TRAIN worked

The main thesis of the Tax Reform for Acceleration and Inclusion (TRAIN) was to correct the old tax system, which relied heavily on personal income taxes withheld from wage earners and small business while giving many exemptions for companies who could better shoulder the tax burden.

With TRAIN, many people retained almost a fourth of their income, which would have been spent on taxes. This money, around 117 billion pesos last year was spent on the economy last year, spurring economic activity and creating jobs.

The challenge then was whether we can still improve on our tax collection despite exempting the majority of wage earners.

Well, the numbers from the 2018 revenue collection efforts are encouraging:

Based on the latest DOF economic bulletin released this week, our government’s total tax collections as a percentage of the country’s economy, as measured by its gross domestic product (GDP), rose in January to March this year to 14.6 percent, compared with 14.3 percent in the same period last year.

This includes both the Bureau of Internal Revenue and the Bureau of Customs.

Breaking this down further, or our main tax agency the BIR’s, the tax effort improved by 0.3 percentage points in the first three months to 11.1 percent from 10.8 percent a year before.

This can be attributed to new and better taxes on things which should be taxed, like alcohol and cigarettes and sweetened beverages, and excise taxes on vehicles. This is also due to simplified tax collection systems such as the option for an 8% tax on gross revenues for businesses, which many prefer over the old, complicated system that required a lot of receipts to be collected.

As far as simpler tax administration is concerned, not having to collect from millions of people already makes the BIR’s job easier. Making the assessment and payment systems simpler encourages those who can pay to pay the right taxes.

The other major revenue agency the Bureau of Customs, also improved its tax effort during the quarter, rising by 0.1 percentage point from 3.3 percent last year to 3.4 percent.

The ability to collect revenues are critical to find our ambitious program to “Build, Build, Build” especially in many neglected areas such as the Visayas and Mindanao, while keeping our strong credit ratings since it shows an ability to pay loans and keep them paid.

Even the short term inflation spike last year can no longer be blamed on the TRAIN law, since it has since gone down to 3% despite being continually implemented. I guess the Department of Finance was right on this one.

Having just passed the critical midterm elections, the victory of the administration-backed coalition only endorses these economic measures that will be needed to propel the economy forward.

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