TRAIN

LAW
 SCOPE
President Rodrigo Roa Duterte signed into law Republic Act No.
10963, otherwise known as the Tax Reform for Acceleration and
Inclusion (TRAIN) Act, the first package of the Comprehensive
Tax Reform Program (CTRP, on December 19, 2017 in
Malacanang.

The TRAIN will provide hefty income tax cuts for majority of
Filipino taxpayers while raising additional funds to help
support the government’s accelerated spending on its “Build,
Build, Build” and social services programs.
This tax reform package corrects a longstanding inequity of
the tax system by reducing personal income taxes for 99
percent of taxpayers, thereby giving them the much needed
relief after 20 years of non-adjustment of the tax rates and
brackets.
President Duterte has vetoed certain provisions of the TRAIN.
The vetoed five line items are the following provisions:

1. Reduced income tax rate of employees of Regional Headquarters (RHQs),

Regional Operating Headquarters (ROHQs), Offshore Banking Units (OBUs), and
Petroleum Service Contractors and Subcontractors;
2. Zero-rating of sales of goods and services to separate customs territory and
tourism enterprise zones;
3. Exemption from percentage tax of gross sales/receipts not exceeding five
hundred thousand pesos (P500,000.00);
4. Exemption of various petroleum products from excise tax when 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; and
5. Earmarking of incremental tobacco taxes.
OBJECTIVE
 EFFECTIVITY
• The Tax Reform for Acceleration and Inclusion Law (TRAIN Law), officially
designated as Republic Act No. 10963, is the initial package of the
Comprehensive Tax Reform Program (CTRP) signed into law by President
Rodrigo Duterte on December 19, 2017.

• The TRAIN LAW is the first of four packages of tax reforms to the national
internal revenue code of 1997, or the tax code, as amended. This package
introduced changes in personal income tax , estate tax, donor's tax, value
added tax, documentary stamp tax and the excise tax of tobacco products,
petroleum products, mineral products, automobiles, sweetened beverages,
and cosmetic procedures.

• In the first quarter of 2018, both positive and negative outcomes have been
observed. The economy saw an increase in tax revenues, government
expenditure and an incremental growth in GDP. On the other hand, the TRAIN
law also resulted in a significant increase in the price of essential goods. Almost
all items on the market have price increases as a result of raising the excise tax
on petroleum products.
TAX
RATE
Personal income tax

• The first PHP 250,000 of annual taxable income will be exempt from
income tax.

• In addition, the first PHP 90,000 of the 13th month pay and other bonuses
will be exempt from income tax.

• Furthermore, the effective tax rates will be lowered for 99% taxpayers
except the richest with taxable income above PHP 8 million, who will face a
tax rate of 35%.
Value added tax

• Repeal of 54 out of 61 special laws with non-essential VAT exemptions, thereby

making the VAT system fairer.

o Exceptions in tax code: cooperatives (except electric coops), and condo and
association dues. VAT on medicines for diabetes, high cholesterol, and
hypertension exempted starting 2019.
o Exceptions in special laws: PAGCOR and casino, domestic coal, renewable
energy, credit surety, countryside barangay business enterprise, mini-hydro, and
tourism.

• Purchases of senior citizens and people with disability continue to be exempted

from the VAT.
• For the average Filipino, this will not have an impact as the VAT exemption
removal will only affect groups enjoying exemptions.
Other taxes: excises

• Mining excise tax – double the rates from 2% to 4%.

• Cosmetic excise tax – a new tax at 5% of gross receipts.
• Tobacco excise tax – increase the rate from PHP 31.2 per pack in 2018 to
ØPHP 32.5 between January to June 2018,
ØPHP 35 per pack from July 2018 to December 2019,
ØPHP 37.5 per pack in 2020 and 2021, and
ØPHP 40 per pack in 2022 and 2023, followed by annual indexation of 4%.
Other taxes: financial taxes
• Documentary stamp tax – 100% increase except for loans (50%), and property,
savings, and non-life insurance (no change).
• Foreign currency deposit unit (FCDU) – increased from 7.5% to 15% final tax on
interest income.
• Capital gains of non-traded stock – increased from 5-10% to 15% final tax on net
gains.
• Stock transaction tax – Increase from 0.5% to 0.6% of the transaction value.
 DIFFERENCE
BETWEEN TRAIN
LAW AND NIRC
NIRC
TAX TABLE TRAIN
CONTINUATION
TRAIN
CONTINUATION
TRAIN
CONTINUATION
“(b) Rate of Tax on Income of Purely Self-employed Individuals and/or Professionals Whose Gross Sales or Gross Receipts and
Other Non-operating Income Does Not Exceed the Value-Added Tax (VAT) Threshold as Provided in Section 109(BB). – Self-
employed individuals and/or professionals shall have the option to avail of an eight percent (8%) tax on gross sales or gross
receipts and other non-operating income in excess of Two hundred fifty thousand pesos (P250,000) in lieu of the graduated
income tax rates under Subsection (A)(2)(a) of this Section the percentage tax under Section 116 of this Code.

“(c) Rate of Tax for Mixed Income Earners. –Taxpayers earning both compensation income and income from business or practice
of profession shall be subject to the following taxes:

“(1) All Income from Compensation – The rates prescribed under Subsection (A)(2)(a) of this Section.

“(2) All Income from Business or Practice of Profession –

“(a) If Total Gross Sales and/or Gross Receipts and Other Non-operating Income Do Not Exceed the VAT Threshold as Provided in
Section 109(BB) of this Code. – The rates prescribed under Subsection (A)(2)(a) of this Section on taxable income, or eight
percent (8%) income tax based on gross sales or gross receipts and other non-operating income in lieu of the graduated income
tax rates under Subsection (A)(2)(a) of this Section and the percentage tax under Section 116 of this Code.

“(b) If Total Gross Sales and/or Gross Receipts and Other Non-operating Income Exceeds the VAT Threshold as
Provided in Section 109(BB) of this Code. – The rates prescribed under Subsection (A)(2)(a) of this Section.
 NIRC TRAIN
Other winnings (except winnings amounting to Ten thousand
Other winnings (except Philippine Charity Sweepstakes and
pesos (P10,000) or less from Philippine Charity Sweepstakes and
Lotto winnings), derived from sources within the Philippines:
Lotto which shall be exempt), derived from sources within the
Philippines:
Provided, however, That interest income received by an
individual taxpayer (except a nonresident individual) from a Provided, however, That interest income received by an
depository bank under the expanded foreign currency deposit individual taxpayer (except a non resident individual) from a
system shall be subject to a final income tax at the rate of depository bank under the expanded foreign currency deposit
seven and one-half percent (7 1/2%) of such interest income: system shall be subject to a final income tax at the rate of
fifteen percent (15%) of such interest ncome:
(C) Capital Gains from Sale of Shares of Stock not Traded in
the Stock Exchange. - The provisions of Section 39(B) (C) Capital Gains from Sale of Shares of Stock not Traded in
notwithstanding, a final tax at the rates prescribed below is the Stock Exchange. – The provisions of Section 39(B)
hereby imposed upon the net capital gains realized during the notwithstanding, a final tax at the rate of fifteen percent (15%)
taxable year from the sale, barter, exchange or other is hereby imposed upon the net capital gains realized during
disposition of shares of stock in a domestic corporation, the taxable year from the sale, barter, exchange or other
except shares sold, or disposed of through the stock exchange. disposition of shares of stock in a domestic corporation, except
shares sold, or disposed of through the stock exchange.
(D) Capital Gains from Sale of Real Property. - (1) In General. -
The provisions of Section 39(B) notwithstanding, a final tax of six
percent (6%) based on the gross selling price or current fair
market value as determined in accordance with Section 6(E) of
this Code, whichever is higher, is hereby imposed upon capital
gains presumed to have been realized from the sale, exchange,
or other disposition of real property located in the Philippines.
 NIRC TRAIN
13th Month Pay and Other Benefits. – Gross benefits
13th Month Pay and Other Benefits. - Gross benefits
received by officials and employees of public and private
received by officials and employees of public and private
entities: Provided, however, That the total exclusion under
entities: Provided, however, That the total exclusion under
this subparagraph shall not exceed Ninety thousand
this subparagraph shall not exceed eighty-two thousand
pesos (P90,000)
pesos (P82,000)
Thank You