In his State of the Nation Address on July 24, President Rodrigo Duterte lobbied hard before the senators for the passage of his Comprehensive Tax Reform Program, saying “revenues are the lifeblood of the government, which enable us to provide for the people’s needs.”
Looking at Sen. Juan Edgardo “Sonny” Angara, the Senate Ways and Means Committee chair shepherding CTRP, the President said: “Ano bang gustong ninyong gawain, mag-luhod ako niyan [What do you want me to do, kneel before you to plead]?” “I call on the Senate to support my tax reform in full and to pass it without haste,” Duterte begged, to the applause of the audience. Then he looked around to find some people not joining the applause.
He saw Angara. “Si Angara ayaw rin mag-clap. [laughter] Bantay ka lang sa election tingnan mo. [laughter]. (Even Angara refuses to applaud. Watch out in the next election,” Duterte smirked. The young senator is due for reelection in 2019.
Under Duterte, death (to drug lords and addicts) and taxes (for the rich) are a certainty.
His secretary of finance, Carlos “Sonny” Dominguez, is about to enforce the biggest tax settlement in history, with P25 billion against cigarette giant Mighty Corp.
“The fate of the tax reform is now in the hands of the Senate,” Duterte said. He congratulated the House of Representatives by passing the first of five packages of the CTRP, with an overwhelming 246 votes by congressmen representing 90 percent of the Filipino electorate.
Part of the credit for that huge mandate for tax reform goes to Albay Second District Rep. Joey Salceda, an economist by education, a management whiz by reputation, and an investment manager by wealth creation.
Duterte said “These [tax] reforms are designed to be pro-poor, especially when the people understand how the revenues will be spent. The passage of the Tax Reform Law is needed to fund the proposed 2018 budget …The poor and vulnerable [applause] are at the heart of my tax reform.”
Indeed, says Salceda himself, the House-approved tax package “is decidedly pro-poor.” In fact, it “delivers a total monetary impact of P354 billion annually on middle income and poorest Filipino households.”
Salceda calls the tax package TRAIN—Tax Reform for Acceleration and Inclusion.
TRAIN consolidated Salceda’s original HB 4688 and Quirino Rep. Dakila Carlo Cua’s HB 4774. Aimed at addressing the gross “inequality between the elite and marginalized Filipinos,” the consolidated version, House Bill 5636, adopted the title and most provisions of Salceda’s bill, including his expanded conditional cash transfers, and the proposals of the Department of Finance.
Cua and Salceda are chairman and senior vice chairman, respectively, of the House Ways and Means Committee. The measure, the most significant—and most controversial—reform under the Duterte administration, was approved by 246 congressmen, voted against by nine (with one abstention) on its second and third readings on May 31.
TRAIN imposes hefty increase in excise taxes on oil and vehicles, an expanded value added tax, and tax on sweetened beverage and lotto winnings. It retains VAT exemptions for senior citizens and disabled persons, and on transactions by various cooperatives.
The higher tax revenues are suppose to help bankroll Duterte’s ambitious P8.4-trillion infrastructure program over the next five years and give large cash dole to the poor.
Finance Secretary Carlos Dominguez III says TRAIN will ensure a steady revenue flow for the government’s massive infrastructure buildup and guarantee a “breakout growth rate” of above seven percent that will be sustained over the medium term.
The robust growth, in turn, will enable the government to pull down the poverty rate from 21.6 percent to 14 percent percent by 2022, making the benefits of growth inclusive for all Filipinos, promises the DOF chief.
TRAIN claims to personal income tax rates for 83 percent of Filipinos, enabling them to increase their disposable income, which, in turn, will drive the growth of the domestic market.
To make up for the alleged tax losses, TRAIN has companion measures to raise additional revenues of P133.8 billion in 2018.
Salceda believes TRAIN is “the only tool that could make the tax system more efficient, equitable and pro-poor, as the government cannot exclusively tax the rich because such a measure would immediately be struck down as class legislation.”
The Albay congressman estimates TRAIN will have a total monetary impact of P354 billion annually on the country’s poorest households.
The consolidated measure aims to lower the PIT rates for 99 percent of the country’s taxpayers while expanding the VAT base and adjusting rates for consumption taxes like those on petroleum products and automobiles.
Contentious is the P6 per liter excise tax on diesel in three stages—P3 this year, P5 by January 2018 and P6 by July 2019. It would also increase the tax on lubricating oils and greases, waxes, regular gasoline, leaded gasoline, unleaded gasoline and aviation gas to a uniform P7 per liter, going up to P9 in 2018 and to PI0 in 2019. The present tax on these products ranges from P3.50 to P5.35.
Cars will be slapped excise taxes double current rates.
Salceda says P200 will be given monthly for one year to the poorest 50 percent households or 10 million families. Cash cards will given to jeepney drivers to help them cope with higher diesel prices because of higher diesel taxes. Low-income users of electricity (which will rise in cost with higher taxes) will get subsidies. Budgetary subsidies, Salceda explains, are better than using a tax system that supposedly protects the poor and the low-income earners.
Salceda estimates some P170 billion annually will be taken from the rich to the middle class and transferred to low income households through subsidies. The tax measure, he points out, is expected to “ultimately reduce poverty to single digit, grow the economy and transform the Philippines into an Asian economic powerhouse by 2028, with US$1.2 trillion GDP.”
“TRAIN is the only tool that could make the tax system more efficient, equitable and pro-poor, as the government cannot exclusively tax the rich because such a measure would immediately be struck down as class legislation,” Salceda enthuses.
But sneers economist Solita Monsod in her column:
“The total impact of TRAIN is negative for the majority of our people. It will reduce the household income of the bottom 60 percent of our households. Ironically, it increases the income of the top 40 percent of our households, except for the top one—tenth of one percent (those whose incomes are over P1.38 million a month)—their incomes are reduced by something like P8,000 a month. The richest ones, those earning more than P2.75 million a month, get their incomes reduced by P21,000 a month.”
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