MANILA (UPDATE) - President Rodrigo Duterte on Tuesday signed into law the first package of his tax reform initiative and the P3.7-trillion budget for 2018.

The first tranche, called the Tax Reform for Acceleration and Inclusion (TRAIN) measure, lowers personal income taxes while raising duties on fuel, cars, coal and sugar-sweetened drinks. Revenues will help fund the President's P8-trillion infrastructure program.

“This is the administration's biggest Christmas gift to the Filipino people as 99 percent of the taxpayers will benefit from the simpler, fairer and more efficient tax system,” Duterte said in a speech after signing the measure.

“The law also addresses long and overdue corrections in our tax laws and introduces a more progressive tax system, where the rich and the poor contribute to give better services to our people,” the President added.

The first P250,000 in annual income will be exempt from tax. The tax exemption cap on 13th month pay was also raised to P90,000 from P82,000.

While the income tax rate was previously fixed at 32 percent, during the first year of implementation of the tax reform law, those earning over P250,000 but not exceeding P400,000 will pay taxes equivalent to 20 percent of the excess over P250,000.

Those who earn over P400,000 but not over P800,000 will pay P30,000 plus 25 percent of the excess of P400,000. Those who earn over P800,000 but not exceeding P2 million will pay P130,000 plus 30 percent of the excess over P800,000.

Those who earn over P2 million but not exceeding P8 million will pay P490,000 plus 32 percent of the excess over P2 million. Those who earn over P8 million will pay P2.41 million plus 35 percent of the excess over P8 million.

The tax rates will be further lowered from 2023 to 15 percent of the excess over P250,000 for the first bracket, P22,500 plus 20 percent of the excess over P400,000 for the second bracket, P102,500 plus 25 percent of the excess over P800,000 for the third bracket, P402,500 plus 30 percent of the excess over P2 million for the fourth bracket and P2.2 million plus 35 percent of the excess over P8 million for the highest bracket.

A flat rate of 6 percent was set for estate and donor's taxes. The new donor's tax rate covers gifts exceeding P250,000, regardless of the relationship between the donor and the recipient.

An excise tax will be charged on diesel at P2.50 per liter next year. This will be raised to P4.50 the following year and P6 in 2020. LPG will be taxed P1 per kilo in 2018 and will be increased to P2 pesos the following year and to P3 pesos in 2020.

The excise tax on regular and unleaded premium gasoline will be raised to P7 in 2018 from the current P4.35. This will be increased to P9 in 2019 and P10 in 2020.

The chairman of the House ways and means committee, Quirino Rep. Dakila Cua, said lawmakers tried to "cushion" the blow from higher taxes on fuel "as much as we could."

"It’s not the friendliest possible… but then binalance natin 'yung revenue take sa impact on the consumer (we balanced the revenue take with the impact on consumers)," Cua told ANC's Headstart.

Drinks with caloric and non-caloric sweeteners will be taxed P6 per liter while those using high fructose corn syrup will be charged P12 per liter.

All milk, whether powdered, ready to drink, flavored or fermented, will be excluded from tax, as well as ground and 3-in-1 coffee and 100 percent natural fruit and vegetable juices, meal replacements and medically indicated drinks, and beverages sweetened with stevia or coco sugar.

Small businesses are expected to get a boost as the threshold for value added tax exemption was raised to P3 million from P1.9 million.

The VAT exemptions on raw food, agricultural products, health and education as well as those for senior citizens and persons with disabilities were retained. The sale of drugs for diabetes, high cholesterol and hypertension will be VAT free from 2019.

For cars, the new rates will be 4 percent for vehicles whose manufacturer's price is up to P600,000, 10 percent for cars worth P600,000 to P1 million, 20 percent for cars worth P1 million to P4 million and 50 percent for vehicles worth over P4 million.

Cosmetic procedures, except those used to correct deformities from birth, disease or due to accidents, will be taxed 5 percent.

The excise tax on coal was raised to P50 per metric ton from P10 in the first year of implementation. It will increase further to P100 in the second year and P150 in the third year. The coal tax has been unchanged since 1988.

“Revenues from the TRAIN will fund our priority projects to ensure quality education, including free tuition in state universities and colleges, quality health care, social protection and conditional cash transfers, improved infrastructure [under] the ‘Build, Build, Build’ program, and the reconstruction of Marawi,” Duterte said, referring to the conflict-stricken city in Mindanao where rehabilitation efforts are underway.

The President said the signing of the budget and the tax reform package was the fulfillment of his campaign promise to “institute genuine fiscal reform that will be felt by every Filipino.”

It was the second straight time that the President signed the General Appropriations Act before its year of implementation, ensuring sufficient funding for government agencies.

The President noted that he vetoed some lines in the ratified version of the 2018 budget, but has yet to disclose which portions.

The Department of Finance expects TRAIN to yield P92 billion in additional revenues in its first year, lower than the earlier estimate of P130 billion.

• READ: Bicam-approved tax reform to generate P92 billion

Sen. Sonny Angara, among chief proponents of the measure, said the new tax rates "would raise workers' take-home pay and jumpstart infrastructure projects in the country, which would help improve the lives of every Filipino."

"Next year would mark the beginning of a new, simplified and fairer income tax system. We hope we have fulfilled our ultimate goal to provide millions of Filipinos relief from their tax burdens that would put more money in their pockets to help them spend for their families and loved ones," Angara said in a statement.

Finance Secretary Carlos Dominguez said the measure signed by the President on Tuesday was just the ‘first phase’ of TRAIN and that they expect Congress to pass the second phase, composed mainly of tax administrative measures, to be passed by the first quarter of 2018.

• READ: DOF on TRAIN: But wait, there's more

The National Economic and Development Authority expects the tax reform package to boost the economy by 0.5 to 1.1 percent by year 2022.

"With the passing of TRAIN and the 2018 GAA, we are well on track in reaching our medium-term targets," Socioeconomic Planning Secretary Ernesto Pernia said in a statement.

Economists expect the tax reform package and increased infrastructure spending to further boost the economy next year.

• READ: 'Build, Build, Build' program seen to drive 2018 GDP growth: economist

Despite the signing of the tax package, the Philippine Stock Exchange fell 0.68 percent and closed at 8,365.