Senators are now wary of supporting a second package of tax reforms after economists erred in their assessment of the impact of the Tax Reform for Acceleration and Inclusion (TRAIN) law on inflation, according to Senate President Vicente Sotto III.
The TRAIN law changed tax rates on income, estate, petroleum products and automobiles, imposed a new tax on sugar-sweetened beverages and removed some exemptions from the value-added tax.
“One of my colleagues said [when they were discussing the TRAIN law], ‘inflation would be like this, but it was not the case,’” Sotto said in a radio interview.
During the Senate deliberations, government economists estimated that the law’s impact would be a minimal 0.9 percent on the base inflation for 2018.
Past ceiling
That estimate would have brought average annual inflation to 3.8 percent, or near the Bangko Sentral ng Pilipinas (BSP) ceiling of 4 percent based on its inflation targets.
But price increases in fuel products, food, transportation, electricity and other products drove inflation to 5.2 percent in June, higher than the 2-to 4-percent target rate.
Sotto said the country’s fiscal managers should explain clearly the inflation implications of the second package of tax reforms.
“If the TRAIN 2 [will] really have good effects, they should explain it to my colleagues,” Sotto said.
Accurate information
The second package seeks to cut corporate income tax rates and rationalize certain fiscal incentives given to investors.
Earlier this week, Sen. Sherwin Gatchalian blamed economic managers for the spike in prices, adding that they should give Congress accurate information.
“It is really the responsibility of our economic managers, Bangko Sentral and the DOF (Department of Finance) to forecast these things and give us accurate information and give us the risks,” Gatchalian said.
“I don’t buy the reason that they were unable to see this. It’s [their] job to forecast and give us a full view of the risks,” Gatchalian said in a television interview.
Mitigating measures
He also lamented that the mitigating measures to help Filipinos cope with the effects of the TRAIN law were not fully implemented.
So far, nobody has been willing to sponsor the second tax reform package in the Senate.
But there were components of the TRAIN 2 that have found support in the Senate.
Drilon’s bill
Minority Leader Franklin Drilon, for example, supports to rationalize perks given to investors and has filed a measure to this effect.
“There was a study which showed that in 2015, P300 billion in foregone revenues resulted from tax incentives granted,” he said at the Kapihan sa Senado forum on Thursday.
“So the question to ask is, what benefits did the people get out of these incentives?” he added.
He had pushed for the measure even in previous congresses, but it met strong opposition from businessmen.