FOR the past two weeks, we have closely looked at the TRAIN (Tax Reform for Acceleration and INclusion) Law which was signed by President Duterte before 2017 ended. Part I tackled the reaction of the common tao on this new law, while part II focused on the tax on sugary drinks. There are still many aspects of this law that need more focus. A more contentious issue is on the imposition of excise tax on fuel.
Last Tuesday, Atty. Ernesto Perez of the Consumer Protection Group of the Department of Trade and Industry appeared in a morning show, and attempted to explain the effects of the new taxes to the products sold in the market. He claimed that the excise tax imposed on fuel will represent only a minimal increase in the prices of commodities in the market, amounting to P 0.08 – P 0.11 only. The host asked Atty. Perez if the increase of the price should only amount that much then why is it not reflecting on the prices of goods in markets in Metro Manila. The morning show has a segment that monitors prices of goods in various markets in the metropolis. The lawyer denied these allegations saying that DTI makes regular rounds in various groceries and supermarkets, and the prices of prime commodities are within their ideal price range.
One more question that the host asked was regarding those in the informal sector, who will feel the most the adverse effect of the excise and value-added taxes imposed by the TRAIN Law as they will still buy goods, now with higher prices, but their income will not change. Those from this sector, particularly the farmers, fishermen, etc., have not been paying income taxes in the past mainly because their income do not reach the taxable threshold, and most likely, their income would not make a significant change now. His reaction was totally unexpected, even by the host doing the interview. He questioned why were these people from the informal sector not paying taxes before. They should pay taxes if that’s the case, to which the host sarcastically remarked that with his line of questioning may have brought those from informal sector into trouble.
I will not waste any more space in this column to highlight the incompetence of that lawyer who appeared on national TV. There are several issues that emerged from this pointless interview.
The first issue is on the effect of the imposition of excise tax on fuel products. Theoretically, taxation is used by the government to discourage the consumption and production of demerit goods (goods that do not benefit the consumer). If this is the case, then why is fuel taxed in this new law?
The most used type of fuel here in the Philippines is diesel, which is also the cheapest. This is considered as the least refined fuel, and vehicles using it emit the highest volume of pollutants into the air. This move of taxing fuel, particularly diesel, will decrease the supply in the market and would therefore result to an increase the (equilibrium) price of fuel. This increase in price would discourage the consumption of diesel, and in effect, lessen vehicles’ emissions. I would like to believe this could be a precursor of the earlier pronouncement of the President particularly on phasing out public utility jeepneys (PUJs) and removing them from the country’s thoroughfares, and replacing them with more fuel-efficient substitutes.
There are also many manufacturing firms in the country that are still using fuel for their machineries. Therefore, an increase in the price of fuel will bring about an increase in their overhead costs as well. Therefore, the increase in the price of fuel will bring about a domino effect and finally affecting the price of final goods. Since additional costs are incurred, these will be accounted for in the pricing of the goods, resulting to an increase in the selling prices of goods, which could be inflationary in nature. (Inflation is the general, sustained increase in the average price of goods in the economy).
The second issue is on the higher prices of goods in the market. According to the computations of DTI, the effect of the excise taxes on fuel will only be minimal on price of the goods in the market. His benchmark are the products sold in groceries and supermarkets. But they (the DTI) regulate these firms so they can’t deviate from the suggested prices.
Inasmuch as it is nice to hear people from the government saying that the effect is minimal, in reality, when one goes to the actual market, it cannot be denied that prices of many goods are noticeably higher already. Prices of pork, beef and chicken increase by a few pesos. Seafood and fresh fish, although quite erratic, their prices generally increased, as well. What is worse is that some unscrupulous merchants take advantage of these circumstances to raise their prices for their own selfish gains.
Despite the government’s efforts of denying or sugar coating these price increases, this phenomenon is really happening, and it is attributed to the implementation of this new tax reform package.
The third issue that was raised was on the workers from the informal sector. The workers in this sector include among others the micro-entrepreneurs, home-based workers, vendors, small transport operators (tricycles, pedicabs and bancas), petty retailers, barter traders, small-scale miners and quarry workers, non-corporate construction workers, entertainers, beauticians, laundry persons, hairdressers, small and landless farmers, artisanal fisherfolk, on-call domestic helpers, volunteer workers, barkers, unorganized cargo handlers, etc.
Basically, these are wage earners and non-wage earners whose annual incomes do not reach the taxable threshold, even from the previous income taxation scheme. This means that with the adjustments on the income tax brought about by the TRAIN Law, they are still not affected. Their take home pay will not change as a result.
However, these workers from this sector as well as their households are the most affected by the effects of the other tax introductions and adjustments. These taxes generally caused the increase of prices of goods, from the prime commodities to even the luxury goods, as well as services, like public transportation.
While in the subject of public transportation, in more recent news, transport groups have flocked to the Land Transportation Franchising and Regulatory Board (LTFRB) to file their petitions for fare rate increase, attributing to the increase in the price of fuel due to the additional excise tax imposed on these products.
The imposition of taxes, if I analyze it using pure economic theory without bias of my advocacies, has truly noble aims, considering the long-run effects that we would like to achieve through this tax reform, despite the difficulty of it being implemented in the short-run. However, I believe that the people from government only highlighted and emphasized on the supposed benefits of the TRAIN Law, and chose not to talk about the provision of the tax reform package that may have adverse consequences. They should have not sugar-coated these bitter yet salient provisions of the new tax law.
As was mentioned in the first part of this series, the taxpayers will still pay taxes, despite their apparent difficulty, even if they don’t like it, because at the end of the day, the law maybe harsh, but it is still the law.