Rough sailing for TRAIN 2

Ahead of the filing of the second phase of the Tax Reform for Acceleration and Inclusion (TRAIN) Act in the House of Representatives, the proposed bill has already drawn opposition from some senators.

The tax measure calls for, among others, the rationalization of tax holiday privileges granted to some investors and the reduction of corporate income taxes.

Senate Majority Leader Juan Miguel Zubiri said recently that no senator has expressed his or her intention to sponsor the bill.

Considering that President Duterte endorsed the bill in his recent State of the Nation Address, it should have, following parliamentary tradition, immediately drawn support from the administration’s allies in the Senate. More so from the senators who want to be included in the administration’s senatorial ticket.

Not this time. Some senators have distanced themselves from it like a plague.

But they cannot be faulted for taking that stance. They got burned, so to speak, in the first phase of the TRAIN law. With the assurance of the administration’s economic managers that new and additional taxes will have minimal inflationary effect on the economy, they approved it.

Instead, the country’s inflation rate soared, as of June, to 5.2 percent which is considered the highest in so many years. The economic managers’ explanation that the unexpected rise in the prices of oil-based products and depreciation of the Philippine peso against the US dollar accounted for the spike in the prices of basic commodities did not impress the senators.

With regard to the second phase of the TRAIN law, the economic managers said it would raise additional revenues for the government without affecting wage earners and small businesses.

But according to Zubiri, the removal of the tax perks could lead to job losses and fewer investments as some investors may move their investments to other countries, like Vietnam.

And once they pull out, getting them back may be difficult, if not next to impossible, because the country to which they have relocated would do everything in their power to keep them so they can continue to give employment to their citizens.

Unless the economic managers are able to convince the senators that measures that can effectively avoid the feared exodus of investors are in place, or President Duterte goes out of his way to lobby for the approval of the second phase, it is doubtful if it would even go past the committee level in the Senate.

With the 2019 elections just a few months away, no senator who plans to run for reelection or has political ambitions that go beyond 2022 would want to be named or perceived as having sponsored or voted for a law that sent foreign investors packing and, in the process, made hundreds of Filipinos jobless.

In 2007, Sen. Ralph Recto lost his reelection bid because of the backlash from his sponsorship of the Expanded Value-Added Tax Law. Note that social media then was not yet a potent political tool. This time, it can make or break the difference between the 12th and 13th slots on the list of elected senators.

Given these considerations, it may be prudent for the administration to start thinking of a Plan B.

For one, the administration may have to rethink it’s earlier decision to principally finance its “Build, Build, Build” program through tax revenues or foreign loans, or its combination, and not on public-private partnership arrangements that the past administration used to accomplish the same objective.

There is no dearth in local business conglomerates that have foreign partners with deep pockets that can pitch in to help the administration achieve its ambitious infrastructure goal.

Considering the wringer through which the first phase of the TRAIN law went through, the economic managers may have to go back to the drawing board to make the second phase acceptable, if at all, to the senators.