Public Fiscal Administration

Summer SY 2018-2019

Our Taxes and how it affects us

Ronellyn T Zantua
Masters in Public Administration
I. Introduction.

Taxation is the imposition of financial charges or other levies, upon a taxpayer (an individual or
legal entity) by a state such that failure to pay is punishable by law.

When taxes are not fully paid, civil penalties (such as fines or forfeiture) or criminal penalties
(such as incarceration) may be imposed on the non-paying entity or individual .It is a mode by
which government make exactions for revenue in order to support their existence and carry out
their legitimate objectives (Tax Law and Jurisprudence by Justice Vitug,2000).It is the inherent
power by which the sovereign state imposes financial burden upon persons and property as a
means of raising revenues in order to defray the necessary expenses of the government
(Tax Digest by Crescencio Co Untian 2002 ed).Nonetheless, it is the most pervasive and the
strongest of all the powers of the government. Taxes are the lifeblood of the government, without
which, it cannot subsist.

On hearing the word tax, what usually springs to mind are images of infrastructures, businesses
and projects beneficial to the general welfare of the people, or more negatively, the idea of
corruption and dirty tricks especially nowadays when numerous issues are colouring the taxation
system of the country. With these, today, its importance seems to be overlooked and is viewed
more negatively as a burden to the people. Currently, the individual income tax rate in the
Philippines stands at 32 percent, which is third highest in the entire Association of South East
Asian Nation (ASEAN) region, next to Thailand and Vietnam.
A number of the country’s lawmakers already have their hands on this matter and encourages the
government to take actions in lowering it down. This matter has become especially important
now that the Asean integration free-for-all market in 2015 is nearing. It is important to
understand taxation and to determine how well it fits the economy of a country for it is a key
factor on its growth. The taxation system has been a hot economic issue and has been causing
rage and fury among the people. Clearly, it is a national issue that needs immediate attention and
action as it affects the whole of the nation. It will be an agonizing thought if what is known to be
the “lifeblood of the government” will be the very one thing that sucks “life” out of its people.
What’s supposed to be used to finance the basic services such as education and health care as
well as infrastructure–which are all vital to the economy’s growth and the improvement of the
lives of the people– could be the very same thing that seem to limit the capability of the people
to improve their own lives and unforgivingly take away the food in the Filipinos tables. Or is it
not?

Taxation has four main purposes or effects:

Revenue-The taxes raise money to spend on armies, roads, schools and hospitals, and on more
indirect government functions like market regulation or legal systems.
 Repricing- Taxes are levied to address externalities; for example, tobacco is taxed to discourage
smoking, and a carbon tax discourages use of carbon-based fuels.
Redistribution-Normally, this means transferring wealth from the richer sections of society to
poorer sections.
Representation -The American revolutionary slogan "no taxation without representation"
implied this: rulers tax citizens, and citizens demand accountability from their rulers as the other
part of this bargain. Studies have shown that direct taxation (such as income taxes) generates the
greatest degree of accountability and better governance, while indirect taxation tends to have
smaller effects.

Why Tax People?

The theory underlying basis of taxation is governmental necessity because without it,
government can neither exist nor endure. The government’s ability to serve the people depends
upon the taxes that are collected. Taxes are indispensable in the government operation and
without it; the government will be paralyzed. The main purpose of taxation is to accumulate
funds for the functioning of the government machineries. No government in the world can run its
administrative office without funds and it has no such system incorporated in itself to generate
profit from its functioning.
The power of taxation may be used as an implement of the police power of the state through the
imposition of taxes with the end view of regulating a particular activity. For example, the
imposition of taxes to the video industry as a regulatory measure considering the rampant unfair
competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public
brought about by the availability of unclassified and unreviewed video tapes containing
pornographic films and films with brutally violent sequences and; losses in government due to
the drop in the theatrical attendance.

II. Problems
Not only do our taxes disproportionately burden the poor and benefit the rich, but they also yield
too little revenue given the distortions they create. Needless to say, both problems need to be
resolved soon.
President Duterte’s plan to overhaul our tax system is arguably his most highly-anticipated and
consequential policy thus far into his term.

The plan, originally crafted by the Department of Finance, aims for a "simpler, fairer, and more
efficient" tax system that will promote investments, create jobs, and reduce poverty. Many
sectors have expressed support for it, including a group of former DOF and NEDA secretaries.

But some lawmakers have branded the tax proposal as "heartless" and "anti-poor" because of,
say, the planned increase on fuel taxes. Others have also questioned certain spending items in the
General Appropriations Act of 2017 that do not merit the additional revenues that tax reform will
yield.

In this case study, we step back from the politics of it all and look at the current state of the
Philippines tax system. We focus on 5 issues which, to our mind, demonstrate best the present
deficiencies (or "structural weaknesses") of our tax system. In each, we show how the current
state of things deviates from well-known principles of taxation.
 The problem: We have some of the highest income tax rates in the region.
The problem: Too many goods and services are not being taxed
The problem: Too Many people are evading the tax system.
The problem: Our tax system is too complicated.
The Problem: Rich Filipinos are not paying their fair share of taxes.

III. Alternative Solutions

1. Improvise the manner of taxing.

Standardization in taxing the small scale-informal businesses must be categorized. How small is
small and in what scenario big is considered as big? What are the bases of taxing?
One of the best example is imposing taxes to those who engage in “tiangge” vending. Everyone
is paying their own tax, whether it is direct or indirect, thus everyone who performs regular
activity in selling items must be a subject in taxing.
But to give due fairness to everyone, owners of “tiangge” must be subjected to tax in accordance
to what is supposed to be. There are bases that can be considered: it could be due to the prices or
type of the product being sold, by the range of the average income daily or how small/big the
entire space wherein the business is situated, etc.
It is now the will of the official to address issues with regards to it because in the end of this
circumstance equity in taxing will rise as the core issue.

2. Coordinate with local officials and other agency in determining recognized places, stall or
store that engages in small scale business.
Most of the businesses that exhibit small scale business are renting the space where they
occupied their business. Managing the list of those primary lessees would serve as an assist in
determining who are entitled to be taxed as small scale business and avoiding losses of revenue.

3. Proper collection of the entitled tax.

Collection of said taxes must be scheduled properly in accordance also of employing collectors
whom can be considered as trust-worthy. Regular reports of the current status of the businesses
must be updated always and reports must be scrutinize accurately to detect any falsify
documents.

IV. Advantages/Disadvantages

1. The Philippine tax system currently has some of the highest income tax rates in this region.
Compared to our major ASEAN counterparts, our corporate income tax is the highest at 30%, a
rate that "turns off" foreign investors who prefer to do business in our low-tax neighbours.
Principle of taxation: High income taxes could discourage firms from producing more goods or
employees from working more hours. Hence, a good tax system makes sure that income tax rates
are not too high so as to discourage economic activity.
Meanwhile, our maximum personal income tax rate of 32% is not the highest (it’s 35% in
Vietnam and Thailand), but we certainly don’t want the government to eat away P32 for every
P100 earned by ordinary workers.

2. In the Philippines, too many goods and services are exempted from taxes. For instance, our
value-added tax (VAT) law has 59 lines of exemptions – more compared with the VAT laws of
our neighbors. The plethora of exemptions partly explains the relatively low tax revenues we get.
If only fewer goods were exempted – or if only the exemptions were limited to essential goods
like raw food and medicines – then the government could boost its revenues.

Principle of taxation: A good way to reduce high tax rates is to expand the tax base, or the set of
goods and services which are taxed. The same (or even a larger) tax revenue can be collected as
before by imposing a lower tax rate on as many goods and services as possible.
3. Too many Filipinos can get away with not paying taxes. Obviously, there are the tax evaders
who are nearly impossible to catch and prosecute given our overly strict bank secrecy law. In
addition, "compensation earners" or those who earn salaries or wages, end up paying more in
taxes than the self-employed and the professionals (who have some ability to hide part of their
incomes). As a result, from 2010 to 2013, compensation earners earned 60% of total incomes in
the country but paid as much as 80% of all taxes. Our tax system is overly complicated and
burdensome, especially for small taxpayers. A 2015 study found that the Philippines ranked
127th out of 189 economies in terms of ease of paying taxes (we ranked below Iraq and
Afghanistan). Another study revealed that the “complexity of tax regulations” and our “high tax
rates” are some of the most problematic factors for doing business in the country.

Principle of taxation: Another way to widen the tax base (in order to reduce tax rates) is to tax as
many people as possible. But the more people can get away with not paying their taxes (or
otherwise hide their income), the more difficult it will be to reduce tax rates.
4. The Philippine tax system is only "mildly" progressive, and even borderline "regressive" – in
many instances, poor Filipinos effectively pay a larger fraction of their income in taxes.
Happens when there is fraud through pretension and the use of other illegal devices to lessen
one’s taxes. Under-declaration of income, non-declaration of income and other items subject to
tax, under-appraisal of goods subject to tariff, and over-declaration of deductions are some of the
ways on how tax evaders operate. . On the other hand, involves the legal rearrangements of one's
economic activities in order to lower the tax liability. This is done by moving capital or labor to
areas, geographical or otherwise, where tax rates are lower and/or by manipulating the tax
parameters through the legal means to spread or defer the tax liability over time thereby
effectively reducing the tax rate. Tax evasion is done by a taxpayer either singly or in collusion
with some tax collection functionary, while tax avoidance is done singly or with the help of some
tax expert like lawyer and an accountant.

Principle of taxation: The rules of the tax system should be as plain and simple as possible. Not
only will it be easier for taxpayers to understand their liabilities and to comply, but it will also
minimize the administrative costs of collection.
5. Principle of taxation: Finally, a good tax system levies more taxes to people who can afford to
pay more. One way to do this is to make the rich pay for a larger fraction of their income than the
poor; that is, by making the tax system "progressive."

For example, tax rates on dividends and other forms of capital incomes (which are earned mostly
by the rich) are so low compared to the tax rates of ordinary workers. Increasing these capital
income tax rates will certainly help make the rich pay more in taxes.

Also, taxes on petroleum products have been constant for many years. Aside from being a lost
opportunity to combat pollution and congestion, it’s also a lost opportunity to tax the rich who
consume petroleum products more.
 V. Recommendation
The taxation system of the country needs a lot of reforms. The taxation system should be based
on the taxpayer’s ability to pay and should not be confiscatory in nature. Lowering the tax rate
and increasing the tax bracket ceiling will initially lower tax collection but will increase it by the
next year or two because the tax base will enlarge.

VI. Conclusion
Tax policy is essentially a balancing act between efficiency and equity. We want to impose
progressive taxes to make society a fairer place to live in. But at the same time, we want to make
sure that such taxes do not reduce economic activity so much.

Unfortunately, the Philippine tax system is currently deficient in both respects. Not only do our
taxes disproportionately burden the poor and benefit the rich, but they also yield too little
revenue given the distortions they create. Needless to say, both problems need to be resolved
soon. Comprehensive tax reform in the country is long overdue.
It so happens that the early days of the Duterte administration – when political capital is fresh
and popular support is robust – offer a crucial window of opportunity to pursue tax reform. That
is why the filing of House Bill 4774, or the proposed "Tax Reform for Acceleration and
Inclusion Act," could not have been timed better.

But while most would agree that the time is ripe for tax reform, there is currently no consensus
yet as to how exactly to pursue it.
A good taxation system should provide an appropriate level of revenue on a timely basis,
distribute the cost of taxation fairly, promote economic growth and efficiency, be easily
administered and ensure accountability. People will avoid paying taxes if they feel that the taxes
imposed are confiscatory in nature and this in turn reduces the tax base. The inequity of the tax
system negates the command of the Constitution. The endless complains of the middle class
towards the strict tax collection drive of the BIR may be lessened if they feel that there equity, or
the rich is paying more taxes than them. The middle class should not be burdened more than the
higher class. The BIR collected 1.2 trillion for 2012 however the government budget deficit still
bloated from 197.8 billion in 2011 to P235 B. The Philippines, with the current taxation system,
is always on budget deficit. And these year after year deficits includes huge amount of money
thus resulting to higher public debt that the taxpayers also pay, with interest. It is time to change
on how the government tax its people. Lowering the tax rate will not necessarily mean that it will
lessen the budget of the government. Lowering tax will increase the tax base of the government
and it will increase the cash flow in the economy, let the people decide where to put their money.
Whichever way they use it, it will be productive to the economy since they are spending; when
someone is spending another one is profiting and through profits is where the government gets
its taxes. Unlike if taxes are corrupted and stored into secret bank accounts.
At the start of January 2018, the TRAIN Law, or commonly known as Tax Reform for
Acceleration and Inclusion immediately took effect. For some Filipinos, this law is a blessing
as take-home pays and company bonuses increased depending on salary tax bracket. I must
admit, it really helped me a lot. That wage portion became an addition to my monthly savings.
Though this law is beneficial for some, not every Filipino is pleased to have this implemented,
especially those who are earning a minimum wage, self-employed individuals, and small
unregistered enterprises. As a whole, these folks are considered as informal economy since they
are neither taxed nor monitored in the country’s overall economy census. Part of this sector
includes small vendors, farmers, fishermen, PUJ and pedicab drivers, and contractual
construction workers. Among others, these earners are having a hard time coping with the rising
inflation of goods brought by the said law, and here are the main reasons why:
Excise tax on sweetened beverages. Aren’t you blown away by the recent soda prices? I
remember buying a liter of soda last month which costs 35 pesos! It was only 23 pesos last year!
What happened? Well, these sugared drinks are now taxed at 6-7 Pesos per liter depending on
their sugar content. My family isn’t a great fan of soda and other sweetened beverages. We’re
coffee addicts. Thankfully, milk, pre-packed coffee, and natural fruit and vegetable juices are
exempted. However, most Filipinos couldn’t swallow their lunches well without having a sip of
sodas. If they can’t afford it anymore, then there’s water with little to no cost at all. It’s a
healthier counterpart after all.
Added tax in cigarettes too? I won’t complain! Cigarettes, from its base price, 30 pesos, rose
to 32.5 pesos recently and this will continue to rise with an increment of 2.5 pesos per year until
2022. Aside from being a non-smoker and a smoke hater, my father is a cigarette smoker which I
strongly condemn. I noticed how his cigarette consumption lessened during the implementation
of SINtax years ago. I hope this time it will completely eliminate his addiction to cigarettes and I
hope it will do the same with our fellow Filipinos.
More taxes for car owners. If you’re planning to buy a car, brace yourself for the doubled
excise tax from 2% to 4% for cars having a cost of P600,000 and below. If you’re eyeing on a
car having a worth over P4 Million, then be prepared for a tax up to 50% of the vehicle’s value
from its previous 10%. Commuters can also experience adverse effects on transportation
expenses due to a tax increase on petroleum products up to P8 per liter. Diesel, LPG, and
Kerosene are also subjected to additional tax ranging from P1 to P3 per liter.
The above points are just a few of the counter effects of TRAIN Law. If we look deeper, the
added taxes on merchandises such as sweet beverages and cigarettes may result on healthier lives
for more Filipinos for they will be forced to trim down their consumption of these products
which could be detrimental to health. However, additional taxes for cars and fuels could be
burdensome for the Filipinos, both the car owners and commuters.
Along with the price hikes of the above-mentioned commodities, common goods such as rice,
canned goods, and other grocery items are starting to have the bullish price trends as well. This
caused a domino effect that even sidewalk vendors tend to increase their price lists to make their
ends meet. This is the reason why several sectors coin this TRAIN Law as Anti-Poor Law for
they believe only those who are middle to high earners could benefit from it.

Preliminaries on Taxation: Why We Pay Taxes

The most obvious reason for paying taxes is to fund the provision of public goods and
services. For the purposes of this discussion, let us just define “public goods and services” as
goods and services that benefit the general welfare of the people. In our case, “public goods”
would include national defense, administration of justice, internal security, conduct of foreign
policy, some types of infrastructure, and all sorts of programs implemented by the government.
The point is without taxpayer money, the government will not be able to provide its citizens with
such “public goods and services”.

Another reason for taxation, which may not be too obvious to you at this point, is to approach a
more equal society. One of the ways to redistribute wealth is with tax policy. Once you start
working and filing for taxes, you will find out that those who earn more also pay more taxes -
this is called progressive taxation. And as discussed earlier, the revenues collected from taxation
will be channeled to poverty-alleviation and development interventions.
You can see this principle applied to the TRAIN Law. As your income bracket goes up, you give
up a larger share of your income as taxes. All those earning P250,000 and below pay zero
income tax, while those earning more than P8 million pay as much as 35 percent. I will discuss
this more in detail later.The third reason for paying taxes is to correct for harmful behaviors that
affect many people (the technical term for this is negative externalities). For instance, a strong
argument can be made that factories spewing toxic chemicals should be asked to pay taxes.
These chemicals do not only pollute the environment but also pose health concerns to
people around the area. Imposing taxes on such activities can correct for negative effects of some
economic activities
In short, we pay taxes to finance projects for the common welfare, to approach a fairer
society, and to correct for harmful activities. Keep these things in mind as we move along.

Preliminaries on Taxation: Desirable Characteristics of a Tax System

Next, let’s outline some characteristics of a good tax system. This will explain to you
why we need to reform the Philippine tax system to begin with. The first characteristic we
are looking for is a buzzword for economists - efficiency. When we say a tax system is efficient,
it means that it allows resources to flow into their most productive uses.
Next, we want the tax system to be administratively simple. A tax regime that is difficult to
administer will lead to loopholes and leakages on the part of government. For taxpayers, it will
also mean unnecessary costs like complicated paperwork and even wasted time. We want to
reduce these complications to a minimum.
The third characteristic we look for in a tax system is flexibility. Ideally, the taxes
imposed should adjust to the changing economic conditions like the prices of goods and
services.
Fixed taxes have the tendency to be outdated once they no longer reflect prevailing
economic conditions.
Fourth is fairness. When we say fairness, we think of equity rather than strict equality.
This means that those who have a higher capacity to pay should pay more.
In the same manner, similarly-situated individuals should be treated similarly.
With these basic concepts you students now have a simple framework by which to
evaluate any tax system. Our discussion on the TRAIN Law will serve as a case study of sorts
given the framework we have established.
The importance and effects of TRAIN
When we speak of TRAIN, we are actually talking about a series of packages to be
proposed by the Department of Finance (DOF). Ultimately, however, it is Congress that passes
these laws because it is their job according to our Constitution.
Today, we will only discuss Package 1A. But keep in mind that there is a Package 1B and three
(3) more tax reform packages before the term of the President ends.

The essential features of Package 1A include: (1) lowering the personal income tax rates,
(2) reducing exemptions in the Value-Added Tax base, (3) increasing taxes on petroleum
products and automobiles, and (4) introducing taxes for sugar-sweetened beverages.
The ultimate goal is to raise revenues to finance the government’s priorities, namely
upgrading infrastructure and reducing poverty. Taking Package 1A and 1B together, about P1
trillion will be raised between 2018 and 2022. TRAIN will also enforce a simpler, fairer, and
more efficient tax system. So let us dissect Package 1A with the tools I explained earlier.
First is the lowering of personal income tax rates. Prior to TRAIN, the personal income tax
rates of the Philippines were last adjusted in 1997. Can you imagine that the maximum tax
bracket before was just P500,000? On a monthly basis, it means that someone who earns
P41,666 a month will already belong to the highest tax bracket.
Such heavy taxes squeezed the pockets of a lot of workers. Maybe the tax bracket was
appropriate in 1997, but accounting for inflation over the past two decades, then this doesn’t
make sense anymore.
With TRAIN, the income tax payment of 99 percent of wage earners will be lower. In
contrast, those earning more than P8 million annually will pay higher taxes at 35 percent,
whereas the highest tax bracket before was 32 percent. I think it’s fair enough to say that those
earning almost P700,000 per month should pay higher taxes.
Another argument is that lowering taxes will incentivize people to work harder. A high
tax rate is like punishing people for working – imagine a 90 percent tax rate, perhaps everyone
will stop working.
Here are some sample calculations for you to better appreciate the reduced income tax
rates with TRAIN. A call center agent with an annual salary of P252,000, or a monthly salary of
P21,000, used to pay taxes amounting to P21,867. With TRAIN, he/she will be tax exempt as his
annual taxable income falls below P250,000.
We applied the same calculations with a clerk whose annual salary is P184,416, or a
monthly salary of P15,368. With TRAIN, the said clerk will save up P7,282 in reduced tax
payments.
Next, TRAIN also reduces the exemptions in the Value-Added Tax (VAT) system. When
you buy food or clothes or whatnot, you will notice a 12 percent VAT amount in your receipts.
For simplicity’s sake, this means that you pay about 12 percent on top of the actual price
of a product you bought. Again, such revenues are collected by the government for important
programs and projects.
The problem with our VAT system is that too many exemptions have been granted. Ideally,
VAT exemptions should be limited to necessities like raw agricultural food, education, and
healthcare.
Unfortunately, our legislators have allowed them to spill over to other sectors who
otherwise should not enjoy VAT exemptions. TRAIN alleviates this situation as it repeals 54 out
of 61 exemptions.
The first advantage is that it will improve efficiency in our tax system. We have a 12
percent VAT rate, yet our collections from VAT is only equal to 4 percent of Gross Domestic
Product (GDP). Think of GDP as the size of the entire economy.
In comparison, Thailand has a 7 percent VAT rate but also collects VAT-revenues
amounting to 4 percent of GDP.
The takeaway here is that our VAT system had too many loopholes because a higher rate
should result to higher collections. With TRAIN we try to keep exemptions to a minimum like
low-cost housing, purchases of senior citizens and persons with disabilities, among other things.
Here, you can see the VAT rates across different countries as well as their respective
VAT collections as share of GDP. With a higher VAT rate, it should be normal that collections
should also go higher. Evidently, the Philippine VAT tax base has many exemptions and
loopholes.
Besides Thailand, some countries have lower VAT rates but still collect a higher share of
VAT revenues as a share of GDP. An example would be Vietnam (with a 10 percent VAT), and
other East Asia and Pacific countries (with an average VAT rate of 8.4 percent, yet collects
revenues of 5.2 percent of GDP).
Now you understand the revenue argument: less exemptions and loopholes will result to
more collections for the government. Now, let’s look at the equity argument.
A tax system is said to be fair if similarly-situated individuals are treated the same way.
Do you know that boy and girl scouts used to enjoy some VAT exemptions?
Is there any good reason to exempt a boy or girl scout, but not exempt students like you?
So the expanded VAT system also responds to our equity objective.

We will move on to the most controversial provisions, which are the taxes on petroleum
products, automobiles, and sugar-sweetened beverages.
But before I explain, let me tell you that TRAIN should be evaluated as a package. One
can always nit-pick a negative feature with TRAIN, but don’t miss the big picture.
The government gave up P150 billion in 2018 alone in order to ease the income tax burden
on our workers. But we have to recover this monumental loss from other sources.
This is the wisdom behind the other features of Package 1A. But it will also be foolish to
say that the government recklessly imposed higher taxes on other goods and services just to raise
additional funds like any monarchy in the Middle Ages. This is definitely not the case.
Let’s analyze the controversial features one step at a time.
The taxes on petroleum products, like personal income tax rates, were also last set in 1997.
This has led to foregone revenues of about P140 billion a year for the government.
Obviously, the old petroleum taxes do not anymore reflect the current economic
conditions and prices.
Here is the schedule of taxes for the petroleum products. First, you will notice that the
taxes will be imposed gradually rather than in one swoop. Compared to their current rates, the
taxes on some products have even doubled compared to their previous rates. These petroleum
taxes may seem burdensome at first glance, but let me explain why it is fair.
Critics say that this reform is anti-poor because it will adversely affect jeepney drivers and
poor farmers who are the heavy users of petroleum. False In fact, official government statistics
do not confirm this.
The Family and Income Expenditure Survey (FIES) in 2015 shows that the top 10 percent
of households account for 51 percent of total fuel consumption. At the same time, the richest 1
percent of households consumes as much fuel as the poorest 50 percent of households.
Again, the takeaway is crystal clear: it is the rich who consume more fuel with their
numerous cars and so forth. This is the fairness argument.
Another point that we take for granted is that petroleum products impose a cost on the
environment and to the health of people. We must take into account these costs to correct for
such behaviors.
Raising taxes on petroleum products is one way of protecting the environment.
All these arguments justify the increased taxes on petroleum, such that diesel taxes will
go up to P6 per liter and P10 per liter on gasoline by 2020.
 The argument for higher taxes on automobiles is similar to petroleum products. It is the
rich who have more cars.
The taxes for automobiles will also follow a progressive scale such that luxury cars will
be taxed more than regular cars. Here you can see that cars priced P4 million and above will be
taxed at 50 percent. On the other hand, cars that cost below P600,000 will be taxed at only 4
percent.
Besides revenue and redistribution gains, it will also correct for the traffic congestion
costs that car-owners impose on the general public. The traffic situation in Metro Manila is so
bad, but we have to acknowledge that car owners oftentimes aggravate the situation.

You may have one car for one person, which is not very space-efficient compared to say
a bus or a train.
Last on the list are the taxes for sugar-sweetened beverages. It is primarily a health measure
which doubles as a revenue measure. It aims to curb the consumption of sugar-sweetened
beverages which contributes to the diabetes and obesity cases in the Philippines while also
raising ample revenues.
Under TRAIN, an excise rate of P6 per liter will be taxed on drinks containing
sweeteners, and P12 per liter on drinks containing high-fructose corn syrup.
To shield most Filipinos, 3-in-1 coffee and milk are exempt from this tax.
Now that I have explained the particular features, let me discuss the objective of the
whole package. As mentioned, Package 1 will raise about P1 trillion in revenues for the next five
years and improve our tax system.
Here you see the breakdown of each feature, as well as the aggregates for the entire
package. It is noteworthy that the personal income tax cuts will lead to losses as much as P150
billion in 2018. And as mentioned, this will be made up by the revenue-generating features with
the expansion of the VAT base, the oil excise taxes, the sugar-sweetened beverage taxes, and tax
administration improvements.
The revenues generated, which equate to almost 1 percent of GDP, will be key to
modernizing our public infrastructure and sustaining our social services programs.
From the revenues of TRAIN, 70 percent will go to infrastructure projects. This means
roads, bridges, airports, seaports, and even school buildings and hospitals for all Filipinos.
It means spending more time with our families, rather than spending more time on the
road with the horrible traffic.
It means expanding economic opportunities to the poor with improved mobility and a
more comfortable public transport system.
It also means better accessibility of services, particularly schools and hospitals, for the
poor.
For the next six years, it also means providing jobs, especially in construction, such that
some Filipinos need not go abroad to look for work.
On the other hand, the other 30 percent of TRAIN revenues will go to social services
programs. It will help fund free college education in State Universities and Colleges, the
National Health Insurance Program, the Conditional Cash Transfer Program, among other
poverty-alleviating interventions.
 For a young and developing country like the Philippines, whose median age is 23 years
old, we must prioritize developing our youth. This means giving them the best education and
healthcare public money can buy.
At the end of the day, a country’s greatest resource is its people. Without TRAIN, the
government will lack the funds to finance these development priorities.

Addressing the Misconception on TRAIN

. They say that TRAIN will ease the lives of the middle and upper-classes while imposing
a heavy burden on the informal workers and minimum-wage earners who are tax-exempt even
before TRAIN.

We, in the government, have already thought of mitigating measures to protect the poor
from potential price increases.
In 2018, a cash transfer of P200 per month will be given to the poorest 50 percent of
households in the Philippines, or the poorest 10 million households in the country.
In 2019 and 2020, the cash transfer will go higher at P300 per month per household.
The Bangko Sentral ng Pilipinas and other government institutions have also projected
the rate of increase in prices given TRAIN. Despite the higher taxes, inflation (or the rise in
prices) is still pegged to remain at 2 – 4 percent from 2018 to 2022.
Here is a sample of products and their projected price increases with TRAIN. It will be
noted that such price increases are very moderate, whether in food or non-food products. The
biggest price increase is really just with the petroleum products. Nevertheless, the cash transfers
to be provided by the government should be more than enough to make up for the slight upward
adjustment in consumer prices.
In total, the personal income tax cuts and/or the cash transfers will more than offset the
costs to households with the higher prices. This is not mere speculation, but backed by formal
studies by government institutions.
More so, the budget for these cash transfers is already included in the National Budget.
The appropriate way of assessing the TRAIN is to look at its “net incidence”: by looking
at the additional burden on the tax side versus the additional benefit on the expenditure side.
The tax revenues to be collected will not be stashed by the government as if it was stolen
from the people. Rather, it will be spent on the pressing needs of the country, which will benefit
the poor the most.
After all, it’s the poor who send their children to public schools, public hospitals, and
avail of government-provided services.
It’s the poor and working class who will benefit the most from an improved public
transport system, and so forth.
Final Remarks

In closing, the TRAIN Law is a reform initiative that is crucial to the poverty-reduction and
economic development goals of the country. It amends an out dated, inefficient, and unfair tax
system while raising enough funds to enable the country to reach its potential.
For perspective, here are some of the things that the TRAIN Law can fund in the next
five years:
- 629,120 public school classrooms, or
- 2,685,101 public school teachers, or
- 60,483 rural health units, or
- 484,326 barangay health stations, or
- 1,324 provincial hospitals, or
- 35,745 kms of paved roads, or
- 786,400 kms of temporary bridge upgrades, or
- 2,665,763 hectares of irrigated land.
Imagine being able to accomplish any of these things.
Still, tax reform is not a walk in the park. There will be winners and losers.What is important is
that the gains outweigh the losses, while simultaneously protecting the welfare of those who will
be negatively affected.