Riding the TRAIN, and how it affects Philippine taxation

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Published — December 29, 2017

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

Related Topic: Taxpayer’s Remedies Against Assessment and Collection by BIR

Among the laws that are expected to have a big impact to our country is R.A. No. 10963, also known as the Tax Reform Acceleration and Inclusion (“TRAIN”) Law. Changes introduced in our tax laws by the TRAIN are intended to shift the burden of taxation from the lower-income segment to the higher-income segment of our society by exempting from income tax those taxpayers who are earning an annual income not exceeding P250,000, while subjecting to a higher tax rate those who earn more than P8,000,000 annually, and by imposing additional excise taxes on certain articles. Certainly, these changes would affect businesses all over the country. Thus, understanding how the TRAIN impacts the enterprise has to be among the top priorities of any entrepreneur in conducting his business.

Among the areas affected by the TRAIN are income tax, excise tax on coal, mining, tobacco, sweetened beverages, petroleum, and automobiles, tax on cosmetic procedures, and value added tax, among others.

Income taxation

For individuals, professionals, and sole proprietors, the following are the changes on income taxation introduced by TRAIN that directly affects them.

Before TRAIN		Under TRAIN
Annual Taxable Income	Tax Rates	Annual Taxable Income	Tax Rates (2018-2022)	Tax Rates (2023 onwards)
Not over P10,000	5%	Not Over P250,000	0%	0%
Over 10,000 to 30,000	P500 + 10% of excess over P10,000	Over P250,000 but not over P400,000	20% of excess over P250,000	15% of excess over P250,000
Over 30,000 to 70,000	P2,500 +15% of excess over P30,000	Over P400,000 but not over P800,000	P30,000 + 25% of excess over P400,000	P22,500 + 20% of excess over P400,000
Over 70.000 to 140,000	P8,500 + 20% of excess over P70,000	Over P800,000 but not over P2,000,000	P130,000 + 30% of excess over P800,000	P102,500 + 25% of excess over P800,000
Over 140.000 to 250,000	P22,500 + 25% of excess over P140,000	Over 2,000,000 but not over P8,000,000	P490,000 + 32% of excess over P2,000,000	P402,500 + 30% of excess over P2,000,000
Over 250,000 to 500,000	P50,000 + 30% of excess over P250,000	Over P8,000,000	P2,410,000 + 35% of excess over P8,000,000	P2,202,500 + 35% of excess over P8,000,000
Over 500,000	P125,000 + 32% of excess over P500,000

Under the TRAIN, aside from being subject to the regular tax rates mentioned above, professionals or individuals who are purely self-employed are also given the option to be taxed instead at a flat rate of 8%. This option, however, is available only to those whose gross receipts do not exceed the threshold of Php 3,000,000 in a year.

Excise tax

The TRAIN also features changes on the levy of excise taxes on certain articles, among which are the following:

Products	Before TRAIN	Under TRAIN
Tobacco	2017: P30/pack 2018: P31.20/pack	2018 (Jan-Jun) = P32.50/pack; 2018 (Jul-Dec) = P35/pack; 2019 = P35/pack; 2020-2021 = P37.50/pack; 2022-2023 = P40/pack; 2023 and onwards = 4% annual increase
Sweetened Beverage	N/A	P6/liter for those using caloric & non-caloric sweeteners P12/liter for those using high fructose corn syrup The tax does not cover milk, coffee, 100% natural fruit & vegetable juices, meal replacement & medically indicated drinks, and those using coco sugar and stevia
Petroleum	LPG: None Diesel: None Gasoline: P4.35/liter	LPG 2018 = P1/kilogram 2019 = P2/kilogram 2020 and onwards = P3/kilogram Diesel 2018 = P2.50/liter 2019 = P4.50/liter 2020 and onwards = P6/liter Gasoline 2018 = P7/liter 2019 = P9/liter 2020 and onwards = P10/liter
Automobiles	P600,000 and below = 2% Over P600,000 to P1,100,000 = P12,000 + 20% of excess over P600,000 Over P1,100,000 to P2,100,000 = P112,000 + 40% of excess over P1,100,000 Over P2,100,000 = P512,000 + 60% of excess over P2,100,000	P600,000 and below = 4% Over P600,000 to P1,000,000 = 10% Over P1,000,000 to P4,000,000 = 20% Over P4,000,000 = 50%
Coal	P10/metric ton	2018 = P50/metric ton 2019 = P100/metric ton 2020 and onwards = P150/metric ton
Mining	2% on non-metallic and metallic minerals	4% on non-metallic and metallic minerals
Cosmetic	N/A	5% for cosmetic procedures for aesthetic enhancement

Value-Added Tax

Certain changes were likewise introduced on value added tax, where all businesses with a total annual sales exceeding P3,000,000 (up from the previous threshold of P1,919,500) shall be subject to VAT.

Also, some products/persons are now VAT-exempt under TRAIN. These are:

1. Raw food/agricultural products
2. Health and education
3. Business process outsourcing companies within special economic zones
4. Tourism enterprises
5. Cooperatives
6. Persons with disability
7. Senior citizens
8. Renewable energy (zero-rating)
9. Medicines for diabetes, high cholesterol and hypertension (VAT-exempt starting 2019)

With these changes in the country’s tax landscape, it would be highly advisable for every business owner to have a working idea as to how the TRAIN would affect their enterprises. This is to ensure that they will be able to make the necessary adjustments in their operations, plan ahead the financial aspects, take full advantage of favorable tax developments, and minimize the impact of changes that may prove to be adverse to their respective businesses.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding taxation and taxpayer’s remedies, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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