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Tuesday, October 23, 2018

Villanueva: From Train to Trabaho

Ekonomista

THE latest figures released by the Philippine Statistics Authority (PSA) reflect an inflation rate of 5.7 percent for the month of July. This figure, which is way above the government’s forecast of 2-4 percent.

Some economists from the private sector say that this worsening inflation may be attributed to the implementation of the Train Law. Even ordinary housewives (or househusbands) who’s in charge of their household’s budget believe this. However, the administration’s economic managers in the Department of Finance (DOF), National Economic Development Authority (Neda) and the Bangko Sentral ng Pilipinas (BSP) are still sticking to their story that the law’s effect on the prices of goods and services is just transitory.

I bet their motto in life is, “This, too, shall pass.”

More than six months after the Train Law was implemented, our diligent lawmakers from the House of Representatives and the Senate have started their work on the second tranche of the Train Law. Train 2, as it is more popularly known, aims to reduce corporate income taxes and essentially decrease the number of those receiving tax incentives for one reason or another.

Train 1 already increased the income threshold for those who are not required to pay income tax, as well as decreased the personal income taxes of those belonging to the higher income brackets. This was to allow income earners to have a higher disposable income. As a result, direct tax collection basically dropped. On the other hand, indirect taxes on goods and services have increased. This is a way to raise funds for this administration’s ambitious infrastructure program.

The BSP has increased interest rates as one action to address the worsening inflation in the country. This contractionary monetary policy is one move of the government that I welcome, however, it seems that they have acted a little bit late to have a substantial impact. If they implemented this policy sooner, I believe that inflation would not be this bad.

Train 2 will decrease corporate income tax as an incentive for business firms which will basically again decrease tax collection. The proponents believe that this will encourage foreign direct investments to flow into the country. However, somehow foreign firms are hesitant to invest here in the Philippines because of the present peace and order problem and the tainted reputation of the country with respect to the violations against human rights. There is even an outflow of investments from the country citing these political issues as among the reasons for the investment flight.

I honestly think that these economic policies are not well-thought of. It is beginning to appear that the 1st package of the Train Law is yielding more bad than good. The worse is that those who belong to the informal and marginalized sector are the most affected by these poorly thought of policies. The gap between the rich and the poor is getting wider. The rich are getting richer, and the poor are getting poorer.

In a more recent development, since the House leadership was having a difficult time convincing Congressmen to sponsor the 2nd package of the Train Law, the brilliant lawmakers have substituted the bill with the Trabaho Bill, which pertains to the Tax Reform for Attracting Better and High-Quality Opportunities.

This bill is particularly geared toward employment generation. Incentives will be provided for business firms that are expanding towards areas outside Metro Manila, essentially easing some burden on these firms so they can provide more employment opportunities in those areas.

This sounds good on paper, but it is essentially a sugar-coated Train 2 Law. Corporate income tax will still be given as an incentive, so I am quite skeptical of the agenda of these lawmakers with this bill substitution. I feel that they just emphasized on the element of employment for people to agree to this law.

I sound skeptical with all these criticisms but frankly, they have had so many bad economic moves that whatever they try to do will not be believable for me. Call me skeptic. Call me critic but I won’t apologize for that. They aren’t apologetic for these bad decisions anyway.


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