QuestionsQuestions (Republic Act No. 10963)
TRAIN is the “Tax Reform for Acceleration and Inclusion (TRAIN).” Its policy is to enhance progressivity of the tax system, provide equitable relief to more taxpayers to improve disposable income and boost economic activity, and enable government to provide infrastructure, health, education, jobs, and social protection.
The Commissioner may regularly obtain from persons (other than the taxpayer being audited/investigated) and from national/local government offices and agencies, including BSP and GOCCs, information such as production costs/volume, receipts/sales/gross incomes, and corporate financial statements and related data to support audits and investigations.
The Cooperative Development Authority must submit to the BIR a tax incentive report (including income tax, VAT, and other incentives availed by cooperatives under RA 6938 as amended). The CDA’s submission is also to be submitted to the Department of Finance and included in the database under RA 10708 (TIMTA).
After a return is filed, the Commissioner or duly authorized representative may authorize examination and assess the correct tax notwithstanding any law requiring prior authorization of another government agency/instrumentality; and failure to file a return does not prevent the Commissioner from authorizing the examination.
The Commissioner may divide the Philippines into zones/areas and, with mandatory private and public sectors participation and prior notice, determine fair market value. Zonal valuation is automatically adjusted once every three (3) years via rules from the Secretary of Finance based on valuation standards; and no adjustment is valid unless properly published or posted, and the basis of valuation must be public records open for taxpayer inquiry. For tax computation, the higher of (1) Commissioner-determined FMV or (2) Provincial/City Assessor schedule value is used.
For 2018–2022, the schedule includes 0% up to P250,000, then 20% over P250,000 but not over P400,000, and higher bracket rates continuing up to 32%/maximum bracket formula. For 2023 onwards, the first brackets are lowered (e.g., 15% over P250,000 but not over P400,000) and bracket formulas adjust such as 20% over P400,000 but not over P800,000, then 25%, 30%, and 35% for the top bracket.
Minimum wage earners (as defined in Section 22(HH)) are exempt from income tax on their taxable income. Holiday pay and pay received by such minimum wage earners are likewise exempt.
Self-employed individuals and/or professionals may elect an 8% tax on gross sales or gross receipts and other non-operating income in lieu of graduated income tax and percentage tax, if their gross sales/receipts and other non-operating income exceed P250,000 but are within the VAT threshold reference under Section 109(BB) (as cited in the text).
Compensation income is taxed using the graduated income tax rates for individuals. Business/profession income follows either (i) 8% in lieu of graduated income tax and percentage tax if total gross sales/receipts and other non-operating income does not exceed the VAT threshold, or (ii) graduated income tax rates if it exceeds the VAT threshold.
Interest from currency bank deposits and deposit substitutes/trust arrangements: 20% final (15% for interest from expanded foreign currency deposit system for individuals). Royalties on books and other literary/musical works: 10%. Prizes: taxable differently—prizes over P10,000 subject to Section 24(A); prizes of P10,000 or less subject to ordinary rates; certain lottery/charity winnings may be exempt when P10,000 or less. Cash/property dividends to individuals: 10% final.
A final tax of 15% is imposed on net capital gains realized during the taxable year from sale, barter, exchange, or other disposition of such shares in domestic corporations, except those sold/disposed through the stock exchange.
Under new Section 51-A, individual taxpayers receiving purely compensation income from only one employer in the Philippines for the calendar year, where the income tax has been correctly withheld (tax due equals tax withheld), are not required to file an annual income tax return; the employer’s certificate of withholding stamped “received” by the BIR is considered substituted filing.
The ITR and corporate quarterly income tax return are limited to a maximum of four (4) pages (paper or electronic form) and must contain only specified information: personal/corporate profile, gross receipts/sales or compensation (excluding final-tax items), allowable deductions, taxable income, and income tax due/payable (with corporate returns also requiring required officer certifications and sworn statements).
Effective January 1, 2018 and onwards, a final tax of 35% is imposed on the grossed-up monetary value of fringe benefits furnished to the employee (except rank and file, and certain employer-required/convenience benefits). The grossed-up value is determined by dividing the actual monetary value by 65% (i.e., using the inverse of 1 - 35%). The employer pays the tax under Section 57(A); special rules apply to fringe benefits taxable under Section 25(B)-(E).
An individual subject to tax under Section 24 (other than nonresident alien) may elect an OSD not exceeding 40% of gross sales or gross receipts. Corporations may elect OSD not exceeding 40% of gross income. The election is made in the return; unless the taxpayer signifies intention to elect OSD, the taxpayer is considered to have availed of deductions under preceding subsections. Once made, it is irrevocable for the taxable year.
If the tax due exceeds P2,000, payment may be in two equal installments: first at the time the return is filed, and the second on or before October 15 following the close of the calendar year. If the second installment is not paid on time, the whole amount becomes due and payable with delinquency penalties.
The Secretary of Finance may require withholding at not less than 1% but not more than 32% of the income payment (creditable). Beginning January 1, 2019, the withholding rate band is narrowed to not less than 1% and not more than 15%.
VAT rate on sale of goods/properties and importation remains 12% (as provided in the amended provisions). For export sales and certain services, zero percent VAT applies, but specific related provisions require an enhanced VAT refund system (refund of creditable input tax within 90 days) and full cash payment of pending VAT refunds as conditions for keeping zero-rated treatment for certain transactions covered by the amended text.
Estate tax rate is 6% of the net estate. Net estate computation includes a standard deduction of P5,000,000 for citizens/residents and additional deductions such as claims against the estate, properly previously taxed property (with a taper based on the time from prior death/gifts), family home rules (excess over P10,000,000 taxable), and transfers for public use. Estate tax returns are filed within one (1) year from death; estates with gross value exceeding P5,000,000 need CPA-certified statements for support.