WHEN ‘PRO-POOR’ HURTS
The Philippine Star
08/29/2017

When a small farmer or fisherman who can’t barely read and write wakes up one morning to the news that taxes on fuels have increased because lawmakers have passed one of the proposed parts of the Comprehensive Tax Reform Plan (CTRP), that’s definitely not pro-poor.

Thus, it is totally understandable why some of our truly pro-poor legislators are against the bill that supports the CTRP, and which was passed without any significant changes in the Lower House. The Senate, on the other hand, has already expressed views of coming up with its own version.

If our economic team in government would have it, the CTRP would increase excise tax on petroleum products especially diesel, impose higher taxes on new automobiles sold most especially those in the high end and luxury segments, and introduce excise taxes sugar-sweetened drinks like soft drinks, instant tea, and 3-in-1 coffee.

The CTRP also calls for the repeal of 79 special laws that exempt cooperatives and state universities and colleges, among others, from paying value-added tax (VAT). The removal of the VAT exemption on certain purchases made by senior citizens is reportedly not going to be included.

Anti-CTRP lawmakers likewise argue that 14 million Filipinos, mostly coming from the marginalized sectors, depend on cooperatives as a source of loans for emergency expenses such as their children's tuition fees and unexpected family medical bills.


Campaign promise

The CTRP aims to raise some P250 billion to offset a P140-billion loss from the reduction in personal income taxes of the middle class earning not more than P250,000 a year, a popular campaign promise that President Duterte made before the 2016 elections.

The middle class may find, after doing its math, that it has a little left over from the foregone income taxes even if hiked fuel prices would affect transportation rates or the price of their 3-in-1 coffee or softdrink would be a few centavos higher.

But those belonging to the poor sector, like our small farmer or fisherman, will likely not benefit from the lowered income taxes since they do not, in the first place, file an annual income tax statement. And this sector could count to more than 20 million Filipinos – definitely not a small number.


Inflationary

Worse, they may be hit by rising inflation, which usually occurs when fuel prices are raised. The additional tax especially on diesel immediately affects prices of goods that need to be transported from farms or manufacturing sites to different parts of the country.

The proposed tax on diesel would raise the current inflation of about three percent by another percentage point, which definitely would cause spikes in the price of basic commodities like fresh foods.

It is estimated that the proposed diesel tax would also cause transportation rates to go up by as much as P0.50 per basic trip, and while the middle class will have their foregone income tax to cushion this, farmers and fishermen do not.

If government bureaucrats are nitpicking about the rich taking advantage of the currently low cost of diesel fuel, it would be a big mistake to think that raising the tax on this would only penalize those who can afford to have those big flashy sports utility vehicles.

Let’s not tinker with fuel prices without fully recognizing the impact it would have on the whole economy. We may be gaining a few billions, but this could severely restrict our chances for accelerated growth in the immediate future.


Pro-poor arguments

The CTRP, obviously, will not immediately deliver the much-touted inclusive growth for marginalized sectors of society, as our blinded government bureaucrats supporting the tax increases allege.

CTRP proponents argue that any benefits from the tax increases will be felt in the long term since the additional income derived from the new taxes as well as the streamlining of VAT exemptions will go to the government’s ambitious “Build, build, build” infrastructure program.

In the meantime, there will be intermediate schemes that will try to mitigate the impact on marginalized Filipinos, such as the Pantawid Pamilyang Pilipino Program (4Ps) and the extended coverage of beneficiaries under PhilHealth.

The government has successfully implemented the 4Ps as a conditional cash transfer scheme that encourages poor families to send and keep their young children in school, but this has benefited only 4 million households and has cost the national government more than P60 billion annually.


Automobile and sugar taxes

There are arguments that the proposed high tax rates for higher-priced vehicles would encourage corruption and tax evasion, and this must be carefully considered. There are ways by which the government may be able to discourage the growth of “black market” sales.

Overall, though, the increase in auto taxes would be beneficial to the government without compromising middle class families aspiring for their first car purchase.

Likewise, it should not affect Comprehensive Automotive Resurgence Strategy (CARS) where the government encouraged local content and manufacture of small vehicles by giving incentives to interested car manufacturers.

Opposition to the proposed tax on sugar-laced beverages, on the other hand, is reaching fever-pitch levels as several groups have openly launched their campaigns. The government proposal calls for an excise tax hike of P10 per liter on sugar-sweetened beverages (SSB).

Food manufacturers claim that the new tax will affect the poor consumers as well as sugar farmers and retailers. On the other hand, health experts are saying that sweetened beverages have caused the marked rise in obesity and diabetes, and have strained further government budgets for health care.

It’s interesting how arguments are shaping up for and against, and for sure, with the full force of the country’s food and beverage manufacturing industry, this will be a debate worth following. But that’s for another column.


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