A perfect Christmas gift for our wealth building efforts next year! President Rodrigo Duterte just signed the Comprehensive Tax Reform dubbed the “Tax Reform for Acceleration and Inclusion (TRAIN)”.
This change was brought to fund the “Build, Build, Build program” by the administration for the first five years. It aims to erect infrastructure beneficial to the public, including military infrastructure and solutions to the worsening traffic.
Also, it aspires to decrease Philippines poverty levels over time.
To do this, the government swayed away from taxing the people’s income directly. And in return, levy more excise taxes. Now, with a higher disposable income, Filipinos have a choice where to spend their hard-earned money.
It is expected to produce an additional P130 billion in tax revenues for next year. Here is the roundabout to the changes to expect next year.
More Take-Home Pay For Almost Everyone
With its rollout next year, expect to get more take-home pay! For both employees and self-employed, the government amended the outdated (and almost usurious) income tax schedule for all individuals.
With this new rates, it exempts those earning P250,000 and below from paying the personal income tax. It also increased the tax exemption on your 13-month pay to P90,000.
As for the self-employed, the government understands the fluctuating income a freelancer has. With this, individuals with a yearly income of PHP 3 Million and below will have the option to use the Income Tax Rate Schedule above or pay a flat 8% Tax Rate.
Moreover, freelancers with income below PHP 500,000 are EXEMPT from paying Percentage Taxes. And those earning below PHP 250,000 are still exempt from paying their Income Tax.
To top it all off, freelancers will find tax filing to be easier both in the processing and in paying due to the lower amount.
Value Added Tax Threshold Increase
Small business will now rejoice with the new Value Added Tax (VAT) threshold. Before the amendment, those with yearly sales of roughly PHP 1.9 Million are required to pay a 12% VAT. Now, small startups with annual sales BELOW 3 Million are exempt from VAT prospectively.
These small businesses can now save themselves from the hassles of VAT filing. And consumers have more reason to patronize emerging business because their goods might get relatively cheaper now.
What about past exemptions? These following VAT exemptions are still retained (and some exemptions are added):
- Senior Citizens
- Health and Education
- Renewable Energy
- Raw Food and Agricultural Products
- Enterprises in Special Economic Zones
- Leases Below PHP 15,000 per month
- Condominium Association Dues
Prescription medication for diabetes, high cholesterol, and hypertension will also be VAT-Free starting 2019 as well socialized and mass housing projects below P2M starting 2021.
Estate and Donor’s Tax
Gone are the days where the bereaved are penalized by estate taxes. For this amendment, the Estate Tax is pegged on a flat rate of 6% (Previously from 5% to 20%) with a PHP 5 Million exemption (Previously from PHP 1.7 Million).
The family can also withdraw from the estate to pay for incidental expenses for the deceased provided that it will be net of 6% withholding tax (formerly from a cap of P20,000). A provision helpful to the heirs as they may not have the money for this sudden loss.
The exemption of the deceased’ family home will also be raised. The exemption is upped to PHP 10 Million pesos from the measly PHP 1 Million pesos prior.
The Donor’s Tax will also have a flat rate of 6% on net donations above 250,000.
Passive Income and Other Taxes
For your investment needs, the documentary stamp taxes for bank transactions, stock transactions, and foreign currency deposit units are increased as follows:
With the lower tax rates, the government directed collection on excise taxes instead. While this ultimately will raise consumer product prices, this move will, at the very least, give the Filipinos a choice where to spend their hard-earned money.
Looking at the taxed goods, the government might want us to direct our spending into greener options in the coming days.
Sweetened Beverage Tax
One such tax is the “Sweetened Beverage Tax”. There is no denying that Filipinos have a sweet tooth. Just check your fridge and I just might prove my point.
With obesity and diabetes becoming a worldwide problem, taxing sweetened beverages might curb some of our fondness for sugar.
You’re better off with just water. Your favorite sugar drinks are now taxed P6 pesos per liter for beverages using caloric and non-caloric sweeteners. And P12 for those with high-fructose corn syrup.
On an earlier version of this law, these taxation rules include staples such as 3-in-1 coffee. This may hurt the average Filipino. But now, 3-in-1 coffee is excluded alongside all milk beverages, 100% natural fruit and vegetable juices, meal replacement and medically indicated beverages, and beverages sweetened with coco sugar or stevia.
Tobacco Excise Tax
As the infomercial goes, cigarette smoking is dangerous to your health. With the gruesome pictures in the cigarette packaging, we all know that. But it is a hard to forego this lifelong addiction.
The tobacco excise tax will now increase year after year.
I hope this saves our human (lungs) smoke-belching friends.
You want to get that perfect nose line or body enhancement? Better get it this year then. There will now be a 5% additional tax on invasive cosmetic procedures directed for solely enhancing your appearance.
Maybe they want us to be contented with our appearance? On another perspective, that additional “confidence booster” will help fund projects in the Philippines. Flaunt your new self knowing that you have helped our country progress.
It is important to note that cosmetic procedures for physical defects arising from congenital or developmental causes, from a disfiguring disease, or from an accident are exempted.
Taxes on Coal, Petroleum, and Mining
With the state of Manila, can you imagine a cleaner and greener Philippines? It may now be possible with this taxation regulation.
Main power sources such as coal and petroleum will now be taxed more in the coming year.
Coal will be taxed as follows:
While Petroleum will be taxed:
Alongside with this, mining will also take a hit. All metals will be taxes from 2% to 4%. And indigenous petroleum will be taxed from 3% to 6%. That’s double the rate compared to last legislation.
This will surely result in higher-priced consumer goods in the coming months. But it might also invoke businesses to consider renewable sources of energy such as solar panels. This might enable them to put lower prices on their goods.
Moreover, because of the rising energy prices, more players (both local and international) might consider entering the renewable sources category in the Philippines. It may lead to cheaper consumer-friendly energy options available for the public.
A cleaner and greener Philippines indeed.
Automobile Excise Tax
How’s the Christmas Holiday Rush? Bearable? “Carmageddon” was even coined by Waze. With the worsening traffic, automobile taxes are not even a surprise.
With Pick-ups (commonly used for commercial and agricultural purposes) and electric vehicles are exempt from excise taxes. Hybrid cars are taxed at half the rate. With this exemption, some cars might even be cheaper now compared to before.
This law might not stop people from buying cars. But at least, it might get to help them think before buying that fourth one. With this levy and with the future projects from the “Build, Build, Build” program, let’s hope for better traffic in the future.
The taxation measures in this new law pose both Pros and Cons. Let us wait for the effects in the months to come. And hopefully, it will work as intended.