The Comprehensive Tax Reform Program may be a Platform for Sustainability Transition. Here’s How.

Elpidio V. Peria
5 February 2017


from :


The recent bills mandating a comprehensive tax reform filed by Congressman Joey Salceda of Albay Province and Dakila Castro E. Cua of the lone district of Quirino are welcomed, according to news reports, by the country’s former economic managers while awaited with bated breath by Filipino families expectant of the economic relief that the measure will bring them. A think tank however said that the measure is anti-poor as majority of Filipinos who are poor will suffer higher prices from value-added tax (VAT) being charged on previously exempt items, higher excise taxes on petroleum products, and a new sweets tax.

This proposed fiscal reform measure is an opportunity for the country to practice sustainability transition, the long-term adjustment needed by our economy and social infrastructure so that we may be able to cope with the future challenges of a changing climate amidst our ongoing struggles in halting the continuing degradation of our natural ecosystems and resources from the pressures of our economic development and modernization activities.

The Action for Economic Reform (AER), a non-profit research group, including the country’s economic managers hinted at sustainability transition as they both cited President Duterte’s Executive Order No. 5, which clarified the country’s vision Ambisyon Natin 2040 which seeks to improve the socio-economic condition of the ordinary Pinoy, though both did not elaborate how.

Here’s how the Comprehensive Tax Reform Program may be a platform to get started with the country’s sustainability transition :

1. The title of the measure may be renamed as the Comprehensive Sustainability Transition Tax Reform Program – while this may initially cause confusion to the country’s investors and other economic observers, what’s important is to communicate to the Filipinos at large that through this fiscal measure, the country puts premium to the notion of sustainability, meaning, the implementation of long-term changes to the country’s social and economic systems so that the country and its people may better adjust to the future challenges of climate change and the other necessities for that kind of adjustment that needs to be added to the purely fiscal nature of the revenue measure.

2. The time-frame of the program should be extended so it may be fully implemented by 2040, nor just within the 6-year term of President Duterte –  the Explanatory Note of Congressman Cua mentions the goal of the Duterte Administration to significantly reduce poverty incidence from 21.6 percent to 14 percent by 2022, which is but part of the promises made during the electoral campaign. This however gives a limited timeframe within which to effect the changes necessary to proceed to sustainability transition, which changes don’t usually happen within a six-year time-frame of a President. There is however a provision in the proposed measure to delegate the increases in tax rates to the Department of Finance and the Bureau of Internal Revenue, which is one good way to smoothen and not make sudden the increases that will now have to happen within a longer time frame, up to 2040, the end-date of Ambisyon Natin 2040.

3. There can be several areas of economic activities that may already be targeted for shifting over a longer time frame but not within six years

Here are some activities which may be considered components of a 100% renewable energy (coupled with sustainable agriculture-led food system) economy by 2040 that we will all work for onwards up to 2040 :

a) Bigger tax deduction for a smaller family size, to discourage large-sized families – this is one aspect of income taxation that the Cua bill (HB 4774) did not touch upon as it mainly dealt with the rates of taxation, but a provision may be inserted there which gives more tax deduction to families that are small in size, perhaps, up to two, though the over-all deduction allowable for that limit is bigger than the allowable deduction of bigger family sizes. This is to give incentives for starting families to go small and eschew large family sizes, which all contribute to a large population that may need to be supported by natural resources in the long-run. This may look hare-brained and may encounter stiff opposition from the Catholic Church and other religious groups who look at family size as a sacred personal decision, but curbing population size is one sustainability transition goal that may have to find some expression in a form of policy, at the very least a statement of serious intent, so that sustainability transition is seen as a goal that government is willing to undertake, including the very loaded personal issue of family size.

b) Consideration for certain types of property transfers in favor of activities or organizations that promote sustainability transition – While the provisions of the bill on the rates for the usual transfers of property through succession or donation should not be touched as a matter of principle underlying those acts as developed over time under our system of civil law, some consideration, like lower rates of taxes over certain transfers of property to causes or organizations that engage in promoting renewable energy, for example, may also help sustain these types of efforts which will all redound to increasing the intensity of efforts that enhance sustainability transition.

c) Promotion and encouragement of certain activities and products  – certain preferred activities, like organic agriculture and all its related supporting activities that enhance sustainable farming initiatives, including the provision of local content in technology-transfer or technology upgrading activities that involve clean technologies are the types of tax-exempt activities that may be added to the list that are already in the revenue measure, to encourage these activities and eventually enable them to develop an ecosystem of initiatives that reinforce these practices, making these activities more widespread and mainstream in the long-run.

d) Enabling the phase out of certain activities and products– this is where the excise tax increases for fossil fuels like diesel fuel will come in, so that this may facilitate the shift in the country’s transportation or energy generation infrastructure using fossil fuels towards those that use renewable energy sources; this type of taxation may be a form of carbon pricing that should discourage activities that enhance our greenhouse gas emissions; what may also be included here are those power plants that use coal and other fossil fuels, and also farming activities that produce large greenhouse gas emissions like livestock production. While this may be unpalatable in the short-run, perhaps if the people are pointed towards the long-term goals of our sustainability transition , then perhaps they won’t mind this tax burden.

4. There is a need to coordinate with other policies that will be carried out by other agencies, including offsetting/compensation mechanisms

The above-cited measures are just examples, but they demonstrate how broadening the scope of policy action will not confine the debate to whether there should be an increase in fuel taxes for fossil fuels, which is very myopic and short-term in nature. In addition however, these measures, which are in essence tax measures, should be coordinated with other agencies that are on top of facilitating the formulation and implementation of other policies that implement sustainability transition, more particularly, NEDA with the Philippine Development Plan, the Climate Change Commission with the country’s National Climate Change Action Plan, including the Department of Energy with its Philippine Energy Plan and even the Department of Environment and Natural Resources, which may have to institutionalize a program of reviewing environmental policies that promote perverse incentives, like some policies that may regulate natural resource extraction but don’t limit it to levels that should enable the regeneration of the resources concerned.

It is also important to use offsetting/compensation mechanisms to cushion the possible adverse social impact of abrupt price increases that may be knock-on or cumulative effects of these tax hikes, like the one in the Rep. Cua bill that earmarks certain activities to benefit the marginalized sectors. Another one that may be used is a mechanism to enable low-income earners get discounts on the expected jump in rates of electricity that may surely be passed on by coal-fired power plants who may be hit with taxes via this tax measure.

Of course, our policy planners will calculate the over-all revenue gains and losses in order to plot out the transition time-frame. Perhaps the more enduring legacy of the Duterte Administration is institutionalizing this sustainability transition that, not really locking out successor governments on what they can do, but pointing out this early that going the sustainable development path is the only way to go in this era of warming earth amidst limited carbon budgets.


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