The House-approved tax reform bill is not your TRAIN to SUS(tainability) TRAN (sition)

Elpidio V. Peria
11 June 2017

from :

The Philippine House of Representatives recently approved the much-awaited tax reform measure of the Duterte administration, the so-called TRAIN (Tax Reform for Acceleration and Inclusion) – aimed at generating the needed resources for the delivery of basic services and providing economic relief to salaried workers and other income earners.

This blog post however will not look at the merits of the new taxation schemes and tax exemptions in their entirety but will instead focus on the whether the measures in this approved House version of the tax reform bill will enable the country to take further steps toward sustainability transition, that long-term effort to enable our economy and society to transform itself so that it can better cope with the challenges of climate change and sustainable development.

If we have this sustainability transition lens in looking at this bill, the immediate item that should catch our attention is the excise tax on diesel fuel which is now increased progressively yearly within the next three years from being taxed at zero (0) now to 3 pesos in Jan 1, 2018; to 5 pesos in Jan, 1, 2019; and to 6 pesos in Jan. 1 2020.

The Department of Finance (DoF) is of the view that this impending diesel price increase will not jack up food prices or jeepney fares that much based on similar abrupt price increases in diesel from January to December 2016 and in the period 2010 and 2012.

Even the National Tax Research Center (NTRC) noted in a study it did recently in January 2017 that even jeepney fare rates will not rise as much as in fact such fares have already increased in anticipation of a fuel tax hike this July 2017. Based on the historical table (Table 13 in the study) that they have come up with, in the period after 2009, if the price increase in diesel fuel will increase by greater than 50%, this will generate an additional Php 1 increase in jeepney fares : this happened between the period February 2009 when diesel price was at Php23.00 and it increased to Php 37.75 in January 2011 and in the period between January 2016 where diesel price is at Php 20.20 and February 2017 where diesel price is at Php 31.00. In these periods, the jeepney fare rate increased at Php1.00. Perhaps with these three year successive increases of diesel prices, the jeepney fare rate may not increase more than Php1.00 within the three year period.

But perhaps the DoF is only looking at diesel fuel, but there are also a full range of other petroleum products (lubricating oils and greases, processed gas, waxes and petrolatum, denatured alcohol to be used for motive power, naphtha, regular gasoline and other similar products of distillation, leaded or unleaded petroleum gasoline, aviation turbo jet fuel, kerosene and liquefied petroleum gas, the latter are those that are used in homes for cooking and lighting, asphalts, bunker fuel oil) that will also be taxed in an increasing manner within a three-year time frame. The Senate should look closely how the totality of these petroleum products will contribute to price increases on all other goods and services the production of which will depend on the use of these other petroleum products. This will also serve as a check to validate these assurances of the DoF and NTRC on negligible price increases from these measures.

In that same study of the National Tax Research Center we have seen, these taxes on petroleum products are already accounted for and they foresee no problem with increasing the tax rates in these products since they haven’t been increased since 1996 and the Philippines has the 2nd-lowest excise tax rates in the ASEAN region.

While the House-approved tax measure provided for some earmarking of not more than 40% of the yearly incremental revenues from the petroleum excise tax for a social benefits program, it has not provided for specific funding to develop research and development into alternative fuels in order that there is a clear effort towards developing alternatives to fossil fuels and hence facilitate behavioral shifts in the use of diesel and similar fossil fuels.

In our earlier post on this topic, we proposed to make the increase in these excise taxes gradual, even suggesting the totality of the 6-pesos increase be fully implemented even beyond the entire term of President Duterte. This is to enable other coordinative measures by other agencies to kick in, like an accompanying measure to accelerate the development of alternative fuels so that the population will have an alternative to these fossil fuels or some incentives to assist the shift towards a fully-electricity based transportation system.

Ok, hybrid electric vehicles are exempt from excise taxes, but the way it is defined as a four-wheel vehicle in the House-approved tax reform bill leaves out alternatives that may run on two or three wheels. The Senate should look into this again. What about the jeepneys? There should be a clear phase out that should reduce dependence on diesel-guzzling jeepneys , but this should be coordinated with the preferential tax treatment in this bill given to hybrid vehicles in the House-approved measure.

Then we have to look at the other categories of activities that seem to have been left out, what about the coal-fired operating plants, are they exempted from any increases in taxes? The House-approved bill does not seem to touch these entities, especially the taxing of coal and coal substitutes used in these plants.

Looking at other provisions that may not immediately appear to induce efforts towards sustainability transition but in our view will gradually contribute to such efforts, the House should have also given preferential tax treatment to donations to initiatives that promote renewable energy or sustainable agriculture as these are activities that hasten our shift to a more sustainably-run economy or food system that increases our ability to adapt to a warming climate.

Finally, even the constitution of family home could be an opportunity, like giving higher value to houses that have installed energy-saving equipment or are constructed using green architecture principles subject to criteria that may be set up by the Department of Energy and the National Housing Authority. This kind of higher valuation for family homes induces entire Filipino households to use LED bulbs or install solar panels while potentially creating a market that further brings down the prices of these renewable-energy products. This is the kind of up-scaling nationwide that was not there before when the DoE pushed for a shift in compact fluorescent lamps nationwide.

The Philippine Senate has a chance to enhance this TRAIN so that this will truly proceed towards the SUS (trainability) TRAN (sition) of the country in the coming years.


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