TRAIN Law Lowers Income Tax Rates and Increases Filipino Spending Power

Under the Tax Reform for Acceleration and Inclusion or TRAIN Law, Filipino workers will get a higher take-home pay starting this New Year. Middle-class Filipino consumers, in particular, are expected to spur faster spending and increased savings. 

Those earning below Php 250,000 will remain exempted from paying taxes. Meanwhile, those earning more than Php 250,000 to over PhP 8 million will follow the new income tax rates for 2023, as reported by CNN Philippines

  • Over Php 250,000 to Php 400,000: 15% of the excess over Php 250,000 
  • Over Php 400,000 to Php 800,000: Php 22,500 + 20% of the excess over Php 400,000 
  • Over Php 800,000 to Php 2 million: Php 102,500 + 25% of the excess over Php 800,000 
  • Over Php 2 million to Php 8 million: Php 402,500 + 30% of the excess over Php 2 million 
  • Over Php 8 million: Php 2,202,500 + 35% of the excess over Php 8 million 

The TRAIN Law will lower the personal income tax (PIT) to around 5 percent for those earning between Php 250,000 and Php 2 million annually. In a report from Manila Bulletin, chairman of the House Committee on Ways and Means, Rep. Joey Salceda, said that the tax cuts will increase the disposable income of Filipino families by around Php 32 billion. He also noted that this would lead to a growth in consumer spending and leave some room for savings.

Meanwhile, the top individual taxpayers in the country—earning more than Php8 million—will face a higher tax rate of 35 percent from the previous 32 percent. Considering this, experts believe that the government could bring in more revenues for its post-pandemic recovery plan. Under the TRAIN Law, 70% of its incremental revenues will be channeled to infrastructure programs, and the rest will go to social services.

A Cushion for Increased Contributions 

Salceda likewise mentioned that the TRAIN PIT cuts would cushion workers from the impact of contribution hikes. This year, Philippine Health Insurance Corporation (PhilHealth) will adjust the contribution rate to 4.5 percent from the previous year’s 4 percent. The increase will expand the agency’s primary care benefit package, which should provide free consultations, health risk screening, laboratory tests, and medicines.

Starting January 2023, members of the Social Security System (SSS) will also face a higher contribution rate—from 13 percent to 14 percent. According to the agency, the contribution hike will be beneficial for the SSS members in the form of higher benefits. SSS President and CEO Michael Regino said in a GMA News report that the four-stage contribution rate hike would ready the SSS fund for the future needs of its members. The Social Security Act of 2018 mandates raising the contribution to 15% by 2050.

Similar to SSS, PhilHealth will continue to make contribution adjustments until 2025 under the Universal Health Care Law.

Additional Tax Updates and Modernized BIR

Under the TRAIN law, the filing and payment of VAT returns must be done on a quarterly basis. This means that the filing of monthly Value Added Tax returns is no longer a requirement starting January 2023. As reported by Rappler, VAT taxpayers shall file four Quarterly Value Added Tax returns due within 25 days following the close of each taxable quarter. 

Another provision of the TRAIN Law to be implemented this year is electronic invoicing, as per BusinessWorld. The Bureau of Internal Revenue (BIR) has established the Electronic Invoicing/Receipting System (EIS) to help certain taxpayers electronically report sales data to the agency.

The system shall be used only by taxpayers who must issue e-receipts or e-invoices. These include businesses involved in exporting goods and services and e-commerce and those under the jurisdiction of the Large Taxpayers Service (LTS).

Last year, the BIR also launched its Online Registration and Update System (ORUS), allowing taxpayers to register or update personal information. Starting 2023, ORUS can be used to issue Tax Identification Number (TIN) to foreign individuals, secure authority to print receipts, and register books of accounts, among others.

For the latest updates relevant to the real estate industry, follow Lamudi Philippines on Google News.

Sources: CNN Philippines, Manila Bulletin, GMA News, Rappler, BusinessWorld

Main photo via Depositphotos


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