TRAIN Law vs CREATE Law

• The study notes for the provided text are as follows:

TRAIN LAW

• Also known as RA 10963, this tax reform legislation aimed to lower personal income tax rates.
• It also increased excise taxes on certain goods and services, expanded the value-added tax base.
• Other tax-related measures were implemented to promote simplicity, equity, and economic growth.

CREATE LAW

• Also known as RA 11534, this legislation is aimed to reduce corporate income tax rates.
• CREATE law also provides fiscal incentives to businesses.
• It also improves the investment climate to promote competitiveness and stimulate economic recovery.

TRAIN Law vs CREATE Law

• TRAIN Law lowers personal income tax rate.
• TRAIN Law promotes economic growth.
• TRAIN Law targets individual taxpayers and excise tax revenue.
• CREATE Law reduces corporate income tax rate.
• CREATE Law stimulates economic recovery.
• CREATE Law focuses on corporate income taxes and investment incentives.

Additional Facts about TRAIN Law

• TRAIN Law is the first package of President Rodrigo Duterte's comprehensive tax reform program.
• Former President Rodrigo Duterte signed TRAIN Law on December 19, 2017, and it took effect on January 1, 2018.
• TRAIN Law revised the outdated National Internal Revenue Code (NIRC) or Tax Code adopted in 1997.
• The Train Law aims to "correct a number of deficiencies in the tax system by making it simpler, fairer, and more efficient."

Tax Reforms Under TRAIN Law

• Additional powers of the Commissioner of Internal Revenue.
• Restructuring of the Personal Income Tax System.
• New tax rates for sweetened beverage drinks, petroleum, automobile, tobacco, & cosmetic surgery.

Excise Taxes

• Tax on the production, sale, or consumption of a commodity in a country.
• Excise tax is charged for specific goods and services like alcohol, tobacco, fuel, and airline tickets.

Automobile Excise Tax

• Over 0 to 600,000 has an excise tax rate of 4%.
• Over 600,000 to 1,000,000 has an excise tax rate of 10%.
• Over 1,000,000 to 4,000,000 has an excise tax rate of 20%.
• Over 4,000,000 has an excise tax rate of 50%.

Sweetened Beverages Excise Tax (PHP/Liter)

• Using purely caloric or non-caloric sweetener, or a mixture of both is PHP/Liter 6.
• Using purely high-fructose corn syrup or in combination with any caloric or noncaloric sweetener is PHP/Liter 12.
• Using purely coconut sap sugar / purely steviol glycosides is exempt from excise tax.

Novel Tobacco Products Excise Tax (PHP/Kilogram)

• Effective date January 1, 2023 has an excise tax of 2.60.
• Effective January 1, 2024 onwards, the specific tax rate shall be increased by 4% every year thereafter.

Cosmetic Procedures

• RA 10963 introduces a new excise tax of 5% on gross receipts from services for cosmetic procedures, surgeries, and body enhancements aimed at improving patient appearance.

Other Tax Changes

• Lower estate tax and donor's tax.
• Increase the amount of allowable deductions on estate tax.
• Expansion of VAT base by reducing coverage of exemptions.
• Easing of Bank Secrecy Law.
• Increase some taxes on passive income and DST.
• Amnesty to taxpayers with deficiencies in payments of property, income, and other taxes.

CREATE Law

• The CREATE Law aims to reduce corporate income tax to boost the economy, attract investment, and create jobs.
• It supports businesses like corporations in the Philippines as a response to the pandemic.

Tax Reduction Example

• A small business with revenue of PHP 5,000,000 in 2020 paid 30% tax = PHP 1,500,000.
• Under the CREATE Law, this is reduced to 20%, so the tax is only PHP 1,000,000.
• They saved PHP 500,000, which can be used to grow the business.

Benefits for Investors

• Lower taxes mean more funds for expansion.
• Faster process for obtaining incentives.
• The Philippines is more attractive as an investment hub in ASEAN.
• Entrepreneurs are more confident in the economy.

Regulations and Effects of Create Law

• The law became effective on April 11, 2021.
• It was immediately implemented on July 1, 2020.
• Supports businesses to recover from the impact of the pandemic.
• Attracts foreign investors to the Philippines.

Tax Reform Under Create Law

• Domestic corporations' tax rate reduced from 30% to 25%.
• Reduction of resident foreign corporations' ordinary tax rate.
• Seeks to lessen the tax burden and increase corporate competitiveness.
• For eligible domestic corporations, there is a 5% gross income tax option.
• Implementation of a system of fiscal incentives.
• Specific rewards encourage investment and strengthen priority businesses.

Enhanced Tax Deductions & R&D Support

• Research and development (R&D) expenses are tax deductible.
• Promotes technological development and innovation.
• Encourages companies to make investments in emerging technologies.

Streamlining & Modernization

• Installation of electronic payment and filing systems.
• Enhances productivity and lessens the administrative load.
• Makes tax incentives more transparent and in line with international standards.

What is Income Tax

• Tax on yearly profits from property, professions, trades, or offices.
• Tax on a person's income, emoluments, profits, and the like.
• Tax on income, gross or net, realized in one taxable year.

Nature of Income Tax

• In the Philippines, income tax is governed by the National Internal Revenue Code of 1997, which outlines the rules and regulations for taxing income earned by individuals and corporations.
• The tax rates vary depending on the type of taxpayer, their residency status, and the amount of income earned.

Gross vs Net Income

• Gross Income: Total revenue earned by an individual or business before deducting expenses.
• Net Income: Revenue minus expenses, representing the actual profit earned.

Key Principles of Income Tax

• Ability to Pay Principle: The tax system where individuals and entities with higher income bear a larger portion of the tax burden.
• Source of Income Principle: Only Philippine-sourced income of non-resident aliens and foreign corporations is subject to income tax, while residents and domestic corporations are taxed on worldwide income.
• Tax Equity and Progressivity: Ensures that taxpayers with higher incomes contribute more to the tax revenue.

Types of Income Tax

• Normal/Net Income Tax: Tax on income from trade/business.
• Gross Income Tax: Tax on non-resident aliens' income.
• Final Income Tax: Tax on passive income (interest, dividends, royalties).
• Withholding Tax: Tax withheld from employees' salaries.
• Capital Gains Tax: Tax on gains from selling capital assets.
• Percentage Tax: Tax on businesses not registered for VAT.
• Value-Added Tax (VAT): Tax on goods and services sales.
• Estate Tax: Tax on property transfer after the owner's death.
• Donor's Tax: Tax on donations from individuals/corporations.

Income Tax Purposes

• Funding government programs.
• Redistributing wealth.
• Encouraging economic growth.
• Regulating private spending.

Requisites for Taxability of Income Tax

• There must be a gain or profit, whether in cash or its equivalent.
• Gain must be realized or received - when income is actually or physically transferred to a person, or constructively received by him. This implies that not all economic gains constitute taxable income.
• Gain must not be excluded by law or treaty.
• Income must be recognized.

Ericsson Telecommunications, Inc. v. City of Pasig, G.R. No.176667, Nov. 22, 2007

• Income is recognized when the income has been received, either actually or constructively.
• Revenue from services rendered is recognized when services have been performed and are billable, recorded at the amount received or expected to be received.

Income

• Income denotes a flow of wealth during a definite period of time.
• Income pertains to the service of wealth and is subject to tax

Capital

• Capital is the fund or property existing at one distinct point of time which can be used to produce goods or services.
• Capital pertains to the wealth itself and is not subject to tax.
• Income denotes a flow of wealth during a definite period of time.
• Income pertains to the service of wealth and is subject to tax.
• Income is the fruit, and capital is the tree.