Understanding the Tax Reform for Acceleration and Inclusion (TRAIN) Act No. 10963

By: Mary Ann Traje – Business Unit 1

On December 19, 2017, former President Rodrigo Duterte signed Republic Act No. 10963, commonly known as the Tax Reform for Acceleration and Inclusion (TRAIN) Act. This marks the first phase of the Comprehensive Tax Reform Program (CTRP) to create a fair and more efficient tax system in the Philippines.

What is the TRAIN Act?

The TRAIN Act aims to lower income taxes for most Filipino taxpayers while raising money to support essential government projects, like the “Build, Build, Build” infrastructure program and crucial social services.

One of the significant aspects of the TRAIN Act is that it cuts personal income taxes for 99% of taxpayers, considering that the tax rates have not been updated in the last 20 years, which has created unfairness in the tax system.

Highlighted Provisions in the TRAIN Act

While the original proposal of the TRAIN Act was generally accepted, President Duterte vetoed several provisions. The vetoed items include:

1. Reduced income tax rates for employees in Regional Headquarters (RHQs), Regional Operating Headquarters (ROHQs), Offshore Banking Units (OBUs), and Petroleum Service Contractors.
2. Zero-rating of goods and services sales to specific customs territories and tourism enterprise zones.
3. Exemptions from percentage tax for gross sales/receipts not exceeding PHP 500,000.
4. Exemptions for various petroleum products from excise tax under certain conditions.
5. Earmarking of incremental tobacco taxes.

These vetoed provisions highlight the complexities of tax reform and the government’s commitment to ensuring the reforms are fair and beneficial to the majority.

The Future of Tax Reform in the Philippines

As of 2018, the government anticipates raising funds equivalent to about two-thirds of the incremental revenue targeted under this reform. Congress has pledged to pass the remaining provisions early in the year to meet revenue and deficit goals.

The TRAIN Act aims to create more job opportunities, lower prices, and ultimately foster a brighter future for all. The government is optimistic that these reforms will alleviate the financial burden on taxpayers and catalyze broader economic growth and development across the nation.

This Act demonstrates a significant step towards a more equitable tax system in the Philippines, balancing the need for revenue generation with the welfare of its citizens. As the country embarks on this new chapter in tax policy, the focus remains on building a stronger and more inclusive economy for all Filipinos.