Benefits outweigh negative impact of tax reform

For the head of the Duterte administration’s economic team, the signing into law of the Tax Reform for Acceleration and Inclusion Act (Train) will change Filipinos’ lives starting next year with the implementation of lower personal income tax rates.

Consumer prices, however, are expected to pick up in 2018 as the first tax reform package will slap higher taxes on consumption, with excise taxes on oil, vehicles, cigarettes and sugar-sweetened drinks to rise.

Finance Secretary Carlos Dominguez III said the signing into law of Train by President Duterte was “the government’s biggest Christmas and New Year’s gift to the Filipino people as it will usher in real positive change for the nation.”

“The congressional passage of the first package of the Train is a sign of maturity for the Philippine economy that is now ready to meet the challenges of fixing the structural problems and inequities in taxation while generating more revenues to usher in real positive change for the Filipino people,” Dominguez added.

“The Train, which provides for personal income tax exemptions for the first P250,000 of taxable income, along with other significant personal income tax cuts for other tax brackets, provides Filipino taxpayers with much-needed relief after 20 years of no adjustment on the rates,” according to Dominguez.

Ultimately, the Train also raises significant revenues to fund the President’s priority and social infrastructure programs to reduce poverty from 21.6 percent to a targeted 14 percent by 2022, Dominguez said.

According to Dominguez, under the approved Train, the inflationary impact of the measure initially estimated at 0.9 percent will slightly go down to 0.7 percent, which would have an even more minimal effect on food, electricity and transportation costs.

In a note to clients, London-based economic research firm Capital Economics said the first tax reform package was “likely to put some upward pressure on headline inflation but, as they will be phased in over several years, the effect is not likely to be large.”