TRAIN 2: Stop, look and listen!

Typhoon “Ompong” (international name “Mangkut”) which hit the country last Saturday, is recorded as the biggest storm of the year. This super typhoon came with maximum sustained winds of up to 205 kilometers per hour and gusty winds of 285 kph. The 900 km-wide typhoon made a landfall on the coastal town of Baggao in Cagayan province.

In a press briefing held last Saturday, Social Welfare Secretary Virginia Orogo reported that 31,631 families or 126,751 individuals living in the Ilocos Region, Cagayan Valley, Central Luzon, the Cordillera Administrative Region (CAR), and the National Capital Region have been affected by the typhoon.

Ompong is another test of our resilience as a nation. It is evident however that we still lack standard protocols and preparation. Local Government Units have designed their own guidelines, hoping there is one department, one directive to lead us for disaster management. The Climate Change Act of 2009 and the National Disaster Risk Reduction and Management Council (NDRRMC) institutionalized after Typhoon Ondoy doesn’t seem to be enough. They need to be part of a department to ensure better management response to disasters (not hiding under the shadows of the LGUs). I can’t wait until the proposed Department of Disaster Resilience is institutionalized. I don’t know why our solons are taking such a long time to approve it.

But my real pet peeve at the moment is seeing many government officials taking advantage of the situation by taking photo opportunities with the typhoon victims as they give out food, clothes, medicines, etc. I suggest they watch the movie Goyo: Ang Batang Heneral so they can see how they resemble our past leaders. As the Filipino expression goes, “Ginogoyo niyo lang ang mga tao.”

*      *      *

On TRAIN: As planned, the two packages of the Comprehensive Tax Reform Program of the Duterte administration have built-in balancing mechanisms and are also complementary, as one should temper the effects of the other. TRAIN 1’s reduction of the individual income tax rates for most of our employed citizens would have balanced the expected increase in prices of commodities resulting from the additional excise tax on petroleum products, but unfortunately, this did not happen.

Understandably, the world prices of crude oil did not cooperate, but for Juan Dela Cruz for whom no argument is better than the rising price of rice in the market, the favorite siling labuyo would not have cost something like gold if not for TRAIN 1. This is a knockdown for package 1 in the early rounds of implementation, which makes the public wary of TRAIN 2 even if experts are saying that the adjustments in corporate income tax rates will not have inflationary effects similar to TRAIN 1.

While the after-taste of the bitter TRAIN 1 pill still lingers, Congress is now concocting the second tax capsule, with the lower house approving House Bill 8083, and the Senate processing its version by way of Senate Bill 1906. With the backlash of TRAIN 1, the House renamed its proposal to Tax Reform for Attracting Better and Higher Quality Opportunities or TRABAHO to highlight its intended purpose of generating more jobs. This bill seeks to gradually lower the Corporate Income Tax (CIT) rate from the current 35% to 20% by 2029. But to balance the expected reduction of government revenue from the tax cut, the Income Tax Holidays and other incentives given to some corporations will be tempered or “modernized” as the government would call it.

With the savings from the lowered tax rates, more than 90 percent of business corporations operating in the country would be able to either expand operations offering more employment opportunities or increase the salaries of their workers. With increased salaries, employees will pay more taxes back to the government. Of course, this is the ideal set-up because we know that the only guaranteed result is the higher profit for these corporations. But as to whether this would translate to higher salaries will remain to be just the ideal. Moreover, the decrease in the corporate income tax rate, which is currently the highest in the region, is also expected to encourage foreign investors to set up businesses in the country and employ more Filipinos, notwithstanding the corresponding reduction of tax holidays and other incentives.

As filed, the counterpart Senate Bill 1906, known as the Corporate Income Tax and Incentives Reform Act, seeks to lower the corporate income tax rate to 25%, but will expand the tax base by repealing preferential tax rates and rationalizing investment tax incentives presently enjoyed by some corporations. Foreign chamber of commerce groups voiced their concern as they want the retention of the present tax incentive system used in economic zones and the removal of terms that do not work. There are already reports of locators planning to pull out or holding expansion in abeyance because of the impending withdrawal of tax benefits.

Would it not be better for the government to respect tax incentives already granted, but rationalize, within reasonable and feasible levels, those to be given new investors? While the products of PEZA locators are exported and the reduction of tax incentives may not have an immediate impact on local market prices, workers may be dislodged in case locators would really pull out because the government reneged on its investment incentive commitments.

But a real cause for alarm is the proposal to increase the tax rates on proprietary educational institutions and hospitals. Unlike the approved House Bill, the Senate version seeks the total repeal of the preferential tax rate of 10% for proprietary educational institutions and hospitals under Section 27 of the National Internal Revenue Code, so that they will be taxed as an ordinary business corporation at 25%.

No less than the Constitution provides that proprietary educational institutions may likewise be entitled to exemption from taxes and duties enjoyed by non-stock, non-profit educational institutions, subject to limitations as well as restrictions on dividends and provisions for reinvestment.

This constitutional accommodation is obviously in recognition of the contribution of proprietary schools in helping the State promote and make quality education accessible to all citizens, pending the improvement of the public school system. Ironically, the Senate bill would decrease the tax rate on income of business corporations operated purely for profit, but would increase the tax rate for educational institutions operated in support of the State’s obligation to promote quality education.

Will not increasing the cost of education be ultimately inimical to the objective of the second tax reform package of increasing job opportunities, because of compromised job qualifications due to poor or lack of education?

TRAIN 2 may be good for business corporations, but it should not adversely cover educational institutions by equating them to corporations established plainly for profit. The preferential tax rate of 10% should be retained, if not reduced in line with the prevailing policy in the TRAIN 2 bill of lowering corporate income tax rates. We just hope the Senate would also allow proprietary educational institutions to totally alight from TRAIN 2 and spare quality education from an impending crazy ride. Abangan!