TRAIN Law 2 and the economy
There is much noise in the Senate lately about the proposed deliberation on the 2nd package of the Tax Reform for Acceleration and Inclusion (TRAIN) Law and the passage of the 2nd tranche or TRAIN LAW 2. Pressures are coming in from many sectors because of the rise of the inflation rate which I is 5.2% in June 2018 and which many attributes to TRAIN LAW 1. However, economic managers were quick to defend the new tax reform emphasizing that the inflation rate was not just due to the TRAIN but to rising global oil prices and peso depreciation.
Finance Undersecretary Gil Beltran speaking in behalf of the Department of Finance - dof.gov.ph dated May 20,2018, mentioned about inflation rate rise as only temporary since the TRAIN Law aims to generate additional revenues to implement programs “to prevent prices from rising further in the future”.
Some people think that the politicians are just being careful in passing the TRAIN 2 reform package because they do not want to be blamed for any negative effects the TRAIN 2 will have especially because 2019 is election year. But for us which are supposed to be impartial, an objective evaluation should be in placed to really know whether the TRAIN will have a positive impact in the economy or not. It maybe unfair to blame everything that has a negative effect to the economy to the TRAIN Law such as the rise in the inflation rate. The peso depreciation due to a stronger U.S. economy and the rise in global oil prices are also factors which could cause the rise in inflation rate.
In fact, according to the statistics of the Department of Finance only 2% point is attributable to TRAIN for the 46% yearon-year 1st quarter rise in tobacco prices, sin tax for 4% point and 40% point to the rest due to more efficient sin tax collection Petroleum price increase of 34% year-on-year in 1st quarter of of 2018, only 7% points is attributable to TRAIN and 27% caused by the rise in global prices and peso depreciation. Still, we cannot blame the public and certain government officials who directly attributed to the TRAIN LAW for the rising prices
Furthermore, the subsidies given to the poor and the public transport drivers is still something to look carefully into – a proper system should be in place to account properly that these all were given to the right beneficiaries
Now comes, the TRAIN law 2 in which two of the focal points will be the reduction of corporate tax from 30% to 25% and the rationalization of fiscal incentives. The reduction of corporate tax is a welcome feature especially for the small and medium enterprises (SMEs) since it will likely lower prices of goods with suppliers having to pay less taxes on their revenues. However, the rationalization of fiscal incentives should be more studied particularly its impact on the economy.
One of the reasons why foreign companies set up their offices here is because of the fiscal incentives. Rationalization itself is not wrong for from what I understand its true meaning and aim, is to establish a system for incentives that can be easily managed and monitored to avoid revenue losses due to the varied unharmonzed incentive laws. But there will be incentives that will be reduced or redefined consequently causing a negative effect on certain investors and their operations. And one downside effect on the economy will be the loss of jobs and the pull-out from the country of some of these investors. I hope our government will take careful steps in implementing this
Economy is at a decelerated phase in a 2nd quarter report of Philippine Economic Outlook (www.focus-economic. com) with annualized GDP growth at a 3 year low of just 6% although growth remains to be robust due to continue fiscal stimulus measures significantly brought about by public infrastructure push which has a positive effect on the services and construction sectors. With 2018 about to close and train 2 law looming ahead in 2019, government should take careful steps that new tax reform packages to be implemented will do more good than harm to the economy.
(Wilma Miranda is the Managing Partner of Inventor, Miranda & Associates, CPAs, Member - Board of Directors - KPS Outsourcing, Inc and Treasurer of Negros Outsourcing Services, Inc. The views expressed herein do not necessarily reflect the opinion of these institutions).