Cameron Miranda
The Tax Reform for Acceleration and Inclusion (TRAIN) Law, officially designated as Republic Act No. 10963, was signed into law by President Rodrigo Duterte on December 19, 2017, and implemented on January 1, 2018. The TRAIN Law is the initial package of the Comprehensive Tax Reform Program (CTRP), which aims to reform the Philippine tax system. The act introduces changes to personal income tax, estate tax, donor tax, value-added tax, and excise tax on various products. While it is intended to provide tax cuts and raise funds for social services and infrastructure programs, there has been criticism that it will negatively impact the poor.
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What You'll Learn
- The Tax Reform for Acceleration and Inclusion (TRAIN) Act was signed into law by President Rodrigo Duterte on December 19, 2017
- TRAIN is the first of four planned packages of tax reforms
- The act provides income tax cuts for the majority of Filipino taxpayers
- The law's first package affects Growth in the Economy, Employment Generation, and Effect on Inflation
- Critics of the TRAIN law argue that it will negatively impact poorer households
The Tax Reform for Acceleration and Inclusion (TRAIN) Act was signed into law by President Rodrigo Duterte on December 19, 2017
The Tax Reform for Acceleration and Inclusion (TRAIN) Act, officially designated as Republic Act No. 10963, was signed into law by President Rodrigo Duterte on December 19, 2017. It was implemented on January 1, 2018. The TRAIN Act is the first of four packages of tax reforms to the National Internal Revenue Code of 1997, or the Tax Code, as amended.
The TRAIN Act was designed to rationalize the Philippine tax system and correct a longstanding inequity in the tax system. It introduced changes in personal income tax (PIT), estate tax, donor's tax, value-added tax (VAT), documentary stamp tax (DST), and the excise tax of tobacco products, petroleum products, mineral products, automobiles, sweetened beverages, and cosmetic procedures. The prominent features of the tax reform are lower personal income tax and higher consumption tax. Individual taxpayers with taxable income not exceeding ₱250,000 annually are exempted from income tax.
The TRAIN Act was expected to raise significant revenues to support the President's priority social and infrastructure programs, helping to achieve his administration's goal of reducing the poverty rate from 21.6% to 14% by 2022. According to the Department of Finance (DOF), 70% of the incremental revenues would fund the government's infrastructure modernization program, while the remaining funds would go to social services.
The DOF projected that the TRAIN Act would positively impact the economy, employment, and inflation. It was predicted to generate ₱134 Billion in the first package, with a 16.4% growth in revenue compared to the first quarter of 2017. The law was also expected to create half a million jobs over the next ten years, lift 250,000 Filipinos out of poverty, and improve the living conditions for many.
However, critics of the TRAIN Act contended that it would burden the poor, as the law's implementation resulted in a moderate rise in inflation and an increase in the prices of everyday commodities, including rice, soft drinks, alcohol, cigarettes, and fuel.
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TRAIN is the first of four planned packages of tax reforms
The Tax Reform for Acceleration and Inclusion Law (TRAIN Law), officially designated as Republic Act No. 10963, is the first package of the Comprehensive Tax Reform Program (CTRP). It was signed into law by President Rodrigo Duterte on December 19, 2017. The TRAIN Act is the first of four planned packages of tax reforms to the National Internal Revenue Code of 1997, or the Tax Code, as amended.
The TRAIN Law introduces changes to personal income tax (PIT), estate tax, donor's tax, value-added tax (VAT), documentary stamp tax (DST), and the excise tax on specific products. The key features of the tax reform are lower personal income tax and higher consumption tax. Individual taxpayers with an annual taxable income of up to ₱250,000 are exempt from income tax. The law also ensures that minimum-wage earners are still exempt from PIT.
The overarching goal of the first package of the TRAIN Law is to create a simpler, fairer, and more efficient tax system. Through this program, higher-income taxpayers in the Philippines will contribute more, enabling the government to execute programs and services aimed at improving the country, particularly for the less fortunate. The law also includes social mitigation measures to alleviate the burden on lower-income groups.
The TRAIN Law is expected to have effects in three main categories: "Growth in the Economy", "Employment Generation", and "Effect on Inflation". The Department of Finance (DOF) projects the economy to grow by 1.3% by 2022, with a manageable increase in inflation. The law is also projected to generate ₱134 billion in revenue and create half a million jobs over the next ten years.
The TRAIN Law is the result of House Bill No. 4774, which was endorsed by the Department of Finance (DOF) and introduced by Congressman Dakila Cua of Quirino on January 17, 2017. After several hearings and consolidations with other tax-related bills, the final measure was approved, and President Duterte signed it into law.
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The act provides income tax cuts for the majority of Filipino taxpayers
The Tax Reform for Acceleration and Inclusion Law, or TRAIN Law, was signed into law by President Rodrigo Duterte on December 19, 2017. The TRAIN Law is the first package of the Comprehensive Tax Reform Program (CTRP) and the first of four packages of tax reforms to the National Internal Revenue Code of 1997.
The TRAIN Law provides income tax cuts for the majority of Filipino taxpayers. This tax reform package corrects a long-standing inequity in the tax system by reducing personal income taxes for 99% of taxpayers. It gives much-needed relief to taxpayers after 20 years of non-adjustment of tax rates and brackets. The law exempts individual taxpayers with an annual taxable income of up to ₱250,000 from paying income tax.
The TRAIN Law is expected to generate additional funds to support the government's accelerated spending on infrastructure and social services programs. The increased revenue will go towards the government's "Build, Build, Build" program and its goal of reducing the poverty rate from 21.6% to 14% by 2022. The law also includes provisions for targeted cash transfers and social welfare cards for the poorest households to help with the initial shock of the tax reform.
While the TRAIN Law is intended to boost the economy, create jobs, and improve living conditions, critics argue that it will burden the poor due to the associated rise in inflation. However, the DOF's chief economist, Gil Beltran, asserts that the moderate rise in inflation is temporary and manageable, and that it will be mitigated by lower income tax rates and increased spending on infrastructure and social services.
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The law's first package affects Growth in the Economy, Employment Generation, and Effect on Inflation
The Tax Reform for Acceleration and Inclusion (TRAIN) Law, officially designated as Republic Act No. 10963, was signed into law by President Rodrigo Duterte on December 19, 2017. The TRAIN Law's first package has three main areas of impact: "Growth in the Economy", "Employment Generation", and "Effect on Inflation".
The first package of the TRAIN Law is expected to generate ₱134 billion through an increase in excise tax. In the first quarter of 2018, the government was able to raise ₱619.84 billion, representing a 16.4% growth in revenue compared to the first quarter of 2017. This additional revenue is intended to support the government's infrastructure modernization program and social services. The law also provides for unconditional cash transfers to vulnerable households, with beneficiaries receiving ₱200 per month in the first year and ₱300 per month in the succeeding 2 years. These cash transfers are funded by oil excise tax revenues.
The DOF projects that the TRAIN Law will positively impact economic growth, with a projection of 1.3% growth by 2022. The law is also expected to create half a million jobs over the next ten years and eight million over its entire lifespan, as well as lift 250,000 Filipinos out of poverty. This is due to the increased spending on infrastructure and social services, as well as the reduction of personal income taxes for 99% of taxpayers, giving them relief after 20 years of non-adjustment of tax rates and brackets.
In terms of inflation, the DOF's chief economist, Gil Beltran, asserts that the moderate rise in inflation due to the law is only temporary and manageable under a robust economy. The increase in inflation is mitigated by lower income tax rates and cash transfers in the short term, and health, education, social protection, and infrastructure programs in the medium to long term. However, critics argue that the law will burden the poor. The relationship between inflation and unemployment is complex and dynamic. Generally, when unemployment is low, inflation tends to rise as employers need to offer higher wages to attract employees, leading to wage inflation. Conversely, when unemployment is high, inflation tends to fall as the supply of labour exceeds the demand, reducing the need for employers to compete for employees by offering higher wages.
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Critics of the TRAIN law argue that it will negatively impact poorer households
The Tax Reform for Acceleration and Inclusion (TRAIN) Law, officially designated as Republic Act No. 10963, was signed into law by President Rodrigo Duterte on December 19, 2017. The TRAIN law is the initial package of the Comprehensive Tax Reform Program (CTRP), which includes changes in personal income tax (PIT), estate tax, donor's tax, value-added tax (VAT), and excise tax on specific products.
One of the main criticisms is that the TRAIN law has led to increased inflation, which has a significant impact on the cost of essential goods such as rice, fish, and vegetables. This increase in the cost of living has disproportionately affected poorer households, who spend a more significant proportion of their income on these goods. Rep. Eric Yap has argued that impoverished Filipinos have been severely hurt by price increases, particularly for essential goods.
Furthermore, while the TRAIN law provides for unconditional cash transfers to the poorest households, these transfers may not be enough to offset the increased cost of living. Data suggests that even with the cash transfers in place, the TRAIN law likely exacerbated poverty in the Philippines. Additionally, the reduced progressivity of the tax system due to the TRAIN law may have worsened income inequality, with the higher top marginal tax rate only hurting super-rich Filipinos.
The negative impact of the TRAIN law on poorer households is also evident in the mental and emotional well-being of individuals. Qualitative research has found that individuals from low-income families experience anxiety, stress, and depression due to the financial problems caused by the implementation of the TRAIN law. Overall, while the TRAIN law was intended to improve the tax system and boost the economy, it has had unintended negative consequences for poorer households in the Philippines.
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Frequently asked questions
The Tax Reform for Acceleration and Inclusion (TRAIN) Law, officially designated as Republic Act No. 10963, was signed into law by President Rodrigo Duterte on December 19, 2017.
The TRAIN law was introduced to correct longstanding inequities in the tax system by reducing personal income taxes for 99% of taxpayers. The law aimed to provide tax relief to the majority of Filipino taxpayers while raising funds for the government's accelerated spending on infrastructure and social services programs.
The prominent features of the TRAIN law included lower personal income tax and higher consumption tax. It introduced changes in personal income tax (PIT), estate tax, donor's tax, value-added tax (VAT), and excise tax on various products. The law also provided for unconditional cash transfers and social welfare benefits for vulnerable and poor households.
