Should You Be Scared of the Second Tax Reform Package?
The year 2019 is a great time to invest and make money according to Chinese astrology. This year is associated with the Pig – a Chinese zodiac that attracts success in all spheres of life. As we look forward to welcoming 2019 with high hopes of progress and better lives, we need to prepare for the second wave of TRAIN or Tax Reform for Acceleration and Inclusion 2.
Before we end 2018 with a bang, let’s keep track of the TRAIN again and see whether it’s worth the scare or we shouldn’t actually care.
TRAIN 2 a.k.a TRABAHO
The Congress approved the second package of TRAIN under the guise TRABAHO or the Tax Reform for Attracting Better and High-Quality Opportunities through House Bill 8083. TRAIN 1 has earned quite a heated reputation such that the second wave of the tax reinvention saga was changed to TRABAHO and is now awaiting approval as Senate Bill 1906.
TRAIN 1 is being blamed for the country’s highest inflation rate ever at 6.4%. However, the Department of Finance (DOF) is quick to reiterate that TRAIN 1 accounted for only 0.4% of the inflation scale.
TRAIN 2 may not sound as controversial as its first counterpart, but a lot of sectors fear they might be intensely affected.
TRAIN 2 or SB 1906 seeks to revise existing tax laws by lowering income tax from 35% to 25% and update incentives to lure new and growing industries. The proposed tax incentive system is supposed to be time-bound, transparent and performance-based.
Excise tax on petroleum products
Whether President Duterte will approve TRAIN 2 or not, there is no stopping the implementation of fuel hike which is integral to the TRAIN law initially enacted in 2018. TRAIN imposes an annual increase on excise tax on fuel from 2018-2020. It only allows for the suspension of tax increase if the global price is below or above $80 per barrel for three months. And since the global oil price is projected to touch $60 next year, there is no reason for the government to suspend additional tax on fuel.
Under Republic Act 10963, here is the supposed increase in oil prices:
The new tax rate will cause LPG users to spend more. Considering the Php1 surge per liter, it would mean additional Php11 per 11kilograms of LPG. Much more impact will be felt by ambulant vendors who use kerosene for their livelihood as they will be paying Php2 more for every liter of kerosene.
If the fuel price increase will take effect in 2019, the hardest hit will be absorbed by PUV drivers who will be cutting an average of Php100 per day from their take-home pay. PUV operators are also expected to shell out a minimum of Php0.08 per day for their lubricants and grease.
The Land Transportation Franchising and Regulatory Board (LTFRB) assured that a total of 179,000 PUJ franchise holders nationwide would benefit from the Pantawid Pasada Fuel Program and receive Php5,000 subsidy each for fuel hike in 2018. A proposed allowance of Php20,514.00 for each eligible franchise holder for 2019 is already awaiting approval from the government.
According to LTFRB Chief Martin Delgra III, the fuel subsidy program aims to cushion the impact of fuel prices brought about by the excise tax. Recipients of the grant should use the Pasada cards to purchase fuel for passenger jeepneys only. Violators will be blacklisted or will be asked to refund the money.
Corporate income tax
TRABAHO aims to implement fair and accountable tax incentives system that would lower corporate income tax to 25% from the current 35%. The Philippines has the highest income tax rate for corporations and businesses among its ASEAN counterparts. Singapore’s CIT rate is at 17%, Cambodia at 20%, Malaysia at 24% and China at 25%.
TRAIN 2 also includes the improvement of tax administration and the modernization of the Bureau of Internal Revenue (BIR) system. It aims to ease the process of doing business by modernizing the processes including record-keeping of electronic receipts, filing via online channels and allowing electronic sales report systems.
Other TRAIN alarms
Civic groups, analysts and organizations have expressed their fears regarding the impacts of the second package. Consumer groups are worried about the rising cost of commodities that are mainly impacted by the fuel price hike.
And yet one of the most restrictive provisions of the second package is the addition of more than double the existing tax rate of private schools. An additional 15% on private school’s income tax would mean an average of Php138.7M tax in 2019 and may lead to an increase in tuition fees.
In the case of private hospitals, a hospital within the MPIC group will be paying an average of Php 133.5M additional taxes in 2019.
It is also notable how local water districts can be seen paying 25% tax from 0%. Potable water providers in the provinces may decide to increase their charges.
The second package of the government’s tax reform program will, no doubt, create a massive impact on how we live our lives in 2019. We may choose to care or get scared, but we always need to find the best way possible to lessen the impacts of rising prices of commodities and taxes.
Don’t let TRAIN 2 ruin your faith for a better life in 2019. Save, invest and explore opportunities for additional income. Focus on creating a budget plan while setting a practical goal and working hard to achieve it. We will never know when will TRAIN 2 be approved or enacted. What we know is that we can do something early on so when the TRAIN steams ahead, we will not be left behind.