Tax Reform for Acceleration and Inclusion

The goal of the first package of the Comprehensive Tax Reform Program (CTRP) or TRAIN is to create a
simpler, fair, and more efficient system, as per the constitution, where the rich will have a bigger
contribution and the poor will benefit more from the government’s programs and services.

Lowering Personal Income Tax (PIT)

TRAIN lowers personal income tax (PIT) for all taxpayers except the richest. Under TRAIN, those with
annual taxable income below P250,000 are exempt from paying PIT, while the rest of taxpayers, except
the richest, will see lower tax rates ranging from 15% to 30% by 2023. To maintain progressivity, the top
individual taxpayers whose annual taxable income exceeds P8 million, face a higher tax rate from the
current 32% to 35%.

Husbands and wives who are both working can benefit from a total of up to P500,000 in exemptions. In
addition, the first P90,000 of the 13th month pay and other bonuses will be exempt from income tax.
Overall, the effective tax rates will be lowered for 99% of tax payers.

Currently, a person who has a taxable income of P500,000 annually is taxed at 32% at the margin. TRAIN
will bring this down to 25% in 2018, and will be further brought down 20% after five years.

Minimum wage earners will continue to be exempted from income taxes as their income falls below
P250,000. In addition, the new tax structure will address the current problem wherein going a peso
above the minimum wage will result in a lower effective take home pay, thereby discouraging minimum
wage earners to accept incremental wage increases and keeping them in an artificial minimum wage
trap.

The simplified tax system will increase the take home pay of most individuals and encourage compliance.
Self-employed and professionals (SEPs) with gross sales below the VAT threshold now have the option to
pay a simpler 8% flat tax in lieu of income and percentage tax, while those above the VAT threshold will
follow the PIT schedule.

http://www.dof.gov.ph/taxreform/index.php/pit/

Significance of the Comprehensive Tax Reform Program aka TRAIN

As part of the package, TRAIN will reduce the effective individual income tax rates for all individuals,
except for the richest of the rich, those who anyway bask in the glory of being ranked and recognized as
the country’s top 500 individual income tax payers. This proposal is most fair and progressive. At present,
because of the failure to adjust the income tax brackets, resulting in “creeping income” over time, a
professional like a senior public school teacher is categorized in the same tax rate bracket as the top 500
individual taxpayers.
But because the individual income tax reform will lead to substantial revenue losses, offsetting tax
measures are necessary.

http://aer.ph/significance-of-the-comprehensive-tax-reform-program-aka-train/

Economic Implications of TRAIN

TRAIN provides much-needed tax relief for 99% of income tax filers. Remember that personal income tax
rates were last adjusted in 1997. These rates don’t 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 TRAIN 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%. At the same time, the first
P250,000 and below of personal income are now tax-exempt. As a result, this will put more money in the
pockets of Filipino workers, money which can use to consume, save or invest.

On the other hand, the top tax rate for those earning more than P8 million – effectively P11 million -- has
been increased to 35%, up from 32%. Without doubt, the Philippine income tax system has become
more progressive and fair as a result of TRAIN.

The revenue loss owing to the lower tax rates for the personal income tax is huge. It needs to be
recouped. And it will be recouped with the broadening of the VAT base and higher excise taxes on
petroleum products and vehicles, cigarettes, and sugar-sweetened beverages (or SSBs)

https://www.dbm.gov.ph/index.php/secretary-s-corner/speeches/list-of-speeches/689-train-driving-the-
philippine-economy-in-2018

TRAIN explained: How new income tax exemptions add up

MANILA – Middle class workers without dependents stand to get the most relief under new income tax
rates, which removes exemptions for dependents but raises the cap on non-taxable income across the
board, an analyst said Tuesday.
Under the first package of reforms that took effect on Jan. 1, the threshold amount for tax exemption
was raised to P250,000 of annual income, from P50,000 under the previous system.

However, the P25,000 exemption per dependent for up to 4 dependents, or a maximum of 100,000 per
taxpayer, was removed. Under the previous system, a person with 4 dependents can get as much as
P150,000 in exemptions.

“Those who make more than minimum wage and those without additional dependents, or practically,
responsibility with the family, are those who will be enjoying more with this simplification,” Abrea
Consulting Group president Mon Abrea said.

Asked if the simplified computation was good, Abrea told ANC's Early Edition: “If we are after
unburdening the hardworking middle class, yes. If we are after simplification of the tax system, yes.”

Abrea said only minimum wage earners were automatically exempted from paying income taxes under
the previous system.

"God knows the old tax system is the real devil," he said.

Most salaried workers will receive higher take-home pay due to lower tax rates starting this year.
However, the new law also raised duties on fuel, cars and sugar-sweetened drinks, among others.

The Department of Finance has released a calculator to compute effects of tax reform, including higher
commodity prices and the government's planned cash transfers for the poor.

Two persons who earn 25,000 a month will both pay P10,000 in taxes per year under the new system,
even if one has 4 dependents while the other has no dependents.

However, the person with no dependents will get the most relief as he was paying P49,500 under the
new system. Including exemptions for dependents, the other worker was paying P24,500.

http://news.abs-cbn.com/business/01/09/18/train-explained-how-new-income-tax-exemptions-add-up

TRAIN explained: More take-home pay for taxpayers

MANILA - Ninety-nine percent of Filipino workers will see an increase in their take-home pays from next
year due to lower income tax rates under President Rodrigo Duterte's reform initiative.

An estimated 7 million will be exempt from paying income taxes after the ceiling on annual income was
set at P250,000. However, exemptions for dependents from the old system were removed.

The cap on 13th month pay that is tax exempt was also raised to P90,000 from P82,000, giving Filipinos
more money to spend during the Christmas holidays.
The ABS-CBN Investigative and Research Group prepared a calculator to help determine by how much
taxpayers' take-home pays will change under the new system.

Duterte promised lower income tax rates during the campaign to provide relief to the middle class and
shift the burden to the ultra-rich. He signed the first package of reforms on Dec. 19.

Income tax rates for those earning more than P250,000 per year were set at a range of 20 percent to 35
percent for those whose annual income exceed P8 million.

The rates will be reduced further in 2023.

http://news.abs-cbn.com/business/12/21/17/train-explained-more-take-home-pay-for-taxpayers

The Pinoy Tax Reform Calculator

http://news.abs-cbn.com/pinoytaxreformcalculator