Genesis of TRAIN Package 4


The Tax Reform for Acceleration and Inclusion Act or TRAIN, the acronym for the signature tax reform program of the Duterte administration, has unfortunately taken on a very negative connotation. Rather unfairly, TRAIN has been associated with inflation and higher prices thus taking the brunt of criticisms from the public. As a consequence, the TRAIN, as originally envisioned to consist of five different programs, is possibly at risk of, at worst, being derailed or, at best, chugging along to a much reduced pace.

In the interest of transparency, I must declare my association with the TRAIN specifically the 4th package which tackles taxes affecting the capital market particularly the financial intermediaries and capital income. Package 4 focuses primarily on the tax regime covering the operations of banks, quasi-banks, investment houses, trust and mutual funds, stock brokerages and life and non-life insurance companies. Capital income, on the other hand, refers to passive financial income such as interest income from loans, deposits and bonds, dividends from shares of stocks and capital and trading gains arising from the sale of debt and equity securities. Together with renowned tax expert Atty. Benedicta Baladad as lead consultant, prominent economist Dr. Gilbert Llanto and econometrician Dr. Maggie Gonzales and myself as industry consultant, we were contracted by the Asian Development Bank to provide assistance to the team of Undersecretary Karl Chua of the Department of Finance (DoF), particularly the National Tax Research Center (NTRC) headed by Executive Director Trinidad Rodriguez, to put together Package 4 with the end objective of producing a draft legislation. The engagement commenced June 2017 when our team joined the DoF planning conference in Baguio to jumpstart the TRAIN program of the government. The planning conference showcased for me the professionalism, idealism and genuine desire of the very competent DoF team of Undersecretary Karl Chua to come up with a comprehensive tax reform program that will be beneficial to the country and our people.

It is an unusual experience for me since my particular task is to provide the perspective and anticipate what might be the concerns of the different players in the capital market, drawing from my decades-long immersion in the financial markets with different types of financial institutions. Typically, as an investment banker, my main task would be usually to design deals in a manner that will achieve, among other things, a tax efficient structure. However, now wearing a different hat, the perspective I have to assume is to identify and clarify where the possible gaps might arise in the taxation of the financial products and transactions, as well as to point out and expound on where there might be an uneven playing field among the financial institutions operating in the capital market.

The DoF, fully cognizant of the critical role of the capital market in the development of the economy, set out several objectives for Package 4. Foremost is to reform the existing tax structure in the financial sector that will result in a simpler, fairer, more efficient and regionally more competitive tax regime that will promote savings and deepen the capital market. Unlike the other tax packages which are primarily revenue generating for the government, Package 4 is envisioned to be revenue neutral, at least in the short term. In other words, it is hoped that the proposed tax reform package will be able to rationalize the tax regime without, ideally, producing deficits in the government’s revenue tax base.

In particular, the rationalization under Package 4 will attempt to address the following concerns arising from the prevailing tax regime:

1. Complicated tax structure
2. Susceptibility to tax arbitrage
3. Uneven playing field
4. Inequitable distribution of the tax burden
5. Uncompetitive
6. High administrative and compliance cost
7. Not supportive of capital market development

Over the next few weeks, in my succeeding columns, I shall endeavor to elaborate on each of the above concerns and how they are addressed under Package 4. What I can, in fact, share with you my readers, is that the first step has already been taken in this journey leading to what hopefully will be a speedy path to an approved legislation for TRAIN Package 4. On 17 September, House Bill 8252, otherwise known as the “Capital Income and Financial Intermediary Taxation Act of 2019,” was introduced in the House of Representatives by Reps. Estrellita Suansing and Horacio Suansing. And on 24 September, the Ways and Means Committee Chairman Estrellita Suansing convened a meeting to start the discussions of the bill with the DoF, NTRC, consultants and the various industry stakeholders.
Until next week again folks … one big fight!

For any comments or questions, please email me at

What are your thoughts?

Please enter your comment!
Please enter your name here