TRAIN misses revenue target on weak VAT

The tax reform for acceleration and inclusion (TRAIN) law failed to deliver to the expected revenues in the first eight months of the year after collections from consumption levy incurred losses instead of income.

Based on a document presented during the inter-agency Development Budget Coordination Committee (DBCC) meeting last week, the Department of Finance (DOF) reported that TRAIN registered a net revenue of only 110.6 billion, below the expected collection.

According to the DOF, the TRAIN missed its January to August goal of 141 billion by 74 percent. At end-August, TRAIN’s gross revenues amounted to 1112.1 billion, but this was reduced after taking into account the 1101.6-billion losses from the lowering of personal income taxes and the retention of VAT exemptions.

The DOF originally estimated that TRAIN or Republic Act No. 10963’s foregone revenue would only amount 193.1 billion during the period, coming solely from the reduction of personal income taxes.

Butt based on the DOF report, losses following the personal income tax reduction reached 188.6 billion in January to August.

What the DOF did not foresee was that the increased in the value-added tax (VAT) exemption threshold for marginal establishments from 11.5 million to 13 million would drag down TRAIN gains.

The Bureau of Internal Revenue (BIR) and the Bureau of Customs both expected a revenue gain after TRAIN supposedly “cleaned up” the VAT system by limiting its exemptions to necessities such as raw agriculture food, education, and health.

However, instead of generating additional 125.2-billion revenues after the supposed “clean up,” the national government incurred a loss of 113 billion from VAT exemptions under TRAIN.

The BIR reported to the DOF that the agency lost 113.5-billion revenues from VAT, a reversal of the DOF’s expected 111.2-billion income.

Unlike BIR, the Customs bureau, on the other hand, generated additional revenue from VAT, but significantly below its target set by the DOF. The agency raised only 1500 million from consumption tax, below the expected 114 billion.

Sources said the DOF already called the attention of the BIR regarding “unexpected loss” from VAT that “shouldn’t be happening.”

At end-August, TRAIN’s excise tax collections missed the 192.1 billion target by 17 percent to 176.7 billion owing to weak revenues from petroleum, sugar sweetened beverages (SSBs), coal and cosmetic procedures. Only tobacco and automobiles exceeded targets.

DOF data showed revenues from oil excise reached 131 billion, below the 141.8 billion goal by 26 percent, while SSBs missed the 136.9 billion target by 30 percent to 124.9 billion.

Revenues from coal also missed the target by 51 percent to 1600 million, instead of 11.2 billion, while excise tax on cosmetic procedures registered zero collection in January to August.

Meanwhile, higher excise on tobacco brought in additional 17.3 billion, exceeding the 12.6 billion target by 184 percent, while automobiles also breached the goal by 26 percent to 111.5 billion.

“Others,” on the other hand, raised 135.4 billion during the period, exceeding by 111 percent the 116.8 billion target, the DOF data revealed.