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I. INTRODUCTION

The Philippine economy continues to believe a practical outcome of the

Duterte’s administration implementing the provision of tax reform or called as Tax

Reform for Acceleration and Inclusion (TRAIN) law that addresses different scope of

economic sustainability and developmental strategies after the proposal regarding

tax reforms from Department of Finance in 2016. TRAIN has the purpose to support

mainly the ‘Build, Build, Build’ program where it seeks to accelerate economic growth

through infrastructure spending and develop industries that will yield robust growth,

create jobs and improve the lives of Filipinos. (Mawis, 2018) Moreover, the law also

imposed an increase on excise tax and a reduction on personal income tax of those

Filipino professional employees. On the other hand, the implementation of such law

predominantly aims to accumulate steady tax revenues which targets the

government into an aggressive spending mainly on infrastructure which may provide

utilization on human capital that also expects to deteriorate and address the poverty

and unemployment rate of the country. According to a study done by ASEAN+3

Macroeconomic Research Office (AMRO), although, the country enjoys favorable

macroeconomic prospects, the economy still undergo a slight moderation in growth

and a small deficit in the current account balance in the preceding years. This may

indicate that the government will be having a hard time in achieving near term growth

with such implementations. Throughout of these, uncertainties still arise since

economic growth is not yet fully manifested in the execution of the law for the

Filipinos, instead, these actions by any means bring further impact to those spender

through their periodic spending patterns that affect their consumption on

commodities.
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With the regime’s positive outlook, people also point out how ineffective and

inefficient the government is in exercising their economic development strategy

through the TRAIN Law. This report aims to:

● Examine the aftermath of the imposition of such law following that the

Filipino citizens have claimed different views on it: some claim it is

enacted hurriedly while others open up the affirmation of treating the

law to be timed perfectly to the refinement of economic condition of the

Philippines.

● Assess the benefits and drawbacks of the law whether it is reasonable

to implement or not, in terms of achieving sustainable growth of the

nation.

● Provide an in-depth information which may be helpful to address

misinterpretations of the law.

● Present and integrate accounting principles and policies to further

understand how the assessment of the law is treated.

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II. BODY

The Tax Reform for Acceleration and Inclusion (TRAIN) is the first package of

the Comprehensive Tax Reform Program (CTRP) envisioned by President Rodrigo

Duterte’s administration, which seeks to correct a number of deficiencies in the tax

system to make it simpler, fairer, and more efficient. TRAIN addresses several

weaknesses of the current tax system by lowering and simplifying personal income

taxes, simplifying estate and donor’s taxes, expanding the value-added tax (VAT)

base, adjusting oil and automobile excise taxes, and introducing excise tax on sugar-

sweetened beverages. Through TRAIN, every Filipino contributes in funding more

infrastructure and social services to eradicate extreme poverty and reduce inequality

towards prosperity for all.

2.1. Analyzing The Problem

For the past years of his term in office, President Rodrigo Duterte focused on

a singular issue: the menace of illegal drugs, which has permeated every aspect of

the country. However, there has been a significant change in the president’s policy

agenda, placing a greater focus on the welfare and basic livelihood of every Filipino

citizen.

People has pointed out how ineffective and inefficient the government is in

exercising their economic development strategy through the TRAIN Law, but what

they are entirely unaware is the fact that the government, under the previous tax

system, simply cannot raise enough funds to deliver basic services commensurate to

the needs of the country’s booming economy and population. Under the TRAIN

reform package, all these issues will be addressed by creating a more dynamic and

updated tax rates.

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Furthermore, according to a study done by Avecilla (2018), during the

administration of President Benigno Aquino III, an estimated P186 billion in the

Malampaya natural gas fund remained unaccounted for by his finance, budget, and

treasury offices. Also under Aquino III, numerous government officials identified with

the Liberal Party were going on all-expense paid overseas trips which are either

useless or unnecessary. Thus, if those needless expenditures of public fund did not

take place, the TRAIN Act may not be necessary to enact at all.

2.2. Legislative History

On September 26, 2016, the House Bill No. 5636 or the proposed Tax Reform

for Acceleration and Inclusion Act was endorsed by the Department of Finance

(DOF) to the Philippine House of Representatives as the first package of a wider

Comprehensive Tax Reform Program (CTRP) through letter of Executive Secretary

Salvador Medialdea to Speaker Pantaleon Alvarez dated May 29. After long

deliberation, the bill was passed by the House of Representatives, the Senate and

the Bicameral Conference Committee.

On December 19, 2017, President Rodrigo Duterte has signed into law

Republic Act No. 10963 otherwise known as the Tax Reform for Acceleration and

Inclusion (TRAIN) Law, which amended 69 Sections of the National Internal

Revenue Code (NIRC), as amended, created 8 new sections and repeated 3

sections.

In signing the TRAIN Law, President Duterte said:

“For two decades, we have been constrained by the outdated provisions of

our tax laws under the National Internal Revenue Code, as amended. In

particular, the high personal income tax rates have placed a significant burden
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to our laborers. Today, a major breakthrough in the legislative history has

taken place, where we not only break this trend but provide for additional

resources that we will use to fund the social and economic infrastructure that

will benefit the poor.”

Thus, the main objectives of the TRAIN are to maintain fiscal discipline and

adhering to the true principles of taxation: which should be fairness, simplicity and

efficiency.

The law took effect on January 1, 2018, which reduces personal income tax

but imposes a higher tax on fuel, cars, tobacco and sugary beverages to bankroll the

government’s infrastructure and development projects

2.3. Advantages and Disadvantages of the Law

The TRAIN law has really affected the lives of Filipino people in many

different ways. There is no exemption to whom the law may provide significant

changes. Some have experienced satisfaction upon implementation of the law, but

some have also experienced its downsides. In order to fully understand the TRAIN

Law and its effects, it is important to weigh both sides by looking to its advantages

and disadvantages.

2.3.1 Increased Annual Income Tax Exemption

Workers with an annual salary of P250,000 that were previously

subject to 5 percent to 32 percent tax rate is now experiencing 0

percent tax. With this, income taxpayers who earn

approximately P22,000 or less monthly are now exempted from

income tax payment. Under TRAIN, employees can now take

home more of their compensation than they did the previous

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years and get to spend their money on basic necessities due to

the reduction in income tax.

2.3.2 Increased Tax Rate for Over P8-Million Annual Earners

In exchange to the tax exemption for workers with annual salary

of P200,000 and below, individuals and corporations with over

P8 million annual income are subject to 35% tax, which is

higher compared to the previous margin of 32%. This was

considered to be a drawback of the TRAIN Law according to

those earners who will be paying 3% more tax. However, this

cannot be a disadvantage because only the rich people are

subject to the increase of tax rate. At the same time, it is

reasonable for the wealthy people to contribute more to the

revenue of the government, because the accumulated revenue

will be funded to the projects where the poor ones can benefit.

2.3.3 Lower Estate Tax and Fairer Value-Added Tax

Under the TRAIN law, a fixed rate of 6 percent will be imposed

on estate tax. In the old law, if the estate was worth P200,000

and above, the net estate value increases up to 20 percent. With

the TRAIN law, estates worth P5 million and below will have

zero tax rate, but P5 million and above will have 6 percent of the

excess over P5 million. As a result, this will help in giving more

opportunity for Filipinos to engage in business and become

entrepreneurs which in return will boost infrastructure

development and generate jobs.

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TRAIN also provided exemptions from VAT especially for small

businesses, senior citizens and PWDs, renewable energy, and

drugs and medicine for diabetes, hypertension, and cholesterol.

2.3.4 Increased Government Revenue To Support ‘Build, Build,

Build’ Program

Under TRAIN, the national government will be collecting higher

tax resulting in an increased government revenue for

infrastructure projects. In an effort to sustain economic growth,

the Philippine government is turning to infrastructure

development with its bold P9-trillion “Build, Build, Build”

program, claimed to reduce poverty incidence from 21.6 percent

to 14 percent by 2022. It is designed to modernize the country’s

infrastructure backbone by rolling out 75 flagship projects to

develop industries that will yield robust growth, create jobs and

uplift lives of more than 6 million Filipinos.

2.3.5 Increased Excise Tax on Oil, Automobiles and Sugar-

Sweetened Beverages

Due to reduced taxes, the government need to make up for loss

of revenue. TRAIN imposes excise tax on oil of up to P6 over

the next three years, and raises taxes on other products

including automobiles. It also imposes a P6 tax per liter on

drinks containing caloric or non-caloric sweetener and P12 per

liter tax on drinks containing high fructose corn syrup or

combination. Sugar-sweetened beverages which are once

without taxes became a burden to the consumption of people.

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With the increase in taxes of these commodities, prices of

goods, transport fares, electricity costs and other consumer

prices have also increased.

As opposed to addressing poverty, this could be a disadvantage

for the poor families of the country. They did not benefited from

the tax exemption, because they do not have enough income,

yet they are burdened with the increase of the prices of basic

commodities. With this, they are likely going to suffer more,

because they will have a more difficult time to attain their daily

needs.

2.4. Consequences of The Problem

As the government show by any means how ineffective and inefficient they

are in exercising their economic development strategy through the TRAIN Law, this

causes the people to believe that the said law is not appropriate for the country.

Some of the consequences why people think in such way are the following:

2.4.1 Effects on Filipino Consumers

Filipino consumers may not be the direct victims of the law but

due to increased prices in basic commodities, people had been

too conservative in their expenditures. This causes the protests

of Filipino consumers to the government with the new law

implemented. This is most crucial to average wage earners, and

self-employed individuals because they may have higher income

but the electricity, grocery and transport bills would also be

higher which may not be helpful in their daily consumption.

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2.4.2 Effects on Filipino Businesses

Filipino businesses are composed of big corporations and small-

medium sized enterprises (SME). Corporate tax incentives are

granted to big companies while not fully giving a big impact to

the economy while SME not being registered to tax incentives

are not benefiting from it and are most likely to be affected since

higher prices in common necessities such as electricity, grocery

and transportation would be part of their business activities that

increase their expenses. Once affected by the sudden increase

in prices, it would be too hard for them to go back again.

2.4.3 Government’s Lack of Public Disclosures

The government had been consistently spreading out

information about the TRAIN Law even before its

implementation. However, they have been not too clear and

concise on the real picture the law wants to show.

2.4.4 Responsiveness and Accountability

It has been a long time since it was implemented but there were

still no alternatives given by the government on how they can

help the people who have been negatively affected by the tax

reform such as the Filipino consumers and businesses.

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III. CONCLUSION

The Tax Reform for Acceleration and Inclusion (TRAIN) Law is implemented

to accelerate poverty reduction, sustainably address inequality and generate

sustainable stream of revenues to make meaningful investments on the people and

infrastructure to achieve the vision for the Philippines. Moreover, the new tax system

aims to reduce the unaccounted budgets for projects and unnecessary expenditures

of public funds by the government officials during the administration of President

Benigno Aquino III. However, people continuously question the effectiveness and

efficiency of package 1 of the Comprehensive Tax Reform Program. The enactment

and ratification of the law gathered different responses from the people.

In spite of its objectives to increase the spending capacity of the average

working Filipino, boost revenue-to-GDP ratio, and fund government’s infrastructure

and human capital investment program, there were a lot of consumer groups and

other similar sectors who have expressed their opposition towards this new tax

measure because of the tremendous price increase on consumer goods, prime

commodities, medicines, electricity, and fuel. They argue that it is anti-poor, that it

benefits everyone except them, considering that there are only few in the informal

sector who file for Income Tax Return. There were also number of congressmen who

have decided to challenge the legality of the TRAIN Law. They believe that it was

ratified in a session that lacked requisite quorum, in which the number of people

present on the floor was not enough to constitute a simple majority.

On the other hand, the legislators who proposed the law and the supporters

believe that the implementation of TRAIN Law can be described as taking one step

backward and two steps forward. The high inflation rate that the country is

experiencing is just a temporary occurrence, as the Department of Finance assures.

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Inflation should also not just be attributed to the TRAIN law but to other factors such

as the global price of oil. On the concern that the TRAIN’s revenue-enhancing

provisions would lead to higher prices, the legislators stated that the TRAIN

proceeds will go back to the people in terms of infrastructure, which is expected to

stimulate the economy. In this aspect, it needs to have proper public disclosure of

the allocation of funds in order to maximize the full potential of the benefits.
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IV. RECOMMENDATION

The general purpose of the TRAIN Law is to create a sustainable near-term

growth of the nation by making all people contribute to the pursuit of common good.

It is important therefore to always anchor government activities with democracy. In

order to achieve such goal, the governing body should take an effort on presenting

transparency, responsiveness and accountability.

For government transparency, all information should be accessible to the

public and must be provided with proper disclosures. This idea can be connected to

the accounting practice of proper disclosure of information, for the purpose of

enabling the users of information to understand the subject matter. Such practice is

discussed in the Conceptual Framework for Financial Reporting made by FRSC

(Financial Reporting Standards Council), which is faithful representation. In

conformity to GAAP (Generally Accepted Accounting Principles), information should

be faithfully represented, with the use of possible simplest terms. Moreover, it is

characterized by completeness, neutrality and free from error. These characteristics

should be exercised by the government when providing information. If followed, it will

raise awareness and knowledge to the people, making them understand the whole

picture and the essence of the implementation of TRAIN Law, and the rest will be

under their judgement.

Responsiveness points out the need for the government to serve all the

concerned people within a reasonable timeframe, while accountability refers to the

responsible action of the government to those who will be negatively affected by the

tax reform. To do so, it is recommended for the government to have a proper

budgeting of funds. Budgeting, budgetary control, and budgetary reporting is a

principle of government accounting amended by GASB (Government Accounting

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Standards Board, that emphasizes the need for adopting budget in every

government unit. The accounting system of the government should provide timely

budgetary control and information, which will be used for proper allocation of funds

from the accumulated revenue. With this, the government could make a good

decision and action that will address and respond to the affected citizens, especially

the poor. One good action that the governing body could do is to allocate budget for

assistance in the short run, until the goal of sustainable growth is fully realized. By

that time then, those poor people will have enough income from the numerous

projects and employments that will be offered by the government.

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