Tax Law 1 – Handout on TRAIN

Republic Act No. 10963: Tax Reform for Acceleration and Inclusion (TRAIN)

 Amends the Tax Code of 1997

 Signed into law on December 19, 2017
 Effective January 1, 2018 (but there are different dates of effectivity for specific provisions of
the law
 President vetoed 5 items
 Key amendments:
o Lowers personal income tax rates
o Simplifies estate and donor’s tax rates
o Expands value-added tax base
o Increases excise tax for petroleum products
o Adjusts excise tax for automobiles
o Introduces excise tax on sweetened beverages and non-essential services

ANNUAL INCOME TAX TABLE - Individual Citizens and Resident Aliens

OLD RULE

Annual Income Bracket Tax Rate

0-10,000
Over 10,000- 30,000
Over 30,000- 70,000
Over 70,000 – 140,000
Over 140,000 – 250,000
Over 250,000 – 500,000
Over 500,000
5%
500 +10% of the excess over 10,000
2,500 +15% of the excess over 30,000
8,500 +20% of the excess over 70,000
22,500 + 25% of the excess over 140,000
50,000 +30% of the excess over 250,000
125,000 +32% of the excess over 500,000

RA No. 10963

Annual Income Bracket Tax Rate (2018-2022) Tax Rate (2023 onwards)

Lower Limit Upper Limit Tax on lower Tax on excess Tax on lower Tax on excess
limit over lower limit over lower
limit limit
0 250,000 - 0% - 0%
250,000 400,000 - 20% - 15%
400,000 800,000 30,000 25% 22,500 20%
800,000 2,000,000 130,000 30% 102,500 25%
2,000,000 8,000,000 490,000 32% 402,500 30%
8,000,000 2,410,000 35% 2,202,500 35%

EXEMPTION/DEDUCTION FROM GROSS INCOME

RA 10963 removed the following:

1. Personal and additional exemptions

2. Premium payments on health and/or hospitalization insurance amounting to P2,400 per family
NON-TAXABLE 13th MONTH PAY AND OTHER BENEFITS

RA 10963 increased non-taxable 13th month pay and other benefits from P82,000 to P90,000.

SAMPLE COMPUTATION

Particulars Old Rule TRAIN

Annual Gross Income xxx xxx
Less: Non-taxable 13th month (82,000) (90,000)
pay and other benefits
Basic Personal Exemption (50,000) -
Additional Personal Exemption (100,000) -
Total Income xxx xxx
Less: Tax-exempt income - (250,000)
Taxable income xxx Xxx

SELF-EMPLOYED INDIVIDUALS/PROFESSIONAL INCOME OF NOT MORE THAN P3 MILLION

8% income tax on gross

sales/receipt in excess of P250,000

Gross Sales/receipts less

than or equal to P3M
(Optional)

Graduated income tax rates (0%- 3% percentage

35%) tax

Note: The following cannot avail of the 8% Income Tax Rate

1. Taxpayers who failed to signify in the 1st Quarter Return the intention to elect the 8% income tax
2. Taxpayer whose Gross Sales/Receipts exceeded the P3M VAT Threshold
3. A VAT-registered taxpayer, regardless of the Gross Sales/Receipts
4. Taxpayers who are subject to Other Percentage Taxes
5. Partners by virtue of their distributive share from GPP which is already net of cost and expenses

The aforementioned taxpayers shall be subject to the graduated rates (0%-35%).

A non-VAT registered taxpayer who initially opted to avail of the 8% option but has exceeded
the P3M VAT Threshold during the taxable year shall be subject to:
 3% Percentage Tax on the first P3M
 The excess of the threshold shall be subject to VAT
 The 8% Income Tax previously paid shall be credited to the income Tax Due under
graduated rates

MIXED INCOME EARNERS

 Compensation Income Income from Business or Practice of Profession

Graduated income tax rates (0%-35%) Same as above diagram

SELF-EMPLOYED INDIVIDUALS/PROFESSIONAL INCOME OF MORE THAN P3MILLION

Gross Sales/receipts greater

than P3M

Graduated income tax rates (0%-

12% VAT
35%)

FRINGE BENEFITS TAX (FBT)

Increase in FBT Rate - From 32% (1997 Tax Code) to 35% (RA No. 10963)

Note: FBT rate for non-resident alien not engaged in trade or business shall still be at 25% gross

FBT – SAMPLE COMPUTATION

Particulars Old Rule TRAIN

Monetary Value P 65,000 P 65,000
Divided by: 68% 65%
Grossed-up Monetary Value P 95,588 P100,000
Multiplied by: FBT Rate 32% 35%
FBT Payable P 30,588 P 35,000

INCOME TAX OF ALIEN EMPLOYEES OF RHQS, ROHQs, OBUs, PSCs/SCs

Particulars Old Rule TRAIN

Alien Employees and Filipino 15% Preferential Rate Regular Income Tax Rates
Employees occupying the same (without prejudice to
position of: application of preferential tax
rates under existing
 Regional Headquarters international tax treaties)
(RHQs)
 Regional Operating
Headquarters (ROHQs)
 Offshore Banking Units
(OBUs)
  Petroleum Service
Contractors and
Subcontractors
(PSCs/SCs)
OPTIONAL STANDARD DEDUCTION (OSD)
Deductions
OSD for General Professional
Partnerships (GPPs)
PASSIVE INCOME TAX RATES
Type of Income
Philippine Charity Sweepstakes
and lotto winnings
Interest income from
Expanded Foreign Currency
Deposit Units
Sale of shares NOT traded in
the stock exchange
Sale of listed shares
INCOME TAX EXEMPTION OF PCSO
Entity
Philippine Charity Sweepstakes
Office (PCSO)
Old Rule
Not provided
Old Rule
EXEMPT (full amount)
7.5% final tax
First P100,000 - 5% capital
gains tax (CGT)
In excess of P100,000 – 10%
CGT
½ of 1% of the gross selling
price or the gross value in
money of the shares sold
Old Rule
Exempt from income tax
TRAIN
May be availed only once
EITHER by the GPP or the
partners comprising the
partnership
TRAIN
Sweepstakes and Lotto
winnings – exempt up to
P10,000; 20% final tax in
excess
15% -
Resident individual and
domestic corporation
Note: Rate did not change for
resident foreign corporation
15% - Resident individuals and
domestic corporations
Note: No change in CGT rate
applicable to resident foreign
corporations and nonresident
foreign corporations (5%/10%)
6/10 of 1% of the gross selling
price or the gross value in
money of the shares sold
TRAIN
Removed exemption