SENATOR WIN INTERPELLATION WITH SENATOR ANGARA ON PERSONAL INCOME TAX AND SUGAR TAX
SESSION HALL

(start of recording)

PERSONAL INCOME TAX

SEN WIN: In the absence of official estimates from the DOF, we came up with our own estimates and this is actually one of my questions because I was also going to inquire from the good gentleman what are the official estimates from the different components of the bill but since the good minority leader already furnished the DOF a copy of the requirements, we would like to also be furnished with that requirement. Let me just share with the body what we came out from our own in house estimate. In the first year, we will be incurring a negative outflow in terms of cash flow meaning we will be spending more than we collect from the train program so this will be very crucial because we understand that the ear markings in the bill is also quite substantial especially the cash transfers and the Jeepney Modernization Program. With that, I'll go to my other queries. I remember in one of the hearings, the cash transfers was discussed intently and may I know from the good sponsor if the cash transfers discussed during the hearing remain the same? meaning the first and the fifth decile will be covered by the cash transfers?

Angara: There are slight amendments but in spirit, they are the same. We want to cover the poorest income earners at the bottom of the pyramid so to speak and the best way to do that is through transfers. Although the recommendation was 200 pesos per family or household transfer we also tried to running some numbers and we decided on a 300 peso per month transfer for the lowest income groups.

SEN WIN: Who will be covered? What income level will be covered by this cash transfer?

Angara: Currently, as mentioned by the discussions with the gentlemen from the entire bloc, it's the poorest 10 million households.

SEN WIN: Is this the equivalent of the first to fifth decile as discussed during one of the hearings of DOF or has that changed?

Angara: It is the poorest 50% that would roughly cover the first five deciles.

SEN WIN: May I know the annual income of the fourth decile?

Angara: The fifth decile would cover a household income of 414,000 approximately combined household income. We stick by our original answer for the fifth decile that's a household income of 414,000 approximately.

SEN WIN: Let me just pull out slide number two. I remember during one of the hearings, this slide was flashed, I know the numbers are quite small but I remember that during that hearing, the first to the fifth decile will be covered by the cash transfers and looking at the income of the fourth decile, which is 12,987 per month if you multiply that by 12 months which is about 155,844/month. Is it correct that the decile four can also earn approximately 155,000?

Angara: Yes based on our monthly income of 12,987. Yes, I think the numbers are correct.

SEN WIN: It is also safe to assume that it can also be one income earner as supposed to two income earner?

Angara: Yes I think when they say household, it can be one or two income earners.

SEN WIN: I noticed that in the bracketing, we reduced the bracketing from 250,000 to 150,000. If this decile four will indeed earn 155,000 a year, will this decile four still be covered by tax exemption? Assuming that the family is earning 155,000 a year?

Angara: Possibly Mr. President because the tax exemptions could go up to 332,000 under the Senate version depending on the number of dependents and the amount of 13 month pay and bonus.

SEN WIN: Assuming that there is only one person earning, wala silang anak, they are newly weds, they earn about 155,000, will they be covered by the tax exemption?

Angara: Yes they will still be covered because if you still deduct the PhilHealth and all the Pag-ibig, they will still be covered.

They will still be covered by the tax exemption. How about decile five, they will be earning 15,760/month, if you multiply that by 12 that's 180,000 more or less a year.

SEN WIN: Will they still be covered by the tax exemption? They are newly-weds and there is only one person earning in their family.

Angara: To a large extent because the first 150,000 would be exempt and then you would have to deduct PhilHealth, Pag-ibig, SSS or GSIS depending on where the person work and there would also be up to 82,000 deduction for bonus and 13 month pay, that's the law principally authored by Senate President Pro-Tempore and which we sponsored in the previous Congress.

SEN WIN: Let me just be enlightened, if you earn 189,000 and the bracket was reduced to 150,000 you will still be exempted from paying taxes? No children Mr. President.

Angara: We are calculating Mr. President because we are inputting the different what they call payroll taxes, the PhilHealth, and the mandatory. A person earning 189,000 in a given year, assuming that that person has no children, she would have an SSS of 5,800, a PhilHealth deduction of around 1,900, and Pag-ibig deduction of around 3,200 on top of the 150,000 exemption which the Senate version offers as well as the preservation of the 13 month deduction assuming it is the equivalent of his one month salary of 13,400. He would have approximately a taxable income of around, he will not be exempt but he will have a taxable income of around 12,000-14,000. That would be the net taxable income subject to his regular income. Under our proposal, it would be subject of a 15% rate around roughly 2,000 pesos whereas under current law, that person would be paying for 14,400.

SEN WIN: The reason why I wanted to put clarification on this especially on the fifth decile Mr. President is can I just pull out slide number 3, because I understand that cash transfers will be given up to the fifth decile of our population, and the fifth decile would be in effect receiving 300/month but if they are in that situation that there is only one income earner, there is no children, they will be effectively taxed by 12,000-14,000/year so we are giving them 3,600/year but the government is also taking out 12,000-14,000/year so parang nagbibigay tayo ng cash relief pero binabawasan din ho natin sya so that's what I'm driving at because I noticed that the threshold of 250,000 was lower than 150,000 and there might be some competitions when that threshold was lowered down. Another point, are minimum wage earners exempted from personal tax?

Angara: Yes they are.

SEN WIN: Over time, night shift differential, hazard pay, are they considered taxable income?

Angara: They're only exempt for minimum wage earners.

SEN WIN: In this new bill of ours, minimum wage earners will still be exempted and if they incur over time the other income, will they be exempted under this proposal? Because in our computation, they definitely go beyond the 150,000 threshold.

Angara: Perhaps over time, they might go beyond 150,000 threshold but we can insert language to ensure that whatever the threshold is, they will always be exempt and will put in some built in indexations so every three years, the bracket and the rates will be indexed upwards to cope with the rising cost of living, if you notice, this is the first time we are touching in the income tax wage and brackets since 1997 so although personal income tax were amended over time, there's been really some erosion of the family income in the last two decades.

SEN WIN: Currently, we have a minimum wage law, I just want to be clarified will this bill override the minimum wage law?

Angara: No Mr. President. If I may add, the reason why we've also put the level at 150,000, the reason why we've made it applicable to all income levels is because there is currently a wage distortion problem and it is confirmed by anecdotal evidence where minimum wagers do not want to be promoted because once they leave that safe haven of being a minimum wage earners, whether it's 1,000 pesos or 5,000 pesos, they become taxable on their entire income but what the Senate version has provided is that 150,000 upwards will be untouchable by the government no matter what your income level so that's a measure of insurance for the lower income earners and their ability to meet the rising cost of living is preserved going forward whether they are still a minimum wage or not.

SEN WIN: Thank you. From what we've discussed earlier, is there a need to adjust the threshold because again, the fifth decile will be entitled to cash transfer but at the same time, they will be taxed.

Angara: We can look into any proposal of the gentleman, we are open, it's not something set in stone.

SEN WIN: I just want to emphasize that we need to protect the minimum wage earners. Currently, according to the DOLE circular, they stand to earn 512.00/day and if you compute that, they will be in the borderline of being taxed and being exempt depending on how much overtime or night differential they get and at the same time Mr. President, I would like to also propose to increase the threshold from 150,000 to 200,000 just to protect the near poor as defined by the DOF in the slide earlier, they are one of the most vulnerable sectors of our population. They can actually go into poverty with a slight shock so during a proper time, I would like to propose maybe to look at increasing the threshold to 200,000 and at the same time strengthening the provision in protecting the minimum wage earners.

Angara: We are most willing to look at that proposal given the good intentions about it.

SUGAR TAX

SEN WIN: On a separate topic, I noticed in the sugar sweetened beverage, there is a two year volumetric-based scheme. May I know how come the two-year scheme starting with the volumetric scheme and after two years there is going to be a content-based scheme?

Angara: The reason for two-year scheme, ideally we would like to have a sugar-content based structure that we are told both the DOH and the FDA that they currently do not have that ability to monitor sugar content nationwide. For the first two years, we have adopted a similar scheme to which the House proposal House Bill 5636 but with lower rates and after two years, if that volumetric scheme, for the record, it is 5.00/liter for caloric sweeteners, we switched to a sugar content based scheme where the beverage is taxed based on its sugar content at the rate of .05 centavos per gram of sugar per 100ml.

SEN WIN: May I know Mr. President what type of readiness does the FDA need in order to fulfil immediately a content-based scheme?

Angara: I think they need a certain type of equipment to measure the sugar content of the beverages which they don't have at present.

SEN WIN: We did a little research on the sugar content of different drinks and if we can just pull out figure 19 in the projector. If you look at the slide in figure 19, there's a few popular drinks and we identified its sugar content of those drinks. For a sport drink, Cobra in particular it has 38.34 grams of sugar which is equivalent to nine tablespoons. The World Health Organization's prescription for sugar intake a day is only 60spoons/day. So kapag uminom kayo ng isang cobra, lampas-lampas na ho yung nutritional needs na kailangan niyo for a day. If you look at the ready-to-drink coffee which is 3in1, it has 3.5 teaspoons of sugar so one of those packs will actually satisfy half of your needs every day. If you go to figure 2, this is based on a volumetric increase per item, the sports drink will actually increase only by 17% although it is larger, it has more sugar compared to other popular drinks and if you look at the ready to drink coffee which is the 3in1, it will also increase by 25% although in our proposed bill, the 3in1 coffee will be exempted. If you look at the softdrinks, it will increase by 75% if we impose the taxes. Popular drinks which have more sugar content will actually have lesser increase in terms of prices when we implement these taxes. The 3in1 coffee which has the highest in terms of sugar content, 3 tablespoons of sugar, will be exempted. In the first two years, we will be penalizing drinks which have lesser content of sugar and we might be inadvertently also shifting consumption patterns, some of the consumers will probably shift to energy drinks because prices will increase by only 70% compared to 67% for soft drinks and in 3in1, I know that 3in1 is a popular drink for the masses but we are actually feeding them sugar because one of those drinks will already satisfy half of their sugar requirement per day. If there is a way for the FDA to improve their system, we can empower FDA, or launch a system where they can check all these products by their equipment, train their people and immediately implement a content-based scheme. Content-based scheme will penalize drinks which has more sugar and that will actually achieve the health purpose of the bill that you are proposing. It will actually achieve two things: revenue, it has projected revenue if we shift to content-based scheme about 47 billion at 10 centavos per gram. We can actually hit two birds with one stone, achieve the health purpose of this bill. Just a comment that I wanted to share with the good sponsor because I really believe that from the onset because it's quite risky to launch a different schemes because the consumption patterns might really change in the first two schemes, at the same time also, when you change the consumption patterns, the operation of the factories such as the beverage factories will also change so they might be adverse effects on their operation.

Angara: We have a different figure for the softdrinks because we're basing it on a price per liter in the sari-sari store of around 25.00 pesos and if you look at the 5.00 peso per liter tax imposed on caloric sweeteners that's only 20% increase so I'm not sure, maybe these percentages are based on certain assumptions, assumptions regarding the price and of course, it depends the price will vary depends on whether you buy it from the sari-sari store so it will probably be lower or if you buy it in the grocery, or if you buy it in the 7-11, it might be higher so I think those assumptions, that's crucial in determining the percentages but I do agree that the sugar content tax tends to be more precise in measuring precisely regardless of the sugar content, then we can say that an incentive or disincentive based on the tax but given the current realities, we have no choice but to adapt the volumetric system that's the bottom line at least in the first two years. Regarding if the Congress can do anything to improve implementation, certainly we could appropriate the money for the FDA to purchase such equipment.

SEN WIN: I remember that the FDA mentioned that they need 5 years to completely capacitate themselves in terms of implementing a content based scheme, they also need 1.3 billion in the next five years. 1.3 billion is actually a small investment if you project to earn about 34 billion from the SSB proposal so my point is they can actually allocate 1.3 billion immediately for them in the next few months by the necessary equipment so probably content based scheme as early as the two years prescribed by the law.

Angara: We agree that we should appropriate that money as soon as the possible time and the FDA is here and they said that they will be ready in two years.

SEN WIN: I would also propose later on something that will probably cut down the 2 year lead time to just a few months and allocate the necessary amounts because again 1.3 billion is not too much to immediately launch this program.

Recto: Is there a downside to taxing it naman by sugar content as well? What is the downside of that?

SEN WIN: I think one of the reactions for a content-based scheme is really the administrative portion. We took note of some countries who implemented their SSBs in the last five years and a lot of them actually implemented a content-based scheme rather than the earlier countries who implemented the volume based scheme.

Recto: So it would be hard to collect, hard to administer? Especially with the admission of the FDA? So that's one downside of it?

SEN WIN: That's one of the competitions but nevertheless in countries like Thailand, they've managed to come up with a scheme where accurately polish a content-based scheme.

Recto: Is there any downside to that proposal?

SEN WIN Of course, consumption patterns will also change. Recto: Let's say, if you have coca cola and pepsi, you could have different taxes for different products?

SEN WIN: I think if the drink will have more sugar content, it will tend to be more expensive and there is now an incentive for companies to lower down the sugar content to improve their taste, improve their product in order to mitigate the increase in prices.

Recto: The upside to a volume-based is that it's easier to collect?

SEN WIN Apparently Mr. President.

Recto: And the prices will be the same? So it will be the same for cola cola or pepsi or sarsi or whatever that softdrink will be, is that right?

SEN WIN: Apparently Mr. President.

(end of recording)