MANILA – The effects of the revenue-enhancing provisions of the proposed Tax Reform for Acceleration and Inclusion Act (TRAIN) will be “muted” for ordinary Filipinos and will even provide for a family of four earning P25,000 a month an annual windfall of more than P15,000, the Department of Finance (DOF) said.
Finance Undersecretary Karl Kendrick Chua said that contrary to the erroneous and bloated computations made by critics, the effects of the reforms proposed in the VAT and the excise tax system under TRAIN “will be minimal because complementary measures to mitigate any price increases arising from the tax adjustments are also provided under the bill. “
For instance, the claim that a house rental of P9,000 a month would increase to more than P12,000 under TRAIN is false because there would be no increase at all under the bill that was approved by the House of Representatives before the Congress adjourned sine die last May 31. This is because the far majority of lessors have revenues below the VAT threshold and are therefore exempted.
Also, electricity rates for households consuming around 200 KW/hour a month will only pay additional P70 a month, which is far less than the puffed-up estimate of P3,600 as claimed by TRAIN critics, Chua said.
House Bill No. 5636 or the proposed TRAIN, was approved on third and final reading on May 31 by a 246-9 vote with one abstention last May 31.
“The DOF expects potential price increases to be muted and complemented with programs to mitigate any price increases under TRAIN. All in all, a family with a head of household earning PHP 25,000 a month and with 2 children can expect to benefit an additional P15,512 annually,” Chua said.
As for house rentals of P10,000 and below, Chua explained that while the VAT exemptions for this category were not explicitly removed under HB 5636, properties rented out by smaller property owners with annual revenues not exceeding the proposed VAT threshold of P3 million a year remain exempted.
Chua said public transport fares are also supposed to remain the same because “legitimate public transportation operators with valid franchises will be covered under the government’s Pantawid Pasada program.”
HB 5636 provides for this Pantawid program, in which drivers of public utility vehicles will be given cash cards, to “offset the potential price increase in fuel, hence there would be no need for fare increases,” Chua said.
For liquefied petroleum gas (LPG), Chua said the increase per year under TRAIN will only amount to P548.
In all, taking into account other expenses such as rice, fish, sugar, coffee, milk and other food items and basic necessities, a family of four with two dependents will incur additional expenses of P4,488 per year, which will be offset by the P20,000 annual increase in their take-home pay or a net benefit of P15,512 as a result of the lowering of personal income tax rates under TRAIN, Chua said.
He said the DOF estimates the inflationary impact of the oil excise only to be around 0.9 percent on top of the usual inflation.
“The DOF’s computation is even higher than the estimates of the Bangko Sentral ng Pilipinas of 0.6 percent increase, the authority on prices and inflation. The critics’ estimate is much higher at 5 to 6 percent, that’s why their price increase estimates for food items are significantly higher,” Chua said.
Finance Secretary Carlos Dominguez III said the DOF will continue to hold dialogues with senators during the remaining weeks of the congressional break to explain to them the merits of tax reform package and convince them to retain the original DOF-endorsed version outlined in Cua’s HB 4774.
Dominguez said he hopes the Senate will retain the original features of TRAIN under HB 4774 to optimize the bill’s revenue gains, which were trimmed under the House-approved version.
An increasing number of international financial institutions have lauded HB 5636’s approval as a positive step to reforming the country’s tax system and boosting revenue, and a testament to the Duterte administration’s decisive leadership and firm resolve to pursue broad economic reforms and ensure the financial viability of its ambitious public investment program.
HB 5636 will yield P1.163-trillion net revenues from 2018 to 2022 with the complementary measures, compared to P1.266 trillion under the original proposal, Chua said. (DOF)