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Tax Reform for Acceleration and Inclusion

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.

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.

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.

Tax on lotto winnings and PCSO prizes


Under the existing National Internal Revenue Code (NIRC), lotto winnings and all PCSO
prizes are tax-exempt. This has now been changed by the TRAIN law.

Starting 2018, all PCSO and lotto prizes are taxed 20% if the amount of the prize or
winnings is above ten thousand pesos (P10,000).
Tax on pre-terminated long-term time deposits
Long-term time deposits (TD), or time deposits with duration of 5 years and 1 day, will
continue to be tax-exempt. However, the tax on interest income of these deposits once
preterminated has been changed.

From the current rate of 5-20%, the tax charged on the interest income of long-term
time deposits that are preterminated (meaning, withdrawn prior to the scheduled
maturity date) has been increased to a fixed 20%.

Documentary Stamps (Doc Stamps) Tax


The documentary stamp tax (DST) has been doubled, with the new doc stamps tax
ranging from P1.50 to P3.00 under the tax reform.

Donor’s Tax
The donor’s tax was revised to a flat rate of 6% regardless of the relationship
between the donor and the donee. Previously, the donor’s tax was 2% to 15% if the
donor and donee are related, and 30% if the donation was to a stranger.
Donations or gifts below P250,000 are tax-exempt. Donations with value of at least
P250,000 are taxed using the new rate of 6% on the amount in excess of P250,000.

Estate Tax
Under TRAIN, the estate tax is now a flat 6% rate on the amount in excess of P5
million.
Estates with a net value of P5 million and below will be tax-exempt. Family homes that
are valued at no more than P10 million will also be exempted. Under current tax laws,
only family homes worth P1 million are tax-exempt.
Probably the only thing that delighted citizens: under the TRAIN law, workers with an annual
salary of P250,000 is exempted from tax. Salaries that were once deducted 5% to 32% in
tax rate now have 0% tax deduction from 2018 and beyond.

Tax exemption includes the mandated 13th month bonus and other bonuses. This means
every employee can now take home more than they did the previous years. But since
everything is a give-and-take process, some goods will be priced higher from now on.

It might come as a shock to you the next time you buy a bottle of your favorite soft drink that
it’s a bit pricey, this is one effect of TRAIN law. Sugar-sweetened beverages, once without
taxes, are now P6/liter while high fructose corn syrup beverages are at P12/liter.

Exempted from this are milk products, 100% natural fruit and vegetable juices, and ground,
instant, and pre-packaged coffee products.

We felt the blow when S&R announced they are discontinuing their unlimited soda promo.
Which other fast foods will follow suit?

A pack of cigarettes that costs P30 will now cost P32.50 this year and will increase in P2.5
increments until 2022. So if you buy a pack of cigarettes in 2022, it will damage your wallet
to the tune of P40 and it might possibly change your life. A 4% increase in taxes will be
implemented starting 2023.

Your #TravelGoals might be in danger. The TRAIN law imposes an 8-peso increase in
petroleum products per liter this year. For diesel and kerosene, the once non-existent
excise tax will now be at P2.50-P3/liter. Household gas LPG will have an added P1/liter.
Taxes in petroleum and gas will gradually increase until 2020.

If you’re planning on buying a car in the near future, do it as soon as possible because
automobiles aren’t exempt from excise tax. Vehicles worth P600,000 and below will have
a 4% tax rate. Vehicles over P600,000 up to P1 Million will have a 10% increase, a 20%
increase for vehicles priced above P1 million to P4 million, and 50% for vehicles above
P4 million.

Hybrid cars are taxed half and electric vehicles and pick-ups are exempt from the rates.
Taxes will increase by more than 10-20% in 2019.

Under the TRAIN law, a flat rate of 6% will be imposed on both estate and donor tax. In the
old law, the net estate value last year went up to 20% if the estate was worth P200,000 and
above. With the TRAIN law, estates worth P5 million and below will have zero tax rate, but
P5 million and above will have 6% of the excess over P5 million.

In the previous law, donor’s tax goes up to 15% if the donor and the donee are related and
30% if they’re not. The donor’s tax is now at 6% regardless of the relationship between
donor and donee.
Under the TRAIN law however, almost all Documentary Stamp Taxes have doubled.