PHILIPPINE CHRISTIAN UNIVERSITY

1648 Taft Avenue corner Pedro Gil St., Manila

MASTER IN BUSINESS ADMINISTRATION

MARKETING MANAGEMENT

“TAX REFORM AND TRAIN LAW”

IN-CAMPUS MBA PROGRAM

SUBMITTED BY:

KATRIZIA CERIZE L. FAUNI

SUBMITTED TO:

MA’AM HICAP, PROF.

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.

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.

Personal Income Tax

The most popular part of the Train law is the reduction of personal income tax of a majority of
individual taxpayers. Prior to the enactment of the new law, an individual employee or self-
employed taxpayer would normally have to pay income tax at the rate of 5% to 32%, depending
on one's bracket.

Under Train, an individual with a taxable income of P250,000 or less will now be exempt from
income tax. Those with a taxable income of above P250,000 will be subject to the rate of 20% to
35% effective 2018, and 15% to 35% effective 2023. Moreover, the deductible 13th month pay
and other benefits are now higher at P90,000 compared to P82,000 under the old law.

Another innovation under Train is the option of self-employed individuals and/or professionals
whose gross sales or receipts do not exceed P3,000,000 to avail of an 8% tax on gross sales or
gross receipts in excess of P250,000, in lieu of the graduated income tax rates.

It is not being highlighted, however, that some items that were previously deducted to arrive at
taxable income had been removed under Train. These are the personal exemption of P50,000,
additional exemption of P25,000 per dependent child, and the premium for health and
hospitalization insurance of P2,400 per year.
Estate Tax

The estate tax rate was also changed from 5% to 32% of the net estate to a flat rate of 6%.
Additionally, the following deductions allowed in computing the net estate (to be subjected to
estate tax) were increased:

Donor’s tax

The donor’s tax rate was also amended to a single rate of 6% regardless of the relationship
between the donor and the donee. In the old law, the rates of donor’s tax were 2% to 15% if the
donor and donee are related, and 30% if otherwise. However, the donation of real property is
now subject to Documentary Stamp Tax of P15 for every P1,000.

Value Added Tax

There are also amendments to VAT which lessen the burden of taxpayers:

1. Increase of VAT threshold from P1,919,500 to P3,000,000

2. Starting 2019, the sale of drugs and medicines for diabetes, high cholesterol, and
hypertension will be exempt from VAT
3. Increase of VAT exemption for lease of a residential unit from P12,800 to P15,000
4. Association dues, membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations are now expressly VAT exempt

Increased taxes

Passive Income

Train imposes higher taxes on some passive incomes, including interest income from dollar and
other foreign currency deposits.

There is also a significant increase in the tax on sale of shares of stocks.

Excise Tax

Train imposes higher excise taxes on cigarettes, manufactured oils (petroleum products), mineral
products and automobiles.

Cigarettes

Non-essential services

Invasive cosmetic procedures directed solely towards improving, altering, or enhancing the
patient’s appearance is now subject to excise tax of 5%.

PCSO winnings

Previously, PCSO winnings, regardless of amount, were exempt from tax. Train subjects PCSO
winnings to a 20% final withholding tax if the amount is more than P10,000.

Simplified tax compliance

Apparently, the Philippine tax system is a very complicated one. This was certainly considered
by Congress when it enacted the Train law. Consequently, Train introduces amendments which
are geared towards simpler tax compliance. Some of these amendments are:

1. The Income Tax Returns shall not be more than 4 pages

2. The Tax Return for final and creditable withholding taxes shall be filed quarterly instead
of monthly
3. With regard to estate tax, the following measures were adopted to simplify its
computation and payment:
o In lieu of actual funeral expenses (up to P200,000) and medical expenses (up to
P500,000), Train increases the standard deduction (wherein no substantiation is
required) from P1,000,000 to P5,000,000
o Notice of death is no longer required
o CPA certification is now required only if the gross estate is above P5,000,000 (up
from P2,000,000)
o The deadline for filing of estate tax return is now one year from death (before, 6
months from death)
 o Bank deposits left by the decedent may be withdrawn by the heirs subject only to
6% withholding tax. Before a certification from the BIR that estate tax has been
paid was required.
4. Beginning January 1, 2023, the filing of VAT Return and payment of tax shall be done
quarterly instead of monthly
5. The BIR is required to act on application for VAT refund within 90 days. Otherwise, the
BIR official, agent or employee will be criminally liable.
6. The Financial Statements of a taxpayer should be audited if the gross annual sales,
earnings, receipts or output exceed P3,000,000 (up from P150,000)

With the enactment of the Train law, the government expects to generate more revenues to fund
its "Build, Build, Build" projects and other programs. At the same time, the labor sector is
expected to be freed from the burden of outdated and inequitable personal income tax.
Hopefully, this benefit for the workers can still be achieved despite the increase in prices of some
goods that they consume.

TRAIN LAW will affect everyone.

1. Increased take-home money and bonuses

Probably the only thing that delighted citizens: under the TRAIN law, workers with an annual
salary of P250,000 is exempted from tax. Salaries that were once deducted 5% to 32% in tax rate
now have 0% tax deduction from 2018 and beyond.

Tax exemption includes the mandated 13th month bonus and other bonuses. This means every
employee can now take home more than they did the previous years. But since everything is a
give-and-take process, some goods will be priced higher from now on.

2. Excise on sugar-sweetened beverage and cigarettes

It might come as a shock to you the next time you buy a bottle of your favorite soft drink that it’s
a bit pricey, this is one effect of TRAIN law. Sugar-sweetened beverages, once without taxes, are
now P6/liter while high fructose corn syrup beverages are at P12/liter.

Exempted from this are milk products, 100% natural fruit and vegetable juices, and ground,
instant, and pre-packaged coffee products.

3. Increase on petroleum and automobile tax

Your #TravelGoals might be in danger. The TRAIN law imposes an 8-peso increase in
petroleum products per liter this year. For diesel and kerosene, the once non-existent excise tax
will now be at P2.50-P3/liter. Household gas LPG will have an added P1/liter. Taxes in
petroleum and gas will gradually increase until 2020.
 4. Estate tax, donor tax and Higher Documentary Stamp Tax

Under the TRAIN law, a flat rate of 6% will be imposed on both estate and donor tax. In the old
law, the net estate value last year went up to 20% if the estate was worth P200,000 and above.
With the TRAIN law, estates worth P5 million and below will have zero tax rate, but P5 million
and above will have 6% of the excess over P5 million.

In the previous law, donor’s tax goes up to 15% if the donor and the donee are related and 30% if
they’re not. The donor’s tax is now at 6% regardless of the relationship between donor and done.

5. No more tax exemption in lotto winnings and some cosmetic procedures

TRAIN law also removes the tax exemption of Lotto winnings. Beginning 2018, winnings of
more than P10,000 will be subject to 20% tax.

While the first proposal was for a 20% tax increase in some cosmetic procedures that are for
aesthetic purposes only, it was finalized to 5%. Exempted from this tax are surgeries and
procedures for correcting dysfunctional body areas and birth defects.

6. The effect on Value Added Tax

The previous threshold of P1.9 million in Value Added Tax will now be increased to P3 million.
Some exemptions from VAT then would be small businesses with total annual sale of less than
P3 million, senior citizens and PWDs, renewable energy, and drugs and medicines for diabetes,
hypertension, and cholesterol (starting 2019). Monthly rentals up to P15,000 is also now
exempted from VAT,  a welcome addition to the previous P10,000 below exemption.

This means more Filipinos can have a chance at being entrepreneurs which in turn, if the
business thrives, makes way for more infrastructures and jobs.

7. Tax compliance will become more simple

A simplified tax filing and payment process is expected as workers with an annual salary of
P250,000 will be exempted from tax starting this year. This means workers who fall in this
bracket will now no longer have to file income tax returns (ITR). Self-employed and
professionals still have to file their ITRs for record and monitoring purposes of the Bureau of
Internal Revenue (BIR). In compliance also to this simplification, BIR will also cut the current
12 pages of the ITR to four pages.
8. The government promises help

The government has promised a P200-a-month conditional cash transfer to poor families to
cushion the impact of the law to the poor. For the next two years this will be increased to P300 a
month.

If you’re wondering where the revenue from the TRAIN law will go, 70% of it is going to the
Build, Build, Build Program of the government that aims to spend more for infrastructures until
the end of the president’s term in 2022. The other 30% will go to education, social protection,
health, and housing among others.

We’re in for one heck of a ride financially; taxes will become even higher as the years go by.
You can look at this as something that will make you want to move abroad and switch
nationalities, or you can always look at the bright side: you can choose what you want to spend
your increased take-home money for and you can wait for a full year to see the TRAIN law’s full
impact.