Tax Reform for Acceleration and Inclusion We are redesigning our tax system to be simpler, fairer, and more efficient for all, while also raising the resources needed to invest in our infrastructure and our people. Our goal is to correct our tax system’s problems to become: Zé MORE EFFICIENT S34 LEIEZ] Nii) We will lessen the overall tax burden of the poor and the middle class. @ wwwdotgovph/axreform [F]@DOFPH [J @DOFPH #7Tax Reform Program: Package 1 © , Shift to a simplified Personal Income Tax (PIT) system by adjusting brackets to correct income creeping, and reducing the max rate to 25% over time, except for the highest income earners to maintain progressivity. > Restructure the tax for micro businesses to a ‘= flat rate of 8% (in lieu of income and VAT, or percentage taxes) for businesses with gross sales below P3 million. © , Reduce and restructure the donor's tax toa single tax rate of 6% on net donations for gifts exceeding P100,000 annually, regardless of relationship between donor and donee. {By Reduce and restructure the estate tax to a single tax rate of 6% based on the net value of the estate, Standard deduction of P1 million and up to P3 million for family homes is exempted. bo (© Broaden the VAT system by limiting ‘exemptions to raw food and other necessities (eg. education and health). Staggered increase of excise tax on all petroleum products and index to inflation. (£2) Update excise tax on automobiles. fee eS ae ed eee arg ne ete ei es ane ieee crt et tea genet Tc) Provide the poorest 50% of households a P2,400 eee ent De tC ns ue eeu Ponyrf for the Philippines The proposed tax reform will be able to fund investments in education, achieving a more conducive learning environment with the ideal teacher-to-student ratio and classroom-to-student ratio: Achieve 100% Build 113,553 more Hire 181,980 more enrollment and classrooms teachers between completion rates 2017 and 2020 asVision for the Philippines With tax reform, we can invest more in our country’s healthcare by providing better services and facilities: Upgrade 704 local hospitals Establish 25 local hospitals Upgrade and/or relocate 263 rural and urban health units to disaster-resilient facilities Build 15,988 new barangay health stations Build 2,424 new rural health units and urban health centers Achieve 100% PhilHealth coverage at higher quality of services Between 2017 and 2022, hire an additional 176,922 health professionals: 4,824 doctors 104,629 nurses 16,300 midwives 51,169 dentists, pharmacists, medical technologists, and public health associates Updated as of March 13, 2017The additional revenue raised by the tax reform will be used to fund the infrastructure program of the Department of Public Works and Highways (DPWH) which consists of major highways, expressways, and flood control projects. To name a few of these projects: Bonifacio Global City-Ortigas Center Link Road UP-Miriam-Ateneo Viaduct along C-5/Katipunan Camarines Sur/Albay Diversion Road Pulilan-Baliuag Diversion Road Maasin City Coastal Bypass Road cum Sea Wall Tacloban City By-Pass Road Panay East West Road Daang Maharlika (Alternate Route) (NRJ-Mayor Democrito D. Plaza Il Avenue-Las Nieves-Sibagat), (Mandamo-Las Nieves Section) Cagayan De Oro Diversion Road, Cagayan de Oro City + Valencia City-Pangantucan Diversion Road Funding these major infrastructure projects is possible with tax reform for our country to sustain high and inclusive growth.Vision for the Philippines The proposed tax reform program aims to provide the needed additional revenues that would fund our country’s investment needs, especially in rural areas, promoting better lives for Filipinos. For infrastructure, the following improvements can be funded: saeeane &§aant a Based on World Bank estimates All these will further connect people, improve mobility across regions, and provide more opportunities for development if we have tax reform now.What is excise tax? Excise tax is a consumption tax on products that have negative effect on health or the environment. It is also imposed on non-essentials and luxury items. Excises are used mainly to discourage consumption or address the negative effects on health or the environment, such as funding healthcare and environmental protection. wg In the Philippines, the following have excise taxes: petroleum, minerals, tobacco, alcohol products, automobiles, and jewelry, among others. ( i 303,072 Petey Additional revenues raised through this excise tax will be used to improve traffic management solutions, and fund climate change-resilient infrastructure. ecsuavenrUsing the proposed auto excise rates, the following are sample suggested retail prices of selected cars: Suggested retail price (SRP) of automobiles (in pesos) COE CCL eet aS CM UC art oem a ey Toyota Vios 1.3 Base Mitsubishi Mirage G4 GLS 7 13,261 Toyota ‘ 962,725 tree 28) Exe re Ered 43,725 ecsnef atta er Ero Ford Everest 1,739,000 1,834,334 1,929,669 Ttanium 2.2 442 Sa = 190,669 Se ton Toyota Land 4,455,000, 4,758,072 5,061,144 cruiser 45.8 mar cor 606,144 Petey “Proposed SRP is computed as (net manufacturer's price + excise tax + VAT) Additional revenues raised through this excise tax will be used to improve traffic management solutions, and fund climate change-resilient infrastructure. ecsuavenrAutomobile Excise Rates (SB 1408) Using the proposed auto excise rates, the following are sample suggested retail prices of selected cars: Suggested retail price (SRP) of automobiles (in pesos) Brand and Model Cees ay Tet Saal Cet Toyota 609,734 Vios 1.3 Base 79 Mitsubishi 753,261 a 2 Toyota 919,000 962,725 43,725 24,000 + 40% in excess of 600,000 Z Innova 20 J ery cd Ford Everest 1,739,000 2,060,126 321,126 Titanium 2.2 4X2 eon ey eT REE RES ne eee s Toyota Land 4,455,000 6,150,904 5 a aaa 1,695,904 CR MERAE 512,000 + 60% in excess of 2.1 milion 1,224,000+ 200% in excess of 2.1 milion AN *Proposed SRP is computed as (net manufacturer’s price + excise tax + VAT) Mirage G4 GLS Additional revenues raised through this excise tax will be used to improve traffic management solutions, and fund climate change-resilient infrastructure. 23 of 08/02/2017 ay Cn ersUsing the proposed auto excise rates, below is a sample suggested retail price (SRP) of: Ford Everest Titanium 2.2 4x2 Current SRP Change in SRP 1,739,000 1,985,083 246,083 *Proposed SRP was computed as (net manufacturer’s price + excise tax + VAT)Impact on Automobile Prices Using the proposed auto excise rates, below is a sample suggested retail price (SRP) of: it z of @ oo Toyota Innova 2.0 J Current SRP Proposed SRP* Change in SRP 919,000 983,465 64,465 Eee ace a Oe Rad COTES ey (24,000 + 40% in excess of ey} 600,000)Impact on Automobile Prices Using the proposed auto excise rates, below is a sample suggested retail price (SRP) of: ——- Toyota Land Cruiser 4.5 V8 Current SRP Proposed SRP* Change in SRP 4,455,000 5,360,130 905,130 ent of FinanceImpact on Automobile Prices Using the proposed auto excise rates, below is a sample suggested retail price (SRP) of: Mitsubishi Mirage G4 GLS Current SRP Proposed SRP* (oar Lals (ious 740,000 775,514 35,514 Miepocsserec ieesairacs Up to 600,000 TL ro c) *Proposed SRP was computed as (net manufacturer's price + excise tax + VAT) [lee ReeImpact on Automobile Prices Using the proposed auto excise rates, below is a sample suggested retail price (SRP) of: Toyota Vios 1.3 Base Current SRP Proposed SRP* (oar Lals (ious 599,000 611,796 12,796 eee tics: Auto excise bracket: KC TO) (2%) () *Proposed SRP was computed as (net manufacturer's price + excise tax + VAT)Automobile Excise Rates In the proposed system, basic cars will be taxed at lower rates while more expensive cars will be taxed at higher rates. These revised rates are considerably lower than the original proposal. Proposed excise tax on automobiles DUE aaa Avg. Avg. importation price tele -1 effective Proposed rates effective Cn ahah Aa Up to 600,000 4% Over 600,000 12,000 + 20% in 24,000 + 40% in 10% to 1.1 million excess of 600,000 excess of 600,000 Over 1.1 million 112,000 + 40% in 224,000 + 80% in 3% to 2.1 million excess of 1.1 million excess of 1.1 million Ces 512,000 + 60% in 1,024,000 + 120% in 45% excess of 2.1 million excess of 2.1 million asf 5/08/2017Automobile Excise Rates (HB 5636) In the proposed system, basic cars will be taxed at lower rates while more expensive cars will be taxed at higher rates. These revised rates are considerably lower than the original proposal. Proposed excise tax on automobiles Re ecntd en Te eco to a] esd roars Rea cca importation price Proposed rates cs Up to 600,000 Up to 600,000 2% Over 600,000 Over 600,000] 18,000+30%in | 4. to 14 million to11 million | excess of 600,000 Over 11 milion | 112,000 + 40% in Over 11 milion | 168,000 + 50%in | oo, to21 million | excess of 11 million to21million | excess of 14 million a 512,000 + 60% in Over 211 million | 668,000 + 80% in Over 21 million | excess of 2.1 milion to31 million | excess of 21 million | 27% Over 31 million | 2468.000 * 9086 In | 79, excess of 3.1 millionAutomobile Excise Rates (SB 1408) In the proposed system, basic cars will be taxed at lower rates while more expensive cars will be taxed at higher rates. These revised rates are considerably lower than the original proposal. Proposed excise tax on automobiles DUE aaa Avg. Avg. importation price tele -1 effective Proposed rates effective Cn ahah Aa Up to 600,000 4% Over 600,000 12,000 + 20% in 24,000 + 40% in 10% to 1.1 million excess of 600,000 excess of 600,000 Over 1.1 million 112,000 + 40% in 224,000 + 100% in 37% to 2.1 million excess of 1.1 million excess of 1.1 million Ces 512,000 + 60% in 1,224,000 + 200% in 66% excess of 2.1 million excess of 2.1 million of 08/01/2017Automobile Excise Rates The current automobile excise rates will also be increased, on top of oil excise, for progressivity. In the proposed system, basic cars will be taxed at lower rates while higher rates will be levied on more expensive cars. These revised rates are considerably lower than the original proposal. Proposed excise tax on automobiles Tiers e Ie importation ates Corde alm e119 Proposed rates in pesos Up to 600,000 4% Over 600,000 to 1.1 million 12,000 + 20% in excess of 600,000 24,000 + 40% in excess of 600,000 Over 1.1 million to 2.1 million 112,000 + 40% in excess of 1.1 million 224,000 + 100% in excess of 1.1 million 512,000 + 60% in excess of 2.1 million 1,224,000 + 200% in Over 2.1 million excess of 2.1 millionWhy do we need to increase oil excise? Oil excise is a highly progressive tax since those who consume more will pay more tax compared to those who consume less. FUEL CONSUMPTION BY INCOME DECILE The top 1% of Filipino households (or 180,000 households) who earn P288,000 and above per month consume 13% of fuel. This share is what the poorest 50% consume (13.67%). — EOE a = s = ETD alata a mI | rw [as] aaa a 4 1" roe |e 7 TE gin *DOF staff estimate based on the preliminary Family Income and Expenditure Survey (FIES) 2015Effect of Oil Excise on Commodities Retail prices are determined by many factors, not just oil. For instance, from January 2016 to January 2017, diesel price increased by around P14, a 75% increase. (ae 190.16 198.89 128.84 129.93 18.25 36.77 32.10 13.25 36.76 20.39 19.39 7.00 13.25 mi 3 710 a | —- ah Ss 4 Diesel es Pork Rice Yellow Fish Noodles corn (Bangus) However, prices Prices of the most of most items essential food like pork, such as laundry rice, and corn even fell. bar and sardines did not increase. Of the items that increased, price change is minimal. Sources: Philippine Statistics Authority (PSA), Department of Trade and Industry (DTD, Department of Energy (DOE)Effect of Oil Excise on Commodities From January 2016 to January 2017, overall inflation was only 2.7% and food inflation was 3.4% compared to the diesel price change which is 75%. January 2017 year-on-year inflation rates 75.9% 2.7% 3.4% 2.4% 1.8% — E «© € wa Diesel Inflation Food Transport _ Electricity, Gas, Housing, Water Estimating the potential inflationary impact of the oil excise, while holding other factors constant, inflation due to excise would be around 0.9% on top of the usual inflation. This is even higher than the estimates of the Bangko Sentral ng Pilipinas (BSP), the authority on prices and inflation. Data based on DOF staff estimates. Sources: Philippine Statistics Authority (PSA), Department of Energy (DOF) eeeOil Excise Rates One of the major provisions of the tax reform proposal is the staggered increase in oil excise. The current rates have been unadjusted since 1997, draining some P145 billion annually. Under the proposal, rates will be adjusted gradually starting the second half of 2017 to 2019, and will be indexed annually in the succeeding years. Proposed excise tax on oil products et Peay 1997 - 2017 Pu 2019 pars) PAA had Diesel and ean Php 3.00 Php6.00 | Php 6.24 ces Php 7.00 Php 10.00 | Php 10.40 Php 4.35 non-essentials * Annual indexation by 4% starting 2021 ** There shall be no indexation for the year if the average Dubai crude oil price in the month preceding the scheduled indexation exceeds 100 USD per barrel. 6 Essentials include processed gas, kerosene, diesel fuel oil, liquefied petroleum gas, asphalt, and bunker fuel oil. Non-essentials include lubricating oils and greases, naphtha, regular gasoline, premium gasoline, and aviation turbo jet fuel. The additional revenue will be used to fund targeted transfers, the Pantawid Pasada Program, and the Jeepney Modernization Plan of the government. All these will help cushion the effect of the increased oil excise to the public. 2s of 05/08/2017Why do we need to increase oil excise? Oil excise has been unadjusted for almost two decades. Diesel, kerosene, and LPG have been exempted from excise tax since they became VATable in 2005 and were taxed at low rates (around P1.63 per liter) between 1997 and 2004. Meanwhile, gasoline has been taxed at P4.35 per liter since 1997 even as inflation has more than doubled in the last 20 years. The unadjusted excise tax has resulted in revenue loss of some P145 billion—money that could have been used to build better roads and public transport system. The proposed increase on petroleum excise will be an additional source of revenue to fund projects including climate change-resilient infrastructure. This will also help in the development of renewable energy sources in the country.Overall Impact on Car Consumers Gains from the lower personal income tax are more than enough to offset additional expenses from higher oil prices, car loan payments, and inflation. P38,651 savings P16,034 savings P23,087, P9,460 Toyota Vios 1.3 J buyer Toyota Innova 2.0 J buyer Legend: econ cette Inflationary effect | Auto excise impact Jj Oil excise impact J VAT impactBonus Exemptions Under the tax reform proposal, the exemption of bonuses below P82,000 will be retained. e& These bonuses include 13" month pay and other benefits such as productivity incentives and Christmas bonus. oeSimplifying the Tax System We are simplifying the income tax brackets by decreasing it to six (6) brackets. Tax rates for 99% of taxpayers will gradually decrease over the next few years of implementation. ene gee Pees AUT id ere eed SE ae other benefits such as Page ec eect and Christmas bonus. eeu Pe a eae Us Sree ance Le eam nd ee ate Peete ag a et Teese CURRENT TAX SCHEDULE PO ‘ver 19.000 - 30,000 500 + 10% of the excess over 10.000 ‘ver 30.000 - 70,000, 2,500 + 15% of the excess over 30,000 ‘over 70.000 - 140.000 8.500 + 20% ofthe excess over 70,000 ‘over 14,000 - 250,000, 22500 + 25% ofthe excess over 140,000 (ver 250,000 - 500,000 50,000 + 20% of the excess over 250,000 ver 500.000 125,000 + 22% of the excess over 500.000 PROPOSED TAX SCHEDULE (2018) CO Tax Rate eras ‘over 250,000 - 400,000 20% ofthe excess over 250,000 ae ‘over 400,000 - 800,000 130.000 + 25% of the excess over 400,000 ox ‘over 809.000-7,000.000 | 120,000 + 30% of the excess over 800,000 eS ‘over 2,000,000 - 5,000,000 ] 490.000 + 22% of the excess over 2.000.000 % ‘over 5,200,000 1480,000 + 35% af the excess over 5000000 om PROPOSED TAX SCHEDULE (2021 onwards) ‘Annual Taxable Income oi ‘0 250,000 O% (ver 250,000 - 400,000 18% ofthe excess over 250,000 ‘over 400.000 - 800,000 22,500 + 20% of the excess over 400,000 ‘over 800.000-2,000.000 | 102500 + 25% ofthe excess ver 800.000 ver 2,000,000 - 5,000,000 | 402,500 + 20% ofthe excess over 2,000,000 ‘over 5,000,000 1,302,500 + 35% ofthe excess over §:000,000 The simplified tax system will increase the take-home pay of most individuals thereby putting more money in people’s pockets. This will make the system fairer and more equitable. UtesSimplifying the Tax System We are simplifying the income tax brackets by decreasing it to six (6) brackets. Tax rates for 99% of taxpayers will gradually decrease over the next few years of implementation. CURRENT TAX SCHEDULE Oecd React 0- 10.000 5% ‘Over 10,000 - 30,000 500 + 10% of the excess over 10,000 ‘Over 30,000 - 70,000 2,500 + 15% of the excess over 30,000 ‘Over 70,000 - 140,000 8,500 + 20% of the excess over 70,000 ‘Over 140,000 - 250,000 22,500 + 25% of the excess over 140,000 ‘Over 250,000 - 500,000 50,000 + 30% of the excess over 250,000 ‘Over 500,000 125,000 + 32% of the excess over 500,000 PROPOSED TAX SCHEDULE (Second half of 2017, 2018, and 2019) Penns pear Paieisare oe) (0 - 250,000 0% 83% ‘Over 250,000 - 400,000 20% of the excess over 250,000 8% ‘Over 400,000 - 800,000 30,000 + 25% of the excess over 400,000 6% ‘Over 800,000 - 2,000,000 130,000 + 30% of the excess over 800,000 2% (Over 2,000,000 - 5,000,000 490,000 + 32% of the excess over 2,000,000 % ‘Over 5,000,000 1,450,000 + 25% of the excess over 5,000,000 1% PROPOSED TAX SCHEDULE (2020 onwards) Pee ed ea ‘0 - 250,000 0% (Over 250,000 - 400,000 15% of the excess over 250,000 Over 400,000 - 800,000 22,500 + 20% of the excess over 400,000 Over 800,000 - 2,000,000 102,500 + 25% of the excess over 800,000 Over 2,000,000 - 5,000,000 | 402,500 + 30% of the excess over 2,000,000 Over 5,000,000 1,302,500 + 35% of the excess over 5,000,000 The simplified tax system will increase the take-home pay of most individuals thereby putting more money in people’s pockets. This will make the system fairer and more equitable. Ce CeSimplifying the Tax System We are simplifying the income tax brackets by decreasing it to six (6) brackets. Tax rates for 99% of taxpayers will gradually decrease over the next few years of implementation. PROPOSED TAX SCHEDULE (Second half of 2017, 2018, and 2019) PSUS aS OQ - 250,000 0% Over 250,000 - 400,000 20% of the excess over 250,000 Over 400,000 - 800,000 30,000 + 25% of the excess over 400,000 Over 800,000 - 2,000,000 130,000 + 30% of the excess over 800,000 Over 2,000,000 - 5,000,000 490,000 + 32% of the excess over 2,000,000 Over 5,000,000 1,450,000 + 35% of the excess over 5,000,000 PROPOSED TAX SCHEDULE (2020 onwards) PWS aS 0 - 250,000 0% Over 250,000 - 400,000 15% of the excess over 250,000 Over 400,000 - 800,000 22,500 + 20% of the excess over 400,000 Over 800,000 - 2,000,000 102,500 + 25% of the excess over 800,000 Over 2,000,000 - 5,000,000 402,500 + 30% of the excess over 2,000,000 Over 5,000,000 1,302,500 + 35% of the excess over 5,000,000 The simplified tax system will increase the take-home pay of most individuals thereby putting more money in people’s pockets. This will make the system fairer and more equitable.The proposed s: fee se income tax brat ket will exempt 83% of curren’ t taxpa yer: RRR $£5292925252829 i9926292 929494 $i9292925292529 isi 328% 2e8 a9a08 NTN a¥a08 02089Impact on Taxpayer’s Personal Income Annual basic salary pw 252,000 vie 21,000 = Mandatory consbutos: 15.166 pw 15,1 18° month pay and other benefits: Call Center Agent (monty income: »#21,000) Personal exemption: ee 50,000 Allowance for dependents (two children) rir 50,000 Current Tax System 273,000 136,166 136,834 Income bracket: Over 70,000 - 140,000 (8,500 + 20% of the excess over 70,000) Tax due: PHP 21,867 ‘Annual gross income: A+B Deductions and exemptions: B+C+D+E Net taxable income: Proposed Tax System 273,000 36,166 236,834 Income bracket: Over © - 250,000 (0%) ‘Annual gross income: A+B Deductions and exemptions: B+c Net taxable income: Dest 7 Ue Sal nag 21,86 “Computation for the proposed tax system is based on the income tax brackets for Year 1Impact on Taxpayer’s Personal Income Annual basic salary ne 184,416 viv 40,736 Mandatory contibutons nie 22,536 13° month pay and other benefits: Clerk [IV (vonthiy income: 115,368) Personal exemption: vir 50,000 ‘Allowance for dependents (wo chiléren) rir 50,000 Current Tax System 225,152 163,272 61,880 Income bracket: Over 30,000 - 70,000 (2,500 + 15% of the excess over 30,000) ,282 ‘Annual gross income: A+B Deductions and exemptions: B+C+D+E Net taxable income: Proposed Tax System 225,152 63,272 161,880 Income bracket: Over © - 250,000 (0%) ‘Annual gross income: A+B Deductions and exemptions: B+c Net taxable income: ary SSCL a 7, 282 Entry-level workers whose annual income does not exceed P250,000 do not have to pay an income tax.Impact on Taxpayer’s Personal Income High-Income Earner (onthy income: n»877,500) Annual basic salary Contributions (888, PhilHealth,Pag-BIG) pw 10,530,000 our 222,826 13° month pay and other benefits: Personal exemption: pw 2,632,500 eur 50,000 NOTE: 82,000 isthe threshold for evemption. Excess over the threshold is taxable Allowance for dependents (two chiléren) eur 50,000 Current Tax System 13,162,500 404,826 12,757,674 Income bracket: Over 500,000 (125,000 + 32% of the excess over 500,000) Foret the Aa the) Annual gross income: A+B Deductions and exemptions: Binmesnow)+C+D+E Net taxable income: Proposed Tax System 13,162,500 304,826 12,857,674 Income bracket: Over 5,000,001 (1,450,000'1 38% of the excess over 8:000,000) tax due: PHP 4,200,186 ‘Annual gross income: A+B Deductions and exemptions: Byrurestowsl + C Net taxable income: Ciel g=t-1t ald 152 3730 The very rich who earn more than P13 million annually will face higher effective tax rates.Impact on Taxpayer’s Personal Income ‘Annual basic salary vi 679,320 pw 123, B| 13° month pay and other benefits 20 Medical Specialist [II (ontny income: nes6,610) Mandatory contributions: vi 79,975 Personal exemption pe 50,000 Allowance for dependents (two chiléren) 50,000 NOTE: 82,00 is the threshold fr exemption. Excess over the threshold is taxable. Current Tax System 802,540 261,975 540,565 Income bracket: Over 500,000 (125,000 + 32% of the excess over 500,000) eae AL) ‘Annual gross income: A+B Deductions and exemptions: Bynaesnow)+ C+D +E Net taxable income: Proposed Tax System 802,540 161,975 640,565 Income bracket: Over 400,000 - 800,000 (30,000 + 25% of the excess over 400,000) Pie Le ‘Annual gross income: A+B Deductions and exemptions: Byrresto.o} + C Net taxable income: EVM I “Computation for the proposed tax system is based on the income tax brackets for Year 1Impact on Taxpayer’s Personal Income Annual basic salary nw 423,744 nie 10,936, Mandatory contributions: ve 13,725 13° month pay and other benefits: Military Captain (ony income: ne35,312) Personal exemption: vir 50,000 ‘Allowance for dependents (wo chiléren) rir 50,000 Fad Provisional and officer's allowances pe 163,824 NOTE: 82,000 the threshold for exemption Excess over the threshold is taxable. Current Tax System 698,504 135,725 502,779 Income bracket: Over 500,000 (125,000 + 32% of the excess over 500,000) fore sehk=t24:) ‘Annual gross income: AtB+F Deductions and exemptions: Brmresnowl+C+D+E Net taxable Income: Proposed Tax System* 698,504 95,725 602,779 Income bracket: Over 400,000 - 800,000 (30,000 + 25% of the excess over 400,000) tax due: pH? 80,695 ‘Annual gross income: A+B+F DDeduetions and exemptions: Brruresuouni + C Net taxable income: X savings: PH 5 a hey) *Computation for the proposed tax system is based on the income tax brackets for Year 1Impact on Taxpayer’s Personal Income Minimum Wage Earner wonniy income: ne12,488) Annual basic salary pi 149,856 13° month pay and other benefits: nie 34,976 Mandatory contibutons »018,284 Current Tax System Proposed Tax System fer ane 184,832 fama gs cone 184,832 Nat taxable income: Oo Decne an erent 53.260 Exempted from Income Taxation Nevtble rane 131,572 Income bracket: Over © - 250,000 (0%) Tax savings: PHP O The tax reform proposal will have no effect on minimum wage earners.Impact on Taxpayer’s Personal Income Annual basic salary pw 203,208 vi 55,802 Mandatory contibutons 6,464 18° month pay and other benefits: Police Officer II (Monthy income: 16,934) Personal exemption: ee 50,000 Allowance for dependents (two children) rir 50,000 FJ Provisional allowance: 16,536 Current Tax System mete" 275,546 162,266 113,280 Income bracket: Over 70,000 - 140,000 (8,500 + 20% of the excess over 70,000) ue:PHP 17,156, Deductions and exemptions: B+C+D+E Net taxable income: ‘ax saving Proposed Tax System* mare" 275,546 62,266 213,280 Income bracket: Over © - 250,000 (0%) Deductions and exemptions: B+c Net taxable income: 4 17,156 “Computation for the proposed tax system is based on the income tax brackets for Year 1Impact on Taxpayer’s Personal Income Annual basic salary ne 247,812 vie 51,302 Mandatory contibutons ne 30,259 18° month pay and other benefits: Teacher II (wonthty income: 20,651) Personal exemption: ee 50,000 Allowance for dependents (two children) rir 50,000 Current Tax System 299,114 181,561 117,553 Income bracket: Over 70,000 - 140,000 (8,500 + 20% of the excess over 70,000) Peete FeLi ‘Annual gross income: A+B Deductions and exemptions: B+C+D+E Net taxable income: Proposed Tax System* 299,114 81,561 217,553 Income bracket: Over © - 250,000 (0%) ‘Annual gross income: A+B Deductions and exemptions: B+c Net taxable income: Tax saving nm [33 O11 “Computation for the proposed tax system is based on the income tax brackets for Year 1Impact on Taxpayer’s Personal Income Annual basic salary pw 1,411,212 pw 294,003 13° month pay and other benefits: NOTE: 82,000 is the threshold fr exemption. Excess over the threshold s taxable. Undersecretary (onthiy income: 117,601) Contributions (6SIS,PhlHealth, Pag 181): 133,459 Personal exemption: ewe 50,000 Allowance for dependents (two chiléren) exe 50,000 Current Tax System 1,705,215 315,459 1,389,755 Income bracket: Over $00,000 (125,000 + 32% of the excess over 500,000) feet ee sk Te ‘Annual gross income: A+B Deductions and exemptions: Binmesnow)+C+D+E Net taxable income: Proposed Tax System 1,705,215 215,459 1,489,755 Income bracket: Over 800,000 - 2,000,000 (130,000 + 30% of the excess over 800,000) ferret thee ‘Annual gross income: A+B Deductions and exemptions: Birarestou] + C Net taxable income: Tax savings: PHP 7 795 “Annual basic salary based on second tranche of Salary Standardization Law (SSL) for 2017 **Computation for the proposed tax system is based on the income tax brackets for Year 1Excise Tax o1 jar-Sweetened Beverages (SSB) The proposed tax on SSBs is a health measure meant to discourage the consumption of sugar-sweetened beverages due to their high-sugar content, while encouraging industry players to develop healthier product alternatives. Products covered by SSB excise tax under HB 5636: SSB EXCISE TAX (HB 5636) Sweetened tea and coffee Other beverages: Alll carbonated beverages with added sugar, : including those with caloric and non-caloric racemes ts sweeteners ey Alergy Flavored water Cee ace y Energy drinks Pierce etter Sports drinks Be a eet Other powdered drinks besides juice, tea, ear and coffee Rien N18 Cereal and other grain beverages three years based on Other non-alcoholic beverages that contain cove Maton added sugarSince 2016, the government has been prioritizing improvements in the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). In addition, House Bill No. 4774 proposes the following: Cash registers/point of sale curb oil smuggling machines shall be connected to BIR systems for real-time reporting of sales and purchase data Provision for use of electronic receipts LFVa) atte e LaVae-l tbe dela) for criminal casesWhat is Value-Added Tax? Value-Added Tax (VAT) is a type of indirect tax imposed on goods and services. It is typically passed on to the buyer as part of the selling price. Both imported and domestic goods and services are subjected to the VAT, but there are many exemptions. The VAT in the Philippines has three rates: oe» <«¢ o 12% 0% Exempt Non-exempt domestic and Exports Selected goods and services imported goods List of exemption cn be found in ‘Section 109 ofthe Tor Code Each rate will be explained in more detail in succeeding discussions.VAT Comparison with Other Countries A fair VAT system is one with a low rate and exemptions limited to raw food, health and education. 109 % ms 7% 10° In = ’ 6y ones; — S Thailany | Re wm og Lines’ 3 25 Lines "eT eng Seong Mong “eon In the Philippines, we have a VAT system with numerous exemptions leading to large leakages as people take advantage of the VAT system to pay less tax. esVAT Exemptions of Cooperatives The proposed reform in VAT maintains the exemptions given to cooperatives that sell raw agriculture products with gross receipts or gross sales equal or less than the VAT threshold of P3 million. CURRENT SYSTEM Retained earnings Sale to Seer arenes ESSE Sale to Retained earnings members © orclunaivised dus nM greater t es @ sss: —— mn PROPOSED SYSTEM Agri oe Soa S 61055 receipt/sates than or equal ——————» (Daa @: oneanl S es Or i nd VATabIe = eyimition Credit Seece coops backs tsVAT Exemptions of Cooperatives Exempting cooperatives from VAT does not protect its buyers because cooperatives will be selling their goods with higher prices to recover the input VAT that they paid when they bought their supplies from a VAT-registered entity, such as a supermarket. The proposed reform in VAT maintains the exemptions given to cooperatives that: or Pe, tte 4 te X # mm A i al: ¥ AeP3M¥ % Ws ¥ % Threshold ¥ "© oe of © age oA Sell raw agriculture products Fall below the VAT threshold of 3 million pesos This way, we limit leakages and target the exemption to only those which need them. WaaaaeVAT Exemptions Exemptions of senior citizens and PWDs will NOT be removed in the tax reform proposal. iid In order to ensure that the benefits go to the right people, the government will pursue a National I.D. system to properly identify the senior citizens and PWDs who are covered by the VAT exemption. esThe VAT System in Housing VAT exemptions for socialized and low-cost housing aren’t always fair. Here’s why: Materials and cost Low-cost Housin COST: Above P450,000 not exceeding P1.7 million (VAT exempt) x Developer / Hi Mead eet (VATable) Housing developers can have projects Because socialized This can lead to for socialized, low-cost, and high-end and low-cost houses developers using houses. are VAT exempt, some substandard or less developers try to label materials for costs for high-end construction, houses under costs for _ resulting in poorly- socialized and/or built socialized and low-cost houses in low-cost houses. *Per BIR RR 16-2011, houses priced below order to pay lower P3,199,200 are VAT exempt taxes.SUS Cm elects] VAT exemptions for socialized and low-cost housing aren't always pro-poor. Here's why: Housing cost cost aye asoano me ciceeting Put milion (VAT exempt) Low-cost Housing - i Developer \\. cost above Pi. milion but rot Ca ‘ exceeding P3195,200 7 ? (VAT exempt) High-end Housing (VATable), Housing developers typically have projects for Socialized, economic, and low-cost houses This can lead to leakages socialized, economic, low-cost, and high-end are VAT exempt and therefore cannot that lower VAT collection houses. recover the input VAT on these projects. which could have been used Because of this, some developers may try toto more public socialized move the unrecovered input VAT from these housing. Per BIR BR 16207, houses priced houses to high-end houses in order to below 3,199,200 ae VAT exempt reduce their VAT payment.The Value-Added Tax (VAT) System The VAT is an indirect tax on the inputs along the production chain. Let’s look at how the VAT system works in an electric power system: RAW GENERATION TRANSMISSION DISTRIBUTION END-USERS, MATERIALS Power plant Electric lines Electric company Households Coal and hydroelectric power Selling price Output VAT oO 1.07 2.14 4. _—_ InputVAT = ——o- — 107° 2 2.14 owl 1.07 1.07 2.15 Under the VAT system, producers deduct their input VAT from their output VAT and pay the net amount due. Through this, their input VAT payments are not part of their production cost. *Selling price includes output VAT and mark-up **Output VAT is the 12% rate of the price charged by producers on their final product ***input VAT is the 12% rate paid by producers on their inputs or materials in productionIllusory VAT Exemptions VAT exemptions are not always pro-poor. Why? Here’s an example: A VAT-exempt sari-sari Somme ETI) store has to pay VAT when store will either it buys from a supermarket fae but cannot charge VAT to reducing its profit... its customers. BUC on the VAT mers in the form of higher prices. eeIncrease in the VAT threshold The proposal also pushes for a simplified micro business tax rate. feta aa) Proposed system Persons with gross annual sales Persons* with gross sales that or gross receipts which do not fall below the proposed VAT exceed P1,919,500* will be threshold of P3,000,000 will be taxed equivalent to 3% of their subject to a tax rate of 8%, in gross quarterly sales. lieu of all taxes (income, VAT, and percentage taxes). “This does not include cooperatives. *Refers to self-employed and professionals. dotgoxph/taxreform EdVAT Treatment on PEZA-registered En Sy Some areas in the Philippines have economic zones with different VAT treatments for its registered exporters and suppliers. There are two types of economic zones: HORIZONTAL ECONOMIC ZONE VERTICAL ECONOMIC ZONE ms ‘Supplier Supplier Trade Partners Exporters and their suppliers located Certain floors in some establishments in economic zones are both are also economic zones. As a result, VAT-exempt while suppliers outside exporters in these floors are the zone are VAT zero-rated. VAT-exempt.VAT Treatment on PEZA-registered En Sy Under an ideal VAT system, exporters in economic zones are zero-rated for their export of services such as BPOs, and their suppliers VATable. HORIZONTAL ECONOMIC ZONE VERTICAL ECONOMIC ZONE ms for export of services like BPOs ‘Supplier ‘Supplier Exporters located in economic zones Exporters in economic zones located will be zero-rated while their suppliers in certain floors of some will be VATable regardless of location. establishments will be zero-rated. Suppliers to these exporters will be vaTable.VAT Treatment of Real Property The following sales of real property are presently VAT-exempt: Properties not primarily held for Properties utilized for socialized sale or lease in the ordinary and low-cost housing under course of trade and business the UDHA law (RA No. 7279) Residential lot valued at the following: Residential lots (P1,919,500), Residential house and lots (P3,199,200), Other residential dwellings (P3,199,200) Under the tax reform proposal, VAT exemptions for socialized and low-cost housing will be removed. However, housing programs of the government will be further improved in order to help the poor buy their own house.BIR RR No. 13-2012 prescribes the VAT treatment on the sale of two or more adjacent residential lots, house and lots, or other residential dwellings resulting in the non-payment of VAT.Value-Added Tax Reforms In order to expand the VAT base, the tax reform proposal plans to limit exemptions to only raw food and other necessities, such as education and health, as well as other items with clear economic rationale. The following exemptions are proposed to be removed to reduce leakage and make the VAT system fairer: Cooperatives Except those producing raw agriculture products and those falling below the VAT threshold . Boy scouts and girl scouts Limit zero-rating to ross sales of P3 million} 7 @ ) © direct exporters. Power transmission ° Remove the following zero-rating: » Replace franchise tax with VAT eicea ORC E UCR ; aH ° Domestic shipping eeu ° importation . MeL el or) . Low cost and . NOUN CRUE socialized housing OPO T ROR OCIS : Lease of residential units :VAT Zero Rating Exporters are VAT zero-rated since their products are charged a VAT in the importing country. Zero rating means that This is not the case in the exporters can claim a refund for Philippines where even local the VAT paid for their suppliers. suppliers of these exporters are granted zero-rating. = =. Fad —_—— = Leal fin a LOCAL : MARKET + = = es a ete The VAT reform aims to correct this current system in order to reduce leakages and make the VAT system fairer for everyone.VAT Zero Rating VAT zero rating is imposed on goods and services that are exported to another country. Zero-rated products have no output VAT and their input VAT is subject to refund. age Seller Supplier Exporter Trade Partners (called indirect exporter) Ya” Selling price ™“100—" “200 ™400— (exclusive of VAT) Output VAT* 12 24 Input VAT** - n/a - 12 - 24 Net VAT 12 12 -24 L__ collected by __| Subject to tax agency tax refund ‘Output VAT is the 12% rate of the price charged by sellers on ther final product “input VAT is the 12% rate paid by sellers on their inputs or materials ‘Output VAT of the seller will be the input VAT ofthe buyer in the next production chainVAT Zero Rating In the Philippines, suppliers of exporters in economic zones are also VAT zero-rated by virtue of special laws. Seller Supplier Exporter in zone Trade Partners (treated as exporter) _(treated outside customs territory) Seling price “100-7 200" “400 (exclusive of VAT) Output VAT* 12 Input VAT** - n/a - 12 - O Net VAT 12 -12 oO Collected by Subject to BIR/BOC ‘tax refund *Output VAT isthe 12% rate of the price charged by sellers on their final product “input VAT is the 12% rate paid by sellers on their inputs or materials ‘Output VAT of the seller will be the input VAT ofthe buyer in the next production chainVAT Zero Rating However, suppliers of exporters also sell their goods to the domestic market, which is subject to a 12% VAT. Because of this, they may overstate their export sales and understate their domestic sales to claim more refund. ‘WHAT SHOULD BE (IDEAL) Bros oa ¢. OMe Rel ela ae cs Sales: 200 Outputvar: 24 Input va. = 42 Pea Net VAT: 12 collected by BiR/B0C Output vat sales: 200 Input var: = n/a Output VAT: Net VAT. 24 Inpwtvar: = 12 Collected by BIR/BOC Net VAT: 12 subject to tax refund WHAT MAY BE HAPPENING Ifdomestic Sales: 20a > 100 Output VAT: 12 mo art = Input VAT, - 6 Se Net VAT: 6 collected by BiR/BOC Seller Tal sales: Output var exporter | sales: “286C > 300 Input VAT: = n/a LYE Output VAT: = Net VAT: 24 = Input VAT: - 8 Coected by ioc reve: “1B subject to ox fund Due to the overstating of the supplier on their export sales, the government loses half of its potential revenue and will have to refund more than it should.