CPA in Transit Reviewer: Tax Reform R.A.
10963
2017-2018 ed. TAXATION
Guide and Reviewer on R.A. 10963
TAX REFORM FOR ACELERATION AND INCLUSION (TRAIN)
Disclaimer: All information presented here are based on the limited amount of references provided by the BIR available up until January 20, 2018.
Purpose and Objective (Sec. 2)
a.) Enhance the progressivity of the tax system through rationalizing the Philippine tax
system, thereby promoting sustainable and inclusive economic growth;
b.) To provide, as much as possible, an equitable relief to a greater number of taxpayers
and their family in order to improve levels of disposable income and increase economic
activity;
c.) To ensure that the government is able to provide for the needs of those under its
jurisdiction and care through the provision of better infrastructure, health, education,
jobs, and social protection for the people.
Amendments to Chapter II- Tax on Individuals
Income Tax Rates
As amended by Sec. 5, the government changed the tax schedule to increase the take of home
pay of it people, thus increasing their disposable income. The new tax schedules are as follows:
a.) Tax Schedule Effective January 1, 2018 until December 31, 2022:
Not over P250,00 0%
P250,000- P400,000 20% of the excess over P250,000
P400,001 – P800,000 P30,000 + 25% of excess over P400,000
P800,001- P2,000,000 P 130,000 + 30% of excess over P800,000
P 2,000,001- P8,000,000 P490,000 + 32% of excess over P 2,000,000
P8,000,000< P2,410,000 + 35% of excess over P8,000,000
b.) Tax Schedule Effective January 1, 2023:
Not over P250,00 0%
P250,000- P400,000 15% of the excess over P250,000
P400,001 – P800,000 P22,500 + 20% of excess over P400,000
P800,001- P2,000,000 P 102,500 + 25% of excess over P800,000
P 2,000,001- P8,000,000 P402,500 + 30% of excess over P 2,000,000
P8,000,000< P2,202,500 + 35% of excess over P8,000,000
Exceptions
The additional exception of P25,000 for each qualified depended that with a maximum of 4
and the personal exception of P50,000 for each taxpayer was removed. It is no longer
CPA in Transit Reviewer: Tax Reform R.A. 10963
2017-2018 ed. TAXATION
applicable in computing the net taxable income of an individual tax payer. In lieu of it, all
individual taxpayers are given a P250,000 exception.
Illustration:
Jinx received the following income in 2018, she is a resident citizen
Business Gross Income, Philippines 350,000
Business Gross Income, Thailand 230,000
Compensation Income net of monthly contributions 570,000
Business Expenses, Philippines 135,000
Business Expenses, Thailand 154,000
Jinx have 3 qualified dependents, Answer the following questions:
a.) how much is her tax liability for the year 2018?
b.) How much is her tax liability if the items above pertains to income earned during 2017?
Business Gross Income, Philippines 350,000
Business Gross Income, Thailand 230,000
Compensation Income net of monthly contributions 570,000
Business, Philippines (135,000)
Business Expenses, Thailand (154,000)
Net Income 861,000
a.) Tax Liability for the year 2018
(861,000-800,000) x 30% + 130,000= 148,300
b.) Tax Liability for the year 2017
Net Income 861,000
Less: Deductions
Personal Exemption 50,000
Additional Exception 75,000
Net Taxable Income 736,000
(736,000-500,000) x 32% + 125,000= 200,520
Tax on Income of Purely Self-employed Individuals and/or Professionals
Self-employed individuals and/or Professionals shall now have an option to choose between
the gradual income tax rates and percentage tax (3% on gross receipt or sales) OR 8% tax on
gross sales or gross receipts and other non-operating income in excess of P250,000, as long as
his gross receipts or sales shall not exceed P3,000,000.
Requisites to avail the 8% Rate
1. Tax payer must not be subjected to VAT (sales or gross receipts does not exceed P3M)
CPA in Transit Reviewer: Tax Reform R.A. 10963
2017-2018 ed. TAXATION
2. Must be a self-employed individual and/or Professional
Self-employed Individuals and/or Professionals
self-employed, are register as a single proprietor or entrepreneur (other than marginal income
earners or those earning less than P 100,000 annual gross revenues), or as professionals.
Professionals, classified as self-employed, refer to an individual or a group, practicing his/her or
their profession, with or without license under a regulatory board. These exclude those who
are earning purely from compensation income (purely employees).
Although freelancers may not have professional licenses under a regulatory body, as in the
case of bloggers, web developers, graphic designers, writers and other people who provide
specialized services, they are also considered professionals.
Application
a.) Purely Self-employed
They are individuals who does not derived income from employment and only from
their sole proprietorship business, or profession. All income shall be computed using 8%
of gross income or the progressive income tax rate above, depending on the choice of
the tax payer.
Example:
Mr. John, a resident citizen, has a sole proprietorship selling merchandise and
presented to you the following items during his 2018 operations.
Sales on Account 152,000
Gross Receipts 291,000
Gain on sale of equipment 132,000
Operating Expenses 280,000
He opt to pay the 8% tax for the year 2018.
Question:
a.) How much is his tax liability?
b.) If he is a service business. How much is his tax liability?
A.) Tax Liability
Sales on Account 152,000
Gross Receipts 291,000
Gain on sale of equipment 132,000
Total Gross Income 575,000
Less: Tax Ceiling 250,000
CPA in Transit Reviewer: Tax Reform R.A. 10963
2017-2018 ed. TAXATION
Taxable Income 325,000
Income Tax Rate 8%
Total Income Tax 26,000
B.) Tax Liability if Service Business
Gross Receipts 291,000
Gain on sale of equipment 132,000
Total Gross Income 423,000
Less: Tax Ceiling 250,000
Taxable Income 173,000
Income Tax Rate 8%
Total Income Tax 13,840
b.) Mixed Income Earners
These ae people who earns income from compensation and through business or
practice of profession. The tax rate are as follows:
1. Compensation Income- subjected to the gradual tax rate only.
2. Income from business or practice of profession- 8% income tax OR
graduated income tax rate.
Example:
Mr. John, a resident citizen, has a sole proprietorship selling merchandise and is
currently employed, presented to you are his income during 2018.
Gross Sales 291,000
Compensation Income 450,000
He opt to pay the 8% tax for the year 2018. Compute his Income Tax Liability.
Tax due:
1. On Compensation:
On P400,000 30,000
Excess (450,000-400,000) x 25% 12,500
Tax due on compensation income 41,500
2. On Business Income:
Gross Sales 291,000
Income Tax Rate 8%
Tax due on business income 23,280
Total Income Tax Due (Compensation and Business) P64,780
* The amount of ₱250,000.00 allowed as deduction under the law for taxpayers earning solely from self-
employment/practice of profession, is not applicable for mixed income earner under the 8% income tax rate
option.
CPA in Transit Reviewer: Tax Reform R.A. 10963
2017-2018 ed. TAXATION
Final Tax
Prizes and Winnings
Prizes and winning amounting to more than 10,000 shall be subjected to a final tax of 20%.
Winnings from PCSO or lotto is now subjected to the same rule. Before, all winnings from
PCSO or lotto was exempt no matter the amount but now it is subjected to 20% final tax. As
amended by sec. 5.
Example:
Mr. L won he lotto for the amount of P1,250,000. How much is the final tax?
(1,250,000 – 10,000) x 20% = P 248,000
Interest Income from Foreign Currency Bank Deposit
The final tax for it has been doubled from the previous rate of (7.5%) to (15%). Non-resident
Individuals shall be exempt from this tax.
Capital Gains Tax
Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange
A final tax is imposed on net capital gains realized on the sale, barter, or exchange of domestic
stocks as long as it is not sold through the stock exchange. The final tax rate is now a uniform
15% as compared with the previous 5%-10% rate. Where the first P100,000 shall be taxed 5%
and the excess 10%.
Example:
John bought 12,000 shares of UEF Corp. for P30 each. He sold 7,500 shares for a total of
P370,000. How much is the capital gains tax?
Total selling price 370,000
Less : Cost (7,500 x 30) 225,000
Capital Gains 145,000
a.) Under TRAIN 145,000 x 15%= P 21,750
b.) Under old tax laws (145,000 – 100,000) x 10% + (100,000 x 5%) = P 9,500
Income tax rate of employees of Regional Headquarters (RHQs), Regional Operating
Headquarters (ROHQs), Offshore Banking Units (OBUs), and Petroleum Service
Contractors and Subcontractors
Previously, a rate of 15% shall be taxed on the compensation income of employees of RHQs,
ROHQs, OBUs, and Petroleum Service Contractors and subcontractors.
CPA in Transit Reviewer: Tax Reform R.A. 10963
2017-2018 ed. TAXATION
The president vetoed this, and shall be taxed using the graduated income tax rates. This shall
ONLY apply to the above mentioned employers registered with SEC after January 1, 2018.
Example:
Ms. Klola, an alien employed by a Petroleum Service Contractor and received
compensation income of ₱5,000,000.00 for 2018, inclusive of ₱400,000.00 13th month
pay.
Question:
a.) Assuming that the contractor I registered with SEC after January 1, 2018
b.) Assuming that the contractor was registered with SEC on March 7, 2017
A.) Registered after Jan 1, 2018
Compensation Income 5,000,000.00
Less: Non-taxable 13th Month Pay 90,000.00
Taxable Compensation Income 4,910,000.00
Tax Due: On ₱2,000,000.00 490,000.00
On excess (₱4,910,000 - ₱2,000,000) x 32% 931,200.00
Total tax due 1,421,200.00
B.) Registered Before Jan 1, 2018
Taxable Compensation Income 4,910,000
Tax Rate 15%
Total Tax Due 736,500
CPA in Transit Reviewer: Tax Reform R.A. 10963
2017-2018 ed. TAXATION
Questions:
1. Which of the following is not a purpose or objective of RA 10963?
a. Promote a sustainable economic growth
b. To ensure the government has funds for military purposes
c. To increase the disposable income of the people
d. To give the people better infrastructure
2. Which of the following is not affected by the TRAIN?
a. Criteria to be considered as a liable for VAT
b. Considering the relationship of the donor and done in computing the amount of
tax payable
c. Personal Exception of P50,000
d. Employees of RHOs, who are SEC registered before 2018
3. Mrs. Lupisan is a resident alien and is the sole proprietor of a business. She presented to
you her income and expenses for the year 2018.
Compensation Income 430,000 Gross Receipts 531,000
13th month pay 58,000 Business expenses 312,000
Total Contributions to SSS 32,500 Sales returns and allowances 45,000
Gain on sale of Land 21,000
Compute for her tax is he opt to avail the 8% tax in lieu of regular income tax and
percentage tax.
a. 73,660
b. 72,360
c. 75,960
d. 78,560
e. None of the Above
4. Using the information on number 3, how much is the income tax using the Progressive
Income Tax.
a. XXX
b. XXX
c. X
d. X
5. A resident citizen bought 1,350 shares of a publicly held domestic corporation for a total
of P21,937.50. At December 31, 2018, the fair value of the shares is P21.70 and sold 745
shares on the same date at fair value. Assuming the shares were sold outside of the
stock exchange, how much is the capital gains tax?
a. 609.04
b. 2,424.98
CPA in Transit Reviewer: Tax Reform R.A. 10963
2017-2018 ed. TAXATION
c. 882.9
d.
Answers:
1. B
2. D
3. A
