TRAIN LAWThe Tax Reform for Acceleration and Inclusion (TRAIN) is the first package of the comprehensive tax reform program (CTRP) envisioned by President Duterte’s administration, which seeks to to correct a number of deficiencies in the tax system to make it simpler, fairer, and more efficient. It also includes mitigating measures that are designed to redistribute some of the gains to the poor. Through TRAIN, every Filipino contributes in funding more infrastructure and social services to eradicate extreme poverty and reduce inequality towards prosperity for all. TRAIN addresses several weaknesses of the current tax system by lowering and simplifying personal income taxes, simplifying estate and donor’s taxes, expanding the value-added tax (VAT) base, adjusting oil and automobile excise taxes, and introducing excise tax on sugar-sweetened beverages. It appears that the new TRAIN Law could also turn out to be like our MRT-3 and PNR train systems that lack safety devices. Of course, the government assures us that inflationary spikes in the prices of basic goods and services resulting from the law’s implementation are only temporary. But commentators say the law benefits only those Filipinos in the formal sector with incomes of P250,000 and below. As Ibon Foundation observes, the law will really affect the 22.7 million families who do not pay income taxes because they belong to the informal sector composed of minimum wage earners with low and erratic incomes. Even now, the feedback from my random talks with people in the street is that prices, particularly of food, have begun to increase. To think that food constitutes around half of the expenditures of families earning less than P250,000, per data from the Philippine Statistics Authority. Of course, the government has provided safety nets such as the cash transfer program and particular programs of the Commission on Higher Education and the Departments of Health, of Education, of Tourism, of Trade and Industry, and of Finance. But these schemes may be insufficient to lighten the burden of rising food prices among the poor, not to mention the mentality of dependency they create. What can be done, too, is to intensify community participation through the initiatives of government agencies. Local government units can be mobilized to implement IECM (information, education, communication and motivation) programs that will motivate communities to practice what is called in development economics a “use economy”—i.e., a system that encourages local residents to be self- pots. A case in point is Muntinlupa City. the first package of the tax reform law is arguably the Duterte administration’s most important legislative victory to date. which is reminiscent of what Singapore is currently practicing. recycled pails and used tires. cooperatives. one of which is to enhance local development through maximization of lands for productive use. The lower income tax rates were supposed to provide Filipinos with higher disposable incomes. In this approach. Jack Ng. In his speech. there is a negation of the commoditizing effects of the capitalist economy that conditions residents to always purchase goods in the market. fruit and livestock production as well as food processing. Through supplementary ordinances. idle lots can be used for vegetable. sidewalks. in turn. TRAIN: a risk or opportunity? When President Duterte signed the Tax Reform for Acceleration and Inclusion (TRAIN) Act into law last December. flowers and fruits in plots. As shown by land-deficient Singapore. is well-known in Singapore for introducing vertical farming. where residents now grow vegetables. The Inquirer. for instance. which has initiated the imposition of an ad valorem tax on idle lands. which.reliant in producing their basic needs for internal consumption. After the motivation campaign. Our blessing in the Philippines is that we have much more available land and also advanced technology from our reputable agricultural institutions that are just waiting to be tapped to temper the runaway food prices induced by the TRAIN Law. LGUs can make formal arrangements with landowners for their vacant lands to be used by residents. His innovative technology also uses less water and produces safer organic products. a self-reliant town can engage in the surplus production of goods for selective exchange to supply its other needs. for example. farmers’ groups and nongovernment organizations for food production. could boost domestic . In fact. one logical move for LGUs to augment food production is to strictly enforce the provisions of the Local Government Code. we don’t even need much land to help the government achieve its goal of food security. After all. the President remarked that the passage of the TRAIN is the administration’s biggest Christmas gift to the Filipino people. has reported on the “Gulayan at Bulaklakan” project in Barangay Holy Spirit. Even in cities. which is five times more productive than a regular farm. a number of leading economists lauded the move. terraces. The Departments of Agriculture and of Agrarian Reform should then come in with their extension services in providing assistance on food production in both urban and rural areas. After attaining self-sufficiency in the production of life-sustaining needs. only last year President Duterte threatened to double the taxes on idle lands that will not be developed within a decade. Quezon City. several multilateral institutions and ratings agencies upgraded their economic forecasts for the country. remains without a head after the Commission on Appointments rejected Mr. are expected to go up by 8 centavos per kilowatt-hour. The second package aims to reduce corporate income tax rates and rationalize fiscal incentives. The Department of Finance recently submitted its proposal for Package 2 of its tax reform program to Congress. would push inflation beyond target.consumption. Instead. however. arguing that this is a more efficient way of protecting the poor. The new taxes on fuel will then squeeze consumers’ pockets even more. Moreover. the government still needs to iron out kinks in its program implementation. poor households will undoubtedly lose out on the tax reform. it has been aggressively pursuing efforts to make the economic environment more attractive for investors. To cushion this inevitability. . With no mitigating measure in place. for instance. the untimely release of funds. This means that a household consuming 200 kWh monthly will see a P16 increase in its electricity bill. the Department of Social Welfare and Development. The 2018 budget earmarks around P25 billion to cover monthly cash transfers of P200. reflecting movements in international oil markets. the central bank acknowledged that it may raise interest rates if secondary impacts. While the government has assured the public that inflationary effects resulting from the TRAIN will be minimal. Duterte’s appointee five months ago. as well as a clamor for higher wages. But cash transfer programs are typically riddled with issues including duplicate or fraudulent households. To the government’s credit. At the core of the debates on the TRAIN is its impact on ordinary Filipinos. the optimism toward the TRAIN became more subdued as consumers anticipated the pinch of higher commodity prices. the government will provide targeted cash transfers to the poorest 10 million Filipinos. But as the law took effect at the start of the year. measures that would make the tax system more efficient. In crafting future packages. and plug leakages and loopholes in the system should be prioritized. especially those who are earning below minimum wage—the same segment exempted from income taxes but who will have to bear the brunt of higher commodity prices. while targeted earmarks are a positive step toward boosting social investments. and unliquidated funds due to distance or ineligible beneficiaries. Citing these developments. Electricity rates. the administration should refrain from levying new taxes that will further burden ordinary Filipinos. including higher prices of consumer goods indirectly affected by the TRAIN. The TRAIN will also generate revenues to finance much- needed social and physical investments — the necessary foundations for sustaining rapid economic growth. oil prices have already increased. simplify compliance among taxpayers. Thus. the agency tasked to implement cash transfers. Even before excise taxes on fuel kicked in. Gialogo: As a tax lawyer.000 . and donation. Prior to the enactment of the new law. Eduard G. Personal Income Tax The most popular part of the Train law is the reduction of personal income tax of a majority of individual taxpayers. an individual employee or self-employed taxpayer would normally have to pay income tax at the rate of 5% to 32%. Under Train. But actually. The Train law also imposes new taxes in the form of excise tax on sweetened beverages and non-essential services (invasive cosmetic procedures) and removes the tax exemption of Lotto and other PCSO winnings amounting to more than P10. I noticed that there are a lot of news reports on the changes. Train relatively decreases the tax on personal income. the challenge is for revenue collection agencies to meet their collection targets and for implementing agencies to spend incremental revenues efficiently. automobiles.000 or less will now be exempt from income tax. Rolling out key projects within the timelines will also be a given challenge.000. estate. As I have pointed out in earlier commentaries. it also increases the tax on certain passive incomes. documents (documentary stamp tax) as well as excise tax on petroleum products.Of course. Those with a taxable income of above P250. there are much more significant changes under the Train law which are not being reported. imposing new taxes without the commensurate tangible reforms in efficient and transparent administration will be a bitter pill for the average Filipino to swallow. minerals. However. an individual with a taxable income of P250. and cigarettes. depending on one's bracket. It is not being highlighted.000. the deductible 13th month pay and other benefits are now higher at P90. however.000 2. in lieu of the graduated income tax rates.000 under the old law.919.000 .will be subject to the rate of 20% to 35% effective 2018. and 30% if otherwise.800 to P15. However.000. These are the personal exemption of P50. high cholesterol. that some items that were previously deducted to arrive at taxable income had been removed under Train.500 to P3. Moreover.000 compared to P82. the rates of donor’s tax were 2% to 15% if the donor and donee are related. additional exemption of P25.000 to avail of an 8% tax on gross sales or gross receipts in excess of P250.000. Increase of VAT threshold from P1. In the old law. the donation of real property is now subject to Documentary Stamp Tax of P15 for every P1. Additionally. and the premium for health and hospitalization insurance of P2. Increase of VAT exemption for lease of a residential unit from P12. the following deductions allowed in computing the net estate (to be subjected to estate tax) were increased: Donor’s tax The donor’s tax rate was also amended to a single rate of 6% regardless of the relationship between the donor and the donee. Value Added Tax There are also amendments to VAT which lessen the burden of taxpayers: 1. Another innovation under Train is the option of self-employed individuals and/or professionals whose gross sales or receipts do not exceed P3. and 15% to 35% effective 2023. Starting 2019. the sale of drugs and medicines for diabetes.400 per year.000 per dependent child. Estate Tax The estate tax rate was also changed from 5% to 32% of the net estate to a flat rate of 6%. and hypertension will be exempt from VAT 3.000.000. 000. membership fees. PCSO winnings Previously. and other assessments and charges collected by homeowners associations and condominium corporations are now expressly VAT exempt Increased taxes Passive Income Train imposes higher taxes on some passive incomes. or enhancing the patient’s appearance is now subject to excise tax of 5%. Simplified tax compliance Apparently. Non-essential services Invasive cosmetic procedures directed solely towards improving. Consequently. The Tax Return for final and creditable withholding taxes shall be filed quarterly instead of monthly . Association dues. manufactured oils (petroleum products). Excise Tax Train imposes higher excise taxes on cigarettes. mineral products and automobiles. the Philippine tax system is a very complicated one. regardless of amount. Train introduces amendments which are geared towards simpler tax compliance. were exempt from tax. altering. Train subjects PCSO winnings to a 20% final withholding tax if the amount is more than P10. including interest income from dollar and other foreign currency deposits. 4. Some of these amendments are: 1. The Income Tax Returns shall not be more than 4 pages 2. PCSO winnings. This was certainly considered by Congress when it enacted the Train law. 4.000) With the enactment of the Train law.000). 6 months from death) o Bank deposits left by the decedent may be withdrawn by the heirs subject only to 6% withholding tax. the labor sector is expected to be freed from the burden of outdated and inequitable personal income tax. Beginning January 1.000. .000 o Notice of death is no longer required o CPA certification is now required only if the gross estate is above P5. With regard to estate tax. agent or employee will be criminally liable. 2023. the government expects to generate more revenues to fund its "Build. 6.000.000) o The deadline for filing of estate tax return is now one year from death (before. receipts or output exceed P3.000. the BIR official. the filing of VAT Return and payment of tax shall be done quarterly instead of monthly 5. Otherwise. Hopefully.000 to P5. The BIR is required to act on application for VAT refund within 90 days. earnings. Train increases the standard deduction (wherein no substantiation is required) from P1.000) and medical expenses (up to P500.000 (up from P150. At the same time. Build. the following measures were adopted to simplify its computation and payment: o In lieu of actual funeral expenses (up to P200.000 (up from P2. Before a certification from the BIR that estate tax has been paid was required. this benefit for the workers can still be achieved despite the increase in prices of some goods that they consume. The Financial Statements of a taxpayer should be audited if the gross annual sales.000. Build" projects and other programs.000. 3.