JENIELYN C.

DELAMATA BSA – 2A
OLD SYSTEM VS TRAIN LAW (PACKAGE 2)
I. Content
Train Law Package 2 or the proposed Corporate Income Tax and Incentives
Reform Act, which complements the recently passed Republic Act No. 10963 or the
Tax Reform for Acceleration and Inclusion and aims to further address the
inequitability in our taxation system, seeks to lower corporate income tax rate, reform
the corporate income tax system, broaden tax base by modernizing investment tax
incentives, remove excessive tax exemptions and privileges given to certain
industries, and limit the grant of tax incentives to strategic industries and lagging
regions.
It is introduced by the House Representatives Dakila Carlo E. Cua, Raneo E.
Abu and Aurelio D. Gonzales Jr. and filed as House Bill (HB) No. 7458 last March
21, 2018.
The salient features of HB No. 7458 are summarized below:
 Corporate income tax rate for domestic corporations, resident foreign
corporations (RFCs), and non-resident foreign corporations (NRFCs) shall be
reduced by 1% point every year beginning 1 January 2019 but shall not be
lower than 20%.
 Preferential income tax rate of 10% for proprietary educational institutions and
hospitals and the income tax exemption for local water districts shall be
removed.
 Preferential income tax rate of 10% for offshore banking units (OBUs) and
regional operating headquarters (ROHQs) and the income tax exemption for
regional headquarters shall be removed.
 Income tax rate on interest income derived by RFCs from a depository bank
under the expanded foreign currency deposit system shall be increased from
7 ½ % to 15%.
 Capital gains tax rate on sale of shares of stocks not traded in the stock
exchange by RFC and NRFCs shall be adjusted from 5%/10% to a flat rate of
15%.
 Special income tax rate granted to non-resident cinematographic film owners,
lessors or distributors, owners/lessors of vessels chartered by Philippine
nationals, and owners/lessors of aircraft, machineries and other equipment
shall be removed.
 The optional standard deduction (OSD) rate shall be adjusted from 40% to
20% of gross income for individuals (except non-resident aliens) and
corporations (excepts NRFCs).
 The option to apply for the issuance of tax credit certificate on the refund of
input VAT attributable to zero-rated sales shall be removed.
 The PHP10m gross receipts threshold for franchise tax under Section 119 of
the Tax Code shall be removed, and the telecommunication companies shall
be included in the scope of the 3% franchise tax. Radio and/or television
 broadcasting and telecommunication companies shall also be required to
VAT-register.
 All export activities and strategic investments, including those intended for
domestic market under the “Strategic Investments Priority Plan” or the “SIPP”,
which are eligible for registration and will qualify for incentives, may only be
granted income tax and customs duty incentives.
 Package 2 of the Comprehensive Tax Reform Program (CTRP) seeks to
lower the corporate income tax (CIT) rate gradually from 30% to 20%, reorient
fiscal incentives toward strategic growth industries, and make incentives
available to investors who make net positive contributions to society.
II. Conclusion
I concluded that the Current Tax Law have shortcomings that need to be
solve and that’s why reformation is needed. There are many reasons why the
corporate income tax and incentive system need to be reform and one of these are
the Philippines have the highest corporate income tax rate in the region. Due to
Lower CIT rates in the region, URC Philippines expands internationally, investing
66% of its total capital assets abroad. This means lost jobs opportunities. If the CIT
were lower, URC can invest in the Philippines instead that’s why the Train Law
Package 2 aims to lower the corporate income tax rate to make it regionally
competitive and create more job opportunities for more Filipino citizens. Another
problem is that we have a corporate tax incentive system that is overly generous to a
few companies at the expense of the majority. In 2017 alone, the Filipino people
granted PHP 441 billion (or 2.8% of GDP) in tax incentives to only 3,150 companies,
including those on the elite list of Top 1,000 corporations. These companies pay an
effective discounted corporate income tax rate of 6 to 13%. In the other hand, under
the current corporate taxation system, firms with no incentives, which include almost
all of the country’s 90,000 small and medium enterprises (SMEs), pay the regular
CIT rate of 30 percent of their net taxable income–the highest in the region. Every
peso granted as tax incentive is a peso off the budget that could have been spent for
infrastructure, health, education, and social protection that benefit all, and not only a
few. Around half of these incentives granted are worth it and yield a net positive
benefit to the Filipino people; however, around half of these incentives are
unnecessary or redundant. PHP 441 Billion of foregone revenues in 2017 could have
funded 33,000 public markets or 130,000 daycare centers or 46,000 kilometers of
roads or 450,000 classrooms that could have been benefited by a lot of Filipinos and
because there are still more problems present in the current tax law, I understand
why reformation is needed.
III. Recommendation
I still don't know what recommend in the Train Law Package 2 since i haven't seen
the outcomes or the changes it will do in our country's Tax system so that's why I still
can't share my insights and the things that I want to be change regarding about the
Train Law Package 2 because I don't know if the proposed law can really solve the
problem that the current tax law have. I do hope that the Corporate Income Tax and
Incentives Reform Act does help improve our Tax System and can help a lot of our
fellow Filipino citizens and also in the development and growth of the Philippine
Economy.