte vetoed the reduced income tax rate or employees of regional headquarters (RHQS), regional operating headquarters (ROHQS), offshore banking units (OBUS), and petroleum service contractors and subcontractors.
"I am constrained to veto the proviso under Section 6 (F) of the enrolled bill that effectively maintains the special tax rate of 15% of gross income for the aforementioned employees," he said.
The provision states, "however, that existing RHQS/ROHQS, OBUS or petroleum service contractors and subcontractors presently availing of preferential tax rates for qualified employees shall continue to be entitled to avail of the preferential tax rate for present and future qualified employees."
Duterte said the provision was violative of the "equal protection clause" under Section 1, Article III (Bill of Rights) of the the 1987 Constitution, as well as the rule of equity and uniformity in the application of the burden of taxation.
He said the employees of these firms should follow the regular tax rates applicable to other individual taxpayers.
Duterte also vetoed the provisions under Section 31 and 33 of the TRAIN pertaining to the zero-rating of sales of goods and services to separate customs territory and tourism enterprise zones.
Duterte said the provisions go against the principle of limiting the value added tax (VAT) zero-rating to direct exporters.
"The proliferation of separate customs territories, which include buildings, creates significant leakages in our tax system. This makes the tax system highly inequitable and significantly reduces the tevenues that could be better used for the pour," he said.
Regarding the tourism enterprises, he said the current law only allows for duty and tax free importation of capital equipment, transportation equipment and other goods.
The Tourism Infrastructure and Enterprise Zone Authority (TIEZA) Law explicitly allows only duty and tax free importation of capital equipment, transportation equipment and other goods, he said.
"Thus, this provision actually grants a new incentive to suppliers of registered tourism enterprises. At any rate, the TIEZA Law, which is still in effect for two or more years, can be used to avail of the above mentioned incentives," Duterte explained.
Duterte also vetoed line 12 of Section 38, which states, "and beginning January 1, 2019, self-employed and professionals with total annual gross sales and/or gross receipts not exceeding five hundred thousand pesos (P500,000)."
He said the proposed exemption from percentage tax will result in unnecessary erosion of revenues and would lead to abuse and leakages.
He noted that the subject taxpayers under this provision are already exempted from the VAT, thus, the lower three percentage tax on gross sales or gross receipts is considered as their fair share in contributing to the revenue base of the country.
Duterte also vetoed the exemption of various petroleum products from excise tax when used as input, feedstock, or as raw material in the manufacturing of petrochemical products, or in the refining of petroleum products, or as replacement fuel for natural gas fired combined cycle power plants.
He said the provision runs the risk of being too general, covering all types of petroleum products, which may be subject to abuse by taxpayers, and thus lead to massive revenue erosion.
He added the tax code identifies which petroleum products can be exempted.
Duterte also vetoed earmarking of incremental tobacco taxes.
"The provision effectively amends the Sin Tax Law, or RA 10351, which provides for guaranteed funds for universal health care. The provision will effectively diminish the share of the health sector in the proposed allocation," he said. Celerina Monte/DMS
