REVIEW OF RELATED LITERATURE

The proposed study will deal with the impacts of the Tax Reform for Acceleration and
Inclusion (TRAIN) Law as perceived by the individual taxpayers in Cebu City that belong to the
low-income group. The study can relate to the following:

Poverty in the Philippines

According to the Asian Development Bank (2011), the Philippines faces economic crisis
wherein the poor people are the most affected. This case study is related to this study because
it disproportionately affects the poor income class families. Wherein, the rich people get richer
and poor people get poorer. The Philippines is suffering from poverty and inequality which is a
huge challenge as a result of the global financial crisis and increasing prices of food, fuel, and
commodities that kept the country from progressing with the same levels with the neighboring
nations. One of its main factors is the high inflation rate that is likely felt by the poor income
class families making them think the utmost burden.

Counter Measures of the Government

The Philippines is well on track to meeting its ambitious target of eradicating extreme
poverty by 2040 as the national government pursues its strategy of massive infrastructure
upgrades and expanded human capital development programs. Reforms have already been put
in place by the government to improve the lives of all Filipinos such as tax reform, ‘Build, Build,
Build,’ rice tariffication, free state tertiary education, as well as cash subsidy programs. 1 One of
the major moves carried out by the government is the implementation of Republic Act No.
10963, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law under
the Comprehensive Tax Reform Program. According to Bolt (2016), “A strong focus on
enactment of tax reform will see the country continue its growth momentum through 2018.”2

Salient provisions of TRAIN Law3

According to the Department of Finance, the TRAIN Law seeks to correct a number of
deficiencies in the tax system to make it simpler, fairer, and more efficient in order to promote
investments, create jobs and reduce poverty.

The TRAIN Law has adjusted the Personal Income Tax Schedule. Those with annual
taxable income less than P250,000 are now absolved from paying income taxes while rest of
the taxpayers, excluding the richest, will be benefited with lower tax rates of 15 to 30 percent.
The individual taxpayers with annual taxable income exceeding P8 million will be subject to an
increase of marginal rate from 32 to 35 percent. Moreover, 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. 

1
https://taxreform.dof.gov.ph/news_and_updates/philippines-on-track-to-eradicate-extreme-poverty-by-2040/
2
https://www.adb.org/news/infra-social-programs-tax-reform-help-fuel-philippine-growth
3
https://taxreform.dof.gov.ph/tax-reform-packages/p1-train/
 The TRAIN Law has retained the VAT-exempt status of raw agricultural and marine
products, educational services, senior citizens, health services, cooperatives, and persons with
disabilities. Meanwhile, the vat-exempt threshold has been adjusted from P1,919,500 to P3
million.

Moreover, oil Excise Taxes has increased by P6 per liter but lower rates are imposed on
essentials such as diesel, kerosene, and LPG to protect households and commuters. In 2018,
gasoline excise tax (including additional VAT) rose by only P2.97 per liter while diesel excise tax
rose by only P2.97 per liter. Under the TRAIN, PUV operators and drivers can now avail the
social assistance program.

Lastly, excise tax on sweetened beverages is introduced. A tax of P6 per liter of volume
capacity is paid for drinks using purely caloric sweeteners, and purely non-caloric sweeteners,
or a mix of caloric and non-caloric sweeteners. For drinks containing high-fructose corn syrup or
combination, a tax of P12 per liter is imposed. Meanwhile, 3-in-1 coffee and milk, among others,
are exempt.

Considering the abovementioned provisions, the TRAIN Law works by enhancing the
earning capacity of salaried Filipinos through the reduction of income tax rates. However, the
law also affects consumers because commodity prices are also affected through the imposition
of higher costs in the market.

Advantages of TRAIN Law

Refer here: https://www.dbm.gov.ph/index.php/secretary-s-corner/speeches/list-of-

speeches/498-ateneo-senior-high-school-talk-on-train-law

Disadvantages of TRAIN Law

Extensive literature notes that high inflation can add to income inequality and that rising
prices can affect the poor. This study relates to the working paper presented by Walsh and Yu
(2012) of the International Monetary Fund, stating that in many emerging markets income
inequality has risen as more open and market-oriented economies have increased profits and
potential wages, particularly for skilled labor. At the same time, rapid growth has pushed up
commodity prices around the globe, raising questions about whether a seemingly inexorable
rise in food prices is aggravating the problems faced by the poor around the world.4

4
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2127039