Despite the staggered increase of the oil excise tax within the next two years—transportation, food, and oil prices will remain “manageable” amid the passage of the first package of the administration’s tax reform program, the Finance department said Monday.
In a Palace news briefing, Finance Secretary Carlos Dominguez III sought to downplay the effects of “moderate” increases on the price of basic commodities, since the middle class would take home more from the lowered income taxes, while the poor will be protected through government dole-out programs.
“Our analysis shows that the overall inflation might be increased by seven tenths of 1 percent due to higher oil prices in 2018 of which, food prices may increase by up to three tenths of 1 percent; and transportation will be up probably one tenth of 1 percent. This is rather manageable, especially when compared to the savings from the lower personal income tax,” Dominguez said, adding that the TRAIN marks the first time that the government had pushed a tax reform package not in response to a financial crisis or an”‹ external conditions imposed by other institutions, but to “‹”‹strengthen its “‹programs meant “‹to “‹attack”‹ poverty and correct income inequality.
It would also be the first time the government, through the initiative of the Duterte administration, is lowering personal income tax rates to make these more equitable, Dominguez said.
He added that 99 percent of the country’s individual taxpayers would benefit from TRAIN, owing to hefty cuts in the personal income tax rates.
Dominguez said the implementation of the TRAIN fulfills a campaign promise of President Rodrigo Duterte to institute tax reform, which includes PIT exemptions for those earning at least P20,000 and below.
This means that aside from minimum wage earners who are already exempted from the PIT under the law, those with annual taxable income of P250,000 and below would no longer pay any “‹PIT starting this year.
Thus, employees such as clerks earning P15,000 a month and previously taxed P7,000, and call center agent”‹s”‹ with a monthly salary of P21,000 who used to cough up P22,000 a year in taxes would pay zero tax and effectively increase their take home pay beginning this January”‹, Dominguez said.
In effect, those with a taxable annual income of P250,000 would be able to take home additional income equivalent to one-month’s pay per year.
“Let me first emphasize that this reform is an important milestone in our economic history. This is the first time that we are doing a tax reform not because of crisis or because it was imposed by external forces,” Dominguez said at the Palace”‹ briefing.
“It is also the first time that the main purpose of the reform is to reduce poverty and inequality, and not because of deficit or debt reduction,” he added.
“TRAIN is the first step to once and for all correct our unfair, complex, and inefficient tax system” after 20 years of non-adjustment of the PIT rates while ensuring that more people comply with their obligation to pay taxes, he said.
Complementing these income tax cuts are measures to offset the revenue loss from the PIT and raise additional funds for the government’s program to spend more for infrastructure and social services.
These include broadening the value-added tax “‹base through the repeal of 54 special laws on non-essential VAT exemptions; adjusting excise taxes on fuel, coal, automobiles and alcohol and tobacco products; and introducing a tax on sugar-sweetened beverages with exemptions.
Such measures, he said, “‹will raise additional revenues of over P786 billion over the course of five years, primarily “‹to help improve education, “‹health care”‹ and other forms of human capital formation”‹.
He said the TRAIN, which corresponds to two-thirds of the revenue target for this tax reform package, is expected to generate an additional P89.9 billion this year, while the remaining one-third aims to raise P38.9 billion more or a total of P128.8 billion in 2018.
The TRAIN can either fund the construction of “‹629,120 public school classrooms or the hiring 2,685,101 public school teachers, or the establishment of “‹60,483 rural health units, 484,326 barangay health stations, and 1,324 provincial hospitals; or build 35,745 kilometers of paved roads, or 786,400 kilometers of temporary bridge upgrades, or 2,665,763 hectares of irrigated land, Dominguez said.
Moreover, to protect the poor and vulnerable from the impact of moderate increases in prices “‹resulting from the increase in fuel excises, the TRAIN will also help finance a program spearheaded by the DSWD to provide targeted cash transfers to the poorest 10 million households.
The DSWD will identify the beneficiaries based on the Listahanan, the Pantawid Pamilyang Pilipino or 4Ps “‹Program, and the list of “‹social pension beneficiaries.
According to Dominguez, the budget for the unconditional cash transfer program was included in the 2018 budget, totaling P25.7 billion.
He claimed that inflation remains low and stable despite significant increase in diesel prices in 2016.
Data from the Philippine Statistics Authority and the Energy department, showed that between January 2016 and January 2017, diesel increased by almost P14.00 which is an equivalent increase of 76 percent.
“However, inflation remains stable, food and transportation and electricity, gas and housing and water did not increase significantly. Rice, together with other essentials such as pork, sardines, fish and noodles did not have a significant increase despite the huge increases in diesel from January 2016 to January 2017,” the Finance chief said.
Under TRAIN, oil excise tax rates will be adjusted gradually from 2018 and 2020, with excise tax on diesel per liter is P2.50 in 2018; P4.50 in 2019; and, P6.00 in 2020.
On the other hand, excise tax on gasoline per liter will be at P7.00 in 2018; P9.00 in 2019; and, P10.00 in 2020.
To mitigate TRAIN’s effects, the Finance Department said that they are looking into providing targeted cash transfers to the poorest 10-million households in the amount of P2,400 per year in 2018; P3,600 per year in 2019 and 2020 starting the first quarter of 2018.
The President last Dec. 19 signed into law package 1A of the Tax Reform for Acceleration and Inclusion Act—which slashed and restructured personal income tax rates that stayed the same for two decades, while also jacking up or slapping new taxes on the consumption of oil, cigarettes, sugary drinks and vehicles.
The Palace, which earlier admitted that the prices of basic commodities would “increase,” had described them as “minimal” and “temporary” but in the long-term would enable the government to better help the poor.
Think tank IBON Foundation however, believes that excise taxes on petroleum were proven to be very inflationary in the past, and downplaying their impact on the prices of basic commodities is very “dishonest” and “insensitive.”
In a statement, IBON executive director Sonny Africa said that the move simply imposes the burden of paying taxes on the poor to avoid higher taxes on the rich.
“The additional petroleum product excise taxes for instance cannot but have a domino effect on the prices of basic commodities and other goods and services,” he said.
He added that TRAIN proponents correctly point out how petroleum excise taxes were last raised over two decades ago.
“They should also highlight how this was very inflationary,” said Africa.
Africa called on the administration’s economic managers to “stop harping on the windfall from personal income tax cuts of, at most, six to seven million taxpayers.”
“It’s about time for them to become more transparent and upfront about the negative impact of TRAIN on the poorest 15-million Filipino families. These are tens of millions of Filipinos who do not get any personal income tax cuts but will pay higher prices for the goods and services they consume from already very low incomes,” he said.
Africa also said that government’s harping on the cash transfers for the country’s poorest families is an indirect admission that the TRAIN’s taxes do put an additional burden on them.
“But these transfers are only temporary for the first three years while even higher taxes are imposed.”
According to Africa, the relief ends after the third year but the greater TRAIN tax burdens are permanent.