Duterte rejects five provisions of just-signed Train law

FIVE provisions of the newly-signed Tax Reform for Acceleration and Inclusion (Train) Act have been vetoed by President Rodrigo Duterte.

One involves the Train provision granting reduced income tax rates to employees of regional headquarters, regional operating headquarters, offshore banking units and petroleum service contractors and subcontractors.

In his veto message, Duterte said that while he understood the objective, the provision violates the Equal Protection Clause under Section 1, Article III of the 1987 Constitution as well as the rule of equity and uniformity in the application of the taxation burden.

“In line with this, the overriding consideration is the promotion of fairness of the tax system for individuals performing similar work. Given the income tax, the employees of these applicable to other individual taxpayers,” Duterte added.

The President also vetoed the zero-rating of sales of goods and services to separate customs territories and tourism enterprise zones, which he said goes against the principle of limiting value-added tax (VAT) zero-rating to direct exporters.

He added that the proliferation of separate customs territories, which leakages in the country’s tax system.

As to tourism enterprises, Duterte said the current law only allows for the duty and tax free importation of capital equipment, transportation equipment and other goods.

“Thus, this provision actually grants a new incentive to suppliers of registered tourism enterprises. At any rate, the Tieza (Tourism Infrastructure and Enterprise Zone Authority) law, which is still in effect for two more years,

can be used to avail of the abovementioned incentives,” he said.

Another vetoed provision is the exemption from percentage tax of P500,000, which would result in the unnecessary erosion of revenues and also abuse and leakages.

“The subject taxpayers under this provision are already exempted from the VAT, thus the lower three percent percentage tax on gross sales or gross receipts is considered as their fair share in contributing to the revenue base of the country,” he noted.

Also vetoed was the exemption of various petroleum products from excise tax when used as inputs, feedstock, or as raw material in the manufacture of petrochemi - leum products or as replacement cycle power plants.

The provision was said to run the risk of being too general as it covered all types of petroleum products, which may be subject to abuse by taxpayers and thus lead to massive revenue erosion.

“At any rate, the Tax Code already identifies which petro- leum products can be exempted,” Duterte said.

Lastly, the President also vetoed earmarking of incremental tobacco taxes, which he said would effectively amend the Sin Tax Law that provides guaranteed funds for universal health care.

“The provision will effectively diminish the share of the health sector in the proposed allocation,” he said.

(2) of the Philippine Constitution, the President has the power to veto any particular item or items in an appropriation, revenue, or tariff bill.