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To maintain relevance, WHO must go back to basics

By Philip Stevens

AS one of 34 executive board members of the World Health Organization (WHO) meeting in Geneva next week, the Philippines shares a pivotal role in setting the global health agenda for the next year.

The WHO’s work has never been more important to address serious and evolving international health threats. It is only a matter of time before there is another global influenza pandemic to match the devastating outbreak of 1918, and, as recent outbreaks of Ebola and Zika have shown, new and deadly diseases can emerge at any time.

As a UN organization to which almost every country in the world belongs, the WHO should make strengthening national health systems and coordinating defenses against transnational disease its priority. But it’s often hard to know if the organization has any priority.

Superficial involvement in a ballooning number of health areas has made it a directionless, ineffective, and inward-looking player in an increasingly crowded global health scene.

The WHO’s tendency to do a lot poorly has seen it fail in its core business of leading international action on transnational disease outbreaks.

Take the organization’s response to the West African Ebola crisis of 2014.

An expert panel convened by Harvard Global Health Institute and the London School of Tropical Medicine criticized the WHO for its “catastrophic” delay in declaring a public health emergency.

The worry is that WHO will fail to handle the next inevitable global pandemic, leading to needless loss of life.

Funding is part of the problem: The WHO spent just 5.7% of its 2014-2015 budget on disease outbreaks, a 50% drop on the previous two years.

The WHO’s core budget, paid by member governments, fell from $579 million in 1990 to a feeble $465 million this year. To put this in context, this is considerably less than the Philippines receives each year in foreign aid earmarked for health.

The WHO has topped up its budget with project-based donations from countries and big charities, which now constitute 80% of its overall income. But that has cost the WHO its strategic independence.

Alongside global health staples like tropical diseases and immunization, the WHO now publishes recommendations on subjects from adolescent health and headaches to traffic safety and prisons.

Jeremy Farrar, director of the UK-based global health research charity the Wellcome Trust, argues the WHO is being undermined by its inability to focus on a few core issues.

“It’s so thinly stretched,” he told Reuters. “There’s arguably no organization on earth that could cover all those (topics) at sufficient depth to be authoritative.”

This lack of focus and mission creep will be on full display at next week’s WHO executive board meeting. Bizarrely, large parts of the agenda are dedicated to discussion of how to dilute the intellectual property (IP) protections that drive discovery of new health technologies.

Given the scale of today’s global health challenges, it’s not clear how repeating a tired and long discredited debate about IP and access to medicines will help. The vast majority of treatments prescribed in both developing and developed countries are off-patent and therefore unaffected by IP rules, yet far too many still do not have reliable access to them.

The real reasons for this have been well known for decades. There are too few doctors and clinics, and a lack of social and health insurance to protect people from the cost of health care expenditures (something WHO itself implicitly recognizes in its efforts to promote universal health care). In many places, weak supply chains and poor infrastructure separate people from the treatments they need.

A narrow and divisive focus by WHO on IP may tick political boxes, but it does nothing to improve health and will only lead to more unproductive debate. It looks like a power grab by WHO staff to intervene in areas that are best left to national governments.

In 2017, former Ethiopian foreign minister Tedros Adhanom was elected as new director general on a mandate to reform and consolidate the WHO. Almost immediately, he appointed no fewer than 14 assistant director generals to oversee a huge number of program areas. This is not the work of a reformer.

Next week is the first executive board meeting under Tedros’s leadership. The Philippines and other member states need to steady the ship. To maintain its relevance, WHO must get back to basics and do a few things well, not many things poorly. It must therefore unite nations around practical solutions, not divide them in pointless debates.

 

Philip Stevens is director of Geneva Network, a UK-based research organization focusing on international trade and health issues.

Gov’t to launch promised Overseas Filipino Bank

THE Overseas Filipino Bank will be launched this afternoon in Manila — fulfilling President Rodrigo R. Duterte’s campaign promise.

The Department of Finance (DoF) said in a statement that the bank will be launched at the PostBank Center, Liwasang Bonifacio, Manila.

This comes about four months since Mr. Duterte directed through Executive Order No. 44 the transfer of Philippine Postal Bank (PostBank) shares from the Philippine Postal Corporation and the Bureau of the Treasury (BTr) to Land Bank of the Philippines (Landbank).

PostBank will perform functions of the Overseas Filipino bank, now a Landbank subsidiary — an acquisition approved by the Philippine Competition Commission last week and the central bank’s Monetary Board in December.

The lender is “dedicated to provide financial products and services tailored to the requirement of overseas Filipinos,” and will focus on delivering “quality and efficient foreign remittance services.”

“All obstacles to the opening of the bank that will cater to the needs of all overseas-based Filipinos have now been removed following last week’s approval by the Philippine Competition Commission (PCC) of the acquisition by the Landbank of Postal Savings Bank (Postbank), which will be converted into this financial institution for overseas Filipinos,” Finance Secretary Carlos G. Dominguez III was quoted in the statement as saying.

“It’s just a matter of the administrative integration of the bank. It’s an administrative thing and all the approvals have been cleared away for the acquisition,” he added.

The Finance chief said the move to acquire PostBank also saved it from bankruptcy.

Landbank President Alex V. Buenaventura said earlier that the lender’s first representative office would be located in Dubai, and the second one in Bahrain.

Moreover, Mr. Dominguez said the Department of Finance and Landbank, which he also chairs, are planning to secure licenses in other countries with large concentrations of overseas Filipinos so the lender can provide wider financial advisory services to the beneficiaries.

He said a loan package would also be made available for Filipinos planning to return to the Philippines to start their own businesses or build their homes.

Initially, the bank was planned to only cater overseas Filipino workers, but the DoF proposed to provide services to all foreign-based Filipinos to make it more inclusive, in keeping with the government’s financial inclusion agenda.

“You know, we are just fulfilling his (Mr. Duterte’s) campaign promise one by one. First, tax reform, then this new bank,” said Mr. Dominguez.

Mr. Dominguez said that the Landbank and the BTr are also exploring ways of mobilizing the savings of overseas-based Filipinos for them to invest in the country’s capital markets. — Elijah Joseph C. Tubayan

Zeroing in on the vetoed VAT provisions

When the Tax Reform for Acceleration and Inclusion (TRAIN) bill was signed into law, one of the more notable provisions was the shortening of the number of days within which the Bureau of Internal Revenue (BIR) should act on VAT refund claims from 120 days to 90 days, upon the successful establishment and implementation of an enhanced VAT refund system. While this may generally be considered as a step towards the government’s objective of making tax compliance and processes simpler for taxpayers, the same may not hold true for entities registered with the Philippine Economic Zone Authority (PEZA). Under TRAIN, the successful establishment and implementation of an enhanced VAT refund system is a condition that may trigger the imposition of VAT on constructive export sales to PEZA-registered entities by non-PEZA local suppliers.

LOOKING BACK AT TRAIN’S JOURNEY
In the House version of the TRAIN bill, a sunset provision was introduced on the VAT zero-rating of certain constructive export transactions including “Section 106(A)(2)(a)(5) or those considered as export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws,” which covers sales to PEZA entities. Accordingly, local sales to PEZA entities shall no longer be considered as VAT zero-rated once the enhanced VAT refund system is in place.

In the Senate and ultimately in the bicameral version of the TRAIN, an additional provision was introduced to expressly exclude the “sale and actual shipment of goods to special economic and freeport zones” from the coverage of the sunset provision on the VAT zero-rating. However, this provision was vetoed by the President because it goes against the principle of limiting the VAT zero-rating to direct exporters. As further explained in the veto message, the proliferation of separate customs territories, which include buildings, creates significant leakages in the tax system, which made it highly inequitable. The President’s veto effectively brought back the constructive export to PEZA entities under the above Tax Code provision; hence, covered by the sunset provision on VAT zero-rating.

Interestingly, there were no similar amendments to the VAT provisions on sale of services to PEZA entities. The successful implementation of an enhanced VAT refund system does not trigger the imposition of 12% VAT on these transactions.

UNDERSTANDING THE VETO MESSAGE
The President mentioned that zero-rating of local sales to PEZA entities creates “significant tax leakages in the tax system.” To fully analyze this statement, feel free to pick up your pens and run the numbers through a simple illustration. Let us assume that a local supplier (i.e., Supplier A) sold goods to a PEZA entity amounting to P100. Let us further assume that purchases of Supplier A from lower-tier local suppliers amounted to P80. At present, the BIR would be able to collect output VAT of P9.60 from the lower-tier local suppliers; however, the same amount of input VAT can be refunded by Supplier A since it is attributable to its zero-rated sale to the PEZA customer.

However, using the same illustration, after the successful implementation of the enhanced VAT refund system under the TRAIN law, Supplier A should already pass on 12% VAT to its PEZA customer. Under this scenario, the BIR may be able to collect a total amount of P12: (a) the initial P9.60 from the lower-tier local supplier; and (b) the net amount of P2.40 that will be remitted by Supplier A, which is calculated by deducting the P9.60 input VAT from the output VAT of P12 on the sale to the PEZA customer (i.e., P100 x 12%).

The next question that now comes to mind is whether or not the PEZA entity can recover the P12 input VAT passed on by Supplier A once the enhanced VAT refund system kicks in. The answer would depend on whether the said input VAT can be attributed to its VAT zero-rated sale.

A PEZA entity is generally entitled to the following fiscal incentives: (a) income tax holiday (ITH); and (b) 5% gross income tax (GIT), in lieu of all national and local taxes, after the lapse of the ITH period. For VAT purposes, export sales under the ITH regime are VAT zero-rated while those under the 5% GIT regime are VAT-exempt. Going back to the illustration, the PEZA entity may only recover the passed-on input VAT from Supplier A while under the ITH regime. Please note that although refundable, this would still distort the cash flow and entail additional costs (e.g., additional manpower to file and monitor the refund claims, among others) to the business. On the other hand, if the PEZA entity is already under the 5% GIT regime, the refund option is no longer available. Accordingly, the passed-on VAT becomes part of the cost that would ultimately impact profitability.

Based on the foregoing, the “tax leakage” that was referred to in the veto message could be the VAT component that the local suppliers (indirect exporters) are generally able to refund from the government even if the PEZA customer is under the 5% GIT regime.

In the past, however, the VAT zero-rating on constructive export sales to PEZA entities was not perceived as a tax leakage. Under Section 8 of the PEZA Law, economic zones are managed and operated as separate customs territories. On this basis, the Supreme Court declared that economic zones are regarded as foreign soil. Hence, applying the cross-border doctrine, no VAT shall be due on goods that are destined to these economic zones.

IMPLEMENTING REGULATIONS
Currently, there are varied interpretations as regards the imposition of VAT on sale of goods to PEZA entities by local suppliers. The BIR, in the public consultation held on Jan. 12, also opted to defer answering questions on the matter pending the scheduled meeting with PEZA officials. Unlike the equally controversial vetoed provisions of the TRAIN on the 15% employee tax incentives of regional operating headquarters (and similar taxpayers) where the implementing rules are likely to adopt the intent of the veto message, it seems the BIR may not yet have a final take on the VAT issue at the moment. This could be a good indication that the tax authorities are really taking into consideration the potential impact of the VAT veto, not only in terms of the additional cost or administrative burden of refunding on the part of PEZA entities, but also the billions worth of sale transactions of local suppliers, which could be at risk should these entities opt to limit their local purchases.

There are also a number of other considerations that the author hopes would be addressed in the implementing regulations:

• Whether or not another VAT provision left untouched by the TRAIN can be used as basis to retain the VAT zero-rating of constructive exports to PEZA entities. Under Section 106(A)(2)(c) of the Tax Code, “sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate.” The PEZA Law, which entitles PEZA entities to the 5% GIT, in lieu of all national and local taxes, is a special law that technically falls under this provision.

• Whether or not the Supreme Court decisions that regard economic zones as foreign territories based on Section 8 of the PEZA Law could still be used as basis for the VAT zero-rating following the cross-border doctrine since the PEZA Law was not included in the repealing clauses of the TRAIN.

•  The TRAIN law provides that to determine the effectivity of the enhanced VAT refund system which will trigger the imposition of VAT on local sales to PEZA entities, “all applications filed from 1 January 2018 shall be processed and must be decided within 90 days from the filing of the VAT refund application. It is unclear whether or not a single instance of failure to decide on a refund claim within 90 days would mean that the enhanced VAT refund system has not been successfully implemented. And if so, would the transactions then revert to their previous zero-rated status?

Pending the issuance of the revenue regulations, it may be prudent for the affected entities to make an assessment of the potential cash flow impact of the VAT that will be passed on. More importantly, these entities must ensure that stricter controls are in place so that purchase transactions from non-PEZA entities are supported by VAT-registered invoices and official receipts that contain all the required information under the Tax Code and to ensure that VAT refund applications are filed on time.

On the part of the BIR, it must ensure that the enhanced VAT refund system would be able to accommodate the expected surge in recurring VAT refund applications. Based on the latest information from PEZA’s website, there are more than 300 economic zones nationwide with several registered entities in each economic zone. The objectives of the government to enhance the current tax system, provide equitable relief to a greater number of taxpayers by improving disposable income levels, and ensure sources of funds to maintain the general welfare of the people, will be achieved only through effective implementation of the tax reforms.

The views or opinions in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Eileen Flor C. Abalos is a senior manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

eileen.flor.l.chavez@ph.pwc.com

Vehicles sales in the Philippines

VEHICLE SALES growth in the country slowed last year from 2016, but 2017 still saw an increase of nearly a fifth, sustaining the annual double-digit pace the domestic auto industry has been clocking since 2012. Read the full story.
Car Sales

How PSEi member stocks performed — January 17, 2018

Here’s a quick glance at how PSEi stocks fared on Wednesday, January 17, 2018.

Nation at a Glance — (01/18/18)

News stories from across the nation. Visit www.bworldonline.com (section: The Nation) to read more national and regional news from the Philippines.

Food price slump may relieve inflation concerns at central banks worldwide

FOR ALL THE WORRY about soaring oil and metals prices fueling inflation, consumers may at least catch a break at the dinner table.

Globally, food prices have been in decline for the past three months and in December costs fell the most in more than two years. Food got cheaper thanks to a slump in prices of sugar and dairy products from cheese to butter, the United Nations’ Food and Agriculture Organization (FAO) said Thursday.

Prices of meat, grains and vegetable oils fell too.

Lower prices of staples may help restrain inflation at a time when investors are betting it will pick up, spurred by a surge in commodities and the fastest world economy since 2011. A Bloomberg gauge of 22 raw materials rose for a record 14 days in a row last week, reaching a three-year high.

Central banks often try to set aside volatile food prices when deciding on interest rates, although staples do form a bigger part of inflation baskets in developing nations such as India. Even so, cheaper food will leave households with more disposable income to spend on non-essential items, helping demand.

While oil and metals prices gained from stronger manufacturing, agricultural commodities have been mostly stuck in the doldrums due to a glut of everything from sugar to wheat. The Bloomberg agriculture sub-index of futures contracts reached a record low last month.

The FAO Food Price Index fell 3.3% in December, the most since August 2015. In sugar, booming output from the European Union to Asia is adding to a glut, and dairy prices are softening after a 2017 surge amid a butter shortage. — Bloomberg

From a venture capitalist: Tips on convincing investors

For tech startups, money is the fuel that keeps a company going. Raising funds to sustain operation is as difficult as marketing a product or coming up with innovative ideas to lead the race.

Good thing there are investors who are willing to invest some money in new enterprises. But convincing investors to bet on a company, especially startups, is not a piece of cake.

Michael Lints, partner at early‑stage venture capital firm Golden Gate Ventures (GGV), knows this struggle among startups very well. For one, his current job requires him to negotiate with founders where his company can invest in. GGV, to date, has already invested in more than 40 startups in Southeast Asia, including some enterprises in the Philippines such as Lendo, Ayannah, and Carousell.

Lints has also had a fair share of struggle in courting investors back in early 2000’s when he, together with his two best friends, put up a startup that provided small enterprises with IT platforms. The lack of funds and tractions prompted them to stop its operation in 2006.

In a forum organized by QBO Philippines on January 9 in Makati City, Lints shared some pointers that startup founders should always remember when dealing with investors.

Art Samantha Gonzales

There’s a lot of money that businesses can get from investors. But the question is, how do you get those money?

According to Lints, allowing investors to invest in a company is more that just about money. Startup founders should, instead, consider it as a form of marriage that will last for at least ten years.

“It’s all about the marriage between you and the investors ,” he said. “There’s always this weird relationship between investors and founders because [when money is involved,] people feel some form of guilt … But you have to view it as a partnership, and partnership means we’re building this business together [and that] we want you to be successful. If you’re successful, we’re successful.”

Art Samantha Gonzales

Startups should not consider fundraising as a side gig. Instead, Lints said, they should take it as important as their sales.

“[Companies] do fundraising two months before they run out of money, and what happens when you do that, you’re gonna [have] the wrong partners,” he said. “Fund raising is a part of your business, it’s not different from sales. Fund raising is something you do every single day. And what does that mean? That means that you do research.”

In talking to investors, he said, startup founders should “do their homework” and research by reading about investment‑related articles that are available online.

“If a fund is coming, you should know. If a new Chinese player is coming to the Philippines to look for a deal, you should know. You should be the first one to know. The next thing is to ask, how can I find a way to be connected to these guys?” he said.

Art Samantha Gonzales

Before meeting with an investor, founders should make sure that all important files and documents containing crucial information about their company are organized.

“Whenever an investor asks questions about your finance, contracts, you wanna answer them fast,” Lints said. “So if you take up to two months to answer because you have to look [for an answer], you can’t find it, that’s a sign in itself. It basically means you don’t have your [things] in order. It’s something that you can solve, but it’s a worry.”

In pitching to investors, conveying a clear message through a presentation is essential. And, according to Lints, founders can achieve an effective pitch by practicing.

“I’m 42, but every single pitch, I practice. Every single [time]. I wanna make sure that the story I’m telling is sticking with investors I’m talking to. Use your friends, relatives, to practice with,” he said, adding that founders can even film themselves while delivering their presentation to make their pitch clearer.

Art Samantha Gonzales

While there is no formula in creating a successful pitch presentation, Lints said a good one should have at least three key contents: context by “describing how the world looks today,” the change that the company introduces through its product or service, and the world after using this change.

“Your company is about making a change because if you’re not changing anything, that means you’re not also starting anything,” he said.

He added that presenters should also let investors know how they will generate revenue and scale the business. In proving the company’s relevance, startup founders should present the growth in traction that their companies have generated.

“Investors will always ask about traction. Try to show that you’re relevant,” he finally advised. “And relevant means yesterday we had 200 users, now we have 400. But don’t just show growth. Explain why you’re growing.”

TJ Manotoc’s new YouTube channel tackles mental health

The battle for and the subsequent passage of the Mental Health Act has opened the floodgates for the discussion for mental health. Plenty of influential people—mostly young artists—shared their own struggle with depression, outspoken in their call for a more supportive environment.

But depression and anxiety were not sicknesses that appeared overnight. They have always been there, it’s only now—like Harry Potter against Voldemort—that we’ve called the monster out by its name. Journalist TJ Manotoc, now 40, in a short video he posted on YouTube and Facebook, shared how he went through depression in his teenage years.

You Will Be Alright, the name of both the FB page and YouTube channel, is Manotoc’s passion project and 40th birthday gift to himself, to pay it forward to one Max Ricketts, a fellow patient who had bipolar disorder, and who had become an inspiration to him 27 years ago.“I said look this guy, he’s alive and well, went through worse than I am, and he’s okay,” Manotoc said during the launch of You Will Be Alright on January 15 at PaperworkPH, New Manila. “That really was my peg. I had a peg.”

His decision to go public about depression was borne of a serendipitous televised interview (“around seven to eight years ago,” Manotoc recalled) with Jean Goulbourn of the Natasha Goulbourn Foundation, which helps manage the Hopeline 24/7 suicide prevention hotline. And the only reason Manotoc had that interview was because the main host who handles their show couldn’t make it to the studio in time due to traffic. Manotoc describes his discussion with Goulbourn to be “casual”, where he openly shared that he too was going through depression. That was when most people, including his bosses at his TV station, found out about it. Eventually he went with Goulbourn to give a talk about depression awareness in a school in Cavite. “I realized that just sharing my story was inspiring. I told [her] back then that I will write a book about it,” Manotoc said.

And while the book project is on hold, Manotoc took to YouTube. “Kids today are very moved by video, so that’s why we decided to do it on video format, to be what Max was to me to thousands of children who are online.” He also enjoys watching YouTube himself, telling SparkUp that he’s a fan of the vlogs of Casey Neistat and enjoys watching tech videos.

“Maybe they don’t have access to me physically but if they see me, they see this and it touches them enough to make them fight. Just enough for them to say ’I’m not going to give up because I know a guy who went through this and he made it’,” Manotoc continued during the launch.

“When I was in my darkest moments I had no idea what I was going through… I had no goal until I met Max.” But with the internet, perhaps the youth of today don’t need to wait for too long to find someone who inspires them. “Thanks to the internet, with Youtube and Facebook, it’s my turn to give hope and I want to use my story to encourage others to tell their stories. This is going to be more than my story.“

What kind of content can we expect from You Will Be Alright? Aside from interviews with people who have battled their own mental monsters, Manotoc said that they will also interview people who have lost their loved ones to mental health issues such as Goulbourn, who lost her daughter to suicide, and the gamut of opportunities—medical, alternative, and the like—that those with mental health problems can use. “This is such a complex situation,” Manotoc told SparkUp. “People have different trigges and there are different ways to get out.”

But as we wait for more content from You Will Be Alright, perhaps we can take solace from the advice Manotoc has to the youth who, like him, are struggling with anxiety and depression.

“Accept yourself,” Manotoc told SparkUp. “Don’t be angry with yourself, the world, or whatever you might have.” He likened living with depression to having a flat tire, and how one has to step out of the car, notice the tire and change the tire to be able to continue on with one’s journey safely. “You need that action of stepping out of yourself, looking a yourself. It starts with accepting it. You can’t try to cure your situation with being angry.” Personally, what helped him out was positive affirmations, repeating “I accept myself” ten times to himself out loud in the mirror, to himself, and in writing.

“And seek help,” he added. “You shouldn’t be afraid to talk to someone.” He hopes that with You Will Be Alright, those with mental health issues will find people to reach out to for help. He also referred calling HOPEline (tel no. 804-HOPE/0917558HOPE), the 24/7 mental health and suicide prevention hotline managed by the Department of Health, World Health Organization and the Natasha Goulbourn Foundation.-LDG

LETTER TO THE EDITOR | Five reasons why the TRAIN will not benefit the poor

Dear Editor:

These reiterations are in reaction to the article “Assessing TRAIN” by Mr. Filomeno Sta. Ana of the Action for Economic Reforms (AER), which appeared on the January 8, 2018 issue of Business World.

IBON has repeatedly presented its evidence-based analysis of the TRAIN (basing on the Department of Finance data no less) and consistently deepened our explanations to the public. Our 40 years of institutionalization has equipped us with analysis sets to provide a popular understanding of socio-economic issues.

The Duterte administration claims that the Tax Reform for Acceleration and Inclusion (TRAIN) Law will benefit the poor in terms of lower personal income tax, unconditional cash transfers, and new infrastructure. It also describes the new tax law to be inclusive and even progressive. IBON belies these false claims. Under TRAIN, the poor stand to lose while the rich will gain.

1. TRAIN will not benefit the poor majority of Filipinos with lower personal income tax.

According to the government, 6.8 million low- and middle-income families will be completely exempted because they are earning less than the P250,000 personal income tax threshold. But this figure includes millions of minimum wage earners or otherwise those in informal work with low and erratic incomes already exempted by law. The 6.8 million families certainly deserve income tax cuts to cope with rising costs of living. But of the country’s total 22.7 million families, the personal income tax cuts for most of the reported 7.5 million personal income tax payers still leaves as much as 15.2 million families without any income tax gains from this measure.

Yet, at the very start of 2018, these families have already had to deal with more expensive goods, such as food and drinks, and cooking expenses. Jeepney and bus fares, electricity and other utility fees are bound to increase due to new taxes on oil products including liquid petroleum gas (LPG), kerosene, diesel, and gasoline. Other price hikes abound when the imposition of value-added tax (VAT) on previously exempted services and goods takes effect. Note that the value-added tax slapped on petroleum products per Republic Act 9337 of 2005 drove up inflation from 6.0% in 2004 to 7.6% in 2005.

2. TRAIN is pro-rich.

Government slams TRAIN critics who say that the tax program is anti-poor. Yet it is the country’s richest who are among the biggest gainers from TRAIN’s income tax reforms. The richest 1% of families with incomes of over P1.5 million or more a year will have an average of P100,000 to over P300,000 additional take-home pay annually especially when income taxes are lowered further in 2023. This is on top of how the rich will pay billions of pesos less in estate and donor taxes. Also, the richest 10% already earning an average of P104,170 monthly according to Department of Finance data, will have P90,793 more every year. Meanwhile, every chief executive officer (CEO) already earning P494,471 monthly will have P88,568 more in their pockets every year.

3. TRAIN-provided cash transfers are temporary.

That TRAIN will provide P200 per month in unconditional cash transfers to the poorest 10 million Filipino households from 2018 to 2020 is an indirect admission by government that the TRAIN’s taxes do put an additional burden on the poor. The relief ends after the third year while the greater TRAIN tax burdens are permanent.

4. Infrastructure spending is biased away from poor regions, and biased away from the kind of infrastructure projects that the poor directly need or will directly use.

There is a general trend of higher infrastructure spending in regions of low poverty incidence, and low infrastructure spending in regions of high poverty incidence. This is observed when comparing the value and regional distribution of the government’s flagship infrastructure projects and poverty incidence by region. For instance, the NCR has the lowest official poverty incidence of 3.9% but takes up the largest chunk of flagship projects at P343 billion, while the Autonomous Region of Muslim Mindanao (ARMM) with the highest official poverty incidence of 53.7% accounts for among the least flagship projects at just P5.4 billion.

Also, instead of irrigation, milling factories, and post-harvest facilities; public schools; public hospitals; and mass housing, which millions of poor Filipinos need for their livelihoods and welfare, the Duterte administration’s flagship projects are mostly big-ticket transportation infrastructure eyed by oligarchs and their foreign counterparts for business, such as roads, bridges, fly-overs, railways, seaports, and airports.

5. TRAIN remains regressive.

The Duterte administration claims that TRAIN is progressive, but this should mean that the people are taxed according to their capacity to pay. On the contrary, the poor stand to bear the greater burden under TRAIN.

According to official data, only the richest 20% Filipinos earn the family living wage (FLW or the amount needed by a family of 5 to live decently ) or more (P30,000 per month on the average for 5 persons).

Meanwhile, the poorest 80% earn way below the family living wage, but they are being made to pay the same additional taxes as the richest, while the latter will even be relieved of certain tax obligations. While the middle class deserve lower personal income taxes, it is unjust that those earning millions monthly should be taxed less.

Government can undertake concrete measures towards genuinely progressive taxation by raising direct taxes on the richest such as personal income tax and corporate income tax, while reducing indirect taxes such as VAT and other taxes on consumer products. IBON also proposes steps, which, while temporary, may ease the burden on the poorest: (1) Maintain exemptions on products where the poorest are directly affected; (2) Tax the rich more, specifically, raise taxes on those belonging to the highest income bracket; and (3) Allocate specific budget items for essential social services.

Sonny Africa
IBON Executive Director

House gets DoF proposal to cut corporate tax

THE ADMINISTRATION of President Rodrigo R. Duterte submitted to the House of Representatives on Monday the second of up to five planned tax reform packages — seeking to cut the corporate income tax rate and remove fiscal perks of sectors that do not need them — as lawmakers returned from a month-long Christmas-New Year break, the Finance department announced on Tuesday.

“The Department of Finance (DoF) has formally submitted to the House of Representatives this week the second package of the Duterte administration’s Comprehensive Tax Reform Program that aims to reduce corporate income tax rates and modernize fiscal incentives to investors… as committed… by Secretary Carlos (G.) Dominguez III last year,” the DoF said in a press statement.

The Constitution requires tax laws to emanate from the House, although the Senate can hold parallel public hearings without formally approving such measures until after the House does so.

That was the case of the first package which the DoF submitted to both chambers in September 2016 and which was enacted as Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion, on Dec. 19 last year. Slashing personal income tax rates as well as simplifying donor’s and estate tax systems, while plugging projected foregone revenues by either hiking or adding taxes on fuel, cars, minerals, tobacco, some investment products and sugar-sweetened drinks among others, will yield estimated net collections of P89.9 billion in the first year of the law’s implementation.

Yesterday’s press release quoted Finance Undersecretary Karl Kendrick T. Chua as saying that the just-submitted second package, which DoF designed to be “revenue-neutral,” seeks to gradually cut the corporate income tax rate to 25% from 30% currently and to modernize fiscal incentives for businesses by making them “performance-based, targeted, time-bound and transparent.”

The DoF estimates that redundant investor perks have been costing the government more than P301 billion a year in terms of foregone revenues.

“… [I]n general, we are giving up almost 0.8% of GDP (gross domestic product) so far… from these income tax holidays and custom duty exemptions. Together with the VAT, it is P301 billion, or two percent of GDP,” Mr. Chua said, clarifying that “[t]hese are only the investment incentives” and “do not yet include exemptions from the payment of local business taxes and the estimates on tax leakages.”

Citing 2015 data, Mr. Chua said income tax holidays, special rates, custom duty and import value added tax (VAT) breaks made up 53.77 billion, 32.48 billion, P18.4 billion and P159.82 billion, respectively, of foregone revenues that year, “almost five percent of national government revenues and 0.78% of GDP.”

Central bank looking out for tax reform’s wider impact on inflation

THE BANGKO SENTRAL ng Pilipinas (BSP) may raise interest rates should tax reform trigger price increases for all other consumer goods and services as well as wage hike petitions that, in turn, could push inflation beyond target.

“For the BSP, our concern there is the secondary impact on inflation. We’ve always understood that it would have an impact on inflation in the short run, but we don’t expect it to last,” BSP Governor Nestor A. Espenilla, Jr. said yesterday at the Edsa Shangri-La Hotel.

“It will last if people begin to believe that inflation is going overboard… and we may need to react to that.”

Enacted as Republic Act No. 10963, the Tax Reform for Acceleration and Inclusion (TRAIN) reduces personal income tax rates and provided a simpler system for computing donor and estate taxes. Foregone revenues will be offset by the removal of some exemptions from value-added tax, alongside higher tax rates for fuel, cars, capital gains and new taxes for sugar-sweetened drinks, among others.

The BSP has said that it expects the new taxes to add “less than one percentage point” to overall inflation, hence, keeping overall price movements manageable.

Pressed further, Mr. Espenilla said TRAIN’s second-round impact which the central bank is looking out for would include increases in daily minimum wage, the cost of other products and services even if these are not directly hit by the additional excise taxes imposed starting this month.

“We are looking at the secondary effects and on the impact on expectations of people. When people try to ask for more wages because of taxes, that’s a secondary effect that we need to evaluate and analyze the impact,” Mr. Espenilla said in an interview.

“When people try to jack up prices everywhere in the system although they are not part of the direct hit of TRAIN… we have to evaluate that.”

Mr. Espenilla said the new tax law gives people a sense that the prices of all other commodities should be rising.

GENERALLY POSITIVE
Despite this, Mr. Espenilla sees the tax reform as “positive” for the Philippine economy as it would unlock more disposable incomes despite the pickup in the prices of consumer goods.

“The economy is expected to continue to grow strongly this year and consumption spending will remain strong,” he added.

Bank economists have been flagging the need for the central bank to raise rates in order to keep up with rising inflation and contain the build-up of risks in the financial system, as well as with rising global yields as the United States tightens its monetary policy further. Last year saw the Federal Reserve increase policy interest rates three times, and another three increases are expected in 2018.

Mr. Espenilla said Philippine monetary authorities will bare new inflation forecasts during their Feb. 8 policy meeting — their first this year — as they have incorporated TRAIN’s impact into their baseline forecasts.

The Monetary Board kept borrowing rates unchanged during its Dec. 14 review as it saw inflation settling within the 2-4% annual target until 2019. The BSP expects a 3.4% average inflation this year, coming from 3.2% in 2017.

“It will be an interesting policy meeting,” Mr. Espenilla said.

“That will give us a better handle as to whether we can continue our initial assessment that we don’t necessarily have to react to this because this is known as transitory and minimal.”

There appears to be a change in tack, following previous assertions by central bank officials that they have enough leeway to keep any tweak on policy interest rates on hold.

EXTERNAL RISKS
Mr. Espenilla also flagged potential risks from global developments that could take a toll on the Philippine economy.

Continuing uncertainty for the United States’ economy, potential instability in Europe amid the United Kingdom’s exit from the European Union, political tremors in the Middle East and tensions on the Korean peninsula could roil markets worldwide.

“We can get a curve ball from any of these issues,” Mr. Espenilla said, adding cybersecurity threats to potential market risks.

Still, the central bank chief said prospects remain “very good” for the Philippine economy this year amid indications that robust growth will continue with a fiscal deficit that’s under control and a strong banking system.

RESERVE STANDARDS
Mr. Espenilla said Philippine monetary authorities are carefully timing their plan to reduce the 20% reserve requirement ratio imposed on big banks, mindful that the financial system remains awash with cash despite some tightening in liquidity conditions in December.

“There’s the basic management of liquidity, and there’s also the desire to change the way we manage liquidity,” the central bank chief said.

“We want to substitute reserve requirements with open market instruments without necessarily increasing liquidity. The BSP is planning such a maneuver.”

Mr. Espenilla has said that he wants to see the reserve standard cut to single-digit levels to remove such “inefficiency” from the banking system, even as he said such an adjustment will be done gradually in order not to flood the market with cash and trigger imbalances in the economy. — Melissa Luz T. Lopez

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