Protect public interest over vested interest. This is our call as the Tax Reform for Acceleration and Inclusion bill (TRAIN) is nearing to be completed in the Bicameral Conference Committee (Bicam). Some of the controversial provisions have yet to be finalized, but the tentative list of agreements signal that a good TRAIN — one that is geared towards a simpler, fairer, and more efficient tax system — may still be in jeopardy.
The call is nothing short of rational. The outcome of the Senate deliberations on TRAIN, which culminated last Nov. 28, reflected what is the exact opposite of a tax reform that looks after the welfare of the Filipino people. The Senate version of TRAIN, Senate Bill 1592 (SB 1592), is a hodgepodge of provisions securing the vested interests of the affluent and the powerful, including the senators themselves.
In SB 1592, the goods that the rich enjoy will be taxed at lower rates. Senator Ralph Recto’s proposed automobile excise tax rates of 10% for cars priced at below P1 million and 20% for those breaching the million-peso threshold will give away increasingly bigger discounts the more expensive the choice of luxury car is while making it more difficult for the working class to own the most basic model. Excise taxes on fuel products will be justifiably raised after 20 years of non-adjustment to inflation except for fuel that is primarily used for air travel, which can only be maximized by those who have more disposable income.
The Senate bill also removes the provision in HB 5636, the House version of TRAIN, that amends the Bank Secrecy Law and expands the authority of the Commissioner of the Internal Revenue to facilitate tax assessment and audit, especially for individuals who tax evade.
With the retention of the Bank Secrecy Law, those who can easily avoid paying taxes by hiding their money and wealth from government will continue to be protected.
The added and retained provisions in the VAT section of SB 1592, specifically on the VAT zero-rated and exempt transactions, is a gateway to the various vested interests of our dear senators.
At the top of the list is the explicit insertion of Senator Sonny Angara on the VAT zero-rating of transactions within and with entities registered with special economic zones and free port zones, which will institutionalize the perks being given to his and his father’s Aurora Pacific Economic Zone and Freeport (APECO) project.
Senator Cynthia Villar is also satisfied that real property developers will continue to be able to sell residential dwellings at P2 million and be VAT-exempt. The list does not stop here and can be entertainingly converted into a matching game of senators and their vested interests. Instead of rationalizing the VAT zero-ratings and exemptions, the Senate TRAIN even creates more loopholes in the system.
Although SB 1592 compensates the loss of revenue from its failure to address weaknesses in the tax structure by introducing new elements not found in the original proposal of the Department of Finance or HB 5636, most of these are superficial reforms that may not guarantee a sustainable funding for social services and programs for the poor. The proposed tax on cosmetic procedures is a new tax that will not be easy to administer given the wide range of services and service providers that need to be monitored for compliance. Senator Recto’s proposal to double the rates of documentary stamp taxes will have a distortionary effect on business transactions and may lead to a much lower revenue take than what is expected from it.
While the proposed hikes on coal and mining taxes are meritorious and a step towards the right direction, these, combined with the other elements that the Senate introduced, will still not be enough to finance the P200 billion needed next year for the unconditional cash transfers, implementation of the Universal Access to Quality Tertiary Education and Universal Health Care Laws, and rebuilding of Marawi.
Meanwhile, the clamor of health advocates, including patients and health care providers, to further raise the tax on cigarettes continues to fall on deaf ears. The Sin Tax Law is historically proven to be effective in protecting the young and vulnerable sectors from getting addicted to smoking and, at the same time, raising adequate financing for health. The health community’s proposal of increasing the cigarette excise tax to P60 is estimated to reduce the current number of smokers by one million and generate an additional P50 billion in 2018.
Despite being a popular tax even among smokers and several attempts by some senators to include it in TRAIN, the proposed hike in the cigarette tax was not considered under SB 1592. Health advocates could only guess how the “Recto-Morris” partnership played a crucial role in blocking this proposed measure.
Today might be the last day that the Bicam will meet to finalize the TRAIN that will be ratified by both Houses of Congress before its signing into law by the President. The outcome of the Bicam meetings will shape not just our tax system but our country’s development in the next 10 to 20 years. It will give a sneak peek into our future — the opportunities that will be destroyed or created, and the possibility or impossibility of finally becoming a middle-income country with many of our countrymen freed from poverty.
How the Filipino people will benefit from the comprehensive tax reform will greatly depend on the interests that are shaping TRAIN. Let us remind the members of the Bicam — Senators Sonny Angara, Ralph Recto, Loren Legarda, Frank Drilon and Miguel Zubiri, and Representatives Dakila Cua, Rudy Fariñas, Miro Quimbo, Danny Suarez, Gus Tambunting, Dong Gonzales and XJ Romualdo — that, as elected officials, they will be able to uphold the true interests of the people by defending a tax system that eases the burden of taxpayers, especially the vulnerable, allows those who can contribute more to pay more, and guarantees the sustainability of funds for development and poverty alleviation.
It is not yet too late for the Senate contingent to rectify the problems that they created in SB 1592 and the House version will be a good starting point.
Jo-Ann Latuja-Diosana is a trustee of Action for Economic Reforms.