Question & AnswerQ&A (PRESIDENTIAL DECREE NO. 1393)
The purpose of the Flexibility Clause is to give flexibility to the tax system to improve and optimize its responsiveness to rapidly changing economic, social, and political conditions, enabling timely and effective tax adjustments.
The President of the Philippines, upon recommendation of the Secretary of Finance and the National Economic and Development Authority (NEDA), has the authority to revise the rates of specific taxes and percentage taxes.
The President may exercise this power if: (1) it is necessary to redirect expenditure or consumption patterns for economic development; (2) due to fluctuations in currency values or inflation/deflation, existing taxable bases and rates are unrealistic or inconsistent with current price levels; or (3) it is necessary to counter adverse actions by another country.
The existing rates of specific taxes may be increased by not more than 50% or decreased by not more than 10%.
A public hearing must be held whenever practicable, and interested parties must be afforded a reasonable opportunity to be heard before recommendations are submitted.
The President can revise the rates of percentage taxes, change the classification of articles enumerated in Sections 194, 195, 196, 197, 198, 199, and 201, and revise taxable base levels in Sections 195 and 197.
Percentage tax rates may be increased by not more than 50% or decreased by not more than 10%, and existing price levels may be increased or decreased by not more than 50%.
The classification may be changed on the basis of changed concepts of essentiality or manufacturing methods due to technological and social changes.
PD No. 1393 took effect upon approval, which was on May 31, 1978.
The Secretary of Finance and the National Economic and Development Authority (NEDA) must recommend the measures before the President exercises his authority.