Showcasing good governance in the TRAIN Bill

As Congress resumes regular session after the Philippines’ hosting of the Asean Summit, the Senate is set to pass its version of the Tax Reform for Acceleration and Inclusion (TRAIN) Bill. The measure embodies the first of five packages of a comprehensive tax reform program launched by the Duterte administration in a bid to fund its massive infrastructure “Build, Build, Build” agenda. Because the country needs this agenda for its development, support is crucial to facilitate government follow-through.

The TRAIN Bill, or Tax Package 1, lowers personal income taxes and simplifies estate and donor’s taxes. It offsets the revenue loss from these measures with increased or new taxes on petroleum products, automobiles, and sugar-sweetened beverages (SSB), etc., on top of expanding the value-added tax (VAT) base.

I have to agree with an observation in one good-governance guide that good governance is not about making the correct decisions but, rather, being able to come up with the best possible process for making those decisions. Perhaps a way of assessing good governance in the TRAIN Bill is looking at the process of determining where to exact revenues for the government and the process of consultation.

One can hardly argue over how the Department of Finance has been able to justify its proposals in identifying revenue sources. In pushing the TRAIN Bill, the DOF conducted consultations and attended legislative meetings to gather data to support the tax reform measure. For instance, the context of the proposed excise tax increase on petroleum products is that there had been no adjustment for the past two decades, that previous spikes in fuel prices did not cause severe inflation, and that fuel consumption is largely generated by the upper socioeconomic classes.

Recently, however, the Philippine Association of Stores and Carinderia Owners (Pasco) gathered some 300,000 signatures to voice its opposition to the SSB tax. According to Pasco, sari-sari stores and carinderia owners stand to lose up to 50 percent of their income if the tax pushes through. Understandably so, as the proposed measure will cover fruit juices that are not 100-percent pure, energy drinks, soft drinks, and, if one goes by the House of Representatives’ version, 3-in-1 coffee, too. These are products that Filipinos have come to enjoy, whether on a daily or occasional basis.

After several public consultations, it is safe to conclude that the Senate, particularly its committee on ways and means chaired by Sen. Sonny Angara, considered the plight of ordinary Filipinos who stood to get adversely affected.

Aside from granting a rate lower than the House version specifies, the Senate committee on ways and means distinguished between the kinds of sweeteners. This makes the proposal more clearly attuned to the health objectives of the measure. The committee’s proposal even puts forward a per-gram-of-sugar basis on SSBs using purely caloric sweeteners after a two-year implementation.

Given this background, it is clear that there is a serious attempt to employ good governance in the TRAIN Bill if one goes by the processes of identifying where to generate revenue from and consulting the stakeholders. Nonetheless, there will always be room to improve these processes to get closer to the “correct” decision. The outstanding issues of massive smuggling and tax leaks may prove to be a trigger for policymakers to take a step back and analyze again their processes for decision-making.

Only time will tell if the Duterte administration is right to embark on its version of tax reform. Most probably, the judgment will rest on how well the government is able to deliver on its promises given the added budget. For now, the government and the citizenry alike can only ensure that the revenue sources tapped will be limited to those with clear net benefits to the country as a whole, and that those to be affected are genuinely heard. Otherwise, the Duterte administration risks passing a law that will greatly burden the same people that are the intended foremost beneficiaries of the measure.

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Dindo Manhit is founder and managing director of Stratbase Group.