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does it change?
As a tax lawyer, I noticed that there are a lot of news reports on the changes. But
actually, there are much more significant changes under the Train law which are not
being reported.
As we celebrated the New Year, the Tax Reform for Acceleration and Inclusion (Train)
Law or Republic Act No 10963 took effect on January 1, 2018. Train overhauls the
outdated National Internal Revenue Code (NIRC) which was adopted 20 years ago.
As a tax lawyer, I noticed that there are a lot of news reports on the changes. But
actually, there are much more significant changes under the Train law which are not
being reported.
Train relatively decreases the tax on personal income, estate, and donation. However, it
also increases the tax on certain passive incomes, documents (documentary stamp tax)
as well as excise tax on petroleum products, minerals, automobiles, and cigarettes.
The Train law also imposes new taxes in the form of excise tax on sweetened
beverages and non-essential services (invasive cosmetic procedures) and removes the
tax exemption of Lotto and other PCSO winnings amounting to more than P10,000.
Nonetheless, the new law also contains praiseworthy provisions which aim to simplify
tax compliance.
Reduced taxes
The most popular part of the Train law is the reduction of personal income tax of a
majority of individual taxpayers. Prior to the enactment of the new law, an individual
employee or self-employed taxpayer would normally have to pay income tax at the rate
of 5% to 32%, depending on one's bracket.
Under Train, an individual with a taxable income of P250,000 or less will now be exempt
from income tax. Those with a taxable income of above P250,000 will be subject to the
rate of 20% to 35% effective 2018, and 15% to 35% effective 2023. Moreover, the
deductible 13th month pay and other benefits are now higher at P90,000 compared to
P82,000 under the old law.
The table shows the comparison of the brackets and tax rates under the NIRC and
Train:
Another innovation under Train is the option of self-employed individuals and/or
professionals whose gross sales or receipts do not exceed P3,000,000 to avail of an 8%
tax on gross sales or gross receipts in excess of P250,000, in lieu of the graduated
income tax rates.
It is not being highlighted, however, that some items that were previously deducted to
arrive at taxable income had been removed under Train. These are the personal
exemption of P50,000, additional exemption of P25,000 per dependent child, and the
premium for health and hospitalization insurance of P2,400 per year.
Estate Tax
The estate tax rate was also changed from 5% to 32% of the net estate to a flat rate of
6%. Additionally, the following deductions allowed in computing the net estate (to be
subjected to estate tax) were increased:
Donor’s tax
The donor’s tax rate was also amended to a single rate of 6% regardless of the
relationship between the donor and the donee. In the old law, the rates of donor’s tax
were 2% to 15% if the donor and donee are related, and 30% if otherwise. However, the
donation of real property is now subject to Documentary Stamp Tax of P15 for every
P1,000.
Value Added Tax
There are also amendments to VAT which lessen the burden of taxpayers:
Increased taxes
Passive Income
Train imposes higher taxes on some passive incomes, including interest income from
dollar and other foreign currency deposits.
Excise Tax
Mineral products
Automobiles
Hybrid vehicles shall be subject to 50% of the applicable excise tax rates. But purely
electric vehicles and pick-ups shall be exempt from excise tax.
Aside from increase and decrease of certain taxes, Train also introduces new taxes in
the form of excise tax on sweetened beverages and non-essential services.
Sweetened Beverages
Non-essential services
PCSO winnings
Previously, PCSO winnings, regardless of amount, were exempt from tax. Train
subjects PCSO winnings to a 20% final withholding tax if the amount is more than
P10,000.
Apparently, the Philippine tax system is a very complicated one. This was certainly
considered by Congress when it enacted the Train law. Consequently, Train introduces
amendments which are geared towards simpler tax compliance. Some of these
amendments are:
With the enactment of the Train law, the government expects to generate more
revenues to fund its "Build, Build, Build" projects and other programs. At the same time,
the labor sector is expected to be freed from the burden of outdated and inequitable
personal income tax. Hopefully, this benefit for the workers can still be achieved despite
the increase in prices of some goods that they consume.
Read our law office's comprehensive comparison of the NIRC and the Train law here. –
Rappler.com
This article is for general information only. If you have any question or comment
regarding this article, you may email the author at egialogo.gdlaw@gmail.com.
Atty Edward G. Gialogo is the managing partner of Gialogo Dela Fuente & Associates.
He is also a tax speaker in Philippine Institute of Certified Public Accountants and
Business Law Reviewer in Review School of Accountancy (ReSA). He was an
Associate Director in the Tax Services of SyCip Gorres Velayo & Co.