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03/04/2018

Tax Reform for Acceleration


and Inclusion (TRAIN)

SGV & Co.

4 April 2018

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What do you think?

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03/04/2018

Why the need for a reform of the tax system?*

Personal Income Tax**


1 High marginal rates compared to ASEAN

Corporate Income Tax


2 One of the highest in ASEAN

Fiscal Incentives
3 Redundant and not rationalized

Value Added Tax


4 Too many exemptions
*The last tax reform was proposed and enacted in 1997, resulting in the Comprehensive Tax Code of 1997, as amended by
Republic Act No. 9337 on November 1, 2005.
**The expected revenue from Package 1 is PhP157.2 billion for the year 2018, according to DOF staff estimates.

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Personal Income Tax Rates -


Comparison

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03/04/2018

Corporate Income Tax Rates -


Comparison

Slide 4

VAT/GST/Sales Tax Rates -


Comparison

Slide 5

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03/04/2018

DOF Proposed Tax Reform Packages


1a 2
uReduction of tax rate
uReduction of tax rates uSimplification of tax
uShift to simplified PIT system provisions
uExpansion of VAT base uRationalization of
uExcise tax on sugary, Personal Corporate fiscal incentives
automobiles and
petroleum products Income Tax Income Tax
uEstate tax amnesty uRemoval of VAT exemption
of coal and casino
1b uGeneral tax amnesty 2+
uIncrease in alcohol,
uMotor vehicle user tax
tobacco, mining tax
uRelaxation of bank
secrecy & automatic
exchange of information

Property Capital uHarmonization of


capital income tax
uLower rate of
transaction taxes
Tax Income Tax rates on deposits and
investment,
on land dividends, equity and
uUpdate Schedule of other passive income
Zonal Values to 10%
3 4

Slide 6

DOF Proposed Timetable


1a 2
uPackage 1a was signed into law uFiled in Congress on
on December 19, 2017 with January 16, 2018.
some line veto. u It is targeted to be passed
uIt took effect on Personal Corporate into law within 2018,
effective January 1, 2019.
January 1, 2018.
Income Tax Income Tax
uFiled in Congress on
1b uPackage 1b is January 31, 2018. 2+
targeted to be
passed into law by u It is targeted to be passed
the first half of into law within 2018,
2018. effective January 1, 2019.

Property Capital
uIt is targeted to be uIt is targeted to be
filed in July 2018, to be
Tax Income Tax filed in July 2018, to
passed into law be passed into law
and effective
effective January 1, 2019.
January 1, 2019
3 4

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Republic Act No. 10963 (TRAIN)

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TRAIN

► Amends the Tax Code of 1997

► Signed into law on 19 December 2017

► Effective 1 January 2018

► Different dates of effectivity for specific


provisions of the law

► President vetoed 5 items

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TRAIN
Key amendments to 1997 Tax Code

► Lowers personal income tax rate

► Simplifies estate and donor’s tax rules

► Expands value-added tax base

► Increases excise tax for petroleum products

► Adjusts excise tax for automobiles

► Introduces excise tax on sweetened beverages &


non-essential services
Slide 10

Key Amendments
Income Tax

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Annual Income Tax Table –


For Individual Citizens and Resident Aliens
Old Rule
Annual Income Bracket Tax Rate
0 – 10,000 5%
Over 10,000 – 30,000 500 + 10% of the excess over 10,000
Over 30,000 – 70,000 2,500 + 15% of the excess over 30,000
Over 70,000 – 140,000 8,500 + 20% of the excess over 70,000
Over 140,000 – 250,000 22,500 + 25% of the excess over 140,000
Over 250,000 – 500,000 50,000 + 30% of the excess over 250,000
Over 500,000 125,000 + 32% of the excess over 500,000

Slide 12

Exemption/Deduction from Gross Income

Removed the following:

Personal and Premium payments on


additional health and/or
Exemptions* hospitalization
Insurance amounting to
PHP 2,400 per family

Repealed:
PHP 25,000 exemption in computing taxable income under
RA No. 10754, An Act Expanding the Benefits and Privileges
of Persons With Disability (PWDs)

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Non-taxable
13th month pay and other benefits

PHP 90,000

PHP 82,000
Increased non-taxable
13th month pay
and other benefits

Slide 14

Withholding Tax Table


(Annex A of RMC No. 105-17)

DAILY
1 2 3 4 5 6
685 and 685 1,096 2,192 5,479 21,918
Compensation level
below
0.00 0.00 82.19 356.16 1,342.47 6,602.74
Prescribed
+20% +25% +30% over +32% +35% over
minimum
over over over
withholding tax

WEEKLY
1 2 3 4 5 6
4,808 4,808 7,692 15,385 38,462 153,846
Compensation level
and below
Prescribed 0.00 0.00 576.92 2,500.00 9,423.08 46,346.15
minimum +20% +25% +30% over +32% +35% over
withholding tax over over over

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Withholding Tax Table


(Annex A of RMC No. 105-17)

SEMI-MONTHLY
1 2 3 4 5 6
10,417 10,417 16,667 33,333 83,333 333,333
Compensation level and below
Prescribed 0.00 0.00 +20% 1,250.00 5,416.67 20,416.67 100,416.67
minimum over +25% over +30% over +32% over +35% over
withholding tax
MONTHLY
1 2 3 4 5 6
20,833 20,833 33,333 66,667 166,667 666,667
Compensation level and below
Prescribed 0.00 0.00 +20% 2,500.00 10,333.33 40,833.33 200,833.33
minimum over +25% over +30% over +32% over +35% over
withholding tax

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Sample Computation

Particulars Old Rule TRAIN


Annual Gross Income xxx xxx
Less: Non-taxable 13thmonth (82,000) (90,000)
pay and other benefits
Basic Personal Exemption (50,000) -
Additional Personal (100,000) -
Exemption*
Total Income xxx xxx

*Computed using the maximum availment of personal and additional exemptions (under the old
rules) and tax exempt bonuses and other benefits (under the old and new rules).

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Sample Computation

Tax Due
Taxable Old Tax Code New Tax Code
Income (2018-2022) Difference
*
Rate Due Rate Due
530,000 32% 134,600 25% 62,500 72,100
1,000,000 32% 285,000 30% 190,000 95,000
5,000,000 32% 1,565,000 32% 1,450,000 115,000
8,100,000 32% 2,557,000 35% 2,445,000 112,000

11,833,333 32% 3,751,667 35% 3,751,667 0


15,900,000 32% 5,053,000 35% 5,175,000 (122,000)
19,000,000 32% 6,045,000 35% 6,260,000 (215,000)
23,000,000 32% 7,325,000 35% 7,660,000 (335,000)
23,470,000 32% 7,475,400 35% 7,824,500 (349,100)
*The calculated tax due is HIGHER/(LOWER) using the old tax code rates.

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Self-Employed Individuals / Professionals


Income of NOT more than P3 million

Gross sales/
receipts ≤ PHP3M
(Optional)

8% income tax on Graduated income


gross sales/receipts
in excess of tax rates
PHP250,000* (0% - 35%)

3% percentage tax

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Rate of Tax on Income of Self-Employed Individuals and/or


Professionals
The option to be taxed at 8% income tax is not available
to the following:
1.VAT-registered taxpayer
2.Taxpayer who is subject to OPT
3.Partners of GPP

Slide 20

Illustration: Tax on Income of Self-Employed Individuals


and/or Professionals
Assume that Ms. ABS operates a convenience store while she offers bookkeeping
services to her clients. In 2018, her gross sales amounted to P800,000.00, in addition
to her receipts from bookkeeping services of P300,000.00. He signified his intention to
be taxed at 8% income tax in his 1st Quarter return.

Her income tax liability will be computed as follows:

Gross Sales – Convenience Store P 800,000.00


Gross Receipts – Bookkeeping 300,000.00
Total Taxable Income P 1,100,000.00

Tax Due:
Basic Amount (First P 250,000.00) P 00.00
8% in excess of P250,000.00
(P1,100,000.00 – P250,000.00) 68,000.00
Total Income Tax Due P 68,000.00

• The total of gross sales and gross receipts is below the VAT threshold of P3,000,000.00.
• Taxpayer should signify his intention to be taxed at 8% income tax in his 1st Quarter Income Tax Return.
• Income tax imposed herein is based on the total of gross sales and gross receipts.
• Income tax payment is in lieu of the graduated income tax rates under subsection (A) hereof and
percentage tax due, by express provision of law.

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Illustration: Tax on Income of Self-Employed Individuals


and/or Professionals
Assuming Ms. ABS failed to signify her intention to be taxed at eight percent (8%) tax on
gross sales in her 1st Quarter Income Tax return. She incurred cost of sales and operating
expenses amounting to P 600,000 and P 200,000, respectively, or a total of P 800,000.
The income tax shall be computed as follows:

Gross Sales/Receipts P 1,100,000.00


Less: Cost of Sales 600,000.00
Gross Income P 500,000.00
Less: Operating Expenses 200,000.00
Taxable Income P 300,000.00

Tax Due:
First P250,000 P 0.00
In excess of P250,000 (P300,000-P50,000)X 20% 10,000.00
Total Tax Due P 10,000.00

Aside from the income tax, Ms. ABS is likewise liable to pay percentage tax in the amount of thirty-
three thousand pesos (P33,000), which is three percent (3%) of P1,100,000.00.

Slide 22

Illustration: Tax on Income of Self-Employed Individuals


and/or Professionals
Assume that Mr. ABS is a prominent independent contractor who offers architectural and
engineering services. Since his career flourished, his total gross receipts amounted to
P4,250,000.00 for taxable year 2018. His recorded cost of service and operating
expenses were P2,150,000.00 and P1,000,000.00, respectively.

His income tax liability will be computed as follows:

Gross Receipts – Architectural and Engineering Services P 4,250,000.00


Less: Cost of Service 2,150,000.00
Gross Income P 2,100,000.00
Less: Operating Expenses 1,000,000.00
Taxable Income P 1,100,000.00

Tax Due:
First P800,000 P 130,000.00
Excess (P1,100,000 - P800,000) X 30% 90,000.00
Income Tax Due P 220,000.00

* The gross receipts exceeded the VAT threshold of P3,000,000.00.


Taxpayer is likewise liable for business tax(es), in addition to Income Tax

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Mixed Income Earners


Income from Business or
Compensation Income
Practice of Profession

Gross sales/
receipts ≤
PHP3M
Graduated income tax (Optional)
rates
(0% - 35%)
8% income tax Graduated
on gross income tax rates
sales/receipts (0% - 35%)

3% percentage
tax

*The 8% income tax rate on gross sales/gross receipts in excess of P250,000 is NOT available to mixed
income earners.

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Illustration: Tax on Income of Mixed Income Earners

Assume that in 2018. Mr. X, a Financial Comptroller of ABC Company, earned annual
compensation of P1,500,000.00, inclusive of 13th month and other benefits in the
amount of P120,000.00. Aside from employment income, he owns a convenience
store, with gross sales of P 2,400,000. His cost of sales and operating expenses are P
1,000,000 and P500,000, respectively.
His tax due for 2018 shall be computed as follows if he opted to be taxed at eight percent (8%) of his gross sales for
his income from business:

Tax Due from compensation income:

Total compensation income P 1,500,000.00


Less: Non-taxable 13th month pay and other benefits 90,000.00
Less: Taxable Compensation Income P 1,410,000.00

Tax due
First P800,000 P 130,000.00
In excess of P 800,000 (P1,410,000 – P800,000) X 30% 183,000.00
Tax due on Compensation Income P 313,000.00

Tax Due on Business Income:


8% x P 2,400,000.00 P 192,000.00

Total Income Tax P 505,000.00

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Illustration: Tax on Income of Mixed Income Earners

2. His tax due for 2018 shall be computed as follows if he did not opt for the eight percent (8%) income
tax based on gross sales/receipts:

Total compensation income P 1,500,000.00


Less: Non-taxable 13th month pay and other benefits 90,000.00
Less: Taxable Compensation Income P 1,410,000.00
Add: Taxable Income from Business –
Gross Sales P 2,400,000
Less: Cost of Sales 1,000,000
Gross Income P 1,400,000
Less: Operating Income 500,000 900,000.00
Total Taxable Income P 2,310,000.00

Tax Due
First P2,000,000 P 490,000.00
In excess of P 2,000,000 (P2,310,000-2,000,000) X 32% 99,200.00
Total Income Tax P 582,200.00

*In addition to the income tax, Mr. X is likewise liable to pay percentage tax of P72,000,
which is 3% of P 2,400,000.00

Slide 26

Self-Employed Individuals / Professionals


Income of MORE THAN P3 million

Gross sales/
receipts > PHP3M

Graduated income
tax rates
(0% - 35%)

12% VAT

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03/04/2018

Fringe Benefits Tax (FBT)

35%
(RA NO. 10963)

Increase in
FBT rate* 32%
(1997 Tax Code)

*FBT rate for non-resident alien not engaged in trade or business shall still be at
25% of gross.

Slide 28

FBT – Sample Computation

Particulars Old Rule TRAIN


Monetary Value PHP 65,000 PHP 65,000
Divided by: 68% 65%
Grossed-up PHP 95,588 PHP 100,000
Monetary Value
Multiplied by: 32% 35%
FBT Rate
FBT Payable PHP 30,588 PHP 35,000

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De minimis Benefits

Particulars OLD NEW

Medical Cash Allowance Not exceeding Not exceeding


P750 per employee P1500 per
per semester of employee per
P125 per month semester of P250
per month
Rice subsidy P1500 per month P2000 per month
or 1 sack of 50kg or 1 sack of 50kg
rice per month rice per month
amounting to not amounting to not
more than P1500 more than P2000
65%
Uniform P5000 P6000

Slide 30

Income Tax of Alien Employees of RHQs, ROHQs, OBUs, PSCs/SCs

Particulars Old Rule TRAIN

15%
ROHQ u RETAINED the provision on 15%
preferential rate

Alien Employees
preferential ADDED :
u 15% shall NOT APPLY to
and Filipino rate RHQs/ROHQ/OBUs/PSCs/SCs
Employees registering with Securities and
occupying the (on salaries, wages, Exchange Commission AFTER
same position of: annuities, 1 January 2018.*
uRegional Headquarters compensation,
(RHQs) remuneration and
u EXISTING RHQs/ROHQs/OBUs/
uRegional Operating other emoluments,
Headquarters (ROHQs) such as honoraria and PSCs/SCs for qualified employees
uOffshore Banking Units allowances) shall CONTINUE to avail of the
(OBUs) preferential tax rate for present
uPetroleum Service and future qualified employees.
Contractors and (VETOED BY THE PRESIDENT)
Subcontractors (PSCs/SCs)

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Veto message of the President


Reduced income tax rate of qualified employees

I am constrained to veto the proviso under Section 6(F) of the enrolled bill that effectively maintains the special tax rate
of 15% of gross income for the aforementioned employees, to wit:

“PROVIDED, HOWEVER, THAT EXISTING RHQS/ROHQS, OBUS, OR PETROLEUM SERVICE CONTRACTORS AND
SUBCONTRACTORS PRESENTLY AVAILING OF PREFERENTIAL TAX RATES FOR QUALIFIED EMPLOYEES SHALL
CONTINUE TO BE ENTITLED TO AVAIL OF THE PREFERENTIAL TAX RATE FOR PRESENT AND FUTURE QUALIFIED
EMPLOYEES.”

While I understand the laudable objective of the proposal, the provision is violative of the Equal Protection Clause under
Section 1, Article III of the 1987 Constitution, as well as the rule of equity and uniformity in the application of the
burden of taxation:

“Section 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be
denied the equal protection of the laws.”

In line with this, the overriding consideration is the promotion of fairness of the tax system for individuals performing
similar work. Given the significant reduction in the personal income tax, the employees of these firms should follow the
regular tax rates applicable to other individual taxpayers.

Slide 32

Income Tax of Alien Employees of


RHQs, ROHQs, OBUs, PSCs/SCs

REPEALED by TRAIN:

Section 5, RA No. 8756

► The preferential income tax rate of alien employees of Regional or Area


Headquarters, Regional Operating Headquarters, and Regional Warehouses
of Multinational Companies

BUT existing ones enjoying the preferential income tax rate at the time of
effectivity of TRAIN shall not be affected.

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Income Tax of Alien Employees of


RHQs, ROHQs, OBUs, PSCs/SCs

All employees of RHQs and ROHs of


multinational companies; OBUs; and
petroleum service contractors and
subcontractors enjoying preferential
tax treatment prior to 2018 are now
subject to regular income tax rates.

Withholding taxes of compensation of


these employees shall be enforced
based on withholding tax table per
RMC No. 1-2018.

Slide 34

Illustration:
Income Tax on Alien Individuals

Mr. Y, an alien employed in ABC Corporation, a Petroleum Service Contractor


registered with SEC on February 14, 2018, receives compensation income of
P5,000,000 for 2018, inclusive of P400,000 13th month pay and other benefits.

Computation of Tax Due:


Compensation Income P
5,000,000.00
Less: Non-taxable 13th Month Pay and other benefits
90,000.00
Taxable Compensation Income P 4,910,000.00

First P2,000,000.00 P 490,000.00


In excess of P2,000,000 (P4,910,000 -2,000,000) X 32% 931,200.00
Total Tax Due* P 1,421,200.00

*Mr. Y can no longer avail of the 15% preferential income tax rate since ABC
Corporation was only registered with SEC after January 1, 2018.

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Exemptions of RHQs and ROHQs

“SEC. 86. Repealing Clause. – xxx Provisions of RA 8756 (on RHQs,


ROHQs, Regional Warehouses)
xxx xxx repealed by TRAIN:
(v) Article 65, insofar as VAT exemption
and zero rating is concerned, of regional Article 65: (with respect to VAT
or area headquarters and zero-rating of exemption and zero-rating of RHQs)
the sale or lease of goods and property ► RHQ – exempt from VAT
and the rendition of services to regional ► Sales to RHQ – VAT zero rated
or area headquarters, and Article 67
insofar as VAT exemption is concerned,
or R.A. 8756; Article 67: (with respect to VAT
exemption of RHQs and ROHQs)
Provided, that existing RHQs and ROHQs ► Tax and duty free importation of
enjoying VAT exemption and zero-rating
at the time of the effectivity of TRAIN equipment and materials for
shall not be affected.” training and conferences

Slide 36

Optional Standard Deduction (OSD)

Deductions Old Rule TRAIN

May be availed only


once EITHER by the
OSD for General Not provided GPP OR the partners
comprising the
Professional partnership
Partnership (GPPs)

Slide 37

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Passive Income Tax Rates

Type of Income Old Rule TRAIN

PCSO Sweepstakes and


Lotto winnings –
Exempt exempt up to
Philippine Charity
(full amount) PHP10,000;
Sweepstakes and 20% final tax in excess
lotto winnings

15%
Resident individual and
7.5% domestic corporation
final tax
Interest Income from
expanded Foreign * Rate did not change for
Currency Deposit Units
resident foreign corporation

Slide 38

Passive Income Tax Rates

Type of Income Old Rule TRAIN

15%
First
PHP 100,000 5% (Resident individuals
and domestic
Capital corporations)
Gains Tax
(CGT) * No change in CGT
In excess of rate applicable to
Sale of shares
of stock not PHP 100,000
10% resident foreign
corporations &
CGT nonresident foreign
traded in the
corporation (5%/10%)
stock exchange

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Percentage Tax*

Transaction Type Old Rule TRAIN

1/2 of 1% of the 6/10 of 1%


gross selling price or of the gross selling
the gross value in price or the gross
money of the shares value in money of the
Sale of listed shares
sold shares sold

*Not income tax

Slide 40

Income Tax Return – Filing & Payment

Particulars Old Rule TRAIN

u Taxable income (from


purely compensation
income) does not
Gross income does exceed PhP 250,000
not exceed u Persons qualified for
personal and substituted filing
Persons exempt additional
from filing u An individual whose
exemptions sole income has been
individual ITR
subjected to FWT
u Minimum wage earners

Slide 41

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Income Tax Return – Filing & Payment

PERIOD DEADLINE
(1997 TAX CODE)
of the same taxable year
1st Q APRIL

4th
(ANNUAL)
15 of the following taxable
year

PERIOD DEADLINE
(RA NO. 10963)
of the same taxable year
1st Q MAY
Deadline for

15
of the following taxable
individual income 4th year
tax declaration (ANNUAL)

Note: Under RR 8-2018, Annual ITR


shall be filed on or before April 15.

Slide 42

Income Tax Return – Filing & Payment

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Income Tax Return – Filing & Payment

Particulars Old Rule TRAIN

15 15
Deadline of 2nd following the close of the following the close of the
calendar year calendar year
installment
payment*

*When a tax due is in excess of Two thousand pesos (PHP 2,000), the taxpayer other than a
corporation (i.e., individual taxpayer), may elect to pay the tax in two (2) equal installments.

Slide 44

Income Tax Return – Filing & Payment

Particulars Old Rule TRAIN


Maximum of four (4) pages
containing the following:

1. Personal/Corporate profile
Not provided and information
2. Gross sales/receipts
Annual
Income Tax Return 3. Allowable deductions
(individual and 4. Taxable income
corporate)
5. Income tax due

*Provided that this shall not affect


the implementation of RA No.
10708 or TIMTA.

Slide 45

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Income Tax Exemption of PCSO

Entity Old Rule TRAIN

PCSO

Exempt from Removed


Income tax exemption
Philippine Charity
Sweepstakes
Office

Slide 46

Estates and Trusts

Particulars Old Rule TRAIN

PHP 20,000 REMOVED


Exemptions Allowed
to Estates and
Trusts

Slide 47

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Return and Payment of Taxes Withheld at source

PARTICULARS 1997 TAX CODE TRAIN


1% to 15%
(Beginning January 1, 2019) - may affect
Range of applicable the withholding tax on interest expense on
withholding rates 1% to 32% loans which do not qualify as deposit
substitutes which currently is subject to
20% EWT

BIR Form No. 20th day following the BIR Form No. 20th day following
Distribution of BIR 2307 close of the quarter 2307 the close of the
Form Nos. 2306 and quarter
BIR Form No. On or before January 31 BIR Form No.
2307
2306 of the succeeding year 2306 (under RR 11-2018)

Slide 48

Return and Payment of Taxes Withheld at source

PARTICULARS 1997 TAX CODE TRAIN


BIR Form No. On or before January
1604-F 31 of the succeeding
BIR Form No. On or before January year
Submission of Annual 1604-CF 31 of the succeeding
Information Return BIR Form No. Not later than March 1
year
1604-E of the succeeding year
and the related BIR Form No. Not later than March 1
BIR Form No.
Alphalist 1604-E of the succeeding year
1604-C ?
Under RR 11-2018

Quarterly filing and payment


Filing of final and
creditable Monthly filing and payment AND
withholding taxes
Monthly remittance forms
(under Sec. 2.58(A), RR 11-2018)

Slide 49

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RMO NO. 14-2018

Creation of Alphanumeric Tax Code (ATC) for selected


revenue source:
To facilitate proper identification and monitoring of monthly
withholding tax remittances for Creditable Income Taxes Withheld
(Expanded) and Final Income Taxes Withheld, the following ATCs are
created pursuant to Sec. 6 of the NIRC, as amended by the TRAIN:
ATC Description BIR Form
Remittance of Creditable Income Taxes Withheld
WME10 0619-E
(Expanded)

Remittance of Final Income Taxes Withheld

WMF10 1. On Interest Paid on Deposits and Yield on Deposit


0619-F
Substitutes/Trusts/Etc.

WMF20 2. On Other Final Income Taxes

Slide 50

Revenue Regulations 8-2018


Income Tax

Slide 51

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Definition of Terms “Gross Sales”

“Gross Sales” for purposes of the 8% income tax, shall be net of the following:

1. Sales returns and allowances; and

2. Discounts determined and granted at the time of sale, expressly indicated in the
invoice, the grant of which is not dependent upon the happening of a future event.

Slide 52

Definition of Terms “Minimum Wage Earner”

“Minimum Wage Earner (MWE) – refers to a worker in the private sector who
is paid with a statutory minimum wage (SMW) rates, or to an employee in the
public sector with compensation income of not more than the statutory
minimum wage rates in the non-agricultural sector where the
worker/employee is assigned.

Such statutory minimum wage rates are exempted from income tax. Likewise,
the exemption covers holiday pay, overtime pay, night shift differential pay,
and hazard pay earned by an MWE.”

Slide 53

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Definition of Terms “Self-Employed” and “Professional”

n) Self-employed – a sole proprietor or an independent contractor who reports income


earned from self-employment/ S/he controls who s/he works for, how the work is done and
when it is done. IT includes those hired under a contract of service or job order, and
professionals whose income is derived purely from the practice of profession and not under
an employer-employee relationship.

Professional – a person formally certified by a professional body belonging to a specific


profession by virtue of having completed a required examination or course of studies and/or
practice, whose competence can usually be measured against an established set of
standards. It also refers to a person who engages in some art or sport for money, as a means
of livelihood, rather than as a hobby. It includes but is not limited to doctors, lawyers,
engineers, architects, CPAs, professional entertainer, artists, professional athletes, director,
producers, insurance agents, insurance adjusters, management and technical consultants,
bookkeeping agents, and other recipients of professional, promotional and talent fees.

Slide 54

Individual Citizen and Resident Alien


Earning Purely Compensation Income

Deductions from gross compensation income


(to compute for taxable income of compensation income earners):

• Thirteenth (13th) month pay and other benefits (up to P90,000)

• De minimis benefits

• Employee’s share in the SSS, GSIS, PHIC, Pag-ibig contributions and union dues

Slide 55

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Minimum Wage Earner - Illustration

► Net taxable income is still


EXEMPT from income tax
even if it exceeded the
P250,000 non-taxable
income threshold

Slide 56

Self-Employed and Professional Earning Purely Business Income

Taxpayer shall automatically be subject to the graduated rates even if 8% income


tax rate is initially selected, when taxpayer’s gross sales/receipts and other non-
operating income exceeded the VAT threshold of P3,000,000 during the taxable
year.

• His income tax shall be computed under the graduated income tax rates and he
shall be allowed a tax credit for the previous quarter/s income tax payment/s
under the 8% income tax rate option.

Slide 57

29
03/04/2018

Self-Employed and Professional Earning Purely Business Income


(Continued)

TAX BASE of Individuals earning purely business income:

1. If Graduated Rates – Net Income

2. If 8% - Gross Sales/ Receipts and other non-


operating income

Slide 58

Taxpayer opted for 8% income tax but exceeded P3M


Threshold

► 8% income tax
payments will be
credited against Income
tax computed under
graduated rates.

► Percentage tax shall be


imposed from the
beginning of the year
until taxpayer is liable
to VAT. VAT shall be
imposed prospectively.

Slide 59

30
03/04/2018

No option to avail of 8% when Taxpayer subject to


Other Percentage Tax

► 8% rate is not an option


since business is subject
to Other Percentage Tax
under Section 125, NIRC

► Aside from income tax,


taxpayer is liable to pay
percentage tax of 18%
on gross receipts under
Section 125, NIRC

Slide 60

Mixed Income Earner Opted for 8% but Taxable compensation income


did not exceed P250,000

► The excess of P250,000


over actual taxable
compensation income is
not creditable against the
taxable income from
business/ practice of
profession under the 8%
income tax rate option.

Slide 61

31
03/04/2018

Income Tax of Alien Employees of


RHQs, ROHQs, OBUs, PSCs/SCs

C. The preferential income tax rate under subsection (C), (D) and (E) of
Section 25 of the Tax Code, as amended, shall no longer be applicable without
prejudice to the application of preferential tax rates under existing
international tax treaties, if warranted. Thus, all concerned employees of the
regional or area headquarters and regional operating headquarters of
multinational companies, offshore banking units and petroleum service
contractor and subcontractors shall be subject to the regular corporate
income tax rate under Section 24 (A) (a) of the Tax Code, as amended.

Slide 62

P90,000 Deduction allowed to Alien Employees of RHQs, ROHQs,


OBUs, PSCs/SCs

Slide 63

32
03/04/2018

Allowable deductions for GPPs

A General Professional Partnership (GPP) is not subject to income tax under Section 26 of
the Tax Code, as amended. However, the partners shall be liable to pay income tax on their
separate and individual capacities for their respective distributive share in the net income of
the GPP.

In computing taxable income of GPPs, the following may be allowed as deductions:

a. Itemized expenses which are ordinary and necessary, incurred or paid for the practice of
profession; OR
b. Optional Standard Deduction (OSD).

Slide 64

Individuals not required to file ITR


SECTION 9. INDIVIDUALS NOT REQUIRED TO FILE INCOME TAX RETURN. – The following individuals are not required to
file income tax return:

A. An individual earning purely compensation income whose taxable income does not exceed Two Hundred Fifty Thousand
pesos (P250,000.00);

The Certificate of Withholding filed by the respective employers, duly stamped “Received” by the Bureau, shall be
tantamount to the substituted filing of income tax return by said employees.

B. An individual whose income tax has been correctly withheld by his employer, provided that such individual has only one
employer for the taxable year – the Certificate of Withholding filed by the respective employers, duly stamped “Received”
by the Bureau, shall be tantamount to the substituted filing of income tax returns by said employees;

C. An individual whose sole income has been subjected to final withholding tax;

D. A minimum wage earner as defined in these regulation – The Certificate of Withholding filed by the respective employers,
duly stamped “Received” by the Bureau shall be tantamount to the substituted filing of income tax returns by said
employees

In all cases, all individuals deriving compensation income, regardless of the amount, from two (2) or more concurrent or
successive employers at any time during the taxable year, are not qualified for substituted filing. Thus, they are still required
to file a return.

Slide 65

33
03/04/2018

Time of Filing of ITR

SECTION 10. TIME OF FILING OF INDIVIDUAL INCOME TAX


RETURN. – Individuals engaged in business/ practice of profession,
regardless of amounts of sales/receipts, are required to file quarterly
income tax return on or before May 15, August 15 and November 15
for the first, second and third quarters of the current year,
respectively pursuant to Section 74(A) of the Tax Code, as amended;
and to file an annual income tax return, not later than the fifteenth
(15th) day of the fourth month following the close of the calendar year
or April 15 as provided under Section 51 (C)(1) of the Tax Code, as
amended.

Slide 66

Registration Updates (Continued)

Non-VAT Taxpayers availing of 8% Income Tax Rate:


► file an Application for Registration Information Update (BIR Form No. 1905) to end-date the
registered tax type “percentage tax”

Taxpayer is unable to timely update the required registration (for 8%):


► continue to file the percentage tax return reflecting a zero-amount of tax with a notation that
taxpayer is availing of the 8% income tax rate option for the taxable year

► still required to signify the intention to avail of the 8% option on the initial quarterly income tax
return for income tax purposes

Slide 67

34
03/04/2018

Registration Updates (Continued)

Taxpayer initially presumed gross sales/receipt and other non-operating


income for taxable year will not exceed the P3M VAT threshold but
actually exceeded:
► immediately update registration to reflect the change from non-VAT to a VAT taxpayer (within the
month following the month the VAT threshold is exceeded)

► liable to VAT prospectively starting on the first day of the month following the month when the
threshold is breached

► pay the required percentage tax covering the sales/receipts and other non-operating income, from
the beginning of the taxable year or commencement of business/practice of profession until the
time taxpayer becomes liable for VAT, without imposition of penalty, if timely paid on the
immediately succeeding month/quarter

Slide 68

Registration Updates (Continued)

VAT taxpayer did not exceed the VAT threshold within the immediately
preceding three (3) year period*
► may opt to be a non-VAT taxpayer and avail of the 8% income tax rate option

► update the registration records on or before the first quarter of a taxable year to reflect the change
in registration

• Taxpayer shall remain liable for VAT for as long as there is no update of registration and VAT-
registered invoices/receipts are continuously issued.

• Subject to surrender/cancellation of unused VAT-invoices/receipts.

* This relates to Optional VAT Registration of Exempt Person [under Section 236 (H)(2), NIRC], where
the option to register for VAT cannot be cancelled for three years.

Slide 69

35
03/04/2018

Registration Updates (Continued)

Non-VAT taxpayer volunteers to be a VAT taxpayer knowing that sales/receipts


and other non-operating income will exceed VAT threshold within taxable year:
► update registration from non-VAT to VAT taxpayer

► becomes liable to VAT on the day when such update is made

► taxpayer shall automatically be subject to the graduated income tax rates (if the 8% income tax rate
option is initially selected)

► Any income tax paid under the 8% income tax rate shall be deducted from the income tax under the
graduated rates.

► If the graduated income tax rates is chosen from the beginning, taxpayer ceases to be liable to percentage
tax upon registration update and instead is now liable to VAT.

Slide 70

Transitory Provisions

WHEN WHO WHAT

All existing VAT registered taxpayers


Up to March whose gross sales/receipts and other
have the option to update their
31, 2018 non-operating income in the preceding
registration to non-VAT
year did not exceed the VAT threshold of
P3,000,000.00

After March Existing VAT-registered taxpayers who


may opt to update their
31, 2018 have not exceeded the threshold for the
registration to non-VAT
immediately preceding three years

Slide 71

36
03/04/2018

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended

Amending Certain Provisions of Revenue Regulations No. 2-98, as


Amended, to Implement Further Amendments Introduced by the TRAIN Law, Relative to
Withholding of Income Tax

► Certain items of RR No. 2-98 are amended and renumbered

► New provisions are added in accordance with the TRAIN Law

Slide 72

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

SALES TO OLD Rules NEW Rules


Citizens or
Resident Alien Individual

No 15%
Non-Resident Aliens Engaged
Final Withholding Tax on
Capital Gains from
in Trade or Business withholding
Sale of Shares of Stock
NOT Traded in the Stock Non-Resident Alien Not Old Rules provide for Final Tax

Exchange Engaged in Trade or Business at the following rates:

Not over P100,000 5%


(Sec. 2.57.1)
On any amount in excess
Domestic Corporation of P100,000 10%

Slide 73

37
03/04/2018

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

OLD Rules NEW Rules

Gross Income for the Gross Income for the


current year did not exceed current year did not exceed
Creditable Withholding Tax on: Individual P720,000 – 10% P3M – 5%
Payees
Professional fees, talent fees, Gross Income is more than Gross Income is more than
etc. for services rendered P720,000 – 15% P3M – 10%

Gross Income for the Gross Income for the


current year did not exceed current year did not exceed
Non-individual P720,000 – 10% P720,000 – 10%
Payees
Gross Income is more than Gross Income is more than
P720,000 – 15% P720,000 – 15%

Slide 74

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

REQUIREMENT for lower CWT Rates:

► Individual Payees: 5% CWT if gross income shall not exceed P3M:


► Payee to submit Sworn Declaration of gross receipts and copy of Certificate of
Registration (COR) to all income payors/withholding agents not later than January 15
of each year or prior to initial payment

► Non - Individual Payees: 10% CWT if gross income shall not exceed P720,000
► Payee to submit Notarized Sworn Statement of gross receipts and copy of COR to all
income payors/withholding agents not later than January 15 of each year or prior to
initial payment

► Income Payor: required to submit its own Sworn Declaration on number of payees who
submitted Sworn Declaration with their CORs; plus list of payees

Slide 75

38
03/04/2018

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

OLD / NEW Rules


Top withholding agents shall
Income payment made include the following:
by Supplier of goods
“top withholding 1) Large Taxpayer under RR No. - 1%
agents” (private 1-98
Creditable
corporations or 2) Top 20,000 private
Withholding
individuals) to their corporations
Tax
local/resident supplier 3) Top 5,000 individual
of goods and services taxpayers
(Sec. 2.57.2) Supplier of
other than those 4) Taxpayers identified and
services
covered by other rates included as Medium Taxpayers
- 2%
of withholding and those under Taxpayer
Account Management
Program (TAMP)

Slide 76

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

Obligation to withhold is imposed on the buyer-payor.

Additional rules:

Individual seller-income earner/payee:


Persons
- Not subject to withholding if:
required to
- the source of income comes from a lone income payor, and
deduct and
- total income payment is less than ₱250,000 in a taxable year
withhold
- Individual seller-income earner/payee to submit to the lone payor a Sworn
Declaration of gross receipts/sales before initial payment or before January
(Sec.
15 of each year, as applicable.
2.57.3)
Income payor:
- To execute its own Sworn Declaration stating the number of payees who
shall NOT be subjected to withholding taxes and have submitted their Sworn
Declarations and copies of CORs

Slide 77

39
03/04/2018

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

Continued…
Persons
required to If individual payee’s cumulative gross receipts exceed P250,000:
deduct and • income payor shall withhold tax based on the amount in excess of P250,000
withhold despite submission of individual payee’s Sworn Declaration.

(Sec. If individual payee fails to submit Sworn Declaration to lone income payor:
2.57.3) • income shall be subject to withholding even if income payment in a taxable
year is P250,00 and below.

Slide 78

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

► QUARTERLY Filing of returns and Payment of taxes


► Not later than last day of the month following the close of calendar quarter when
withholding was made
► Forms:
► Creditable Withholding Tax à BIR Form 1601EQ
► Final Tax on Interest on bank deposits à BIR Form 1602
Returns and
► Final Tax Withheld on Fringe Benefits à BIR Form 1603
Payment of
► Other Final Withholding Taxes à BIR Form 1601FQ
Taxes
Withheld at ► Return shall be accompanied by Quarterly Alphabetical List of Payees (QAP)

Source ► MONTHLY Remittance


► 10th day of the following month when withholding is made
► If using EFPS: 15th day of the following month
(Sec. 2.58)
► Monthly Remittance Forms:
► Creditable Withholding Tax à BIR Form 0619E
► Final Withholding Tax à BIR Form 0619F
► Withholding Agents with zero remittance à still required to file the same forms

Slide 79

40
03/04/2018

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

► Sale of Shares of Stock NOT traded in the stock exchange


► Form à BIR Form 1707
► Filing and payment of tax shall be made within 30 days after sale or
disposition
Returns and
Payment of ► Withholding Tax Statement for Taxes Withheld
Taxes ► Creditable Withholding Tax à BIR Form 2307
Withheld at ► Final Withholding Tax à BIR Form 2306
Source
► Annual Information Return of Creditable Taxes Withheld à BIR Form 1604E
(Sec. 2.58) ► Filing of return must include Annual Alphalist

► Annual Information Return on Final Income Taxes Withheld à BIR Form


1604F
► Filing of return must include Annual Alphalist

Slide 80

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

Minimum Wage Earners (MWE):

Additional compensation such as:


• commissions,
• honoraria,
Withholding of • fringe benefits,
Income Tax on • benefits in excess of the allowable statutory amount of P90,000,
Compensation • taxable allowances, and
• other taxable income
(Sec. 2.78.1)
given to an MWE by the same employer, other than those which are
expressly exempt from income tax, shall be subject to withholding tax
using the withholding tax table

Slide 81

41
03/04/2018

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

Pertinent Dates

► April 6, 2018:
► deadline of Income recipient/payee to submit “Income Payee’s Sworn Declaration of
Gross Receipts / Sales” with copy of COR to income payor/withholding agent if he/she
would like to avail of the exemption from the prescribed withholding tax under Section
2.57.2

► April 20, 2018:


► deadline of Income payor/withholding agent to submit to BIR the “Income
Payor/Withholding Agent’s Sworn Declaration” together with the List of Payees who
have submitted to sworn declarations and CORs

Slide 82

RR No. 11-2018
Amending certain provisions of RR No. 2-98, as amended (cont.)

Excess Taxes Withheld

► Income tax withheld by the income payor/withholding agent in excess of what is prescribed in these
regulations shall be refunded to the payee.

► The income payor/withholding agent shall reflect the amount refunded as adjustment to the remittable
withholding tax due for the first quarter withholding tax return. Adjusted amount of tax withheld shall
be reflected in the Alphalist of Payees to be attached to the said first quarter return.

► The list of payees shall be attached to first quarter return to be filed on or before April 30, 2018.

► If BIR Form 2307 (Certificate of Tax Withheld at Source) has already been given, payee shall return it to
payor upon receipt of the refund. Payor will issue a corrected BIR Form 2307, if applicable.
If no BIR Form 2307 given yet, payor to issue BIR Form 2307 to payee on or before the 20th day after
the close of the first quarter reflecting correct amount of tax withheld.

Slide 83

42
03/04/2018

Key Amendments
Estate Tax

Slide 84

Estate Tax

Estate Tax
Rate

Old Rule TRAIN

Graduated tax rates from FLAT RATE of 6%


5% to 20%
based on the value of the
based on the value of the
net estate
net estate
(over PHP 200,000)

Slide 85

43
03/04/2018

Deductions for Estate Tax

CITIZEN/RESIDENT
Deductions
Old Rule TRAIN

Medical
expenses P REMOVED

Funeral
P REMOVED
expenses [Actual funeral expense or 5% of
gross estate, whichever is lower
(up to PHP 200,000)]

Judicial REMOVED
expenses P
Slide 86

Deductions for Estate Tax

CITIZEN/RESIDENT
Deductions
Old Rule TRAIN

Family
Home
P P
(up to (up to
PHP 1M) PHP 10M)

Standard
deduction
P P
(PHP 1M) (PHP 5M)

Slide 87

44
03/04/2018

Estate Tax – Other Provisions

Particulars Old Rule TRAIN

Allowed deduction
(but return must include
gross estate outside REMOVED
Nonresident/ Non-citizen Philippines)

Within 2 months after the


decedent’s death
REMOVED
Requirement to file (if gross value of estate
notice of death exceeds PHP 200,000)

Slide 88

Illustration: Family Home, Standard


Deduction, and Other Allowable Deduction

(1) Decedent is unmarried, family home more than P10,000,000:

Real and personal properties P 14,000,000


Family Home 30,000,000
Gross Estate P44,000,000

Less: Deductions
Ordinary Deductions 2,000,000

Special Deductions
Family Home 10,000,000
Standard Deduction 5,000,000
Total Deductions (17,000,000)

NET TAXABLE ESTATE P27,000,000

Although the family home is valued at P30 million, the maximum allowable deduction for
the family home is P10million only.

Slide 89

45
03/04/2018

Illustration: Family Home, Standard


Deduction, and Other Allowable Deduction
(2) Decedent is married, the family home is conjugal property, more than P10,000,000:
Exclusive Conjugal Total
Conjugal Properties:
Family Home P30,000,000 P30,000,000
Real and personal properties 14,000,000 14,000,000
Excluive Properties: 5,000,000 5,000,000
Gross Estate 5,000,000 44,000,000 P49,000,000

Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 42,000,000
Special Deductions
Family Home (10,000,000)
Standard Deduction (5,000,000)
Total Deductions (17,000,000)
Net Estate 32,000,000
Less: ½ Share of Surviving Spouse (21,000,000)

Conjugal Property P44,000,000


Conjugal Deductions (2,000,000)
Net Conjugal Estate P42,000,000
(P42,000,000/2)
NET TAXABLE ESTATE P11,000,000

Slide 90

Illustration: Family Home, Standard


Deduction, and Other Allowable Deduction
(3) Decedent is married, the family home exclusive property, more than P10,000,000:
Exclusive Conjugal Total
Conjugal Properties:
Real and personal properties 14,000,000 14,000,000
Exclusive Properties:
Family Home 30,000,000 30,000,000
Gross Estate 30,000,000 14,000,000 P44,000,000

Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 12,000,000
Special Deductions
Family Home (10,000,000)
Standard Deduction (5,000,000)
Total Deductions (17,000,000)
Net Estate 27,000,000
Less: ½ Share of Surviving Spouse (6,000,000)
Conjugal Property P14,000,000
Conjugal Deductions (2,000,000)
Net Conjugal Estate P12,000,000
(P12,000,000/2)
NET TAXABLE ESTATE P21,000,000

Slide 91

46
03/04/2018

Illustration: Family Home, Standard


Deduction, and Other Allowable Deduction
(4) Decedent is an unmarried, the family home is below P10,000,000:
Real and personal properties P 14,000,000

Family Home 9,000,000


Gross Estate P23,000,000

Less: Deductions
Ordinary Deductions 2,000,000
Special Deductions 14,000,000
Family Home 9,000,000
Standard Deduction 5,000,000

Total Deductions (16,000,000)

NET TAXABLE ESTATE P7,000,000

Slide 92

Illustration: Family Home, Standard


Deduction, and Other Allowable Deduction
(5) Decedent is married, the family home is conjugal property and is below P10,000,000:
Exclusive Conjugal Total
Conjugal Properties:
Family Home P9,000,000 P9,000,000
Real and personal properties 14,000,000 14,000,000
Excluive Properties: 5,000,000 5,000,000
Gross Estate 5,000,000 23,000,000 P28,000,000

Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 21,000,000
Special Deductions
Family Home (4,500,000)
Standard Deduction (5,000,000)
Total Deductions (11,500,000)
Net Estate 16,500,000
Less: ½ Share of Surviving Spouse (10,500,000)

Conjugal Property P23,000,000


Conjugal Deductions (2,000,000)
Net Conjugal Estate P21,000,000
(P21,000,000/2)
NET TAXABLE ESTATE P6,000,000

Slide 93

47
03/04/2018

Illustration: Family Home, Standard


Deduction, and Other Allowable Deduction
(6) Decedent is married, the family home exclusive property and below P10,000,000:
Exclusive Conjugal Total
Conjugal Properties:
Real and personal properties 14,000,000 14,000,000
Exclusive Properties:
Family Home 9,000,000 9,000,000
Gross Estate 9,000,000 14,000,000 P23,000,000

Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 12,000,000
Special Deductions
Family Home (9,000,000)
Standard Deduction (5,000,000)
Total Deductions (16,000,000)
Net Estate 7,000,000
Less: ½ Share of Surviving Spouse (6,000,000)
Conjugal Property P14,000,000
Conjugal Deductions (2,000,000)
Net Conjugal Estate P12,000,000
(P12,000,000/2)
NET TAXABLE ESTATE P1,000,000

Slide 94

Estate Tax – Other Provisions

Particulars Old Rule TRAIN

Required if gross value of


estate exceeds NO THRESHOLD
PHP 200,000
Filing of estate tax return

Gross value of estate exceeds Gross value of estate exceeds


PHP 2,000,000 PHP5,000,000
Statement duly certified by
a CPA

Within 6 months from Within 1 year from the


decedent’s death decedent’s death
Time of filing of estate tax
return
Slide 95

48
03/04/2018

Estate Tax – Other Provisions

Particulars Old Rule TRAIN

No limit but subject to


PHP20,000 6% Final Withholding
Maximum withdrawal of Tax
administrator of the estate or
any heir

Allowed within
TWO (2) YEARS
Not provided from statutory date
WITHOUT CIVIL
Payment by Installment PENALTY AND
INTEREST

Slide 96

RR No. 12-2018 dated January 25, 2018


Consolidated Regulations on Estate & Donor’s Tax

6% Estate Tax, When Applicable:

6% estate tax rate and


procedures under RR No. 12-2018
shall govern the estate of decedent who died
on or after the effectivity date of the TRAIN Law
(i.e. January 1, 2018)

Slide 97

49
03/04/2018

RR No. 12-2018:
Estate Tax by Installment / Partial Disposition of Estate

Options in case of Insufficiency of cash for immediate payment of total estate tax due:

Cash Installment Partial Disposition of Estate


uWithin 2 years from uRefers to conveyance of
date of filing of estate property with equivalent cash
tax return - no consideration
penalties and interest
uIf beyond 2 years uProceeds shall be applied to
(with penalties and the estate tax due
interest)
uPrior BIR approval thru written
uPrior BIR approval of request with notarized
Frequency / Deadline undertaking on exclusive use of
/ Amount of each proceeds for payment of estate
installment tax

Slide 98

RR No. 12-2018
Withdrawal from Decedent’s Bank Deposit Account

► Within 1 year from death of decedent

► Requires presentation of the following to the bank:


► TIN of the decedent’s estate
► BIR-stamped received BIR Form No. 1904 (ONETT TIN)

WITHDRAWAL ► Amount withdrawn (subjected to 6% FWT) shall be excluded from the gross
estate for purposes of computing the estate tax of the decedent

► File Quarterly Return on FWT on or before last day of the month following
the close of the quarter of withholding

► To issue BIR Form No. 2306


BANK

Slide 99

50
03/04/2018

Key Amendments
Donor’s Tax

Slide 100

Donor’s Tax Rate

Type of Donee Old Rule TRAIN


Graduated tax
rates from
FLAT RATE of
2% to 15%
Relative
(over 6% based on
PHP 100,000) net value of
donation in
excess of
30% PHP250,000
Stranger

Slide 101

51
03/04/2018

Taxability of Certain Gifts

Property Old Rule TRAIN


EXCEPTION:

sale, exchange, or other transfer


Part of Gross Gifts
of property made in the ordinary
during the calendar
Transfer for less than an course of business (a transaction
year
adequate which is bona fide, at arm’s
and full consideration length and free from any donative
intent)

Exempt REMOVED
up to
Dowries or gifts made PHP 10,000
on account of
marriage

Slide 102

RR No. 12-2018
Consolidated Regulations on Estate & Donor’s Tax

6% Donor’s Tax, When Applicable

6% donor’s tax rate


shall apply to donations made
on or after the effectivity date of the TRAIN Law
(i.e., January 1, 2018)

Slide 103

52
03/04/2018

RR No. 12-2018 – Computation of Donor’s Tax

Donations were made:

uJanuary 30, 2018 at P2M

uMarch 30, 2018 at P1M

uAugust 15, 2018 at P500K

Slide 104

Key Amendments
Value-Added Tax

Slide 105

53
03/04/2018

Zero-rated Sale of Goods


(12% VAT with Enhanced VAT Refund System)

Sale of raw materials or Sale of raw materials Those considered


packing materials to Non- and packaging export sales under
resident buyer for delivery materials to export- Executive Order (EO)
to a resident local-export oriented enterprise No. 226 and other
oriented enterprise to be whose export sales special laws
used in manufacturing, exceed 70% of total
processing, packing or annual production
repacking in the
Philippines

Slide 106

Zero-rated Sale of Goods


(12% VAT with Enhanced VAT Refund System)

Export sales under EO 226 (Art. 23):

Sales to bonded Sales to export Sales to registered Sales to foreign


manufacturing processing export traders military bases,
warehouses of zones operating bonded diplomatic missions
export-oriented trading warehouses and other agencies
manufacturers supplying raw and/or
materials used in the instrumentalities
manufacture of export granted tax
products immunities

Slide 107

54
03/04/2018

Zero-rated Sale of Service


(12% VAT with Enhanced VAT Refund System)

Performed by subcontractors
Processing, manufacturing
and/or contractors in processing,
or repacking goods for
converting, or manufacturing
other persons doing
goods for an enterprise whose
business outside the
export sales exceed seventy
Philippines which goods
percent (70%) of total annual
are subsequently exported
production.

Slide 108

Enhanced VAT Refund System

TRAIN

All applications filed from All pending VAT refund


1 January 2018 claims as of
shall be processed and 31 December 2017
decided within
shall be fully paid in
ninety (90) days
from filing of VAT refund cash by
application 31 December 2019
5% of the BIR and BOC collections from prior years shall be automatically appropriated to
fund VAT refunds

Slide 109

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03/04/2018

Zero-rated Sales Transactions

Goods Services

Sales and delivery of goods to: Services rendered to:

u Registered enterprises within a u Registered enterprises within a


separate customs territory as separate customs territory as
provided under special laws provided under special laws

u Registered enterprises within u Registered enterprises within


Tourism Enterprise Zones as Tourism Enterprise Zones as
declared by the TIEZA declared by the TIEZA
VETOED BY THE PRESIDENT VETOED BY THE PRESIDENT

Slide 110

Veto Message of the President


Zero Rated Sales of Customs Territories

“The above provisions go against the principle of limiting the VAT zero-rating to direct exporters. The proliferation of
separate customs territories, which include buildings, creates significant leakages in our tax system. This makes the
tax system highly inequitable and significantly reduces the revenues that could be better used for the poor. As to
tourism enterprises, the current law only allows for duty and tax free importation of capital equipment, transportation
equipment and other goods. The TIEZA Law explicitly allows only duty and tax free importation of capital equipment,
transportation equipment and other goods (in certain cases and always subject to rules provided by the DOF). Thus,
this provision actually grants a new incentive to suppliers of registered tourism enterprises. At any rate, the TIEZA law,
which is still in effect for two more years, can be used to avail of the above-mentioned incentives.”

Slide 111

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03/04/2018

PEZA Memorandum Circular


2018-003 dated March 12, 2018
Subject: “Status quo” on VAT Zero-rating Incentive on
Sales of Goods/Services to Separate Customs Territory

► Issue: Is 12% VAT now imposable on sales of goods/services to ecozone


customers because of the President’s veto of TRAIN Law provisions
► In a letter-reply, DOF informed PEZA that:
► TRAIN does not affect the current zero-rating of sales of goods and services
to PEZA locators.
► RA 7916 (PEZA Law) has not been amended or repealed by TRAIN Law.

► The VAT zero-rating incentive being enjoyed by PEZA locators shall remain
in full force and effect (until a law or RR is passed/issued contrary to or
incompatible with the DOF pronouncement above.)
Slide 112

International Shipping/Air Transport


Zero-rated Sales of Goods/Services
Transaction OLD RULES TRAIN

Sale of goods, supplies, equipment RETAINED with additional provision:


and fuel to persons engaged in
international shipping or 0% “Provided, that the goods, supplies, equipment
international air transport and fuel shall be USED FOR INTERNATIONAL
operations SHIPPING OR AIR TRANSPORT OPERATIONS.”

Services rendered to persons RETAINED with additional provision:


engaged in INTERNATIONAL
SHIPPING and AIR TRANSPORT 0% “Provided, that the services shall be
OPERATIONS, including leases EXCLUSIVELY FOR INTERNATIONAL SHIPPING
of property for use thereof OR AIR TRANSPORT OPERATIONS.”

Importation of fuel, goods and Exempt


supplies by persons engaged in (Provided that the fuel, goods and supplies shall
Exempt
shipping or air transport be used for international shipping or air transport
operations operations)

Slide 113

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Other Zero-rated Sales of Goods/Services

TYPE OF TRANSACTION OLD RULES TRAIN

Foreign currency denominated sales to


Nonresident of goods assembled /
manufactured in Philippines for delivery to 0% 12% VAT
Philippine resident

Sale of gold to Bangko Sentral ng Pilipinas


(BSP) 0% VAT-EXEMPT

REVISED as follows:
Transport of passengers and cargo by AIR OR
SEA VESSELS from the Philippines to a foreign
country
0% “Transport of passengers and
cargo by DOMESTIC air or
sea vessels from the
Philippines to a foreign
country”

Slide 114

Sale of Electricity

Sale of electricity by generation,


transmission by any entity,** and
distribution companies including
electric cooperatives shall be subject
to 12% VAT on their gross receipts.

**including the National Grid Corporation of the Philippines

Slide 115

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03/04/2018

Revised Provisions on VAT-exempt Transactions

TRANSACTION TYPE OLD RULES TRAIN

Exempt Exempt
(up to PHP 12,800) (up to PHP 15,000)
Monthly rental on
residential unit

Slide 116

Revised Provisions on VAT-exempt Transactions

TRANSACTION TYPE OLD RULES TRAIN


Sale of residential lot as
defined by the Urban • Exempt up to ₱1.5 million
Development and Housing
Act of 1992 amounting to Exempt • Removed beginning 1
1,500,000 and below January 2021
[1,919,500 under RR 16-11]

Sale of house and lot and • Exempt up to ₱2.5 million


other residential dwelling
amounting to 2,500,000 and Exempt • Exempt up to ₱2 million
below [3,199,200 under RR beginning
16-11] 1 January 2021

Sale of real property for low • Only socialized housing is


Exempt
cost* and socialized exempt beginning 1 January
housing** 2021

*Low cost housing: as set by the Housing and Urban Development Coordinating Council
**Socialized housing: ≤ 450,000

Slide 117

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03/04/2018

Revised Provisions on VAT-exempt Transactions

TRANSACTION TYPE OLD RULES RR 13-2018


Sale of residential lot as • Exempt up to ₱1.5 million
defined by the Urban [as adjusted under RR 16-11
Development and Housing using the 2010 Consumer Price
Act of 1992 amounting to Exempt
1,500,000 and below Index values – 1,919,500]
[1,919,500 under RR 16-11] • Removed beginning 1
January 2021
Sale of house and lot and • Exempt up to ₱2.5 million
other residential dwelling
amounting to 2,500,000 and [as adjusted under RR 16-11
below [3,199,200 under RR using the 2010 Consumer Price
16-11] Exempt Index values – 3,199,200]
• Exempt up to ₱2 million
beginning
1 January 2021

Slide 118

Revised Provisions on VAT-exempt Transactions

TRANSACTION TYPE OLD RULES TRAIN


RETAINED but to include:
importation of tools of trade,
occupation or employment of
Exempt persons coming to settle in the
Philippines or Filipinos or their
Importation of families and descendants who
professional instruments are now residents or citizens
and implements of other countries

Slide 119

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03/04/2018

Additional VAT-exempt Transactions

Sale or lease of goods Transfer of property


and services to SENIOR pursuant to
CITIZENS and PERSONS Section 40 (C) (2) of the
WITH DISABILITIES 1997 Tax Code
(TAX FREE EXCHANGE)

Slide 120

Additional VAT Exempt Transactions


VAT Revenue Regulations No. 13-2018

► Association dues, membership fees, and


other assessments and charges collected on
a purely reimbursement basis by
homeowners’ associations and condominium
corporations established under Republic Act
No. 9904 (Magna Carta for Homeowners and
Homeowners’ Association) and Republic Act Association dues,
No. 4726 (The Condominium Act), membership fees and other
respectively; assessments and charges
collected by HOMEOWNERS
ASSOCIATIONS and
CONDOMINIUM
CORPORATIONS

Slide 121

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03/04/2018

Additional VAT-exempt Transactions

Sale of drugs and medicines


prescribed for diabetes, Sale of gold to
high cholesterol and Bangko Sentral ng Pilipinas
hypertension

(effective 1 January 2019)

Slide 122

Increase in VAT Threshold

PHP 3,000,000

PHP 1,919,500

Slide 123

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03/04/2018

Input VAT on Purchase/Importation of Capital Goods

TRANSACTION TYPE OLD RULES TRAIN


Aggregate monthly
The amortization of the
acquisition cost
input VAT shall only be
(purchase or
ALLOWED UNTIL 31
importation), excluding
DECEMBER 2021 after
VAT, exceeds
which taxpayers with
PHP 1,000,000:
unutilized input VAT on
capital goods
Input VAT shall be
Creditable Input spread evenly over 60
purchased or imported
shall be allowed to
Tax on Capital months or estimated
apply the same as
Goods useful life of the capital
scheduled until fully
goods, whichever is
utilized.
shorter

Slide 124

Processing by BIR of VAT Refund

OLD RULES TRAIN

Within 90 days
Within 120 days From submission of the official receipts or
from submission of invoices and other documents in support
complete documents of the application

Commissioner must state in writing


the legal and factual basis
for denial

Slide 125

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Deliberate Failure to Act on Application within 90 Days

DELIBERATE FAILURE TO ACT ON THE APPLICATION FOR REFUND


WITHIN 90 DAYS

Fine of PHP50,000 – PHP100, 000,


Imprisonment of 10-15 years,
perpetual disqualification to hold public office, vote, participate in any public election

► Source: EY Analysis
Slide 126

VAT Revenue Regulations No. 13-2018

► The 90-day period to process and decide, pending the establishment of the enhanced VAT
Refund System shall only be up to the date of the approval of the Recommendation Report
on such application for VAT Refund by the Commissioner or his duly authorized
representative

► Applies to refund of input VAT attributable to zero-rated sales

► Applies to refunds relating to Zero-rated Sales of Goods and Services which will become
subject to 12% VAT once there is an Enhanced VAT Refund System

► Applies to Claims for Refund/Credit of Excess Input Tax upon cancellation of VAT
Registration

Slide 127

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RMC No. 17-2018


Processing Time for VAT Refund Claims
Subject: Processing of Claims for Refund/TCC in relation to TRAIN
(Amends provisions in RMC Nos. 89-2017 and 54-2014)

1. If claim filed AFTER TRAIN (starting January 1, 2018)


► 90-day period shall start from the actual date of filing of the application “with complete documents”

► RMC 17-2018 provides a table with specific no. of days for each BIR office to process:

► depends on whether claimant is with LTS or Region, or is a Direct Exporter;

► Depends on amount of the claim

► TOTAL period for BIR to process is 90 DAYS in every case

2. Claim filed prior to RMC 54-2014


► Continue processing all pending claims until June 30, 2018

3. Filed after RMC 54-2014 but before TRAIN


► Process within 120 days

Slide 128

VAT Filing and Payment

OLD RULES TRAIN

Monthly Quarterly Filing of VAT return


VAT-registered Within 25 DAYS and payment of VAT
persons are following the end shall be done within
required to pay the of the taxable 25 DAYS following
VAT on a QUARTER the close of each
MONTHLY BASIS TAXABLE
QUARTER
(Beginning 1 January 2023)

Slide 129

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03/04/2018

Withholding VAT – Sales to Government

OLD RULES TRAIN

VAT withholding system


shall shift from final to
Subject to 5% creditable
Final/Creditable beginning 1 January 2021
Withholding VAT Purchases of goods and
services for projects funded
by Official Development
Assistance shall not be
subject to the final
withholding tax system.

Slide 130

VAT Revenue Regulations No. 13-2018


VAT Exempt Transactions

► Any person whose sales or receipts are exempt from the payment of VAT (with gross
sales/receipts not exceeding P3 Million) and who is not a VAT-registered person shall pay a
tax equivalent to 3% of his gross quarterly sales or receipts

► The following are exempt from the 3% percentage tax:


► Cooperatives (S. 116, Tax Code)

► Self-employed individuals/professionals availing of the 8% tax on gross sales and/or


receipts

Slide 131

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03/04/2018

VAT Revenue Regulations No. 13-2018


VAT Exempt Transactions Illustration
Illustration: Mr. A signified his intention to be taxed at 8% Mr. A lost the option to pay the 8% commuted tax rate when
income tax in lieu of the graduated income tax rates and his gross sales/receipts exceeded the P3 Million threshold
percentage tax in his 1st Quarter Income Tax Return. during the 4th Quarter (October)
However, his gross sales/receipts during the taxable year
have exceeded the VAT threshold:

Month Amount
January P 250,000.00 For business tax purposes, he is subject to the
February 250,000.00 12% VAT starting November 2018. He is also
March 250,000.00
required to update his registration from non-
April 250,000.00
May 250,000.00
VAT to VAT on or before November 30, 2018.
June 250,000.00
July 250,000.00
August 250,000.00
September 250,000.00
October P1,000,000.00
November 1,000,000.00
December 1,000,000.00 3,000,000.00
Total P5,250,000.00

Slide 132

VAT Revenue Regulations No. 13-2018


Cancellation of VAT Registration

A VAT-registered person whose registration has been cancelled due to:


► Retirement from or cessation of business

► Changes in or cessation of status under Sec. 106(C)

may apply for the issuance of a tax credit certificate for any unused input tax within 2 years
from the date of cancellation
► The date of cancellation is the date of issuance of tax clearance by the BIR

► After full settlement of all tax liabilities relative to cessation of business or change of
status
► Filing of the claim shall be made only after completion of the mandatory audit of all
internal revenue tax liabilities covering the immediately preceding year and the short
period return and the issuance of the applicable tax clearance

Slide 133

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03/04/2018

VAT Revenue Regulations No. 13-2018


Transitory Provisions

A VAT-registered taxpayer who opted to register as Non-VAT as a result of the implementation


of the TRAIN Law shall immediately surrender unused VAT invoices/receipts for cancellation

► A number of unused invoices/receipts, as determined by the taxpayer with the approval of


the appropriate BIR Office may be allowed for use, provided the phrase, “Non-VAT
registered as of (date of filing an application for update of registration). Not valid for
claim of input tax” shall be stamped on the face of each and every copy thereof, until the
non-VAT invoices/receipts have been received by the taxpayer

► Upon such receipt, the taxpayer shall submit an inventory list of, and surrender for
cancellation, all unused stamped invoices/receipts

Slide 134

Key Amendments
Percentage Tax

Slide 135

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03/04/2018

Percentage Tax

TRANSACTION TYPE OLD RULES TRAIN

1/2 of 1% of the 6/10 of 1%


gross selling price or of the gross selling
the gross value in price or the gross
money of the shares value in money of the
Sale of listed shares
sold shares sold*

Slide 136

Return and Payment of Percentage Taxes

Subject What to file

Percentage Tax BIR Form 2551Q


(under Section 116, (Quarterly return)
including those with
gross sales/receipts No need to file BIR
of not more than P3 Form 2551M
million) (Monthly return)

Continue with
Withholding Agents
BIR Form 1600
(Percentage and VAT)
(monthly)

Withholding of VAT
Continue with
on Payments to
BIR Form 1600
Government / Non-
(monthly)
Residents

Slide 137

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03/04/2018

VAT to Non-VAT Taxpayer – TAX ADVISORY

• Previously VAT registered Self-


Employed Individuals or
Professionals whose status
change to Non-VAT may apply
for a registration information
update (using BIR Form 1905)
on or before 31 March 2018

Slide 138

VAT to Non-VAT Taxpayer – TAX ADVISORY

• Taxpayers liable for percentage tax under


Title V of the NIRC shall file quarterly
percentage tax returns (no longer
monthly)

• Change from VAT to Non-VAT taxpayer:


• accomplish BIR Form 1905 (registration
information update)
• percentage tax shall accrue from date of
cancellation of VAT registration

• Taxpayers availing of 8% option:


• accomplish BIR Form 1905 to effect end
date for VAT/percentage tax registration
• not required to file quarterly percentage
tax returns

Slide 139

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03/04/2018

Veto Message
Exemption from Percentage Tax

C. Exemption from percentage tax of gross sales/receipts not exceeding five


hundred thousand pesos (P500,000.00)

I am constrained to veto the provision which provides for the above under line 12 of
Sec. 38 in the enrolled bill, to wit:

“AND BEGINNING JANUARY 1, 2019, SELF-EMPLOYED AND PROFESSIONALS


WITH TOTAL ANNUAL GROSS SALES AND/OR GROSS RECEIPTS NOT EXCEEDING
FIVE HUNDRED THOUSAND PESOS (P500,000).”

The proposed exemption from percentage tax will result in unnecessary erosion of
revenues and would lead to abuse and leakages. The subject taxpayers under this
provision are already exempted from the VAT, thus the lower three percent
percentage tax on gross sales or gross receipts is considered as their fair share in
contributing to the revenue base of the country.

Slide 140

Key Amendments
Excise Tax

Slide 141

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03/04/2018

Excise Tax – Cigarettes


Packed by Hand and Packed by Machine

OLD RULES TRAIN


Effective Date Rate* per
PHP 30/pack pack
(in PHP)
1 January 2018 until 30 June 2018 32.50
1 July 2018 until 31 December 2019 35.00
1 January 2020 until 31 December 2021 37.50
1 January 2022 until 31 December 2023 40.00

*The rates of tax shall be increased by 4% every year effective on January 1, 2024,
through revenue regulations issued by the Secretary of Finance.

Slide 142

Veto Message of the President


Excise Tax on Cigarettes

E. Earmarking of incremental tobacco taxes

“I am constrained to veto the provision which provides for the above in lines 20 to 29 of
Sec. 82 of the enrolled bill, to wit:

“NOTWITHSTANDING ANY PROVISIONS HEREIN TO THE CONTRARY, THE


INCREMENTAL REVENUES FROM THE TOBACCO TAXES UNDER THIS ACT SHALL
BE SUBJECT TO SECTION 3 OF REPUBLIC ACT NO. 7171, OTHERWISE KNOWN AS
‘AN ACT TO PROMOTE THE DEVELOPMENT OF THE FARMER IN THE VIRGINIA
TOBACCO PRODUCING PROVINCES’, AND SECTION 8 OF REPUBLIC ACT NO. 8240,
OTHERWISE KNOWN AS ‘AN ACT AMENDING SECTIONS 138, 140 & 142 OF THE
NATIONAL INTERNAL REVENUE CODE AS AMENDED, AND FOR OTHER
PURPOSES.’”

The provision effectively amends the Sin Tax Law, or RA 10351, which
provides for guaranteed funds for universal health care. The provision will
effectively diminish the share of the health sector in the proposed
allocation.”

Slide 143

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03/04/2018

Excise Tax on Fuel & Oil

TRAIN
PRODUCT OLD RULES
2018 2019 2020
Lubricating oils and greases PHP 4.50 PHP 8.00 PHP 9.00 PHP 10.00

Processed gas PHP 0.05

Denatured alcohol PHP 0.05

Waxes and petrolatum PHP 3.50

Naphtha, regular gasoline, PYROLYSIS GASOLINE and PHP 4.35 PHP7.00


other similar products of distillation*
Leaded premium gasoline PHP 5.35 - - -

Unleaded premium gasoline PHP 4.35 PHP 7.00 PHP 9.00 PHP 10.00

Amounts are per liter of volume capacity (except for greases, waxes and petrolatum, and asphalts which are per kilogram and petroleum coke which is per metric ton).

• Naptha and pyrolysis gasoline when used as a raw material in the production of petrochemical products or in refining of petroleum products, or as replacement fuel for natural-gas-
fired-combined cycle power plant when unavailable, per liter of volume capacity = ZERO
The production of petroleum products, whether or not they are classified as products of distillation and for use solely for the production of gasoline shall be exempt from excise
tax.

Slide 144

Excise Tax on Fuel & Oil

OLD TRAIN
PRODUCT
RULES 2018 2019 2020
Aviation turbo jet fuel, AVIATION GAS PHP 3.67 PHP 4.00 PHP 4.00 PHP 4.00

Kerosene PHP 0.00 PHP 3.00 PHP 4.00 PHP 5.00

Diesel fuel oil and on similar fuel oils having more or less the same PHP 0.00 PHP 2.50 PHP 4.50 PHP 6.00
generating power
Liquefied petroleum gas* PHP 0.00 PHP 1.00 PHP 2.00 PHP 3.00

Asphalts PHP 0.56 PHP 8.00 PHP 9.00 PHP 10.00

Bunker fuel oil and on similar fuel oils having more or less the same PHP 0.00 PHP 2.50 PHP 4.50 PHP 6.00
generating power**
PETROLEUM COKE*** N/A PHP 2.50 PHP 4.50 PHP 6.00

Amounts are per liter of volume capacity (except for greases, waxes and petrolatum, and asphalts which are per kilogram and petroleum coke which is per metric ton).
* LPG when used as raw material in the production of petrochemical products shall be taxed at P0 per kilogram.
** Provided, however, that the excise taxes paid on the purchased basestock (bunker) used in the manufacture of excisable articles and forming part thereof shall be credited against the
excise tax due therefrom.
*** When used as feedstock to any power generating facility, per metric ton = ZERO

For 2018 to 2020, the scheduled increase in the excise tax on fuel shall be suspended when the average Dubai crude oil price based on Mean Of Platts Singapore (MOPS) for 3 months prior
to the scheduled increase of the month reaches or exceeds USD 80 per barrel.

Slide 145

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03/04/2018

Veto Message of the President


Excise Tax on Fuel & Oil

D. Exemption of various petroleum products from excise tax when used as input, feedstock, or as raw material in the manufacturing of
petrochemical products, or in the refining of petroleum products, or as replacement fuel for natural gas fired combined cycle power plants

I am constrained to veto the provision which provides for the above under line 25 Sec. 43 of the enrolled bill, to wit:

“PETROLEUM PRODUCTS, INCLUDING NAPHTHA, LPG, PETROLEUM, COKE, REFINERY FUEL AND OTHER PRODUCTS OF DISTILLATION,
WHEN USED AS INPUT, FEEDSTOCK OR AS RAW MATERIAL IN THE MANUFACTURING OF PETROCHEMICAL PRODUCTS, OR IN THE
REFINING OF PETROLEUM PRODUCTS, OR AS REPLACEMENT FUEL FOR NATURAL-GAS-FIRED-COMBINED CYCLE POWER PLANT[,] IN
LIEU OF LOCALLY-EXTRACTED NATURAL GAS DURING THE NON-AVAILABILITY THEREOF, SUBJECT TO THE RULES AND REGULATIONS
TO BE PROMULGATED BY THE SECRETARY OF FINANCE, PER LITER OF VOLUME CAPACITY, ZERO (P0.00); FURTHERMORE, THAT THE
BY-PRODUCT INCLUDING FUEL OIL, DIESEL FUEL, KEROSENE, PYROLYSIS GASOLINE, LIQUEFIED PETROLEUM GASES, AND SIMILAR
OILS HAVING MORE OR LESS THE SAME GENERATING POWER, WHICH ARE PRODUCED IN THE PROCESSING OF NAPHTHA INTO
PETROCHEMICAL PRODUCTS SHALL BE SUBJECT TO THE APPLICABLE EXCISE TAX SPECIFIED IN THE SECTION, EXCEPT WHEN SUCH
BY-PRODUCTS ARE TRANSFERRED TO ANY OF THE LOCAL OIL REFINERIES THROUGH SALE, BARTER OR EXCHANGE, FOR THE PURPOSE
OF FURTHER PROCESSING OR BLENDING INTO FINISHED PRODUCTS WHICH ARE SUBJECT TO EXCISE TAX SPECIFIED IN THE SECTION,
EXCEPT WHEN SUCH BY-PRODUCTS ARE TRANSFERRED TO ANY OF THE LOCAL OIL REFINERIES THROUGH SALE, BARTER OR
EXCHANGE, FOR THE PURPOSE OF FURTHER PROCESSING OR BLENDING INTO FINISHED PRODUCTS WHICH ARE SUBJECT TO EXCISE
TAX UNDER THIS SECTION.”

The provision runs the risk of being too general, covering all types of petroleum products, which may be subject to abuse by taxpayers, and
thus lead to massive revenue erosion. At any rate, the tax code already identifies which petroleum products can be exempted.

Slide 146

Mandatory Marking of All Petroleum Products


Requirement for an official fuel marking on petroleum products refined, manufactured, or imported into the Philippines that are subject to taxes
and duties.
Ex: unleaded premium gasoline, kerosene, diesel fuel oil

OFFICIAL FUEL MARKERS OWNER / CONSIGNEE USE OF FRAUDULENT ALL COSTS PERTAINING TO
MARKER PROCUREMENT OF OFFICIAL FUEL
► Secretary of Finance to identify ► shall cause and MARKERS
a list of chemical additives and accommodate the ► shall be considered prima
corresponding quantitative marking of the petroleum facie evidence that the ► Shall be borne by the refiner,
ratio as official fuel markers. products with the official products were withdrawn or manufacturer or importer, as the
► distinct and impossible to marking agent imported without payment case may be
imitate or replicate of taxes and duties
► must be unique to the *government may subsidize cost in
Philippines the first year of implementation
INTERNAL REVENUE OR ABSENCE OF OFFICIAL OR ENGAGEMENT OF ONLY ONE
CUSTOMS OFFICERS DILUTION OF OFFICIAL FUEL MARKING PROVIDER ► The marking of petroleum products
MARKER shall be mandatory within five (5)
► shall be on site to administer ► Will provide, monitor and years from effectivity of this Act.
the declaration of the tax and ► Products shall be administer the fuel markers,
duties imposed on the presumed withdrawn with will provide equipment and
petroleum products and to intention to evade taxes devices, conduct field and
oversee application of the fuel and duties confirmatory tests
marking.

Slide 147

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Mandatory Marking of All Petroleum Products

RANDOM FIELD TESTS

► Periodic random inspections to establish qualitative and quantitative positive result of fuel trafficking

► To be conducted on fuels found in warehouses, storage tanks, gas stations and other retail outlets, and in other
properties or equipment of those engaged in sale, delivery, trading, transportation, distribution or importation of fuel
intended for domestic market

CONFIRMATORY TESTS

► accurate and precise analytical test of the tested unmarked, adulterated, or diluted fuel to validate and confirm the
result of the field test

Slide 148

Offenses Relating to Fuel Marking

Sale, trade, delivery, distribution or transportation of unmarked 1st Offense: PHP 2,500,000
fuel in commercial quantity
• Removal of the official fuel marking agent from marked fuel, 2nd Offense: PHP 5,000,000
• adulteration or dilution of fuel intended for sale to the domestic
market, 3rd Offense: PHP 10,000,000 and
• knowing possession, storage, transfer or offer for sale of fuel
obtained as a result of such removal, adulteration or dilution REVOCATION OF LICENSE to engage in
any trade or business
making, importing, selling, using or possessing fuel markers without Minimum:
express authority;
PHP 1,000,000
Making, importing, selling, using or possessing counterfeit fuel
markers; Maximum:
Causing another person or entity to commit any of the two preceding PHP 5,000,000
acts;
Causing the sale, distribution, supply or transport of legitimately Imprisonment of not less than 4 years but not
imported, in-transit, manufactured or procured controlled precursors more than 8 years
and essential chemicals in diluted / concentrated form

Slide 149

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Offenses Relating to Fuel Marking

Minimum:
Any person who willfully inserts, places, adds, or PHP 5,000,000
attaches directly or indirectly, any unmarked fuel,
Maximum:
counterfeit additive or chemical in the person, house,
effects, inventory, or in the immediate vicinity of an PHP 10,000,000
innocent individual for the purpose of implicating,
incriminating or imputing the commission of any Imprisonment of not less than 4 years
violation of this Act but not more than 8 years

Additional penalty of imprisonment


Any person who is authorized, licensed or accredited to ranging from 1 year and 1 day to
conduct fuel tests, who issues false or fraudulent fuel
2 years and 6 months
test results knowingly, willfully or through gross
negligence

“The additional penalties of revocation of the license to practice his profession in case of a practitioner, and the
closure of the fuel testing facility, may also be imposed at the instance of the court.”

Slide 150

Excise Tax on Automobiles

Net Manufacturer’s/Importer’s
Tax Rate
Selling Price (in Pesos)
Tax on Tax Rate on
Lower Limit Upper Limit Lower excess over
Limit Lower Limit
0 600,000 - 2%
OLD RULES
600,000 1,100,000 12,000 20%
1,100,000 2,100,000 112,000 40%
Over 2,100,000 512,000 60%

Net Manufacturer’s/Importer’s
Selling Price (in Pesos) Tax Rate
Lower Limit Upper Limit
0 600,000 4%
600,001 1,000,000 10%
TRAIN 1,000,001 4,000,000 20%
(effective January 1, 2018) Over
50%
4,000,000

Slide 151

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03/04/2018

Excise Tax on Automobiles

Net Manufacturer's Selling Price - PHP600,000

Slide 152

Excise Tax on Automobiles

Net Manufacturer's Selling Price – PHP1.1million

Slide 153

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03/04/2018

Excise Tax on Automobiles

PHP328,000 PHP328,000
(20%) (20%)

Net Manufacturer's Selling Price – PHP1.64million

Slide 154

Excise Tax on Automobiles

Net Manufacturer's Selling Price – PHP4million

Slide 155

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Excise Tax on Automobiles

Net Manufacturer's Selling Price – PHP5million

Slide 156

Excise Tax on Automobiles

PHP3.74million PHP3.74million
(50%) (50%)

Net Manufacturer's Selling Price – PHP7.48million

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Excise Tax on Automobiles

Net Manufacturer's Selling Price – PHP8million

Slide 158

Excise Tax on Automobiles

EXCISE TAX
(NEW)
EXCISE
TAX
(OLD)

NET
MANUFACTURER’S
PRICE/IMPORTER’S
SELLING PRICE

PHP 1.64M PHP 4M PHP 7.48M

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Excise Tax on Automobiles

TYPE OF
AUTOMOBILE
OLD RULES TRAIN

Not provided Exempt


Purely electric-
powered

Subject to 50% of
the applicable
Not provided
Hybrid excise tax rates
Vehicles on automobiles

Slide 160

Excise Tax on Automobiles

TYPE OF
AUTOMOBILE
OLD RULES TRAIN

Subject to
excise tax
(Shall not be
Exempt
Pick-ups considered as trucks,
(Shall be considered as
trucks)
which are exempt from
excise tax)

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Excise Tax on Non-Essential Services

INVASIVE COSMETIC PROCEDURES/


SURGERIES/BODY ENHANCEMENTS

Directed solely towards improving, altering, or enhancing the


patient’s appearance 5% of gross
- and -
Do not meaningfully promote the proper function of the body receipts
or prevent or treat illness or disease

Exception - To ameliorate deformity related to:


• Congenital or developmental defect / abnormality
• personal injury resulting from an accident or trauma
• disfiguring disease, tumor, virus or infection

Slide 162

Excise Tax on Sweetened Beverages (SBs)

EXCISE TAX ON SWEETENED BEVERAGES


Using caloric and non-caloric
sweeteners PHP 6/liter

Using high fructose corn syrup or in


combination with any caloric or non- PHP 12/liter
caloric sweeteners

Using purely coconut sap sugar /


purely steviol glycosides EXEMPT

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Excise Tax on Sweetened Beverages (SBs)

Sweetened
Juice Drinks

Sweetened Flavored
Tea Water

Carbonated Inclusions Energy &


beverages Sports Drinks

Other non-alcoholic Cereal


beverages that contain & grain beverages
added sugar
Other powdered
drinks

Slide 164

Excise Tax on Sweetened Beverages (SBs)

E
X
C
All milk 100% natural 100% natural
L products fruit juices vegetable juices
U
S
I
O Meal replacement Ground coffee, instant
and medically soluble coffee & pre-
indicated packaged powdered
N beverages coffee products
S

Slide 165

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Excise Tax on Sweetened Beverages (SBs)

PARTICULARS Deadline

DATE
Filing of Return and
Payment of Excise Before removal from
Tax on Domestic and
Imported Sweetened
place of production /
Beverages from customs
custody

Slide 166

Excise Tax on Mineral Products

OLD
PRODUCT TRAIN
RULES
1.Coal and coke PHP 10.00 u 1 January 2018 – PHP 50.00*
(domestic or imported) per metric u 1 January 2019 – PHP 100.00*
ton u 1 January 2020 – PHP 150.00*

*per metric ton


*notwithstanding any incentives granted in any
law/special law
2. All nonmetallic minerals and quarry 2% 4%
resourcesA
3. All metallic mineralsA 2% 4%
a. Copper and other metallic minerals
b. Gold and chromite

4. On indigenous petroleumB 3% 6%
A Locally produced: based on actual market value of the gross output
Imported: based on value used by Bureau of Customs in determining tariff and customs duties, net of excise tax and VAT
B Based on the fair international market price

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Key Amendments
Documentary Stamp Tax

Slide 168

Documentary Stamp Tax Rates

Transactions with 100% increase in DST rates:


1. Original issuance of shares of stocks
2. Sales, agreements to sell, memoranda of sales, deliveries or transfer of shares or certificates of stock
3. Certificates of profits or interest in property or accumulations
4. Bank checks, drafts, certificates of deposit not bearing interest, and other instruments
5. All bills of exchange or drafts
6. Acceptance of Bills of Exchange
7. Foreign Bills of exchange
8. Life insurance policies
9. Policies of annuities and pre-need plans
10. Certificates
11. Warehouse receipts
12. Jai-alai, horse race tickets, lotto or other authorized numbers games
13. Bills of lading or receipts
14. Proxies
15. Powers of attorney
16. Leases and other hiring agreements
17. Mortgages, pledges, and deeds of trust
18. Charter Parties and Similar Instruments

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Documentary Stamp Tax Rates

Transaction with 50% increase in DST rate:

1. All debt instruments

Transaction with no increase DST rate:

1. Deeds of Sale, Conveyances and Donation of Real Property


2. Bonds, debentures, certificates of stock or indebtedness issued in foreign
countries.
3. Policies of insurance upon property
4. Fidelity bonds and other insurance policies
5. Indemnity bonds

Slide 170

Documentary Stamp Tax Rates

PARTICULARS TAXABLE UNIT OLD TRAIN


On each PHP200, or fractional
thereof, of the 1.00 2.00
Original issuance of shares of stocks par value

On each PHP200, or fractional part


0.75 1.50
thereof, of the par value
Sales, agreements to sell, memoranda
of sales, deliveries or transfer of DST paid upon original issue in case
25% 50%
shares or certificates of stock of stock without par value

On each PHP200, or fractional part


1.00 1.50
thereof, of the issue price
All debt instruments

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Documentary Stamp Tax Rates

PARTICULARS TAXABLE UNIT OLD TRAIN


First 2,000
or fractional part thereof 3.00 6.00

For every 1,000


or fractional part thereof,
in excess of the first
Leases and other hiring 2,000 for each year of 1.00 2.00
agreements term of the contract or
agreement

On the consideration RETAINED and


15.00 for
contracted to be paid ADDED DONATION
each
for such realty or on its as a mode of
PHP1,000
FMV, whichever is higher transfer of
Deed of sale, conveyances & property*
donation of Real Property

*Transfers exempt from donor’s tax under Section 101 (a) & (b) shall be exempt from DST.

Slide 172

Documentary Stamp Tax Rates

PARTICULARS TAXABLE UNIT OLD TRAIN

First 5,000
20.00 40.00
of the amount secured

On each 5,000
Mortgages, pledges, and or fractional part thereof
10.00 20.00
deeds of trust in excess of the first
5,000

5.00 10.00

Powers of attorney

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Documentary Stamp Tax Rates

PARTICULARS TAXABLE UNIT OLD TRAIN

All bills of exchange On each 200, or fractional part thereof, of the


0.30 0.60
or drafts face value

Acceptance of bills of On each 200 or fractional part thereof, of the


exchange 0.30 0.60
face value

Foreign Bills of
On each 200 or fractional part thereof, of the 0.30 0.60
Exchange
face value
Bank checks, drafts,
certificates of deposit not
On each instrument 1.50 3.00
bearing interest, and other
instruments
Certificates of profits or
On each PHP200 pesos, or fractional part
interest in property or 0.50 1.00
thereof, of the face value
accumulations

Slide 174

Documentary Stamp Tax Rates

PARTICULARS Amount of insurance: OLD TRAIN


not exceeding PHP 100,000 Exempt Exempt
Exceeds PHP 100,000 10.00 20.00
but does not exceed PHP 300,000
Exceeds PHP 300,000 25.00 50.00
but does not exceed PHP 500,000
Exceeds PHP 500,000
but does not exceed PHP 750,000 50.00 100.00
Exceeds PHP 750,000
Life insurance
but does not exceed PHP 1,000,000 75.00 150.00
policies
Exceeds PHP 1,000,000 100.00 200.00

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Documentary Stamp Tax Rates

PARTICULARS TAXABLE UNIT OLD TRAIN

On each PHP200
or fractional part thereof, of the
0.50 1.00
premium or installment payment or
contract price collected
Policies of annuities

On each PHP200
0.20 0.40
or fractional part thereof, of the
premium or contribution collected
Pre-need plans

15.00 30.00

Certificates

Slide 176

Documentary Stamp Tax Rates

PARTICULARS TAXABLE UNIT OLD TRAIN

Warehouse receipts 15.00 30.00

Jai-alai, horse race Per ticket 0.10 0.20


tickets, lotto or
If cost of ticket exceeds
other authorized PHP1.00, additional DST 0.10 0.20
numbers games for every PHP1.00 excess
1.00 2.00
if the value of the goods if the value of the goods exceed
Bills of lading exceed PHP100 PHP100 but not over P1,000
or receipts Value of goods
10.00 20.00
if the value of the goods if the value of the goods exceed
exceed PHP1,000 PHP1,000

Proxies 15.00 30.00

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Documentary Stamp Tax Rates

Weight of Registered
Gross Tonnage
(Duration of the charter and
PARTICULARS OLD TRAIN
contract does not exceed six
(6) months)

Additional 50 Additional 100


Not exceeding one for each/fraction of for each/fraction of
500 a month in excess of 1,000 a month in excess of
thousand (1,000) tons
6 months 6 months

Exceeding one thousand Additional 100 Additional 200


(1,000) tons and not for each/fraction of a for each/fraction of
exceeding ten thousand 1,000 month in excess of 6 2,000 a month in excess of
Charter Parties months 6 months
(10,000) tons
and Similar
Instruments Additional 150 Additional 300
Exceeding ten thousand for each/fraction of for each/fraction of
1,500 a month in excess of 3,000 a month in excess of
(10,000) tons
6 months 6 months

Slide 178

Other Provisions

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Interest on Deficiency Taxes

PARTICULARS OLD RULES TRAIN

TWICE THE LEGAL RATE set by the Bangko


20% per annum on any Sentral ng Pilipinas
unpaid amount of tax
6% - Current rate
(BSP Circular No. 799 dated 21 June 2013)
Interest Rate

From date prescribed for payment until full


From date prescribed payment, or upon issuance of a notice and demand
for payment until by the CIR,
full payment WHICHEVER COMES EARLIER.
Imposition IN NO CASE SHALL THE DEFICIENCY AND
DELINQUENCY INTEREST BE IMPOSED
SIMULTANEOUSLY

Slide 180

DOF Advisory on March 16, 2018:


Interest on Deficiency Taxes

uBasic tax was due in April 15

uNotice and demand for


assessed taxes sets July 10
as deadline

uOn August 10, taxpayer fully


settles his tax liabilities

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DOF Advisory on March 16, 2018:


Interest on Deficiency Taxes

uBasic tax was due in April 15

uNotice and demand for


assessed taxes sets July 10
as deadline

uOn August 10, taxpayer fully


settles his tax liabilities

Slide 182

Keeping of Books of Accounts

OLD RULES TRAIN

More than More than


Requirement
PHP150K PHP3M
for independent Quarterly sales, earnings, Annual sales, earnings,
CPA audit receipts or output receipts or output

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Issuance of Receipts/Invoices

OLD RULES TRAIN

FOR EACH sale and transfer of AT THE POINT OF sale or transfer


merchandise or for services rendered of merchandise or for services
Receipts / valued at PHP25 rendered valued at PHP100
Invoices or more or more

uIf purchaser is VAT-registered, invoice or receipt shall show purchaser’s Taxpayer Identification No.

uUpon establishment (within 5 years) of a system capable of storing and processing the required data, the following
shall issue electronic receipts or sales or commercial invoices (R/SCI):

u engaged in the export of goods and services,


u taxpayers engaged in e-commerce, and
u taxpayers under jurisdiction of the Large Taxpayers Service

uTaxpayers not mandated may also issue electronic R/SCI.

uDigital records of the electronic R/SCI shall be kept by purchaser, customer/client and issuer for three years.

Slide 184

Requirement to Report Data through Electronic Sales


Reporting System (ESRS)

Requirement within five years from effectivity of TRAIN and upon


establishment of a system capable of storing and processing the required data

SALES REPORTING
TYPE OF TAXPAYER
METHOD

Engaged in export of ELECTRONIC REPORTING OF


goods and services SALES DATA THROUGH
ELECTRONIC POINT OF SALES
SYSTEM
Large Taxpayers

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Fines and Penalties for Attempt to Evade or Defeat Tax

PARTICULARS FINE/PENALTY

PHP500,000 - PHP10 million

Fine PHP 30,000 - PHP 100,000


- AND -

6 to 10 years

2 to 4 years
Imprisonment

Slide 186

Printing of Receipts or Sales or Commercial Invoices

TYPE OF VIOLATION OLD RULES TRAIN

Without BIR authority Minimum: Minimum:


PHP 1,000 500,000
Double or multiple sets
Maximum: Maximum:
PHP 50,000 10,000,000
Unnumbered,
not bearing name, business
Imprisonment of AND
style, TIN, and business
Printing 2 to 4 years
address of the person or Imprisonment of
Violations
entity 6 to 10 years
Added:
Other
fraudulent R/SCI

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Failure to transmit sales data in cash register machine/point of


sales machines to ESRS

For each day of


violation:
1/10 of 1% of the OR PHP 10,000
annual net income in
taxpayer’s AFS for the
second year preceding
the current taxable year
WHICHEVER IS HIGHER

Failure to
Submit Sales
Data PERMANENT CLOSURE
of the taxpayer

if aggregate number of days of violation


exceed 180 days within a taxable year

Slide 188

Purchase, Use, Possession, Keeping or Maintaining of Sales


Suppression Devices

Cumulative suppression
of
electronic sales record
Fine AND
of more than
PHP500,000 - PHP50 million is
2-4 years
PHP10 million Imprisonment
Sales ECONOMIC SABOTAGE
Suppression
Devices
to be punished
MAXIMUM PENALTY

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Workaround Guidelines in Filing Tax Returns and Payment


Procedures
The changes in tax rates are not yet reflected in the following:

eFPS eBIRForms Manual

Hence, the workaround guidelines are provided to enhance the following forms:

BIR Form
Form Name Issuance
No.
1602 Monthly Remittance Return of Final Income Taxes Withheld RMC 2-2018
1603 Quarterly Remittance Return of Final Income Taxes Withheld
2552 Percentage Tax Return for Transactions Involving Shares of Stock Listed RR 9-2018 and
and Traded Through the Local Stock Exchange and/or Secondary Public RMC 2-2018
Offering
2000 Documentary Stamp Tax Declaration/Return
2000-OT Documentary Stamp Tax Declaration/Return – One Time Transactions RMC 3-2018

Slide 190

Workaround Guidelines in Filing Tax Returns and Payment


Procedures (continued)

BIR Form
Form Name Issuance
No.
2200-T Excise Tax Return for Tobacco Products
2200-P Excise Tax Return for Petroleum Products RMC 4-2018
2200-AN Excise Tax Return for Automobile & Non-essential Products
2200-M Excise Tax Return for Mineral Products

The following BIR Forms were introduced by RMC 4-2018:

BIR Form No. Form Name


2200-S Excise Tax Return for Sweetened Beverages
1620-XC Final Withholding of Excise Tax on Cosmetic Procedures

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Tax Reform Package 2


Working draft

Lower corporate income Reduction of allowable


tax rate deduction for OSD

Package 2
Corporate Income Tax

Rationalization of Address transfer pricing


tax incentives and other anti-avoidance
practices

Slide 192

Questions?

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Thank you!

Slide 194

SGV | Assurance | Tax | Transactions | Advisory

About SGV & Co.


SGV is the largest professional services firm in the Philippines that
provides assurance, tax, transaction and advisory services. The
insights and quality services we deliver help build trust and
confidence in the capital markets and in economies the world over.
We develop outstanding leaders who team to deliver on our
promises to all of our stakeholders. In so doing, we play a critical
role in building a better working world for our people, for our clients
and for our communities. SGV & Co. is a member firm of Ernst &
Young Global Limited.

EY refers to the global organization, and may refer to one or more,


of the member firms of Ernst & Young Global Limited, each of
which is a separate legal entity. Ernst & Young Global Limited, a
UK company limited by guarantee, does not provide services to
clients.

For more information about our organization, please visit


www.ey.com/PH.

© 2018 SyCip Gorres Velayo & Co.


All Rights Reserved.
APAC No. 10000311

This publication contains information in summary form and is


therefore intended for general guidance only. It is not intended to
be a substitute for detailed research or the exercise of professional
judgment. Neither SGV & Co. nor any other member of the global
Ernst & Young organization can accept any responsibility for loss
occasioned to any person acting or refraining from action as a
result of any material in this publication. On any specific matter,
reference should be made to the appropriate advisor.

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