Did you know that there are other provisions in the approved TRAIN tax reform aside from the reduced personal income tax rates, new sugar tax, oil and fuel tax, and automobile excise tax?
By now, we’re most likely familiar already with those tax items. Still, the approved Tax Reform for Acceleration and Inclusion (TRAIN) bill is much more comprehensive and includes dozens of other tax provisions not highlighted or explained very well in mainstream media.
We explain below these relatively unknown tax items. Here are 10 TRAIN tax reform provisions that you probably do not know — but ought to know.
(UPDATE): We compiled all articles related to the TRAIN law on this page: TRAIN Law and BIR Tax Implementing Guidelines. Click the link to access BIR’s implementing rules and regulations and examples of how to compute applicable taxes.
* * * UPDATED resources on the approved TRAIN Tax Reform below:
- Everything about TRAIN Law and BIR Tax Implementing Guidelines
- What’s included in the approved Philippine TRAIN Tax Reform Law?
- New Income Tax Rates and Income Tax Tables under TRAIN
- BIR Sample Tax Computations under TRAIN
1. Personal and additional exemptions have been removed
Some people already know this, but many are still unaware: under the new TRAIN tax law, the personal exemption of P50,000 and additional exemption of P25,000 per dependent, which were enjoyed by taxpayers in the old tax system, have now been removed.
In the past, an individual may avail of personal exemption (P50,000) and additional exemption (maximum of P100,000 if there are four dependents) to be deducted from the taxable income. Under TRAIN, the exemption has been simplified and made more straightforward. This simply means:
- if the taxpayer’s gross income is P250,000 or below, he or she is automatically exempted from paying the income tax; and
- it doesn’t matter now if the taxpayer has one dependent or four dependents or no dependent at all
That means two taxpayers with the same gross income will pay exactly the same tax due — regardless if one taxpayer has four children (i.e., four dependents) while the other has none.
In addition to the removal of personal and additional exemptions, the maximum P2,400 premium for health and hospitalization insurance, which is previously deductible from taxable income, has also been removed.
2. Tax on lotto winnings and PCSO prizes
Under the existing National Internal Revenue Code (NIRC), lotto winnings and all PCSO prizes are tax-exempt. This has now been changed by the TRAIN law.
Starting 2018, all PCSO and lotto prizes are taxed 20% if the amount of the prize or winnings is above ten thousand pesos (P10,000).
| Old Tax Rate | New Tax Rate (TRAIN Tax Reform) | |
|---|---|---|
| Lotto Winnings and PCSO Prizes | None (Tax-exempt) | 20% if amount is above P10,000 |
3. Tax on pre-terminated long-term time deposits
Long-term time deposits (TD), or time deposits with duration of 5 years and 1 day, will continue to be tax-exempt. However, the tax on interest income of these deposits once preterminated has been changed.
From the current rate of 5-20%, the tax charged on the interest income of long-term time deposits that are preterminated (meaning, withdrawn prior to the scheduled maturity date) has been increased to a fixed 20%.
| Old Tax Rate | New Tax Rate (TRAIN Tax Reform) | |
|---|---|---|
| Interest Income on Pre-terminated Long-Term Time Deposit | 5-20% | 20% |
4. Tax on interest income of foreign currency deposits
Under the previous tax code, the interest income on foreign currency accounts (such as US dollar, Euro, Japanese Yen, Korean won, etc.) deposited in Philippine banks is 7.5%. The TRAIN law has increased the foreign currency deposit unit (FCDU)’s interest income tax rate from 7.5% to 15%.
| Old Tax Rate | New Tax Rate (TRAIN Tax Reform) | |
|---|---|---|
| Interest Income of FCDU | 7.5% | 15% |
5. Tax on stock transactions
The tax rate on sale of stocks have been increased. The sale of stocks not traded in the Philippine Stock Exchange (PSE) is previously taxed 5-10%. This is now increased to 15% under the tax reform.
Meanwhile, sale of stocks that are traded in the PSE will be taxed 0.6% of the gross trade amount, up from the previous rate of 0.5%. (Read more details here: Impact of New PSE Stock Transaction Tax)
6. Documentary Stamps (Doc Stamps) Tax
The documentary stamp tax (DST) has been doubled, with the new doc stamps tax ranging from P1.50 to P3.00 under the tax reform.
7. Donor’s Tax
The donor’s tax was revised to a flat rate of 6% regardless of the relationship between the donor and the donee. Previously, the donor’s tax was 2% to 15% if the donor and donee are related, and 30% if the donation was to a stranger.
Donations or gifts below P250,000 are tax-exempt. Donations with value of at least P250,000 are taxed using the new rate of 6% on the amount in excess of P250,000.
(See also: Donor’s Tax in the Philippines under TRAIN with sample BIR Computations)
8. Estate Tax
Under TRAIN, the estate tax is now a flat 6% rate on the amount in excess of P5 million.
Estates with a net value of P5 million and below will be tax-exempt. Family homes that are valued at no more than P10 million will also be exempted. Under current tax laws, only family homes worth P1 million are tax-exempt.
(See also: New Estate Tax under TRAIN with sample BIR Computations)
9. Cosmetic Surgery Tax
Starting 2018, all cosmetic surgeries, aesthetic procedures, and body enhancements intended to improve, alter, or enhance a person’s appearance is now subject to a tax of 5%.
10. Deadline to file annual Income Tax Return (ITR)
Previously, it was reported that under the TRAIN law or Republic Act (RA) No. 10963, the deadline to file the annual Income Tax Return (ITR) has been moved to May 15. The BIR has issued an official announcement clarifying that the Deadline to file ITR under TRAIN is still April 15.
According to the BIR, the deadline to file the individual ITR specifically BIR forms 1700 and 1701, is still April 15 from year 2018 onwards. What was moved is the deadline to file BIR Form 1701Q, the quarterly ITR, for the first quarter every year from April 15 to May 15, beginning the year 2018.
Thus, the deadline to submit BIR Forms 1700 and 1701 for the taxable year 2017, is April 15, 2018. Meanwhile, the deadline to submit the quarterly ITR, BIR Form 1701Q, for the taxable year 2017 has been moved to May 15, 2018. Every year thereafter, the deadline to file the 1701Q will be May 15, not anymore April 15.
To summarize, the deadline for filing for Self-employed and Professionals:
- 2017 Annual ITR: April 15, 2018
- 2018 Annual ITR: April 15, 2019
- 2018 Quarterly ITR (1st Quarter): May 15, 2018
- 2018 Quarterly ITR (2nd Quarter): Aug. 15, 2018
- 2018 Quarterly ITR (3rd Quarter): Nov. 15, 2018
* * * UPDATED resources on the approved TRAIN Tax Reform below:
