TRAIN 2: IMF-World Bank prescribed, patently pro-rich sequel of grossly anti-poor TRAIN 1
Makabayan bloc position paper
3 September 2018
The Makabayan bloc at the House of Representatives strongly rejects the Duterte administration’s TRAIN 2 as the patently pro-rich sequel to the grossly anti-poor and regressive TRAIN 1 in line with the International Monetary Fund (IMF)-World Bank (WB) prescription of a "broad based tax reform."
TRAIN 2, which cuts the corporate income tax rate from 30 percent to 20 percent over 10 years and rationalizes fiscal incentives for foreign and local businesses, cannot be divorced from TRAIN 1.
TRAIN 2 hitches on the back of the notorious first tax reform package, which imposed new and additional excise taxes on oil and other commodities that sent off a tsunami of price hikes harshly affecting millions of poor families.
Increased revenues from increased indirect taxes under TRAIN 1 are actually meant to ensure funds to offset the losses arising from reduced corporate income taxes under TRAIN 2, estimated at around P62 billion per two percentage point cut.
We strongly oppose the lowering of corporate income taxes to a uniform 20 percent under TRAIN 2 as it will disproportionately benefit foreign and big local corporations, which have managed to thrive and reap huge profits under the current 30-percent tax rate.
It is detestable that TRAIN 2 proponents are using the Micro, Small, and Medium Industries (MSMEs) to justify the argument for a uniform 20-percent tax rate when, in reality, the big industry players will be the big winners under the scheme. A 10-percentage point tax cut on the multi-billion revenues of large enterprises is certainly several times bigger than the 10-percentage point tax cut on the revenues of smaller firms.
To illustrate the concentrated wealth in the hands of the few big firms, the gross revenue of just the top 100 corporations increased from being equivalent to 59% of GDP in 2010 to 71% in 2015.
Transnational corporations (TNCs) accounted for 37% of Top 1000 revenues and 63% of manufacturing by 2015. These firms will be the biggest beneficiaries of a much lower 20-percent corporate tax rate.
Makabayan believes that a two-tier corporate tax rates is in order. The government must impose a higher tax rate of at least 35 percent on transnational and big local corporations while lowering the rate of genuine MSMEs, especially in the local agriculture and manufacturing sectors, to 20 percent.
The fiscal incentives regime should be overhauled, as the national government loses P301 billion in foregone revenues annually due to tax holidays, customs duty exemptions, zero VAT rating on local purchases, and other tax incentives for foreign and export firms.
But the fiscal incentives reform should not be a trade-off for the lowered corporate income tax rate under TRAIN 2, nor hinged on the assailed anti-poor TRAIN 1.
Any measure aimed at removing unnecessary incentives should carry the objectives of 1) stripping away profitable foreign and big corporations of tax incentives and other perks and subsidies 2) providing meaningful incentives and support to domestic agriculture and industries to develop a self reliant and industrial economy.
In a vain attempt to deflect the huge backlash on TRAIN 1, proponents have rebranded TRAIN 2 as the “TRABAHO” bill. But this is a misnomer and a big deception, since it will potentially run over thousands or tens of thousands of jobs. This is explicitly admitted by the bill under Section 312 which specifies the combined P1-billion annual appropriations for the targeted cash grants and training of displaced workers who will be affected by the rationalization of fiscal incentives.
TRAIN 2 also augments the President’s discretionary power with the provision conferring the power to grant incentives to corporations under the vague parameter of ensuring national development (Section 301). This widens the elbow room of the President in extracting bribes and corruption money from corporations who would lobby for sweeter incentives.
Currently, the Duterte-backed TRAIN 2 is being fast-tracked at the House of Representatives by defenders of neoliberal reforms led by Speaker Gloria Arroyo, who under her term as President signed Republic Act 9337 or the restructured VAT law, which instituted the 12-percent EVAT and reduced corporate income taxes to 30 percent. Makabayan bloc vows to vigorously oppose the IMF-World Bank prescribed and pro-rich TRAIN 2 at the plenary debates and call on the Filipino people to sustain the calls for the repeal of the regressive provisions of TRAIN 1.