Part One
After the city spent weeks getting thoroughly drenched by the monsoon, I have to admit that I’m glad for the relatively good weather that Manila has finally been able to enjoy over the past two weeks. The cold and damp are definitely not an asthmatic’s best friend.
I have a feeling, though, that a tempest of a different kind may well be giving everyone headaches before long.
About a month or so ago, we all began to feel the impact of the Tax Reform for Acceleration and Inclusion (TRAIN) law, which is now being put into effect. From gasoline to grape juice, from toothpaste to tissue paper, prices of almost everything on the grocery shelves have been slowly but surely inching higher and higher. And in homes across the country, frown lines on the foreheads of family breadwinners have become progressively more pronounced.
It hasn’t helped that the peso-to-dollar exchange rate has also been climbing up. Some pundits have said that this is good for the national economy, but I can’t find the heart to agree. For one thing, the fact that it will now take more pesos to buy a single dollar means that the country will have to spend more in terms of pesos to meet the foreign debt payments that are now falling due—and these payments, unless I miss my guess, are only for the interest on our debts, and not the principals. It’s now taking even more of our financial resources to pay up on our foreign debt, and we’re not even making that much of a dent in the principal amounts.
And then there’s the fact that the economy is heavily reliant on imported raw materials, the most important of which is oil—on which higher excise taxes have just been imposed under the TRAIN law. What we’re looking at, therefore, is a scenario where the oil companies will have to shell out even more pesos for every barrel of oil by reason of the foreign exchange rate alone, and on top of that, pay higher excise taxes than before. Which ultimately translates to higher prices for bunker fuel, gasoline and diesel, all of them indispensable resources for just about every sector of the economy. Needless to say, this inelegant combination will almost certainly result in higher retail prices for almost every commodity sold to the citizenry, from food to frocks, from books to batteries, from soap to softdrinks.
Still others might say that the rising exchange rate will favor exporters, who will now find more pesos in their pockets from the sales of their products. At first blush, this is true. However, a look beneath the surface will show that these higher sales figures are not a result of greater productivity nor of an increase in the number of items that were actually sold—and, therefore, do not indicate real growth for the export sector. Increases in peso sales under such circumstances will also eventually be off-set by rising production costs that are the inevitable offshoot of rising oil prices and the cost of raw materials.
Any way you look at it, it seems to me that we are all in for a rather bumpy ride ahead, and I rather doubt that the situation will improve any, particularly since the next phase of the TRAIN law kicks into high gear in the next few weeks. Unless I’m mistaken, only one senator has stepped up to the plate and pledged to sponsor this second part of the TRAIN law. Compared to the several who stepped up to bat for the first part of TRAIN, people could be forgiven for wondering whether the lack of sponsors for TRAIN Part 2 means that the Senate has finally come to realize how unpopular the TRAIN has become, and how unfavorably it has affected the daily lives of Filipinos from one end of the country to the other.
Perhaps the root cause of the morass we now find ourselves in is the unfortunate fact that, while the rates for direct taxes—particularly individual income taxes—were reduced, the rates for indirect taxes, notably excise taxes on petroleum, were significantly increased and the VAT coverage were expanded limiting the exemptions to necessities. As even the freshman accounting students can tell you, direct taxes such as income taxes are paid by the persons or entities on whom they are imposed—in other words, the responsibility for paying them can’t be passed on, shifted or transferred to anyone else. However, indirect taxes like the VAT and excise taxes are a different story, and more often than not, they’re passed on to the consumers—something that is clearly happening now, to the increasing dismay of people from almost every walk of life.
To be continued
Antony Alden Aguilar is on study leave from The Tax Offices of Romero Aguilar & Associates. He is a member of the Management Association of the Philippines (MAP) National Issues Committee and MAP Task Force for Taxation.
This column accepts contributions from accountants, especially articles that are of interest to the accountancy profession, in particular, and to the business community, in general. These can be e-mailed to boa.secretariat.@gmail.com.