Why the government TRAIN could derail

June 29, 2017 at 11:25

Why the government TRAIN could derail

By:  – @inquirerdotnet |  / 12:20 AM June 23, 2017

Under the government’s Tax Reform for Acceleration and Inclusion (TRAIN) program, projected gains from the VAT expansion (for fuel, automobile, and sugar-based foods) at P500 billion will offset revenue losses of P200 billion from the lowered personal income tax (PIT) for a net gain of P300 billion. Sounds good, right?

However, many civil society groups, social movements in the labor, urban poor, and peasant sectors, and some economists object to TRAIN. The problem lies in the approach that the government has taken in emphasizing consumption taxes to raise revenues. This is seen as prorich and antipoor.

Bloomberg asserts that “the inherent problem with a consumption tax is that it is regressive, because low- and middle-income people consume a larger share of their money than high-income people do.” A Japan Times editorial acknowledged “the regressive nature of the consumption tax, which will proportionately hit poorer households more severely than wealthy ones [as] low-income people spend a greater portion of their income on daily necessities than do the wealthy.” For William Gale (Brookings Institution), “another way of saying that is high income households save more of their income than low income households do.”

What the Philippine tax reform package does is take away more from the taxpayer in one hand (consumption taxes) what it gives with the other (increased PIT exemptions). But this caveat does not even hold for the poor as they do not pay income taxes to begin with. Not only do the poor get nothing from the tax reforms; they are instead hit hardest and made to bear the burden of the additional consumption taxes on fuel products and sugar-based drinks.

The health card being played by the government on sugar-sweetened beverages is disputed by Dr. Antonio Dans (UP College of Medicine), who says that the biggest health problem confronting the poor is not obesity but inadequate calorie intake which affects 69 percent of Filipinos. Dans adds that a propoor version of the tax bill should result in lower prices of healthier alternative sources of calories. A George Mason University study agrees that “improving education and increasing the availability of healthier goods may be better steps than raising taxes on those who can least afford them.”

Some legislators oppose the fuel tax rise, saying these would “cause a hike in transportation fees and basic needs” burdening “minimum wage workers, farmers and fisherfolk who [will] not benefit from the program.” Economist Cielito Habito also laments that the tax on imports of coal, the world’s dirtiest source of energy, remains at 0.2 percent while cleaner fuels like natural gas are taxed 43 percent.

For the middle class, the P250,000 PIT threshold may not even provide any respite at all. The National Economic and Development Authority estimates that a family of four needs P120,000 a month to enjoy a decent life. This should translate into a PIT threshold of P360,000 per person per year. Economist Winnie Monsod concludes that “the total impact of TRAIN is negative for the majority of our people” and criticizes the program’s safety nets of “transfer” schemes as vague and inadequate.

Rather than imposing more regressive consumption taxes that hurt the poor and middle classes, the government should instead look inward and plug policy and administrative holes that result in negative and illicit financial outflows.

Among these are the excessive tax holidays enjoyed by corporations, foregone revenues in special economic zones and from free trade agreements, trade misinvoicing, rampant smuggling, payments on “sovereign guarantees” for failed firms, corruption by government bureaucrats and politicians, unmet tax collection targets, the 370 pending tax evasion cases, and the unrecovered illegal wealth plundered by the Marcos family and their cronies. Most of these don’t need new legislation, just the political will to recover trillions of pesos in relinquished government incomes—abundantly much more than what can be generated from TRAIN.

Source: https://opinion.inquirer.net/105003/government-train-derail




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