The Duterte administration’s Tax Reform for Acceleration and Inclusion (TRAIN - Republic Act No. 10963) program is a disaster waiting to happen. It is actually a disaster that has already started to happen since January 1, 2018, the start date of the implementation of its first package. The government is expected to collect an additional PhP130 billion through TRAIN primarily at the expense of the lower middle class and the poor.
As if adding insult to intentional injury, the Duterte administration heralded the TRAIN as a “gift to the Filipino people.” As expected, the choir of pro-administration propagandists (bloggers, trolls and fake news purveyors) sang in unison, promoting this anti-poor and economically disastrous tax law.
The ratification of the TRAIN law in the House of Representatives last December 13, 2017 was also full of controversies. It didn’t have the required number of physically present congressmen according to some observers and lawmakers from the opposition. No proper deliberations took place. However, as if by some magic or telepresence, the official journal was approved indicating a quorum. So, either the opposition congressmen were inventing stories or the pro-Duterte lawmakers were lying through their teeth and committed a grave violation of the constitution. If it were the latter, the TRAIN law should be declared null and void.
According to the website of the Department of Finance, the goal of the first package of TRAIN is “to create a simpler, fair, and more efficient system, as per the constitution, where the rich will have a bigger contribution and the poor will benefit more from the government’s programs and services.” The package intends to reform six aspects of taxation, namely, personal income tax, estate donor’s tax, the value added tax system or VAT, the excise tax of petroleum products, the excise tax of automobiles, and the tax of sugar-sweetened beverages.
The claim of simplifying the tax system is partly true but the claim that the poor will benefit more is an outright lie. On the contrary, the poor – particularly the poorest lower 10% of society – will be the ones who will suffer most because of the inflationary effects of excise taxes on petroleum products. The middle class won’t fare any better either even with the adjusted bracket of taxable income. The additional take-home pay will barely offset the higher utility bills and higher prices of consumer goods. The tax on lower-end automobiles will also be higher but the tax on some luxury vehicles will be cut as much as PhP337,000.
Personal Income Tax and the Poor
Under TRAIN, those who have annual gross salary of not more than PhP250,000 will be exempted from income tax. This would mean approximately PhP2,500 per month additional take-home pay for those who are earning not more than PhP22,000 per month. The downside, however, is that the tax exemptions for legal dependents (children below 18 years old) are now removed. Married individuals with children will be at the same taxation footing as single individuals without dependents.
Those who are receiving minimum wage will definitely not benefit from the new tax exemption simply because they are already exempted under Republic Act No. 9504. Hence, the TRAIN would actually mean additional financial burden for breadwinners, particularly for those who are earning minimum wage and below.
Families of five members earning PhP10,000/month or below are considered by NEDA as belonging to the poorest sector of society. They will definitely suffer the economic impact of Duterte’s TRAIN. Additional excise taxes on petroleum and sugary products mean that the basic commodities, including rice, will become less affordable to poor families in subsistence level of day-to-day existence.
For the sake of argument, let us suppose that a family of five members spends on a daily basis 50 pesos for breakfast, 150 pesos for lunch and 150 pesos for dinner for a total of 350 pesos per day. That will be a total of 350 pesos x 30 days = 10,500 pesos per month just for food. This means that a poor family of five members earning only 10,000 pesos per month will have a deficit of 500 pesos per month.
According to a study conducted by the London-based Professionals in Economic Partnership (PEP), for every 5% rise in fuel prices, there is about 22% increase in the prices of basic commodities. This translates to 4.4% increase in the prices of basic commodities per 1% increase in the prices of fuel. So, if the TRAIN imposes P2.50/liter excise tax on diesel, this is equivalent to 7.1% of the prevailing prices. Thus, a 7.1% increase in diesel prices will theoretically result to 30.8% or 31% (rounded off) increase in the prices of basic commodities! By extrapolating this result, this would mean an additional cost of at least 3,775 pesos per month for a poor Filipino family!
(to be concluded…)