Republic of the Philippines

UNIVERSITY OF NORTHERN PHILIPPINES

COLLEGE OF PUBLIC ADMINISTRATION

Intoduction to Public Administration - PA201

POBLADOR, DIANA GRACE C. VELASCO, CRESCENCIO B.

TAX REFORM FOR ACCELERATION & INCLUSION

Real positive change or “Tunay na pagbabago” has always been the mantra
of the Duterte Adminisration since he took his oath of office. This change include
comprehensive and inclusive growth manifested by a comfortable life for all, improved
public services, more and better jobs and more money put in the people’s pocket. Thus,
the President, during his first State of the Nation Adress urged both houses of the
Congress to pass in haste the Tax Reform for Acceleration and Inclusion Bill.
The aformentioned tax policy reform is seen as a measure to raise additional
inevestments, along with sustainable borrowings, budget reform, and tax customs
administration reform. These measures are anchored in the vision of reducing poverty
rate from 21.6% in 2016 to 14% in 2022, equating to 6 million Filipinos uplifted, and
further eradicating it by 2040; increase gross national income from USD 3,500 to USD
4,100 in 2022, and to 12,000 USD in 2022 to achieve high income status where Malaysia
and South Korea are today.
Like a fast moving locomotive, the Philippines’ own version of TRAIN,
otherwise known as the Tax Reform for Acceleration and Inclusion, has traveled from the
halls of department of Finance to Congress with no intention of stopping in its tracks.
Lest we forget, more trains are set to leave the statation.But what is TRAIN really and
how will it help us perform better as a nation?
 There’s been a lot of confusion for the most part since our tax laws haven’t
been updated for two decades and people are used to seeing and hearing the same tax
rates over and over again. There’s also the fact that people who are earning a lot seem to
have more money to spend, and it’s not just because they’re earning more than us or
know how to handle money better than us. They’re actually paying less tax than they
should. That, however, is not their fault. It’s more to do with the complicated tax system.
In essence, the Tax Reform for Acceleration and Inclusion (TRAIN) is the
re-modelling of the Philippines’ antiquated tax system to be simpler, fairer and more
efficient for all, while also raising the resources needed to invest in infrastructure and
people and to lessen the overall tax burden of the poor and the middle class. It could be
noted that among the neighboring Southeast Asian countries, Philippines has the highest
rate of income tax, thus tantamount to lesser money taken home by the working class.
Comparison of the tax rate imposed in the Philippines vs other neighboring countries.
TRAIN is truly comprehensive, and it addresses the serious problems that
plague our tax system. Among the problems: an individual income tax system that is
unfair and inequitable, corporate taxation that is uncompetitive, redundancy of
nontransparent fiscal incentives resulting in incalculable revenues forgone, specific excise
taxes that are not adjusted to inflation leading to revenue erosion (petroleum products),
low taxes for goods that impose a higher cost to society than what their prices show
(alcohol, tobacco, unhealthy food), well-intended laws that ironically abet tax evasion
(law on secrecy of bank deposits), and complex rules that enable tax avoidance and make
tax compliance difficult.
As part of the package, TRAIN will reduce the effective individual income
tax rates for all individuals, except for the richest of the rich, those who anyway bask in
the glory of being ranked and recognized as the country’s top 500 individual income tax
payers. This proposal is most fair and progressive. At present, because of the failure to
adjust the income tax brackets, resulting in “creeping income” over time, a professional
like a senior public school teacher is categorized in the same tax rate bracket as the top
500 individual taxpayers. But because the individual income tax reform will lead to
substantial revenue losses, offsetting tax measures are necessary. The reduction of
individual income taxes must go hand in hand with increasing the excise taxes on
petroleum products, automobiles, tobacco, and alcohol as well as the introduction of an
excise tax on sugar-sweetened beverages. The broadening of the base for value-added tax
(VAT) is also worthy, instead of a proposal, favored by a few, to increase the VAT rate
from 12% to 14%. With respect to corporate income tax, the tax will be reduced from the
current rate of 30% to 25%. This intends to make our corporate tax regime competitive
vis-à-vis similarly situated middle-income countries. The effect will be a temporary drop
in revenues. Hence, the reduction of corporate income tax must be paired with the
rationalization of fiscal incentives. Fiscal incentive rationalization is overdue. This reform
will subject fiscal incentives to transparency and discipline. Fiscal incentives must be
bound by industrial and technology policy, performance, time limit, and redundancy
criteria.
It has to be stressed though that increase in excise taxes and the
rationalization of fiscal incentives are not just about offsetting the losses arising from the
individual and corporate income tax reforms. The objective is not revenue neutrality but a
significant increase in tax effort so the government can have the resources to accelerate
spending for infrastructure and logistics, improve the quality of education, expand the
coverage and benefits of universal health care, and strengthen the systems to satisfy the
requirements arising from climate change and natural disasters. The government
estimates that P600 billion, equivalent to three percent of gross domestic product (GDP),
must be raised for this strategy of economic acceleration and inclusion to work.
Furthermore, the excise taxes on the aforementioned goods are by themselves good taxes.
Increasing the tax rate on petroleum taxes has to be done to correct for
inflation. The specific tax on gasoline has not been adjusted to inflation since its
legislation in 1997. Worse, diesel is exempted from the excise tax, despite being the
dirtier fuel. The tax on oil products must likewise be seen as an ecological tax, a tax for
the environment. With regard to alcohol and tobacco, increasing excise taxes is a most
effective way to reduce smoking prevalence and heavy drinking. They are taxes for
health. But what about the impact of, say, the increase in gasoline taxes and the expansion
of the VAT base on the people’s spending?
First of all, the tax incidence analysis (e.g., on oil) shows that the non-poor
will mainly pay for the higher consumption tax. In the case of the VAT, essential goods
and services used by the poor and the vulnerable, like food in its raw state, medicines,
and medical services, will still be exempted. But more importantly, the TRAIN package
includes social protection and transfer programs.Part of the incremental revenue to be
gained from the increase in oil taxes will be earmarked to improve and modernize public
transportation and provide temporary subsidy for public transportation fares to mute the
price impact. Moreover, for one year, government will provide unconditional cash
transfers of P500 monthly for the poorest 25% of households and P250 monthly for the
households belonging to the 25th to 50th percentile. Persons with disabilities (PWDs)
will benefit from cash transfers and expanded PhilHealth services. Senior citizens,
specifically those with low income, will benefit from a socialized old age pension.
All in all, TRAIN is holistic. It is exceptional, compared to previous
comprehensive tax reform measures, for not only addressing increasing taxes and making
our tax system truly progressive, fair, simple, and robust, but also in making
commitments to social protection and to allot additional revenue for infrastructure,
education, health, and the like. TRAIN is thus a most significant vector that will enable
the Philippines to achieve its vision.
The whole country will benefits. Even the rich, who will have to shoulder a
bigger burden of taxation, will benefit from the favorable economic and business
environment and the strong institutions that comprehensive tax reform will bring.TRAIN
deserves utmost priority. President Duterte has to make a declaration that asserts
TRAIN’s importance and urgency. The struggle is going to be hard. Some politicians and
the vested interests want to derail TRAIN. The TRAIN effects will be significant: people
will have more money to buy things with, prices for goods and services will rise but not
as much as we fear, and we’ll have a more streamlined tax system compared to what we
have today.The government, for their part, will have more money to invest in their many
projects, most of which will help the country be even better off by 2022. The reforms will
also make tax collection easier, which should make it easier for them to track where our
taxes go. It looks like a win-win situation for both sides.We cannot leave the
responsibility of advancing TRAIN to anyone else. It is a struggle that requires the
support of every citizen. For everyone benefits, from the poorest of the poor to the richest
of the rich.