TAXATION

LEARNING OUTCOMES:
At the end of this chapter, the student is expected to:
1. Effectively communicate, using various techniques and genres, historical
analysis of a particular event that could help others understand the
chosen topic.
2. Propose recommendation or solutions to present day problems based on
their understanding of root causes, and their anticipation of future
scenarios;
3. Display the ability to work in a multi-disciplinary team and contribute
to a group endeavor.
 TAXATION refers to compulsory or coersive money
collection by a levying, authority, usually a government.
 The term “taxation” applies to all types of involuntary
levies, from income to capital gains to estate taxes.
 Though taxation can be a noun or verb, it is usually
referred to as an act; the resulting revenue is usually
called “taxes” (Investopedia,2016)
 Taxation is a means by which governments finance their
expenditure by imposing charges on citizens and
corporate entities.
 Governments use taxation to encourage or discourage
certain economic decisions.
 For example, reduction in taxable personal (or
household) income by the amount paid as interest on
home mortgage loans results in greater construction
activity and generates more jobs. (Business Dictionary)
 Taxation refers to the practice of a government
collecting money from its citizens to pay for public
services. Without taxation, there would be no public
libraries or parks.
 One of the most frequently debated political topics is
taxation.
 Taxation is the practice of collecting taxes (money) from
citizens based on their earnings and property.
 The money raised from taxation supports the
government and allows it to fund police and courts, have
a military, build and maintain roads, along with many
other services.
 Taxation is the price of being a citizen, though politician
and citizen often argue about how much taxation is too
little or too much.
 Taxation is different from other forms of payment, like
payment for a purchase of goods or services, because
taxation does not require consent from the payor and the
payment is not directly tied to any goods bought or
services rendered.
 The government compels taxation through an implicit
or explicit threat of force – through penalties and/or
imprisonment.
 Taxation is legally different than extortion or a
protection racket because the imposing institution is a
government, not private actors.
 Tax systems have varied considerably across
jurisdictions and time.
 In most modern systems, taxation occurs on
both physical assets, such as property, and
specific events, such as a sales transaction.
 The formulation of tax policies is one of the
most critical and contentious issues in
modern politics.
WHAT ARE TAXES?
According to the Department of Finance, Republic
of the Philippines, taxes are mandatory contributions of
everyone to raise revenue for nation-building.
The revenue is used to pay for our doctors,
teachers, soldiers, and other government personnel and
officials, as well as for building schools, hospitals, roads,
and other infrastructure. It is our duty to pay our taxes.
 The government collects taxes to provide basic
services such as education, health, infrastructure, and
other social services to all.
 These taxes are used to pay for our doctors, teachers,
soldiers, and other government personnel and officials.
 These are also used to build schools, hospitals, roads,
and various infrastructure for connectivity, and
industrial and agricultural facilities.
 We all pay taxes, either directly or indirectly. We pay
taxes according to our income and/or level of
consumption.
 Income tax is based on the ability-to-pay principle
wherein people with higher income should pay more.
 Consumption tax is based on the amount of goods
and services utilized such that the more you consume,
the higher the tax you pay.
 Filipinos residing in the Philippines are
taxed based on income earned here and
abroad. In the case of Filipinos living
abroad, they are only taxed based on their
income earned in the Philippines. Similarly,
resident aliens and non-resident aliens in the
Philippines are taxed based on their income
earned in the country.
WHERE DO MY TAXES GO?
 Taxes are used to fund social services
and investment in infrastructure and
human capital development. Part of our
taxes get directly transferred to the
poorest through targeted transfers (e.g.
4Ps, pension to qualified senior
citizens, allowance for PWDs, and
PhilHealth)
 3. LEGAL BASES OF PHILIPPINE
TAXATION
The policy of taxation in the
Philippines is governed chiefly by
the Constitution of the Philippines
and three Republic Acts.
A. CONSTITUTION
 Article VI, Section 28 of the Constitution states that “the
rule of taxation shall be uniform and equitable” and that
“Congress shall evolve a progressive system of taxation.”
 (2) The Congress may, by law, authorize the President to
fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national
development program of the Government.
 (3) Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements,
actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt from
taxation.
 (4) No law granting any tax exemption shall be passed
without the concurrence of a majority of all the
Members of the Congress.
B. NATIONAL LAW
 Revenue Code, as Amended, and for other
purposes. 1. NATIONAL INTERNAL
REVENUE CODE – enacted as Republic
Act No. 8424 or the Tax Reform Act of
1997; December 11, 1997.
 An Act Amending the National Internal
 Be it enacted by the Senate and House of
Representatives of the Philippines in
Congress assembled.
Republic Act No. 10963 TAX REFORM FOR
ACCELERATION AND INCLUSION ACT OF 2017
To ease the burden of common taxpayers and to provide
additional resources for funding social and economic
infrastructure that will benefit the poor, Pres. Rodrigo
R. Duterte signed into law on December 19 Republic
Act No. 10963.
also known as the “Tax Reform for Acceleration and
Inclusion (TRAIN),” the Act amends and repeals certain
provisions of the previously amended RA No. 8424,
otherwise known as the National Internal Revenue Code
of 1997.
The TRAIN LAW is a consolidation
of House Bill No. 5636 and Senate
Bill No. 1592 that were both passed
by the House of Representatives and
the Senate after the bicameral
conference committee report was
ratified on Dec. 13.
REPUBLIC ACT 7160 LOCAL
GOVERNMENT CODE OF 1991
 Taxes imposed at the national level are collected by the Bureau on
Internal Revenue (BIR), while those imposed at the local level (i.e.
provincial, city, municipal, barangay) are collected by a local
treasurer’s office.
 The powers and duties of the Bureau of Internal Revenue are:
 1. Reduction and collection of all internal revenue taxes, fees and
charges; and
 2. enforcement of all forfeitures, penalties, and fines connected
therewith, including the execution of judgements in all cases
decided in its favor by the Court of Tax Appeals and the ordinary
courts;
 3. It shall also give effect to the administer supervisory and police
powers conferred to it by the National Internal Revenue Code and
special laws.
4. KINDS OF TAXES
 According to the Department of Finance, Republic of
the Philippines, taxes can either be direct or indirect.
 DIRECT TAXES are those that are paid from your
income and properties. Example include personal and
corporate income taxes, property and capital taxes.
 INDIRECT TAXES are collected based on consumption.
Examples include excise taxes, VAT, percentage tax, and
documentary stamp tax (DST).
A. DIRECT TAXES
 1. INCOME TAX
 INCOME TAX is a direct tax paid by an individual or
organization imposed on:
 COMPENSATION INCOME – salaries, wages,
taxable bonuses, fringe benefits, and other
allowances.
 BUSINESS INCOME – practice of profession,
trades, gains from sale of assets, and other income
not covered by compensation.
 PASSIVE INCOME – tax on deposits, royalties, and
dividends.
 COMPENSATION AND SELF-
EMPLOYMENT INCOME
 Individuals earning compensation income are taxed based
only on the income tax schedule for individuals.
 On the other hand, self-employed individuals and
professionals are taxed based on the income tax schedule for
individuals, applicable percentage taxes, and value-added tax
(VAT).
 However, if their gross sales (or gross receipts plus other
non-operating income) does not exceed the VAT threshold,
they have the option to be taxed either on the basis of the
income tax schedule for individuals and the applicable
percentage taxes, or just with a flat tax rate of 8% on their
gross sales (or gross receipts plus other non-operating
income)
 INTERESTS, ROYALTIES, PRIZES AND
OTHER WINNINGS
 INTEREST INCOME from bank deposits, deposit
substitutes, trust funds, and other similar products (except
for its long-term variants) is taxed at the rate of 20%.
 ROYALTIES except on books, literary works and musical
compositions, are taxed at the rate of 10%.
 PRIZES AND WINNINGS FROM PHILIPPINE CHARITY
SWEEPSTAKES OFFICE (PCSO) Lotto in excess of
P10,000 (upon which individual prizes and winnings
P10,000 or below are taxed on the basis of the income tax
schedule for individuals) are taxed at the rate of 20%.
 Interest income from a depository bank under the
expanded foreign currency deposit system is taxed at the
rate of 15%.
 Income from long-term deposits and investments, when
pre-terminated in less than three years after making such
deposit or investment, is taxed at the rate of 20%; less
than four years, 12%; and, less than five years, 5%.
 DIVIDENDS
 Cash and property dividends are taxed at the rate of
10%.
CAPITAL GAINS
 Capital gains from the sale of shares of stock not traded
in stock exchange are taxed at the rate of 15%.
 Capital gains from the sale of real property are taxed at
the rate of 6%, except when such proceeds would be
used to construct a new property within eighteen
months after the sale had occurred.
 INCOME TAX FOR CORPORATIONS
 The income tax rate for corporations is 30%.
B. INDIRECT TAXES
 1. VALUE-ADDED TAX is a type of indirect tax
imposed on goods and services. It is typically
passed on to the buyer as part of the selling
price. The value-added tax (VAT) rate since 2006
is 12%. Both imported and domestic goods and
services are covered by VAT, but there are many
exemptions. The list of exemption can be found
in Section 109 of the Tax Code.
2. PERCENTAGE TAX
 PERCENTAGE TAX is a business tax imposed on
persons or entities/transactions: who sell or lease
goods, properties or services in the course of trade or
business and are exempt from value-added tax (VAT)
under Section 109 (w) of the National Internal Revenue
Code, as amended, whose gross annual sales and/or
receipts do not exceed Php 1,919,500 and who are not
VAT-registered; and, engaged in businesses specified in
Title V of the National Internal Revenue Code.
3. EXCISE TAX
 EXCISE TAX is an indirect tax on selected goods that
have negative externalities and are non-essentials. Excise
tax can be either specific or ad valorem.
 SPECIFIC is based on weight, volume capacity, or any
other physical unit of measurement.
 AD VALOREM (literally meaning “according to value”) is
based on selling price or other specified value. This is a
measure to discourage too much consumption of scarce
resources and limit the bad effects of some products.
 There are the commodities subject to excise taxes; Sin
products ( alcohol and tobacco), petroleum,
miscellaneous articles (automobiles, jewelry, perfume,
and toilet waters, yachts, and other vessels intended for
pleasure or sports), and mineral products.
 Taxes can also be classified as to who imposes them,
either the National Government or the Local
Government (LGU)
C. NATIONAL TAXES
 the taxes imposed by the national government of the
Philippines include, but are not limited to:
 Income tax (Compensation, Business, Passive)
 Estate tax;
 Donor’s tax;
 Value-added tax;
 Percentage tax;
 Excise tax; and
 Documentary Stamp tax
D. LOCAL TAXES
 One of the main sources of revenues of the
local government units is the real property
tax, which is a tax imposed on all types of
real properties including lands, buildings,
improvements, and machinery.
 Another source of revenue are local
ordinances such as parking fees and the like.
BRIEF HISTORY OF PHILIPPINE
TAXATION
SPANISH ERA
 During the 17th and 18th centuries, the CONTADOR
DE’ RESULTAS served as the Chief royal Accountant
whose functions were similar to the Commissioner of
Internal Revenue today.
 He was the Chief Arbitrator whose decisions on financial
matters were final except when revoked by the Council
of Indies.
 During those times, taxes that were collected from the
inhabitant varied from tribute or head tax of one gold
maiz annually; tax on value of jewelries; indirect taxes on
tobacco, wine, cockpits, burlas, and powder.
 From 1521 to 1821, the Spanish treasury had to
subsidize the Philippines in the amount of P250,000,00
per annum due to the poor financial condition of the
country, which can be primarily attributed to the poor
revenue collection system.
AMERICAN ERA
 In the early American regime from the period 1898 to
1901, the country was ruled by American military
governors. In 1902, the first civil government was
established under William H. Taft. However, it was only
during the term of second civil governor Luke E. Wright
that the Bureau of Internal Revenue (BIR) was created in
July 2, 1904.
 On August 1, 1904, the BIR was formally organized and
made operational under the Secretary of Finance, Henry
Ide (author of the Internal Revenue Law of 1904), with
John S. Hord as the first Collector.
 The second American collector was Ellis Cromwell
(1909-1912)
 The third American collector was William T. Holting
(1912-1914). During his term, collections by the Real
Estate and License Divisions were confined to revenue
accruing to the City of Manila.
 The fourth American collector was James J. Rafferty
(1914-1918).
 In line with the Filipinization policy of then US President
McKinley, Filipino Collectors are appointed. The first
three (3) BIR Collectors were: Wenceslao Trinidad
(1918-1922); Juan Posadas Jr. (1922-1934) and Alfredo
Yatao (1934-1938).
 In 1937, the Secretary of Finance reorganized the
Provincial Inspection Districts and maintained in each
province an Internal Revenue Office supervised by a
Provincial Agent.
JAPANESE ERA
Under the Japanese regime
(1942-1945), the Bureau was
combined with the Customs
Office and was headed by a
Director of Customs and
Internal Revenue.
POST-WAR ERA
 On July 4, 1946, when the Philippines gained its
independence from the United States, the Bureau was
eventually re-established separately.
 The country was divided into 31 inspection units, each
of which was under a Provincial Revenue Agent and
City Revenue Agent in distilleries and tobacco factories.
 In 1951, the withholding tax system was adopted by
Republic Act (RA) 690. this method of collecting income
tax upon receipt of the income resulted to the collection
of approximately 25% of the total income tax collected
during the said period.
 From 1954 to 1957, major reorganization took place in
the Bureau which created various offices, including the
setting up of regional offices in Cebu and Davao in 1955.
the Bureau’s organizational set-up expanded beginning
1956 in line with the regionalization scheme of the
government.
 In January 1957, the position title of the head of the
Bureau was change from Collector to Commissioner.
The last Collector and the first Commissioner of the BIR
was Jose Aranas.
 In 1958, the Tax Census Division was established to
consolidate all statements of assets, incomes and liabilities of
all individual and resident corporations in the Philippines
into a National Tax Census.
 On June 19, 1959 the Rewards Law (RA No. 233) was
passed to strictly enforce the payment of taxes and to further
discourage tax evasion, whereby informers were rewarded
the 25% equivalent of the revenue collected from the tax
evader.
 In 1964, the Philippines was sub-divided again into 15
regions and 72 inspection districts. The Tobacco Inspection
Board and Accountable Forms Committee were also created
directly under the Office of the Commissioner.
MARCOS ADMINISTRATION
 In 1965, Commissioner Misael Vera implemented the
“Blue Master Program” to curb the abuses of both the
taxpayers and BIR personnel; and the “Voluntary Tax
Compliance Program” to encourage professionals in the
private and government sectors to report their true
income and to pay the correct amount of taxes.
 In 1970, each taxpayer was provided with a permanent
Tax Account Number (TAN) which resulted into faster
verification of tax records.
 Similarly, the payment of taxes through banks, and the
package audit investigation by industry were implemented.
 During the Martial Law years, several tax amnesty decrees
were issued by the President to enable erring taxpayers to
start anew.
 In 1976, the Bureau’s National Office was transferred from
the Finance Building in Manila to its own building in Quezon
City.
 In 1977, President Marcos promulgated the National Internal
Revenue Code of 1977, which updated the 1934 Tax Code.
 In 1980, Commissioner Ruben Ancheta further reorganized
the Bureau.
AQUINO ADMINISTRATION
 After the EDSA Revolution in February
1986, “Operation:Walang Lagay” was
launched to promote the efficient and
honest collection of taxes.
 On January 20, 1987, Commissioner
Bienvenido Tan, Jr. reorganized the
Bureau.
In 1988, the value-added tax (VAT) was introduced. The
adoption of the VAT system was one of the structural
reforms provided for in the 1986 Tax Reform Program,
which was designed to simplify tax administration and
make the tax system more equitable.
In 1989, Commissioner Jose Ong improved tax collection
and simplified tax administration. The Tax Account Number
(TAN) was replaced by the Taxpayer Identification Number
(TIN) and adopted the New Payment Control System and
Simplified Net Income Taxation Scheme.
RAMOS ADMINISTRATION
 In 1993, Commissioner Liwayway Vinzons-Chato
implemented the Action-CenteredTransformation Program
(ACTS) to realign and direct the entire organization towards
the fulfillment of its vision and mission.
 In 1994, a five-year Tax Computerization Project (TCP) was
undertaken which involved the establishment of a modern
and computerized Integrated Tax System and Internal
Administration System.
 In July 1997, the BIR was further streamlined to support the
implementation of the computerized Integrated Tax Syatem.
ESTRADA ADMINISTRATION
 Commissioner Beethoven Rualo enhanced the voluntary
compliance and implemented the Economic Recovery
Assistance Payment (ERAP) Program, which granted
immunity from audit and investigation to taxpayers who
have paid 20% more than the tax paid in 1997 for
income tax, VAT and/or percentage taxes.
 In 1999, the raffle promo “Humingi ng Resibo, Manalo
ng Libo-Libo” was institutionalized to encourage
consumers to demand sales invoices and receipts.
 In 2000, Commissioner Dakila Fonacier implemented
the full utilization of tax computerization in the Bureau’s
operations; expansion of the use of electronic
Documentary Stamp Tax metering machine and
establishment of tie-up with the national government
agencies and local government units for the prompt
remittance of withholding taxes; and implementation of
Compromise Settlement Program for taxpayers with
outstanding accounts receivable and disputed
assessments with the BIR.
 The Large Taxpayers Service (LTS) and the Excise
Taxpayers Service (ETS) were established to reinforce
the tax administration and enforcement capabilities of
the BIR. The BIR also implemented a Full Integrated Tax
System (ITS) Rollout Acceleration Program to facilitate
the full utilization of tax computerization in the Bureau’s
operations.
ARROYO ADMINISTRATION
 In 2001, Commissioner, Atty. Rene G. Banez,
implemented changes that made the tax system simpler
and suited to the Philippine culture, more efficient and
transparent. He also implemented the Voluntary
Assessment Program and Compromise Settlement
Program and expansion of coverage of the creditable
withholding tax system. A technology-based system that
promotes the paperless filing of tax returns and payment
of taxes was also adopted through the Electronic Filing
and Payment System (EFPS).
 In 2002, Commissioner Guillermo L. Parayno, Jr. offered a
Voluntary Assessment and Abatement Program (VAAP) to
taxpayers with under-declared sales/recepts/income. He
adopted the Reconciliation of Listings for Enforcement of
RELIEF System to detect under-declarations of taxable
income by taxpayers and the electronic broadcasting system
to enhance the security of tax payments.
 The BIR expanded its electronic services to include the web-
based TIN applications and processing; electronic raffle of
invoices/receipts; provision of e-payment gateways; e-
substituted filing of tax returns and electronic submission of
sales reports.
 High-profile tax evaders were sued under the Run After Tax
Evaders (RATE) Program and cash register machines and point-of-
sale machines were registered with the BIR.
 In 2006, Commissioner Jose Mario C. Bunag expanded the RATE
Program to the Regional Offices; inclusion of new payment
gateways, such as the Efficient Service Machines and the G-Cash
and SMART Money facilities; implementation of the
Benchmarking Method and installation of the Bureau’s e-
Complaint System, a new e-Service that allows taxpayers to log
their complaints against erring revenuers through the BIR website.
The Nationwide Rollout of Computerized Systems (NRCS) was
also undertaken to extend the use of the Bureau’s Integrated Tax
System across its non-computerized Revenue District Offices.
 In 2007, the National Program Support for Tax Administration
Reform (NPSTAR), a program funded by various international
development agencies, was launched to improve the BIR efficiency
in various areas of tax administration (i.e. taxpayer compliance,
tax enforcement and control, etc)
 In 2007, Commissioner Lilian B. Hefti embarked on data
matching of income payments of withholding agents against the
reported income of the concerned recipients. Information sharing
between the BIR and the Local Government Units (LGUs) was
aimed to uncover fraud and non-payment of taxes. Computer-
Assisted Audit Tools and Techniques (CAATTs) was used to
enhance the Bureau’s audit capabilities.
 In 2008, Commissioner Sixto S. Esquivas IV closed erring
business establishments under the “Oplan Kandado”
Program.
 A Taxpayer Feedback Mechanism was also established were
complaints on erring BIR employees and taxpayers who do
not pay taxes and do not issue Ors/invoices can be reported.
 In 2009 Commissioner Joel L. Tan-Torres pursued a high
visibility public awareness campaign on the Bureau’s
enforcement and taxpayer’s service programs. He
institutionalized several programs to improve revenue
collections.
AQUINO ADMINISTRATION
Under Commissioner Kim S.
Jacinto-Henares, the BIR focused
on the filing of tax evasion cases.
The BIR was able to collect more
than one-half of the total
revenues of the government.
DUTERTE ADMINISTRATION
 Rodrigo Duterte signed the Republic Act 10963
or the Tax Reform for Inclusion and
Acceleration Act of 2017, which lowered
personal income tax rates but increased taxes on
certain goods, leading to a net increase in
revenue.
 This excess revenue will be used to fund the
major expansion in public infrastructure in the
country.
WHAT IS THE TAX REFORM PROGRAM ?
 We are redesigning our tax system to be simpler, fairer,
and more efficient for all, while also raising the resources
needed to invest in our infrastructure and our people.
 We will lessen the overall tax burden of the poor and the
middle class.
 the Tax Reform for Acceleration and Inclusion (TRAIN)
is the first package of the comprehensive tax reform
program (CTRP) envisioned by President Duterte’s
administration, which seeks to correct a number of
deficiencies in the tax system to make it simpler; fairer,
and more efficient.
 It also includes mitigating measures that are designed to
redistribute some of the gains to the poor.
 Through TRAIN, every Filipinos contributes in funding
more infrastructure and social services to eradicate
extreme poverty and reduce inequality towards
prosperity for all.
 TRAIN addresses several weaknesses of the current tax
system by lowering and simplifying personal income
taxes, simplifying estate and donor’s taxes, and
introducing excise tax on sugar –sweetened beverages.
WHAT WILL THE TAX REFORM FUND?
1. EDUCATION
 The tax reform will be able to fund investments
in education, achieving a more conducive
learning environment with the ideal teacher-to-
student ratio and classroom-to-student ratio:
 Achieve the 100% enrollment and completion
rates
 Build 113, 553 more classrooms
 Hire 181, 980 more teachers between 2017 and
2020.
2. HEALTHCARE SERVICES
 With the tax reform, we can invest more in our
country’s healthcare by providing better services and
facilities:
 Upgrade 704 local hospitals and establish 25 local
hospitals
 Achieve 100% PhilHealth coverage at higher quality
services.
 Upgrade and/or relocate 263 rural and urban health
units to disaster-resilient facilities.
 Build 15, 988 new barangay health stations
 Build 2, 424 new rural health units and urban health
centers.
 Between 2017 and 2022, hire an additional 2, 424
doctors, 29,466 nurses, 1, 114 dentists, 3, 288
pharmacists, 2, 682 medical technologists, 911 public
health associates, and 2, 497 UHC implementers
3. INFRASTRUCTURE PROGRAMS
 The additional revenue raised by the tax reform will be
used to fund the infrastructure program of the
Department of Public Works and Highways (DPWH),
which consists of major highways, expressways, and
flood control projects.
 Funding these major infrastructure projects is possible
with tax reform for our country to sustain high and
inclusive growth.
 The tax reform program aims to provide the needed
additional revenues that would fund our country’s
investment needs, promoting better lives for Filipinos.
WHAT IS THE TRAIN LAW?
 TRAIN stands for Tax Reform for Acceleration and
Inclusion.
 The Tax Reform for Acceleration and Inclusion (TRAIN)
is the first package of the comprehensive tax reform
program (CTRP) envisioned by the President Duterte’s
administration, which seeks to correct a number of
deficiencies in the tax system to make it simpler, fairer,
and more efficient.
 The goal of the first package of the Comprehensive Tax
Reform Program (CTRP) or TRAIN is to create a more
just, simple, and more effective system of tax collection,
as per the constitution, where the rich will have a bigger
contribution and the poor will benefit more from the
government’s program and services.
The major features of the TRAIN are as
follows:
 1. Lowering the Personal Income Tax (PIT)
 2. Simplifying the Estate and Donor’s Tax
 3. Expanding the Value-Added Tax (VAT) Base
 4. Increasing the Excise Tax of Petroleum Products
 5. Increasing the Excise Tax of Automobiles
 6. Excise Tax on Sweetened Beverages
A. 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 P8million, 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
500,000 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.
B. SIMPLIFYING THE ESTATE AND
DONOR’S TAX
 In the current system, the tax rates can reach up to 20%
of the net estate value and up to 15% on net donations.
 TRAIN seeks to simplify this. Estate and donor’s tax will
be lowered and harmonized so it does not matter if the
person passed away, donated a property, or simply wants
to transfer a property. This will result in loss revenues
but the key here is to make the land market more
efficient so that the land will go to its best use.
ESTATE TAX
 Instead of having a complicated tax schedule with
different rates, TRAIN reduces a 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
P5million and exemption for the first P10 million for the
family home.
DONOR TAX
 TRAIN also simplifies the payment of donor’s taxes to a
single rate of 6% of net donations is imposed for gifts
above P250,000 yearly regardless of relationship to the
donor.
C. EXPANDING THE VALUE-ADDED TAX
(VAT)
 The Philippines has one of the highest VAT rates but also the
highest number of exemptions in the Southeast Asia region.
Consequently the Philippines collect the same amount of VAT
revenues as a percentage of the economy as that of Thailand
despite only imposing a 7% VAT rate, while the Philippines is
at 12%.
 These tax exemptions have been given to many sectors and
were supposedly very well meaning. However, these
exemptions have also created much confusion, complexity,
and discretion in our tax system resulting in leakages and
opening doors for negotiations, corruption, and tax evation.
 The truth is, these exemptions are not free and someone
pays for them, and it is most often the poor who pays as
they are deprived of quality public service necessary to
accelerate their graduation out of poverty.
 TRAIN aims to clean up the VAT system to make it fairer
and simpler and lower the cost of compliance for both
the taxpayers and tax administrators. This is achieved by
limiting VAT exemptions to necessities such as raw
agriculture food, education, and health.
 This does not mean that the benefits the poor rightly
deserve will be removed. The Duterte administration
commits to use the budget to provide targeted transfers
and programs that are more transparent and accountable.
The administration will direct the way to protect the
poor and vulnerable compared to the tax exemptions
and blind subsidies that are inefficient and largely
beneficial to the rich since they have higher purchasing
power.
D. INCREASING THE FUEL EXCISE TAX
 TRAIN increases the excise of petroleum products, which
has not been adjusted since 1997. the non-indexation of fuel
excise tax to inflation has eroded the revenues collected by
P140 billion per year in 2016 prices.
 Fuel excise is wrongly perceived to be anti-poor. Based on
the Family Income and Expenditure Survey (FIES) 2015, the
top 10% richest households consume 51% of total fuel
consumption. The top 1% richest households consume 13%,
which is equivalent to the aggregate consumption of the
bottom 50% of households. Clearly, this is a tax that will
affect the rich far more than the poor, given their greater oil
consumption than the poor.
The Duterte administration is
also doing this to address
environmental and health
concerns. By taxing dirty fuels
correctly, we are also investing in
a more sustainable future for our
country.
E. INCREASING THE EXCISE TAX OF
AUTOMOBILES
 TRAIN simplifies the excise tax on automobiles, but
lower-priced cars continue to be taxed at lower rates
while more expensive cars are taxed at higher rates. This
excise will raise revenue in a very progressive manner as
the richer buyers tend to own more and expensive cars
compared to those who earn less.
F. INCREASING THE TAX OF SUGAR-
SWEETENED BEVERAGES
 The SSB excise tax will help promote a healthier Philippines.
Along with the Department of Health (DOH), DOH
supports this as part of a comprehensive health measure
aimed to curb the consumption of SSBs and address the
worsening number of diabetes and obesity cases in the
country, while raising revenue for complementary health
programs that address these problems. This is a measure that
is meant to encourage consumption of healthier products, to
raise public awareness of the harms of SSBs, and to help
incentivize the industry to develop healthier products and
complements.
WHY IMPOSE A TAX ON SSBs?
 Most of the sugar-sweetened beverage, with some
notable exceptions provide unnecessary or empty
calories with little or no nutrition. SSBs are not a for
healthy foods such as fruits and rice.
 SSBs are relatively affordable especially to children and
the poor who are most vulnerable to its negative effects
on health.
 SSB products are easily accessible and can be found in
almost any store, unlike other sweetened products. Most
often, the poor and the children are not aware of their
consequences.