TRAIN

LAW
PACKAGES
MEMBERS:
AGUILAR, EDWIN, S.
BARAL, RODALYN, D.
BASILIO, NIKKI, G.
BATAC, ALYSSA, J.

TRAIN LAW PACKAGES

Package 1: TRAIN
 The Tax Reform for Acceleration and Inclusion (TRAIN) under the Comprehensive Tax Reform Program seeks to
correct a number of deficiencies in the tax system to make it simpler, fairer, and more efficient.
Specifically, TRAIN corrects the longstanding inequity of the tax system by reducing income taxes for 99 percent of
income taxpayers, thereby giving them much-needed relief after 20 years of non-adjustment. It also raises significant
revenues to fund the President’s priority infrastructure programs to reduce poverty incidence from 21.6 percent in
2015 to 14 percent by 2022.
70 percent of the incremental revenues of TRAIN will go to infrastructure and the Build, Build, Build program,
while the balance will go to social services programs.
In TRAIN, Congress passed two-thirds of the needed revenue for 2018 and is expected to pass the balance in 2018
to help achieve our revenue and deficit targets.

LEGISLATIVE STATUS
 Republic Act No. 10963
Passed into law on 19 December 2017

SALIENT PROVISIONS
LOWERED AND SIMPLIFIED PERSONAL INCOME TAXES

Under TRAIN, those with annual taxable income below PHP 250,000 are now exempt from paying personal income
tax, while the rest of taxpayers, except the richest, will see lower tax rates ranging from 15 percent to 30 percent by
2023. To maintain progressivity, the top individual taxpayers whose annual taxable income exceeds PHP 8 million
face a higher tax rate of 35 percent from the current 32 percent.

SIMPLIFIED TAX FOR SMALL AND MICRO SELF-EMPLOYED

AND PROFESSIONAL (SEPS) TAXPAYERS

Small and micro SEPs now have the option to pay a simpler, flat tax of eight percent on gross sales in lieu of the
income and percentage tax. Taxpayers can save time falling in line and filing and paying eight times a year to just
four times a year.

UNCONDITIONAL CASH TRANSFERS

The ten million poorest households and individuals receive cash transfers of PHP 200 per month in 2018 and PHP
300 per month in 2019 and 2020. The amount is enough to offset the moderate but temporary increase in prices due
to TRAIN.

SIMPLIFIED ESTATE AND DONOR’S TAXES

Estate tax is lowered from 20 percent to a single rate of six percent for net estate with standard deduction of PHP 5
million as well as exemption for the first PHP 10 million for the family home.
On the other hand, donor’s taxes are lowered from up to 15 percent to a single rate of six percent of net donations
above PHP 250,000 percent year

EXPANDED THE VALUE-ADDED TAX (VAT) BASE

Fifty-four special laws with non-essential VAT exemptions were repealed, thereby making the VAT system fairer.
For the average Filipino, this does not have an impact on them, as the VAT exemption removal only affects groups
enjoying exemptions.

o Exceptions in tax code: cooperatives (except electric cooperatives), VAT on medicines for diabetes,
high cholesterol, and hypertension, and condominium and association dues
o Exceptions in special laws: PAGCOR and casino, domestic coal, renewable energy, credit surety,
countryside barangay business enterprise, mini-hydro, and tourism
o Starting 2021, move from final to creditable withholding VAT
o Starting in 2022, move from five-year spreading of capital input VAT to immediate expensing.
o Starting 2023, move from monthly to quarterly VAT filing and payment.

ADJUSTED OIL EXCISE TAXES

 There was a staggered increase of oil excise tax by up to PHP 6 per liter over a three-year period, with lower rates
for essentials such as diesel, kerosene, and LPG to protect households and commuters.

o In 2018, gasoline excise tax (including additional VAT) rose by only PHP 2.97 per liter.
o In 2018, diesel excise tax (including additional VAT) rose by only PHP 2.8 per liter. This should not
warrant a fare hike.
o PUV operators and drivers can avail of social assistance program.

ADJUSTED AUTOMOBILE EXCISE TAXES

Adjustment of automobile tax rates is based on the net manufacturing or importer’s price, which is as follows:

o Four percent (for automobiles up to PHP 600,000)

o 10 percent (for automobiles above PHP 600,000 to 1 million)
o 20 percent (for automobiles above PHP 1 million to 4 million)
o 50 percent (for automobiles above PHP 4 million).

Pick-ups and purely electric vehicles are fully exempt, while hybrid cars are taxed at 50 percent of the equivalent
automobile.

INTRODUCED EXCISE TAX ON SWEETENED BEVERAGES

PHP 6 per liter for drinks containing caloric or non-caloric sweetener, and PHP 12 per liter for drinks containing
high-fructose corn syrup or combination. 3-in-1 coffee and milk, among others, are exempt.

OTHER TAXES

o Mining excise tax – double the rates from two percent to four percent.
o Tobacco excise tax – increase the rate from PHP 31.2 per pack in 2018 to P 32.5 between January to
June 2018, PHP 35 per pack from July 2018 to December 2019, PHP 37.5 per pack in 2020 and 2021, and
PHP 40 per pack in 2022 and 2023, followed by annual indexation of four percent.
o Cosmetic excise tax – a new tax at five percent of gross receipts.
o Documentary stamp tax – 50 to 100 percent increase except for property, savings, and non-life
insurance.
o Foreign currency deposit unit (FCDU) – increased from 7.5 percent to 15 percent final tax on
interest income.
o Capital gains of non-traded stock – increased from five to ten percent, to 15 percent final tax on net
gains.
o Stock transaction tax – increased from 0.5 percent to 0.6 percent of the transaction value.

What will TRAIN fund?

VAT-EXEMPT MEDICINES

Effective January 1, 2019, people can start availing of VAT-exempt medicine for diabetes, high cholesterol, and
hypertension

o Full list of VAT-exempt medicines: https://dpw.doh.gov.ph/VatExempted

EDUCATION

TRAIN aims to create a more conducive learning environment with the ideal teacher-to-student ratio and classroom-
to-student ratio. With this, TRAIN aims to:

o Achieve 100 percent enrollment and completion rates

o Build 113,554 more classrooms
o Hire 181,980 more teachers between 2017 and 2020

 HEALTHCARE
 With better revenues, we can now invest in better quality healthcare services. With this, TRAIN aims to:

o Upgrade 704 local hospitals and establish 25 local hospitals

o Achieve 100 percent Philhealth coverage and higher quality of services
o Upgrade and/or relocate 263 rural and urban health units to disaster-resilient facilities
o Build 15,988 new barangay health stations
o Build 2,424 new rural health units and urban health centers
o Between 2017 and 2022, hire an additional 2,424 doctors, 29,466 nurses, 1,114 dentists, 3,288
pharmacists, 2,682 medical technologists, 911 public health associates, and 2,497 UHC implementers

 INFRASTRUCTURE

Additional revenues collected are used to fund projects of the Build, Build, Build program of the Department of
Public Works and Highways (DPWH). Major projects are:

o Bonifacio Global City-Ortigas Center Link Road

o UP-Miriam-Ateneo Viaduct along C-5/Katipunan
o Camarines Sur/Albay Diversion Road
o Pulilan-Baliuag Diversion Road
o Maasin City Coastal Bypass Road cum Sea Wall
o Tacloban City By-Pass Road
o Panay East-West Road
o Daang Maharlika (Alternate Route) (NRJ-Mayor Democrito D. Plaza II Avenue-Las Nieves-Sibagat),
(Mandamo-Las Nieves Section)
o Cagayan De Oro Diversion Road, Cagayan De Oro City
o Valencia City-Pangantucan Diversion Road
o Concretize 3,741 km of national gravel roads, 10,473 km of national asphalt roads, 30,209 km of local
gravel roads
o Irrigate 1.3 million hectares of land
o Provide 7,834 isolated barangays and 23,293 isolated sitios with road access

 SOCIAL MITIGATING MEASURES

To help Filipinos cope with the changes brought about by TRAIN, the following measures were implemented:

o Unconditional Cash Transfers (UCT)

o UCT is a cash subsidy provided under TRAIN to alleviate the impact of fuel excise increase
on the poorest 10 million households or individuals.
o As of April 12, 2019, more than PHP 22 billion has been distributed to more than nine million
beneficiaries.

 PANTAWID PASADA PROGRAM (PPP)

The PPP distributed fuel vouchers to qualified franchise holders of public utility jeepneys (PUJs) to partially offset
the impact of higher excise taxes on fuel products as well as to partially compensate for the decrease in income
brought by the fare discounts.

o As of May 28, 2019, around PHP 518 million-worth of fuel cards were distributed to 103,567
beneficiaries.
o For requirements and updated list of available cards per
region, http://ltfrb.gov.ph/index.php/2018/08/23/pantawid-pasada-program/

Package 1B: Tax Amnesty

The Tax Amnesty Act or Package 1B of the Comprehensive Tax Reform Program complements the Tax Reform for
Acceleration and Inclusion Act (TRAIN). It lets errant taxpayers affordably settle their outstanding tax liabilities,
allowing for a “fresh start,” while also providing the government with additional revenues for its priority
infrastructure and social programs. At the same time, it signals the start of a more aggressive tax enforcement
campaign by tax authorities.
The estate tax amnesty unravels long unsettled estates due to non-payment of estate taxes, and ensures a proper
mechanism for its transfer.
The tax amnesty on delinquencies allows previously excluded taxpayers (i.e., those charged under the Run After
Tax Evaders program, taxpayers with tax delinquencies) to take advantage of a lower rate to settle their obligations,
and creates an opportunity to unclog the administrative and judicial dockets of slow-moving cases.
 LEGISLATIVE STATUS
 Republic Act No. 11213
signed into law on 14 February 2019 (with line veto)
Package 1B is a combination of two House bills and a Senate bill. Originally passed by the House of
Representatives (HOR) as an estate tax amnesty measure, Package 1B has evolved to include provisions on the
general tax amnesty and the tax amnesty on delinquency.
In passing RA 11213, the President vetoed the grant of general tax amnesty due to lack of safeguards against
tax evasion. He calls for the passage of another general tax amnesty bill that provides for the lifting of bank
secrecy rules for fraud cases, the inclusion of automatic exchange of information, and safeguards to ensure that
asset or net worth declarations are truthful.
He also vetoed provisions under estate tax amnesty such as the one-time declaration and settlement of estate taxes
on properties subject to multiple unsettled estates, and the presumption of correctness of the estate tax amnesty
returns.

Package 2: Corporate Income Tax and

Incentives Rationalization (CITIRA)
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.

LEGISLATIVE STATUS
o House of Representatives: Approved on third and final reading (10 Sept 2019)
o Senate: First committee hearing conducted (17 Sept 2019)

WHY THE REFORM IS NEEDED

PROBLEM 1:

The Philippines currently imposes the highest corporate income tax (CIT) rate in the ASEAN
region. This hampers the country’s ability to comp

ete with other countries with a lower CIT rate.

 SOLUTION 1:

Package 2, also known as the Corporate Income Tax and Incentives Rationalization Act
(CITIRA), seeks to reduce the corporate income tax rate to make it regionally competitive and
bring back jobs. This measure will benefit more than 99% of companies, most of which are micro,
small, and medium enterprises (MSMEs), who employ the majority of Filipinos. Savings from a lower
corporate income tax rate will also allow companies to expand and create even more jobs. This
measure, as proposed by the Department of Finance, is expected to create up to 1.5 million jobs.

Under Package 2, incentives will be:

Package 2+: Sin Taxes

Package 2+ of the Comprehensive Tax Reform Program proposes increasing taxes on tobacco,
alcohol, and e-cigarette products to fund universal health care (UHC) and to reduce the incidence of
risks associated with the consumption of “sin” products.

Proposed tobacco and alcohol taxation:

o Ensure financial sustainability for health expenditure programs under the Universal
Health Care (UHC) law with the following targets:

o Create fair and efficient funding sources for the sustainable financing of
universal Philhealth coverage
o Provide adequate outpatient check-ups and medicine
o Discourage excessive alcohol and tobacco consumption for better health and social
outcomes, especially among the youth and poor


o Ensure a world-class workforce by reducing the productivity and health risks associated
with sin products

LEGISLATIVE STATUS
Tobacco

Republic Act No. 11346

On 04 June 2019, the Senate of the Philippines approved with a 21-0 unanimous affirmative vote the
proposal to increase tobacco excise tax rates effective 01 January 2020. The House of
Representatives adopted the Senate version on the same day.

Alcohol and e-cigarettes

Congress ratified the bill increasing excise taxes on alcohol, vapes, and e-cigarettes on 18 December
2019. The President is expected to sign the bill by January.

Package 2+: Mining Taxes

Package 2+ of the Comprehensive Tax Reform Program includes proposed reforms on mining and
sin taxes. Both proposals complement the enacted TRAIN law to generate additional revenues; make
the tax system simpler, fairer, and more efficient; and align with President Duterte’s priority
programs on social and environmental protection.

LEGISLATIVE STATUS
House of Representatives

House Bill (HB) 8400 was approved on 3rd and final reading last November 12, 2018. The salient
features of the bill are the following:

o Impose a differentiated royalty for mines inside and outside mineral reservations,
o Impose windfall profit tax based on profit margin,
o Exempt pollution control devices from real property tax, and
o Register small-scale mining with the Mining Board, and Mines and Geosciences Bureau.

PROPOSED MINING TAXATION

The Department of Finance proposes to implement a single fiscal regime applicable to all mineral
agreements to promote fairness.

The mining industry is currently under two fiscal regimes based on the mineral agreements with the
national government: Mineral Production Sharing Agreement (MPSA) and Financial or Technical
Assistance Agreement (FTAA).
 Under MPSA, the government grants the contractor exclusive right to conduct mining operations
within a contract area and shares in the gross output. The contractor provides the financing,
technology, management and personnel necessary for the implementation of the agreement.

FTAA, on the other hand, is an agreement for large-scale exploration, development, and utilization of
mineral resources between a contractor and the government. Below is the summary of fiscal
regimes of each mineral agreement.

Package 3: Real Property Valuation Reform

Package 3 of the Comprehensive Tax Reform Program (CTRP) aims to promote the development of a
just, equitable, and efficient real property valuation system. It will broaden the tax base used for
property-related taxes of the national and local governments, thereby increasing government
revenues without increasing the existing tax rates or devising new tax impositions.

Over the last three years, only 60% of Revenue District Offices (RDOs) under the Bureau of Internal
Revenue (BIR) have updated their zonal values. Meanwhile, only 37% of local government units
(LGUs) have updated the schedule of market values (SMVs). Apart from outdated valuations, the
complexity of the situation is further complicated by the fact that there are various agencies doing
or requiring property valuation, with each agency using their own system and methodology for
valuation.

Updating the SMVs and conducting the general revision of property assessments are necessary
components of effective and efficient real property tax administration in any LGU to arrive at a fair
and equitable real property tax (RPT). The RPT, being a recurrent tax, is dependent on three
elements: (1) market value; (2) assessment level; and (3) tax rate. The adjustment of SMVs does not
necessarily equate to increase in tax burden. The two elements, which are the tax rate and
assessment levels, are determined by LGUs through the enactment of ordinances.

By improving the quality of valuation of local governments and making the revisions frequent,
efficient, transparent, reliable and attuned to market developments, Package 3 impacts favorably on
revenue generation and resource mobilization of local governments to fund their service delivery
requirements. The reforms are also expected to foster private investors’ confidence and build the
public’s trust in the valuations of government.

LEGISLATIVE STATUS
o House of Representatives: Passed on third and final reading (25 November 2019)
o Senate: Pending in the Committees on Ways and Means, Local Government, and
Finance

NCE

The adoption of internationally accepted valuation standards and higher degree of

professionalism in real property valuation will foster higher private investor’s confidence.

ENSURED HIGHER SPECIAL EDUCATION FUND

Strengthening the collection of RPT will ensure higher special education fund (SEF) collections – i.e.,
more funds available for public education. At present, an average of Php 760 is allotted per public
school student. Package 3 is expected to increase this amount to Php 1,040 per student.

REDUCED UNNECESSARY EXPENSES

The reform will reduce unnecessary expenses due to conflicting appraisals which may lead to
lengthy court litigation, project details, and cost overruns.
 Package 4: Passive Income and Financial
Intermediary Taxation Act (PIFITA)
Package 4 or the proposed Passive Income and Financial Intermediary Taxation Act (PIFITA) of the
Comprehensive Tax Reform Program (CTRP) complements the recently-passed Tax Reform for
Acceleration and Inclusion Act (TRAIN) by making passive income and financial intermediary taxes
simpler, fairer, more efficient, and more competitive regionally. It provides a window of opportunity
to achieve much-needed tax reform in the financial sector. Which is an ingredient that could fuel
and direct the movement of capital to where they are most needed, so that higher, sustainable, and
more inclusive growth can be achieved.

Package 4 will greatly simplify the taxation of passive income, financial services, and transactions. It
will reduce the number of tax rates from 80 to 36. It will also harmonize the tax rates on interest,
dividends, and capital gains, and the business taxes imposed on financial intermediaries. Package 4
will likewise remove the documentary stamp tax (DST) imposed on nonmonetary transactions.

With Package 4 reform, the Philippines can be more competitive in attracting capital and
investments that are urgently needed to finance large-scale infrastructure, including the Build, Build,
Build program, create more and better jobs, and boost economic growth.

LEGISLATIVE STATUS
o House of Representatives: Passed and approved on third reading – House Bill No. 304
o Senate: Transmitted to Senate

REFORMS UNDER PACKAGE 4

REDUCTION IN THE NUMBER OF FINAL WITHHOLDING TAX
RATES ON INTEREST INCOME

A single rate of 15% final tax on interest income, in general, will be imposed regardless of currency,
maturity, issuer, and other differentiating factors.

UNIFICATION OF TAX RATES ON PASSIVE INCOME

A single rate of 15%, in general, will be imposed on interest income, dividends and capital gains.

HARMONIZATION OF BUSINESS TAXES ON FINANCIAL

INTERMEDIARIES

A single gross receipt tax (GRT) rate of 5% will be imposed on banks, quasi banks, and certain non-
bank financial intermediaries (FIs). The distinction between lending and non-lending income, as well
as the maturity of the instrument, will be removed. All types of income will be taxed at 5%, except
dividends, equity shares, and net income of subsidiaries, which will remain exempt.

Pre-need, pension, life, and HMO insurance will be taxed uniformly at 2% of the premium. Non-life
insurance will remain subject to VAT, while crop insurance will remain exempt from VAT. Income
other than the premium will be subject to VAT.

REMOVAL OF THE INITIAL PUBLIC OFFERING (IPO) TAX

WHICH IS FOUND TO BE DETRIMENTAL TO CAPITAL MARKET
DEVELOPMENT

The IPO tax will be removed as it is seen as a tax on capital, and is detrimental to the capital
markets. Collections from IPO tax are minimal, only averaging PHP 273 million annually from 2000-
2016 annually. Removing the IPO tax will also simplify the taxes imposed in the country’s stock
 exchange and will allow the BIR to concentrate its collection efforts on more significant sources of
revenue. Income tax on listed shares of stock and debt securities will also be gradually removed to
further promote capital market development.

RATIONALIZATION OF DST TO PROMOTE CAPITAL MOBILITY

Equalize tax treatment of debt and equity by: (a) a gradual reduction of the 0.6% stock transaction
tax (STT) by 0.1 percentage point every year until it reaches 0 by 2026 and (b) a temporary
imposition of a 0.1% transaction tax on listed and traded debt instruments at the Philippine Dealing
Exchange (PDEx), which will also be removed by 2026. Finally, documents which are non-monetary in
nature will also be exempted from DST.

Motor Vehicle Users Charge

The motor vehicle users charge (MVUC) or Package 1C of the Comprehensive Tax Reform Program
was introduced to provide adequate funding for the maintenance of national and provincial roads. It
also aims to address air pollution from motor vehicles.

An MVUC rate that reflects current prices is simple to implement and provides sufficient funds for
the infrastructure programs of the government. The proposed merger of various road funds with
the general fund will result in more efficient linkages with the national budget, and improve
transparency and accountability. The proposed abolition of the Road Board will also ensure more
transparency in the utilization of the funds from MVUC and consistency with national priorities.

The current rates were set in 2004 and have not been adjusted for inflation in the past 14 years,
thereby eroding the real value of revenues. These are also complex with multiple rates depending
on the type of motor vehicle.

DOF PROPOSAL

o The proposed merger of various road funds with the general fund will result in more
efficient linkages with the national budget, and improve transparency and accountability.
o The proposed abolition of the Road Board will ensure more transparency in the
utilization of the funds from MVUC and consistency with national priorities.
o The revenues from the proposed increase of MVUC rates will be one of the sources of
funding that will finance road infrastructure projects of the government.

After consultation with different stakeholders, the DOF proposes to increase the MVUC rates with
the following features:

1. Impose a unitary rate based on weight for all vehicles, private or government and for
hire vehicles.
2. Adopt a longer phased-year period of 3 years to increase MVUC rates.

MEMBERS:

AGUILAR, EDWIN, S.

BARAL, RHODALYN, D.

BASILIO, NIKKI, G.

BATAC, ALYSSA, J.