The much-talked-about Tax Reform for Acceleration and Inclusion or TRAIN Law is finally here,

immediately taking effect at the start of 2018.

Many dubbed it to be a blessing for those trying to make ends meet with their meager salaries, while
others branded the TRAIN law as anti-poor because it set a chain of price increases for consumer
products.

To set the record straight, here are some of the most impactful changes the ordinary Filipino will
experience in 2018 because of the TRAIN law.

YOU’LL ENJOY HIGHER TAKE-HOME PAY

One of the most publicized parts of the TRAIN law is the reduction in personal income tax, leading to
higher take-home pay.

In the past, the tax rate ranges from 5% to 32%, depending on your tax bracket. But with TRAIN, you no
longer have to pay for personal income tax if you’re an employee earning P250,000 or less every year.
Tax exemption also covers 13th-month pay and other mandated bonuses, giving you more chances of
saving money.

Self-employed individuals earning less than P3 million annually also have the option to avail of the 8%
fixed tax rate instead of the graduated income taxes.

One caveat, though: Personal and additional exemptions for dependents have been removed under the
new law.

SWEETENED BEVERAGES COST A BIT MORE

Are you fond of drinking sodas and other sugar-filled beverages? It’s time to bid them adieu if you don’t
want to pay the new excise tax on sweetened beverages.

In a bid to reduce the incidence of obesity and diabetes, the TRAIN law taxes sugar-sweetened
beverages P6 per liter, while those with high fructose corn syrup are taxed P12 per liter. Milk products,
natural fruit and vegetable juices, and pre-packaged coffee products are exempted.

CIGARETTES ARE MORE EXPENSIVE TOO

The TRAIN law also seeks to curb the number of smokers in the country, which is why it also imposed an
excise tax on cigarettes.

Cigarette prices will increase by P2.50 increments beginning this year until 2023. By 2024, there’ll be a
price increase of 4% every year.

CAR OWNERS HAVE TO PAY MORE TAXES

Planning to buy a car? You better do it soon because excise taxes doubled from 2% to 4% for cars worth
P600,000 and below.

If your car is worth more, your tax goes up from 10% to as much as 50% for vehicles worth over P4
million. You’ll only be exempt from paying taxes if you’re driving purely electric vehicles and pick-ups.
But even if you already have your own car, you still have to keep up with the P8 tax increase on
petroleum products. Even diesel, kerosene, and LPG will now have taxes ranging from P1 to P3 per liter.

It might be bad for your pocket, but this move can hopefully control the horrid Metro Manila traffic and
help save the environment.

TAXES FOR TAXABLE DOCUMENTS HAVE DOUBLED

The TRAIN law also doubled the documentary stamp taxes (DST) on all taxable documents, such as bank
checks, life insurance policies, pre-need plans, warehouse receipts, powers of attorney, mortgages, and
sales documents.

It may not be of immediate consequence to you, but it’s good to keep this in mind when getting these
documents.

THERE’S A HIGHER THRESHOLD FOR VALUE-ADDED TAX

The TRAIN law increased the VAT threshold from P1,919,500 to P3 million, thus lessening the burden of
ordinary taxpayers.

As usual, sectors exempted from VAT include small businesses with less than P3 million annual income,
health and education, persons with disability, and senior citizens.

There are also other notable VAT exemptions, such as medicines for diabetes, high cholesterol, and
hypertension, as well as association dues and membership fees collected by homeowners’ associations
and condominium corporations.

If you’re renting your home, the increase of VAT exemption from P12,800 to P15,000 is also a welcome
reprieve.

While the TRAIN law increases the price of basic goods and commodities, you’ll be able to enjoy higher
take-home pay because of the decrease in personal income taxes. It’s up to you to budget your money,
form healthier money habits, and minimize spending on stuff that you don’t need.

World Bank to PH: Improve

tax collection
World Bank says improving tax administration, simplifying taxation process and
reviewing incentives will help the government achieve inclusive growth
MANILA, Philippines- The current administration will need to increase its revenues in
the mid-term to finance social and infrastructure projects meant to reduce poverty and
promote inclusive growth, according to a senior World Bank economist.

World Bank’s regional chief economist Bert Hofman at the release of the East Asia
Pacific Economic Update report on October 7 said the government should work harder
in funding projects — especially infrastructure projects — to eradicate poverty.

“What we have analyzed is, if all plans of governmentt will be implemented for more inclusive
growth, (including ) infrastructure development, then they will need to be financed by budget
resources. The Philippines needs more resources, more revenues," Hofman said.

He stressed that while the current administration has implemented measures to

increase revenues, such as the implementation of the sin tax law, more needs to be
done.

“The sin tax has helped, but more is needed in the midterm. Overall, more revenues are
needed to sustain infrastructure development," Hofman added.

Simplify taxation process

Rogier van den Brink, World Bank's lead economist poverty reduction and economic
management, said a simplification of tax collection will increase revenue collection.

“There's a lot of rules in taxation which are contradictory, which makes it difficult to pay
their taxes, and alot can be done there," van den Brink noted.

He said that government should review its current taxation processes, and reform as
necessary to increase tax collection.

“We are not singling out a particular tax policy but the first step is to make the tax
system simpler," Van den Brink said.

Review tax incentives

The tax breaks given to various industries should be one of the tax measures
government must review, van den Brink stressed.

Tax breaks are granted to various industries to help them flourish while they are in early
stages.

“Take a hard look at the tax break given to various businesses and sectors," he noted.
Van den Beer explained that not all industries and sectors should enjoy tax breaks as
these businesses already are successfully earning profits.

“What we are seeing in the Philippines [is that] a lot of sectors were given tax breaks
and now they are growing very fast,” he added.

Van de Beer said the passage of the proposed Fiscal Incentives Bill, a bill that would
rationalize the way incentives are granted to various industries, will be very useful in
reviewing which industries still should continue to receive tax breaks.

“The fiscal incentives bill will provide transparency on which industries get tax
incentives,” he added.

It will be a tedious process, Van de Beer warned. “That’ a diifuclt issue because industry
wide, they will want to defend it," he shared. - Rappler.com

FAST FACTS: Time to pay

taxes, what should you
know?
As we approach the tax month of April, check if you know enough about the Philippine
tax landscape

Sofia Tomacruz

MANILA, Philippines – The Philippines is known to have one of the most complicated
tax systems in the world. The World Bank reported that it takes about 185.6 hours to file
taxes 28 times each year, placing the country 99th out of 190 economies in its 2017
Doing Business Report.

With the annual deadline for filing income tax returns on April 15 fast approaching and
a tax reform package currently in the works, Rappler reviewed the tax landscape in the
Philippines.
What are taxes and why do we pay them?

Taxes are funds used by the government to finance basic social services that are vital
to the lives of citizens and economic growth. Every year, individuals and corporations
pay government taxes, which are used to fund expenditures.

When government spending exceeds revenue collected, a budget deficit occurs. The
government borrows money to cover this gap.

The loans are later on added as additional expenses for the country.

According to the National Tax Research Center, taxes collected have not been enough
to cover total government expenditures since 1998.

Philippine Tax Law sources?

Philippine tax law was formulated based on the following sources:

 1987 Constitution

The Constitution sets limitations on the exercise of the power to tax in the following
articles:

o Article 6, Sections 27-29

o Article 8, Section 5
o Article 10, Sections 5-6, 186-187
o Article 16, Section 4

 Laws

The basic source of Philippine Tax Law is the National Internal Revenue Law, the latest
version of which is the National Internal Revenue Code of 1997. It is also known as the
Tax Reform Act of 1997, approved on December 11, 1997.

 Treaties

To avoid double taxation and prevent tax evasion, the Philippines is currently a
signatory to 41 tax treaties.

 Administrative Material

The Secretary of Finance may implement rules and regulations for the effective
enforcement of the Tax Code. These materials come in the form of revenue regulations,
revenue memorandum orders, revenue memorandum rulings, revenue memorandum
circulars, and BIR rulings.

 Local Government Tax Law

The Philippine Constitution grants local government units the power to create their own
sources of revenue and to levy taxes, fees, and charges. The amount collected may be
used to fund local projects and initiatives.

What are the types of taxes?

According to Philippine tax law, there are two types of taxes:

1. National Taxes – paid to and imposed by the government, which include:

o Capital Gains Tax
o Documentary Stamp Tax
o Donor's Tax
o Estate Tax
o Income Tax
o Percentage Tax
o Value-Added Tax (VAT)
o Withholding Tax

The Department of Finance (DOF) says that for every P100 contributed through tax,
P60 is given to the national government while P40 is given to local governments.

2. Local Taxes – levied by local government units (LGUs) to source funds, which
include:

 Basic Real Property Tax

 Franchise Tax
 Business of Printing and Publication Tax
 Sand, Gravel and other Quarry Resources Tax
 Professional Tax
 Amusement Tax
 Community Tax
 Annual Fixed Tax for Delivery Trucks and Vans
 Barangay Tax
 Barangay Clearance

The Bureau of Internal Revenue (BIR) collects national taxes while local taxes are
collected by LGUs. (READ: The taxes we pay)
Who pays?

The Tax Reform Act of 1997 says that the following have the duty to pay taxes in the
country:

 Citizens: a citizen of the Philippines residing in the country is taxable on all

income derived from sources within and outside the Philippines
 Nonresident citizens: a nonresident citizen is taxed on income derived from
sources within the Philippines
 Overseas contract workers: a citizen who is working and deriving income
from abroad as an overseas contract worker is taxed only on income
derived from the Philippines
 Alien individuals: resident and nonresident alien individuals are taxed only
on income derived from sources in the Philippines
 Domestic corporation: a domestic corporation is taxable on all income
derived from sources within and outside the Philippines
 Foreign corporation: whether or not engaged in trade or business in the
Philippines, a foreign corporation is taxable only on income derived from
sources within the Philippines

However, the BIR exempts some individuals from filing income tax returns, such as
minimum wage earners and those who are subject to "substituted filing".

Tax Reform?

Since the end of the Marcos regime, there have been two major tax reform programs.

The first was the 1986 Tax Reform Program under the administration of former
president Corazon Aquino. The second program – and the one currently in place today
– was the 1997 comprehensive tax reform program under the administration of former
president Fidel Ramos.

A third tax reform program is currently being pushed and seeks to address tax system
inequality.

The proposed reforms seek to raise an estimated P600 billion in funds yearly. It also
aims to post an annual growth rate of 7% over the next 6 years. (READ: Tax reform
program to recast PH economic policy)

Current Finance Secretary Carlos Dominguez said at least 4 packages will be submitted
to Congress and will contain amendments to gross personal income tax, corporate
income tax, real estate property tax, and capital income tax.
Key components of the tax reform package include:

 Lowering of personal income tax

The new package seeks to increase the value of tax exemption to P250,000 from the
current P10,000. Maximum tax rate will also be reduced gradually to 25% from 32%,
except for highest income earners. (READ: Why PH has 2nd highest income tax in
ASEAN)

 Broadening of VAT base

Removal of VAT exemptions except those covering senior citizens and people with
disability.

 Higher fuel and automobile excise rates

 Reducing donor's and estate tax rates
 Lifting of the bank secrecy law
 Issuance of electronic receipts or invoice by establishments

If passed, the tax reform will fund healthcare and education services, as well as
infrastructure projects of the Department of Public Works and Highways.

The finance department submitted its first proposal to House representatives in

September. Latest amendments to the propsal were submitted in January 2017.

According to congressional rules, tax measures must pass through the House of
Representatives before reaching the Senate for scrutiny. –Rappler.com

======================

Imposing higher taxes on sugary drinks was part of the government's plan to address
public health concerns like obesity and diabetes.

If so, why is the government aiming for higher collections?

Tax expert Mon Abrea, founding president of the Asian Consulting Group, said the
government should look for other sources of income and not rely on SSBs.
(READ: #AskTheTaxWhiz: Excise tax on sugar-sweetened beverages)

"It's really confusing. First they say it's a health measure, then they set a high target,"
Abrea said. – Rappler.com

========================
This revenue is expected to provide additional funding for the Philippine Health Insurance
Corporation (PhilHealth) and cover the remaining gap needed to implement the universal health
care bill, while discouraging excessive alcohol intake especially among the poor and the youth.