TAX REFORMED

The tax exemptions for 13th month and other bonuses will go up from the current 82 thousand a year to 100 thousand pesos.

This was part of the revised Comprehensive Tax Reform Package Approved by the House of Representatives on 3rd and Final reading  today, the last day of the first regular session of the 17th Congress.

The final vote was 246 in the affirmative, 9 against, 1 abstention.

The bill, as approved, will impose lower personal income taxes while doing away with income tax exemptions.

Among the key features of the substitute bill are the following: 1) the lowering of personal income tax (PIT) rates as proposed by the DOF but indexed to cumulative Consumer Price Index (CPI) inflation every three years; 2) a flat rate of 6 percent for the estate and donor’s taxes 3) a staggered “3-2-1” excise tax increase for petroleum products from 2018 to 2020 but with no indexation to inflation, and liquefied petroleum gas (LPG) used as feedstock to be exempted from the hike;  4)  a five-bracket excise tax structure for automobiles with a two-year phase-in period for the tax increases; and 6) earmarking of 40 percent of the proceeds from the fuel excise tax increase for social protection programs for the first three years of the tax reform measure’s implementation.

The zero-VAT rate was also retained for the renewable energy sector and limited to direct exporters, pending the establishment of the DOF-proposed cash refund system, in which refunds can be obtained by the beneficiary-taxpayers within 90 days of their application for such exemptions.

For the self-employed and professionals within the VAT threshold of P3million  the substitute bill require them to pay an 8 percent tax on gross sales or receipts in lieu of the income and percentage taxes. The tax for those above this VAT threshold will be based on the 30 percent corporate income tax rate with minimum tax.

This substitute bill adopted the DOF proposal to subject lottery and sweepstakes winnings from the Philippine Charity Sweepstakes Office (PCSO) to a 20 percent passive income tax in lieu of the lower 5 percent prize fund tax.

Another DOF proposal adopted under the substitute bill was the removal of the 15 percent tax rate for the employees of the Regional Operating Headquarters (ROH) of corporations, which are foreign business entities whose purpose is to service its affiliates, subsidiaries or branches in the Philippines and other foreign markets.

fringe benefit tax  will be initially lowered from 32 percent to 30 percent for the first three years and thereafter incorporated in the gross income of taxpayers.

For automobile excises,  five brackets were adopted (based on price levels) under the substitute bill, which also set a two-year phase-in period for its implementation, he said.

Pickups are exempted under the substitute bill, along with hybrid cars if these vehicles can run 30 kilometers on a single charge.

The rates are as follows:

TAX SCHEDULE EFFECTIVE JANUARY 1, 2018, 2019 AND 2020.

Not over 250000 0%

Over 250000 but not over 400000 20% of the excess over 250000

over 400000 but not over 800000 P30000 + 25% of the excess over 400000

over 800000 but not over P2M    P130,000 + 30% of the excess over 800000

over P2M but not over P5M       P490000 +32% of the excess over P2M

over P5M       P1.45M +35% of the excess over P5M

TAX SCHEDULE EFFECTIVE JANUARY 1, 2021 onwards for taxable income

Not over 250000 0%

Over 250000 but not over 400000 15% of the excess over 250000

over 400000 but not over 800000 P22500 + 20% of the excess over 400000

over 800000 but not over P2M    P102500 + 25% of the excess over 800000

over P2M but not over P5M       P402500 +30% of the excess over P2M

over P5M       P1302500 +35% of the excess over P5M

After 2022, the taxable income levels and base shall be adjusted once every 3 years by the Finance Department based on inflation.

Self-Employed and Professionals with Gross Saes or Gross Reciepts that do not exceed the VAT Threshold (P3M)  8% income tax on gross sales or gross receipts in excess of P250 thousand. Those which exceed the VAT threshold shall be taxed as corporations.

Taxable Income is defined as gross income minus the authorized deductions like SSS/GSIS, Philhealth, Pag-Ibig and other allowed exemptions like the exemption for the 13th month and other bonuses.

The exemption for the 13th month and other bonuses has been raised to 100 thousand

The new bill imposes a final tax of 20 percent on lotto winnings P10,000 and higher.

Fringe Benefits will be considered part of gross income by 2022.

The following sectors will keep their VAT exemptions: agricultural cooperatives, gross reciepts from lending activities by credit or multipurpose cooperatives, sales by non-agricultural non-electric and non-credit cooperatives duly registered with the cooperatives development authority provided that the share of the capital contribution of each member does not exceed 15 thousand pesos, export sales by persons who are not VAT registered, socialized housing,  lease rental of less than 10 thousand pesos  provided that it will be adjusted every 3 years after 2009 according to inflation, senior citizens and persons with disabilties

P10 excise tax on sugar sweetened beverages per liter of volume capacity, subject to adjustments every 3 years.

The Administration earlier  said the government targets to collect around P205 billion from the new tax package. A social benefit card will be in place for the poorest families, who stand to get  at least P3,000 per year in benefits for every household in the next three years.

now that the bill has been approved on 3rd and final reading at the House, the Senate can act on it when Congress resumes sessions after the President’s 2nd State of the Nation Address in July.

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