LAST week, I already started the analysis of the Comprehensive Tax Reform package that is deemed by some sectors to be anti-poor. As of this writing, this bill known as Tax Reform for Acceleration and Inclusion (Train) has passed the third and final reading before Congress adjourned their first regular session last Wednesday, May 31.
Some of the provisions of the bill were already analyzed in part II, particularly the revision of the income tax brackets which would result to lower personal income taxes for the lower brackets, taxation of sugary beverages, and increase in the excise tax for fuel and automobiles.
To recapitulate, we start with the adjustments in the tax brackets. This would be beneficial to the working class, increasing their take home pay or disposable income. However, since the poorest of the poor earn income below the P250,000 a year, they are essentially not paying taxes.
Therefore, they will not benefit much the personal income tax adjustments.
For the imposition of P10 excise tax on sugar-sweetened drinks, this aims to reduce the consumption of these demerit goods (goods that does not benefit the consumer). The reduction of consumption is seen to decrease the number of people being treated for diseases caused by consuming too much sugar like diabetes, obesity, heart disease, etc.
It is to be emphasized that poorest of the poor will benefit in the long-run because they need not spend on treatment and medication of the above-mentioned illnesses.
The increase in the excise tax on petroleum products, which is strongly opposed due to consequences including the increase in PUV (public utility vehicle) fares, transport costs of goods and services, which will definitely increase the prices of final goods and services, too.
The bill has defined the transfer payments that are needed to be done due to the increase in the prices of fuel, as a result of the imposition of additional tax. These transfer payments will benefit the transport sector, including subsidies, cash transfers, and modernize the public utility transport system.
The increase of tax is seen to push the transport sector to be more responsible of their automobiles, avoiding the exhaust of pollutants into the air, reducing the externalities of consuming petroleum products. In the long-run, it is seen to reduce the diseases brought about by air pollution, like coronary artery disease, congestive heart failure, asthma, emphysema, or chronic obstructive pulmonary disease (COPD).
With this end in mind, the citizenry, particularly the poor will be spared from the expensive costs of treating these diseases.
How about the expansion of the coverage of Value Added Tax (VAT)?
The coverage of VAT will now cover electric cooperatives, which used to be exempted from paying VAT. This is because electric cooperatives are among those firms that are considered to provide “sale or exchange of services” for a fee, remuneration or consideration.
With the electric cooperatives imposed VAT, this would most likely result to increase in the price of electricity for households and business firms. Thereby, the households will increase their expenditures while the business firms will also increase their production costs, resulting to higher selling prices of the goods and services they are selling. The regular cooperatives are still exempted.
The good news here is that there are still some sectors that are still exempted from VAT. These are electric power that are generated from renewable sources of energy, like biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.
In this way, there are incentives for power producers to generate power from these sources. Subsequently, power distributors and retailers will be given incentive to purchase at a lower price from these power producers that benefit from this exemption.
This is seen to reduce the demand for power generated from higher priced fuel, affected by the increase in the excise tax on petroleum. This will reduce externalities of production of power, like air pollution emitted by fuel-powered power generators.
The electric cooperatives would also choose to buy from the cheaper renewable energy producers in order to cushion the imposition of VAT. The Philippines has one of the most expensive electric power in the retail market in all of Asia.
However, I feel that there should be more support for the power producers, in order for them to have incentive to put up power plants from renewable energy, and produce cheaper power. The government should also study the possibility of using alternative sources like nuclear energy to produce cheaper power.
In the end, the government revenues derived from the tax reform package will be allocated to infrastructure, health, education, housing, and social protection expenditures.
Infrastructure allocation would be prioritized to address congestion through mass transport and new road network, the bill said. The revenue from the sugar sweetened beverages taxes would go to a health promotion fund. Revenue from the VAT imposition on sale of real property would be utilized for the government’s socialized housing programs.
The bottomline is, the tax reform agenda of this administration aims to benefit the citizenry, particularly the poorest of the poor. I believe that the government efforts to reform the fiscal or taxation system will result to the betterment of lives of people.
Except when these government funds will find its way to the pockets of some politicians and private individuals. The efficient and proper allocation of these government revenues should be done, with the emphasis on transparency.
Mr. Duterte’s anti-corruption measures should do the job. If he, and his whole administration, would put their heart and mind to it, not only on a particular war they seem not be winning.
