As the Philippine economy heats up and political unpredictability remains a feature of the landscape, the frontiers of complex existing and emerging areas of law in the Philippines are changing. In this series of articles some of the nation’s top law firms explain what is working and what is not on the legal frontier

All aboard the tax ‘train’

THE PHILIPPINES IS In the midst of undertaking a comprehensive tax reform programme composed of four packages: Package 1 for individual income and consumption tax; package 2 on corporate income tax and incentives; package 3 on real property tax; and package 4 for capital income tax.

Benedicta Du-Baladad
Founding Partner and CEO
of BDB Law in Manila
Tel: +63 2 403 2001

The tax reform will be implemented in phases rather than in “one big bang”. Its main objective is to make the tax system simpler, fairer, and more efficient and supportive of the country’s national agenda for acceleration and inclusion. Thus, it was named TRAIN: an acronym of Tax Reform for Acceleration and Inclusion.


Individual income and consumption taxes. Beginning 1 January 2018, package 1 became effective. Generally, it shifted revenue dependency from income tax to consumption tax. It lowered the income tax on individuals (except for the top bracket), but at the same time it increased excise taxes on consumption goods such as oil, automobiles, sugar-sweetened beverages and minerals, and it introduced a new excise tax on invasive enhancement surgeries.

Specifically, package 1 restructured the individual income tax system by making it more progressive and equitable. It widened the income brackets, resulting in lower taxes on low and middle-income individuals, but increasing the top tax rate from 32% to 35% for those with annual income of PHP8 million (US$150,000) and over.

It likewise simplified the system by removing all exemptions and deductions, replacing them with a single unconditional across-the-board exemption level of PHP250,000. Processes were simplified and the frequency of filing lessened. An 8% presumptive tax, which is in lieu of income and VAT, was introduced to simplify the compliance of micro and small enterprises with gross sales and revenue of PHP3 million or less.

Despite these good features, package 1 is being blamed for causing inflation to shoot up to 6.4% (the highest in the region), despite statements from the government that TRAIN-related inflation is only 0.4%. The increase in excise taxes on oil and the 100% increase in documentary stamp taxes are perceived to have triggered prices of goods and financial intermediation services to spiral upward.

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