Discussions on the TRAIN law, income tax, inflation, agriculture, transportation, peso depreciation, stockmarket,

1. Forum with Faculty Club,
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
per year, $
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 income tax 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 products are 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 made more expensive by TRAIN oil tax hikes.
ALL these productivity-enhancing machines use oil.

6. Health alarmism, people now 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 expanded VAT to more sectors, incl. electricity transmission

9. * Despite rising world 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 growth slowdown
• 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 Peso depreciation
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 is the 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 budget P3.7-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 moves to
reduce inflation rate

16. Comparative tax rates in 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 important reform to fight fast inflation and TRABAHO uncertainties –
reduce VAT from 12% to 8% with very few exempted sectors.

19. Scattered, even disjointed
priorities by 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 2007 2017
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 has lowered 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.