Tax filing BIR Philippines

Does Duterte’s Tax Reform Mean More Money in Your Pocket?

President Duterte finally signed into law the tax reform bill earlier on Tuesday, December 19, 2017. The Tax Reform for Acceleration and Inclusion bill (TRAIN) will overhaul the country’s 20 year old tax structure, to make the tax system fairer and simpler.

The first package of the tax reform bill will be implemented in January 2018, giving more disposable income to every working Filipino who are paying their taxes.

Current tax rates

In a nutshell, the Philippines has one of the highest tax rates in Southeast Asia. For one, the corporate tax in the country is 30%, which is applied to all net incomes from the entire tax table sources. Compared to other countries in the region, 30% is extremely steep (refer to the comparison table below). This can be accounted as one of the major factors why foreign investors prefer to do business elsewhere instead of the Philippines.

CountryCorporate TaxPersonal Income TaxTax on Goods and Services
Philippines30%Progressive from 5% to 32%12%
Malaysia24%Progressive from 0% to 28%6%
Singapore17%Progressive from 0% to 22%7%
Indonesia25%Progressive from 5% to 30%10%
Thailand20%Progressive from 0% to 35%7%
Vietnam20%Progressive from 5% to 35%10%

On the other hand, at 32% for the highest income bracket, personal income tax rate is not the highest in the region (which is only next to Vietnam and Thailand at 35%), but it’s still in the top three. Below is a complete overview of the progressive personal income tax rates in the Philippines.

Annual Income BracketTax Rate
₱0 to ₱10,0005%
₱10,001 to ₱30,00010%
₱ 30,001 to ₱70,00015%
₱70,001 to ₱140,00020%
₱140,001 to ₱250,00025%
₱250,001 to ₱500,00030%
₱500,001 and above32%

What’s new?

The Comprehensive Tax Reform Package of the Department of Finance is part of the Dutertenomics. It aims to provide relief to 99% of the tax paying workers in the Philippines by reducing their monthly income taxes (lessening the overall tax burden of the poor and the middle class).

It will redesign the tax system in the country to make it fairer, more efficient, and simpler. At the same time, it’s going to help the government raise the resources that it needs to invest further in the country’s infrastructure and people.

On the other hand, while it brings down the income tax obligation of all working individuals, it will raise the excise of fuel.

Who will benefit from this reform?

This new tax reform is good news for low-income and middle-income earners in the country, which is the majority of the population. The proposed tax reform will be gradually decreasing on the coming years and it will be implemented immediately in 2018 up until 2019. The tax income on 2020 and onwards are expected to be even lower!

Proposed Tax Schedule for 2018 until 2019

Annual Income BracketTax Rate
₱0 to ₱250,0000%
₱250,001 to ₱400,00020% of the excess over ₱250,000
₱400,001 to ₱800,000₱30,000 + 25% of the excess over ₱400,000
₱800,001 to ₱2,000,000₱130,000 + 30% of the excess over ₱800,000
₱2,000,001 to ₱5,000,000₱490,000 + 32% of the excess over ₱2,000,000
₱5,000,001 and above₱1,450,000 + 35% of the excess over ₱5,000,000

Proposed Tax Schedule for 2020 and onwards

Annual Income BracketTax Rate
₱0 to ₱250,0000%
₱250,001 to ₱400,00015% of the excess over ₱250,000
₱400,001 to ₱800,000₱22,500 + 20% of the excess over ₱400,000
₱800,000 to ₱2,000,000₱102,500 + 25% of the excess over ₱800,000
₱2,000,001 to ₱5,000,000₱402,500 + 30% of the excess over ₱2,000,000
₱5,000,001 and above₱1,302,500 + 35% of the excess over ₱5,000,000

For your information
Bonuses amounting to less than ₱82,000 are exempted. These bonuses include 13th month pay, Christmas bonus, and other incentives related to productivity.

According to the DOF, 83% of the working-class Filipinos belong to the 0 to 250,000 income bracket. This means that majority of the current taxpayers will be tax free once this tax reform has been implemented.

For those who belong to the income brackets that have corresponding fixed tax rates plus the percentage of the excess, they will still enjoy a lower tax rate compared to the current income tax.

Let’s take for example the ₱400,001 to ₱800,000 annual income bracket of the first table. The base tax is only ₱30,000 for the whole year (12 months) if you’re earning more than ₱400,000 but not more than ₱800,000 annually. On top of that, there will be an additional 25% tax which will only be based on the amount minus the ₱400,000 annual income.

Sample computation

Annual income of ₱450,000

Base tax₱30,000
Excess of the base annual salary (₱450,000 – ₱400,000) ₱50,000
25% of excess (₱50,000 x 25%)₱12,500

Tax computation

    ₱30,000 (base tax)

+ ₱12,500 (25% of the excess)

 = ₱42,500 Total annual tax

Before the tax reform2018 to 20192020 and onwards
₱90,972 annual tax or ₱7,581 per month ₱42,500 annual tax or ₱3,541.66 per month
(₱30,000 + 25% of the excess over ₱400,000)
₱32,500 annual tax or ₱2,708.333 per month

(₱22,500 + 20% of the excess over ₱400,000)

Spread that to twelve months and you’ll only be paying ₱3,541.66 per month for your tax obligations. Meanwhile, the current income tax will take away ₱7,581 per month or ₱90,972 per year if your income belongs to that bracket (which is ₱37,500 per month). You’ll save ₱48,4762.36 a year which is 46.7% of your previous annual tax rate.

The tax rate gets better come 2020, the amount of income tax you’ll be paying is only 35% of your current one, bringing up your savings to 64% or ₱58,472 annually. That’s already a few thousand pesos away to becoming your 2 months worth of income if it belongs to this salary bracket.  

To give you a quick calculation of how much tax you will be exempted from before and after the tax reform without having to do manual calculations, you can use the online tax calculator from Department of Finance.

Higher taxes on fuel but  fare prices will not be affected

It has been made clear that with the implementation of the wage-friendly income tax structure, comes an increased excise on fuel. An estimate of 10% per liter will be excised on fuel. And, when fuel prices increase, what usually happens is that the public transportation prices also skyrocket – not for this case, though.

Part of the tax reform’s initiative is to make sure that this increase in fuel price will not impact the finances of Filipinos, especially the daily commute expenses. To keep the fares at the same level as it is now, the government has three mitigating programs which are the following:

Pantawid Pasada Program

This program aims to keep the fares at the same level by providing public utility vehicle drivers cash cards which will offset the increase in fuel tax.

Jeepney Modernization Program

The government will also improve jeepney engines to increase vehicle mileage and decrease carbon emission. This program will not only be beneficial to the public vehicle drivers, but also to the environment.

Unconditional Cash Transfer

The government will be providing ₱300 per month for one year to households will low income (will be determined upon implementation of the tax reform), to help them keep up with the temporary and moderate increase in prices.

Who will be greatly affected?

Basically, those people who drive their own private vehicles will feel the burn of the increased excise on fuel prices. However, if we put things into perspective, the majority of the people who own a private vehicle  in the Philippines belong to the taxed income brackets (better paid than the average Filipino). With the implementation of the tax reform, the excise on the fuel prices is but a percentage of the amount that they will save – realistically speaking.

At the end of the day, whatever income bracket you are in, the new tax reform can still spare you a thousand pesos or two. So, it’s still a win for everyone’s finances!

Empowering people with the capability to spend or save more

In general, the tax reform is simply utilitarian in nature – a little compromise for the benefit of the majority. In fact, despite the compromise on the fuel prices, it can still manage to make a difference in the day-to-day finances of every Filipino.

Besides, the point of the tax reform’s agenda in providing a bigger take home pay to 99% of working Filipinos is to increase their spending power. With more cash on hand, finances will be a tad-less hard for Filipinos to keep up with.

To know more about the proposed tax reform, you can read more on Department of Finance’s website.

Tell us what you think of the new tax reform in the comment section below!

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