INTRODUCTION TO TRAIN 2(CITIRA)

In many instances when we think of equity in taxation, we often focus on vertical equity or how the
tax system treats people with different incomes. Most tax systems aim for progress, where the people in
higher society pay a higher share of their income in taxes than the poor. The first phase of the tax reforms
addressed this issue and succeeded in reducing personal income taxes for the bottom 99% of the
population. However, horizontal equity or how the tax system treats similar entities fairly. With this similar
entities will face similar tax rates. If we look at the current system, the incentives that some firms get are
different but others don’t works against horizontal equity. Firms that manage to get tax incentives face
much lower effective tax rates of 6-14%, whereas firms that don’t face a 30% rate. This is what makes the
train 2 to be pursued. It seeks to address the inefficiency in the Philippines tax system.

The package 2 of Tax Reform for Acceleration and inclusion as per the approval on third and final
reading by the house of representatives on September 10, 2019, seeks to lower the corporate income tax
rate gradually, reorient fiscal incentives toward strategic growth industries, and make incentives available
to investors who make net positive contributions to society.

•Package 2, also known as the Corporate Income Tax and Incentives Rationalization Act (CITIRA), seeks to
reduce the corporate income tax rate from 30% to 20% to make it regionally competitive and bring back
jobs. With this reduction will benefit more than 99% of companies, most of which are micro, small, and
medium enterprises (MSMEs), who employ the majority of Filipinos. And also allow companies to relieve
their cash flows, enable them to invest more further, and create more jobs to hire more employees.For
this reason, a lower corporate tax rate will make the Philippines’ tax system more competitive, as it
currently has the highest corporate tax rates in ASEAN.

•Package 2 seeks to promote a fair and accountable tax incentives system to make sure that every peso

granted as a tax incentive yields a net positive benefit to society and that the industries and locations that
deserve help are truly supported.
 In conclusion, TRAIN 2 and the broader tax package are critical to strengthening the Philippines’ tax
system.

SALIENT PROVISIONS OF HOUSE BILL 4157

#1

The corporate income tax (CIT) rate will be reduced from the present 30 percent, in annual increments of
1 percentage point, all the way to 20 percent by 2029. This will build up and benefit more than 99 percent
of all corporations, mostly micro, small, and medium enterprises (MSMEs).

#2

All firms who are qualified can get up to 10 years of incentives, and additional 9 years if they meet a certain
set of conditions, for a total of 19 years. All incentives are renewable if the applicants are qualified.

#3

After the ITH period, a firm can avail of the reduced CIT rate, which will also be gradually decreased from
18 percent of net taxable income in 2020 to 13 percent in 2030. This will replace the previous tax on gross
income earned (GIE).

#4

Alternative to the reduced CIT rate, a firm may avail of the menu of enhanced deductions under Package
2.

#5

A sunset period will be given to existing registered activities. After the sunset period ends, firms can
reapply for the new menu of incentives under Package 2. For existing activities under the ITH period, this
shall continue until the remaining ITH ends or for 5 years, whichever comes first. If the remaining ITH
period is less than 5 years, firms can enjoy the GIE for the remainder of the 5-year period. For those
enjoying the GIE.

#6
The Fiscal Incentives Review Board (FIRB) will have oversight function over all investment promotion
agencies (IPAs) and approve all incentives in accordance with the law. All IPAs will retain their one stop
shop functions.

References:

•https://taxreform.dof.gov.ph/tax-reform-packages/p2-corporate-income-tax-and-incentives-reform/

•https://www.adb.org/news/op-ed/train-2-and-features-good-tax-system-yasuyuki-sawada