1 Lowering Personal Income Tax (PIT)

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

John Cruz is a call center agent with a family of three. He commutes from Montalban, Rizal to
his office in Makati and leaves the house at 4:00 AM to avoid heavy traffic. He spends his daily
on fare to and from work, and on food for the family, and monthly on household expenses such
as electricity, water, and internet connection. On top of these expenses, he gets monthly salary
deductions to pay for taxes under the antiquated tax system in place. This makes saving for the
family difficult for John.

John receives a monthly salary of P21,000 or P252,000 annually. At present, P21,867 is

deducted from his annual salary under current personal income tax (PIT) rates. With the
proposed tax reform, John will be among the many hardworking Filipinos who will be
exempted from paying personal income tax. Tax reform will increase John’s take-home pay,
helping him and his family save and giving him more financial freedom. This will be a great
help for John!

2 Simplifying the Estate and Donor's Tax

In the current system, the tax rates can reach up to 20% of the net estate
value and up to 15% on net donations.TRAIN seeks to simplify this. Estate and
donor’s tax will be lowered and harmonized so it does not matter if the person
passed away, donated a property, or simply wants to transfer a property. This
will result in loss revenues but the key here is to make the land market more
efficient so that the land will go to its best use.
Estate Tax - Instead of having a complicated tax schedule with different rates, TRAIN reduces
and restructures the estate tax to a low and single tax rate of 6% based on the net value of the
estate with a standard deduction of P5 million and exemption for the first P10 million for the
family home.
Donor Tax - TRAIN also simplifies the payment of donor’s taxes to a single tax rate of 6% of net
donations is imposed for gifts above P250,000 yearly regardless of relationship to the donor.

3 Expanding the Value-Added Tax (VAT)

The Philippines has one of the highest VAT rates but also the highest
number of exemptions in the Southeast Asia region. Consequently, the
Philippines collect the same amount of VAT revenues as a percentage of the
economy as that of Thailand despite only imposing a 7% VAT rate, while the
Philippines is at 12%.

These tax exemptions have been given to many sectors and were supposedly
very well meaning. However, these exemptions have also created much
confusion, complexity, and discretion in our tax system resulting in leakages and
opening doors for negotiation, corruption, and tax evasion.

The truth is, these exemptions are not free and someone pays for them, and it is
most often the poor who pays as they are deprived of quality public service
necessary to accelerate their graduation out of poverty.

TRAIN aims to clean up the VAT system to make it fairer and simpler and lower
the cost of compliance for both the taxpayers and tax administrators. This is
achieved by limiting VAT exemptions to necessities such as raw agriculture food,
education, and health. This does not mean that the benefits the poor rightly
deserve will be removed. The Duterte administration commits to use the budget
to provide targeted transfers and programs that are more transparent and
accountable. The administration will direct the way to protect the poor and

3) vulnerable compared to the tax exemptions and blind subsidies that are
inefficient and largely beneficial to the rich since they have higher purchasing
power.

TRAIN repeals 54 out of 61 special laws with non-essential VAT exemptions,

thereby making the system fairer. Purchases of senior citizens and persons with
disabilities, however, will continue to be exempt from VAT. Housing that cost
below P2 million will be exempt from VAT beginning 2021, while medicines for
diabetes, high cholesterol, and hypertension will be exempt beginning 2019.

The reform also aims to limit the VAT zero-rating to direct exporters who
actually export goods out of the country. This will be implemented together with
an enhanced VAT refund system that will provide timely cash refunds to
exporters.

The VAT threshold is increased from P1.9 million to P3 million to protect the
poor and low-income Filipinos and small and micro businesses and for
manageable administration. This effectively exempts the sale of goods and
services of marginal establishments from VAT. Under TRAIN, VAT exempt
taxpayers will have the following options:

● PIT schedule with 40% OSD on gross receipts or gross sales plus 3%
percentage tax

● PIT schedule with itemized deductions plus 3% percentage tax, or

● Flat tax of 8% on gross sales or gross revenues in lieu of percentage tax and
personal income tax.

Increasing the Fuel Excise Tax

TRAIN increases the excise of petroleum products, which has not been
adjusted since 1997. The non-indexation of fuel excise tax to inflation has
eroded the revenues collected by P140 billion per year in 2016 prices.

Fuel excise is wrongly perceived to be anti-poor. Based on the Family Income and
Expenditure Survey (FIES) 2015, the top 10% richest households consume 51%
of total fuel consumption. The top 1% richest households consume 13%, which is
equivalent to the aggregate consumption of the bottom 50% of households.
40Clearly, this is a tax that will affect the rich far more than the poor, given their
greater oil consumption than the poor.

The Duterte administration is also doing this to address environmental and

health concerns. By taxing dirty fuel correctly, we are also investing in a more
sustainable future for our country.

One consequence of exempting diesel from excise is the shift from gasoline to
diesel automobiles. For instance, prior to exempting diesel in 2005, there was
slightly more gasoline sport utility vehicles than diesel SUVs. Over time, with
cheaper diesel prices, consumers shifted to diesel SUVs. As of 2013, some 72% of
newly registered SUVs are diesel powered compared to 28% of gasoline. This is
basically giving tax breaks to rich people who can afford to buy SUVs.

Expanding the VAT base and adjusting excise taxes would raise prices of some
commodities faced by consumers, but this will be minimal or moderate and only
temporary. DOF estimates around 0.73 percentage point increase in inflation
during the first year of implementation with the impact tapering off over time.
Food prices may increase by up to 0.73 percentage point, transportation up to
2.8 percentage point, and electricity up to 0.7 percentage point.

In 2016, despite a P14 increase in diesel oil prices from P18.25 to P32.10,
inflation still remained low and stable. Prices of food, transportation, electricity,
gas, housing, and water increased only by 2% to 3%. Basic commodities did not
increase in prices despite the 75% increase in diesel price. Unlike in the 1970s
and 1980s, our economy today is much stronger, diversified, and resilient.
In the recent past, the Philippines had two major economic shocks—one is the
VAT reform of 2005 and the other is the global oil price hike in 2011. Both events
significantly raised fuel prices. Despite concerns then that higher taxes or higher
prices would lead to devastating economic growth and skyrocketing inflation,
history shows that the economy has weathered quite well even when the
economy then was not in the best of shape.

In the aftermath of the VAT reform in 2005, GDP growth slowed as consumption
slowed down and inflation temporarily increased, but the economy did not
collapse and inflation was manageable. On the contrary, the VAT reform
significantly improved the fiscal position of the government and buoyed the
economy, and partly credited for the stronger and more resilient economy we
enjoy today.

5The global oil price shock in 2011 is similar. Though oil prices increased from
$61 per barrel to up to $130 per barrel at its peak, inflation was managed well by
the central bank and kept at below 5%, and the economy continued to grow.

Today, with a smaller increase in fuel cost due to the excise reform, the
administration is certain that the economy can, like before, manage growth and
inflation well and even do better.

Increasing the Excise Tax of Automobiles

TRAIN simplifies the excise tax on automobiles, but lower-priced cars
continue to be taxed at lower rates while more expensive cars are taxed at
higher rates. This excise will raise revenue in a very progressive manner as the
richer buyers tend to own more and expensive cars compared to those who earn
less.

When we consider the TRAIN as a package, the increase in take home pay from
the personal income tax reduction will be more than enough to offset the
increase in prices resulting from adjustments in excise taxes. For example, those
who will purchase a Vios will be able to save P16,122 despite the increases in
taxes, and those who buy an Innova will save around P29,923 even if they buy a
car with the new rates. For a Vios, this translates to only an additional P183 in
monthly amortization assuming a standard loan term of five years. This implies
that for a typical buyer, the additional take home pay from the PIT reform will
more than fully offset the increase in amortization.

6 Increasing the Tax of Sugar-Sweetened Beverages

The SSB excise tax will help promote a healthier Philippines. Along with the
Department of Health (DOH), DOF supports this as part of a comprehensive
health measure aimed to curb the consumption of SSBs and address the
worsening number of diabetes and obesity cases in the country, while raising
revenue for complementary health programs that address these problems. This
is a measure that is meant to encourage consumption of healthier products, to
raise public awareness of the harms of SSBs, and to help incentivize the industry
to develop healthier products and complements.

Why impose a tax on SSBs?

● Most of the sugar-sweetened beverage, with some notable exceptions provide

unnecessary or empty calories with little or no nutrition. SSBs are not a
substitute for healthy foods such as fruits and rice.

● SSBs are relatively affordable especially to children and the poor who are the
most vulnerable to its negative effects on health.

● SSB products are easily accessible and can be found in almost any store, unlike
other sweetened products. Most often, the poor and the children are not aware of
their consequences.

Common examples of SSB products include carbonated beverages, sports and

energy drinks, and sweetened juice drinks. Under TRAIN, an excise rate of P6 per
liter will be taxed on drinks containing caloric or non-caloric sweetener, and P12
per liter on drinks containing high-fructose corn syrup. 3-in-1 coffee and milk are
exempt from this tax.

Consumption of SSBs, mostly softdrinks, is significantly linked to high incidences

of overweight, obesity, and diabetes worldwide, including in low and middle-
income countries.<sup1< sup="" style="box-sizing: inherit;">The National
Nutrition Survey (2003-2015) indicates an increasing trend of overweight or
obese Filipinos through the years and across age groups, especially among the
poor.</sup1<>

In addition, habitual consumption of SSB is associated with greater incidence of

Type 2 diabetes.2 According to the International Diabetes Foundation, there are
around 3.5 million cases of diabetes in the Philippines. In 2015, government
7reimbursements on hemodialysis totaled to about P7.4 billion covering 1.1
million patients. This is considerably high spending for PhilHealth especially on
benefit payout for diseases that are preventable with evidence-based and
recommended public policy interventions. In total, around P300 billion is spent
annually by diabetic patients on maintenance medicine and operations. The
government needs sufficient revenues to fund diabetes treatment as inaction will
worsen these problems.
The SSB excise tax, as a health measure, will encourage individuals and families
to make healthy choices to ensure a healthier and more productive population.
To complement the SSB excise tax, there are also non-tax measures organized
around the Health in All Policies approach. This strategy is envisioned to include
regulatory measures on marketing, mandatory labeling, information and
advocacy measures for health promotion, and improved nutrition literacy among
Filipinos.