Tax Reform for Acceleration and Inclusion (TRAIN) LAW

It is the first of five packages of the Comprehensive Tax Reform Program (CTRP), which aims to raise
revenues that will help President’s Build, Build, Build Project and correct the structural problems of tax
system that has made it unfair, complex, and inefficient.
The Train Law’s main goal is to make a simpler, fair and more efficient to promote investments, create
jobs and reduce poverty.

Some of the tax reform that will be funded are:

 Education – which the government will hire more teachers, and build more schools specially in the
provincial areas;
 Health services – for upgrading of local hospitals, more services with PhilHealth, build more
hospitals in rural and urban areas, barangay heath centers; and
 Infrastructure programs – including BGC-Ortigas Center Link Road, Tacloban City By-Pass Road,
Cagayan de Oro Diversion Road and other major roads.

Features
1. Personal Income Tax
- TRAIN will lower the taxes. Those with taxable income below P250,000 will be exempt from paying PIT.
- Sets the highest amount of taxable income at more than P8,000,000 and subjects it to a higher rate to
35%
- Bonuses up to P 90,000 are exempt. These includes 13th month pay and other benefits such as
productivity incentives and Christmas bonus.

Old Tax Schedule:

NET TAXABLE INCOME TAX RATE
0 – 10,000 5%
10,000 – 30,000 500 + 10% of excess over 10,000
30,000 – 70,000 2,500 + 15% of excess over 30,000
70,000 – 140,000 8,500 + 20% of excess over 70,000
140,000 – 250,000 22,500 + 25% of excess over 140,000
250,00 – 500,000 50,000 + 30% of excess over 250,000
500,000 above 125,000 + 32% of excess over 500,000

New Tax Schedule: (effective January 1, 2018)

For compensation income earners:
NET TAXABLE INCOME TAX RATE
0 – 250,000 0%
250,000 – 400,000 20% of excess over 250,000
400,000 – 800,000 30,000 + 25% of excess over 400,000
800,000 – 2,000,000 130,000 + 30% of excess over 800,000
2,000,000 – 8,000,000 490,000 + 32% of excess over 2,000,000
8,000,000 above 2,410,000 + 35% of excess over 8,000,000

For self-employed and professionals

GROSS SALES/RECEIPTS TAX RATE
 Not exceeding P3,000,000 Regular PIT Rates or
8% of gross sales/receipts in excess of P250,000
Above P3,000,000 Regular PIT rates

For Mixed Income Earners

TYPE OF INCOME TAX RATE
Compensation Income Regular PIT rates

Income from business of practice of profession:

a. Gross sales/receipts not exceeding P3M
Regular PIT rates or
8% of gross sales/receipts
b. Gross sales/receipts above P3M
Regular PIT rates

2. Excise taxes

- There are four changes under the excise taxes. Increase of Excise Tax on:

a) Automobile
 TRAIN simplifies the excise tax on automobiles, but lower-priced cars continue to be taxed
at lower rates while more expensive cars are taxed at higher rates
 Electronic vehicles in combination with gasoline, diesel or any other motive power shall be
subject to 50% of the applicable excise tax rates on automobiles.
 Purely electric vehicles and pick-up trucks shall be exempt from excise tax on automobile.

NET MANUFACTURER’S PRICE/

OLD TAX RATE NEW TAX RATE
IMPORTER’S SELLING PRICE
Up to 600,000 2% 4%
600,000 to 1,100,000 12,000 + 20% of value in excess 10%
of 600,000
1,100,000 to 2,100,000 112,000 + 40% of value in 20%
excess of 1,100,000
2,100,000 above 512,000 + 20% of value in 50%
excess of 2,100,000
b) Petroleum Products
 It is an equitable, pro-environment, and pro-health tax
 Leaded gasoline where phased out
 Higher oil excise will help reduce pollution and congestion.
 Petroleum products used as input, feedstock or as raw material in the manufacture of
petrochemical products, or as replacement furl for natural gas fired combined cycles
power plants are exempt from excise tax.

 Table for future tax rate for petroleum products:

Pesos per liter 1997-2017 2018 2019 2020

Diesel and P 0.00 P 3.00 P 5.00 P6.00
essentials
Gas and non- P 4.35 P 7.00 P 9.00 P 10.00
essentials

c) Sugar-sweetened Beverages
 The sugar-sweetened beverage (SSB) excise tax is a health tax.
 Its main goal is to help address diabetes and obesity given the high incidence of obesity
and fast-growing incidence of diabetes.
 Products covered by the SSB:
o Sweetened juice drinks
o Sweetened tea
o Sweetened coffee
o Flavored water
o All carbonated drinks
o Energy and sports drinks
o Cereal and other gain beverages
o Other powdered drinks besides coffee, juice and tea
o Other non-alcoholic beverages that contains added sugar
 Products not covered by the SSB:
o All milk products
o Meal replacement and medically-indicated beverages
o Ground coffee, instant soluble coffee and pre-packed powdered coffee products
o 100% natural vegetable juices
o 100% natural fruit juice
 P 6.00 – tax on sweetened beverages using purely caloric sweeteners, and purely non-
caloric sweeteners, or mix of caloric and non-caloric sweeteners.
 P 12.00 – tax on sweetened beverages using purely high fructose corn syrup or in
combination with any caloric or non-caloric sweeteners.
 Sweetened beverages using purely coconut sap sugar and purely steviol glycosides are
exempt from this tax.
 d) Cigarettes
 There will be increase of excise tax for cigarettes packed by hand and packed by
machines
TABACCO OLD TAX NEW TAX RATE
PRODUCTS RATE (Per pack)
2017 2018 2019 2020 2022
Cigarettes P 30.00 P 32.50 P 35.00 P 37.50 P 40.00
packed by
hand
Cigarettes P 30.00 P 32.50 P 35.00 P 37.50 P 40.00
packed by
machine

3. Value Added Tax (VAT)

 VAT is a type of indirect tax imposed on goods and services.
 The VAT has three rates:
o 12% for non-exempt domestic and imported goods and services;
o 0% for exports and export-related transactions; and
o Exempt for elected goods and services.
 The present VAT system has a high rate (12%) and 143 lines of exemptions, making it
very complex.
 The goal of the reform is to make the VAT system simpler, fairer, and more efficient
characterized by a lower rate and a broader base so that it encourages investment, job
creation, and poverty reduction.
o Simpler: Low-rate and broad-base, few exemptions, and no break in the chain.
o Fairer: Everyone who consumes pay VAT based on ability to pay.
o More efficient: Minimize leakage and distortions.
 Increases the VAT-exempt threshold from P1,919,500 to P3 million which is to be
adjusted to inflation not later than January 31, 2021 and every 3 years thereafter
 Lease of residential unit exemption threshold increased to P15,000 and no longer
subject to automatic adjustment.
 Threshold for VAT-exempt sale of residential lot reverted to P1.5 million
 Inclusion to VAT-exempt transaction:
o Sale of gold to the BSP
o Sale of drugs and medicines prescribed for diabetes, high cholesterol and
hypertension
o Association dues, membership fee, and other assessments and charges
collected by homeowner’s associations and condominium corporations
o Transfer of property in pursuance of a plan of merger or consolidation.
 Exceptions in tax code: cooperatives (except electric coops), and condo and association
dues. VAT on medicines for diabetes, high cholesterol, and hypertension exempted
starting 2019.
 Exceptions in special laws: PAGCOR and casino, domestic coal, renewable energy, credit
surety, countryside barangay business enterprise, mini-hydro, and tourism.
 Purchases of senior citizens and people with disability continue to be exempted from
the VAT.
4. Donor’s Tax and Estate Tax
 Donor’s tax – Lowered from the highest 15% rate to a single rate of 6% of net donations
above PHP 250,000 yearly.
 Estate tax – Lowered from the highest 20% rate to a single rate of 6% for net estate with
standard deduction of PHP 5 million to simplify the system as well as exemption for the
first PHP 10 million for the family home.

Differences of TRAIN LAW from Old Taxes

 Those with an annual taxable income of around P500,000 are currently taxed with a 32% rate.
But with the new brackets, their tax rate will now be reduced to 20% by 2023.
 With the TRAIN LAW, tax payers will have a higher net income than the old tax. But all other
taxable goods such as sweetened beverages, cars and gasolines, cigarettes, insurance, and other
taxable documents have doubled the taxes. So for a typical buyer, the additional take home pay
from the PIT reform will more than fully offset the increase in amortization.
 In addition, the new BIR tax reform removed the personal exemption — amounting to P50,000
— and additional exemption of P25,000 per qualified dependent — maximum of 4 dependents,
so maximum of P100,000 additional exemptions.
 Removing the VAT exemptions will not lead to VAT rate increased of 12%.

Resources:
http://www.ntrc.gov.ph/images/Publications/train/tax-changes-you-need-to-know.pdf
https://www.dof.gov.ph/taxreform/
http://www.dof.gov.ph/taxreform/index.php/train/
https://www.pwc.com/ph/en/publications/tax-publications/train-law.html
https://www.pinoymoneytalk.com/old-income-tax-rates-nirc-tax-tables/