That’s a sound I fondly remember from my childhood, when I used to play with a toy train set that my oldest brother brought back with him from his own childhood in the States. It made real train sounds and emitted smoke from handy smoke tablets, and of course my favorite pastime was speeding the train up until it flew off the toy tracks.
There’s no such danger of overspeeding or derailment with our own version of TRAIN today, not when the usual crowd of dumb-and-dumber populists think they’ve become economic wizards overnight and want to suspend or outright cancel the tax reforms that Duterte introduced in order to fund his ambitious infrastructure and social services programs.
Before our TRAIN grinds to a halt under the sheer weight of all that populist garbage, let’s look at the facts from our bright boys at the Department of Finance: how the first package (TRAIN 1) has done since its promulgation at the start of this year, and what we can expect from its follow-on (TRAIN 2) now wending its way through Congress.
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TRAIN 1 reduced or eliminated personal income taxes for 99 percent of wage-earners, while levying or raising excise taxes on carefully selected commodities mostly in the “sin” and luxury categories, as well as oil products at a time when the world was enjoying historically low oil prices.
Finance Secretary Sonny Dominguez has told Congress that income taxes came down by about P12 billion a month, while collection targets for BIR and Customs were exceeded in the first quarter. That is clearly a feat worth noting.
(But if you think all those collections aren’t showing up quickly enough in terms of new infrastructure projects, that’s something you should take up with the infrastructure guys, not the Finance guys.)
These days, however, it’s become all the fashion to blame TRAIN for higher inflation, provoking the unions to demand subsidies as well as huge minimum wage hikes. But what do the facts tell us?
Monthly inflation increased from 3.8 percent in March to 4.5 percent in April. But out of that 4.5 percent, according to the input-output model of the Philippine Statistics Authority, only 0.4 percent can be blamed on TRAIN. Three percent was the original inflation target, based on assumptions about oil prices, exchange rate, and higher overall demand due to economic and population growth. The rest of the excess over 3 percent was caused by better tobacco tax compliance passed on to smokers (0.2 percent), higher-than-expected oil prices (0.2 percent), and other factors like price profiteering (0.7 percent).
In the event that oil prices start going up again, as they are now due to Middle East uncertainties, TRAIN includes a self-correcting mechanism that will suspend a scheduled increase in fuel excise taxes (next one is in January next year) if average Dubai crude prices exceed US$80 per barrel for three months preceding.
Both self-rated poverty and the hunger index regularly tracked by SWS have fallen despite the recent price increases. There are other measures available to blunt inflation and especially its impact on the poor: conditional cash transfers to the poor; opening up the market to much cheaper (and tariffable) imported rice; and, at the macro level, hiking local interest rates (which the Bangko Sentral has already done) and rolling out all those infrastructure projects in order to reduce logistics costs, which comprise nearly half of local retail prices.
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Now that TRAIN 1 has taken care of the personal side of income taxes, the second package pending in Congress is targeted at the corporate side of the fiscal picture. According to Secretary Dominguez, it aims to build “a more competitive and transparent business environment” by bringing down corporate income tax rates; rationalizing a hodge-podge of over a hundred different fiscal incentives; and introducing administrative reforms like simplifying tax collection.
Among the important features of TRAIN 2:
Gradually bring down the corporate income tax rate from its current levels of up to 30 pct, the highest in the Asean region.
Amend or repeal the current total of 123 laws granting special incentives and consolidate them into one omnibus investment code guided by a strategic investment priorities plan. Incentives will also be “performance-based, tightly targeted, time-bound and transparent.”
Amend the tax code to improve compliance and harmonize all incentives through a Fiscal Incentives Review Board.
Treat VAT purely as a consumption tax and never as an incentive. Whenever you buy, you pay VAT; whenever you export, you claim a refund afterward. [The speediness with which government grants those refunds is of course an outstanding issue that the exporters will be watching closely.]
Stop undercutting local taxation for the sake of incentives, which are often handed out to beneficiaries “in lieu of local taxes.” [Strengthening local taxing powers becomes even more important after a changeover to a federal system, when the different states or regions will have to be fiscally empowered.]
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We close by congratulating SM Cares, the flagship philanthropy of the SM Group, whose pioneering housing project for Typhoon “Yolanda” survivors has garnered the Albert Sussman Int’l Community Support Award of the Int’l Council of Shopping Centers Foundation, the global trade association of the shopping center industry.
The award was handed out in Las Vegas earlier this month, where we hope our friend and former Malacañang colleague, Len Bautista-Horn, was able to join the company retinue.
A total of 1,000 shelter units has so far been donated by SM, in Bogo, Cebu; Concepcion, Iloilo; and Tacloban and Ormoc, Leyte. SM Prime’s chief honcho Hans Sy says his people are proud to show the world “how people can bounce back after tragedy, and how communities of strangers can thrive and grow together with the help of well-meaning groups and advocates.”
On a different note, but just as sublime, let me greet my father, Atty. George R. Olivar, on the occasion of his centennial birth anniversary last May 25. A veteran of the Philippine Army (like his own dad Rafael) and the National Bureau of Investigation, he has always been the lodestar to his six children.
Up there in heaven where he waits for the rest of us with our mother and two of my brothers, I know he will hear our thanks, our greetings, and our prayers.
Readers can write me at gbolivar1952@yahoo.com.