The Tax Reform for Acceleration and Inclusion Act (TRAIN) effectively increases the take-home pay not only of salaried workers earning P250,000 yearly and below but also of those with annual taxable income from P250,000 to a maximum of P2 million.
These represent some 943,967 or 13.48 percent of salaried workers, based on the Bureau of Internal Revenue (BIR) database. On a monthly basis, this is equivalent to a taxable income of around P21,000 to P170,000.
Finance Secretary Carlos Dominguez III said individuals earning above P250,000 a year but less than P2 million used to shell out about 30 percent to 32 percent of their net taxable income for their personal income tax (PIT) payments. But under the first five years of the TRAIN’s implementation, they would only pay between 20 and 30 percent for the PIT, he said.
The TRAIN also provides tax relief to over six million or 86 percent of compensation earners with a taxable income of P685 per day or P20,833 per month and below as they will be exempted from paying the PIT. The 13th-month pay and other bonuses not exceeding a total of P90,000 are also tax-free under the TRAIN.
Based on BIR database, around 2,038,202 or 29.11 percent of salaried workers are minimum wage earners who are already exempted from the PIT even before TRAIN, while 3,987,509 or 56.96 percent are new beneficiaries of the TRAIN’s zero-tax provision.
For those earning above P250,000 but not more than P400,000 annually, the tax brackets have also been adjusted under TRAIN so that they get to pay only 20 percent of the excess of over P250,000.
Individuals earning above P400,000 but not more than P800,000 a year will pay P30,000 plus 25 percent of the excess of over P400,000, while those receiving more than P800,000 but not over P2 million will be taxed P130,000 plus 30 percent of the excess of over P800,000 under the TRAIN.
Before TRAIN, compensation earners receiving over P250,000 to P500,000 a year were taxed P50,000 and 30 percent of the excess of over P250,000, while those earning P500,000 and above were taxed P125,000 plus 32 percent of the excess of over P500,000.
Thus, under the old tax schedule, if you are an individual taxpayer with no dependents and who earn a little above P500,000 a year, more than one fourth of your annual income will go to paying the PIT, which is unfair because you get lumped in a tax bracket, which also includes very high-income earners.
But under TRAIN, the brackets were adjusted so that middle to upper-middle-income taxpayers would get to enjoy higher take-home pay by paying lower tax rates.
Thus, 1) admin managers earning above P250k but not more than P400k, 2) junior economists earning P400k but not more than P800k, 3) operations managers earning above P800k but not more than P1.2M, and 4) assistant VPs earning above P1.2M up to P2M, will all benefit from the new PIT brackets (see table summary below).
From 2023 onwards, the PIT rates of individuals will further be adjusted downwards so that those earning above P250,000 but not more than P2 million would pay only between 15 percent and 25 percent in income tax.
Even if one adds the impact of the other TRAIN provisions on expanding the value-added tax base, the increase in fuel excise tax and tobacco excise tax, the imposition of a tax on sugar-sweetened beverages (SSB), and the overall inflationary effect, a household earning, for instance, a combined monthly income of around P95,000 a month, would still get a net aggregate take-home-pay hike of P7,139 a month.
As an example, a family of 4, with the father working as an administration manager who earnsP25,000 a month and the mother who works as an operations manager and receives a monthly pay of P70,000, will effectively be able to save P8,532 per month under the lower PIT of TRAIN.
Even with the effects of the VAT, oil excise, automobile excise, the SSB tax and overall inflation on their household budget, which the Department of Finance estimates would amount to about P1,393 a month, this family with a working couple will be able to save around P7,139 of their TRAIN-effected pay increase.
Dominguez said 99 percent of the country’s individual taxpayers would benefit from TRAIN owing to hefty cuts in the PIT rates.
Those earning P2 million annually but not above P8 million are taxed 32 percent. The hefty tax of 35 percent is reserved for those earning P8 million taxable income and above.
Dominguez said the TRAIN marked the first time that the government had pushed a tax reform package, not in response to a financial crisis or an external conditions imposed by other institutions, but to instead strengthen its programs meant to attack poverty and correct income inequality.
It was also the first time ever that the government, through the initiative of President Duterte, has lowered PIT rates to make income taxation more equitable and fair, most especially for low-income Filipinos, he said.
The finance chief said the TRAIN, which will help fulfill President Duterte’s “promise of real positive change,” provides the government with a robust revenue stream for programs in support of the administration’s agenda to achieve high inclusive growth by modernizing the nation’s infrastructure backbone, upgrading public services and improving living standards.
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