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If you’re a citizen of the Philippines, you’ve probably felt both the positive and negative effects of the TRAIN Law.

The TRAIN Law or Tax Reform for Acceleration and INclusion law is the first package of the comprehensive tax reform program envisioned by the government that seeks to correct a number of deficiencies in the existing tax system and create a simpler, fairer, and a more efficient system.

People who have been working for a long time would have felt the changes in their first pay after the law was passed. There was an approximate amount Php 32.5 Billion in the 99% of the personal income tax payers’ pockets. Basically, these tax payers earn an equivalent of a 14th month pay. For example, if a Filipino earns Php 20,000.00 per month, he now has an extra Php 20,000.00; Spread over 12 months, that’s an extra Php 1,667.00 in these Filipinos’ pockets per month. That extra income is due to the lack of taxes they have to pay since their income falls below Php 250,000.00

Here is TRAIN‘s table for tax rates per income bracket:

People may argue that the TRAIN Law has not affected them. This is probably because they already fell under the low income bracket and/or had not been paying taxes already. Here’s a comparison between a minimum wage earner and a call center agent’s tax rates:

Another benefit from the TRAIN Law is the free higher education for state universities and colleges. That’s Php 3.4 Billion that parents don’t have to spend in tuition for their children in public schools.

Excise Tax

What is excise tax?

Excise is an indirect tax on selected goods that have negative externalities or are non-essentials. This is a measure used to discourage too much consumption of scarce resources to limit the bad effects of some products such as pollution and congestion. It is a progressive form of taxation since those who consume more will pay more.

TRAIN increases the excise tax on petroleum products. This increase in tax is thought to be anti-poor. This comes from the line of thinking that the excise tax would lead to an increase in basic fares and taxi plug-downs. Based on the Family Income and Expenditure Survey (FIES) 2015, the top 10% richest households consume 51% of total fuel consumption. The top 1% richest households consume 13%, which is equivalent to the aggregate consumption of the bottom 50% of households. Clearly, this is a tax that will affect the rich far more than the poor, given their greater oil consumption than the poor. TRAIN, however, has already created a solution for anticipated problems like these. Through the Pantawid Pasada Program, the government aids jeepney operators and drivers weather the increase in oil prices. The Php 803 monthly fuel vouchers (for the last six months of 2018; Php 1,710.00 in 2019) are aimed to support the drivers in hopes that this subsidy will not require a fare hike.

Inflation

There has been a lot of discourse regarding inflation and the TRAIN Law. It is evident that the law would cause an increase in inflation. When you talk about inflation, it refers to the comparison between a price of a certain product in a year’s term. For example, the price of bread could have been Php 30.00 last 2017 but the current price could have increased to Php 37.00. The Php 7.00 increase is the inflated amount.

Inflation could be stemmed from a number of factors. One factor could be the rapid increase of wages, another factor could be the increase of the prices of raw materials, or the increase of oil. The Philippines is not an oil-producing country. Simply put, we obtain oil from foreign resources. An article from The Balance explains Cost-Push Inflation here.

TRAIN Law Take-aways:

I honestly think that the TRAIN Law means well but like any program aiming for progress, it has its drawbacks. No program or plan is perfect. Simply put, this law aims to drive the country forward and should be supported.

There is talk of suspending the law; commenting about how it rapidly drives inflation. It is something to look into but it isn’t a reason to stop it altogether.