1

CHAPTER I

PROBLEM AND ITS BACKGROUND

Introduction

Republic Act No. 10963 or the Tax Reform for Acceleration and

Inclusion (TRAIN), and the CTRP in general, is a package of tax measures

that seek to correct a number of deficiencies in the tax system to make it

simpler, fairer, and more efficient; a package of mitigating measures that

are designed to redistribute some of the gains to the poor; and a package

of investments in infrastructure and social services to achieve our vision

for the Philippines. It aims to redistribute the tax burden to become more

equitable and progressive, (Department of Finance, 2018).

Tax Reform for Acceleration and inclusion (TRAIN) Law is amended

by the government to help the society and its people thru its “Build Build

Build Project” and to deal with poverty by decreasing tax rates from

salaried Filipinos but its effect is mostly felt by the minor sectors. The

taxes that are levied on other goods and services tend to increase the

price of the products, (Mangondato et. al., 2019).

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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

in 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 sweetened beverages, among others, (Department of

Finance, 2018).

At present, Southern Philippines Agri-Business and Marine

and Aquatic School of Technology (SPAMAST), Digos Campus, Bachelor of

Science; Major in Enterprise Management researchers will be conducting

an assessment of TRAIN Law on minimum earners in Digos CIty, Davao

del Sur.

In this study, it aims to determine the impact of TRAIN Law on the

minimum earners in the City of Digos.

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Objective of the Study

This study aims to determine the effects of TRAIN Law in the

income and buying behavior of the household consumers in Digos City,

Davao del Sur.

1. To determine the Socio-Demographic profile of the household

consumers in Digos City.

2. To determine the households profile in terms of their monthly

income.

3. To determine how the TRAIN law affects their consuming behavior.

4. To determine how the TRAIN law affects to the household

consumers.

Significance of the Study

The result of this study can be utilized by the local government

agencies such as Department of Social and Welfare and Development

(DSWD) and Department of Finance (DOF) which it will serve as their

additional inputs.

Further, the results could be a basis for the other future researcher

who will undergo the same or related study.

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Scope and Limitation of the Study

This study will focus only on the effects of TRAIN Law in the

income and buying behavior of household consumers in Digos City, Davao

del Sur. This study is further limited only on the household consumers in

Digos City, Davao del Sur.

Definition of Terms

For clarification, the important terms to be used in the study will be

defined.

The following terms are:

Consumers- is an individual who buys products or services for personal

use and not for resale or reproduce.

Consumers Income- is the money that consumer earns from either

work or investment, such as dividends distributed by companies to its

shareholders and the gain realized on the sale of an asset, such as a

house. After-tax income is the income that a consumer has left after

paying tax.

Law- a system of rules that are created and enforced through social or

governmental institutions to regulate behavior.

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TRAIN Law- the Tax Reform for Acceleration and Inclusion (TRAIN),

and the CTRP in general, is a package of tax measures that seek to

correct a number of deficiencies in the tax system to make it simpler,

fairer, and more efficient; a package of mitigating measures that are

designed to redistribute some of the gains to the poor; and a package of

investments in infrastructure and social services to achieve our vision for

the Philippines.
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CHAPTER II

REVIEW RELATED LITERATURE

TRAIN Law

Republic Act No. 10963 or the Tax Reform for Acceleration and

Inclusion (TRAIN), and the CTRP in general, is a package of tax measures

that seek to correct a number of deficiencies in the tax system to make it

simpler, fairer, and more efficient; a package of mitigating measures that

are designed to redistribute some of the gains to the poor; and a package

of investments in infrastructure and social services to achieve our vision

for the Philippines. It aims to redistribute the tax burden to become more

equitable and progressive, (Department of Finance, 2018).

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

in 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
 7

excise tax on sweetened beverages, among others, (Department of

Finance, 2018).

Tax Reform for Acceleration and inclusion (TRAIN) Law is amended

by the government to help the society and its people thru its “Build Build

Build Project” and to deal with poverty by decreasing tax rates from

salaried Filipinos but its effect is mostly felt by the minor sectors. The

taxes that are levied on other goods and services tend to increase the

price of the products, (Mangondato et. al., 2019).

Consumer Behavior

It focuses on buying units in an attempt to include not only the

individual but also groups that purchase products or services. It also

includes the study of what, why, when, where and how often they

purchase and how they use the purchased product. In addition, it

encompasses all the behaviors that consumers display in searching for,

purchasing, using, evaluating and disposing of products and services that

they expect will satisfy their needs.

There are (2) two different types of consumers can be

distinguished, namely personal and organizational consumers. Personal

consumers purchase products and services for personal or household use

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or as a gift to someone else. Personal consumers, therefore, purchase for

final consumption. Organizational consumers on the other hand purchase

products and services to run an organization, including profitable and non-

profitable organizations, government organizations and institutions.

Consumers in all over the world are attracted towards the brand and

products which are emotionally attached with their behaviors. Studies

found that emotional attachments put a huge influence on the customers

and their buying behavior as people tend to associate themselves with the

brand, (Fatima et. al., 2015).

It also refers to the selection, purchase and consumption of goods

and services for the satisfaction of their wants. There are different

processes involved in the consumer behavior. Initially the consumer tries

to find what commodities he would like to consume, then he selects only

those commodities that promise greater utility. After selecting the

commodities, the consumer makes an estimate of the available money

which he can spend. Lastly, the consumer analyzes the prevailing prices of

commodities and takes the decision about the commodities he should

consume, (Rani, 2014).

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Consumers Income

In higher income consumers, the ratio of income allocated to food

consumption falls sharply with income, weakening the effects of income

growth on food demand. High income results in the demand of food

changing to “convenience and quality factors” including as packaging,

advance preparation, and away from home consumption rather than on

elevated absolute food consumption. Therefore, while food consumption

continues to increase, the demand on the resources of raw food

production ultimately stabilizes at high income rates. This illustrates the

inelasticity of income for food demand, which indicates that change in

food consumption is negligible when income increases. Consumers

typically move towards different kinds of products, such as high-quality

items and processed food, although food consumption is balanced.

Additionally, food products must compete to share the balanced food

budget due to strong substitution among them. This results in the

increase of consumption of some products while others diminish in

consumption. Some consumers buy more cheap necessary products in an

economic recession; however, most of them buy convenience and high

quality foods. With the exception of meat and fish, the other products

display inelastic price elasticity. This shows that variations in prices do not
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affect the quantity consumption of the various food products much,

(Basev, 2014).

Consumer Buying Capacity

Consumer buying behavior refers to the buying capacity of the

ultimate consumer. Many factors, specificities and characteristics influence

the individual in what he is and the consumer in his decision making

process, shopping habits, purchasing behavior, the brands he buys or the

retailers he goes. A purchase decision is the result of each and every one

of these factors. An individual and a consumer is led by his culture, his

subculture, his social class, his membership groups, his family, his

personality, his psychological factors, etc. and is influenced by cultural

trends as well as his social and societal environment. By identifying and

understanding the factors that influence their customers, brands have the

opportunity to develop a strategy, a marketing message (Unique Value

Proposition) and advertising campaigns more efficient and more in line

with the needs and ways of thinking of their target consumers, a real

asset to better meet the needs of its customers and increase sales, (Rani,

2014). It is a set of are set of attitudes that characterize the patterns of

consumers' choices, (Lawan, 2013). It also refers to the selection,

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purchase and consumption of goods and services for the satisfaction of

their wants. There are different processes involved in the consumer

behavior. Many factors, specificities and characteristics influence the

individual in what he is and the consumer in his decision making process,

shopping habits, purchasing behavior, the brands he buys or the retailers

he goes. A purchase decision is the result of each and every one of these

factors. Initially the consumer tries to find what commodities he would like

to consume, then he selects only those commodities that promise greater

utility. After selecting the commodities, the consumer makes an estimate

of the available money which he can spend. Lastly, the consumer analyzes

the prevailing prices of commodities and takes the decision about the

commodities he should consume, (Ramya et. al., 2016).

Importance of the Tax Reform for Acceleration and

Inclusion (TRAIN)

TRAIN is a pro-poor and pro-development. It gives relief to the

majority of income earners, while generating funds for important

economic and social services. TRAIN also includes targeted social

mitigation measures to alleviate the burden that may be experienced by

the lower income.

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The value of TRAIN is being undermined by critics who singularly

fault it for the higher than target inflation have been experiencing

presently. This is misleading, considering the external factors that also

drive inflation. The inflation also remains manageable in the context of the

overall economic health of the country, as affirmed by international credit

rating institutions.

In dealing with taxation, the mindset of the public that taxes are

necessarily oppressive must changed. It must realized that there is no

magical source of government resources; its funds come mainly from

taxes. In return, this funds will be used to provide essential goods and

services.

Simplifying Personal Income Tax upon the Implementation of

TRAIN

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 of 35% from the current
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32%. 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

of P3 million will follow the PIT schedule, (Department of Finance, 2018).

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The Components of TRAIN Law

The first major component of TRAIN Law is the provision of a

significant tax relief to individual income earners. The income tax for

taxable compensation income up to Php. 250,000.00 per annum (Php.

20,833.00) was imposed a tax rate of zero, freeing this from the five

brackets in the previous tax schedule. Individuals earning income from

business or practice of profession below this threshold of php.

3,000,000.00 in gross receipts also get income tax relief, with the option

of being tax 8% in place of double tax. For compensation income earners,

the higher tax burden only starts to kick in at the highest income bracket

of over php. 8,000,000.00 in taxable income.

The second major component of TRAIN is the imposition of or

increase in the excise taxes of a number of goods. The excise taxes per

liter or kilogram of manufactured oils and fuels has been increased in year

and will progressively increase yearly through 2020. A new excise tax is

imposed per liter volume of sweetened beverages. There is increase and

simplification of ad valorem excise tax on automobile. The excise tax

increases per pack of cigarettes was increased in 2018 and in succeeding

years through 2023 and a yearly percentage increase is prescribed

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thereafter. Excise tax was also imposed on certain mineral products,

including coal.

The third major component is the limiting of VAT exemptions, while

the fourth major component is the various tax administration

improvements for better monitoring and compliance.

The fifth major component is the earmarking of the yearly

incremental revenue from TRAIN, for a period of five years, to the Build,

Build, Build Program, sugar industry development social mitigating

measures and investments and social welfare and benefits program for

low income groups, (www.deped.gov.ph, 2019).

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CHAPTER III

METHODOLOGY

Research Locale

The study will be conducted in the City of Digos, Davao del Sur,

Philippines. Digos was the crown city of the province of Davao del Sur, in

terms of population size with 169.393 persons. It belongs to a 2rd class

city in the, Philippines.

It has a total area of 28,710 which is planted coconut, banana,

corn, rice and other crops. According to the Bureau of Local Government

Finance, the annual year regular revenue of Digos City for the fiscal year

of 2016 was ₱728.7 Million.

Respondents of the Study

The respondents of the study will be 35 respondents working from

the government sector, 35 respondents working from the private sectors

and 35 entrepreneurs within the City of Digos, Davao del Sur to whom the

researcher will be collecting data.

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Research Design

In this study, descriptive research design will be used, which will

provide necessary information about the assessment of TRAIN Law on the

minimum earners in the City of Digos.

Sampling Design and Technique

Purposive sampling technique will be used in the study in

determining the respondents who will undergo survey. Since, respondents

will be taken from the list of the Office of the Department of Welfare and

Development.

Research Instruments

For this research prepared questionnaire will be used to obtained

data. It will be composed of the following parts; Part I- Socio-

Demographic profile of the household consumers of Digos City, Davao del

SUr. Part II- will be focused on determining household profiles in terms of

their monthly income. Part III- will be focused on how the TRAIN Law

effects the consuming behavior. Part IV- will be focused on how the

TRAIN Law affects the household consumers.

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Data Gathering Procedure

1. Formulate questionnaire that will be needed for the study on the

effects of TRAIN Law on the income and buying of the household

consumers.

2. Obtained letter from the Department Chairperson signed by the

Adviser and Dean that allowed the conducting of the study.

3. Request permit to conduct from the Departments of Social Welfare

and Development and through the Barangay and the respondents

for the conduct of the study.

4. Administer the questionnaire to the respondents of the study in

their perspective residences.

5. Results will be collected, tabulated and analyzed.

6. Results of the data will be presented in tabular form with statistical

tools and narrative discussion.

Statistical Tools

The statistical tools to be used in data analyzing include the

frequency and Relative Frequency Distribution to determine the counts

and responses from the respondents for each category.

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Relative Frequency Distribution

rf=(f/n)100%

Where:

Rf=relative frequency

f= frequency

n= total population
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LITERATURE CITED

Books:

BASEV, S. E., (2014). Effect of economic crisis on food consumption

behavior of British Consumers. International Journal of Education
and Research.Vol. 2 No. 10 October 2014. Pp. 289-312.

FATIMA, S., (2015). Impact of Advertisement on Buying Behaviours of

the consumers: Study of Cosmetic Industry in Karachi City.
International Journal of Management Sciences and Business
Research. Jinnah University for Women. Oct-2015 ISSN (2226-
8235).Vol-4, Issue 10.

KHAN, A. et. al., (2014). An Emperical Study into the Relation of

Income and Consumption Using Cross-Sectional Data. ASEE 2014
Zone I Conference,April 3-5, 2014, University of Bridgeport,
Bridgpeort, CT, USA.

LAWAN, L. et. al., (2013). Evaluation of Socio-Cultural Factors

Influencing Consumer Buying Behaviour of Clothes in Borno State,
Nigeria. International Journal of Basics and Applied Sciences.
Department of Marketing, Ramat Polytechnic, P.M.B 1070,
Maiduguri, Borno State, Nigeria. Insan Akademika Publications.
Vol 01, No. 03, Jan 2013, pp. 519-529.

MANGONDATO, S. M. et. al., (2019). Effects of Tax Reform Law for

Acceleration and Inclussion Law to the Sales in Pala-o Public
Market. Mindanao State University - Iligan Institute of Technology.
: https://www.researchgate.net/publication/330666200

NELSON, J. A. et. al., (2008). Consumption and the Society of

Consumers. A GDAE Teaching Module on Social and
Environmental Issues in Economics. Tufts University Global
Development and Environment Institute 44 Teele Ave., Tufts
University Medford. MA 02155.http://a
 21

POPFACTS, (2017). Household size and composition around the world.

Department of Economic and Social Affairs. Population Division.
United Nations. www.unpopulation.com

RAMYA, N., (2016). Factors affecting consumer buying behavior.

International Journal of Applied Research 2016. 2(10): 76-80. :
https://www.researchgate.net/publication/316429866.
se.tufts.edu/gdae

Websites:

https://www.philatlas.com/mindanao/r11/davao-del-sur/padada.html

https://simple,m-wikipedia.org/wiki/law.html

https:.//www.study.com/academy/consumers-
income/definition/statistics/quiz.html

https://www.merrian-webster.com/buying.html
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SURVEY QUESTIONAIRE
ASSESSMENT OF TRAIN LAW ON MINIMUM EARNERS OF
DIGOS CITY

Are you willing to Participate in this survey?

The information will be kept strictly confidential. Please answer the

questions truthfully. There are no wrong answers to the questions asked.

I. General Information

Name:

Gender:

Male

Female

LGBT

Age:

18-28 years old

29-39 years old

40-50 years old

51-60 years old

61- above

Civil Status:

Single

Married
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Separated

Widowed

Highest Educational Attainment:

Elementary Undergrad

Elementary Graduate

High School Undergrad

High School Graduate

College Undergrad

College Graduate

Vocational Course: (specify: )

Family Size:

3-5 Members

6-8 Members

9-11 Members

12- above

II. Financial Status

Monthly Income: (Before TRAIN Law)

Below 5,000

5,001-10,000

10,001-20,000
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20,001-30,000

30,001-40,000

40,001-50,000

50,001 above

Monthly Expenses: (Before TRAIN Law)

Below 5,000

5,001-10,000

10,001-20,000

20,001-30,000

30,001-40,000

40,001-50,000

50,001 above

Monthly Income: (After TRAIN Law)

Below 5,000

5,001-10,000

10,001-20,000

20,001-30,000

30,001-40,000

40,001-50,000

50,001 above
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Monthly Expenses: (After TRAIN Law)

Below 5,000

5,001-10,000

10,001-20,000

20,001-30,000

30,001-40,000

40,001-50,000

50,001 above

Employment Status

Employed

Unemployed

Occupation:

Government Employee

Private employee

Entrepreneur

Others: (specify: )

Source of Income:

Salary/ Wage

Business

Others: (specify: )