Tax Reforms

AntiPoorTaxProgram

Lawmakers should rethink Duterte tax program

The Senate version of the Tax Reform for Acceleration and Inclusion (TRAIN) bill remains anti-poor despite amendments. Research group IBON said this following senators’ recent approval of their version of the Duterte tax bill on third and final reading. According to the group, the Senate’s efforts to reduce the tax burden on the poor and to increase taxes on the rich do not go far enough to correct the Duterte tax program’s regressiveness and anti-poor character.

A copy of the Senate version is still unavailable. Based on media reports, IBON points out that the upcoming bicameral conference should rethink TRAIN for the following reasons:

1.       The poor are burdened by higher taxes that they can ill afford. Over half of Filipino families survive on less than Php15,000 a month including the one-third who struggle with Php10,000 or much less monthly. The Senate version of TRAIN still burdens the poor majority of Filipinos with higher costs of electricity, transportation, liquefied petroleum gas (LPG), sweetened drinks, food, and other basic goods and services. This is because of: (a) higher taxes on petroleum products including diesel and LPG; (b) sweetened beverages tax; (c) imposing 12% value added tax (VAT) on previously VAT-exempt items such as shipping and energy generation; and (d) a proposed new excise tax on coal.

2.       The richest will enjoy tax cuts. The middle class deserve income tax relief but the richest 1% of Filipinos with monthly incomes of Php150,000 to over Php7,000,000 can afford to pay much higher taxes while still maintaining their luxurious standards of living. The Senate version of TRAIN however still relieves the country’s richest with lower personal income tax, estate and donor taxes. As it is, Pres. Duterte has also already promised oligarchs that corporate income tax, property taxes, and capital income taxes will be reduced with the next packages under TRAIN.

3.       Token social protection. The Duterte tax program acknowledges the additional burden on poor households and tries to cover this up with temporary cash transfers to the poorest 10 million families of Php300 per month. This is however only during the first year of the tax program. The relief from cash transfers will be gone after the first year while their tax burden even continues to increase from the second year onwards.

4.       Grand infrastructure program not for the poor. The government claims that the TRAIN will finance its ‘Build Build Build’ program which mainly benefits the poor. This infrastructure program however does not build the public schools, hospitals, housing, irrigation and factories that the majority of Filipinos and the nation need for development. ‘Build Build Build’ is mainly about flagship transport infrastructure projects concentrated in the country’s highest-income regions National Capital Region, Southern Tagalog and Central Luzon with little for the poorest regions in the rest of Luzon, Visayas and Mindanao.

The Senate’s approval of its version of TRAIN moves the government a step closer to even greater distortion of the country’s tax system to benefit the rich and burden the poor. This will worsen already severe inequity in the country by putting more money in the pockets of the rich and taking away from the majority poor who already have so little as it is.

IBON argues that real tax reform means making the tax system more progressive. This involves reducing consumption taxes on the poor rather than increasing them as currently pushed by the Duterte administration. Moreover, said the group, direct income and wealth taxes on the richest should be increased. For instance, taxing an additional 20% of the income of just the richest 182,000 families who are the wealthiest 0.8% in the country can easily yield an additional Php84 billion.

The group stressed that aside from increasing taxes on the highest income brackets, revenues earned should be specifically allocated to essential social and economic services to benefit millions of Filipinos. This should be on top of meaningful social and economic reforms that prioritize people’s welfare and national development over elite interests, said IBON.###

Photo from canstockphoto.com

At the onset of the much-anticipated first-ever bilateral talks between United States president Donald Trump and President Rodrigo Duterte on Philippine soil, it should be reiterated that the US has a hand in what would be the most anti-poor tax program in the country’s history. The Tax Reform for Acceleration and Inclusion (TRAIN) exemplifies how US hold of country’s economic policies remains very much intact.

Malacanang’s elation over the American Chamber of Commerce (AmCham) lauding the tax reform program also shows how beholden the Philippine government remains to the US contrary to whatever nationalist stance taken just the previous year. AmCham has praised TRAIN to be inclusive and said that it would certainly expedite Philippine development.

Certified anti-poor

TRAIN is targeted by government to take effect in 2018 to generate over Php1 trillion in funds for its grand infrastructure campaign until 2022. A priority program of the Duterte administration, it will lower personal income, estate and donor taxes being paid by the highest-income 40% of Filipinos. It will also increase taxes by broadening the base of items charged with the value added tax (VAT) such as electricity transmission, shipping, and low-cost housing; and by imposing additional taxes on excise oil, automobiles, and sweetened beverages.

TRAIN would be the most blatantly anti-poor tax program of any Philippine government. It can take away anywhere from Php807 to Php3,794 from the already meager earnings of the poorest 60% of the Philippine population on the first year of implementation due to paying higher taxes and fees bound to increase through time. On the other hand, TRAIN will allow the richest 10% of Filipinos to take home Php33,795 more due to lower personal, estate and donor taxes.

Moreover, the Build Build Build infrastructure campaign, which will purportedly be funded by TRAIN, assigns the biggest bulk of its flagship projects to already established economic centers such as the National Capital Region, Central Luzon, and Southern Tagalog. Noticeably, the smallest amount of infrastructure is allocated to the poorest regions where social and economic infrastructure are needed the most. Big local and foreign construction firms and their bureaucrat middlemen are the ones to certainly benefit from Build Build Build.

US recommendation

Duterte’s tax reform program takes into account US policy recommendations included in a Partnership for Growth (PFG) project with the Joint Foreign Chambers of Commerce (JFCC). The PFG is the most comprehensive US intervention in policy-making in the Philippines in coordination with many US government agencies such as the US Agency for International Development (USAID) and the Millennium Challenge Corporation (MCC), as well as the IMF-World Bank.

Made up of 471 economic policy recommendations, PFG’s The Arangkada Philippines Project (TAPP/ Arangkada) includes the following in 29 of its macroeconomic policy suggestions: “Undertake comprehensive tax reform to reduce CIT (corporate income tax) and individual income tax, while raising VAT, ACT (alcohol, cigarettes and tobacco), and fuel excise taxes. Reduce or eliminate small taxes and fees that increase business costs.” Such comprehensive tax reform program failed to take off under the previous administration.

Last September, the AmCham/ Arangkada came up with “Arangkada Philippines: Implementing the 10-Point Agenda” which combines an additional set of recommendations with the 2010-2016 batch. The recommendation includes, “There is a need to reduce corporate income tax to a level that makes Philippines competitive in a field of countries competing for the same direct investment funds.”

According to the Arangkada publication, the implementation of these recommendations will assure that the Philippines “will be rated in future years much closer to the other ASEAN-6 economies that it currently lags behind”. This must pertain to an expected increase in now declining foreign investments upon lessening the cost of doing business, part of which will be due to relieving business tycoons and foreign corporations further of tax obligations.

For the US, which remains among the top sources of foreign direct investments as of early this year, easier taxes on foreign corporations may yield even more imports to and expanded operations in the Philippines. In 2014, US firms accounted for 45% of the country’s electric power systems imports, 25% of aerospace imports, 24% of medical equipment imports, 10% of water equipment and services imports, and 26% of information technology imports. US firms also accounted for 31% of foreign equity in business process outsourcing (BPO) companies.

Railroading TRAIN

To railroad its passage in the national legislature, Pres. Duterte sent a letter to House Speaker Pantaleon Alvarez and Senate President Aquilino Pimentel III on May 29 certifying the TRAIN bill as an urgent and priority measure.

With this certification, the TRAIN has swiftly hurdled the lower chamber on the last day of May with 246 congressmen in the affirmative, 9 negative, and only one abstention following 13 public hearings in the course of four months. The Senate ways and means committee led by Senator Juan Edgardo Angara filed its version of the bill in September. While Senate approval looms as Angara’s and Pimentel’s bills have been debated and interpellated in plenary sessions, the DOF is reportedly insistent on its version.

Regardless of which version makes it through, the general frame as per US recommendation of decreasing taxes for ease of doing business on one hand, and on the other hand increasing taxes imposed on consumers – regardless of income – is retained.

Tax_GabayTalakay2

 

  1. Ano ang TRAIN?

Itinuturing na ‘urgent’ ng gubyernong Duterte ang Tax Reform for Acceleration and Inclusion o TRAIN. Layunin ng TRAIN na makalikom ng P1.3 trillion para tustusan ang Build! Build! Build! o ang engrandeng programa sa imprastruktura ng pamahalaan. Itutulak daw nito ang pambansang pag-unlad at ang kapakanan ng mahihirap.

Sa ilalim ng TRAIN, bababa ang personal income tax ng mga kumikita ng mas mataas kaysa minimum wage, at may mas mababang 6% flat rate para sa estate (mana) at donor (mga donasyong higit P100,000.) taxes.

Dagdag namang bubuwisan ang ilang mga produktong pangkonsumo na dati ay hindi saklaw ng 12% Value Added Tax o VAT tulad ng local shipping, low o socialized housing, power transmission at cooperatives (pero mananatiling exempted ang mga senior citizen at persons with disabilities o PWD). May bago at/o dagdag ring excise tax sa produktong petrolyo, mga pinatamis na inumin (sugar-sweetened beverages o SSB), at mga automobile.

 

  1. Ano ang konteksto ng TRAIN?

Bumabagal ang ekonomiya: humihina ang OFW remittances, tumataas ang global interest rates, at may krisis sa US, EU, Japan, at China. Batbat rin ng kontrobersya sa pulitika ang Pilipinas mula sa madugong anti-drugs war at matinding human rights violations kaakibat ng militarisasyon ng burukrasya at mga bangayan sa hanay ng mga burukrata. Kinakailangang bigyang-diin na habang pinatatampok ng rehimeng Duterte ang anti-drugs war at iwinawasiwas ang military rule, isa-isa nitong inilulusot ang mga kontra-mamamayang patakaran. Halimbawa, bukod sa TRAIN, naipasa na sa ikatlong pagbasa ng Kongreso ang mga panukala tungkol sa compressed work week at public utilities. Ang mga prayoridad na bill ng rehimen ay yaong mga lalo pang magpapadulas sa neoliberalismo.

Samantala, ang mga nakikita ng gubyerno na solusyon sa pagbagal ng ekonomiya at kontrobersya sa pulitika ay ang sumusunod: (1) pagpapataas ng infrastructure spending gamit ang malilikom sa TRAIN, at (2) pagpapanatiling mataas ng investment grade credit ratings (rekord sa pangungutang ng Pilipinas) para (a) makapangutang ang gubyerno (para mapataas ang infrastructure spending), at (b) maging madali para sa mga negosyante ang mangutang (para mapadulas ang private investments).

 

  1. Kanino ang mas mabigat na pasanin sa TRAIN?

Sa pinakamahihirap ang mas mabigat na pasanin sa TRAIN. Regresibo pa rin ang tax system na ito.

Ayon sa upisyal na datos: Ang pinakamayayamang 20% Filipinos lamang ang kumikita ng family living wage (o halagang kailangan ng pamilyang may 5 myembro para mabuhay nang disente) pataas (sa abereyds, P30,000 para sa 5 katao), samantalang kulang na kulang ang kinikita ng pinakamahihirap na 80% kumpara sa kailangan para mabuhay nang disente bawat araw.

Pero pantay lamang ang halaga na bubuwisin sa kanila sa mga dagdag na buwis samantalang babawasan pa nga ang sisingiling buwis sa pinakamayayaman.

Tandaang walang ganansya sa mas mababang personal income tax ang mga kumikita ng minimum wage pababa dahil exempted sila sa pagbayad nito. Habang mainam para sa ilang nasa middle class ang mas mababang personal income tax, hindi makatuwiran na babawasan pa ng obligasyong buwis yaong mga kumikita na ng limpak-limpak na salapi. Hindi makatuwiran na bigyan ang isang corporate executive na kumikita na ng Php 303,059 kada buwan (o Php 3.7 milyon kada taon) ng dagdag na Php 1,212.  Hindi rin makatuwiran na ang chief executive officer ng isang kumpanya, na kumikita ng Php 706,017 kada buwan (o Php 8.5 milyon kada taon), ay buwisan lamang ng Php20,694.

Sa TRAIN, gagaan ang pasanin ng pinakamayayaman, na antemano ay malaki ang kita. Gagaan ang pasanin ng pinakamayayaman sa pagbaba ng personal income tax at sa flat rate na singil sa estate at donor tax.

Madadagdagan ang iniuuwing kita ng nasa pinakamayayamang sambahayan. May netong ganansya sila dahil mas malaki ang nadagdagan nilang iniuuwing kita dahil sa mas mababang personal income tax kaysa sa mawawala sa kanila dahil sa dagdag na VAT, buwis sa langis, sa auto, sa matatamis na inumin at sa pagtaas ng presyo ng bilihin. Mananatili ang netong ganansya kahit isalik ang mas mataas na buwis sa automobile laluna sa mga tinatawag na high-end luxy car:

Bahagdan ng populasyon ayon sa kita Paglalarawan Buwanang kita Madadagdag sa kanila taun-taon:
Ikapitong bahagdan 2.3 milyong pamilya na may mataas na kita Php 24, 524 Php 3,167
Ikawalong bahagdan 2.3 milyong pamilya na may mas mataas na kita Php 32,565 Php 7,906

 

Ika-syam na bahagdan 2.3 milyong pamilya na may lalong mas mataas na kita Php 47,710 Php 14,027
Ikasampu’t pinakamataas na bahagdan Pinakamayayamang 2.3 milyong pamilya Php 115,428 Php 33,795

 

Ganito ang mababawas sa nakokolekta ng gubyerno mula sa pinakamayayaman:

Mas mababang personal income tax Php927 billion
Flat rate sa estate at donor tax Php16.9 billion

 

Sa TRAIN, mas bibigat ang pasanin ng pinakamahihirap, na antemano ay kulang-kulang ang kita. Dagdag pabigat sa pinakamahihirap ang higit na bayarin dahil sa dagdag na aytem na papatawan ng VAT, ang bagong excise tax sa langis, at ang tax sa SSB. Halimbawa, ayon sa Bayan Muna, magmamahal nang lampas Php600 ang LPG. Lalampas sa Php2,000 kada buwan ang bayarin ng mga abereyds na kumokonsumo ng kuryente. Lalampas sa Php60 ang presyo ng Coke. Magmamahal ang mga delata nang mahigit Php3.00.

 

Kukunan pa ng gubyerno ang bulsa ng pinakamahihirap na mamamayan:

Bahagdan ng populasyon ayon sa kita (income decile) Paglalarawan Abereyds na buwanang kita (2018) Mababawas sa kanila taun-taon:
Unang pinakamababang bahagdan Pinakamahihirap na 2.3 milyong pamilya Php 5,106 Php 807
Pangalawang bahagdan Sumunod sa pinakamahirap na 2.3 milyong pamilya Php 8,250 Php 1,264
Pangatlong bahagdan Sumunod pang pinakamahirap na 2.3 milyong pamilya Php 10,652 Php 1,601
Pang-apat na bahagdan Sumunod na  pinakamahirap na 2.3 milyong pamilya Php 12,987 Php 1,985
Panlimang bahagdan Sumunod na pinakamahirap na 2.3 milyong pamilya Php 15,760 Php 2,599
Pang-anim na bahagdan Sumunod na pinakamahirap na 2.3 milyong pamilya Php 19,335 Php 3,794

 

Sumusunod ang dagdag na makokolekta ng gubyerno:

Dagdag na aytem na saklaw ng VAT Php658.4 billion
Bagong excise tax sa langis Php681.7 billion
SSB Php259.6 billion
Automobiles (mas sa mga may-kayang bumili nito) Php143.4 billion

 

  1. Hindi ba masasalag ng ‘social protection’ ang impak ng buwis sa pinakamahihirap?

Hindi sustenidong masasalag ng ‘social protection’ ang impak ng buwis sa pinakamahihirap. Sa TRAIN, may planong gawaran ng Php2,400 kada taon ang 10 milyong pinakamahihirap na sambahayan sa 2018. Magkakaroon din diumano ng pantawid pasada. Pero para lamang ito sa taong 2018. Pansamantala lamang at samakatwid ay panandaliang pampalubag-loob lamang ang naturang ‘social protection’.

 

  1. Hindi ba magdudulot ng mas mahusay na panlipunang serbisyo para sa pinakamahihirap na Pilipino ang mga bagong imprastruktura?

Hindi talaga para sa panlipunang serbisyo kundi para sa imprastrukturang pangnegosyo ang TRAIN. Mabibisto ito sa alokasyon ng panukalang 2018 budget para sa imprastruktura sa isang banda, at para sa mga panlipunang serbisyo sa kabilang banda.

Malaki ang itinaas ng alokasyon sa imprastruktura kumpara sa serbisyong panlipunan. Sa panukalang budget, 27.5% ang itinaas ng alokasyon para sa gastos sa imprastruktura mula 2017 (Php861 billion) patungong 2018 (Php1.1 trillion). Malaki ito kumpara sa kakaunting 5.4% lamang na itinaas ng alokasyon para sa panlipunang serbisyo. Kalakip dito ang dambuhalang 68.9% pagbawas ng alokasyon sa pabahay at gagasino namang pagtaas sa social welfare (5.2%), edukasyon (5.8%), at kalusugan (9.2%). Sa usapin ng kalusugan, mababawasan pa nga ng Php16.7 bilyon ang mga programa para sa preventive health o pag-iwas sa sakit).

Ayon sa paghahanay ng mga proyekto, balak paglaanan ng mas malaking gastos sa imprastruktura ang mga rehiyon na mababa ang poverty incidence. Mababa naman ang balak na paggastos sa imprastruktura sa mga rehiyon na mataas ang poverty incidence. Halimbawa, pinakamababa ang official poverty incidence (porsyento ng populasyon na nabubuhay sa Php61 pababa kada araw) ng National Capital Region (NCR) na 3.9%. Ngunit kinokopo nito ang pinakamalaking bulto ng flagship infrastructure projects na nagkakahalaga ng Php343 billion. Halimbawa, ang Autonomous Region of Muslim Mindanao (ARMM), na may pinakamataas na official poverty incidence na 53.7%, ay kabilang sa may pinakakaunting flagship infrastructure projects na nagkakahalaga lamang ng Php5.4 billion.

Malinaw na hindi nakatuon ang imprastruktura (mga kalsada, tulay, flyover, train system, airport at seaport) sa pinakamahihirap na rehiyon. Katunayan, hindi ito ang tipo ng imprastruktura na direkta at pangunahing kinakailangan at magagamit ng pinakamahihirap tulad ng mga pampublikong eskwelahan, ospital, pabahay, tubig, kuryente, irigasyon at pabrika. Bagkus, ito ay mga imprastruktura na pagkikitaan ng malaking halaga ng mga burukrata, mga kumprador at kakontratang dayuhang bansa o korporasyon.

 

  1. Ano ang mahalaga sa anumang tax program?

Pinakamahalagang isaalang-alang sa anumang tax program, na hindi ikinonsidera ng Department of Finance (DOF), na:

Matindi ang income inequity o agwat sa pagitan ng kita ng pinakamayayaman at pinakamahihirap. Ibig sabihin, may mas malaking kakayahan ang pinakamayayaman na magbayad ng buwis.

Napakababa ng kita ng mayoryang pinakamahihirap. Hindi na nila kayang mabawasan pa ang kakarampot na kita.

 

  1. Ano ang dapat gawin?

 Isakatuparan ang progresibong tax system: Taasan pa ang direct taxes gaya ng personal income tax at corporate income tax; at babaan pa ang indirect taxes gaya ng VAT at iba pang buwis sa produktong pangkonsumo.

Isakatuparan ang mga sumusunod na pansamantalang hakbang: (1) Bawasan ang pasanin ng mahihirap o imantine ang eksempsyon sa mga produktong direktang apektado ang pinakamahihirap; (2) Dagdagan ng buwis ang pinakamayayaman, laluna, dagdagan ang buwis sa pinakamatataas na income bracket; at (3) Ispesipikong paglaanan ng badyet ang mga esensyal na panlipunang serbisyo.

May Php409 bilyon pa ngang hindi nakokolektang potensyal na corporate income tax. Dagdag rito, Php3.7 trillion ang pinagsamang yaman ng 40 pinakamayayamang Pilipino. Kung dadagdagan ang singil sa pinakamayayaman:

 

Pinakamayayamang 150,000 pamilya o pinakamayayamang 0.7% Dagdagan ang buwis ng 20%  ng kita nila Makakalikom ng Php71 billion
Sunod na pinakamayayamang 171,000 pamilya o sunod na 0.8% pinakamayaman Dagdagan ang buwis ng 10% ng kita nila Makakalikom ng Php20 billion

 

Ang TRAIN ay itinutulak pangunahin ng mga neoliberal na economic managers ng rehimeng Duterte sa pangunguna ng mga pinuno ng DOF, Department of Budget and Management, at National Economic and Development Authority. Suportado rin ito ng mga pinakamayayamang kinabibilangan ng mayorya ng mambabatas ng House of Representatives (HOR), mga ekonomista, malalaking negosyante at mga grupo nila, ng mga pinansyal na institusyon tulad ng Deutsche Bank, Nomura at iba pa. Tinangka ng Senado na palabnawin ang ilang kontra-mahirap na bahagi ng TRAIN pero nagbabanta ang DOF na igigiit nito ang orihinal na bersyon. Kamakailan, ikinalugod pa ng Malacanang ang pagpuri ng American Chamber of Commerce sa TRAIN bilang ‘progresibo at inklusibo’.

Dapat lamang idiskaril ng mamamayan ang TRAIN dahil sa pagiging garapal na pagiging kontra-mahirap at maka-mayaman nito. Desidido man ang gubyernong Duterte na mapirmahan ang TRAIN bago matapos ang 2017, kailangan itong puspusang mailantad bilang isa sa listahan ng mga maka-negosyo at maka-dayuhang patakaran na magpapanatili ng kahirapan at kawalang-pag-unlad sa bansa.

 

Nag-estima at sumangguni sa datos ng Department of Finance at Bayan Muna tungkol sa TRAIN. Oktubre 2017.

FinalDraft_TRAINRichPayLess

FinalDraft_TRAINRichPayLess

 

TRAIN will make the rich richer – The net impact of the change in income taxes, expansion of VAT coverage, new oil excise taxes, and inflationary effect is that the highest-earning 40% of Filipino households, or 9.1 million households with some 40 million Filipinos, will have more money in their pockets after the tax reform. This includes among the richest households in the country.

They have net gains because their increased take home pay from lower personal income taxes more than offsets losses from additional VAT, oil taxes, auto taxes, the sweets tax, and inflation. The net gains remain even if higher taxes on automobiles and especially on high-end luxury cars, which is sensible, are factored in.

Middle class households in the seventh to ninth income deciles certainly deserve relief from changing decades-old tax brackets. These include Filipino families whose only moderate incomes are doubly-eroded by inflation and by excessively high taxes. It can even be argued that the minimum figure for tax exemptions can be raised to those earning up to around Php33,000 monthly.

However it does not make sense for supposed tax reforms to give a corporate executive already earning Php303,059 monthly (or Php3.7 million yearly) an additional Php1,212. Nor does it make sense to only tax a company’s chief executive officer earning Php706,017 monthly (or Php8.5 million yearly) just an additional Php20,694; this is probably just what would be spent on a weekend family dinner. Yet the DOF’s TRAIN does just this while, to recall, taking hundreds of pesos away from the poorest Filipinos who already have so little as it is. The poorest are made to pay more out of much smaller incomes to begin with and this is not by any reasonable interpretation a “fairer and more equitable” tax system.

The DOF cites the supposedly higher income tax rate of 35% applied to the highest income bracket, compared to the current 32%, as proof of the progressivity of their proposals. This is a half-truth though because using the complete formula which includes a minimum lump sum and applying the tax rate only on the excess of income over Php5 million means that many of the country’s rich will actually end up paying less than under the current tax system.

The DOF also gives the example of the country’s top two income taxpayers whose take home pay falls in 2018 upon the tax reform to reinforce the impression that the new tax system is progressive. This is however an exaggeration and is oblivious to how the country’s super-rich use various legal and illegal strategies to avoid paying taxes including tax havens, off-shore accounts, shell companies and trust funds, smuggling and others.

The tax reform program really does nothing to address, and actually worsens, the continuing accumulation of massive wealth in the hands of a few. The country’s richest for instance also gain additional benefit from the lowering of estate and donor’s taxes to a flat rate of 6%, with the DOF estimating that they will pay at least Php3.1 billion less per year starting 2018.​ (From Buwis(et!): DOF’s Top Five Tax Reform Lies, www.ibon.org)

 

TRAINInfraNotForPoor

by Audrey de Jesus

Among the hyped claims of the Department of Finance (DOF) about the government’s tax reform package is how taxes paid by the poor will go back to them in the form of infrastructure projects and social services. The reality however is that the taxes will go largely to big-ticket infrastructure projects in and around the National Capital Region (NCR) that the poor will hardly benefit from.

TRAIN: easy money for the rich

Currently undergoing Senate deliberations, the Tax Reform for Acceleration and Inclusion (TRAIN) bill is the first of five packages under the Duterte administration’s Comprehensive Tax Reform Program (CTRP). The DOF’s version of the CTRP aims to raise an additional Php157 billion in revenues per year, while the version passed by the House of Representatives (HOR) will raise Php130 billion.

Under TRAIN, there will be higher consumption taxes through the removal of value-added tax exemptions, such as on socialized and low-cost housing and power transmission; new excise taxes on fuel, sugar-sweetened beverages (SSB), and automobiles; and reduced personal income tax rates, estate taxes, and donor’s taxes.

Despite DOF claims that the poor benefit most from their tax reform program, the truth is that the poorest majority of Filipinos bear a heavier tax burden than the rich.

The poorest 60 million Filipinos will pay Php47.0 billion in additional taxes next year, or 2.3% of their combined family income of some Php2.0 trillion. Meanwhile, the highest income 40% will pay Php47.6 billion, or only 0.8% of their total family income of some Php4.1 trillion.

This means the highest income 40% who have twice as much income as the poorest 60% of Filipinos will be paying virtually the same amount in additional taxes. Measured as a share of their total income, the poorest 60% will pay three times as much as the highest income 40% including the richest Filipinos.

TRAIN to nowhere?

Aside from covering up how much the CTRP will burden the poor, the DOF claims that the poor will mainly benefit from these tax revenues, as these will be used for the government’s infrastructure program and social services.

Studying the 2018 Budget of Expenditures and Sources of Financing (BESF) that the Duterte administration submitted to Congress is revealing. The 2018 national government budget submitted to Congress presumptuously assumes that the TRAIN will be passed and implemented next year. Yet the government’s spending pattern is not consistent with the claim that TRAIN will benefit mainly the poor.

It is misleading for the DOF to say that the TRAIN is for funding infrastructure AND social services.  TRAIN is really about funding the infrastructure program, while much-needed social services continue to take a back seat, as seen in the proposed 2018 national budget.

The 2018 BESF shows that there is an exceptional 27.5% increase in infrastructure spending in 2018 to Php1.1 trillion from Php861 billion in 2017. The government reportedly needs an estimated Php8 to 9 trillion over the next five years, or Php1.6 to 1.8 trillion per year, to fund its ambitious “Build! Build! Build!” infrastructure program.  The Duterte administration is clearly counting on additional tax revenues to help fund this.

However, social services spending increases by only 5.4% including just a 5.2% increase in social welfare, a 5.8% increase in education, and a 9.2% increase in health, among others. These increases are unremarkable and follow the same trend as in previous budgets even before TRAIN.

The DOF itself also explains that government infrastructure spending will increase from 4.3% of the gross domestic product (GDP) in 2017 to 6.1% in 2022, i.e. a 1.8 percentage point increase. In contrast, over the same period, health spending will only marginally increase from 0.9% to 1.0%; social protection from 1.9% to 2.0%; and education from 4.4% to 4.9 percent. Cumulatively, spending in health, social protection and education will increase from 7.2% to 7.9%, or just a 0.7 percentage point increase.

There are actually even notable cuts to the social service budget. The housing budget will be markedly cut by 68.9 percent. Under the health budget, Department of Health (DOH) hospitals will see an average 24% cut in their maintenance and operating expenses, and many regional hospitals will see cuts of 30-40 percent. The budget for preventive health programs will be cut by Php16.7 billion or 52%, including those focusing on significant public health concerns like tuberculosis, malaria and HIV.

Infra for the poor?

The DOF claim that the much higher infrastructure spending will go primarily to the poor is also misleading.

Comparing the regional distribution of the government’s flagship infrastructure projects by value and poverty incidence by region, there is a general trend of higher infrastructure spending in regions of low poverty incidence, and of low infrastructure spending in regions of high poverty incidence.

For instance, the NCR has the lowest official poverty incidence of 3.9% but takes up the largest chunk of flagship projects at Php343 billion, while the Autonomous Region of Muslim Mindanao (ARMM) with the highest official poverty incidence of 53.7% accounts for among the least flagship projects at just Php5.4 billion. Central Luzon (CL; Region III) and part of Southern Tagalog (ST; Region IV-A), which also have low poverty incidences of 11.2% and 9.2% respectively, are also among the top recipients of the flagship projects. (See Chart)

It may be argued that infrastructure spending has to consider the nature and degree of economic activity, population density, geographic conditions, and a host of other considerations. But none of these detracts from how infrastructure spending is biased away from poor regions and, indeed, is biased away from the kind of infrastructure projects that the poor directly need and will be directly using.

The flagship projects, which are concentrated in urban areas, especially in NCR, CL and ST, will mainly benefit big foreign and local corporations. Such targeted big-ticket infrastructure like mass transit, roads and bridges, railways, seaports, airports, communication and information, will primarily serve and boost the profit-making enterprises of these corporations that contribute little to develop and strengthen domestic industries.

Tax the rich, not the poor

As much as the DOF claims otherwise, the Duterte administration’s tax reform program is ultimately anti-poor and pro-rich. The poor majority will have to fork over more of their already meager incomes to pay higher consumption taxes. Revenues generated from these taxes will go towards infrastructure projects that hardly benefit them, while funding for much-need social services will be cut or remain stagnant.

Instead of further burdening the poor, the Duterte administration should be challenged to implement a genuinely progressive tax reform program and aggressively collect taxes from the wealthy and big corporations. It can raise hundreds of billions of pesos by increasing direct income taxes on the wealthiest Filipinos and by correctly collecting taxes especially on the biggest corporations.

The revenues generated from a progressive tax system should then fund infrastructure projects spread throughout the country that will support real development of local industry and agriculture. It should also be used for much-need social services and development that will truly benefit the poor. ###

FinalDraft_TRAINPoorFaceHigherPrices

Though welcome, the recent wage hike in the National Capital Region (NCR) does not increase the minimum wage earners’ purchasing power. The real value of the minimum wage is even falling while the people face higher taxes under government’s proposed tax reforms, said the group.

The NCR Regional Wage Board recently announced a Php21 wage hike, raising the nominal value of the NCR minimum wage, the highest in the land, to Php512. IBON said that despite the hike, the NCR minimum wage today is actually worth less than the Php491 minimum wage in June 2016. This is because its value has been eroded by inflation that has averaged 2.7% monthly since June last year. Measured at 2006 prices, the minimum wage today is worth just Php368, which is even less than its Php369 value in June 2016. The eroding real value of the minimum wage weakens working Filipinos’ purchasing power, said IBON.

IBON also pointed out that this amount is not even half of the Php1,145 family living wage (FLW). The FLW is the amount needed by a family of six, the average size of low-income families,  to get by decently every day.

The working people’s low-value incomes will even be aggravated by the Duterte administration’s Tax Reform for Acceleration and Inclusion (TRAIN), said IBON, which will impose more consumption taxes. These include additional items to be charged with 12% value added tax or VAT such as power, low-cost housing, shipping and cooperatives; additional Php3-10/liter of various oil products fom 2018-2021; and an additional Php 10/liter volume capacity of sweetened beverages using locally-produced sugar.

The group said that the poor are doubly disadvantaged by insufficient minimum wages and a tax program that will take away from the poor who already have little as it is. Government should be bolder in crafting a wage policy that will demand employers to raise the minimum wage to a sufficient level, said IBON. Government should also stop taxing the poor and generate much-needed revenues for public and social services by taxing the wealthiest.###

FinalDraft_TRAINPoorFaceHigherPrices

 

 

 

From nationmultimedia.com

Research group IBON said that the Department of Finance’s (DOF) resistance to even minor changes in its proposed tax reform program confirms the anti-poor and pro-rich character of the Duterte administration’s economic policies.

The Senate Ways and Means Committee proposed minor changes to shift some tax burden from the poor to the rich at its final hearing on the DOF’s Tax Reform for Acceleration and Inclusion (TRAIN) bill. But the DOF said that it would insist on its original proposal during plenary deliberations and the bicameral conference.

Committee chair Sen. Juan Edgardo M. Angara said that the committee’s counter-proposal will be “maybe 50 to 60 or 70% of what the DOF proposed”. According to Angara, changes to lessen what the poor pay include lowering the sugar-sweetened beverage excise tax and retaining VAT exemptions on socialized housing, cooperatives, senior citizens and persons with disabilities. Meanwhile, the rich will pay more from higher taxes on foreign currency deposit unit interest income, dividend income and cosmetics and perhaps from re-bracketing of auto excise taxes. There will be additional taxes on plastic bags, but the only changes in the petroleum excise tax will be its phasing.

IBON executive director Sonny Africa said that the Senate’s proposed changes are a welcome effort but still not enough to change the inequitable and unfair character of TRAIN. The TRAIN’s most anti-poor aspect is that it increases consumption taxes on a population where the income of the majority is too low for decent living and its most pro-rich aspect is that it avoids greater income and wealth taxes on the highest-income and super-rich Filipinos, Africa said.

According to Africa, in the Philippines the lowest income groups struggle with incomes of just Php5,100-15,800 monthly compared to the richest Filipinos who have Php303,000 to as much as Php6 million monthly.

“For all of Pres. Rodrigo Duterte’s tough talk against oligarchs, the administration is apparently still afraid to more correctly tax the few super-rich,” Africa said. Taxation has to be genuinely progressive taxation where the consumption taxes the DOF prefers for being easy to collect from the poor majority are replaced with direct income and wealth taxes on the few super-rich who, having so much, can also afford to pay so much more, concluded Africa.

Photo from marketing-interactive.com

The latest survey of research group IBON showed that majority of Filipinos do not approve of almost all proposals under the first package of the Duterte administration’s proposed tax reform program.

Survey respondents were informed that the government has a proposed tax reform package. They were presented with a list of some of the tax proposals and asked which of these they favor.

Majority of the respondents did not favor the following: the expansion of the value-added tax (VAT) coverage (83.6%); raising of taxes on petroleum products (87.7%); charging of Php10 per liter tax on sugary drinks and increasing annually thereafter (82.2%); imposition of 12% tax on rented dwelling with monthly rate of Php10,000 and below (77.5%); and imposition of 12% tax on remittance fees, such as those from overseas Filipino workers (77%).

On the other hand, 4 out of 10 respondents (41.1%) said that they were in favor of lowering the income tax paid by individuals earning Php21,000-650,000 monthly, while almost the same number (41.3%) were not in favor. Nearly half or 46.6% of respondents said they favor the removal of income tax exemption of minimum wage earners, while 38.3% did not.

The latest IBON Nationwide Opinion Survey was conducted from June 24-30 among 1,420 respondents in 16 regions. The survey employed field interviews and a multi-stage probability sampling scheme with a plus or minus 3% margin of error.

Due to difficulties conducting field interviews in certain areas affected by the Martial Law situation in Mindanao, results do not include the Southern Mindanao Region (Region XI), and 4 out 6 towns in Lanao del Sur province in the Autonomous Region of Muslim Mindanao (ARMM).###

 

The government has a proposed tax reform package wherein the following are some of the proposals. Are you in favor of these proposals?

Expanding the coverage of value-added tax (VAT), which will increase the prices of many goods and services
Yes

 9.3

No

 83.6

Don’t know

 7.1

Total

100.0

Raise taxes on petroleum products, which will increase the prices of many goods and services
Yes

 7.6

No

 87.7

Don’t know

 4.5

No answer

 0.1

Total

 100.0

Charge tax of Php10 per liter of sugary drinks like juice and softdrinks, increasing annually thereafter
Yes

 11.7

No

 82.2

Don’t know

 6.0

No answer

 0.1

Total

 100.0

Impose 12% tax on rented dwelling with monthly rate of Php10,000 and below
Yes

 7.1

No

 77.5

Don’t know

 14.9

No answer

 0.5

Total

 100.0

Impose 12% tax on remittance fee on remittances such as those from overseas Filipino workers
Yes

 9.4

No

 77.0

Don’t know

 13.2

No answer

 0.4

Total

 100.0

Lowering of income tax paid by individuals earning Php21,000-650,000 monthly
Yes

 41.1

No

 41.3

Don’t know

 17.3

No answer

 0.2

Total

 100.0

Removal of income tax exemption for minimum wage earners
Yes

 46.6

No

 38.3

Don’t know

 14.0

No answer

 1.1

Total

 100.0

 

Final_TRAINPoorDontGain

The DOF’s estimates of personal income tax gains for the poorest Filipinos erroneously assumes that the poorest Filipinos currently pay income tax.

This is untrue because the BIR’s records indicate only some 5.6 million taxpayers at present who are wholly from the highest income brackets.

The poorest Filipinos do not pay income tax now so, contrary to the DOF’s claims, they have nothing to gain from the income tax reforms. They will however pay an additional Php47.0 billion in additional VAT, petroleum, and sweet beverages taxes. This does not include further inflationary effects.

Final_TRAINPoorDontGain

Final_TRAIN_1PoorBearsBurden

Under the tax ‘reform’ package which is currently being deliberated by the Philippine Senate, the poorest 60 million Filipinos will pay Php47.0 billion in additional taxes next year which is 2.3% of their combined family income of some Php2.0 trillion. The highest income 40%, meanwhile, will pay Php47.6 billion which is only 0.8% of their total family income of some Php4.1 trillion.

In effect, the highest income 40% who have twice as much income as the poorest 60% of Filipinos will be paying the same amount in additional taxes. Measured as a share of their total income, the poorest 60% will pay three times as much as the highest income 40% including the richest Filipinos.

Taking all the components of the tax package into consideration, the highest income 40% will gain Php140.1 billion from lower personal income, estate and donor taxes. This off-sets much of the additional Php187.7 billion they will pay in additional VAT, petroleum, sweet beverages, and automobile taxes.

On the other hand, the poorest 60% do not gain anything from lower personal income taxes – being exempted from paying this already. They will however pay an additional Php47.0 billion in additional VAT, petroleum, and sweet beverages taxes. This does not include further inflationary effects.

These estimates exclude the Php2,400 cash transfer in the first year for the poorest half of families that the DOF is hyping to cover up for the gross inequity of the tax reform package. After 2018, the cash transfer will be discontinued but the tax burden on the poor will remain. The tax burden on the poor will actually become even worse as even higher petroleum excise taxes start to be applied. (Lifted from “Tax Reform Burdens Poor More Than Rich” at http://ibon.org/2017/07/tax-reform-program-burdens-poor-more-than-the-rich-ibon/

 

Final_TRAIN_1PoorBearsBurden

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