What taxes are included in the new Philippine tax reform program, also known as TRAIN?
We summarize below a list of revised and brand-new taxes that are part of the approved Tax Reform for Acceleration and Inclusion or TRAIN law initiated by the Department of Finance (DOF) and ratified by Congress. Implementation of the new taxation under TRAIN begun on January 1, 2018 after being signed into law by Pres. Rodrigo Duterte in December 2017.
Let’s take an in-depth look at what’s included in this tax reform program.
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 resources on the approved TRAIN Tax Reform below:
- Everything about TRAIN Law and BIR Tax Implementing Guidelines
- What’s included in the approved Philippine TRAIN Tax Reform?
- New BIR Income Tax Rates and TRAIN Income Tax Tables
- BIR Sample Computations: How to Compute Taxes under TRAIN
1. New Personal Income Tax Rates
Personal income tax rates will be lowered, while salaried employees earning annual income of P250,000 or below will be exempted from paying income taxes.
Full details of the New Personal Income Tax Rates and Income Tax Tables can be found here.
2. Lower Tax Rates for Professionals
With the revised personal income tax table, salaried employees will surely benefit from the lower tax rate. Self-employed professionals, meanwhile, can expect to pay lower taxes as well with the reduced tax rates for professionals, as follows:
| Annual Sales or Gross Receipts | Tax Rate |
|---|---|
| P250,000 and below | 0% |
| Below P3 million | May choose either 8% flat tax on gross receipts or follow personal income tax table |
| Above P3 million | Subject to personal income tax table |
Professionals will no longer have to file and pay the percentage tax; instead they will be charged a withholding tax of 8% flat rate on gross sales or receipts.
Self-employed professionals earning annual income of P3 million and below may choose to pay the 8% flat tax or follow the personal income tax table.
3. Tax on 13th Month Pay and Other Bonuses
The threshold for tax exemption on 13th month pay and other bonuses received by salaried employees has been raised from the current P82,000 to P90,000. This means 13th month pay and bonuses paid to employees that amount to P90,000 or below will not be taxed.
4. Tax on Drinks using Sugar and Caloric / Non-Caloric Sweeteners
Beverages that use sugar and other sweeteners will be taxed effective January 2018. These include softdrinks and other cola drinks, fruit juices, and powdered drinks, among others.
The sugar tax is as follows:
- P6.00 per liter of drink that uses caloric and non-caloric sweeteners
- P12.00 per liter of drink that uses high fructose corn syrup (HFCS)
5. Tax exemption of milk, 3-in-1 coffee, medicines for diabetes, etc.
Exempted from the sugar tax are milk, 3-in-1 coffee, 100% natural fruit juice or vegetable juice, medically-indicated beverages, and drinks and beverages that use natural sweeteners such as coco sugar or stevia.
Meanwhile, drugs and medicines prescribed for diabetes, high cholesterol, or hypertension will also be exempted from the 12% VAT.
6. Taxes on LPG, Diesel, Gasoline, and other fuel products
Liquefied Petroleum Gas or LPG is currently not taxed, but will be charged excise tax as follows:
- P1.00 tax per liter in 2018
- P2.00 tax per liter in 2019
- P3.00 tax per liter in 2020
Diesel is also currently not taxed, but will have new taxes, as follows:
- P2.50 tax per liter in 2018
- P4.50 tax per liter in 2019
- P6.00 tax per liter in 2020
Gasoline, both regular and unleaded, will have the following excise taxes raised from the current P4.35 per liter:
- P7.00 tax per liter in 2018
- P9.00 tax per liter in 2019
- P10.00 tax per liter in 2020
Other fuels and oil products will be taxed as follows:
- Aviation gas – P4.00 per liter
- Asphalts – P8.00 per kilo
- Kerosene – P3.00
- Naphtha – P7.00
- Bunker fuel – P2.50
- Lubricating oil – P8.00
- Paraffin wax – P8.00
- Petcoke – P2.50
UPDATE: Pres. Duterte has vetoed the exemption from excise taxes of petroleum products 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.
7. Taxes on Cars and Automobiles
The new excise taxes for cars will follow a four-tier scheme:
Excise Tax on Cars and Automobiles
| Net Manufacturer's Price | Tax Rate on Hybrid Cars | Tax Rate on Non-Hybrid Cars |
|---|---|---|
| P600,000 and below | 2% | 4% |
| Above P600,000 to P1 million | 5% | 10% |
| Above P1 million up to P4 million | 10% | 20% |
| Above P4 million | 25% | 50% |
Pick-up trucks and electric vehicles will be exempted from additional taxes. Hybrid cars, as seen in the table above, will be charged 1/2 (half) the taxes imposed on non-hybrid automobiles.
8. Tax on Coal
The approved excise tax on coal is as follows (currently P10.00 tax per metric ton):
- P50.00 tax per metric ton in 2018
- P100.00 tax per metric ton in 2019
- P150.00 tax per metric ton in 2020
9. Tax on Tobacco Products
Excise taxes on tobacco products will be increased to P32.50 initially during the first six months of 2018, then will rise to P35.00 from the rest of 2018 until 2019.
From 2020 to 2021, the tobacco tax will rise to P37.50, followed by a fixed tax of P40.00 to be imposed from 2022 to 2023. From 2023 onwards, tobacco taxes will rise 4% annually.
10. Donor’s Tax
Donations or gifts with at least P250,000 worth will be charged a donor’s tax of 6% flat rate. This will be charged regardless of the relationship between the donor and the donee.
11. Estate Tax
The estate tax, or tax levied on the properties or estate of lawful heirs and beneficiaries inherited from a deceased person, will now be subject to a flat rate of 6% on the amount in excess of P5 million.
Estates with a net value of P5 million and below will be exempted from paying the estate tax. Family homes that are valued at P10 million or less will also be exempted from estate tax. Under existing tax laws, only family homes worth P1 million are exempted.
12. Tax on Cosmetic Surgery and other Aesthetic Procedures
Starting 2018, there will be a 5% tax on cosmetic surgeries, aesthetic procedures, and body enhancements.
13. Documentary Stamp Tax
The documentary stamp tax (DST) charged on some legal or business transactions will double from P1.50 to P3.00 beginning 2018.
14. Stock Transaction Tax
Stock trading in the Philippines might be affected with the revised taxes on stock market activity.
The stock transaction tax — a tax charged on stock sellers when a buy or sell transaction is made — will be increased to 0.6% of the gross trade amount from the current 0.5% rate.
Stock-related transactions of companies not listed in the Philippine Stock Exchange (PSE) will be slapped with a higher stock transaction tax of 15%, an increase from the current 5% or 10%.
15. Foreign Currency Interest Income Tax
The tax on interest income on foreign currency deposits is currently pegged at 7.5%. This will increase to 15% of the interest on foreign currency deposit unit (FCDU) under the TRAIN tax reform.
List of Vetoed Items by Pres. Duterte
Here are five (5) items in the tax reform bill that was vetoed by Pres. Duterte when he signed the bill into law.
- Veto on the 15% special tax rate for employees of Regional Headquarters (RHQ), Regional Operating Headquarters (ROHQ), Offshore Banking Units, and Petroleum Service Contractors and Subcontractors. Thes employees will be taxed using the regular income tax table as shown in Item No. 1 above.
- Veto on the exemption of self-employed professionals, with gross sales or receipts not exceeding P500,000, from the payment of the 3% percentage tax.
- Veto on the excise tax exemption of petroleum products 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 (see Item No. 6 above).
- Veto on the zero rating of sales of goods and services to separate customs territory and tourism enterprise zones, specifically, the areas under the Tourism Infrastructure Enterprise Zone Authority (Tieza).
- Veto on the earmarking of incremental tobacco taxes