The Duterte administration has identified its banner Tax Reform for Acceleration and Inclusion package—or TRAIN—as a priority measure and, it is moving. House Bill No. 5636, the first of five tax reform packages, is now in the Senate and is expected to be signed into law by the end of the year.
The word “reform” in TRAIN might need elaboration. To be sure, there are long overdue changes that need to finally happen. For instance, the middle class had long been crying for relief, and there is indeed a need to adjust for progressivity and fairness existing income tax regimes, something that this proposal aims to address hoping for inclusive growth.
But its gains might be overshadowed by the plethora of new taxes that is expected to heavily figure in an ordinary Filipino consumer’s everyday life. After all, the measure seeks to generate some P300 billion in new revenues ostensibly to fund its much-needed infrastructure agenda. This money will need to be sourced somewhere, and new taxes on petroleum products and sugar-sweetened beverages, just to name a couple, will certainly affect a household’s budget.
A recent multi-industry study by the University of Asia and the Pacific bares that in a span of five years, illicit traders were able to smuggle at least P904.6 billion worth of goods into the country. This figure, staggering as it is, only covers eight industries with frequently smuggled products like petroleum, steel, resins, wood, cigarettes, sugar, palm oil, and automotive batteries. The real numbers then could be even higher, perhaps approaching the trillion-peso mark.
Not too long ago, the country, already inundated with news on violent crackdowns against drug-related suspects, was treated to another punch in the gut: some P6.4 billion worth of shabu was successfully smuggled into the country, under the watch of a bureaucracy already saturated with anti-illegal drugs rhetoric. The alleged involvement of the President’s son in the mess only served to make things even more complicated.
What these reveal is something many know already: there are chronically massive gaps in the way that the Bureau of Customs is policing our ports, resulting in equally massive revenue losses for the government. Some estimates peg the economic impact of so-called illicit trade on the country’s Gross Domestic Product from 2011 to 2015 at about P495.5 billion, in addition to more than a trillion-peso loss in domestic production or gross output and some 291,070 displaced workers, all due to smuggling.
Some quarters even go as far as calling illicit trade a crime against the economy and humanity. Said Federation of Philippine Industries chairman Jesus L. Arranza: “Illicit trade cuts across all industries—from agricultural products to heavy industries. It is a crime against the economy and humanity that calls for a zero-tolerance approach from all of us. It is a serious economic problem that robs the government of billions of pesos in revenues, harms consumers and undercuts legitimate local manufacturers.”
Government losses due to smuggling are not limited to undervaluation or under declaration of goods due to lack of or improper tax assessment. These goods also effectively kill legitimate local industries and manufacturers who are unable to compete with these tax-free contrabands. When this happens systematically, over time, loss of jobs and even closure cannot be far behind.
The harms of illicit trade even go beyond economics. Some smuggled items, like cigarettes, illegal drugs, and even guns, not just elide taxation, they even abet the spread of addiction, crime, and even terrorism. That an underground arms and illegal drug trade had helped prop up the rebellion in Marawi provides a very disturbing picture.
This is the backdrop against which the Duterte administration’s TRAIN bill must be contextualized. In this light, imposing new taxes on the already overburdened consumers seems to be a cop-out compared to the difficult task of plugging the huge tax leaks. But since the TRAIN seems all but unstoppable, consumers will just need to again brace themselves for higher costs. For an administration freshly out of a so-called honeymoon period, the results of upcoming satisfaction surveys will be interesting when the people start feeling the gap in their daily budget.