CHANGES IN THE PHILIPPINES TAX SYSTEM
Table of contents
TRAIN LAW
Under the TRAIN Law, individuals with an annual taxable income of up to PhP250,000.00 are still exempt from paying income tax. For other taxpayers, except those with taxable income over PhP8,000,000.00, the tax rates have been lowered to a range of 15% to 30%. However, individuals with an annual taxable income exceeding PhP8,000,000.00 will still have a tax rate of 35%.
Here are the income tax rates last 2023:
- Annual income up to PhP250,000.00: No tax (0%)
- Annual income over PhP250,000.00 but not over PhP400,000.00: 15% of the excess over PhP250,000.00
- Annual income over PhP400,000.00 but not over PhP800,000.00: PhP22,500.00 plus 20% of the excess over PhP400,000.00
- Annual income over PhP800,000.00 but not over PhP2,000,000.00: PhP102,500.00 plus 25% of the excess over PhP800,000.00
- Annual income over PhP2,000,000.00 but not over PhP8,000,000.00: PhP402,500.00 plus 30% of the excess over PhP2,000,000.00
- Annual income over PhP8,000,000.00: PhP2,202,500.00 plus 35% of the excess over PhP8,000,000.00
Compared to the rates when the TRAIN Law was first implemented in 2018, the new income tax rates for individuals have been decreased by 5% for those with taxable income over PhP250,000.00 up to PhP2,000,000.00. There is also a 2% decrease in the tax rate for individuals with taxable income over PhP2,000,000.00 up to PhP8,000,000.00.
Under the Value-Added Tax (VAT) provisions of the TRAIN Law, starting from January 1, 2023, VAT returns will be filed and paid on a quarterly basis. Monthly VAT returns will no longer be required, and VAT taxpayers will only need to file four quarterly VAT returns within 25 days after the end of each taxable quarter. This change reduces the burden of filing multiple tax returns within a year for VAT-registered persons.
CREATE LAW
The CREATE Law was enacted to help taxpayers cope with the effects of the COVID-19 pandemic by lowering certain taxes. However, in 2023, some of these taxes will revert to their original rates.
For example, the 3% percentage tax for persons exempt from VAT and not VAT-registered was temporarily lowered to 1% from July 1, 2020, until June 30, 2023. Starting from July 1, 2023, the original tax rate of 3% will apply again.
The Minimum Corporate Income Tax (MCIT) was also lowered to 1% from July 1, 2020, to June 30, 2023. However, starting from July 1, 2023, the MCIT for corporations (except non-profit proprietary educational institutions and hospitals, and non-resident foreign corporations) will return to its original rate of 2% based on the gross income of these corporations.
Finally, the income tax rate for Non-Profit Proprietary Educational Institutions and Hospitals was reduced from 10% to 1% from July 1, 2020, to June 30, 2023. However, starting from July 1, 2023, the tax rate for these institutions will return to the higher 10%, with the condition that their gross income from unrelated activities does not exceed 50% of their total gross income.
Understanding the details of our tax laws can help us plan and make informed decisions throughout the year.
