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.
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.
Other highlights of TRAIN include:
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.
This alert is for general information only and is not a substitute for legal advice.