Speech
of
His Excellency Fidel V. Ramos
President of the Philippines
On the enactment of the Comprehensive Tax Reform and Antipoverty Laws
[Delivered at the Ceremonial Hall, Malacañang, December 11, 1997]
A harvest of laws
WE WITNESS TODAY the passage of two of the most significant bills ever crafted by the Tenth Congress. One is aimed at sustaining our social infrastructure, the other provides the means to meet the needs of our physical and social infrastructure.
These are Republic Act 8424 amending the National Internal Revenue Code and Republic Act 8425 institutionalizing the social reform and poverty alleviation program.
To those unfamiliar with the workings of government, these laws would seem unlikely partners. Indeed, to be really propoor should mean the reduction if not total elimination of taxes for low-income groups. But to be propoor also means that Government must provide the poorer sectors with more social services and greater economic leverage by judiciously raising and then investing funds on projects that have a propoor bias.
Briefly stated, therefore, the tax reform law, while it is kinder on lower-income groups than in the previous tax structure, will enable us to generate more funds that will finance the implementation of all other projects.
It has been the challenge of every administration to find the precarious balance between the taxes it should realistically collect as the citizen’s dues for development and the amount it can spend to spur and then to sustain growth.
Equity and growth in one package
In this amended Tax Code, the last and most important component of what is popularly known as the Comprehensive Tax Reform Package, we hope we have found a better answer to this perennial question. After all, it is the product of intensive collaboration between the men and women of the executive branch and the legislative, with the crucial participation of academe and the private sector.
Four years ago, when we reviewed the Philippine tax system to complement our economic structural reforms, we saw it fit to increase our tax collection up to the progressive levels and efficiency of Asian economic tigers while being more socially equitable. We wanted to raise more funds, yet let the burden of taxation be borne by those who had greater capacity to pay and who consumed more.
Despite the comments of critics, we maintain that R.A. 8424 is propoor and proprogress. It is propoor because it will exempt the poor from paying income tax. It exempts overseas Filipino workers from paying income tax. It ensures that the burden of taxation is distributed in accordance with every taxpayer’s ability to pay. And it raises personal exemption levels in the following manner: a single taxpayer, P20,000; single but head of family taxpayer, P25,000; married taxpayer, P32,000; and an increase in exemptions for dependents to P8,000 per qualified dependent not to exceed four dependents per family Thus, the total exemptions of P96,000 for a family of six would be most beneficial to lower-income families.
As much as it is propoor, R. A. 8424 is also proprogress. It enables Government to raise more revenues that will improve the overall quality of life, particularly of the poorest among us. From the revenues of this improved scheme will be built the physical infrastructures—roads, bridges, wharves, airports, irrigation and potable water systems, markets and electrification projects—that are basic to our people’s lives. These revenues will also finance our basic utilities and services such as education and the maintenance of peace and order.
Broadening the tax base
As a means of improving tax collection, this law broadens the tax base by capturing undeclared revenues and hidden incomes, including fringe benefits. It institutes controls in business deductions that have been indiscriminately abused and that erode the corporate income tax. Its simplification of the tax system encourages greater compliance from taxpayers. It also introduces a minimum corporate tax, which is not a new imposition but an approximation of the correct income taxes due from corporations.
The implementation of the new tax scheme will be made more effective by enhancing the functions of the Bureau of Internal Revenue as provided for in this law.
These reforms include administrative improvements to encourage taxpayers to pay the proper taxes at the right time and entice nonfilers to join or rejoin the tax-paying mainstream; the creation of a new deputy commissioner’s position to handle the legal and enforcement group, thereby ensuring more efficient prosecution of tax fraud and tax evasion cases; the delegation of many powers and duties of the Internal Revenue commissioner; the authority granted to him to get information from third-party sources; and the authority to the Secretary of Finance to prescribe the venue for filing of returns.
‘File anywhere scheme’
This last provision, which complements the full computerization of the Bureau of Internal Revenue, will enable it to carry out the “file anywhere scheme.”
We must not be distracted from the controversy generated by various proposals to make the law more biased for the poor. Instead, we must concentrate on the common intent of our lawmakers to ease the tax burden on poorer taxpayers. We should not overly concern ourselves with the lengthy time it took Congress to pass the law but instead emphasize that the intense debate and scrutiny, to which this law was subjected, should assure us of its fairness both to taxpayers and to Government’s aim of raising more funds to sustain our growth.
As a bonus, this landmark law serves as our exit ticket to the International Monetary Fund’s program, and therefore sends another strong signal to the international community that our economic and financial fundamentals not only remain sound but are being reinforced.
Equally significant to us is R.A. 8425, which creates institutions to pursue our social reform and poverty alleviation program. Both the executive and the legislative have long agreed that our basic efforts at development must be geared toward equitable and sustainable growth and development. Our Social Reform Agenda has been our blueprint to alleviate poverty through social reforms and economic growth.
Alleviating the conditions of the poor
Yet, while we fine-tuned our efforts to fight poverty and integrated national and international commitments on human development into our framework for poverty alleviation, there were nagging doubts that these efforts, if not followed through, would not achieve our objective of empowering the disadvantaged sectors.
R.A. 8425 is our assurance that present and future efforts to fight poverty and improve the conditions of our disadvantaged sectors will be continued into the 21st century. This law defines the objectives, activities and publics of the Social Reform Agenda— which include the farmers, the fisherfolk, indigenous peoples, workers in the informal sector, the urban poor, women, children, the disabled, the elderly and victims of man-made and natural calamities.
This law creates the National Antipoverty Commission (NAPC)—the successor-in-interest of the Social Reform Council and a merger of the Council’s secretariat, and the Presidential Commission to Fight Poverty and the Presidential Council for Countryside Development— to orchestrate all endeavors toward poverty alleviation. R.A. 8425 perpetuates the collaboration of people’s organizations and non-Government organizations with Government to fight poverty. Furthermore, as NAPC chairman, no less than the President of the Republic is tasked to watch over the continuing partnership between Government and these basic social sectors.
As such, not only has participative government been enshrined in law; we are also putting an end to buck-passing while making sure that the partnership between the private sector and the government is vigorous, functional and potent at all levels of government.
Institutionalizing socialized credit
Of great relevance to the poor, who have little or no access to credit, is the law’s provision for noncollateralized micro-lending. To the poor who are unable to acquire properties that can serve as loan collaterals, the only access to micro-finance is through high-interest non-formal lenders symbolized by the “five-six” or six-peso payback for every five pesos borrowed. Institutionalizing socialized credit to the poorest sectors improves their earning capacity and makes available to them other opportunities like education by which they may improve their lives. Credit for micro-financing will be handled by the People’s Credit and Finance Corporation, which shall mobilize both local and international funding sources for exclusive use of the poor.
For those who fear that Government has embarked on another scheme for doles, I must say that our poor have demonstrated again and again their capability to pay back their loans, with a record better even than wealthy borrowers. The payback rate among the poorest sectors is m fact higher than those who have borrowed larger sums.
The People’s Development Fund is also established by this law, and its use will be monitored by the NAPC. This trust fund will be used for micro-financing as well as for research and development to attain our objectives of poverty alleviation and delivering basic services to the underprivileged.
Our main weapon in reducing poverty
We foresee the impact of the institutions set up under R.A. 8425 to be felt long after my term is finished and long after the authors and coauthors of these bills have retired from Government service. Indeed, both the executive and legislative branches regard this law as their main weapon in hastening the reduction of poverty incidence in our country.
We have much cause to rejoice in today’s harvest of laws. With the assurance that our development projects have the legal and financial bases to support the empowerment of our people, we have much reason to look forward to a better life in the new year—the year of the centennial of Philippine independence—and in the years beyond.