Republic of the Philippines

BATANGAS STATE UNIVERSITY

GRADUATE SCHOOL DEPARTMENT

In Partial Fulfilment of the Requirements in

POSITION PAPER

Presented by:

Sharmaine Brillo
Leslie Calcetas
Joselito Malaluan
Niño Michael Pagcaliwagan

With

Cristina Abarrientos

Presented to:

Asst. Professor Inesio H. Sadiangcolor

I. Front Page

II. Table of Contents

III. Summary

IV. Introduction

V. Issues and Research Questions

VI. Method Considerations

VII. Theory and Analytic Framework

VIII. Analysis

IX. Conclusions

X. References

XI. Appendices
 III. Summary

This position paper aims to determine the effects of the implementation of the Tax Reform for
Acceleration and Inclusion Act from the different aspects of the economic business environment.

Specifically, this study sought to answer some questions. To gather information and responses
regarding to the instances whether to reform the said law in order to encourage savings, Bangko Sentral’s
for aiming zero inflation rate, the policymakers of the economy, government budget, and the monetary
policy be made by rule or discretion.

The researcher used a qualitative method because it is the best technique to be used by the
researchers for the reason that the outcomes are not measurable and quantifiable. The researchers also
used secondary qualitative data since the generated information came from the form of documents and
government agencies, and it is a viable option for the researchers as they have limited time and resources.
For the purposes of this position paper, the researchers used an exploratory research design for the data
collection is unstructured and just provide insights into the general nature of issue and only based the
analysis on their judgment and interpretation. The researchers did focus group discussions to make
insights and clarify issues wherein they gathered information from articles and documents through books
and internet.

Furthermore, this paper also projects information and analysis about the Philippine tax system
and the formulation of the TRAIN Law subjects to the nation’s sustainable development and economic
growth as well as the perception of it by the businesses operating within the scope of the country. Hence,
conclusions were derived in this position paper regarding to the consolidation of different insights and
data gathered that undergo through the research methods done by the group. The said conclusion is
subject to the actual effects of the said implementation of the TRAIN Law with its positive effects
towards the nation and government in its long term operations.

IV. Introduction

A tax is a mandatory financial charge or some other type of levy imposed upon a by a
governmental organization in order to fund various public expenditures. A failure to pay, along with
evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may
be paid in money or as its labor equivalent. (McLure, 2015) Taxes are used by the government in
different purposes, some are for the development of roads and highways and to aid education. It should be
used properly and for the benefit of the people and society.

This year marks the full implementation of the Tax Reform for Acceleration and Inclusion
(TRAIN) Act. In gist, by 2040, the Philippines have eradicated extreme poverty and have achieved per
capita income comparable to the current status of prosperous Asian countries like South Korea. The
whole country will benefit. Even the rich, who will have to shoulder a bigger burden of taxation, will
benefit from the favorable economic and business environment and the strong institutions that
comprehensive tax reform will bring. (Filomeno S. Sta. Ana III)

The Tax Reform for Acceleration and Inclusion (TRAIN) Act, officially cited as Republic Act
No. 10963, is the initial package of the Comprehensive Tax Reform Program (CTRP) signed into law by
President Rodrigo Duterte on December 19, 2017. TRAIN consists of revisions to the National Internal
Revenue Code of 1997, or the Tax Code. This reform includes packages that make changes in taxation
concerning the personal income tax (PIT), estate tax, donor's tax, value added tax (VAT), documentary
stamp tax (DST) and the excise tax of petroleum products, automobiles, sweetened beverages, cosmetic
procedures, coal, mining and tobacco.

The prominent features of the tax reform is that people who earn ₱250,000 annually or ₱21,000
monthly and below are exempted from paying personal income tax (PIT). This includes minimum
wage earners, who were also exempted in the former tax system. On the other hand, those earning over
₱250,000 have tax rates following a set PIT schedule. Essentially, greater income is taxed at higher tax
rates. This denotes that low to middle income-earners get to have a higher take home pay, while high
income-earners have a bigger contribution to tax revenues. Increase in consumption taxes intend to
counterbalance PIT tax exemptions.

In this implementation, the government should fully inform its citizen on how the train law will affect
them. Each individual is having financial problems and have their own financial priorities in which they
make and find ways on how to suffice and meet their day-to-day expenses. Some of the financial
priorities are the basic needs, family insurance, investments and financial security. All financial decisions
and activities today are influenced by the new tax system at present and in the future. There is continuous
change in prices of goods and services wherein the Filipino people are highly affected specially those part
of the low-income generating family.

In this paper, the researchers will be able to answer if the Train Law should be reformed to
encourage savings. Moreover, aspect of inflation shall be given focus also in relation to the foregoing
issues to TRAIN Law as well as the government’s budget, and the monetary policy concerning the
economic development of the country.

V. Issues and Research Questions

The TRAIN LAW is one of the primary ways in which the 2020 and 2040 vision of
the Duterte administration is to be achieved, and so, it had optimistic projections about its effect on the
economy, development and poverty alleviation in its inception. Regardless, contentions about the passing
of this law has been present since the beginning and the subsequent reception by the people since its
ratification has been controversial. In the first quarter of 2018, both positive and negative outcomes have
been observed. The economy saw an increase in tax revenues, government expenditure and an
incremental growth in GDP. On the other hand, unprecedented inflation rates that exceeded projected
calculations, has been the cause for much uproar and objections. There have been petitions to suspend and
amend the law, so as to safeguard particular sectors from soaring prices. (Burgos, Jr. 2018)

On the other hand, for individuals who has financial difficulties and financial crisis and whose
income is Php 21,000.00 below per month, TRAIN Law gives them a benefit that they are exempted in
the payment of personal income tax. Because of this, they now have higher disposable income which can
be used in different purposes based on their needs and expenses. Also, TRAIN Law has its own vision
and goals: first, it intends to simplify the previous system to make it straightforward and intuitive.
Second, it intends to create a more "just" taxation scheme, wherein taxation is staggered and distributed
on the basis of financial capability and the underprivileged are able to reap more advantages. Third, it
intends to improve the efficiency by which tax is collected, particularly tackling issues of compliance.
 The change instituted by the tax reform is expected to be able to increase revenue to finance the
infrastructure, healthcare and education programs of the Duterte administration. This is all while
expecting to reduce tax remitted by the poor and receiving a greater portion of revenues from the
wealthiest in the population through personal income and consumption taxes. The tax received from the
latter will also subsidize, through unconditional cash transfers, the poorest 10 million households who
will not benefit from increased take-home pay as a result of lower income taxes.

VI. Method Considerations

In this section, it represents the research methods, design and procedures used by the researchers
to interpret and analyse the data gathered. The group used a qualitative method because it is the best
technique to be used by the researchers for the reason that the outcomes are not measurable and
quantifiable. The researchers also used secondary qualitative data since the generated information came
from the form of documents and government agencies, and it is a viable option for the researchers as they
have limited time and resources. For the purposes of this position paper, the researchers used an
exploratory research design for the data collection is unstructured and just provide insights into the
general nature of issue and only based the analysis on their judgment and interpretation. The researchers
did focus group discussions to make insights and clarify issues wherein they gathered information from
articles and documents through books and internet. They also conducted depth and unstructured
interviews to those people who are knowledgeable about the TRAIN Law and the underlying concept
about it. However, there is a possibility that the results cannot be generalised and limits its validity for the
reason that there are few knowledgeable individuals who are interviewed for this position paper and there
is a little time for the accomplishment of the said position paper. But despite all of these constraints, the
question if TRAIN Law should be reformed to encourage savings is still answered with the help of the
documents and data gathered.

VII. Theory and Analytic Framework

According to Ballada (2014), taxation is much more than just a means of raising revenue for the
government. It is also one of the major means by which the national government attempts to achieve
various economic and social objectives. These objectives include shifting wealth from the rich to the
poor, maintaining price stability, stimulating economic growth, and encouraging full employment.

Before the amendment of NIRC, those taxpayers having a salary or wage of not over Php 10,000
is subject already to 5% tax which many of them consider the latter as a financial burden due to different
financial priorities and day-to-day expenses. This year the government had the full implementation of Tax
Reform for Acceleration and Inclusion (TRAIN), otherwise known as RA 10963. TRAIN Law covers
many provisions including reduced personal income tax rates wherein those taxpayers who earn less than
Php 250,000 annually will be tax exempted already, new sugar tax, oil and fuel tax, and automobile
excise taxes. The government and administration believe that through reducing the amount of income to
be subject to tax rates can help the society to have more money to save and use in their daily living.
Considering that taxation is the lifeblood of the government which provides funds to support its projects,
it must be monitored in order to assure that those revenues coming from the taxpayers are fully utilized
according to its set usage.

According to book of Tabag and Garcia (2018), there are aspects of taxation which refer to
“stages, phrases or process” that are included or embodied in the term taxation such as:
 1. Levying.
Levying or imposition of the tax which is a legislative act or function.

2. Assessment.
Assessment or determination of the correct amount of applicable tax.

3. Collection.
Collection of the tax levied which is essentially administrative in character. The national agency
charged with the function of collecting internal revenue taxes is the Bureau of Internal Revenue.

Figure 1
Aspects of Taxation

Hypothesis:

The study was guided by this hypothesis:

The TRAIN Law should not be reformed to encourage savings for the reason that TRAIN Law
have an enormous and evident help to all employees whose personal income is Php 21,000.00 below due
to exemption in paying personal income tax which lead them to have a higher take home income.

The TRAIN Law also amends an outdated, inefficient, and unfair tax system while raising
enough funds to enable the country to reach its potential.

The appropriate way of assessing the TRAIN is to look at it by looking at the additional burden
on the tax side versus the additional benefit on the expenditure side.

VIII. Analysis

To begin with the Philippine tax system needed to be reformed. President Duterte’s planned
overhauling of the tax system was arguably his most highly-anticipated and consequential policy thus far
into his term. The plan, originally crafted by the Department of Finance, aims for a simpler, fairer, and
more efficient tax system that will promote investments, create jobs, and reduce poverty. Many sectors
have expressed support for it, including a group of former DOF and NEDA secretaries. But some
lawmakers have branded Train Law as heartless and anti-poor.

The TRAIN Act assails on two grounds—the law was ratified by the legislature in a session that
lacked the requisite quorum and the law itself is anti-poor. Consumer groups and other similar sectors
have expressed their support for the court petition against this new tax measure, but they are more
concerned about the substantive aspects of the law, rather than the technical objections raised by the
opposition lawmakers.Those opposed to the TRAIN Act argue that the reduction in income tax is
rendered meaningless by the tremendous increase in the taxes to be imposed on consumer goods, prime
commodities, medicines, electricity, and fuel.

Despite the adverse side of the said reform, the law is pro-people. It has programs that will solve
the predicaments of the people especially the unemployed like the giving of subsidies. The law is not a
hole maker on the pockets but it is a regulatory on how people keep and spend their earnings. If all
become responsible on how consuming power is exercised, all will really benefit from the law. The fear
on this implementation should serve as a reminder that every cent earned and spent are significant.

The nation must abide on the law. The administration has a strong framework why the law was
drafted and enacted. At the end, all have the democracy to choose on how the benefits will be utilized.
Inflation and reform are inevitable in the economy therefore we must go with the flow. There is always a
bumpy way in crossing progress. Being wise will help the Filipinos to have a smooth trip in life.

IX. Conclusion

The TRAIN Law is a reform initiative that is crucial to the poverty-reduction and economic
development goals of the country.

It amends an outdated, inefficient, and unfair tax system while raising enough funds to enable the
country to reach its potential.

For perspective, here are some of the things that the TRAIN Law can fund in the next five years:
public school classrooms, or public school teachers, or rural health units, or barangay health stations, or
provincial hospitals, or kilometres of paved roads, or kilometres of temporary bridge upgrades, or
hectares of irrigated land. Imagine being able to accomplish any of these things.

The positive effect of Tax Reform for Acceleration and Inclusion (TRAIN) law is not immediate
but rather medium to long term. The tax reform law may not be perfect, but it does provide a lot of
benefits to the low and middle-income classes. Creating more money in the pocket, though, does not
induce upgrade of the lifestyle. Be wise in managing the respective finances, remembering that prices of
some goods will go up as a result of increased excise taxes. Save and invest extra take-home pay, and
spend less on the non-essentials. Perhaps, time to quit smoking and drinking soda.

In the long term, TRAIN Act is just the first from a series of tax reforms, as part of the CTSP,
which will be one of the principal means by which the 2020 and 2040 vision of the incumbent
administration is to be achieved. The vision in 2020 is that poverty will be reduced , while 2040 sees the
Philippines as having “eradicated extreme poverty”, established “inclusive economic and political
institutions where everyone has equal opportunities” and achieved “high-income country status”. This can
be achieved if economic growth can be sustained by at least 7% each year and if the source of growth can
be shifted to investment from consumption. This means prioritizing investments on people through
"health, education, life-long training, social protection, infrastructure, and research and development" and
investments on infrastructure to boost productivity.
Overall, the TRAIN law has good intentions but we should be wary about how the
branches of government spend the tax money collected.

X. References
1. Ballada, W & S. (2014). “Income Taxation” 2014th Edition. Sampaloc, Manila: Made Easy Books

2.  Charles E. McLure, Jr. "Taxation". Britannica. Retrieved 3 March 2015.

3. Tabag, E.D. and Garcia EJ G. (2018). “Income Taxation” 2018 th Edition. Sampaloc Manila

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