Train Law: Rodrigo Duterte
Train Law: Rodrigo Duterte
Train Law: Rodrigo Duterte
The Tax Reform for Acceleration and Inclusion (TRAIN) Act, officially
cited as Republic Act No. 10963, is the initial package of the
Comprehensive Tax Reform Program (CTRP) signed into law by
President Rodrigo Duterte on December 19, 2017.[1] TRAIN consists of
revisions to the National Internal Revenue Code of 1997, or the Tax
Code.[2] This reform includes packages that make changes in taxation
concerning the personal income tax (PIT),[3] estate tax, donor's tax, value
added tax (VAT), documentary stamp tax (DST) and the excise tax of
petroleum products, automobiles, sweetened beverages, cosmetic
procedures, coal, mining and tobacco.[4]
The prominent feature of the tax reform is that people who earn ₱250,000
annually or ₱21,000 monthly and below are exempted from paying
personal income tax (PIT). This includes minimum wage earners, who were
also exempted in the former tax system. On the other hand, those earning
over ₱250,000 have tax rates following a set PIT schedule. Essentially,
greater income is taxed at higher tax rates.[5] This denotes that low to
middle income-earners get to have a higher take home pay, while high
income-earners have a bigger contribution to tax revenues. Increase
in consumption taxes intend to counterbalance PIT tax exemptions.[3]
The TRAIN LAW is one of the primary ways in which the 2020 and 2040
vision of the Duterte administration is to be achieved,[3] and so, it had
optimistic projections about its effect on the economy, development and
poverty alleviation in its inception. Regardless, contentions about the
passing of this law has been present since the beginning and the
subsequent reception by the people since its ratification has been
controversial. In the first quarter of 2018, both positive and negative
outcomes have been observed. The economy saw an increase in tax
revenues, government expenditure and an incremental growth
in GDP.[6] On the other hand, unprecedented inflation rates that exceeded
projected calculations,[7] has been the cause for much uproar and
objections. There have been petitions to suspend and amend the law, so
as to safeguard particular sectors from soaring prices.[8][9][10]
Revenue Memorandum Circular (RMC) No. 105-2017 was issued on Dec. 29, 2017.
It prescribed the revised table for the withholding tax on compensation income.
Since then, the Bureau of Internal Revenue (BIR) has released various regulations,
circulars and orders to implement the first package of the government’s Comprehensive
Tax Reform Program.
The first, and perhaps the most important part of the tax reform, is the lowering of the
personal income tax. Subsequent regulations also clarified certain portions of the
personal income tax, specifically the optional 8 percent rate.
Under TRAIN Law, self-employed and professionals were allowed to avail themselves
of the optional 8 percent tax in lieu of the graduated personal income tax and
percentage tax. The TRAIN Law also stated that it will be available to those whose
gross sales do not exceed the VAT threshold.
Revenue Regulations (RR) No. 8-2018 clarified that VAT-registered taxpayers would
not be able to avail themselves of the 8 percent rate, regardless of their gross sales. The
regulation also clarified that electing the 8 percent rate should be irrevocable for the
duration of the year.
It further stated that availing of the 8 percent had to be made in the First Quarter
Percentage and/or Income Tax Return. Otherwise, the taxpayer would be deemed
automatically subject to the graduated income tax rates.
Not all the issued regulations simply restate or clarify TRAIN. For instance, under the
TRAIN Law, the rates on creditable withholding tax (CWT) shall be anywhere between
1 and 15 percent. The imposition of the specific rates is regarded as the privilege of the
Secretary of Finance (upon recommendation of the BIR Commissioner).
RR 11-2018 imposed the rates for the CWT. The rate for professional fees could either
be 5 percent or 10 percent for individual payees, or 10 percent or 15 percent for non-
individual payees. It also clarified the new rates for various other types of income
payments.
The first package of the Tax Reform for Acceleration and Inclusion
(“TRAIN”), or Republic Act No. 10963, was enacted into law in December
2017 and became effective on January 1, 2018.
The second package of the TRAIN ("TRAIN 2") has also been submitted to
Congress. TRAIN 2 seeks the reduction of the corporate income tax.
Relative to the ASEAN region, the Philippines has the highest corporate
income tax at 30 percent.
TRAIN 2 also proposes to modify and limit the fiscal incentives granted to
certain businesses. Currently, the tax incentives are enjoyed perpetually
and are applied in lieu of all other taxes. Under TRAIN 2, the government
wants to make the fiscal incentives transparent, targeted, performance-
based, and time-bound. TRAIN 2 also seeks to repeal the special laws on
investment tax incentives and provide for a single omnibus incentives law.
TRAIN 2 is expected to take effect in 2019.
Recent Developments
Personal Income Tax
Prior to the enactment of the TRAIN law, an individual employee or self-
employed taxpayer was taxed at graduated rates ranging from 5 percent to
32 percent, depending on the taxpayer’s income bracket. Under the TRAIN,
an individual with a taxable income of 250,000 peso or less is exempt from
income tax. Those with a taxable income above 250,000 peso are subject
to the graduated rates of 20 percent to 35 percent effective 2018, and 15
percent to 35 percent effective 2023. The top income tax bracket is 8
million peso.
Transfer Tax
The TRAIN also amended the transfer tax rates.
Under the old law, the estate tax rates ranged from 5 percent to 20 percent
of the net estate. The TRAIN reduced the estate tax to a single rate of 6
percent of the net estate.
The donor’s tax rate was also reduced to a single rate of 6 percent ,
regardless of the relationship between the donor and the donee. Under the
old law, the donor’s tax rates ranged from 2 percent to 15 percent if the
donor and donee are related within the fourth degree of consanguinity. In
case of a donation to a stranger, the applicable donor’s tax rate was 30
percent.
In conjunction with the foregoing amendment to the VAT law, the TRAIN
also provided for the implementation of an enhanced VAT refund system
that will provide timely cash refunds of unutilized input VAT.
The TRAIN also increased the threshold for the imposition of VAT from
1,919,500 peso to 3 million peso.
Other Taxes
The TRAIN imposed higher excise taxes on cigarettes, manufactured oils,
mineral products, and automobiles. It also increased taxes on some
passive incomes, including interest income from dollar and other foreign
currency deposits. The TRAIN also increased the tax imposed on sale of
shares of stocks. Under the TRAIN, the stamp duty on taxable documents
have also been increased.
The TRAIN also introduced new taxes in the form of excise tax on
sweetened beverages and non-essential services.