The country’s proposed tax reform package, initiated by the Department of Finance (DOF) under the administration of Pres. Rodrigo Duterte, is getting close to becoming a law.
The House of Representatives passed the bill on third and final reading in May 2017 with 246 “Yes” votes, nine “No” votes, and one abstention.
It’s still a long way to go, though, since the bill must be taken up and approved by the Senate and then the two versions (House and Senate) are harmonized in a bicameral conference committee, before the bill goes to Pres. Duterte for signing into law and implementation.
What’s included in this tax reform package, dubbed the TRAIN or Tax Reform for Acceleration and Inclusion?
(UPDATE): We compiled all articles related to the TRAIN law on this page: TRAIN Law and BIR Tax Implementing Guidelines. Click the link to access BIR’s implementing rules and regulations and examples of how to compute applicable taxes.
* * * UPDATED! Links to the Approved Tax Reform of 2018 below * * *
- Everything about TRAIN Law and BIR Tax Implementing Guidelines
- What’s included in the approved Philippine Tax Reform of 2018?
- New Personal Income Tax Rates and Income Tax Tables in the Philippines (2018)
- 10 Additional TRAIN Tax Reform Items that You Probably Didn’t Know
To make it easily understandable, we simplified the contents of the bill and summarized and showed below highlights of the proposed Tax Reform Package.
Here are five (5) key highlights of the Duterte administration’s proposed Tax Reform bill.
1. Lowering of personal income taxes, except for high income earners
In the proposed tax reform package which will be used until 2019, those earning P250,000 per year and below will be exempted from paying personal income taxes. According to the DOF, this will benefit 83% of taxpayers who supposedly fall under this tax bracket.
Those earning between P250,000 and P400,000 per year will be charged an income tax rate of 20% on the excess over P250,000.
Those earning between P400,000 and P800,000 annually will pay a fixed amount of P30,000 plus 25% of the excess over P400,000.
Those with incomes between P800,000 and P2 million per year will be charged a fixed amount of P30,000 plus 30% on the excess over P800,000.
Those earning between P2 million and P5 million annually will pay a fixed amount of P490,000 plus 32% of the excess over P2 million.
Finally, the increased income tax rate will be felt by those making more than P5 million per year, who will be charged a fixed amount of P1.45 million plus 35% of the excess over P5 million.
Beginning 2020, though, the rates will further fall as seen in the table below summarizing the proposed income tax rates.
Proposed Income Tax Rates – From approval until year 2019
| Bracket | Income per Year | Tax Rate |
|---|---|---|
| 1 | Below P250,000 | 0% |
| 2 | P250,000 to P400,000 | 20% of the excess over P250,000 |
| 3 | P400,000 to P800,000 | P30,000 + 25% of the excess over P400,000 |
| 4 | P800,000 to P2,000,000 | P130,000 + 30% of the excess over P800,000 |
| 5 | P2,000,000 to P5,000,000 | P490,000 + 32% of the excess over P2,000,000 |
| 6 | Over P5,000,000 | P1,450,000 + 35% of the excess over P5,000,000 |
Proposed Income Tax Rates – Year 2020 onwards
| Bracket | Income per Year | Tax Rate |
|---|---|---|
| 1 | Below P250,000 | 0% |
| 2 | P250,000 to P400,000 | 15% of the excess over P250,000 |
| 3 | P400,000 to P800,000 | P22,500 + 20% of the excess over P400,000 |
| 4 | P800,000 to P2,000,000 | P102,500 + 25% of the excess over P800,000 |
| 5 | P2,000,000 to P5,000,000 | P402,000 + 30% of the excess over P2,000,000 |
| 6 | Over P5,000,000 | P1,302,500 + 35% of the excess over P5,000,000 |
2. Higher taxes on diesel, petroleum, and other oil products
As a consequence of lower income tax rates, the revenues collected by the government will surely be severely affected. This is why the DOF is proposing that taxes be recovered from other sources instead.
These other sources include diesel, oil, and other petroleum products which will be slapped a so-called “highly progressive tax” which supposedly shifts the tax to higher-income segments of the population.
According to the DOF, the justification is that the top 10%, or around two million households, consume more than half of the fuel in the Philippines. The same study said that the top 1% of Filipino families consume 13% of fuel.
Currently, there is no excise tax on diesel and, based on the proposal, the tax on diesel will increase to P3 per liter in 2018, then to P5.00 on Jan. 1, 2019, and to P6.00 on Jan. 1, 2020.
In addition, kerosene, liquefied petroleum gas (LPG), and bunker oil will be imposed the same excise tax of P3 per liter in 2018; P5.00 in 2019; P6.00 in 2020.
Other petroleum products such as gasoline, lubricating oils, and greases will also be charged additional tax of P8.00 per liter or kilogram in 2018; P9.00 in 2019; and P10.00 in 2020.
Excise Taxes on Diesel, Petroleum, and other Oil Products
| Fuel Products | Current Tax | 2018 | 2019 | 2020 |
|---|---|---|---|---|
| Diesel | None | P3.00 per liter | P5.00 per liter | P6.00 per liter |
| LPG, Kerosene, bunker oil | P3.50 to P5.35 per liter or kg | Additional P3.00 per liter or kg | Additional P5.00 per liter or kg | Additional P6.00 per liter or kg |
| Gasoline, lubricating oils, and greases | P3.50 to P5.35 | Additional P8.00 per liter or kg | Additional P9.00 per liter or kg | Additional P10.00 per liter or kg |
3. Removal of certain VAT Exemptions
The DOF also proposes to remove certain exemptions on the 12% Value Added Tax (VAT) in order to generate more revenues.
At present, the following entities are exempted from paying VAT but will start to pay the tax once the bill is approved:
- lease of residential units
- low-cost and socialized housing
- power transmission
- domestic shipping importation
- boy scouts and girl scouts
- VAT exemptions found in special laws, except those covering senior citizens and people with disability
The threshold for VAT exemptions was increased to P5 million and indexed to inflation every three years.
For self-employed and professionals within the VAT threshold of P5 million, the substitute bill will require them to pay an 8% tax on gross sales or receipts in lieu of the income and percentage taxes.
The tax for those above the VAT threshold will be based on the 30% corporate income tax rate with minimum tax.
4. New Excise Taxes on Cars and Automobiles
Cars and automobiles are already presently charged excise taxes but will be charged additional taxes upon the approval of the tax reform bill.
Compared to the original tax proposal, the approved version in May 2017 includes a fifth price segment, above P3.1 million, which was absent in the earlier proposals.
The excise tax will be dependent on the importer’s or manufacturer’s net selling price of the car and this will therefore increase the final selling prices of automobiles in the country.
The new excise taxes for automobiles are as follows.
Excise Tax on Cars and Automobiles
| Automobile's Net Selling Price | 2018 | 2019 |
|---|---|---|
| Below P600,000 | 3% | 4% |
| P600,000 to P1.1 million | P18,000 + 30% in excess of P600,000 | P24,000 + 40% in excess of P600,000 |
| P1.1 million to P2.1 million | P168,000 + 50% in excess of P1.1 Million | P224,000 + 60% in excess of P1.1 Million |
| P2.1 million to P3.1 million | P668,000 + 80% in excess of P2.1 Million | P824,000 + 100% in excess of P2.1 Million |
| Above P3.1 million | P1.468 million + 90% in excess of P3.1 Million | P1.824 million + 120% in excess of 2.1 Million |
5. Tax on Sugary Drinks
Drinks containing sugar such as powdered juice, energy drinks, soft drinks, bottled iced tea, and other sugary beverages will be slapped with an additional tax of around P10.00 per liter.
As per the study of the Philippine Association of Store and Carinderia Owners (PASCO), a non-profit organization of microretailers, prices of sugary beverages are expected to increase with the proposed tax as follows:
- Soft drinks – from P16.00 to P25.00 per liter
- Bottled iced tea – from P20.00 to P30.00
- 3-in-1 instant coffee mix – from P5.00 to P8.00 per sachet
- Ready-to-drink juice – from P20.00 to P26.00
- Powdered juice drink (including powdered iced tea) – from P9.00 to P20.00 per 1-liter sachet
Sources: Philippine Daily Inquirer, Rappler, GMA News, ABS-CBN News
