TAX NOTES

RA 10963 amends the National Internal Revenue Code of 1997

TO ease the burden of common taxpayers and to provide additional resources for funding social and economic infrastructure that will benefit the poor, President Rodrigo R. Duterte signed into law on Dec. 19 Republic Act (RA) No. 10963.

Also known as the “Tax Reform for Acceleration and Inclusion (TRAIN),” the Act amends and repeals certain provisions of the previously amended RA No. 8424, otherwise known as the National Internal Revenue Code of 1997.

The TRAIN Law is a consolidation of House Bill No. 5636 and Senate Bill No. 1592 that were both passed by the House of Representatives and the Senate after the bicameral conference committee report was ratified on Dec. 13. From the proposed bill, the following line items were vetoed by the President with the corresponding ratiocination of his veto:

          1. Continued entitlement of the 15 percent special tax rate of gross income for qualified employees of RHQs/ROHQs, OBUs, or                                 petroleum service contractors and subcontractors. The provision violates the equal protection clause and the rule of equity                                 and uniformity. Given the significant reduction in personal income tax, the employees of the aforementioned firms should follow the                 regular tax rates as with other individual taxpayers.

          2. Zero-rating of sales of goods and services to separate customs territory and tourism enterprise zones. This provision goes against the                principle of limiting the VAT zero-rating to direct exporters. Separate customs territories create significant leakages in the previous tax                system. On the other hand, the current law for tourism enterprises explicitly allows only duty- and tax-free importation of                                      capital equipment, transportation equipment, and other goods.

          3. Exemption from percentage tax of gross sales/receipts not exceeding P500,000. The suggested exemption from percentage tax will                    result in the unnecessary decrease of revenues and may lead to abuse and leakages. Since the affected taxpayers are                                          already exempt from VAT, then the lower three percent percentage tax is considered reasonable.

          4. Exemption of various petroleum products from excise tax when used as input, feedstock, or as raw material in the manufacturing                        of petrochemical products, or in the refining of petroleum products, or as replacement fuel for natural gas fired combined cycle                        power plants. Having the risk of being too general, this may lead to abuse by taxpayers and a significant decrease in revenue. The                    previous tax system already identifies which petroleum products can be exempted and will still be used in the newly signed Act.

          5. Earmarking of incremental tobacco taxes. The proposed provision amends the Sin Tax Law, which provides for guaranteed funds for                   universal health care. It will diminish the share of the health sector in the proposed allocation, thus, vetoed.

RA No. 10963 took effect on Jan. 1. For more information, kindly refer to the full text of the said Act.

Source: P&A Grant Thornton

 

As published in SunStar Cebu dated 2 January 2018.