The Senate version of the much-vaunted TRAIN (Tax Reform for Acceleration and Inclusion), Senate Bill No. 1592, was passed this week. Let me tell you, Reader, and I am joined by highly respected colleagues in this view, that it leaves much to be desired.
We need this tax reform program because the administration’s platform is based on a “Build, Build, Build” program to improve the country’s infrastructure—not only physical (roads, bridges, etc.) but also human (i.e., to improve the people’s education, skills, training) and even natural. President Duterte wants to accelerate our pace of development.
The problem lies in the fact that with the current tax structure, the government cannot finance it. We have a structure that is old, creaky and full of loopholes. For example, our excise taxes on fuel haven’t been changed in 20 years. In 1998, fuel excises constituted around 50 percent of fuel prices—the same as other countries. Now they constitute maybe 10 percent.
For loopholes, how about our value-added taxes (VAT)? Sure, we have about the highest VAT rate in the region, but there are so many exemptions. Sen. Panfilo Lacson pointed this out when he said that the Philippines’ exemptions were more than those of Thailand, Malaysia, Vietnam and Indonesia put together (PH=143, T+I+M+V=111).
So, to raise the funds to finance our Philippine Development Plan and to make up for the needed reductions in personal income tax, we need to streamline and update our tax structure. That’s what the Department of Finance set out to do. Finance Secretary Sonny Dominguez was reported to have said that his proposed increase in the fuel excises would bring in P177 billion, and that removing the VAT exemptions would bring in P166 billion.
Hence the tax reform—to pay for the physical infrastructure and human capital development (P40 billion for free college tuition). And there’s universal healthcare, estimated at around P50 billion, etc. And then we have to make sure that the poor are not further marginalized.
So what happened? Well, for one, all the foregoing—the country’s needs—took a back seat to the individual needs of our senators. Someone monitoring the discussions told me that this was the first time (in three Congresses) that the senators were so open about what they wanted for themselves.
They even had pet names for themselves, like “Papa Bear” (Gordon, I am told), “Mama Bear” (Villar supposedly), and “Ice Queen” (allegedly Legarda). And if their individual needs or interests clashed with the needs of tax reform, guess who won?
Example: Sen. Sonny Angara’s interests led him to include ecozones (not just direct exporters) among those with VAT zero rating, thus adding to, rather than reducing, the exemptions. And anything that would affect real estate was given wide berth, to accommodate Mama Bear.
When the senators realized that their pet insertions had reduced the expected revenues of the tax reform, they scrambled to add more revenue-raising provisions. And so you had a doubling of the documentary stamps tax, a doubling of the minerals excise tax, a tax on coal 10 to 30 times its present rate. Is that good? No. No one bothered to check what the overall impact would be. As a colleague described it: all whimsical or arbitrary, all without the benefit of complete staff work.
The senators did arrange for the cash transfers to the poor for three years: The additional revenues from TRAIN would be divided into 60 percent for physical infrastructure, 27 percent for human infrastructure (including the cash transfers), and 13 percent for the Armed Forces. However, if the poor are to get the P50.4 billion envisaged (P3,600 a year x 14 million families—yes, the Senate considers the poor to comprise 70 percent of our families), revenues from the Senate’s TRAIN should be at least P187 billion. The latest estimated revenues are about P120 billion.
Yet, in spite of the need to raise revenues, sin taxes (with complete supporting studies) were not even considered. Senators Manny Pacquiao and JV Ejercito presumably were convinced not to pursue this, because anyway, it will be included in TRAIN II “early” next year. Anybody want to bet on that? Elections are coming, and taxes and elections do not mix well.