FOR the past three weeks, we were able to look more closely at the new Tax Reform for Acceleration and Inclusion (Train) Law. The excise taxes for fuel products, automobiles and sugary beverages have already been imposed on the new stocks. Additional taxes for cigarettes and alcoholic beverages are now in effect. More goods have been charged with Value-added Taxes (VAT). This even without the Implementing Rules and Regulations of this law.
For the meantime, being very proactive in their role as tax collectors, the Bureau of Internal Revenue (BIR) issued a memorandum circular requiring all business firms to withhold income taxes of their employees based on the new tax matrix starting on the first payday of this year, and firms are left without excuse.
Although, the fact still remains that even before these employees receive their semi-monthly salaries, the government’s share was already taken out, whether they like it or not. Nonetheless, upon receiving their pay slips, they were happy to see a higher amount at the bottom of the sheet representing their take home pay. They felt a sense of relief for getting more of their hard earned pay and paying lesser amount of tax; perhaps a consolation compared to before the enactment of this law, where the government gobbles up a big chunk of their salaries.
Only to find out that their happiness will only be short-lived. After spending what they have saved from paying lower taxes to celebrate their higher take home pays in a bar/restaurant where they strictly followed the rule on ordering rounds of beer for everyone to drink the same number of bottles, instead of ordering one at a time. They go home just a little tipsy, not as drunk compared to previous drinking occasions. They woke up the next day only with a slight hangover. So maybe, they were just in their best condition the night before that is why they are not as drunk as expected.
Still trying to recall their evening, they recounted their steps. Somehow, their instincts are telling them that there is something wrong. They each paid relatively the same amount as the previous occasions. They tried to recall the number of rounds they have ordered from the bar. Although still with uncertainty, they concluded that they were served roughly 1 round short.
So they went back to the bar/restaurant and confronted the manager, but the manager explained that they were indeed served 1 round short. This is because the price of beer is not the same as before. It is now more expensive by a few pesos, resulting to a reduced number of beer consumed, with the same budget they have previously set for themselves. In economic theory, this is the primary aim of taxation, to curb the consumption of this type of goods.
Even the pulutan was affected. The price of crispy isaw did not change (yet), but the serving size is obviously much lesser in quantity. The manager explained further that the prices of raw isaw in the market also increased because apparently, these isaw are transported from Pangasinan daily. The “fare” of the isaw when included in the costing also increased because of the additional excise tax imposed on fuel products, resulting to higher retail price of diesel, and part of the increase in the cost is charged on the isaw, thus the increase in its price. This is called in economics, INCOME EFFECT, the higher price of isaw make it seem that they are poorer, thus buying lesser quantity.
Feeling a little parched from their slight hangover, they ordered for soda. When they were about to pay their bill, they were surprised that soda is P6 more expensive now. They again summoned the manager, and the manager volunteered the information regarding the new tax imposed on sugary beverages, effectively increasing the price of these sugary drinks by the nominal amount of the tax. Taxation of this beverage discourages consumption of the good, since they are considered DEMERIT GOODS, goods that when consumed produces negative results.
So, they left the bar/restaurant sad and disappointed.
Since it was a weekend, it was their schedule to go to the market to buy their supplies and replenish their refrigerator and cupboards for the next few days until the next payday.
With the greater awareness of the effects of the new tax reform package, they went around the market and purposely took notice of the prices of the products being sold.
Bangus is the only fish they eat, and do not really prefer other kinds of fish. They noticed an increase in the price of Bangus. So, instead of buying the usual one and a half kilos, they just bought one kilo. They resolved that if by next payday, the price of Bangus increase some more, they will have to try Tilapia. This is what is described as SUBSTITUTION EFFECT in economics.
Proceeding to the meat section, they observed that the prices of pork, beef and chicken all increased. They bought the usual allocation for these meat. It would exceed their budget, but they can’t imagine consuming less meat in their meals. This proves that meat is an INELASTIC good, meaning, their consumption does not change (e.g. drop) quickly if there are adjustments (say, increases) in their prices. Generally, basic commodities are inelastic in nature in the short run.
In the long run, these goods will eventually become ELASTIC, meaning demand will now be more responsive to price changes. This is the reason why DTI closely monitors the prices of these goods because of the sensitivity and importance to the diet of people.
No matter how the government denies that these price increases of most goods (and services) could not be attributed to the new taxes introduced by the Train Law, it could not be denied that self-interested individuals who would like to enrich themselves at the expense of many, and they would have not explored this avenue if there was no TRAIN also introduced by the government.
In the end, the pitiful salaried employees realized that despite their higher take home pays due to lower income tax, this gain would only be neutralized by inflation or the increase of the average prices of goods and services in the economy. So, their joy initially is now replaced by sadness and disappointment, not expecting to be ran over by this disappointment called Train wreck.