Why senators are cool to TRAIN 2

THE House of Representatives, voting 187-14, approved last Monday the second phase of the administration’s Tax Reform for Acceleration and Inclusion (TRAIN) program. On Wednesday, however, it was reported that no senator was willing to sponsor TRAIN 2 in the Senate. The new bill has very little support in the Senate, Senate Majority Leader Juan Miguel Zubiri said.

Senate President Vicente Sotto III said this could be due to the ongoing period of rising prices in the country. The Department of Finance had assured the senators when TRAIN 1 was under discussion in the Senate that it would not cause inflation. That has not happened, he said.

TRAIN 1 was a package of two basic proposals. One, intended to make it look like a reform measure, lowered the personal income tax rate from 31 to 25 percent. The other part raised government revenue — to offset the loss from the income tax reform — by imposing some new taxes. The most critical of these was a tariff on diesel and other fuels where there was none before.

Administration officials insist that the rising prices today are due largely to rising global oil prices and to the fall in the value of the Philippine peso. But surely, the tax on diesel was also a factor, along with price manipulation by some traders. The prices began to rise unduly in January, which was – coincidentally or not – when TRAIN 1 took effect.

And now we have TRAIN 2, renamed by the House as Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) in an effort to dissociate it from TRAIN 1 and the high prices it caused. TRAIN 2, like TRAIN 1, has two components. One is the tax reform one — lowering the current 30 percent corporate income tax in annual installments until it reaches 20 percent by 2029. The other component also seeks to raise government revenue by eliminating many of the tax incentives, such as the Value-Added Tax, granted over the years to companies from various countries to locate in the Philippines, as well as to cooperatives and some Philippine industries.

TRAIN 2’s tax reform is naturally welcome to the country’s corporations. But the cancellation of so many tax incentives may cause many foreign firms now in Philippine economic zones to move out and transfer to other countries offering the incentives they will now lose. This would mean losses in national production and in employment. “I have been briefed on the possible exodus of industries from our country if these incentives are lost,” Senator Zubiri said. Thousands of Filipinos stand to lose their jobs.

This is the dilemma now facing the advocates of TRAIN 2. There is fear that where TRAIN 1 led – massively or only partly – to rising prices, TRAIN 2 might lead to loss of many jobs. The Senate may thus be excused if it chooses to wait until the ongoing period of rising prices ends before enacting another measure that would weigh heavily on ordinary people through the loss of so much employment.