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Stop TRAIN 2  before it turns  away  more foreign  investments

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E CARTOON MAR 21, 2019When the country’s economic  managers  first announced plans for the Tax Reform for Acceleration and Inclusion Act (TRAIN), they  underscored  its provision  to lower income tax rates for individuals – from 30 percent to 21 percent  for most  employees.  To offset  the expected loss in government revenue, they said, the law  would raise new funds, one of which  was a P2 tariff per liter of diesel and other fuel imports  where there was none  before.

The lower  income tax rate indeed made it a tax reform law  and it was  duly welcomed by small wage earners.  But  the new P2 tariff on diesel imports started pushing  up market prices all over the country. For it raised the price of  diesel, raising in turn the prices of market goods brought  to markets  from farms on diesel trucks.  Government  blamed  other factors for the high prices, such as high world oil prices and price manipulation  by local traders, but there is no doubt  the new tariff  on diesel was  a key factor.

There  was   to  be  a TRAIN 2 —  hopefully renamed TRABAHO bill  for Tax Reform for Attracting Better and Higher-Quality  Opportunities —  providing for a lower corporate  tax rate.  But also included  many provisions  removing the incentives with which the government  had  attracted many foreign enterprises to come to the Philippines’ export zones.

TRAIN 2 was never enacted into law because of TRAIN 1’s impact. But it  continues to hang over the head  of  foreign investors already in the Philippines. Many have decided to defer  expansion  plans.

 Last week,  ten  aerospace  companies announced   they had abandoned  their plans  to invest in the Philippines. Aerospace Industry Association  of  the Philippines  President  Dennis Chan said  the ten foreign companies  had  earlier made known their intention  to move from China and   set up manufacturing and assembly operations in the Philippines.  They will now go to Vietnam instead.

 It has been one year   since  TRAIN 2 was suspended  because of the ill effects of TRAIN 1. It may be time to review it and perhaps retain the lower corporate tax but  scuttle  plans  to remove  so many  of the incentives to foreign investments  as they  are evidently still needed.

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