TRAIN Seminar PDF

Let’s Raise the bar
My TRAIN of thought
of Excellence!
A deeper look at Republic Act 10963
A Raise Seminar
By: Prof. Leylane D. Olan, CPA
March 26, 2018, The Pavilion, LSPU Los Banos
This presentation was especially prepared for
B.S. in Accountancy students at the Laguna State
Polytechnic University Los Banos Campus, College
of Business Management and Accountancy, to be
used exclusively for academic purposes, as a
means to enhance instruction, and should not be
issued, circulated, or reproduced in any manner,
whether in whole or in part, without the prior
consent of the person named hereunder.

My TRAIN of thought
A deeper look at Republic Act 10963
A Raise Seminar
March 26, 2018, The Pavilion, LSPU Los Banos
The TRAIN has arrived.
Tax • Republic Act (RA) No. 10963

• Signed into law on December
Reform for 19, 2017
• Took effect January 1, 2018
Acceleration &
• The 1st of 5 tax reform
INclusion packages
My TRAIN of Thought by Prof. L.D.Olan

Where will TRAIN take us?

How do we get there?
1. Generate Php130B additional revenues

2. To fund the government’s Build, Build,
Build infrastructure programs and other
socio-economic programs
3. Resolve long-standing inequity in the tax
system

https://www.rappler.com/nation/191729-rodrigo-duterte-signs-tax-reform-law

What’s in the TRAIN?

TRAIN Law Amendments
 Individual and Corporate income tax

 VAT and Other Percentage Taxes
 Estate Tax
 Donor’s Tax
 Excise Tax
 Documentary Stamp Tax (DST)

President’s Veto
5 provisions vetoed:
Vetoed provision Rationale
Sec. 6(F) Entitlement of alien Violates equal protection
employees of existing ROHQs/RHQs, clause in the Constitution
OBUs and petroleum service
contractors
Zero-rating of sales of goods and Goes against the principle of
services to separate customs territory limiting VAT zero-rating to
and tourism enterprise zones direct exporters

President’s Veto
Vetoed provision Rationale

Exemption from percentage tax of Results in unnecessary
gross sales/receipts exceeding erosion of revenues and leads
Php500,000 to abuse and leakages
Exemption from excise tax of Too general, open to abuse.
various petroleum products used The Tax Code already
as input, feedstock or as raw specifies which petroleum
materials products are exempt
Earmarking of incremental Diminishes the share of the
tobacco taxes health sector in the proposed
revenue allocation

Individual Income Tax
 Change in Graduated income tax rates
 Exempt - first Php250k
 Income brackets were expanded
• Before, the maximum income bracket subject to the highest
tax rate starts from Php500k but now, it starts from Php8M
 Maximum tax rate was increased to 35% from 32%
 Income Tax table changes again eff. January 1, 2023.
• Lower base (minimum) taxes for each income bracket

Before TRAIN
"Not over P10,000 ........ 5%
"Over P10,000 but not over P30,000 ........ P500+10% of the excess over P10,000
"Over P30,000 but not over P70,000 ........ P2,500+15% of the excess over P30,000
"Over P500,000 ........ P125,000+32% of the excess over P500,000
Under TRAIN

 Other changes:
• No more personal exemptions (basic and additional) which
applies to individuals, estates and trusts
• No more health insurance premium deduction (Php2,400
annually)
• Change in FBT gross-up factor to 65% from 68% (since max tax
rate is now 35%)
• Ceiling on tax-exempt 13th month pay & other bonuses = Php90k
 Under TRAIN, what can we treat as non-taxable income?
 Exclusions from gross income under Sec. 32B
 De minimis benefits
 Exclusions from Gross Income under Sec 32B
 Life insurance proceeds
 Gifts, bequests and devises
 Compensation for injuries or sickness
 Income exempt under treaty
 Retirement benefits, pensions, gratuities received by employees
of private firms subject to compliance with requirements
 Retirement benefits, pensions, gratuities and similar benefits
received from foreign government agencies and institutions

 SSS, GSIS benefits
 Benefits received from US Veterans Administration
 Prizes and awards received under certain conditions
 13th month pay and other benefits not exceeding Php90,000
• Benefits of government employees under RA 6686
• Benefits of employees under PD 851 (13th month pay)
• Benefits outside PD 851 as amended by MO 28
• Other benefits such as Christmas bonus and productivity incentives
 SSS, GSIS, Philhealth (formerly Medicare), Philhealth
mandatory contributions and union dues
 Gains from sale of bonds, debentures & other certificates of
indebtedness with original maturity of more than 5 years
 Gains from redemption of shares in mutual fund company

 De Minimis benefits – not subject to income tax & FBT
 Monetized unused VL of private employees not exceeding 10
days
 Monetized VL and SL of government officials and employees
 Rice subsidy of Php1,500 or one sack of 50kg rice / month
amounting to not more than Php1,500
 Uniform / clothing allowance not exceeding Php5,000/year
 Laundry allowance not exceeding Php300/month

 Actual medical assistance or medical allowance given to
employees not exceeding Php10,000/year
 Medical cash allowance to employees’ dependents, not
exceeding Php1,500/year
 Daily meal allowance for overtime work, not exceeding 25% of
the basic minimum wage

 Employees achievement awards that meet all these conditions:
• Given in tangible personal properly, except cash or GCs
• Annual value not exceeding Php10,000
• Under an established written plan that does not discriminate in
favor of highly paid employees
 Gifts given during Christmas and major anniversary celebrations
not exceeding Php5,000/year
 Benefits received under CBA and productivity incentive schemes

 Change in certain final tax and capital gains tax rates
 Amended only Sec. 24B & 24C which apply to RC, NRC & RA
 Sections 25A (NRAEB) and 25B (NRANEB) were not amended
 Amended Sec. 24B:
• Final tax on FCDU deposits– 15% from 7.5% (only RA & RC are
affected. NRCs remain exempt from this tax)
• PCSO and Lotto winnings >Php10,000 – now taxed at 20%,
previously exempt
 Amended Sec. 24C – CGT on off-exchange sale of shares in a
domestic corp – now at 15% from 5%/10%

PASSIVE INCOME TAX RATES - INDIVIDUALS
Passive income RC/RA NRC NRAEB NRANEB Key points
(from Philippine sources)
Interest on any currency bank 20% 20% 20% 25% Any currency except
deposit, yield or monetary FCDU deposits
benefit from trust funds and Not just interest, also
similar arrangements yield
Interest on FCDU deposits 15% Exempt Exempt Exempt Exempt if non-resident,
regardless of whether
citizen or alien. For
purposes of the tax on
FCDU deposits, an
alien will be considered
a resident if
permanently residing in
Phils.
Long-term deposit or Exempt Exempt Exempt 25% If preterminated, taxed
investment certificates unless unless unless based on holding
• From Savings, trust funds preterm pretermi pretermi period:
• Issued by a bank inated nated nated 5% = 4 to <5yrs
• Maturity of at least 5 years 12% = 3 to <4yrs
• Certificate -form 20% = <3yrs
prescribed by BSP
Passive income RC/RA NRC NRAEB NRANEB Key points
(from Philippine
sources)
Royalties in general 20% 20% 20% 25% Subject to reg. income tax if
earned in the ordinary course of
business
Royalties on books, 10% 10% 10% 25% Lower rate of tax imposed to
literary works & encourage creative/artistic
musical compositions works
Prizes 10k & below Regular Regular Regular 25% Prize vs winning:
income income income  Prize – game of skill more
tax tax tax than chance
20% 20% 25%  Winning – game of chance
Prizes above 10k 20%
Winnings from 20% if >10k 20% if >10k Exempt 25% NIRC Sec 25(A) on passive
Exempt if Exempt if
PCSO/lotto income of NRAEB was not
10k & 10k & below
amended so PCSO and lotto
below
winnings of such persons
remain exempt.
Winnings, in general 20% 20% 20% 25% Exemption of 10k & below
applies only to PCSO/lotto
winnings.
Cash or property 10% 10% 20% 25% Includes dividends and profit
dividends share from corp, GCPs, JVs
CAPITAL GAINS TAXATION - INDIVIDUALS
Capital gains (from RC/RA NRC NRAEB/ Key points
Philippine sources) NRANEB
Capital gains from 15% 15% 5% 1st 100k, + • Sale, exchange, or other
Sale of shares in 10% in excess means of disposal
domestic corporation • Shares in domestic corp
outside the local • Outside the exchange (subj.
exchange to percentage tax if done
via exchange)
Basis: Net capital gains
Capital gains from Regular income 25%  Taxed based on holding

other assets (stocks, tax on net capital period
bonds, personal gains • 100% - short-term
articles, etc) • 50% - long-term
 Net loss deductible up to
gains, but not exceeding
taxable income
 Loss carry-over allowed up
to succeeding year only
CAPITAL GAINS TAXATION - INDIVIDUALS
Capital Gains
Capital gains (from RC/RA
Philippine sources)
NRC
Taxation
NRAEB/
NRANEB
- Individuals
Key points
Capital gains from 6% 6% 6% Basis: Higher between:

sale of real property  Gross selling price
except principal  FMV – which is the higher of:
residence • BIR zonal values
• City assessor’s zonal
values
Capital gains from 6% 6% 6%  Basis and computation of CGT
sale of real property - due is the same
principal residence  CGT is not remitted but placed in
an escrow acct
 Seller is given 18 months to use
the proceeds to buy or build a
new residence
 CGT shall be due, with penalties
(for late payment), on proceeds
not utilized to buy or build a new
home.
 Can be availed only every 10 yrs
 Change in taxation of special aliens:
• Under TRAIN
1. Employees of RHQs/ROHQs, OBUs and PSCs registered with
SEC starting January 1, 2018 shall no longer be entitled to the
15% tax.
2. Employees of existing RHQs/ROHQs, OBUs and PSCs shall
continue to be entitled to 15% tax – Vetoed provision

 Taxation of Special Aliens:
1. RHQ/ROHQ
2. OBUs
3. Petroleum service contractor or subcontractor (PSC)
• Taxed under Sec. 25 (C), (D) and (E) - 15% final tax on gross income
of such alien employees and Filipinos occupying similar positions.
This provision was not amended
• Passive income & capital gains are taxed similar to other alien
taxpayers.

 Option to avail of 8% tax:
• Qualified taxpayer may opt to pay the 8% tax
• 8% tax shall be in lieu of graduated income tax and 3% percentage tax
on business/professional income.
 Who may avail?
• Available only to purely self-employed or professionals and mixed
income earners Not available to pure compensation-earners
• Only to non-VAT-registered taxpayers - did not meet the threshold for
VAT registration (annual gross sales or receipts did not exceed Php3M)
 Tax Base = gross sales/receipts plus other non-operating income
(similar to MCIT gross income base before cost of sales/services)

 Changes relating to Tax Filing and Payment
1. Filing and payment deadline
• 1st – May 15 of current year
• 2nd – August 15
• 3rd – November 15
• Final adjustment return – May 15 of the following year
May 15 – two ITRs will be filed – 1st quarter and prior year’s annual ITR
2. Parties not required to file ITR – added:
• Those whose Taxable income did not exceed Php250K
Except business income earners – to file even if on a loss
• Those entitled to substituted filing tax due = taxes withheld,
only 1 employer

 Changes relating to Tax Filing and Payment
3. Installment payment – change in date of payment of 2nd
installment
Installment is allowed if the income tax due is more than
Php2,000.
Tax is allowed to be paid in two (2) installments:
• First installment – upon filing the ITR
• 2nd (final) installment – on or before October 15 after the
close of the calendar year
.
Corporate Income Tax
 Changes in corporate taxation
 PCSO no longer exempt. It was removed from GOCCs exempt
from income tax. SSS, GSIS, PHIC and the local water districts
(LWDs) remain income tax exempt.
 Change in tax rates applied to certain passive income and gains
derived by domestic corporations:
• Interest income on FCDU deposit – 15% from 7.5%
• Capital gains on sale/disposal of shares outside the local
exchange – 15% on net capital gains (from 5% on 1st 100k +
10% on excess)

PASSIVE & CAPITAL GAINS TAXATION - CORPORATIONS
Income Domestic RFC NRFC
Taxation of Passive
funds and similar arrangements
20%
Income
Interest on deposits, yield from trust20% 30%
Interest on FCDU deposits 15% 7.5% Exempt

Interest on foreign loans NA NA 20%
Income derived by FCDUs on fx 10% 10% NA
transactions with residents
Income from transactions with Exempt
FCDUs
Royalties 20% 20% 30%
Dividends from domestic corporation Exempt Exempt 15%
Capital gains on off-exchange 15% 5% 1st 100k + 5% 1st 100k +
sale/disposal of shares 10% of excess 10% of excess
Capital gains on sale of real property 6% NA NA

CAPITAL GAINS TAXATION - CORPORATIONS
Capital Gains from Domestic RFC NRFC Key points
sale/disposal of:
1. Shares of stock 15% on 5% on 1st 100k + Only Sec. 27 which applies to

sold/disposed net 10% of excess domestic corp was amended.
outside the stock capital
exchange gains
2. Real property 6% of NA NA • Foreign corporations not
FMV or allowed to own real
GSP, property
whichever • FMV = higher between
is higher BIR zonal values and city
assessor’s property values
3. Other capital Regular • Losses deducted to the
gains income tax extent of gains
on net cap • No carry-over
gains • Fully taxable regardless of
term
30% final NRFCs, disregard losses
tax on net Fully taxable regardless of
capital term
gains
Income tax
 Change in ITR forms
 Should have a maximum of 4 pages only
 Should contain only the following:
1. Taxpayer profile and information
2. Gross sales, receipts and income from regular trade
or business
3. Allowable deductions
4. Taxable income
5. Income tax due and payable

Withholding taxes
 Change in the limit for Creditable Withholding Taxes
(CWT) rates
 Not less than 1% but not more than 32%
 Starting Jan. 1, 2019 – not less than 1% but not more
than 15%
 Change in the deadline for filing and payment of WT
 Changed from monthly to quarterly
 Deadline: no later than the last day of the month
following the taxable quarter.

Donor’s Tax
 What is Donor’s Tax?
 Imposed on the transfer of property by gift which
applies whether :
• the transfer is in trust or otherwise
• the gift is direct or indirect
• the property is real or personal, tangible or
intangible
 Transfer made by any person (individual or
corporation), resident or non-resident.

Donor’s Tax
 Change in donor’s tax rate
 Now at 6% in excess of Php250,000 which is exempt.
(Before the rates were graduated from 2% - 15%,
imposed on net gifts in excess of Php100,000)
 Transfer made by any person (individual or
corporation), resident or non-resident. Non-resident is
taxed on gifts involving properties located in the Phils.
 No more distinction between relatives and strangers.

Donor’s Tax
 Exception – transfers for less than adequate & full
consideration
• General: Excess of FMV over consideration is a gift
• Applies to property other than real property subject of
Sec 24D (CGT on sale of real property by individuals)
• Exception under TRAIN Law - sale, exchange or transfer
of property made in the ordinary course of business, viz:
• Bona fide sale
• Made at arm’s length
• Without any donative intent

Donor’s Tax
 Dowries/wedding gifts no longer exempt
• Dowries or gifts made on account of marriage previously
allowed to resident donors - no longer exempt
• With the removal of dowries/wedding gifts, the
exemptions allowed to all types of donors is now the
same.

Donor’s Tax
 Exemptions as updated by the TRAIN Law:
1. Gifts to the National Government, its political subdivisions or
any of its agencies not conducted for profit
2. Gifts to educational, religious, charitable institutions provided:
• Not more than 30% of the gift is used for administrative
purposes
• Donee is incorporated as a non-stock company
• Donee pays no dividends
• Donee is governed by trustees who have no compensation
• Donee devotes its income to the pursuit of its purposes

Donor’s Tax
 Tax credit for foreign donor’s taxes
• May be claimed subject to two (2) limitations:
1. __Net gifts – country x Phil. Donor’s tax vs Actual tax paid
Net gifts – Worldwide in said country
If multiple countries, you have to sum-up the individual limits per
country and compare with Limit 2 below.
2. __Net gifts – abroad x Phil. Donor’s tax vs Actual taxes
paid abroad
Net gifts - Worldwide
Rule in all cases: Whichever is lower

Illustration of tax credit
 Mr. A, resident, had the following net gifts during the year:
Country Net gifts Foreign Taxes paid
Philippines 500,000
HK 500,000 25,000
Total 1,000,000 25,000
 The Phil donor’s taxes due is Php45,000 [(1M-250k)x6%]

 The tax credit allowed is Php22,500.
Computed as : 500k/1M x 45k = 22,500 and since this is lower than
the actual of 25,000, it will be the allowed credit
 Mr. A, resident, had the following net gifts during the
year:
Country Net gifts Foreign Taxes paid
Philippines 500,000
HK 500,000 25,000
US 1,000,000 60,000
Total 2,000,000 85,000
The Phil. Donor’s taxes due is Php105,000 [(2M -250k) x 6%]

Limit 1
Each country’s limit should be determined as follows:
Ex. for HK, the allowable tax credit is 25,000
Computed as: 500k/2M x 105k = 26,250 vs 25,000
Actual of 25,000 will be taken since it is lower than 26,250.
This process will be done for each country. Hence:
For US, the allowable tax credit is 52,500 (1M/2M x 105k)
since it is lower than the actual tax paid of 60,000.
The total tax credits allowed under Limit 1 is Php77,500. This
should be compared to Limit 2.
Limit 2:
The allowable credit is 78,750
Computed as: 1.5M/2M x 105k = 78,750 vs 85,000
78,750 is the allowed credit since this is lower than the
actual of 85,000.
Comparing Limit 1 - 77,500 and Limit 2 - 78,750, the final
allowable credit is the lower amount which is 77,500.
The same rules are applied for estate taxes.
Donor’s Tax
 Tax filing and payment
• Deadline: Within 30 days from the time of the gift.
• Donor’s tax return contains the following:
1. Each gift made during the calendar year which is to be
included in computing net gifts;
2. The deductions claimed and allowable;
3. Any previous net gifts made during the same calendar year;
4. The name of the donee; and
5. Any other information that may be required

Estate Tax
 What is Estate Tax?
 Tax on the transfer of the net estate
 Excise tax – tax on the right of the decedent to
transfer his property to another.
 Not a tax on the property, but a tax on the right to
transfer property.

Estate Tax
 Change in estate tax rate

 Now at 6% based on the net estate.
(Before the rates were graduated from 5% - 20%,
imposed on net estate in excess of Php200,000)
 By every decedent, whether resident or non-
resident of the Philippines. Non-resident alien
decedent is taxed only on net estate from Phils.

Estate Tax
 Gross Estate – no changes under TRAIN Law
 RC, RA, NRC all taxed on properties

derived from whatever source
 NRA taxed on properties derived from
Phils. only

Estate Tax
 Gross Estate – includes:
1. Real and personal property, tangible or intangible
2. Decedent’s interest in property
3. Life insurance proceeds
• except if the beneficiary is irrevocable
4. Taxable transfers
Note: Capital of surviving spouse is not part of gross
estate (exclusive properties of spouse)

Estate Tax 1) Transfer is effective at or after death
2) Decedent retained the:
• possession or enjoyment of
property and income therefrom
 Gross Estate • right to designate who will possess
or enjoy the property or income
4. Taxable transfers: 3) Transfer may be revoked by decedent
a) Transfer in contemplation of death
b) Revocable transfers
c) Transfer under general power of appointment
d) Transfers for insufficient consideration
• Excess of FMV over gross consideration is added to
gross estate

Estate Tax
 Not taxable transfers:
1. Merger of usufruct in the owner of naked title
2. Transfer from fiduciary heir to fideicommissary
3. Transfer from the first heir to another beneficiary, in
accordance with the wishes of the predecessor
4. Transfer to educational, religious, charitable institutions
provided that not more than 30% of the property transferred
is used for administrative purposes

Estate Tax
 Changes in the Deductions from Gross Estate
For RC, RA and NRC
1. Standard Deduction of Php5M (from Php1M)
2. No more deductions for funeral, medical, judicial expenses
(These are expected to be covered by the standard
deduction)
3. Family home allowance increased to Php10M from Php1M
For NRA
1. Standard Deduction of Php500k in lieu of expenses

DEDUCTIONS FROM GROSS ESTATE
Deduction RC/RA/ NRA Requisites/Rules
NRC
1. Standard Deduction Php5M 500k None. Claimed even if actual
expenses did not reach Php5M
2. Claims against the estate Yes Yes* • Notarized document of debt
• Proof of where indebtedness was
used if incurred within 3 yrs prior
3. Claims against insolvent Yes Yes* Must be included in gross estate
persons
4. Unpaid Mortgages Yes Yes* • Property included in gross estate
5. Losses Yes Yes* • Incurred from death up to the
estate tax filing deadline (1 yr
from death)
• Not compensated by insurance
• Not claimed in any ITR
5. Taxes Yes Yes* Except:
• income tax on income received
after death
• property taxes not accrued before
death
*Properties in Phils only My TRAIN of Thought by Prof. L.D.Olan
• any estate tax
DEDUCTIONS FROM GROSS ESTATE
Deduction RC/RA/ NRA Requisites/Rules
NRC
6. Transfers for public use Yes Yes* To the Phil. Govt., exclusively for
public purposes
7. Family Home Up to None Included in gross estate, included in
Php10M deductions
8. Retirement benefits Yes None • Retirement plans compliant with
received under RA 4917 RA 4917
• Must be included in gross estate
9. Share of Surviving Spouse Yes Yes* • Only with respect to conjugal
properties
10. Property Previously Taxed Yes Yes* • Death of prior decedent or
(Vanishing Deduction) property donation occurred within
5 years prior to death of current
decedent
• Allowed at the following rates:
Less than 1yr = 100%
>1yr to 2yrs = 80%
>2yrs to 3 yrs = 60%
>3yrs to 4yrs = 40%
My TRAIN of Thought by >4yrs to 5yrs = 20%
Prof. L.D.Olan
Estate Tax
 Steps to compute for the Vanishing Deduction:
1. Determine the value of the property = lower between the value at
the time of the previous transaction and value now.
2. Deduct any mortgages paid by decedent from the time he acquired
the property up to his death = Initial Basis
3. ___Initial Basis____ x 2. Claims against the estate
Gross Estate 3. Claims against insolvent persons
4. Unpaid mortgages, losses, taxes
6. Transfers for public use
4. Initial Basis less Answer in Step 3 = Final Basis

5. Final Basis x Vanishing Deduction Rate = Vanishing Deduction

Estate Tax
 Share of the Surviving Spouse
1. Determine the property relations governing the marriage
Property CPG ACP
Acquired before marriage
• Gratuitous X C
• Onerous X C
• With descendants from previous marriage X X
Acquired after marriage
• Gratuitous X X
• Onerous C* C
• Income from conjugal property C C
• Income from exclusive property C X
*unless purchased with exclusive money
1. My TRAIN of Thought by Prof. L.D.Olan
Estate Tax
 Share of the Surviving Spouse
2. Determine each spouse’s exclusive and conjugal properties
3. In Gross Estate:
• Include Conjugal properties + decedent’s exclusive properties
• Exclude exclusive properties of surviving spouse
4. Deduct expenses and other deductions relating to conjugal
properties. If silent, the following are presumed to be conjugal
deductions: 2. Claims against the estate
3. Claims against insolvent persons
4. Unpaid mortgages, losses, taxes
6. Transfers for public use
5. Share of surviving spouse = Net conjugal properties / 2

Estate Tax
 Tax credit for foreign estate taxes
• May be claimed subject to two (2) limitations:
1. _Net estate– country x Phil. Estate tax vs Actual tax paid
Net estate– Worldwide in said country
If multiple countries, you have to sum-up the individual limits per

country and compare with Limit 2 below.
2. _Net estate– abroad x Phil. Estate tax vs Actual taxes
paid abroad
Net estate - Worldwide
Rule in all cases: Whichever is lower
Estate Tax
 Basis for valuation of property:
• FMV at the time of death
• Real property – FMV which is the higher between:
a) BIR zonal values
b) City assessor’s property values
• Usufruct – right of usufruct, use, or annuity shall take into
account the probable life of the beneficiary based on the
Basic Standard Mortality Table

Donor’s Tax
 Changes in Tax filing and payment
 Deadline: Within one (1) year from death
 No more notice of death requirement
 Filing of estate tax return is now required for all estates
 CPA certification now required for estates with gross value of
Php5M
 Payment by installment now allowed w/in 2 years from due date
 Bank withdrawals now allowed subject to:
• Withholding of 6% final tax upon withdrawal
• If joint, certification under oath that all depositors are still
living at the time of withdrawal
Donor’s Tax
 Tax filing and payment
 Venue: decedent’s domicile at the time of death or with the CIR
if there is no such domicile
 Party liable:
• Primary – estate executor/administrator – should pay before
delivery, release, distribution of assets to heirs/beneficiaries
• Subsidiary – heirs/beneficiaries on their distributive share in
the estate

Donor’s Tax
 Extension for filing and payment
 Filing of return – upon request, may be allowed up to
30 days
 Payment – if estate is still being settled
• Period: Judicial – up to 5 years, extrajudicial – up to 2 years
• BIR may require a bond equal to double the estate tax due
• 3-year prescription for assessment is suspended during
extension

VAT and Percentage Taxes
 What is VAT and PT?
• VAT and PT are consumption taxes imposed on the
sale of goods or services in the Philippines
• Cannot be imposed on the same income
• Who are subject?
• Business taxpayers
• Professionals
• Self-employed

 VAT vs PT
VAT PT
VAT exempt In general, at 3%
VAT zero-rated Imposed on specific types of
12% VAT income receipts at various
rates
Gross sales (goods) Gross income receipts
Gross receipts (services) except for banks
Less
Input tax credits

 Determining whether VAT or PT applies
• Determine if VAT-exempt
• Determine if VAT zero-rated
• Determine if subject to specific PT rates (If subject
to specific PT, considered VAT exempt)
• If not subject to specific PT rates, determine if
annual gross sales or receipts exceeded Php3M
• If >3M = VAT. If not, 3% PT.

VAT
 Changes in VAT zero-rated sales
• Included as zero-rated export sales, the sale of goods and
services to: This provision was vetoed by the President.
1. Registered enterprises in separate customs territory
2. Registered enterprises in tourism enterprise zones (TIEZA)
• Sale of goods & services to international shipping or international
air transport operations – provided used in their operations
• Transport of passengers & cargo – 0% if by domestic carriers
• Removed foreign currency denominated sale
• Sale of gold to BSP now exempted instead of zero-rated
• Services by electric cooperatives – subject to 12% VAT
VAT
 Export sales (goods) under TRAIN Law
1. Direct export sales
• Paid for in acceptable foreign currency
• Accounted for in accordance with BSP rules
2. Sale of goods to entities registered in a separate customs
territory and tourism enterprise zones
3. Sale of raw materials and packaging materials to a non-
resident, for delivery to a Phil resident for
processing/manufacturing

VAT
 Export sales under TRAIN Law
4. Sales of raw materials and packaging materials to an export-
oriented enterprise.
5. Those considered export sales under EO 226 and other
special laws
6. Sale of goods, supplies, equipment and fuel, as well as
services to international shipping or international air transport
operations, provided used in their business operations
7. Sales to persons/entities exempt from indirect taxes like VAT
under special laws or international agreements
These are effectively zero-rated

VAT
 Zero-rated sale of services under TRAIN Law
1. Processing, manufacturing or repacking goods for party
doing business outside the Phils which are subsequently
exported
2. Services rendered to party doing business outside the Phils
or non-resident not engaged in business who was outside the
Phils when the services were rendered
3. Services rendered to entities exempt from indirect taxes like
VAT under special laws or international agreements
4. Services rendered to international shipping or international
air transport operations, provided used in their business
operations
VAT
 Zero-rated sale of services under TRAIN Law
5. Services rendered by contractors and subcontractors for the
processing, converting or manufacturing of goods rendered
to an export-oriented enterprise.
6. Transport of passengers and cargo by domestic air and sea
vessels from the Phils to a foreign country
7. Sale of power or fuel generated by renewable sources of
energy
8. Services rendered to entities registered in:
• Separate customs territory Vetoed by the President
• Tourism enterprise zones

VAT
 Need for an Enhanced VAT Refund System
1. VAT refund granted within 90 days from filing of application,
starting with all applications filed starting Jan. 1, 2018
2. All pending VAT refund claims as of Dec. 31, 2017 should be
fully paid in cash by Dec. 31, 2019.
3. DOF shall establish a VAT refund center at the BIR and BOC
4. 5% of total VAT collections of the prior year shall be
appropriated to fund VAT refund claims
5. BIR and BOC to submit to the Congressional Oversight
Committee a quarterly report of pending claims and unused
fund.

VAT
 The following will be subject to 12% VAT once an
enhanced VAT refund system is in place.
These are indirect export sales
3. Sale of raw materials and packaging materials to a non-
resident, for delivery to a Phil resident for
processing/manufacturing
4. Sales of raw materials and packaging materials to an export-
oriented enterprise.
5. Those considered export sales under EO 226 and other
special laws

VAT
 The following will be subject to 12% VAT once an
enhanced VAT refund system is in place.
1. Processing, manufacturing or repacking goods for a party
doing business outside the Phils which are subsequently
exported
5. Services rendered by contractors and subcontractors for the
processing, converting or manufacturing of goods rendered
to an export-oriented enterprise.

VAT
 Changes in VAT-exempt sales
1. Gen. threshold to be exempt from VAT increased to Php3M
2. Sale of gold to BSP now VAT exempt
3. Importation of professional instruments/implements
• Now includes tools of the trade/profession
• Should be in quantities & of the class suitable to rank/profession
• No more 90 day period before and after arrival of the owners to
be exempted. This was changed to within a “reasonable time”
4. Threshold for VAT-exempt lease of residential unit increased
to Php15,000 monthly

VAT
 Changes in VAT-exempt sales
4. By January 1, 2021, sale of real property in the ordinary
course of business will be VAT exempt only for residential
dwellings with GSP at Php2M or less (lots will be VATable)
5. Added as VAT exempt:
• Sale/lease of goods & services to Senior Citizens & PWDs
• Transactions under Sec 40 (C)(2) [tax-free exchange]
• Membership fees, association dues collected by
homeowners’ associations and condo corp.
• Starting January 1, 2019, sale of medicines for diabetes,
high cholesterol and hypertension
VAT
 Changes in Input tax credits
1. Amortization of input tax on capital goods:
• Amortization allowed only until Dec. 31, 2019.
• Those with unutilized input taxes as of said date shall be
allowed to apply the same as scheduled until fully utilized
2. Claim for refund of input taxes
• Must be resolved within 90 days from filing
• Taxpayer may appeal BIR’s decision to CTA within 30 days
from receipt of decision

VAT
 Changes in Tax Filing and Payment
1. Starting January 1, 2023 - Quarterly filing and payment
• Currently, tax filing is quarterly but payment is monthly
• Quarterly filing deadline is 25 days after the end of the
taxable quarter
2. VAT withholding by government
• To shift from a final to creditable withholding system
• Payments for purchases of goods and services funded by
Official Development Assistance (ODA) shall not be
subject to final withholding VAT

VAT
 Changes in registration requirement
1. Required to register as VAT taxpayer:
• Gross sales and/or receipts (not VAT exempt) for the past
12 months exceeded Php3M.
• There are reasonable grounds to believe that gross sales
and/or receipts (not VAT exempt) for the next 12 months
will exceed Php3M
Note: threshold for cancellation of VAT registration was not changed.
1. Optional VAT registration
• Not allowed to those who opted for the 8% tax
• Cannot cancel VAT registration for the next 3 years
Percentage Tax
 Tax on persons exempt from VAT
1. Exempt from PT beginning Jan. 1, 2019 - self-
employed and professionals with total annual gross
sales and/or gross receipts not exceeding Php500k
vetoed by the President
2. PT on sale/barter/exchange of shares of stock via the
local stock exchange – increased rate to 60% of 1%
from ½ of 1%.

Compliance Requirements
 Keeping of books of accounts
 Taxpayers with gross annual sales/receipts >Php3M
• CPA certification and submission of AIF required
 Issuance of invoices and receipts
1. Required for sales and services valued at Php100 & up
2. Within 5 years from effectivity of TRAIN law, exporters,
e-commerce businesses, Large Taxpayers shall be
mandated to issue electronic invoices and receipts,
optional for other taxpayers
• Manual and electronic invoices/receipts shall be kept for 3
years from issue date
 Electronic reporting of sales to BIR
• Within 5 years, BIR shall implement a system of electronic
reporting of sales for exporters and Large Taxpayers, subject
to data privacy laws
 Penalties
1. Interest on unpaid tax shall now be double the legal rate of
interest as set by the BSP (previously 20%)
2. Penalty for willful attempt to evade tax
• minimum Php500k to Php10M
• Imprisonment of not less than 6 years to not more than 10
years
 Penalty for refusal to issue invoices or receipts
• Same penalties for willful attempt to evade tax
• Same penalties apply for printing of fraudulent
invoices/receipts
 Penalties for failure to transmit POS/CRM sales data to BIR’s
Electronic Sales Reporting System
1. For every day of violation – higher between Php10k and 1/10
of 1% of annual net income
2. Violation >180 days – additional penalty of permanent
business closure
3. Exception – failure due to force majeure or causes beyond
taxpayer’s control

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Let’s Raise the bar

By: Prof. Leylane D. Olan, CPA

Tax • Republic Act (RA) No. 10963

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

1. Generate Php130B additional revenues

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

 Individual and Corporate income tax

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

Vetoed provision Rationale

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

Capital gains from Regular income 25%  Taxed based on holding

Capital gains from 6% 6% 6% Basis: Higher between:

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

Interest on FCDU deposits 15% 7.5% Exempt

Capital gains on sale of real property 6% NA NA

1. Shares of stock 15% on 5% on 1st 100k + Only Sec. 27 which applies to

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

Rule in all cases: Whichever is lower

 The Phil donor’s taxes due is Php45,000 [(1M-250k)x6%]

The Phil. Donor’s taxes due is Php105,000 [(2M -250k) x 6%]

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

 Change in estate tax rate

My TRAIN of Thought by Prof. L.D.Olan

 Gross Estate – no changes under TRAIN Law

 RC, RA, NRC all taxed on properties

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

4. Initial Basis less Answer in Step 3 = Final Basis

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

If multiple countries, you have to sum-up the individual limits per

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan

My TRAIN of Thought by Prof. L.D.Olan