TRAIN Law – Lex Rex Ph

Post updated on: Mar 31, 2025 @ 1:41 pm

The TRAIN Law, also known as the Tax Reform for Acceleration and Inclusion Act (Republic Act No. 10963), brought about significant changes to the Philippine taxation system, with its effects beginning in January 2018. The government’s objectives for these reforms included accelerating poverty reduction, minimizing inequality, and generating revenues for investment in the Filipino people and infrastructure.

Tax Law Quiz

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What is the only way for BIR to establish authority to examine a taxpayer? Even the Court cannot convert it.

Letter of Authority

Letter Notice

Notice of Discrepancy

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In Marcos II vs. CA, the BIR filed criminal charges against the Estate of Marcos Sr. and caused the filing of P23B+ ETR, and P184M ITR in relation to its estate tax assessments. Notices were then issued. The heir Bongbong questioned on the grounds that the BIR assessments are not proper because no probate of the will has been made yet. He also argued that as an heir, he did not receive any notice of assessment. Are the assessments proper?

Yes. Probate of the will is not mandatory for tax assessments and levies. The probate court may even stop the distribution of shares.

Yes. Proper and adequate levy notices and assessments as per NIRC were made. No contests were raised.

No, because the notice to the heir of the estate is required by law.

Yes. Notices were received by persons of sufficient age in the office of Imelda Marcos in Congress.

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Philamlife sold its PhilamCare shareholdings to STI Investments for P104M. BIR informed them that donor’s tax is imposable because Philamlife sold them below the book value. Philamlife resisted and argued that it transferred without donative intent (at arm’s length) and sold at Fair Market Value, hence, no taxable donation. Philamlife appealed to the CA. Rule:

The CA has jurisdiction because the rulings in question here are actually rulings and interpretations of the CIR

The CA has no jurisdiction because the case calls for technical knowledge of a specialized agency – which is the CTA.

PhilamCare is subject to donor’s tax because the absence of donative intent is not determinative of the tax liability under Sec. 100 of the NIRC.

If the FMV exceeds the purchase price, the excess difference shall be deemed as a gift subject to donor’s tax.

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The TRAIN Law introduced amendments to several aspects of the National Internal Revenue Code of 1997 (NIRC), including:

Tax Administration and Enforcement:

Section 3 of the TRAIN Law empowered the Commissioner of Internal Revenue (CIR) to make assessments and prescribe additional requirements for tax administration and enforcement. This authority to examine taxpayers and assess the correct amount of tax exists notwithstanding any law requiring prior authorization from other government agencies, even in cases where a return has not been filed. This includes the authority to conduct a notice of audit and investigation.
Section 4 of the TRAIN Law granted the CIR the authority to conduct inventory-taking of goods, place business operations under surveillance, and prescribe presumptive gross sales and receipts at any time during the taxable year to determine internal revenue tax liabilities.
Section 4 of the TRAIN Law also pertained to requests for the supply of tax information from a foreign tax authority under international tax conventions or agreements where the Philippines is a signatory.

Estate Tax:

It increased the standard deduction to PHP 5 million and provided an exemption for family homes up to PHP 10 million.
Significant changes under the TRAIN Law regarding estate tax include the shift to a flat 6% rate on the net estate, simplifying calculations. Prior to the TRAIN Law, the estate tax was levied based on a progressive scale, ranging from 5% to 20%, contingent upon the net value of the estate.
These reforms aim to ease the financial burden on families, encourage tax compliance, and facilitate smoother asset transfer.

Value-Added Tax (VAT):

Broadening of the VAT base: The TRAIN Law specifically repealed 54 provisions related to VAT exemption and zero-rating. This move aimed to make the VAT system more comprehensive. For instance, the TRAIN Law included electric cooperatives in the definition of sale or exchange of services subject to VAT
Withdrawal of Certain Zero-Rated Transactions
Retention and Inclusion of VAT-Exempt Transactions, such as:
- Raw agricultural and marine products in their original state.
- Educational services rendered by private educational institutions duly accredited by CHED.
- Health services.
- Senior citizens and persons with disabilities are still entitled to VAT exemptions on certain goods and services.
- Cooperatives.
Furthermore, the TRAIN Law included new transactions in the list of VAT-exempt transactions under Section 109 of the National Internal Revenue Code:
- Sale of gold to the Bangko Sentral ng Pilipinas (BSP). This was previously subject to a 0% VAT rate.
- Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension, beginning January 1, 2019.
- Association dues, membership fees, and other assessments and charges collected by homeowners’ associations and condominium corporations.
- Transfer of property in pursuance of a plan of merger or consolidation.
VAT Refund Center: The TRAIN Law mandated the Department of Finance to establish a VAT refund center in the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) to handle the processing and granting of cash refunds of creditable input tax. This aimed to streamline the VAT refund process, which was a known challenge for taxpayers, especially those engaged in zero-rated sales.
Transitional Input Tax: The TRAIN Law, like previous VAT implementations, would have implications for transitional input tax credits for businesses transitioning to VAT liability or newly VAT-registered entities. These credits are intended to alleviate the initial impact of VAT on taxpayers by allowing them to offset output VAT with VAT paid on purchases made before VAT registration under certain conditions.

Excise Tax:

Section 3 of Republic Act No. 11346 further increased the excise tax rates on tobacco products effective January 1, 2023. These rates were initially increased under Section 42 of the TRAIN Law.
Section 43 of the TRAIN Law adjusted the excise tax rates on petroleum products, including naphtha, regular gasoline, pyrolysis gasoline, and other similar distillation products. It provided specific rules for naphtha and pyrolysis gasoline used in petrochemical production.
The excise tax rate on liquefied petroleum gas (LPG) was amended by Section 43 of the TRAIN Law, with a rate per kilogram and special treatment for its use in petrochemicals.
Section 43 of the TRAIN Law also revised the excise tax rates on processed gas, waxes and petrolatum, and denatured alcohol for motive power, with a condition for denatured alcohol mixed with gasoline.
The mandatory marking of all petroleum products, including unleaded premium gasoline, kerosene, and diesel fuel oil, after the payment of taxes and duties, was introduced by Section 43 of the TRAIN Law, along with specifications for official fuel markers.
Sections 44 and 45 of the TRAIN Law introduced a tiered excise tax system for automobiles based on their net manufacturer’s or importer’s selling price, with different rates for various price ranges. Hybrid vehicles were subjected to 50% of the applicable rates, while purely electric vehicles and pick-ups were made exempt. The definition of single cab chassis and special purpose vehicles was also clarified, and the classification of pick-up trucks was amended.

Documentary Stamp Tax (DST):

Section 50 of the TRAIN Law introduced Title VII on Documentary Stamp Tax to the NIRC. Section 173 outlines the general principles for levying, collecting, and paying DST on various documents, instruments, loan agreements, and papers related to obligations or property in the Philippines.
Sections 51 and 52 of the TRAIN Law amended the DST rates on the original issue and the sale or transfer of stock.
Sections 52 to 55 adjusted the DST rates for stock without par value, certificates of profits or interest, bank checks, drafts, and certificates of deposit. The term “debt instrument” was defined for DST purposes.
Sections 56 to 58 amended the DST rates on bills of exchange, domestic insurance policies, and policies of annuity or other obligation, with specific rates for life insurance policies outlined in Section 183.
Section 62 revised the DST on warehouse receipts.
Section 63 amended the DST on leases and other hiring agreements, while Sections 64 and 65 modified rates for charter parties and non-life insurance policies.
Section 70 adjusted the DST rates for charter parties based on the ship’s tonnage and the duration of the charter.
Section 71 amended the DST rates on powers of attorney and provided exemptions for certain government-related documents. It also changed the frequency of DST return submissions to monthly and increased the threshold for manual filing.

The preface to the amended NIRC by Isla Lipana & Co. highlights their firm’s active support in the crafting of the TRAIN Law and its implementing rules and regulations, reflecting the significant impact and comprehensive nature of these tax reforms. The mention of various sections being “Introduced by Section [X] of the TRAIN Law” or “As amended by Section [X] of the TRAIN Law” throughout the NIRC excerpts underscores the broad scope of the legislative changes brought about by this law.

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