2/10/2019 Package One - Simplified Value-Added Tax (VAT) system • #TaxReformNow

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What is TRAIN?
Tax Reform for Acceleration and Inclusion

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The goal of the first package of the Comprehensive Tax Reform Program (CTRP) or TRAIN is to create a simpler,
fair, and more efficient system, as per the constitution, where the rich will have a bigger contribution and the poor
will benefit more from the government’s programs and services.

Lowering the Simplifying Simpli ed Increasing the Increasing the Excise Tax on
Personal the Estate and Value-Added Excise Tax of Excise Tax of Sweetened
Income Tax Donor's Tax Tax (VAT) Petroleum Automobiles Beverages
(PIT) system Products

Expanding the Value-

Added Tax (VAT)
The Philippines has one of the highest VAT rates but also the highest
number of exemptions in the Southeast Asia region. Consequently, the
Philippines collect the same amount of VAT revenues as a percentage of the
economy as that of Thailand despite only imposing a 7% VAT rate, while the
Philippines is at 12%.

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These tax exemptions have been given to many sectors and were supposedly
very well meaning. However, these exemptions have also created much
confusion, complexity, and discretion in our tax system resulting in leakages
and opening doors for negotiation, corruption, and tax evasion.

The truth is, these exemptions are not free and someone pays for them, and it is
most often the poor who pays as they are deprived of quality public service
necessary to accelerate their graduation out of poverty.

TRAIN aims to clean up the VAT system to make it fairer and simpler and
lower the cost of compliance for both the taxpayers and tax administrators. This
is achieved by limiting VAT exemptions to necessities such as raw agriculture
food, education, and health. This does not mean that the benefits the poor
rightly deserve will be removed. The Duterte administration commits to use the
budget to provide targeted transfers and programs that are more transparent and
accountable. The administration will direct the way to protect the poor and
vulnerable compared to the tax exemptions and blind subsidies that are
inefficient and largely beneficial to the rich since they have higher purchasing
power.

TRAIN repeals 54 out of 61 special laws with non-essential VAT exemptions,

thereby making the system fairer. Purchases of senior citizens and persons with
disabilities, however, will continue to be exempt from VAT. Housing that cost
below P2 million will be exempt from VAT beginning 2021, while medicines
for diabetes, high cholesterol, and hypertension will be exempt beginning 2019.

The reform also aims to limit the VAT zero-rating to direct exporters who
actually export goods out of the country. This will be implemented together
with an enhanced VAT refund system that will provide timely cash refunds to
exporters.

The VAT threshold is increased from P1.9 million to P3 million to protect the
poor and low-income Filipinos and small and micro businesses and for
manageable administration. This effectively exempts the sale of goods and
services of marginal establishments from VAT. Under TRAIN, VAT exempt
taxpayers will have the following options:

● PIT schedule with 40% OSD on gross receipts or gross sales plus 3%
percentage tax

● PIT schedule with itemized deductions plus 3% percentage tax, or

● Flat tax of 8% on gross sales or gross revenues in lieu of percentage tax and
personal income tax.

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Simpli ed Estate and Donor's Tax

Increasing the Excise Tax of Petroleum Products

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