Understanding the TRAIN Law

The Tax Reform for Acceleration and Inclusion (TRAIN) or the Republic Act No. 10963 was signed into law by President Rodrigo Duterte on December 19, 2017 and implemented on January 1, 2018.

It was the initial package of the Comprehensive Tax Reform Program, which aims to rationalize the Philippine tax system.

1. Individual Income
   
   Before:

 Below PhP 10,000: 5%

• Over PhP 500,000: 32%
• Exclusions/ Deductions - Personal Exemption of Php 50,000 and Php 25,000/dependent
• Tax-exempt bonus - Php 82,000
• Employees of RHQ, ROHQ, OBU, and Petroleum Service Contractors – 15% 
• Deadlines
• Deadline for 1st Quarter and Annual ITR – April 15
• Deadline for 2nd installment of annual Income Tax Due – July 15
• FBT rate – 32%

Now:

From January 1, 2018 to December 31, 2022

• Below Php 250,000: 0%
• In excess of Php 8M: 35% 
  Optional: For self-employed, if gross sales/receipts exceed Php 250K but not over Php 3M – 8%
  
  
• Exclusions/Deductions- No personal/ additional exemption
• Tax-exempt benefit ceiling (including 13^th month bonus and other de minimis benefits) – Php 90,000
• Employees of RHQ, ROHQ, OBU, and Petroleum Service Contractors registered by Jan. 1, 2018 – 15%
• Deadlines
• Deadline for Annual ITR (employed) – April 15
• Deadline for 1st Quarter (for self-employed) – May 15
• Deadline for 2nd installment of annual Income Tax Due – Oct 15
• FBT rate – 35%

2. Passive Income (Final Tax)

Before:

• PCSO & Lotto Winnings – Exempt
• Interest on FCDU deposits – 7.5%
• CGT on unlisted shares – 5% or 10%
• SIT on listed shares – 0.50 of 1%

Now:

• PCSO & Lotto Winnings – taxable above Php 10,000
• FCDU deposits – 15%
• CGT on unlisted shares sold by individuals and domestic corporations – 15%
• SIT on listed shares – 0.60 of 1%

 

3. Excise Tax
   
   A. Tobacco Products

• Excise tax of Php 31.20 per pack
• 4% annual increase

Now:

• Php 32.50 – Jan 2018
• Php 35.00 – Jan 2019
• Php 37.50 – Jan 2020
• Php 40.00 – Jan 2022
  
  B. Petroleum Products

Before:

• Diesel – Php 0.00 per liter
• Unleaded & Premium Gasoline – Php 4.35 per liter

Now:

• Diesel
  • Php 2.50 – 2018
  • Php 4.50 – 2019
  • Php 6.00 – 2020
    
    
• Gasoline
  • Php 7.00 – 2018
  • Php 9.00 – 2019
  • Php 10.00 – 2020
  
  C. Mineral Products

Before:

• Excise tax of Php 10.00 per metric ton of coal
• Various rates on other minerals

 Now:

• Php 50.00 – Jan 2018
• Php 100.00 – Jan 2019
• Php 150.00 – Jan 2020
• 100% increase in rate of other minerals
  
  D. Automobiles

Before:

• 2% for up to Php 600,000
• Php 12,000 + 20% of excess over Php 600,000
• Php 112,000 + 40% of excess over Php 1.1M
• Php 512,000 + 60% of excess over Php 2.1M

 Now:

• 4% for up to Php 600,000
• 10% for over Php 600,000 to Php 1M
• 20% for over Php 1M to Php 4M
• 50% for over Php 4M
  
  E. Sweetened Beverages

Before: NONE

Now:

• Using caloric and non-caloric sweeteners – Php 6.00/liter
• Using high-fructose corn syrup – Php 12.00/liter
  
  F. Invasive Cosmetic Procedures

Before: None

Now:

• 5% on invasive cosmetic procedures

 

4. Estate

Before:

• Progressive rates of 5% of 20%

• Exemption of family home – Php 1M
• Standard deduction – Php 1M
• Deadline – within 6 months
• Final withholding tax – none
  
  

Now:

• A flat rate of 6%
• Exemption of family home – Php 10M
• Standard deduction – Php 5M
• Deadline – within 1 year
• Final Withholding tax on bank withdrawals – 6%

 

5. Donations

Before:

• 2%-15% on donations to relatives
• 30% on donations to strangers (i.e., donations of corporations and other juridical entities)

Now:

• A single tax rate of 6% of net donations for gifts above Php 250,000 yearly regardless of relationship to donor.

 

6. Documentary Stamp

Before:

Documentary stamp tax on various transactions

 Now:

 100% increase in rate, except for:

• DST loans, from Php 1.00 to Php 1.50 per Php 200
• No increase on sale of real property and certain insurance policies

7. Tax Filing

Before:

Monthly filing of withholding/percentage tax returnsNow:

Quarterly filing of withholding (except compensation)/percentage tax returns

 

8. Value-Added Tax

Before:

• Threshold – Php 1,919,200
• Sales of Medicines – 12%
• Association dues – 12%
• Amortization of input VAT on capital goods
• Transfer under 40(c)(2) – 12%
• VAT-exempt sale of residential lot – not more than Php 1,919,200; House and Lot – not more than Php 3,199,200
• Sales of goods to PEZA – 0%

Now:

• Threshold – Php 3M
• Sales of Medicines for diabetes, high cholesterol, and hyper-tension – VAT-exempt
• Association dues – VAT-exempt
• Amortization of input VAT on capital goods – repealed by 2022
• Transfer under 40(c)(2) – VAT-exempt
• VAT-exempt sale of residential lot – not more than Php 1.5M; house and lot – not more than Php 2.5M

(By 2021, only house and lot – not more than Php 2M)

• Sales of goods to PEZA – 12% upon implementation of enhanced VAT refund system

 

9. Penalty Interest

Before:

20% Per annum

Now:

Double the legal interest rate per annum

 

You can read the entire TRAIN Act here. 

 

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