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The Effects of New Tax Reform on Filipino Consumers

Though Republic Act 10963, also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law, was signed into law last December 19, 2017, its effects will be more strongly felt in 2018. Tax reform’s reach extends over the entire countryasthe Duterte administration looks to generate an estimated Php130 billion for its “Build, Build, Build” infrastructure program and socioeconomic programs.

The ordinary Filipino consumer may find the law greatly altering their spending habits.

 

Higher take home pay

The TRAIN Law adjusted the income tax rates, simplifying the system and easing the burden on taxpayers, except for the richest who will pay more than the 32% maximum in the old system.

  • Filipinos who earn Php250,000 annually and below are no longer made to pay income tax, while those who earn Php250,000 but not more than Php400,000 will only be taxed 20% of their income exceeding Php250,000.

  • Those who earn Php400,001-Php800,000 will pay Php30,000 and 25% of the excess over Php400,000.

  • Those who earn Php800,001-Php2,000,000 payPhp 130,000 and 30% of the excess over Php800,000.

  • Those who earn over Php2,000,000-Php8,000,000 yearly pay Php490,000 and 32% of the excess over Php2,000,000.

  • Meanwhile, those who earn over Php8,000,000 will be taxed Php2,410,000 plus 35% of the excess over Php8,000,000.

13th month pay and other bonuses that are Php90,000 and below will no longer be taxed.

Essentially, this ensures that the average Filipino will have more take-home pay and thus, money to spend.

 

Excise tax

To offset the loss from the lower tax rates, the Duterte administration placed excise taxes on non-medical cosmetic procedures, documentary stamps, and a few other products. Excise taxes are taxes on the manufacturing of the product rather than the sale. Manufacturers may be the ones shouldering the tax but consumers will feel it as the price of said good could inevitably rise to meet the production cost.

Sugary drinks such as powdered juice, energy drinks, carbonated drinks, and any other beverages that use caloric and non-caloric sweeteners like high-glucose fructose will see around Php10 pesos increase from the excise tax.Milk, 3-in-1 coffee, 100% natural fruit and vegetable juices, drinks that utilize natural stevia or coco sugar and other drinks with medical uses are exempt from these excise taxes.With tobacco also receiving a price increase, consumers will have to turn to a healthier lifestyle or spend more.

Car enthusiasts and those looking to purchase a car will have to pay more as automobiles will have an excise tax. Furthermore, petroleum products like gasoline and even diesel will have an excise tax, on top of the Value Added Tax (VAT), which will make getting around more expensive. In fact, public transportation and ride sharing groups have warned that their prices may go up.

 

Effects of these changes

The increase in these products’ prices due to excise taxes will result in an overall rise of product prices as these products, especially petroleum products, affect other industries. In fact, The BangkoSentral ng Pilipinas expects inflation to average 4.3% this year, higher than the three-year high of 4 % in January 2017.

Consumers will find that eating at their favorite restaurants will cost them more as restaurants will need to raise prices to meet the excise tax on LPG, which falls under petroleum products, as well as on sugary drinks. Warehouse membership shopping chain S&R had to cut its unlimited soda offering due to the rise in prices.

With Filipino consumers having more money to spend, businesses will need to come up with cost-effective solutions to the hike in manufacturing and raw materials prices and entice consumers to spend their larger disposable income.

Call FilePino today at +1.806.553.6552 in the US and +63.917.8922337 in the Philippines and take advantage of our complete set of financial services which includes accounting, bookkeeping, monthly payroll services, and tax consultation services.