Many sectors and critics will slam the Tax Reform for Acceleration and Inclusion, or TRAIN, law for being anti-consumer. Prices of petroleum products, including gasoline and diesel, soft drinks, coal-based electricity and cars will, indeed, increase under the TRAIN provisions.
But the tax reform package will exempt those earning P250,000 a year from paying income taxes, sparing 99 percent of Filipinos, except the richest with a taxable income above P8 million, who will face a tax of 35 percent. The exemption, according to Economic Planning Secretary Ernesto Pernia, will raise the spending capacity of the average working Filipino.
The TRAIN, actually the first phase of the government’s comprehensive tax reform package, is expected to yield about P92 billion in revenues for the first year that will fund the President Rodrigo Duterte’s priority and social infrastructure programs—including free education, quality health care, social protection and conditional cash transfers. The reform package also aims to finance the government’s ambitious infrastructure program and the reconstruction of Marawi City, and reduce poverty from 21.6 percent to a targeted 14 percent by 2022.
The TRAIN, while providing relief to the lower income group, is essentially a revenue-raising initiative aimed at funding the national budget with less reliance on borrowings. The nation’s foreign creditors and multilateral lending institutions always view a tax reform package on a positive note because it instills fiscal discipline and ultimately leads to sustained economic growth.
The Philippines last enacted a tax reform package in 2005, when then President Gloria Macapagal Arroyo signed the Expanded VAT law in 2005 to stave off a fiscal crisis. The revenue measure yielded its desired results and rewarded the succeeding administration of former President Benigno Aquino III with upgrades from international credit rating agencies.
The same credit rating agencies will notice the tax reform initiative of President Duterte’s administration and will likely grant the Philippines further rating upgrades. The tax reform package, hopefully, will result this time in a more inclusive economic growth that will benefit a wider section of the population.