TRAIN is intended to correct a bad tax system

This refers to economist Solita Monsod’s column in two parts (“What I discovered about TRAIN,” 6/10/17 and “Saving TRAIN,” 6/17/17) on the Tax Reform for Acceleration and Inclusion (TRAIN) package, which is part of President Duterte’s comprehensive tax reform agenda. In the first part, Monsod concluded that the reform will reduce the income of the bottom 60 percent of households and that the proposed tax transfer will be “a bureaucratic and a logistical nightmare.” In the second part, she offered recommendations to shift the TRAIN “from
antipoor to very propoor.”

While Monsod raised issues that, at face value, make TRAIN seem unpalatable to some, we respectfully encourage her to take another look at the entire tax reform package and what this is designed to do for the Philippines.

TRAIN is propoor. It is a package of two parts: tax measures that seek to correct deficiencies in the tax system, and mitigating measures designed to redistribute some of the gains to the poor. The latter is an essential and integral part of the bill designed to mitigate the anticipated price impact in the short run, in exchange for improved opportunities in the long run. With TRAIN (as a package), the incomes of about 99 percent of households will improve.

It must be stressed that a comprehensive tax reform package (CTRP) is proposed, not to avert a crisis, plug a deficit, or meet revenue targets; it is needed to modernize a tax system that, to put it gently, is inefficient and nonresponsive to the needs of Filipino taxpayers. A CTRP is an investment we need to make to achieve greater prosperity. If we do nothing, growth will continue to be limited and some “privileged” taxpayers will continue to avoid taxes at the expense of the greater majority.

The tax reform that the Department of Finance is proposing is intended to correct a bad tax system. It is what the majority of Filipinos deserve—lower taxes for all, and not lower effective taxes for just a few.

Monsod is right in that there is a need to broaden the scope of the reform. The next packages to be proposed will cover: corporate income taxation and fiscal incentives; property taxation; capital income taxation; and health,
environment, and luxury taxation (e.g., sin taxes and mining tax).

I agree with Monsod that the task to implement the targeted conditional cash transfer (CCT) program is enormous. But it is possible. The Pantawid Pamilyang Pilipino Program started as a pilot in 2007 with 6,000 households as beneficiaries. It now serves 4.4 million households. While not perfect, the Pantawid Pamilya has been hailed as one of the best-targeted social safety net programs in the world. Monsod herself has been a staunch supporter of the program as the vice chair of its independent advisory committee, and was once quoted as saying that the CCT is
“as close as we can get to what is called a ‘magic bullet’ in development.”

The government will not start from scratch but will build on a wealth of experience from the Pantawid Pamilya and the Listahanan (a database of the country’s poor, currently comprising 15 million households). With the Listahanan, we now know who and where the poor are!

The passage of TRAIN in the House of Representatives is a legislative milestone. As Finance Secretary Sonny Dominguez said, “It is the first time in history that a tax reform is passed in Congress without a crisis” even if it is
initially unpopular.

We are one with Monsod in hoping that the Senate will pass an even better version of TRAIN—one that will include a price indexation on petroleum excise; recast the automobile excise brackets to four; repeal VAT exemptions accorded to “undeserving” sectors/groups; and revert the mandatory 8-percent provision on self-employed and professionals to optional, at the least. We hope for a version that is truly inclusive—true to the President’s commitment to “tunay na pagbabago,” providing equal opportunities for all, and accelerating the country’s journey toward becoming one among the rich nations.

KARL KENDRICK T. CHUA,
undersecretary,
Department of Finance

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