Package 1 : TRAIN

The Tax Reform for Acceleration and Inclusion or TRAIN under the Comprehensive Tax Reform Program seeks to correct a number of deficiencies in the tax system to make it simpler, fairer, and more efficient.

Specifically, TRAIN corrects the longstanding inequity of the tax system by reducing income taxes for 99 percent of income taxpayers, thereby giving them the much-needed relief after 20 years of non-adjustment. It also raises significant revenues to fund the President’s priority infrastructure programs to reduce poverty from 21.6 to 14 by 2022.

70 percent of the incremental revenues will go to infrastructure and the Build, Build, Build program, while the balance will go to social services programs.

In TRAIN, Congress passed two-thirds of the needed revenue for 2018 and is expected to pass the balance in 2018 to help achieve our revenue and deficit targets.

Legislative status

Republic Act No. 10963

Passed into law last 19 December 2017

Salient provisions

Lowered and simplified personal income taxes

Under TRAIN, those with annual taxable income below P 250,000 are now exempt from paying personal income tax, while the rest of taxpayers, except the richest, will see lower tax rates ranging from 15 percent to 30 percent by 2023. To maintain progressivity, the top individual taxpayers whose annual taxable income exceeds P 8 million, face a higher tax rate of 35 percent from the current 32 percent.

Simplified tax for small and micro self-employed and professional (SEPs) taxpayers

Small and micro SEPs have the option to pay a simpler flat tax of 8 percent on gross sales in lieu of the income and percentage tax. Taxpayer can save time falling in line and filing and paying 8 times a year to just 4 times a year.

Unconditional cash transfers

10 million poorest households and individuals receive cash transfers of P 200 per month in 2018 and P 300 per month in 2019 and 2020. The amount is enough to offset to moderate but temporary increase in prices due to TRAIN.

Simplified estate and donor’s taxes

Estate tax is lowered from 20 percent to a single rate of 6 percent for net estate with standard deduction of P 5 million as well as exemption for the first P 10 million for the family home.

On the other hand, donor’s taxes are lowered from up to 15 percent to a single rate of 6 percent of net donations above P 250,000 percent yearly.

Expanded the value-added tax (VAT) base

Fifty-four special laws with non-essential VAT exemptions were repealed, thereby making the VAT system fairer. For the average Filipino, this does not have an impact as the VAT exemption removal only affects groups enjoying exemptions.

  • Exceptions in tax code: cooperatives (except electric cooperatives), VAT on medicines for diabetes, high cholesterol, and hypertension, and condo and association dues
  • Exceptions in special laws: PAGCOR and casino, domestic coal, renewable energy, credit surety, countryside barangay business enterprise, mini-hydro, and tourism
  • Starting 2021, move from final to creditable withholding VAT
  • Starting in 2022, move from 5-year spreading of capital input VAT to immediate expensing.
  • Starting 2023, move from monthly to quarterly VAT filing and payment.

Adjusted oil excise taxes

There was staggered increase of oil excise tax by up to P 6 per liter over a 3-year period, with lower rates for essentials such as diesel, kerosene, and LPG to protect households and commuters.

  • In 2018, gasoline excise tax (including additional VAT) only rose by only P 2.97 per liter.
  • In 2018, diesel excise tax (including additional VAT) only rose by only P 2.8 per liter. This should not warrant a fare hike.
  • PUV operators and drivers can avail of social assistance program.

Adjusted automobile excise taxes

Adjustment of automobile tax rates is based on net manufacturing or importer’s price, which is as follows:

  • 4 percent (for automobiles up to P 600,000)
  • 10 percent (for automobiles above P 600,000 to P 1 million)
  • 20 percent (for automobiles above P 1 million to P 4 million)
  • 50 percent (for automobiles above P 4 million).

Pick-ups and purely electric vehicles are fully exempt, while hybrid cars are taxed at 50 percent of the equivalent automobile.

Introduced excise tax on sweetened beverages

P 6 per liter for drinks containing caloric or non-caloric sweetener, and P 12 per liter for drinks containing high-fructose corn syrup or combination. 3-in-1 coffee and milk, among others, are exempt.

Other excise taxes

  • Mining excise tax – double the rates from 2 percent to 4 percent.
  • Tobacco excise tax – increase the rate from P 31.2 per pack in 2018 to P 32.5 between January to June 2018, P 35 per pack from July 2018 to December 2019, P 37.5 per pack in 2020 and 2021, and P 40 per pack in 2022 and 2023, followed by annual indexation of 4 percent.
  • Cosmetic excise tax – a new tax at 5 percent of gross receipts.
  • Documentary stamp tax – 50 to 100 percent increase except for property, savings, and non-life insurance.
  • Foreign currency deposit unit (FCDU) – increased from 7.5 percent to 15 percent final tax on interest income.
  • Capital gains of non-traded stock – increased from 5 to 10 percent to 15 percent final tax on net gains.
  • Stock transaction tax – Increase from 0.5 percent to 0.6 percent of the transaction value.

What will TRAIN fund?

VAT-exempt medicines

Effective January 1, 2019, people can start availing of VAT-exempt medicine for diabetes, high cholesterol, and hypertension

Education

TRAIN aims to create a more conducive learning environment with the ideal teacher-to-student ratio and classroom-to-student ratio. With this, TRAIN aims to:

  • Achieve 100% enrollment and completion rates
  • Build 113,554 more classrooms
  • Hire 181,980 more teachers between 2017 and 2020

Healthcare

With better revenues, we can now invest in better quality healthcare services. With this, TRAIN aims to:

  • Upgrade 704 local hospitals and establish 25 local hospitals
  • Achieve 100% Philhealth coverage and higher quality of services
  • Upgrade and/or relocate 263 rural and urban health units to disaster-resilient facilities
  • Build 15,988 new barangay health stations
  • Build 2,424 new rural health units and urban health centers
  • Between 2017 and 2022, hire an additional 2,424 doctors, 29,466 nurses, 1,114 dentists, 3,288 pharmacists, 2,682 medical technologists, 911 public health associates, and 2,497 UHC implementers

Infrastructure

Additional revenues collected are used to fund projects of the Build, Build, Build program of the Department of Public Works and Highways (DPWH). Major projects are:

  • Bonifacio Global City-Ortigas Center Link Road
  • UP-Miriam-Ateneo Viaduct along C-5/Katipunan
  • Camarines Sur/Albay Diversion Road
  • Pulilan-Baliuag Diversion Road
  • Maasin City Coastal Bypass Road cum Sea Wall
  • Tacloban City By-Pass Road
  • Panay East-West
  • Daang Maharlika (Alternate Route) (NRJ-Mayor Democrito D. Plaza II Avenue-Las Nieves-Sibagat), (Mandamo-Las Nieves Section)
  • Cagayan De Oro Diversion Road, Cagayan De Oro City
  • Valencia City-Pangantucan Diversion Road
  • TRAIN also aims to provide the needed additional revenues that would fund our country’s investment needs, promoting better lives for Filipinos.
  • Concretize 3,741 km of national gravel roads, 10,473 km of national asphalt roads, 30,209 km of local gravel roads
  • Irrigate 1.3 million hectares of land
  • Provide 7,834 isolated barangays and 23,293 isolated sitios with road access

Social mitigating measures

To help Filipinos cope with the changes brought about by TRAIN, the following measures were implemented:

  • Unconditional Cash Transfers (UCT)
    • UCT is a cash subsidy provided under TRAIN to alleviate the impact of fuel excise increase on the poorest 10 million households or individuals.
    • As of January 14, 2019, more than PHP 22 billion has been distributed to more than 9 million beneficiaries.

Pantawid Pasada Program (PPP)

PPP are fuel vouchers distributed to qualified franchise holders of public utility jeepneys (PUJs) to partially offset impact of higher excise taxes on fuel products as well as partially compensate for decrease in income brought by the fare discounts.

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