President Rodrigo Roa Duterte signed into the TRAIN Act, (the Tax Reform for Acceleration and Inclusion) in 2017. This law was made to correct various drawbacks in the present tax system. In the initial four months of its introduction, there were seen a few positive and negative effects of it. Let us know more about them in detail.
About TRAIN law
The TRAIN law includes economic, and political procedures that aims at making the tax reform system simpler, efficient, and fairer for people. This comprehensive package introduced various alterations in personal income tax, estate tax, value added tax, documentary stamp tax, donor’s tax, the excise tax of petroleum products, mineral products, tobacco products, sweetened beverages, cosmetic procedures, and automobiles.
Objective of Train Law
The fundamental objective of Train law is to reduce poverty 21.6% to 14% by 2020, and completely eradicate poverty from the nation by 2040. The reform states that everyone would be provided with equal opportunities”.
By removing the disparities between rich and poor sections of the society, the country will achieve “high-income country status”. To accomplish this objective the government is striving hard to achieve and maintain an economic growth of a minimum of 7% every year followed by shifting the growth source from consumption to investment.
This implies that the government plans to make more investments on providing better services to people such as health, life-long training, education, infrastructure, research and development”, infrastructure, and social protection. This will boost the productivity of a nation.
Positive Effects of Train Law
Tax reform has helped several Americans in the form of lower individual or business tax rates. It has benefitted countless people through their yearly tax returns, enhanced wages, stock options, bonuses, reduced utility bills, and a lot more.
Rationalize Tax Bracket System
The TRAIN Act has addressed the weaknesses of the present tax code by lowering and rationalizing the current tax bracket system. It has exempted several low-income workers from paying income tax. Lower and streamlined corporate income tax, with better fiscal incentives are some of the advantages of it.
Simplified tax reform system
The TRAIN law has made it simpler for a common man to understand and use tax system. The tax reform has become more intuitive, and straight forward for people nowadays. Furthermore, the law has led to the creation of an “impartial” taxation scheme. Now the improved tax system distributes taxation in accordance to the financial ability of an individual. This change will help the underprivileged to reap more benefits from the scheme.
Improved tax collection efficiency
Another important positive effect of TRAIN law is seen in the form of enhanced efficiency of tax collection processes. The present system is far more efficient in dealing with issues related to compliance.
Better services, and facilities
The changes as instituted by this tax reform are expected to increase revenue generation to finance the healthcare, education program, and infrastructure, of the Duterte administration.
Negative effect of TRAIN Law
Increase in Inflation
There has been a notion that this reform system will tax a poor less than affluent segment of population. This was the information that was advertised by the government. The truth is that the imposition of additional taxes by the government are passed down to the middle, and lower income class people, and thereby increasing the rate of inflation.
Due to drastic surge of inflation to record highs, it was evident that TRAIN aggravated the difficulties of millions of lower-income households in Filipinos that includes fisherfolk, farmers and other poorer sectors of the society. This impact was primarily due to high excise taxes levied on coal, oil and petroleum products. This has exacerbated poverty in Philippines by 0.26 percentage point.
The largest surge in poverty rate among farmers was noted at 0.32 percent under the 1st scenario of the PCEX that incorporated amendments in the excise taxes. The largest surge in in poverty among fisherfolk was observed at 3.2 percent, among households at 1.72 percent.
The TRAIN law adversely impacted the poorest households that required the government to assist them with the help of unconditional cash transfers of around P300 to P400 per month for the coming 3 to 4 years.
Due to income inequality, the law went harder on the salaries of the rich man and easier on the wages of the poor. The top marginal tax rate only affected super rich Filipinos; the major section of TRAIN was still borne by the poorest Filipinos.
A few excise taxes of TRAIN were made to favor the rich sections of the society at the cost of the poor. Lower donor’s taxes, and estate benefited several rich, and elite families and the poor section end up losing throughout this tax reform package.
Higher revenue losses
The reform led to high loss of revenue for the government. According to the Family Income and Expenditure Survey, the losses are estimated to be around P210 billion in 2018, P223 billion in 2019 to 2022; P238 billion in 2023.