Voting 246-9 with one abstention, the House of Representatives last week approved on third and final reading the so-called TRAIN Bill, or Tax Reform for Acceleration and Inclusion, the first of the Duterte administration’s much-vaunted tax reform package.
The rationale is founded on government’s vision to reduce poverty, achieve high middle income status with a target of $4,000 per capita gross national product in an environment of national and regional peace. To achieve these goals, investments will require additional funds of around P1 trillion per year on top of the current levels.
While just taxation and infrastructure are certainly laudable and long-overdue, upon closer scrutiny, the implementation of TRAIN is set to unduly burden the already difficult life of low-income consumers. On one hand, the proposed tax package seeks to lower the rate of personal tax income, allowing workers to take home more from their wages. To cite, some 1.8-million minimum wage earners will be exempted from income tax. This extra money, however, can effectively be eroded by the higher prices of goods and services that would predictably arise from the increase in excise taxes of oil-based products.
In particular, consumers of 12 mostly oil-based products, such as unleaded and leaded gasoline, diesel, and liquefied petroleum gas, can witness a drain in their resources. The TRAIN Bill seeks to raise the excise taxes on these commodities by P3 per liter by 2018, P2 per liter more by 2019, and another P1 per liter by 2020. This already casts a wide net. After all, a bulk of the country’s public utility jeeps and buses run on diesel and many homes rely on LPG.
Outside this, the proposal is especially punitive in the case of buyers of new vehicles, who will have to pay an additional tax of between three and 120 percent for vehicles that cost P600,000 up; consumers of sugar-sweetened beverages, whose juice drinks, soft drinks, and instant coffee mixes are set to be levied a P10-hike of excise taxes a liter; and renters of houses or apartment units with rental fees below P10,000, among others.
Many of these will victimize the poor, contrary to the avowed spirit of the tax reform package. In particular, the consumption of coffee mixes, powdered concentrates, and soft drinks is heavily skewed toward the D and E demographic. But even outside this, some economists say the government has severely underestimated the potential impact of the bill on inflation.
Critics in the House of Representatives have decried the Duterte administration’s aggressive ‘railroading’ of the TRAIN saying that the oppressive taxes will run over all Filipinos, and most especially the poor.
Bothersome is how the perennial problems of plugging the leaks in tax collection and spending is not being given due attention. Some studies, for instance, have shown that a substantial level of revenue generation are achievable through measures like increasing the efficiency of the Bureau of Customs’ tax collections, checking rampant smuggling, and minimizing corruption.
Also critical is the government’s policy shift in its preferred funding mode from Public Private Partnership to Official Development Assistance. The implications of this shift cannot be overstated, especially to the ordinary taxpayers, who, on one hand, are the ultimate beneficiary of Duterte’s Build Build Build mantra, but will also collectively finance, directly or indirectly, the envisioned boom.
The foremost advantage of the PPP model, of course, is its reliance on private-sector resources, taking advantage of the high liquidity in the local financial market and in the process saving the government from additional debt and foreign exchange risk. Experience also teaches us that the private sector has had better expertise and therefore success in terms of efficiently building and operating infrastructure projects.
The sluggish pace of many PPP ventures is not inherent to the model, as some officials point out; in many cases, issues like cost overruns arose due to failures of coordination and planning, chief of which fall on the government’s side. On the other hand, arguments against ODA include the lack of accountability stemming from an administration’s six-year term limit, the strings typically attached to ODA funding, and the user-pay principle, which saves Filipino taxpayers who will not use the project from the undue burden of subsidizing it.
Thus, the implications of the passage of the Duterte administration’s tax reform package are many and multifarious, some of which go beyond taxation. But if the ultimate destinations are social justice, inclusive growth and sustained national development, the rails of the TRAIN Bill must be built through the most sensible route, something that intervention from our senators will hopefully ensure.