In Partial Fullfillment for

the Subject:

PHILIPPINE
TAXATION

Submitted by:

Rizalyn Y. Licup

Submitted to:

Artemio Cayabyab
Coal Excise Tax

Coal is a cheap source for power generation and has its

uses in multiple industries such as the chemical and
pharmaceutical industries. It is also a prime ingredient for
activated carbon, carbon fibre and silicon metal.[30] However, it
remains a major source for air pollution in the Philippines. The
aim of the excise tax is to shift towards renewable energies and
generate additional income for building infrastructures and
social services.

The excise tax on coal will increase from its original

₱10/Metric Ton(MT) to ₱50/MT on both domestic and imported coal.
₱50/MT will be added each succeeding year until January when the
rate would have reached ₱150/MT.[24] Cosmetics Tax Starting 2018,
all cosmetic surgeries, aesthetic procedures, and body
enhancements intended to improve, alter, or enhance a person's
appearance are now subject to a tax of 5%.

However, procedures necessary to ameliorate a deformity

arising from, or directly related to a congenital or
developmental defect or abnormality, a personal injury resulting
to an accident or trauma, or disfiguring disease, tumor, virus or
infection are tax -exempted.[24] Tobacco Tax The excise tax on
cigarettes aims to reduce the amount of smokers and respiratory
and cardiovascular diseases one can catch from the act, as well
as generate additional revenue for health oriented programs and
services.
 From its original excise tax of ₱30 in 2017, the tax on
tobacco increased to ₱32.50 on January 1, 2018, ₱35 on July 1,
2018, will increase to ₱37.50 on January 1, 2019, and ₱40 on
January 1, 2020. Afterwards, it will increase annually by 4% from
January 1, 2024.[24] Financial Taxes There are four taxes that
were adjusted along with the TRAIN Law.

Firstly, the documentary stamp tax was increased by 100%

except on loans with only 50% increase, but not for savings,
property, and non-life insurance. Secondly, the final tax on
foreign currency deposit unit (FCDU) was increased from 7.5% to
15% of interest income. Thirdly, capital gains tax of non-traded
stock was increased from 5% to 10% of final net gains. Finally,
the stock transaction tax was increased from 0.5% to 0.6% of
total transaction value.[24] Others Finally, there are three
additional taxes that do not fall under the aforementioned
categories. These are the tax on lottery winnings and PCSO
prizes, documentary stamp tax, and mining tax. With the
implementation of the TRAIN Law, all PCSO lotto prizes are taxed
at 20% if the prize exceeds ₱10,000.

The documentary stamp tax has been doubled, resulting in

stamp taxes ranging from ₱1.50 to ₱3.00. Finally, excise tax
rates on all non-metallic minerals and quarry resources, and all
metallic minerals including copper, gold and chromite, will be
doubled, from 2% to 4%, ss well as excise tax on indigenous
petroleum, which will be doubled from 3% to 6%.[31][32][33]

The Tax Reform for Acceleration and Inclusion (TRAIN) is the

first package of the comprehensive tax reform program (CTRP)
envisioned by President Duterte’s administration, which seeks to
to correct a number of deficiencies in the tax system to make it
simpler, fairer, and more efficient. It also includes mitigating
measures that are designed to redistribute some of the gains the
poor. Through TRAIN, every Filipino contributes in funding more
infrastructure and social services to eradicate extreme poverty
and reduce inequality towards prosperity for all.

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.

The tax reform will be able to fund investments in education,

achieving a more conducive learning environment with the ideal
teacher-to-student ratio and classroom-to-student ratio. With the
tax reform, we can invest more in our country's healthcare by
providing better services and facilities.

The additional revenue raised by the tax reform will be used to

fund the infrastructure program of the Department of Public Works
and Highways (DPWH), which consists of major highways,
expressways, and flood control projects.

Funding these major infrastructure projects is possible with tax

reform for our country to sustain high and inclusive growth. The
proposed tax reform program aims to provide the needed additional
revenues that would fund our country’s investment needs,
promoting better lives for Filipinos.

A block of congressmen identified with the political opposition

has decided to challenge in the Supreme Court the legality of the
Tax Reform for Acceleration and Inclusion Act, which was enacted
recently by Congress and approved by President Rodrigo Duterte.
They assail the TRAIN Act on two grounds—the law was ratified by
the legislature in a session that lacked the requisite quorum;
and the law itself is anti-poor. Consumer groups and other
similar sectors have expressed their support for the court
petition against this new tax measure, but they are more
concerned about the substantive aspects of the law, rather than
the technical objections raised by the opposition lawmakers.
Supporters of the TRAIN Act, however, contend otherwise. The
Office of the Solicitor General is expected to defend the
validity of the law in the case now pending before the Supreme
Court. Since the TRAIN Act will drastically redesign the existing
tax environment in the country, a discussion of the arguments in
support of the law, and those against it, is in order.
Legislators responsible for the TRAIN Act contend that this new
tax measure is pro-people because it calls for lower income taxes
for individuals. They add that the reduction in income tax leaves
individual taxpayers more money to spend on basic necessities. It
is also contended that the reduction in income tax will be a big
help to those in the lower and middle-income strata of taxpayers
in the country. While supporters of the TRAIN Act admit that
there are considerable hikes in the taxes imposed on many
consumer goods and similar products, the reduction in income
taxes makes up for the hikes. They also stress that the
infrastructure program of President Duterte will need the revenue
to be raised under this new tax law. Those opposed to the TRAIN
Act argue otherwise. They contend that the reduction in income
tax is rendered meaningless by the tremendous increase in the
taxes to be imposed on consumer goods, prime commodities,
medicines, electricity, and fuel. In particular, the prices of
gasoline and fuel products are expected to increase by three to
four pesos per liter.

In turn, the marked increase in fuel prices will trigger a

corresponding increase in the cost of transporting people and
goods, which will inevitably increase the prices of practically
everything else. Moreover, the labor sector will demand an
increase in wages, which will also add to the cost of
manufacturing goods and the delivery of services. Since the
additional tax will increase the selling price of every consumer
product, the twelve percent value added tax (VAT) currently
imposed on every sale of consumer products will be computed
against a higher selling price, which will necessarily mean a
larger VAT on the sale of what are already very expensive prime
commodities to begin with. Critics of the TRAIN Act lament that
the new tax legislation not only increased the taxes on prime
commodities, but also reduced the tax on the importation of
luxury vehicles. The rationale for this manifestly pro-rich
provision of the TRAIN Act is a mystery. The critics maintain
that it is easy for politicians to defend the TRAIN Act because
politicians wallow in power, wealth, and privilege. More
specifically, politicians have generous expense accounts by which
practically everything they purchase, such as groceries, airline
tickets, and automobile fuel, are paid for by the taxpaying
public. In other words, it’s easy for members of Congress to
impose higher taxes on basic commodities since they are hardly
affected by such tax hikes. Before the implementation of the
TRAIN Law, its detractors theorized that the increase in
petroleum prices would cause a domino effect and, ultimately,
lead to an increase in the prices of goods and services, falling
on the shoulders of consumers, especially the poor. Lo and
behold, the rise in prices of everyday commodities was very much
felt since the beginning of 2018. Burdened by the price shock,
there was an uproar from citizens seeking the suspension of the
law. While it is true that the TRAIN Law was not all to blame, we
cannot discount the inability of ordinary people to afford rice,
not to mention softdrinks, alcohol, and cigarettes, and the fuel
necessary for daily transportation. For someone who drives almost
daily, I could very well imagine how taxi drivers might be
dealing with gasoline prices that spiked to a record-breaking
P60.87 in October. Mothers and homemakers found themselves on the
front lines as their household budgets bought fewer and fewer
groceries. Restaurants started skimping on portion sizes or
simply charged more.

Although the individual income tax brackets have finally been

adjusted and augmented by the TRAIN Law, they were accompanied by
a whopping surge in inflation. In October, inflation hit 6.7%,
moving even further away from the Bangko Sentral ng Pilipinas’
target range of 2-4% for 2018. Although the causes include world
oil prices or other forces, it is clear that the rise in
inflation was partly caused by TRAIN. Adding fuel to the fire,
whereas the higher excise taxes target the rich, the increase in
prices hurt the poor the most. Hence, the wide gap between the
rich and the poor remains.

The TRAIN imposed higher excise taxes on cigarettes,

manufactured oils, mineral products, and automobiles. It also
increased taxes on some passive incomes, including interest
income from dollar and other foreign currency deposits. The TRAIN
also increased the tax imposed on sale of shares of stocks. Under
the TRAIN, the stamp duty on taxable documents has also been
increased. The TRAIN also introduced new taxes in the form of
excise tax on sweetened beverages and non-essential services. A
tax amnesty is also being proposed. Under the bill, the grant of
tax amnesty shall cover estate tax and all other national
internal revenue taxes under a General Tax Amnesty.

The Estate Tax Amnesty would require payment of the estate tax
amnesty tax at the rate of six percent imposed on the deceased’s
undeclared estate. It applies to estate taxes due for taxable
year 2017 and prior years. The General Tax Amnesty, on the other
hand, would cover all national internal revenue taxes, excluding
VAT and estate tax, for taxable year 2016 and prior years.
Similar to the tax amnesty granted by the Government in the past,
the availment thereof would require the filing of a notice and
Tax Amnesty Return, accompanied by a Statement of Assets,
Liabilities and Net worth as of December 31, 2016. In addition to
the foregoing, the Secretary of Finance indicated a grant of
amnesty on delinquencies or final assessments. Train will also
lower estate tax. Roque said that “taxpayers would now have to
pay a fix rate of 6 percent for the net estate with the standard
deduction of P5 million.” The presidential spokesperson also
added that donors’ taxes is also now at a 6%-fixed rate over and
above P250,000 yearly. He also said the Train Bill changed the
value-added tax (VAT) and made it “fairer” after it revoked 54
special laws that provided nonessential VAT exemptions.
The question now is, did TRAIN 1 attain its objectives? Or more
specifically for the individual, was the increase in net income
due to the decrease in income tax rates enough to counter the
higher inflation rate and increase in prices? The answer lies in
whether or not there has indeed been an improvement in the
effective purchasing power of Filipinos.
 Purchasing power is an important indicator of the economic
condition of the nation. All else being equal, inflation
decreases the amount of goods or services one is able to
purchase; and reduced purchasing power leads to a decrease in
living standards. It is hoped that the tax reforms will produce
more benefit than harm, and that such advantages will trickle
down to ordinary people sooner.

Periodically reviewing the effects of the law is key, along with

efficient execution, to ensure that tax collection is indeed put
to good use. Notwithstanding its drawbacks and the appearance to
most consumers that the promise of the TRAIN law holds no water,
Budget Secretary Benjamin E. Diokno denied a report that the
government has failed to reach its target revenue collection for
2018. He ruled out halting the implementation of the TRAIN law,
saying that measures are in place to temper the harmful impact of
higher prices.

Suspension then is out of the question. For most of 2018, Mr.

Diokno and President Rodrigo R. Duterte rejected calls to review
the controversial tax reform law, saying it is needed for
economic growth. Then, there was a change of heart sometime in
October.

The government announced, albeit with initial reluctance, that

the P2-increase in fuel excise tax scheduled in January 2019 will
be suspended. At that point, world oil prices noticeably dropped,
as global supply outstripped demand. The suspension of the TRAIN
Law was lifted.

The first, and perhaps the most important part of the tax
reform, is the lowering of the personal income tax. Subsequent
regulations also clarified certain portions of the personal
income tax, specifically the optional 8 percent rate.
Under TRAIN Law, self-employed and professionals were allowed to
avail themselves of the optional 8 percent tax in lieu of the
graduated personal income tax and percentage tax. The TRAIN Law
also stated that it will be available to those whose gross sales
do not exceed the VAT threshold. Revenue Regulations (RR) No. 8-
2018 clarified that VAT-registered taxpayers would not be able to
avail themselves of the 8 percent rate, regardless of their gross
sales.

The regulation also clarified that electing the 8 percent rate

should be irrevocable for the duration of the year. It further
stated that availing of the 8 percent had to be made in the First
Quarter Percentage and/or Income Tax Return. Otherwise, the
taxpayer would be deemed automatically subject to the graduated
income tax rates. Not all the issued regulations simply restate
or clarify TRAIN.

For instance, under the TRAIN Law, the rates on creditable

withholding tax (CWT) shall be anywhere between 1 and 15 percent.
The imposition of the specific rates is regarded as the privilege
of the Secretary of Finance (upon recommendation of the BIR
Commissioner). RR 11-2018 imposed the rates for the CWT. The rate
for professional fees could either be 5 percent or 10 percent for
individual payees, or 10 percent or 15 percent for non-individual
payees.

It also clarified the new rates for various other types of income
payment. President Rodrigo Duterte boasted the aid brought by Tax
Reform for Acceleration and Inclusion (Train) Law to Filipino
people.
 “Train is already helping poor families and senior citizens cope
up with rising prices. We have distributed unconditional cash
transfers to four million people, and we will help six million
more this year,” Duterte said yesterday at Batasang Pambansa.
Duterte added the implementation of Train law is needed in
addressing the progress Duterte is envisioning for the country.

“You have made funds available to build better roads and

bridges, and improve health and education, and strengthen our
safety and security,” Duterte said in his speech. But he also
added that even if some groups detest in the implementation of
the Train, the tax law is needed in ensuring economic growth.
“Some have incorrectly blamed our efforts toward a fairer tax
system for all the price increases in the past months, and some
irresponsibly suggesting to stop Train’s implementation. We
cannot and should not. We need this for sustainable growth that
leaves no Filipino left behind,” Duterte said.

Initiatives had already been created in order to subsidize the

poor Filipino families affected by the increase of prices and
services In his speech Duterte said, “Following the one-peso
discount per liter in gas stations, we have also started
releasing fuel vouchers to public utility jeeps and other valid
franchises. Further, we have fast-tracked the distribution of NFA
rice to provide affordable rice for all.

”Duterte mentioned that they have already started releasing fuel

vouchers to public utility jeeps and other valid franchises, and
furthered fast-track in ensuring a more affordable price for rice
from the National food authority. “This year, we are giving P149
billion worth of subsidies to the poor and vulnerable. Next year,
the amount will be increased to P169 billion.

But no amount of subsidy can help the poor if some businesses

take advantage of the situation to make more money. I ask
businesses to cooperate with us in charging a fair price,”
Duterte added.

The country’s economic slowdown at 6 percent for the past second

quarter can be blamed on the “price shocks” caused by the Tax
Reform for Acceleration and Inclusion (TRAIN) law, Bayan Muna
Rep. Carlos Zarate said on Thursday.

The Philippine Statistics Authority (PSA) earlier reported that

the Philippine economy’s growth slowed to 6 percent in the second
quarter, below the government full-year target of 7-8 percent
gross domestic product (GDP) growth in 2018.

In a statement, Zarate said this is due to the fact that “most

Filipinos now have lower and fewer purchases because of the price
shocks caused by the TRAIN law, the devaluation of the peso and
the surge in oil prices.” “Malubha talaga ang tama sa ekonimiya
lalo na sa mahihirap ng TRAIN law at mas lalala pa ito dahil sa
TRAIN 2. Huwag na nilang pagtakpan pa na TRAIN talaga ang isang
malaking sanhi ng pagbagal ng ekonomiya,” the progressive solon
said.

The opposition lawmaker also warned that the economic growth

under the administration of President Rodrigo Duterte may get
worse in the coming quarters, while the National Economic and
Development Authority (NEDA) was “hiding” the real cause of the
country’s slow economic growth. “The NEDA is now attributing
slowing growth to the Boracay closure, mining review and
government underspending to cover the fact that it was the TRAIN
law and other anti-poor policies that started this downturn,”
Zarate said. Akbayan Rep. Tom Villarin meanwhile said the
slowdown in economic growth “shows that our economic managers
have made wrong policy decisions that spiked inflation rates and
current account deficit, two macroeconomic indicators of growth.”
“Fiscal policies promoted by them like the TRAIN law and cash-
based budgeting slowed down economic activities across all
sectors from infrastructure, agriculture and manufacturing,”
Villarin added, as he called on President Rodrigo Duterte to
“revamp” his economic team. Ifugao Rep. Teddy Baguilat added that
the Duterte administration has to “get its act together and focus
on what needs to be done to boost growth and temper inflation.”

The proposed suspension of the tax reform law could hamper the
implementation of the administration’s massive infrastructure and
social programs that would benefit millions of Filipinos, the
country’s chief economic planner said Friday.

Socioeconomic Planning Secretary Ernesto Pernia said the

implementation of the first package of the Tax Reform for
Acceleration and Inclusion (TRAIN) law “has been very beneficial”
for the country.

Pernia said the law has improved fiscal space for the government
to fund the “Build, Build, Build” program and various social
programs, including the conditional cash transfer (CCT),
unconditional cash transfer (UCT), free tuition in state
universities and colleges (SUCs), free irrigation for farmers,
and ‘Pantawid Pasada’ cash grants.
“We are spending a lot so people should know that it’s not a good
idea to just suspend or abolish the TRAIN law because many of
these spendings on social programs like CCT, UCT, SUC free
tuition cannot be implemented. And of course, the Build, Build,
Build program will be hampered,” he said in an interview in his
office.

The Duterte administration intends to spend PHP9 trillion on its

massive infrastructure program which is expected to generate
about 1.1 million new jobs every year.

The National Economic and Development Authority (NEDA) also

estimated the “Build, Build, Build” program contributes as much
as PHP31.2 trillion to the economy over the next five years.
Implemented last January 1, TRAIN is the first package of the
Comprehensive Tax Reform Program (CTRP) which reduces personal
income taxes and adjusts excise taxes on fuel and automobiles.

“We hope the TRAIN 2 will be passed before the end of the year
because that’s also a critical package of CTRP. The CTRP is a
very sound program, well studied (law), and it is the outcome of
so many consultations,” Pernia added.

The second package of the tax reform program seeks to lower

corporate income tax rates and rationalize fiscal investment
incentives. Some lawmakers have reiterated their call for the
suspension of the TRAIN law amid increasing inflation rate, while
others suggested postponing the collection of additional excise
tax under the law.
 The country’s inflation rate rose to 5.2 percent in June 2018
due to faster price increases in major commodities like food,
fuel and transport. Such increases were caused by various
factors, including global oil prices, peso depreciation and rice
prices.

“While we recognize the public sentiment on rising prices, let

us remind ourselves that the TRAIN law increased the take-home
pay of 99 percent of income taxpayers. And this should help in
coping with the rising prices of goods,” Pernia said. Due to
reduced taxes, the government need to make up for loss of
revenue. Because of this, certain good will have higher taxes.
Buyers and consumers should expect higher prices for fuel and
gas, electricity, vehicles, tobacco, and other products and
services. Though income taxes will greatly decrease for almost
all employees, they would need to spend more money on things that
they might need.

A RECENT study conducted by the IBON Foundation concluded that

the first package of the Tax Reform for Acceleration and
Inclusion (TRAIN) law burdens the poorest 17.2 million Filipinos
nationwide. The said non-stock and non-profit organization found
out that 76 percent or three out of four Filipino families are
struggling to bear oil and other consumption taxes without the
benefit of receiving compensatory personal income tax cuts “The
poor and middle class, even those few with gains from personal
income tax cuts, will suffer cuts in their standard of living
unlike the rich who will easily be able to maintain their
lifestyles,” IBON Foundation said as reported by CNN Philippines.

This goes against the claim of the Department of Finance (DOF)

stating that the tax reform is not “anti-poor.” The country’s
finance department claimed that the top 10 percent of richest
households consume as much fuel as the poorest 80 percent
combined which is at about 51 percent.

The DOF added that based on the Family Income and Expenditure
Survey (FIES) 2015, the top 1 percent uses oil equivalent to the
bottom 50 percent of all households in the entire country. IBON
Foundation criticized the logic of the said argument, labeling it
as “insensitive” to the actual income of a Filipino family. The
study reported that the poorest 80 percent has a monthly income
ranging from P1,441 to around P29,600.

As such, around 18.1 million families would belong to the

country’s poor. While 2.1 million would belong to the lower
middle class. IBON reported that the “richest 10 percent” would
include middle-class families earning between P44,000 and
P100,000, which means they are part of the group which consumes
51 percent of the total fuel consumption.

The research group added the “TRAIN-driven” inflation affected

the purchasing power of the poorest 90 percent of Filipinos by
P1,622 to P9,250. The said foundation then suggested that
taxation should be directed towards the country’s richest.
“Hundreds of billions of pesos can be raised by increasing taxes
just on the richest 570,000 or 2.5 (percent) of super-rich
Filipino families without burdening the poor. This will also
entail lifting taxes on sensitive products such as oil, which
will genuinely benefit the majority,” it explained.

In order to lessen the harm that TRAIN law is causing, several

lawmakers have looked into the cancellation of some provisions in
the tax reform program especially those on fuel and oil. However,
President Rodrigo Duterte does not want to stop TRAIN as he does
not believe that the tax reform law is responsible for the price
surges.