The Department of Finance (DOF) has maintained that the proposed Tax Reform for Acceleration and Inclusion Act (TRAIN) will benefit 99% of Filipino households because of its proposed income tax cuts for salaried workers plus the unconditional cash transfers for the country’s poorest families.
Fears over the supposedly adverse impact of the proposed higher taxes on petroleum products are “illusory” because its inflationary effect will actually be “minimal and temporary” in nature, according to Finance Undersecretary Karl Kendrick Chua.
Chua said the targeted transfer program, which will benefit the bottom 50 percent of the population, is designed to provide immediate benefit to poor families to help them adjust to the fairer, simpler and more equitable tax system under TRAIN.
“Rightly relieving the salaried working class of the inequitable tax burden does not imply that the reform will leave the poor and vulnerable dry,” said Chua in response to issues raised by some quarters against the tax reform bill.
“Prosperity for the poor, however, will not be achieved through subsidies, exemptions, and freebies but from better health services, improved roads, faster and safer modes of transportation, improved access to quality education, among other social services that will make them more productive and improve their opportunities to get better jobs and accelerate their graduation out of poverty,”
– Undersecretary Chua
The additional revenues generated by the TRAIN, Chua said, would help support these pro-poor programs.
Chua said that contrary to misinformed claims by some quarters, the impact on prices of expanding the value-added tax (VAT) base and adjusting fuel excise tax are ” only moderate and temporary. ”
As an example, he recalled that when crude oil increased by as much as 76 percent between January 2016 and January 2017, overall inflation was only at 2.7 percent.
The inflation rate increase was also moderate and temporary when the VAT was raised to 12 percent in 2005, and during the oil price shocks in 2011.
“Despite concerns by the industry at that time that higher taxes or higher prices could lead to lower economic growth and skyrocketing inflation, history shows us that we have weathered the shocks quite well, even when the economy was not in the best of shape,”
– Undersecretary Chua
In the case of the TRAIN, Chua said DOF estimates show that inflation will increase by 0.9 percentage points in the first year, which will taper off in the following years.
The Bangko Sentral ng Pilipinas (BSP) and the National Economic and Development Authority (NEDA) have even lower inflation-spike estimates of 0.5 and 0.4 percentage points, respectively, he said . The DOF will be coordinating with different agencies, including the BSP and the Trade Department, to ensure that prices are in check and profiteering is mitigated. The BSP is in a strong position to curb excessive movements in inflation.
As for claims that the TRAIN will make life easier for the rich at the expense of the poor, Chua said ” the opposite is true “as the bill will benefit salaried workers in the form of lower taxes, which will increase their take home pay, and shift the burden to the rich who will be taxed at a higher rate of 35 percent from the current 32 percent.
“The Philippines cannot afford to just muddle through if it were to catch up with its more successful neighbors and realize its collective goal of eradicating extreme poverty. At the core of the tax reform is the vision to eradicate poverty, reduce inequality, and bridge the Philippines towards the future.”
– Undersecretary Chua
On proposals to merely improve tax collection, Chua noted that even if the Bureaus of Internal Revenue (BIR) and of Customs (BOC) were to become 100 percent efficient, they would still be unable to achieve their collection goals because the current tax system itself is riddled with loopholes and inherent deficiencies that bar the BIR and BOC from hitting, much less surpassing, their annual revenue targets.
As for the proposal to include a tax on sugar-sweetened beverages under TRAIN, Chua pointed out that this is a health measure, designed to reduce consumption of easily accessible yet unhealthy drinks that increase the risks of obesity and diabetes among Filipinos.
Poor health traps households into poverty, reducing productivity and burdening families with medical expenses and giving up productive time to care for the sick. The monthly maintenance for diabetes, for example, is around P5,000 to P60,000 per year. This is not affordable for 80 percent of the population.