It’s been 6 months now since TRAIN Law took effect. Let’s see how BIR did so far with regards to implementing the controversial law.
Since it is my general role as Tax Specialist to keep the company updated on tax matters, I have been asked to provide a short training about the implementing rules and regulations of the TRAIN Law. Below are the main points I have discussed followed by the presentation I used. These are only the ones mostly related to my workplace though. Feel free to click on the links to know further.
Tax Reform for Acceleration and Inclusion (TRAIN) Law – R.A. 10963
- Lowering the Individual Income Tax
- Expanding the Value-Added Tax (VAT) Base
- Increasing Excise Tax
- Increasing Documentary Stamp Tax and Simplifying the Donor’s and Estate Tax
1. Individual Income
- Revised income tax rates
- Increased the amount of tax-exempt 13th month pay and other benefits from P82,000 to P90,000
- Eliminates personal and additional exemption, P50,000 and P25,000 for each dependent respectively
- The elimination of personal and additional exemption have been replaced with the 0% income tax rate on the first P250,000 of the taxable income, regardless of marital/parental status.
- Optional 8% income tax rate for self-employed individuals/professionals and mixed income earners
Revised individual income tax rates
- Reduces the number of tax brackets from seven to six
- Subjects to 0% tax individual taxpayers with annual income of P250,000 and below
- Increases the top marginal rate from 32% to 35% with the 35% highest tax rate applicable to over P8M gross income
- Adjusts thresholds for each tax band
- Reduces by 5% the marginal tax rate on all tax brackets, except the 32% rate applicable to P2M
- P8M tax band which will be reduced by 2% to 30%, while the top most 35% tax rate will be retained
- Adjusted the base amount of tax to be paid for each tax band
Revised Withholding Tax Table
Increased allowable amount as De Minimis Benefit
Certified list of employees qualified for Substituted Filing
- Certified List of Employees Qualified for Substituted Filing of ITR to accompany the signed BIR Form 2316
- The list shall reflect amount of income payment, the tax due and tax withheld
- The list shall be stamped “Received” by the concerned BIR office, which shall be tantamount to the substituted filing of ITR
- Due annually, every 28th of February
BIR Form 2316 stamped “Received”
- In the event that the employee will need his/her BIR Form No. 2316 stamped “Received:”
- Request from employer certification that he/she was included in the list submitted to the BIR, then
- Request the concerned BIR office to have the BIR Form 2316 stamped “Received” accompanied with the employer’s certification
Individuals not required to file income tax return
- An individual earning purely compensation income whose taxable income does not exceed P250,000
- An individual whose income tax has been correctly withheld by his employer
- A minimum wage earner
- An individual whose sole income has been subjected to final withholding tax
Time of Filing of Individual Income Tax Return
- Individuals engaged in business/practice of profession, regardless of amount of sales/receipts are required to file:
- Quarterly income tax return on or before May 15, August 15 and November 15 for the first, second and third quarters
- Annual income tax return, not later than April 15th
Installment payment of individual income tax
- When the tax due is in excess of P2,000, the individual may elect to pay the tax in two (2) installments
- 1st installment – at the time the annual income tax return is filed
- 2nd installment – on or before October 15
Premium on health card as part of “other benefits”
- Premium on health card paid by the employer for all employees, whether rank-and-file or managerial/supervisory, under a group insurance shall be included as part of “other benefits,” which are subject to P90,000 threshold.
- Any amount in excess of the P90,000 shall be subject to income tax, and consequently, to the withholding tax on compensation.
The 13th month pay of most of employees plus the significant premium the company pays on their health cards could exceed the P90,000 threshold. It is a concern if employees will be subject to higher withholding tax on compensation.
Expanded and Final Withholding Tax
5%-10% withholding tax for individuals
- Professional fees, talent fees, etc. for services rendered
- If the gross income for the current year does not exceed P3 million – 5%
- If the gross income for the current year is more than P3 million – 10%
- If income is from a lone income payor and the total income payment is less than P250,000 – not subject to withholding tax (sworn statement required)
- Non-individual – 10%-15% (no change)
2. Value-Added Tax
- Additional VAT-exempt items:
- Sale of drugs and medicines for diabetes, high cholesterol and hypertension – starting 2019
- Socialized and mass housing projects P2M and below – starting 2021
Processing VAT Refund
- VAT Refund Center (BIR and BOC) to handle the processing of application for VAT refund
- 90-day processing of input VAT refund claim
- Penalty for BIR personnel who fails to act on the application for tax refund within 90 days
- Appropriate 5% of total VAT collections of BIR and BOC from the immediately preceding year to fund claims for VAT refund
3. Excise Tax (Revenue Regulations 1-2018, 2-2018, 3-2018, 5-2018)
4. Documentary Stamp Tax, Donor’s and Estate Tax
Documentary Stamp Tax – Revenue Regulations 4-2018
- 100% increase in rate, except for:
- DST loans, from P1.00 to P1.50 per P200
- No increase on sale of real property and certain insurance policies
Donor’s Tax – Revenue Regulations 12-2018
The donor’s tax was revised to a flat rate of 6% regardless of the relationship between the donor and the donee. Previously, the donor’s tax was 2% to 15% if the donor and donee are related, and 30% if the donation was to a stranger.
Donations or gifts below P250,000 are tax-exempt. Donations with value of at least P250,000 are taxed using the new rate of 6% on the amount in excess of P250,000.
Estate Tax – Revenue Regulations 12-2018
- Estates with a net value of P5 million and below are tax-exempt.
- Family homes that are valued at no more than P10 million are exempt.
- Removes deduction for funeral expenses, judicial expenses, family home, and medical expenses incurred by decent in arriving at the net estate subject to estate tax
- Certification from the barangay captain for the decedent’s home to be considered a family home – no longer required
- Estate tax returns showing gross value more than P5M shall be supported with a statement duly certified to by a Certified Public Accountant
- Filing of Estate Tax Return extended from 6 months to 1 year after the decedent’s death
- Allows payment by installment of estate tax within 2 years
Here’s the presentation for additional reference.