Duterte vetoes five provisions of TRAIN

MANILA, Philippines — President Duterte has vetoed five provisions of the Tax Reform for Acceleration and Inclusion (TRAIN) Act to keep the country’s tax system simple, fair and efficient.

In a message addressed to the House of Representatives before the weekend, Duterte said he vetoed some items in the TRAIN law, by the power vested in him by Article VI, Section 72 of the Constitution. 

Among the items vetoed is the provision granting a special tax rate of 15 percent on the gross income of employees of regional headquarters, regional operating headquarters, offshore banking units and petroleum service contractors and subcontractors. 

Duterte said the provision violates the Equal Protection Clause under Article III, Section 1 of the 1987 Constitution, as well as the rule on equity and uniformity in the application of the burden of taxation.

“In line with this, the overriding consideration is the promotion of fairness in the tax system for individuals performing similar work. Given the significant reduction in the personal income tax, the employees of these firms should follow the regular tax rates applicable to other taxpayers,” Duterte said in his message. 

Duterte also rejected the provision providing zero-rating on the sales of goods and services of separate customs territories and tourism enterprise zones as they go against the principle of limiting the value-added tax (VAT) zero rating to direct exporters. 

“The proliferation of separate customs territories, which include buildings, creates significant leakages in our tax system. This makes the tax system highly inequitable and significantly reduces the revenues that could be better used for the poor,” Duterte added.

Tourism enterprises, meanwhile, are only allowed duty- and tax-free importation of capital equipment, transportation and other goods under the Tourism Act. 

The third item vetoed by the President is the provision exempting self-employed and professionals with total annual gross sales and/or gross receipts not exceeding P500,000 from the percentage tax.

“The proposed exemption from percentage tax will result in unnecessary erosion of revenue and would lead to abuse and leakages. The subject taxpayers under this provision are already exempted from the VAT, thus the lower three percent tax on gross sales or gross receipts is considered as their fair share in contributing to the revenue base of the country,” he said. 

Duterte also line vetoed the exemption of various petroleum products from the excise tax when used as input, feedstock or as raw material in the manufacture of petrochemical products or in the refining of petroleum products; or as replacement fuel for natural gas-fired combined cycle power plants. 

Duterte said this provision runs the risk of “being too general” and may be subject to abuse by taxpayers. He said this may, therefore, lead to massive revenue erosion.

Lastly, Duterte vetoed the provision earmarking the incremental revenues from tobacco taxes for tobacco productivity programs, and as share in the income of tobacco-producing provinces.

“The provision effectively amends The Sin Tax Law, or RA 10351, which provides for guaranteed funds for universal health care. The provision will effectively diminish the share of the health sector in the proposed allocation,” the President said.

The TRAIN Act, which contains the first package of the Tax Reform for Acceleration and Inclusion Act, aims to simplify the country’s tax system. 

The law provides adjustments in personal income taxes, while increasing the excise tax rates of fuel, automobile, coal, tobacco and sugar sweetened beverages.