TRAIN Law Research Ver2018Feb3

RA 10963 (TRAIN Law): The Level of Knowledge of the Philippine Comprehensive Tax Reform Program among Microentrepreneurs in the Food Manufacturing Industry in Iloilo City. TOPICS (Related Lit.): ● ● ● ● ● ●

Current admin's agenda/policy for commerce and entrepreneurship entrepreneurshi p - JAMILLE TRAIN Law - ALL VAT provisions and IRR - ALL Indirect taxes on raw materials (especially for food manufacturers) manufacturers ) - DICOF Situation on the food manu. industry in Iloilo (population, size, top food products manfuactured) - ROMEO BMBE Law - FIEBE

*We should look for a similar research paper nga gagamit perception studies/analyzes depth of knowledge sang respondents REFERENCES: http://www.officialgazette.gov.ph/2017/12/27/republic-act-no-10963/ http://www.ntrc.gov.ph/images/Publications/guide-to-philippine-taxes-2016/value-added-tax.pdf  http://www.bsp.gov.ph/downloads/laws/RA9178.pdf  http://www.lawphil.net/statutes/repacts/ra2002/ra_9178irr_2002.pdf  https://www.dof.gov.ph/index.php/ra-10963-train-law-and-veto-message-of-the-president/ https://www.researchgate.net/publication/315368155_Extensive_Implementation_of_the_BMBE  _Law_An_Assessme  _Law_A n_Assessment_Across_M nt_Across_Metro_Man etro_Manila_Cities ila_Cities https://prezi.com/7k5vngvia7bm/ra-9178-bmbe-law-the-level-of-awareness-of-barangay-based/ https://www.pwc.com/ph/en/tax-alerts/assets/pwcph_tax-alert-34.pdf  https://www.pinoymon https://www .pinoymoneytalk.com/ph eytalk.com/philippine-tax ilippine-tax-reform-list-of-ne -reform-list-of-new-taxes/ w-taxes/

R A 10963 (TR A IN L aw): The Level of K nowledge of the 2018 Philippine C omprehens ive Tax R eform P rog ram among Microentrepreneurs in the Food  Manufactur ing Indus try in Iloilo Ci ty. Cofreros, Dicof Campos, Romeo Garrido, Jamille Anne Granada, Fiebe Marie

Brief Background of the Study On December 19, 2017, President Rodrigo Roa Duterte signed into law Republic Act No. 10963 otherwise known as Tax Reform for Acceleration and Inclusion (TRAIN) Law. It has immediately taken into effect last January 01, 2018. It contains amendments to several provisions of the National Internal Revenue Code of 1997 (“Tax Code”) on several tax provisions such as individual income taxation, passive income for both individuals and corporations, estate tax, donor’s tax, value -added tax (“VAT”), excise tax, and documentary stamp tax (“DST”). With the implementation of the TRAIN Law, Filipinos- ordinary citizens, employees, employers, the self-employed, the rich and the poor were all affected. But how does this law affect the micro entrepreneurs and their businesses and do these business owners know the implication of Republic Act No. 10963?

General Objective To assess the level of knowledge of food microentrepreneurs in Iloilo City on the newlyimplemented Tax Reform for Acceleration and Inclusion (TRAIN) Law

Specific Objectives ● ● ●

To determine the food microentrepreneurs’ degree of knowledge as per provisions stated under the TRAIN Law To know the opinion of food microentrepreneurs on the impact of TRAIN Law on the input taxes of raw materials needed for their businesses To identify the perceived effect of TRAIN Law on raw materials’ input taxes as experienced by the food microentrepreneurs of Iloilo City

Review of Related Literature Carpio Aldeguer, Christine (2015). Extensive Implementation of the BMBE Law: An Assessment  Across Metro Manila Cities. Retrieved from https://www.researchgate.net/publication/315368155_Extensive_Implementation_of_the_BMBE  _Law_An_Assessment_Across_Metro_Manila_Cities The Barangay Micro Business Enterprise (BMBE) Law or Republic Act No. 9178 (Philippines) was enacted on November 13, 2002 to help microenterprises in their financial hurdle during the early years of their business operations. Although considered a pro-poor law, it is suspected that not too many cities in the National Capital Region (NCR) in particular are implementing it. Thus, this study will encompass an assessment on the extensiveness of the BMBE Law implementation across the 17 cities in Metro Manila through a perception survey that will make use of a 10-item dichotomous questions. Congress of the Philippines, 12th Congress, 2nd Regular Session (2002, November 13). RA 9178: Barangay Micro Business Enterprises (BMBEs) Act of 2002. Retrieved from http://www.bsp.gov.ph/downloads/laws/RA9178.pdf  RA 9178, also known as the Barangay Micro Business Enterprises (BMBE) Act of 2002, was passed “to hasten the country's economic development by encouraging the formation and growth of barangay micro business enterprises which effectively serve as seedbeds of Filipino entrepreneurial talents”  Department of Finance (2017, December 27). The Tax Reform for Acceleration and Inclusion (TRAIN) Act. Retrieved from https://www.dof.gov.ph/index.php/ra-10963-train-law-and-vetomessage-of-the-president/ President Rodrigo Roa Duterte signed into law Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN) Act, the first package of the Comprehensive Tax Reform Program (CTRP, on December 19, 2017 in Malacanang. The TRAIN will provide hefty income tax cuts for majority of Filipino taxpayers while raising additional funds to help support the government’s accelerated spending on its “Build, Build, Build” and social services programs. This tax reform package corrects a longstanding inequity of the tax system by reducing  personal income taxes for 99 percent of taxpayers, thereby giving them the much needed relief after 20 years of non-adjustment of the tax rates and brackets. This is the biggest Christmas and New Year gift the government is giving to the people. Department of Health Website. (2016). 10-Point Socioeconomic Agenda of the Duterte  Administration. Retrieved from http://www.doh.gov.ph/node/6750

When President Rodrigo Roa Duterte was officially elected as the president of the Republic of the Philippines he had presented his 10-Point Socioeconomic Agenda for his term. Upon perusal, regarding the improvement of the businesses here in the country, his administration had put emphasis on instituting progressive tax reform and more effective tax collection. He had also planned to increase the competitiveness and the ease of doing business by drawing upon successful models used to attract business to local cities such as Davao, as well as pursuing the relaxation of the constitutional restrictions on foreign ownership, except with regards land ownership, in order to attract foreign direct investments.

Lopez, Emmanuel. (2016, July 05). Commentary: 10-point economic agenda right on track. Philstar. Retrieved from: http://www.philstar.com/business/2016/07/05/1599792/commentary10-point-economic-agenda-right-track The commentary talks about the author’s opinions about the 10 -point socioeconomic agenda and the challenges that the Duterte Administration has to face in order to hurdle these agenda. Manasan, Rosario G. (2017,August). Assessment of the 2017 Tax Reform and Acceleration and Inclusion. Philippine Institute for Development Studies. Retrieved from https://pidswebs.pids.gov.ph/CDN/PUBLICATIONS/pidsdps1727.pdf  Despite various reform efforts over the years, the tax system in the Philippines continues to suffer from chronic weaknesses. Tax rates are high relative to the country’s ASEAN neighbors, yet revenue productivity remains low. Filipino individual taxpayers are overburdened by personal income tax brackets that have not been indexed to inflation, resulting in bracket creep. The real value of excise tax rates on petroleum products have likewise been eroded by inflation, and the schedule is characterized by a number of exemptions and rates that are low by international standards. The value-added tax base has narrowed from excessive exemptions (Manasan, 2017). Because of this, the administration’s first of several reform packages under the Comprehensive Tax Reform Program was filed as House Bill (HB) No. 4774 in January 2017 at the lower house and Senate Bill (SB) No. 1408 at Senate. These Bills seek to reform the structure of the personal income tax, value-added tax, and excise tax on petroleum products and automobiles. Recto,R. et., al., (2017, December 27). Republic Act No. 10963. Retrieved from: http://www.officialgazette.gov.ph/2017/12/27/republic-act-no-10963/ The TRAIN Law amends to several provisions of the National Internal Revenue Code of 1997 (“Tax Code”) such as individual income taxation, passive income for both individuals and corporations, estate tax, donor’s tax, value -added tax (“VAT”), excise tax, an d documentary stamp tax (“DST”).

Rodriguez, Trinidad A. (2016). Guide to Philippine Taxes: Chapter III (Value Added Tax). Retrieved from http://www.ntrc.gov.ph/images/Publications/guide-to-philippine-taxes2016/value-added-tax.pdf  The National Tax Research Center’s Guide to Philippine Taxes (published in 2016) outlines the general provisions of tax laws in the Philippines. The third chapter discusses Title IV of the National Internal Revenue Code of the Philippines, commonly known as the Value Added Tax. Value-Added Tax  According to Manasan (2017), the proposal to reform the current value-added tax system is anchored on the need to eliminate numerous exemptions that have significantly narrowed the VAT base (Box 3), resulted in numerous breaks in the VAT chain, thereby making it more difficult to collect the VAT efficiently and resulted in a substantial tax gap (i.e., the difference between actual and potential tax revenues). She added that according to the World Bank (2016) estimates that the average VAT gap from 2006 to 2013 represented almost 63% of  potential VAT revenues. Of this, 28% percent was a result of legal exemptions and special treatment while 35% may be associated with noncompliance. The same study found that some exemptions under the current VAT system tend to create economic distortions. For instance, the VAT-exempt treatment of cooperatives tends to provide an incentive for corporations to restructure themselves as cooperatives in order to reduce tax liability even if such an action is not economically efficient. Manasan (2017) further stressed that one of the implication of the new VAT under HB 4774/ HB 5636/ SB 1408 is found to be slightly more regressive than the existing VAT system, as suggested by the Reynolds-Smolensky index (Table 7). While the change in the effective VAT rates due to these thee bills is estimated to be largest for the two poorest deciles, the share of the various income deciles in the total increase in the VAT burden borne by household’s increases as household per capita income rises.

The Food Manufacturing Sector & the Crucial Effect of Policies on MSMEs Corrales, Nestor. (January 5, 2018). DTI: Tax reform law has minimal effect on costs of goods.Philippine Daily Inquirer. Retrieved from http://business.inquirer.net/243562/lopez-taxreform-law-minimal-effect-costs-goods#ixzz55yHRGY2N on February 2, 2018. 2012 census Philippine business and industry manufacturing sector all establishments-final. Philippine Statistics Authority. Retrieved from: https://psa.gov.ph/content/2012-census philippine-business-and-industry-manufacturing-sector-all-establishments-final  on February 2, 2018.

Tecson, Gwendolyn R. (December 2004). Review of Existing Policies affecting Micro, Small, and Medium Enterprises (MSMEs) in the Philippines. The Small and Medium Enterprise Development for Sustainable Employment Program (SMEDSEP). Retrieve from:http://www.businessenvironment.org/dyn/be/docs/19/GTZ%20Phils%20SME%20Policy%2  0Revi ew%20Dec04.pdf on January 31, 2018.

 According to Philippine Statistics Authority, manufacturing industry remained the highest contributor to the country’s GDP with 8.8 percent growth in the fourth quarter of 2017. In 2015, the number of manufacturing establishments with total employment (TE) of 20 and over totaled 6,347, according to the preliminary results of the 2015 Annual Survey of Philippine Business and Industry (ASPBI). Of the total manufacturing establishments with total employment (TE) of 20 and over, other food products led the industries with 767 establishments. In Iloilo alone, the total numbers of manufacturers/producers is 411 with a total capitalization of 95,112,345.00 (2016 Iloilo Provincial Profile). This number comprised mainly by MSMEs (Mircro, Small and Medium Enterprise), the sector that is considered one of the main driver of the economy in the area as well. With its role in the boosting economy of Iloilo and the country in general, it is important to look into consideration this particular sector especially the effects of the policies created and implemented by the government such as the newly implemented Tax Reform for Acceleration and Inclusion (TRAIN) law. Gwendolyn R. Tecson (December 2004), in her study Review of Existing Policies affecting Micro, Small, and Medium Enterprises (MSMEs) in the Philippines emphasized why should micro-, small and medium enterprises (MSMEs) be singled out in a study of legal environments. She claimed that even large firms are subject to the same legal framework that makes the Philippines among the most regulated in Asia. If firms were of similar sizes and if there were no economies or diseconomies due to size, there would be no reason to study MSMEs. But 99.7% of all firms in the Philippines belong to the MSME sector. More importantly size matters, and perhaps even more so in the field of bureaucratic rules and regulations. LEs have a greater say in the crafting of laws and institutions that affect them. Unlike small firms, their internal structure provides them specialized agents (e.g. accountants) that can handle the minutiae of bureaucratic rules and regulations. Moreover, transaction costs associated with rules weigh more heavily on the MSME than on the LE. In addition, as cited by Tecson (December 2004), Wattanapruttipaisan, in her paper Promoting SME Development: Some Issues and Suggestions for Policy Consideration, (Bulletin on Asia Pacific Perspectives 2002/03) claimed that while there is much evidence on the emergence of competitive industries driven by networks and clusters of SMEs, focus should be given to the enabling policy and institutional environment that influences the development of

SMEs. Because of their limited scale of operations, the costs of participation and capacitybuilding are relatively more disproportionate for SMEs, compared with those shouldered by large firms. At the same time, by default or by accident, changes and adjustments in the policy, regulatory and institutional framework have not always empowered SMEs. She observed that the sector and its entrepreneurs are often constrained by opaque discretion, overbearing regulations, expensive delays and, above all, the well- known “perverse incentive syndrome”. She noted that remedial efforts have been made by countries to promote SMEs, including through the provision of both inducements and prerequisites for large-scale and transnational enterprises to foster backward and forward linkages with smaller-scale suppliers. But again, according to the author, this “carrot -and-stick” approach remains feasible and sustainable only with the continuous availability of SME inputs which comply with the exacting requirements of subcontracting and outsourcing. Though the importance of studying the MSMEs sector as affected by the regulations of the government particularly on the TRAIN law were stressed, the Department of Trade and Industry (DTI) allayed the fears that higher excise tax on fuel products due to the Tax Reform for  Acceleration and Inclusion (TRAIN) law would increase the prices of prime commodities.  According to Business Inquirer (2018), Secretary Ramon Lopez said last January 5, 2017 that the Tax Reform for Acceleration and Inclusion (Train) law would have minimal effect on the  prices of prime commodities. He added that some manufacturers may not even adjust the suggested retail prices of their products even if prices of fuel products would increase. This is simply because increase in the prices of fuel is pegged only at 7-8%, and only a small portion of the production cost of a product is attributed to the use of fuel.