A RESPONSE TO WINNIE MONSOD

We believe that our common ground with Ms. Monsod is vast, and the differences are narrow and resolvable.

Winnie Monsod’s recent series of Philippine Daily Inquirer ( PDI) columns on the tax reform bill (House Bill 5636 or TRAIN, which stands for Tax Reform for Acceleration and Inclusion) has stirred debate. The position of Action for Economic Reforms, Foundation for Economic Freedom, and likeminded groups is that despite the bill’s imperfection ( legislation of a difficult reform is almost always a product of compromise), the bill retains the essential good features. For my take on TRAIN, please see “Tax Reform Bill: A Big Advance.” To read this article, please visit the link

http:// bit.ly/trainadvance or use a smartphone to scan the QR code. What did Prof. Monsod say? In her PDI column titled “Saving TRAIN ( 2),” June 17, Monsod summarized her position: “TRAIN is essentially anti-poor. Or pro- rich. Its net effect is to decrease the purchasing power of the bottom 60% of the population and increase that of the top 40% ( especially the very rich). And the so- called “transfer” measures that are supposed to alleviate this (or compensate the poor) are only for a four- year period, plus the fact that it is not clear how those “transfers” are to be effected.”

In the earlier PDI column dated June 10 and titled “What I discovered about TRAIN ( 1),” Prof. Monsod wrote that the transfer program is not a great solution because “a) It will be a bureaucratic and a logistical nightmare…. and b) Far worse, it turns out, the transfer scheme does not continue as long as TRAIN does.”

Here is my response to Prof. Monsod’s two columns:

The tendency is to focus only on package 1 of TRAIN. Package 1 mainly consists of the reform on personal income tax ( PIT), the broadening of the value- added tax ( VAT) base, the correction of the excise tax on petroleum products, and the increase in the excise tax for automotive vehicles. But then, TRAIN is a comprehensive tax reform program. It consists of several packages. The other packages include the rationalization of fiscal incentives, corporate income tax reform, health taxes, mineral taxation, amendment of the Bank Secrecy Law, and tax administration (Joey Salceda’s bill called TARA, which stands for Tax Administration Reform Act). The above- mentioned reforms will not only make the tax system efficient but more importantly, will further enhance its progressiveness (or being pro-poor).

In the same vein, we agree with Prof. Monsod regarding the imperative of reforming mineral taxation and increasing tobacco taxes. The fact is, they are already part of the comprehensive tax reform, but are found in other packages. The good news is that the Department of Finance (DoF) will introduce all the remaining packages for the next round of reforms. Thus, the DoF is asking stakeholders, including civil society, a “solidly ready” bill on mineral taxation.

On the tobacco tax, the Senate has to deliberate on the bill submitted by the House. It is a weak bill, which even the DoF and the Department of Health oppose, in the sense that the proposed increase in the excise tax is low, and it reverts to the two-tiered rates. Our task then is to push for a higher unitary rate, which will increase revenue to be allocated for health programs and will reduce smoking-related diseases.

CASH TRANSFER CAN BE HIGHER

On the one hand, Prof. Monsod wrote that “TRAIN is negative for the majority of the people.” On the other hand, and this is what matters, she acknowledges the revenue transfer will be “more than enough to compensate for the losses.”

How then can the tax reform’s package 1 be anti- poor when the subsistence poor, the poor, and the near- poor will have an increase in their income because of the cash transfer? In truth, the combination of the transfer and the PIT reform results in a net income gain for all households — the poor, the workers, the professionals, and the middle class — except the richest.

The amount of the proposed cash transfer can be higher and the DoF is studying the proposal to have a cash transfer for the unskilled non- poor. The essential message, nonetheless, is that the revenue transfer will offset the price effects arising from the excise tax increase from petroleum and the broadening of the valueadded tax. Moreover, the design of the package that combines the transfer and PIT relief will result in a positive change in the take home pay of the subsistence poor, the poor, the near-poor, the informal worker, the minimum wage worker, the workers receiving more than the minimum wage,