What can you expect from the Train Law Package 2?
- Decrease corporate income tax
- Regulate fiscal incentives
- Attract better and high-quality opportunities
It hasn’t been that long since the first package of the current administration’s Comprehensive Tax Reform Program (CTRP) was passed into law. The Tax Reform for Acceleration and Inclusion (TRAIN) Law was signed into Republic Act No. 10963 on December 19, 2017. These changes in tax laws prompted a lot of people to use a tax calculator in the Philippines to keep their records straight and accurate. To this very day, some people have yet to completely grasp this new bill; they are still trying to evaluate its effectiveness.
While everyone’s busy evaluating this recently signed law, the administration is currently in the process of passing another that is bound to make more changes to the country’s tax system. The Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) Act (often referred to as TRAIN Law Package 2) passed the 3rd and final House reading on September 4, 2018, and is set to be reviewed by the Senate before it goes to the President.
At this moment, the public knows very little about this law. Even though it is not implemented yet, it does not hurt to start learning about it. Experts and professionals have already looked into its possible effects. We have listed some of them below.
Decrease Corporate Income Tax
Businesses are the main beneficiaries of the TRABAHO Act, which aims to decrease corporate income tax (CIT). As the name suggests, corporate income tax is a direct tax imposed on the income of corporations or legal entities.
The Philippines currently has a 30% CIT—the highest in Southeast Asia. With a large gap, Indonesia comes second at 25% and Singapore has the lowest CIT at 17%. TRABAHO aims to reduce the country’s CIT rate to 25% by the year 2020 to align with neighboring and international countries.
Among the many features of the TRABAHO Act, this is the least contentious since it is expected to produce positive results. Ultimately, corporations are going to be paying less in taxes. Any money that they spend to pay their tax dues can instead be invested into improving their operations or enlisting the help of more people!
Regulate Fiscal Incentives
One of the most controversial features of this act is the regulation of fiscal incentives—perks that allow entities to reduce their tax dues. Although mostly beneficial, the problem with these incentives is that it gives special treatment to a few corporations.
As per the estimates of the Department of Finance (DOF), P301-billion worth of taxes were foregone in the year 2015! Only 1% of businesses registered with the BIR on the same year accounted for these hefty incentives. If all corporations took advantage of these incentives, the government wouldn’t be able to collect any funds that it needs to build infrastructures and improve the lives of its people.
Many are objecting this specific feature of the bill because they believe that the government is abolishing these incentives. But the truth is that it only aims to regulate them, setting stricter requirements. Once the changes have gone through, only good corporations can gain these well-deserved rewards.
Attract Better and High-Quality Opportunities
The implementation of this act is expected to attract better and high-quality opportunities. It focuses on attracting foreign investors and creating more jobs for the people.
Since the proposed law will lower the corporate income tax rate, it will make the Philippines – an already attractive spot for business – more appealing to foreign investors because it means they would need less capital to start up shop. They’d also be able to allocate more funds to ensure their employees are happy and satisfied—something that is often neglected in the world of business.
As for the regulation of fiscal incentives, it will push corporations to work for the betterment of all and not just for their own profit. If they follow through, they will receive perks that will save them more money!
The Comprehensive Tax Reform Program (CTRP) is a “simpler, fairer, and more efficient tax system (that) is needed to promote investment, create jobs, and reduce poverty.” TRABAHO is no exemption. While TRAIN Law aimed to benefit people and individuals, this second installment is set to benefit current industries and economic zones.
In the end, these tax changes may be a little difficult to comprehend and may make filing taxes harder. Thankfully, you can use tools such as a tax calculator in the Philippines to make the process easier.