TRAIN Law: A Boon or a Bane to Your Finances?

Wondering how the TRAIN law might affect you? Here is a breakdown of the most important takeaways from the tax reform law. By Mai Bantog

Even before the Tax Reform for Acceleration and Inclusion or TRAIN law was passed, people had been on the fence regarding its merits and faults.

Many are happy to have more cash in their hands, while others are dreading the inevitable price increase of consumer products hit by excise taxes.

Wondering how the TRAIN law might affect you? Here is a breakdown of the most important takeaways from the tax reform law:

More Cash In

Higher take-home pay

If taxes on your payslip make you want to cry, well that shouldn’t be the case now. With the TRAIN law, you get lower personal income taxes and thus, higher take-home pay.

In the past, personal income taxes range from 5% to as much as 32%. Now, you don’t even have to pay a single centavo to the government if you’re earning P250,000 a year or less.

Bonuses and 13th month pay are also now devoid of taxes, so you get a chance to save and spend more. However, there are no longer personal and additional expenses for dependents.

Higher VAT threshold

Before, business owners and taxpayers earning P1,919,500 are required to pay value-added tax or VAT.

Thanks to the TRAIN law, the VAT threshold has been increased to P3 million, lessening the burden of ordinary taxpayers.

More VAT exemptions

Food and agricultural products, senior citizens, persons with disability, cooperatives, and condominium and homeowners’ association dues continue to be VAT-exempt in the tax reform law. The same goes for the tourism, education, health, and renewable energy sectors, as well as enterprises and BPOs located in special economic zones.

But the new law also added more VAT exemptions, such as small businesses with less than P3 million annual income, government-owned and controlled corporations, state universities and colleges, and government agencies.

If you’re renting your home, VAT exemption has increased from P12,800 to P15,000. Residential houses and lots worth less than P2.5 million and P1.5 million, respectively, also don’t require VAT.

Medicines for diabetes, hypertension, and cholesterol will also start to be exempted from VAT by 2019. However, low-cost housing costing P3 million and below will only be VAT exempt from 2018 until 2020. Starting 2021, the threshold will be at P2 million.

Lower estate taxes

From as much as 20%, estate taxes – imposed on inherited properties of lawful heirs and beneficiaries – now have a flat rate of 6% for properties above P5 million.

Estates valued at P5 million and below, as well as family homes worth P10 million or less, no longer have to pay the estate tax. The ceiling was just P1 million before, so this bodes well for property owners and their heirs.

More Cash Out

Higher cigarette and beverage taxes

Health concerns have prompted the government to increase cigarette taxes and add an excise tax to sweetened beverages.

Aiming to reduce the risk of obesity and diabetes among Filipinos, the government imposed a new excise tax of P6 to P12 per liter for sugared beverages. Milk products, natural fruit and vegetable juices, and pre-packaged coffee products are exempted.

As for cigarette prices, expect them to increase annually by P2.50 increments starting this year until 2023. By 2024, the price increase is capped at 4% per year.

Higher car and petroleum taxes

If you’re planning to buy a car, take note that excise taxes have doubled from 2% to 4% for cars worth P600,000 and below. Of course, the pricier your car is, the higher the tax, with vehicles worth P4 million and above being charged as much as 50% tax.

And even if you already have a car, you still have to deal with rising petroleum prices. Petroleum products are now taxed P8 per liter, while diesel, kerosene, and LPG are taxed from P1 to P3 per liter.

Double documentary stamp taxes

Taxable documents like bank checks, life insurance policies, pre-need plans, powers of attorney, sales documents, mortgages, and warehouse receipts now have twice the documentary stamp tax than before. Better keep that in mind when procuring these documents.

Higher passive income taxes

If you’re also trading or investing in the stock and foreign exchange markets, you have to pay higher taxes because of the TRAIN law.

Shares of stocks listed on the local stock exchange now have a tax of 6/10 of 1%, compared to just ½ of 1% before. Foreign currency deposit interests now have double the taxes at 15%, while interest income from long-term deposits is given a flat tax rate of 20% rather than progressive taxes from 5% to 20%.

The TRAIN law may not be all good news, but it certainly gave more Filipinos freedom to control their finances. With more cash in their hands, ordinary workers and taxpayers have a better chance to maximize their cash flow and form healthy money habits.