THE implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law may have worsened the plight of lower-income households, according to studies commissioned by state-owned think tank Philippine Institute for Development Studies (PIDS).

In a study, titled “Assessing the TRAIN’s coal and petroleum excise taxes: Macroeconomic, environmental and welfare effects,” Philip Tuaño of the Ateneo de Manila University said the results showed an increase in poverty incidence, and only the top 3 income deciles did not see a reduction in their incomes.

Tuaño said taking into consideration all the changes introduced by TRAIN 1 and the scenario on all the changes of the TRAIN 1 plus the Unconditional Cash Transfer, the higher incomes gained under all the changes in the TRAIN 1 and the introduction of the UCT did not affect the lower-decile people’s incomes.

“What happens is that under the TRAIN 1 and the Unconditional Cash Transfers, it’s the seven lower- income deciles that suffer even with the cash transfers,” Tuaño said.

However, Tuaño acknowledged that the presence of the UCT helps cushion the negative impact of TRAIN 1, including the increases in excise taxes for oil.

The largest increase in poverty incidence at 0.32 percent was observed among the farmers under the first scenario of the PCEX, which only incorporates changes in the excise taxes. The lowest reduction in poverty incidence under the scenario was seen among households which saw a 0.16-percent increase in poverty.

Under the TRAIN 1 scenario, the largest increase in poverty was seen among fisherfolk at 3.2 percent while the smallest was among households at 1.72 percent.

The TRAIN 1 plus UCT scenario showed that the highest increase in poverty was seen among fisherfolk at 1.35 percent while the lowest increase was seen among farmers at 0.06 percent.

Tuaño also noted that transport workers actually reduced poverty by 8.16 percent under the TRAIN 1 plus UCT scenario due to the Pantawid Pasada program.

“Poverty incidence rises slightly under the PCEX (changes in excise taxes) scenario; rises substantially under TRAIN 1 due to increase in prices,” Tuaño’s presentation read.

“Significant decline in poverty incidence of transport workers under the TRAIN 1+UCT; implications on the Pantawid Pasada program. The UCT offsets increases in poverty incidence across all sectors,” it added.

Higher revenue losses

MEANWHILE, in another study titled “Assessment of Republic Act 10963: The 2017 Tax Reform for Acceleration and Inclusion,” PIDS Senior Research Fellow Rosario G. Manasan said TRAIN 1 would lead to higher revenue losses for the government.

She estimated that losses of around P210 billion are due for 2018; P223 billion for 2019 to 2022; and P238 billion in 2023. These are all higher than government estimates and are based on data from the Family Income and Expenditure Survey (FIES).

Further, Manasan said that while TRAIN 1 seems to tax the rich more given the higher income rates for higher income earners, in truth the main impact is on the “very, very rich.”

She said the average effective tax rate (ETR) on compensation income will decline from 5.4 percent in the old tax regime to 1.1 percent in 2018 to 2022; and 0.9 percent from 2023 onward.

However, for the self-employed and/or professionals (SEPs), the decline in average ETR declines at a slower pace from 1.7 percent under the old regime to only 0.8 percent in the 2018 to 2022 period; and 0.7 percent in 2023 onward.

“The gap between the average ETR between compensation earners and SEPs is expected to narrow but the average ETR of SEPs is projected to continue to be lower than that from 2022 onward,” Manasan said.

Manasan earlier said total tax revenues will see a reduction of P66.097 billion in 2018 and P33 billion in 2019 as well as an addition of P6 billion in revenues.

The TRAIN also had an adverse impact on the poorest households requiring the government to provide unconditional cash transfers of P300 to P400 a month in the next three to four years.

Manasan said the tax revenue estimates of the incremental revenues are lower than the official estimates which place the revenue gains from the TRAIN law at P63 billion in 2018, P104 billion in 2019 and P140 billion in 2020.

She said actual revenue from the personal income tax may fall below its 2018 target by P43 billion which suggests that the revenue loss from Personal Income Tax (PIT) reform may actually be closer to P190 billion, larger by 43 billion than the Finance Department’s P146-billion estimate and higher than Manasan’s paper’s P210-billion estimate by P20.5 billion.

Further, she said October 2018 collections of the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) indicate that excise and VAT revenues may fall short of their collection targets for the entire year of 2018 by a combined total of P36 billion.