Download as PDF, PPTX
Uploaded byBienvenido "Nonoy" Oplas, Jr.
TRAIN, Talong at Tricycle
The document discusses the impact of the TRAIN law on the Philippines' economy, highlighting a reduction in personal income tax rates while simultaneously increasing taxes on oil, coal, sugary drinks, and tobacco, which has contributed to significant inflation. It details the worsening financial climate characterized by a struggling stock market, peso depreciation, and GDP growth slowdown, ultimately reflecting a divergence from the growth rates achieved under the previous administration. Additionally, it notes the government's ongoing fiscal challenges, including rising public debt and budget deficits amidst ambitious spending plans.
More Related Content
TRAIN, Talong at Tricycle
- 1. Forum with FacultyClub, Cagayan State Univ. (CSU) Gonzaga Campus October 10, 2018 TRAIN, Talong at Tricycle: Taxes, Agriculture and Transpo Bienvenido S. Oplas, Jr. President, Minimal Government Thinkers Columnist, BusinessWorld, “My Cup of Liberty” minimalgovernment@gmail.com
- 2. Country Ave. pay peryear, $ No. of tax brackets Top PIT rate Applies at est. income/year Singapore 52,600 9 20% $240,000 Brunei 31,431 0 0 Malaysia 11,028 11 28% $240,000 Thailand 5,901 8 35% $150,000 Indonesia 3,970 4 30% $ 35,000 Philippines 2,753 7 32% $ 10,000 PH-TRAIN* 6 35% $156,000 Vietnam 1,770 7 35% $ 42,000 Laos 1,643 7 24% $ 54,000 Myanmar 1,420 6 25% $ 22,000 Cambodia 1,078 5 20% $ 37,000 1. TRAIN reduced PH personal income tax (PIT) rates Source: ASEAN Briefing, July 26, 2018, https://www.aseanbriefing.com/news/2018/07/26/comparing-tax-rates-across-asean.html * PH-TRAIN not included there, added only in this table. * TRAIN good news: overall PIT rates have declined. * TRAIN bad news: high rates of 30% and 32% were retained, an even higher rate of 35% was introduced for incomes P8 M/year or higher.
- 3. . * Zero incometax is done in 10 countries and jurisdictions. 8 here + Bermuda & Cayman islands. * Zero income tax countries on ave. are richer, have higher scores and ranks in WEF-Institutions, than most countries that impose income tax. * ASEAN 5 have lower ave. income, lower scores and global ranking, except Malaysia. * Rule of law, stability of instns, not higher taxes and welfarism, can lead to higher income of the people.
- 4. * Petroleum productsare public goods, not public bads, goods and services will experience price hikes: Jeepneys, buses, taxi, boats, planes. * Farmers use tractors, rippers, water pumps, harvest + threshing machines, tricycles. Fishermen use motorboats. Traders use trucks. Cost of farming, fishing, trucking to rise. * Coal power contributes almost 50% of total electricity production (2017) despite having only 35% of total installed power cap. * Natural gas is also fossil fuel but it was not slapped with excise tax. * Exempting RE from VAT but retaining VAT for fossil fuels. 2. TRAIN raised oil, coal taxes
- 5. Farming cost mademore expensive by TRAIN oil tax hikes. ALL these productivity-enhancing machines use oil.
- 6. Health alarmism, peoplenow live longer, healthier. More smoking = more cardio- vascular diseases (CVD), cancer? -- SG, JP and KR, no. -- PH, CM, CN, VN, others, somehow yes. Life expect. 1990 2010 2015 Singapore 75.3 81.5 82.6 Brunei 73.1 77.6 79.0 Vietnam 70.4 75.0 75.8 Malaysia 70.8 74.2 74.9 Thailand 70.2 73.7 74.6 Indonesia 63.3 68.1 69.1 Cambodia 53.5 66.4 68.7 Philippines 65.3 67.8 68.4 Laos 53.6 64.3 66.5 Myanmar 58.7 64.9 66.0 3. TRAIN imposed tax on sugar-sweetened beverages, raised tobacco tax
- 7. 4. TRAIN expandedVAT to more sectors, incl. electricity transmission
- 9. * Despite risingworld oil prices, many Asians experience drop in their inflation rates vs 2017: SG -0.2%, KR -0.4%, ID - 0.6%, SL -1.8%, MY -2.5%. * Mild increase in 2018 over 2017: HK +0.8%, JP, CN & PK +0.5%, TH +0.4%, VN +0.1%. * Big increase: TW +1.0%, PH +2.1%. * PH now inflation king or queen of Asia. Only PH has tax hike law in 2018. 5. TRAIN impact + high oil prices: (5a) Inflation rate
- 10. 5b. PSEi as#2 worst performing stock market in the world. Oct. 5, #1 was Turkey, Oct. 9, #1 was China. Stockmarkets Oct. 9 Index Ytd % chg 52 wks % Chg Shanghai (China) 2,721.0 -17.7 -19.6 PSEi (Philippines) 7,059.4 -17.5 -15.9 DJ China 88 (China) 284.3 -16.5 -11.4 BIST 100 (Turkey) 96,731.8 -16.1 -6.4 Hang Seng (HK) 26,172.9 -12.5 -8.1 Copenhagen (Den.) 837.1 -9.7 -10.8 WIG (Poland) 57,899.8 -9.2 -11 Jakarta (Indonesia) 5,796.8 -8.8 -1.8 Kospi (South Korea) 2,253.8 -8.7 -5.9
- 11. 5c. GDP growthslowdown • Good news: 6% PH growth in Q2 2018 growth still high by global standards. • Bad news: while PH experience slowdown, many neighbors experience up trend. • PH GDP growth: 2016 6.9%, 2017 6.6%, 2018 H1 6.3%. • Full year 2018 target is 7-8%, likely 6.2-6.3%.. • Dutertenomics cannot sustain the 6.5% to 6.9% growth momentum from the previous administration. Country/ Economy 2015 2016 2017 2018 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Vietnam 6.9 7.0 5.5 5.8 6.6 6.7 5.2 6.3 7.5 7.6 7.4 6.8 Philippines 6.4 6.7 6.7 7.0 7.1 6.7 6.5 6.6 7.2 6.5 6.6 6.0 Indonesia 4.8 5.2 4.9 5.2 5.0 4.9 5.0 5.0 5.1 5.2 5.1 5.3 Thailand 3.3 2.9 3.4 3.6 3.1 3.0 3.4 3.9 4.3 4.0 4.8 4.6 Malaysia 4.7 4.6 4,1 4.0 4.3 4.5 5.6 5.8 6.2 5.9 5.4 4.5 Singapore 2.6 1.3 2.1 2.0 1.7 3.7 2.5 2.8 5.5 3.6 4.5 3.9 HK 2.3 1.9 1.1 1.8 2.2 3.4 4.4 3.9 3.6 3.4 4.6 3.5 Taiwan -0.6 -0.5 -0.3 1.0 2.0 2.8 2.6 2.3 3.2 3.4 3.0 3.3 Source: https://tradingeconomics.com/country-list/gdp-annual-growth-rate
- 12. 5d. Fast Pesodepreciation https://quotes.wsj.com/fx/USDPHP Largely because of high and rising trade deficit. January-August 2018 average of around -$3.3 billion/month a. Ytd 2018 b. past 3 years
- 13. Spend-spend-spend, Borrow-borrow-borrow “It isthe highest impertinence and presumption… in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense… They are themselves always, and without any exception, the greatest spendthrifts in the society.” — Adam Smith, The Wealth Of Nations (1776), Book II, Chap III
- 14. • 2019 budgetP3.7-trillion, P3.2- trillion proj. revenues and P600+ billion borrowings. • public debt stock keeps rising -- P562 B in 2017, P679B in 2018, P785B in 2019. • Bulk of foreign debt payments go to debt securities to cover the annual budget deficit, not to multilaterals like ADB, WB, or bilaterals like JICA, USAID. • Govt would borrow even at high interest rates up to 10.6% just to service the annual budget deficit.
- 15. 6. Govt movesto reduce inflation rate
- 16. Comparative tax ratesin Asia-Pacific, in % Sources: Deloitte, https://dits.deloitte.com/#DomesticRatesSubMenu/; ASEAN Briefing, July 2018 * Effective rate varies; ** VAT reduced rate is 0/5; SST is 5-150; *** Reduced rate is 0/3/5 . Country/ Economy Corporate income tax Withholding tax VAT or GST ratesStatutory rate Branch rate Dividends Interest Royalties Philippines 30 30/15 15/30 20 30 V: 12 Indonesia 25 25/20 20 20 20 V: 10 Myanmar 25 0 15 20 S: 5-12 Malaysia 24 24 0 0/15 10 G: 6 0 Cambodia 20 14 14 14 V: 10 Thailand 20 20/10 10 0/10/15 15 V: 7/10 Vietnam 20 20 0 5 10 V: 10 ** Singapore 17 17 0 0/15 0/10 G: 7 China 25 25 10 10 10 V: 6/11/17 *** Korea 25* 25/5-15 20 14/20 20 V: 10 Japan 23.4/23.2* 23.4/23.2 15.32/ 20.42 15.32/ 20.42 20.42 Consump: 8 Taiwan 20 20 21 15/20 20 V: 5 Hong Kong 16.5 16.5 0 0 4.95/16.5 0 Australia 30 30 0/30 0/10 30 G: 10 PH has (1) highest CIT, (2) among highest in withholding tax (WHT) for dividends, with Japan & Australia, (3) among highest in WHT for interest income, with Japan & Indonesia, (4) highest in WHT for royalties,(5) among highest in VAT & GST along with China.
- 17. 6. TRABAHO bill(HB 8083), “Tax Reform for Attracting Better and High-quality Opportunities” Sec. 7, CIT rates for domestic firms and Sec. 8, CIT rates for foreign firms: 28% in 2021, 26% in 2023, 24% in 2025, 22% in 2027, and 20% in 2029. Provided that the President may advance the scheduled reduction in CIT rate when adequate savings are realized from the rationalization of fiscal incentives. Cut many fiscal incentives by 2019, CIT cut to 20% by 2029. Sigurista. “The jump from the 5% GIE (gross income earned) to a 28% CIT, will increase your tax by as much as threefold. That impacts your cost structure. The only way that you can recover that cost structure is to pass it on to your customers.”
- 18. Single most importantreform to fight fast inflation and TRABAHO uncertainties – reduce VAT from 12% to 8% with very few exempted sectors.
- 19. Scattered, even disjointed prioritiesby the administration • PRRD – Drugs war, spend-spend- spend. • Economic team/Dutertenomics (DOF, DBM, NEDA, BSP) – TRAIN tax-tax- tax, TRABAHO bill, budget, interest rate hikes. • HOR/Gloria – charter change • Senate – Terrorism bill, Medical scholarship bill, Anti-drug authority bill • Business sector uninspired by such environment, lackluster investments.
- 20. Country 1997 20072017 1United States 8,609 14,478 19,391 2China 965 3,571 12,015 3Japan 4,415 4,515 4,872 4Germany 2,221 3,445 3,685 5United Kingdom 1,553 3,076 2,625 6India 423 1,239 2,611 7France 1,462 2,667 2,584 8Brazil 884 1,396 2,055 9Italy 1,240 2,206 1,938 10Canada 653 1,465 1,652 11Korea 558 1,123 1,538 12Russia 435 1,396 1,527 13Australia 426 946 1,380 14Spain 588 1,481 1,314 15Mexico 500 1,053 1,149 16Indonesia 261 470 1,015 17Turkey 262 675 849 18Netherlands 413 841 826 19Saudi Arabia 166 416 684 20Switzerland 287 480 679 21Argentina 318 288 638 22Taiwan 304 408 579 23Sweden 264 488 539 24Poland 157 429 525 25Belgium 255 472 495 Country 1997 2007 2017 26Thailand 150 263 455 27Iran 186 352 432 28Austria 213 389 417 29Norway 161 401 396 30U.A. Emirates 76 258 377 31Nigeria 188 262 376 32Israel 115 179 351 33South Africa 153 299 349 34Hong Kong 177 212 342 35Ireland 83 270 334 36Denmark 174 319 324 37Singapore 100 180 324 38Malaysia 108 200 314 39Philippines 91 149 313 40Colombia 128 207 309 41Pakistan 82 152 304 42Chile 85 173 277 43Bangladesh 50 86 261 44Finland 127 256 253 45Egypt 80 137 237 46Vietnam 27 78 220 47Portugal 117 241 218 48Peru 57 102 215 49Czech Rep. 62 189 213 50Romania 36 176 211 GDP size, $ billion current prices (IMF, WEO 2018 database) Good news: * Globalization really helps pull up growth of many countries. * PH GDP size for instance doubles every decade on ave. * Largely bec. of our big popn. – more entreps, more workers, more consumers * Even if PH Pres. is a horse or a dog, there’ll still be growth, but at low rates.
- 21. Summary: 1. TRAIN haslowered PIT but hiked taxes for oil, coal, sugary drinks, tobacco; expanded VAT coverage without reducing the rate. 2. Resulted in fast, unusual rise in inflation exacerbated by external factors (high oil prices, high US int. rates), natural factors (monsoon July-Aug, Mangkhut/Ompong September). 3. PSEi as 2nd worst performing stockmarket in the world ytd, 1st CN or Turkey. 4. Fast peso depreciation due to widening trade deficit, strong US$. 5. Growth slowdown, inability to sustain the 6.5% to 6.9% set by the previous administration, sputtering to 6% or lower in 2018. 6. Spend-spend-spend, borrow-borrow-borrow, converted Integrated PPP into Hybrid PPP so that more loans, more projects from China are justified. 7. Uncertainties of TRABAHO bill, reduced incentives while CIT remain high. 8. Scattered, disjointed priorities by the administration. 9. But globalization, PH big population will sustain growth even at lower rates.