Nakakaloko.
This is how I would choose to describe Sen. Sonny Angara’s version of the Tax Reform for Acceleration (TRAIN) committee report in the Senate.
The bill of the 2019 reelectionist Senator masquerades as being biased towards the poor. Senate Bill 1592 (SB 1592) lowered the first-year tax rates for diesel and gasoline, reduced the final tax rate for LPG, and retained the zero rate for kerosene. At the same time, it increases from P2,400 to P3,600 per year the amount of the cash transfers that will be unconditionally given to the poorest households. Senator Angara also retains the exemption for many VAT (value-added tax) transactions.
But we should not only look at particular items and forget the bigger picture. The bad news is that the bigger picture — which should be about generating enough revenues for pro-poor spending and correcting the tax structure — portrays a sharp fall in revenues.
The diluted excise tax rates on fuel mean that the expected revenue take for the first year will be cut from P70 billion to P40 billion. Moreover, Senator Angara’s bill has only lifted the VAT exemption on 36 lines, mainly transactions of government entities, but has retained the exemption for private interests, numbering more than 90 items. Worse, Angara’s bill has even inserted a provision on a zero rate for VAT for “services rendered to entities registered with the special economic zones and free port zones authority.” This will abet the tax leakage in the VAT system and will create opportunities for tax avoidance if not tax evasion.
It must be pointed out that this is a conflict of interest, for it is well known that Angara’s province is the location of the controversial Aurora Pacific Economic Zone and Freeport or APECO. Anti-APECO activists say that APECO stands for Angara’s private economic zone and free port.
Another unfair provision is his design for the unconditional cash transfer that excludes around two million poor households (in the 5th decile) from receiving social protection through the cash transfers, leaving them vulnerable to the modest inflationary impact of the fuel tax.
Further, by lowering the non-taxable income from the Finance department’s (DoF) proposal of P250,000 per annum to P150,000, Angara’s bill diminishes the income tax relief for the minimum wage and marginal income earners. On the other hand, Angara has chosen to reduce the proposed 35% top marginal tax rate down to the current rate of 32%. In addition, he allows all self-employed professionals, even those earning millions, to have an option for an 8% flat tax!
Senator Angara tries to cover up the mangled TRAIN by introducing other measures that are either cosmetic (like the tax on cosmetic surgery!) or that do not really provide additional revenue (such as the taxes on interest income and dividends) because they are already part of the DoF’s later package and the amount that they can generate is small.
And even as he has inserted such measures that cannot compensate for his accommodation of the rich and vested interests, Senator Angara has ignored the popular and tried-and-tested sin taxes on tobacco and alcohol. True, a weak version of the tobacco tax has been submitted to the Senate upon its approval by the House of Representatives. It is nevertheless an opportunity for the Senate to amend and strengthen it by having a higher unitary tax.
To summarize, Senator Angara’s bill deceives.
The bill that he packages as pro-poor is in truth anti-poor. It curtails the spending for education, health, social protection and cash transfer, and infrastructure. Moreover, it is pro-rich because of the generous package he has given to high-income earners and vested interests, including the many VAT exemptions.
We cannot allow Senator Angara to get away with his deception.
Karla Michelle Yu is the coalition networker of Action for Economic Reforms (AER) on tax reform.
