TRAIN LAW

~l•,..,

for Sun ~}
Life Financial

Atty. Nicasio C. Cabaneiro, CPA

Rep. Act No. 10963 -TRAIN Law
• Tax Reform for Acceleration and Inclusion (TRAIN) Law is the 1st
package of Comprehensive Tax Reform Program of Pres. Duterte's
administration

• Entire Tax Reform Program may reach up to 5 packages

• Program revises the outdated National Internal Revenue Code

{NIRC) or Tax Code which was adopted in 1997

• Program aims to "correct a number of deficiencies in tax system

by making it simpler; fairer and more efficient."

• TRAIN Law took effect on January 1, 2018

Objectives of TRAIN Law
• Promote sustainable and inclusive economic growth through
rationalization of PH internal revenue tax system

• Provide equitable relief to greater no. of taxpayers by

improving levels of disposable income and increasing economic
activity

• Ensure that gov't. is able to provide better infrastructure,

health, education, jobs and social protection of people
Some Tax Reforms under the TRAIN Law
• Restructure Personal Income Tax System

• New tax rates for sweetened beverage drinks, petroleum,

automobile, tobacco and cosmetic surgery

• Lower Estate and Donor's Tax

• Expansion of VAT base by reducing coverage of exemptions

• Amnesty to taxpayers with deficiencies in payments of

property, income and other taxes
Sec. 6(A) of NIRC - Examination of Returns
• Commissioner or his duly authorized representative may
authorize examination of any taxpayer and assessment of
correct amount of tax ...

Notwithstanding any law requiring prior authorization of any

gov't. or instrumentality
Sec. 6(E) of NIRC - Prescribe Real Property Values

• When it comes to authority of CIR to divide the PH into diff.

zones or areas and determining fair market value of real
properties in each zone ...
Prior notice must be given to affected taxpayers

• Determining FMV of properties is subject to automatic

adjustment once every 3 years through rules issued by Sec. of
Finance
Sec. 6(E) of NIRC - Prescribe Real Property Values
(cont.)

Additional provisos:
• No adjustment in zonal valuation shall be valid unless
published in newspaper of general circulation in province, city
or municipality concerned or in its absence ...
Posted in provincial capitol, city or municipal hall and in 2
other conspicuous public places

• Basis of any valuation shall be public records open to inquiry

of any taxpayer
 Sec. 24 (A) - Income Tax Rates
• With enactment of TRAIN, an individual with taxable income of
Php2S0K or less is exempted from paying income tax

• Only those with taxable income of above Php250K will be

subject to 20% - 35% rate effective year 2018 and 15% - 35%
effective year 2023

•.~·Eil.
 Old Personal Income Tax Rates
Amount of Net Taxable
I
Income
Over But Not Over

10,000 5%

10,000 30,000 PhpS00 + 10% of the excess over Phpl0,000

30,000 70,000 Php2,S00 + 15% of the excess over Php30,000

70,000 140,000 Php8,S00 + 20% of the excess over Php70,000

140,000 250,000 Php22,S00 + 25% of the excess over Php140,000

250,000 500,000 PhpS0,000 + 30% of the excess over Php250,000

500,000 Php125,000 + 32% of the excess over PhpS00,000

New Personal Income Tax Rates
Annual Salary Tax Schedule Tax Schedule
(2018-2022) (2023 onwards)
Not over Php250,000 0% 0%

Over Php250,000 but not 20% of the excess over 15% of the excess over
over Php400,000 Php250,000 Php250,000

Over Php400,000 but not Php30,000 +25% of the Php22,500 + 20% of the
over Php800,000 excess over Php400,000 excess over Ph p400,000

Over Php800,000 but not Php130,000 + 30% of the Php102,S00 + 25% of the
over Php2M excess over Php800,000 excess over Ph p800,000
Over Php2M but not over Php490,000 + 32% of the Php402,500 + 30% of the
Php8M excess over Php2M excess over Php2M
Over Php8M Php2,410,000 + 35% of Php2,202,500 + 35% of
the excess over Php8M the excess over Php8M
 Sec. 24 (A) - Income Tax Rates (cont.)
• Self-employed individuals and/or professionals whose gross
sales do not exceed Php 3 million now have the option ...
to avail of 8% tax on gross sales and other non-operating
income in excess of Php2S0K in lieu of graduated income tax
rates

~
•.,·1a+
 New Income Tax for Self-employed and
Professionals

'

Earnings TRAIN
I

Php250,000 and below 0%

Below Php3M VAT 8% flat tax on gross sales

Threshold or Personal Income Tax

Over Php3M Subject to Income Tax

Schedule

••,·Eil . ~
Sec. 24 (B) - Tax on Certain Passive Incomes
• After TRAIN Law, winnings from Philippine Charity Sweepstakes
and Lotto worth Php 10,000 and above are already subject to
20% final tax

• Interest income received from depository bank under

expanded foreign currency deposit system shall be subject to a
final tax of 15%

• Interest from long term deposit pre-terminated before the 5th

year shall now be subject to final tax of 20%
 Sec. 24 (B) - Tax on Certain Passive Incomes

Passive Incomes Old Rate TRAIN

Priz.es from PCSO and Exempted Less than More
Lotto Winnings regardless of value P10K- than Pl0K
Exempt -20%
Interest income on
Foreign Currency 7.5% 15%
Deposits
4 years to less than
5 years left - 5%
Interest from pre-
3 years to less than
terminated long term 20%
4 years left - 12%
deposit
Less than 3 yea rs
~
left- 20%

•.,·e •
 Sec. 24 (C)- Shares of Stock not Traded in
the Stock Exchange

• Capital gains from sale of shares of stock not traded in stock

exchange is now subject to 15% final tax under TRAIN law

Passive Incomes Old Rate TRAIN

Not over
Capital Gains from
Phpl00K- 5%
sale of stocks not
15%
traded in the stock
In excess of
exchange{Sec.24C}
Phpl00K - 10%
Sec. 25 - Tax on Nonresident Alien Individual
• Pres. Duterte vetoed this line item under Subsection (F)
"Existing RHQs/ ROHQs, OBUs or petroleum service contractors
and sub-contractors presently availing of preferential tax rates for
qualified employees shall continue to be entitled to avail of
preferential tax rates for present and future employees."

• President stated that given the reduction in Personal Income

Tax, employees of these firms should follow regular rates
applicable to other taxpayers
Sec. 31- Taxable Income Defined

• Definition of taxable income under TRAIN Law no llonger

includes "and/or personal and additional exemptions" which
was provided under NIRC of 1997

• New definition of Taxable Income under TRAIN Law

Taxable Income means pertinent items of gross income
specified in this code, less deductions if any, authorized for
such types of income by this Code or other special laws
 Sec. 32 - 13t~ Month Pay and Other Benefits

• Total exclusion of gross benefits received by officials and

employees of public and private entities under TRAIN Law
provides that ...
Deductible 13th month pay and other benefits is now higher at
Php 90,000 as compared to Php 82,000 under NIRC of 1997

•.,·1a•
Sec. 32-13th Month Pay and Other Benefits
(cont.)
• Php90,000 exclusion shall cover:
o Benefits received by officials and employees of national and local
gov't. pursuant to Rep. Act. No. 6686

o Benefits received by employees pursuant to PD No. 851, as

amended by Memorandum Order No. 28 dated Aug. 13,1986

o Benefits received by officials and employees not covered by PD

No. 851, as amended by Memorandum Order No. 28 dated Aug.
13,1986
o Other benefits such as productivity incentives and Christmas
bonus
 Sec. 51- Individual Returns

• Individual whose taxable income does not exceed Php250,000

under Sec. 24(A}(2}(a} shall not be required to file tax return
except for Filipino citizen or alien individual engage in business
or practice of profession

• Tax return shall now consists of a maximum of 4 pages in

paper or electronic form and must only contain the ff.
information:
o Personal profile and information
o Total gross sales/receipts/income from compensation for services
rendered, conduct of trade or business or exercise of profession,
except income subject to final tax provided in this code

• •,~&a ••
 Sec. 51- Individual Returns (cont.)

o Allowable deductions under this code

o Taxable income as defined in Sec. 31 of this code
o Income tax due and payable

• TRAIN Law created a new section {Sec. 51-A) about the

substituted filing of ITRs by employees receiving purely
compensation income
It provides that certificate of withholding filed by respective
employers duly stamp "received" by BIR shall be tantamount
to the substituted filing of ITRs of said employees

...,"a •
Sec. 52 - Corporation Returns

• Under TRAIN, corporation's ITR shall consists of maximum

of 4 pages in paper or electronic form and must only
contain the ff. :
o Corporate profile and information
o Gross sales from services rendered, conduct of trade or
business, except income subject to final tax
o Allowable deductions
o Taxable income
o Income tax due and payable

• Foregoing provisions shall not affect implementation of RA

No. 10708 or TIMTA
 Sec. 57 - Withholding of Tax at Source

• Beginning January 01, 2019, rate of withholding shall not

be less than 1% but not more than 15% of income
payment

• RMC No. 1-2018 provides that CWT rate on income

payments to self-employed or professionals is 8%

••,·Eil ·~
Sec. 58 - Return and Payment of Taxes Withheld
at Source
• Return for both Final and Creditable Withholding Taxes be
filed and payment made not later than last day of the
month ff. the close of quarter during which withholding was
made

• Previous requirement for filing and payment of FWT was

within 25 days from close of each calendar quarter

• Previous requirement for filing and payment of CWT was

not later than last day of the month ff. the close of quarter
during which withholding was made
Sec. 74 - Declaration of Income Tax for Self-
employed Ind. & Professionals
• Deadline for filing 1st qtr. ITR for self-employed and professionals
(BIR Form 1701Q) now falls on or before May 15 of the same
taxable year

• 4th installment shall be paid on or before May 15 of the ff.

calendar year when final adjusted ITR is due to be filed

• All other individual taxpayers are still expected to file their

annual ITRs on or before April 15 following the close of each
taxable year
Sec. 84 - Rate of Estate Tax

• Under the TRAIN Law, estate tax now has a flat rate of 6%
based on value of net estate

• Previous Estate Tax Rates prior to passage of TRAIN Law

o,cr Bue • ot 'he a. l'lu · Of the , er ·

O\'Cr . hall be O\'er

P _00,000 l:.xempt

_o.o o 0 Sll/o P2 .o 0

....000,000 P 15.000 ,
t>,
00,0 0

,000,000 I 5.000 I I 'Yo -.00( .000

"'.000.000 I .000.0 0 46 -.0 0 I ·•to -,000.000

I 0. 0 . 0 And O,·cr I.- l .... 00 ~O'¾ I . 0.0 0

Sec. 86 - Computation of Estate Tax

• This section no longer contains computation of net estate on

Expenses, Indebtedness and Taxes for both resident and
nonresident's estates, Medical Expenses and Miscellaneous
Provisions

• Standard Deduction in a Resident's estate is now equivalent to

PhpS million

• Family home with a current FMV not exceeding PhplO million

shall not be subject to estate tax
Sec. 86 - Computation of Estate Tax (cont.)

Net Value of Estate Previous TRAIN

Standard Allowable Ph p 1 million Php 5 million
Deduction
FMV of Family Home Ph p 1 million Php 10 million
exempted from estate
tax

• Standard allowable deduction increased to include medical,

funeral and judicial expenses which were deducted separately
before passage of TRAIN

• Standard deduction of PhpSOOK is now given to nonresident's

estate situated in the PH
Sec. 89 - Notice of Death

• Requirement for filing Notice of Death was removed

• Previously, Notice of Decedent's death must be filed within 2

months after death

1Jeatfi ·, wtice

\
 Sec. 90- Estate Tax Returns

• TRAIN Law now requires that Estate Tax Returns showing a

gross value exceeding Php 5 million must be supported with a
statement duly certified by a CPA

• Previous value was only Php 2 million

• Filing of return is also extended from 6 months to 1 year from

the decedent's death

• CIR or Rev. Officer may grant in meritorious cases a maximum

30-day extension in addition to 1 year to file the return

•.,·e ••
Sec. 91- Payment of Estate Tax

• TRAIN Law added a subsectio~ pertaining to Payment by

Installment

• In case the available cash of estate is insufficient to pay for tax

due, payment by installment shall be allowed within 2 years
from statutory date without civil penalty and interest
Sec. 97- Bank Account of the Deceased

• TRAIN Law now allows bank to authorize withdrawal from

depositor's bank account even after his death provided that
withholding tax of 6% is paid for every transaction

• Before, only a maximum withdrawal of Php20,000 was allowed

upon death of depositor until such time that tax clearance is
presented
Sec. 97 Tax Code on Bank Accounts
(After the passage of TRAIN Law)
"If a bank has knowledge of the death of a person, who maintained
a bank deposit account alone or jointly with another,
it shall ALLOW any withdrawal from the said deposit account,
SUBJECT TO A FINAL WITHHOLDING TAX OF 6%
Provided, that the withdrawal shall only be made WITHIN 1 YEAR
from date of death of the decedent."

D ~\ o_
Sec. 99- Rate of Tax Payable by Donor

• TRAIN Law provides that donor's tax shall now be 6% of total

gifts made for each calendar year

• Previous donor's tax rate was:

Net Gift Over But not Over

The Tax
Shall be
F Of the Exces~
Over

100, 000.00 exempt

I
100, 000.00 200 , 000.00 0
I I 2% 100, 000.00

200,000.00 500,000.00 P 2,000.00

~I 200,000.00

500, 000.00 1,000, 000. 00 14,000.00

I I 6% 500,000.00

1 , 000, 000.00 3 , 000,000.00 44,000.00

I I 8% 1 , 000, 000.00

3 , 000,000.00 s , 000, 000. 00 204,000. 00

I I 10% 3 , 000, 000. 00

5,000,000.00 10,000, 000.00 404,000.00

I I 12% s , 000, 000. 00

10,000,000.00 and over 1,004,000. 00

I I 15% 10,000,000.00
Sec. 99- Rate of Tax Payable by Donor (cont.)

• 6% tax shall be computed based on total gifts in excess of

Php250,000 made during the calendar year

• Previous exemption was only Phpl00,000

• Under TRAIN Law, donation made to any person regardless of

relationship is subject to 6% tax

• Subsection 99{8) regarding tax payable if "Donee is a stranger"

has been removed
Changes in Donor's Tax

Previous TRAIN
Donor's tax on gifts Tiered rates on Flat rate of 6% in
amount of gifts in excess of
excess of PhplOOK Php250K

Amount of exemption
per year Phpl00,000 Php250,000

Tax on donation made

30% 6%
to strangers
Sec. 100 - Transfer for Less than Adequate and
Full Consideration
• TRAIN Law added a proviso in this section

• It provides that "sale, exchange or other transfer of property

made in the ordinary course of business (a transaction which is
a bona fide, at arm's length, and free from any donative
intent) ...
will be considered as made for an adequate and full
consideration in money or money's worth."
Sec. 101 - Exemption of Certain Gifts

• Under TRAIN Law, dowries or gifts not exceeding Phpl0,000

made on account of marriage before its celebration or within 1
year thereafter are no longer exempted from donor's tax