Best we can do is give it a chance

For the first payroll period of 2018, the employees at the office grinned with pleasure at their reduced or absence of personal income tax as Republic Act 10963 or the Tax Reform for Acceleration and Inclusion Act (TRAIN) took effect.   Employees with salaries (including fixed allowances) of P20,000/month or P250,000 a year became tax exempt and working husbands and wives with a total income of P500,000 or less realize their full pay without paying taxes to the government. In recent years, minimum wage earners had to actually refuse a salary increase of P2,000 or slightly more from their employers because it would be negated by the income tax he or she stood to pay to the government when the Arroyo administration legislated zero personal income tax for minimum wage earners.  Of course, the low-income workers have not yet fully absorbed the full impact of TRAIN.  The implementing rules and regulations (IRR) have not yet been released by the Department of Finance—they promised that these would be out before the end of the month but employers have been ordered to carry out their part anyway, without the IRR.

I guess many of our average workers still do not comprehend the full impact of TRAIN but I appreciate the government’s efforts in trying to cushion its impact on them.  Budget Secretary Ben Diokno says that the Department of Budget Management has set aside billions to soften the impact of TRAIN, including the Unconditional Cash Transfer budget of P200/family for the poorest of the poor in the country.  This will go up to P300 per qualified family in 2019 and 2020.  The phase-out of old jeepneys will cause a lot of dilapidated PUJ owners saddled with financial problems—they can get loans from the Land Bank with the billions that the DBM has set aside to finance loans to buy newer PUJs. Although a lot of public transport operators still feel that the cost of these modern jeepneys are still too high to be economically viable for them. These, along with others, are DBM’s way of lessening the impact of TRAIN which experts claim can push up inflation by at least 1.2 percentage points in 2018.  By next year, this is expected to go down to a more manageable 0.55 percent.

The higher purchasing power of consumers brought about by TRAIN is a positive effect of this Act but the domino effect is now just starting to trickle in.  Tax on interest income in foreign currency deposits, for instance, have just been doubled, from 7.5 percent to 15 percent, as reported by local banks. This is also true for peso time deposits.  Issuing a personal check can now cost you P3. Documentary stamp taxes have likewise doubled on mortgages, certificates of deposits and letters of credit.  For all debt instruments, the doc stamps have been raised by as much as fifty per cent.

Local fuel prices have also gone up by as much as P0.85 for regular gasoline and P0.55 for diesel but we cannot even charge this to TRAIN because presumably the old stocks have not been depleted yet.  The increase in global fuel prices are largely due to the politics between Iran and the United States, thanks to American President Trump’s knee jerk pronouncements as well as the bulk buying of certain independent Chinese refiners.  Records show that in the last thirty months, we have experienced the highest levels of world crude oil prices. When the old stocks finally get depleted, that is when we can expect TRAIN’S impact on fuel prices.  Transportation groups have started to file their petitions for increase including Uber and Grab, and with the looming series of price increases in fuel, I do not see how the pertinent government agencies can deny these logical petitions.

The Bangko Sentral projects an inflation target of between two to four percent for 2018 which seems rather conservative but the public is advised to gear up for it this year as it gets better by 2019 and beyond.  With the excise tax on sweetened beverages, there is an important sector that stands to benefit from this.  We all know that the sugar industry has been on a steady decline, reeling from the unregulated entry of high fructose sugar corn syrup from other countries like China.  With TRAIN, beverages using high fructose corn syrup will be taxed P12.00/bottle versus beverages using local sugar which will be taxed at half that or P6/bottle.  This should revive the dying local sugar industry, though the other problem may be inadequate production.  Can we meet the surge in demand?  Already, soft drink manufacturers led by Pepsi Cola have advised the Sugar Regulatory Administration (SRA) of their intention to use local sugar for their cola drinks. 

With the removal of the quantitative restrictions on rice imports, we may also expect to have lower rice prices in the near future.

Other sectors have cashed in on TRAIN as well. The automotive industry reported a very robust 2017, particularly in the last quarter, in anticipation of the higher excise taxes on cars but it is still a wait-and-see-attitude that most consumers are adopting for 2018. At present, our tax to GDP ratio is at 14-15 percent, much lower than developed countries like Sweden which can go to as high as fifty per cent. With the tax reform, the goal is to increase this to at least 17 percent. The good news is, our infrastructure projects are already rolling out. This early in the year, about P1.3 trillion worth of infra projects have already started. Among the high-cost projects are the Mega Manila Subway Project, the Philippine National Railway South Commuter Line and the Malolos-Clark Railway. For Metro Manila, our much-needed flood control project is also finally rolling out to the tune of P25.5 billion. 

The Duterte administration is dead serious in implementing its Build Build Build program and we have high hopes that this will impact well on the Philippine economy. Although many economic experts have already started losing sleep since its implementation, let’s just be patient and give TRAIN a fighting chance.

Mabuhay!!!  Be proud to be a Filipino.