What’s New Under The TRAIN Tax Reform Law?

You may have heard it in the news – government is implementing the Tax Reform for Accelleration and Inclusion (TRAIN) law starting this Jan. 2018. This comes after President Rodrigo Duterte signed it into law in Dec. 2017.

What kind of tax reform will TRAIN implement and what new taxes will come out of this new law?

What’s New With TRAIN?

Here is a rundown of what’s new under the new law.

1. A simplified personal income tax system: lower income tax rates for the employed and lower tax rates for professionals. Compared to the previous income tax system, the system under TRAIN is simpler and easier to understand. If you are employed and earning P250,000 or less annually, you are exempted from paying income tax. If your income is between P250,000 and P400,000, your annual income tax is 20% of your income in excess over P250,000. For those with incomes of P400,000 to P800,000, a fixed P30,000 needs to be paid plus 25% of excess over P400,000. If your income falls between P800,000 to P2 million, the fixed fee is P130,000, plus 30% of excess over P800,000.

Professionals and self-employed individuals will also get lower tax rates. Those with gross receipts of P250,000 or less will be exempted from annual tax, while professionals with receipts below P3 million can opt to be charged a flat rate of 8% for total annual receipts or follow the personal income tax table.

Gone however are the personal exemptions that income earners used to get for dependent children. This is part of the simplification of the tax system.

2. New Taxes For Drinks and Products Using Sugar

The so-called sugar tax will be imposed on drinks and beverages that use sugar, caloric and non-caloric sweeteners. This means that the prices of carbonated drinks, bottled and powdered juices will surely increase, as manufacturers need to cover the sugar tax of P6 to P12 per liter.

3. New Taxes For LPG, Gas, Diesel and other Fuel Products

Fuel products are currently not taxed but under TRAIN, they will have excise taxes that will increase every year. LPG for example will see a P1 tax per liter in 2018, P2 per liter in 2019 and P3 per liter in 2020. Diesel on the other hand will be taxed P2.50 per liter in 2018, P4.50 tax per liter in 2019 and P6.00 tax per liter in 2020. Gasoline which is already taxed, will see an increase in taxes to P7.00 tax per liter in 2018, P9.00 tax per liter in 2019 and P10.00 tax per liter in 2020.

Of the new taxes under the new law, these excise taxes on fuel is expected to have the greatest impact on our daily lives. With it will come increased transport costs, which will likely affect the delivery of basic commodities and local transportation costs.

4. New Excise Tax on Coal

Coal will see an increase in its excise tax, from the previous P10 per metric to P50.00 tax per metric ton in 2018, P100.00 tax per metric ton in 2019 and P150.00 tax per metric ton in 2020. Along with the excise taxes on fuel, the increased tax on coal is also seen to affect the prices of electricity as most of our electricity is generated by coal-fired power plants.

5. Exemptions from the sugar tax include milk, 3-in-1 coffee, natural fruit or vegetable juices, beverages for medical use, and those that use natural sweeteners like stevia or coco sugar.

For more information about the TRAIN law, check the Department of Finance website.