Tax Notes: RA 10963 amends the

National Internal Revenue Code of

1997


TAX-NOTES-RA-10963-AMENDS-NATIONAL-INTERNAL-REVENUE-CODE-1997-582088
January 2, 2018

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)

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