The TRAIN program: What SMSEs need to know about it

What is the TRAIN Law and what does the small and micro entrepreneurneed to know about it?

The TRAIN is a tax reform program that all Philippine citizens need to comply with. As a juridical citizen, a business – regardless of size – is obligated to pay the government what is its due in taxes.   This is a yearly responsibility.

TRAIN refers to the Tax Reform for Acceleration and Inclusion Ac, code-named the Republic Act No. 10963.  Signed by President Rodrigo Duterte on December 19, 2017, it is the first of four packages of tax reforms to the National Internal Revenue Code. 

The TRAIN Act aims to generate revenue in order for the country toachieve the 2022 and 2040 vision of the Duterte administration, namely, to eradicate extreme poverty, to create inclusive institutions that will offer equal opportunities to all, and to achieve higher-income country status.

It is also seen as a step towards making  the country’s tax system simpler, fairer and more efficient. 

TRAIN introduces  tax changes in the following tax categories:  personal income tax, real estate tax, donor’s tax, value added  tax or VAT, documentary stamp tax, and the excise tax on tobacco products, petroleum products, mineral products, automobiles, sweetened beverages, and cosmetic products.   

Prominently, the tax reform features:  lower personal income tax and higher consumption tax.

Some of its principal provisions are:

  1.  Individual taxpayers with taxable income not exceeding ₱250,000 annually are exempted from income tax.
  2. Higher excise tax is imposed on tobacco products, petroleum products, automobiles, and tobacco products.
  3. Additional excise tax is imposed on sweetened beverages and non-essential, invasive cosmetic procedures.

The tax reform also cancelled tax exemptions as provided by numerous special laws, thus expanding the VAT base.

The TRAIN Act has turned out to be quite a controversial piece of legislation.  Since its passage, it has generated both positive and negative outcomes. 

On one hand, it led to an increase in tax revenues, government expenditures, and an incremental growth in gross national product (GDP). 

On the other hand, it has triggered unprecedentedly high inflation rates, causing prices of commodity to soar. For these reasons, there have been calls from various sectors to suspend and amend the law.