2018: Brace yourself

The first working of the day brings us back to reality away from the temporary distraction that the holiday season festivities brought. Back to the grindstone, and the biggest talk is the after-effect that the Tax Reform for Acceleration and Inclusion (TRAIN) Law will bring to our 2018 life.

Soft drink companies have fired the first salvo. Even before the fireworks lit our skies, they had sent notices of price changes in their sugared products. For sure, that juice drink in tetra packs that your child conveniently tucks in his or her school bag will also be more expensive.

The law, signed on Dec. 19, 2017, imposed a tax of P6 per liter for drinks using sugar and artificial sweeters and P12 per liter for using high fructose corn syrup. Instant 3-in-1 coffee, which many Filipinos now use, was exempted.

Higher fares

Next up, expect fuel and electricity prices to rise. The new excise taxes on diesel, LPG and gasoline will successively be raised starting this year and successively until 2020, and the impact will be felt by ordinary consumers on their transportation cost.

For most jeepneys and buses servicing commuters, the increase of P2.50 per liter in tax for diesel would mean higher fares. Taxis using LPG will find their fuel of choice to be P1 higher. Similarly, sharing rides like Uber and Grab as well as gasoline-fired taxis will need to adjust fares with the P2.65 per liter rise in excise tax.

Of course, this is all on top of the raised fuel prices caused by the hike in world prices of crude oil, the highest levels breached in the last 30 months. Nobody and nothing gets spared when you tinker with this, especially goods that need to be transported.

The same can be expected on the power side. With tax on coal up this year to P50 per metric ton from the pre-TRAIN level of P10, expect electricity rates to rise to levels that would make our already high power costs even higher. Goodbye to our manufacturing sector’s global competitiveness bid.

Killing two birds with one stone

As for the new vehicle excise taxes, instead of the earlier talks of slapping higher taxes on luxury automobiles, those in the entry level priced P600,000 and below will find the tax doubled to four percent. If it’s any consolation, this is supposedly cushioned by the removal of personal income taxes on people earning a fixed salary of P250,000 a month.

The effect of the new excise taxes on vehicles priced above P600,000 and up to P1 million is varied, but for sure, luxury vehicle dealers are smiling ear to ear after computing that the new tax structure will in fact bring down their selling prices.

It has, of course, been argued that luxury cars in the Philippines are already too heavily taxed, and that adding more would not significantly contribute to the government’s increased tax collection objective.

On the other hand, increasing the tax on mass-market vehicles would not only help in bringing in more money to the national coffers, but also help delay more new cars on the road, at least until more new roads are built. That’s supposed to kill two birds with one stone.

The Department of Finance and the National Economic and Development Authority have always been quick to dispel any significant effect on the inflation from the increases mainly of fuel and electricity prices. Let’s hope so.

Warped salary schedules

For millions of Filipinos who earn less than P250,000 a year, the change in their month-end tax take could be significant, especially as the monthly pay rate increases. But this could now also warp the salary schedules of many companies.

Take for example a call center agent who receives a yearly salary that would no longer be taxed. His senior colleague or even supervisor could turn out to be receiving a lower net pay after deduction of taxes. For sure, human resource departments all over are recalculating the salary limits to keep everyone happy.

Other noteworthy provisions of the new tax law that seeks to simply the current taxation system would be the streamlining of the current value added tax (VAT) structure but to still provide exemption to small businesses that earn total yearly sales of P3 million and below, and business process outsourcing companies in special export processing zones.

On all other counts, you and I are well advised to brace for the onslaught of cost increases.

More of the same

TRAIN is expected to raise P82.3 billion this year, and up to a quarter of the P8.9 trillion Build Build Build program from 2016 to 2022. The rest of the money will have to come from official development assistance, or willing partners from the business sector.

Of course, the DFA has many other packages lined up for approval by Congress and the President, but none would be as big as this first tranche. The remaining items for tax reform would be more in streamlining current taxes in a more cohesive package.

Up next, ambitiously slated for passage by the first quarter of this year, would be amendments in the Motor Vehicle Users Charge and the Bank Secrecy Law.

While there may be new money coming into the government’s treasury vault this year, it is too soon to expect any meaningful change in what we have been so used to seeing and experiencing for most part of our lives.

Brace yourself because 2018 will not bring too much change in our traffic situation, the make-do state of our many air and sea ports, the slow Internet services we have been experiencing, and expensive electricity rates. We have to bear for most of these inconveniences while keeping our hopes that 2019 will be a better year.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.