What is the TRAIN LAW in the Philippines? What has it achieved so far for the betterment of the nation to usher the introduction of the second tax reform program in the coming year 2019? What does it aim to achieve?
There have been several on-going debacles and speculations with regard to this 360 degree turn in the tax system in the country. Some people question its effectiveness, while others are positive enough to give it a shot. Some are happy about this intervention but there are some who are not, and there is a good sum of people who, perhaps, just do not know what this is all about.
According to the government’s page for the Department of Finance (DOF), “The Comprehensive Tax Program (CTRP)is needed to accelerate poverty reduction and sustainably address inequality to attain the President's promise of tunay na pagbabago. By making the tax system simpler, fairer, and more efficient, additional and a more sustainable stream of revenues need to be generated to make meaningful investments on our people and infrastructure to achieve our vision for the Philippines.”
We quote the Secretary of Finance, Carlos G. Dominguez indicating that, "A simpler, fairer, and more efficient tax system is needed to promote investment, create jobs, and reduce poverty. Not reforming the tax system will deprive the poor of the necessary social services and infrastructure that can lift them out of poverty and make them more productive contributors to society."
Tax Reform by definition means changing the process by which a government collects or manages taxes, and is oftentimes done to be able to improve and deliver better welfares in both the social and economic aspects of a country. This can also be defined as the simplification of the taxation and can connote reduction of the people’s taxes, but can either mean a progression or retrogression in the country’s tax system.
It was a challenging year for the Philippines by the time TRAIN was in effect, plus considering the fact that the inflation only added to the national qualm. That the inflation is relative to the tax reform initiative is another story to tell. However in a CNNPhilippinesarticle last May 30, 2018, the Finance Assistant Secretaryclarified that the TRAIN Law is not to be blamed for the inflation. Paola Alvarezin fact noted that in a study conducted by the Department of Finance, the National Economic and Development Authority and Banko Sentral ng Pilipinas, only 0.4% of the inflation is caused by TRAIN and this is for the 5-year high inflation streak, averaging 4.5% as of April 2018. That only means that with or without the implementation of the TRAIN Law, the occurrence of inflation is inevitable.
Just before we find out what is in store for the Filipinos in this second package of the tax reform, let us look back on what the initial package was all about which is TRAIN. The amendment in the taxation is as stipulated in the Department of Finance page on the government’s website states as follows:
“Republic Act No. 10963 or Tax Reform for Acceleration and Inclusion(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.
As a complimentary measure TRAIN, Congress introduced Package 1B or the Tax Amnesty Bill. Package 1B includes the lifting of bank secrecy laws and automatic exchange of information and three types of amnesties (on estate tax, all unpaid internal revenue taxes with the corresponding waiver of bank secrecy laws in the availment thereof, and delinquencies). There are also proposals on other amnesty taxes such as importation taxes and customs duties.”
The follow up reform in the tax system is called TRABAHO and the acronym stands for, Tax Reform for Attracting Better and High-Quality Opportunities. As a brief overview on the DOF page, it is stated there that, “TRABAHO seeks to make the corporate tax system simpler, fairer, and more transparent. It will lower the corporate income tax (CIT) rate from 30% to 25% for a large majority of businesses and modernize fiscal incentives, so that these are given to investors who make positive contributions to society. This will correct some of the most glaring inequities and inefficiencies in our corporate tax system.”
More in depth details on the proposed package 2 of the Comprehensive Tax Reform Program (CTRP) for Corporate Income Tax Reform and Fiscal Incentives Modernization, as highlighted in a short presentation. Click HEREto download the file. For all the information about the CTRP, you can download them HERE.
In conjunction with TRABAHOis the Package 2+: Universal Health Care which as described by DOF, “TRAIN Package 2+ of the CTRP proposes to further increase the excise tax on both alcohol and tobacco products for implementation in 2020. Package 2+ will provide additional fund the Universal Health Care (UHC). The objective of the UHC is for all Filipinos to have equitable access to quality and affordable healthcare and to be protected against financial risk. The country should also have a systematic approach and clear delineation of roles of key agencies and stakeholders towards better performance in the healthy system.”
Click HERE for a comprehensive presentation on Maximizing Sin Tax Revenues for HEALTH.
The CTRPhas two (02) other packages left in store toward its aim to develop the Philippines by 2040. One of them is the Package 3: Property Valuation and Taxes, and as per the DOF, “Package 3 of the CTRP aims to introduce vital reforms to promote the development of a just, equitable, and efficient real property valuation system. The reforms will broaden the tax base used for property and property-related taxes of the national and local governments, thereby increasing government revenues without increasing the existing tax rates or devising new tax impositions.”
For a quick look on this initiative you can download the file by clicking HERE.
The final package is Package 4: Capital Income and Financial Taxes, to which the DOF explains, “Package 4 of the CTRP is about reforms on capital income and financial services taxation, which aims to make the taxation of the sector simpler, fairer, and more efficient. Specifically, it reviews the taxes imposed on financial intermediaries and the products they offer: on savings and investments; and debt and equity instruments.”
Click HERE to download and view the current tax process versus the proposed amendments via this initiative.
So, what are we to expect in simpler terms? The government aims to decrease the tax for every Filipino family. This program has a timeline and a deadline by the year 2040 and the program is called AmBisyon Natin 2040by the Duterte Administration. By then the Philippines would be industrialized and every Philippine citizen is uplifted from poverty. The tax reform initiative aims to provide more money for its people, better accessibility to education, health initiatives for Filipinos, more work within the country and growth in infrastructure.
While the tax reform initiatives are taking off and gaining both claps and boos, there is concern that this may not be really as effective as deemed. In an article written for the PhilStarin March 14, 2018, it said that this may backfire on our competitiveness as a country and will likely have investors think twice about setting up business in the Philippines. This is due the fact that the second package has determined that fiscal incentives will be removed apart from decreasing the percentage in corporate tax. This of course, is a theory that has yet to be proven.
We will never really know unless we give it a try. Most likely there are back-up plans already in place for any repercussions. Success entails risks and a lot of it. All good things take time, and this one definitely looks like a good one. What Filipinos need to do is to work together and go forward, Philippines!