What is TRAIN?

Tax Reform for Acceleration and Inclusion

The goal of the first package of the Comprehensive Tax Reform Program (CTRP) or TRAIN is to create a simpler, fair, and more efficient system, as per the constitution, where the rich will have a bigger contribution and the poor will benefit more from the government’s programs and services.

Lowering Personal Income Tax (PIT)

TRAIN lowers personal income tax (PIT) for all taxpayers except the richest. Under TRAIN, those with annual taxable income below P250,000 are exempt from paying PIT, while the rest of taxpayers, except the richest, will see lower tax rates ranging from 15% to 30% by 2023. To maintain progressivity, the top individual taxpayers whose annual taxable income exceeds P8 million, face a higher tax rate from the current 32% to 35%.

Husbands and wives who are both working can benefit from a total of up to P500,000 in exemptions. In addition, the first P90,000 of the 13th month pay and other bonuses will be exempt from income tax. Overall, the effective tax rates will be lowered for 99% of tax payers.

Currently, a person who has a taxable income of P500,000 annually is taxed at 32% at the margin. TRAIN will bring this down to 25% in 2018, and will be further brought down 20% after five years.

Minimum wage earners will continue to be exempted from income taxes as their income falls below P250,000. In addition, the new tax structure will address the current problem wherein going a peso above the minimum wage will result in a lower effective take home pay, thereby discouraging minimum wage earners to accept incremental wage increases and keeping them in an artificial minimum wage trap.

The simplified tax system will increase the take home pay of most individuals and encourage compliance. Self-employed and professionals (SEPs) with gross sales below the VAT threshold now have the option to pay a simpler 8% flat tax in lieu of income and percentage tax, while those above the VAT threshold will follow the PIT schedule.

Meet John Cruz, a call center agent.

John Cruz is a call center agent with a family of three. He commutes from Montalban, Rizal to his office in Makati and leaves the house at 4:00 AM to avoid heavy traffic. He spends his daily on fare to and from work, and on food for the family, and monthly on household expenses such as electricity, water, and internet connection. On top of these expenses, he gets monthly salary deductions to pay for taxes under the antiquated tax system in place. This makes saving for the family difficult for John.

John receives a monthly salary of P21,000 or P252,000 annually. At present, P21,867 is deducted from his annual salary under current personal income tax (PIT) rates. With the proposed tax reform, John will be among the many hardworking Filipinos who will be exempted from paying personal income tax. Tax reform will increase John’s take-home pay, helping him and his family save and giving him more financial freedom. This will be a great help for John!

Know your new personal income tax using the DOF income tax calculator! Visit taxcalculator.dof.gov.ph!