Let's Get on the TRAIN
Department of Finance
The Department of Finance (DOF) issued Revenue Regulations (RR) No. 08-2018, 25 January 2018, to implement the Income Tax (IT) Provisions of Republic Act (RA) No. 10963, otherwise known as Tax Reform for Acceleration and Inclusion (TRAIN) Act. The salient points of the RR are as follows:
- Purely compensation income earners other than minimum wage earners shall be taxed on their taxable income in excess of P250,000.00 at the graduated rates of 20%-35% from 01 January 2018 until 31 December 2022 and at the graduated rates of 15%-35% thereafter;
- Self-employed individuals and/or professionals whose gross sales/receipts and other non-operating income does not exceed the VAT threshold of P3,000,000.00 have an option to avail of graduated rates or an 8% tax on gross sales or receipts and other non-operating income in excess of P250,000.00 in lieu of the graduated tax rates and the percentage tax. However, the option to be taxed at 8% rate is not available to a VAT-registered taxpayer (TP) and TP who is subject to Other Percentage Taxes except those subject under Section (Sec) 116 of the Tax Code, as amended. Likewise, partners of a General Professional Partnership (GPP) cannot avail of the 8% rate. Unless the TP signifies the intention to elect the 8% rate in the 1Q Percentage and/or IT Return (ITR), or on the initial ITR of the taxable (TY), the TP shall be considered as having availed of the graduated rates. Such election shall be irrevocable and no amendment of option shall be made for the said TY. TP shall automatically be subject to the graduated rates, even if the flat 8% rate option is initially selected, when TP's gross sales/receipts and other non-operating income exceeded the VAT threshold during the TY. In such case, his income tax shall be computed under the graduated rates and shall be allowed a tax credit for the previous quarter/s income tax payment/s under the 8% income tax rate option. TP shall be required to update registration immediately within the month following the month s/he exceeded the VAT threshold. S/he shall be liable to VAT prospectively starting on the first day of the month following the month when the threshold is breached. The TP shall pay the required percentage tax covering the sales/receipts and other non-operating income, from the beginning of the TY or commencement of business/practice of profession until the time the TP becomes Iiable for VAT, without imposition of penalty if timely paid;
- Compensation income of mixed income earners shall be subject to the graduated income tax rates while the gross sales/receipts and other non-operating income from self-employment shall subject to the income tax rates similar to the provision under “Self-Employed Individuals and/or Professionals” without the benefit of P250.000.00 allowed deduction under Sec 24(A)(2)(b) of the Tax Code, as amended;
- Winnings (except Philippine Charity Sweepstakes and Lotto winnings of P10,000.00 or less) shall be taxed at 20% final tax, interest income received by an individual taxpayer (except a non-resident individual) from a depository bank under the expanded foreign currency deposit system shall be taxed at 15% final tax, and capital gains from sale of shares of stock not traded in the stock exchange is to be taxed at 15% final tax;
- All concerned employees of the regional/area headquarters and regional operating headquarters of multinational companies, offshore banking units and petroleum service contractor and subcontractors shall now be subject to the regular income tax rate under Sec. 24(A)(2)(a) of the Tax Code, as amended;
- Local Water Districts (LWD) shall now be exempt from corporate income tax. Philippine Charity Sweepstakes Office (PCSO) was removed from the list of exempted Government-Owned or Controlled Corporations (GOCCs).
- Tax exempt thirteenth (13th) month pay and other benefits during the TY shall not exceed P90,000.00;
- The premium payments on health and/or hospitalization insurance amounting to P2,400.00 per family was removed from the list of deduction from gross income;
- The 35% (as compared to 32% previous rate) tax on fringe benefits shall be imposed on the grossed-up monetary value of fringe benefits furnished or granted to an employee having supervisory or managerial role. Accordingly, the grossed-up monetary value shall be determined by dividing the actual monetary value by 65%;
- GPP may avail of the Optional Standard Deduction (OSD), either by the GPP or the partners comprising the partnership. However, the partners comprising the GPP can no longer claim further deduction from their distributive share in the net income of the GPP;
- Filing deadline for the declaration of estimated income for the current taxable year of every individual subject to income tax under Sections 24 and 25 (A) of the Tax code, as amended, who is receiving self-employment income, whether it constitutes the sole source of his income or in combination with salaries, wages and other fixed or determinable income was extended to May 15 of the same taxable year;
- In case the TP opted to pay its tax due on installment basis, the deadline for the payment of second installment has been changed from July 15 to October 15 following the close of the calendar year; and
- The deadline for the change of registration from VAT to non-VAT is on 31 March 2018. TPs only need to present proof of not breaching the VAT threshold for the preceding year. After 31 March 2018, change of registration may still be processed, but the TP will be covered by the regular rules, wherein he has to present proof of not breaching the VAT threshold within the immediately preceding three (3) year period.
Attached is the copy of the RR for your reference.
DISCLAIMER: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although R.G. Manabat & Co. endeavors to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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