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[OPINION] Train law: What does it change?

As a tax lawyer, I noticed that there are a lot of news reports on the changes. But actually, there
are much more significant changes under the Train law which are not being reported.

Edward G. Gialogo

Published 6:23 PM, January 04, 2018

Updated 12:41 PM, January 05, 2018

As we celebrated the New Year, the Tax Reform for Acceleration and Inclusion (Train) Law or
Republic Act No 10963 took effect on January 1, 2018. Train overhauls the outdated National
Internal Revenue Code (NIRC) which was adopted 20 years ago.

As a tax lawyer, I noticed that there are a lot of news reports on the changes. But actually, there
are much more significant changes under the Train law which are not being reported.

Train relatively decreases the tax on personal income, estate, and donation. However, it also
increases the tax on certain passive incomes, documents (documentary stamp tax) as well as
excise tax on petroleum products, minerals, automobiles, and cigarettes.

The Train law also imposes new taxes in the form of excise tax on sweetened beverages and
non-essential services (invasive cosmetic procedures) and removes the tax exemption of Lotto
and other PCSO winnings amounting to more than P10,000.

Nonetheless, the new law also contains praiseworthy provisions which aim to simplify tax
Reduced taxes

Personal Income Tax

The most popular part of the Train law is the reduction of personal income tax of a majority of
individual taxpayers. Prior to the enactment of the new law, an individual employee or self-
employed taxpayer would normally have to pay income tax at the rate of 5% to 32%, depending
on one's bracket.

Under Train, an individual with a taxable income of P250,000 or less will now be exempt from
income tax. Those with a taxable income of above P250,000 will be subject to the rate of 20%
to 35% effective 2018, and 15% to 35% effective 2023. Moreover, the deductible 13th month
pay and other benefits are now higher at P90,000 compared to P82,000 under the old law.

The table shows the comparison of the brackets and tax rates under the NIRC and Train:
Another innovation under Train is the option of self-employed individuals and/or professionals
whose gross sales or receipts do not exceed P3,000,000 to avail of an 8% tax on gross sales or
gross receipts in excess of P250,000, in lieu of the graduated income tax rates.

It is not being highlighted, however, that some items that were previously deducted to arrive at
taxable income had been removed under Train. These are the personal exemption of P50,000,
additional exemption of P25,000 per dependent child, and the premium for health and
hospitalization insurance of P2,400 per year.

Estate Tax

The estate tax rate was also changed from 5% to 32% of the net estate to a flat rate of 6%.
Additionally, the following deductions allowed in computing the net estate (to be subjected to
estate tax) were increased:

Donor’s tax

The donor’s tax rate was also amended to a single rate of 6% regardless of the relationship
between the donor and the donee. In the old law, the rates of donor’s tax were 2% to 15% if
the donor and donee are related, and 30% if otherwise. However, the donation of real property
is now subject to Documentary Stamp Tax of P15 for every P1,000.
Value Added Tax

There are also amendments to VAT which lessen the burden of taxpayers:

1. Increase of VAT threshold from P1,919,500 to P3,000,000

2. Starting 2019, the sale of drugs and medicines for diabetes, high cholesterol, and
hypertension will be exempt from VAT
3. Increase of VAT exemption for lease of a residential unit from P12,800 to P15,000
4. Association dues, membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations are now expressly VAT

Increased taxes

Passive Income

Train imposes higher taxes on some passive incomes, including interest income from dollar and
other foreign currency deposits.

There is also a significant increase in the tax on sale of shares of stocks.

Excise Tax

Train imposes higher excise taxes on cigarettes, manufactured oils (petroleum products),
mineral products and automobiles.

Manufactured oils and other products

Mineral products

Hybrid vehicles shall be subject to 50% of the applicable excise tax rates. But purely electric
vehicles and pick-ups shall be exempt from excise tax.

Documentary Stamp Tax

Unlike the House of Representatives’ version of Train wherein no change was introduced on the
rates of Documentary Stamp Taxes (DST), Train increases the DST on almost all taxable
New taxes

Aside from increase and decrease of certain taxes, Train also introduces new taxes in the form
of excise tax on sweetened beverages and non-essential services.

Sweetened Beverages

Non-essential services

Invasive cosmetic procedures directed solely towards improving, altering, or enhancing the
patient’s appearance is now subject to excise tax of 5%.

PCSO winnings

Previously, PCSO winnings, regardless of amount, were exempt from tax. Train subjects PCSO
winnings to a 20% final withholding tax if the amount is more than P10,000.

Simplified tax compliance

Apparently, the Philippine tax system is a very complicated one. This was certainly considered
by Congress when it enacted the Train law. Consequently, Train introduces amendments which
are geared towards simpler tax compliance. Some of these amendments are:

1. The Income Tax Returns shall not be more than 4 pages

2. The Tax Return for final and creditable withholding taxes shall be filed quarterly instead
of monthly
3. With regard to estate tax, the following measures were adopted to simplify its
computation and payment:
o In lieu of actual funeral expenses (up to P200,000) and medical expenses (up to
P500,000), Train increases the standard deduction (wherein no substantiation is
required) from P1,000,000 to P5,000,000
o Notice of death is no longer required
o CPA certification is now required only if the gross estate is above P5,000,000 (up
from P2,000,000)
o The deadline for filing of estate tax return is now one year from death (before, 6
months from death)
o Bank deposits left by the decedent may be withdrawn by the heirs subject only
to 6% withholding tax. Before a certification from the BIR that estate tax has
been paid was required.
4. Beginning January 1, 2023, the filing of VAT Return and payment of tax shall be done
quarterly instead of monthly
5. The BIR is required to act on application for VAT refund within 90 days. Otherwise, the
BIR official, agent or employee will be criminally liable.
6. The Financial Statements of a taxpayer should be audited if the gross annual sales,
earnings, receipts or output exceed P3,000,000 (up from P150,000)

With the enactment of the Train law, the government expects to generate more revenues to
fund its "Build, Build, Build" projects and other programs. At the same time, the labor sector is
expected to be freed from the burden of outdated and inequitable personal income tax.
Hopefully, this benefit for the workers can still be achieved despite the increase in prices of
some goods that they consume.

Read our law office's comprehensive comparison of the NIRC and the Train law here. –

This article is for general information only. If you have any question or comment regarding this
article, you may email the author at egialogo.gdlaw@gmail.com.

Atty Edward G. Gialogo is the managing partner of Gialogo Dela Fuente & Associates. He is also
a tax speaker in Philippine Institute of Certified Public Accountants and Business Law Reviewer
in Review School of Accountancy (ReSA). He was an Associate Director in the Tax Services of
SyCip Gorres Velayo & Co.

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Filed under:Philippine tax lawsPhilippine taxesRepublic Act 10963Tax Reform for Acceleration
and InclusionTrain lawtax lawsTRAIN

New tax rates don't apply to old petroleum

stocks, DOE warns
New excise tax rates on petroleum products are levied upon importation, not at the point of
sale to the consumers


Published 4:49 PM, January 01, 2018

Updated 6:04 PM, January 01, 2018
NEW TAX RATES. The implementation of excise tax and value added tax (VAT) for petroleum
products under the Tax Reform for Acceleration and Inclusion Law is effective on January 1,
2018. File photo

MANILA, Philippines – The new excise tax rates, which takes effect on Monday, January 1, do
not apply to old stocks of petroleum products, the Department of Energy (DOE) warned.

In an advisory issued Sunday, December 31, the DOE reminded retailers that they should not
charge the new excise tax rates to consumers.

DOE, through the Oil Industry Management Bureau (OIMB) and in coordination with the
Department of Finance (DOF), said excise tax rates are not levied at the point of sale to the

“The OIMB has issued an advisory to petroleum products stakeholders not to levy new excise
tax on old stocks, considering that excise taxes are levied upon importation,” Energy Assistant
Secretary Leonido Pulido III said in the advisory.

The implementation of excise tax and value added tax (VAT) for petroleum products under the
Tax Reform for Acceleration and Inclusion (TRAIN) is effective on January 1, 2018.

For VAT, the new rates under TRAIN that are applicable to consumers become effective on
Monday, January 1. (READ: Filipinos to welcome 2018 with new withholding tax rates)

The department said it will continuously monitor oil trading in the international market and
analyze its impact on the domestic prices of petroleum products, as mandated by the Oil
Deregulation Law of 1998.

The DOE had observed that last week’s international oil trading may affect the domestic prices
of gasoline, diesel and kerosene as follows:

 Gasoline prices may increase by around P0.15 per liter;

 Diesel may increase by around P0.60 per liter; and,
 Kerosene may increase by around P0.55 per liter.

Adjustments on petroleum products are implemented every Tuesday of the week.

"Please note, however, that these findings may still be affected by the Friday trading activities
which will be accessed on Monday," Pulido added.

For kerosene and household liquefied petroleum gas (LPG), the department reiterated that
"price freeze" should be observed in calamity areas.
The Bureau of Internal Revenue is set to hold public consultations on January 11 and January 12
before issuing regulations on income tax, withholding tax, value added tax, as well as excise tax
on petroleum and automobiles, among others.

It was last December 19 when President Rodrigo Duterte signed Republic Act 10963 or the
TRAIN Law, which is a priority measure of the administration.

Revenues from the tax reform measure are meant to fund the Duterte government's Build,
Build, Build infrastructure program and socio-economic programs. – Rappler.com