TRAIN: PRO-POVERTY OR ANTI-POVERTY?

–THE IMPACT
ON LOWER-CLASSED FILIPINO CITIZENS IN THE CITY OF
MANILA

Executive Summary: -

Introduction:

On the 19th of December 2017, President Rodrigo Roa Duterte signed in to law the Tax
Reform for Acceleration and Inclusion (TRAIN) or Republic Act No. 10963, which is the
first package of the Comprehensive Tax Reform Program (CTRP). This program is said
to implement "a simpler, fairer, and more efficient tax system that is needed to promote
investment, create jobs, and reduce poverty", stated by Carlos G. Dominguez, the
Secretary of Finance. The program aims to accelerate poverty reduction and address
discrimination to attain the President's promise of “tunay na pagbabago”. The country is
on a 22% poverty rate, or nearly 23 million Filipinos; and with this act, the government
has planned to eradicate 8% of it by the year 2022, leaving an astonishing 14% poverty
rate during the final year of Rodrigo Duterte’s presidency. With the tax reform, the
government believes it will further increase the macroeconomic state to create a setting
that is more conducive to good job construction and quicker poverty reduction. Another
statement included in the established program concludes that Filipinos who earn less
than 250,000 pesos annually are to be exempted from tax pays. Yet, those under the
national poverty line have had marked a per capita of 100,534 pesos (or below 9,000
pesos monthly) according to the National Statistical Coordination Board. And by
constructing the tax system to a more equitable structure, additional intake of profits is
required to synthesize to make evocative investments on people and infrastructures for
the sake of the development of the country. The matrix here is, as prices get higher, an
intake of revenue from tax increases. As tax increases, the flow of fiscal contributions is
contributed to programs such as the Unconditional Cash Transfer (UCT), which donates
about 300 pesos each household per month as of 2019. According to the DSWD
website, P24 billion has been kept for the 2018 UCT implementation. However, despite
the hefty budget, there have been reports of delays and failures to distribute the budget
to 2.5 million Filipinos under the national poverty line. So, despite the exemption on
taxes, people would still have to adjust to the expenses that have increased due to the
implemented law and the unexpected inflation. Accommodating on escalated prices
would include food, house bills and especially an increase in transportation expenses
due to the increase in oil prices globally in 2018. Canned goods like sardines are one of
the most bought foods by the poor and have increased by 1-2 pesos recently. Cooked
instant noodles have increased their prices from 2-3 pesos too, so having to buy
uncooked ones would also equate to spending more plus water and gas. The norm of
what informal settlers dwell on in their daily lives has changed drastically due to the
contradicting factors of TRAIN, global increase in oil prices, and the weakening of the
peso (being one of the lowest in ASEAN to date). The government advocates on TRAIN
as the key to salvation among 14% of Filipinos under poverty, and defends it despite the
unprecedented inflation occurring and contradicting the said “benefits” that are to be
implemented to the poverty reduction act. The study seeks to extract information on
how/if the implemented law will benefit the country, especially to those under the 22%.
Data on the perceptions of two Filipino citizens who are classified to be under the
national line of poverty will also be analyzed and incurred in the study, along with
information on how the UCT program will be as much beneficial on their daily
transactions with the exemption on taxes despite the increase in prices of commodities
due to TRAIN and inflation, which led the country with the highest inflation rate of all
ASEAN and ever recorded in 9.4 years of Philippine history.

Review of Related Literature

A published article in 2018 written by Diane Adame focused on the current state of
poverty in the county. Written in the article stated that among the countries in South
East Asia, the Philippines is one of the most persistent in terms of poverty, being the 3 rd
poorest country in the ASEAN. In urban areas, 13 percent are classified as under
poverty while 36 percent are estimated in rural areas. In addition, it was also written that
unemployed and low-income migrants who are unable to fund for housing has shown an
increase in poverty in urban areas over the recent years. For rural inhabitants, it has
been studied that over the past years, agriculture is the main source of income,
principally in farming and fishing. Also, a majority of poor Filipino households have only
accomplished a primary level of education. It has also been stated by Diane that at
least two-thirds of poor households are headed by an individual with an elementary
level education or below. The Department of Finance (DOF) has circulated an event
that occurred on the 19th of December, 2017, where with the current predicament the
Philippines is facing, the President, Rodrigo Roa Duterte signed into law Republic Act
No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN)
Act as a solution to the crisis of poverty in the country. With the tax reform, the
government believes that it will definitely strengthen the macroeconomic state of the
Philippines. The website of the D.O.F. also indicated that the poor will benefit from the
newly implemented law with the exemption on their contributions on taxes. One of the
most salient features of the amended tax law is how it completely eliminates income
taxes for Filipinos whose salaries are not more than 20,833 pesos a month (250,000
pesos a year). A new Tax Schedule was created for salary earners as the TRAIN Law
was established. However, an article on Esquire Magazine which was published right
before the implementation of the law said that Filipinos must Expect huge tax increases
on gasoline, sugary beverages, electricity (indirectly, through coal taxes), tobacco, and
more. At the same time, expenses will increase because of the higher taxes on fuel,
which lead to higher prices for basic goods and services.

Many economists question if TRAIN will really bring those under poverty from salvation.
Before the inflation occurred, the DOF, Bangko Sentral ng Pilipinas, and the National
Economic and Development Authority previously estimated the inflation to increase by
0.4 to 0.7 percentage points during the first year of TRAIN’s implementation alone, with
the impact tapering off over time; as published by the Department of Finance website;
which in fact increased way higher than what was estimated. Another factor affecting
prices besides TRAIN is the Philippines' inflation rate from external factors, which
reached a shocking 6.4% in August of 2018 overall. Not only is this the highest in 9.4
years, it also exceeded the government’s upper forecast including TRAIN of 6.2%, and
is way above the government’s 4% upper target for 2018. The inflation has brought
negative impressions on the Filipino citizens, especially from the poor. It is always going
to be a mix of international and domestic factors. One obvious suspect is the continuing
rise of oil prices worldwide. Countries with no substantial oil production to speak of, like
the Philippines, are forced to import oil. Consequently, they are at the mercy of global oil
price movements determined largely by supply and demand. It was highly emphasized
by the Department of Finance that the government is being accused wrongly of the
abrupt price hikes alone due to being unaware of the possibilities. The unprecedented
outcome of the global cause of inflation can’t be solely blamed on the unawareness of
the government however; because according to a study, the monetary policy framework
provides for exemption clauses to recognize the fact that there are limits to the
effectiveness of monetary policy and that there may be occasional breaches owing to
factors beyond the control of the central bank. These exemptions include price
pressures arising from: volatility in the prices of oil products; and significant government
policy changes that directly affect prices, such as changes in the tax structure,
incentives and subsidies. Diwa G. (2009). The Measurement of Inflation and the
Philippine Monetary Framework. So, the government may play a role in excusing
themselves of the unprecedented raise on the inflation in the country.

However, an economic expert criticized on the government’s downplaying of the effects

of the Tax Reform for Acceleration and Inclusion (Train) Law, warning that the measure
could bring dire effects to the economy. According to the Business Inquirer Newspaper
Magazine 2018, the Ibon Foundation claimed the Department of Finance’s statements
as impeccable and were only “deceitful” pronouncements where the law would only
have a “slight beneficial impact to the economy”. Undeniably, oil prices are high and
there may be other external factors involved in our current runaway inflation, but the real
truth remains that the current economic policies are not working, and if the government
does not admit this and address it, things will only continue to get worse. As published
by the PhilStar Newspaper 2018, not addressing the current state could be biggest
hurdles we are going to face when it comes to trying to turn things around. It is also
situated on the article that the government does not want to look within when it comes
to rising costs, but instead chooses to keep blaming outside factors. Without taking into
conducive actions, MORE Filipinos will fall into poverty because of the Tax Reform for
Acceleration and Inclusion (TRAIN) law, according to a study released by the Philippine
Institute for Development Studies (PIDS). It was also studied that disregarding the
suspension of the TRAIN while global price increase in oil would require the government
to take act on additional assistance on terms to the National Food Authority (NFA) in
considering a discount on rice prices, which was greatly taken into effect on an increase
in price after the establishment of the TRAIN; Castillo C. J. et Clarete R. (2018).
Assessment of TRAIN’s Coal and Petroleum Excise Taxes: Environmental Benefits and
Impacts on Sectoral Employment and Household Welfare.
An article on Town and Country PH Mag published in 2018 said that If Filipinos cut their
consumption of sugary commodities because of higher prices, there’s an upside on
public health. The Department of Finance says that sweetened beverages are
associated with greater incidence of Type 2 diabetes which afflicts around 3.5 million
Filipinos, according to the International Diabetes Foundation (IDF). This statement is
one of the pros on the TRAIN. But, according to the Philippine Association of Stores and
Carinderia Owners (PASCO), 40 percent of most of the daily income of people under
poverty comes from sales of sweetened beverages. So, promoting and advocating the
mitigation on people’s expenses on sugar-based products would reduce 40 percent of
the income of those under poverty, and would definitely risk the economic growth in the
agricultural aspect that focuses on the production of rice, which is where most rural
citizens under poverty depend their income on.

But according to a study, any government that needs to raise revenue and has the legal
authority to do so may tax. Governments tax income because it is a way to tax largely
based on the ability to pay; Rachel S. (2010). Individual finance. Conferring to a
composition from The Sunday Times Magazine 2018, Duterte claimed that President
Trump’s increase on tariffs and the Trade War between U.S. and China has influenced
the global oil prices globally. This data has also been acknowledged by the former
presidential Spokesperson Harry Roque Jr. during his interview with DZRH. The peso’s
weakening value due to political influences may be an oversimplification to say that
supply of pesos is going to be even greater a year from now than at present, then the
present value of the peso (as measured by its purchasing power) will be lower than the
present quantity would otherwise warrant; Hazlitt H. (1978). The Inflation Crisis and
How to Resolve It. This would also be another explanation on other external factors that
may have had an influence on the price hike in the economy besides TRAIN. So,
external global impacts are what the president blames on for the increase in
commodities. The president said in an interview that he’s not apologizing, and that
inflation is supposedly inevitable in the Philippines with or without the existence of
TRAIN, according to Manila Times Papers as concurred in 2018. These statements may
be supported due to a research which concluded that over time, some prices rise faster
than others. Consumers substitute toward goods that become relatively cheaper,
mitigating the effects of price increases. Improvements in the quality of goods in a
consumer’s consumption increase the value of each dollar; N. Gregory Mankiw (2004).
Principles of Economics. Inflation has consequences for people and firms throughout
the economy, in their roles as lenders and borrowers, wage-earners, taxpayers, and
consumers. The government seldom relies on a certain factor which was studied,
concluding that changes in the prices of goods for which people spend a larger share of
their incomes will matter more than changes in the prices of goods for which people
spend a smaller share of their incomes; N. Gregory Mankiw (1991). Principles of
Macroeconomics, which could lead the government’s perspective on commodities as
minimal unless imperative factors that aren’t easily interchangeable such as rent are
affected. The government actually acquires revenue from the increased taxes for
various projects such as the developed program called the Unconditional Cash Transfer
(UCT) component of the national government’s Tax Reform for Acceleration and
Inclusion or TRAIN program. “The DSWD was given the responsibility by congress to
implement the distribution of the P300 per month UCT as of 2019, and we will carry out
that responsibility the most efficient way that we can.”; a statement published from the
Department of Social Welfare and Development website, claiming that the UCT
program will help aid about 10 million Filipinos with about P3600 annually provided by
the government. But reports have shown that delays have occurred in the disbursement
of the funds, and not every beneficiary was able to acquire the promised incentives,
reducing the reliability of the objectives of the said program, which uses people’s taxes
from revenues. The TRAIN law may have spurred economic activity with gains in
employment and domestic output, but a state-run think tank that reviewed the law said
that poverty increased overall, and especially among farmers and fisherfolk. A
discussion paper by the Philippine Institute for Development Studies (PIDS) assessed
the impact of the first package of the comprehensive tax reform package in 2018,
showing “slightly positive” results in economic output, particularly in the agriculture and
service sectors, as well as a rise in employment. However, it noted that poverty
incidence increased “slightly,” due to higher commodity prices paid by the poor. An
article published online by PhilStar News in 2018 even said that prices of canned
sardines and corned beef brands are set to increase slightly under the new suggested
retail price (SRP) list of the Department of Trade and Industry (DTI). Prices of some
canned sardines are expected to increase by 40 centavos to 85 centavos. The price
increase is due to the high acquisition cost of herring (tamban), which is currently at P32
per kilo. To address the high acquisition cost, producers of canned sardines have
recommended to the government to set the SRP for tamban to reduce the retail price of
canned sardines in the market. A commotion in Davao City, published by Davao Today
Papers wrote that Progressive groups mounted a petition-signing around the oldest
public market here to ask the government to scrap its Tax Reform for Acceleration and
Inclusion (TRAIN) Law, which they described as anti-people. The petition signing was
held as they commemorated the 120th Independence Day there. The Bagong
Alyansang Makabayan (BAYAN-SMR) and Kalipunan ng Damayang Mahihirap
(KADAMAY-SMR) led the groups in asking people in the Bankerohan Public Market to
sign the petition. The group said President Rodrigo Duterte failed on his promise to
have an independent foreign policy and that “just like Emilio Aguinaldo who betrayed
the Filipino people,” In the case of the Train Law, he said it was among the policies ”
adding to the betrayal to its people that has worsened the current situation of the people
living in the poorest condition” . Economists have cited that to mitigate inflation, the
government must suspend TRAIN, as published on TribunePH Newspapers. It is
believed that despite the three main factors at play causing the spike in inflation — the
impact of the Tax Reform for Acceleration and Inclusion (TRAIN) law, the weakening
peso due to political influences and the global oil price, inflation can be moderated; but
the government refuses to suspend implementation of the TRAIN law or to implement
price ceilings on basic necessities and prime commodities. Doing these would have
sent a strong signal of the administration’s sincerity in addressing rising prices and
would bring immediate relief for tens of millions of Filipinos.

Another law implemented on September 2 2018 by the House of Representatives was

the TRAIN-2, or the Tax Reform for Attracting Better and High-Quality Opportunities
(TRABAHO) which was heavily criticized to distance itself from the controversial TRAIN-
1, but its objective acts most similarly as a twin measure to TRAIN-1 in the Duterte
administration’s structure to craft a tax system that is highly opinionated as a courtesy to
the rich at the expense of the poor. The reforms in fiscal incentives under TRAIN-2 in a
way serve the same resolve as the temporary unconditional cash transfers (UCTs) for
the poorest 10 million families of TRAIN-1. They are sought of as both coverups from
how the Duterte administration is making the tax system even more pro-rich and anti-
poor than it already is. Despite the negative feedback and analysis from economic
experts, the Government published a statement saying that the new law is said to
provide higher quality education, social services, and infrastructure, part of which will be
funded by tax reform revenues. Reforms in fiscal incentives are compulsory specially to
take away the redundant inducements and hidden subsidies that the DOF has been
stating. Only a few benefits from the act as it is with apparently just 2,844 firms availing
of incentives out of almost a million enterprises (915,726) of all sizes in the country. The
proposed criteria for assessing the performance of recipients of incentives are however
insufficient as of to date, reported on Bulatlat PH Newspapers 2018. Although, a recent
study conducted by the IBON Foundation has sought out that about 76 percent or three
out of four families are besieged on oil and other consumption taxes whilst not yet
having to receive the benefit of the compensatory personal income tax cuts. The said
foundation concluded that the first package of the Tax Reform for Acceleration and
Inclusion (TRAIN) law “burdens the poorest 17.2 million Filipinos nationwide”. Also, they
stated that “The poor and middle class, even those few with gains from personal income
tax cuts, will suffer cuts in their standard of living unlike the rich who will easily be able
to maintain their lifestyles,” IBON Foundation said as reported by CNN Philippines. This
account, however, goes against the claim of the Department of Finance (DOF) stating
that the tax reform is not “anti-poor.” Despite the DOF advocating its non-anti-poor
purpose, numerous lawmakers have looked into the withdrawal of some provisions of
the tax reform program due to the impact it has had on the economy. Exemption on
taxes won’t do much to those under the national poverty line that earn from P1000 to
P9000 monthly; and the UCT program, despite its irregularities and inaccuracies in
distribution, won’t cover-up additional P300 if basic commodities that they used to
consume have increased. Due to oil price hikes, even transportation expenses are a
matter to be accommodated in an individual’s budget. Much more troublesome if a
household contains two or more children, which 85 percent of those under the 22
percent poverty line are of that status, according to the data from the National Statistical
Coordination Board. Yet still, President Duterte does not want to terminate nor postpone
TRAIN Law, as he does not believe that it is the root cause of the price surges and thus
still pursues the implementation of the law for the benefit of the macroeconomic state of
the Philippines.

Methodology

In this part of the case study it discusses the methodology used in the study. It
consists of the method that the case writers used, what kind of sampling is used, and
what kind of data collection method was used to acquire the essential data needed for
the completion of the case study.

Method used in the study

In this case study the method that was chosen and used by the case writers is the
Qualitative method. According to Shank (2002) the qualitative method of research is a
form research where in it is systematic, empirical and has inquiry to meaning. It is
systematic by the means of it is planned, empirical by the means that it is bounded by
experience and inquiry to meaning because the researcher will need to understand the
others experiences. The case writers chose this method of research because the case
writers aim to understand the effects of the train law in the poverty side of the spectrum.
With this, the samples with experiences can give us a more in-depth take on the said
research.

Sampling

The kind of sampling that was used in the case study is the purposive type of
sampling. Purposive sampling according to Palys, T. (2008) is” virtually synonymous
with qualitative research” meaning that it is nearly compatible in a qualitative type
research. The researcher used this type of sampling because it gives the case writers
the ability to choose the sample based on their characteristics that will help them
understand the perception of the people who were affected under the influence of the
Train Law.

Data Collection

The data collection procedure used in the interview was through questionnaires on a
personal interview perspective. The case writers then used a personal interview method
to extract the necessary data needed from the chosen interviewees. The personal
interview method provides the case writers an on-the -spot and direct answer from the
subjects, whilst giving them liberation to express their thoughts and expressions that are
necessary for the purpose of the study.