Poor and middle class burdened most by TRAIN’s oil taxes

October 3, 2018

by IBON Foundation

The higher oil excise taxes of the Duterte administration’s Tax Reform for Acceleration and Inclusion (TRAIN) is a greater burden on the poor and middle class than the rich, said research group IBON. The poor and middle class, even those few with gains from personal income tax cuts, will suffer cuts in their standard of living unlike the rich who will easily be able to maintain their lifestyles, said the group.

In light of the recent hike in global oil prices reflected in local pump prices, the Department of Finance (DOF) justified TRAIN’s higher oil excise taxes as progressive. It claimed that the richest 10% of families consume as much oil products as the poorest 80% combined. The argument here is that the burden on the richest 10% is greater because they will in effect pay as much taxes as the more numerous poorest 80% combined.

IBON said this argument is however insensitive to the actual incomes of Filipino families. It does not consider how taking away a few pesos from poor and middle class families through higher taxes is not the same as taking away much more pesos from very rich families. The high incomes and accumulated savings of wealthy families are more than enough to offset rising prices.

The “poorest 80%” that the DOF refers to have monthly incomes from as low as Php1,441 to around Php29,600, according to the latest 2015 Family Income and Expenditure Survey (FIES). The group said that the overwhelming majority of these 18.1 million families can be considered the country’s poor with perhaps some 2.1 million at the higher end of this range considered lower middle class.

IBON said that the so-called “richest 10%” however cannot all be considered “rich”. This is because only the richest 2.4% or top 546,000 families have monthly incomes of around Php100,000 or more. This means that the DOF’s so-called “richest 10%” actually includes middle class families earning just between Php44,000 to less than Php100,000 monthly.

The reality is that TRAIN burdens the poorest 17.2 million or three out of four (76%) of Filipino families with oil and other consumption taxes without giving them compensatory personal income tax cuts, said the group. Rising fuel prices drive up the prices of food, transport and electricity. The supposed cash transfers for the poorest 10 million and Pantawid Pasada fuel vouchers are not just merely temporary but, after nine months of TRAIN, even very delayed for the overwhelming majority of their supposed beneficiaries.

TRAIN’s supposed benefits for the middle class are increasingly questionable, said IBON. It is almost certain that TRAIN-driven inflation in the first nine months of the year has eaten up any supposed gains from lower taxes on the middle class. IBON estimates that inflation in the first eight months of the year has eroded the purchasing power of the poorest 90% of the population, covering the poor and most of the middle class, by a cumulative Php1,622 to Php9,520.

IBON said that the government needs to replace the regressive consumption taxes that unduly burden the poor and middle class with higher direct taxes on the income and wealth of the country’s richest. Hundreds of billions of pesos can be raised by increasing taxes just on the richest 570,000 or 2.5% of super-rich Filipino families without burdening the poor. This will also entail lifting taxes on sensitive products such as oil, which will genuinely benefit the majority. ###