Tax Reform for

Acceleration
and
Inclusion(RA No.
10963)

TRAIN LAW

NOEL COBANGBANG, CPA

REB, REA, REC, BB, PRC Speaker, Author

Tax Reform for Acceleration and

Inclusion(RA No. 10963)
FROM THE DEPARTMENT OF FINANCE:

The Tax Reform for Acceleration and Inclusion (TRAIN) is the first package of a broader
comprehensive tax reform envisioned by this Administration to make the tax system simpler,
fairer, and more efficient. By enhancing both tax policy and administration, the reform will
yield additional and reliable source of revenues to help fund the Administrations 10-point
Socioeconomic Agenda.

The TRAIN LAW (RA No. 10963)

A. Personal Income Tax

B. Final Tax on Passive Income
C. Estate Tax and Donors Tax
D. VAT Exemption and Zero Rating
E. Excise Tax on Petroleum products, automobiles, coal, cosmetic procedures, and sugar-
sweetened beverages
F. Compliance Requirements
G. Obtaining Information by CIR

SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional

Requirements for TAX ADMINISTRATION AND ENFORCEMENT:

The power of the Commissioner or his duly authorized representative may authorize the
examination of any taxpayer and the assessment of the correct amount of tax,
notwithstanding any law requiring the prior authorization of any government agency or
instrumentality.

BEFORE – Under RA# 8424

COMPENSATION INCOME

PERSONAL INCOME TAX

 EMPLOYEES
 SELF-EMLOYED INDIVIDUALS AND PROFESSIONALS
 MIXED INCOME EARNER
NET TAXABLE COMPENSATION INCOME (BEFORE)

GROSS COMPENSATION INCOME Pxxx

Less: Exclusions/Deductions/Non-taxable Income

Non-taxable Bonus Pxxx

SSS/HDMF/PHIC Contributions xx

Personal Exemptions xx

Premium Payments xx

De minimis Benefits xx xx

Net Taxable Compensation Pxxx

Tax Due ( graduated tax table of 5%-32%)

EXCLUSIONS
TH
13 Month Pay and Other Benefits
Such as productivity incentives and
Christmas Bonus
P82,000 P90,000

DEDUCTIONS

BASIC PERSONAL EXEMPTIONS ADDITIONAL PERSONAL EXEMPTIONS

P50,000 P25,000

Applicable whether Per dependent

Single, married, or legally separated Qualified dependent child, not

X More than 21 years old

Qualified PWD within fourth
Degree of affinity/consanguinity

X
PREMIUM PAYMENT ON HEALTH
AND/OR HOSPITALIZATION INSURANCE

P2,400/YEAR

- Family gross income < P250,000 annual

- Different from the non-taxable group life/health
insurance for employees

TAX TABLE

Employees earning not more than P250,000/annual is exempt from paying personal taxes. Top
rate of 8% on income over P8M
RA #8424 – OLD
Taxable Income Rate

Less 10K 5%

10K – 30K P500+10% in excess of P10K

30K- 70K P2.5K+15% in excess of P30K
70K- 140K P8.5K+ 20% in excess of P70K

140K- 250K P22.5K+25% in excess of P140K

250K- 500K P50K+30% in excess of P250K
Over 500K P125K+32% in excess of P500K

RA #10963 TRAIN LAW

Taxable Income Rate ( Jan.1,2018-Dec.31,2022 Rate (Jan.23,2023 onwards)

< P250K 0% 0%

Over 250K-400K 20% in excess of P250K 15% in excess of P250K

Over 400K-800K P30K+25% in excess of P400K P22.5K+20% in excess of P400K

Over 800K-2M P130K+30% in excess of 800K P102.5K+25% in excess of P800K

Over P2M to 8M P490K+32% in excess of 2M P402.5K+30% in excess of P2M

Over 8M P2.410+35% in excess of P8M P2.2025M+35% in excess of P8M

NET TAXABLE COMPENSATION INCOME

GROSS COMPENSATION INCOME Pxxx

Less: Exclusions/Deductions/Non-taxable Income
Non-taxable Bonus Pxxx ← P90,000
SSS/HDMF/PHIC Contributions xx
Personal Exemptions xx
Premium Payments xx
De minimis Benefits xx xx
Net Taxable Compensation Pxxx
Tax Due ( graduated tax table of 5%-32%) ← 0 - 35%

SAMPLE PROBLEM:
COMPENSATION INCOME

Illustration 1
Employee: Katax Bevz, married with one child

BASIC SALARY P800,000

13TH MONTH PAY AND OTHER BONUSES 100,000
SSS/PHIC/HMDF 15,000
RICE ALLOWANCE 18,000

COMPUTATION:

Her income tax liability will be computed as

Follows:
BEFORE TRAIN
GROSS COMPENSATION INCOME P 918,000.00 P 918,000

Less: Exclusions/Deductions/Non-taxable Income 82,000.00 90,000

Non-taxable Bonus 18,000.00 18,000
SSS/HDMF/PHIC Contributions 15,000.00 15,000
Personal Exemptions and Addt’l. Exemptions 75,000.00 -----
Taxable Compensation Income P 728,000.00 P 795,000

Tax Due:
On 400,000.00 P 125,000.00 P 30,000.00
On excess ( P795,000-P400,000) X 25% 72,960.00 98,750.00
TAX DUE P 197,960.00 P 128,750.00
SELF EMPLOYED PROFESSIONALS
GROSS RECEIPTS GROSS RECEIPTS
does not exceed 3.0 M VAT Threshold above 3.0 M VAT Threshold

8% on gross sales/receipts
0 to 35% graduated 0 to 35% graduated
and other income (in lieu of
OR income tax rates + income tax rates +
graduated income tax rates
3% percentage tax 12% VAT
and percentage tax)

SELF EMPLOYED PROFESSIONALS

IF Gross Receipts does not exceed 3.0 M VAT Threshold

Option 1 Option 2 Option 3 Option 4 Option 5

Gross Sales or
Tax Base Net Taxable Income Net Taxable Income
Gross Receipts

Optional Optional
Itemized Itemized
Deductions N/A Deductions
Standard
Deductions
Standard
Deductions Deductions

8% in excess of
250K (in lieu of Graduated income tax rates of Graduated income tax rates of
Tax Due graduated income tax
0- 35% 0- 35%
rates and percentage
tax)

Vat/Percentage
N/A 3% Percentage tax on Business 12% VAT
tax

IF Gross Receipts above 3.0 M VAT Threshold

Tax Base Net Taxable Income

Itemized Optional Standard
Deductions Deductions Deductions

Tax Due Graduated income tax rates of 0- 35%

Vat 12% VAT

 MIXED INCOME EARNERS
GROSS RECEIPTS GROSS RECEIPTS
does not exceed 3.0 M VAT Threshold above 3.0 M VAT Threshold

8% on gross sales/receipts Business income and Business Income and

and other income + compensation income at compensation income
compensation income at OR 0 to 35% graduated at 0 to 35% graduated
0- 35% graduated income income tax rates + income tax rates +
tax rates 3% percentage tax 12% VAT

Final Tax on Passive income

1. PCSO and lotto winnings exceeding PHP10,000 would be subject to the 20% final tax.
2. Interest income from a depository bank under the expanded foreign currency deposit
system is subject to an increased final tax of 15%.
3. Capital gains from sale of shares of stock not traded in the local stock exchange of
individual citizen and resident alien
4. Capital gains tax on sale of shares not traded in the local stock exchange is increased to a
flat rate of 15%.

Optional standard deduction (“OSD”)

In lieu of the itemized allowable deductions, an individual subject to tax, other than a
nonresident alien, may elect an OSD of 40% of gross sales or gross receipts.. In case of a general
professional partnership, the OSD may be availed only once by either the general professional
partnership or the partners comprising such partnership.

SELF-EMPLOYED PROFESSIONALS

ILLUSTRATION

In 2018, Mr. TABC owns a nightclub and videoke bar

Gross Sales Receipts P2,500,000
Cost of Sales P1,000,000
Operating Expenses P 600,000
Non-Operating Income P 100,000
His Tax due for 2018 computed as follows:

Taxable Income ( using itemized deductions) P 1,000,000

Tax Due:
On P 800,000.00 P 130,000
On Excess (P1,000,000-P800,000) X 30% 60,000
Total Income Tax P 190,000

• Cannot avail 8% income tax since subject to amusement tax on nightclub

• Can also opt to apply OSD

SELF-EMPLOYED
PROFESSIONALS
Gross Receipts – Exceeding P3M
SAMPLE COMPUTATION:

Gross Sales – Convenience Store P3,200,000

Cost of Sales P 750,000
Operating Expenses P 400,000
Input VAT P 250,000

Gross Sales – Convenience Store P3,200,000

Cost of Sales P 750,000
Gross Income P2,450,000
Less: Operating Expenses P 400,000
Taxable Income P2,050,000
Tax Due P 506,000
VAT Payable P 134,000

st
Mr. KATAX signified his intention to be taxed at 8% Income Tax Rate on gross sales in her 1
quarter income tax return. However, his gross sales during the taxable year has exceeded the
th
VAT Threshold. Input VAT for the 4 Quarter is P100,000. (with updated registration to VAT)
 Q1 Q2 Q3 Q4
(8% Rate) (8% Rate) (8% Rate)

Total Sales P 500,000 P 500,000 P 2,000,000 P 3,000,000

Less: Cost of Sales 300,000 300,000 1,200,000 1,200,000
Gross Income P 200,000 P 200,000 P 800,000 P 1,800,000

Less: OPEX 120,000 120,000 480,000 720,000

TAXABLE INCOME P 80,000 P 80,000 P 320,000 P 1,080,000

Tax due shall be computed as follows:

Total Sales P 6,000,000
Less: Cost of Sales 3,000,000
Gross Income P 3,000,000
Less: Operating Income 1,440,000
Taxable Income P 1,560,000
Tax Due:
Under the graduated rates P 358,000
Less: 8% income tax previously paid (Q1 to Q3) 240,000
Annual Income Tax Payable P 118,000
Percentage Tax P 90,000
VAT P 208,000

FILING OF RETURNS
INDIVIDUAL

An individual whose taxable income does not exceed PHP250,000 based on the tax schedule for
compensation income earners shall not be required to file an ITR.

The ITR shall consist of a maximum of four pages in paper or electronic form containing only
the following information:

• Personal profile and information;

• Total gross sales, receipts or income from compensation of services rendered, conduct of
trade or business or the exercise of a profession, except income subject to final tax as
provided under the Tax Code;
 • Allowable deductions under the Tax Code;
• Taxable income as defined in the Tax Code; and
• Income tax due and payable.

Sec. 51-A An individual receiving purely compensation income from one employer wherein
the tax of which has been correctly withheld shall not be required to file an annual ITR.

The certificate of withholding, filed by the employer and stamped “received” by the BIR, shall
be tantamount to the substituted filing of income tax return of the employees

CORPORATE

The ITR shall consist of a maximum of four pages in paper or electronic form containing only
the following information:
• Corporate profile and information;
• Gross sales, receipts or income from services rendered, or conduct of trade or business,
except income subject to final tax as provided under the Tax Code;
• Allowable deductions under the Tax Code;
• Taxable income as defined in the Tax Code; and
• Income tax due and payable.
The foregoing provisions shall not affect the implementation of TIMTA .

Payment and assessment of income tax for individuals and corporations

The second installment of the tax due to be paid on or before 15 October following the close of
the calendar year

Withholding of creditable tax at source

Beginning 1 January 2019, the rate of withholding shall not be less than 1% but not more than
15% of the income payment

On return and payment of taxes withheld at source

The return for both final and creditable withholding taxes shall be filed and the payment made
not later than the last day of the month following the close of the quarter during which the
withholding was made.

The provision allowing the Commissioner of Internal Revenue to adjust the withholding of tax
at more frequent intervals is removed.

Declaration of income tax for individuals

Filing of declaration of estimated income shall be on or before 15 May of the same taxable year
Return and payment of estimated income tax

Payment of the fourth installment shall be paid on or before 15 May of the following calendar
year.

ESTATE TAX
Estate tax rate is fixed at 6%.

Allowed deductions

• Removed the allowance for deductions of funeral expenses, judicial expenses, and
medical expenses.
• Increased allowance for deduction of family home to PHP10m.
• Increased the standard deduction to PHP5m.
• Removed allowance for deduction of expenses, losses, indebtedness, and taxes.
• Provides for a standard deduction of PHP500,000.
• Provides that a proportion of the claims against the estate, claims against insolvent
persons, and unpaid mortgages may be claimed as a deduction from the estate.
Filing a notice of death REPEALED
Estate tax returns
All transfers subject to estate tax, or regardless of the gross value of the estate where the
said estate consists of registered or registrable property shall file an estate tax return.

Estate tax returns showing a gross value exceeding PHP5m must be certified by a CPA
The estate tax return must be filed within one year from the decedent’s death
Payment of estate taxes
An estate with insufficient cash is allowed to pay the estate tax due by installment within two
years from the statutory date for its payment without civil penalty and INTEREST

Banks, which has knowledge of the death of the person, shall allow withdrawals from a
decedent’s deposit account subject to a 6% final withholding tax.

Gross Estate xx
Less: Ordinary Deductions
Funeral Expenses/Judicial Expenses (xx)
Transfer for Public Use (xx)
Property Previously Taxed (xx)
Claims Against the Estate (Indebtedness)/Unpaid Mortgages (xx)
Claims of the Deceased Against Insolvent Person (xx)
Unpaid Mortgages (xx)
Amount Received by Heirs under R.A. No.4917 (xx)
 Medical Expenses (xx)
Standard Deduction (1,000,000)
Family Home (1,000,000)
NET TAXABLE ESTATE (xx)
Estate Tax (5% to 20

DONORS TAX
Donor’s tax rate
Donor’s tax rate fixed at 6% based on total gifts in excess of PHP250,000 exempt gift made
during the calendar year whether the donee is a stranger or not

PHP10,000 amount of dowries or gifts made on account of marriage are exempt from donor’s
tax-REPEALED

Gross Gift xx
Less: Ordinary Deductions
Dowries (xx)
Encumbrances (xx)
Diminution (xx)
To Government (xx)
To NGO (xx)
Net taxable Gift xx
Less: Exempt Donation P250,000
Net Taxable Gift
Donor’s Tax Due (2%-15% OR 30%) XX