TRAIN 2 year-end OK in Senate faces delay

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A BIPARTISAN consensus is shaping up among senators for a more careful consideration of the administration’s second major tax-reform measure, as senators raised the possibility it may not be passed by Christmas—a wish expressed by President Duterte in his recent televised tête-à-tête with Presidential Counsel Salvador Panelo.

Several senators both from the majority and the minority told the BusinessMirror on Thursday that rushing the next-round reforms, which would cut corporate income taxes and “rationalize” fiscal incentives to business, is made difficult mainly by time constraints and the need to vet controversial provisions, especially the projected loss of tax perks for locators in economic zones.

As the nation still has to get fully satisfactory explanations from economic managers about the “terrible miscalculations” and “mistaken and inaccurate assumptions” in the Tax Reform for Acceleration and Inclusion (TRAIN) law that took effect last January 1, 2018, rushing a complex bill like TRAIN 2 when Congress is busy with the 2019 budget doesn’t make sense, two of the senators—Francis  “Chiz” G. Escudero and Emmanuel Joel J. Villanueva—said.

Most lawmakers cited the budget deliberations as occupying top priority, given the more thorough study required by the shift from obligation-based to cash-based budgeting. Besides this, several reelectionist lawmakers are facing an October deadline for filing certificates of candidacy for the May 2019 midterm elections—a factor that, incidentally, makes them more careful about simply signing on to controversial tax reforms, noted Escudero.

Asked if Congress can fulfill Mr. Duterte’s wish to see the passage of TRAIN 2 before lawmakers adjourn for their year-end recess, senators said they will give it their best shot but also signaled it may be difficult to pass the tax bill before the Christmas break. Senate President Vicente C. Sotto III indicated to the BusinessMirror that passage of TRAIN 2 can be facilitated, “if it is the version that we will propose.”

Senate President Pro Tempore Ralph G. Recto was more blunt: the Palace tax bill “will be difficult to pass at the Senate before year-end.”

Sept. 25 deliberations

Sen. Juan Edgardo M. Angara, chairman of the Senate Ways and Means Committee tasked to conduct hearings on tax measures, would not predict the fate of the administration’s latest major tax bill submitted for Congress approval. “I honestly don’t know, it’s not something I control,” Angara said.

On the sidelines of Wednesday’s “Arangkada Forum,” Angara said his Ways and Means panel intends to ensure that provisions of the Tax Reform for Acceleration and Inclusion (TRAIN) 2 will not be inflationary.

The chairman of the Economic Affairs panel, Sen. Sherwin T. Gatchalian, said for his part—also at the Arangkada Forum—that his committee will work to safeguard the incentives of the electronics and semiconductors sector, as well as business-process outsourcing (BPO), considering their hefty contributions to the economy.

Angara told reporters the Senate will tackle the proposed bill on September 25.

The TRAIN 2 was approved on third and final reading on Monday by the House of Representatives, where it is called the “Trabaho” bill, standing for Tax Reform for Attracting Better and High-Quality Opportunities.

“I think our priority is definitely not to make the situation worse in terms of inflation, so any incentive that is taken away that would lead to a possible rise in prices, that’s out of the question,” Angara said.

Minority senators ‘doubt’ year-end OK

For their part, Senate Minority Leader Franklin M. Drilon and Sen. Antonio F. Trillanes IV, told the BusinessMirror in separate but similar text messages to the  BusinessMirror that they “doubt it,” indicating the Palace tax bill’s proponents will likely have a hard time mustering support for the administration revenue measure’s approval before the Christmas recess.

Chiz’s 3 reasons

Escudero listed three reasons for saying it’s a tough task to get the tax bill passed in the Senate within the year.

“I think it might be difficult given the following: 1) intricate and complicated provisions of the proposed TRAIN 2 which cannot be waded through and studied thoroughly within that period given that the Senate still has to pass upon the proposed 2019 General Appropriations Act; 2) mistaken and inaccurate assumptions of the same economic managers [who] proposed TRAIN 1 that resulted or at the very least triggered, to a large extent, the extraordinarily high inflation we are suffering from now—which therefore gives them a not-so-high credibility with respect to whatever guarantees or projections they may give in connection with the proposed TRAIN 2.”

Escudero added that passage of TRAIN 2 “might take its toll on reelectionists [re: their schedule and the fact that its a tax measure], which might, at the very least, affect their time and enthusiasm to support the proposed measure.”

Former Senate President Aquilino L. Pimentel III, however, held out hopes that lawmakers can still meet Duterte’s expectations to pass the tax bill within the year. “Best effort,” he said.

This, even as Sen. Joseph Victor G. Ejercito admitted it “might be difficult” to do so, pointing out that “the inflationary effects of TRAIN 1 needs to be addressed first before TRAIN 2.”

‘We must be smarter’

For his part, Villanueva said: “We are ready to listen, but we have to be smarter this time, we can’t have a repeat of TRAIN 1’s terrible miscalculations.”

Villanueva added: “For me, timing is very important, and so I’d say it would take a miracle to convince the entire Senate to support and pass TRAIN 2 before this year ends.”

Sen. Gregorio B. Honasan II, however, admitted the timetable for passing the tax bill is a bit too tight, making it hard to predict. “No one can say…it all depends on push from the Executive branch on both houses [of Congress] and material time next month, given the dates for filing of COCs [certificates of candidacies for next year’s mid-term elections] and the passage of the 2019 national budget before the Christmas break.”

Deleting inflationary provisions

Meanwhile, Angara explained that an example of how the Ways and Means panel will screen out proposals that could make the situation “worse in terms of inflation”  would be any provision that will lead schools to increase tuition.

Therefore, he stressed, “any incentive that is taken away that would lead to a possible rise in prices” is “out of the question.”

He said Filipino families are already struggling with higher commodity prices and burdening them further with higher education costs will not be supported in the Senate. “If you’re talking about schools, its not the right time to raise tuition on schools, its because families are already feeling the pinch,” Angara said.

Angara will also not back any provisions that seek to tax books. “[Taxes on] books, I think personally that’s crazy. You want a smart population,” he added. However, Angara could not predict whether the Senate will be able to complete its hearings on the tax measures given the schedule of the elections.

“I can’t answer all of those predictions. We haven’t even had our first hearing,” Angara said. “What’s realistic is that we have a hearing, then we have another hearing, then we have another hearing and see where we go from there.”

Tax amnesty

With regard to tax amnesty, which has also been approved at the House of Representatives, Angara said, the Committee is only waiting for the comments from Sens. Recto and Drilon.

Angara admitted that the tax amnesty is “less complicated” compared to the TRAIN 2. “It’s been finalized by our committee already, so we’re just waiting for the finishing touches actually,” he said.

On Monday 187 congressmen voted in favor of the second tranche of the Duterte administration tax- reform program, 14 voted against and three congressmen abstained.

GIE incentive

Also at the Arangkada forum, Gatchalian said he is open to retaining the 5-percent gross income earned (GIE) tax incentive under TRAIN 2.

The Senate is considering keeping the 5-percent GIE tax incentive for certain industries depending on their cost-structure, but he said the government should not grant such tax perks for an indefinite period. “I do admit that we need to rationalize the concept of giving perpetual incentives.”  The 5-percent GIE incentive is given to locators registered with the Philippine Economic Zone Authority (Peza).

The Department of Finance’s (DOF) version of this tax reform package wants to eliminate the 5-percent GIE tax incentives extended by the Peza to its registered investors. The companies continue to enjoy the perk so long as they are operating inside a Peza zone.

“The Trabaho bill that the House [of Representatives] approved is a much, I think, different version from the DOF version, in the sense that they made lot of adjustments so that jobs will not be lost,” said Gatchalian.

“And that’s also the view of the Senate, we will make sure that we will not lose the jobs and make sure that the country will not have a negative image, because we’re neglecting our contracts. We want to make sure that this bill, as intended, will make the Philippines competitive with its peers by lowering down corporate-income tax to 20 percent eventually,” he added.

He said after discussions with the foreign chambers’ membership, he will also examine the possibility of maintaining support for the electronics and semiconductor, as well as BPO industries.

“The semiconductor industry and BPO industry [account for] about more or less 20 percent of our gross domestic product, very sizeable industries for our economy. We don’t want that scenario wherein these industries will be weakened, the competitiveness will be lessened, and we want to continuously grow these industries,” Gatchalian said.

Meanwhile, Philippine Association of Multinational Companies Regional Headquarters Inc.  Director Celeste Ilagan, said the BPO sector is batting to keep the 10-percent corporate-income tax rate for regional operating headquarters (ROHQs) under the Trabaho bill.

She said the industry does not want to lose another incentive once the TRAIN 2 is passed. ROHQs already lost the 15-percent preferential tax rate because of TRAIN law, leading to “slight contraction of number of employees in ROHQs,” Ilagan added. With PNA

 

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