DOF hopeful on TRAIN implementation by January 1 next year

Exactly one year this week after the Department of Finance (DOF) formally submitted to the Congress the first package of the Duterte administration’s Comprehensive Tax Reform Program (CTRP) that aims to make the current tax system simpler, fairer and more efficient, the DOF is now moving closer to having the game-changing proposal approved with the hope that this would soon be signed by President Duterte into law and then implemented by the first day of January next year.

The first package under the CTRP, now popularly known as the Tax Reform for Acceleration and Inclusion Act (TRAIN), has thus far been extensively explained in over 500 tax briefings, 29 congressional hearings and six (6) technical working group (TWG) meetings by DOF officials led by Finance Secretary Carlos Dominguez III and Undersecretary Karl Kendrick Chua on what stakeholders can expect from this proposal, which seeks to slash personal income tax rates for compensation earners, while raising additional revenues for the government’s public investment program through the expansion of the value-added tax base and adjustments in the excise tax rates for fuel and automobiles, among other measures.

The TRAIN, which one World Bank official described as a “game changer” in terms of reforming the country’s antiquated tax system, aims to benefit 99 percent of Filipinos by way of effectively increasing their take-home pay through income tax cuts and providing social protection measures, such as targeted cash transfer programs, for the country’s poor and vulnerable sectors.

The House of Representatives, after its Ways and Means Committee chaired by Rep. Dakila Carlo Cua conducted eight hearings and four TWG meetings on the TRAIN, finally approved a modified version—House Bill No. 5636—on May 31,2017, or eight months after the DOF introduced the bill on September 26, 2016 and shortly after President Duterte certified TRAIN as an urgent and priority measure on May 29, 2017.

Cua has filed a modified version of the bill—HB 4774—on January 17 this year, while no less than Senate President Aquilino Pimentel III filed his version (Senate Bill No. 1408), which hews closer to the original DOF proposal on March 22.

The substitute TRAIN bill in the House—HB 5636—was overwhelmingly approved by a 246-9 vote with one abstention. It was transmitted to the Senate last​ July 11, 2017 before President Duterte appealed to the Senate to swiftly approve the tax reform package in full during his second State-of-the-Nation Address.

The Senate ways and means committee chaired by Rep. Juan Edgardo Angara approved its version of TRAIN—SB 1592 and finally elevated it for plenary deliberations last September 20, six days before the first anniversary of the bill’s submission to the Congress. The Senate panel started hearing the measure in October last year–holding 19 public hearings and two TWG meetings and three consultative meetings so far in a bid to craft its version of the tax reform package.

Dominguez said he hopes the Senate, which has committed to hold daily plenary deliberations on the TRAIN, would be able to pass the bill on final reading before the congressional recess in mid-October, so that the bicameral conference could reconcile the two versions by November in time for the President to sign the TRAIN into law by December 15, 2017.

“This schedule will allow us to implement the tax reform on January 1, 2018, so that the benefits of the reform can be felt at the soonest possible time,” Dominguez said.

Undersecretary Chua, who took part in most of the congressional hearings and tax briefings on the TRAIN, said the DOF will continue to work with the Senate and the House to arrive at a package that brings the most benefit to the people while ensuring fiscal sustainability.

Chua, who Dominguez said “did the heavy lifting” to get the TRAIN approved in the Congress, said the tax briefings that the DOF has conducted involved a wide cross section of society—from business and civil society groups to public school teachers, transport groups, farmers and fisherfolk.

The TRAIN has been endorsed by over 200 groups and individuals, including former DOF secretaries and undersecretaries and directors-general of the National Economic and Development Authority (NEDA), Cabinet officials; leaders of the local business and academic community; foreign business chambers and foreign embassies; multilateral institutions and civil society organizations; and tax advocacy, labor and student groups.

Chua said the DOF will continue to try convincing lawmakers to “look at the bigger picture” so that the final approved package will generate, at the minimum, some P134 billion in incremental revenues, which is the estimated amount reflected in the 2018 national budget bill.

He recalled that when the DOF first presented the original TRAIN in tax briefings in September last year, the general reaction to the proposal was negative. But today, he added, an overwhelming majority already favor tax reform because the DOF had managed to fully explain to them its benefits not only on the income tax side, but also on the spending aspect, which will focus on infrastructure, education, health and other social services.

For the rest of the CTRP’s packages, Chua said the DOF aims to submit to the Congress Package 2, which covers corporate income taxes and the modernization of fiscal incentives, by first quarter of next year. Packages Three to Five, which deals with property taxation, capital income taxation, environment and luxury taxation and health measures, will be submitted starting the second quarter of
2018.

Dominguez said his target is to get all the tax reform packages approved “within this Congress” or in two years’ time.

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