President Duterte has vetoed certain provisions of the Tax Reform for Acceleration and Inclusion Act (Train), raising its net revenue gain to P90 billion, Finance Secretary Carlos G. Dominguez III said Friday.

A copy of the veto message showed that the President rejected the line that reduced income tax rate of employees of regional headquarters, regional operating headquarters, offshore banking units and petroleum service contractors and subcontractors.

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President Duterte said he constrained to veto the proviso that maintained the special tax rate of 15 percent of gross income for such employees, as it was violative of the Equal Protect Clause under the 1987 Constitution as well as the rule of equity and uniformity in the application of the burden of taxation.

“Given the significant reduction in the personal income tax, the employees of these firms should follow the regular tax rates applicable to other individual taxpayers,” the President said.

The President also vetoed the zero-rating of sales of goods and services to separate customs territory and tourism enterprise zones, citing that it “goes against the principle of limiting the VAT [value-added tax] zero-rating to direct exporters.”

President Duterte likewise vetoed the exemption from percentage tax of gross sales and receipts not more than P500,000, as such “will result in unnecessary erosion of revenues and would lead to abuse and leakages,” further pointing out that these taxpayers were already VAT-exempt.

The fourth veto involved the Train’s exemption of various petroleum products from excise tax when used as input, feedstock, or as raw material in the manufacturing of petrochemical products, in the refining of petroleum products, or as replacement fuel for natural gas fired combined cycle power plants.

“The provisions run 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. At any rate, the Tax Code already identifies which petroleum products can be exempted,” the President said.

Finally, President Duterte also vetoed the provision involving earmarking of incremental tobacco taxes, as such “effectively amends the Sin Tax Law or Republic Act No. 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,” the President explained.

Dominguez said these were also approved by the President last Tuesday, the same day that the chief executive signed package 1A of the Train, which will slash personal income tax rates while also jacking up or slapping new taxes on consumption starting January next year.

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In a press briefing after the Development Budget Coordination Committee meeting, Dominguez said the veto will raise to P90 billion the net revenues from tax reform package 1A from just P82.3 billion in the Train version approved by Congress’ bicameral committee on tax reform.

According to Dominguez, the veto “will make it (the Train) more internally consistent to the original objectives” of the law, without elaborating.

The Finance chief said that they expect revenues from tax package 1B, which involve general and estate tax amnesty, higher motor vehicle user’s charges as well as tax administration measures including bank secrecy on criminal cases, to reach up to P40 billion.

Dominguez had said that Congress already committed to pass package 1B in the first quarter of next year.

The DBCC hence reduced its revenue target for 2018 to P2.789 trillion from P2.841 trillion previously “because we did not get the full amount [of revenues from the first tax reform package] right away,” Dominguez said.

The DBCC also adjusted to 49-52:$1 the foreign exchange rate assumption for the 2018 to 2022 period from 48-51:$1 previously.

“This adjustment should be a cause of deep concern. A peso depreciation is favorable to our fiscal position,” Budget Secretary Benjamin E. Diokno said.

Exports growth, meanwhile, was raised to 9 percent in 2018 from 7 percent previously, while keeping the 10-percent growth target for imports for the period 2018 to 2022.

The inflation rate target was kept within the range of 2-4 percent until 2022, while gross domestic product growth will still be 7-8 percent during the period.

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