YELLOW PAD By Joshua Uyheng and Madeiline Joy Aloria
Over the past few months, Bayan Muna, Freedom from Debt Coalition (FDC) and IBON Foundation, have all rejected and tagged as anti-poor the proposed Tax Reform for Acceleration and Inclusion (TRAIN) or House Bill (HB) No. 5636.
However, upon closer examination of their arguments, the evidence and conclusions they present regarding its impact on Filipino’s welfare do not stand up to informed scrutiny.
Package One of TRAIN aims to lower personal income tax, adjust excise taxes on fuel, automobiles, and sugar-sweetened beverages, and limits VAT (value-added tax) exemptions. These provisions are meant to correct various systemic flaws in our tax system and raise additional investments for education, health, infrastructure, and social protection.
Although it is not surprising to see that TRAIN is unattractive for some — unlike the promise of free education, job generation, or absolute freedom from debt — it is frustrating to see critics resort to questionable assumptions, twist TRAIN provisions, and allow even basic errors in arithmetic to propagate a general hateful sentiment towards tax reform.
BLOATED AND UNSUPPORTED ESTIMATES
Bayan Muna recently released estimates showing that a family earning P300,000 annually would lose P9,829/year from incurring increased costs that would eat up the increased take-home pay from income tax cuts. However, even a cursory look at their estimates shows numerous errors, which, if corrected would revert the projected loss to a net gain of P10,970.
Their estimated inflationary impact on food is double-counted, bloating their figures by P5,240, or more than half of their projected net loss. Next, they used the amount of Pantawid Pasada transfer worth P1,500 as an estimate of how much transportation costs would increase after TRAIN’s passage. This completely misunderstands the measure since the program is not intended for households but for public utility vehicle drivers and operators to remove any reason to hike fares. Bayan also claimed that the VAT exemption removal would mean an additional annual expenditure of P12,960. But only lessors with over P3-million receipts would be VAT-able. Lastly, based on “insider info,” they claimed that electricity prices would increase by 20%, even if only 7% of gross power generation is attributed to oil-based sources.
The IBON Foundation also released estimates of how much the TRAIN would negatively impact selected demographics ranging from rice farmers to construction workers, contrasting it with the gains of corporate executives. Although validating it is not easy due to lack of a detailed methodology, the public has to demand explanation as to why their recent estimates represent a 9-82% jump from their previous estimates released in June.
CONJURING DEAD ENDS
Also common in the analyses of the three organizations is how they conjure up problems which they claim TRAIN fails to address, by ignoring the solutions to these problems already embedded in TRAIN.
TRAIN earmarks 40% of the incremental revenues from fuel excise tax to a targeted support mechanism worth P2,400 annually per qualified household. The proposed transfer to be implemented for four years will employ the Listahanan, a comprehensive database used in targeting the poor for various programs such as PhilHealth and 4Ps.
FDC downplays the transfer’s importance by stating that it is not even close to the expenditure for basic food and non-food needs of a family of five, which totals to P105,336 annually. But the cash transfer is meant to support potential additional costs of higher fuel prices for poor households, not replace household income. Its goal is impact mitigation, not poverty alleviation.
FDC, Bayan Muna, and IBON all estimate TRAIN’s welfare impact without the cash transfer. Including the P2,400 in the calculations results in net benefits for the poorest 50% of households, with the poorest 20% gaining the most as a proportion of their income. But critics refuse to recognize this.
FALSE DICHOTOMIES AND IRONIES
Underlying the confused arguments that Bayan Muna, FDC, and IBON deploy are a number of dichotomies that lead to inconsistent and even ironic positions on TRAIN.
One dichotomy they paint is between tax policy and tax administration. They argue that the government should rather focus on efficient collection of taxes, instead of reforming current policy. But improved tax administration does not simply happen out of nowhere. It entails simplifying existing laws, removing unnecessary ones, and updating flawed provisions — which is precisely what TRAIN aims to do.
They also insist on a dangerous dichotomy between the rich and the poor. In terms of absolute numbers, upper-income deciles will expectedly gain more because they currently pay more taxes. But in fact, in terms of percentage to their current income, it is actually the poorest who stand to benefit the most.
This is not to mention the longer-term gains that the poor will benefit from in terms of free education, universal health care, and vastly improved infrastructure — all of which the tax reforms will be able to fund. In the current proposal, TRAIN will actually benefit all.
MOVING FORWARD
The generation of data is an indispensable tool for policy making.
Using data in formulating and refining policies ensures that specific provisions have basis in reality, and that their effects benefit all.
However, like any tool, data can only be as useful and effective as those who wield it. Without rigorous foundations for our assumptions and calculations, data will have nothing of value to tell us. Without respect, transparency, or a constructive mind-set, we will only see in our tortured data what we have already convinced ourselves is true before even beginning.
The proposed TRAIN certainly deserves scrutiny from legislators and civil society. Because it is such an ambitious set of reforms, a lot is at stake. But it is precisely because so much is at stake that the evidence for and against it be based on facts, not on fear, so that the right adjustments may be made in moving forward for better laws, and ultimately, better lives for all Filipinos.
Joshua Uyheng and Madeiline Aloria are researchers from the Fiscal Policy Team of Action for Economic Reforms.
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