Called the Tax Reform for Acceleration and Inclusion (TRAIN) law, the first package of the Comprehensive Tax Reform Program (CTRP) cut workers’ tax rates and increased the level of tax-free annual income to PHP250,000.
Finance officials said TRAIN allows more people to have a higher take home pay to spend for their families.
They said that this reform makes the country’s tax system simpler, fairer and more efficient since it lessens the overall tax burden on the poor and the middle class.
To address its impact on government revenues, excise taxes on fuel were increased and new ones were introduced for sugar-sweetened beverages (SSB) and on vehicles.
Why was the oil excise tax hiked as part of TRAIN?
The Department of Finance (DOF), in a presentation during a recent forum with stakeholders, said “oil excise is a highly progressive tax since those who consume more will pay more tax compared to those who consume less.”
Citing a DOF study, finance department officials said the top 10 percent of Filipino households who earn about PHP113,000 a month consume nearly 51 percent of fuel.
On the other hand, the top 1 percent of Filipino households who earn PHP288,000 and more a month consume 13 percent of fuel.
Thus, the hike on excise tax impacts more on households who earn more.
Regarding the excise tax on sugar-sweetened beverages, the DOF said this is a health measure targeted to discourage people from consuming sugary drinks that will later on affect their health.
Reforming the Philippine government’s decades-old tax system is the key factor for the Duterte administration’s tax reform measure since it is targeted to finance the government’s massive infrastructure program called “Build, Build, Build”.
The current government bids to spend at least a trillion pesos annually until the end of its term in 2022 to construct necessary infrastructure around the country to ensure not only the continued expansion on the domestic economy but make sure that growth will really be inclusive.
It has identified 75 priority infrastructure projects under BBB and these are targeted to be financed through official development assistance (ODA) loans, which provide low-interest and long-term financing.
IHS Markit Asia Pacific Chief Economist Rajiv Biswas told the Philippine News Agency (PNA) that “TRAIN 1 reforms will help boost government revenues in over 2018-2020.”
He said this tax measure is a great help in the government’s infrastructure development program.
“The TRAIN 1 tax reform is a positive medium-term fiscal measure, with its full fiscal benefits being felt over the next two fiscal years,” he said.
The economist, however, noted that “TRAIN 1 tax measures have contributed to a spike in headline inflation during 2018.”
This last statement has been acknowledged by economic managers.
Rate of price increases peaked at 6.7 percent last September-October, a nearly 10-year high level, due mainly to faster inflation rate of food and non-alcoholic beverages as well as oil products, with the latter due also to external factors.
Finance Assistance Secretary Antonio Joselito Lambino II told the Philippine News Agency (PNA) that in recent months the largest contributors to inflation were “high oil import prices and food supply challenges.”
He, however, cited that the impact of these two have subsided, with the supply issue, for one, being addressed by several directives from Malacañang to ensure adequate supply of rice, among others.
“We have always been transparent regarding the contribution of excise taxes from TRAIN, from 0.4 to 0.7 percentage points of any given month’s headline rate,” he said.
Lambino also explained that “it is also clear from public statements made by some legislators that these excise taxes (e.g., on oil, sweetened beverages, and tobacco) were mistakenly understood as main drivers of inflation.”
“Hindsight now shows that this belief is not consistent with the data,” he pointed out.
The finance department official also admitted that there is a need to improve policies and programs to maximize the gains from the tax measure and make it more efficient for the benefit of the Filipinos.
“We need to do better with the social mitigating measures. We have made good progress on the Unconditional Cash Transfers and Pantawid Pasada since the second quarter of 2018. These grants need to be distributed earlier and faster, moving forward,” he added.