Development Economics

Topics
01. Several Concepts in relation to
Development
03. Programs of the Government
2 February 4, 2024
Development Economics
02. TRAIN Law

Six Concepts in relation to
Development
1. International Trade
2. Conflict
3. Aid
4. Foreign Investments
5. Balance of Payments
6. Debt
3 Development Economics February 4, 2024

INTERNATIONAL TRADE
Positive Impact: Promote access to larger
markets, fostering specialization, and attracting
foreign investment. Export-oriented growth
strategies can lead to increased income, job
creation and technological transfer.
Potential Challenge: Vulnerable to external
shocks due to dependence of goods or
services; additionally, trade terms and barriers,
traffic can affect the benefits derived by the
country

INTERNATIONAL TRADE
Relationship: The Philippines engages in trade
with other countries to buy and sell goods and
services.
Impact: Exporting goods (selling to other
countries) can boost the Philippine economy,
while importing goods (buying from other
countries) provides access to products not
readily available locally.

CONFLICT
Negative Impact: It disrupts economic activities,
displaces populations, destroys infrastructure,
and diverts resources away from essential
services. Post-conflict reconstruction can be a
lengthy and challenging process.
Potential Role in Trade Disruption: Conflict can
disrupt international trade, leading to trade
barriers, sanctions, and reduced investor
confidence. In the long run, sustained peace is
essential for creating a conducive environment
for development.

CONFLICT
Relationship: Internal or external conflicts can
disrupt the country's development
Impact: Conflict can hinder economic growth,
disrupt daily life, and divert resources away
from development initiatives.

AID
Positive Impact: Aid can provide crucial
financial resources for development projects,
particularly in areas such as education,
healthcare, and infrastructure. Aid can help
alleviate poverty, address emergencies, and
support institutional capacity building.
Potential Challenge: Over-reliance on aid
without a sustainable development plan can
create dependency. Effectiveness also depends
on the transparency of aid utilization and the
alignment of projects with the country's needs

FOREIGN INVESTMENTS
Positive Impact: Foreign direct investment (FDI) can
contribute to economic development by bringing in
capital, technology, and expertise. It can stimulate job
creation, enhance productivity, and facilitate the
transfer of skills and knowledge.
Potential Challenge: The benefits of foreign
investments may not always be evenly distributed,
and there may be concerns about exploitation or
environmental degradation. A balanced regulatory
framework is crucial to ensure that investments
contribute to sustainable development.

BALANCE OF PAYMENT
Positive Impact: A stable balance of payments is
essential for economic stability. Persistent trade
deficits, excessive debt, or reliance on volatile
capital flows can lead to economic imbalances
that hinder development.
Role in Attracting Investments: A favorable
balance of payments position can enhance a
country's creditworthiness, making it more
attractive to foreign investors and lenders.

DEBT
Positive Impact: Borrowing can be a source of
financing for development projects, especially
when accompanied by prudent fiscal
management. It allows countries to undertake
investments that may have long-term benefits.
Potential Challenge: Excessive or poorly
managed debt can lead to debt sustainability
issues, with debt service obligations
constraining the fiscal space for essential
services and infrastructure development.

“
The TRAIN Law
The Tax Reform for Acceleration and Inclusion Law (TRAIN Law),
officially designated as Republic Act No. 10963, is the initial package of
the Comprehensive Tax Reform Program (CTRP) signed into law by
President Rodrigo Duterte on December 19, 2017.
The TRAIN Act is the first of four packages of tax reforms to the National
Internal Revenue Code of 1997, or the Tax Code, as amended. This
package introduced changes in personal income tax (PIT), estate tax,
donor's tax, value added tax (VAT), documentary stamp tax (DST) and the
excise tax of tobacco products, petroleum products, mineral products,
automobiles, sweetened beverages, and cosmetic procedures.

“
Key Provisions:
Income Tax Reform
The law adjusted the income tax brackets, resulting in reduced personal
income tax rates for many taxpayers. This was aimed at providing relief to
low and middle-income earners.
However, it also expanded the value-added tax (VAT) base, which includes
previously exempted goods and services, as a way to compensate for the
reduction in income tax rates.
Excise Tax on Fuel
One of the most contentious provisions of the TRAIN Law was the increase
in excise taxes on fuel products. This led to higher prices for gasoline,
diesel, and other petroleum products, contributing to inflationary pressures.
To mitigate the impact on low-income households, the law provided for the
implementation of cash transfer programs to eligible beneficiaries.

“
Key Provisions:
Sugar-Sweetened Beverage Tax
The TRAIN Law imposed excise taxes on sugar-sweetened beverages to
address health concerns related to excessive sugar consumption. The tax
aimed to discourage the consumption of unhealthy beverages and generate
additional revenue for the government.
Documentary Stamp Tax (DST)
The law increased the DST rates on various documents, such as loans and
other credit transactions. This was part of the revenue-raising measures to
support government programs.
Estate Tax and Donor's Tax
The TRAIN Law increased the estate tax rate and lowered the threshold for
taxable estates. It also adjusted the donor's tax rates.

“
Key Provisions:
Value-Added Tax (VAT) Exemptions
While the law expanded the VAT base by including previously exempted
items, it retained exemptions for certain sectors, such as cooperatives and
socialized housing.
Social Benefits
To address the potential regressive impact of some tax measures, the
TRAIN Law included provisions for unconditional cash transfers and
subsidies to help vulnerable sectors cope with rising prices.

PROGRAMS OF THE GOVERNMENT
Four existing programs under the TRAIN Law that Local Government Units (LGUs) can
potentially improve or expand:
1. Social Benefits Programs: 4Ps
This is a conditional cash transfer program that provides financial
assistance to poor households. Beneficiaries receive cash grants, provided they
meet certain conditions, such as sending their children to school and ensuring
regular health check-ups. While LGUs play a crucial role in identifying eligible
beneficiaries, there maybe opportunities to coordinate with the National
Government to enhance the targeting and effectiveness of this program.

2. Local Economic Development Initiatives: Promotion of Micro SMEs, OTOP,
SLP
LGUs can explore ways to leverage tax incentives and reforms to
stimulate local economic development. This could involve creating a business-
friendly environment, attracting investments, and supporting local enterprises.
LGUs can consider implementing policies that align with national tax reforms to
encourage economic activities, job creation, and revenue generation at the local
level. Sustainable Livelihood Program (SLP) implemented by the Department of
Social Welfare and Development (DSWD), SLP aims to improve the socio-
economic status of poor households by providing them with opportunities for
livelihood and skills development.

3. Environmental Sustainability Programs
The TRAIN Law included excise tax adjustments on petroleum products
to generate additional revenue. Local governments can explore initiatives to
utilize these funds for environmental sustainability projects. This might include
investments in public transportation, the development of alternative energy
sources, or projects that promote eco-friendly practices at the community level.
By aligning local initiatives with the environmental objectives of the national tax
reforms, LGUs can contribute to both economic and environmental
sustainability.

4. Health and Wellness Programs
The excise tax on sugar-sweetened beverages and tobacco, introduced
by the TRAIN Law, aimed to address health concerns related to excessive sugar
and tobacco consumption. LGUs can take steps to complement this effort by
implementing health and wellness programs at the community level. This could
include public awareness campaigns, initiatives to promote healthier lifestyle
choices, and partnerships with local businesses to support the availability of
healthier food and beverage options.

5. Sustainable Livelihood Program (SLP)
Sustainable Livelihood Program (SLP) implemented by the Department of
Social Welfare and Development (DSWD), SLP aims to improve the socio-
economic status of poor households by providing them with opportunities for
livelihood and skills development. Furthermore, partnership with other agencies
like TESDA, scholarships can be granted for skills training programs enhancing
employability of individuals in various industries. LGUs can provide assessment
on their population for the appropriate livelihood skills to be prioritized.

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