Salient Features: Tax Reform For Acceleration and Inclusion (TRAIN) - Republic Act No. 10963

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Salient Features of the TRAIN (Tax Reform for Acceleration and Inclusion) / RA 10963

Background

On December 19, 2017, the President signed into law Package I of the Tax Reform for Acceleration and Inclusion (“TRAIN”) bill otherwise known as Republic Act No. 10963.

The law contains amendments to several provisions of the National Internal Revenue Code of 1997. It shall take effect on January 1, 2018, following its complete publication in the Official Gazette or in at least one newspaper of general circulation. The law was published in the Official Gazette on December 27, 2017.

1. Tax Schedule

Effective January 1, 2018 until December 31, 2022

RANGE OF TAXABLE INCOME		TAX DUE = a + (b x c)
OVER	NOT OVER	BASIC (a)	ADDITIONAL (b)	OF OVER (C)
-	250,000.00	-		-
250,000.00	400,000.00	-	20%	250,000.00
400,000.00	800,000.00	30,000.00	25%	400,000.00
800,000.00	2,000,000.00	130,000.00	30%	800,000.00
2,000,000.00	8,000.000.00	490,000.00	32%	2,000,000.00
8,000,000.00		2,410,000.00	35%	8,000,000.00

2. Minimum Wage Earner

statutory minimum wage rates are EXEMPTED from income tax.
Also exempted are the holiday pay, overtime pay, night shift differential pay and hazard pay earned by MWEs

3. 13th Month Pay and Other Benefits

Maximum of P90,000

4. Personal and Additional Exemptions

NONE – already included in the P250,000 exempt from icome tax
repeals Sec. 33(A) of the Magna Carta for Persons with Disability, Sec.22(B) of the Foster Care Act of 2012

5. VAT Threshold

Three Million Pesos (P3,000,000)
Any person whose sales or receipts are exempt under Section 109(B) of the Code from the payment of VAT and who is not a VAT-registered person shall pay a tax equivalent to 3% of his gross quarterly sales or receipts.

VAT Deadline

Every 25th following the close of each taxable quarter
Provided, however, that VAT-registered persons shall pay the value-added tax on a monthly basis.
Provided, finally, that BEGINNING JANUARY 1, 2023, the filing and payment required under this Subsection shall be done within twenty-five (25) days following the close of each taxable quarter.

6. Self-Employed Individuals

PURELY SELF-EMPOYED/PRACTICE OF PROFESSION

OPTIONS:

The graduated rates under Section24(A)(2)(a) of the Tax Code as amended;

The 8% tax on gross sales or receipts and other non-operating income in excess of P250,000 in lieu of the graduated income tax rates under Section 24(A)(2)(a) and the percentage tax under Section 116.

Taxpayer shall be considered as having availed of the graduated income tax rates, unless the taxpayer signifies in the 1st Quarter income tax return or the initial quarter of the taxable year after the commencement of a new business/practice of profession and such election shall be irrevocable and no amendment of option shall be made for the said taxable year.

7. Taxpayers Who Cannot Avail of the 8% Income Tax Rate

Those subject to Other Percentage Taxes under Title V of the Tax Code, as amended, except those subject under Section 116 of the same Title
Partners of a General Professional Partnership (GPP) since their distributive share from GPP is already net of cost and expenses.

8. Mixed Income Earners

The compensation income shall be subject to the graduated income tax rates prescribed under Section 24(A)(2)(a) of the Tax Code, as amended; AND
The income from business or practice of profession shall be subject to:

a. If the gross sales/receipts and other non-operating income do not exceed the VAT threshold, option to be taxed at:

The graduated rates under Section24(A)(2)(a) of the Tax Code as amended;

b. If the gross sales/receipts and other non-operating income exceeds the VAT threshold, the individual shall be subject to the graduated income tax rates prescribed under Section 24(A)(2)(a).

9. Tax Filing Deadlines

Tax Return	Frequency	Deadline
ITR - First Quarter	Quarterly	May 15
ITR - Second Quarter	Quarterly	August 15
ITR - Third Quarter	Quarterly	November 15
Annual Income Tax Return	Annual	April 15
Percentage Tax	Quarterly	Every 20th of the month after the end of the quarter
1601-C	Monthly	Every 10th of he month
1601-E/1601-F - First Quarter	Quarterly	Apil 30
1601-E/1601-F - Second Quarter	Quarterly	July 31
1601-E/1601-F - Third Quarter	Quarterly	October 31
1601-E/1601-F - Fourth Quarter	Quarterly	January 31

10. Installment Payment – Income Tax for Individual Taxpayers

Income Tax Payable : P2,000 or more
First Installment – On or Before April 15
Second Installment – On or Before October 15

11. Deductions from Gross Income

Itemized Deductions
Optional Standard Deduction (OSD)

* 40% of Gross Sales/Receipts during the taxable year

* Taxpayers not required to submit with the tax return such Financial Statements otherwise required under the Tax Code, as amended

* General Professional Partnership (GPP) may avail of the OSD only once, either by the GPP or the partners comprising the partnership

* The election to claim either the itemized deductions or the OSD for the taxable year:

– must be signified by checking the appropriate box in the income tax return filed for the first quarter of the taxable year adopted by the taxpayer.

– the same type of deduction must be consistently applied for all the succeeding quarterly returns and in the final income tax return for the taxable year.

12. Documentary Stamp Tax

Document	ATC	Amount
Sec 174 - Original Issue of Share of Stock	DS101	P2.00/200
Sec 175 - Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Transfer of Shares or Certificates of Stock with par value	DS102	P1.50/200
Sec 175 - Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Transfer of Shares or Certificates of Stock without par value	DS102	50% of DST paid on original issue
Sec 179 - All Debt Instruments	DS106	P1.50/200.00 of FV or a fraction of 365 days for instrument with term of less than 1 year
Sec 188 - Certificates Issued	DS114	P30.00/Certificate
Sec 189 - Warehouse Receipts	DS115	Above P200.00=P30.00
Sec 193 - Powers of Attorney	DS119	Above P200.00 = P30.00
Sec 194 - Leases and Agreements	DS120	1st P2,000 = P6.00 Over P2,000 = P2.00/P1,000.00
Sec 195 - Mortgages, Pledges and Deeds of Trust	DS121	1st P5,000=P40.00 Over P5,000=P20.00/P5,000.00
Sec 196 - Deeds of Sale, Conveyances and Donations of Real Property	DS122	On first P1,000.00 = P15.00 In excess of P1,000 or fractional part thereof = P15.00/P1,000.00

Transfers exempt from Donor’s Tax under Section 101(a) and (b) of the Tax Code shall be exempt from Documentary Stamp Tax.

13. Estate Tax

Whether decedent is resident or non-resident of the Philippines:

	RA 10963 (TRAIN
Rate	6% based on the net value of the estate
Deductions:
Family Home	10M
Standard	5M
Funeral Expenses	none
Judicial Expenses	none
Medical Expenses	none
Time of Filing	1 year from date of death
Payment by Installments	2 years in case of insufficient cash without civil penalty and interest
CPA certification	5M
Withdrawal on deposits of decedent	6% Final Tax
Notice of death	Repealed

14. Donor’s Tax

Gift inter vivos

	RA 10963 (TRAIN
RATE
Relative	6% First P250,000.00 - Exempt
Stranger	6%
Exemption Dowries or gifts on account of marriage	None

Documentary Stamp Tax on Donation of Real Property

Not to exceed P1,000.00 P15.00

For each additional P1,000.00 P15.00

* Transfers exempt from donor’s tax shall be exempt from DST

Transfer for less than adequate and full consideration:

Where property, other than property referred to in Section 24(D) is transferred for less than an adequate and full consideration in money or money’s worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year: Provided, however, that a 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.

15. Excise Tax

PRODUCT TYPE	2017	R.A. NO. 10963
On all non-metallic mineral and quarry resources
1. Locally extracted or produced, based on actual market value	2%	4%
2. In the case of importation based on value used by Bureau of Customs in determining tariff and customs duties, net of excise tax and VAT	2%	4%
3. Locally-extracted natural gas and liquefied natural gas	P0.00	Exempt

Excise Tax – on Non-Essential Services

Rate = five percent (5%)
Tax Base = Gross Receipts, net of excise tax and VAT
Coverage = invasive cosmetic procedures, surgeries, and body enhancements directed solely towards improving, altering, or enhancing the patient’s appearance and do not meaningfully promote the proper function of the body or prevent or treat illness or disease.

Manner of Remittance of Excise Tax

Under existing rules on goods subject to excise taxes, the excise tax return is required to be filed and the excise tax paid by the manufacturer or producer of the goods before removal from the place of production.

In cases where no service subject to excise tax is performed and there are no payments received, the Monthly Remittance Return of Final Withholding of Excise Tax shall be filed with Excise Large Taxpayers Field Operations Division (ELTFOD) for Large Taxpayers/Revenue District Office for taxpayers in the National Capital Region (NCR)/Excise Tax Area (EXTA) in Regional Offices for taxpayers outside NCR.
Taxpayers filing via EFPS shall comply with the provisions of the EFPS Regulations.

Invoicing Requirements

Every person subject to excise tax herein imposed shall issue:

An Official Receipt for services performed whether invasive/non-invasive.
The following information shall be indicated in the Official Receipt:

a. The total amount which the patient/client pays or is obligated to pay to the service provider including the excise tax and the value-added tax:

Provided, that:

* The amount of excise tax shall be shown as a separate item in the O.R.;

* Discounts given shall be indicated in the O.R., otherwise, the same shall not be allowed as deduction from gross receipts

* If the procedure performed is non-invasive and considered exempt from excise tax, the term Exempt from Excise Tax shall be shown on the O.R.

* If the services performed involved both invasive (excisable) and non-invasive (exempt from excise tax) procedures, the receipt shall clearly indicate the breakdown of the amount received between its taxable and exempt components and the calculation of excise tax on each portion of the procedure performed shall be shown on the receipt:

* Provided, that the service provider may issue separate ORs for the excisable and exempt components of the services rendered.

16. Keeping of Books of Accounts

Corporations, companies, partnerships, or persons whose gross annual sales, earnings, receipts or output exceed Three Million Pesos (P3,000,000), shall have their books of accounts audited and examined yearly by independent Certified Public Accountants and their Income Tax Returns.

17. Issuance of Receipts or Sales or Commercial Invoices

Threshold increased from P25 to P100

18. Keeping and Preservation of Receipts and Invoices

In the place of business for a period of three (3) years from the close of the taxable year in which the invoice or receipt was issued;
Includes digital records for electronic receipts or sales or commercial invoices;
Original – to be kept by the purchaser, customer, or client;
Duplicate – kept by the issuer

19. Attempt to Evade or Defeat Tax

Fine

* Not less than P500,000 but not more than P10,000,000.

2. Imprisonment

*Not less than 6 years but not more than 10 years

20. Failure or Refusal to Issue Receipts

NIRC 1997	RA 10963 (TRAIN)
(a) Any person, who, being required under Section 237 to issue receipts or sales or commercial invoices, fails or refuses to issue such receipts or invoices, issues receipts or invoices that do not truly reflect and/or contain all the information required to be known therein, or uses multiple or double receipts or invoices, shall, upon conviction for each act or omission, to be punished by a fine of not less than One thousand pesos (P1,000) but not more than Fifty thousand pesos (P50,000) and suffer imprisonment of not less than two (2) years but not more than four (4) years.	(a) same
(b) Any person who commits any of the acts enumerated hereunder shall be penalized in the same manner and to the same extent as provided for in this Section:	Penalties for Acts Enumerated Under Sec 264(B)
(1) Printing of receipts or sales or commercial invoices without authority from the Bureau of Internal Revenue; or	Fine - not less than P500,000.00 but not more than P10,000,000.00 Imprisonment - not less than 6 years but not more than 10 years
(2) Printing of double or multiple sets of invoices or receipts; or
(3) Printing of unnumbered receipts or sales or commercial invoices, not bearing he name, business style, Taxpayer Identification Number, and business address of the person or entity.	Fourth item is added to Sec. 264(B) "(4) Printing of other fraudulent receipts or sales or commercial invoices

21. Failure to Transmit Sales Data (CRM/POS)

Monthly e-Sales Reporting
Any taxpayer required to transmit sales data to the Bureau’s electronic sales reporting system but fails to do so shall pay, for each day of violation, a penalty amounting to one-tenth of one percent (1/10 of 1%) of the annual net income as reflected in the taxpayer’s audited financial statement for the second year preceding the current taxable year for each day of violation or Ten Thousand Pesos (P10,000), whichever is higher Provided, That should the aggregate number of the days of violation exceed one hundred eighty (180) days within a taxable year, an additional penalty of permanent closure of the taxpayer shall be imposed: Provided, further, That if the failure to transmit is due to force majeure or any causes beyond the control of the taxpayer, the penalty shall not apply.

22. Sales Suppression Devices

Sec. 264-B Purchase, Use, Possession, Sale or Offer to Sell, Installment, Transfer, Update, Upgrade, Keeping or Maintaining of Sales Suppression Devices. – Any person who shall purchase, use, possess, sell or offer to sell, install, transfer, update, upgrade, keep or maintain any software or device assigned for, is capable of: (A) suppressing the creation of electronic records of sale transactions that a taxpayer is required to keep under existing tax laws and/or regulations; or (B) modifying, hiding, or deleting electronic records of sales transactions and providing a ready means of access to them, shall be punished by a fine of not less than Five Hundred Thousand Pesos (P500,000) but not more than Ten Million Pesos (P10,000,000); and suffer imprisonment of not less than two (2) years but not more than four (4) ears; Provided, That a cumulative suppression of electronic sales record in excess of the amount of Fifty Million Pesos (P50,000,000) shall be considered as economic sabotage and shall be punished in the maximum penalty provided for under this provision.