TAX REFORM

FOR ACCELERATION AND INCLUSION LAW

TRAIN LAW
REPUBLIC ACT NO. 10963
TRAIN LAW

 Republic Act No. 10963, otherwise known as the Tax Reform

for Acceleration and Inclusion or the TRAIN Law, is the initial
package of the Comprehensive Tax Reform Program (CTRP)
signed into law by President Rodrigo Duterte on December
19, 2017. After publication, the TRAIN Law took effect on
January 01, 2018, amending several provisions of the
National Internal Revenue Code of 1997.
TRAIN LAW
 Tax reform is the process of changing
the way taxes are collected or
managed by the government and is
usually undertaken to
improve tax administration or to provide
economic or social benefits.

 The TRAIN Law is envisioned by President

Duterte's administration to correct a
number of deficiencies in the tax system
to make it simpler, fairer, and more
efficient. Essentially, greater income is
taxed at higher rates.
Package 1 of the Comprehensive Tax
Reform Program (CTRP)

Some of the salient points or

effects of Package 1 or the
TRAIN Law:
 I. INCOME TAX

 An individual employee whose annual gross income

does not exceed PhP250,000 is exempted from paying
income tax.

 Statutory minimum wage rates are EXEMPTED from

income tax.

 Also exempted are the holiday pay, overtime pay, night

shift differential pay and hazard pay earned by minimum
wage earners.
Income Tax

 13th month pay is exempted from tax for a

maximum amount of PhP90,000.

 Individual employees exempted from payment

of Income Tax are also exempted from filing
Income Tax Returns.
Income subject to tax

Individuals whose annual gross

income exceeds PhP250,000 is
subject to Income Tax at
graduated rates ranging from
20% to 35%.
Graduated rates of Income Tax from
2018 to 2022
Taxable Income Tax Due

PhP250,000 and below 0%

PhP250,000 but not over 20% of the excess over

PhP400,000 PhP250,000
PhP400,000 but not over
PhP30,000 + 25% of excess over
PhP800,000
PhP400,000
PhP800,000 but not over
PhP130,000 + 30% of excess over
PhP2,000,000
PhP800,000

PhP2,000,000 but not over PhP490,000 + 32% of excess over

PhP8,000,000 PhP2,000,000

PhP8,000,000 PhP2,410,000 + 35% of excess

over PhP8,000,000
Self-employed individuals
 Self-employed individuals earning income purely from self-
employment/business and/or practice of profession whose gross sales
and/or receipts and other non-operating income does not exceed
the Value Added Tax (VAT) threshold of PhP3M shall have the option
to avail of the following:

- graduated rates OR

- the 8% tax on gross sales or receipts and other non-operating

income in excess of P250,000 (intention to elect the optional 8% rate
shall be signified at the first quarter of the taxable year and shall be
irrevocable for the said taxable year)
Income Tax
If the gross sales/receipts and other non-operating
income exceeds the VAT threshold, the individual shall
be subject to the graduated income tax rates.

Books of accounts with gross annual sales, earnings,

receipts or output exceeding PhP3M must be audited
by an independent CPA.
Mixed Income

 For mixed income earners (income is derived from

compensation and business or practice of profession): All
income from compensation shall be taxed at graduated rates
while all income from business or practice of profession shall be
taxed at graduated rates or at 8% of gross sales or receipts.

 Deadline of filing of Annual Income tax Return: April 15

II. PASSIVE INCOME TAX RATES
 Winnings of more than PhP10,000 from PCSO and Lotto shall be
subject to 20% Final Withholding Tax.

 Interest Income from US Dollar and other foreign currency

deposits shall be subject to 15% Final Withholding Tax.

 Capital Gains from sale of shares of stock not traded in the

Stock Exchange is subject to 15% Final Withholding Tax.

 Sale of Shares of Stocks listed and traded in the Stock

Exchange is subject to a tax of 6/10 of 1%.
III. DONOR’S TAX
 Donor’s Tax Rate, whether donee is a relative or a stranger:
First 250,000 – exempt
More than 250,000 - 6%

 Where property, other than real property, is transferred (not in the

ordinary course of business) for less than an adequate and full
consideration in money or money’s worth, the amount by which the
fair market value of the property exceeded the value of the
consideration shall be deemed as a gift, and shall be included in
computing the amount of gifts made during the calendar year.
Donor’s Tax

Donation of real property is now subject to Documentary

Stamps Tax of PhP15 for every PhP1,000.

Dowries or gifts made on account of marriage by parents

to their children is now subject to Donor’s Tax.
IV. ESTATE TAX
 Estate tax rate, whether decedent is a resident citizen
or non-resident citizen of the Philippines, is 6% based
on net value of the estate.

 Deductions from gross estate:

Family Home – 10M

Standard – 5M

Funeral, Judicial, Medical Expenses – none

Estate Tax
Time of Filing: One (1) year from date of death (Notice of Death is
no longer needed to be filed with the Commissioner)

Payment by installments: 2 years in case of insufficient cash,

without civil penalty and interest.

 CPA Certification is required for gross estate of more than

PhP5M

For non-resident alien decedent, there is allowed a standard

deduction of PhP500,000 from the gross estate.
Estate Tax
 Withdrawal on deposits of decedent is subject to 6% Final tax.

 Under Revenue Memorandum Circular (RMC) No. 62-2018,

the legal heir or administrator of the decedent is allowed to
withdraw the decedent’s bank deposits within one year from
death provided the bank subject to 6% final withholding tax
the amount withdrawn.

 For joint account, the final withholding tax shall be based on

the share of the decedent in the joint bank deposit.
Estate Tax
Prior to withdrawal, the bank shall require the
administrator or any of the legal heir to present the Tax
Identification Number (TIN) of the estate of the deceased
together with the BIR Form 1904 of the estate duly stamped
by the concerned Revenue District Office (RDO).

The bank shall issue the corresponding BIR Form 2306

certifying the withholding of 6% final tax.
V. VALUE ADDED TAX (VAT)
 Persons required to register for VAT:
His gross sales or receipt for the past twelve (12)
months have exceeded PhP3M (previously at
PhP1,919,500)
There are reasonable grounds to believe that his
gross sales or receipts for the next twelve (12)
months will exceed PhP3M
Value Added Tax

 TRAIN repeals 54 out of 61 special laws with non-essential

VAT exemptions, thereby making the system fairer.

 The TRAIN Law also aims to limit the VAT zero-rating to

direct exporters who actually export goods out of the
country. This will be implemented together with an
enhanced VAT refund system that will provide timely cash
refunds to exporters.
Some VAT-exempt transactions
 Lease of residential unit not exceeding PhP15,000
(previously PhP12,800)

 Sale of residential lot not exceeding PhP1.5M (Rev. Reg. No.

13-2018)

 Sale of house and lot and other residential dwelling not

exceeding PhP2.5M (Rev. Reg. No. 13-2018)

 Sale or lease of goods and services to senior citizens and

persons with disabilities
Some VAT exempt transactions
 Sale of medicines prescribed for diabetes, hypertension

and high cholesterol (beginning January 2019).

 Sale of gold to BSP

 Association dues, membership fees, other assessments

and charges collected by homeowners’ association and
condominium corporations
VI. EXCISE TAX
 Increases in Excise Tax on:

1. Petroleum products

An additional PhP2.00 per liter excise tax is imposed on

dieasel and gasoline, PhP1.00 for every liter of kerosene, and
PhP1.00 for every kilogram of Liquefied Petroleum Gas (LPG)
beginning January 01, 2019.
Excise Tax
2. Automobiles

Manufacturer’s/Importer’s
Selling Price Rate

0 to PhP600,000 4%

PhP600,000 to PhP1,000,000 10%

PhP1,100,001 to PhP4,000,000 20%

Over PhP4,000,000 50%

Excise Tax
3. Sweetened beverages

 Sweetened juice drinks

 Sweetened tea

 Other beverages:

All carbonated beverages, with added sugar, including those

with caloric and non-caloric sweeteners

 Flavored water
Excise Tax

 Energy drinks

 Sports drinks

 Other powdered drinks not classified as milk, cereal and other

grain beverages

 Other non-alcoholic beverages that contain added sugar

Excise Tax
4. Invasive cosmetic procedures

Rate of tax: 5% based on gross receipts, net of excise tax and

value added tax on every service performed on invasive cosmetic
procedures, surgeries and body enhancement directed solely
towards improving, or changing the appearance of the patient.
End of presentation

“In this world nothing can be said to be

certain, except death and taxes.”

– Benjamin Franklin