Reducing the income tax burden of Filipinos

AMID the mix sentiments on the implementation of the Republic Act No. 10963, or the Tax Reform for Accelerat ion and Inclusion ( TRAIN), Filipinos can’t help but catch up with the changes it brings. The new tax reform, which overhauls the 20- year- old Phi lippine tax system, has taken effect in the first day of the year with the aim to create a simpler, fairer and more efficient system of tax collection.

Considering the impact it may bring in the long run, TRAIN is heading the country into something brighter. It is envisioned to eradicate extreme poverty and achieve highincome country status by 2040. The implementation of TRAIN is the government’s way to generate revenue to be used for a multibillion- peso infrastructure program that is key to drive economic growth.

The most popular provision under the new law is the reduction of personal income tax of the majority of Filipino taxpayers. The TRAIN is designed to shift the tax burden away from income and into consumption, reducing the personal income tax rates while expanding the value-added tax ( VAT) base, adjusting oil and automobile excise taxes, and introducing excise tax on sugar-sweetened beverages.

According to the Department of Finance ( DoF), TRAIN lowers personal income tax ( PIT) for all taxpayers except the richest.

There are two sets of new Income Tax Tables to be followed by the Bureau of Internal Revenue ( BIR) under the TRAIN: the Income Tax Tables to be implemented for the years 2018 to 2022; and the Income Tax Tables which will be applicable from 2023 onwards. Starting this year until 2022, individuals with annual taxable income of P250,000 or less are exempt from the income tax while individuals earning between P250,000 and P400,000 per year are charged with an income tax rate of 20% on the excess over P250,000.

Meanwhile, those with yearly salaries of P400,000 and above are paying fixed amounts depending on their brackets. Specifically, individuals with yearly salaries amounting from P400,000 to P800,000 pay a fixed amount of P30,000 plus 25% of the excess over P400,000; those earning between P800,000 and P2 million are charged with a fixed amount of P130,000 and additional 30% on the excess over P800,000.

On the other hand, high-income earners or those individuals receiving salaries between P2 million and P8 million annually pay a fixed amount of P490,000 plus 32% of the excess over P2 million. Finally, individuals who receive salaries of P8 million and above per year have withholding taxes of P2.41 million and additional 35% of the excess over P8 million.

From year 2023 onwards, the second Income Tax Tables will take effect and will lower the tax rates further. Individuals earning an annual salary of P250,000 will continue to be exempted from paying taxes while those earning from P250,000 to P400,000 per year will be charged a lower income tax rate of 15% on the excess over P250,000.

Individuals with yearly salaries between P400,000 and P800,000 will be charged a fixed amount of P22,500 plus 20% of the excess over P400,000. Those with annual incomes from P800,000 to P2 million will have withholding ta xes of P102,500 plus 25% on the excess over P800,000. Individuals earning between P2 million and P8 million per year, on the other hand, will be charged P402,500 plus 30% of the excess over P2 million. Finally, the highest income segment of employees or those who earn annual salaries of at least P8 million will pay P2.2025 million and additional 35% of the excess over P8 million. D oF noted in i t s We b s i t e tha t hu s b a nd s a nd wi v e s who are both working can benefit from a total of up to P500,000 in exemptions. In addition, the first P90,000 of the 13th month pay and other bonuses will be exempted from income tax.

“The simpl i f ied ta x system will increase the take home pay of most individuals and encourage compliance. Sel f- employed and professionals ( SEPs) with gross sales below the VAT threshold now have the option to pay a simpler 8% f lat tax in lieu of income and percentage tax, while those above the VAT threshold will follow the PIT schedule,” the DoF said. —