DESPITE questions from some lawmakers, Congress approved last week the Tax Reform for Acceleration and Inclusion (TRAIN) bill that the Duterte administration has placed at the center of its ambitious infrastructure and poverty reduction targets.
To be fair to the President and his congressional allies, pushing for tax reform is a smart use of President Rodrigo Duterte’s still-formidable political capital. Tax reform, at both local and national levels, is so politically risky that most elected officials shy away from it.
Former President Gloria Arroyo was already halfway into her nine years in power when Congress passed the reforms in value-added tax that she had endorsed. She endured widespread criticism for it, but it was one way her administration could afford to invest more on infrastructure and rein in the public deficit.
Perhaps drawing from Arroyo’s experience, Duterte’s advisers and allies have repeatedly emphasized how they expect TRAIN to benefit workers and the poorest of the poor. Under TRAIN, the first P250,000 of an individual’s annual income will now be tax-exempt. The finance department has estimated this will free nearly seven million Filipinos from income taxes. An additional P8,000 in the 13th month pay will also be tax-exempt, with the ceiling raised to P90,000 from P82,000.
The question now is whether these personal gains will be enough to offset the effects of other changes TRAIN will introduce, such as higher excise taxes on fuel and coal. How much higher will power and transportation costs rise as a result? A critical part will be the administration’s ability to deliver promptly on its promise that more than half of the P130 billion in additional tax revenues it expects to raise will pay for infrastructure. About one-third is supposed to expand social protection programs, like cash transfers for poor families, and the rest will be spent on modernizing the military.
According to the finance department, four more tax reform packages have been lined up. First, though, we’ll have to see how TRAIN will affect household budgets and expenses. Some relief will be given down the road: a VAT exemption on some maintenance medicines will start in 2019, for example, and a similar exemption on mass housing projects two years after that. Whether or not the other TRAIN components get the push they need will depend on how well tax reform’s gains balance its inevitable pains.