The House Ways and Means Committee is deliberating the passage of the Tax Reform for Acceleration and Inclusion Act. The TRAIN aims to improve and maintain the country’s economic growth throughout the succeeding years of the Duterte administration. Several legislators and representatives of government agencies have agreed to support this bill in theory, but are hesitant with respect to its practical aspects and implementation. Among the concerns are price inflation, adverse effects on lower income brackets, and inefficient tax collection.
One of the provisions of TRAIN lowers personal and corporate income tax rates, which will result in P173.8 billion worth of reduced revenue annually. With this proposed tax system, those who earn P250,000 and below will be exempted from personal income tax, while corporate tax will be decreased from 30 percent to 25 percent. To offset the losses, excise taxes such as those imposed on automobiles, petroleum products, and luxury goods will be increased. This is expected to effect a P162.5-billion net revenue gain on the first year of implementation.
While the intent of the tax reform is to boost the country’s economic growth in the long run, we also need to consider the government’s current situation. In the past six years, the government was not able to spend about P1 trillion of the appropriated budget due to poor absorptive capacity of government agencies. Eight months into the Duterte administration, we still cannot say that the absorptive capacity of these agencies have improved. Given the government’s track record on inefficient budget spending, it does not make sense that additional taxes will be imposed. Where would these additional revenues go when the government agencies cannot even spend the money efficiently?
The Minority reiterates the need for government agencies to improve their absorptive capacity before pushing for a comprehensive tax reform. We need not rush most especially if we are not yet capable of spending the appropriated budget efficiently. We suggest a “revenue neutral” period for two years. During this period, the government should only spend what it earns.
The TRAIN aims to bring poverty incidence down to 14 percent (from 21.6 percent in 2016) by 2022. In last week’s article, I emphasized the urgency of addressing the increasing rates of unemployment and poverty in the country. While a long-term poverty reduction program is ideal, to my mind, the alarming rise in our nation’s rural and urban poverty, and unemployment rates require immediate action.
While taxes are being imposed, the government is not implementing stringent measures to ensure timely and efficient collection. The Philippines has one of the highest personal income and corporate tax rates in Asia. However, in personal income taxes, the tax efficiency rate is pegged at only 6.2 percent, far from Vietnam’s 25.1 percent, the highest in the Asean region.
Our government cannot operate effectively if corruption and inefficiency in the tax system persist. Hence, we are pushing for the full implementation of Republic Act 9335 or the “Lateral Attrition Law.” This law provides penalties and rewards for officials of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) based on their performance. Unfortunately, this law is dormant. Without the Attrition Law, the widening gap between government spending and revenue stands defenseless to the inefficient tax collection. The goals of the TRAIN would be vulnerable if the attrition law remains inactive.