Train Bill – Tax Reform for Accelaration and Inclusion

Train Bill - Tax Reform for Accelaration and Inclusions

An infographic from the IT & Business Process Association of the Philippines’(IBPAP) Executive’s Circle hosted by KMC Solutions.

Section 5, Powers of the Commissioner- Electronic Connectivity

The BIR, National Government Agencies, LGUS, Government Agencies and Instrumentalities, GOCCS shall establish electronic interconnectivity that allows the exchange of information relevant to the needs of each agency.

Section 6 (F), Authority of the Commissioner to Inquire into Bank Deposits in re: secrecy of bank deposits under R.A. 1405- Exchange of Information

The Commissioner may inquire into and receive information on bank deposits and other related data upon an obligation to exchange information with a foreign tax authority whether on request or automatically pursuant to an agreement on tax matters which the Philippines is a signatory to. In case the information is requested by a foreign tax authority the Commissioner may provide information from banks and financial institutions in accordance with the agreement and subject to the relevance of the request. If the exchange of information is automatic the information will be provided in accordance with international common reporting standards.

The Commissioner may likewise inquire into the bank deposits of taxpayers in cases of tax evasion, upon order of a competent court subject to rules prescribed by the Secretary of Finance.

Section 22 Definitions, Section 24- Removal of Exemption Minimum Wage Earners

The income tax exemption for minimum wage earners is removed along with the corresponding definition of terms in Section 22. This repeals Republic Act 9504.

Section 24 (A)- Income Tax Rates- New Graduated Rates and Tax Brackets

New tax brackets are introduced for compensation income earners including a 0% income tax for those earning less than P250,000. For above the threshold the tax rate is 20-35% and 15-35% from 2020 onward. The brackets will be adjusted for inflation every 3 years after considering the effect of the 5 year cumulative CPI inflation rate to the nearest thousandth.

Tax Schedule from 1 July 2017, and taxable years 2018 and 2019

Section 24 (B)- Removal of exemption for PCSO and Lotto winnings

PCSO and Lotto winnings are no longer exempt from 20% income tax on winnings

Section 25 (C), (D), and (E)- 15% tax rate on foreigners employed by ROHQs, OBUs, and Petroleum Service Contractors removed

Foreigners employed by Regional Operating Head Quarters, Regional Headquarters, Regional Area Headquarters, Offshore Banking Units, and Petroleum Service contractors subject to regular rates of tax. The Special 15% income tax rate is abolished.

Section 31-Definition of Taxable Income

The definition of taxable income no longer includes personal and additional exemptions and deletes language pertaining to deductions and exemptions allowed by “other” special laws.

Section 33- 30% Fringe Benefit Tax, Fringe Benefit Forms Part of Income

Introduction of a 30% Fringe benefit tax from 1 July 2017 onward. Effective 2020, the fringe benefit shall form part of the employee’s income, be subject to regular income tax rates, and the actual monetary value of the fringe benefit, not the grossed up value will be allowed as a deduction.

Section 34 and Section 34(M)- Deductions from Gross Income

Premium payments on healthcare and hospitalization insurance are no longer allowed as deductions. Professionals and self-employed individuals may apply allowable deductions.

Section 34(L) Removal of OSD for individuals

Individuals are no longer allowed an optional standard deduction of 40% of gross sales or gross receipts.

Section 35, Section 79- Repeal of Personal Exemption of Individual Taxpayers

Basic personal exemptions for individuals, heads of families, married individuals, and dependents are no longer allowed.

Section 62- Repeal of Exemption for Estates and Trusts

The P20,000 exemption from the income of estates and trust no longer allowed.

Section 84- 6% Estate Tax

A flat 6% estate tax on the net estate of a resident or non-resident decedent applies supplanting the graduated rates of 5-20%.

Section 86 Computation of Net Estate

The ceiling for the deduction allowed for the Family Home of the decedent is increased to P3,000,000. The ceiling will be adjusted beginning 2018 according to current value using a 3 year cumulative CPI rate.

Non-resident non citizens are no longer allowed to deduct expenses, losses, indebtedness, and taxes on their Philippine estate in proportion to their total estate. Non-resident non-citizens do not need to include their foreign estate in their returns.

Section 99 – 6% Donor’s Taxes

A 6% tax on total gifts in excess of P100,000 applies in lieu of the 2-15% rate (where donee is not a stranger) and in lieu of the 30% rate (where the donee is a stranger). The distinction between donations/gifts made to strangers is removed; the 6% applies to all gifts regardless of the donee’s relationship to the donor

Section 106(A)(2)(a)- Zero Rating on Export Sales of goods

The sale of goods to persons engaged in international air transport operations is subject to 0% VAT on the condition that the goods are used for international shipping or air transport operations;

The sale of raw materials or packaging materials to non resident buyers for delivery to local export oriented enterprise, sales of raw materials or packaging materials to export oriented enterprises whose export sales exceed 70% of total annual production, and export sales under the Omnibus Investment Code are subject to 0% VAT until an enhanced VAT refund system is established and implemented, which gives the taxpayer a refund or denial of their application within 90 days from filing.

Section 108 (B)(4) – Zero rating on Export Sales of services

Services rendered to persons engaged in international shipping or international air transport operations including lease of property are subject to 0% VAT, provided that the services are used exclusively for international shipping or air transport operations.

Services performed by subcontractors or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70% of annual production are subject to VAT and no longer considered zero rated sales of services.

The transport of passengers and cargo is subject to VAT, unless by domestic air or sea vessels from the Philippines to a foreign country.

Section 109(D)(M)(N)(Q)(V)- VAT Exempt transactions

VAT exempt importation of personal and household effects of Balikbayans are subject to more stringent requirements. Gross receipts from lending activities by credit or multi purpose cooperatives are no longer VAT exempt; Sales by non-agricultural non electric and non credit cooperative are no longer VAT exempt; Lease of residential units not exceeding P10,000 are no longer VAT exempt; The VAT threshold increased to P3,000,000; The VAT Threshold to be adjusted not later than January 31, 2020 and every 3 years thereafter based on the CPI. (Note: Services no longer considered VAT exempt may be subject to percentage tax or VAT depending on the applicable threshold.)

Section 116 Percentage Tax

Self employed and professionals whose gross sales or gross receipts do not exceed the VAT threshold are exempt from 3% percentage tax. (Note: They are subject to an 8% on their gross sales and/or receipts).

Section 148 Excise Tax on Petroleum

Effective 1 January 2018 there will be an increase in excise tax from:

P4.50 to P7.00 per liter/kilogram on lubricating oils and grease;
P0.05 to P3.00 per liter for processed gas;
P3.50 to P7.00 per kilogram wax and petrolatum;
P0.05 to P3.00 per liter of volume capacity on denatured alcohol;
P4.35 to P7.00 per liter on naptha, regular gasoline;
P5.35 to P7.00 per liter of volume capacity on leaded premium gasoline, unleaded premium gasoline;
P3.67 to P7.00 per liter of volume capacity of aviation turbo jet fuel;
P0.00 to P3.00 per liter of volume capacity of kerosene;
P0.00 to P3.00 per liter of volume capacity of diesel fuel oil
P0.00 to P3.00 per liter LPG gas except when used as a raw material in the production of petrochemical products or replacement fuel under certain conditions;
P0.56 to P3.00 per kilogram on asphalt;
P0.00 to P3.00 per liter of volume capacity of bunker fuel oil and similar fuel oils;

Beginning 1 January 2019 the tax shall be increased to:

P9.00 per liter/kg volume capacity on lubricating oils and grease;
P5.00 per liter of processed gas;
P9.00 per kilogram wax and petrolatum;
P5.00 per liter of volume capacity on denatured alcohol;
P9.00 per liter on naptha, regular gasoline;
P9.00 per liter of volume capacity on leaded premium gasoline, unleaded premium gasoline;
P9.00 per liter of volume capacity of aviation turbo jet fuel;
P5.00 per liter of volume capacity of kerosene;
P5.00 per liter of volume capacity of diesel fuel oil
P5.00 per liter LPG gas except when used as a raw material in the production of petrochemical products or replacement fuel under certain conditions;
P5.00 per kilogram on asphalt;
P5.00 per liter of volume capacity of bunker fuel oil and similar fuel oils;

Beginning 1 January 2020 the excise tax shall be increased to:

P10.00 per liter/kg volume capacity on lubricating oils and grease;
P6.00 per liter of processed gas;
P10.00 per kilogram wax and petrolatum;
P5.00 per liter of volume capacity on denatured alcohol;
P10.00 per liter on naptha, regular gasoline;
P10.00 per liter of volume capacity on leaded premium gasoline, unleaded premium gasoline;
P10.00 per liter of volume capacity of aviation turbo jet fuel;
P6.00 per liter of volume capacity of kerosene;
P6.00 per liter of volume capacity of diesel fuel oil
P6.00 per liter LPG gas except when used as a raw material in the production of petrochemical products or replacement fuel under certain conditions;
P6.00 per kilogram on asphalt;
P6.00 per liter of volume capacity of bunker fuel oil and similar fuel oils;

Section 148-A Mandatory Marking of All Petroleum Products

All petroleum products must be marked at the refinery or terminal when offloaded for transport to the domestic market by an official marking agent. The failure to mark within 15 days from notice subjects the owner and/or consignee to sanction. Random field tests shall be conducted by the PIO (Program Implementation Office) alongside BIR/Customs representatives to test if petroleum products are unmarked, adulterated, or diluted. Costs shall be born by the refiner, importer, or manufac

Section 149 Excise tax on Automobiles

The brackets shall be indexed by the Secretary of Finance once every 2 years if the exchange rate of the peso vs. the USD fluctuates more than 10%. If the fluctuation is 20% within the reference2 year time period, the Secretary of Finance shall likewise re-index the price.

Automobiles powered by electricity or by electricity and in combination with other motive power (hybrids) are not considered automobiles subject to excise tax. Buses, trucks, cargo vans, jeeps/jeepneys/jeepney substitutes, single cab chassis, and special purpose vehicles are likewise not considered automobiles subject to excise tax.

Section 150-A Tax on Sugar Sweetened Beverages

A 10% per liter tax is imposed on sugar sweetened beverages containing caloric or non-caloric sweeteners. 100% natural fruit juice, 100% natural vegetable juice, yogurt and fruit flavored beverages with pure fruit, meal replacement beverages, and all milk products are excluded from the tax.

Section 232- Threshold for Books of Accounts and Independently Audited Financial Statements

The requirement to keep a journal or ledger applies only to taxpayers whose quarterly output or sales exceeds P250,000. The requirement to submit Independently Audited Statements applies only to taxpayers whose quarterly output or sales exceeds P750,000.

Section 237 Electronic Receipts or Electronic Sales or Commercial Invoices

Electronic receipts and invoices are required for all persons subject to internal revenue tax for purchases exceeding P25.00. These may transmitted electronically or by printed copy thereof. The sale will be transmitted directly to the BIR at the same time.

Section 237-A Electronic Sales Reporting System

Taxpayers are required to electronically report their sales data through CRM or POS machines. The cost of these machines will be borne by the taxpayer. The electronic reporting system must comply with the Data Privacy Act.

Section 238 E-Printing and Invoicing

Taxpayers engaged in business must apply for a permit to use an E-receipt and e-invoicing system.

Section 264- Penalties related to Invoices and Receipts

The penalty for printing receipts without BIR authority, printing multiple sets of invoices or receipts, printing unnumbered receipts or invoices without the name, TIN, and business address of the taxpayer, or printing fraudulent receipts and /or invoices is punishable by administrative fine of than P500,000-P10,000,000 and imprisonment of 6-10 years.

Section 264-A Penalty for Failure to Transmit Sales Data

The failure to transmit sales data is penalized by a fine of ½ of 1% of the annual gross sales in the taxpayer’s AFS or P10,000 per day whichever is higher. If the failure to pay exceeds 180 days in aggregate, the penalty is permanent closure of the taxpayer’s business.

Section 264-B Penalty for Sales Suppression Devices

The purchase, use, sale, installation, keeping, maintaining, updating, or upgrading of software or devices capable of suppressing sales or modifying, hiding, or deleting electronic records of sales is punishable by a fine of P500,000 to P10,000,000 and imprisonment of 2-4 years. If the cumulative sales that are suppressed exceeds P50,000,000 it will be considered economic sabotage.

Section 265-A Penalties for Fuel Marking

Sale, trade, delivery, and distribution of unmarked fuel in commercial quantities is subject to fines of P2.5M for the first offense, P5M for the second offense, and P10M and the revocation of their license to engage in any trade or business.

Section 288 Earmarking of Funds

For 3 years not more than 40% of the yearly incremental revenue from petroleum excise tax shall be allocated to a social benefits program and fuel vouchers which will be available to qualified beneficiaries and qualified transport franchise holders. The remaining yearly incremental revenues shall be used infrastructure, health, education, and social protection procedures for the same period.

Revenues collected from taxes imposed on sugar sweetened beverages shall be allocated as follows:

  • 15% to the Sugar Producing Provinces to advance the self reliance of sugar farmers
  • 85% to support (1) non-tax measures to prevent non-communicable diseases, introduce regulatory measures on marketing and labeling of unhealthy food, nationwide advocacy to curb lifestyle related risk factors, and incentive based measures to increase the access to and affordability of healthier food and beverage products and promotion of oral health; (2) provision of sports facilities and access to potable water for public schools, sustaining a school based feeding program, and campaign against obesity and dental caries, and other diet related health awareness programs; (3) provision of potable water in public places; and (4) nutrition labeling

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