The Tax Reform in the Philippines and Its Effect on Consumers

Last December 19, 2017, President Rodrigo Roa Duterte signed the newly implemented Tax Reform for Acceleration and Inclusion (TRAIN). It officially took effect on the first day of January 2018.

The TRAIN aims to simplify the tax system and make it fairer. Under this law, minimum wage earners or those with an annual income not exceeding PhP250,000 are exempted from income tax, hence increasing their take-home pay.

From 2018 up to 2022, those earning over PhP250,000 up to PhP400,000 annually will have a tax rate of 20% of the excess over P250,000. While those who earn PhP400,000 to PhP800,000 annually will have a tax rate of PhP30,000 plus 25% of the excess over PhP400,000. Individuals who earn over PhP800,000 to PhP2,000,000 will be taxed PhP130,000 plus a tax rate of 30% of the excess over PhP800,000.

Lastly, those with an annual income of PhP2,000,000 to PhP8,000,000 will have to pay PhP490,000 plus a tax rate of 32% of the excess over PhP2,000,000. If exceeding PhP8,000,000, the tax rate to be paid is PhP2,410,000 plus 35% of the excess over PhP8,000,000. The tax rates will gradually decrease after 2022.

However, consumers should brace themselves for the consecutive price hikes of several consumer goods such as tobacco, sweetened beverages, petroleum products, cosmetic procedures, and automobiles as a price increase for these items will offset the lowered tax.

An increase of PhP6.00 per liter is sought for beverages with caloric and non-caloric sweeteners, while those with high-fructose corn syrup will have an increase of PhP12.00 per liter. Meanwhile, milk, instant and ground coffee, meal replacement and medically indicated drinks, and drinks that use coco sugar and stevia are exempted from the increase.

Several establishments that serve unlimited drinks such as S&R have already stopped their unlimited soda promo in accordance to the sugar tax reform law under TRAIN.

Other food commodities that are expected to have a price increase are canned sardines, instant noodles, powdered milk, loaf bread, detergent soap, and coffee refill. These will have a price increase that ranges from 4 to 14 centavos.

According to the computation of the Department of Trade and Industry (DTI), an adjustment range of 4 to 7 centavos can be applied to meatloaf and toilet soap. These computations were derived from factors such as the impact of TRAIN on the transportation and production costs of manufacturers.

Meanwhile, fuel price will rise by PhP2.50 per liter in 2018 and will increase by PhP4.50 and PhP6.00 in 2019 and 2020 respectively. For gasoline, there would be a PhP7.00 increase in 2018 and this will go up to PhP9.00 and PhP10.00 per liter in 2019 and 2020 correspondingly.

The increased fuel price might make an impact on commuters as fare hikes might be imposed. Jeepney drivers organizations are petitioning for a PhP2.00 or PhP4.00 increase in the minimum fare, while taxi drivers are proposing a PhP50.00 flag-down rate instead of the usual PhP40.00.

Transportation Network Vehicle Services (TNVS) company Grab is also planning on submitting a petition to the Land Transportation Franchising Regulatory Board (LTFRB) to ask for a six to ten percent increase from the current fares of Grab cars.

Through a domino effect, the prices of local and imported meats would also be affected by the fuel price increase, since transporting these products would use fuel. Meanwhile, Manila Electric Company (MERALCO), the country’s leading power supplier, said that consumers should brace themselves for the potential impact of the new tax reform on their monthly bills.

The tax rate of vehicles is also covered in the reform law. Automobiles valued up to PhP600,000 will have a 4% tax rate increase from the previous 2%. On the other hand, 10% will be imposed on vehicles amounting to PhP600,000 to PhP1,000,000; 20% for over PhP1,000,000 up to PhP4,000,000; and 50% of excess over PhP4,000,000. Electric cars and pickups are exempted. Hybrid cars will be taxed half the rates.

Smokers can also expect a PhP32.50 increase in tobacco products during the first six months of 2018. Then it will be increased to PhP35.00 from July 2018 to December 31, 2019. After 24 months, it will increase to 37.50 per pack.

Meanwhile, a 5% price increase will be applied to cosmetic procedures, surgeries, and aesthetic enhancements. A flat rate of 6% will be allocated on estate tax, while family homes valued up to PhP10,000,000 are exempted from estate tax.

70% of the collected excise tax will fund several of President Duterte’s planned infrastructure products while the remaining 30% will be used on the improvement of health, education, targeted nutrition and anti-hunger programs for mothers and children. Along with these are the prioritization of housing, employment, and social protection programs inclined for the poor.