It always fascinates me whenever I hear my one-and-a-half-year-old daughter sings the famous children’s song “Rain, rain, go away, come again another day…” While her singing is an enchantment to my ears, it’s also sad because she cannot play outside because of the rain.
Apparently, there is a similar song that many are singing nowadays on the impact of the Tax Reform for Acceleration and Inclusion (TRAIN) Law Package 1 or TRAIN 1. Have you heard about “TRAIN TRAIN go away”? This jingle seems to be the theme in recent headlines about the country’s taxation, as debates have been going back and forth on whether or not TRAIN 1 needs to be suspended.
The clamor of TRAIN 1 detractors hinges on the argument that it is “anti-poor”, particularly because the spike in commodity prices more than offsets the reduction in personal income tax. To be explicit, the excise tax adjustments on certain petroleum products, like diesel and gasoline increased transportation costs and also exerted a domino effect on the prices of commodities purchased by the consumers. Unfortunately, under TRAIN 1, the excise taxes will further increase in 2019 and 2020.
To make the situation worse, critics are pointing out that the surge in commodity prices aggravated the situation of the marginal income earners. Those who were exempt from the individual income tax even prior to the effectivity of TRAIN 1,such as minimum-wage earners, informal sellers, small-time contractors, and the unemployed, have been struggling to meet their basic needs due to their diminishing purchasing power because of TRAIN 1.
The advocates of TRAIN 1, on the other hand, remain steadfast that TRAIN 1 is not “anti-poor”, and that the main target of the upward change in excise taxes on diesel and gasoline are the rich, who have their own cars and who account for a significant chunk of consumption on fuel. Further, advocates say that the escalation of prices in petroleum products is not mainly due to TRAIN 1. Instead, the two major culprits causing price increases are: (1) the fluctuation of oil prices dictated by the international market, as affected by reduced production of oil by major countries and coupled with some political tensions that involve Middle Eastern oil producers; and (2) the weakening exchange rate of the peso.
In addition, the TRAIN 1 proponents contend that the government has countermeasures for the poor families affected by the surge in commodity prices. Among these measures are the Unconditional Cash Transfer Program intended for the 10 million households and individual beneficiaries and the Pantawid Pasada Program to benefit jeepney drivers. These programs aim to lighten the burden of poor families. TRAIN 1 supporters explain that, even when TRAIN 1 was being drafted, they identified programs to help the poor with their day-to-day consumption.
Perhaps the government should more patiently explain to the public why it believes that TRAIN 1 is not “anti-poor.” The problem, however, is that it may not be that easy to explain something to a person who is hungry and angry about his present situation. The government has a massive task of ensuring the actual implementation of its programs. Perhaps the results are not entirely felt by all the intended beneficiaries, and that is why critics easily point to TRAIN 1 as the reason for their miseries. It will be noted that TRAIN 1 took effect in January, and complaints have been aired for eight months now. Needless to say, the situation ought to have been resolved in no time.
Remember that we have seen only Package 1 of the proposed comprehensive tax reform program, and we are already in the midst of an unending debate on whether TRAIN 1 should stay or be suspended. There are other TRAINS approaching, and if these are not carefully drafted and fully explained to the public, we might end up quarrelling even more than we are right now. “Rain, rain, go away” is meant to be sung by children trying to drive away the gloom. If not resolved, the gloom associated with TRAIN 1 might lead us to hear even more clamor for TRAIN to go away.
Olivier D. Aznar is a lawyer and partner of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines. You may contact the author thru Vier.Aznar@ph.gt.com, or call us at tel. nos.
As published in BusinessWorld dated 21 August 2018