Tax reform bill signed amid criticisms

Saying it was his administration’s “biggest Christmas gift” to the public, President Rodrigo Duterte on Tuesday signed a tax reform bill that critics claimed would lead to increases in the prices of oil, power and other products, and further burden the poor.

Surrounded by congressional leaders, Mr. Duterte signed the Tax Reform for Acceleration and Inclusion (TRAIN) Act that exempts most workers from paying income taxes while raising P120 billion in revenue.

“This is the administration’s biggest Christmas gift to the Filipino people, as 99 percent of the taxpayers will benefit from the simpler, fairer and more efficient tax,” the President said in his speech.

He said one of the TRAIN’s most significant breakthroughs was exempting from income tax workers earning below P250,000 starting Jan. 1.

The TRAIN Act, the first package of the Comprehensive Tax Reform Program, aims to raise funds for the government’s ambitious infrastructure program.

“Revenues from the TRAIN Act will fund our priority projects to ensure a quality education, including free tuition in state universities and colleges, quality healthcare, social protection and conditional cash transfers, improved infrastructure to the “Build, Build, Build” program and the reconstruction of Marawi,” Mr. Duterte said.

‘Progressive’ tax system

He said the law also dealt with overdue corrections in the tax laws and introduced a more progressive tax system for the rich and the poor.

The President directed the Department of Finance to submit to Congress Package 2 of the tax reform program, which deals with corporate income tax early next year.

“Next year would mark the beginning of a new, simplified and fairer income tax system,” said Sen. Sonny Angara, chair of the Senate ways and means committee.

Presidential spokesperson Harry Roque said the TRAIN Act would raise P120 billion, 70 percent of which would go to infrastructure, including military infrastructure, and 30 percent to “social services and mitigating measures.”

Roque said the law also simplified taxes for small and micro taxpayers with the payment of a flat tax of 8 percent on gross sales in lieu of income and percentage taxes.

Lower estate tax

The TRAIN also lowered estate taxes. Taxpayers would now have to pay a fix rate of
6 percent for the net estate with the standard deduction of P5 million, he said.

“Donors’ taxes is also now at a fixed rate of 6 percent over and above P250,000 yearly, he added.

Roque said the law modified the value-added tax (VAT) and made it “fairer” after it repealed 54 special laws that provided nonessential VAT exemptions.

The law, however, exempted medicines for diabetes, high cholesterol and hypertension from VAT while the purchases of senior citizens and people with disability also remained exempted.

Roque said oil excise taxes would have a staggered increase of up to P6 per liter over a three-year period while there would be lower rates for essentials, such as diesel, kerosene and LPG (liquefied petroleum gas).

Vehicles

The automobile excise tax was set at 4 percent for vehicles worth up to P600,000; 10 percent for vehicles between P600,000 and P1 million; 20 percent, between P1,000,000 and P4,000,000; and 50 percent for hybrid cars.

Purely electric vehicles will still have zero excise tax.

Sugar-sweetened beverages will have a P6 per liter tax for drinks containing caloric or noncaloric sweetener; P12 per liter for drinks containing high fructose corn syrup, or combination; three-in-one coffee and milk will be exempt.

A 5-percent gross receipt tax would also be imposed on cosmetics while the excise tax on coal was also increased, raising concerns that this would lead to higher electricity rates.

The increase was from P10 per metric ton to “P50, P100, and P150, respectively, for 2018, 2019 and 2020, covering both domestic and imported coal,” Roque said.

“This will translate only to a very small increase in terms of the price of electricity,” he said.

Mining excise tax was doubled to 4 percent while the tobacco excise tax was increased to P32.5 per pack between January and June 2018, P35 from July 2018 to December 2019, P37.5 in 2020 and 2021, and P40 in 2022 and 2023, “followed by annual indexation of 4 percent.

DST, dollar deposits, stocks

Roque said documentary stamp tax (DST) increased 50 percent to 100 percent, except for property, savings and nonlife insurance.

“Foreign currency deposit units increased from 7.5- to 15-percent final tax on interest income. Capital gains of nontraded stocks increased from 5- to 10-percent to 15-percent final tax on net gains only,” he said.

“And stock transaction tax increased from 0.05 to 0.6 percent of transaction value. So it’s only 0.1 increase,” he added.