Osias Colleges, Inc.

F. Tañedo St., San Nicolas, Tarlac City

(045)982 -02-45, e-mail: osiastrc@pldtsl.net
http:/www.osiascolleges.edu.ph

WRITTEN REPORT
INCOME TAXATION
INCOME TAX OF INDIVIDUALS (TRAIN LAW RA:10963)

Prepared by:
DUAY JULIA
3 rd
Year BSBA Financial Management

GAMBOA, ANGELICA
2nd
Year BSBA Financial Management

GARCIA, NARMAN ALLEN

2nd
Year BSBA Financial Management

OISHI, MICHIKO
2nd
Year BSBA Financial Management

PORTACIO, MARIA CLARISA

2 Year BSBA Financial Management
nd

Submitted to:
MRS. MELINDA ABEJUELA
Professor
What is TRAIN Law and its purpose?
On December 19, 2017, President Rodrigo R. Duterte signed into law package 1 of the
Comprehensive Tax Reform Program (CTRP) also known as the Tax Reform
forAcceleration and Inclusion (TRAIN) as Republic Act (RA) No. 10963. The Law
tookeffect on January 1, 2018.

The TRAIN aims to make Philippine Tax System simpler, fairer, and more efficient to
promote investments, create jobs and reduce poverty. Along with this objective, the
CTRP also aims to raise revenues that will fund the President’s BUILD, BUILD, BUILD
Project that will sustain high and inclusive growth of the country; and finance
investments in our people through enhanced education, health and social services.

The highlights of RA 10963 which includes amendments to several provisions of the

National Internal Revenue Code of 1997.
 Personal Income Taxation
 Passive income for both individuals and corporation
 Estate Tax
 Donor’s Tax
 Value-Added Tax (VAT)
 Excise Tax
 Documentary Stamp Tax (DST)
 Tax Administration
 Other Updates
CHANGE IN TAX SCHEDULE
RA 10963 restructures the personal income tax (PIT) schedule, with separate schedules
for compensation income earners (CIEs), purely self-employed individuals and/or
professionals (SEPs) whose gross sales or gross receipts and other non-operating income
do not exceed the Value-Added Tax (VAT) threshold of P3 million and mixed income
earners.
OLD TAX SCHEDULE
For Compensation Income Earners & Self - Employed and Professionals
 NEW TAX SCHEDULE
Effective January 1 2018

Effective year 2023 Onwards

FOR SELF - EMPLOYED AND PROFESSIONALS

Effective January 1, 2018

OTHER REFORMS
 Reduces The Number of Tax Brackets From 7 To 6;
 Exempts The First 250,000.00 Annual Taxable Income Of Taxpayers;
 Sets The Highest Amount of Taxable Income At More Than P8 Million And
 Subjects It To A Higher Marginal Rate Of 35%;
 Repeals The Provision on Basic Personal And Additional Exemptions And
 Premiums Paid On Health and/or Hospitalization Insurance Which Are Deemed
 Integrated Into The P250,000.00 Exempt Threshold;
 Retains The Income Tax Exemption of Minimum Wage Earners;
 Retains The Exemption from Tax Of De Minimis Benefits as Well As The Non-
 Taxability Of Mandatory Contributions Such As Those Made To The Gsis, Sss,
 Phil health, Pag-Ibig Fund And Union Dues;
 Increases The Amount of Tax Exempt Benefits Ceiling (13th Month Pay And
 Other Benefits) From P82,000.00 To P90,000.00
 Impose A 20% Final Tax on PCSO and Lotto Winnings Exceeding 10,000.00;
 o Removes The Preferential Tax Rate Of 15% For Employees Or Regional Or Area
 Headquarters, Regional Operating Headquarters, Offshore Banking Units And
 Petroleum Service Contractors And Subcontractors;
 o Increases The Fringe Benefits Tax (FBT) Rate From 32% To 35% And
 o Inserts A Provision That The Optional Standard Deduction By A General
 Professional Partnership (GPP) May Only Be Availed Once, Either By The GPP
 Or The Partners Compromising Such Partnership.

Where does the TRAIN's revenue go?

70%
 The "Build, Build, Build" Program and other infrastructure initiatives aim to reduce
traffic by constructing new road networks and improving mass transit.
  Infrastructure for the military, sports facilities for public schools, as well as safe
drinking water accessible in public areas are all necessary.
30%
 Social mitigation strategies prioritize aiding poor households through education,
health, nutrition, anti-hunger programs, social protection, employment, and housing,
focusing on maternal, infant, and early child welfare.
Personal Income Tax
Self Employed
A self-employed person is an independent contractor or a sole proprietor who reports
self-employment income. Self-employed people work for themselves in a variety of
trades, professions, and occupations rather than working for an employer.
Professionals
Having the qualities that you connect with trained and skilled people, such as
effectiveness, skill, organization, and seriousness of manner.
Mixed-Income Earner
Individuals who receive compensation from employers and earn money from their trade
or business, such as part-time jobs, consultancy, freelancing, etc. It's safe to say that the
main basis for mixed income is a full-time job.

For Self-employed and Professionals

EFFECTIVE DATE JANUARY 1, 2023

Net Taxable Income Tax Rate
Over But not over
250,000.00 0%
250,000.00 400,000.00 15% of excess over 250,000
400,000.00 800,000.00 P22,500 + 20% of excess over P400,000
800,000.00 2,000,000.00 P102,500 +25% of excess over P800,000
2,000,000.00 8,000,000.00 P402,500 + 30% of excess P2,000,000
8,000,000.00 P2.2025 million + 35% of excess over P8 million
 Sample scenario:

Basic Salary 320,000.00

Regular Working Day Overtime 2,000.00

Regular Working Day Night -

Regular Holiday 1,500.00

Regular Holiday Night Differential -

Regular Holiday OT -

Special Holiday -

Special Holiday Night Differential -

Other OT Pay -
Gross Taxable Income : 323,500.00

ALLOWABLE DEDUCTIONS FROM GROSS TAXABLE INCOME

Leave w/o pay -
Late -
Undertime -
Employee Contribution
SSS 5,400.00
PHIC 3,850.00
HDMF 1,700.00
Total Allowable Deduction: 10,950.00

Net Taxable Income: 312,550.00

For Single Proprietorship and / or Professionals

Tax Options:
1. Graduated rates - Sec 24(A) of th tax code, as amended
 2. 8% tax of gross rates / sales receipts in excess of 250,000
8% tax rate not applicable;
 Gross Sales of receipt and other non-operating income exceeds the 3M VAT
threshold.
 VAT registered taxpayer
 A taxpayer who is subject to Other Percentage Taxes under Title V of the
Tax Code, as amended, except those subject under Section 116 of the same
Title.
 Partners of General Professional Partnership (GPP) by their distributive
store from GPP

Graduated rates with operational Standard Deduction (OSD)as method of deduction

Sales/ Revenue/Receipts/Fees 500,000.00

Less: Sales Returns, Allowances and Discounts 50,000.00

Net Sales/ Revenues/ Receipts / Fees 450,000.00

Less: Allowable Deduction OSD (40%) 180,000.00

Net Income 270,000.00

Add: other Non-Operating Income -

Total Other Income -

Total taxable Income 270,000.00

Tax Due 3,000.00

Mixed income earner - individual
 Compensation income
 Business / Practice of Profession

Tax rates
On compensation - graduated rates - SEC 24 (A)
On business - “options”
 graduated rates
 8% flat rate
Note: If the taxpayer chooses 8% flat rate, deduction of 250,000 is not available for it is
already incorporated on the 1st tier (compensation income)

Estate Tax
 Estate Tax is a tax imposed on the privilege that a person is given in controlling to a
certain extent, the disposition of his property to take effect upon a death.
 The Estate Tax is based on the law in force at the time of death not with standing the
postponement of the actual possession or enjoyment of the estate by the beneficiary.
Nature of Estate Tax
 It is an excise tax impost on the act of passing the ownership of property at the time of
death and not on the value of the property or right.
Who is the taxpayer in estate tax?
 The estate as a juridical person
BIR FORM 1801

WHO HAS THE PERSONAL OBLIGATION TO FILE AND PAY THE ESTATE TAX?
Order of priority:
1.The administrator or executor
2.Any of the heir(s)
ALLOWABLE DEDUCTIONS RESIDENT CITIZEN ESTATES
 Standard Deduction (Php5,000,000.00)
 Claims against the estate
 Claims against insolvent person
 Unpaid mortgages
 Properties previously taxed
 Transfer for public purposes
 The family home (Php10,000,000.00)
 Amounts received by heirs under RA No. 4917
Value-Added Tax (VAT)
Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on the
sale, barter, exchange, or lease of goods or properties and services in the Philippines and
on the importation of goods into the Philippines. It is an indirect tax, which may be
shifted or passed on to the buyer, transferee, or lessee of goods, properties, or services.
VAT applies to practically all sales of services and imports, as well as to the sale, barter,
exchange, or lease of goods or properties (tangible or intangible). The tax is equivalent to
a uniform rate of 12%, based on the gross selling price of goods or properties sold, or
gross receipts from the sale of services. On the importation of goods, the basis of the tax
is the value used by the Bureau of Customs (BOC) in determining tariff and customs
duties plus customs duties, excise taxes, if any, and other charges. Where the valuation
used by the BOC is by volume or quantity, the VAT basis is the landed cost plus excise
taxes, if any.

Proposed Reforms on the Value-Added Tax

The Philippines introduced the VAT in 1988 through Executive Order (EO) No. 273.
Since then, several laws have been enacted to amend and expand VAT coverage while
adding certain items to the list of exemptions. One major latest amendatory law is
Republic Act (RA) No. 9337 or the Reformed VAT (RVAT) which raised the VAT rate
from 10% to 12% after meeting certain conditions. It was implemented on November 1,
2005, while the increase in the VAT rate from 10% to 12% took effect on Feb. 1, 2006,
via BIR Revenue Memorandum Circular (RMC) No. 7-2006.

Who is required to File VAT Returns?

 Any person or entity who, in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT if the
aggregate amount of actual gross sales or receipts exceeds Three Million Pesos
(Php3,000,000.00)
 A person required to register as a VAT taxpayer but failed to register
 Any person, whether or not made in the course of his trade or business, who
imports goods
Value-Added Tax Rates
 On the sale of goods and properties – twelve percent (12%) of the gross selling
price or gross value in money of the goods or properties of the goods or properties
sold, bartered, or exchanged
  On sale of services and use or lease of properties – twelve percent (12%) of gross
receipts derived from the sale or exchange of services, including the use or lease
of properties
 On importation of goods – twelve percent (12%) based on the total value used by
the Bureau of Customs in determining tariff and customs duties, plus customs
duties, excise taxes, if any, and other charges, such as tax to be paid by the
importer before the release of such goods from customs custody; provided, that
where the customs duties are determined based on quantity or volume of the
goods, the VAT shall be based on the landed cost plus excise taxes, if any.
 On export sales and other zero-rated sales – 0%

Output Tax
Output tax means the VAT dues on the sale, lease, or exchange of taxable goods
properties, or services by any person registered or required to register under Section 236
of the Tax Code.
When a business sells goods or services to a customer, it adds VAT to the price of the
goods or services, which becomes the output VAT. The business must then account for
this output VAT to the government by submitting a VAT return and paying the VAT due
to the tax authority.
By charging output VAT on its sales, a business is effectively collecting tax on behalf of
the government. If a business fails to collect or pay the correct output VAT, it may face
penalties or other legal action from the tax authority.

Input Tax
Input tax means the VAT due on or paid by a VAT registered on the importation of goods
or local purchase of goods, properties, or services, including lease or use of property in
the course of his trade or business. It shall also include the transitional input tax
determined under Section 111 of the Tax Code, presumptive input tax, and deferred input
tax from the previous period.
When a business sells goods or services to a customer, it adds VAT to the price of the
goods or services, which becomes the output VAT. The business must then account for
this output VAT to the government by submitting a VAT return and paying the VAT due
to the tax authority.
By charging output VAT on its sales, a business is effectively collecting tax on behalf of
the government. If a business fails to collect or pay the correct output VAT, it may face
penalties or other legal action from the tax authority.
Retention of VAT Exemptions
Under RA 10963 retains the VAT-exempt status of the following:

 Raw Agricultural & Marine Products

 Educational Services
 Senior Citizens
 Health Services
 Persons with Disabilities (PWD)

Qualifying for VAT Exemption

Businesses that qualify for VAT exemption should submit the necessary applications and
supporting documents to the Bureau of Internal Revenue (BIR) for evaluation. Once
approved, these entities must adhere to specific accounting and reporting requirements.

Responsibilities and Penalties

VAT-exempt entities need to maintain accurate records and documentation as stipulated
by the BIR. Failure to do so can result in penalties, revocation of the VAT-exempt status,
and even criminal charges.