PIDS STUDIES: TRAIN worsened poverty

    Across sectors. The twin studies analyzed the impact of fuel excise taxes on employment and on poverty.
    Across sectors. The twin studies analyzed the impact of fuel excise taxes on employment and on poverty.

    The implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) program has increased poverty in the country, according to studies published by the Philippine Institute for Development Studies (PIDS).

    The studies, which looked at the impacts of TRAIN fuel excise taxes on employment and poverty, and on foods and prices, said government should take into account other considerations when designing tax policies.

    The studies are authored by consultants Czar Joseph Castillo, Ramon Clarete, Marjorie Muyrong and Philip Tuaño.

    The first report analyzed the poverty and employment impacts of excise taxes on fuel products as well as other tax reform policies under the TRAIN using computable general equilibrium (CGE) modeling and microsimulation.

    “The results show that although excise taxes on fuel products entailed minimal increase in poverty incidence, the first package of TRAIN increased poverty among households and individuals and across, all sectors considered,” the report said.

    “This was due to the increase in commodity prices that offset increase in factor incomes,” it added.

    Nonetheless, the unconditional cash transfer (UCT) for households at the bottom 50 percent provided by the TRAIN mitigated the increase in poverty, the PIDS report said.

    According to the PIDS report, the poverty incidence for households of 16.48 percent, based on the scenarios simulated using the CGE, increased by 0.16 percentage points (ppt) with the increase in excise tax on petroleum products. The impact of TRAIN, apart from the excise tax on fossil fuels is an increase of 1.72 percent, however, this was tempered by the UCT, as the impact of the TRAIN with the UCT program is an additional 0.26 ppt from the computed baseline.

    “Based on the results of the CGE simulation, employment in some sectors suffered from reduced level of economic activities due to the shocks from the TRAIN. Although overall employment may still increase, the transition from one work to another may become costly for some workers,” it said.

    “This makes active labor market policies, such as direct employment creation, as in infrastructure, and passive labor market policies especially those that link workers to available work useful in minimizing the welfare loss of workers,” it added.

    Meanwhile, the second study analyzed the impacts of increased taxes on petroleum and coal in the country during increasing energy utilization.

    “The initial results show that the excise tax component in the TRAIN would have a slight impact in terms of sectoral output and prices, and therefore in household welfare through incomes and employment and in carbon emissions in the country,” the report said.

    It said sectors that are energy-intensive would see a slight decline in output and there would be a slight increase in poverty given heightened prices.

    “On the other hand, TRAIN would increase domestic output in most industries and increase the output of power. This is due to the increased economic activity following increased consumption brought about by lower income tax rates, especially among the highest income deciles,” the PIDS policy note said.

    “The increased economic activity, however, would come at the expense of the welfare of marginalized groups and increased energy and carbon emissions in the country. Given that the contribution of non-fossil fuel sources of power is significantly low, any short-term increase in economic activity would favor the growth of sources of electricity that are based on oil, gas, and coal,” it added.

    The report said this leads to several considerations that policymakers must undertake in designing tax policies.

    “While the goal of the TRAIN as a tax reform law is very commendable, which is to raise public revenues to improve the delivery of basic services and improve social and economic outcomes in the future, there are considerations that the government should make in designing tax policy,” the report said.

    “One would be the impact of the policy reform on the welfare of the poorer sectors in the country and the other would be to be able to take into consideration the impact on the targets that the Philippines must observe in terms of emissions,” it added.