Tax reform now

The Tax Reform for Acceleration and Inclusion (TRAIN) law has been accused of causing excessive inflation. I don’t agree. Yes, it had some impact but it was less so than other factors such as oil, with higher world prices and rice, through gross mismanagement and the consequent shortages (fortunately President Duterte had the courage to sign the Rice Tariffication bill into law reducing prices for 107 million Filipinos). There’s also the poor harvest of other crops such as corn while the scarcity of fish didn’t help. The peso depreciation due to the dollar didn’t help, either. It wasn’t TRAIN-1,except to a small degree.

But whether TRAIN-1 did or not impact on inflation, the other tax measures proposed, including Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) or Package 2 of the Comprehensive Tax Reform Program (CTRP) as well as the other CTRP packages do not under any circumstances add to inflation. If anything they REDUCE it. If companies pay less tax (under the proposed TRABAHO-2 bill) they have room to REDUCE prices. The measure will cut the corporate income tax (CIT) rate from the current 30 percent to 28 percent in 2021, 25 percent by 2022, and then all the way to 20 percent by 2029. This will benefit all corporations. And competition will ensure that some of that tax reduction does indeed go toward lower prices. What doesn’t will go to more investment in the firm for more goods or better services. Or into the pockets of shareholders to stimulate the economy. It’s all only good stuff.

The only place it will hurt is some industries that have relied on incentives (123 laws on investment tax incentives, consolidated into a single law) to make them commercially attractive. And that is a worry, and a reason why there’s been some hesitation in Congress. A reasonable balance needs to be achieved between giving special deals to some companies who otherwise might not be here, or come. And generating needed revenues for government that a stricter tax regime will create. But, and this is the key point, whatever is decided it has NO IMPACT on Filipino consumers.

TRABAHO-2 can only do good, so I’m at a loss as to why it hasn’t been passed. It needs to NOW. We are losing investment because investors don’t know what tax they’ll pay. It is major reason why the Philippines remains a laggard in attracting much-needed foreign direct investments (FDI). You don’t risk money in a business when you don’t know what taxes are liable. That should be blatantly obvious I would think. Congress committees should work together, as I suggested in my column of July 4 to quickly come up with a final bill to send to the President.

As to the other CTRP packages, it’s the same story. They are only BETTER for the Filipino public, who are the ones we should care about.

The third package introduces key reforms that will clean up a convoluted and inefficient property valuation system and create a single valuation base eliminating the wide disparities that exist today. Local governments will earn more through improved collection efficiency. It’s just that those escaping the system will be brought into it. And honest taxes paid. Surely no one can object to that.

The fourth CTRP package REDUCES the tax you pay on interest income, peso deposits and investments and harmonises capital income tax rates for dollar deposits and investments, dividends or equity. All of which only the rich have anyway. Pre-need, pension, life, and HMO insurance will be taxed uniformly at 2 percent of the premium. Crop insurance will remain exempt from VAT. A key provision of the bill is the removal of the initial public offering (IPO) tax which the DOF described as a ‘nuisance’. As collections have been minimal. By doing so the Philippines will become more competitive in attracting capital needed to finance its massive Build, Build, Build program.

The final reform package will increase taxes on some things. But they are ones that don’t affect you, higher mining taxes, and a carbon tax. Or affect only those who can afford it such as a luxury tax and a tax on gambling (a vice it’s best to avoid anyway). Also a priority are the alcohol and e-cigarette tax. The only ones you may not like is a tax on fatty food. Something you’d do well to cut down on if you want to live long.

So except for that one very specific item the remaining tax reform bills will have no effect on you. May well bring prices down. They will certainly lead to more revenues for health and education, additional jobs and a stronger economy. So why on earth would anyone want to oppose these. Or, in Congress, delay their passage.

E-mail: wallace_likeitis@wbf.ph