“The Burden of Taxation”

Briefly discuss the Duterte’s new tax system

Taxation is the method by which a government gains revenue to spend on things like public services and welfare
benefits.

President Rodrigo Roa Duterte signed into law Republic Act No. 10963, otherwise known as the Tax Reform
for Acceleration and Inclusion (TRAIN) Act, the first package of the Comprehensive Tax Reform Program (CTRP, on
December 19, 2017, in Malacanang.

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. This package 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 TRAIN will provide hefty income tax cuts for the majority of Filipino taxpayers while raising additional
funds to help support the government’s accelerated spending on its “Build, Build, Build” and social services
programs.

This tax reform package corrects a longstanding inequity of the tax system by reducing personal income taxes
for 99 percent of taxpayers, thereby giving them the much-needed relief after 20 years of non-adjustment of the
tax rates and brackets. This is the biggest Christmas and New Year gift the government is giving to the people.

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
exemption for minimum wage earners is retained in the revised tax system. Tax rates for individual taxpayers still
follow the progressive tax system with the maximum rate of 35%, and minimum rates of 20% (taxable years 2018
to 2022) and 15% (2023 onwards). On the other hand, consumption taxes, in the form of higher excise tax on
tobacco products, petroleum products, automobiles, tobacco, and additional excise tax on sweetened beverages
and non-essential, invasive cosmetic procedures were introduced. It also expanded the VAT base by repealing
exemption provisions in numerous special laws.

In a separate message, President Duterte has vetoed certain provisions of the TRAIN. The vetoed five line
items are the following provisions:

1. Reduced income tax rate of employees of Regional Headquarters (RHQs), Regional Operating Headquarters
(ROHQs), Offshore Banking Units (OBUs), and Petroleum Service Contractors and Subcontractors;

2. Zero-rating of sales of goods and services to separate customs territory and tourism enterprise zones;
 3. Exemption from percentage tax of gross sales/receipts not exceeding five hundred thousand pesos
(P500,000.00);

4. Exemption of various petroleum products from excise tax, when used as input, feedstock, or as a raw
material in the manufacturing of petrochemical products, or in the refining of petroleum products, or as a
replacement fuel for natural gas, fired combined cycle power plants; and

5. Earmarking of incremental tobacco taxes.

The TRAIN Act is aimed to generate revenue to achieve the 2022 and 2040 vision of the Duterte
administration, namely, to eradicate extreme poverty, to create inclusive institutions that will offer equal
opportunities to all, and to achieve higher income country status. It is also aimed at making the tax system simpler,
fairer, and more efficient.  Regardless, contentions about the passing of this law have been present since the
beginning and the subsequent reception by the people since its ratification has been controversial. In the first
quarter of 2018, both positive and negative outcomes have been observed. The economy saw an increase in tax
revenues, government expenditure, and incremental growth in GDP. On the other hand, unprecedented inflation
rates that exceeded projected calculations have been the cause for much uproar and objections. There have been
petitions to suspend and amend the law, so as to safeguard particular sectors from soaring prices.

For the poorest 10 million households, the government is giving them targeted cash transfers of PHP 200 per
month in 2018 and P300 per month in 2019 and 2020, sourced from higher consumption taxes that the rich will
contribute, as well as better social services, healthcare, and education. All these will prepare the people for better
job opportunities.

Theoretically review the cost of taxation and discuss the possible burden of taxation given this new tax system.

The pure economic costs of taxation can be measured in total and at the margin. The average deadweight cost of
taxation or an average cost of funds (ACF) computes the total deadweight loss created by a tax and then divides it
by the total amount of revenue collected by that tax.

  The five components of the cost of taxation: (1) administrative costs—the cost of having a tax administration;
(2) compliance costs—the costs imposed on the taxpayer to comply with the law; (3) the regular deadweight loss—
the inefficiency caused by reallocation of activities by taxpayers who switch to non-taxed activities; (4) the excess
burden of tax evasion—the risk borne by taxpayers who are evading; and (5) avoidance costs—the cost incurred by
a taxpayer who searches for legal means to reduce tax liability.

The main purpose of taxation is to raise revenue for the services and income supports the community needs.
Public revenues should be adequate for that purpose.

The possible burden of taxation is also to everyone but most especially are the poorest among us. Everyone
buys their necessities such as goods and services- and while taxes were removed, the prices of goods have
increased and so did the services. Since the poorest among us are really the most affected by price increases, the
social mitigating measures like conditional cash transfer, discounts, and free skill training should have been made
available at the same time the new taxes were imposed to gentle the impact of the new tax system. My suggestion
is to promote entrepreneurship programs and support growing micro-businesses to train Filipinos to be more
productive, knowledgeable, and be financially independent. The government is not fully responsible of our
sufferings, we should also be responsible for what future we want and how we can attain it. But also, the
government should learn to balance its policies as well.

"Tax Reform for Acceleration and Inclusion (TRAIN) TRAIN will lower personal income tax (PIT) for all
taxpayers except the richest. Those with taxable income below P250,000 will be exempt from paying PIT, while the
rest of taxpayers, except the richest, will see lower tax rates ranging from 15% to 25% by 2020." The concept of tax
incidence in evaluating the effects of the changes in tax policies of the government on economic welfare was taken
as for the tax system or the Tax Reform for Acceleration and Inclusion (TRAIN) law. Tax incidence (or incidence of
tax) is an economic term for understanding the division of a tax burden between stakeholders, such as buyers and
sellers or producers and consumers. If demand is more elastic than supply, producers will bear the cost of the tax.
The impact of a tax falls upon the person from whom the tax is collected and the incidence rests on the person
who pays it eventually. Explain why the elasticity of demand is an important consideration in 

assessing the burden of taxation.

Elasticity is an important economic measure, particularly for the sellers of goods or services, because it
indicates how much of a good or service buyers consume when the price changes. When a product is elastic, a
change in price quickly results in a change in the quantity demanded.

The concept of elasticity for demand is of great importance for determining the prices of various factors of
production. Factors of production are paid according to their elasticity of demand. In other words, if the demand
for a factor is inelastic, its price will be high and if it is elastic, its price will below. Tax revenue is larger the more
inelastic the demand and supply are. A tax burden falls more heavily on the side of the market that is less elastic.
The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than
demand, buyers bear most of the tax burden. When demand is more elastic than supply, producers bear most of
the cost of the tax.

The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic
than demand, buyers bear most of the tax burden. When demand is more elastic than supply, producers bear most
of the cost of the tax. Tax revenue is larger the more inelastic the demand and supply are.

References:
Department of Finance. (2017, December 27). THE TAX REFORM FOR ACCELERATION AND INCLUSION (TRAIN)
ACT. Retrieved from:
https://taxreform.dof.gov.ph/news_and_updates/the-tax-reform-for-acceleration-and-inclusion-train-act/
Slemrod, A. & Yitzhaki, S. (1995, August). The Costs of Taxation and the Marginal Cost of Funds. Retrieved from:
https://www.elibrary.imf.org/view/IMF001/06859-9781451954548/06859-9781451954548/06859-
9781451954548_A001.xml?language=en

Lopez, E. (2018, May 13). The burden of TRAIN law on Filipino mothers. Retrieved from:
https://www.rappler.com/nation/train-law-mothers-protest-government-appeal

Dizon. R. (2019, September 19/20). TAX INCIDENCE OF THE IMPLEMENTATION OF THE PHILIPPINE TAX REFORM
FOR ACCELERATION AND INCLUSION (TRAIN) ACT: A COMPUTABLE GENERAL EQUILIBRIU. Retrieved from:
https://search.proquest.com/openview/f28a4b15a72f0af1ba667cb62d0ed177/1?pq-
origsite=gscholar&cbl=2033472

Khan Academy (2020). Elasticity and tax revenue. Retrieved from: https://www.khanacademy.org/economics-
finance-domain/microeconomics/elasticity-tutorial/price-elasticity-tutorial/a/elasticity-and-tax-incidence