With Duterte’s TRAIN, poor pay higher taxes so rich can take home more

December 13, 2017

by IBON Foundation

By Sonny Africa

The Duterte administration’s Tax Reform for Acceleration and Inclusion (TRAIN) bill reportedly due for ratification by Congress this week burdens the poor with higher consumption taxes so that the rich can have higher take-home pay. The Department of Finance (DOF) used income tax gains for a few middle-class families as a smokescreen for even greater tax gains by the richest Filipinos and, worse, higher consumption taxes for the majority of poor Filipinos.

The bicameral conference committee on TRAIN on Monday reconciled the Senate and House versions. Proponents have grossly exaggerated how millions are supposedly exempted from paying income tax. They have also downplayed how tens of millions of the country’s poorest will be burdened by higher prices on basic goods and services without getting any income tax exemptions.

The overwhelming majority of Filipinos do not get any income tax benefits from TRAIN. Most of the country’s total 22.7 million families do not pay income tax because they are just minimum wage earners or otherwise in informal work with low and erratic incomes. Even if TRAIN reduces income taxes paid by most of the reported 7.5 million personal income taxpayers, this still leaves as much as 15.2 million families without any income tax gains.

A reported 6.8 million low- and middle-income families will be completely exempted because they are earning less than the Php250,000 threshold for income tax to start to be paid. These families certainly deserve income tax cuts to cope with rising costs of living. But it is misleading to claim “6.8 million” benefiting from TRAIN because this figure includes millions of minimum wage earners already exempted by law. If anything, the DOF, House and Senate have even proposed to remove this minimum wage exemption.

The country’s rich are meanwhile among the biggest gainers from TRAIN’s income tax reforms. Low income and middle class families earning up to some Php60,000 a month will have a few thousand up to around Php80,000 additional take-home pay annually. The richest 1% of families with incomes of Php1.5 million or more a year will have an average of Php100,000 to over Php300,000 additional take-home pay annually especially when income taxes are lowered further in 2023. This is on top of how the rich will pay billions of pesos less in estate and donor taxes.

On the other hand, the poorest 15.2 million Filipino families not getting any increases in take-home pay will have to deal with more expensive food and drinks, cooking expenses, jeepney and bus fares, electricity and other goods and services next year. Prices will increase because of the direct and indirect effect of higher taxes on: sugar-sweetened drinks; oil products including liquid petroleum gas (LPG), kerosene, diesel, and gasoline among others; and coal. The burden on poor Filipinos can only get worse once it becomes clear what value-added tax (VAT) exemptions will be removed.

The Duterte administration’s TRAIN runs over the poor to avoid taxing the rich. Hundreds of billions of pesos can be generated if only the government were unafraid to impose higher taxes on the country’s wealthiest families who have accumulated trillions in pesos and can well afford to contribute more to government revenues than they already do. Planned higher taxes on cars and cosmetic surgery are miniscule compared to the wealth they have. If passed into law, TRAIN only confirms the Duterte administration’s anti-poor and pro-rich economic policies.