UPDATES UNDER THE TRAIN LAW BY DR.
LIM
LECTURE ON THE TRAIN LAW
by Dr. Virginia Jeannie P. Lim, LL.M. Ed.D.
February 23, 2018
*Transcribed by: M.R.A.D.C. Lumbre
NOTE: Some parts of the lecture were edited/omitted for clarity and
brevity. Underlined words represent the important points to be
written down in the notebook.
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xxxx
“Let us first understand that TRAIN is a big law; it is not just an
amending law. It is a law comprising of eighty-seven (87)
sections, and in this TRAIN Law (three) 3 sections of the Tax
Code were totally deleted—totally nabura; hindi na
ginagamit. Aside from these 3, seventy-three (73) sections
were also amended.
“If you will recall, based on my previous explanations, that
before the effectivity of the TRAIN Law, almost two-thirds of
the Tax Code (NIRC) were amended. Thus, the Tax Code
should not be read anymore.
“And then, when TRAIN came in, nilabo-labo na naman. In-
amend na naman yung mga na-amend na. So 73 sections
were amended, and aside from those, 8 sections were added.
Maraming naalis, maraming nabago, merong dinagdag.
“So at the end of the day, you will know that the TRAIN Law is
not really a law that will lessen the burden of taxation, but it
will increase the burden of taxation, because the government
needs more money for its infrastructure, because it has many
programs for its buildings, xxxx so it really needs money. Not
only roads, bridges, schools, hospitals, many, many more. xxxx
including the salaries of the police and soldiers. xxxx
INDIVIDUAL TAXPAYERS
“The government has put an emphasis on the fact that if your
salary is P250K and below, you will be exempt from paying
income tax—no more withholding tax. Yun ang isang
maganda sa minimum wage earners. All others, ano ito,
hagupit. Puro pataas nalang. xxxx
“Let us look at income taxation. I will be discussing muna the
TRAIN.
“Now, the TRAIN has five (5) tax rates:
1. 20%;
2. 25%;
3. 30%;
4. 32%; and
5. 35%.
“Here we can see that the 35% tax rate was added.
xxxx
“We are talking of an individual taxpayer. The rates range
from 20, 25, 30, 32, and 35. Now, these 5 rates are applicable
only up to 2022. In 2023, these will go down; the 20% will
become 15%, and so on (25% to 20%, 30% to 25%, and 32% to
30%). So in 2023, the rates will go down a little, but the
threshold amounts will remain the same.
“Besides doon sa main, ang papasukan ng 20% is gross income
of P250K and above. Kasi kung exactly P250K and below, it is
exempt sa tax. Pero ang umpisa ng income tax nya is 20%
agad. Doon sa Tax Code, 10% lang.
“Thus, income ranging from higher than P250K will be covered
already by 20%. And if your gross income is more than
P8.0M—income from salary, from business, or from the
exercise of a profession—you will be taxed by 35%. xxxx So
makikita mong talagang mabigat.
“Let us go in depth. Number one is, if you are a salaried
individual. If your income is P250k and below, you will be
exempt from income tax. And if you are exempt from income
tax, definitely you are also exempt from withholding tax. The
exemption will include your hazard pay, your holiday pay, your
overtime pay, and your night differentials.
“Even under the Tax Code, iyong HHON—holiday, hazard,
overtime, and night differentials—these items received by the
minimum income earner are already exempt. So walang
pagbabago, if you are a minimum wage earner. Thus, under
the Tax Code and the TRAIN, HHON remains exempt as to
minimum wage earners.
“Yung sinasabi nating minimum wage, yung basic salary mo
lang yun. Hindi kasama yung ibang incentives mo. Kung meron
kang tinatanggap outside of your basic salary; call it by any
name, basta outside of your basic salary. It can be gratuity
incentive, 13th month, transportation allowance, Christmas
bonus, and also included here are the things you are receiving
from your employer in kind. Convert them into their peso
equivalent at the time you receive it, and isama mo diyan sa
mga other money you received outside of your basic salary.
“If the sum total of that is P90K and below, exempt lahat sa
tax. Dati dati yung exemption ng benefits is P82K, but under
the TRAIN it has gone up to P90K. All benefits outside of basic
salary, whether in cash or in kind, shall be exempt, provided it
is P90K and below. Things in kind are included.
“So, for example, things in kind. Maraming employers ang
nagbibigay ng sack of rice. Mayroon din nagbibigay ng
uniform allowances, shortage allowance, etc. Kung bigas,
provided it is less than P1.5K, it is exempt. Huwag mo isasama
diyan (sa P90K). Kung ang bigas ang binibigay sayo, instead
halimbawa na 50kg, kalahating cavan lang; that is only 25
kilos. So ang amount niyan is less than P1.5K. Huwag mo na
isama dyan (P90K).
M.R.A.D.C. LUMBRE 1

“Kung sobra naman ang binibigay sayo, iyong excess lang. So
kung ang bigas worth P2K pesos, 1.5K lang ang exempt. Kaya
P500 lang ipapasok mo diyan sa P90K.
“Also uniform allowance, provided it is less than P5k per
annum, it is exempt. Huwag mo isasama diyan (sa 90k).
“If you are a managerial employee, and you are given free use
of the staff house, or you are an ordinary staff and you are
assigned to the province, and allowed to use the staff house.
May value ‘yan; that is still in kind. The monthly rent there will
form part of the P90K. So there are things in kind that are to
be included in the P90K.
“So, for example, you add all the benefits that you received
outside of your basic salary, and it is totaling P140K. Then, you
remove the first P90k because that is exempt. Include only the
P50k in your gross income. That is now the threshold of
exemption on the 13th month pay. It has gone up to P90K. This
applies to both private and public (national and local) sectors.
“Under the TRAIN, no personal exemption of P50K. No
additional exemption for the children as well. xxxx That is
Section 35 of the Tax Code, totally deleted. No more.
“Aside from that, your health and hospitalization premium
allowances are also removed. Under the Tax Code, if the total
income of the family—the husband, the wife, and the child—
is P250k and below, the insurance (hospital insurance and
health insurance) purchased by the family is an allowable
deduction. That is what we call the H-H Benefit. Whatever
amount you pay in the purchase of this insurance policy, this
is deductible under the Tax Code. The condition is, total
income should not be more than P250K, and the premium
paid is no more than P2.4k per annum. H-H is now deleted.
“Under the TRAIN Law, if you are employed, and receiving
more than P250K but less than P3.0M in one year, you are
exempt from the filing of an ITR; provided you have one
employer, and your withholding tax was already withheld.
“If your salary is exactly P250K and below: exempt. No income
tax.
“If your salary is higher than P250K but below P3.0M, you have
a choice. First, your option is to pay 8% flat rate—multiply with
whatever salary you have, and 8% of the amount will
represent your income tax (that 8% will also exempt you from
percentage tax, if you are a businessman). Or second, subject
that amount, whatever income you have in between the said
amounts, multiply it by the rate provided under the TRAIN
Law. So, the choice is yours.
“Aside from this, if you have chosen the rate of 8%, you have
to signify this choice in your ITR, and you have to inform the
BIR within the first quarter of the year that you are choosing
the 8% (How? By merely ticking the box corresponding to the
rate chosen in the ITR). This choice is irrevocable.
UPDATES UNDER THE TRAIN LAW BY DR. LIM
“If there is failure to signify this intention, the law will presume
that you are going TRAIN. This is a special privilege. Now, who
can choose? You can choose only if your salary is more than
P250K but below P3.0M. For compensation income earners:
no business taxes; income tax only.
“Let’s go to the self-employed taxpayer. “Self-employed”
means that you are in business and you are on your own. Yan
‘yung mga tinatawag natin sa mga may-ari ng tindahan: sole
proprietor; self-employed ‘yan. ‘Yung mga professionals—
doctors, lawyers, dentists, and all others that are on their own,
they are called self-employed taxpayers. Self-employed
individuals and professionals are required to file an ITR
regardless of the amount of gross income. This is mandatory.
“If you are self-employed, and the total income earned is
P250k and below, you again, will be exempt from tax. So that
exemption does not apply only to salaried individuals, but also
to self-employed individuals.
“If you are self-employed and the total income earned in one
year is between these figures (more than P250k and P3.0M),
you can also choose to use the 8% flat rate (the choice must
also be signified during the first quarter of the year), and if you
have chosen this, you will be exempt from income tax, as well
as percentage tax. Because if self-employed ka, negosyante
ka, at saka professional ka, magbabayad ka ng percentage
tax.
“If you choose to go TRAIN, you follow the tax rate and
schedule under the TRAIN, and pay percentage tax; provided,
your gross sale is higher than P500k. Kasi pag nagbi-business
ka, yung business tax na babayaran mo is percentage tax kung
ang benta mo sa loob ng isang taon is less than P3.0M.
“Kung nagbebenta ka, businessman ka, professional ka, sa
loob ng isang taon ang pumasok sayo na pera is higher than
P3.0M, ang babayaran mo VAT. So the threshold amount now
is P3.0M.
“Pag negosyante ka, definitely magbabayad ka ng business
tax. Paano mo malalaman kung anong klaseng business tax
ang babayaran mo? Tignan mo kung magkano yung benta mo
sa loob ng isang taon. You add them. Kung ang benta mo is
less than P3.0M and below, you pay percentage tax, provided
the amount here is higher than P500k. Because if you are a
businessman and your sale in one year is P500k and below,
you are exempt from percentage tax.
“Let us summarize. If you are a salaried individual, and your
income for the whole year is P250K and below, you are
exempt from income tax. If the husband and wife are both
working, and each one of them does not receive that much,
they will both be exempt, because this (threshold amount)
applies to individuals. So P250k and below is exempt. But if
your salary is between these figures (more than 250K and less
than P3.0M), you have two (2) choices. What are your
choices?
M.R.A.D.C. LUMBRE 2

“Number one, you can avail of the 8% flat rate. 8% you
multiply this to the salary, and that’s it. If you avail of this rate,
you no longer have to pay income tax. Number two, you can
go TRAIN and follow the tax rates and schedule. So, that is
salary.
“Now you are a businessman, you will pay both income tax
and business tax. Kung ang kinita mo is between these figures
(more than 250K but less than P3.0M), you again have a
choice. You may pay 8% income tax. If you have chosen 8%,
you no longer have to pay income tax and percentage tax. If
you do not like this (8%), you subject that income of yours to
the TRAIN Law. So you apply the rate and schedule under the
TRAIN Law, and you pay the percentage tax.
Now, how do you compute your percentage tax? Add all your
sales from day one up to the cut-off period. It does not matter
what month or date you have started; the most important
thing to remember is the cut-off date, which is December 31.
If it is less than P500K, you are exempt from paying percentage
tax. However, you will still pay income tax, because the
amount is higher than P250K.
“If your gross sale/gross receipt is higher than P500K, but
below P3.0M, you will pay the percentage tax.”
ALLOWABLE DEDUCTIONS
“If you are a businessman, under the Tax Code you can deduct
expenses from your gross income. Now, for the computation
of our expenses. Under the TRAIN, if both the husband and
wife are working, they will enjoy P500K exemption, but the
personal and additional exemptions, as well as hospitalization
allowances were removed.
“Let’s go now to allowable deductions. Allowable deductions
are only for:
1. Businessmen or self-employed individuals;
2. Professionals, and
3. Corporate or juridical taxpayers.
“If you are employed, there is no allowable deduction for you.
“Allowable deductions are business or professional expenses
that are incurred within the year in furtherance of profit by
the businessmen, professionals, or corporate/juridical
taxpayers. (Allowable deductions are identified in Ma’am’s
TRAIN Law Notes).
“We have two (2) formulas that are available, at the option of
the taxpayer, on how to deduct these expenses or in
computing how much you can deduct from your gross income.
“The two formulas are:
1. Itemized Standard Deduction (ISD); and
2. Optional Standard Deduction (OSD).
UPDATES UNDER THE TRAIN LAW BY DR. LIM
“If you want to use the Itemized Standard Deduction, it means
to say, you met all of these (the expenses), and you have
receipts in support of all your expenses (e.g. rent, gasoline,
etc.). Under this formula, you can claim the full amount of the
expenses.
“Itemized Standard Deduction – This is a formula that is
available or is used to determine the extent of deductible
expense.
“Let’s go now to Optional Standard Deductions (OSD). Under
the Tax Code, corporations are not allowed to use OSD, but
that has been amended already.
“Today, this formula, which is used in computing the extent of
deductible expenses, is available to both individual and
corporate taxpayers. It is now 40%, as amended, instead of the
10% stated in the Tax Code.
“In Optional Standard Deduction, ibig sabihin nito, wala nang
resibong kailangan. But if you are an individual taxpayer,
kwentahin mo magkano benta mo sa isang taon (gross sales).
Benta ha. Yung sum total, you multiply it by 40%, and that is
your expenses for the whole year. No need for supporting
documents. You can just deduct that from your gross income.
“If corporate taxpayer ka, you compute your gross income.
Magkano ang kinita mo. If you are an individual, compute
your gross receipt/gross sale. Sa tao, magkano ang benta, sa
corporation, magkano ang kinita. Do not interchange the
two.”
“These are provided under the Tax Code. Can this be used in
the TRAIN? Under the Tax Code, if the entity is a GPP (General
Professional Partnership), e.g. law firm, it is exempt from
income tax, but it is liable to pay business taxes. Do not forget
that. (Note: Ma’am discussed GPP at length here, but
repeated the discussion in the later part of her lecture. Thus,
GPP topic will be included only in the next page.)
“One, last, final reiteration. If you are a professional or a self-
employed taxpayer (i.e. sole proprietors, businessmen,
brokers, sari-sari store owners, repair shop owner, computer
shop owner, lawyer, doctor, dentist, etc.), you will pay (1)
business taxes, and (2) income taxes, if your income is higher
than P250K. Because if your income is less than P250K, you are
exempt from paying income tax, but you will file an ITR. Pa-e-
explain ko sayo lahat ito sa finals. Kapag di ka makapagsalita,
uulit ka sakin! Distinguish what is provided under the Tax Code
and the TRAIN. Submission of an ITR is mandatory if you are a
businessman/professional, regardless of the amount of gross
income.”
“These are the expenses that are deductible: (CRI6B-GLAD?)
1. Contributions
2. Research and Development Expense
M.R.A.D.C. LUMBRE 3

3. Business Expenses – this is very broad, these are met
in furtherance of profit (includes: salary; rent; gasoline;
representation; advertising, etc. – but it must be proved
that the same are necessary and ordinary)
*Necessary Expense – one that will maximize a profit or
minimize a loss.
*Ordinary Expense – one that is common to all
businessmen that are similarly situated (e.g. laundry
shops; they all need detergent or fabric conditioners).
4. Depreciation Allowance
5. Depletion Allowance
6. Bad Debts (worthless debts; utang na hindi mo na
masingil)
7. Interest Expense (as in, interest paid on a bank loan)
8. Taxes
9. Losses
10. Pension Contribution of Employers (SSS, Philhealth,
HDMF)
“So etong mga allowable deductions, ibabawas mo na jan.
Kung ano man ang natitira, yun ang taxable. Because these
are not taxable. So kung sumusweldo ka, at halimbawa ang
sweldo mo is P300K every year, bago mo i-subject ito sa tax
ibawas mo muna itong mga allowable deductions.
“If you have deductions and they are not mentioned above,
even if you have receipts, they are non-deductible because
they are not allowed under the law.
“Now you are a businessman, and you met some of these,
these (OSD and ISD) are the two available formulas that you
can use. These formulas will determine the extent of your
deduction. If you say you want to use the Itemized Standard
Deduction, you can claim the full amount of the expense,
provided that expense is allowed under the law and is
supported by a receipt.
“Now some people, they have expenses na walang resibo. Or
humingi ng resibo pero after one week malabo na, kumupas
na, hindi pwede yan. xxxx Kaya kung businessman ka, ipa-
photocopy mo na agad. Attach the thermal paper to the
photocopy, para kung kumupas man, may photocopy, then
you can deduct.
“Pag sinabi mong eto (OSD) gagamitin mo, hindi mo na
kailangan ng mga resibo, pero ang made-deduct mo is 40%.
How will you do that? If you are an individual taxpayer
kwentahin mo kung magkano benta mo sa isang taon, you
multiply yung benta dun sa 40%, whatever you arrive at is your
expenses for the whole year.
“If corporate taxpayer ka, kwentahin mo magkano ang kinita
mo sa buong taon. Multiply it by 40%, and that amount will
represent the expenses for the whole year.
UPDATES UNDER THE TRAIN LAW BY DR. LIM
“Pag dito (OSD) ka, exempt ka sa tax assessment. Hindi ka na
sisilipin ng BIR kasi wala ka naman expense na kini-claim.
“The TRAIN Law affected the general professional
partnerships (GPPs). Marami iyan; the doctors, they band
together and put up a common clinic; or lawyers, they put up
a law firm; or engineers, they put up an engineering firm. Yang
GPP na yan, exempt sa corporate income tax, but it is liable to
pay business taxes.
“So, for example, if there are 3 lawyers who joined their
resources and put up a law firm, the income that they realize
will be exempt from the 30% corporate income tax. At the end
of the year, if there will be income to be distributed to the 3
lawyers, they will, in turn, subject their distributive shares to
income tax. They will each report their income tax, but the law
firm is exempt from corporate income tax. The law firm,
however, is liable to pay business taxes.
“Now, before the corporation or GPP distributes their shares,
they will first deduct the expenses. The corporation or GPP can
enjoy any of these two formulas (ISD or OSD). The corporation
can choose how it will deduct expenses. That is allowed under
the Tax Code.”
“For example, the GPP realizes a gross income of P3.0M. From
the said amount it will deduct the expenses. The GPP can
choose what formula to use. May natirang 1.2M at ang
ginamit nya OSD para hindi na sya silipin at para walang
resibo. 40% lang yan. Ang matitirang pera, which is 1.2M, will
be distributed to the 3 lawyers, so they will get P400K each.
“Ngayon etong mga lawyer na ito, because they are also
people in the exercise of their profession, they will file their
own ITR, and if there are other income elsewhere, they will
add it there. And they will also enjoy deductions (in
furtherance of profit) because they are professionals. They
will also be enjoying deductions because these deductions are
applicable to businessmen as well as professionals. Thus, they
will deduct their expenses here.
“Pag deduct nila, pwede din ba silang pumili between ISD and
OSD? Yes, they can also choose. Ang corporation pwedeng
pumili, ang individual taxpayer pwede din pumili. Pero ang
GPP walang babayaran. Kaya lang namimili ang GPP para
malaman nya kung magkano ang ibibigay nya dito sa mga
(partners), net of expenses. So, sa Tax Code, pwede pumili ang
GPP, pwede din pumili ang individual taxpayer.
“Sa TRAIN, isang beses lang. Pag ginamit ng GPP yung OSD,
hindi na yan magagamit ng mga partners. So under the TRAIN,
OSD can be used only once. Kung hindi ginamit ng GPP,
gagamitin ng parter, kung ginamit ng partner, hindi na
pwedeng gamitin ng GPP.
“So what is the difference between allowable deductions in
the Tax Code and TRAIN? In choosing the formula, TRAIN says,
choose. If it is a GPP, the OSD can be used only once.
M.R.A.D.C. LUMBRE 4

“Under the Tax Code, if you are an individual taxpayer, self-
employed, or a professional, and at the time of paying your
tax, your gross income is higher than P250K, you will be liable
to pay. At the time of payment, ang babayaran mo sa BIR is
higher than P2K. This is income tax only, not business taxes.
“Under the Tax Code, you can split this into two equal halves.
You pay the first half, on or before April 15, and the second
half, you pay it on or before July 15. No interest, no surcharge.
That applies only to an individual taxpayer who is self-
employed or exercising his profession, who at the time of
payment will be paying an income tax of more than P2K.
“Under the TRAIN, everything is the same, except that the
second payment is now on October 15, not July 15.
PASSIVE INCOME
“Let us look at your passive income. Passive income is income
earned without the active participation of the income earner.
This includes interest from bank deposits.
“For example, I have P3.0M. I will put this in a savings account
in the bank, and I will be earning interest. Now, the interest
income that I earned from my savings account is called a
passive income because I am earning this and I have not
participated. xxxx Now, interest income is subject to two rates
under the Tax Code.
“If it is interest in peso, the rate is 20% final withholding tax. If
the deposit in the bank is in foreign—may be yen, dollar, lira,
etc.—currency, the rate of interest is 7.5% final withholding
tax in that foreign currency, not in peso.
“Under the TRAIN LAW, the tax on interest earned in the peso
account is still the same, but the tax on interest earned in
foreign currency deposit is now 15%, from 7.5%.
“At this point, I would like to reiterate, na kapag pinasukan
ang pera mo ng final withholding tax (FWT), wala nang income
tax na papasok diyan, because FWT is in lieu of income tax. So
kung halimbawa, kumita ako sa banko ng P5K na interest from
my savings account. Syempre interest ito, whether I like it or
not, with or without my consent, with or without my
knowledge, babawasan yan ng bangko ng 20%. So babawasan
nya ng P1K. That is the final withholding tax, at ibibigay ito ng
bangko doon sa BIR. So, ang tatanggapin ko lang at the end of
that is only P4K.
“But this is still money that comes to me na kinita ko sa
puhunan ko, kinita ko sa capital ko, na kinita ko sa pera ko.
Ordinarily, ang pera na kinikita mo sa pera mo is subject to
income tax. Kasi kung tatanungin ka, is the money that comes
to you subject to income tax? (What may be subject to income
tax? (1) Fruit of capital; (2) Fruit of labor; or (3) Fruit of both
capital and labor.)
“Aalamin mo lang kung itong pera na ito, kinita mo sa pera
mo, kinita mo sa puhunan mo. Or ang perang ito
UPDATES UNDER THE TRAIN LAW BY DR. LIM
pinagtrabahuan mo. Sweldo mo, bayad ng pagod mo. O kaya
galing ito sa dalawang ito na pinagsama. Kung pumasok itong
tatlo na ito, any of the three given sa pera na ito, pasok ang
income tax dito. Pero ‘pag ang pera di galing dito, hindi
income tax ang papasok; other taxes ang papasok. Hindi ko
sinasabing walang tax, pero definitely hindi income tax ang
papasok kasi iyang pera hindi galing dito (must be from fruit
of capital, labor, or both capital and labor).
“So eto, pera na galing sa pera mo. Dapat ito pinapasukan ng
income tax. However, hindi na sya papasukan kasi pumasok
na ang final withholding tax. Lahat ng pera na tinatanggap mo
na pinapasukan ng final withholding tax hindi mo na kailangan
i-report yan for income tax purposes because this is now
exempt from income tax.
“Ang income tax and final withholding tax hindi yan sabay na
ipinapataw sa isang pera. It is one without the other. If a final
withholding tax is imposed, money is exempt from income tax.
TIME DEPOSITS
“We go now to time deposits. Time deposits are called term
deposits. Meaning to say, you promised the bank that you will
not withdraw the money for so many number of years. So pag
hindi mo iwi-withdraw for so many number of years, that
means to say, the bank can program what to do with that
money. So, they will give you a higher interest because they
are not afraid that by tomorrow you will come and get that
money.
“Kasi yung bangko nagpapautang, meron silang mga
pautang, mga loans. Ang pinakamaraming trabaho sa
bangko, deposit/withdrawal ng mga depositors nila. xxxx Pero
meron din naman silang mga produkto—loans. Kaya lang,
iyang loan na yan, very conservative sila.
“Kung gusto mong mag apply ng loan sa bangko, kailangan
may collateral ka. Kailangan good ang credit standing mo.
May maisasanglang bahay, lupa. Meron ka ngang
maisasanlang lupa, wala ka namang trabaho. Aba’y di ka
makakakuha ng loan. Kasi kailangan kung mag-a-apply ka,
meron ka nang maisasangla, meron ka pang regular source of
income. Pag ipinagsama mo itong dalawa, possible na maka-
apply ka ng loan sa bangko.
“So in order for you to qualify, you have to have the two
together—you have the regular source of income and you
have collateral. Then, you come and apply for a bank loan.
Ngayon pag nag apply ka, matagal. Kasi iniimbestiga nila ikaw
na uutang, magpapa-CI pa sila, credit investigation. Ang
titignan nila yung property, baka naman ang property e hindi
sayo. At kung na-approve, ang ipapautang sayo na pera, ang
pera ng depositors. Hindi nila pera. Kaya saan kukunin ito?
Hinahanap nila yung mga nagde-deposit sa time. Kasi sa time,
halimbawa kung nag time deposit ka ng 5 years, ang perang
yan pwede nyang ipautang dito ng 3 years, or 2 years. Hindi
sya mag aalala na anytime you can come and get. Kaya yang
mga time deposit, binibigyan ng mas mataas na interest.
M.R.A.D.C. LUMBRE 5

“If your time deposit is 5 years and 1 day, so that is the term,
whatever interest income that you will earn from this time
deposit is exempt from final withholding tax. It is also the
same with TRAIN.
“However, in the Tax Code, if you pre-terminate, hindi mo
sinunod ito kasi nangailangan ka ng pera, if the money is with
the bank for more than 4 years, but before maturity you
surrendered the same, considering that the bank has already
used it for 4 years, your final withholding tax is only 5%.
“If your time deposit is there for more than 3 years, but less
than 4 years, and you want to pre-terminate, since the bank
has been using your money for so long, there will be a final
withholding tax of 12%.
“If you will withdraw your money, pre-terminate, and the
money is with the bank for 3 years or less than 3 years, regular
final withholding tax on interest earned applies. That is 20%.
“Under the TRAIN, whatever is the period, if you are pre-
terminating, subject to 20% final withholding tax.
LOTTO/SWEEPSTAKES WINNINGS
“Under the Tax Code, if you won the lotto or the sweepstakes,
your winnings will be exempt from income tax. Today, under
the TRAIN, lotto and sweepstakes winnings will be taxable,
subject to income tax, provided that the winnings or prizes are
more than P10K.
“Under the Tax Code, government-owned and controlled
corporations (GOCCs) are ordinary taxpayers. Do not forget
that. GOCCs are government corporations which are engaged
in business. They are taxable; that is the general rule. When
are GOCCs exempt from tax? (XPN) Only if the charter creating
that entity provides for the exemption. If the law creating that
entity is silent on taxation, then this entity is taxable.
“Under the Tax Code, there are (five) 5 GOCCs that were
identified to be exempt from income tax. These are:
1. SSS;
2. GSIS;
3. Philippine Health Insurance Commission (PHIC);
4. Philippine Charity Sweepstakes Office (PCSO); and
5. PAGCOR.
“However, under the TRAIN, itong tatlong to (SSS, GSIS, PHIC)
are exempt from income tax. Uulitin ko ha, INCOME TAX. In
2009, yung PAGCOR, inalis (ang exemption). So it is now
subject to income tax, but continue to enjoy exemption from
all other (Internal Revenue) IR taxes. Lately, yung exemption
nito (PCSO), under the TRAIN, taxable na. Under the TRAIN,
PCSO is now subject to income tax.
NEW TAXES INTRODUCED
“Invasive cosmetic procedures, yung mga pampaganda,
pampatangos ng ilong, pagdadagdag ng boobs, lahat ng mga
yan, for beautification purposes, ngayon taxable na. So, si Belo
UPDATES UNDER THE TRAIN LAW BY DR. LIM
taxable na. 5% of the cost of procedure, subject now to
percentage (excise) tax. Under the Tax Code, it was silent on
that. xxxx Madami na gumagawa nyan ngayon, kaya taxable
na sila.
“Noon sa Tax Code, nakasulat doon, when you are preparing
an ITR, you prepare only 3 copies. Tapos naglabas sila ng
Revenue Regulations na hindi pwedeng 3, kailangang anim or
pito.
“Today, under the TRAIN, 4 copies only. Original, duplicate,
triplicate, quadruplicate. No more than that. Paperless society
na tayo ngayon, so 4 copies nalang ang mga returns.
“Under the Tax Code, if you are a businessman or a
professional, kung ang gross sale/gross receipt/gross income
mo, any of the three, is more than P150K, when you submit
documents to the BIR, kailangan meron kang audited CPA
financial report. Kailangan na ang financial statement mo
must be certified by an accountant.
“Today, that is no longer necessary. You need an audited CPA
certificate only if your gross sale/gross receipt/gross income is
more than P3.0M. So, ang mga CPA nababawasan na ang kita
ngayon, kasi dati dati pag 150K tatakbo ka sa CPA, papapirma
ka. Magkano isang pirma nila? Yung iba 1K gagawa sila ng
fictitious certification that they audited your books of account.
xxxx
PENALTIES
“Under the Tax Code, if you are caught by the BIR because you
have not paid enough; you have a deficiency. So you paid your
taxes, but kulang ang bayad, so hahabulin ngayon ng BIR is the
deficiency tax. Pero kung ang hinahabol ay yung delinquency
tax, it means you have not paid, maski isang singkong duling.
That is the distinction between a deficiency tax and a
delinquency tax.”
“Now, wherever you are, whether it is deficiency or
delinquency tax, pag nahuli ka, magbabayad ka ng interest.
Magbabayad ka pa ng surcharge and other penalties. Under
the Tax Code, the interest is 20% per annum, Under the TRAIN,
the interest is 12% -- double the legal interest prescribed by
the Bangko Sentral ng Pilipinas. So bumaba.
“Under the TRAIN the interest in case of delinquency or
deficiency is 12% only.
“However, pag ma-prove nila na ang d-in-eclare mo dun is
more than 30% difference from what you are supposed to pay,
you will be subjected to a fine. For example, kung ang income
mo, sa totoo, is P10.0M, but you declared P1.0M only—the
difference there is more than 30%! So you will be fined
because you are a tax evader. Now, how much is the fine?
Konti lang naman: P10.0M. So your fine for tax evasion is
between P500K to P10.0M, and you will be subject to
imprisonment between 6 to 10 years. If you are convicted, the
law on probation does not apply to a tax evader.
M.R.A.D.C. LUMBRE 6

“Let’s say the BIR filed a case against you. This is an actual
case. The BIR won. In that decision, there is a statement that
you are liable to pay tax of P20.0M that you owe to the
government, as well the interest, and other subsidiary
penalties. Granting that you are not able to pay the tax of
P20.0M, is there subsidiary imprisonment for failing to pay the
main tax? No.
“There is no subsidiary imprisonment for failure to pay the
main tax in a court decision, but for failure to pay subsidiary
penalties (e.g. penalties, surcharges, interests), there will be
imprisonment. This is a decided case.
SCHEDULE OF PAYMENT
“Now, going back to the businessman. You are a businessman
and you are buying supplies. Tuwing magbabayad ka sa mga
suppliers mo, dini-deduct mo na yan, may withholding tax na
diyan. Tapos yung resibo ibigay mo dun sa supplier para yung
supplier pwede nyang gamitin yan, pambayad sa other taxes
nya.
“O kaya naman yung percentage tax. Remember, kung
businessman ka, and you did not realize more than P3.0M in
gross sale/gross receipt, you are subject to percentage tax.
Under the Tax Code, ang percentage tax is payable quarterly.
Tapos naglabas yung BIR ng Revenue Regulation, payable
monthly. Now, all withholding taxes and percentage taxes are
payable on a quarterly basis. Inalis na yun mga monthly.
“Withholding taxes and withholding tax returns, and
percentage taxes and percentage tax returns, together with
the payment, are payable on a quarterly basis. VAT is also
quarterly.
TRANSFER TAXES
“We have three (3) kinds of transfer taxes:
1. Estate;
2. Donor; and
3. Documentary Stamps Tax (DST).
“Let us look at shares of stocks. I have been saying that when
you are buying shares of stocks, there is no tax obligation
there. Wala kang babayaran na tax pag bumibili ka ng shares
of stock. Pero pag ibebenta mo na yan, diyan na papasok ang
taxation. Now, ano ang tax ang papasok pag nagbebenta ka
ng stocks? It depends on what kind of shares you are selling.
We have two kinds of shares of stocks.
“Do not forget this: withholding tax applies only in the
Philippines. So, for example, you are a businesswoman and
you have a business here in Quezon City. You also have a
business, say, in Bulacan or in Pampanga. To facilitate your
business transactions in the said places, you open savings
accounts in all these locations. Yung mga savings accounts
kumikita ng interest, subject to final withholding tax.
UPDATES UNDER THE TRAIN LAW BY DR. LIM
“Meron ka rin mga transactions in Hong Kong, so to facilitate
your business transactions, you also open a savings account
there. Yung Hong Kong interest na kinikita mo jan, it is not
subject to final withholding tax because it is outside of the
country. Doctrine of territoriality.
“E ngayon kumita ka sa Hong Kong account ng interest na P5K.
Since hindi pinasukan ng FWT, paipasukan yan ng income tax.
So kung merong taxable na pera na hindi pinasukan ng final
withholding tax, income tax ang papasok jan.
“Another example. Meron akong house and lot dito sa
Pilipinas, sa Baguio. Hindi ako real estate dealer. xxxx Binenta
ko to. Anong taxes na babayaran ko? It’s a capital asset. So I
will pay capital gains tax (CGT) and documentary stamps tax
(DST). Do not forget this. CGT and DST go together. A house
and lot is a capital asset. It’s a property that is not used in
business; it is a property that is not income generating. So
when you sell this and you are not a real estate dealer, you
pay these two CGT and DST.
“Nagbayad ako (ng taxes). Kumita ako dito sa bahay at lupa
na ito. Binili ko halimbawa ito nung 1990, binili ko lang ng
P2.0M. Ngayon 2018 na, marami na rin mga repairs, naayos
na rin. I was able to sell for P7.0M. Magkano kinita ko?
Roughly P5.0M.
“Maski milyon milyon ang kinita ko dito, kung ang binibenta
mo is a capital asset, hindi yan papasukan ng income tax. Ang
papasok is capital gains tax. Why no income tax? Because
capital gains tax is a final withholding tax.
“So meron kang minana sa kamag-anak mo na bahay at lupa
sa Guam. Hindi ka naman makapunta dun dahil ayaw kang
bigyan ng American visa. Sa iyo pinamana yan, kaya
magbabayad ka ng tax dito kasi iyo na yan. E di ibenta mo
nalang yan. So pag ibenta mo yan doon, hindi yan papasukan
ng final withholding tax maski capital asset ito, kasi ang capital
gains tax is a final withholding tax. Walang final withholding
tax dito. Kaya babayaran mo ang income tax. So remember:
Selling a capital asset abroad is not subject to capital gains tax,
but subject to an ordinary income tax.
“We go back to shares of stocks now. When you buy, there is
no tax. When you are selling shares of stocks, there is taxation
involved. What kind of tax are you going to pay? That will
depend on the classification of the shares you are selling.
“Let’s say you are selling shares that are listed, recorded, or
traded in the exchanges. There are some shares that are not
listed, not traded in the exchanges.
“Shares that are listed are those shares of stock that are
recorded or registered in the stock exchange, stock market. So
yung presyo nito araw araw nakikita sa dyaryo. Saka ang mga
kumpanya na nandito, mga nagbebenta ito ng shares of stock
na maski sino, pwedeng bumili, basta may pera. Maski kalaban
pwedeng bumili ng shares mo. The shares listed in the stock
exchange belong to open corporations, and are available to
the public.
M.R.A.D.C. LUMBRE 7

“Pag close corporations or family corporations, their shares
are not listed in the stock market. You cannot go to them and
ask to buy shares even if you have all the money under the
sun. If they do not want to sell, wala kang magagawa.
“Let’s say I bought BPI shares. This is a company that is listed
in the stock market. Let’s say I invested an amount of P300K
because I know BPI is a blue-chip share, meaning to say it
distributes dividends quarterly and mataas magbigay ng
dividends. So, I bought these shares in 2014.
“Now, in 2018, I checked the price of the BPI shares in the
newspaper in the business section. Upon computing, malaki
na pala ang kinita ko. Tumaas na ito ng P450K.
“Question: Are the increases in the values of your investments
subject to IR tax?
Answer: No. Why? Because the increase is only a paper gain.
Sa papel lang nakalista na yumayaman ka. Di mo pa
magagamit yan pag bumili ka sa SM. So, paper gain is not
taxable.
“Now, you want to actualize your gains, kaya binenta mo yung
shares. Magkano kinita ko? P150K. Since, pag binenta mo na
yan, pumasok na yung Conversion Theory, or yung
Separability Theory, then this amount now is taxable. What
kind of tax are you paying? You will pay one-half of one
percent of the gross selling price. So, the tax here is P750 (Isn’t
it P2,250?). Thus, the tax when you are selling shares that are
listed in the exchange is one-half of one percent of the gross
selling price.
“Remember, maski ka nalugi, magbabayad ka, because the
tax is based on the selling price; not on the gain or loss.
xxxx
“Let’s say there was an emergency, and I sold the shares for
only P310K. Will I pay taxes even if nalugi ako? Yes. You
compute based on the same formula, so you pay P1,150. xxxx
Ganun din naman ang capital asset, maski ka nalugi
magbabayad ka ng capital gains tax. xxxx That’s Tax Code.
“Remember: Even if a loss is sustained, the transaction is still
taxable because it is based on the selling price.
“Now we go to shares that are not listed in the exchanges.
Let’s say I have a friend who was planning to put up a
corporation with his friends, and was asking me to invest in
their company. So I gave money to invest in their
corporation—W Corporation. Now, W Corporation is a
private, close corporation.
“Let’s say I gave them P100K. If I want to know how much the
shares are now, I will go to the company and ask them how
much my shares are now. They have a formula to determine
the price per share per annum, based on the assets and
liabilities.
UPDATES UNDER THE TRAIN LAW BY DR. LIM
“Let’s say I invested in 2010. It is now 2018. I went back to the
company and asked them how much my shares are now. The
corporation told me the shares are now worth P410K. So, I
decided to sell my shares, and realized a profit of P310K. The
tax here will be based on gain only. If you realized a loss, you
will not be taxed. Here, you will only be taxed if you realized a
gain.
“So, the first 100K of your gain is taxed at P5K. In the excess of
P100K, you will be taxed at 10%. Only when there is a gain. So
my tax here is P26K.
“Who pays the stock transfer tax mentioned above? Number
one, the seller of shares that are not listed in the exchanges.
Number two, people selling shares of stocks that listed, but
did not use the facilities of the exchanges. That is, the seller
sold the shares directly to another, without using the facilities
of the exchanges. So these 2 groups are liable to pay the stock
transfer taxes.
“Now, we go to the TRAIN. Transfer taxes of shares of open
corporations are now at 0.60%, from 0.50. In shares of close
corporations, the rate is now at 15%. There is no more 5k and
10%.
xxxx
SPECIAL ALIENS
“So let’s talk now about special aliens.
“A foreigner will be called a special alien (SA) and enjoy a
preferential tax rate only when he is working in the following
industries:
An offshore banking unit (OBU). That is a foreign bank, e.g.
Bank of Shanghai, Bank of China (not Chinabank), Maybank,
American Bank, etc.
“Or if he is not there (referring to the abovementioned
category), he works with a multinational company that is
operating in our country. A multinational company is a foreign
corporation that is constituted, organized, abroad, but
maintains branches in the Asia Pacific region, and Philippines
is one of those places where the OBU has a branch.
“The two (2) kinds of multinational companies are:
1. Regional area headquarters (RAH); or
2. Regional operating headquarters (ROH).
“Please remember that regional area headquarters (RAH) is
exempt from tax, because it is just a receiving office, not
M.R.A.D.C. LUMBRE 8

allowed to do business, and it is the other (ROH) that is taxable
because it is allowed to engage in business.
“He or she could be working in an OBU, or an ROH, or with a
contractor or a sub-contractor that is engaged in:
1. Energy;
2. Exploration;
3. Gas;
4. Oil;
5. Geothermal exploration,
“And the contractor or subcontractor has a service contract
with the Philippine government. So the Philippine government
is a signatory to the contract with this entity.
“However, the foreigner should not only be in any of these
three (OBU, RAH, or working with a contractor or sub-
contractor) industries, but he should be a manager in these
industries, or he should be holding a highly technical position
(HTP) in these industries.
“So, there is the kind of business, and the position held. These
two must concur, in order for the alien to enjoy a preferential
tax rate of 15%. Whatever he earns, whatever salary he gets,
multiply by 15%, and that is the income tax. He will no longer
have to file an ITR because ang boss nya ang magfa-file.
“Now, if this foreigner works with Dusit Thani, Sofitel, or other
big hotels as a chef or manager, he is no longer considered a
special alien because the work does not involve any of the
three industries mentioned above. So how will the foreigner
be taxed? Regular income tax applies.
“So a special alien (SA) is somebody who occupies a
managerial or highly technical position in any of the three
industries (OBU, RAH, or Contractor/Subcontractor).
“A Filipino who is working in the abovementioned industries
and positions can also be considered a special alien. However,
because he is a Filipino, he is given an option. He can choose
how to be covered by taxation. He can enjoy the 15% tax rate,
or if he does not like, he can choose to be subjected to the
normal income tax under the Tax Code. So this is Tax Code.
“However, prior to the effectivity of the TRAIN, the BIR issued
a Revenue Regulation in 2016. A Filipino can still be considered
a special alien and enjoy the preferential tax rate (15%) if:
1. He hold any of the positions mentioned (position test),
2. He works full time with the industries mentioned, not
merely as a consultant, and he has no other employer
(exclusivity test); and
3. He should, at the beginning of the year be able to identify
that his income for the year is P975K (salary test).
“If he is able to meet all of the three requisites, he is given the
option to choose between the preferential tax rate, or the
normal income tax rate under the Tax Code. If he does not
meet all three, he is subject to normal income tax. Do not
UPDATES UNDER THE TRAIN LAW BY DR. LIM
forget that Revenue Regulations are part of our tax laws and
must be complied with.
“We go now to the TRAIN. So, under the TRAIN Law there is a
cut-off, which is January 1, 2018. Ang sabi dito sa TRAIN yung
mga Special Aliens na nandito na at dati pang nag-e-enjoy ng
preferential tax rate, will still be taxed at 15%, pero yung mga
pumasok ng bansa after the cutoff will now be subjected to
the TRAIN Law. Inalis na ni Duterte ito. He vetoed this. No
more special aliens under Revenue Regulations and the Tax
Code. Basta they come to work here, they pay the same taxes
as the Filipinos.
FRINGE BENEFIT TAX
“Another one also, is the fringe benefit tax. This is one of the
new taxes that was strengthened by the Tax Code. Because
under the Tax Code, we have introduced four (4) new
corporate taxes, because corporations are the most abusive
of all taxpayers. They can come up with fictitious documents,
fabricated documents, everything they can do to save on
taxes, with the connivance of these two, the accountants…
xxxx.
“Our government has introduced these 4 new taxes:
1. Minimum corporate income tax (MCIT);
2. Improperly Accumulated Earnings tax (IAET);
3. Fringe Benefit tax (FBT), this has been there in the old
Tax Code, but under the new Tax Code, the government
included a penalty;
4. Optional Corporate Income tax (OCIT).
So these three new taxes (MCIT, IAET, and OCIT) apply only to
corporations, but the fringe benefit tax applies to individual
taxpayers giving benefits.
“We go to FBT. All employers now, whether you are exempt,
whatever is your classification as a taxpayer—domestic,
foreign, nonresident, private, government—basta you are an
employer, you are required to segregate your employees: the
rank-and-file in one column, and the managerial or
supervisory employers in the other column.
“Is there a special definition for the managerial employee for
tax purposes? None. Who are these people? These are the
people who will implement corporate policies. They have the
power to hire and fire.
“Under the Tax Code, if you give benefits to these people (rank
and file), there is no fringe benefit tax payable by the
employer. The employee receiving the benefit will be taxable
on the benefit received, and will be responsible for reporting
the benefits they have received. No fringe benefit tax to be
paid by the employers.
“But if the employer gives benefits to these people
(managerial), fringe benefit tax applies. The benefit is not
taxable to these people, provided that the fringe benefit tax is
paid.
M.R.A.D.C. LUMBRE 9

“How is fringe benefit tax computed? It depends on the
classification of the managerial employee. You are a Filipino
and you are a manager, what is the highest tax rate applicable
for individual taxpayers under the Tax Code? 32%. If you are a
special alien and you qualify under the Tax Code? Your rate is
15%.
“If you are a non-resident alien not engaged in business and
trade (NRANEBT)? Example of this: you are a consultant, an
exchange professor, hired by the UP to lecture there for three
(3) weeks. But because your stay is less than 180 days in the
country, you are considered an NRANEBT for tax purposes. Tax
rate is 25%. Thus, the rates are different for these individuals,
based on their classification.
“So pag binigyan mo ng benefits itong mga taong ito, the
computation will depend on the said rates. If you give benefits
to this person (Filipino manager, as mentioned above), the
computation will be: Value of the benefit multiplied by 32%,
and divided by 68. (32 + 68 = 100)
“For the special alien it will be: value of the benefit multiplied
by 15% and divided by 85. (15 + 85 = 100). To determine the
divisor, 100 minus the tax rate.
“Under the TRAIN, WALA NA LAHAT YAN. Basta benefits given
to managerial employees, taxed at 35%.
TRANSFER TAXES (Part 2)
A. Estate Tax
“Let’s go the biggest impact of the TRAIN, which is on transfer
taxes. Estate and donor’s tax.
“Do not forget that the estate tax under the TRAIN Law applies
only to people dying this year and who are leaving behind
properties. So, if the person died last year, apply the Tax Code.
“Remember, in estate taxation, what applies is the law at the
time of death, NOT at the time of partition. Valuation of
properties will also be at the time of death, NOT fair market
value (FMV).
“If you are asked a question for purposes of examination,
always look at the date. If there is a date and it is on or prior
to December 31, 2017, apply the Tax Code. If there is a death
and the date is January 1, 2018 or onwards, apply the TRAIN.
“If the question is silent as to the date, you qualify. You answer
both, and you qualify.
“Let’s compare what is provided under the TRAIN.
“Number One: Under the Tax Code, if a person dies and the
peso value of all the properties left behind is P20K and above,
then the family is required to file with the BIR a Notice of
Death attaching therewith the death certificate within 30 days
from death. That is MANDATORY.
UPDATES UNDER THE TRAIN LAW BY DR. LIM
“If the family cannot comply within 30 days, they can ask for
an extension of another 30 days. So a total of 60 days. But the
extension prayed for must always be filed within the original
period (30 days).
“So what is the exception to the rule? Notice of Death is still
required even if the value of the properties left behind is less
than P20K when it includes registrable properties. What are
these registrable properties? These are properties that cannot
be transferred without a tax clearance. Example of a
registrable property: real properties; shares of stock; bank
deposits; motor vehicles, etc. Pag registrable property, wala
nang amount involved.
“Under the TRAIN Law, Notice of Death, under Section 89, is
no longer needed. This provision has been deleted.
Aside from that, you will note that under the Tax Code, the
rates were between 5-20%; 5, 8, 11, 15, and 20. Under the
TRAIN Law, 6% estate tax only. xxxx
“Under the Tax Code, the estate tax payable in six months.
Under the TRAIN Law, it is payable within 1 year.
“Under the Tax Code, if you paid the estate tax beyond the six-
month period, you will be subjected to surcharge and interest.
You also have to pay in full.
“Under the TRAIN Law, you may ask for an extension of
another 1 year (which must be prayed for within the original
1 year period), for a total of 2 years, and you can pay in
installments without interest or surcharges provided that you
were able to pay within 2-years from death.
“Under the Tax Code, if the peso value of the properties left
behind is P200K and above, there will be an estate tax to be
paid. Under the TRAIN Law, estate tax is imposable only if the
value of the estate is more than P5.0M.
Under the Tax Code, if the peso value of the properties left
behind is more than P20K but below P200K, the family is
required to submit:
1. Notice of Death;
2. Estate Tax Return;
But no tax payment.
“Under the TRAIN, for as long as property is P5.0M and below,
just submit an estate tax return, but no tax payment. Return
is MANDATORY.”
“Under the Tax Code, if the peso value of the properties left
behind is more than P2.0M, the estate tax return must be
submitted together with financial statements certified by a
CPA.
“Under the TRAIN, CPA certification is required only if the
value of the gross estate is more than P5.0M.
M.R.A.D.C. LUMBRE 10

“We go to allowable deductions for estate tax purposes under
the Tax Code:
1. Standard Deductions;
2. Share of the Surviving Spouse;
3. Ordinary Deductions (funeral expenses, claims against
the estate, claims against insolvent persons, judicial
expenses for testamentary proceedings, unpaid
mortgage, indebtedness, losses, unpaid taxes, losses);
4. Medical Expenses incurred 1 year prior to death, with
supporting receipts (no more than P500K);
5. Vanishing Deductions;
6. Amounts received by the heirs pursuant to R.A. No.
4917;
7. Transfers for public use;
8. Estate tax paid abroad.
“Under the TRAIN Law, items removed from the allowable
deductions are the following:
1. Funeral expenses;
2. Judicial expenses for testamentary proceedings; and
3. Medical expenses incurred 1 year prior to death.
“Under the Tax Code, you can automatically deduct an
amount of P1.0M from the gross estate of the decedent, as an
ordinary deduction, without the need of supporting
documents.
“Under the TRAIN, the automatic standard deduction is now
P5.0M.
“Under the Tax Code, family home is considered an allowable
deduction, for an amount of up to P1.0M.
“Under the TRAIN, you can deduct P10.0M for the family
home.
“Under the Tax Code, if you inherited property, but within six
months it was damaged or lost in a fire, the loss can be an
allowable deduction provided that the same occurred 6
months. As the loss can be deducted from income tax or
estate tax purposes, you can choose where to deduct. As
income tax is more expensive, you can choose to deduct the
loss from there, but it can be deducted only once.
“Under the TRAIN, the loss may be deducted provided the
occurrence should happen within one year from death, and
with proper documentation or certification from the LGU,
certification from the BIR that you reported the loss within 30
days. So from 6 months, naging 1 year under the TRAIN.
“Under the Tax Code, once the decedent dies, leaving behind
money in a bank, and the manager of that bank has knowledge
of the death, the decedent’s account is automatically frozen.
Nobody is allowed to withdraw from the account. The only
instance you can withdraw is you need money for funeral
expenses, but no more than P20K. If you need more, then you
get an authority from the Commissioner of Internal Revenue
(CIR). When are you allowed to withdraw (aside from funeral
UPDATES UNDER THE TRAIN LAW BY DR. LIM
expenses)? Only upon presenting proof of estate tax payment
to the manager, who will verify the same with the BIR.
“Under the TRAIN, you can withdraw any amount, provided
that you subject the money to 6% withholding tax. And if it is
an account maintained with co-depositors, the latter will have
to sign an authority, and also a waiver allowing you to
withdraw the money.
“If the decedent was a non-resident alien who left behind
properties within the Philippines, the properties will be
subject to estate tax. What are the allowable deductions? His
heirs may claim ALL, except the following:
1. Funeral expenses;
2. Medical expenses incurred 1 year prior to death;
3. Judicial expenses for testamentary proceedings;
4. Amounts received by heirs under R.A. No. 4917.
“Under the TRAIN, the standard deduction has now gone up
to P5.0M. For non-resident alien decedent, however, standard
deduction is P500K only.
B. Donor’s Tax
“We go to donor’s tax. There are changes here. Under the Tax
Code, there are seven (7) brackets, tax rates between 2-15%
(2, 4, 6, 8, 10, 12, 15). Those rates are applicable if the
donation is in favor of a relative within the 4th civil degree of
consanguinity. But if the donation is in favor of a stranger (or
somebody who is not within the 4th civil degree of
consanguinity), there is only one rate, which is 30%. This rate
is called “gift to stranger.”
“When corporations are giving donations, the applicable
donor’s tax rate is 30%. If you are donating to politicians,
political parties, the donation is exempt under the Omnibus
Election Code.
“Under the TRAIN, there is only one donor’s tax rate: 6%. No
more 30%. The other tax rates are deleted.
“Under the Tax Code, if the donation is more than P100K,
donor’s tax applies.
“Under the TRAIN, the threshold amount is raised to P250K.
“Under the Tax Code, if you are donating real properties to
your relatives within the 4th civil degree, there is no
documentary stamps tax (DST), just donor’s tax.
“Under the TRAIN, donation of real properties is subject to
documentary stamps tax (DST), which is 15% for every P1K of
the value of the real property.
“Also, if you are donating properties or gifts to your child
because he is getting married, under the Tax Code, if the gift
is given prior to marriage or within 1 year after the marriage,
the donation will be enjoy a dowry deduction of P10K.
M.R.A.D.C. LUMBRE 11
 UPDATES UNDER THE TRAIN LAW BY DR. LIM

“Under the TRAIN, no more dowry deduction.

“If you repudiated an inheritance, it is not subject to donor’s

tax, provided that the repudiation is in favor of a co-heir. But
if the repudiation is in favor of a third person (not a co-heir),
it is subject to donor’s tax. This applies to both Tax Code and
TRAIN. xxxx

“Under the TRAIN, documentary stamps tax is increased by

100%.

“For other changes under the TRAIN Law, refer to Ma’am’s

notes.

- END -

M.R.A.D.C. LUMBRE 12