Will Philippines catch the TRAIN at start of 2018?

Most Filipinos complain that the government collects too much tax from them, and with good reason. It has been almost 20 years since the passage of the Tax Reform Act of 1997, then the Comprehensive Tax Reform Programme (CTRP). Obviously, it is outdated, and hence Congress, upon the prodding of the Department of Finance, is deliberating on the initial package of revisions. According to the Department of Finance, the proposed Tax Reform for Acceleration and Inclusion (TRAIN) is intended “to correct a number of deficiencies in the tax system to make it simpler, fairer and more efficient”.

True to the TRAIN’s objective, the initial package seeks to revisit the income taxation regime of individual taxpayers. To make it simpler, it introduces a gross income taxation system as an alternative to net income taxation that is currently in place under the CTRP. However, this will only be available to the self-employed and professionals.

While progressivity has been the system of taxation, its essence has somehow been diluted with the passage of time. The tax brackets of the CTRP are unable to adjust to inflation. The distinction between low and high-income earners was stark some 20 years ago, but has now been effectively obliterated, making the system unfair.

Eric R Recalde is a partner and head of the Tax Department at ACCRA Law Offices