7 Things Workers Should Know about the New TRAIN Law

The Philippines’ recent tax reform policies have caused massive waves of changes to the entire country. While the newly implemented taxation system delivered additional tax duties to products and other types of services, it also offered a tax relief for the majority of employees who qualify under particular income brackets, giving them lower tax dues to zero tax deductions.

Republic Act No. 10963

Popularly known as the TRAIN Law or the Tax Reform for Acceleration and Inclusion Act, R.A. 10963 presents a much-needed reform for the Philippines’ taxation system. This initial package will further realize the Pres. Rodrigo Duterte’s  “Build, Build, Build” initiative – a long-term government project that is expected to transform the country into a globally competitive nation through building more infrastructure and providing better social services programs.

Workers under TRAIN Law

If you are an employee or a self-employed individual, what are the things that you should expect from the new TRAIN Law? This article will hopefully give you the answers to the questions that you’ve been trying to ask since it was first implemented.

Here are the things that employees and self-employed individuals should know about Income Tax Policies under the new TRAIN LAW.

1. Approval and Implementation

Tax income provisions under the TRAIN was approved and signed into law by President Rodrigo Duterte in 2017. However, the new regulations that cover tax deductions, additional tax duties as well as tax exemptions were only implemented on the first day of 2018.

While the majority of taxation policies were already applied on January 1, 2018, other adjustments are still yet to be implemented.

2. The tax-exempt cap for employees

The highlight of the TRAIN law was perhaps the zero tax dues/tax relief that benefited specific workers under a particular income bracket – and this is all thanks to the latest adjustments to the tax-exempt cap under this new reform.

According to the new tax policy, personal income taxes are exempted for employees whose annual salary totals to PHP 250,000.

3. Tax duties for higher earners.

While earners who collect PHP 250,000 annually are exempted from paying their income tax duties, workers who earn more have to observe the following policies:

Earners with annual income between PHP 251,000 to PHP 2 million

Personal income tax payments for earners under this income range will pay 30-32% of their taxable income (net). However, it should be noted that this will only be implemented after the first five years of the TRAIN Law.

During the first five years of the new reform, they are only required to pay tax rates from 20% to 30% of income tax depending on their annual income. Below are the first tax dues for the present 5-year period:

• Annual Taxable income that ranges from PHP 250,000 to PHP 400,000 are subjected to a 20% in excess of over PHP 250,000 (January 2018 until December 31, 2022).
• Taxpayers earning from a salary of PHP 400,000 to PHP 800,000 every year are required to pay a basic tax amount of PHP 30,000 (plus 25% additional amount) of the excess of PHP 400,000.

 Workers with an annual salary of PHP 800,000 to PHP 2 million

Employees that enjoy an annual salary of PHP 800 to PHP 2 million has the responsibility of paying a basic of PHP 130,000 – and this amount is on top of the added 30% from the excess (of PHP 800,000.)

Workers with an annual taxable income of PHP 2 million up to PHP 8 million

If individuals enjoy a taxable income of PHP 2 million to PHP 8 million, they are required to pay a basic tax duty that is worth PHP 490,000. Moreover, they also have to pay an additional 32% of the excess of PHP 2 million.

High Net-Worth Individuals or the “uber-wealthy”

For high-net-worth individuals who earn over PHP 8 million every year, they are obligated to pay a basic tax due of P2.41 million. This does not include yet the 35% additional due of the excess of PHP 8 million.

4. Self-employed professionals/individuals

Earners under this category are given the option to avail an 8% tax on gross receipts (or gross sales). This will also cover non-operating income (in excess of PHP 250,000).

5. Mixed-Income Earners

If you’re an individual that relies on more than one income sources like your business, the practice of a profession (from gross receipts), income as salaried employees, and others, this useful link will help you understand your tax dues and responsibilities.

6. Incentives and Bonuses

Employees who receive their annual 13^th-month bonuses will enjoy a tax relief, in other words, zero tax deductions as long as the amount will not exceed PHP 90,000.

7. Dependents

Middle-class workers that do not have dependents will have the most benefit from the tax relief, thanks to the tax exemption cap mentioned above. This is because, under the TRAIN Law, the policies regarding dependents and corresponding tax relief have been totally removed and replaced by other income-bracket based regulations instead.

Conclusion

The Philippine government is positive that this new tax reform will bring out a more optimistic future for Filipinos worker who rely on their monthly salary for financial freedom and stability. According to experts, this first batch of the several packages that President Rodrigo Duterte promised should be seen as one of the first steps to a more progressive economy.

Even in Asia, the Philippines is recognized to have one of the fastest growing economies in the continent, especially for a developing nation. TRAIN Law promises a vision of new and more advanced infrastructure that will be accessible to every region in the country. More importantly, the new tax policies implemented is also expected help fund better facilities and services for everyone.     

References

https://www.bir.gov.ph/index.php/train.html

https://www.dof.gov.ph/taxreform/index.php/2018/01/23/6-m-compensation-earners-enjoy-zero-tax-starting-january/

https://www.dof.gov.ph/index.php/ra-10963-train-law-and-veto-message-of-the-president/