What is the Tax Reform Law or the TRAIN?
The goal of the first package of the Comprehensive Tax Reform Program (CTRP) or TRAIN (Tax Reform for Acceleration and Inclusion) by President Duterte’s administration, is to create a more just, simple, and more effective system of tax collection, as per the constitution, where the rich will have a bigger contribution and the poor will benefit more from the government’s programs and services.
What should we know about Tax Reform Law 2018?
1. Lowering Personal Income Tax (PIT)
TRAIN lowers personal income tax (PIT) for all taxpayers except the richest. Under TRAIN, those with annual taxable income below P250,000 are exempt from paying PIT. Minimum wage earners will continue to be exempted from income taxes as their income falls below P250,000. Husbands and wives who are both working can benefit from a total of up to P500,000 in exemptions. (Read Complete Details of Lowering Personal Income Tax)
2. Simplifying the Estate and Donor’s Tax
In the current system, the tax rates can reach up to 20% of the net estate value and up to 15% on net donations. TRAIN seeks to simplify this. Estate and donor’s tax will be lowered and harmonized so it does not matter if the person passed away, donated a property, or simply wants to transfer a property. This will result in loss revenues but the key here is to make the land market more efficient so that the land will go to its best use.
- Estate Tax – Instead of having a complicated tax schedule with different rates, TRAIN reduces and restructures the estate tax to a low and single tax rate of 6% based on the net value of the estate with a standard deduction of P5 million and exemption for the first P10 million for the family home.
- Donor Tax – TRAIN also simplifies the payment of donor’s taxes to a single tax rate of 6% of net donations is imposed for gifts above P250,000 yearly regardless of relationship to the donor.
3. Increasing the Excise Tax of Automobiles
TRAIN simplifies the excise tax on automobiles, but lower-priced cars continue to be taxed at lower rates while more expensive cars are taxed at higher rates. This excise will raise revenue in a very progressive manner as the richer buyers tend to own more and expensive cars compared to those who earn less.
4. Increasing the Fuel Excise Tax
TRAIN increases the excise of petroleum products, which has not been adjusted since 1997. The non-indexation of fuel excise tax to inflation has eroded the revenues collected by P140 billion per year in 2016 prices. The Duterte administration is also doing this to address environmental and health concerns. By taxing dirty fuel correctly, we are also investing in a more sustainable future for our country. (Read Complete Details of Increasing the Fuel Excise Tax)
5. Expanding the Value-Added Tax (VAT)
The Philippines has one of the highest VAT rates but also the highest number of exemptions in the Southeast Asia region. Consequently, the Philippines collect the same amount of VAT revenues as a percentage of the economy as that of Thailand despite only imposing a 7% VAT rate, while the Philippines is at 12%. Under TRAIN, VAT exempt taxpayers will have the following options below. (Read Complete Details of Expanding the Value-Added Tax)
- PIT schedule with 40% OSD on gross receipts or gross sales plus 3% percentage tax
- PIT schedule with itemized deductions plus 3% percentage tax, or
- Flat tax of 8% on gross sales or gross revenues in lieu of percentage tax and personal income tax.
6. Increasing the Tax of Sugar-Sweetened Beverages
The SSB excise tax, as a health measure, will encourage individuals and families to make healthy choices to ensure a healthier and more productive population. To complement the SSB excise tax, there are also non-tax measures organized around the Health in All Policies approach. This strategy is envisioned to include regulatory measures on marketing, mandatory labeling, information and advocacy measures for health promotion, and improved nutrition literacy among Filipinos. (Read Complete Details of Increasing the Tax of Sugar-Sweetened Beverages)
- Take Home Pay Under 2018 Tax Reform Law
- Revised Withholding Tax Table | Bureau of Internal Revenue
- PDF Download Link of TRAIN or Republic Act RA 10963
- Salary Standardization Law (SSL) Effective January 1, 2018 | Third Tranche
- Updated DOF Tax Calculator