The Department of Finance (DOF) on Wednesday reiterated that the Tax Reform for Acceleration and Inclusion (Train) Act not only benefited employees receiving an annual pay of P250,000 amid a higher tax-exempt cap, but also those with yearly taxable income of up to P2 million.
Citing Bureau of Internal Revenue data, the DOF said in a statement that those earning between P250,000 and P2 million a year number about 943,967 or 13.48 percent of salaried workers.
This annual salary range covers those with taxable income of between P21,000 and P170,000 a month.
“Individuals earning above P250,000 a year but less than P2 million used to shell out about 30 percent to 32 percent of their net taxable income for their personal income tax payments. But under the first five years of the Train’s implementation, they would only pay between 20 percent and 30 percent for the personal income tax,” Finance Secretary Carlos G. Dominguez III said.
Signed by President Rodrigo Duterte in December, the Train Law starting January 1, 2018 jacked up or slapped new excise taxes on oil, cigarettes, sugary drinks and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.
Dominguez said “the Train also provides tax relief to over six million or 86 percent of compensation earners with taxable income of P685 per day or P20,833 per month and below, as they will be exempted from paying personal income tax.”
“The 13th-month pay and other bonuses not exceeding a total of P90,000 are also tax-free under the Train,” Dominguez added.
Before Train law
BIR data showed that before the Train Law took effect, 2,038,202 salaried workers were receiving minimum wages, hence were exempted from paying personal income taxes.
With the higher tax-exempt ceiling under the Train Law, an additional 3,987,509 would no longer pay income tax from their earnings, the DOF said, citing BIR data.
“For those earning above P250,000 but not more than P400,000 annually, the tax brackets have also been adjusted under the Train so that they get to pay only 20 percent of the excess of over P250,000. Individuals earning above P400,000 but not more than P800,000 a year will pay P30,000 plus 25 percent of the excess of over P400,000, while those receiving more than P800,000 but not over P2 million will be taxed P130,000 plus 30 percent of the excess of over P800,000 under the Train,” the DOF noted.
“Before the TRAIN, compensation earners receiving over P250,000 to P500,000 a year were taxed P50,000 and 30 percent of the excess of over P250,000, while those earning P500,000 and above were taxed P125,000 plus 32 percent of the excess of over P500,000. Thus, under the old tax schedule, if you are an individual taxpayer with no dependent and who earn a little above P500,000 a year, more than one fourth of your annual income will go to paying personal income tax, which is unfair because you get lumped in a tax bracket, which also includes very high income earners,” the DOF pointed out.
“But under the Train, the brackets were adjusted so that middle to upper middle income taxpayers would get to enjoy higher take-home pay by paying lower tax rates,” according to the DOF.