Poverty impact claims countered

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    The implementation of the Tax Reform for Acceleration and Inclusion Law (TRAIN) reduced poverty in the country, a study sent by the Department of Finance showed, contrary to a report by a state think tank that said poverty worsened with the policy in place.

    According to a policy brief of the De La Salle Angelo King Institute for Economic and Business Studies titled “Assessing the potential impacts of the Tax Reform for Acceleration and Inclusion and the Build, Build, Build Program,” results of the poverty and distributional microsimulation showed the policy had reduced poverty and reduced income inequality very slightly.

    The report, authored by Caesar Cororaton, Marites Tiongco and Justin Eloriaga, said results suggest that TRAIN has prompted additional revenue in social programs and infrastructure spending.

    “There are clear increases in the capital stock which drive economic growth with the industry sector leading the way and the services and agricultural sectors lagging behind,” the study said.

    “With regard to the inflationary effects, we can see that the additional excise taxes increase inflation in 2018 and 2019 but decelerates after that as higher growth would significantly dominate the inflationary effects,” it added.

    The report however said retaining the old personal income tax structure may lead to “higher government revenue which may prompt higher spending and allocation to additional social programs and infrastructure, in addition to higher economic growth and greater reductions in poverty.”

    “Therefore, it may be better to retain the structure of the personal income tax in the pre-TRAIN period while implementing the other changes as it will induce greater reductions in poverty incidence, poverty gap, and the poverty severity. This is in addition to more increases in other key economic indicators,” the report said.

    Earlier this week, studies published by the Philippine Institute for Development Studies (PIDS) said the implementation of the TRAIN program has increased poverty in the country.

    One 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 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, but 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.

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

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