TRAIN LAW vs NIRC

What is NIRC?
The National Internal Revenue Code (NIRC) taxes professionals and self-employed individuals, such
as lawyers and doctors, the same rate as wage earners. Deduction, this bill also defines "self-
employed individuals" and "professionals".
However, unlike wage earners who are not allowed deductions except for personal and additional
exemptions, self-employed individuals and professionals enjoy a full array of itemized deductions
from gross income allowed to corporations.

How does it work?

Around eighty percent (80%) of tax revenues derived from individual taxpayers is collected from the
wage earners or salaried taxpayers. Only twenty percent (20%) is collected from self-employed
individuals and professionals. In terms of tax paid on gross income, the effective tax rate for wage
earners is 15.25%, thus a wage earner receiving a gross income of P200,000 pays a tax of P30,500
while a self-employed individual or professional who has a gross income of P200,000 pays only
P2,280 or a measly 1.14% effective tax rate.

What is the goal of NIRC?

This bill seeks to provide a uniform and equitable taxation by limiting the allowable deductions for
self-employed individuals or professionals to address the imbalance of taxation between wage
earners and self-employed individuals or professionals. The bill also proposes to grant self-
employed individuals and professionals an optional standard deduction of forty percent (40%) of
gross income. In addition to the limit on allowable deductions and optional standard. deduction, this
bill also defines "self-employed individuals" and "professionals".
What is TRAIN law?
The Tax Reform for Acceleration and Inclusion (TRAIN) The features of the tax reform are lower
personal income tax and higher consumption tax. Individual taxpayers with taxable income not
exceeding ₱250,000 annually are exempted from income tax. The exemption for minimum wage
earners is retained in the revised tax system. Tax rates for individual taxpayers still follow the
progressive tax system with the maximum rate of 35%, and minimum rates of 20% (taxable
years 2018 to 2022) and 15% (2023 onwards). On the other hand, consumption taxes, in the
form of higher excise tax on tobacco products, petroleum products, automobiles, tobacco, and
additional excise tax on sweetened beverages and non-essential, invasive cosmetic procedures
were introduced. It also expanded the VAT base by repealing exemption provisions in numerous
special laws.

How does train law affect us?

The lower personal income taxes will mean higher consumer spending and private investments.
These effects are immediate. TRAIN provides much-needed tax relief for 99% of income tax
filers. ... At the same time, the first P250,000 and below of personal income are now tax-
exempt.

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

How does tax in TRAIN law computed?

Before anything else, you’ll need to compute for your taxable income, which is your basic salary
(plus additional pays like holiday and overtime pays) minus your contributions.

Taxable Income = (Monthly Basic Pay + Additional Pay) – (SSS + PhilHealth + PAG-IBIG +
Deductions Due to Absences/Tardiness)

Suppose that you are earning P23000 a month, the computation for the taxable income will be
as follows:
Taxable Income = (23000) – (581.30 + ((23000 * 0.0275) / 2) + 100.00)
= (23000) – (997.55)
Taxable Income = 22002.45
Once you have computed for your taxable income, proceed to computing for the income tax.
Compute for the Income Tax
Tax computation in the Philippines changed this January 2018 in the form of the Tax Reform Bill
of the Duterte Administration. The current tax table is simpler, and allows employees to take
home more money than before.

BIR TAX TABLE

SALARY RANGE (ANNUAL) INCOME TAX RATE

250000 and below 0%

250000.01 to 400000 20% of the excess over 250000

400000.01 to 800000 30000 + 25% of the excess over 400000

800000.01 to 2000000 130000 + 30% of the excess over 800000

2000000.01 to 8000000 490000 + 32% of the excess over 2000000

8000000.01 and above 2410000 + 35% of the excess over 8000000

Income Tax = (((Taxable Income * 12) – X) * Y) / 12

Where X is the minimum value of the particular salary range, and Y is the respective
percentage
Since your taxable income is 22002.45, the computation will be as follows:
Income Tax = (((22002.45 * 12) – 250000) * 0.20) / 12
= ((264029.4 – 250000) * 0.20) / 12
= 2805.88 / 12
Income Tax = 233.82
All that’s left is to subtract your income tax from your taxable income.
Net Pay = Taxable Income – Income Tax
= 22002.45 – 233.82
Net Pay = 21768.63

Differences of TRAIN law and NIRC.

For example you are earning 23,000 pesos a month, and paying SSS for 800 pesos, Phillhealth
for 345 pesos and Pagibig 100.
Total annual contribution of = 14,940 pesos

OLD TAX
Less:
Total annual contribution, 14,940 + 23000( 13th month pay) = 37,940
Qualified dependents 1= 75000
(37,940 + 75,000)- 299,000= 186,060
Total taxable income 186,060
25% of excess over 140,000 + 22,500 = (11,515)+(22,500)= 34,015 (ESTIMATED TAX DUE)

TRAIN LAW
Less:
Total annual contribution, 14,940 + 23000( 13th month pay) = 37,940
37,940- 299,000 ( ANNUAL INCOME) =261,060
Total taxable income 261,060
20% OF THE EXCESS TAX OVER 250,000=11,060 (20%) = 2,212 (ESTIMATED TAX DUE)

CONLUSION
As we can see in our example you can take home 31,803 extra from the new tax
reform, and the new tax bill and you are exempted if your annual salary is 250,000 and
below, this can be a good start for people having an annual salary of 250,000 and
below. And people with a higher salary will be liable for the new tax reform. For the
taxpayers this is a good rate in terms of paying their tax. However the government
added an increase in our excise tax, which turned out to be a big chain reaction. This is
where the government mostly increases tax. Alcohol Products, Tobacco Products,
Petroleum Products, Miscellaneous Articles, Mineral Products. Which is also the
possible cause of the increase in the way of living in our country. This can be a good
way in improving this country with the government increase tax of the things that is now
essential with our health and leaving, and in the new tax law we should be more hard
working people cause we never know what other sectors will be increasing prices.
 REFERENCES

https://www.taxumo.com/tax-computation-philippines/
http://www.philexport.ph/barterfli-philexport-file-
portlet/download/policy_legislative/Sen_Trillanes_bill_May2011.pdf
https://www.philstar.com/business/2017/12/22/1770885/winners-and-losers-how-train-law-
affects-rich-poor-filipinos
https://rappler.com/voices/thought-leaders/train-tax-reform-law-what-does-it-change-explainer
http://www.ntrc.gov.ph/tax-calc