Philippine Tax Code Amendments Passed

03
January
2018

On 19 December 2017, Rodrigo Duterte, President of the Philippines, signed into law Republic Act No. 10963 or, better known as the Tax Reform for Acceleration and Inclusion Act (“TRAIN”).  TRAIN takes effect on 1 January 2018 and amends the 1997 National Internal Revenue Code of the Philippines (“NIRC”).  TRAIN aims to simplify the Philippine tax system fairer and more progressive and efficient, by making sizable cuts in personal income tax (“PIT”) rates, expanding the Value Added Tax (“VAT”) base and adjusting excise taxes on oil, automobiles and other products. Poor and low income families are expected to benefit from these changes.

A key component of TRAIN is the lowering of PIT rates. While the NIRC exempts those with an annual salary below PHP10,000 ( approximately USD200) from income taxes, the threshold for income tax exemption has been raised to PHP250,000 (approximately USD 5007) under TRAIN.  TRAIN also adjusted the income tax brackets and raised the maximum PIT from 32% to 35% for top income bracket of those who earn over PHP 8 million.  A further reduction in PIT rates also is expected to take effect beginning 2023.

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Under TRAIN, self-employed professionals, with earnings below PHP3 million per year can opt to pay an 8% flat tax in lieu of PIT and percentage taxes.

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Other highlights of TRAIN include:

  1. The threshold for compulsory registration as a VAT taxpayer and VAT on real property transactions was raised from PHP1.915 million to PHP3 million. VAT exemptions on raw food, agricultural products, health and education as well as those for senior citizens and persons with disabilities have been retained, with additional exemptions beginning 2019 for sale of drugs for diabetes, high cholesterol and hypertension.
  2. TRAIN also intends to impose a “sweetened beverage tax” of PHP6 per liter on drinks using artificial sweeteners and PHP12 per liter on drinks using high fructose corn syrup. All kinds of milk natural fruit and vegetable juices and medically indicated beverages, as well as those sweetened using coco sugar and stevia are exempted from the “sweetened beverage tax.”
  3. There will also be an increase in tax rates on vehicles, which hike up prices of luxury cars.  The new rates are as follows: width=
  4. Cosmetic procedures, except those used to correct deformities from birth, disease or due to accidents, will be taxed at 5%.
  5. Excise taxes on coal will also be raised from PHP10 to PHP50 per metric ton in 2018. The rates will increase to PHP100 per metric ton and PHP150 per metric ton in 2019 and 2020, respectively.

With the passage of TRAIN, the Philippine economy is expected to be boosted by 0.5% to 1.1 % by 2022.

TRAIN is the first of 5 tax reform bill packages that aims to make the Philippine tax system fairer, simpler and more efficient.  The next package is intended to be passed by July 2018 on matters such as estate tax amnesty, a general tax amnesty, proposed adjustments to the Motor Vehicle Users Charge and changes to banking secrecy laws and automatic exchanges of information.

If you have any questions or require any additional information, please contact Felix Sy, Lorybeth Baldrias Serrano or the ZICO Law partner you usually deal with.


This alert is for general information only and is not a substitute for legal advice.