Republic of the Philippines
HOUSE OF REPRESENTATIVES
Batasan Hills, Quezon City

NINETEENTH CONGRESS
First Regular Session

1855

HOUSE BILL No. © ***

Introduced by
ACT Teachers Party-List Rep. FRANCE L. CASTRO,
| _GABRIELA Women’s Party Rep. ARLENE D. BROSAS,
and KABATAAN Party-List Rep. RAOUL DANNIEL A. MANUEL

THE TAX REFORM ACT FOR THE MASSES AND THE MIDDLE CLASS
(TRAMM)

EXPLANATORY NOTE

Poverty thresholds in the Philippines might be notoriously low, but the actual number
of poor Filipinos is understated. Segments of those classified in government databases as
low-income-but-not-poor or middle-income households are, in reality, poor, especially if
multidimensional perspectives on poverty will be used as metrics. For example, the current
official poverty threshold (P12,082 for a family of five) automatically excludes families with
earnings equivalent to the monthly minimum wage from being listed as poor.

The establishment of a progressive tax system—a State policy declared by the
Philippine Constitution but never implemented by the government—could help achieve the
goals of redistributing wealth among broader segments of the population, by shifting the tax
burden away from personal incomes or compensation and poor and middle-class consumption
(especially since wages as a percentage of GDP in the Philippines have been falling in recent
years, compared with the world median’), and towards corporate income and wealthy people’s
expenditures.

Unfortunately, past so-called “tax reform” laws, namely, TRAIN and CREATE,
offered little benefits to poor and middle-class families while giving away further bonanzas
for the very wealthy few. For example, tax exemptions for couples and those with dependents
were abolished, while corporate tax rates were reduced. The Philippine government, while
refusing to grant tax exemptions for poor and middle class families, has been very generous

'  GovData360, World Bank. Wage bill as percentage of GDR

m&years=2000,2017 )



in giving tax exemptions and incentives to big corporations? on top of the usual business
incentives.

Senator Sonny Angara lamented such a system’ where “(m)any of the rich often gain
more wealth through dividends and stock options. Often it is through dividends and stock
options, which are taxed at lower rates than income. The wealthy often have holding
companies, too, which enjoy bigger tax deductions than families and individuals. Often, the
ultra-wealthy have corporations large enough to qualify for fiscal incentives, like tax holidays
or cuts for chosen industries or investments.”

As alresult, the Philippines remains among the most unequal or inegalitarian societies
in the world, with the income shares of the poorest and richest segments of the population
almost stagnant for decades now. Personal income tax rates for the poor and middle class
citizens in the Philippines are even higher than rates in Singapore. The Philippines’ tax
brackets are also less than the number of tax brackets in Malaysia, Singapore, Thailand, and
Vietnam. Moreover, unlike in the said countries where additional personal allowances and/or
tax exemptions for dependents are available, there are no personal allowances and/or tax
exemptions for dependents in the Philippines.

Personal
_ Fesonal” Number of Amount of Annual ear
Country Me Tax Income Exempted from And/or t
ax Brackets Tax seasons
Range for
| Dependents
Malaysia | 1%t030% | 12. RM45,000(P62,510) Available
Singapore 2% 10.20% 10 $$ 20,000(P795,028) _Available®
Thailand 5% t035% © 7 ‘THB 150,000 Available’
(233,521)
Vietnam | 5%t035% = 7 None Available?
Philippines 0% t0 35% © 5 ~—-P250,000 None

This proposed “Tax Reform Act for the Masses and the Middle Class (TRAMM)”
would help address such imbalance, in favor of poor and middle-class households in the
country that bear most of the tax burden but are unable to reap benefits from the economic
system, while the richest clans gobble up much of the wealth that the former have mostly

For recent examples, sec: hiips//wnww i Jness/2020/10/12/Senate-approves-San-Miguel-
Bulacan-Aitport
franchisehiml?fbclid=1wARIBS3RB9MI6pkC02yv87AYsiO7NyImVNm717spRserpI8Fj6BpIyhXIPMA and

See https:/ ies.pwe.convvietnam/individual/deductions



created. Much-needed reforms are sought, namely, setting a 20% maximum personal income
tax rate for individual citizens, the exemption of the first P400,000 of their incomes, bringing
back additional exemptions for dependents (this time, senior citizens and persons with
disabilities may be claimed as dependents), raising of the cap for tax-free bonuses to
150,000, and the mandate for the Bureau of Internal Revenue to set up a progressive, 10-
bracket (in the minimum) personal income tax schedule.

Rising prices and untamed inflation rates in the past few years all the more justify the
need for a tax reform package that would reduce the income tax rates of the overburdened
Filipino working class families. Reducing income tax rates for working families will not only
improve their way of life, but also strengthen their purchasing power which will boost overall
domestic demand for consumer goods. Thus, this will be helpful to the economy in general,
too. |

This bill, which is specifically for certain aspects of the income taxation of resident
and non-resident Filipino individuals, is pushed alongside House Bill 568 or An Act Reversing
Regressive and Anti-Poor Taxation, other bills on consumption taxes like those on oil and
petrol products, and other bills on pro-people tax reform, also filed by the Makabayan bloc.

For the foregoing reasons, urgent approval of this bill is sought.

Al

Rep./ARLENHE D. BROSAS Rep. JUL DANN{EL A. MANUEL
GABRIELA Womens Party KABATAAN Party-List



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Batasan Hills, Quezon City

NINETEENTH CONGRESS
First Regular Session

1855

HOUSE BILL No.

Introduced by
ACT Teachers Party-List Rep. FRANCE L. CASTRO,
GABRIELA Women’s Party Rep. ARLENE D. BROSAS,
and KABATAAN Party-List Rep. RAOUL DANNIEL A. MANUEL

THE TAX REFORM ACT FOR THE MASSES AND THE MIDDLE CLASS
(TRAMM)

Be it enacted by the Senate and the House of Representatives of the Philippines

assembled.

SECTION 1. Short Title. This Act shall be known as “Tax Reform Act for the Masses
and the Middle Class (TRAMM).”

SEC. 2. Declaration of State Policy. The policies of the State to evolve for the Filipino
a progressive system of taxation and to establish a national economy that works towards
‘a more equitable distribution of opportunities, income, and wealth; a sustained increase
in the amount of goods and services produced by the nation for the benefit of the people;
and an expanding productivity as the key to raising the quality of life for all, especially
the underprivileged are hereby being reiterated.

SEC. 3. Maximum Personal Income Tax Rate for Individual Citizens. The maximum
personal income tax rate for individual citizens is hereby set at 20% of the taxable
income.

SEC. 4. Personal Income Tax Exemption. The first Four Hundred Thousand Pesos
(P400,000) of every individual citizen’s annual individual income is exempted from
personal income tax.


SEC. 5. Progressive Personal Income Tax Rate. The Bureau of Internal Revenue shall
release a progressive personal income tax schedule with rates ranging from 1% to 20%
of the taxable income, and with at least ten (10) brackets.

SEC. 6, 13 Month Pay and Similar Benefits as Deductions from Gross
Income. Gross benefits received by individual citizens who are officials and employees
of public and private entities shall not be included in gross income and shall be exempt
from taxation under Title II of the National Internal Revenue Code, as amended:
Provided, however, That the total exclusion under this Section shall not exceed One
Hundred Fifty Thousand Pesos (P 150,000) which shall cover:

(1) Benefits received by officials and employees of the national and local
government pursuant to Republic Act No. 6686;

(2) Benefits received by employees pursuant to Presidential Decree No. 851, as
amended by Memorandum Order No. 28, dated August 13, 1986;

(3) Benefits received by officials and employees not covered by Presidential Decree
No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; and

(4) Other benefits of similar nature such as 14" month pay, productivity incentives,
and Christmas bonus.

SEC. 7. Additional Personal Exemption for Dependents. \n addition to the exemption
provided for under Section 4 of this Act, there shall be allowed for individual citizens
an additional exemption of Twenty-Five Thousand Pesos (P25,000) for each dependent
not exceeding five (5).

The additional exemption for dependents shall be claimed by only one of the
spouses in the case of married individuals.

In the case of legally separated spouses, additional exemptions may be claimed
only by the spouse who has custody of the child or children: Provided, that the total
amount of additional exemptions that may be claimed by both shall not exceed the
maximum additional exemptions herein allowed.

For purposes of this subsection, a “dependent” means a legitimate, illegitimate
or legally adopted child chiefly dependent upon and living with the taxpayer if such
dependent is not more than twenty-one (21) years of age, unmarried and not gainfully
employed or if such dependent, regardless of age, is incapable of self-support because
of mental or physical disability. Individual citizens may also claim as dependents (1)
their senior citizen parents or relatives, not exceeding two (2), and (2) their parents,
children, and relatives who are persons with disability, not exceeding two (2).

SEC. 8. Implementing Rules and Regulations. The Bureau of Internal Revenue, in
consultation with representatives of civil society organizations, shall promulgate the
necessary implementing rules and regulations for the effective implementation of this
‘Act not later than ninety (90) days upon the effectivity of this Act.



SEC. 9, Separability Clause. If any part or provision of this Act is held
unconstitutional or invalid, the other parts or provision hereof which are not affected
thereby shall continue to be in full force and effect.

SEC. 10, Repealing Clause. All laws, decrees, executive orders, proclamations, rules
and regulations, and other issuances, or parts thereof which are inconsistent with the
provisions of this Act, are hereby repealed or modified accordingly.

SEC. 11, Effectivity Clause. This Act shall take effect upon its publication in at least
two (2) national newspapers of general circulation.

Approved,