Principles of Sound Tax System:

1. Fiscal Adequacy- The sources (proceeds) of tax revenue should coincide with and
approximate needs of government expenditures. The sources of revenue should be
sufficient and elastic to meet the demands of public expenditures;

2. Theoretical Justice- The tax system should be fair to the average taxpayer and based
upon his ability to pay.

3. Administrative Feasibility- The tax system should be capable of being properly and
efficiently administered by the government and enforced with the least inconvenience to
the taxpayer.

Income Tax; Reasons for Changes in Rates (With regard to PERSONAL

INCOME TAX)

 The DEPARTMENT OF FINANCE discussed the reasons behind the new rates as
found in the TRAIN LAW (Note that: DOF has actively participated in the Bicameral
proceedings regarding the TRAIN LAW)
 The goal of the first package of the Comprehensive Tax Reform
Program (CTRP) or TRAIN is to create a simpler, fair, and more
efficient system, as per the constitution, where the rich will have a
bigger contribution and the poor will benefit more from the
government’s programs and services.

 TRAIN lowers personal income tax (PIT) for all taxpayers except the
richest. Under TRAIN, those with annual taxable income below P250,000
are exempt from paying PIT, while the rest of taxpayers, except the richest,
will see lower tax rates ranging from 15% to 30% by 2023. To maintain
progressivity, the top individual taxpayers whose annual taxable income
exceeds P8 million, face a higher tax rate from the current 32% to 35%.
 Husbands and wives who are both working can benefit from a total of up to
P500,000 in exemptions. In addition, the first P90,000 of the 13th month pay
and other bonuses will be exempt from income tax. Overall, the effective tax
rates will be lowered for 99% of tax payers.

 Currently, a person who has a taxable income of P500,000 annually is taxed

at 32% at the margin. TRAIN will bring this down to 25% in 2018, and will
be further brought down 20% after five years.

 Minimum wage earners will continue to be exempted from income taxes as

their income falls below P250,000. In addition, the new tax structure will
address the current problem wherein going a peso above the minimum wage
will result in a lower effective take home pay, thereby discouraging minimum
wage earners to accept incremental wage increases and keeping them in an
artificial minimum wage trap.

 The simplified tax system will increase the take home pay of most
individuals and encourage compliance. Self-employed and professionals
(SEPs) with gross sales below the VAT threshold now have the option to pay a
simpler 8% flat tax in lieu of income and percentage tax, while those above the
VAT threshold will follow the PIT schedule.

(http://www.dof.gov.ph/taxreform/index.php/pit/)
 Under the TRAIN law, those with an annual taxable income of PHP 250,000 are
exempted from income tax payment. Around 83% of taxpayers in the Philippines
will benefit from the tax exemption, as reported by the Department of Finance
(DOF). The income tax rate for Pinoys earning above PHP 250,000 per year will be
20% to 35% from 2018 to 2022 and 15% to 35% from 2023 and beyond. Before the
tax reform implementation, those with over PHP 250,000 to PHP 500,000 annual
income had to pay 30% tax. Those earning over PHP 500,000 had a tax rate of 32%.
A lower income tax means higher take-home pay for 99% of Pinoy
taxpayers. This also means additional disposable income that you can use to
manage your finances better, like investing your money, buying a life insurance, and
paying off your credit card debt.
 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. (http://www.dof.gov.ph/taxreform/)
 In general: 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. (http://www.dof.gov.ph/taxreform/index.php/train/)
 The Tax Reform for Acceleration and Inclusion (TRAIN) has done away with
punitive and confiscatory interest rates that encourage delinquency rather than
compliance in paying the correct amount of taxes, imposing instead a more
reasonable charge based on the legal interest rate for loans set by the Bangko
Sentral ng Pilipinas (BSP), according to the Department of Finance (DOF).
 “Under the TRAIN, the interest rate on deficiency taxes is no longer oppressive and
confiscatory because rather than imposing two interest penalties, the tax reform law
provides only for the taxpayer to pay double the legal interest rate for loans set by
the BSP,” said Tionko, who heads the DOF’s Revenue Operations Group.

 Here’s What the TRAIN Law Means for Filipinos

o Here are some of the most impactful changes the ordinary Filipino will experience
in 2018 because of the TRAIN law.
 ENJOY HIGHER TAKE-HOME PAY
o One of the most publicized parts of the TRAIN law is the reduction in personal
income tax, leading to higher take-home pay.
o In the past, the tax rate ranges from 5% to 32%, depending on your tax bracket.
But with TRAIN, you no longer have to pay for personal income tax if you’re an
 employee earning P250,000 or less every year. Tax exemption also covers 13th-
month pay and other mandated bonuses, giving you more chances of saving
money.
o Self-employed individuals earning less than P3 million annually also have the
option to avail of the 8% fixed tax rate instead of the graduated income taxes.
o One caveat, though: Personal and additional exemptions for dependents have been
removed under the new law.
 SWEETENED BEVERAGES COST A BIT MORE *(HEALTH ASPECT)
o Are you fond of drinking sodas and other sugar-filled beverages? It’s time to bid
them adieu if you don’t want to pay the new excise tax on sweetened beverages.
o In a bid to reduce the incidence of obesity and diabetes, the TRAIN law taxes
sugar-sweetened beverages P6 per liter, while those with high fructose corn syrup
are taxed P12 per liter. Milk products, natural fruit and vegetable juices, and pre-
packaged coffee products are exempted.
 CIGARETTES ARE MORE EXPENSIVE TOO
o The TRAIN law also seeks to curb the number of smokers in the country,
which is why it also imposed an excise tax on cigarettes.
o Cigarette prices will increase by P2.50 increments beginning this year until 2023.
By 2024, there’ll be a price increase of 4% every year.
 CAR OWNERS HAVE TO PAY MORE TAXES *(BENEFIT:
ENVIRONMENT/HEALTH)
o Planning to buy a car? You better do it soon because excise taxes doubled from
2% to 4% for cars worth P600,000 and below.
o If your car is worth more, your tax goes up from 10% to as much as 50% for
vehicles worth over P4 million. You’ll only be exempt from paying taxes if
you’re driving purely electric vehicles and pick-ups.
o But even if you already have your own car, you still have to keep up with the P8
tax increase on petroleum products. Even diesel, kerosene, and LPG will now
have taxes ranging from P1 to P3 per liter.
o It might be bad for your pocket, but this move can hopefully control the horrid
Metro Manila traffic and help save the environment.
 TAXES FOR TAXABLE DOCUMENTS HAVE DOUBLED
 o The TRAIN law also doubled the documentary stamp taxes (DST) on all taxable
documents, such as bank checks, life insurance policies, pre-need plans,
warehouse receipts, powers of attorney, mortgages, and sales documents.
o It may not be of immediate consequence to you, but it’s good to keep this in mind
when getting these documents.
 THERE’S A HIGHER THRESHOLD FOR VALUE-ADDED TAX
o The TRAIN law increased the VAT threshold from P1,919,500 to P3 million, thus
lessening the burden of ordinary taxpayers.
o As usual, sectors exempted from VAT include small businesses with less than P3
million annual income, health and education, persons with disability, and senior
citizens.
o There are also other notable VAT exemptions, such as medicines for diabetes,
high cholesterol, and hypertension, as well as association dues and membership
fees collected by homeowners’ associations and condominium corporations.
o If you’re renting your home, the increase of VAT exemption from P12,800 to
P15,000 is also a welcome reprieve.
o While the TRAIN law increases the price of basic goods and commodities, you’ll
be able to enjoy higher take-home pay because of the decrease in personal
income taxes. It’s up to you to budget your money, form healthier money habits,
and minimize spending on stuff that you don’t need. (coins.ph)

OPENING STATEMENT
Carlos G. Dominguez
Secretary of Finance

First Congressional Hearing on

Package 2
May 22, 2018

First of all, I thank the leadership and the members of the House of Representatives for their
untiring and sincere commitment in passing the Tax Reform for Acceleration and Inclusion
(TRAIN) Law. The first package brought immediate relief to 99 percent of our wage
earners in the form of personal income tax rate reductions. For the information of the
House, this amounts to around P12 billion a month reduced taxes from wage earners. It
simplified the system, enhancing the effects of administrative reforms we have undertaken
in the past years. The additional revenues resulting from this are better than expected. Both
the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) exceeded their
collection targets in the first quarter of this year.

The passage of TRAIN continues the process of fiscal consolidation that won us a succession of
credit rating upgrades. With everyone’s continued support of the comprehensive tax reform
program, we expect to be upgraded once more in the coming rating periods. This massive fiscal
reform can only be good for our country’s economic growth prospects, which would translate
into better lives for each Filipino.

We embarked on the comprehensive tax reform program with the desires and ambitions of our
people in mind, and with the vision to propel our country to high-income status in one generation
where no one is poor. As I mentioned when we first introduced TRAIN, this comprehensive
reform is the first time the country is restructuring its tax policies in the absence of any
compelling crisis. Although we are doing this reform free of any duress, external or internal,
your prompt and effective legislative action will enable the country to sustain its current
impressive rates of growth as well as make our economic development more inclusive.

Revenue policies, after all, are not only about raising money to reduce deficits or meet our debt
payments. More importantly, they are effective instruments for reducing poverty, investing in the
future and fashioning a fairer society.

It is true that the improved revenue flow will enable us to fund the aggressive infrastructure
program we need to stimulate economic activity. More than that, however, it will enable us to
properly fund education and health care as well as to conduct the cash transfer program for the
poorest sections of our community. The general economic strategy we are pursuing, after all, has
the final goal of reducing poverty dramatically over the next few years.

xxx