Diokno: Suspending TRAIN Law 'will do more harm than good'

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Metro Manila (CNN Philippines, May 9) — Budget Secretary Benjamin Diokno said Wednesday he is against a proposal to suspend the Tax Reform for Acceleration and Inclusion Act (TRAIN).

"Suspending the law will do more harm than good," Diokno said.

"It will create a lot of chaos because the BIR (Bureau of Internal Revenue) and the BOC (Bureau of Customs) are already geared towards collecting these taxes so it will upset for example the revenue projection," he added.

This was in response to Senator Bam Aquino's proposal to suspend the excise tax on fuel if the inflation rate - or the annual rise in the prices of goods and services - breaches four percent.

April inflation reached a five-year high of 4.5 percent.

"We focus on what we can actually reform, ano yung kaya nating repormahin ,ano ang kaya nating gawin upang matulungan po yung ating mga kababayan," Aquino said during the hearing of the Senate Committee on Economic Affairs on the TRAIN Law.

[Translation: We focus on what we can actually reform, what we can further reform, and what we can do to help our countrymen.]

Diokno admitted the measure has caused "transitory increases" in prices of goods, but pointed out the law also provides mitigating measures to help those affected by price hikes.

The government has allotted about P28 billion to grant the poorest families a P200 monthly cash aid, which will increase to P300 by 2020.

"This increase in prices is transitory. We don't expect this to linger so we expect prices to normalize maybe during the 2nd half of the year of maybe 2019," Diokno said.

During the TRAIN deliberations before the passage of the law, the Senate approved Aquino's amendment to include a safeguard where the implementation of the TRAIN Law would be stopped once it breaches the "target range."

The provision, however, did not make it to the approved version of the law.

"Kung hindi inalis ang safeguard na ito, napatigil na sana natin ang TRAIN Law ngayong napakataas na ng presyo ng mga bilihin," Aquino said.

[Translation: If this safeguard was not removed, we could have suspended TRAIN Law now that prices of goods are already too high.]

Senator JV Ejercito also called on the suspension of the tax reform law, following the projection of the Bangko Sentral ng Pilipinas that the inflation rate for April moved at a faster pace of 4.5 percent, higher than the target two to four percent for the entire year.

"It might be wise to consider suspension of the TRAIN law if the trend continues to breach the inflation threshold," Ejercito said.

President Rodrigo Duterte signed the TRAIN Law on December 2017, which guarantees lower personal income tax to offset the impact of higher taxes on sugar sweetened beverage, automobile, coal, fuel, and tobacco.

The impacts of TRAIN Law

The Department of Trade and Industry, meanwhile, recorded a minimal movement on the prices of basic commodities since the implementation of the TRAIN Law.

The prices of low-end canned sardines, coffee refill, instant noodles, loaf bread, variety of milk products and detergent soap have increased by 7 to 21 centavos each.

Prices of loaf bread, corned beef, and toilet soap have risen only by 8 to 13 centavos per piece.

BSP Deputy Governor Diwa Guinigundo explained there is nothing to worry about and that global market prices contribute largely to the movement of prices. 

"We would not want the market to have an undue perception that inflation is out of control...Inflation is very much manageable, we just have to communicate to the market the proper analysis and assessment of this price dynamics," Guinigundo said.

Senate Committee on Economic Affairs chair Win Gatchalian, however, said he is worried saying that consumers are already reeling from the impact of the first round of the implementation of the TRAIN Law, especially the price on petroleum products.

Gatchalian's research shows the price of galunggong rose from P139 per kilo to P141 per kilo, when the TRAIN Law took effect.

He said the price of NFA rice also increased from P25.50 per kilo to P29.20 per kilo.

"Kung nakita natin yung increase in the first year ay pumalo na ng 4.5 percent ang inflation, I'm quite worried na yung second round of increase magkaroon din ng mataas pa na pagtaas ng presyo," Gatchalian said.

[Translation: If we already saw that the inflation increased to 4.5 percent in the first year, I'm worried that the second round would also come with even higher prices.]

CNN Philippines' Senior Correspondents Cecille Lardizabal and Ina Andolong contributed to this report.