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Make sure TRABAHO leads to more jobs

The country’ economic planners had the highest hopes for the national economy when they planned for TRAIN – Tax Reform for Acceleration and Inclusion. They sought to win support for it with its provision for reducing the income tax of most employees from 30 percent to 21 percent, a loss for the government in income tax revenue. But the planners also drew up new taxes, to make up, they said, for the revenue loss.

Probably the most critical of the new taxes was the tariff on diesel and other fuel, where there was none before. The fuel tariff raised consumer goods’ prices, as cargo transport costs rose. Jeepney fares were increased. Diesel power plants suffered. Also raising prices were increased taxes on sweetened beverages and alcoholic drinks.

It was hoped that TRAIN would powerfully push forward the national economy – such is the image of a railroad engine pulling a long line of coaches. The metaphor, however, has not lived up to its promise. For instead of the economy thundering forward like a train, it has been bogged down by rising consumer prices – inflation.

Probably because TRAIN no longer sounds attractive, the economic planners decided to rename the sequel tax bill covering corporate taxes. It is no longer TRAIN 2; it is now Tax Reform for Attracting Better and Higher-quality Opportunities or TRABAHO.

This second tax measure would lower the income taxes of business enterprises from 30 to 20 percent. This would increase their net income which would help them to expand their operations and hire more employees – hence TRABAHO. There are today some 900,000 micro, small, and medium who would benefit from lower income taxes.

But the bill also plans to remove government incentives now enjoyed by some 3,000 firms in the form of tax exemptions of various kinds. Many of these firms are foreign enterprises who were attracted over the years to locate in the country’s various export zones. They have grown and progressed under the favorable conditions, providing employment for thousands in the process. If the incentives are now removed by TRABAHO, many may choose to close their Philippine operations and move elsewhere.

The government planners are well aware of this possibility and have set aside a “structural adjustment fund” of R500 million to assist those who may be laid off and another R500 million to retrain them. These funds are to be replenished every year for the next five years.

TRAIN 1 has been blamed by many for the high prices now plaguing the economy, although government economists claim the main reason for the inflation are rising global oil prices and the drop in the value of the Philippine peso. Whether or not TRAIN 1 is the principal reason for the inflation, the fact is it has been a major factor.

Before we proceed to the next sequel that would have been named TRAIN 2, our government planners should devote considerably more time and effort to study its possible ill effects, especially on the many foreign companies who located in our export zones because of attractive government incentives – which are now about to be removed.

TRAIN 1 has not quite lived up to its name; the national economy has not roared forward train-like. We urge our economic planners to devote much more time and study to the provisions of TRABAHO so it will lead to more – not fewer – jobs as its name implies.