2/7/2018 [OPINION] Train law: What does it change?

THOUGHT LEADERS

[OPINION] Train law: What does it change?

As a tax lawyer, I noticed that there are a lot of news reports on the changes. But actually, there are much more
signi cant changes under the Train law which are not being reported.

Edward G. Gialogo
Published 6:23 PM, January 04, 2018
Updated 12:41 PM, January 05, 2018

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 As we celebrated the New Year, the Tax Reform for Acceleration and Inclusion (Train) Law or
Republic Act No 10963 took effect on January 1, 2018. Train overhauls the outdated National
Internal Revenue Code (NIRC) which was adopted 20 years ago.

As a tax lawyer, I noticed that there are a lot of news reports on the changes. But actually, there
are much more signi cant changes under the Train law which are not being reported.

Train relatively decreases the tax on personal income, estate, and donation. However, it also increases the tax on
certain passive incomes, documents (documentary stamp tax) as well as excise tax on petroleum products,
minerals, automobiles, and cigarettes.

The Train law also imposes new taxes in the form of excise tax on sweetened beverages and non-essential
services (invasive cosmetic procedures) and removes the tax exemption of Lotto and other PCSO winnings
amounting to more than P10,000.

Nonetheless, the new law also contains praiseworthy provisions which aim to simplify tax compliance.

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2/7/2018 [OPINION] Train law: What does it change?

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Reduced taxes

Personal Income Tax

The most popular part of the Train law is the reduction of personal income tax of a majority of individual
taxpayers. Prior to the enactment of the new law, an individual employee or self-employed taxpayer would
normally have to pay income tax at the rate of 5% to 32%, depending on one's bracket.

Under Train, an individual with a taxable income of P250,000 or less will now be exempt from income tax. Those
with a taxable income of above P250,000 will be subject to the rate of 20% to 35% effective 2018, and 15% to 35%
effective 2023. Moreover, the deductible 13th month pay and other bene ts are now higher at P90,000 compared
to P82,000 under the old law.

The table shows the comparison of the brackets and tax rates under the NIRC and Train:

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2/7/2018 [OPINION] Train law: What does it change?

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Another innovation under Train is the option of self-employed individuals and/or professionals whose gross sales
or receipts do not exceed P3,000,000 to avail of an 8% tax on gross sales or gross receipts in excess of P250,000,
in lieu of the graduated income tax rates.

It is not being highlighted, however, that some items that were previously deducted to arrive at taxable income had
been removed under Train. These are the personal exemption of P50,000, additional exemption of P25,000 per
dependent child, and the premium for health and hospitalization insurance of P2,400 per year.

Estate Tax

The estate tax rate was also changed from 5% to 32% of the net estate to a at rate of 6%. Additionally, the
following deductions allowed in computing the net estate (to be subjected to estate tax) were increased:

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2/7/2018 [OPINION] Train law: What does it change?

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Donor’s tax

The donor’s tax rate was also amended to a single rate of 6% regardless of the relationship between the donor and
the donee. In the old law, the rates of donor’s tax were 2% to 15% if the donor and donee are related, and 30% if
otherwise. However, the donation of real property is now subject to Documentary Stamp Tax of P15 for every
P1,000.

Value Added Tax

There are also amendments to VAT which lessen the burden of taxpayers:

1. Increase of VAT threshold from P1,919,500 to P3,000,000

2. Starting 2019, the sale of drugs and medicines for diabetes, high cholesterol, and
hypertension will be exempt from VAT
3. Increase of VAT exemption for lease of a residential unit from P12,800 to P15,000
4. Association dues, membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations are now expressly VAT exempt

Increased taxes

Passive Income

Train imposes higher taxes on some passive incomes, including interest income from dollar and other foreign
currency deposits.

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2/7/2018 [OPINION] Train law: What does it change?

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There is also a signi cant increase in the tax on sale of shares of stocks.

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Excise Tax

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2/7/2018 [OPINION] Train law: What does it change?

Train imposes higher excise taxes on cigarettes, manufactured oils (petroleum products), mineral products and
automobiles.

Cigarettes

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Manufactured oils and other products

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2/7/2018 [OPINION] Train law: What does it change?

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Mineral products

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Automobiles

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2/7/2018 [OPINION] Train law: What does it change?

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Hybrid vehicles shall be subject to 50% of the applicable excise tax rates. But purely electric vehicles and pick-ups
shall be exempt from excise tax.

Documentary Stamp Tax

Unlike the House of Representatives’ version of Train wherein no change was introduced on the rates of
Documentary Stamp Taxes (DST), Train increases the DST on almost all taxable documents.

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2/7/2018 [OPINION] Train law: What does it change?

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New taxes

Aside from increase and decrease of certain taxes, Train also introduces new taxes in the form of excise tax on
sweetened beverages and non-essential services.

Sweetened Beverages

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2/7/2018 [OPINION] Train law: What does it change?

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Non-essential services

Invasive cosmetic procedures directed solely towards improving, altering, or enhancing the patient’s appearance is
now subject to excise tax of 5%.

PCSO winnings

Previously, PCSO winnings, regardless of amount, were exempt from tax. Train subjects PCSO winnings to a 20%
nal withholding tax if the amount is more than P10,000.

Simpli ed tax compliance

Apparently, the Philippine tax system is a very complicated one. This was certainly considered by Congress when
it enacted the Train law. Consequently, Train introduces amendments which are geared towards simpler tax
compliance. Some of these amendments are:

1. The Income Tax Returns shall not be more than 4 pages

2. The Tax Return for nal and creditable withholding taxes shall be led quarterly instead of
monthly
3. With regard to estate tax, the following measures were adopted to simplify its computation
and payment:
In lieu of actual funeral expenses (up to P200,000) and medical expenses (up to
P500,000), Train increases the standard deduction (wherein no substantiation is
required) from P1,000,000 to P5,000,000
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