TRAIN: Driving the Philippine Economy in 2018

“A simpler, fairer, and more efficient tax system is needed to promote investment, create

jobs, and reduce poverty. Not reforming the tax system will deprive the poor of the necessary

social services and infrastructure that can lift them out of poverty and make them more

productive contributors to society.” Carlos G. Dominguez, Secretary of Finance

The Tax Reform for Acceleration and Inclusion (TRAIN) under the Comprehensive Tax

Reform Program seeks to correct a number of deficiencies in the tax system to make it simpler,

fairer, and more efficient.

Specifically, TRAIN corrects the longstanding inequity of the tax system by reducing

income taxes for 99 percent of income taxpayers, thereby giving them much-needed relief after

20 years of non-adjustment. It also raises significant revenues to fund the President’s priority

infrastructure programs to reduce poverty incidence from 21.6 percent in 2015 to 14 percent by

2022.

70 percent of the incremental revenues of TRAIN will go to infrastructure and the Build,

Build, Build program, while the balance will go to social services programs.

In TRAIN, Congress passed two-thirds of the needed revenue for 2018 and is expected to

pass the balance in 2018 to help achieve our revenue and deficit targets.

The TRAIN did make the tax system simpler but the changes in the tax rates don’t seem

to prove that the tax code became fairer and more efficient. For instance, the increase in the

consumption taxes does not made it seem fair because it has more effect on the poor although

there was the revision in the Minimum Wage Law wherein the minimum wage earners are not to
be taxed anymore so that they may have higher take home pay but with the changes in the

consumption tax, this larger take home pay is being consumed to buy goods and services.

Therefore, the context of the new tax code being fairer is not justified.

During the campaign period, the then president-candidate Rodrigo Duterte laid out his

plans for the country – war on drugs, infrastructure, the corruptions in the government, etc. He

has great ambitions for the country – fixing the tax system and the improvements on

infrastructure. The current administration wanted to push the Philippine economy into upper-

middle income status by 2022. This implies having per capita income of at least $4,000. It also

means achieving economic growth of 7% to 8% annually in the medium term. According to an

article published by the World Bank Organization in their website with regards to the updates of

Philippine Economy on October 2019, economic growth slowed in the first half of 2019, driven

by a rapid deceleration in investment growth due to contraction in public spending and weaker

global economy. Nevertheless, the Philippines expect to sustain process in poverty reduction.

Amidst, rising global uncertainties, the Philippine economy remains strong and is projected to

grow 5.8% in 2019, before recovery to 6.1% and 6.2% in 2020 and 2021, respectively. In the

short term, fast tracking the implementation of recently approved game-changing reforms would

help to achieve inclusive growth, in the long term, promoting competition to generate quality

jobs will enhance the impact of growth on poverty reduction in the Philippines.

The goal of having an economic growth of 7% to 8% annually seems to be a long way

still. Having a projected growth of 5.8% in the year 2019 and a recovery of 6.1% and 6.2% in

2020 and 2021 compared to the administration’s goal of 7% to 8%, the number doesn’t lie.

Achieving this goal and knowing that the term of the Duterte Administration is nearing its end, it

seems that this yet another promise that is made to be broken.

 “Strong, sustainable growth with equity. How do we plan to achieve such lofty goal? For

me the strategy is straightforward. Peace and order is a precondition to growth. We cannot

pursue growth and development if there are shootings in the streets.

Then we have two major divers of growth: first, the planned upgrading of public

infrastructure, and second, the investment in human capital development.”

Truly, we cannot achieve growth and development if there is no peace and order in the

streets. But before we can plan on improving infrastructures, isn’t it right that we must first

achieve “peace and order?” How we achieve this peace and order and how to maintain it?

Clearly, it seems that the plans took a jump and turned a blind eye on what is to be done first.

They said it themselves, we cannot achieve this plans if there’s no peace and order.

Upgrading infrastructures – it is true that the country’s infrastructure are out of dates and

improving them is a good step towards development. But then, where will the money to fund

these projects come from? And that’s where the TRAIN comes in again. The increase or changes

in the tax rates under the TRAIN, the revenue that will be derived from it will fund these projects

or as they call it, the “Build, Build, Build.”

Poor infrastructure has hampered the country’s economic competitiveness. The

Philippines consistently ranks the worst in overall infrastructure among the ASEAN-5 countries

in the World Economic Forum (WEF) Competitiveness Rankings. Business owners know too

well that poor mobility drives up the cost of doing business. This drives away investors and

dampens economic growth. Looking back in the ‘Build, Build, Build’ project, out of 75 only 9

started construction or approved. Sure, this project is ambitious, but will this ‘Build, Build,
Build’ project of theirs be another failure? I mean, let’s face it, the Duterte administration is

nearing the end of its terms, but it seems that there’s not much of their promises materialized.

As a Professor of Economics, Secretary Benjamin Diokno says that we must view or the

appropriate way to look at TRAIN is through its net incidence, which should answer the

question: who bears the tax burden and who benefits from higher government spending? Well,

does TRAIN really corresponds to these question, because I think its answer is still vague or was

the answer already in front of me but I looked past it? Because this times, I don’t think it answers

to it very well, it gave answers but not fully.

“The reality is that it is not as if the government will collect the taxes and then lock them

up in vault of Treasury. As I have said before, the revenues generated by the TRAIN will be used

to finance the “Build, Build, Build” and our social services programs. These will evidently

benefit the poor the most. After all, it’s the poor who will benefit the most from an improved

public transport system. It’s the poor who send their children to public schools and it’s the poor

who uses the services and facilities of public hospitals.

In effort, TRAIN takes into consideration the immediate, the medium, and the long-run

effect of the law. Admittedly, it is not a perfect law, but on balance it is a big plus for the

economy.”

Looking at TRAIN through it net incidence is the same as saying as turning a blind eye

during its process. While it may be true that the poor will the ones benefitted the most, but they

are also the one who is suffering the most from it. It is not a perfect law, and it may or may not

be a big plus for the economy, but the TRAIN sure has its flaws and its effect and impact on the
people hits them differently. But it seems though, clear as day, that the poor have suffered a great

impact on the new tax code.