Lunar, Heather Tax 2

TRAIN LAW

PERSONAL INCOME

RANGE OF ANNUAL TAXABLE TAX DUE

INCOME

Not over PHP250,000.00 Exempted from personal income tax

Over PHP250,000.00 but not over 15% of the excess over PHP250,000.00
PHP400,000.00

Over PHP400,000.00 but not over PHP22,500.00 + 20% of the excess over
PHP800,000.00 PHP400,000.00

Over PHP800,000.00 but not over PHP102,500.00 + 25% of the excess

PHP2,000,000.00 over PHP800,000.00

Over PHP2,000,000.00 but not over PHP402,500.00 + 30% of the excess

PHP8,000,000.00 over PHP2,000,000.00

C PHP2,202,500.00 + 35% of the excess

over PHP8,000,000.00
Lunar, Heather Tax 2

INDIVIDUAL TAXPAYERS

KINDS OF INDIVIDUAL TAX BASE TAX RATES

TAXPAYERS

Resident citizen (RC) Income derived during a 1 Taxable net income

taxable year from all sources, subject to graduated rate of
within and without the 20% to 35%
Philippines
(NIRC, Sec. 24(A)(2)(a), as
(NIRC, Sec. 23(A)). amended by TRAIN Law); or

Non-resident Citizen (NRC) Income derived during a 2 Option to be taxed at

taxable year from sources 8% of Purely Self-Employed
within the Philippines Individual/
(NIRC, Sec. 23(B)). Professionals and Mixed
Income Earners on Gross
Resident Alien (RA) Income derived during a Sales/Receipts for those who
taxable year from sources fall below the VAT threshold
within the Philippines
(NIRC, Sec. 23(D), as (NIRC, Sec. 24(A)(2)(b) and
amended by Sec. 24(A)(2)(c), as amended
TRAIN Law). by TRAIN Law).

Non-resident Allen engaged Income derived from sources Taxable net income subject
in trade or business (NRA within the Philippines (NIRC, to graduated rate of 20% to
ETB) Sec. 23(D)). 35% (NIRC, Sec. 25(A)(1), as
amended by TRAIN Law)

Non-resident Allen not Income derived from sources 25% Final Income tax on the
engaged in trade or business within the Philippines only gross income
(NRA NETO) (NIRC. Sec. 23(D)). (NIRC, Sec. 25(B), as
amended by TRAIN Law)

Minimum Wage Earners Exempt from the payment of income tax on their taxable
(IMWE) income: Provided, further, That the holiday pay received by
such minimum wage earner shall likewise be exempt from
Lunar, Heather Tax 2

income tax. (NIRC, Section 24(A), as amended by TRAIN Law)

The holiday pay, overtime pay, night shift differential pay and
hazard pay received by such earner are likewise exempt (R.R.
No. 11-2018, Sec. 6).

Alien Individuals and their Income derived from salaries, 15% tax on gross income
Filipino confer parts wages, annuities, and (NIRC, as amended by TRAIN,
occupying managerial compensation received from Section
and/or technical positions employer (NIRC, Section 25(C) and Section 25(D)).
emploved by RHOs, ROHQS, 25(C) and Section 25(D), as RHQs, ROHQs, OBUs or
OBUs and petroleum service amended by TRAIN Law). petroleum service
contractors and contractors registering with
subcontractors: the SEC after January 1, 2018,
the Graduated Tax Rates of
Filipinos employed in Asian 20% to 35% shall be
Development Bank applicable (NIRC, Section
occupying managerial or 25(F), as amended by TRAIN
supervisory or technical Law).
positions and their alien
counterparts

Estate and Trust
Income derived during a
taxable year from all sources,
within and without the
Philippines (NIRC, Sec. 61 in
relation to Sec. 24(A), as
amended by TRAIN Law)
Taxable net income subject
to graduated rate of 20% to
35% (NIRC, Sec. 61 in relation
to Sec.
24(C), as amended by TRAIN
Law)
Lunar, Heather Tax 2

TAX RATES ON PASSIVE

PASSIVE INCOME RESIDENT
INCOME SUBJECT TO CITIZEN NRC, RA, NRA-NETB
FINAL TAX NRAETB

From Sources From From Sources Within the

Within Sources Philippines
the Philippines Without the
Philippines
20% 20% to 35% 20% 25%
From any graduated
currency bank NIRC, Sec. rates (NIRC, Sec. (NIRC, Sec.
deposit and 24(B)(1), 25(A)(2), as 25(B), as
yield or any As amended NIRC, Sec. amended by amended by
other by TRAIN law 24(A)(1)(a), TRAIN Law). TRAIN Law).
monetary in relation
benefit from to Sec.
deposit 24(A)(2),
substitutes As
and from trust amended
fund and by TRAIN
law
similar
arrangements

From 15% RA - 15% Exempt

Depository (NIRC, Sec. (NIRC, Sec.
interest bank under NIRC, Sec. 24(B)(a), as 25(B), as
income the expanded 24(B)(1), amended by amended by
foreign As amended TRAIN Law). TRAIN Law).
currency by TRAIN law
deposit
system NRC, NRA-
(EFCDS) ETB
Exempt (NIRC,
Sec.
25(A)(2), as
amended by
TRAIN Law)

From long- Exempt; Exempt; 25%

term deposit 5%; 5%;
or investment 12%; 12%; (NIRC, Sec.
20%; 20%; 25(B), as
Lunar, Heather Tax 2

1. 5 years (NIRC; (NIRC; amended by

or 24(B)(1). 24(B)(1). TRAIN Law).
more amended amended
2. 4 to TRAIN Law). TRAIN Law)
less Sec.
than 5 as by
years
3. 3 to
less
than 4
years
4. Less
than 3
years

Royalties. 10% 10% 25%

from
books (NIRC, Sec. (NIRC, Sec. (NIRC, Sec.
literary 24(B)(1), 24(B)(1), 25(B), as
works, and as amended as amended by amended by
musical by TRAIN TRAIN Law). TRAIN Law).
Law).
Others 20% 20% 25%
Royalties
(NIRC, Sec. (NIRC, Sec. (NIRC, Sec.
24(B)(1), 24(B)(1), 25(B), as
as amended as amended by amended by
by TRAIN TRAIN Law). TRAIN Law).
Law).
Prizes P10,000 20% to 35% RA, NRC, NRA- 25%
ETB -
or less graduated rates
20% to 35%
graduated (NIRC, Sec.
(NIRC, rates 25(B), as
Sec.24(B)(1), amended by
as amended (NIRC, TRAIN Law).
by TRAIN Secs.24(B)(1),
Prizes Law). as amended by
and TRAIN Law,
and 25(A)(2)).
Lunar, Heather Tax 2

winnings Prizes more 20% 20%

than P10,000
(NIRC,Sec. (NIRC,Sec.
24(B)(1), 24(B)(1),
as amended as amended by
by TRAIN TRAIN Law
Law). and 25(A)(2)).
PCSO and 20% 20% to 20% 25%
lotto winnings 35% (NIRC, Sec.
above (NIRC, graduated 24(B)(1), (NIRC,
P10.000 Sec.24(B)(1), rates aS amended by Sec.25(B), as
as amended TRAIN Law). amended by
by TRAIN (NIRC, Exempt - NRA- TRAIN
Law). Sec. ETB (NIRC, Law).
24(A)(1)(a) Sec. 25(A)(1),
in relation as amended by
to Sec. TRAIN Law).
24(A)(9), NOTE: Upón
as the effectivity of
amended the
by TRAIN CREATE
Law). Act,
winnings from
PCSO games
amounting to
more than
P10,000 of Non
- Resident
Alien
individuals shall
be subject to
income tax at
the rate of 20%
XR.R No. 5-
2021, Sec.
4; R.R. No. 2-
2021,
Sec. 1).
PCSO and Exempt Exempt 25%
lotto winnings
P10.000 or (NIRC, (NIRC, a (NIRC,
less Sec.24(B)(1), Secs. 24(B)(1), Sec.25(B), as
as amended as amended by amended by
by TRAIN Law, TRAIN
TRAIN Law) and 25(A) (2)). Law).
Lunar, Heather Tax 2

Winnings 20% 20% 25%

(NIRC, Sec. (NIRC, Sec.
24(B)(1) 24(B)(1) (NIRC,
as amended as amended by Sec.25(B), as
by TRAIN Law; amended by
TRAIN Law; Sec. 25(A) (2)). TRAIN
Law).
Dividend From a 10% (NIRC, NRC, RA 25%
s [Cash domestic Sec. 24(B)(2), 10%
and corporation as amended (NIRC, Sec.
Property) or from by (NIRC, Sec. 25(B), as
a joint TRAIN Law) 24(B)(2). amended by
stock as amended by TRAIN
company, TRAIN Law) Law)
insurance or
mutual fund NRA-ETB
companies 20%
and regional
operating (NIRC, Sec.
headquarters 25(A)(2),
of as amended by
multinational TRAIN Law)
companies;
Share in the
distributable
not income
after tax or a
taxable or
business
partnership,
share in the
net income
after
tax of an
association,
a joint
account of a
joint venture
consortium
taxable as à
corporation
of which me
member
venturer.
Lunar, Heather Tax 2

20% to 35% 20% to 35% 25% (NIRC,

graduated graduated rates Sec. 25(B), as
From rates amended by
foreign (NIRC, (NIRC, Sec. TRAIN
corporation Sec. 24(A) (2), as Law).
24(A) (2), as amended by NOTE: This is
amended by TRAIN Law). subject to
TRAIN LaW). NOTE: This is predominanc
NOTE: This is subject to e test.
subject to h.pre-
predominance dominance
test. test.
Lunar, Heather Tax 2

RATES ON CAPITAL
GAINS RECEIVED BY
INDIVIDUALS
PASSIVE INCOME RESIDENT CITIZEN NRO. RA NRA
CAPITAL GAINS ETB NRA NETB

From Sources Within the Prilippines From sources

With
the Philppines
Capital Traded (n Percentage Tax 6/10 of 1% of Gross Selling Price (NIRC, Sec.
Gains Stock 127(A), as amended by TRAIN Law).
from Exchang
Sale of e
Shares
of Not Final Tax 15% of Net Selling Price (NIRC, Sec. 24(C), as amended by
Stack Traded in TRAIN Law).
Stock
Exchang
e

Capital Gains from GENERAL RULE: Final Tax of 6% based on gross NRC, RA - same
Sale of Real selling price or current fair market value (higher with RC (NIRC,
property NOTES between the FMV as determined by the Sec. 24(D)(1), as
Property must be Commissioner or the amended by
FMV as shown in the schedule of values of the
found in the TRAIN Law)
Provincial and City Assessors), whichever is higher
Phippines If not (NIRC, Sec. 24(D)(1), as amended by TRAIN Law).
found in the NOTE: Final Tax of 6% or Graduated Rates of 20% NRA-ETB - same
Prilpoines subject to 35% at the option of the taxpayer if gains from w/ RC (NIRC, Sec.
to oraduated rates sales or other dispositions of real property to the 25(A)(3), as
government or any of amended by
'its political subdivisions or agencies or to GOCCs. TRAIN Law).
EXCEPTION: Sale of Principal Residence is Exempt
only if the following requisites concur: NRA-NETB - same
1. The proceeds is fully utilized in acquiring or w/ RC (NIRC, Sec.
constructing a new principal residence within 25(B), as amended
eighteen (18) calendar months from the date of by TRAIN Law).
sale or disposition
2. Commissioner shall have been duly notified by
the taxpayer within thirty (30) days from the date
of sale or disposition
3. Only be availed of once every ten (10) years
If there is no full utilization of the proceeds of sale or
disposition, the portion of the gain presumed to have
been realized from the sale or disposition shall be
subject to capital gains tax (NIRC, Sec. 24(D)(2), as
amended by TRAIN Law).
Lunar, Heather
PROPRIETARY
EDUCATIONAL
INSTITUTIONS
Proprietary educational
institutions which are nonprofit
If gross income of Proprietary educational
institutions from unrelated trade, business
or other activity exceeds fifty percent
(50%) of the total gross income derived
from all sources
Tax 2
10% on their taxable income (except
income. subiect to capital gains tax and
passive income)
(NIRC, as amended by TRAIN, Sec.
27(B)).
30% "on the entire taxable"
Income
(including/ income subject to tax and
income which are exempt) or 2%. MCIT
(NIRG, as amended by TRAIN; Sec.
27(B))
Lunar, Heather Tax 2

CREATE LAW

CORPORATE INCOME TAX REDUCTION AND OTHER

PANDEMIC-RELATED TAX RELIEF

TYPE OF BUSINESS PRE-CREATE CREATE

Domestic MSME corporations with a taxable 30% 20%

income of P5M and below, and with total assets of
not more than P100M

Over PHP250,000.00 but not over PHP400,000.00

30% 25%
Foreign corporations subject to the regular rate
(for nonresident foreign corporations: effective 30% 25%
January 1, 2021)

Percentage tax for non-VAT taxpayers (applicable

from July 1, 2020 to June 30, 2023) 3% 1%
Minimum corporate income tax (applicable from
July 1, 2020 to June 30, 2023) 2% 1%

Non-profit and proprietary educational

institutions and hospitals (applicable from July 1, 10% 1%
2020 to June 30, 2023)

Foreign-sourced dividends received by domestic Exempt, subject to

corporations 15% reinvestment of
earnings in the
Philippines

Improperly accumulated earnings tax (IAET) 10% Repealed

VAT on the sale of importation of capital

equipment and raw materials for PPE production 12% Exempt

VAT on the sale of importation of all prescription

drugs, medical supplies, devices, and equipment 12% Exempt
for COVID-19
Lunar, Heather Tax 2

VAT on the sale of importation of all prescription

drugs, medical supplies, devices, and equipment 12% Exempt
for COVID-19

VAT on e-books 12% Exempt

VAT on the sale and importation of prescription

drugs on cancer, mental illness, tuberculosis, and 12% Exempt
kidney-related diseases

ENHANCED
DEDUCTIONS
UNDER CREATE
Lunar, Heather Tax 2

PARTICULARS PRE-CREATE CREATE

Power expense 100% 150%

Labor expense 150%* 150%

Training expense 100% 200%

Research and development 100% 200%

Domestic input expense 100% 150%

Reinvestment allowance to the None Up to 50% of

manufacturing industry reinvested profit
(within 5 years from
time of
reinvestment)

Depreciation allowance None 10% for buildings,

20% for machinery

CHANGES ON RATES OF
CERTAIN PASSIVE
INCOME
Type of Tax Old New
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Capital Gains Tax on capital gains derived by RFCs on sale 5% / 10% 15%
of shares of stocks not traded in the stock exchange

Regional Operating Headquarters (ROHQs) 7.5% 15%

REGULAR CORPORATE
INCOME TAX (RCIT)
Types of Corporation Old New

Domestic corporations with: 30% 20%

net taxable income not exceeding PhP 5 Million
total assets not exceeding PhP 100 Million

All other domestic corporations and resident 30% 25%

foreign corporations

PASSIVE INCOME OF
CORPORATIONS
PASSIVE INCOME DC AND REC NRFC
Lunar, Heather Tax 2

20% 30%

Interest currency bank (NIRC, as amended by (NIRC, Sec. 28 (B)(1)).

Deposit TRAIN, Secs. 27(D)(1) and NOTE: Under the CREATE
28 (A) (7)). Act, in general, a foreign
Yield on any other 20% corporation not engaged in
monetary benefit from trade or business in the
deposit substitutes. (NIRC, as amended by Philippines, shall pay a tax
and trust funds and TRAIN, Secs. 27(D)(1) and equal to 25% effective
similar arrangement 28 (A)(7)). January 1. 2021

Royalties 20% (CREATE Act, Sec. 7; R.R.

No. 2-2021, Sec. 1(F)).
(NIRC, as amended by
TRAIN, Secs. 27(D)(1) and
28 (A)(7)).
interest from a 15% - DC Exempt (NIRC, as
depositary Bank under amended by
the expanded foreign (NIRC, as amended by TRAIN, Sec. 27(D)(1)).
currency deposit system TRAIN, Sec.27 (D)(1)).

7.5%- R F C

(NIRC, Sec. 28 (A)(7)).

NOTE:
Interest income derived
from a Depository Bank
under the Expanded
Currency Deposit
System of a RFC is subject
to a final income tax at
the rate of 15%

(CREATE Act, Sec. 7; R.R.

No. 2-2021, Sec. 1(E)).

INTER-CORPORATE
DIVIDENDS

Received by From
Lunar, Heather Tax 2

DC FC

Domestic Exempt 30% NCIT

(NIRC, as amended (NIRC, as amended By TRAIN Sec.27(A).

by TRAIN, Sec.
27(D)(4)).
NOTE: With the Passage the
CREATE Act, starting July 1, 2020, the NCIT rate of DC is
either 25% Or 20% (CREATE
Act, Sec. 6; R.R. No. 5-2021,
Sec. 3).

In general, foreign sourced dividends received by domestic

corporations are subject to income tax.

However, the same shall be exempt if all of the conditions laid

under Sec. 5, R.R. No. 5- 2021 are present.
RFC Exempt 30% NCIT (if income
within)
(NIRC, as amended
by TRAIN, Sec.
28(A)(7)(d)).
NOTE: Beginning
July 11, 2020, the
NCIT rate of RFC shall be 25% (Sec. 6, CREATE
Act and Sec. 3, R.R.
| No. 5-2021).

Non 15% Final Tax if 30% Final Tax (if income

Resident tax sparing rule within)
Foreign applies.
Corporation NOTE: Under The CREATE Act, in general, a foreign
Otherwise, 30% corporation not engaged in trade Or
Final business in the Philippines, effective January 01, 2021,
Tax shall pay a final tax equal to 25%
(NIRC,
Sec. 28(B)(5) (CREATE Act. Sec. 7; R.R. No. 2-2021, Set.1(F)).
(b)).
An Inconvenient Tax - Reaction Essay

Taxes and its essence have become part of our mainstream conversations especially
around online circles. Despite the frequency of discussions, many are still not well versed in the
inner workings of our tax system. The movie begins to explain how complicated it is to
understand the system itself thereby making it difficult for the government to emphasize to the
public its fundamental value to the grander mantle of society. In the public consciousness, taxes
Lunar, Heather Tax 2

are generally viewed as a burden, instead of a duty every member of a civilization owes to its
existence. World leaders throughout history have tried to instill into the public’s mind that
paying taxes is our contribution to the administration of our community at large. It is after all,
the lifeblood of the government, the fuel that powers every cog in the institution which runs
the world.

However, as our globalized world transformed over the centuries, the tax system
evolved into something other than for the purpose with which it was created. World wars,
famine, plague, technological development, environmental and economic changes drove the
Tax Code to turn into the money-making machine it is today. In the Philippine context, taxes
have been used to control industrial sectors and in response to the COVID-19 Pandemic, the
Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act was implemented as a
fiscal relief to the foreign and domestic businesses in the country. Most companies were not
spared by the effects of lockdowns halting the economy and many, especially amongst the
SMEs, went out of business. This prompted the government to ensure the survival of our
economical foundation and demonstrated the flexible nature of taxation. It lowered tax rates
for a certain period in order to alleviate the load businesses had to carry.

The ideal tax system is one that is progressive and equitable wherein tax rates go higher
as an individual’s income increases. Yet, it was strongly reiterated in the movie that tax reliefs,
credits, exemptions, deductions do not benefit those who need it the most. It’s been said that
poor people pay more taxes than the rich since the latter are able to set off business expenses
against their tax returns. The movie illustrated how, in order to avail these benefits, a certain
income level has to be reached and those who are at the bottom tier of the labor force are not
qualified to avail them. The Philippine economy, in particular, is composed of thousands of
small businesses with very narrow margins and paying taxes are among the biggest challenges
they face. Former US President, Ronald Reagan believed that high tax rates discourage
economic growth and hard work so he actively pursued for legislation to design a tax code
which would massively lower tax rates. His theory is not too far-fetched since it is a common
practice amongst employees to forego company benefits because any increase in their salary
would reach a certain more burdensome tax level. Small businesses are also prevented from
investing more on their operations and higher compensation which significantly impacts the
realization of their profits.

Creating a tax system is a very delicate task in light of the balancing of interest for
everyone involved. The US always had to keep the lobbying forces in mind when configuring a
new system that favors the lower and middle class. In the process, they were able to reduce the
rate of taxes but as a consequence, other areas in taxation increased in rate. In the end, the tax
increases cancelled out any attempt at reduction that was made. Similarly, the TRAIN LAW’s
most prominent features promise a lower income tax but shifted the heavier weight on our
consumption of goods. Aspects in the tax system were omitted but something else was made to
pick up the slack just like those mentioned in the movie. Minimum wage earners were relieved
Lunar, Heather Tax 2

of the responsibility to pay taxes but their income would also be greatly diminished by the
increase in excise tax and the basic prices of goods and services in the country.

Most people have admitted and are well aware of their role in the community and
paying taxes is a huge part of it. They see great examples from Nordic Countries where the
government funding is being utilized in a manner where everyone is well taken care of.
Bottomline, as long as they can see visible outcomes from the hard-earned money the
government took out of their pockets, compliance will not be hard to attain.