Far Eastern University

Nicanor Reyes Sr. St., Sampaloc, Manila,

Ineffectiveness of 2018 Philippine TRAIN Law

In partial fulfillment of the requirements

For CASE

Prepared and submitted by:

Carla L. Olitan

Submitted to:

Mrs. Karoline Palparan

November 2018
The Tax Reform Acceleration and Inclusion is already implemented and took effect on
January 1, 2018 in the Philippines as per signed by President Rodrigo Roa Duterte last
December 19, 201 (“International Financial Law Review,” 2018). It was identified as
Republic Act 10963 which the primarily aim is to make the tax system simpler, fairer, and
more efficient (Carolino, 2018). Basically, the objective of this law is to increase the
revenue of the Philippine by means of deducting taxes from individual salaries while
imposes higher excise taxes on sweetened beverages, oil, vehicles and cigarettes to
compensate for reduced personal income tax rates (“Asia’s News Monitor,” 2018). Hence,
Philippine is currently facing its economic issue specifically inflation that makes Filipinos
bothered for their day to day activities and one of the primary reasons behind this inflation
was the implementation of Tax Reform Acceleration and Inclusion or simply the TRAIN
Law. The implementation of the Train Law said to be the main reason of the rapidly
increase of the inflation rate in the Philippines that makes it ineffective. The Philippine
Statistics Authority earlier reported that headline inflation accelerated to 4.5 percent in
April 2018, higher than the previous month's 4.3 percent and the 3.2 percent in April 2017
(“Asia’s News Monitor,” 2018). With these, it can be implied that the inflation aroused from
2 to 4 percent within four months. Accordingly, TRAIN Law reflected the increase in prices
for the primary needs or daily commodities of an individual such as oil, electricity, and gas
that a company uses for producing and transporting food and some other basic goods.

Under the administration of President Rodrigo Roa Duterte, they said that the power of
the executing this project is to increase and solve the economic issue of the Philippines.
Contrary, it’s not a perfect solution for the economic issue of the Philippines simply
because at the first place, the effect of this project is accelerated by all the population in
the Philippines including the poor that is also considered as the consumers of those
products, thus, this law can be concluded as anti-poor since even the non-working citizen
of the country will be charge by the Value-Added Tax on their daily commodities.
Secondly, even students are experiencing the increasing fares caused by the taxes that
they’ve put for the oil and retracted into transportation fare by the drivers. Thirdly, some
of the government officials have been wasting public funds. And the fact that government
failed to cushion TRAIN’s effects on poor Filipinos are such a proof of ineffectiveness of
implementing this law. On the other hand, this only show that TRAIN’s raised oil prices
permanently and greatly that burdens low income families (IBON, 2018). It can be seen
that the administration is actually targeting the increase in taxes when it comes to oil,
transportation as well as the gasoline and other primary necessities that greatly affect
poor Filipino families for the survival of themselves.

Exploring the implementation of this 2018 Philippine TRAIN Law underly the idea of
heavier scale as symbol of disadvantages itself over its advantages. Some of the
disadvantages that commonly being seen by an individual is firstly the prices of
commodities may continue to rise as explained by the administration of Duterte that it is
expected to continue until 2020 which possibly increase the inflation too. They contend
that the reduction in income tax is rendered meaningless by the tremendous increase in
the taxes to be imposed on consumer goods, prime commodities, medicines, electricity,
and fuel. In particular, the prices of gasoline and fuel products are expected to increase
by three to four pesos per liter (Avecilla, 2018). Earlier, jeepney passenger had been
shocked and complaining regarding the for the newly approved 10 pesos minimum
jeepney fare by LTFRB and this could be the result of another inflation due to the Tax
Reform Acceleration and Inclusion. It even burdened the students since they are highly
affected by this increasing fare of jeepney that’s why some of them are protesting against
this TRAIN Law. As being specific, the increase in taxes for gasoline and fuel
encompasses the idea of value added tax also known as VAT that an entity might use as
the reason to put a higher price to their products as equally fair to the increase in taxes
that are being charged to them. Similarly, it might affect the man power that demands in
increase in wages which will also add to the cost of manufacturing goods and the delivery
services.

Secondly, the price hikes of commodities may lead to further increase in percentages of
levels in the aspect of poverty and unemployment. About 15.2 million families who already
do not pay income tax because they are minimum wage earners or informal sector
workers with erratic incomes will not have any income tax gains. Yet while not getting
increased take home pay, they will have to endure price hikes as a direct or indirect effect
of higher consumption taxes (IBON, 2018). Aside from the fact that they are minimum
wage earner which obviously mean that their income is only enough for purchasing their
daily necessities is the fact that they are not beneficial of this law because they’re currently
facing the hike of prices on the commodities that reduces their monthly income. According
to the presented inflation rate by the Philippine Statistic Authority, additionally, upward
prices pressure came from: alcoholic beverages and tobacco (21.6 percent from 21.8
percent in September); clothing and footwear (2.5 percent, the same pace as in the
previous month); furnishings, household equipment and routine maintenance (3.7 percent
from 3.5 percent); health (4.3 percent from 4.1 percent); communication (0.5 percent, the
same pace as in September); recreation and culture (3.1 percent from 3 percent);
restaurant and miscellaneous goods & services (4.2 percent from 4 percent). Meanwhile,
cost continued to fall for education (-3.8 percent, the same pace as in the prior month).
Moreover, the education system as part of the said to be focus of “build, build program”
by this administration that is considered as one of the main tools for implementing the
TRAIN Law continuously fall apart. Subsequently, people starting to see the ineffectuality
of this project since they are do not have the monopoly to afford their commodities as the
price hikes and inflation continue to arouse. Being exact, TRAIN law imposes higher
excise taxes on sweetened beverages, oil, vehicles and cigarettes to compensate for
reduced personal income tax rates (Bangkok, 2018). Most of the mentioned are the
common necessities that humans need in order to survive on their daily lives, thus, this
implies some of the population will not be capable to afford some of the products that they
need since the commodities are now expensive.

Thirdly, according to Avecilla “It is also pointed out that the TRAIN Act comes at a bad
time because many government officials have been wasting public funds” for instance,
the issue that Philippine faced regarding the Dengvaxia vaccines that government
invested a million of cash that turned out to be expiring soon because the Department of
Health sees it as an unsafe vaccine plus the overseas trips of government officials which
are either useless or unnecessary. It had been useless since it faced the issue in regards
with the public trust, it can no longer be useful since majority of the population aren’t
willing to voluntarily do the vaccination. This is primarily caused by the statement that
says by the French pharmaceutical company Sanofi Pasteur last November,
manufacturer of Dengvaxia, announced that Dengvaxia may cause a person to develop
a more severe type of dengue if they had never contracted the mosquito-borne disease
prior to immunization (Santos, 2018).

Another one why does it became as an ineffective law is because of the failure that
government wasn’t able to cushion TRAIN’s effects on poor Filipinos. One of the primary
copes up for this TRAIN Law is the unconditional cash transfer also known as UCT.
However, Senators hit yesterday concerned government agencies for their failure to
implement the unconditional cash transfer (UCT) program to help the poor cope with price
increases due to the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Romero,
2018). There are 10 million families to be transferred by 200 pesos per month but up until
now it still not designated to all the population only four million households there are
remaining 6 million households to be distributed by this UCT. The UCT is broken down to
three beneficiary programs: the Pantawid Pamilyang Pilipino Program (4.4 million
households), the Social Pension Program (three million households) and Listahahan
Program (2.6 million households). Reconsidering the price hike on basic commodities this
unconditional cash transfer program isn’t enough since 200 pesos nowadays are just like
a peso that immediately disappeared. In an interview after the hearing, Gatchalian said
that the P200 per household allotment is insufficient to cushion the poorest 30 percent of
the population, as prices of diesel and gasoline products are expected to spike by 2019
due to new excise taxes imposed by TRAIN (Casayuran & Rosario, 2018). In addition, he
also said that “House Bill 7653 will repeal the anti-poor and anti-people provisions of the
TRAIN law so as to lessen the burden of consumers, because they are the ones bearing
the brunt of the TRAIN law. They don’t even feel the supposed 6.8% growth of the
Philippine economy,” It can be concluded that our government system and its projects
aren’t aligned with the capacity of the economic currency of the Philippines and cannot
be adapt with this kind of system and laws.

Knowing the reason of the administration Duterte behind this law, we can’t still deny the
fact that this affects the burden of every Filipino workers including those labeled as poor.
"I don't think TRAIN will provide significant impact to an average wage earner. It is like
the government is just giving us a new perspective to look at our taxes. You have higher
pay, but electricity, transport, grocery bills will also be higher," Agapito said in an
interview. Big percent of Filipino workers said that TRAIN is anti-poor, in fact it is actually
favorable for the rich people especially the government workers. The critics maintain that
it is easy for politicians to defend the TRAIN Act because politicians wallow in power,
wealth, and privilege. More specifically, politicians have generous expense accounts by
which practically everything they purchase, such as groceries, airline tickets, and
automobile fuel, are paid for by the taxpaying public. In other words, it’s easy for the
members of Congress to impose higher taxes on basic commodities since they are hardly
affected by such tax hikes. Meaning to say, they are dependent on how it will benefit
themselves without considering the possibilities that this certain law will have its big
impact such as the increase of inflation rate. Sadly, this country is now living in the world
where everyone is inconsiderate on their surroundings given the fact that they are a leader
which mean that they should’ve think in a deep manner when it comes to decision making
are not responsible and discipline enough. Thus, we don’t have the assurance that all of
the taxes that government got will go to the budget for social services and infrastructure
in the Philippine.

Seeing the failure of implementing this law is underestimating the burden of minimum
wage earners or even the poor simply because the VAT and oil tax is increasing
substantially in this year and will continue afterwards. Government emphasizing that we
should see the good benefit of this tax exemption but definitely doesn’t see the reality and
the consequences that Filipino are getting poor as it is to be. We’re expecting a project
that will help every individual in this country to lessen their burden, but it seems that this
project isn’t to be in that way comparing of how government wants this to reflect to the
citizen. Socioeconomic Planning Secretary Ernesto Pernia said he expects the current
surge in inflation, which is due in part to an overhaul in the taxation system, to be
temporary and will normalize towards the end of the year (Bangkok, 2018). However, it is
almost end of the year but the normalization that are being said is not actually happening.
It is indeed that this inflation because of the TRAIN implementation will continue to work
and affects the living of every individual in this country.

Since Tax Reform Acceleration and Inclusion Law focuses on the ‘build-build program’
there are possible solutions for this fast growth of inflation. Firstly, in regards with the price
hikes on basic commodities it is indeed that majority of Filipinos are wasting their money
for their personal needs that are somehow doesn’t need to afford those, they are lack of
discipline with themselves when it comes to priority that’s why the word poverty exist.
Another one is in regard with rich and middle-class people purchasing products since they
are in a powerful position to influence inflation rates.

1. The key economic concept at work here is demand. The discretionary expenditure
of the rich and upper middle class represents demand that they could, if they really
wanted to, forego. If a large enough number of rich and upper middle-class people
do this, they could potentially exert downward pressure on prices. Eat less rice and
prices of rice go down. Drive less and consume less fuel and they can bring fuel
retailers to their knees. Turn off their air-conditioners and the grid will be awash
with excess capacity. Buy less $200 sneakers, and less foreign currency will be
horded by retail barons to pay for container-loads of products that are irrelevant to
the poor (BenignO, 2018).
2. Government should focus more on the education because it can be the greatest
weapon for any battle, besides it is said to be that youth are the hope of countries.
Nograles said that, “To effectively lower the cost of education, we must expand the
capacity of public schools, including our state colleges and universities by building
more school buildings and more classrooms” (Quismario, 2018).
3. Enhance the road connectivity especially in the provinces because it can be at
some point a convenience, furthermore, health care infrastructure. According to
Nograles “to lower the cost of transporting goods we must construct more farm-to-
market roads, bridges and highways; and to reduce healthcare costs we must
improve the capacity of our public hospitals and rural healthcare units in the
provinces,” (Quismario, 2018)
4. Proper allocation and execution of funds such as the double rate to unconditional
cash transferred or simply UCT.
5. Don’t rely with the activist and influenced yourself to do so, because your
perception and preferences may not similar with their beliefs and preferences in
life. The solutions don’t lie in more rallies, more “activism” and more social media
noise. It lies in focusing on stuff one has direct influence over. For those with a lot
 of money to spend on the wares hawked by those manicured “influencers” who
infest social media, the best contribution to the so-called “cause” of helping the
poor cope with inflation is simply to stop being victims of clever marketing and stop
spending on idiotic stuff. It’s that simple, really (Benign0, 2018).

Tax Reform Acceleration and Inclusion or the TRAIN Law is in ineffective regardless of
the countable benefit of this because generally its features are not aligned with this
government system. It increases the possibility of inflation due to inflation might increase
the ratings of poverty and unemployment since majority of the Filipino citizen are labeled
as poor and doesn’t have the monopoly to buy basic commodities anymore, especially
now that the price hikes are in operation. It is ineffective, because it doesn’t benefit
Filipinos but rather it added up another issue to be burdened by poor citizens of this
country. The implementation and operation of this law are lack of plan and doesn’t exert
efforts for the success and generate this program very well, even the unconditional cash
transferred aren’t enough to 10 million household for the survival of their day-to-day living.
Social services that government promised to be offered when this law is already
implemented are now gone, not literally gone, but it is nit recognizable. There is no
development in terms of this projects, it is lack for the whole population that this country
has. Spark said, in order for this administration to save face they must admit their misclaim
and revoke TRAIN immediately before the economy dips further (Chavez, 2018).

In the end, the ineffectiveness of this Tax Reform Acceleration and Inclusion can be seen
in every corner but it is still a fact that this TRAIN Law cannot be diminish as faster as
that, in fact it has a long process before it can be diminish, it has to go on the different
processes that might take a long time for it to be gone. It cannot be stop, however, to
sustainably lower inflation, our national government must not stop in building more roads,
more classrooms, more public hospitals and health centers, especially in the coming year.
Let us not reverse the policy of Build, Build, Build,” Nograles stressed. He even proposed
budget cuts for 2019 that are acceptable and adaptable for this kind of system (Quismorio,
2018)
Build, build, build program are good investment for the country, its effect will have an
impact to the community, environment and for the economic growth of the country.
However, this is not being visualized by citizens since Tax Reform Acceleration and
Inclusion are failed to develop and operate this program. It brought so many issues and
obviously this TRAIN Law is the main cause of the inflation, every citizen in this country
is hoping for the immediate resolutions for this or even it may not, hopefully we can see
the projects such as infrastructure and social services that this Train promised to be
offered in the public. In addition, government should see this law again and think for the
possible solutions to lessen the burden of Filipinos They should see and reconsidered the
implementation of this program.

“The impact is clear, beyond just the study, it is felt in the streets, in our markets and in
our communities. On behalf of the million Filipinos now suffering because of this
uncontrolled, self-inflicted inflation,” the Marikina lawmaker said (Porcalla, 2018). Every
individual that lives in this country are being affected by this, despite of the different
recommended and alternative solution it is still not enough neither good to continue this
Tax Reform Acceleration and Inclusion. It is not aligned in our system and not timely to
operate, government should review and put a plan to lessen the inflation that Philippine
currently facing. The ineffectiveness of this TRAIN Law isn’t safe and becomes warning
to the citizens to take an action for this. Hopefully, government would consider different
concerns in regards with this issue.
References:

Philippines: Lawmaker seeks TRAIN law review. (2018, May 09). Asia News Monitor
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Philippines: Tax system reform. (2018). International Financial Law Review, Retrieved
from https://search.proquest.com/docview/2007905512?accountid=139285

IBON, (2018). Under the TRAIN, the poorest will have less and richest will have more.
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richest-will-have-more-update/

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Retrieved from https://www.philstar.com/headlines/2018/05/11/1814148/government-
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