OPINION: TRAIN tax scheme makes us all beggars

Jose Galang — Your Business

Posted at Jun 12 2018 06:18 PM

Under the Duterte economic managers’ original plans for the TRAIN scheme, new taxes will be imposed on everyone—there will no longer be any exemptions that past tax programs allowed.

As we all know, the key features of the TRAIN package of tax measures include cutting down on exemptions from the value-added taxes (VAT), slapping higher excise taxes on petroleum products and most automotive vehicles. The recent wave of consumer price increases is being tied to these new taxes.

The government is using the TRAIN tax program to raise more money for its extravagant Build, Build, Build infrastructure projects that the Duterte economic managers say will lift the people’s living conditions. Out of the gains from the TRAIN taxes, at least three-fourths will go to the infrastructure projects.

While more tax revenues are being targeted, the government is also going on a borrowing binge that has already increased total obligations to nearly ₱7 trillion from both local and foreign lenders. Eventually, the burden of repaying these borrowings, which are being tapped for the Build, Build, Build projects, will put a strain on the government coffers, particularly if these infrastructure projects fail to yield desired returns.

According to earlier pronouncements, the plan calls for subsidies to any sector of the economy or any segment of the population that may get severely affected by the new TRAIN taxes, particularly the specific tax on petroleum products. The economic managers call them “targeted subsidies” which are specific only to the affected sectors.

Need help? Beg.

But the affected sectors are not getting these subsidies automatically. They will have to justify the damage caused on them by the new taxes and then specify their requests for the subsidies from the government. They have to beg for subsidies to help them through their difficulties.

Remember the plan to remove the VAT discounts for senior citizens? It was only after the elderly raised a howl when the stage taxmen relented and sustained the discounts, which have long been regarded as a courtesy to the elderly whose hard work in the past helped the nation reach its current status.

Cash dole-outs to the poorest citizens, introduced in the 1980s, have proven to be helpful. But in recent months, apparently the increased spending patterns in areas where large numbers of beneficiaries reside have also seen faster price increases of the basic goods they purchase, effectively eroding the value of the cash transfers.

It is hard to think that members of the Duterte Economic and Build, Build Team—which we can perhaps call DEBT for short—were not aware of the hardships that certain industries and citizens would encounter under the tax scheme. Instead of studying first these potential hardships, as raised in the many hearings in Congress on the tax measures, the DEBT managers simply pushed on, focusing instead on the spending goals from their TRAIN initiative.

Today, just over five months after the launch of the TRAIN, a great number of Filipinos—wage earners, breadwinners, entrepreneurs and industry leaders—are beginning to complain about the punitive effects of the taxes. The taxes now seem to have a rolling effect on various levels of the economic chain, from manufacturers to retailers.

Even the benefits from a key component of TRAIN, the reduction or elimination of personal income taxes, are now virtually evaporating under the stress of the new taxes. Consumer prices and various household spendings are surging because of the new TRAIN taxes and the depreciated value of the peso, along with increased cost of operating capital for entrepreneurial pursuits.

The available recourse for the affected sectors is, of course, to beg for government subsidies. Nope, the Duterte economic managers have firmly shut the door to any adjustments or rollback in the TRAIN tax measures. They prefer that the people come to them instead and beg for subsidies.

For instance, the state finance officials are quick to point out that subsidies for jeepney drivers and operators are available to anyone in the transport sector who gets run over by the TRAIN taxes. All they have to do is beg.

Prices of gasoline going up? Beg for assistance. Cost of vehicle parts and maintenance eating up earnings? Beg for subsidies. Heavy traffic suffocating profitability and productivity? Beg for financial aid.

There are funds available for the poorest among the citizenry. But they have to go enlist with the proper agencies. Beg for assistance. Beg for the cash transfers that are allotted from both the tax revenues and from financial aid from international development institutions.

In the economic managers’ view, the TRAIN tax strategy will “reconfigure” the economy toward achieving inclusive growth, propelling the Philippines to upper middle-income status by 2022 from the current low middle-income classification.

But before that, the current agenda is to satisfy financing requirements for the Build, Build, Build infrastructure program that is expected to entail spending of at least ₱8 trillion. Of the TRAIN net gains, about 25 percent is planned for subsidies to sectors adversely affected by the taxes, with the rest going to the roads, bridges, airports, seaports and railways planned for the Build, Build, Build scheme.

New focus needed

There is no doubt that robust and sustainable growth is the only way to achieve an inclusive economy. But the way the regime’s DEBT managers are going about this is hurting more people than benefiting them.

This is perhaps because of the disproportionate emphasis on “enriching” the economy through large, expensive infrastructure projects. A ruthless taxation and borrowing policy has become an essential part of this vision.

A refocusing of the Duterte regime’s economic programs—from raising more taxes to satisfy the needs of construction contractors and materials suppliers from China to aiming for more programs that will ensure inclusive benefits through local entrepreneurs and human capacity enhancement—appears to be a better option amid the current unequal distribution of TRAIN revenues.

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.