Philippines Legislative Update: June 2019

June 27, 2019

Authors: Lilibeth Almonte-Arbez, Sarina Divan, Evelyn Mariano

 

17th Congress Key Legislation Before Adjournment

The 17th Congress held its last session on Tuesday, June 4, 2019. Several key pieces of legislation were considered in the final weeks of the session. Under the Philippine Constitution, the President has 30 days to communicate his veto of any bill to the House of Congress where it originated within 30 days after the receipt thereof. Otherwise, a bill becomes law as if he had signed it. (1987 Philippine Constitution, Article VI, The Legislative Department, Section 27.1)

 

Bills Passed Under the 17th Congress

1. Tobacco Excise Tax Bill

Congress passed a bill to impose a higher excise tax on cigarettes and other tobacco products to finance the Universal Health Care program. The Senate approved SB 2233 on third and final reading on June 4. After approving amendments on the sharing of the tax revenues, specifically demanded by representatives from northern Luzon, both the House and Senate passed the bill. The full text of the final bill can be found here. The bill now awaits President Rodrigo Duterte’s signature.

The current tax rate on cigarettes, under the TRAIN tax package, is US$0.68 (₱35) per pack. Different variations of the bill featured different proposed tax increases. The final version proposed a starting tax rate of US$0.87 (₱45) in 2020, followed by annual increases of US$0.10 (₱5) until the tax rate hits US$1.16 (₱60) in 2023. After 2024, the tax rate would increase by 5% annually. Some proposals, including the bill initially approved by the House of Representatives, included tax hikes on alcohol, but this was excluded from the final version. Fifty percent of the revenue from this tax will be used to fill the funding gap for the Universal Health Care program, but still leaves the program short by approximately US$933 million (₱48.5 billion). The bill, supported by the Department of Finance and Department of Health, was certified as urgent by President Rodrigo Duterte, a designation that can expedite Congressional passage of a bill. This bill also carries the support of many anti-smoking and health advocates. National Economic and Development Authority (NEDA) Undersecretary Rosemarie Edillon said that, while the prices of tobacco in the Philippines would still be competitive compared to other countries, the tax increase would dissuade consumption of tobacco products that carry health risks. Those opposing the bill argue that it will impose a larger burden on tobacco farmers, who already took a hit from previously approved taxes on tobacco products.

2. Security of Tenure Bill (“Anti-Endo” Bill)

Congress passed the Security of Tenure Act, which prohibits labor-only contracting. “Endo” or “end of contract” is a labor scheme in which companies hire workers for a fixed period of up to five months and terminate them when their contract expires. By circumventing a labor law that requires companies to grant tenure to workers after six months, this abusive practice prevents workers from obtaining the benefits received by company employees. The proposed bill defines cases where labor-only contracting exists and mandates that contractors obtain a license from the Department of Labor and Employment to engage in job contracting. Employers, however, argue that this bill will discourage investment, which in turn will increase unemployment and hurt the economy. According to Sergio R. Ortiz-Luis, President of the Employers Confederation of the Philippines, employers will also be forced to reduce hiring if they do not have the capacity to regularize all workers. Labor Undersecretary Ana B. Dione counters that this bill simply clarifies the current law on contractualization and should not be a cause for concern. This bill is now waiting for the signature of President Duterte, whose campaign promised an end to labor contractualization.

3. Bangsamoro Organic Law 

In May 2018, the 17th Congress passed the landmark Bangsamoro Organic Law, which was signed into law by President Duterte in July 2018. This law creates the new Bangsamoro Autonomous Region in Muslim Mindanao as a result of decades-long peace talks between the rebel groups in Mindanao and the Philippine government. This law effectively replaces the current Autonomous Region of Muslim Mindanao with the Bangsamoro Autonomous Region, which would have its own regional government, parliament, and justice system. 

Please click the following links for a complete list of bills passed in the first, second, and third sessions of the 17th Congress.

 

Bills that Failed to Pass Under the 17th Congress but Expected to be Refiled Under the 18th Congress

The following bills failed to pass under the 17th Congress but will continue to be important measures for monitoring and advocacy under the 18th Congress.

1. TRABAHO Bill, Second Package of the Comprehensive Tax Reform Program

The second package of the Duterte Administration’s Comprehensive Tax Reform Program, the TRABAHO Bill, failed to pass in the 17th Congress. The TRABAHO Bill, or the Tax Reform for Attracting Better and Higher Quality Opportunities, focuses on corporate taxation and proposes reducing the corporate tax rate from 30% to 20% by 2029. It would also remove some preferential or lower corporate tax rates and make tax incentives performance-based, targeted, time-bound, and transparent. The Department of Finance (DOF) said the TRABAHO Bill would benefit small- and medium-sized enterprises by creating more jobs. Opponents believe that, rather than boosting revenue, the bill would hurt foreign direct investment and discourage companies from doing business in the Philippines.

Electronics manufacturers, the Philippines’ largest exporters, believe their industry would take a major hit if the bill passed. Danilo Lachica, President of the Semiconductor and Electronic Industries of the Philippines Foundation Inc., said that some companies have shifted up to $1 billion worth of expansion plans out of the Philippines last year due to the prospect of the TRABAHO bill. One of the main issues cited by Lachica is the phasing out of the gross income earned (GIE) tax perk, which currently takes the place of local and national taxes for many companies. If the TRABAHO bill passes in the 18th Congress, there may be significant ramifications for the electronics industry and other companies operating in the Philippines. Some worry that passage of the TRABAHO bill would make the Philippines a less attractive place to invest in and potentially shift investment out of the Philippines to other ASEAN countries.

The first of Duterte’s tax reform packages, Tax Reform for Acceleration and Inclusion (TRAIN) passed under the 17th Congress in 2017 and was signed into law by President Duterte in December 2017. TRAIN included income tax cuts and exemptions and simplified estate and donor’s taxes. To offset these cuts and exemptions and provide funding to Duterte’s infrastructure push, TRAIN adds levies and increases excise taxes on a variety of products. Subsequent proposed packages of the Comprehensive Tax Reform Program address property valuation, capital income, and financial services taxation.

2. Amendment to the Public Service Act

The proposed amendment to the 82-year-old Public Service Act failed to pass in the 17th Congress. This amendment would clarify the definition of “public services” and “public utilities” used in the Public Service Act, narrowing the scope of public utilities to include only electricity, waterworks, and sewage sectors.  As a result, this amendment would reduce current restrictions on foreign equity for telecommunication and transportation service providers. As the last few days of the session were primarily spent on the passage of the tobacco tax bill, Congress ran out of time to vote on this amendment. Senator Grace S. Poe-Llamanzares, chairperson of the Committee on Public Services, and Senate President Vincente C. Sotto III said this amendment will be a priority in the 18th Congress. If approved, this amendment would promote foreign direct investment and competition, resulting in the provision of higher quality services.

3. Emergency Powers for Transportation

The Department of Transportation (DOTr) has asked to Congress to grant President Duterte emergency powers to solve traffic problems in Metro Manila, one of three defined metropolitan areas of the Philippines, but the 17th Congress did not pass a bill to grant these powers. This will be an issue to watch during the 18th Congress. The DOTr has submitted the necessary documents to Congress to declare a traffic crisis in Metro Manila and grant powers to a traffic crisis manager to immediately implement programs to mitigate traffic issues. These powers may also include the authority to control the number of vehicles on the road. With the Duterte administration gaining a stronger hold of Congress in May’s midterm elections, including the election of the former head of Metropolitan Manila Development Authority, Francis Tolentino, to the Senate, the DOTr may be better positioned to seek these emergency powers in the next session of Congress.

 

Other Legislation to Monitor in the 18th Congress

In addition to the legislation mentioned above, there are several other pieces of legislation to monitor during the 18th Congress including:

  • The Foreign Investments Act (FIA), which would help make the Philippines a more attractive and competitive choice for investments, is a priority for the 18th Congress.
  • An mendment to the Retail Trade Liberalization Act to spur greater foreign investment to the retail trade sector, which President Duterte pushed for in the final days of the 17th session.
  • Creating a Disaster Resiliency Department to serve as the central government agency responsible for the country’s disaster preparation, risk reduction and rehabilitation as well as institutionalization and harmonization of policies and programs on disaster risk reduction management, climate change, and sustainable development.  Passage of this bill is in response to Pres. Duterte’s call during his SONA to create a department that will focus full time on natural hazards and disasters just like the Federal Emergency Management Agency (FEMA) of United States. The House approved on 3rd and final reading House (HB) 8165, a measure that seeks to establish a Department of Disaster Resilience.