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Jun 13, 2017
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The House of Representatives has approved, on the third and final reading, President Rodrigo Duterte's comprehensive tax reform package. 246 lawmakers voted yes to the bill last May 31, while only nine voted no, and one abstained.

House Bill 5636, also known as the Tax Reform for Acceleration and Inclusion Act (TRAIN), is the consolidated version of 55 bills all aiming to amend the current tax system. The bill is sponsored by Rep. Dakila Carlo E. Cua and Rep. Joey E. Salceda. 

The proposed revised income tax system is expected to bring relief to the personal income tax of the middle class. However, to compensate for the losses, higher excise taxes on petroleum products and automobiles will be implemented.

But before it becomes official, the bill will have to pass the Senate, where it will go through another 3 readings before it can be transferred to the Office of the President.

Here are the essential things that you should know in case this bill finally becomes a law.

1) OBJECTIVES OF THE BILL

According to the measure, the objectives of the bill are as follows:

To enhance the progressivity of the tax structure through rationalization of the internal revenue system, thereby promoting sustainable economic growth.

To provide equitable relief to a greater number of taxpayers in order to improve their levels of disposable income and increase their economic activity; and

To ensure that the government is able to provide for the needs of those under its jurisdiction and care through the provision of better infrastructure, health, education and social protection for the people, which can be done by raising sufficient revenues through the expansion of the value-added tax (VAT) base, increase of the excise taxes on petroleum and automobiles, and introduction of excise tax on sugar-sweetened beverages.

2) SIGNIFICANT CHANGES AND FEATURES 

Restructuring of the existing individual income tax rates. The proposal aims to exempt employees who earn P250,000 or below annually from income taxes. Also, the mandated 13th month pay of up to P82,000 and other bonuses will still be tax-free.

On the other hand, those earning 5 million and above, who comprise 0.1 percent of taxpayers, will be charged a higher rate of 35 percent.

Below are the proposed individual income tax rates for compensation income earners only.

For those who earn…

P250,000 and below — EXEMPTED

P250,000 to P400,000 — 20 percent of the excess over P250,000

P400,000 to P800,000 — P30,000 + 25 percent of the excess over P400,000

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P800,000 to P2 million— P130,000 + 30 percent of the excess over P800,000

P2 million to P5 million — P490,000 + 32 percent of the excess over P2 million

P5 million and above — P1, 450,000 + 35 percent of the excess over P5 million

Effective 2020 onwards, tax rates will be lowered further.

For those who earn…

P250,000 and below — EXEMPTED

P250,000 to P400,000 — 15 percent of the excess over P250,000

P400,000 to P800,000 — P22,500 + 20 percent of the excess over P400,000

P800,000 to P2 million— P102,500 + 25 percent of the excess over P800,000

P2 million to P5 million — P402,500 + 30 percent of the excess over P2 million

P5 million and above — P1,302, 500 + 35 percent of the excess over P5 million

3) PROPOSED HIGHER EXCISE TAXES ON THE FOLLOWING

Additional P10  tax per liter of volume capacity on sugar-sweetened beverages and carbonated drinks

Additional P3 tax on diesel and liquefied petroleum gas (first year of implementation)

Additional P2 tax on diesel and liquefied petroleum gas (second year of implementation)

Additional P1 tax on diesel and liquefied petroleum gas (third year of implementation)

Additional 4 percent tax for automobiles worth P600,000 and below

Additional P24,000 + 40 percent (in excess of P600,000) tax for automobiles (except for buses, trucks, cargo vans, jeeps, jeepney substitutes, and special purpose vehicles) worth P600,000 to P1.1 million

Additional P224,000 + 100 percent (in excess of P1.1 million) tax for automobiles (except for buses, trucks, cargo vans, jeeps, jeepney substitutes, and special purpose vehicles) worth P1.1 million to P2.2. million

Additional P1,224,000 + 200 percent (in excess of P2.1 million) tax for automobiles (except for buses, trucks, cargo vans, jeeps, jeepney substitutes, and special purpose vehicles) worth over P2.2. million

To make a long story short, if ever the bill becomes a law, there'll be higher take-home pay for the middle class. Coincidentally, however, prices of basic necessities will, in one way or another, be affected once the additional tax for petroleum products happens. For now, let's just wait and see if it'll successfully pass through the Senate as they discuss it on their second regular session starting July 24.

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