THE whole point of the second phase of the Duterte administration’s tax reform program, also known as Train 2, is to raise money for big-ticket government projects like public infrastructure. Unlike Train 1, however, Train 2 will not do this by raising taxes.
What sorcery is this? How can a government that doesn’t impose new taxes raise money?
Well, according to the Department of Finance, which is leading the charge for the approval by Congress of Train 2, this will be done by removing the many tax and other incentives given to private corporations. According to official DoF estimates, these incentives cost the government upwards of P300 billion a year in foregone revenues, even if they are of questionable value because they serve only to protect uncompetitive enterprises.
At the same time, the government wants to lower corporate income taxes for all businesses, from 30 percent to 25 percent. This is the “carrot” portion of Train 2, which is expected to be a boon for small and medium-sized enterprises, which do not get any tax exemptions or similar incentives.
In the end, government finance experts predict that Train 2 will actually be revenue neutral, as the income from exemptions removed from some (not all) enterprises enjoying exemptions will be balanced out by the lower take from companies that will pay less corporate taxes. But what Train 2 will do is to even the playing field for business, as those enterprises that cannot prove that they have been helped by incentives will be forced to compete with those that don’t get such perks but which have succeeded anyway.
Another benefit of Train 2 is to eliminate the arbitrary granting of incentives to enterprises and industries that don’t deserve them. For far too long, Congress, the Bureau of Internal Revenue and a host of other government agencies have been giving out incentives without rhyme or reason and often without foreseeable deadlines, after which these favored enterprises should be able to do business without state support.
Train 2 will also get rid of the practice of supposed export-oriented businesses selling their goods in the domestic market, thereby unfairly competing with other players who pay the full tax rate. This has always been a sore point for industries that do not get tax incentives, that tax-exempt competitors actually sell their goods locally even if they are supposed to export them, allowing them to make huge profits and eliminate competition by price-gouging.
With so much money at stake, it comes as no surprise that Train 2 has been met with stiff opposition. In the Senate, for instance, Sen. Juan Miguel Zubiri has predicted that none of his colleagues will sponsor the measure because of its alleged inflationary effect — a prediction that was immediately proven incorrect when no less than Senate President Vicente Sotto 3rd declared his support for the proposed law.
Zubiri, however, has not given up on his opposition to Train 2, which he now says will lead to massive job losses when up to 2,000 companies now enjoying tax exemptions close shop. This number, Zubiri said, represents a vast majority of the 2,600 enterprises now receiving incentives.
But what Zubiri fails to mention is that perhaps the 2,000 enterprises that he predicts will shut down deserve that fate, since they cannot seem to compete without the virtual handouts in the form of tax exemptions. And what about the many more companies that pay the full tax rate and still compete — will not the workers they employ lose their jobs, as well, if these enterprises shut down because of the heavy tax burden that they must shoulder?
The truth of the matter is, the tax incentives given by government to private companies in certain industries have not made them more competitive, either regionally or worldwide. The proof of this is that the Philippines perpetually ranks near the tail end of any list of exporting countries, by value or by volume.
So, who benefits from the incentives? Not the government, which has to forego tax revenues when it always needs to raise money for its projects; not the people, certainly, who also lose out because the government can’t put up new infrastructure or support social programs for them because of the incentives it hands out.
Only favored enterprises, most of them foreign-based, that secure these tax breaks with the help of powerful politicians, are happy with the way things are. The same enterprises that will run to politicians to protect their incentives, by the way, in any way they possibly can.
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I had a mental lapse yesterday while writing this column, when I mentioned that Sen. Franklin Drilon received a piece of paper from a lawyer named Bernadette Sardillo during the hearing on Senate President Vicente Sotto 3rd’s allegations of massive cheating in the 2016 elections. I failed to explain the significance of this act, which was that Sardillo is a lawyer of Vice President Maria Leonor Robredo.
It was ironic that Sardillo was feeding information to Drilon in order to besmirch anti-election fraud crusader Glenn Chiong, whom Robredo’s lawyer falsely accused of being a counsel for former senator Ferdinand Marcos Jr. And Drilon was so blinded by his desire to demolish Chiong’s credibility that he immediately used Sardillo’s information without a moment’s hesitation.
Drilon waved the document given him by Robredo’s lawyer after hearing Chiong deny lawyering for Marcos, as if what he was holding was proof that the resource person was caught lying. But the ploy quickly backfired on Drilon, who was himself widely perceived to be lawyering for the Commission on Elections and its automation provider Smartmatic; so much for the value of doing your research first, before opening your mouth.
But then, I guess fact-checking is just another one of those things that senators can’t be bothered with. After all, if they already have the exclusive right to insult people, as Drilon has claimed. What’s insulting the people’s intelligence, by comparison?
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