Finance Secretary Carlos Dominguez III has asserted that​ the Tax Reform for Acceleration and Inclusion Act (TRAIN) would be the first time the government had pushed a tax reform package not in response to a financial crisis or an​ external conditions imposed by other institutions, but to ​instead ​strengthen its ​programs meant ​to ​attack​ poverty and correct income inequality.

It would also be the first time the government, through the initiative of the Duterte administration, is lowering personal income tax (PIT) rates to make these more equitable, Dominguez said.

In a press briefing in Malacañan Palace​, Dominguez reiterated that 99 percent of the country’s individual taxpayers would benefit from TRAIN, the first package under the Duterte administration’s Comprehensive Tax Reform Program (CTRP), owing to hefty cuts in the PIT rates.

Dominguez said the implementation of the TRAIN fulfills a campaign promise of President Duterte to institute tax reform, which includes PIT exemptions for those earning at least P20,000 and below.

This means that besides minimum wage earners who are already exempted from the PIT under the law, those with annual taxable income of P250,000 and below would no longer pay any ​PIT starting this year.

Thus, employees such as clerks earning P15,000 a month and previously taxed P7,000, and call center agent​s​ with a monthly salary of P21,000 who used to cough up P22,000 a year in taxes would pay zero tax and effectively increase their take home pay beginning this January​, Dominguez said.

In effect, those with a taxable annual income of P250,000 would be able to take home additional income equivalent to one-month’s pay per year.

To ​protect the poor and vulnerable from the impact of moderate increases in prices, Dominguez said​ P25.7 billion has been allotted in the 2018 budget for the targeted cash transfer program of the Department of Social Welfare and Development (DSWD) for the benefit of the poorest 10 million households.

“Let me first emphasize that this reform is an important milestone in our economic history. This is the first time that we are doing a tax reform not because of crisis or because it was imposed by external forces,” Dominguez said at the Palace​ briefing.

He also said “It is also the first time that the main purpose of the reform is to reduce poverty and inequality, and not because of deficit or debt reduction.”​

“TRAIN is the first step to once and for all correct our unfair, complex, and inefficient tax system” after 20 years of non-adjustment of the PIT rates while ensuring that more people comply with their obligation to pay taxes, he said.

Complementing these income tax cuts are measures to offset the revenue loss from the PIT and raise additional funds for the government’s program to spend more for infrastructure and social services.

These include broadening the value-added tax (VAT) ​base through the repeal of 54 special laws on non-essential VAT exemptions; adjusting excise taxes on fuel, coal, automobiles and alcohol and tobacco products; and introducing a tax on sugar-sweetened beverages (SSBs) ​with exemptions.

Such measures, he said, ​will raise additional revenues of over P786 billion over the course of five years, primarily ​to help improve education, ​health care​ and other forms of human capital formation​.

He said the TRAIN, which corresponds to two-thirds of the revenue target for this tax reform package, is expected to generate an additional P89.9 billion this year, while the remaining one-third aims to raise P38.9 billion more or a total of P128.8 billion in 2018.

The TRAIN can either fund the construction of ​629,120 public school classrooms or the hiring 2,685,101 public school teachers, or the establishment of ​60,483 rural health units, 484,326 barangay health stations, and 1,324 provincial hospitals; or build 35,745 kilometers of paved roads, or 786,400 kilometers of temporary bridge upgrades, or 2,665,763 hectares of irrigated land, Dominguez said.

Moreover, to protect the poor and vulnerable from the impact of moderate increases in prices ​resulting from the increase in fuel excises, the TRAIN will also help finance a program spearheaded by the DSWD to provide targeted cash transfers to the poorest 10 million households.

The DSWD will identify the beneficiaries based on the Listahanan, the Pantawid Pamilyang Pilipino or 4Ps ​Program, and the list of ​social pension beneficiaries, he said.

According to Dominguez, the budget for the unconditional cash transfer program is included in the 2018 budget, totaling P25.7 billion.

On concerns that the new tax adjustments on oil would lead to higher inflation and a spike in the prices of basic goods, Dominguez said the expected increases are “​rather manageable”​ and would be more than offset by the savings from lower income taxes.

“Our analysis shows that overall inflation might be increased by seven tenths of 1 percent due to higher oil prices by 2018, of which food prices may increase by up to three tenths of 1 percent, and transportation will be up probably one tenth of 1 percent,” he said.

“History supports this analysis. Between January 2016 and January 2017, diesel increased by almost 14 pesos, which is equivalent to an increase of 76 percent. However, inflation remained stable, and food, transportation, and electricity, gas, housing, and water did not increase significantly. Rice, together with other essentials such as pork, sardines, fish, and noodles, did not have a significant increase despite the huge increases in diesel,” added Dominguez.

The TRAIN, which was implemented starting January 1, exempts compensation earners and self-employed individuals with an annual taxable income of P250,000 and below or those earning at least P21,000 a month from paying the personal income tax. The 13th month pay and other bonuses amounting to P90,000 are also tax-exempt.

For those earning P250,000 and above, the tax brackets have also been adjusted so that those with taxable income of more than P250,00 but not above P2 million pay only between 20 to and 30 percent PIT.

As an example, a doctor working at government hospital who earns, say, P57,000 a month will take home around P48,000 more per year starting 2018 because of the adjustments in the PIT brackets and rates.

As an example, a doctor working at government hospital who earns, say, P57,000 a month will take home around P48,000 more per year starting 2018 because of the adjustments in the PIT brackets and rates.

Those earning P2 million annually but not above P8 million are taxed 32 percent. The hefty tax of 35 percent are reserved for those earning P8 million and above.

Starting 2023, the brackets will be adjusted further so that those with taxable income of more than P250,00 but not above P2 million are taxed between 15 percent and 25 percent. Those earning P2 million annually but not above P5 million will be taxed 30 percent by 2023, while those above P8 million will be paying 35 percent personal income tax.

Dominguez said the Department of Finance will submit to the Congress Package 2 of the CTRP, which aims to lower corporate income taxes and modernize fiscal incentives, within this month, while the Package on passive income and financial taxes is targeted for submission in the second half of 2018.

He said these succeeding packages are necessary to avoid “a breach of the deficit which will hurt our economy, or a cut in government spending, possibly compromising the President’s infrastructure program.”