“Additional taxes serve a noble purpose other than increased revenues.”
The implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law started at the same time we welcomed the new year with fireworks displays and family gatherings. The TRAIN Law is part of the Comprehensive Tax Reform Program of the Duterte Administration, which seeks to facilitate a simpler, fairer, and more efficient tax system.
The key components of the TRAIN Law include:
Lowering of Personal Income Taxes
Expanding the Value-Added Tax Base
Increasing Excise Tax of Petroleum Products and Automobiles
Increasing the tax of sugar-sweetened beverages
Simplifying the Estate and Donor's Tax
The effects of TRAIN’s implementation have already been felt by different segments of society.
On one hand, the recalibration of income tax brackets has provided tax relief for middle-income earners, in the form of increased take-home pay. On the other hand, the increase in excise and FAT (sugar-sweetened beverages) taxes has prompted retail stores, supermarkets, and oil retailers to increase their prices. For now, it is difficult to ascertain if the increase in excise and FAT taxes effectively offsets the increase in take home pay.
Typically, the imposition of additional taxes will generate an unpopular sentiment from the public. The case is more severe in the Philippines as the public generally believes that most of the taxes they pay goes to corruption instead of public services. However, additional revenues are necessary to fund various big-ticket infrastructure projects of the Duterte administration. These infrastructure projects, in turn, would actually help improve individual productivity rates and reduce costs brought about by traffic and congestion.
In addition, no direct taxes are being levied on basic necessities such as water and electricity. There are state agencies tasked to regulate the prices of basic necessities, e.g. ERC for power, LWUA for water.
In fact, additional taxes serve a noble purpose other than increased revenues. For example, additional taxes on sweetened beverages actually encourage people to drink water, which is cheaper and healthier. Studies by the British Medical Journal reveal that additional taxes on sugar-sweetened beverages resulted in the reduction of both obesity rates and heart-related deaths.
Most of the taxes imposed under the TRAIN are consumption taxes by nature, which should encourage more savings. If there is any takeaway we can get from any of the perceived negative effects of the TRAIN implementation, it is that we would become more circumspect in our consumption and spending patterns by giving priority to necessities than luxuries.
Every tax policy has its pros and cons. Positive or negative impacts may also be brought about by any tax reform initiative. However, in the bigger picture, additional taxes are necessary to fund our growing demands for improved mass transportation, mobility, and basic services.
As tax-paying citizens, it is also our responsibility to ensure that our tax contributions go directly to the coffers of government, and not to the pockets of unscrupulous officials.
At the end of day, tax compliance and vigilance are necessary to ensure the effectiveness of any tax policy.
Tax Reform deserves a chance to succeed, right?
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