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Topic 9
 Taxation

Learning Outcome:
 Propose recommendation or solution to socio-political, economic and cultural
problems through understanding their root causes and their anticipation of future
scenarios [Tax Reform for Acceleration and Inclusion (TRAIN Law)]

Number of Weeks to be Taught:

 2

Background

Taxes are compulsory contributions of all citizens to raise revenue for nation-
building says the Department of Finance, Republic of the Philippines. The revenue
raised is used to propel government workers and to build infrastructures for the efficient
and effective delivery of services by the government. The Philippine Constitution is the
primary source of policy on taxation. Article VI, Section 28 of the 1987 Constitution says
that “the rule of taxation shall be uniform and equitable” and that “Congress shall evolve
a progressive system of taxation.”

Some special laws governing collection of taxes are Republic Act No. 8424 or the
Tax Reform Act of 1997 (National Internal revenue Code), Republic Act No. 7160 or the
Local Government Code of 1991, and Republic Act No. 10963 or the Tax Reform for
Acceleration and Inclusion Act of 2017.

In this section, the main focus of learning is on the taxation law of President
Rodrigo Duterte which was implemented last January 1, 2018.
 GUIDE CARD

Taxation

Taxation is an inherent power by which the sovereign state imposes

financial burden upon persons and properties as a means of raising revenues in order
to defray necessary state expenses. Simply, it is the power of the state to demand or
enforced contributions from the people for public purposes. The first known system was
in ancient Egypt around 3000 BC to 2800 BC. In the Philippines, it was introduced
during colonial Spain through Galleon Trading, bandala system, polo y servicio (forced
labor), encomienda system, and later through a cedula by the Americans.

Taxation is one of the three inherent powers that solely belong to the executive
branch of the Philippine government. The president is authorized by law to fix within
certain limits the taxes collected from the citizens. Tax is a levy imposed by the
government on the income, wealth and capital gains of the person’s businesses, on
spending on goods and services, and on properties.

In the Philippines, one priority of President Rodrigo R. Duterte’s Administration is

the Tax Reform Program. The Tax Reform for Acceleration and Inclusion (TRAIN) law
is the first package of the comprehensive tax reform program (CTRP) envisioned by
President Duterte’s administration. It had started its implementation last January 2018.
It was designed to change and correct the complex and unjust old system of taxation
and make it simple, fair, and more efficient for all. It also includes mitigating measures
that are designed to redistribute some of the gains to the poor. Through the TRAIN law,
every Filipino will contribute to fund the various infrastructures and social services of the
government geared to dissipate poverty and diminish inequality. There are six aspects
of the economy that are covered by the law, e.g. personal income tax, estate and
donor’s tax, value-added tax, oil excise tax, automobile excise tax, and sugar-
sweetened beverages excise tax.

The tax reform fund raised will be used for investments in education like
achieving 100% enrollment and completion rates, build more classrooms and hire more
teachers between 2017-2020.

Healthcare services are another aspect that the TRAIN Law is investing upon.
Funds will be used to upgrade local hospitals, achieve 100% Philhealth coverage at
higher quality of services, hire more medical workers.

Infrastructure programs are also the main concern of funds generated from TRAIN
Law. The Department of Public Works and Highways (DPWH) is now preoccupied with
the “Build, Build, Build” of major highways, expressways, and flood control projects.
These projects are seen to sustain high and inclusive growth and will evidently benefit
the poor the most. In the end, it is the poor who will benefit the most an improved public
transport system. It is the poor who send their children to public schools and it is the
poor who uses the services and facilities of public hospitals.

TRAIN Law

TRAIN stands for Tax Reform for Acceleration and Inclusion.

The TRAIN law adheres to one basic principle of taxation which is simplicity. Tax
system is made simpler, fairer, and more efficient. The law will improve immensely the
progressivity of the tax system. The tax liability of 99% of Filipino tax filers will be lower
as the highest marginal rate of 32% is reduced to 25%. According to former DBM
Secretary Benjamin Diokno the personal income tax rates were last adjusted in 1997.
These rates do not reflect anymore the prevailing economic conditions. Inflation has
pushed income earners to higher income tax brackets, even though their purchasing
power has not increased accordingly. This phenomenon is called “bracket creep”.

The tax assessment and determination in TRAIN Law is made easy to

understand by an average person. For example, a person whose annual income now is
P250,000 to 0 is exempted from tax. Those with P250,000 to P400,000 income, 20%
tax are now exacted to any amount in excess of P250,000. For annual earners between
P400,000-P800,000, the rate is outright P30,000 plus 25% of the amount in excess of
P400,000. For P800,000 to P2 million annual earners, outright P130,000 are exacted
plus 30% of whatever amount in excess of P800,000. For P2 million to P5 million annual
earners, automatic P490,000 are exacted plus 32% of the amount in excess of the P2
million. For earners with more than P5 million a year, P1,450,000 outright will be
exacted plus 35% of any amount exceeding P5million. As a result, this will put more
money in the pockets of Filipino workers, money which can use to consume, save or
invest.

In 2021, the percentages will diminish as high as 5 percent less than the previous
as well as the automatic exaction of certain amount also lowers. With taxation made
simple, take-home pay will increase and people will have more money in their pocket.
Taxpayers with bonuses not exceeding P82,000 will still be exempted from tax. In this
respect, the TRAIN law implements another basic principle of taxation which is
restricted exemptions, i.e., tax exemptions must only be for specific purposes (such as
to encourage investment) and for a limited period.
 For the estate tax rate, under the TRAIN law, it is now subject to a flat rate of 6
percent regardless of the value of the net estate. Previously, tax was computed based
on a tax schedule where an estate worth P200,000 and over was taxed from 5 percent
to 20 percent. Another TRAIN law significant change is that family homes that are worth
up to P10 million are exempted from estate tax. Previously, only family homes worth P1
million are exempted.

The valued-added tax (VAT) is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods, properties or
services. Previously, many people used the exemptions in order to avoid tax dues. Now,
only basic services like raw products, education, and health are allowed exemptions.
The following services are now covered by value-added tax (VAT) like cooperatives,
except those selling raw agricultural products with a total earnings of not more than P3
million, domestic shipping importation, power transmission, low-cost housing, family
homes with boarders, Boy Scouts and Girl Scouts. The collected taxes are being used
to subsidize the poor and vulnerable. The senior citizens and PWDs continue to enjoy
VAT exemptions.

Since 1997, oil taxes have not radically change. Oil excise tax will increase up to
P6 scheduled within three years and indexing will take place every year after the three
years of implementation. Taxes that are being collected are used now to address
environmental issues and health problems.

The TRAIN law also provides schedule of the automobile excise tax. Lucrative
cars’ taxes are higher than ordinary vehicles. The tax rates are graded according to
their brand and model. High end cars got higher tax rates and higher SRPs. All taxes
that the government is collecting are being used to subsidize priority programs of the
government like education, health and social protection.

Most of the sugar-sweetened beverages give unnecessary or empty calories with

little or no nutrition. SSBs are not a substitute for healthy foods such as rice and fruits.
SSBs are relatively affordable especially to children and the poor who are the most
vulnerable to its negative effects on health. SSB products are easily accessible and can
be found in almost any store. Most often the poor and the children are not aware of their
consequences.

Theoretically, the TRAIN law adheres to the basic principles of taxation like
equity, neutrality, proportional and progressive. Now, it seems that all individuals are
equally shared and burdened under the same economic circumstances. Those who are
best able to pay are placed greater burden than the poor. For example, income tax
rates are higher for those earning P400 thousand compared with lower income groups.
However, whether or not the TRAIN law really creates optimum economic gains
remains to be seen. It is not yet definite at this time the validity of the negative impact it
has created based on the clamors of the people.

As the saying goes said Atty. Lorna Patajo-Kapunan, “You can bring the horse to
the water, but you cannot force the horse to drink!”

Kinds of Taxes

1. Income Tax
 Tax on all yearly profits arising from property, possessions, trades or
offices
 Tax on a person’s income, emoluments and profits
2. Donor’s Tax
 Tax imposed on donations inter-vivos or those made between living
persons to take effect during the lifetime of the donor.
3. Estate Tax
 Tax on the right of the deceased person to transmit property at death
4. Value-added Tax (VAT)
 Tax imposed and collected on every sale, barter, exchange or transaction
deemed sale of taxable goods, properties, lease of goods, services or
properties in the course of trade as they pass along the production and
distribution chain
5. Capital Gains Tax
 Tax imposed on the gains presumed to have been realized by the seller
for the sale, exchange or other disposition of real property located in the
Philippines, classified as capital assets
6. Excise Tax
 Tax applicable to specified goods manufactured in the Philippines for
domestic sale or consumption
7. Documentary Tax
 Tax on documents, instruments, loan agreements and papers,
agreements evidencing the acceptance, assignments, sale or transfer of
an obligation, rights or property incident thereto