1. New BIR Income Tax Rates and Income Tax Tables for 2018
A summary of the new income tax tables to be followed by the Bureau of Internal Revenue (BIR).
The higher-income bracket will be negatively impacted while low-to-middle income will largely benefit from the change in income tax rates.
Income Tax Tables (Year 2018-2022)
|Gross Income Per Year||Income Tax Rate|
|P250,000 and below||0%|
|P250,000 – P400,000||20%*Excess over P250,000|
|P400,000 – P800,000||P30,000 + 25%*Excess over P400,000|
|P800,000-P2,000,000||P130,000+ 30%*Excess over P800,000|
|P2,000,000 – P8,000,000||P490,000+ 32%*Excess over 2,000,000|
|P8,000,000||P2,410,000+ 35%*Excess over P8,000,000|
Income Tax Tables (Year 2023 onwards)
|Gross Income Per Year||Income Tax Rate|
|P250,000 and below||0%|
|P250,000 – P400,000||15%*Excess over P250,000|
|P400,000 – P800,000||P22,000 + 20%*Excess over P400,000|
|P800,000 – P2,000,000||P102,500 + 25%*Excess over P800,000|
|P2,000,000 -P8,000,000||P402,500 + 30%*Excess over P2,000,000|
|P8,000,000||P2,202,500 + 35%*Excess over P5,000,000|
2. Other changes in Taxation to be highlighted:
Tax for Mixed Income Earners
- A taxpayer whose gross sales/receipts are at or below the VAT threshold shall have the option to avail of the 8% income tax on gross sales or receipts and other non-operating income. This is in excess of PHP 250,000, in lieu of the graduated income tax rates and percentage tax.
Exclusion from Gross Income
- Compensation income shall be subjected to the graduated tax rates on compensation income.
- Income from business or practice of profession:
- If total gross sales and/or gross receipts and other non-operating income do not exceed the VAT threshold, it shall be subjected to the graduated tax rates on taxable income OR the 8% tax on gross sales/receipts and other non-operating income, at the option of the taxpayer;
- If total gross sales and/or gross receipts and other non-operating income exceed the VAT threshold, it shall be subjected to graduated rates on compensation income.
Fringe Benefit Tax (FBT)
- The FBT rate is increased from 32% to 35% and the gross-up factor in computing the grossed-up monetary value of the fringe benefit is 65%.
Optional Standard Deduction (OSD) for individuals earning business income
- An individual subject to graduated tax rates, other than a nonresident alien, may elect to claim the OSD in an amount not exceeding 40% of his/her gross sales/receipts or gross income respectively.
- “GPPs” and the partners comprising such partnership may avail of the OSD only once (either by the GPP or the partners).
Individuals not required to file income tax returns (“ITR”)
- An individual whose taxable income does not exceed PHP 250,000.
- Employees receiving purely compensation income from only one employer, the income tax of which has been withheld correctly, shall not be required to file an annual ITR. The certificate of withholding filed by the employer, duly stamped “received” by the BIR, shall be tantamount to the substituted filing of the ITR.
Installment payment of income tax
- The first installment shall be paid at the time the return is filed and the second installment on or before 15 October following the close of the calendar year.
Deadlines for tax declaration of individuals
- The last day for the declaration of income for the current year shall be moved from 15 April to 15 May of the following year.
- Likewise, the deadline of the fourth quarter payment for individuals earning self-employed income shall be moved to 15 May of the following year.
Tax on sale, barter, or exchange of shares of stocks listed and traded through the local stock exchange or through IPO
- Stock transaction tax will be increased from ½ of 1% to 6/10 of 1%.
Tax on capital gains from sale of shares of stock not traded in the Stock Exchange
- Capital gains tax will be increased from 5% (for amounts up to PHP 100,000) and 10% (for amounts in excess of PHP 100,000) to a fixed rate of 15%.
3. Changes in Philippines taxation due to the Tax Reform for Inclusion and Acceleration (TRAIN)
Tax compliance-related amendments to the Tax Code:
(1) Changes in the top rate for expanded withholding tax (EWT) and the
(2) filing deadline for the final withholding tax (FWT) and EWT returns.
(1) Ceiling of EWT rates
As of 1, 2019, the EWT rates will range from 1% to 15%. Prior to this, the top rate was at 32%. While the said change is not yet in effect, the Bureau of Internal Revenue (BIR) has advised the reduction of the EWT rates for the following income payments to 8% from 10% or 15%:
(a) Professional fees, talent fees, commissions, etc. for services rendered by individuals
(b) Income distribution to beneficiaries of estates and trusts
(c) Income payment to certain brokers and agents
(d) Income payments to partners of general professional partnerships
(e) Professional fees paid to medical practitioners
(f) Commission of independent and/or exclusive sales representatives, and marketing agents of companies
Previous EWT rates for the said income payments were based on Revenue Regulations (RR). Normally, an RR is amended by the issuance of another RR. To reiterate, the advice on the reduction of the above EWT rates are processed via Revenue Memorandum Circulars (RMC). Assuming that this was not done properly, and a taxpayer would be subjected to a deficiency tax assessment. Due to an erroneous written official advice of a revenue officer, there appears to be basis to argue for the abatement or cancellation of penalties and/or interest on the deficiency tax assessment.
(2) Filing deadline for FWT and EWT returns
Filing frequency of FWT and EWT returns has been changed from a monthly to quarterly basis. The current stipulated deadline is on the last day of the month following the close of the quarter during which the withholding was made. For example, for the first quarter (i.e. January to March), the filing deadline would be 30th of April.This eases the compliance burden of taxpayers by reducing the number of FWT and EWT returns to be filed from 12 monthly returns to 4 quarterly returns. However, in the absence of the implementing RR (IRR), the following are some of the practical compliance issues taxpayers are faced with:
(a) Whether or not the BIR will issue new quarterly FWT and EWT returns
(b) Whether or not alphalists of payees will still be required
(c) Whether or not the new FWT and EWT returns will be available on or before the filing deadline
(d) Whether or not taxpayers will be provided enough time to adapt to the said returns