PRESIDENT Rodrigo Duterte on Tuesday signed into law Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN), the first phase of his administration’s comprehensive tax reform package, expected to yield about P92 billion in revenues for its first year.
The new law, one of the five tax packages envisioned to increase state revenues and make the tax system fairer and simpler, will lower income taxes, expand the value-added tax base, raise taxes on petroleum products, automobiles and slap taxes on some sugar-sweetened beverages, among others.
With about P150 billion in tax relief under the TRAIN, Finance Secretary Carlos G. Dominguez III said the tax reform program “is the biggest Christmas and New Year’s gift that the Duterte administration is giving to the people.”
In related developments:
• Socioeconomic Planning Secretary and National Economic and Development Authority director-general Ernesto Pernia said the passage into law of TRAIN bill would be good for the economy.
“The implementation of TRAIN is essential as it will increase the spending capacity of the average working Filipino, boost revenue-to-GDP ratio, and fund government’s infrastructure and human
capital investment program,” Pernia said in a statement Tuesday.
• The Gabriela Women’s Party said the TRAIN measure would adversely affect over six million Filipino women without having any income tax gains out of it but merely higher prices of basic commodities.
Gabriela Rep. Emmi de Jesus said even if the TRAIN measure was estimated to cut income taxes paid by the reported 7.5 million self-employed taxpayers, this still left an estimated 6.2 million Filipino women unemployed, self-employed who were not filing taxes, and unpaid family workers who would not benefit at all from the income tax reductions.
“Over six million Filipino women who belong to the self-employed and unpaid family workers will never benefit from the much hyped income tax adjustments under TRAIN but will be slapped with higher prices of basic commodities and services,” De Jesus said.
She added the estimate did not even include minimum wage women workers already exempted from income taxes.
De Jesus also complained the TRAIN’s higher taxes on petroleum products, most sugar-based beverages, and other goods and services shall be imposed across the board and shouldered by women who must budget meager family incomes to keep up with rising expenses.
• Earlier, Senator Emmanuel Pacquiao expressed dismay over the passage by the bicameral conference committee of low tobacco tax bill, saying this countered protection against the menace of cigarette smoking.
Pacquiao claimed he was taken aback by the decision of the bicameral panel to adopt a lower tax on tobacco products.
Last week, the bicameral panel of both Houses passed the final version of the TRAIN bill, seeking to cut the tax rate on low income earners but impose higher levies on fuel, cars, coal, tobacco, and mining, among others.
At the same time, the TRAIN also raises “significant revenues” to fund the President’s priority and social infrastructure programs—including free education, quality health care, social protection and conditional cash transfers, improved infrastructures to the “Build, Build, Build” program and the reconstruction of Marawi—to reduce poverty from 21.6 percent to a targeted 14 percent by 2022, Dominguez said.
In his speech, Duterte ordered the Finance Department to speed up the remaining packages of the CTRP to boost government spending.
“I am directing the Department of Finance to ensure the effective implementation of Package 1 of TRAIN and to immediately submit to Congress Package 2 which deals with corporate income tax early next year, which will complement the revenues of TRAIN,” the President said.
Achieving a campaign promise, beginning Jan.1, 2018—those earning 250,000 per annum will now be tax-exempt, sparing 99 percent of Filipinos from the payment of income taxes, except the richest with taxable income above P8 million, who will face a tax of 35 percent.
In addition, the first P90,000 of the 13th month pay and other bonuses will be exempt from income taxes.
For small and micro tax payers, an option for simplified taxes will be implemented—a flat tax of eight percent on gross sales in lieu of income and percentage tax.
To cushion the impact of indirect taxes, cash transfers will be implemented, wherein the poorest 10 million households will receive cash transfer of P200 per month in 2018 and P300 per month in 2019 and 2020.
Estate taxes will be lowered, from up to 20 percent to a single rate of 6 percent for the net estate, with the standard deduction of P5 million as well as exemption for the first P10 million for the family home.
Donors’ taxes will also be lowered to a fix rate of 6 percent over and above P250,000 yearly.
Value-added taxes were also modified, repealing 54 special laws repealed with non-essential VAT exemptions, in a bid to making VAT fairer but exempting from VAT medicines for diabetes, high cholesterol, and hypertension.
Purchases of senior citizens and people with disability continue to be exempted from VAT.
There would be a staggered increase on oil excise taxes of up to P6 per liter over a three-year period, with lower rates for essential such as diesel, kerosene, and LPG to protect households and the consumers.
In 2018, gasoline prices will rise by only P2.97 per liter; while in 2019, diesel prices will rise by P2.8 per liter.
A cash subsidy for jeepney drivers and operators will be implemented to mitigate the increases.
An increase in automobile excise taxes will also be implemented, with adjustments based on the new manufacturing or importers price.
Four percent excise tax will be slapped for vehicles up to P600,000; 10 percent for vehicles between P600,000 and P1 million; 20 percent for P1 million to P4 million; and 50 percent for above P4 million.
Pick-ups and purely electric vehicles will still have zero excise tax, while hybrid cars will be taxed at 50 percent of the equivalent automobile.
As a health measure, a tax on sugar-sweetened beverages will be slapped starting next year—P6 per liter for drinks containing caloric or non-caloric sweetener; P12 per liter for drinks containing high fructose corn syrup, or combination; while three-in-one coffee and milk will be exempt.
A 1-liter bottle of regular soft drink will be P12 more expensive from about P30 to P42, while a 1-liter bottle of diet soft drink will be P6 more expensive from about P30 to P36, to discourage consumption “as this is not good for the health.”
A new cosmetic excise tax will also be implemented, with 5 percent on gross receipt taxes.
The highly-debated coal excise tax would also be increased, from P10 per metric ton to P50; P100 and P150, respectively for 2018 to 2020, and will cover both domestic and imported coal, expected to make a “very small increase” in terms of the price of electricity, a two centavos per kilowatt per hour (kWh) increase on an average spending of P9 per kW.
Taxes on mining excise tax, meanwhile, will be doubled from two to four percent.
Taxes on tobacco was increased from P31.2 per pack in 2018 to P32.5 between January and June 2018; while from July 2018 to December 2017, a pack of cigarette will be at P35.
From 2020 and 2021, a pack of cigarette will cost 37.5 per pack, and P40 per pack in 2022 and 2023, followed by an annual indexation of four percent.
Documentary stamp taxes would likewise be increased from 50 to 100 percent increase, except for property, savings, and non-life insurance.
Foreign currency deposit units increased from 7.5 to 15 percent final tax on interest income.
Capital gains of non-traded stock will be increased from five to 10 percent to 15 percent final tax on net gains only, while stock transaction tax increased from 0.05 to 0.6 percent of transaction value.
Some 70 percent will be earmarked for incremental revenues on infrastructure, including military infrastructure; and 30 percent to social services and mitigating circumstances.
The balance of one-third is expected to be passed by Congress in early 2018—involving provisions on the estate tax amnesty, a general tax amnesty, the proposed adjustments in the Motor Vehicle Users Charge and amendments to the bank secrecy law and automatic exchange of information, Dominguez said.
“The legislature has committed they will pass the second part of the tax package one by the first quarter of next year and that will involve the tax amnesty as well as motor vehicle taxes, and raising bank secrecy in the case of in criminal cases,” he said.
The final ratified version also includes tax administration reforms, such as a mandatory fuel marking program and a system that would enable the Bureau of Internal Revenue to check real time the financial submission of large taxpayers.
The TRAIN bill exempts those with an annual income of P250,000 and below from personal income tax, and also adjusts excise taxes on fuel and automobiles.
“As we look forward to TRAIN’s implementation next year, we will continue to rally for the full implementation of the CTRP to promote equity, and raise the needed revenues for government’s programs and projects especially in infrastructure, education and health,” Pernia said.
NEDA’s analysis shows that, with the CTRP, real gross domestic product level will be higher by 0.5 to 1.1 percent by year 2022.
For his part, Finance Secretary Carlos Dominguez III said the passage of TRAIN was the government’s “biggest Christmas and New year’s gift” to the Filipino people as it would usher in “real positive change” for the nation beginning in 2018.
Dominguez said the congressional passage of the first package of the TRAIN was a “sign of maturity” for the Philippine economy that is now ready to meet the challenges of fixing the structural problems and inequities in taxation while generating more revenues to usher in real positive change for the Filipino people.
Describing the approval of the TRAIN as “an important milestone in our history,” Dominguez noted this was the first time ever that a tax reform bill was passed by the Congress that was not in response to a crisis or to any external pressure.
The TRAIN, which provides for personal income tax exemptions for the first P250,000 of taxable income, along with other significant PIT cuts for other tax brackets, provides Filipino taxpayers with
“much-needed relief” after 20 years of no adjustment on the rates, he said.
Dominguez said preliminary computations showed the government would be giving “almost P150 billion” back to the people in the form of tax relief under the TRAIN.
Seventy percent of the incremental revenues under the TRAIN will help support the government’s infrastructure modernization program, which will also include strengthening the country’s military and law enforcement capabilities, while 30 percent will go to social services to fund, among other anti-poverty measures, a targeted cash transfer program for the poorest 10 million households.
“I think it’s a sign of maturity for our country. It is also the first of five packages that will once and for all start fixing the structural problems of the tax system that has become unfair, complex and inefficient. This tax reform will also raise the revenues needed to make real positive change for our people,” Dominguez said.
Unlike the enactment of the Expanded VAT law in 2005, which was done to stave off a fiscal crisis under the then Arroyo administration, the TRAIN was passed at a time when the country was buttressed by strong macroeconomic fundamentals, a sound fiscal policy and a high GDP growth rate that has made the Philippines one of Asia’s fastest-growing economies.
“So it’s the first time we have done a tax reform without any pressure from the outside, no crisis, no external pressure,” Dominguez said.
“I don’t think this ever happened before. Never in the past has the government given up revenues. We have here almost P150 billion, first time ever. First time ever we did a tax reform without anybody forcing us to do it. So I am saying that we are making history,” Dominguez said.
Under the approved TRAIN, the inflationary impact of the measure initially estimated at 0.9 percent will slightly go down to 0.7 percent, which would have an even more minimal effect on food,
electricity and transportation costs.
Dominguez said last week’s approval by the Congress of the TRAIN Package 1 will put the Duterte administration “on track to meet its revenue targets as the final approved version adopted is equivalent to about two-thirds of programmed incremental revenue under the TRAIN.
The balance of one-third is expected to be passed by the Congress in early 2018, he said.
The TRAIN was finally ratified as one of the last acts of the Congress on Dec. 13 before both chambers started their traditional yearend break, or a year and three months after the DOF introduced its
original tax reform proposal in the House of Representatives.
The DOF submitted to the House its original TRAIN proposal in September last year, which was later modified and introduced in the chamber by the House ways and means committee chaired by Quirino Rep. Dakila Carlo Cua as HB 4774 and later consolidated with other tax reform-related measures as HB 5636.
This House version was finally approved by the House before the adjournment of the first regular session of the 17th Congress last May.
Meanwhile, the Neda also welcomes the passage of the General Appropriations Act for 2018, which was also signed by the President Tuesday.
The 2018 GAA proposes a national budget of P3.7 trillion, 12 percent higher than last year’s budget.
“With the passing of TRAIN and the 2018 GAA, we are well on track in reaching our medium-term targets. These are in line with the development strategies in the Philippine Development Plan 2017-2022, which identifies tax reform, infrastructure development, and human capital investment as priorities,” said Pernia.
“This is also a good start as we move towards realizing our national long-term vision of a Philippines where no one is poor, and where all Filipinos enjoy a life that is matatag, maginhawa and panatag,” Pernia said.
Citing the 2016 Philippine Statistics’ Authority Statistics on Gender and Employment, Gabriela said around one million were jobless women, three million self-employed women and non taxpayers, 2.18 million unpaid family women workers who are mostly in the agricultural sector.
For her part, Gabriela Rep. Arlene Brosas denounced the government’s pronouncement that around 70 percent of additional government revenues from TRAIN would be used to finance “Build, Build, Build” projects and construction of military infrastructure.
“Most of what will be squeezed out of the pockets of poor women and the people will be used to bankroll BBB will bulldoze poor communities and for military infrastructure which may lead to increased displacement of families due to militarization,” Brosas said.
Brosas said the TRAIN was a “very bad tax policy that hurts women and the poor most.”
“The 30-percent allotment from TRAIN revenues for education and other social benefit programs is just an icing on top of the Duterte administration’s very bad tax policy,” Brosas said.
She said the GWP would sustain educational discussions and signature campaigns in communities to oppose TRAIN, set to take effect by January 2018.
“Filipino women should not accept these new tax impositions passively despite the escalating cases of state-sponsored attacks on government critics,” she said.