The Income Tax Reform Law (Tax Reform for Acceleration and Inclusion of TRAIN) (RA No. 10963 + veto message) changes a lot of things for the DIY taxpayer. Aside from the forms themselves, the tax reform law also changes the frequency, the processes, and the formula & tax tables that we’ve all gotten used to. As a freelancer, professional, or self-employed individual, this can be a confusing change. This article aims to make the tax TRAIN easier to understand.
Does TRAIN exempt me from paying any tax?
According to bir gov ph, if you are earning less than P250,000 annually, you are exempt from paying percentage tax, income tax, and/or, the 8% gross receipt tax. According to the TRAIN Act, this means you are not required to file any tax return. The actual implementation of this, however, would still be dependent on the IRR to be released. (And we’ll update this article once that’s released.)
From VAT to Non-VAT – TRAIN’s New VAT Threshold
The previous threshold for a taxpayer to be required to be a VAT taxpayer was around P1,919,000. TRAIN raises the VAT threshold to P3,000,000. If you were a taxpayer earning below the P1.9 Million threshold, then things don’t change much for you – you’re still a non-VAT taxpayer.
All about that 8% Tax – TRAIN’s “Gift”
As a non-VAT taxpayer you now have 2 choices when it comes to filing your taxes:
- Good ol’ Percentage Tax + Income Tax
- The brand new 8% Tax
Not a lot of changes for percentage tax. Depending on the alphanumeric tax code that applies to your income that percentage is still what is applied to your gross receipts.
The Income Tax table, on the other hand, has changed a LOT. Your tax dues are now computed thus:
|Not Over P250,000||0%|
|Over P250,000 but not over P400,000||20% of the excess over P250,000|
|Over P400,000 but not over P800,000||P30,000 + 25% of the excess over P400,000|
|Over P800,000 but not over P2,000,000||P130,000 + 30% of the excess over P800,000|
|Over P2,000,000 but not over P8,000,000||P490,000 + 32% of the excess over P2,000,000|
|Over P8,000,000||P2,410,000 + 35% of the excess over P8,000,000|
Note: This table is effective from Jan 1, 2018 to Dec 31, 2022 only. It changes (becomes lower!) after that.
8% Gross Receipts Tax
This is a new option for non-VAT taxpayers. Instead of filing the percentage tax and the income tax, they can opt to file 8% Gross Receipts Tax. The computation is very simple:
(GROSS Income – P250,000) * 0.08 = Tax Due
So which one should I choose?
You should choose the option that helps you save more, of course. How do you determine that? We gotchu, fam – we made a calculator for you! Depending on how much expenses you’ve spent, that will determine whether the 8% Gross Receipts Tax is a good option for you OR if you should stick with Percentage + Income Tax. You can find it HERE.
We are still waiting for the DOF to release the Implementing Rules & Regulations (IRR) for the changes in the TRAIN law. There will be more details on frequency, the process, and the actual forms so that we can comply with the latest changes brought about by this Tax Reform.
Once the IRR is released then we start to see the details of the process and the steps that will help the BIR in keeping track of everything. With Taxumo, you are assured that the forms you are filing are the latest forms and that they comply with the latest regulations of the BIR. So if you don’t want to worry about all of this (and you shouldn’t), sign up to Taxumo now!