GULANE, ANADEL MEA 3149 FM 11 MONDAY GROUP

PARAS, LEANDRO JOMARI ACTIVITY 8

TRAIN LAW ASSESSMENT ANALYSIS

COLLECTABILITY: VERY SATISFACTORY
 During 2018, the net revenues from the Tax Reform for Acceleration and Inclusion
(TRAIN) gains P 68.4 Billion which is higher than P 63.3 Billion goal by 8.1% at the first
year of its implementation. (Business Inquirer, 2019)
 According to Finance Secretary Carlos Dominguez III, this is the ‘biggest Christmas and
New Year’s gift” to the Filipinos as it will usher in “real positive change” for the nation.
He also added that the congressional passage of the first package of the TRAIN is a “sign
of maturity” for the Philippine economy that is now ready to meet the challenges of fixing
the structural problems and inequities in taxation while generating more revenues to usher
in real positive change for the Filipino people.
 Philippines were scored with 72.6% by the PCW Global in terms of ease of
paying/collecting taxes.

FISCAL NEUTRALITY: UNSATISFACTORY

 According to Trading Economics, Government Revenues in the Philippines increased to
243232 Php Million in August from 234468 Php Million in July of 2020. Government
spending in the Philippines increased to 854691.94 PHP Million in the second quarter of
2020 from 563543.97 PHP Million in the first quarter of 2020.
 From the given data above, it shows that revenues are higher than the cost during the first
and second quarter of year 2020. But, considering the presence of Covid-19, it is
expected to be like this. During the first quarter, 42% of the costs are being covered by
the revenues. On the second quarter, it decreases by 28%.
 We evaluate the performance of the implementation of the TRAIN Law as unsatisfactory
due to COVID-19, plus the rising issues of corruptions.

BUOYANCY: VERY SATISFACTORY

  According to the Trading Economics as of 2018, the tax revenue of the Philippines was
reported at 14.05% of the GDP in which it gives to an amount of 48.73 Billion and during
2017, 13.6% of the GDP which gives to an amount of 44.67 Billion. Therefore, the
percentage change of the tax revenue is 9.09%
 According to World Bank, there is 6.2% annual change of the GDP in the Philippines.
 With the use of the Tax Buoyancy formula, the tax buoyancy of TRAIN Law results to
1.47 which is more than 1 that signifies higher tax buoyancy in which means, tax revenue
rises faster than the economic growth. As economy grows, the government can expand its
activities or reduce tax rates.
 The above data shows the comparison of year 2017 and year 2018. In a report titled
“Buoyancy and Elasticity of Taxes on Net Incomes and Profits: Calendar Years 1998-
2018,” the NTRC’s computations showed a buoyancy coefficient of taxes on net income
and profits at an estimated 1.1 during the 21-year period.
 NTRC said collections from personal income taxes were found to be low buoyant and
inelastic “due to failure to index the income-tax schedule to inflation” in the past, which
had been corrected by the TRAIN Law in 2018. (Inquirer 2020)

DISTRIBUTIVE EFFECTS: SATISFACTORY

 According to Boco et al (2019), a lot of sectors believed that this law is a ‘burden’ for
poor people. Wherein, TINDIG PILIPINAS said that TRAIN wreck had caused untold
sufferings of the poor due to the higher inflation that affects the rice, fish and all the
Bahay Kubo vegetables where it increases the price radically.
 It has exempted several minimum wage earners from paying income tax. (Essay Book,
2019).
 Due to income inequality, the law went harder on the salaries for high income earners.
 Dominquez said that while this TRAIN law is primarily a health measurement to wean
smokers and alcohol drinkers from their addiction and discourage young Filipinos up this
vice.

VISIBILITY: VERY SATISFACTORY

  Dominguez said the reforms, such as the Tax Reform for Acceleration and Inclusion
Act (TRAIN) and the Rice Tariffication Law (RTL), to name a few, enabled the
government to be financially prepared for the challenges of the corona virus-induced
global crisis. 

 Tuaño pointed out a number of positive effects TRAIN law may provide to our economy,
namely, helping elevate the middle class, while potentially enabling both universal health
care program in the Philippines and the greater unconditional cash transfer funds to poor
income households.
 Socioeconomic Planning Secretary Ernesto Pernia said the law has improved fiscal space
for the government to fund the “Build, Build, Build” program and various social
programs, including the conditional cash transfer (CCT), unconditional cash transfer
(UCT), free tuition in state universities and colleges (SUCs), free irrigation for farmers,
and ‘Pantawid Pasada’ cash grants.

HORIZONTAL EQUITY: SATISFACTORY

 “If we look at the current system, the incentives that some firms get but others don’t
work against horizontal equity. Firms that manage to get tax incentives face much lower
effective tax rates of 6-14. TRAIN Law aims to improve horizontal equity by
rationalizing fiscal incentives for businesses,” Mr. Sawada said.
 By rationalizing existing fiscal incentives, TRAIN 2 will allow for a reduction in the 30
percent corporate income tax rate, and this will help with the third and fourth features of
a good tax system—efficiency and competitiveness. One of the principles in public
finance is those distortions, or the decline in society’s well-being due to a tax, rise
disproportionately with the tax rate. For this reason, it is more efficient to have a broader
tax base and a lower rate, and that is what TRAIN 2 is trying to do for corporate taxation.
A lower corporate tax rate will make the Philippines’ tax system more competitive, as it
currently has the highest corporate tax rates in ASEAN. (Asian Development Bank,
2018)

VERTICAL EQUITY: VERY SATISFACTORY

  Sawada implies that Train Law is a vertical equity since most tax systems aim for
progressivity, where the rich pay a higher share of their income in taxes than the poor.
The first phase of the tax reforms addressed this issue and succeeded in reducing personal
income taxes for the bottom 99 percent of the population.
 Those with taxable income below P250, 000 will be exempt from paying PIT, while the
rest of taxpayers, except the richest, will see lower tax rates ranging from 15% to 25% by
2020. The personal income tax system of TRAIN will exempt some 83% of current
taxpayers.

RECOMMENDATIONS

According to JC Punongbayan (2019), using numerical simulations, the studies

demonstrate that TRAIN likely worsened poverty and income inequality in the country.

As Dr. Philip Tuaño and 4 other economists originally sought to assess the impact of
specific components of TRAIN Law that worsened poverty because of higher excise taxes on
coal and petroleum products, we recommend lowering the excise taxes on the said products.

Lowering the excise taxes on coal and petroleum products can lower the price of all
products and can decrease the inflation that can make every low income earners delighted.
TRAIN Law is supposed to help the poor citizens by stabilizing and equating the income tax
between high and minimum wage earners. Let’s say, that MWEs are exempted in their personal
income taxes but they are still paying taxes everyday for the goods and products that are affected
by the inflation due to excise taxes like vehicle fees, electric bill, gasoline, sweetened beverage
and more. IT’S A TIE!