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Transition period urged for TRAIN 2

EDITORIAL

Updated

E CARTOON AUG 13, 2019The Tax Reform for Acceleration and Inclusion Act (TRAIN ) was enacted into law in 2017 to lower personal income taxes but also to raise new funds for the government, including a P2 tariff per liter of diesel and other fuel imports. This new tariff was a factor in the zooming of prices last year, although the government’s economic managers insist the bigger factor was the global increase in oil prices.

We managed to survive that period of high prices last year, principally with the Rice Tariffication Law which allowed unlimited importation of cheap rice. This forced rice prices down and the rest of market prices followed.

There was a TRAIN 2 being prepared to continue the tax program, this time by reducing corporate income taxes and by reducing the tax incentives with which the Philippines had induced
so many foreign companies to locate in our export zones. It was also named the TRABAHO bill – for Tax Reform for Attracting Better and Higher-Quality Opportunities – evidently to make it sound more attractive. But it is better known by its original name.

There were immediate negative reactions. Ten aerospace companies announced they had abandoned their plans to move from China to the the Philippines; they would go to Vietnam instead. Foreign firms already in our export zones decided to delay expansion plans.

Last week, the government’s premier investment- generating agency, the Board of Investments (BOI), spoke out against any “rush” implementation of TRAIN 2’s proposed cuts in tax incentives that had induced so many foreign firms to come to the Philippines.

BOI Managing Head Ceferino Rodolfo pointed out that the top ten PEZA enterprises may have received tax incentives amounting to P45.2 billion from 2025 to 2017, but they paid total taxes amounting to P45.3 billion. Their total exports amounted to $40.7 million; their local purchases, P110.1 billion. They employed 165,300 Filipino workers.

Philippine Export Zone Authority Director General Charito Plaza added the following figure: PEZA and its registered firms poured in a total of P10.05 trillion into the national economy from 2015 to 2017 With so much at stake, TRAIN 2 or TRABAHO should be carefully assessed lest it will cause losses much greater than its projected gains. We are specially concerned over the possible employment losses. The BOI proposes a five-to-ten-year transition period before full implementation of the new system. This should help ease any difficulties that many of the foreign firms might face in making adjustments.

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