What To Expect When TRAIN 2 Goes Full Speed Ahead

Looks like the Duterte administration is adamant in pushing through with the second tranche of TRAIN—despite the rise seen in our inflation rate since the implementation of the first tranche of the tax reform law.

Last month, the country saw a 5.7 percent inflation rate last month. Nevertheless, TRAIN 2 is moving forward and Senator Vicente Sotto filed a bill for it to push through.

TRABAHO market

TRAIN 2 is actually now known as the Tax Reform for Attracting Better and High-quality Opportunities or TRABAHO Bill, which has already been approved by House Committee on Ways and Means Chairman Dakila Cua.

The renamed TRABAHO bill will do the following:

  • Retaining the preferential tax rate of 10 percent for private schools and hospitals, provided that they maintain their good performance
  • Reducing the corporate income tax (CIT) from the current 30 percent to 20 percent over the next 10 years
  • Retaining the income tax-exempt status of local water districts
  • Including “adjustment funds” worth P500 million every year for potential setbacks caused by the bill
  • Overhauling the outdated real property valuation system
  • Canceling additional taxes for airline and telecommunications companies, among others

As for the incentives enjoyed by corporations in the Philippines, they have been coded to the law itself. The Bureau of Internal Revenue will be the agency to judge whether a company can still reap certain benefits. With the TRABAHO Bill, high-performance companies that generate more jobs and invest in technology will not experience a decrease in the incentives enjoyed.

While it is expected that the TRABAHO Bill will negatively impact some businesses in the Philippines, Department of Finance Undersecretary Karl Kendrick Chua allayed the fears that the corporate package of the tax reform will lead to massive job loss.

“Kung masusunod ito ay tuloy po ang pagbibigay ng incentive, pero kung hindi po masusunod ito, ay dapat bawasan na natin kasi may mas malaking dahilan kung bakit natin kailangan idaan ang pera sa ibang pangunahing programa,” Chua said.

For people who will lose their livelihood because of the TRABAHO Bill, he said that this is where the adjustment funds come in, providing a contingency for the people affected by the bill.

“Yung fund is precautionary motive para sure tayo just in case. Wala pa tayong mine-measure na job loss.”

Meanwhile, Department of Trade and Industry Assistant Secretary Rafaelita Aldaba said that it would exert more effort in luring more investors to increase the number of ventures in the country, generate more jobs for the public, and in turn, raise the revenue collected.

“We will be able to attract more investors and that would mean more employment and more revenues,” Aldaba said.

(Read: Three Weeks After TRAIN Implementation—Has Change Come?)

One-track mind

Before the TRABAHO Bill dampened some measures that will hurt industries in the name of tax collection, the government is thinking of a more radical way to increase the amount that would go to its coffers.

Compared to other countries, the Philippines has the highest CIT in the Southeast Asian region. Unlike Singapore which boasts of the lowest CIT among our neighbors with 17 percent, the country slaps a whopping 30 percent levy on businesses in the Philippines. With TRAIN 2, the aim is to slash the CIT from its current rate to 25 percent by 2022.

This may sound like good news, especially to micro, small, and medium enterprises (MSMEs). So where is the opposition coming from? There are were two bills—namely House Bills 7214 and 7458—filed as alternatives to TRAIN 2!

With the second phase of TRAIN aiming to make corporate taxes more competitive in the Philippines, the government has to offset the loss in revenue by rationalizing the incentives provided to other sectors.

(Read: SONA 2018: Duterte On TRAIN Package 2, OFW Welfare, MSMEs, And Universal)

Some of the setbacks that can affect the Filipinos should the TRAIN 2 pushes with its current state are the adjustment of preferential rates for industries like private hospitals and schools, removal of fiscal incentives on certain enterprises, and the imposition of additional taxes on ventures like airlines and telecommunications companies.

Organizations like the Private Hospitals Association of the Philippines, Coordinating Council of Private Educational Associations of the Philippines, and even government agencies like the Philippine Economic Zone Authority and Board of Investments expressed their concerns about some radical changes about to be brought should the bill push through.