The legislatures of the Philippines and the U.S. passed tax reform bills and 2018 national budgets this month with Presidents Rodrigo Duterte and Donald Trump, respectively, signing them into law just three days apart. On December 19, Duterte signed the Tax Reform for Acceleration and Inclusion (TRAIN) bill, which exempts 7.5 million workers earning P22,000 per month or P250,000 per year from income tax starting next year. On December 22, Trump signed the “Tax Cuts and Jobs Act”, which lowers tax rates for workers from the 39.6-15 percent range to the 37-12 percent range.
Both tax laws also boost businesses. TRAIN raises the VATable income of small businesses from P1.9 million to P3 million. The “Tax Cuts and Jobs Act” lowers corporate tax rate to a daring 21 percent from 39 percent. Such business-friendly tax environment would help encourage commerce growth and job generation.
It can be said that the respective tax reforms introduced in the Philippines and the U.S. are in tune with the times by offering relief to workers and growing the economy at the same time. The TCJA is particularly designed to lure back companies that chose to locate overseas where tax is lower or none. More than $1.4 trillion in tax cuts contained in the law will also spark business investment, hiring and wage growth, according to its Republicans authors.
Meanwhile, the more circumspect TRAIN law raises up to P130 billion in the first year of implementation to offset the deficit from income tax exemption so that at least 25 percent or P2.1 trillion of the P8.4-trillion “Build, Build, Build” program of the Duterte administration would be funded. Funding just a fourth of the cost of infrastructure development has an exponential return in terms of producing jobs and new businesses.
Hopefully, the wisdom our lawmakers put into the tax reform law will redound to the benefit of Filipino families and the nation in general.