The government issued a new tax reform called “Train Law”. This article includes discussion on train law and taxes that are directly affected by this new tax reform 2018. It includes individual income tax rate, value-added tax, de minimis benefits, new estate tax rates, donor’s tax rates, documentary stamps tax, stock transaction tax, and other updates. Make sure to read this train law updates.
Train Law Definition
If you’re still new to this tax reform, let me tell you all about train law updates. This article summarizes train law 2018. It affects the new individual income tax rates, value-added tax rulings, new estate tax rates, donor’s tax rate, and computation and other excises taxes.
Here are the lists of 13 approved tax reform in 2018 under the RA 10963 signed by the President of the Republic of the Philippines and implemented on the 1st day of January 2018. For more details, visit the BIR homepage.
1. New Individual Income Tax Rate
If you’re an employee who earned 30,000 monthly income well, you probably know your withholding tax every month. This new personal income tax rate is lowered compare the previous tax rate. If you are earning 250, 000 or below you will be exempted from paying income taxes (Sec. 51a).
However, this train law reform has removed additional and personal exemptions. If there are two taxpayers and both have the same income regardless of their family status, they will be paying a similar amount of income tax.
2. Reduced Tax Rates for Professionals
Before this tax reform, any person who is engaged in practice of his profession he will be liable to pay the percentage tax of 10-15% according to the annual income but at this new tax reform, you will no longer have to pay the percentage but a flat rate of 8% on gross sales or receipts.
Self-employed individuals and/or professionals shall have the option to avail of 8% tax on gross sales or gross receipts of 250, 000 in lieu of the graduated income tax rates. For the full details of this train tax law, you may continue reading Practice of Profession Tax Train Law.
3. Non-Taxable Income-13th-month pay and Other Bonuses
Persons who are engaged in an employee-employer relationship is entitled to 13th-month pay and other benefits according to the law. Any income received from the employer including 13th month and other bonuses is generally taxable.
The threshold for tax exemption on 13th-month pay and other bonuses from the employers has been increased from 82,000 to 90, 000. Therefore, any benefits including fringe, de minimus benefits and other benefits below 90,000 are non-taxable income. To understand more fully, you may read the full article about De minimis Benefits Under TRAIN Tax Law Reform
4. Train law changes in Estate Tax
There shall be levied, assessed, collected and paid upon the transfer of the net estate as determined in accordance with Section 85 and 86 of every decedent, whether resident or nonresident of the Philippines, a tax at the rate of 6% based on the value of such net estate.
Standard deduction has been raised from 1,000,000 to 5,000,000. A family home is subject to estate tax if it exceeds 10, 000, 000. To understand more fully read estate tax in the Philippines under the train tax law.
5. Donor’s Tax under Train Law
Any person transferred to anyone will be a tax of a flat rate of 6% with at least 250, 000 worth. This 6% flat rate is applicable regardless of the relationship between the donor and done. Do you want to know more about the donor’s tax? Read more on this link How to File Donor’s Tax in the Philippines under TRAIN Law 2018?
6. Tax on Drinks using Sugar and Caloric/Non-Caloric Sweeteners
Any beverages that use sugar and other sweeteners will be taxed. These include any soft drinks and other juices or powdered drinks.
Tax is as follows:
- 6.00 per liter of drink that uses caloric and non-caloric sweeteners
- 12.00 per liter of drink that uses high fructose corn syrup (HFCS)
7. Milk, Coffee, and Medicines for Diabetes etc.-Exempted
Milk, 3-in-1 coffee, 100% natural fruit juice or vegetable juice and other herbal or medical beverages that use natural sweeteners such as coco sugar or stevia are exempted from the sugar tax.
Any drugs and medicines prescribed for diabetes, high-blood or hypertension will also be exempted from 12% VAT.
More Related Article: Latest Train Law Issuance 2019
8. Taxes on Diesel, Gasoline, LPG and other fuel products are progressive
Before this tax reform was implemented, these fuel products were exempted excluding Gasoline of 4.35 per liter, but starting this year it will be charged as follows:
- Diesel is 2.50 tax per liter in 2018, 4.50 and 6.00 will be on 2019 and 2020, respectively.
- LPG is 1.00 tax per liter in 2018, 2.00 and 3.00 will be on 2019 and 2020, respectively.
- Gasoline is 7.00 tax per liter in 2018, 9.00 and 10.00 will be on 2019 and 2020, respectively.
Other fuels and oil products will be taxed as follows:
- Aviation gas- 4.00 per liter
- Naphtha, regular gasoline, pyrolysis gasoline, and other similar products or distillation-7.00 per liter
- Asphalts-8.00 per kilo
- Lubricating oil- 8.00
- Bunker fuel – 2.50
- Paraffin wax- 8.00
UPDATE: The President of the Philippine vetoed the exemption from excise taxes of petroleum products used as input, feedstock, or as a raw material in the manufacturing of petrochemical products, or as a replacement fuel for natural gas-fired combined cycle power plants.
9. Cars and Automobiles
There shall be levied, assessed and collected ad valorem on automobiles based on the manufacturer’s or importer’s selling price, net of excise and value-added tax in accordance with the following schedule:
- 4% up to 600,00 pesos
- 10% over 600, 000 pesos to 1, 000, 000 pesos
- 20% over 1, 000, 000 to 4, 000, 000 pesos
- 50% over 4, 000, 000 pesos
The hybrid vehicle shall be subject to 50% of the applicable excise tax rates on automobiles. Note that purely electric vehicles and pick-ups shall be exempted from an excise tax on automobiles.
10. Tax on Cosmetic Surgery and other Aesthetic Procedures
There will be a 5% tax on cosmetic surgeries, aesthetic procedures, and body enhancements. Click this link to read more about the treatment of cosmetic surgery under the train tax law.
11. Train Tax Law updates about Documentary Stamps
From this year 2018, documentary stamps are increased from 1.00 to 3.00 for every legal or business transaction. To learn the detailed discussion about these changes, you may read the full article about Documentary Stamp Tax under TRAIN Law 2018
On all policies of insurance or other instruments by whatever any insurance shall be made or renewed upon any life or lives, there shall be collected a one-time documentary stamp at the following rates:
- If the amount of insurance does not exceed 100, 000 it is exempted
- If it exceeds 100, 000 but not more than 300, 000 is charged with 20.00
- More than 300, 000 but not exceeding 500, 000 is 50.00
- More than 500, 000 but not exceeding 750, 000 is 100.00
- More than 750, 000 but not exceeding 1, 000, 000 is 150.00
- Any insurance amount more than 1, 000, 000 is 200.00
12. Stock Transactions Tax
Stock related transactions of companies not listed in the Philippine Stock (PSD) will be hit with a higher stock transaction tax of 15%, an increase from the current 5% and 10%.
13. Foreign Currency Interest Income tax
Any interest income received by an individual taxpayer except a nonresident individual, from a depository bank under the expanded foreign currency deposit system shall be subject to a final tax at the rate of 15% of such interest income.
This article summarizes the 13 approved train law 2018. Train law reform was implemented last year 2018. It affects the income tax rates, taxable incomes and amount of income not subject to tax. This train law exempt a person who is earning basically of 250, 000 per year from individual tax. The professional tax before the implementation of train law were 10% or 5% depending on the total incomes. However, this train law reduces the professional tax to 8% which is lowered compared the previous professional tax rates. Another benefits of train law is the de minimis benefits. Compared to the previous de minimis threshold of 82, 000 but now it increases to 90,000 which 8,000 of your benefits you’ve save from your taxes.
Estate tax rate before were according to the taxable estate tax and you have to look on the estate tax table before to compute the estate tax, however, this train law not only reduces but it simplifies the computation of estate tax train law.
The changes made on this tax is the increase of standard deductions from one millions to five millions which is a big amount to save from paying taxes. Also the family home exemptions is up to ten millions. The estate tax rate is six percent. Donor’s tax rate is six percent regardless as to the donor. The total amount to be taxes is atleast 250,000 which is higher than before. Other taxes affected by this train law are the exemptions of drugs, medicine pertaining to the high blood, higher tax rate on any beverages that use sugar and other sweeteners. Lastly the increase of stock transaction rate from 5%-10% now to 15% and interest income subject to 15% received by individual from EFCDS.