MANY tax laws have been passed that affect Filipinos’ purchasing power. Not much effort was previously observed among lawmakers to lessen Juan dela Cruz’s tax burden—not until Duterte’s administration. Republic Act (RA) No. 10963 or Tax Reform for Acceleration and Inclusion (TRAIN) was signed into law by President Rodrigo Duterte on December 19, 2017. The signing of the TRAIN law is a much-awaited gift in time for the holidays and new year.
The TRAIN law’s effectivity on January 1, 2018 gives Filipinos a fresh breath of air on individual tax payments. Because of the new law, the personal income tax of individuals is reduced, while those earning not more than P250,000 annually will be tax free.
To make it clearer, here is a sample computation of an individual’s income tax then and now using the tax calculator on the Department of Finance – National Tax Research Center’s website. A single individual who earns a monthly salary of P30,000 (inclusive of monthly mandatory contributions to the Social Security System, Philhealth, and Pag-IBIG) with no qualified dependents and no other bonuses except for 13th month pay would only have to remit an estimated annual tax of P19,375 (per RA No. 10963) instead of P64,062 (per old tax code). Consequently, the tax due of the said individual will decrease by 69.8%, taking home an additional income of P44,687 per year or P3,724 per month. That being said, earning Filipinos are now given leeway for additional savings, investments, educational costs, health/insurance coverage, travel allowance, or other expenses.
The additional take-home pay encourages Filipinos to save, invest, or spend more. By saving and investing, people are more secure and prepared for the future. People can also choose from a variety of ways to manage their money, such as putting up bank savings or investing in bonds, stocks, mutual, or retirement funds. On the other hand, an increase in disposable income also entices people to buy unnecessary things in the blink of an eye. People are also tempted to travel and board a plane on a whim. However, we have to bear in mind that the passing of TRAIN comes with an increase in fuel cost due to the reform on excise tax of petroleum products, which could in turn result in an increase in the prices of most, if not all, goods and services. Nevertheless, the administration is certain that Filipinos can cope with the slight inflation brought by TRAIN in exchange for positive long-term effects in the growth of the Philippines’ economy.
Understanding the heart and the premise of TRAIN is the key to being prepared of what’s in store for the future, considering the pros and cons of the new tax law. It is now up to individual taxpayers how they can benefit the most out of the new legislation. So, are you ready to board the TRAIN?
Ms. Bautista is the audit-in-charge of Audit & Assurance of P&A Grant Thornton, a leading audit, tax, advisory, and outsourcing firm in the Philippines with 21 Partners and over 850 staff members. We are in Makati, Cavite, Cebu and Davao. For comments on this article, please email firstname.lastname@example.org or PAGrantThornton.email@example.com.
As Published in the Mindanao Times, dated 15 January 2018