The government issued a new tax reform called “Train Law.” This article includes a discussion on 13 approved train laws and taxes directly affected by this new tax reform 2018. It has individual income tax rates, value-added tax, de minimis benefits, new estate tax rates, donor’s tax rates, documentary stamps tax, stock transaction tax, and other updates. Read this train of law updates.
Approved Train Law
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, computation, and other excise taxes.
Here are the lists of 13 approved tax law reforms 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. Approved train law on 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. It lowers this new personal income tax rate compare to 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 two taxpayers and both have the same income regardless of their family status, they will pay a similar amount of income tax.
2. Reduced Tax Rates for Professionals
Before this tax reform, any person who is engaged in the practice of his profession will be liable to pay the percentage tax of 10-15% according to the annual income. Still, you will no longer have to pay the percentage at this new tax reform but a flat rate of 8% on gross sales or receipts.
Self-employed individuals and professionals shall avail of 8% tax on gross sales or gross receipts of 250 000 instead of the graduated income tax rates. You may continue reading Practice of Profession Tax Train Law for the full details of this train tax law.
3. Non-Taxable Income-13th-month pay and Other Bonuses
According to the law, persons who are engaged in an employee-employer relationship are entitled to 13th-month pay and other benefits. Any income received from the employer, including the 13th month and additional bonuses, is 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, benefits including fringe, de minimus benefits, and other benefits below 90,000 are non-taxable income. You may read the full article about De minimis Benefits Under TRAIN Tax Law Reform to understand more fully.
4. Train law changes in Estate Tax
There shall be levied, assessed, collected, and paid upon transferring the net estate as determined under Section 85 and 86 of every decedent, whether resident or nonresident of the Philippines, a tax at 6% based on the value of such net estate.
It has raised standard deduction 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, real 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
It will tax any beverages that use sugar and other sweeteners. These include any soft drinks and other juices or powdered drinks.
- 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 it implemented this tax reform, these fuel products were exempted, excluding Gasoline of 4.35 per liter, but starting this year, they will charge it as follows:
- Diesel was 2.50 tax per liter in 2018, 4.50 and 6.00 will be in 2019 and 2020, respectively.
- LPG was 1.00 tax per liter in 2018, 2.00 and 3.00 in 2019 and 2020.
- Gasoline was 7.00 tax per liter in 2018, 9.00 and 10.00 in 2019 and 2020.
It will tax other fuels and oil products:
- 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
Their tax, assessed, and collected ad valorem on automobiles based on the manufacturer’s or importer’s selling price, net of excise, and value-added tax under 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 cars 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
This year, 2018, it increases documentary stamps 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 onetime 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 over 300,000, is charged with 20.00
- Over 300 000 but not exceeding 500 000 is 50.00
- Over 500 000 but not exceeding 750 000 is 100.00
- Over 750 000 but not exceeding 1 000, 000 is 150.00
- Any insurance amount over 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%, increasing from the current 5% and 10%.
13. Foreign Currency Interest Income tax
Our last approved train law is on foreign currency. 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 15% of such interest income.
This article summarized the 13 approved train laws in 2018. It implemented train law reform last year in 2018. It affects the income tax rates, taxable incomes, and amount of income not subject to tax. This train law exempts a person who is earning 250 000 per year from the individual tax. Before implementing the train law, the professional tax was 10% or 5%, depending on the total incomes. However, this train law reduces the professional tax to 8%, which is lowered compared to the previous professional tax rates. Another benefit of train law is the de minimis benefits. Compared to the earlier de minimis threshold of 82 000, it increases to 90,000, which 8,000 of your benefits you’ve saved from your taxes.
The estate tax rate before was according to the taxable estate tax, and you have to look at the estate tax table before computing the estate tax. However, this train law not only reduces but simplifies the computation of estate tax train law.
The changes made on this tax increase standard deductions from one million to five million, which is an extensive amount to save from paying taxes. Also, the family home exemption is up to ten million. The estate tax rate is six percent. Donor’s tax rate is six percent regardless of the donor. The total amount to be taxed is at least 250,000, which is higher than before. Other taxes affected by this train law are the exemptions of drugs, medicine on the high blood, higher tax rate on any beverages that use sugar and other sweeteners. Last, the stock transaction rate increased from 5%-10% to 15%, and interest income was subject to 15% received by individuals from EFCDS.