Tax Changes Under RA 10963 (TRAIN) PDF

# Tax Changes You Need to Know: Republic Act No. 10963 (TRAIN) ## Preface On December 19, 2017, President Rodrigo R. Duterte signed into law Package 1 of the Comprehensive Tax Reform Program (CTRP) also known as the Tax Reform for Acceleration and Inclusion (TRAIN) as Republic Act (RA) No. 10963....

# Tax Changes You Need to Know: Republic Act No. 10963 (TRAIN) ## Preface On December 19, 2017, President Rodrigo R. Duterte signed into law Package 1 of the Comprehensive Tax Reform Program (CTRP) also known as the Tax Reform for Acceleration and Inclusion (TRAIN) as Republic Act (RA) No. 10963. The Law took effect on January 1, 2018. The TRAIN aims to make the Philippine Tax System simpler, fairer, and more efficient to promote investments, create jobs and reduce poverty. Along with this objective, the CTRP also aims to raise revenues that will fund the President's Build, Build, Build Project that will sustain high and inclusive growth of the country; and finance investments in our people through enhanced education, health and social services. To help inform the public about the changes in the tax system, this booklet presents the highlights of RA 10963 which includes amendments to several provisions of the National Internal Revenue Code of 1997 on personal income taxation, passive income for both individuals and corporations, estate tax, donor's tax, value-added tax (VAT), excise tax, documentary stamp tax (DST), and tax administration, among others. It likewise introduced new taxes such as the excise tax on cosmetic surgery and sugar-sweetened beverages. ## Table of Contents - Preface - Personal Income Tax - Estate Tax - Donor's Tax - Value-added Tax - Excise Tax on Automobiles - Excise Tax on Petroleum Products - Excise Tax on Sweetened Beverages - Excise Tax on Cigarettes - Excise Tax on Mineral Products - Documentary Stamp Tax - Other Taxes - Administrative Measures ## Personal Income Tax The TRAIN LAW restructures the personal income tax (PIT) schedule, with separate schedules for compensation income earners (CIEs), purely self-employed individuals and/or professionals (SEPs) whose gross sales or gross receipts and other non-operating income do not exceed the Value-Added Tax (VAT) threshold of P3 million, and mixed income earners. ### Change in the Tax Schedule #### Old Tax Schedule | Net Taxable Income | Tax Rate | |---|---| | Over | But not over | | 10,000 | 10,000 | 5% | | 30,000 | 30,000 | 500 + 10% of excess over 10,000 | | 70,000 | 70,000 | 2,500 + 15% of excess over 30,000 | | 140,000 | 140,000 | 8,500 + 20% of excess over 70,000 | | 250,000 | 250,000 | 22,500 + 25% of excess over 140,000 | | 500,000 | 500,000 | 50,000 + 30% of excess over 250,000 | | 500,000+ | | 125,000 + 32% of excess over 500,000 | #### New Tax Schedule for Compensation Income Earners & Self-employed and Professionals **Effective January 1, 2018** | Net Taxable Income | Tax Rate | |---|---| | Over | But not over | | 250,000 | 400,000 | 0% | | 400,000 | 800,000 | 20% of excess over 250,000 | | 800,000 | 2,000,000 | 30,000 + 25% of excess over 400,000 | | 2,000,000 | 8,000,000 | 130,000 + 30% of excess over 800,000 | | 8,000,000 | 8,000,000+ | 490,000 + 32% of excess over 2,000,000 | | | | 2,410,000 + 35% of excess over 8,000,000 | **Effective January 1, 2023 and Onwards** | Net Taxable Income | Tax Rate | |---|---| | Over | But not over | | 250,000 | 400,000 | 0% | | 400,000 | 800,000 | 15% of excess over 250,000 | | 800,000 | 2,000,000 | 22,500 + 20% of excess over 400,000 | | 2,000,000 | 8,000,000 | 102,500 + 25% of excess over 800,000 | | 8,000,000 | 8,000,000+ | 402,500 + 30% of excess over 2,000,000 | | | | 2,202,500 + 35% of excess over 8,000,000 | #### New Tax Schedule for Self-employed Professionals **Effective January 1, 2018** | Gross Sales/Receipts | Tax Rate | |---|---| | Not exceeding P3 million | Option 1: Regular PIT Rates or Option 2: 8% of gross sales/receipts in excess of P250,000* | | Above P3 million | Regular PIT Rates | | | *This is in lieu of income and percentage tax. | ### Other Reforms - Reduces the number of tax brackets from 7 to 6; - Exempts the first P250,000 annual taxable income of taxpayers; - Sets the highest amount of taxable income at more than P8 million and subjects it to a higher marginal rate of 35%; - Repeals the provision on basic personal and additional exemptions and premiums paid on health and/or hospitalization insurance which are deemed integrated into the P250,000 exempt threshold; - Retains the income tax exemption of minimum wage earners; - Retains the exemption from tax of de minimis benefits as well as the non-taxability of mandatory contributions such as those made to the GSIS, SSS, PhilHealth, Pag-IBIG Fund and union dues; - Increases the amount of tax-exempt benefits ceiling (13th month pay and other benefits) from P82,000 to P90,000; - Imposes a 20% final tax on PCSO and lotto winnings exceeding P10,000; - Removes the preferential tax rate of 15% for employees of regional or area headquarters, regional operating headquarters, offshore banking units and petroleum service contractors and subcontractors; - Increases the fringe benefits tax (FBT) rate from 32% to 35%; and - Inserts a provision that the Optional Standard Deduction by a general professional partnership (GPP) may only be availed once, either by the GPP or the partners comprising such partnership. ## Estate Tax RA 10963 simplifies the estate tax schedule, from a six-bracket schedule with rates ranging from 5% to 20%, to a single rate of 6% based on the value of net estate: ### Change in Tax Rate #### Old Tax Schedule | Net Estate Bracket | Tax Rate | |---|---| | Over | But not over | | 200,000 | 200,000 | Exempt | | 500,000 | 500,000 | 5% of excess over 200,000 | | 2,000,000 | 2,000,000 | 15,000 + 8% of excess over 500,000 | | 5,000,000 | 5,000,000 | 135,000 + 11% of excess over 2,000,000 | | 10,000,000 | 10,000,000 | 465,000 + 15% of excess over 5,000,000 | | 10,000,000+ | | 1,215,000 + 20% of excess over 10,000,000 | #### New Tax Rate | Tax Base | Tax Rate | |---|---| | Value of Net Estate* | 6% | | | * Value of Net Estate = Value of gross estate less allowable deductions | ### Other Changes #### On the Computation of Estate Tax: - Removes the deductions from gross estate pertaining to actual funeral expenses or 5% of the gross estate, whichever is lower; judicial expenses; and medical expenses but increased the amount of standard deduction from P1 million to P5 million; - Increases the amount of deduction for family home from up to P1 million to up to P10 million and removes the sine qua non condition for the exemption or deduction, that the family home must have been the decedent's family home as certified by the barangay captain of the locality; - Removes the deductions for nonresident estates pertaining to expenses, losses, indebtedness, and taxes but provides for a standard deduction amounting to PhP500,000; - Deletes the provision that requires executor, administrator or anyone of the heirs to include in the estate tax return that part of the nonresident alien's gross estate not situated in the Philippines to be able to claim deductions; - Increases the amount of gross value of estate provided in estate tax returns that requires to be supported with a statement duly certified by a Certified Public Accountant (CPA) from P2 million to P5 million. #### On Administrative Procedures: - Repeals the provision requiring the filing of notice of death of the decedent by his/her executor, administrator or any of the legal heirs within two (2) months after the decedent's death. - Extends the period within which the estate tax return should be filed, from 6 months to 1 year from the decedent's death. - Provides for the payment by installment basis in case available cash is insufficient to pay the estate tax due. Payment shall be allowed within 2 years from the statutory date for its payment without civil penalty and interest. - Removes the P20,000 limit that may be withdrawn from the bank account of the decedent without certification from the BIR and allows for the withdrawal of any amount but subject to a final withholding tax of 6%. ## Donor's Tax RA 10963 simplifies the donor's tax schedule from an eight-bracket schedule with rates ranging from 2% to 15% to a single rate of 6% of total gifts in excess of P250,000. The 6% tax rate likewise applies if the donee is a stranger. ### Change in Tax Rate #### Old Tax Schedule **(a) If donee is a relative:** | Net Gifts Bracket | Tax Rate | |---|---| | Over | But not over | | 100,000 | 100,000 | Exempt | | 200,000 | 200,000 | 2% of excess over 100,000 | | 500,000 | 500,000 | 2,000 + 4% of excess over 200,000 | | 1,000,000 | 1,000,000 | 14,000 + 6% of excess over 500,000 | | 3,000,000 | 3,000,000 | 44,000 + 8% of excess over 1,000,000 | | 5,000,000 | 5,000,000 | 204,000 + 10% of excess over 3,000,000 | | 10,000,000 | 10,000,000 | 404,000 + 12% of excess over 5,000,000 | | 10,000,000+ | | 1,004,000 + 15% of excess over 10,000,000 | **(b) If donee is a stranger:** 30% of the net gifts #### New Tax Rate | Tax Base | Tax Rate | |---|---| | Total gifts not exceeding 250,000 | Exempt | | In excess of 250,000 | 6% | | | * Uniform tax rate for donations to relatives or strangers | ### Other Changes - Inserts an additional provision under Section 100 of the NIRC of 1997, as amended, which provides that a bona fide, at arm's length and donative-intent free sale, exchange or other transfer of property made in the ordinary course of business shall be considered as made for an adequate and full consideration in money or money's worth and is therefore not subject to the donor's tax. - Deletes the provision exempting from the donor's tax dowries or gifts made by parents to each of their legitimate, recognized natural, or adopted children on account of marriage. ## Value-Added Tax (VAT) RA 10963 repeals 54 provisions on VAT exemption and zero-rating under special laws to broaden the VAT base. It also includes electric cooperatives in the definition of sale or exchange of services subject to VAT. ### Broadening the VAT Base - RA 10963 repeals 54 provisions on VAT exemption and zero-rating under special laws to broaden the VAT base - It also includes electric cooperatives in the definition of sale or exchange of services subject to VAT ### Withdrawal of Zero-rated Transactions RA 10963 removes foreign currency denominated sales from VAT zero-rating and subjects to the VAT indirect exporters and agents only upon the establishment and implementation of an enhanced VAT refund system. ### Retention of VAT Exemptions RA 10963 retains the VAT-exempt status of the following: - Raw Agricultural & Marine Products - Educational Services - Senior Citizens - Health Services - Cooperatives - Persons with Disabilities ### Inclusion to VAT-exempt Transactions RA 10963 includes the following transactions to the list of VAT exempt transactions under Section 109 of the NIRC of 1997: - Sale of gold to the Bangko Sentral ng Pilipinas (BSP) - Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension, beginning January 1, 2019 - Association dues, membership fees, and other assessments and charges collected by homeowners' associations and condominium corporations - Transfer of property in pursuance of a plan of merger or consolidation ### Adjustments to VAT-exempt Thresholds - Increases the VAT-exempt threshold from P1,919,500 to P3 million which is to be adjusted to inflation not later than January 31, 2021 and every 3 years thereafter. - Increases the present VAT-exempt threshold on lease of residential unit with a monthly rental of P12,800 to P15,000. - Reduces the VAT-exempt threshold from P3,199,200 to P2,000,000 on sale of house and lot and other residential dwellings beginning January 1, 2021. ## Excise Tax on Automobiles RA 10963 restructures the tax schedule on the excise tax on automobiles by imposing ad valorem tax rates that are directly applied to the net manufacturer's price/importer's selling price instead of imposing marginal tax rates, as follows: ### Old Tax Schedule | Net Manufacturer's Price/Importer's Selling Price | Tax Rate | |---|---| | Up to 600,000 | 2% | | Over 600,000 to 1,100,000 | 12,000 + 20% of value in excess of 600,000 | | Over 1,100,000 to 2,100,000 | 112,000 + 40% of value in excess of 1,100,000 | | Over 2,100,000 | 512,000 + 60% of value in excess of 2,100,000 | ### New Tax Schedule | Net Manufacturer's Price/Importer's Selling Price | Tax Rate | |---|---| | Up to 600,000 | 4% | | Over 600,000 to 1,000,000 | 10% | | Over 1,000,000 to 4,000,000 | 20% | | Over 4,000,000 | 50% | ### Notes: - Hybrid vehicles or vehicles powered by electric energy in combination with gasoline, diesel or any other motive power shall be subject to 50% of the applicable excise tax rates on automobiles. - Purely electric vehicles and pick-up trucks shall be exempt from excise tax on automobiles. - Pick-ups shall be considered as trucks. - The term "jeep" was deleted from the definition of jeep/jeepney/jeepney substitutes which shall now read as jeepney/jeepney substitutes. ## Excise Tax on Petroleum Products RA 10963 increases the tax rates on petroleum products in three (3) tranches beginning January 1, 2018 to January 1, 2020, as follows: | Petroleum Products | Old Tax Rates (Per liter/kg) | New Tax Rates (Per liter/kg) | |---|---|---| | | | 2018 | | | | 2019 | | | | 2020 | | Lubricating oils and greases | P 4.50 | P 8.00 | P 9.00 | P 10.00 | | Processed gas | P 0.05 | P 8.00 | P 9.00 | P 10.00 | | Waxes and petrolatum | P 3.50 | P 8.00 | P 9.00 | P 10.00 | | Denatured alcohol used for motive power | P 0.05 | P 8.00 | P 9.00 | P 10.00 | | Naphtha and regular gasoline | P 4.35 | P 7.00 | P 9.00 | P 10.00 | | Leaded gasoline 1 | P 5.35 | N/A | N/A | N/A | | Unleaded gasoline | P 4.35 | P 7.00 | P 9.00 | P 10.00 | | Aviation turbo jet fuel | P 3.67 | P 4.00 | P 4.00 | P 4.00 | | Kerosene 2 | P 0.00 | P 3.00 | P 4.00 | P 5.00 | | Diesel fuel oil | P 0.00 | P 2.50 | P 4.50 | P 6.00 | | Liquefied petroleum gas (LPG) 3 | P 0.00 | P 1.00 | P 2.00 | P 3.00 | | Asphalts | P 0.56 | P 8.00 | P 9.00 | P 10.00 | | Bunker fuel oil | P 0.00 | P 2.50 | P 4.50 | P 6.00 | | Petroleum coke 4 | N/A | P 2.50 | P 4.50 | P 6.00 | ### Notes: - Phased out. Deleted under RA 10963. - When kerosene is used as aviation fuel, it is subject to the same tax on aviation turbo jet fuel. - Under RA 10963, when LPG is used as raw material in the production of petrochemical products, the tax is zero (P0.00) per kilogram. - When petroleum coke is used as feedstock to any power generating facility, the tax is zero (P0.00) per metric ton. For the period 2018 to 2020, the scheduled increase in the excise tax on fuel shall be suspended when the average Dubai crude oil price based on Mean of Platts Singapore (MOPS) for 3 months prior to the scheduled increase of the month reaches or exceeds US$ 80 per barrel. ## Excise Tax on Sweetened Beverages - Tax on sweetened beverages using purely caloric sweeteners, and purely non-caloric sweeteners, or a mix of caloric and non-caloric sweeteners: **P 6.00 per liter of volume capacity** - Tax on sweetened beverages using purely high fructose corn syrup or in combination with any caloric or non-caloric sweetener: **P 12.00 per liter of volume capacity** - Sweetened beverages using purely coconut sap sugar and purely steviol glycosides are exempt from this tax. ### Beverages Covered: - Sweetened Juice Drinks - Sweetened Tea - Flavored Water - All Carbonated Beverages - Energy & Sports Drinks - Cereal & Grain Beverages - Other Powdered Drinks not classified as Milk, Juice, Tea & Coffee - Other non-alcoholic beverages that contain added sugar ### Beverages Excluded: - All Milk Products, including Plain Milk, Infant Formula Milk, Powdered Milk, etc. - Meal Replacement & Medically-Indicated Beverages - Ground Coffee, Instant Soluble Coffee and Pre-packaged Powdered Coffee Products - 100% Natural Vegetable Juices - 100% Natural Fruit Juices ## Other Excise Taxes ### On Cigarettes RA 10963 increases the excise tax rates on cigarettes packed by hand and packed by machine, as follows: #### Old Tax Rates | Tobacco Products | Per pack | |---|---| | | Jan 1, 2013 | Jan 1, 2014 | Jan 1, 2015 | Jan 1, 2016 | Jan 1, 2017 | Jan 1, 2018 | | Cigarettes packed by hand | P12.00 | P15.00 | P18.00 | P21.00 | P29.00 | P30.00 | | Cigarettes packed by machine | P12.00 | P17.00 | P21.00 | P25.00 | P29.00 | P30.00 | | NRP P11.50 and below | | | | | | | | NRP more than P11.50 | P25.00 | P27.00 | P28.00 | P25.00 | P30.00 | P30.00 | *To be increased by 4% every year thereafter #### New Tax Rates | Tobacco Products | Per pack | |---|---| | | Jan 1, 2018 | Jul 1, 2018 | Jan 1, 2020 | Jan 1, 2022 | Jan 1, 2024 | | Cigarettes packed by hand | P 32.50 | P 35.00 | P 37.50 | P 40.00 | | | | Cigarettes packed by machine | P 32.50 | P 35.00 | P 37.50 | P 40.00 | | | *To be increased by 4% every year thereafter ### On Mineral Products RA 10963 increases the excise tax rate on domestic or imported coal and coke in 3 tranches beginning January 1, 2018 to January 1, 2020, as follows: #### Old Tax Rate | Mineral Product | Per metric ton | |---|---| | Coal and coke | P 10.00 | #### New Tax Rate | Mineral Product | Per metric ton | |---|---| | | 2018 | 2019 | 2020 | | Coal and coke | P 50.00 | P 100.00 | P 150.00 | RA 10963 also increases the excise tax rate on other mineral products as follows: | Mineral Products | Old Tax Rate | New Tax Rate | |---|---|---| | All metallic minerals and quarry resources 1 | 2% | 4% | | Copper and other metallic minerals 1 | 2% | 4% | | Gold and chromite 1 | 2% | 4% | | Indigenous petroleum 2 | 3% | 6% | 1 Based on the actual market value of the gross output at the time of removal, in the case of those locally extracted/produced; or the value used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and VAT in the case of importation. 2 Based on the fair international market price. ## Documentary Stamp Tax RA 10963 increases the DST rates by 100% except the DST on debt instruments (Section 179) which only increases by 50% and the DST on policies of insurance upon property (Sec. 184), fidelity bonds and other insurance (Sec. 185), indemnity bonds (Sec. 187), and deeds of sale, conveyances and donation of real property (Sec. 196) which remained unchanged. | Section in Tax Code | Document/Instrument/Transaction | Tax Base | Old Tax Rates | New Tax Rates | |---|---|---|---|---| | 174 | Original Issue of Shares of Stock | Par value | P1.00 on each P200 | P2.00 on each P200 | | | | | 0.50% | 1.00% | | 175 | Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Transfer of Shares/Certificates of Stock | | | | | | | With Par Value | Par value | P0.75 on each P200 | P1.50 on each P200 | | | | | 0.38% | 0.75% | | | | Without Par Value | DST of original issue | 25% | 50% | | | | Listed shares of stocks at PSE | | Exempt | Exempt | | 176 | Bonds, Debentures, Certificates of Stock or Indebtedness Issued in Foreign Countries | Par value | Tax as required by law | Tax as required by law | | 177 | Certificates of Profits or Interest in Property or Accumulations | Face value | P0.50 on each P200 | P1.00 on each P200 | | | | | 0.25% | 0.50% | | 178 | Bank Checks, Drafts, Certificates of Deposit not Bearing Interest and Other Instruments | Per instrument | P1.50 | P3.00 | | 179 | Original Issue of all Debt Instruments | Issue price | P1.00 on each P200 | P1.50 on each P200 | | | | | 0.50% | 0.75% | | 180 | All Bills of Exchange or Drafts | Face value | P0.30 on each P200 | P0.60 on each P200 | | | | | 0.15% | 0.30% | | 181 | Upon Acceptance of Bills of Exchange and Others | Face value | P0.30 on each P200 | P0.60 on each P200 | | | | | 0.15% | 0.30% | | 182 | Foreign Bills of Exchange and Letters of Credit | Face value | P0.30 on each P200 | P0.60 on each P200 | | | | | 0.15% | 0.30% | | 183 | Life Insurance Policies | Amount of insurance | | | | 184 | Policies of Insurance upon Property | Premium | P0.50 on each P4.00 | P0.50 on each P4.00 | | | | | 12.50% | 12.50% | | 185 | Fidelity Bonds and Other Insurance Policies | Premium | P0.50 on each P4.00 | P0.50 on each P4.00 | | | | | 12.50% | 12.50% | | 186 | Policies of Annuities or Other Instruments | Premium/Installment payment/Contract price | P0.50 on each P200 | P1.00 on each P200 | | | | | 0.25% | 0.50% | | 186 | Pre-need Plans | Premium | P0.20 on each P200 | P0.40 on each P200 | | | | | 0.10% | 0.20% | | 187 | Indemnity Bonds | Premium | P0.30 on each P4.00 | P0.30 on each P4.00 | | | | | 7.50% | 7.50% | | 188 | Certificates | Per certificate | P15.00 | P30.00 | | 189 | Warehouse Receipts | Per warehouse receipt | P15.00 | P30.00 | | 190 | Jai-Alai, Horse Racing Tickets, Lotto or Other Authorized Number Games | Per ticket | P0.10; additional P0.10 on each P1.00 if ticket exceeds P1.00 | P0.20; additional P0.20 on each P1.00 if ticket exceeds P1.00 | | 191 | Bills of Lading or Receipts | Value | P1.00 if value > P100 or P10.00 if value > P1,000 | P2.00 if value > P100 or P20.00 if value > P1,000 | | 192 | Proxies | Per instrument | P15.00 | P30.00 | | 193 | Powers of Attorney | Per instrument | P10.00 | P10.00 | | 194 | Leases and Other Hiring Agreements | Value | P3.00 for 1st P 2,000; P1.00 for each next P1,000 | P6.00 for 1st P2,000; P2.00 for each next P1,000 | | 195 | Mortgages, Pledges and Deeds of Trust | Amount secured | P20.00 for 1st P5,000; P10.00 for each next P5,000 | P40.00 for 1st P5,000; P20.00 for each next P5,000 | | 196 | Deeds of Sale, Conveyances and Donation of Real Property | Value | P15.00 for 1st P1,000; P15.00 for each next P1,000 | P15.00 for 1st P1,000; P15.00 for each next P1,000 | | 197 | Charter Parties and Similar Instruments | Gross tonnage | P500 - P1,500 | P1,000 - P3,000 | | 198 | Assignments and Renewals of Certain Instruments | Same as original | Same rate as original | Same rate as original | ## Other Taxes ### Foreign Currency Deposit Unit (FCDU) RA 10963 increases the final tax imposed on interest income derived by an individual (except a nonresident individual) and a domestic corporation from a depository bank under the expanded foreign currency deposit system from 7.5% to 15%. The law, however, retains the 7.5% final tax on such interest income of a resident foreign corporation. ### Capital Gains of Non-traded Stocks RA 10963 increases the 5%-10% tax rates to a 15% single tax rate on net capital gains realized by an individual and a domestic corporation from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation that are not traded in the local stock exchange. The law, however, retains the 5%-10% capital gains tax of a resident foreign corporation and nonresident foreign corporation. ### Stock Transactions Tax (STT) RA 10963 increases the STT from 0.5% to 0.6% of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged, or otherwise disposed through the local stock exchange. ### Cosmetic Procedures RA 10963 levies a new excise tax equivalent to 5% of gross receipts, net of excise tax and VAT, derived from performance of services on invasive cosmetic procedures, surgeries, and body enhancements directed solely towards improving, altering, or enhancing the patient's appearance. ## Tax Administration Reforms - **Fuel Marking:** Provides for fuel marking of petroleum products that are refined, manufactured, or imported into the Philippines, and that are subject to the payment of taxes and duties and provides for the mechanism on how fuel marking will be done including imposition of penalties for possible violations. - **Registry of Petroleum Manufacturers and Importers:** Requires the DOF to maintain a registry of all petroleum manufacturers and/or importers and the articles manufactured and/or imported by them including real-time inventory of such products in storage depots. - **Tax Incentive Report:** Requires the submission by the Cooperative Development Authority to the