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(TRAIN ACT)
TRAIN Act or Tax Reform for Acceleration and Inclusion Act is signed into law as Republic Act No. 10963
by President Rodrigo Roa Duterte as a part of the first package of the TRAIN Act on December 19, 2017
in Malacanang.
In a separate message, President Duterte has dismissed certain provisions of the TRAIN. The five line items
are the following provisions:
1. Reduced income tax rate of employees of Regional Headquarters (RHQs), Regional Operating
Headquarters (ROHQs), Offshore Banking Units (OBUs), and Petroleum Service Contractors and
Subcontractors;
2. Zero-rating of sales of goods and services to separate customs territory and tourism enterprise zones;
3. Exemption from percentage tax of gross sales/receipts not exceeding five hundred thousand pesos
(P500,000.00);
4. Exemption of various petroleum products from excise tax when used as input, feedstock, or as raw
material in the manufacturing of petrochemical products, or in the refining of petroleum products, or as
replacement fuel for natural gas fired combined cycle power plants; and
5. Earmarking of incremental tobacco taxes.
The TRAIN raises significant revenues to support the President’s priority social and infrastructure
programs, which will help realize his administration’s goal of reducing the poverty rate from 21.6 to 14
percent by 2022. Some 70 percent of the incremental revenues will help fund the government’s
infrastructure modernization program, while the balance will go to social services.
Starting 2018, the government expects to raise funds equivalent to about two-thirds of the incremental
revenues targeted under this tax reform law. The Congress has committed to pass the rest of the TRAIN’s
provisions representing the remaining one-third of the targeted revenues in early 2018 to help us achieve
our revenue and deficit targets.
Reduced taxes
- Personal Income Tax
The most popular part of the Train law is the reduction of personal income tax of a majority of individual
taxpayers. Prior to the enactment of the new law, an individual employee or self-employed taxpayer would
normally have to pay income tax at the rate of 5% to 32%, depending on one's bracket.
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. Moreover, the deductible 13th month pay and other benefits are now higher
at P90,000 compared to P82,000 under the old law.
Another innovation under Train is the option of self-employed individuals and/or professionals whose gross
sales or receipts do not exceed P3,000,000 to avail of an 8% tax on gross sales or gross receipts in excess
of P250,000, in lieu of the graduated income tax rates.
It is not being highlighted, however, that some items that were previously deducted to arrive at taxable
income had been removed under Train. These are the personal exemption of P50,000, additional exemption
of P25,000 per dependent child, and the premium for health and hospitalization insurance of P2,400 per
year.
- Estate Tax
The estate tax rate was also changed from 5% to 32% of the net estate to a flat rate of 6%. Additionally, the
following deductions allowed in computing the net estate (to be subjected to estate tax) were increased:
- Donor’s tax
The donor’s tax rate was also amended to a single rate of 6% regardless of the relationship between the
donor and the donee. In the old law, the rates of donor’s tax were 2% to 15% if the donor and donee are
related, and 30% if otherwise. However, the donation of real property is now subject to Documentary Stamp
Tax of P15 for every P1,000.
- Value Added Tax
There are also amendments to VAT which lessen the burden of taxpayers:
Here’s a breakdown of what this law will mean for ordinary Filipinos:
THE GOOD
Income Tax
Simply put, income taxpayers who earn approximately P22,000 monthly and below are now exempted from
income tax payment. These employees will be able to receive their salary without any deductions because
of tax.
Aside from that, Presidential Spokesperson Harry Roque said the law also simplified taxes for small
taxpayers, including self-employed professionals, with the payment of a flat tax of 8 percent on gross sales
or receipts instead of income and percentage taxes which are filed once a year.