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Implementing TRAIN’s income tax provisions

THE Bureau of Internal Revenue (BIR) recently issued Revenue Regulations (RR) No. 8-2018 implementing the rules and regulations of the new personal income tax rates under the Tax Reform for Acceleration and Inclusion Act (TRAIN) Law (Republic Act No. 10963).

The issuance covers the regulations applicable to individuals earning purely compensation income, self-employed or professionals, mixed-income earners, resident aliens, and non-resident aliens earning income in the Philippines.

For individuals earning purely compensation income, the income earned must be taxed based on the prescribed graduated income tax rates, ranging from 0 percent to 35 percent with income not exceeding P250,000.00 being subjected to 0 percent tax rate. Income earned by minimum wage earners based on statutory minimum wage rates, including holiday pay, overtime pay, night shift differential pay, and hazard pay are still exempt from income tax.

Self-employed individuals and/or professionals whose gross sales/receipts do not exceed the value-added tax (VAT) threshold and are not voluntarily registered under the VAT system have the option to be taxed based on the 0 percent to 35 percent graduated tax rates or eight percent tax rate on gross sales/receipts in excess of P250,000.00 in lieu of percentage tax.

The taxpayer must signify their intention should they elect eight percent income tax rate in the 1st quarter return. Otherwise, the income earned shall be subjected to graduated tax rates. Such election will be irrevocable, and no amendment of option will be made for the taxable year.

The option to avail of the eight percent tax rate on gross receipts/sales is also applicable to mixed-income earners on income from business or practice of profession; however, the tax base must be the total gross sales/receipts without deducting P250,000.00, since it is already incorporated in the first level of the graduated income tax rates on the mixed income earner’s compensation income.

Existing non-VAT taxpayers may avail of the eight percent income tax rate at the beginning of the taxable year or before the due date for filing and/or payment of the percentage tax.

The taxpayers must file an application for registration information update (BIR Form 1905) to cancel percentage tax as registered tax type. However, this option is not available to VAT-registered taxpayers, those who are subject to other percentage taxes under Title V of the Tax Code (except those taxpayers exempt from VAT pursuant to Section 116 of the same title), and partners of a general professional partnership (GPP) by virtue of their distributive share from GPP, which is already net of cost and expenses.

Individuals engaged in the business/practice of their profession, regardless of the amount of sales/receipts, must file a quarterly income tax return on or before May 15, Aug. 15, and Nov. 15 for the first, second, and third quarters, respectively, and an annual income tax return not later than the 15th day of the fourth month following the calendar year.

Other provisions on the exclusions and deductions of gross income, income tax rates on non-resident alien individuals, fringe benefit tax and income tax rates on certain passive income are also included under this issuance. The RR took effect on Jan. 1, which is also the effectivity date of the TRAIN Law.



As published in SunStar Cebu dated 6 March 2018.