How Will the Newly Ratified Tax Reform Bill Affect Your Personal Income Tax Next Year?
With the ratification of the reconciled version of the Tax Reform for Acceleration and Inclusion (TRAIN) bill by the two houses of Congress on Dec. 13, the government moves closer to its promise to sharply lower personal income taxes next year. The only remaining step is for President Rodrigo Duterte to sign the proposed law and it will take effect 15 days after.
One of the most important provisions in the TRAIN bill is the lowering of personal income tax rates. Taxpayers earning a taxable income of P250,000 a year or less will be exempted from paying personal income taxes. At present, only minimum wage workers are exempted from income taxes. Those earning higher incomes will pay sharply lower rates.
To help our readers see how the new TRAIN law will impact their personal income tax obligations next year, we prepared the infographic on this page. It provides information on the tax due on selected annual net taxable income levels under the current tax regime and under the TRAIN law. (Just a reminder, taxable income is not the same as total income for the year. The taxable income is part of your total income subject to income tax and is calculated by deducting personal and other deductions and allowable expenses from your total income).
For example, the table shows that somebody with a taxable income of P100,000 used to pay P14,500 under the prevailing tax law. Under TRAIN, his or her tax due drops to zero. Another whose net taxable income is P250,000 pays an income tax of P50,000 under the present tax regime. With the onset of TRAIN, his or her tax due also becomes zero. Somebody with a net taxable income of P300,000 will pay P65,000 in taxes due under the current tax system. Under TRAIN, his or her tax obligation falls to only P10,000 in 2018 and by another P7,500 by 2023 (assuming he or she still has the same income level).
For those who want to calculate exactly how much they’ll be paying under the TRAIN law, we also provided the new personal income tax schedule. We also provided the current tax schedule for comparison purposes.
Of course, the change in personal income taxes is just one of the many important components of the TRAIN law. To offset the revenue losses from lower income tax rates, the new tax package will also increase excise taxes on motor vehicles and fuel products as well as reduce tax exemptions and incentives for selected sectors and economic activities. It also imposes a tax on sugary drinks.
This story originally appeared on Entrepreneur.com.ph.
* Minor edits have been made by the Townandcountry.ph editors.