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:
- Raw food/agricultural products
- Health and education
- Business process outsourcing companies within special economic zones
- Tourism enterprises
- Cooperatives
- Persons with disability
- Senior citizens
- Renewable energy (zero-rating)
- 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.
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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