Poor Get Breaks in Aquino Tax Reform

The government of President Corazon Aquino announced a sweeping tax reform program Wednesday that gives breaks to the poor but punishes users of “socially undesirable” beer and cigarettes.

The 24-point program, designed to boost government revenues by $131 million annually, is the first component to be detailed in the Aquino government’s attempt to lift the country from its worst economic crisis since World War II.

“While taxes usually mean bad news for us, there will be a number of good things for us to talk about,” Aquino said in an interview on state-run television Wednesday night.

5 Taxes Affected

The reforms, announced almost four months after Aquino took power in a revolt that toppled President Ferdinand E. Marcos last Feb. 25, cover five kinds of taxes: income, corporate, sales, excise and international trade.

The program, which takes effect next month, also includes an amnesty offer for Filipinos with “substantial amounts of money” abroad to return the reserves to the Philippines at a 10% flat tax.

“It is believed that there are many Filipinos who have kept foreign assets abroad and may now want to repatriate them,” Finance Minister Jaime Ongpin said. “This proposal is in direct response to requests from such Filipinos for some sort of tax protection.”

Marcos Excluded

However, Ongpin said it does not apply to Marcos or associates facing charges for allegedly plundering the treasury during Marcos’ 20-year regime.

Economic and Development Authority Minister Solita Monsod said the tax system under the Marcos regime relied heavily on indirect taxes that resulted in an unfair burden on the poor.

New tax breaks would exempt from taxes a family of six earning the equivalent of $1,292 annually, just above the poverty line, she said. Previously, a family had to earn less than $975 to be exempted.

She said revenue-generating tax measures include roughly a 25% increase in taxes on cigarettes and a 44% tax increase on beer, from the U.S. equivalent of 3 cents a bottle to 4.9 cents.

To Meet IMF Conditions

The program is designed to meet one of the three critical conditions set by the International Monetary Fund in exchange for assistance to the debt-strapped government. Ongpin said the government still is working on the other two areas--restructuring of government financial institutions and liberalizing trade policies.

“We want to put the structural reforms into place. However, we also need money to prime the economy,” Monsod said. “We are going to get it . . . from imposing excise taxes on cigarettes and liquor because of the socially undesirable effects of these two commodities.”

The increases are projected to provide as much as $166 million additional annual revenue. However, Monsod said the loss from other tax reforms totals roughly $35 million a year.

The net revenue increase of $131 million is expected to offset a projected $1.1 billion 1986 budget shortfall.