Civil society network asserts call for a UN Tax Convention, lambasts G20 for sticking to “fundamentally undemocratic Tax Deal of the Rich”
“The G20 Summit in Bali is blocking any progress towards the negotiation of a UN Tax Convention that would address the issue of corporate tax abuses and illicit financial flows”, pronounced Lidy Nacpil, coordinator of the Asian Peoples’ Movement on Debt and Development, after the G20 released its Outcome Document November 16.
“The G20 continues to refuse to listen to civil society movements that are demanding global norms and standards on tax cooperation that respects all countries' sovereignty, strengthen countries' capacities to raise revenues to deliver public services, climate action, sustainable development and human rights commitments, and pave the way for an inclusive UN Tax Body,” Nacpil continued. “It is holding on to the fundamentally undemocratic Tax Deal of the Rich.”
The G20 has been pushing for the OECD Inclusive Framework on BEPS, a so-called "Two-Pillar Solution" which has been heavily criticized as a "Tax Deal of the Rich."
On November 15, the first day of the G20 Summit, APMDD delivered a strong message to G20 leaders, calling on them to refrain from blocking any progress towards the negotiation of a UN Tax Convention that would effectively address corporate tax abuses and establish norms and standards on tax cooperation that respects all countries' taxing rights via actions in front of their embassies in Metro Manila as the G20 Summit opened in Bali, Indonesia, 15 November 2022.
Open letters were delivered and discussed with embassy representatives. The first stop was the Embassy of Indonesia which holds the Presidency of the G20 until December 2022, followed by the Embassy of Brazil and finally the Consular Office of the Embassy of India. See the Open Letter to the government of Indonesia here.
APMDD called attention to the arrogation of international tax system rulemaking by the world’s largest economies through the OECD/G20 Base Erosion and Profit-Shifting (BEPS) framework, an effort which APMDD denounces as fundamentally undemocratic, illegitimate, and biased towards the interests of countries, corporations, and wealthy individuals already benefiting from status quo tax rules.
Instead of the G20-G7-OECD Tax Deal, the Asia-wide civil society network calls for the immediate adoption of a UN Tax Convention and an intergovernmental tax mechanism under UN auspices, proposals which have been advanced again most recently by finance ministers in Africa, as well as by the G77 and China. Reiterating the call of African finance ministers, UN Secretary-General Antonio Guterres said that a “legitimate global system of laws” that is “consistent with the principles set out in the United Nations Charter” is needed to stop illicit financial flows (IFFs) and end tax abuses, especially in developing countries.
APMDD coordinator Lidy Nacpil said that “a UN Tax Convention is needed because multinational corporations exploit the different national tax systems on a global scale, and we need global governance in order to reign in and address the tax abuse of multinational corporations.”
While the OECD and G20 present their BEPS framework as an inclusive project, APMDD has long pointed out that the project’s two pillars will deprive Global South countries of their ability to mobilize domestic resources for their sustainable development while benefiting Global North countries and corporations. According to APMDD, the BEPS framework amounts to a Tax Deal of the Rich.
Pillar One hands the right of taxation on the excess and non-routine profits of large multinational corporations (MNCs) to countries where these corporations are headquartered, rather than where their assets are located. This will rob developing countries of their just share of tax revenue, while solely benefitting the Global North countries where MNCs are based. Furthermore, this will exacerbate IFFs by MNCs that can simply declare a larger share of their profits as non-routine.
Pillar Two of the framework aims to advance a global minimum corporate tax rate of 15%, a drop from the 25% average corporate tax rate of developing countries. This represents a massive cut in tax revenue for Global South countries at a time when funds are much needed to finance critical public services, people's recovery from the COVID-19 pandemic, and to address the risks, vulnerabilities, damage and losses brought about by the climate crisis. Furthermore, this will likely precipitate a race to the bottom amongst developing countries as pressure mounts for them to cut taxes in line with the BEPS framework.
The OECD/G20 BEPS framework is largely a project of the world’s largest economies and is unrepresentative of the international tax reform demands of developing countries and peoples’ movements around the world. A UN Tax Convention, negotiated with universal and equal participation of all UN member states and with civil society participation can pave the way forward towards global tax rules that will enable all countries, but especially those in the Global South to strengthen domestic resource mobilization and other capacities to meet sustainable development goals, human rights obligations, and to fast track peoples’ recovery. The so-called "Two-Pillar Solution" peddled by the BEPS framework will not fix the fundamental flaws of the current international tax system and will only serve to exacerbate inequalities within and between countries.
According to Vidya Dinker, head of the Indian Social Forum and chair of APMDD’s Women and Gender Working Group, “the G20 should act on demands to reform the international tax architecture by supporting calls to start negotiations for a United Nations Tax Convention that would include the establishment of the UN Tax Body, with a voice and mandate from all countries. A new tax system is very much needed.” Dinker, who added that “the G20 must not block the process of adopting a UN Tax Convention,” is an activist leader in India who has helped steer civil society efforts to advocate a comprehensive tax justice agenda in political dialogues with G20.
APMDD’s public actions at the Embassy of Indonesia, the Embassy of Brazil, and the consular office of the Embassy of India were in solidarity with efforts by other peoples’ movements and civil society networks in Asia and beyond towards building up the call for the immediate adoption of a UN Tax Convention, and sending a strong message to G20 countries as they meet in Bali under the Presidency of Indonesia.
In 2023 India takes over G20 Presidency and in 2024, Brazil will be at G20's helm. Several G20 countries have historically been known to block efforts of developing countries to push for reforms in the international tax architecture that would make it more responsive to developing countries' interests and more effective in curbing corporate tax abuses and illicit financial flows.
21-25 Nov: Join the Global Days of Action for Tax Justice in the Extractives 2022
The Global Alliance for Tax Justice (GATJ) and its regional networks Tax and Fiscal Justice Asia (TAFJA), Tax Justice Network Africa (TJNA), and Red de Justicia Fiscal de América Latina y Caribe (RJFALC) will host the Global Days of Action for Tax Justice in the Extractive Industry from 21 to 25 November, 2022. The 4th edition of the campaign builds on the demands that the GATJ members have been pushing for since 2019, and calls more specifically for excess profits taxes on oil, mining and gas companies.
The continuing impacts of the global pandemic and the climate crisis have spawned a glaring gap between a tiny set of winners and the majority of the world’s population. In 2022, net profits of the 40 largest mining corporations grew by 127% from the previous year, surpassing their pre-pandemic revenues by more than double. However, few people benefited from the boom: research shows that there was a 130% rise in dividend payments and rewards for top executives, whereas many lost their homes, incomes and livelihoods.
Reports by the International Consortium of Investigative Journalists (ICIJ) expose that mining corporations systematically shift profits and wealth through corporate manoeuvring and shell companies registered in low-tax jurisdictions. On top of these illicit financial flows, they reveal the extent of regulatory capture by mining interests, involving patronage and corruption in processes of securing mining licences.
Social movements, particularly in climate, labour and gender justice, have been raising proposals for the extractive sector to operate responsibly with communities and the environment. Building connections with these demands, this campaign brings the perspectives of tax justice and the broader economic justice movement, calling for a rights-based economy that puts people and the planet at the centre of discussions and decision-making.
“The global crises make closing tax loopholes and raising more public revenues more urgent and imperative. However, the extractive sector continues to be given free rein to extract resources and profits with neither limits nor regard for social and economic costs or for irreversible environmental impacts,” said Dereje Alemayehu, Executive Coordinator of GATJ. “In addition to the profit shifting and illicit financial flows rampant in this sector, facilitated by the broken global tax governance and lack of regulatory and transparency mechanisms, the extra profits being generated by those benefiting from the crises remains untaxed. It is high time to take urgent and rigorous measures in the extractives sector to raise more revenue: stopping the perverse flow of resources from low-income to rich-OECD countries; scrapping tax giveaways, curbing loopholes and tax abuse, as well as immediately introducing tax on extra profits. An inclusive and equitable recovery will only be possible through tax justice.”
Global tax justice calls
The global tax justice movement calls on governments and multilateral institutions to:
Stop illicit financial flows and tax abuses in the extractives sector;
Tax the superprofits of extractives corporations by instituting windfall profit taxes;
Curb tax incentives granted to the extractives industry;
Make extractives companies pay their share in taxes and immediate costs of rehabilitation and rebuilding;
Use taxes for peoples' needs, especially for the needs of communities affected by social and environmental damage; and
Protect and uphold the rights of workers and women affected by mining, including their rights to defend their communities.
18 NOV | 11 am Pretoria
Online event: Resource Backed Loans and Collateralization of Mineral Resources
Organisers: Afrodad and Tax Justice Network Africa
The webinar seeks to pinpoint Africa’s over reliance on mineral resources as the primary commodity export. This overdependence on mineral resources could be a result of IMF’s fiscal consolidation country advice on debt management and how resource-rich countries that are in debt distress are forced to resort to RBLs as a way of financing their debt. Through this online discussion, we seek to analyse whether resource backed loans and collateralisation of mineral resources are a sustainable financing option for African countries and showcase how the current multilateral and international financial system contributes to a vicious cycle of dependence on RBLs.
21 NOV | 2 pm Central European time
Launch event: Tax extractives excess profits NOW!
Organisers: Global Alliance for Tax Justice, Tax and Fiscal Justice Asia, Tax Justice Network Africa, Red de Justicia Fiscal de América Latina y el Caribe
The Global Alliance for Tax Justice (GATJ) and its regional networks kick off the Global Days of Action for Tax Justice in the Extractive Industry 2022 with an online round table, in which panellists from Asia, Africa, Latin America, Europe and North America will discuss the main issues each region has been facing with the extractives, as well as what could be achieved through tax justice and, more specifically, excess profits taxes in the sector.
Contribution to the UNIVERSAL PERIODIC REVIEW Fourth Cycle
SUBMISSION OF THE ASIAN PEOPLES’ MOVEMENT ON DEBT AND DEVELOPMENT, FREEDOM FROM DEBT COALITION (FDC), and ORIANG (women’s organization)
“Each State Party to the present Covenant undertakes to take steps individually and through international assistance and cooperation, especially economic and technical, to the maximum of its available resources, with a view to achieving progressively the full realization of the rights recognized in the present Covenant by all appropriate means, including particularly the adoption of legislative measures.”
Article 2.1 ICESCR
“The States parties to the present Covenant recognized the right of everyone to the enjoyment of the highest attainable standard of physical and mental health. The steps to be taken by the States parties to the present Covenant to achieve the full realization of this right shall include those necessary for: The reduction of stillbirth-rate and of infant mortality and for the healthy development of the child; the improvement of all aspects of environmental and industrial hygiene; The prevention, treatment and control of epidemic, endemic, occupational and other diseases; The creation of conditions which would assure to all medical service and medical attention in the event of sickness.”
Article 12 ICESCR
The Philippines is failing in its obligation to respect, protect and fulfill the right to health. We are witness to the rapid rise in COVID cases during the pandemic and the near-collapse of the health system. According to the Maastricht Guidelines on Violations of Economic, Social and Cultural Rights, a state is in violation of the ICESCR if it fails to allocate the maximum of its available resources to realizing human rights. Critical to fulfilling its human rights obligations is the Philippine government’s ability to mobilize and allocate domestic resources to ensure adequate funding for quality health and related services that are available and accessible to all.
The Philippine government’s tax reform laws pursue a revenue-eroding direction that will in the long-run 2 only serve to benefit corporate profits while leaving less revenues for the public coffers. This severely undermines the government’s ability to mobilize domestic resources for funding essential services critical to people’s health. It also weakens the country’s national legal human rights framework, and poses a barrier to realizing human rights, especially the right to health.
This submission from the Asian Peoples’ Movement on Debt and Development or APMDD, a regional alliance of peoples’ movements, community organizations, coalitions, NGOs and networks in the Asian region, is jointly prepared by two APMDD members in the Philippines – the Freedom from Debt Coalition, and ORIANG. (See Annex 1 on Contributing Organizations)
APMDD advances collective campaigns and actions of movements and peoples’ organizations to promote people-centered development, as well as economic and environmental rights and justice.
The Freedom from Debt Coalition (FDC) – Philippines is a nationwide multi-sectoral, non-sectarian and pluralist coalition conducting policy advocacy work and campaigns to realize a common framework and agenda for economic development.
ORIANG is a movement of women from urban and rural communities, factories and schools, united to give voice to the demands and aspirations of women. It organizes to fight for reproductive justice, freedom from discrimination and violence against women, environmental and ecological integrity, social and economic emancipation, and political empowerment.
Description of the methodology and the consultation process followed for the preparation of information provided under the universal periodic review
This submission integrates information gathered from presentations and discussions during consultations with FDC and Oriang members. These include: a focus group discussion with members of ORIANG in 2021; public forums conducted by FDC; and the APMDD-initiated People’s Assembly on Tax Justice on 30 October 2021 with participants from the Philippines and other countries in Asia.
This submission is prepared for the 4th cycle of the Universal Periodic Review scheduled in November 2022.
It follows up on previous comments and recommendations made during the 3rd UPR Cycle on the right to health, poverty, health and security, and raises concern about the government’s commitment and track record to mobilize and make available adequate resources to fulfill these rights.
The last UPR cycle yielded a number of recommendations from several countries that focus on fulfilling the right to health and social security. The Government of the Philippines supported recommendations on: right to an adequate standard of living - general (E21), right to social security (E24), human rights & poverty (E25), poverty (S01 SDG1), right to health - general (E41), and access to health-care -general (E42).
This report specifically draws attention to new tax laws that negatively impact human rights, especially the right to health under the ICESCR. The adoption of new tax reform laws since the last UPR Cycle, FDC and ORIANG, severely undermines the capacity and ability of the Philippine government to fulfill its human rights obligations.
II. Context: Health Crisis in the Philippines
The national report of the Philippines to the Human Rights Council in May 2017 for the 3rd UPR Cycle states that the Philippine Health Agenda is anchored on “making the health care system equitable, inclusive, transparent and accountable, while allocating resources efficiently to provide affordable, high 3 quality health services.” The government’s budget supports the Department of Health (DOH) in deploying health professionals to the barrios, expanding the immunization program for children, and strengthening the efforts to lower maternal and infant mortality rates, among others. (https://documents-dds-ny.un.org/doc/UNDOC/GEN/G17/108/99/PDF/G1710899.pdf?OpenElement)
There is still a long way to go for the realization of the target of health care for all. Data on the state of maternal and child health are particularly telling. Countries with similar levels of income as the Philippines have rates of stunting averaging only 20 percent for children under 5 years of age. According to UNICEF Philippines, a third of Filipino children under 5 years of age are stunted.
Pre-COVID 19 pandemic, the Philippines saw about 2,600 women dying every year due to complications from pregnancy or childbirth. In 2020, maternal mortality was projected to have increased by 26 % from 2019 levels.
In April 2020, there were, an average of 3.7 doctors per 10,000 population in the country. This is below the World Health Organization-prescribed ratio of 1 doctor for 1,000 persons (or 10 per 10,000),a ratio that is only achieved in the National Capital Region. There is a wide discrepancy across the regions. The ratio is only 0.8 per 10,000 in Bangsamoro Autonomous Region in Muslim Mindanao (BARMM). Furthermore, there are 8.2 nurses per 10,000 , or .082:1,000 nationwide, less than one-tenth of the WHOprescribed ratio of 1:1,000.
In a report published on 20 April 2020, the University of the Philippines (UP) COVID-19 Pandemic Response Team noted that the Department of Health hospitals across the nation had an average bed occupancy rate of 105% in 2013. The study points out that it would be beyond the capacity of most provinces to handle the surge of the COVID-19 crisis in the Philippines at its peak. There was a systemic lack of available critical care beds because there were only a little over 2,000 ICU beds across the country viz a viz the projected 8,800 to 19,800 critical COVID-19 cases.
Indeed, in a matter of only a few months from its onset, the COVID-19 exposed how fragile and inadequate the Philippines’s health system and infrastructure was in responding to crises such as pandemics. With about 3.6 million cases and 59 thousand deaths as of March 29, 2022 according to the Department of Health, the Philippines ranked second among the countries in Southeast Asia in the severity of the health crisis due to Covid.
As FDC President, Dr. Rene Ofreneo said, when Covid-19 struck, the Philippines was already suffering from ‘a broken health sector’. A policy bias toward privatization and commercialization of healthcare has resulted in severe lack of, or undeveloped health facilities in most places. Import dependence on transnational corporations (TNCs) for pharmaceutical products has kept the cost of medicines high, and out-of-pocket expenses incurred by patients accounted for 40-60% of the medical bills.
There was acritical lack of access to healthcare. Health workers raised the alarm about hospitals being overwhelmed owing to a lack of beds and insufficient health personnel. Several hospitals reported reaching ‘critical’ occupancy rates following surges in COVID-19 cases. Critical cases had to be ferried to different medical facilities kilometers away, only to be turned away again due to lack of healthcare capacity. Hospitals turned away women about to give birth. This resulted in the death of several women due to loss of blood or complicated deliveries.
Health workers experienced unpaid and/or delayed risk allowances and hazard pay and lack of medicalgrade personal protective equipment. On 1 September 2021, they took to the streets and online to protest and demand an end to the government neglect. Medical staff have been overwhelmed during the pandemic and 103 of them counted among the coronavirus fatalities in the Philippines at that time.
By the last quarter of 2021, resource-strapped hospitals were calling on the state-run Philippine Health Insurance Corp. (PhilHealth) to make good on insurance claims, some of which have been outstanding for years. By January 2022, seven private hospitals in Iloilo City severed ties with PhilHealth for unpaid claims amounting to more than PHP895 million.
The role of public finance in this situation has been the subject of criticisms from civil society. The severity of the crisis is linked to the underfunding of public health services and social protection programs. Access to adequately funded quality healthcare and social protection would have mitigated the pandemic’s impacts given high income inequality and citizens’ lack of personal resources to provide for their individual and family health needs.
Social protection, as pointed out by the UN Special Rapporteur on Extreme Poverty and Human Rights Olivier De Schutter on September 11, 2020, should be a set of permanent entitlements prescribed by domestic legislation, defining individuals as rights-holders, and guaranteeing them access to independent claims mechanisms if they are denied the benefits for which they qualify. This requires domestic resource mobilization to ensure adequate financing for social protection. The International Labor Organization (ILO) suggests an indicative figure of 3.3 percent of GDP for this, based on calculation of the cost of a universal package of four social protection benefits for low- and middle-income countries. The Philippines falls short of this international recommendation, as its Philippine Medium-Term Development Plan 2017-2022, supposedly updated during Covid-19 times, set a target indicator for social protection spending at only 1.7% of GDP.
As medical expert Dr. Nemuel Fajutagana, chair of the board of the Medical Action Group, noted in a 10 June 2021 press briefing organized by the Vaccine Equality-Asia of which APMDD is part, the survival of people during the pandemic depends on rational fiscal spending. He said that instead of prioritizing infrastructures in the national budget as was done by the Philippine government through the continuation of its Build-Build-Build program, the government should provide “timely and free coverage of COVID-19 vaccine and increase budget allocation for determinants of health, including allocation for nutritious food, clean drinking water, and environmental health and hygiene.”
Illicit Financial Flows (IFFs) and the government’s revenue-eroding tax reform program undermine the people’s right to health, and other rights
The health crisis needs to be seen against the broader context of the Philippines’ performance in public spending, domestic resource mobilization, and taxation. The pandemic exposed long-standing fundamental flaws in the fiscal and tax system that had limited the country’s ability to mobilize and allocate maximum resources for public health, leading to an inadequate COVID response and eventually to a health crisis in the country. Tax and fiscal policy flaws and illicit financial flows (IFFs) have a direct impact on fair, equitable distribution of safe and effective COVID-19 vaccines; on resources available for health workers’ wages, and on the capacity of public hospitals and care facilities.
A. Revenue losses because of illicit financial flows (IFFs) weakened the Philippines’ capacity to respond to the pandemic.
Tax avoidance and evasion by corporations and wealthy individuals and other types of illicit financial flows have resulted in staggering amounts of foregone revenues for the Philippines. These lost revenues would have been enough to finance COVID response and more, without the country resulting to more borrowings.
The State of Tax Justice 2020, an annual report by the Tax Justice Network, provides data on annual tax loss due to corporate tax abuse and to offshore tax evasion. For the Philippines, the country's total annual tax revenue loss to illicit financial flows was US$2,135,295,746. That is the sum of annual tax loss due to corporate tax abuse amounting to US$1,877,619,568 and tax loss due to offshore tax evasion amounting to US$257,676,178. Tax loss per collected tax revenue is 4.73%. While the Philippines is a lower middle-income country, the country’s tax loss per health expenditure is comparable to lower income countries at 50.71%.
That the country is losing that staggering amount of tax losses, at a time when public funding for health care is so critical, is alarming and disturbing. This is especially so as an official of the Department of Health said in September 2021 that "we have a shortage of around 92,000 physicians, 44, 000 nurses, 19,000 medical technologists, around 14,000 pharmacists, and around 17,000 radiologic technicians and radiologic technologists.”
In 2021, the International Consortium of Investigative Journalists (ICIJ) released a report called the Pandora Papers, containing findings of their investigations on secret accounts and offshore shell companies. The report yielded, among others, a list of over 900 individuals and companies, a number of which had traced back beneficial ownership to businessmen and corporate entities in the Philippines., implicating several political and business elites. While other countries in Asia and other parts of the world initiated investigations as a direct response to the report, the Philippines government remained silent.
While IFFs clearly undermine the country’s ability to mobilize domestic revenues and increase public spending for essential services, there has been little action from the government to stop the financial bleeding. Instead of plugging the leaks that drain the economy of precious resources for the public coffers, the Philippine Government’s response to COVID was debt-dependent. Borrowing for COVID response was aggressive. As of April 2021, total financing agreements meant for COVID response amounted to US$ 15,493.74 million in April 2021. Of this, US$13,153 million were budgetary support loans signed in 2020; $2,188 million are project loans; and $26.75 are grants. (https://www.dof.gov.ph/data/fin-agreements/) This swelled further in January 2022 with the Department of Finance (DOF) reporting a total of $22.55 billion, or roughly PhP1.15 trillion, in budgetary support financing in relation to its COVID-19 response.
According to the Freedom from Debt Coalition, the country’s outstanding debt reached a new record high of PHP 12.3 trillion pesos (US$240.6 billion) by end-January 2022, more than doubling the levels from the start of the Duterte presidency in 2016 to the present. The total amount of approved increase in government spending for debt servicing in 2022 of PHP 512.6 billion ($10.03 billion) is twice that of the latest national health budget of PHP 269.75 billion ($5.28 billion).
B. CREATE and TRAIN
The Implementation of laws, programs and services on the right to health and other human rights requires adequate resources.It is the duty of the Philippine government to mobilize and allocate domestic resources to ensure adequate funding of programs and services to fulfill its human rights obligations and gender equality and sustainable development commitments.
In 2017 the Duterte administration embarked on a series of tax reforms. According to the Philippine government, the declared objectives of the Comprehensive Tax Reform Program (CTRP) of President Rodrigo Duterte are to accelerate poverty reduction and sustainably address inequality by making the tax system simpler, fairer, and more efficient. The CTRP aimed to generate additional streams of government revenues that would make meaningful investments in people and infrastructure. Two of four tax reform packages have already been enacted into law: the Tax Reform for Acceleration and Inclusion (TRAIN) in December 2017 and Corporate Recovery and Tax Incentives for Enterprises (CREATE) in March 2021.
The more recent CREATE or Republic Act (RA) 11534 is Package 2 of President Duterte’s tax and fiscal reform agenda and was promoted as a ‘fiscal stimulus’ measure for distressed businesses to counter the resulting economic fallout due to the pandemic. It was estimated to provide private enterprises more than Php 1 trillion worth of tax relief over the next 10 years.
Package 1 or the Tax Reform for Acceleration and Inclusion (TRAIN) or Republic Act No. 10963 exempted taxpayers earning less than P21,000 a month from paying personal income tax (PIT), exempted 13th month pay and bonuses from taxes, and exempted self-employed persons and professionals earning less than Php500,000 from paying percentage taxes. However, the law at the same time increased the excise taxes on fuel, automobiles, tobacco and sugar-sweetened beverages with corresponding impacts on the prices of other goods and services consumed by Filipinos.
APMDD, FDC and Oriang find that many provisions of these tax and fiscal reforms of the Duterte government undermine Filipino people’s rights to health, social protection and other basic rights.
In the long run, both TRAIN and CREATE seriously erode the government’s capacity to mobilize domestic resources, limit the fiscal space, and put into question the Philippine Government’s capacity for progressive budget spending.
Under the CREATE Law, the baseline corporate income tax rate for large corporationswas slashed from 30% to 25% and will further be reduced every year for the next five years; one percentage point from the already reduced tax rate will be shaved off until it goes down to 20%. Meanwhile, micro, small and medium enterprises’ corporate income tax rates were reduced from 30% to 20%. CREATE will result in foregone revenues, as estimated by the Philippine Government itself at PHP37 billion within six months of its passage, at PHP476.8 billion for the first five-year period, and 1 trillion pesos for the next 10 years. The Department of Finance (DOF) has admitted that it is a revenue-eroding measure, with member agencies of the ‘Build, Build, Build’ infrastructure program that supported the signing of the law on March 26, 2021 proudly extolling it as “the first of its kind”, neglecting to mention its adverse impact on the already tight fiscal space of government.
As part of the Duterte administration's investment promotion program, CREATE provides for corporate tax cuts and continues fiscal incentives even during Covid-19, albeit for a finite number of years instead of never-ending tax holidays. Qualified export enterprises are entitled to four to seven years Income Tax Holiday (ITH) to be followed by 10 years 5% Special CIT (SCIT) or enhanced deductions from taxable income for items such as power, labor, training, research and development, domestic input expenses, and depreciation allowances – while qualified domestic market enterprises are entitled to four to seven years ITH to be followed by only five years enhanced deductions. This is despite the findings of the Department of Finance itself (prior to CREATE) that in terms of employment, exports, investments, and productivity, the difference between firms registered under these incentives and non-registered firms is largely insignificant. the difference between registered firms’ performance vis-a-vis non-registered firms was largely insignificant. They themselves concluded that fiscal incentives were unnecessary or even wasteful in promoting investments.
These reductions in corporate income tax rates will further erode the country’s capacity for domestic resource mobilization over time and will further undermine capacity for progressive public spending. The United Nations High-Level Panel on Financial Accountability, Transparency and Integrity (UN FACTI) recommends setting a global minimum tax rate of 25-30%, consistent with the global average of 25% in countries with similar income levels as the Philippines. APMDD supports this recommendation and asserts that a lower rate will fail to make any significant impacts on revenue generation in the Global South and sets a dangerous precedent for a global race to the minimum.
Exacerbates Poverty and Inequalities
CREATE falls short in terms of distributive justice and is set to exacerbate inequalities. Leading economists in the Philippines, in their joint statement in June 2020, said that, overall, CREATE is both inequitable and inefficient. This is despite a provision that slashes corporate income taxes of small and medium enterprises to 20%. They concluded that CREATE is only functions as tax releif for incorporated businesses, equivalent to a subsidy, leaving little gains for microenterprises and unincorporated small and medium enterprises. The law provides that Value-Added Tax (VAT) exemption on importation and VAT zero-rating on local purchases shall be applied only to goods and services directly and exclusively used in the registered project or activity by a Registered Business Enterprise (RBE). This limits the number of enterprises who will benefit from this provision.
It must be noted that 99.51% of all establishments in the Philippines are Micro, Small and Medium Enterprises (MSMEs), of which 88.77% are Micro. In addition, there are 1.3 million unregistered sarisari (mom-and-pop) stores and market vendors, and an estimated 7 million informal and unregistered home-based microbusinesses. Only 0.49% are large enterprises.
Moreover, there remains a bias towards export-oriented companies -- usually medium to large companies -- which certainly do not focus on the needs of local communities. While both exporters and domestic market enterprises, deemed part of the Strategic Investment Priorities Plan, are given Income Tax Holidays for a period of 4-7 years, exporters are allowed a further 10 years enhanced deductions from their taxable income while those engaged in domestic market activities are given only five years. Moreover, export enterprises may opt for the Special Corporate Income Tax (SCIT), a tax equivalent to 5 percent of gross income earned in lieu of all national and local taxes for a period of 10 years. This 5 percent SCIT is not available to domestic market enterprises because it was vetoed by the President.
Far from achieving its declared objectives of poverty and inequality reduction, the Comprehensive Tax Reform Program Packages, with TRAIN and CREATE as the major new tax laws, instead reinforce the Philippine tax system’s over-reliance on regressive taxes like indirect taxes which are burdensome for the ordinary people and affects the poor disproportionately.
Prior to TRAIN, all individual employees or self-employed taxpayers would normally have to pay income tax rates of between 5% to 32%, depending on one’s bracket. Under TRAIN, taxpayers with incomes below PhP250,000 are now exempt from paying personal income tax, while the rest of taxpayers, except those in the highest income brackets, , will see lower tax rates ranging from 15% to 30% by 2023. These may be considered a progressive tax measure. However, TRAIN also contains other features that are regressive such as the expansion and/or increase of indirect taxes like excise tax and Value Added Tax(VAT).
The first tranche of excise tax increase in fuel products under TRAIN increased the duties on gasoline to PHP7 per liter and imposed a PHP2.50 per liter levy on diesel and kerosene effective January 2018. This had a multiplier effect on the prices of goods and services and eroded the purchasing power of the Filipino people. Inflation increased from 3.2% in 2017 to 5.2% in 2018.
The net effect of TRAIN’s tax mix weakens people’s purchasing power and causes negative impacts on household spending for health and education. This will further undermine the ability of people, especially those living in poverty and facing social exclusion, to enjoy their right to health and other social and economic rights.
Impacts Negatively on People’s Right to Health
The Philippines has an obligation to mobilize and allocate as much resources as it can towards fulfilling economic, social and cultural rights. What the Philippines loses in revenue-eroding tax policies such as CREATE and from illicit financial flows (IFFs) could and should have been used to expand and upgrade public services including health services, and make them available, accessible, and responsive to the needs of all.
In 2020, the Philippines ranked 109th in terms of progressive budget spending.. This is according to the metrics developed by the Commitment to Reducing Inequality Index (CRII) developed by Development Finance International and Oxfam ranking 158 countries in 2020. The metric looks at fair taxation, public spending on health, education and social protection, and labor regulations. According to their study, the Philippines ranked way below its neighbors. Levels of revenue collection, measured as a proportion of GDP, remained very low resulting in inadequate budget capacity with consequences on available funds for effective Covid-response without being mired in national debt, and ensuring that the right to health and social protection of Filipinos is not violated.
According to the CRII scores in progressive budget spending for ASEAN countries, the Philippines ranked among the bottom third of all countries in overall index, among the bottom third in terms of public spending, and the bottom third in terms of tax progressivity. Total health expenditure, for example, is only around 3.5% of Gross Domestic Product (GDP) – way below Cambodia, India, Japan and Mongolia (all above 6%), according to FDC President Dr. Rene Ofreneo.
A more restricted fiscal space owing to revenue-eroding new tax laws, together with misplaced budget priorities, will gravely impact on people’s right to health. The 2022 national budget has allocated only 4.8% (PHP242.22 billion) for health or about 1.25 % of the 2021 GDP (Php19.387 trillion).
The Department of Health (DOH) requested for a budget of PHP73.99 billion for Covid-19 response for 2022, but the Department of Budget and Management approved only PHP19.68 billion.
On the implementation of the country’s Universal Health Care Law, it was projected that Philhealth would need a PHP110-billion allotment for 2022, but it got only PhP80 billion – a shortfall of 22 billion that could affect the most vulnerable Filipinos. Both special risk allowance of health workers and purchase of booster vaccines are mostly allocated under “unprogrammed funds” meaning they can be released only if there are savings in the budget or if they are part of Official Development Aid or ODA agreements.
When the pandemic hit in 2020, and given the dismal state of public health financing, the people who were already contending with higher cost of living because of the tax measures were forced to turn to private health providers, jacking up their out-of-pocket costs for health spending. This compounded the crises of job and livelihood losses during the pandemic. TRAIN also expanded the Value-Added Tax (VAT) and repealed 54 exemptions under the old law. This increased tax burdens on women and other marginalized sectors.
A focus group discussion with members of the women’s movement ORIANG on 26 January 2021 and other consultations surfaced various types of taxes collected from women in the grassroots. These tax burdens exacerbated economic insecurity in the face of massive unemployment and loss of livelihoods during the pandemic. underemployment.
Participants at the FGD conducted on 26 January 2021, 26 women working in the informal economy, mostly as vendors in cities and municipalities in Metro Manila, discussed the direct, indirect, and informal taxes they paid, and expressed anxiety over the possibility of VAT increase beyond the 9 prevailing 12 percent. VAT is levied on basic consumption goods and essential services and utilities like water, electricity, telephone, internet installation, etc. Following are some of the comments by women participants, that reveal increased economic hardships, anxiety over access to health care, and uncertainty about the future. (See Annex 2 for raw transcription)
- “I ask myself what can I afford with my budget? We get the cheapest food items. We do not think of our health. We are prone to diseases, like hypertension, because the only thing the poor can buy are instant noodles.” (Translated from Filipno.) -
“Those who get sick have no access to treatment. When you are sick you go to the government hospital. They will say they prioritize COVID patients so you have to go to the private hospital instead.” (Translation)
The everyday struggles of people demand government action to remedy inequalities, redistribute resources, and challenge the values that underpin the Philippine economy and the dominant tax policies. Lidy Nacpil, APMDD regional coordinator, speaking at the October 30, 2021 People’s Assembly, stressed that “the very principle of taxing citizens is for government to be able provide services that can promote equity, lift people out of their situation of poverty and marginalization, and provide the essential services needed as basic human rights. There is something fundamentally wrong if tax systems are doing the opposite and being more burdensome for people.”
The Philippines must work towards the coherence of its tax and fiscal policies, aligning these with its international commitments to sustainable development, and with its obligations as a States party to the ICESCR that commits States parties to devote as much resources as they can towards fulfilling ESCR.
We respectfully urge the Member States to express concern about the violations of the right to health that result from tax and fiscal policies and recommend the following:
- Refrain from creating and enforcing laws and policies that undermines Philippines’ capacity to fulfill its obligations under the ICESCR or that create conditions preventing the people from fully enjoying their human rights, especially the right to health. Review the TRAIN and CREATE laws, and their impact on people’s economic and social rights, and in severely limiting the public resources that can otherwise be spent on essential public services and subsidizing people’s needs and relief during and in the aftermath of Covid-19.
- Take effective measures to fully implement the Universal Health Care Law and other social protection measures; ensure adequate funding by increasing domestic resource mobilization, through progressive taxation (consider adopting a wealth tax), sound and transparent fiscal management, and adopting other measures that are not debt-dependent.
- Ensure access to health care and adopt measures for the poorest communities to be assisted in accessing hospitals and clinics, including through equipping barangay health clinics with sufficient health workers, equipment and medicine.
- Strengthen legal and policy frameworks for financial transparency, strengthen investigative mechanisms, work towards increased international cooperation to combat illicit financial flows, curb tax abuses, and recover ill-gotten wealth to increase domestic resource mobilization for progressive spending on public services.
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Labor Leaders Gather to Push for Wealth Tax and Progressive Tax Reforms
In an unprecedented move, more than 160 Philippine trade union leaders and tax justice activists from different parts of the country gathered in a forum to discuss wealth tax as a response to the worsening inequality in the country.
Held on November 5, 2022 the forum had for its theme “Buwisan ang Bilyonaryo, Hindi ang Obrero!” (Tax the Billionaires, Not the Workers!) and was jointly organized by the Asian Peoples’ Movement on Debt and Development (APMDD) and the Bukluran ng Manggagawang Pilipino (BMP).
Speakers led by Lidy Nacpil of APMDD and Ka Leody de Guzman of BMP discussed the necessity of pushing for a wealth tax to fund peoples’ recovery amidst the economic, health and climate crises facing the people.
While the living and working conditions have worsened for the majority of Filipino citizens, especially the working class, the top 50 wealthiest individuals in the country have seen an almost 30% combined increase in their wealth. Combined with the drastic increase in the country’s poverty incidence, this represents an upward transfer of wealth from the bottom to the top. This has been facilitated by, among other things, the Philippine government’s regressive taxation policies, characterized by the imposition of excise taxes and value-added taxation (VAT) on a whole range of goods and services, including basic commodities.
More than 100 participants, including 34 trade union leaders and tax justice activists attended the assembly in Quezon City, even as 70 participants from BMP chapters in Negros, Cebu, Ormoc, and Bicol joined remotely.
Rey Abella of APMDD said consumer-related taxes such as VAT depletes the income of ordinary people, especially workers living on minimum wage. He said that VAT is regressive because it hits the poor more as taxes on consumer goods cut a bigger share of their income compared to the rich, especially billionaires.
BMP chairperson Leody De Guzman said the wealth of the billionaires and the capitalist class that came from the exploitation of workers are illicit, thus, they must be held accountable by taxing them through a wealth tax.
He said that the burden of raising revenues for government spending should not be passed on to the poor and working class who are already heavily burdened by neoliberal policies such as privatization of basic social services.
APMDD coordinator Lidy Nacpil said that “aside from benefiting from regressive taxation, the super-rich are able to evade paying taxes through illicit financial flows (IFFs), particularly by exploiting tax havens in other countries.”
Labor lawyer and BMP president Luke Espiritu denounced the prevailing exploitative practice of capitalists and businessmen giving only minimum wages to workers. He said government-mandated minimum wages should only serve as a reference point, or “floor price” or a “limit”. Instead, capitalists should use the minimum wage as a basis for paying workers a liveable wage.
Manjette Lopez, president of the multi-sectoral alliance Sanlakas said that there is an urgent need to transform organized masses in poor communities as active partners in the progressive transformation of political, social, and economic life, and not just mere recipients of aid or ayuda.
She warned of the unstable global situation characterized by stagflation where prices of commodities continue to rise even as economic growth is slowly grinding to a halt.
Emma Garcia of BMP Kababaihan (BMP Women) said that women workers face harsh working environments and only receive the minimum wage, yet a major part of their income goes to paying taxes on household consumer goods. She noted the significance and timeliness of the wealth tax forum as workers fight for a more progressive taxing system.
The labor leaders saw the need to cascade the concepts learned during the forum to local unions and localities to build a grassroots initiative for the fight for wealth tax.
De Guzman reiterated during the open forum that the wealth tax is not the sole advocacy and campaign that will be carried out by BMP, but it is one of the most important issues they have to bear in order to eliminate inequality and other labor-related issues workers are facing. He said dismantling the neoliberal economic paradigm and pro-elitist, pro-capitalist system is still one of the most important goals the proletariats must achieve.