TRAIN Tax Reform Bill (Senate version)

James Ryan Jonas

The Senate ways and means committee approved yesterday its version of the proposed Philippine Tax Reform Bill, also known as TRAIN or Tax Reform for Acceleration and Inclusion.

What’s in the Senate version of the tax reform package?

Here are eight (8) highlights from the Senate version of the proposed Tax Reform bill.

1. Lower threshold for tax exemption (from P250,000 to P150,000)

In the House version, those who are earning P250,000 and below will be exempted from paying income taxes.

The Senate lowered this threshold and, in the committee-approved version, exempted those who are earning at most P150,000 from paying income tax. This means anyone earning P150,000 and below (around P12,500 per month) will no longer have to pay income tax.

2. Additional exemption of P25,000 per dependent (max of 4 dependents)

Taxpayers with qualified dependents are eligible for additional exemption of P25,000 per dependent, for a maximum of four dependents, translating to a maximum of P100,000 additional exemptions.

What this means is that an employee earning P25,000 per month will be fully exempted from paying income tax. This is because, as computed:

  • P25,000 monthly salary * 13 months (includes 13 month pay) =  P325,000 gross annual salary
  • Four dependents of P25,000 each = P100,000 total exemption
  • Total taxable income is therefore P225,000 computed as P325,000 gross annual salary – P100,000 additional exemption

Since the P225,000 taxable income is below the Senate version’s threshold of P250,000, the employee is exempted from paying income taxes

3. Tax exemption for 13th month pay and bonuses up to P82,000

Bonuses and 13th month pay awarded to employees that amount to P82,000 or below will continue to be tax-exempt.

4. Self-employed and freelancers to be charged fixed 8% tax rate

Self-employed individuals and freelancers, who are not employed by any company, may choose between two tax options:

  • A flat 8% tax on gross earnings; or
  • The schedule of new income tax rates for compensation earners (income tax table here)

The good part is, these people no longer have to make quarterly tax payments. They can pay taxes once a year, based on the Senate proposal.

5. Higher VAT exemption for small businesses

At present, only businesses with gross sales of P1.9 million and below are exempted from paying VAT. The Senate version raised this threshold to P3 million.

This means small businesses with annual total sales of P3 million or below will be exempted from paying VAT, and will also not be required anymore to file monthly VAT returns and quarterly percentage tax returns.

6. Incremental tax increase on Diesel, Petroleum, and other Oil products

For diesel, petroleum, and other oil products, the current Senate version calls for additional tax of:

  • P1.75 per liter on the first year;
  • P2.00 per liter on the second year; and
  • P2.25 per liter on the third year

This is different from the House version of P3.00, P2.00 and P1.00 to be charged in the next three years.

For LPG, the increase will be additional P1.00 every year for the next three years. Kerosene will remain to be exempted.

7. Excise Taxes on Cars

The Senate committee version of the excise tax on cars and automobiles is similar to the House version. Hybrid and electric cars will remain to be tax-exempt.

Excise Tax on Cars and Automobiles

Automobile's Net Selling Price20182019
Below P600,0003%4%
P600,000 to P1.1 millionP18,000 + 30% in excess of P600,000P24,000 + 40% in excess of P600,000
P1.1 million to P2.1 millionP168,000 + 50% in excess of P1.1 MillionP224,000 + 60% in excess of P1.1 Million
P2.1 million to P3.1 millionP668,000 + 80% in excess of P2.1 MillionP824,000 + 100% in excess of P2.1 Million
Above P3.1 millionP1.468 million + 90% in excess of P3.1 MillionP1.824 million + 120% in excess of 2.1 Million

8. Tax on Drinks that use Sugar

The House-approved version charges a P10.00-per-liter tax on liquid, powder, and concentrate forms of drinks that use sugar, which include 3-in-1 coffee, powdered juice, energy drinks, bottled iced tea, and soft drinks.

The Senate version is different and categorized the tax based on the type of sweetener used on the drink:

  • P5.00 tax per liter of beverages that use caloric sweeteners;
  • P3.00 tax per liter for those using non-caloric sweeteners; and
  • P10.00 tax for beverages that use high fructose corn syrup (typical sweetener used in softdrinks and bottled juices)

The Senate version exempted 3-in-1 or instant coffee from the excise tax.

Earlier this May 2017, the House of Representatives approved its own tax reform version. Still, the bill could undergo changes and revisions when it reaches the Senate plenary. The entire Senate has to first approve the final version. Afterwards, the House and Senate versions will be harmonized in a bicameral conference committee, and a single and final version is then forwarded to the President for approval or veto.

Sources: Philippine Daily Inquirer, Rappler, GMA News, ABS-CBN News

Read these other interesting, useful posts!

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.