TRAIN Package 1A: From the poor to the rich


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One-fourth of increase: TRAIN aggravates oil price hikes–IBON

Government is wrong in downplaying the contribution of the Tax Reform for Acceleration and Inclusion (TRAIN) law on recent big-time oil price hikes, research group IBON said.

The price of fuel products combined with the TRAIN increased since year-end 2017 to Php10.20 per liter for diesel, Php11.41 for kerosene, and Php15.14 for gasoline as of last week.

These prices now include excise taxes and value-added tax (VAT), respectively, said IBON.

The price of diesel has increased to Php41.70/liter from Php31.50 at the start of the year, for instance, while the price of kerosene has increased to Php50.40/liter from Php38.99/liter as of year-end 2017.

The price of gasoline is now Php56.47/liter from Php41.33 as of year-end 2017.

The adjustment in the price of oil products has been attributed to the increase in the Mean of Platts Singapore (MOPS) prices and changes in the PH Peso–US Dollar exchange rate.

MOPS for gasoline prices has had a net increase of US$7.91/barrel and a net increase of US$5.92/barrel for diesel during the same period.

The exchange rate of the Philippine Peso to US Dollar did not help lessen oil prices as the peso depreciated against the US dollar by Php2.42 also in the same period.

One of the formulas by the Department of Energy (DOE) assumes a Php1.00/liter change in domestic oil price for every US$3.00/barrel change in MOPS.

IBON however observed that applying this formula does not reflect the steep hike in oil prices.

Moreover, according to IBON’s executive director Sonny Africa, TRAIN’s new and higher taxes aggravate and intensify the impact of these oil price hikes.

The TRAIN law adds new excise taxes on diesel and kerosene and raises excise taxes on gasoline.

TRAIN imposes a new Php2.50 liter excise tax on diesel and Php3.00 per liter on kerosene, while increasing that on gasoline by Php1.65-2.65 to Php7.00.

The final taxes imposed are even higher because the 12% VAT is also applied to them.

Thus, of the net increase in the prices of diesel, kerosene, and gasoline, TRAIN has added Php2.80, Php3.36, and Php1.85/2.97 to the price of every liter, respectively.

This means that TRAIN’s taxes accounted for one-fourth of the increase in the prices of diesel and gasoline.

TRAIN keeps increasing the excise tax on oil products and by 2020 they will have permanently added Php6.72/liter to the price of diesel, Php5.60/liter to the price of kerosene, and as much as Php6.33/liter to the price of gasoline.

“Real wages are stagnant at very low levels and TRAIN’s new taxes and inflationary impact are an unnecessary additional burden on the majority of Filipinos who are low-income earners,” said Africa. # (Image from Philippine Gas Price Watch through IBON)

Under TRAIN, taxes are cut on the rich

TRAIN will make the rich richer – The net impact of the change in income taxes, expansion of VAT coverage, new oil excise taxes, and inflationary effect is that the highest-earning 40% of Filipino households, or 9.1 million households with some 40 million Filipinos, will have more money in their pockets after the tax reform. This includes among the richest households in the country.

They have net gains because their increased take home pay from lower personal income taxes more than offsets losses from additional VAT, oil taxes, auto taxes, the sweets tax, and inflation. The net gains remain even if higher taxes on automobiles and especially on high-end luxury cars, which is sensible, are factored in.

Middle class households in the seventh to ninth income deciles certainly deserve relief from changing decades-old tax brackets. These include Filipino families whose only moderate incomes are doubly-eroded by inflation and by excessively high taxes. It can even be argued that the minimum figure for tax exemptions can be raised to those earning up to around Php33,000 monthly.

However it does not make sense for supposed tax reforms to give a corporate executive already earning Php303,059 monthly (or Php3.7 million yearly) an additional Php1,212. Nor does it make sense to only tax a company’s chief executive officer earning Php706,017 monthly (or Php8.5 million yearly) just an additional Php20,694; this is probably just what would be spent on a weekend family dinner. Yet the DOF’s TRAIN does just this while, to recall, taking hundreds of pesos away from the poorest Filipinos who already have so little as it is. The poorest are made to pay more out of much smaller incomes to begin with and this is not by any reasonable interpretation a “fairer and more equitable” tax system.

The DOF cites the supposedly higher income tax rate of 35% applied to the highest income bracket, compared to the current 32%, as proof of the progressivity of their proposals. This is a half-truth though because using the complete formula which includes a minimum lump sum and applying the tax rate only on the excess of income over Php5 million means that many of the country’s rich will actually end up paying less than under the current tax system.

The DOF also gives the example of the country’s top two income taxpayers whose take home pay falls in 2018 upon the tax reform to reinforce the impression that the new tax system is progressive. This is however an exaggeration and is oblivious to how the country’s super-rich use various legal and illegal strategies to avoid paying taxes including tax havens, off-shore accounts, shell companies and trust funds, smuggling and others.

The tax reform program really does nothing to address, and actually worsens, the continuing accumulation of massive wealth in the hands of a few. The country’s richest for instance also gain additional benefit from the lowering of estate and donor’s taxes to a flat rate of 6%, with the DOF estimating that they will pay at least Php3.1 billion less per year starting 2018.​ (From Buwis(et!): DOF’s Top Five Tax Reform Lies,

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