POLICY ANALYSIS ON RA 10963 (TRAIN LAW)

Written Report
Applied Public Management and Policy Analysis (MPA 205)

Submitted to:
Ciedelle Piol-Salazar, PhD PA
Professor

Submitted by:
Rechelle Anne Soriano-Magsino

Mindoro State College of Agriculture and Technology (MinSCAT)

Graduate Studies
Master in Public Administration
 Applied Public Management and Policy Analysis (MPA 205)

Policy Analysis on RA 10963 (TRAIN Law)

A. OVERVIEW OF THE TOPIC

The Tax Reform for Acceleration and Inclusion (TRAIN) Act, officially cited as

Republic Act No. 10963, is the initial package of the Comprehensive Tax Reform

Program (CTRP) signed into law by President Rodrigo Duterte on December 19, 2017.

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.

B. DISCUSSION OF THE TOPIC

Income Tax

Income tax is a tax on a person’s income or profit earned from his/her job,

business, or property.

"The TRAIN lowers the Personal Income Tax (PIT) for all taxpayers except the

rich". Effectively, personal taxes will be reduced for 99% of the Philippine tax payers.

Additionally, minimum-wage earners are still exempted from PIT. The Law also

ensures a minimum wage earner who incurs a small raise will not have his overall
salary (with the PIT deducted) less than minimum wage. Also, married couples where

both parties are working may be exempted up to a total of ₱500,000. This does not

include the exemption from the first ₱90,000 of their thirteenth month pay and additional

bonuses. Finally, Self-employed and professionals with gross sales below VAT can only

pay 8% flat tax instead of their income and personal tax.

Under TRAIN Law, a revision of income tax table was made as per table below:

Old Tax Schedule under NIRC

New Tax Schedule under TRAIN Law

 Other reforms under TRAIN Law are as follows:

 Repeals the provisions on basic personal and additional exemptions and

premiums paid on health and/or hospitalization insurance which are deemed

integrated into the P250,000 exempt threshold

 Retains the income tax exemption of minimum wage earners

 Retains the exemption from tax of de minimis benefits as wells as the non-

taxability of mandatory contributions

 Increase the amount of tax-exempt benefits ceiling (13 th month pay and other

benefits) from P82,000 to P90,000

 Imposes a 20% final tax on PCSO and lotto winnings exceeding P10,000.00

 Removes the preferential tax rate of 15% for employees of regional or area

quarters, regional operating headquarters, offshore banking units, and petroleum

service contractors and subcontractors

 Increase the fringe benefit tax (FBT) rate from 32% to 35%

 Inserts a provision that the Optional Standard Deduction by a general

professional partnership (GPP) may only be availed once, either by the GPP or

the partners comprising such partnership

Estate Tax

Estate tax is a transfer tax on the right of the deceased person to transmit his/her estate

to his/her lawful heirs and beneficiaries at the time of death and on certain transfers which are

made by law as equivalent to testamentary disposition.

Instead of having a complicated tax schedule with different rates, TRAIN reduces and

restructures the estate tax to a low and single tax rate of 6% based on the net value of the

estate with a standard deduction of P5 million and exemption for the first P10 million for the
family home. The heirs can now also withdraw from the decedent’s bank account provided that

the bank will withheld 6% final tax on the estate. The amount of gross value of estate provided

in estate tax returns that requires to be supported with a statement duly certified by a Certified

Public Accountant (CPA) also increases from P2 million to P5 million.

Donor’s Tax
Donor’s tax is tax on a donation or gift, and is imposed on the gratuitous transfer of

property between two or more persons who are living at the time of the transfer.

TRAIN also simplifies the payment of donor’s taxes to a single tax rate of 6% of net

donations is imposed for gifts above P250,000 yearly regardless of relationship to the donor.
Value-Added Tax
Value-Added Tax (VAT) is a business tax imposed and collected from the seller in the

course of trade or business on every sale of properties (real or personal), lease of goods or

properties (real or personal), or vendors of services. It is an indirect tax, thus, it can be passed

on to the buyer.

TRAIN Law retains the the VAT-Exempt status of the sale of raw agricultural and marine

products, educational services, senior citizens, health services, cooperatives and persons with

disabilities. While it includes additional VAT exemptions to sale of gold to the Bangko Sentral ng

Pilipinas (BSP); sale of drugs and medicines prescribed for diabetes, high cholesterol and

hypertension, beginning January 1, 2019; association dues, membership fees, and other

charges collected by homeowner’s associations and condominium corporations; and transfer of

property in pursuance of a plan of merger or consolidation.

Adjustment to VAT-exempt threshold was also increased from P1,919,500 to P3 million,

lease of residential unit with a monthly rental of P12,800 to P15,000 and reduction of VAT-

exempt threshold on sale of house and lot and other residential dwellings from P3,199,200 to

P2,000,000 beginning January 1, 2021.

Excise Tax

Excise tax is tax on the production, sale or consumption of a commodity in a country.

APPLICABILITY:

 On goods manufactured or produced in the Philippines for domestic sale or consumption

or for any other disposition; and
 On goods imported.

TYPES OF EXCISE TAX:

  Specific Tax – refers to the excise tax imposed which is based on weight or volume
capacity or any other physical unit of measurement
 Ad Valorem Tax – refers to the excise tax which is based on selling price or other
specified value of the goods/articles

MANNER OF COMPUTATION: 

 Specific Tax = No. of Units/other measurements x Specific Tax Rate

 Ad Valorem Tax = No. of Units/other measurements x Selling Price of any specific value
per unit x Ad Valorem Tax Rate

1. Excise Tax on Automobiles

* Purely electric vehicles and pick-up trucks shall be exempt

2. Excise Tax on Petroleum Products

3. Excise Tax on Sweetened Beverages

The Sugar-Sweetened Beverage Tax will impose a P6.00 per liter of volume

capacity on sweetened beverages using purely caloric sweeteners, and purely non-caloric

sweeteners or a mix of caloric and non-caloric sweeteners while P12.00 per liter of volume

capacity to those sweetened beverages using purely high fructose corn syrup or in

combination with any caloric or non-caloric sweetener.

Beverages covered are sweetened juice drinks, sweetened tea, flavoured water,

all carbonated beverages, energy and sports drinks, cereal and grain beverages, other

powdered drinks not classified as milk, juice, tea and coffee and other non-alcoholic

beverages that contain added sugar.

Beverages excluded are all milk products, including plain milk, infant formula

milk, powdered milk, etc., meal replacement and medically-indicated beverages, ground

coffee, instant soluble coffee and pre-packaged powdered coffee products, 100% natural

vegetable juices and 100% natural fruit juices.

4. Excise Tax on Cigarettes

RA 10963 increases the excise tax rates on cigarettes packed by hand and packed by

machine, as follows:
 5. Excise Tax on Mineral Products

RA 10963 increases the excise tax rate on domestic or imported coal and coke in 3

tranches beginning January 1, 2018 to January 1, 2020 as follows:

6. Excise Tax on Cosmetic Procedures

There shall be levied, assessed, and collected, an excise tax equivalent to five

percent (5%) based on gross receipts derived from the performance of services, net of

excise tax and value-added tax on invasive cosmetic procedures, surgeries and body

enhancements directed solely towards improving, altering, or enhancing the patient’s

appearance and do not meaningfully promote the proper functions of the body or prevent or

treat illness or disease.

Documentary Stamp Tax

Documentary Stamp Tax is a tax on documents, instruments, loan agreements and

papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or

property incident thereto.

RA 10963 Increases the DST rates by 100% except the DST on debt instruments (50%),

DST on policies of insurance upon property, fidelity bonds, and other insurance indemnity
bonds, and deeds of sale, conveyances and donations of real property which remain

unchanged.

C. SUMMARY

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.

D. CONCLUSION

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 has 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 an incremental growth in GDP. On the other hand,

unprecedented inflation rates that exceeded projected calculations, has 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.

E. RECOMMENDATIONS

 Taxes are the lifeblood of any nation and without taxes, our country cannot deliver
government services, build much-needed infrastructure projects.

History shows that reforms to local taxation are politically challenging, and therefore

emphasise that this is one area of public policy that would benefit greatly from a period of cross-

party agreement and consensus in order to create an enduring, stable settlement needed for the

country as a whole, for Local Government and for local democracy.

Any new system of taxation should continue to be one of general tax contributing to the

general funding of local services, rather than a system of charges for specific services. The new

system should offer greater flexibility to the and thereby strengthen local democracy. 

Any new system should be designed to minimise the need for complex relief schemes

for individuals or households. Such a system should ensure that any reliefs that are available

are straightforward to understand and administer and that take-up is increased.

F. PERSONAL PROFILE OF THE REPORTER

The reporter is a Certified Public Accountant and is currently working in the Municipal

Accounting Office of the Local Government Unit of Bongabong. She finished her degree of

Bachelor of Science in Accountancy in the Polytechnic University of the Philippines – Main

Campus.