President Duterte has instructed the Department of Finance (DOF) to ensure the effective implementation of the Tax Reform for Acceleration and Inclusion Act (TRAIN), and to immediately submit to Congress early next year Package Two of the Comprehensive Tax Reform Program (CTRP), which aims to lower corporate income taxes and modernize fiscal incentives, to complement the expected incremental revenues of TRAIN.
Duterte issued the directive after signing the TRAIN into Republic Act No. 10963 last December 19 in Malacanan Palace.
“The timely passage of TRAIN is indeed a milestone for the Department of Finance and our congressional leadership, especially the Ways and Means committees of both houses, who gave their full support for this measure after numerous hearings and hundreds of public consultations nationwide,” the President said.
He said the TRAIN, which exempts from the personal income tax (PIT) those earning an annual taxable income of P250,000 and below, “is the administration’s biggest Christmas gift to the Filipino people as 99 percent of the taxpayers will benefit from the simpler, fairer, and more efficient tax system.”
“The law also addresses long and overdue corrections in our tax laws and introduces a more progressive tax system for the rich and the poor, and contributes to give better services to our people,” said the President.
He said revenues from the TRAIN will help fund the government’s priority projects to ensure quality education, including free tuition in state universities and colleges; deliver quality health care services; provide social protection and conditional cash transfers; improve infrastructure via the the Build, Build, Build program; and reconstruct Marawi city.
“I am directing the Department of Finance to ensure the effective implementation of Package One of TRAIN and to immediately submit to Congress Package Two which deals with corporate income tax early next year, which will complement the revenues of TRAIN,” the President said.
According to Finance Secretary Carlos Dominguez III, preliminary computations show that the government would be giving “almost P150 billion” back to the people in the form of tax relief under the TRAIN.
Like the President, Dominguez said the TRAIN was “the biggest Christmas and New Year’s gift that the Duterte administration is giving to the people.”
“I think it’s a sign of maturity for our country. It is also the first of five packages that will once and for all start fixing the structural problems of the tax system that has become unfair, complex and inefficient. This tax reform will also raise the revenues needed to make real positive change for our people,” Dominguez said.
“So it’s the first time we have done a tax reform without any pressure from the outside, no crisis, no external pressure,” Dominguez said.
The President said the Congress’ approval of the TRAIN “is just an initial part of our gains under the CTRP as Congress has passed two thirds of the expected revenues from the Package 1 of TRAIN.”
He thanked the Congress for committing to pass the remaining one-third of the TRAIN in early 2018.
The TRAIN, which will be implemented by January next year, will exempt compensation earners and self-employed individuals with an annual taxable income of P250,000 and below or those earning at least P21,000 a month from paying the personal income tax. The 13th month pay and other bonuses amounting to P90,000 are also tax-exempt.
For those earning P250,000 and above, the tax brackets have also been adjusted so that those with taxable income of more than P250,000 but not above P2 million pay only between 20 to and 30 percent PIT. Those earning P2 million annually but not above P8 million are taxed 32 percent. The hefty tax of 35 percent is only for those earning P8 million and above.
Starting 2023, the brackets will be adjusted further so that those with taxable income of more than P250,000 but not above P2 million are taxed between 15 percent and 25 percent. Those earning P2 million annually but not above P5 million will be taxed 30 percent by 2023, while those above P8 million will be paying 35 percent PIT.
Up to 30 percent of the incremental revenues from the TRAIN will help fund a targeted cash transfer program for the country’s poorest 10 million households to aid the bottom 50 percent of the population in coping with the initial effects of the tax reform law on the prices of basic necessities.
These revenue-eroding measures are complemented with revenue-enhancing provisions under the TRAIN by broadening the value-added tax base, adjusting excise taxes on fuel and automobiles and introducing a tax on sugar-sweetened beverages with exemptions, among other measures.
The remaining one-third of TRAIN involves provisions on the estate tax amnesty, a general tax amnesty, the proposed adjustments in the Motor Vehicle Users Charge and amendments to the bank secrecy law and automatic exchange of information.
The TRAIN was finally ratified as one of the last acts of the Congress on Dec. 13, or just before both chambers of the legislature adjourned for their traditional yearend break, a year and three months after the DOF introduced its original tax reform proposal in the House of Representatives.