Press Release
December 5, 2017

Transcript of Interview with Senator Franklin M. Drilon
ANC's Headstart with Ms. Karen Davila

Q: On the TRAIN bicam

SFMD: I can see that there are certain portions of the TRAIN where the difference between the version of the house and the senate is so wide that now requires a lot sitting back and second look, and see what kind compromises they can make. Let's put in in context. This is the first revision of the tax code for the last two decades.

Q: So it's time?

SFMD: It's time. The first thing that we did is to reduce the income tax rates, so that in our version 6.8 million minimum wage earners will no longer pay an income tax. Presently, it's 2 million but with the version that we passed in the senate it will become 6.8 million. In other words, those who earn up to P21,000 a month are exempted from paying income taxes. The teachers for example, with a monthly income of P20,000, those occupying the position of teacher I, they are free from paying any income taxe.

Q: To clarify, if you're a teacher and earning P21,000. how much more money can you earn?

SFMD: Roughly. P2,300. Of course when you do this, you have forgone revenues. By estimates of the BIR, a P250,000 exemption on the level of income tax would mean about P152 billion in foregone revenue. Therefore, we have to look for other sources of revenue in order to sustain our economic growth and to provide for government services. That is where the problem starts, because we will hit certain sectors.

Q: Let's start first with the most widespread and most controversial which is the tax on fuel. You have jeepney drivers saying why us?

SFMD: The same question was asked by many. Why them? Because the house version would tax them on January 1, 2018 an additional excise tax of P3.00; in 2019 an additional of P2.00; and in 2020 an additional P1.00 for a total of P6.00. The senate version would also have P6.00 but slightly different in distribution: on year 1, you increase the excise tax on fuel by additional P1.75; on year 2, you increase it by P2.00 so it become P3.75; and on year 3, it becomes P6.00. That's how we structured it. I can't remember exactly how much it will generate but in any case, this is the main source of the recovery of the reduction of P152 billion from the lowering of the income tax rates. That's where the debate starts. We should be very careful because increasing the excise tax on fuel has inflationary tendencies; in other words, tataas ang presyo ng pangunahing bilihin. The estimate is that the inflation will go up by about 0.9%; right now it's about 3.5% and it will go up to 4%. So tataas ang presyo ng pangunahing bilihin.

Q: The DoF said that in the past years, if inflation goes up by minimal amount you won't feel the change in the prices of commodities.

SFMD: You know, when you talk to ordinary cigarette vendors on the sidewalk they will say that a 4% inflation would affect their ability to purchase the basic commodities. Let's not underestimate that.

SFMD: I will repeat, the first tax that was revised was fuel tax. There were a lot of debates on this, because, for example, a lot have taken the position that, why not increase the sin taxes? Because cigarette is a vice and I was the one who increased the excise tax on liquor and cigarette five years ago. Right now we are generating from the additional taxes on cigarette by nearly a hundred billion a year. It's really a rich source of revenue and it's a health measure. We can increase the taxes on cigarette. For some reason, the DoF said let's take it up on package 2 or 3. I cannot understand.

Q: What you're saying you did not want the additional tax on fuel?

SFMD: At least minimize.

Q: You wanted it on cigarette and liquor more?

SFMD: On cigarette, principally.

SFMD: Number two, the house also included on third and final reading tax on sugar. Again this is a bone of contention. This is argued also as a health measure but others have disputed it. Generally, like the sin taxes, we support it as a health measure as long as it excludes certain items such milk, 3-in-1 coffee mix or instant formula because these are the ones consumed by many our citizens, particularly the poor.

Q: And milk is a necessity.

SFMD: Yes, it's a necessity, and also the 3-in-1.

Q: Before you move to another topic, why did Congress include the LGP, kerosene, which are used by the very poor for business?

SFMD: Very simple answer, you have to generate revenue and if you exclude certain products from the excise tax, the revenue take goes down. That is why, the strong argument on my part is why don't we increase the sin taxes, because only those with that vice will be affected. It's a health measure. We spend a lot of money for public health program for diseases arising from smoking.

Q: Another one, aviation fuel was taxed lower in the senate version. Why is that?

SFMD: Yes, that's correct. I assume because we want to remain competitive by making it easier for people to travel. If you tax the aviation fuel the same level as the gasoline, it will increase the prices of tickets.

Q: On sugar, I know that the house version wanted it at P10.00. The senate version, how much?

SFMD: At P4.50.

Q: Are you happy with that?

SFMD: So long as it excludes milk, 3-in-1, I would prefer it that way.

Q: And I know you have excluded as well products that have coco sugar, etc.

SFMD: Yes.

Q: On sweetened beverages, you have softdrinks clearly lobbying. Is it time to tax sweetened beverages?

SFMD: Yes, because they have not also been taxed for several decades. They have not had their share of the burden of revenue generation.

Q: Another controversial tax is the concern on coal, which will be taxed 3,000%. ECOP said it will make the country uncompetitive, given that electricity prices are very high? Somebody said why don't you tax emission, why did you tax a certain type of coal?

SFMD: I agree. Today the tax on coal is P10.00 per metric ton; on the third year, 2020, it will go up to P300 per metric ton. That's a 3,000 percent increase. I think it's too burdensome. It is argued that anyway only 40% of our energy mix is dependent on coal. Maybe that's correct, although the more accurate figure is 48%. But in certain areas, the dependence on coal is 100%.

Q: Really?

SFMD: Yes. For example, in Iloilo the energy mix is 85% coal and 15% crude oil. We get a double whammy, because may tax na on the fuel at may tax pa on coal. All over the country, there are over 2,750,000 households who depend purely on coal as a source of energy. Sila ang tatamaan. That's why to me, they talk about carbon footprint...

Q: I was going to ask you, is this an energy or environmental measure?

SFMD: You know, as a contributor to the global warming we only constitute less than one-half of one percent or 0.03%. It's very negligible. But we get hit with a 3,000% increase. I have no objection to having a tax on coal but let us moderate it and allow people to adjust and shift gradually to renewable energy. You talk about solar panels, we read in business pages that solar panels are going down in terms of prices.

Q: If this is the case, Victor Dimagiba said that the coal tax should have been proposed in the house and not in the senate? Is that correct?

SFMD: Well, the question of originality. Under the constitution, revenue measure must originate from the house. However that has been interpreted liberally. In this particular case, what is being amended is the national internal revenue code. What came up to us are amendments to the code and therefore, we have the right as a senate to propose amendments to the national revenue code, and one of which is the amendment to the taxes on coal. That's how the constitutional issue is respondent and this question of Atty. Dimagiba arises.

Q: If this is the senate version, could businessmen ask for a tax break...because it will make them uncompetitive?

SFMD: First of all, the rationalization of incentives- as the title of it says you rationalize the incentives because the incentives are coming out of the window and being abused - simply mean you review the incentive so it is not abused in order to generate more revenue. This is the system by the business sector.

Q: But do you agree with it?

SFMD: I agree. We should rationalize. An incentive is granted in order to encourage to expand their business so that it can create job opportunities. A tax incentive must be tested against the number of jobs, for example.

Q: If this tax on coal passes, how do you put up a manufacturing plant in the Philippines?

SFMD: I agree. That's why we must be very careful, because, yes, the tax on coal generates about P12.8 billion but against this is the adverse effect to the industry. There'll be second thoughts about expanding and potential job generation is not made possible. Also, it hits the consumer. My understanding is that with the tax on coal, household with 200kilowatts consumption will probably mean and additional P28.00 per month in electricity. Also in the industry there will be increases. That's why I feel bad, especially for my city, because they are purely on coal and crude. There are about 2.7 million households in the country that are purely dependent on coal. That is the downside.

Q: On additional tax on automobiles

SFMD: The senate version would impose a 10% tax on those below P1million and 20% on luxury vehicles. Generally, my concept is that okay, in terms of progressive tax principle, we tax luxury vehicles because their owners can afford them. But for entry-point vehicles, let's be reasonable because, let's face it, cars are necessary today especially for the middle class given the mess of ESDA. Let's be reasonable insofar as entry-point vehicles are concerned.

Q: You also spoke out the cosmetic tax...

SFMD: I was not the one who put it there. It was the committee. They imposed a 20% tax on cosmetics as an area to generate revenue from.

Q: It's not your idea?

SFMD: No. But they placed it there but suddenly one day, it disappeared. Somebody moved to remove everything. I said, that is not consistent with the principles of progressive taxation. It is not fair kung yung maliliit na mangingisda, yung tricycle driver, yung jeepney driver na halos hirap na hirap para kumita ay bubuwisan natin sa pamamagitan ng buwis sa gasoline. Bakit naman yung luxury lamang, yung cosmetics na hindi naman medically necessary, purely luho, bakit naman natin hindi bubuwisan?

As a matter of principle, as a matter of equity, I would not agree that you tax the fishermen, you tax the drivers, and not tax those who can afford to go on aesthetic procedure and not share the burden of cosmetic tax.

Q: On earmarking, why do you have to earmark?

SFMD: Because those who will suffer from this is the poorest of the poor who will be burdened by increases, for example, in the prices of commodities because of the increase in the excise ta on fuel. Now we have to protect the poorest of the poor and the consensus in the senate is that we must have an automatic appropriation and earmark a certain portion for social services in order that the public, which will be hit the hardest, would have some protection. For example, in social services the 4Ps program, the DoF agree that we should cover 5 million more families on the 4Ps sourced from the revenues out of this TRAIN. Their commitment is placed in the law. We want more families to be covered. That is only for a limited number of time, not perpetually.

Q: Would you then consider this progressive or is this an anti-poor tax?

SFMD: Certainly it's not progressive in the sense that we wanted it to be, because, when you increase excise tax on fuel, those in the lower strata of our society, would suffer the most, because with their meager income, their ability to purchase will decrease as the prices of commodities will go up.

Q: Why did you sign it? This is good for you to explain.

SFMD: If I didn't sign it, I could not be a member of the bicam.

Q: That's a good point. You can't argue.

SFMD: Yes, you can't argue in the bicam because, by tradition, you go to the bicam because you have the mandate of the body - the senate - to argue with the bicam. If you vote against it, you have no "k" to be in the bicam.

Q: The bicam is at 10:30am, will you be standing by the senate version or you're gonna make your own arguments?

SFMD: I'm going to make my personal arguments with the senate contingent and ask them to adopt what I believe is more progressive taxation. I can get outvoted in the senate contingent but that's part legislation. If I were not there, I couldn't argue.

Q: Our business report wants to ask you, the senate seems to be jumping the gun on the DoF. The DoF says it has five packages and this is only package 1, but why the senate already including passive income taxes in package 1, which were in the later packages of the DoF?

SFMD: Isn't it the DoF the one jumping the gun on the senate and the congress? Why am I saying that? Because taxation is basically a function of congress and not the DoF. That's why you have elected representatives who are authorized to impose taxes as representatives of the people. We have the mandate to increase taxes or to lower taxes. That's not a function of the DoF. Insofar as taxation is concerned, they can only suggest to us. We are the ones who will determine what should be in package one, what should be in package five.

Q: What you are saying is that the DoF is only recommendatory?

SFMD: That's correct. If we don't agree with it, it should be our view that will prevail.

Q: Some tax practitioners say that repealing the bank secrecy law will generate more revenues?

SFMD: It will be tackled separately together with the amnesty on estate taxes.

Q: Do politicians want this?

SFMD: It's a policy debate as to whether of not. But the fact is, it is part of the agenda of the ways and means committee to put on the floor for debate the bank secrecy law amendment. Just to emphasize, it is in our agenda. Within the first quarter of next year, it will be up for debates.

Q: Another issue, is it realistic for the bicam to finish the debates; the supporters of the President are hoping that it will be signed before the year ends?

SFMD: There is a basis for optimism that we can have it before the Christmas break. It's a question of to what extend both sides can compromise on certain provisions.

Q: Now, the VAT is one of the most contentious issues. We have about 154 VAT exemptions, which the say makes it more complicated for the VAT to actually collect?

SFMD: Yes, that's a valid point. In fact in the floor debates, Sen. Lacson said we remove the exemptions fro the VAT but we lower the VAT to 10%. We were not prepared for that. It's really a difficult issue. As you said, there are 154 exemptions and for every, you will have a whole group of people jumping up and down. It is difficult to take it as part of the TRAIN. You may derail the TRAIN.

Q: It wasn't tackled in the TRAIN?

SFMD: Not in this phase. It the succeeding packages it's entirely possible that exemptions from the VAT will be reviewed in exchange for a lower VAT rate. That's an open question.

Q: For the record, the house and the senate, it is fair to say that after the TRAIN is passed, the VAT remains exactly the same?

SFMD: There are some revisions in order to tighten the provisions on exemptions because of the leakages. But it's not an easy subject to tackle, because of the interests involved. Maybe in the next package.

Q: On the estate tax

SFMD: Before, let's say you have P1 million in the bank. The tax is graduated - I cannot remember but the higher the value of the estate the higher the tax that would be imposed. What we did now is just a straight 6% of the net asset of the estate. There is no more discretion as to how much will be deducted and therefore, less ground for corruption and lower estate tax. That is why there is accompanying measure that will grant amnesty to estate taxes.

Q: So yung hindi ba nakakapagbayad, they don't have to necessarily lose everything they owned?

Q: Another one, a lease of P15,000 is vat-exempt?

SFMD: Yes.

Q: The 13th month pay and other bonuses?

SFMD: Right now there are exemptions of up to P82,000 and that is retained.

SFMD: We keep on saying we wished we could tax on the other aspects so that we can recover some of the forgone revenues as a result of the revisions of the income tax rates.

Q: Can you still push for the sin tax in the bicam?

SFMD: Hindi na. It's not in the either version. There were efforts to push it pero umatras din yung dapat magtulak sa senado, kaya nawala.

Q: If you can just share with us one item you want to change and discuss in the bicam, what is it?

SFMD: The matter of the tax on fuel and coal. That one we should be able to reduce it, so it won't be too burdensome.

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