In the presence of his economic team and surrounded by the leaders of the House of Representatives and the Senate in Malacañang, President Duterte on Tuesday signed into law the Tax Reform for Acceleration and Inclusion (TRAIN). The new law, meant to accelerate government spending on much-needed infrastructure, will simplify the country’s 20-year-old complex tax system.
The President said the TRAIN, together with the P3.767-trillion 2018 General Appropriations Act, which he also signed, is the fulfillment of his campaign promise to institute fiscal reform that will be felt by more than 100 million Filipinos.
Duterte said the TRAIN is the administration’s biggest Christmas gift to the Filipino people because starting next year, the new law exempts those earning an annual taxable income of P250,000 and below from paying the personal income tax. It also raised the tax exemption for 13th month pay and other bonuses to P90,000.
The first of five tax-reform packages, TRAIN will generate P120 billion for the government, of which 70 percent will go to the administration’s “Build, Build, Build” infrastructure program.
Even before it was signed into law, however, certain quarters have opposed the TRAIN’s alleged “anti-poor” provisions. They said the TRAIN imposes higher taxes on fuel, tobacco and some sweetened beverages. These new taxes, they said, would hike prices of basic commodities, which will burden the poor.
The Department of Finance concedes that the new taxes may result in higher inflation in the short run. Based on government calculations, the new law may drive up inflation by 1.5 percentage point. With inflation now at a two-year high of 3.3 percent as of February 2017, higher excise taxes could mean higher inflation rates.
However, Presidential Spokesman Harry L. Roque Jr. said 30 percent of the P120 billion that TRAIN will generate will be earmarked for public services and other measures for the poorest Filipinos who will be negatively affected by the new law. Roque said: “We have provided for mitigation, realizing that the poorest of the poor would need some kind of assistance as a result of TRAIN.” He explained that TRAIN allocates funds for cash transfers to the poorest 10 million families—P200 monthly in 2018, P300 monthly in 2019 and P300 monthly in 2019. The amount will be given regardless of the size of the indigent family.
According to the National Economic and Development Authority, the TRAIN law will help boost the country’s GDP by as much as 1.1 percent by 2022. Socioeconomic Planning Secretary Ernesto M. Pernia said “the implementation of TRAIN is essential as it will increase the spending capacity of the average working Filipino, boost revenue-to-GDP ratio, and fund government’s infrastructure and human capital investment programs.”
There’s a general consent among economic experts that the rollout of big-ticket infrastructure projects would make the Philippines more attractive to investors.
On Monday the government announced that the Board of Investments (BOI) has approved a record P616.7 billion in investment pledges for 2017, surpassing the previous all-time high of P570.1 billion posted in 1997. The figure is 39.5 percent higher than last year’s haul of P442 billion.
With the TRAIN taking effect next year, BOI sees at least 10-percent increase in investment pledges. All these, together with the government’s determination to roll out big-ticket public infrastructure projects, will spur economic growth that, hopefully, will help alleviate poverty and make the country an upper-middle class nation by the time the President leaves Malacañang.