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MBA 604: RESEARCH METHODS AND PROGRAM EVALUATION

TRAIN: risk or opportunity?

By: Dindo Manhit - @inquirerdotnet

05:04 AM January 22, 2018
When President Duterte signed the Tax Reform for Acceleration and Inclusion (TRAIN) Act into law
last December, a number of leading economists lauded the move. After all, the first package of the
tax reform law is arguably the Duterte administration’s most important legislative victory to date. In
his speech, the President remarked that the passage of the TRAIN is the administration’s biggest
Christmas gift to the Filipino people. The lower income tax rates were supposed to provide Filipinos
with higher disposable incomes, which, in turn, could boost domestic consumption. The TRAIN will
also generate revenues to finance much-needed social and physical investments — the necessary
foundations for sustaining rapid economic growth. Citing these developments, several multilateral
institutions and ratings agencies upgraded their economic forecasts for the country.

But as the law took effect at the start of the year, the optimism toward the TRAIN became more
subdued as consumers anticipated the pinch of higher commodity prices. Electricity rates, for
instance, are expected to go up by 8 centavos per kilowatt-hour. This means that a household
consuming 200 kWh monthly will see a P16 increase in its electricity bill.

Even before excise taxes on fuel kicked in, oil prices have already increased, reflecting movements
in international oil markets. The new taxes on fuel will then squeeze consumers’ pockets even more.

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While the government has assured the public that inflationary effects resulting from the TRAIN will be
minimal, the central bank acknowledged that it may raise interest rates if secondary impacts,
including higher prices of consumer goods indirectly affected by the TRAIN, as well as a clamor for
higher wages, would push inflation beyond target.

At the core of the debates on the TRAIN is its impact on ordinary Filipinos, especially those who are
earning below minimum wage—the same segment exempted from income taxes but who will have
to bear the brunt of higher commodity prices. To cushion this inevitability, the government will
provide targeted cash transfers to the poorest 10 million Filipinos, arguing that this is a more efficient
way of protecting the poor. The 2018 budget earmarks around P25 billion to cover monthly cash
transfers of P200. But cash transfer programs are typically riddled with issues including duplicate or
fraudulent households, the untimely release of funds, and unliquidated funds due to distance or
ineligible beneficiaries. Moreover, the Department of Social Welfare and Development, the agency
tasked to implement cash transfers, remains without a head after the Commission on Appointments
rejected Mr. Duterte’s appointee five months ago. Thus, while targeted earmarks are a positive step
toward boosting social investments, the government still needs to iron out kinks in its program
implementation. With no mitigating measure in place, poor households will undoubtedly lose out on
the tax reform.

To the government’s credit, it has been aggressively pursuing efforts to make the economic
environment more attractive for investors. The Department of Finance recently submitted its
proposal for Package 2 of its tax reform program to Congress. The second package aims to reduce
corporate income tax rates and rationalize fiscal incentives. In crafting future packages, however,
the administration should refrain from levying new taxes that will further burden ordinary Filipinos.
Instead, measures that would make the tax system more efficient, simplify compliance among
taxpayers, and plug leakages and loopholes in the system should be prioritized.

Of course, the challenge is for revenue collection agencies to meet their collection targets and for
implementing agencies to spend incremental revenues efficiently. Rolling out key projects within the
timelines will also be a given challenge. As I have pointed out in earlier commentaries, imposing
new taxes without the commensurate tangible reforms in efficient and transparent administration
will be a bitter pill for the average Filipino to swallow.

***

Dindo Manhit is founder and managing director of Stratbase Group.

Read more: http://opinion.inquirer.net/110447/train-risk-opportunity#ixzz5L0zT41tG

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TRAIN law: Estate tax and possible implications

By
Atty. Jose Emilio M. Teves
-
January 25, 2018

PREVIOUSLY, the National Internal Revenue Code provided a table of rates that the estate of a
decedent would pay if the value of the net estate met a certain threshold. To get the value of the
net estate, we would subtract the deductions allowed by law from the gross value of the estate.

For instance, if the net taxable estate’s value was over P10 million, it would pay the amount of
P1,215,000 plus an additional rate of 20 percent for the excess of P10 million.

Thus, if the value of net estate is P11 million, the estate shall pay P1,215,000. An additional P200,000
shall be imposed, which is the 20 percent of the excess of P10 million. The total amount would be
P1,415,000.

The Tax Reform for Acceleration and Inclusion (TRAIN) law has simplified the computation of the
net estate tax. There is no longer a table or graduated rates. The estate tax is now fixed at 6
percent of the value of the net estate. So, using the previous example of P11 million, the estate
tax shall be P660,000.

The TRAIN law has simplified deductions, as well. Originally, there were two categories of
deductions: ordinary and special. These two categories were composed of several other items,
most of which required proof through official receipts and the like. Further, the allowable
deductions were subject to limitations that were cumbersome to derive.

Broadly speaking, the TRAIN law provides for three types of deductions.

There is the standard deduction of P5 million. This amount is an increase from the original, which
was P1 million. The value of the family home is another deduction, the amount of which is capped
at P10 million. This is another increase. Before the amendment, such deduction was pegged at P1
million. If the value of the family home exceeds P10 million, the excess would be subject to estate
tax. The final deduction shall be the debts of the decedent.

The fact that the P5 million is considered as a standard deduction is a boon for many Filipinos.
Since it is a standard deduction, there is no need to substantiate the same with receipts—it can
be automatically claimed.
An interesting situation arises regarding bank deposits of decedents. Originally, the heirs could
only withdraw up to P20,000 from the deposits. The TRAIN law has removed that cap, but the
amount withdrawn would be subject to a final withholding tax of 6 percent.

Now, this situation could arise: What if the amount of the net estate tax due, after deductions, was
zero or less than the amount subjected to final withholding tax? Such a situation would be possible
and there may not be a tax liability in the first place if the gross estate and deductions are
considered. The advanced deduction from the final withholding tax prejudices the estate of the
decedent when it should not. In effect, the withdrawn amount of deposit is taxable by itself,
regardless of the net estate of the decedent.

How should this be resolved? The author is of the opinion that, instead of a final withholding tax, it
serves the purpose of the TRAIN law better if it is a creditable withholding tax. This is so that the
withheld amount could still be utilized against the tax imposed on the net estate and, perhaps,
refunded if there is excess. Such change in treatment, however, would require an amendment
and not a mere implementing regulation.

There are, however, other peculiarities in this final withholding tax approach that may be clarified
further through the implementing rules and regulations (IRR). The requirement is to impose a final
withholding tax on the withdrawn amount. Should all withdrawals from a deposit account, where
a decedent is the depositor, a joint or a codepositor, be subject to the 6-percent final withholding
tax? In a joint account, for example, the surviving depositor may actually be withdrawing his own
share from the joint deposit. Would that still be subject to a final withholding tax? Also, even in a
case where the sole depositor is the decedent, it is possible that the deposit is considered part of
the conjugal assets where the surviving spouse owns a part of it. The withdrawn amount may
pertain to the share of the surviving spouse. Would that still be subject to a final withholding tax?
While these are not clear in the TRAIN law, perhaps these instances can be clarified by the IRR, as
it may not have been the intention of the law subject to final withholding tax deposits that are not
part of a decedent’s estate.

The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a member-
firm of WTS Global.

The article is for general information only and is not intended, nor should be construed as a
substitute for tax, legal or financial advice on any specific matter. Applicability of this article to
any actual or particular tax or legal issue should be supported therefore by a professional study or
advice. If you have any comments or questions concerning the article, you may e-mail the author
atjosemilio.teves@bdblaw.com.ph, or call 403-2001 local 150.

TRAIN AND THE POOR

By Cris Evert Lato-Ruffolo, Doris Mae C. MondragonJanuary 04,2018

When the Department of Transportation implements the jeepney modernization program,

passenger utility vehicles 15 years and above will be phased out. The program has also been

getting the support of the business sector.

CDN FILE PHOTO

Cebu economist: Train Law will not benefit the poor

Daisy, 21, works for a mall in Cebu City with a minimum daily wage of P366 or P8,064 monthly salary

for working 24 days in a month.

The eldest among four children, Daisy grew up in the southern Cebu town of Dalaguete. She

graduated in high school at 18 years old and came to Cebu City three years ago armed with the

determination to land a job so she can provide medicines to her sick mother and send her three

younger siblings to school.

She rents a room for P800 a month in Barangay Tejero in Cebu City and rides a jeepney to work at

P7 one way or P14 for round-trip fare.

With the announcement of the Cebu Integrated Transport Service Cooperative (Citrasco) to ask

for P6 increase on top of the current P6.50 minimum fare for public utility jeepneys (PUJs), Daisy’s

fare rate will now increase to P12.50 one way or P25 for round-trip fare if the planned fare increase

proposal will be approved.

The plan to file a petition for a fare increase is in response to the implementation of the Tax Reform

for Acceleration and Inclusion (Train) Law, which is seen to generate P130 billion in revenues to

fund numerous infrastructure projects and other programs of the Duterte administration.

But Cebu-based economist Fernando “Perry” Fajardo said higher transportation rate is only one

of the many disadvantages of the Train Law.

In general, he said, it will not benefit the poor.

He said 50 percent of the country’s labor source are in the informal sector, and do not even file

income tax returns.

Fajardo cited examples of people belonging to the informal sector which include the PUJ drivers

and conductors, sidewalk vendors, and self-employed people.

“The tax exemption or reduction will have very little impact on this people. These are people

earning minimum wage or even below the minimum wage. But then they will be punished in terms

of price increases with all other products marketed and sold as a result of the Train Law,” he told

Cebu Daily News in a phone interview.

Wage increase

Fajardo, an economist of more than 40 years, said workers like Daisy will be slapped with higher

transportation rates because of fuel price increase and yet they will have very little salary increase

year-on-year.

“The workers will demand for a wage increase but the business sector will not give in to their

demands. The increase will just be equivalent to the inflation rate,” said Fajardo, a former assistant

regional director of National Economic Development Authority (Neda-7) in Central Visayas.

In a text message, Associated Labor Unions-Trade Union Congress of the Philippines (ALU-TUCP)

Chairperson Alan Tanjusay said they are currently observing the effects of the Train Law on the

prices of goods and services.

If there is extraordinary rise in prices, he said they will file a petition for across-the-board wage

increase to all wage boards nationwide.

“There will be significant increase in electricity prices. It’s a cause of grave concern for us because

costs will be passed on to consumers,” said Tanjusay.

The 2015 Family Income and Expenditure Survey (FIES) of the Philippine Statistics Authority (PSA)

showed that the average annual family income of Filipino families in Central Visayas was

approximately P239,000, lower than the average annual family income in the whole Philippines at

P267,000.

While the average annual family income in the Philippines is below 250,000 which is now tax-free

under the Train Law, Fajardo said this will not benefit the poor at all.

Based on the PSA website, the FIES is undertaken every three years and is aimed at providing data

on family income and expenditure, including, among others, levels of consumption by item of

expenditure, sources of income in cash, and related information affecting income and

expenditure levels and patterns in the Philippines.

Fajardo said they were grouped and ranked into per capita income deciles.

The richest decile or a group represents families belonging to the highest 10 percent in terms of

per capita income, while the poorest decile represents families in the lowest 10 percent.

Based on the FIES results in Central Visayas, the bottom 10 percent or first decile has an average

annual family income of P67,000 but their expenditure is at P86,000.

The second decile’s average income is P95,000 while the expenditure is P109,000. The third decile

income is P123,000 while expenditure is at P127,000.

It is only on the fourth to 10th decile that income is higher than expenditure.
Fajardo said the difference between income and expenditure in the first and third deciles is

already negative, which results to most families incurring debts.

“That is why the poor are buried in debt. You add the Train Law, they are in much poorer state,”

he said.

According to the PSA data, 1.7 million families were surveyed for the FIES.

Questionable

Fajardo also questioned the effectivity of the Train Law in raising the estimated P130 billion worth

of revenues to fund infrastructure projects.

“I do not support the Train Law. I think there is not much study about the matter. How much will

they get from the tax reduction? How much will they get from the excise taxes? How much money

are they giving to policemen for the war on drugs?” he said.

Fajardo said people can do away with sweetened beverages because these are wants, but they

will suffer from higher transportation fares because of higher fuel prices.

“In the end, the poor will not benefit from this. It will still be the rich who will gain from this law,” said

Fajardo.

Fajardo said there is a need to look at existing laws and correct the loopholes rather than creating

more laws to raise government revenues.

Fajardo said it is best to increase the taxes on wealth, inheritance and property because these

are owned by the rich people.

Read more: http://cebudailynews.inquirer.net/159398/train-and-the-poor#ixzz5L10Ajglb

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TRAIN explained: How new income tax exemptions add up
ABS-CBN News
Posted at Jan 09 2018 09:59 AM | Updated as of Jan 09 2018 10:02 AM
MANILA – Middle class workers without dependents stand to get the most relief under new income
tax rates, which removes exemptions for dependents but raises the cap on non-taxable income
across the board, an analyst said Tuesday.

Under the first package of reforms that took effect on Jan. 1, the threshold amount for tax
exemption was raised to P250,000 of annual income, from P50,000 under the previous system.

However, the P25,000 exemption per dependent for up to 4 dependents, or a maximum of 100,000
per taxpayer, was removed. Under the previous system, a person with 4 dependents can get as
much as P150,000 in exemptions.

“Those who make more than minimum wage and those without additional dependents, or
practically, responsibility with the family, are those who will be enjoying more with this
simplification,” Abrea Consulting Group president Mon Abrea said.

Asked if the simplified computation was good, Abrea told ANC's Early Edition: “If we are after
unburdening the hardworking middle class, yes. If we are after simplification of the tax system,
yes.”

Abrea said only minimum wage earners were automatically exempted from paying income taxes
under the previous system.

"God knows the old tax system is the real devil," he said.

Most salaried workers will receive higher take-home pay due to lower tax rates starting this year.
However, the new law also raised duties on fuel, cars and sugar-sweetened drinks, among others.

The Department of Finance has released a calculator to compute effects of tax reform, including
higher commodity prices and the government's planned cash transfers for the poor.

Two persons who earn 25,000 a month will both pay P10,000 in taxes per year under the new
system, even if one has 4 dependents while the other has no dependents.

However, the person with no dependents will get the most relief as he was paying P49,500 under
the new system. Including exemptions for dependents, the other worker was paying P24,500.

At least 3 more reform packages will be submitted to Congress within the year, Finance Secretary
Carlos Dominguez said on Monday.

The DOF projects P786 billion in revenues from tax reform, which will help fund President Rodrigo
Duterte's P8-trillion infrastructure program.

The TRAIN law and the poor

0
BY ANTONIO P. CONTRERAS ON JANUARY 30, 2018ANALYSIS
THERE is no doubt about it. The Tax Reform for Acceleration and Inclusion (TRAIN) Law shifts the tax
burden away from income and into consumption.

The law reduces the income tax burden of the earning Filipinos, recalibrating the brackets with
the intention of increasing the disposable income after taxes. The theory is that increases in
disposable income can spur consumption. This will not only drive growth, but also generate
government revenues where the taxes are now shifted to the consumption of goods and services.

While the law targets specific goods, such as sweetened beverages and vehicles, it also has
increased the taxes for fuel. We know that the latter would lead to increases not only in
transportation costs, but will have an effect in the prices of practically all commodities.

The idea is that whatever is lost in tax revenues from personal income is compensated by the taxes
on the purchase of goods and services.

One could argue that the taxes on vehicles would have positive environmental benefits, even as
the taxes on sweetened beverages would have positive health benefits. In addition, one can also
argue that taxes on vehicles will only affect the upper classes, and not the poor.

However, the fuel taxes will have an effect that will cut across income classes. And for the poor,
this would even be costlier, since their pre-TRAIN levels of earnings, if any, are not taxed anyway,
and hence any change in the tax rates would not have an effect in their disposable incomes.
Thus, any increase in prices of transportation fares and commodities will certainly hit the poorer
classes of society harder.

This is precisely why there is a subsidy component to the TRAIN Law, which is going to be
implemented by the Department of Social Welfare and Development (DSWD) through the
unconditional cash transfer (UCT) program.

Under UCT, households which qualify will be given a monthly cash grant of P200 in 2018, and P300
in 2019 and 2020. It is estimated that about 10 million Filipino households and individuals who
belong to the poorest sector of the country will benefit from this program.

At the end of the month, the DSWD is scheduled to begin handing out a lumpsum of P2,400 to the
qualified beneficiaries. For 2018, a total of P24 billion has been earmarked for the implementation
of the UCT in the 2018 General Appropriations Act. The funds are now deposited with the Land
Bank of the Philippines.

The first to receive the cash grant are the 1.8 million household beneficiaries of the Pantawid
Pamilyang Pilipino Program (4Ps) with cash cards who will receive these by tomorrow, January 31.
The remaining 2.6 million 4Ps beneficiaries without cash cards will receive theirs at a later date.

Also included in the UCT are the three million indigent senior citizens who are currently also
beneficiaries of the DSWD Social Pension Program which is implemented in partnership with their
respective local government units (LGUs). They will receive their cash grants by the end of March
2018.

The remaining 2.6 million households will then be chosen from the DSWD Listahanan, or National
Household Targeting System for Poverty Reduction (NHTS-PR). A validation process will be
conducted and is expected to last for three months. DSWD plans to finish the process by May so
that the cash grants will be distributed to the qualified households by the end of June.

Key to the success of this component of the TRAIN Law is the effectiveness and efficacy of its
implementation. The DSWD is now in the process of finalizing the implementing guidelines.
Included in the guidelines are the terms of partnerships with Land Bank and other financial
institutions. A program management office will be established within the DSWD to oversee payroll
generation, beneficiary validation and the release of the funds to the beneficiaries.

Unlike the 4Ps, which is a conditional cash transfer where the disbursement of the cash grant is
contingent on some conditions, such as enrolling children in school, the UCT is an outright subsidy
given by the State to the poor to shelter them from the shock of increasing prices despite
unchanging low levels of income which is expected as an effect of TRAIN.

Outright subsidies are always a double-edged sword. They provide a stopgap measure for families
which are adversely affected, hoping that the cash grants will compensate for the increases in
household expenditures due to rising prices of commodities.

However, the strategy of giving a lumpsum of P2,400 to a household, without the rudimentary
consciousness to save, could lead to the possibility that the amount may end up being quickly
spent, and hence its effects would not be felt to be spread out over the entire year. Another
concern is whether the amount is enough to cover the increases in the prices of goods. The subsidy
appears to be also insensitive to household size, which is in fact a primary factor in determining
whether the amount would be sufficient.

The TRAIN law is banking on the economic growth that will be generated by the infrastructures to
be built and whose funds will be drawn from the tax revenues, as well as from foreign development
assistance whose release is premised on the approval of the TRAIN law. It is also hoped that the
so-called “Build Build Build” initiative will generate demand for construction-related work.

However, one should also bear in mind that aside from the employment benefits that may result
from the infrastructure rush, which could not even accommodate all 10 million households, there
is no assurance that the aggregate growth of the economy resulting from infrastructure
development will indeed trickle down to the poor.

Direct subsidies can at best provide quick palliatives. The long-term solution is to invest not only in
physical infrastructures, but also in social infrastructures that could transform the poor from passive
recipients of cash grants, into becoming active and viable economic actors.

http://www.manilatimes.net/train-law-poor/377248/