The Duterte Administration’s first step in its plans for tax reform is the much-talked-about R.A. 10963, also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law. TRAIN’s goal is to raise Filipinos’ disposable income to encourage spending, while making up for deficit by raising taxes in other sectors to generate more funds. The administration aims to use the revenue for infrastructure projects.
But how will TRAIN affect Filipinos?
Filipinos will be able to spend more
Employees earning an annual income of Php250,000 or below (roughly Php22,000 a month) or below are exempted from paying income tax.
TRAIN also aims to bring down the income tax of other Filipinos. The new computation taxes only 20% beyond the Php25,000 of employees with an annual income of Php500,000 and below. This new income tax computation table generally means higher take-home pay.
Furthermore, the threshold for tax exemptions on thirteenth month pay and other bonuses has been raised. With more money in their pockets, it is hoped that Filipinos will then spend more, which in turn should stimulate the economy.
Price of basic products will rise
However, to cover the loss of government revenue from the adjustment of income taxes, TRAIN added excise taxes to several products. An excise tax is a tax imposed at the manufacture of a product rather than its sale. This means that the manufacturer will shoulder the burden of the excise tax but will raise the price of their goods to compensate for this.
TRAIN adds an excise tax on drinks that use sugar and chemical sweeteners such as high fructose corn syrup. This means a price increase in soda or juice. However,100% natural fruit or vegetable juices are exempt from this, as are milk, three-in-one coffee mixes, medically indicated beverages, and beverages that use natural sweeteners coco sugar or stevia.
Other products have also seen prices hikes due to excise taxes. This includes coal, elective cosmetic surgery, documentary stamps, cigarettes, and metallic minerals like copper and gold.
The biggest impact of the excise taxes affects the transportation sector. Two fuel products that were not taxed prior to TRAIN, Liquefied Petroleum Gas (LPG) and diesel, are now subject to excise tax. Gasoline and automobiles have excise taxes on top of their Value Added Tax (VAT).
As a result of these excise taxes, prices will go up in several sectors. Electricity bills have also gone up as Meralco has raised its rate to compensate for the excise tax on coal and bunker fuel as well as the removal of VAT exemption for electricity transmission.
Modified taxation procedures
Sec. 86 of TRAIN repeals 54 of 61 special laws that afford VAT exemptions to certain sectors. This is another adjustment done to answer for the lowering of income tax.
Fortunately for the real estate sector, association dues, membership fees, and other charges collected by homeowners’ associations and condominium corporations are now VAT exempted.
The sale of a residential house not more than P1.5 million or a lot not more than P2.5 million, the lease of a residential unit not more than Php15,000, and low-cost housing are also now exempted from VAT. In addition to this, Estate Tax has a flat rate of 6%.This, along with their higher disposable income, should help make it easier for Filipinos to afford housing.
To help small businesses, TRAIN raised the threshold for tax exemption from Php1.5 million to Php3 million. Medicine is also under the VAT exemptions. By 2019, drugs for diabetes, cholesterol, and hypertension will be VAT exempt and thus cheaper.
Talk to Duran & Duran-Schulze Law at info@duranschulze.com or (+632) 478 5826 today to find out more.
