Public Service | Understanding the TRAIN and other Comprehensive Tax Reform Program

Usec. Karl Chua giving overview of the CTRP

Taxes?!! Oh well, it is a very complicated matter and my understanding is very limited when it comes to it. Do I need to digest these things? Are you sure? Who wants to talk about it? I am just an ordinary non-accounting individual… Okay, perhaps, I really need to learn about it since everything I buy, pay and earn, there is tax. Where shall we start? >>>

The Philippines is gearing towards a point of its nationhood wherein people want to taste better public infrastructures, social services and efficiency of tax system - though it should be the case, since then. To fuel all these public goods, the government needs to have an efficient tax system that is simple and fair to collect enough revenue. Honestly, a tax system should be understandable even to a non-accounting individual and it should be understood where and how these taxes are collected. Every peso that is taxed should be a peso of service felt by an individual. Hence, the government is now doing its part to make a change towards a simpler, fairer and efficient tax system through the comprehensive tax reform program (CTRP).

I am thankful for the visit of the representatives from the Department of Finance in the person of Usec. Karl Chua and Dir. Mitch Abdon to take time dissecting the CTRP in a manner that is SMART (specific, measurable, attainable, realistic and time-bound). There is an analysis from the Department of Finance that says our tax system is not catching up with the economic needs of the country in the past 20 years - thus, creating an inefficiency of our taxation. The CTRP is not just a campaign promise to be fulfilled by the seating highest official, but really a move to make our tax system as simple as ABC. The CTRP is set at five packages, wherein the first package is known as the Tax Reform for Acceleration and Inclusion (TRAIN) law and the second package is now with the congress for scrutiny. I will be sharing the knowledge I have learned.

According to Usec. Chua, there are two (2) reasons why the CTRP is needed: 1) TO REDISTRIBUTE INCOME and 2) TO FUND PUBLIC GOODS. These are very easy concepts but with deep meaning. To redistribute income means richer people are taxed to help the poor - those who can afford more are taxed more on some specific goods. In relation to that, the taxes collected will be spent for the public goods like infrastructure - there is said to be a 50-year infrastructure deficiency that our country has thus the need for more funds through taxes. Usec. Chua added that this CTRP is special since there is no financial crisis that our country faces, even without the CTRP our country has enough funds only that it can’t fund big infrastructure projects and social services.

Indeed, the goal is very noble for our country, but there are those who really are hesitant with this change. There are assumptions of this being anti-poor, this will be a factor that will bring down industries, and our economy will go down. However, Usec. Chua said that we should see the tax reform in three (3) ways to appreciate it better: 1) SEE IT AS A PACKAGE (wholistic view of the concept and not as dissected parts), 2) VIEW THE IMPACT NOT ON REVENUE PERSPECTIVE BUT ON SPENDING SIDE (expense towards better services, schools and quality healthcare), and 3) INVESTMENT IN OUR FUTURE (a long term perspective - better future of the next generation anchored to the Ambisyon 2040: Zero Poverty and every Filipino should be at least middle-class).

As written earlier, the CTRP has 5 sets of packages.

The first package is the TRAIN, in which, it asks the households or families to contribute to fund the most important public projects of the government. So far, according to the data of the Department of Finance, revenue collection is aligned with the targets even the personal income taxes are lowered. Basically, the TRAIN speaks of lower income tax for higher consumption tax among specific goods like sweetened-sugar beverages (SSB), tobacco, and excise on oil - meaning, those who have the capability to pay more of goods are taxed more. For example, with the SSB, here are the goods taxed more: sweetened juice drinks, sweetened tea, all carbonated drinks with added sugar, flavored water, energy drinks, sports drinks, powdered drinks not classified as milk, cereal or other grain beverages, and non-alcoholic beverages that contain added sugar. Whew, that’s a lot, meaning to say, better drink water instead and its healthier. There are clear exemptions on goods like 3-in-1 coffee mix, milk and 100% natural juice. So, this means to say, TRAIN should not be an excuse of adding prices on 3-in-1 coffee, milk and 100% natural juices - we can call the attention of the Department of Trade and Industry (DTI) if suggested retail prices (SRP) are not observed. “Profiteering” is a term that takes advantage of this event to earn more. Like for example, in a usual fast food, value meal prices are now up 9 pesos with drinks. Aside from that, they will offer you to upgrade to iced tea or pineapple juice, your option if you’ll take the bait of “healthier option”, that it was 15 pesos before TRAIN, but now 24 pesos in effect of TRAIN. This has to be checked by the DTI, too, because the computation of the Department of Finance could have been only 4 pesos increase for an upgrade or it is like adding 2 tablespoons of sugar in the drink. For the excise on oil, Dir. Abdon said that diesel is cheaper because it wasn’t taxed and a picture of rich people buying diesel consuming SUVs abound making rich people still exempt to tax. Dir. Abdon added that based on statistics, 50% of oil consumed are among the 10% richer population and among the 1% richest household consumes 13% of the oil. Actually, she has a point, the chase for tax is not against the poor but among the rich, though there are diffused effects among those public utility vehicles. Among the “entitled” jeepney operators, their claim of adding 2 pesos for the fare is really a leap of faith, as if a passenger is paying a fourth of a liter of diesel in a 4 kilometer distance of ride. On the other hand, gasoline stations still offer discounts for diesel, meaning, they can still avail of lesser diesel price - play it fair!

L-R: Usec. Chua and Dir. Abdon during open forum

The second package asks the corporate sector to contribute. The process will be lower corporate income tax but less incentives and subsidies or exemptions to be fair. The third package asks those with real estates or assets to contribute. The fourth package asks those with savings or investments earning interests to contribute. And, the fifth package asks the drinkers, smokers, polluters, miners, gamblers and all those with negative effects in the society to contribute. As we can see, this CTRP is designed so that everybody will contribute for the better of our future.

As discussed by Dir. Abdon, the proposed second package of CTRP is anchored on facts. The country is asking 30% corporate income tax but it only contributed 3.2 percent in the gross domestic product (GDP) unlike in Thailand that it asks 20% corporate income tax but has a high yield in their GDP at 6.1 percent. Aside from that, our country gives so much incentives of different forms but still our performance is way behind our neighboring countries with Vietnam soaring up. In addition to that, even with incentives to investors, for 50 years already, our foreign direct investments (FDI) is still the lowest in the region. How sad it is, right? Well, investors also see infrastructure of the country, as well as the bureaucracy before considering the incentives which the current administration also tries to enhance. Perhaps, the tax reform is timely after years of studying how our system works compare to our neighboring countries. The CTRP package 2 wants to bring down the corporate income tax from 30% to 25%. Aside from that, it aims to make companies adhere to four (4) principles: 1) performance-based or making companies accountable on targets as to employment and exporting goods, and investing on more development; 2) targeted or aligned with the government’s strategic investment priority plan (SIPP) wherein every 3 years it will be evaluated and reviewed and will serve as basis for incentives; 3) time-bound or giving cap on incentives that has been a 50-year honeymoon but yielding very low; and 4) transparent or the companies receiving incentives will be published regularly. It is also discussed that the previous administration’s effort to monitor companies with incentives through the Tax Incentive Management Transparency Act (TIMTA) has produced data that the government has given away 301 billion pesos of incentives among the companies in 2015. This CTRP package 2 proposal wants to lessen the incentive and not totally abolish it that in every 26 billion deducted in the incentive, corporate income tax will also be lessen to 1% or from 25% to 24%. Another 26 billion deducted again, will less 1% in corporate income tax again or from 24% to 23%. These are just among the things considered in the CTPR package 2. Hopefully, it will be passed into law after scrutiny and according to target timeline.

Post discussion photo opportunity with Usec. Chua

Whew, this post is very lengthy. Yet, I hope, somehow, it enlightens many about how the comprehensive tax reform packages are going to affect and be in effect for our society. The CTRP, too, hopes that more taxpayers will pay their taxes accordingly. It is because the goal is to make everybody contribute, but protecting also the poor through subsidies, for the better of our society with a simple, fair and efficient tax system.

For more information, you can visit the Department of Finance’s facebook page @DOFPH, twitter @DOF_PH and website www.dof.gov.ph/taxreform wherein you can be well-informed with their informational documents there or email them directly at doftaxreform@dof.gov.ph. #TaxReformNow #BuwisParaSaPagbabago #teamddi

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