• Mr. Taxman first wrote the moral arc, then the fiscal math


    Marlen V. Ronquillo

    There are probably very few spaces at the London School of Economics and Political science (LSE) that are not shadowed by the ghost of the Fabian Society and the Webb couple. The cliché-sounding “for the betterment of society,” the grand theme upon which the LSE was founded, was the grand theme of the Fabians.

    Or, you cannot escape from the shadow of Harold Laski, the legendary LSE professor. One of Laski’s students – Jawaharlal Nehru – was said to have built the concept of a modern India on Laski’s ideas.

    The senator who led the writing of the Senate’s version of the tax law TRAIN, Sonny Angara, failed to escape from those shadows either. The young Angara trained at the LSE. During his years there, he may or may have not wanted to get deeper into the ideas of the Fabians, Laski and the Webbs. But an escape from those influences was impossible.

    Angara’s Senate ways and means committee wrote the version of the TRAIN by constructing the grand themes, the dominant ideas, first – that the TRAIN should pass the test of equity and economic justice – before putting in place the fiscal math. That the ideas should be written first before the fiscal math – that the grand purpose should guide the math – is the young Angara’s own hangover from his LSE days. He may not be even aware of it but that is how early influences work.

    The details of the Senate’s version of the TRAIN tell the whole story.

    The Senate version, first and foremost, ups the ante on tax reduction. Roughly 7.5 million individual taxpayers will be covered by the reductions, or 99 percent of the listed individual taxpayers. The current tax regime covers only two million taxpayers, so five million will be added to the tax breaks beneficiaries. Those earning P22,000 a month or lower will be exempted.

    The P82,000 tax exemption on the 13th month pay stays .

    Just make a mental calculation on how much money will flow into the economic mainstream with all the new money in the hands of the wage earners. Wage earners, if they have surplus money, tend to spend the money, most of it, if not all of it. They have not heard of the “paradox of thrift.”

    The self-employed and professionals are offered two options. A novel flat tax of 8% or the status quo of scheduled tax payments. The idea behind the flat tax is something we can borrow from a favorite word of Mr. Obama, “ incentivize.” You “incentivize” the professionals like doctors and lawyers with a flat tax of 8% to push them out of the woodwork to pay taxes, instead of relying on tax contortionists to avoid paying the right taxes.

    What about the single trike operator whose gross receipt may not even exceed P100,000 a year? He is tax exempt, like the sari-sari store owner with as much gross.

    That component of the TRAIN – incentivizing the top-earning professionals with a flat tax – was barely reported in the news but the flat tax proposal may prove to be the brilliant sleeper of the Senate’s TRAIN.

    After the rates on the individual taxpayers, the self-employed and the professionals, the second most monitored issue was the petroleum levy. How heavy would be the petrol yoke that the public, the ordinary Joes, will have to bear?

    Kerosene, which the poor in the remote, far-flung areas without electricity use, will be exempt. The flat-out imposition of a P6 excise tax on diesel was rejected in favor of a three-year imposition: P1.75 tax on the first year, a P2 tax on the second year and a P2.25 tax on the third year. The Senate proposed a safeguard against oil price surges and runaway inflation. Should the price of Dubai crude breaches the $80 per barrel range or should the consumer price index surges beyond the inflation target for the year, the excise tax will be automatically suspended. Fair enough.

    From the realm of employment and from the realm of young college graduates seeking jobs, the main worry was the possible inclusion of the BPO sector on the list of sectors that would be covered by the expansion of the VAT coverage. BPO is out. And so are coops. And so are senior citizens (hooray) and PWDs (another hooray).

    With all these offerings, the Senate’s TRAIN is expected to be an underwhelming one in terms of revenue generation. Angara said no. Anywhere from P125 billion to P138 billion will be collected under the TRAIN. So, where will the money come from?

    The wealthy. A slew of acronyms will be levied higher taxes. CGT, which means capital gains tax, will have a 20 percent imposition. FCDU, or foreign currency deposit unit, will be taxed 20% from the current 7.5%. Tax on dividend income will go up from the current 10% to 20%.

    The tax on coal will go up from P10 per metric ton to P20 per metric ton.

    The automobile excise tax will be gentle on the Everyman who wants a Vios. That bantam will get a price hike of P20,000 based on the Senate estimate. But the BMW X5 seeker will have to cough up a lot – a price increase of around P3.2 million per unit.

    A component of the Senate’s TRAIN will hit the rich hard. But 99% are not rich. And 100 % in the remote areas that use kerosene do not even know that a thing such as the X5 exists.

    Ok, the expected proceeds will have to be spent wisely. The committee report has an “earmark” provision that specifies where the revenue generated will go. Fair enough and equitable enough.


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