Tax Reform for Acceleration and Inclusion Law

House of Representatives House Bill No. 4774 is credited as the original measure that led to the TRAIN Act. It was endorsed by the Department of Finance (DOF) to the Philippine House of Representatives on September 26, 2016, as the first package of a wider CTRP. It was filed before the legislature on January 17, 2017, by Congressman Dakila Cua of Quirino. Cua is also the chairperson of the Ways and Means Committee of the Congress which deals on taxation. Senate A version of the bill was filed in the Senate in March 2017 by Senate President Aquilino Pimentel III. By May 2017 six public hearings were conducted by the senate. The Senate had to wait for the House of Representatives version to get passed before it could start plenary discussions like other bills on budget or tax and appropriations. The Senate voted 17–1 to approve the Tax Reform Acceleration and Inclusion (TRAIN) bill, with Sen. Risa Hontiveros being the lone dissenter on November 28, 2017. On the succeeding voting for the TRAIN, the positive votes were cast by Senators Sonny Angara, Nancy Binay, Frank Drilon, JV Ejercito, Chiz Escudero, Win Gatchalian, Dick Gordon, Gringo Honasan, Loren Legarda, Joel Villanueva, Koko Pimentel, Grace Poe, Ralph Recto, Tito Sotto, Cynthia Villar and Migs Zubiri. The negative votes were cast by Senators Ping Lacson, Risa Hontiveros, Bam Aquino and Antonio Trillanes IV on November 28, 2017. Within the same day, the Senate bill passed the third and final reading with 17 senators voting for the bill. Only Risa Hontiveros voted against the bill. the House of Representatives and the Senate ratified the version of the bill prepared by the Bicameral Conference Committee on December 13, 2017. Signing into law and partial veto President Duterte exercised his veto power to void 5 provisions of the law. The provisions vetoed were the following: • Reduced income tax rate of employees of Regional Headquarters (RHQs), Regional Operating Headquarters (ROHQs), Offshore Banking Units (OBUs), and Petroleum Service Contractors and Subcontractors; • Zero-rating of sales of goods and services to separate customs territory and tourism enterprise zones; • Exemption from percentage tax of gross sales/receipts not exceeding five hundred thousand pesos (₱500,000.00); • Exemption of various petroleum products from excise tax when used as input, feedstock, or as raw material in the manufacturing of petrochemical products, or in the refining of petroleum products, or as replacement fuel for natural gas fired combined cycle power plants; and • Earmarking of incremental tobacco taxes. Proposed repeal In May 2018, following reports on how TRAIN-related price hikes had affected the poor, Rep. Carlos Zarate filed House Bill 7653 seeking to repeal some provisions of the TRAIN law. The bill sought to remove, among other things, the VAT on electricity and low-cost housing. In May 2019, human rights lawyer Chel Diokno and former deputy speaker Erin Tañada joined labor day protesters to call for the repeal of the TRAIN law, amendments to the Labor Code of the Philippines, and ending endo contractualization. == Complementary measures ==

There are four complementary measures undertaken to ensure the income from the TRAIN Law will be properly allocated for the development of the Philippines as a nation. These are the Tax Administration, Ear Making, Infrastructure Projects, and Social Programs. Tax administration Steps to modernize and refine the tax administration processes are undertaken to support the changes in tax policy so as to improve security against tax crimes and to ensure taxpayer compliance. On top of improving electronic systems (e.g. eBIR forms, Electronic Filing and Payment System, mobile payments) the following reforms are implemented: • Mandatory fuel marking • Provision for use of electronic receipts • Connection of cash registers and point of sale machines to BIR servers for real time reporting of sales and purchase data • Relaxation of bank secrecy laws and automatic exchange of information to allow for more effective prosecution of criminal cases Ear marking For 5 years from the law's enactment, all revenues will be set aside for infrastructure and social programs only, with a 70% and 30% portion respectively. Infrastructure projects Infrastructure projects that will receive priority funding include the Build, Build, Build Program that tackles the problem of congestion through the construction of public transport systems and road networks and the refurbishing and enhancing of military facilities. Additionally, part of the 70% will be allocated to the building of sports facilities in public schools as well as amenities that will allow access to potable water in public spaces. Social programs The social programs that will receive priority funding from 30% of revenues include: • Programs for sugar farmers to increase productivity, provide livelihood opportunities, develop alternative farming systems, and enhance farmer's income • Social mitigating measures and investments in education, health, social protection, employment, and housing for poor and near-poor households • Unconditional cash transfer to the poorest 10 million households • Social benefits card to determine qualified beneficiaries (fuel vouchers for PUJs, fare discount for all public utility vehicles, discounted purchase of NFA rice, free skills training under TESDA) Unconditional cash transfers (UCT) In order to provide provisional protection for vulnerable households from the initial shock of the TRAIN Law, unconditional cash transfers are dispensed. On the first year, beneficiaries receive ₱200 per month. In the succeeding 2 years, they receive ₱300 per month. The UCT is obtained from oil excise tax revenues. In addition to the UCT, social welfare cards are provided to aid in continuous conferring of benefits and subsidies to the poorest households. This includes subsidies for "medicine, transportation, rice, and vocational trainings". == Key provisions ==

Package One The overarching goal of the first package of the TRAIN is to "create a simpler, fair, and more efficient system". Through this program, the richer tax payers of the Philippines will pay a greater contribution to enable the government to execute its programs and services targeted to the general improvement of the country, especially the less fortunate. There are six main key provisions, three additional excise taxes, and four financial taxes. Income tax "The TRAIN lowers the Personal Income Tax (PIT) for all taxpayers except the rich". Simplified value added tax The government's aim to elevate the less fortunate in the Philippines and drive development is exemplified as the TRAIN repeals 54 out of 61 of the non-essential VAT exemption. In order to protect these less fortunate persons, as well as small and micro businesses, they are exempted from VAT on goods and services of marginal establishments. VAT exempt tax payers now have the option to: • PIT schedule with 40% OSD on gross receipts or gross sales plus 3% percentage tax • PIT schedule with itemized deductions plus 3% percentage tax, or • Flat tax of 8% on gross sales or gross revenues in lieu of percentage tax and personal income tax. Listed below is the effect of the Petroleum Excise Tax (note: the additional excise tax is per liter) Listed below are the new excise taxes for specific fuel products for the year 2018 Excise Tax of Automobiles increase The table below summarizes the excise taxes on automobiles. The second column illustrates the tax rate on vehicles based on their specific price range. The third column portrays the actual average effective tax rate. Because the TRAIN law increases the PIT of 99% of the population, their increase in net income will still be more than enough to compensate for the effects of the excise tax on automobiles. This means they still benefit from the TRAIN as they incur additional disposable income in the end. In addition, because richer tax payers tend to purchase more cars, the additional revenue from this tax will mostly come from them. Excise Tax on Sweetened Beverages "The SSB (Sugar-Sweetened Beverages) tax will promote a healthier Philippines". It achieves this by reducing the increasing number of diabetes and obesity cases, through raising awareness, promoting the consumption of healthier products and encourage companies to innovate healthier alternatives. However, it remains a major source for air pollution in the Philippines. The aim of the excise tax is to shift towards renewable energies and generate additional income for building infrastructures and social services. The excise tax on coal will increase from its original ₱10/Metric Ton(MT) to ₱50/MT on both domestic and imported coal. ₱50/MT will be added each succeeding year until January when the rate would have reached ₱150/MT. == Projected effects ==

The three main categories the TRAIN Law affects with its first package are "Growth in the Economy", "Employment Generation", and "Effect on Inflation". The DOF projects the economy to grow by 1.3% by 2022 with a 0.42% inflation due to the excise tax increase (this is still within the 2–4% target inflation by the Bangko Sentral ng Pilipinas (BSP); it also predicts to create half a million jobs over the next ten years, and eight million over the entirety of its life, as well as lift 250,000 Filipinos out of poverty. Through the increase in excise tax, Package 1 will be able to generate ₱134 billion. The actual effects in 2018 are elaborated below. Economic growth For the first quarter of 2018, the government was able to raise ₱619.84 billion. This represents a 16.4% growth in revenue compared to the first quarter of 2017. In monetary terms, the government was able to raise ₱87.44 billion more in this quarter of 2018 compared to the previous year. "The Philippine economy expanded by 6.8 percent in the first quarter of 2018, making it still one of the fastest-growing economies in the region even as rising inflation reduced consumption and productivity in some sectors." The PSA said this was primarily due to the higher annual rate posted in the heavily weighted food and non-alcoholic beverages index at 6.1%. The country's food index went up by 5.8% in June 2018. It was 5.5% in the previous month and 3.1% in June 2017. The following annual markups were also observed for the following food groups: • Rice (4.7%) • Corn (14.1%) • Other Cereals, Flour, Cereal Preparation, Bread, Pasta and Other Bakery Products (2.4%); • Meat (5.0%); • Vegetables (8.6%); • Sugar, Jam, Honey, Chocolate and Confectionery (3.9%); and • Food Products not Elsewhere Classified (3.1%). As for the rest of the food groups, they either slowed down or remained at their previous month's rate. == Effects ==

Poverty Studies by the Philippine Institute for Development Studies said that the TRAIN law likely worsened poverty and income inequality for millions of Filipinos. Oil price hikes Despite eight consecutive weeks of oil price rollbacks in 2018, the TRAIN law caused the retail price of oil products to remain high, which caused inflationary outcomes that affect the poor more than the rich, according to research group IBON Foundation. Consumer prices Consumer prices increased by 6.7% in September 2018 due to the TRAIN law, which was the highest surge in 9 years. == Reactions ==

The TRAIN Law took effect in January 2018. Since its implementation, there have been numerous individuals for and against the new tax reform, such as Budget Secretary Benjamin Diokno who has expressed support for the law as the additional revenues provide funds for government initiatives. Senators who opposed the law or parts of the law include Sen. Risa Hontiveros, Sen. Bam Aquino and Sen. Grace Poe. This is also being pushed forward by the Department of Finance by submitting its proposal for Package 2 of its tax reform program to congress which aims to reduce corporate income tax rates and rationalize fiscal incentives. Managing the effects of inflation According to the DOF's chief economist, Gil Beltran, the moderate rise in inflation is only temporary and remains manageable under a robust economy even with the implementation of the TRAIN law. It will be remedied by the increased spending on infrastructure and social services to keep inflation in check in the future which was what the president was hoping to achieve with the implementation of this law. TRAIN is seen as a long-term measure that would hope to push the economy to a much higher development path, create more jobs and improve the living conditions for our people. However this comes with the rising of inflation which would be mitigated by lower income tax rates and implementing cash transfers for the short-term, and; the health, education, social protection, and infrastructure programs in the medium- and long-term. In May 2018, commuters signed a petition against the TRAIN law, citing price increases since the law's implementation. Procedural concerns in Congress The Makabayan bloc filed a petition for a temporary restraining order against the law. The petition was anchored on the argument that the tax law was invalid because there was no quorum when the House of Representatives ratified the joint bicameral conference report on the measure, and there was no voting involved. The petitioners provided links to official videos and photos that would show there was no quorum "with barely 10 people on the floor." The petitioners also argued that the draft law did not obtain the required majority vote. According to the petitioners, a vote whether viva voce or nominal, was not taken. The official video of the process shows Antonio Tinio and Carlos Zarate repeatedly objecting to the ratification, but Raneo Abu and Arthur Defensor Jr. continued with the process until the voices of the petitioners were no longer heard because the microphone had been turned off. Aside from the House rules, the petitioners said Section 16(2), Article VI of the Constitution that requires a quorum was also violated. Call for suspension In July 2018, three senators called for the suspension of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law as consumers and transport groups complained of soaring prices of commodities. These were on the grounds that the law was not beneficial to the majority of Filipinos, due to the increase in prices of oil products and commodities, a family has incurred an additional expense of ₱2,644 monthly for farmers and ₱3,640 for workers. In November 2021, a House of Representatives committee approved a bill to temporarily suspend or reduce excise tax on fuel products to address oil price hikes in the Philippines, and ease the effect of price hikes on transport and agricultural workers. Call for exception In February 2023, Danilo Ramos of peasant organization Kilusang Magbubukid ng Pilipinas called on President Bongbong Marcos to remove the VAT on oil to lower the price of petroleum products, ease inflation, and give financial relief to poor families. Amendments Senator Bam Aquino wanted to pass a measure that seeks to amend TRAIN to protect Filipinos from soaring prices. Aquino explained that the Senate's version of the TRAIN law had a safeguard that would automatically suspend fuel excise tax if the forecast rate was exceeded and this amendment was to bring that sole safeguard back. According to the senator, this was a necessary step in order to protect the future well beings of the Filipino people. The Department of Energy requested amendments to the TRAIN law to allow government to suspend excise taxes on petroleum products. Militant groups warned that many Filipinos will face hunger due to the excise tax that will be imposed on various goods. ==SC decision==

The Supreme Court en banc, in its session on January 24, 2023, in 13–1 (one on leave) vote, dismissed consolidated petitions from consumer group Laban Konsyumer and former Makabayan bloc legislators to declare the TRAIN law as unconstitutional. == References ==