President Rodrigo Duterte has vetoed five line items under the Tax Reform for Acceleration and Inclusion (TRAIN) Act in an effort to “ease the burden of the common taxpayers.”
On Tuesday, December 19, Duterte signed into law Republic Act No. 10963, or the TRAIN bill, which aims to raise funds for the multi-billion peso infrastructure program key to the government’s economic agenda. It takes effect on Jan. 1, 2018.
Copies of the vetoes, dated December 19, were released by the Palace Wednesday.
The President said Filipinos have been “constrained” by outdated tax laws, specifically high income taxes paid by workers. The passage of TRAIN would not only bring the country’s tax system up to date, but also provide resources which could be used to fund “social and economic infrastructure that will benefit the poor.”
Included in the deleted line items is the exemption of excise tax for various petroleum products when these are used as raw material in making petrochemical products, refining petroleum products, or when used as a substitute for power plants using natural gas.
Duterte said he struck out this line as it covered “all types” of petroleum products, and not a specific type. Leaving it as such, he said could lead to “massive revenue erosion.”
The earmarking of incremental tobacco taxes was also vetoed as the President said adding this would effectively amend the Sin Tax law that gives funding for universal health care.
“This provision will effectively diminish the share of the health sector in the proposed allocation,” Duterte said.
The President also omitted a line item saying gross sales/receipts not exceeding P500,000 shall be exempt from percentage tax.
He said taxpayers in this ctegory are already exempt from VAT. The loss of percentage tax from them would also result in unecessary erosion of revenues.
“The percentage tax on gross sales or gross receipts is considered as their fair share in contributing to the revenue base of the country,” Duterte said,
The line item “Zero-rating of sales of goods and services to separate customs territory and tourism enterprise zones” was likewise taken out.
The President said he vetoed this as “the proliferation of separate tax customs territories…creates significant leakages” in the tax system.
Exemptions already exist under the Tourism Infrastructure And Enterprise Zone Authority (TIEZA) law, Duterte said. Adding on other exemptions on top of that would significantly reduce tax revenues.
The TIEZA Law, still in effect for two years, could be used to avail of the incentives, Duterte said.
The fifth line item the President vetoed was the 15 percent tax rate of gross income to employees working in regional headquarters, regional operating headquarters, offshore banking units, and petroleum service contactors and subcontractors.
It would be unfair to tax employees falling under this category differently, the President said, and it violates the Equal Protection Clause of the 1987 Constitution.
In signing the 2018 budget as well as the tax reform bill, the President said these are “the administration’s biggest Christmas gift to the Filipino people.
In a speech at Malacañang on December 19, the President said 99 percent of taxpayers would benefit from what he said was a “simpler, fairer, and more efficient” tax system.
The TRAIN law is the first package of the administration’s much-awaited Comprehensive Tax Reform Program.
Duterte described the 2018 budget as “credible” and added it would be supported by the comprehensive income tax reform program embodied by the TRAIN.