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The TRAIN passes the bicam — what’s in and what’s out?

In the Philippines, the last major overhaul of the tax system came 20 years ago. But Filipinos may need not wait any longer. A few days ago, the Senate and the House of Representatives ratified the bicameral conference committee report harmonizing the two chambers’ versions of the Tax Reform for Acceleration and Inclusion (TRAIN) bill. The final bill is now up for signing into law by the President and, once signed, is set to be implemented by next year. True enough, the TRAIN bill is now heading towards the finish line and appears to be the government’s signature legislative achievement so far.

What’s in and what’s out in the bicameral committee-approved TRAIN bill? Below are some of them.

Personal income tax. The most popular component of the bill is the part that changes the personal income tax system. Under the bicameral committee-approved bill, individual earnings of P250,000 or below per year are to be exempt from taxes. The excess over P250,000 will be subject to graduated tax rates of 20% to 35% percent until 2022, and 15% to 35% from 2023 onwards. The personal and additional exemptions are taken out, though. On the other hand, the non-taxable portion of 13th-month pay and other bonuses has been increased from P82,000 to P90,000.

On the part of employees, the above change will result in an increase in take-home pay, as the taxes that will be withheld by the employers will consequently reduce.

Passive income and other taxes. On cash and property dividend income, the good news on the part of affected individual stockholders is that the bicameral committee-approved bill retains the 10% tax rate. The previous proposal to double this tax rate was scrapped, lifting the anxiety among concerned individual stockholders and individual prospective investors.

For interest income on bank deposits, however, the taxes to be withheld on interest on foreign currency deposits doubled from 7.5% to 15%. Meanwhile, as regards the capital gains tax rate on capital gains from the sale of shares of stock not traded on the stock exchange, the rate will be a flat 15% on the net capital gain. The tax rate on capital gains from the sale of shares of stock not traded on the exchange is currently 5% (for the amount of gain not over P100,000) plus 10% (on the amount of gain in excess of P100,000). Interestingly, this could be a significant factor in considering future share sales, particularly for those involving millions or billions worth of capital gains.

Value-added tax (VAT). The VAT threshold was increased from P1,919,500 to P3,000,000 to provide relief to small and medium enterprises. There were also additions and subtractions from the list of VAT-exempt transactions.

A provision in the bill of which many are skeptical whether it will be implemented is the portion enhancing the VAT refund system. Under the bicam-approved measure, input VAT refunds shall be granted within 90 days from the submission of official receipts, invoices, and other documents. This appears to be promising. The bill further provides that a failure on the part of any official, agent, or employee of the Bureau of Internal Revenue to act on the application within the 90-day period shall be punishable under the law. Taxpayers are hopeful that the implementation side would really give life to the VAT refund provisions of the bill.

Compliance requirements. There will also be reforms in tax administration and compliance. One of the most welcome changes is the proposed simplification of income tax returns (ITRs). The bicam version provides that the income tax return shall consist a maximum of four pages in paper or electronic form. This can be a huge relief on the part of the taxpayers. Taxpayers currently fill out 12- or eight-page returns when filing and paying for income tax.  What a welcome development, indeed!

The above are just some of the many provisions in the bicam measure, and the bill is still subject to the approval of the President. While there are still some contentious provisions in the bill that many may not approve of, it is hoped the above measures on tax reform will generally improve the taxpayers’ trust in the Philippine tax system. Tax reform involves many trade-offs, as two interests should always be considered — the taxpayers’ and the government’s. As such, only the taxpayers and the government, in a give and take relationship, can make this tax reform work. This could be something that we can look forward to next year and in years to come.

Welcome aboard the TRAIN!

John Paulo D. Garcia is a senior of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.


As published in BusinessWorld, dated 19 December 2017