Yellow Pad

In the weeks that followed the passage of the Tax Reform for Acceleration and Inclusion (TRAIN), some critics, well meaning or otherwise, have lambasted it for the wrong reasons.

Some of the criticisms are unfounded, misinformed, oversimplified, or exaggerated. A number of these objections are opinionated but not backed up by data or facts. A few use data, but the data or the methods are wrong. Of the latter, we can use IBON Foundation’s analysis as an example, for others use it as well.

Late last year, my colleagues from Action for Economic Reforms pointed out the problematic aspects of IBON’s analysis. (See Joshua Uyheng and Madeiline Joy Aloria, “Facts, not fear: Responding to Critics of TRAIN,” BusinessWorld, Sept. 4, 2017.)

That is why I feel that troublesome analyses like IBON Foundation’s, which Manila Bulletincolumnist Tonyo Cruz used to criticize an unnamed colleague (see Tonyo Cruz, “Derailing TRAIN,”Manila Bulletin, Jan. 15) warrant a proper rebuke.

In criticizing TRAIN, Mr. Cruz relies on the IBON study that is riddled with loopholes.

I enumerate the arguments from the above-mentioned column authored by my colleagues, Ms. Aloria and Mr. Uyheng to refresh us why IBON (and as an extension, Mr. Cruz) is wrong:

“The estimated inflationary impact on food is double-counted, bloating figures by P5,240, more than half of the projected net loss. Next, they used the amount of Pantawid Pasada transfer worth P1500 as an estimate of how much transportation costs would increase after TRAIN’s passage.” But the fact is the transportation costs for different deciles especially the lower ones (the poor) are much lower than P1,500. The amount of P1500 is not a cost but the proposed amount for subsidy.

The IBON’s estimates also exaggerate the price effects of fuel and broadening the VAT (value-added tax) base because of wrong assumptions. (For example, most of the items that the poor consume are still exempted from VAT and because the expanded VAT coverage exempts establishments whose sales are below P3 million. IBON also claims an incredible 20% increase in electricity prices when only 7% of gross power generation is oil-based.

Mr. Cruz also mentions that the P200 monthly cash transfers are an admission of TRAIN’s harsh effects on the poor, and cannot possibly be enough to mitigate the effects of such an avalanche of new and higher taxes. My response: From the Family Income and Expenditure Survey and elasticity estimates, we can compute that the poorest (or the subsistence poor) will only spend P58 more for the whole 2018 because of TRAIN’s price effects, and the richest 10% will spend P1,600 more. The point is, that the cash transfer of P200 a month for each poor household is more than enough to offset the muted price effects of TRAIN.

In a letter to the editor, IBON proposed the following steps to “ease the burden on the poorest”

1. Maintain exemptions on products where the poorest are directly affected;

2. Tax the rich more, specifically, raise taxes on those belonging to the highest income bracket.

3. Allocate specific budget items for essential social services.

But all these proposed steps are already embedded in TRAIN (including the next packages).

The top marginal income tax rate has been raised from 32% to 35%; the excise fuel tax has a bigger burden for the rich than the poor; the law still maintains VAT exemptions for basic commodities, among others. And TRAIN does earmark 30% of the incremental revenues from the law in the next five years for several social protection measures.

TRAIN, being a compromise, has flaws and problems, like other legislative measures. There are components of TRAIN that we object to such as the distortion in the automobile excise tax (which has become cheaper for luxury cars) and the compromises on the value-added tax, to cite a couple. But on balance, TRAIN is a necessary significant step, despite its flaws, to make the tax system more progressive, fairer and simpler.

There is so much yet to be done and pursued for real, positive change to happen. We cannot keep pushing for social programs like free education, access to universal health care, jeepney modernization, without considering how to finance these reforms. Without revenues to enable the implementation of these programs, they will all just remain a pipe dream.

Enough then with bad analysis. It is as dangerous as fake news. It is a disservice to miseducate the people whom the likes of Tonyo Cruz ostensibly want to serve.

A woman for whom I have the utmost respect said something that struck me: “No one group or ideology has the monopoly of good intentions or love for country.” We all think that we’re doing the right thing and perhaps even for the same reasons. But if our method of expressing this is to miseducate the public for the sake of propaganda, then perhaps it’s time to take a step back and assess whether or not this makes us no different from the internet trolls who peddle fake news.


Karla Michelle Yu is a research associate of Action for Economic Reforms (AER) on tax reform.