1. What is TRAIN Law and its purpose?

- 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. TRAIN consists of revisions to the National Internal
Revenue Code of 1997, or the Tax Code. This reform includes packages that make changes in taxation
concerning the personal income tax (PIT), estate tax, donor's tax, value added tax (VAT), documentary
stamp tax (DST) and the excise tax of petroleum products, automobiles, sweetened beverages, cosmetic
procedures, coal, mining and tobacco.
- The prominent feature of the tax reform is that people who earn ₱250,000 annually or ₱21,000 monthly
and below are exempted from paying personal income tax (PIT). This includes minimum wage earners,
who were also exempted in the former tax system. On the other hand, those earning over ₱250,000 have
tax rates following a set PIT schedule. Essentially, greater income is taxed at higher tax rates. This
denotes that low to middle income-earners get to have a higher take home pay, while high income-
earners have a bigger contribution to tax revenues. Increase in consumption taxes intend to
counterbalance PIT tax exemptions.

- ITS PURPOSE
TRAIN aims to make the current tax system simpler, fairer, and more efficient.
- Eradicate extreme poverty, provide equal opportunities through inclusive economic and political
institutions and achieve high income status.
- Reduce the poverty rate from 26% to 17% uplifting about 10 million Filipinos from poverty
- Achieve middle – income status

2. How TRAIN Law works in the Philippines?

- Knowing the law is not the same as knowing how it will be implemented. New laws require rules and
regulations on how these changes will be applied. These implementing rules and regulations are issued
soon after the law is enacted.
- In the case of the Tax Reform for Acceleration and Inclusion (TRAIN) Act, the issuance was spread out
through the year. In fact, the first of these regulations was released before 2018.
- Revenue Memorandum Circular (RMC) No. 105-2017 was issued on Dec. 29, 2017.
- It prescribed the revised table for the withholding tax on compensation income.
- Since then, the Bureau of Internal Revenue (BIR) has released various regulations, circulars and orders
to implement the first package of the government’s Comprehensive Tax Reform Program.
- The first, and perhaps the most important part of the tax reform, is the lowering of the personal income
tax. Subsequent regulations also clarified certain portions of the personal income tax, specifically the
optional 8 percent rate.
- TRAIN Law, self-employed and professionals were allowed to avail themselves of the optional 8
percent tax in lieu of the graduated personal income tax and percentage tax. The TRAIN Law also stated
that it will be available to those whose gross sales do not exceed the VAT threshold.
- Revenue Regulations (RR) No. 8-2018 clarified that VAT-registered taxpayers would not be able to
avail themselves of the 8 percent rate, regardless of their gross sales. The regulation also clarified that
electing the 8 percent rate should be irrevocable for the duration of the year.
- It further stated that availing of the 8 percent had to be made in the First Quarter Percentage and/or
Income Tax Return. Otherwise, the taxpayer would be deemed automatically subject to the graduated
income tax rates.
- Not all the issued regulations simply restate or clarify TRAIN. For instance, under the TRAIN Law, the
rates on creditable withholding tax (CWT) shall be anywhere between 1 and 15 percent. The imposition
of the specific rates is regarded as the privilege of the Secretary of Finance (upon recommendation of
the BIR Commissioner).
- RR 11-2018 imposed the rates for the CWT. The rate for professional fees could either be 5 percent or 10
percent for individual payees, or 10 percent or 15 percent for non-individual payees. It also clarified the new
rates for various other types of income payments.
- Of course, there were also regulations for the other aspects of the tax reform. As an offsetting measure,
TRAIN imposed or increased excise taxes on certain products and services. These new rates needed to be
supported by specific regulations.
- In fact, the first three revenue regulations released in 2018 provided the revised rates for excise taxes.
-RR 1-2018 was issued for mineral products, 2-2018 for petroleum products, and 3-2018 for tobacco products.
-However, these issuances merely restated the new rates imposed by TRAIN, amending previous BIR issuances
that covered the matter.
-Later in the year, the BIR issued RR 5-2018 for automobiles and 20-2018 for sweetened beverages. These later
issuances provided more details, explaining the new procedures and new forms to be used.
These amended tax rates (not just limited to excise taxes) required new alphanumeric tax codes as well.
Revenue Memorandum Orders (RMO) were released throughout the year to cover the new rates for sweetened
beverages (RMO 1-2018), personal income tax (RMO 28-2018), petroleum products (RMO 31-2018) and many
others.
The implementation of these new rates will also take time. As such, the BIR released transitory procedures
under RMC 2-2018, 3-2018, and 4-2018. These RMCs covered income taxes, documentary stamp tax, and
excise taxes, respectively.
Another aspect of the first package is raising the VAT threshold to P3 million in annual gross sales. What
TRAIN does not state is how taxpayers will actually be affected. For example, taxpayers earning P2.5 million
annually will have been registered as VAT taxpayers, but were now below the threshold.
How will they transition from VAT to Non-VAT? What will happen to their receipts?
RR 13-2018 implemented the new provisions on VAT and provided its transitory provisions. According to the
regulation, VAT-registered taxpayers that wanted to register as Non-VAT needed to update their registration
and surrender their unused invoices.

- They will still be able to use their invoices as long as they indicate that they will no longer be valid for
claiming input taxes.
Taxpayers who wanted to continue as VAT taxpayers will be unable to cancel their VAT registration for a
period of three years.
RR 15-2018 and, later, 19-2018 imposed the deadline for VAT taxpayers to update their registration to Non-
VAT.
Other lesser-known provisions of the TRAIN Law also needed regulations to support them. Among these are
estate and donor’s taxes, the deductibility of expenses, the stock transfer tax and the interest penalty.
RR 12-2018 prescribed the implementation of the donor’s tax and the estate taxes. Notably, the regulation
allowed the withdrawal from the decedent’s bank account, subject to a final withholding tax.
RR 6-2018 applied the changes to the deductibility of expenses under TRAIN. The changes to the stock transfer
tax were covered by RR 9-2018.
Another notable change implemented by TRAIN is the lowering of the interest penalty. Before TRAIN, the
interest penalty is equivalent to 20 percent. Under TRAIN, this was changed to twice the legal interest set by the
BSP. Since the current legal interest is 6 percent, this effectively lowered the rate to 12 percent.
RR 21-2018 clarified that the new interest rate would apply only to those deficiency assessments issued after
the TRAIN Law passed. As such, deficiency taxes until the end of 2017 would still be subject to the 20 percent
penalty.
These changes are hard to catch if taxpayers do not pay close attention. For example, there were only 25 days to
update the registration from VAT to Non-VAT initially. RR 15-2018 was published on April 5, 2018, yet set the
deadline to April 30, 2018.
This was later amended by RR 19-2018 to Aug. 31, 2018. Even so, it was published on Aug. 9, 2018, giving
taxpayers only 22 days notice.

Taxpayers who did not pay close attention would have been locked as VAT taxpayers for three years had they
missed those deadlines.
At best, these lesser known issuances could cause unwarranted hassle. At worst, it could cause failed
compliance and, in turn, hefty penalties. Lack of tax education causes unnecessary expenses and penalties.
To avoid this, taxpayers must remain vigilant and continue to educate themselves.

What are the benefits of TRAIN Law?

- MYTH #1: “THE BURDEN OF THE TAX WILL BE ON THE POOR INSTEAD OF THE RICH.”

Our proposed tax reform program will improve the lives of Filipinos, especially the poor. It promotes equity
such that those who have higher incomes will shoulder more of the burden compared to those with lower
incomes. Through our proposal, Filipinos will contribute based on their capacity to pay.
 
MYTH #2: “LOWERING PERSONAL INCOME TAXES MEANS MORE MONEY IN PEOPLE’S
POCKETS THAT BOOST CONSUMPTION, AND CONSEQUENTLY, STIMULATE THE
ECONOMY. NO NEED TO INCREASE TAXES.”

TRAIN corrects and simplifies the current tax system, as well as make it fairer by lowering the PIT, reducing
VAT exemptions, and adjusting excise tax rates on petroleum products and automobiles.
Through this tax reform, we have been and will continue to increase spending in public investment, such as by
constructing school buildings, roads, and bridges, and funding basic social services and social protection. All
these will stimulate the economy more and benefit the poor. This is a more inclusive way of spending our
shared resources, rather than merely boosting individual consumption spending by lowering all taxes.
Every P100 spent by the government on social services, such as health and education, will have a multiplier
effect of 1.9% and 1.2%, respectively on the economy; while spending P100 on infrastructure will yield a
higher return of more than 2.0%.
We must balance investment spending and consumption spending if we want to create a more equitable society
where everyone feels change.
 
MYTH #3: “FARES AND COMMODITY PRICES WILL SKYROCKET BECAUSE OF THE
PROPOSED INCREASE IN OIL EXCISE.”

No. Prices of basic goods and public transportation will not skyrocket. In fact, inflation will be an additional
1.5% at the most. Our estimate shows that food prices may increase by an additional 1% in the first year of
implementation while transport price may increase by an additional 2%.
 
MYTH #4: “THE TAX REFORM PROPOSAL DOES NOT RESOLVE TAX EVASION OF SELF-
EMPLOYED AND PROFESSIONALS. THIS SHOULD BE FIXED INSTEAD OF MAKING
ADDITIONAL TAXES!”

The proposed tax reform program will simplify compliance through a single rate of 8% (in lieu of the income
tax and percentage tax) for small businesses, the self-employed, and professionals.
To ensure compliance, tax administration measures are included in the proposal:

o Relax bank secrecy laws for fraud cases

o Use of electronic receipts
o Connect cash registers/point of sale machines to BIR servers for simultaneous reporting of sales and
purchase data

 
MYTH #5: “THE TAX REFORM BILL IS REGRESSIVE AND ANTI-POOR.”

Our tax reform program is pro-poor and progressive. It simplifies the system and makes it fairer and more
equitable by restructuring the Personal Income Tax (PIT), removing unnecessayr Value Added Tax (VAT)
exemptions, and adjusting the excise tax rates on petroleum products and automobiles.
Through the reform, 83% of individual taxpayers including minimum wage earners (P250k and below) will be
exempted from paying income tax. The revenues generated from this reform will fund infrastructure, health,
education, and social services.
Implemented together with social protection mechanisms such as Unconditional Cash Transfers, Pantawid
Pasada cards, and free TESDA trainings, the overall impact benefits the poor and the vulnerable sectors.
 
MYTH #6: “THE GOVERNMENT IS ALREADY UNDERSPENDING. THERE IS NO NEED TO
RAISE ADDITIONAL REVENUE.”
Underspending is a short-term problem being resolved through budget reform in concerned agencies. The
present administration is addressing this. For 2017, reforms are in place to ensure proper spending and
utilization of budget.
However, addressing underspending alone will not be enough to support the vision of this administration for a
prosperous country with zero extreme poverty and a better quality of life for all Filipinos.
Although the overall goal of the tax reform is to address the inequity of the current tax system, it will also help
achieve this administration’s vision through additional investments in social services, health, education, and
infrastructure.
 
MYTH #6: “ONLY THE PERSONAL INCOME TAX NEEDS TO BE FIXED! ALL THE OTHER
PROPOSED TAX CHANGES SHOULD NOT BE PUSHED.”

It’s true that there is something wrong with our Personal Income Tax (PIT). Restructuring the PIT alone will
not correct the tax system’s inequity. There are structural weaknesses that have been corrected, namely:

o Several taxes that have not been adjusted in 20 years;

o Excessive exemptions and special treatments granted without good basis; and
o Highly restrictive bank secrecy laws

Our goal is to correct our tax system’s inequity and make it progressive.

4. What are the effects of TRAIN Law in the Philippines?

- - two studies by researchers at the Philippine Institute for Development Studies (PIDS) show
that TRAIN worsened the plight of millions of Filipinos. 
- Specifically, using numerical simulations, the studies demonstrate that TRAIN likely worsened poverty and
income inequality in the country.
In this article let’s unpack these two important studies and the conclusions they arrived at. Train Law worsen
the poverty and inequality in the Philippines. Philippine poverty went down by a significant 6.6 percentage
points from 2015 to 2018, based on latest government data.
But because TRAIN is demonstrably anti-poor, it’s entirely possible that said reduction in poverty would have
been larger had it not been for TRAIN.
Perhaps more disquietingly, income inequality also likely worsened due to TRAIN. Proponents used to trumpet
that TRAIN would improve the tax system’s “progressivity,” meaning TRAIN will at once go harder with the
incomes of the rich and go easier on the incomes of the poor.
At best, tax reform can indeed be a potent tool for government to level the incomes of the rich and poor. Yet
data suggest the opposite happened with TRAIN. 
In a separate paper, Dr. Chat Manasan showed that just because TRAIN slapped a higher top marginal tax
rate (from 32% to 35%), it doesn’t necessarily mean TRAIN made the tax system more progressive overall. 
In fact, TRAIN arguably made it less so.  
Effectively, the higher top marginal tax rate hurts only super rich Filipinos, or those earning P12 million or
more per year. By contrast, the bulk of TRAIN is still borne by people at the opposite end of the income
spectrum, or the poorest Filipinos.
One reason is that many among the poor – say, minimum wage earners or those working in the informal sector
as taho vendors or pedicab drivers – were exempt from or not paying income taxes to begin with.
Second, some of TRAIN’s excise taxes were designed by lawmakers to favor the rich, often at the expense of
the poor.
Lower estate and donor’s taxes also likely benefitted many rich, landholding, and elite families. This can still be
corrected if government spends the people’s money progressively. That is, even if the poor end up losing in the
tax reform package, government can at least make sure its various programs disproportionately benefit the poor.

More Filipinos dragged into poverty by higher taxes under TRAIN

The higher excise slapped on oil products and other goods and services under the Tax Reform for Acceleration
and Inclusion (TRAIN) Act pulled more Filipinos into poverty, according to state-run think-tank Philippine
Institute for Development Studies (PIDS).

The entire TRAIN law, which besides fuel also slapped higher or new excise on sugar sweetened beverages,
vehicles and cosmetic procedures, among other goods and services, was estimated to have had hiked poverty
incidence by 1.72 ppt.
But with the unconditional cash transfers under TRAIN, the increase in poverty incidence was minimized to
only 0.26 ppt.
Across vulnerable sectors, the most affected by the higher oil excise were transport workers, while the entire
TRAIN law increased the poverty rate the most among fisherfolk.

5. What is the main feature of TRAIN Law.

INCOME TAXES
- Starting 1 January 2018, compensation earners, self-employed and professional taxpayers (SEP) whose
annual taxable incomes are P250, 000 and below or less than P21,000 a month is exempted from the personal
income tax (PIT).  
- SEPs whose gross receipts or sales are below P3 million have the option to choose from the 8% flat tax
rate or the TRAIN’s new personal income tax table.
- SEPs whose annual salaries are P500,000 and below are exempt from 3% percentage tax.
- The 13th month pay and other bonuses amounting to P90,000 are likewise tax-exempt.
- TRAIN repeals Section 35 of the National Internal Revenue Code on personal exemptions of
individual taxpayers. Whether the taxpayer is single, married, head of the family, with or without dependents,
the taxpayer is exempted from paying personal income tax (PIT) as long as he /she is earning less than P21,000
a month.
VALUE ADDED TAX
- Businesses with total annual sales of P3 million and below are exempt from paying VAT.
- The following are also exempted from VAT: • Raw food • Agricultural products • Health and education
• Senior citizens • PWDs • Cooperatives • Renewable energy • Tourism enterprises • BPOs in special
economic zones • Socialized housing (P450,000 and below) • Low-cost housing (amounting to P3
million) • Leases below P15,000/month • Condominium association dues
- VAT- free starting 2019: Sale of drugs for diabetes, high cholesterol, and hypertension VAT- free
starting 2021: Socialized and mass housing projects P2 million and below
SUGAR-SWEETENED BEVERAGES
- To promote a healthier Philippines, sugar-sweetened beverages will be taxed.
- P6 per liter for drinks using sugar and artificial sweeteners
- P12 per liter for drinks using high fructose corn syrup
- All kinds of milk, 3-in-1 coffee, natural fruit and vegetable juices, and medically indicated beverages are
exempted.
PETROLEUM EXCISE TAX
- Through appropriately taxing dirty fuel, environmental and health concerns can be addressed. TRAIN
increases the excise tax on fuel which has not been adjusted since 1997.
AUTOMOBILE EXCISE TAX
- Pick-up trucks and electric vehicles are exempted from excise taxes
TOBACCO EXCISE TAX

COSMETICS TAX
- A 5% tax will be imposed on cosmetic surgery or medical procedures for purely aesthetic purposes.
DONOR’S TAX
- A single tax rate of 6% of net donations will be imposed for gifts above P250,000 yearly regardless of
relationship to the donor.
ESTATE TAX
- A single tax rate of 6% based on the net value of the estate with a standard deduction of P5 million will
be imposed.
Coal (Mineral Products
Nonmetallic Minerals and Quarry Resources
- The prominent feature of the tax reform is that people who earn ₱250,000 annually or ₱21,000 monthly
and below are exempted from paying personal income tax (PIT). This includes minimum wage earners,
who were also exempted in the former tax system. On the other hand, those earning over ₱250,000 have
tax rates following a set PIT schedule. Essentially, greater income is taxed at higher tax rates. This
denotes that low to middle income-earners get to have a higher take home pay, while high income-
earners have a bigger contribution to tax revenues. Increase in consumption taxes intend to
counterbalance PIT tax exemptions.