President vetoes five line-items in TRAIN

President Durterte vetoed five provisions in the first tax reform package of the Tax Reform for Acceleration and Inclusion (TRAIN) Act, stressing these rejected line-items did not adhere to “true principles of taxation.”

In his undated veto message sent to House Speaker Pantaleon

Alvarez, President Duterte did not approve the enactment of the tax reform’s provision allowing the reduction in income tax rate of employees of Regional Headquarters (RHQS).

Tax exemption for employees of Regional Operating Headquarters (ROHQS), Offshore Banking Units (OBUS) as well as Petroleum Services Contractors and Subcontractors was also rejected by the President.

“I am constrained to veto the proviso under Section 6 (F) of the enrolled bill that effectively maintains the special tax rate of 15 percent of gross income for aforementioned employees,” Duterte’s message read.

According to the Chief Executive, the preferential tax rate for RHQS, ROHQS, OBUS and PSCS also does conform with “uniformity in the application of burden of taxation.”

“Given the significant reduction in the personal income tax, the employees of these firms should follow the regular tax rates applicable to other individual taxpayers,” Duterte said.

On Tuesday, Duterte signed into law Republic Act No. 10963, also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

The President also vetoed the zerorating of sale of goods and services to separate customs territory as well as tourism enterprise zones, like the Tourism Infrastructure and Enterprise Zone Authority (TIEZA).

“The above provisions go against the principle of limiting the VAT (value-added tax) zero-rating to direct exporters. The proliferation of separate customs territories, which include building, creates significant leakages in our tax system,” the chief executive said.

The zero rating, Duterte added makes the tax system highly inequitable and significantly reduces the revenues that could be better used for the poor.

For TIEZA, the President said the office’s charter only allows duty- and tax-free importation of capital equipment, transportation equipment and other goods.

The special provision under the TRAIN law for TIEZA, Duterte said only “grants new incentive to suppliers of registered tourism enterprises.”

Malacañang, likewise, rejected the TRAIN provision allowing the exemption from percentage tax of gross sales/ receipts not exceeding 1500,000.

“The proposed exemption from percentage tax will result in unnecessary erosion of revenues and would lead to abuse and leakages. The subject taxpayers under this provision are already exempted from the VAT,” the President said.

The exemption of petroleum products from excise tax when used as input, feedstock, or as raw material in the manufacturing of petrochemical products was also blocked by Duterte.

“The provision runs the risk of being too general, covering all types of petroleum products, which may be subject to abuse by taxpayers, and thus need to massive revenue erosion,” Duterte said.

Lastly, the President rejected the proposed earmarking of incremental revenue from higher tobacco taxes.

Duterte said the proposed provision will effectively amend the Sin Tax Law, or Republic Act 10351, which provided guaranteed funds for universal health care and will diminish the share of the health sector.

In conclusion, Duterte stated “I am very pleased to sign this very important piece of legislation mainly because of my sincere objective to help our poor countrymen and ease the burden of the common taxpayers.”

“This government will do its best to implement this noble objective under the tax reform package while remaining fiscal discipline and adhering to the true principles of taxation: fair, simple and efficient,” he added.