Republic of the Philippines

Palawan State University

College of Business and Accountancy

“THE TRAIN LAW: GRADUATED INCOME TAX SCHEDULE FOR INDIVIDUALS”

A Research Paper

Presented to

Mr. Mark Gil A. Tito

Submitted By:

De Leon, Jeannie Fe S.

Salvacion, Lean Angel Y.

January 2018
 CHAPTER 1

INTRODUCTION

Background of the study

The Philippines has different income tax rates for individuals, corporations, and

partnerships. Knowing the right income tax return that an individual will pay can make his life

better. A taxpayer must pay his/her taxes properly because it is required that taxes should be paid

so that the government have a budget or fund to make the projects that can help the people in this

country. The failure to pay one’s tax is punishable by law. Income tax is one of many taxes that

should be paid by a taxpayer. According to the bir.gov.ph, “Income Tax is a tax on a person's

income, emoluments, profits arising from property, practice of profession, conduct of trade or

business or on the pertinent items of gross income specified in the Tax Code of 1997 (Tax Code),

as amended, less the deductions and/or personal and additional exemptions, if any, authorized for

such types of income, by the Tax Code, as amended, or other special laws”.

Individual taxpayer include employees and self-employed persons engaged in business or

practice of profession. The Philippines usually uses graduated income tax rates for individuals,

which is a form of progressive computation that increases the tax rate as the taxable income

increases. For 20 years, the Philippines follow the tax rates stated in the Tax Reform Act of 1997.

Because the new administration promised that they will implement a fairer tax reform

program, President Duterte has already signed the Republic Act No. 10963 or the Tax Reform for

Acceleration and Inclusion (TRAIN) bill aiming to earn revenues to fund the country’s

infrastructure program. The new TRAIN law revises most of the Tax reform act of 997.
 The TRAIN law will reduce the personal income tax rates of each individual, while

people earning a lower personal income will be free from tax.

The new TRAIN law will foregone the tax rates from those who have an annual income,

not over P250, 000. While people earning more than P250, 000 but not over P400, 000 annually

will be charged with 20 percent tax on the excess over P250, 000.

Annual income over P400, 000 but not more than P800, 000 will pay worth P30, 000 and

will be charged about 25 percent of the excess over P400, 000.

People earning more than P800, 000 but not over P2 million per year will be charged

with P130, 000 plus 30 percent of the excess over P800, 000.

Individuals with over P2 million annual income will pay P490, 000 plus 32 percent of the

excess over P2 million.

The yearly income of over P8 million will have a tax of P2, 410, 000 plus 35 percent of

the excess over P8 million.

Statement of the problem

This study seeks to answer the following questions:

1. What is the new the new graduated income tax schedule in the TRAIN Law?

2. What are the differences between the old and new graduated income tax schedule for

individuals?

3. Which is more favorable for the individual taxpayer?

Objective of the Study

The general objective is to know the new income tax rates of TRAIN law implemented by

the new administration for the individual taxpayer and what are its effect to the income tax return

being paid by an individual taxpayer.

Specially, this study aims:

 To assess the new tax rates for individual taxpayers

 To recognize the effects and benefits of the new income tax rates for individuals.

Significance of the study

This research can give additional information for business students about the new tax law

and individual tax payer about the new tax rates in the TRAIN law.
 CHAPTER II

Review of related literature

The BIR stated the following:

Annual Income Tax for Individuals Earning Purely Compensation Income (Including

Non-Business/Non-Profession Related Income) and For Marginal Income Earners

Tax Form

BIR Form 1700 - Annual Income Tax Return (For Individual Earning Purely Compensation

Income Including Non-Business/Non-Profession Related Income)

Annual Income Tax for Self-Employed Individuals, Estates and Trusts (Including

Those with Mixed Income, i.e., Compensation Income and Income from Business and/or

Practice of Profession)

Tax Form

BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts

Including Those with Both Business and Compensation Income)

Account Information Form for Self-Employed Individuals, Estates and Trusts

(Including Those with Mixed Income, I.E., Compensation Income and Income from Business

and/or Practice of Profession)

Tax Form
BIR Form 1701 AIF - Account Information Form for Self-Employed Individuals, Estates and

Trusts (Including those with Mixed Income, i.e., Compensation Income and Income from Business

and/or Practice of Profession) and Estates and Trusts (Engaged in Trade or Business)

NOTE: Pursuant to Revenue Memorandum Circular No. 6 – 2001, corporations, companies or

persons whose gross quarterly sales, earnings, receipts or output exceed P 150,000.00 may not

accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied

by balance sheets, profit and loss statement, schedules listing income-producing properties and the

corresponding income therefrom, and other relevant statements duly certified by an independent

CPA.

Quarterly Income Tax for Self-Employed Individuals, Estates and Trusts (Including Those with

Mixed Income, I.E., Compensation Income and Income from Business and/or Practice of

Profession)

Tax Form

BIR Form 1701Q - Quarterly Income Tax Return for Self-Employed Individuals, Estates and

Trusts (Including those with both Business and Compensation Income)

The Old Graduated Income Tax Schedule

The Philippine Tax Code imposes these graduated income tax rates for individual taxpayers who

are:

1. Resident citizens on their taxable income from all sources within and outside the

Philippines.
2. Nonresident citizens on their taxable income from all sources within the Philippines.

3. Resident aliens on their taxable income from all sources within the Philippines.

4. Nonresident aliens engaged in trade or business within the Philippines on their taxable

income from all sources within the Philippines.

These rates will be based on the amount of your net taxable income, which is the net of your

gross taxable income less your allowable deductions (itemized deductions or optional standard

deductions) and personal and additional exemptions. Please read our post on how to compute

income tax for self-employed individuals to learn more.

Take note that non-resident aliens who are not engaged in trade or business within the

Philippines are taxed at fixed rate of 25% instead of the graduated tax rate on their gross amount

of income derived from all sources within the Philippines.

Furthermore, aliens employed by Regional Headquarters (RHQ) or Area Headquarters and

Regional Operating Headquarters (ROH), Offshore Banking Units (OBUs), Petroleum Service

Contractor and Subcontractors are taxed at fixed rate of 15% on their gross income in the

Philippines.
 CHAPTER III

RESEARCH INSTRUMENT USED

The study used this instrument in collecting the data in order to arise with desired

objectives.

Data gathering instrument

Interviews – the proponents gathered information directly to some individual taxpayers. It

is needed to get detailed information about their opinion about the new graduated tax schedule for

individual in the TRAIN law.

COMPARISON
The differences off the old graduated income tax schedule for individual and the TRAIN

law: new income tax schedule for individual.

Old BIR Income tax Rates (Used until 2017)

BRACKET INCOME PER YEAR TAX RATE

1 P10,000 and below 5%

2 Above P10,000 to P30,000 P500 + 10% of the excess over P10,000

3 Above P30,000 to P70,000 P2,500 + 15% of the excess over P30,000

4 Above P70,000 to P140,000 P8,500 + 20% of the excess over P70,000

5 Above P140,000 to P250,000 P22,500 + 25% of the excess over P140,000

6 Above P250,000 to P500,000 P50,000 + 30% of the excess over P250,000

7 Above P500,000 P125,000 + 32% of the excess over P500,000

New BIR Income Tax Rates, from TRAIN Tax Reform (2018-2022)
BRACKET GROSS INCOME PER INCOME TAX RATE
YEAR
1 P250,000 and below 0%

2 Above P250,000 to P400,000 20% of the excess over P250,000

3 Above P400,000 to P800,000 P30,000 + 25% of the excess over P400,000

4 Above P800,000 to P2,000,000 P130,000 + 30% of the excess over P800,000

5 Above P2,000,000 to P490,000 + 32% of the excess over

P8,000,000 P2,000,000
6 Above P8,000,000 P2,410,000 + 35% of the excess over
P8,000,000
New BIR Income Tax Rates, from TRAIN Tax Reform (2023-onwards)
BRACKET INCOME PER YEAR TAX RATE

1 P250,000 and below 0%

2 Above P250,000 to P400,000 15% of the excess over P250,000

3 Above P400,000 to P800,000 P22,500 + 20% of the excess over P400,000

4 Above P800,000 to P2,000,000 P102,500 + 25% of the excess over P800,000

5 Above P2,000,000 to P402,500 + 30% of the excess over

P8,000,000 P2,000,000
6 Above P8,000,000 P2,202,500 + 35% of the excess over
P5,000,000

COMPUTATIONS

Income Tax = Income per year tax rate

Example:

1.) Income per year = 300,000

Tax Rate of 300,000 => Above 250, 000 but not more than 400,000

Income tax = (15% x (300000-250000))

Income Tax = P7, 500

2.) Income per year = P 950,000

Tax Rate of 900,000 => Above P800, 000 to P2, 000,000

Income Tax = P102, 500 + (30% x (950,000-800,000))

Income Tax = P130, 000 + 45,000

Income Tax = P175, 000

 CHAPTER IV

PRESENTATION OF DATA

Description of The Old Graduated Income tax Schedule

The Tax Reform Act of 1997 gives us the table for the old Income tax schedule. The taxes

rate start at P10, 000 income per year on which it has a 5% income tax return and individual

taxpayer who earned P500, 000 and above annually has the same tax rate of P125, 000 + 32% of

the excess over P500, 000. Even though a person who has a small amount of income per year is

required to pay his or her income tax as long as they are engaged in business or practice their

professions.

Income of residents in Philippines is taxed progressively up to 32%. Resident citizens are

taxed on all their net income derived from sources within and without the Philippines. For

nonresident, whether an individual or not of the Philippines, is taxable only on income derived

from sources within the Philippines.

Taxable Income (PhP) Tax Rate

Php 0 – 10,000 5%

Php 10,000 – 30,000 10%

Php 30,000 – 70,000 15%

Php 70,000 – 140,000 20%

Php140,000 – 250,000 25%

Php 250,000 – 500,000 30%

Php 500,000 and above 32%

  The above rates apply to individuals who derive income from business (including capital
gains from the sale transfer or exchange of shares in a foreign corporation) or from the
practice of a profession.

 Individuals holding managerial and highly technical positions employed by RHQs1,

ROHQs2, multinational companies and offshore business units are taxed at 15% on their
gross income.

Income in Philippines is divided into the following three categories which are taxed separately, as
summarized below.

1. Compensation employment income: This income is taxed at progressive rates on gross income
after deduction of personal and additional exemptions but without deductions for expenses.

2. Passive income: This income, including dividends and interest, is subject to tax at 7.5%.

3. Business income and professional income: This income is taxed at progressive rates on net
business income after deduction of certain specified expenses.
The researcher conducted an interview to 3 people and the following questions were ask.

Question Number 1: How much is your Income Annually

Income per year 1 2 3

100,000-250,000

250,000-400,000

400,00-800,000

800,000-2,000,000

2,000,000-8,000,000

Figure 1
Figure 1 shows the amount of income annually of the 3 individual who was interviewed
for this research. 1 of them answered that his ranges from 250,000-400,000 pesos, the other one
answered that his income ranges from 800,000-2,000,000 and the last one answered that her
income ranges from 100,000- 250,000 Pesos.

Question Number 2: Are you aware of the New TRAIN law implemented by the President?
Person YES NO

1 

2 

3 

Figure 2
Figure 2 shows if the person is aware or know the new TRAIN law implemented. All of
them answered yes.
Question 3: Are you in favor in the new TRAIN law? Why or why not?
Person Yes or No Reason
1 No It is unfair because we are the
ones who’ll have to pay taxes
just because are income
250,000 and above.
2 Yes Because my income tax return
in the new graduated income
tax schedule is lower than the
old one.
3 Yes Because I don’t have to pay the
individual tax return anymore.
Figure 3
Figure 3 shows the answers of the individual who was interviewed for the 3rd questions.
One of them are not in favored in the new tax law and others are favored. They also states their
own reasons for their answers.
 CHAPTER 5
CONCLUSION
The new income tax schedule of the TRAIN law signed by the president and impose

starting this year will sure affect the life of both the poor and rich individual that are engaged in

business or who practice his or her profession. The TRAIN law will reduce the personal income

tax rates of each individual, while people earning a lower personal income will be free from tax.

The tax rates are very different from the Tax reform act of 1997 that are implemented for over 20

years in the Philippines. Some of the differences of the new income tax schedule in the old income

tax schedule are 1. The income tax brackets are reduced to six, 2. Individual who earned 250,000

and below are not subject to income tax and 3. Individual who earned 500,000 and above has now

a more detailed income tax rate than before. Although many of individual will be in favor in the

new graduated income tax schedule, there are still some individual who are not. The new graduated

income tax schedule is more favorable to lower level individuals than those who are in the middle

and upper class. If the government implement this in a good way, I think that this may be a solution

to make our economy increase and help the Filipino citizen more.
 APPENDICES
BIBLIOGRAPHY

https://www.bir.gov.ph/index.php/train.html
https://www.pinoymoneytalk.com/old-income-tax-rates-nirc-tax-tables/
http://www.wipo.int/wipolex/en/text.jsp?file_id=224718
https://www.bir.gov.ph/index.php/tax-information/income-tax.html
https://philnews.ph/2018/01/03/adjusted-income-tax-rates-train-law/
https://www.pinoymoneytalk.com/new-income-tax-table-rates-philippines/