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Republic of the Philippines

DEPARTMENT OF FINANCE
NATIONAL TAX RESEARCH CENTER
3/F Palacio del Gobernador Condominium
Gen. Luna Street cor. A. Soriano Jr. Avenue
Intramuros, Manila,

HIGHLIGHTS OF THE REFORMS


ON DIRECT TAXATION
UNDER RA 10963
Presented as Part of the
PUP Accountancy Synthesis Lecture Series

by:

Donaldo M. Boo
Chief, Direct Taxes Branch
September 4, 2018
1
A. On Personal Income Tax (PIT)

• Restructured the PIT schedule

 Reduced the tax brackets from 7 to 6


 Set the tax-exempt threshold at
PhP250,000 annual income
 Set the highest amount of taxable
income at over PhP8 million with
marginal tax rate of 35%

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PIT (cont’d)

 Maintained the income tax exemption of


minimum wage earners (MWEs)
 Increased the amount of tax-exempt benefits
ceiling (13th month pay and other benefits) from
PhP82,000 to PhP90,000
 Removed the premium payments on health
and/or hospitalization insurance as allowable
deductions
 Removed the personal and additional exemption
allowances for dependents as deductions from
annual income
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PIT (cont’d)
• Differentiated the tax treatment of
compensation income earners (CIEs), and
self-employed and professionals (SEPs)
 Provided options to SEPs whose gross
sales/receipts and other non-operating
income does not exceed VAT threshold of
PhP3 million to pay 8% tax based on GS/GR
in excess of PhP250K in lieu of graduated
PIT and 3% percentage tax

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PIT (cont’d)

• For mixed income earners:

 Income from compensation – subject to


graduated PIT schedule
 Income from business or profession below
VAT threshold – 8% tax on GS/GR or
graduated PIT
 Income from business or profession above
VAT threshold – graduated PIT

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The Graduated PIT Schedule
Effective January 1, 2018 until December 31, 2022

Taxable Income Tax Rate

Not over P250,000 0%

Over P250,000 but not over P400,000 20% of the excess over P250,000

Over P400,000 but not over P800,000 P30,000 + 25% of the excess over P400,000

Over P800,000 but not over P2,000,000 P130,000 + 30% of the excess over P800,000

Over P2,000,000 but not over P8,000,000 P490,000 + 32% of the excess over
P2,000,000
Over P8,000,000 P2,410,000 + 35% of the excess over
P8,000,000
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The Graduated PIT Schedule
Effective January 1, 2023 Onwards

Taxable Income Tax Rate

Not over P250,000 0%

Over P250,000 but not over P400,000 15% of the excess over P250,000

Over P400,000 but not over P800,000 P22,500 + 20% of the excess over P400,000

Over P800,000 but not over P2,000,000 P102,500 + 25% of the excess over P800,000

Over P2,000,000 but not over P8,000,000 P402,500 + 30% of the excess over
P2,000,000
Over P8,000,000 P2,202,500 + 35% of the excess over
P8,000,000

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Features of the PIT
Particulars Graduated PIT 8% Income Tax Rate

1. Applicability In general, applicable to May be availed by qualified


all individual taxpayers individuals engaged in
business/practice of profession
whose GS/GR and other non-
operating income did not
exceed PhP3 million

2. Basis of IT Net taxable income GS/GR and other non-operating


income
3. Allowed Allowable itemized Allowed reduction of
deductions deductions or optional PhP250,000 from the gross, only
standard deduction (OSD) for individual whose income
comes purely from
business/practice of profession;
otherwise, no
reduction/deduction allowed.

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Features of the PIT
Particulars Graduated PIT 8% Income Tax Rate

4. Business tax Percentage tax or VAT If qualified: not subject to


percentage tax

5. Required FS 1. If itemized: If qualified: No FS is required

FS-if gross is less than


PhP3 million;

Audited FS - if gross is
more than PhP3 million

2. If OSD: No FS is
required

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Individuals NOT Qualified to Avail of
8% Income Tax Rate

1. Purely compensation income earners;

2. VAT-registered taxpayers, regardless of the


amount of GS/GR and other non-operating
income;

3. Non-VAT taxpayers whose GS/GR and other


non-operating income exceeded the PhP3M
VAT threshold;

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Individuals NOT Qualified to Avail of
8% Income Tax Rate
4. Taxpayers who are subject to Other Percentage
Taxes, except those under Section 116 of the
NIRC;

5. Partners of the General Professional


Partnership (GPP) since their distributive share
is already net of costs and expenses; and

6. Individuals enjoying income tax exemption such


as those registered under the Barangay Micro
Business Enterprises, etc.
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PIT (cont’d)

• Imposed a 20% final tax on Philippine Charity


Sweepstakes Office (PCSO) and Lotto Winnings
exceeding PhP10,000.

• Increased the final tax imposed on interest


income derived by an individual taxpayer (except
a nonresident individual) from a depository bank
under the expanded foreign currency deposit
system from 7.5% to 15%.

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PIT (cont’d)

• Imposed a 15% single rate of tax on net capital


gains realized by an individual from the sale,
barter, exchange or other disposition of shares
of stock in a domestic corporation that are not
traded in the local stock exchange.
• Removed the preferential tax rate of 15% for
employees of regional headquarters, regional
operating headquarters, offshore banking units
and petroleum service contractors and
subcontractors beginning January 1, 2018.

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PIT (cont’d)

• Increased the fringe benefits tax (FBT) rate


from 32% to 35% beginning January 2018 and
onwards.

• Inserted a provision as regards claim for OSD


by a GPP, that is, the OSD may only be availed
once either by the GPP or the partners
comprising such partnership.

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B. On Corporate Income Tax (CIT)

• Removed the PCSO among the list of tax-


exempt government-owned-and-controlled
corporations.

• Increased the final tax imposed on interest


income derived by a domestic corporation
from a depository bank under the expanded
foreign currency deposit system from 7.5% to
15%.

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CIT (cont’d)

• Imposed a 15% single rate of tax on net capital


gains realized by domestic corporations from
the sale, exchange or other disposition of shares
of stock in a domestic corporation that are not
traded in the local stock exchange.

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C. On Estates and Trusts

• Removed the exemption allowed to income of


estates and trusts amounting to PhP20,000.

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D. On Estate Tax
• Simplified the estate tax schedule, from a six-
bracket schedule with rates ranging from 5% to
20%, to a single estate tax rate of 6% based on
the value of the net estate.

• Removed the deductions from gross estate


pertaining to actual funeral expenses, judicial
expenses, and medical expenses but increased
the amount of standard deduction from PhP1
million to PhP5 million.

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Estate Tax (cont’d)
• Increased the amount of deduction for family
home from PhP1 million to PhP10 million

• Removed the deductions for nonresident estates


pertaining to expenses, losses, indebtedness,
and taxes but provides for a standard
deduction amounting to PhP500,000.

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Estate Tax (cont’d)
• Deleted the provision that requires executor,
administrator or anyone of the heirs to include in
the estate tax return that part of the nonresident
alien’s gross estate not situated in the
Philippines to be able to claim deductions.

• Repealed the provision requiring the filing of


notice of death of the decedent by his/her
executor, administrator or any of the legal heirs
within two (2) months after the decedent’s death.

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Estate Tax (cont’d)
• Increased the amount of gross value of estate
provided in estate tax returns that requires to be
supported with a statement duly certified by a
Certified Public Accountant from
PhP2,000,000 to PhP5,000,000.

• Extended the period within which the estate tax


return should be filed, from six (6) months to
one (1) year from the decedent’s death.

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Estate Tax (cont’d)
• Inserted an additional provision which provides
for the payment by installment in case the
available cash of the estate is insufficient to pay
the total estate tax due.

• Allowed the withdrawal of any amount from


the bank account of the decedent without
certification from the BIR, subject, however, to a
final withholding tax of six percent (6%).

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E. On Donor’s Tax

• Simplified the donor’s tax schedule from an


eight-bracket schedule with rates ranging from
2% to 15% to a single donor’s tax rate of 6% of
total gifts in excess of PhP250,000. The 6% tax
rate likewise applies if the donee is a stranger.

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Donor’s Tax (cont’d)
• Inserted an additional provision under Section
100 of the NIRC which provides that a bona fide,
at arm’s length and donative-intent free sale,
exchange or other transfer of property made in
the ordinary course of business shall be
considered as made for an adequate and full
consideration in money or money’s worth and is
therefore not subject to the donor’s tax.

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Donor’s Tax (cont’d)

• Deleted the provision exempting from the


donor’s tax dowries or gifts made by parents to
each of their legitimate, recognized natural,
or adopted children on account of marriage.

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F. On Returns and Payment of Tax

• Inserted new provisions in the NIRC of 1997


setting to four (4) the maximum number of
pages of individual and corporate income tax
returns (ITR), in paper or electronic form, and
the information that it should only contain.

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• Inserted a new Section 51-A providing for the
substituted filing of ITR by employees
receiving purely compensation income from only
one employer in the Philippines for the calendar
year and whose income tax has been withheld
correctly by the said employer.

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• Set the range of creditable withholding tax by
payor-corporations/persons on items of income
payable to natural or juridical persons beginning
January 1, 2019 FROM not less than 1% to not
more than 32% TO not less than 1% to not
more than 15% of the income payment.

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• Adjusted the date of payment of the second
installment of income tax for both individuals and
corporations, from on or before July 15 TO on
or before October 15 following the close of the
calendar year.
• Set a uniform period within which return for final
and creditable withholding taxes shall be filed
and payment thereof shall be made, that is, not
later than the last day of the month following
the close of the quarter during which the
withholding was made.

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• Adjustment in the period within which an
individual receiving self-employment income,
whether it constitutes the sole source of his
income or in combination with salaries, wages
and other fixed or determinable income, shall
make and file a declaration of his estimated
income for the current taxable year, that is, from
on or before April 15 TO on or before May 15
of the same taxable year.

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• Adjustment in the period within which the fourth
installment of the estimated income tax by
individuals under Section 74(A) of the NIRC of
1997, as amended, shall be paid, that is, from
on or before April 15 TO on or before May 15
of the following calendar year when the final
adjusted ITR is due to be filed.

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REFERENCES:
• Tax Code of 1997, as amended

• Republic Act No. 10963 or the TRAIN Law

• BIR Revenue Regulations Nos. 8-2018, 11-


2018 and 12-2018

• BIR Revenue Memorandum Circular No. 50-


2018

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THANK YOU!

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