SGV and Co Presentation on TRAIN Law

Tax Reform for Acceleration and Inclusion (TRAIN) Briefing

In providing our comments in these slides we have relied upon our understanding of current Philippine tax laws, regulations, rules, and issuances of the relevant tax authorities as of this date. Should these laws, regulations, rules, and issuances change, some of the issues/conclusions discussed in these slides may change as well. We will not be responsible for updating the information herein, unless we are specifically requested to do so. Please also note that our comments and conclusions have been put together on the basis of our understanding of the facts as discussed above. These slides are solely for your needs and are not to be relied upon by any other person or entity. Hence, if you wish to disclose copies of these slides to any other person or entity, you must inform them that they may not rely upon our work for any purpose without our written consent.

What is TRAIN?

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DOF Proposed Tax TaxReform ReformPackages Packages DOF Proposed •Reduction of tax rates •Shift to simplified PIT system •Expansion of VAT base •Excise tax on sugary, automobiles and petroleum products

Personal Income Tax (PIT)

Corporate Income Tax (CIT)

Tax

Income Tax

• Reduction of tax rate • Simplification of tax provisions • Limit on VAT zero-rating to direct exporters • Rationalization of fiscal incentives • VAT refund in cash

Tax Reform for Acceleration and Inclusion Act (TRAIN) Capital Property

• Estate tax amnesty • General tax amnesty • Amendments to bank secrecy law

• Lower estate and donor’s tax rates • Lower rate of transaction taxes on land • Update Schedule of Zonal Values Page 3

•Harmonization of capital income tax rates on deposits and investment, dividends, equity and other passive income to 10% •Increase stock transaction tax from 0.5% to 1%

RA No. 10963

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Personal Income Tax Rates Personal Income Tax Rates Taxable Income Not over P10,000 Not over P30,000 Not over P70,000 Not over P140,000 Not over P250,000 Not over P400,000 Not over P500,000 Not over P800,000 Not over P2,000,000 Not over P8,000,000 Over P8,000,000

Old Rate 5% 500 + 10% 2,500 + 15% 8,500 + 20% 22,500 + 25% 50,000 + 30%

2018 – 2022

2023 Onwards

0%

0%

20%

15%

30,000 + 25%

22,500 + 20%

130,000 + 30%

102,500 + 25%

490,000 + 32%

402,500 + 30%

125,000 + 32% 2,410,000 + 35% 2,202,500 + 35%

Breakeven – P11.833M (2018 – 2022) and P18.75M (2023 onwards) New income tax brackets Page 5

Personal Income Tax Exemption

Personal Exemption P50,000

Additional Exemption P25,000/ dependent

Premium on health/ hospitalization insurance

Tax exempt 13th month pay and otherP90,000 benefits

P2,400

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P82,000

Sample Computation Tax Due Taxable Income

Old Tax Code

New Tax Code (2018-2022)

*

Rate

Due

Rate

530,000

32%

134,600

25%

62,500

(72,100)

1,000,000

32%

285,000

30%

190,000

(95,000)

5,000,000

32%

1,565,000

32%

1,450,000

(115,000)

8,100,000

32%

2,557,000

35%

2,445,000

(112,000)

11,833,333 32%

3,751,667 35%

Due

Difference

3,751,667

0

15,900,000

32%

5,053,000

35%

5,175,000

122,000

19,000,000

32%

6,045,000

35%

6,260,000

215,000

23,000,000

32%

7,325,000

35%

7,660,000

335,000

23,470,000

32%

7,475,400

35%

7,824,500

349,100

*The calculated tax due is HIGHER/(LOWER) using the new tax code rates. Page 7

Self-employed and Professionals Personal Income Tax Rates Gross sales/ receipts ≤ P3M (Optional)

8% income tax on gross sales/receipts

Graduated income tax rates (0% - 35%)

3% percentage tax

RMC No. 1-2018 (Procedure on the use of withholding tax table on compensation and 8% withholding tax on income payments to self-employed individuals or professionals) Page 8

Other Individual Tax Rates

Final Tax

FBT

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Creditable Withholding Tax Rates Personal Income Tax Rates

Jan. 1, 2019

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Passive Income

Final Tax

Citizens Resident Aliens

FCDU Deposit

Domestic Corporations

Resident Foreign Corporations

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Passive Income

Final Tax

Citizens Resident Aliens

CGT

Nonresident Aliens Domestic Corporations Resident Foreign Corporations Non-Resident Foreign Corporations

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Percentage Tax

Final Tax

STT

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Donor’s Tax Rate

Final Tax

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Old Rules

New Rules

2% - 15%

6%

30% - strangers

6%

Donor’s Tax

Final Tax

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Old Rules

New Rules

Transfer for insufficient consideration

EXCEPT: Made in the ordinary course of business (bona fide, at arm’s length, and free from any donative intent)

VAT Zero-Rating on Export Sale of Goods and Services Sale of goods to non-resident buyer for delivery to resident local export-oriented enterprise Sale of goods and services to export-oriented enterprise (70% export sales)

Export sales under E.O. 226 Processing, manufacturing, or repacking goods for persons doing business outside the Philippines which goods are subsequently exported * Upon establishment of Enhanced VAT Refund System and if all pending VAT refund claims as of Dec. 31, 2017 shall be fully paid in cash by Dec. 31, 2019 Page 16

VAT Zero-Rating on Export Sale of Goods and Services Export sales under EO 226 (Art. 23) Sales to bonded manufacturing warehouses of exportoriented manufacturers Sales to export processing zones Sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products Sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities

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Other VAT Amendments

Final Tax

Old Rules VAT threshold ≤ P1,919,500

Timing for claim for refund – 120 days

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New Rules

P3M BIR - 90 days 30 days to appeal to CTA on deemed denial

Excise Tax on Cigars and Cigarettes

Excise Tax on Petroleum (RR No. 3-2018 datedRates Jan. 5, 2018 - received by BIR RecordsProducts Management Division on January 15, 2018)

Jan 2022 – Dec 2023

Jan 2020 – Dec 2021

July 2018 – Dec 2019 Jan – June 2018

vs. P31.20 (old rules) 4% increase annually Page 19

Excise Tax on Petroleum Products

Excise Tax on Petroleum (RR No. 2-2018 datedRates Jan. 5, 2018 - received by BIR RecordsProducts Management Division on January 24, 2018)

Particulars

Old

2018

2019

2020

Lubricating oils and greases Processed gas Waxes and petrolatum Denatured alcohol Naphtha regular gasoline, pyrolysis gasoline Leaded premium gasoline Unleaded premium gasoline Aviation turbo jet fuel, Aviation gas Asphalts Kerosene Diesel fuel oil Liquefied petroleum gas Bunker fuel oil Petroleum coke

P4.50 P0.05 P3.50 P0.05

P8.00 P8.00 P8.00 P8.00

P9.00 P9.00 P9.00 P9.00

P10.00 P10.00 P10.00 P10.00

P4.35

P7.00

P9.00

P10.00

P5.35 P4.35

P7.00

P9.00

P10.00

P3.67

P4.00

P4.00

P4.00

P0.56

P8.00 P3.00 P2.50 P1.00 P2.50 P2.50

P9.00 P4.00 P4.50 P2.00 P4.50 P4.50

P10.00 P5.00 P6.00 P3.00 P6.00 P6.00

Nil

*Excise tax rates per liter or per kilogram, as applicable

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Excise Tax on Petroleum Products Mandatory Marking of All Petroleum Products

Requirement to use an official fuel marking or similar technology on petroleum products (mandatory within five (5) years from the effectivity of this Act). Counting of Metering Devices: (1) Manufacturers and/or Importers to provide with counting or metering devices; (2) DOF shall maintain a registry of all petroleum manufacturers and/or importers and articles of being manufactured and/or imported; (3) DOF shall mandate the creation of a real-time inventory of petroleum; and (4) Importers of finished petroleum products shall provide with Bureau-accredited metering devices to determine the accuracy of the volume of petroleum products they imported

CIR or his authorized representatives may conduct periodic random field tests and confirmatory tests on fuel required to be marked under Section 148-A

Penalties on offenses relating to fuel marking (may amount from P1M to P10M, imprisonment from 4 to 8 years, and/or revocation of licenses to engaged in business)

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Excise Tax on Automobiles

Excise Tax on Automobiles (RR No. 5-2018 datedRates Jan. 5, 2018 - received by BIR Records Management Division on January 15, 2018)

Net Manufacturer’s Price/ Importer’s Selling Price Not over P600,000 Not over P1.1M Not over P2.1M Over P2.1M

Old

Eff. Tax Rate

2% 20% + P12,000 40% + P112,000 60% + P512,000

2% 2 – 10.18% 10.19 – 24.38% 24.39% up

Net Manufacturer’s Price/ Importer’s Selling Price Not over P600,000 Not over P1M Not over P4M Over P4M ► ►

New 4% 10% 20% 50%

Vehicles purely powered by electricity and pick-ups – not subject to excise tax Hybrid vehicles – subject to 50% of applicable rate

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SampleTax Computation Excise Rates on Automobiles Manufacturer’s Selling Price 600,000 1,100,000

Tax Due OLD RULE Effective Rate 2% 10.18%

1,640,000 20% 2,100,000 3,000,000 4,000,000 5,000,000 6,000,000

24.38% 35.07% 41.30% 45.04% 47.53%

Due

12,000 112,000

NEW RULE Rate 4% 20%

Due

24,000

12,000

220,000

108,000

328,000 20%

328,000

512,000 1,052,000 1,652,000 2,252,000 2,852,000

420,000 600,000 800,000 2,500,000 3,000,000

20% 20% 20% 50% 50%

7,480,000 50% 3,740,000 50% 3,740,000 8,000,000

50.65%

4,052,000

50%

4,000,000

*The calculated tax due is HIGHER/(LOWER) using the new tax code rates. Page 23

Difference*

0 (92,000) (452,000) (852,000) 248,000 148,000

0 (52,000)

Excise Tax on Sweetened Beverages 2L Soda P6.00/liter caloric sweeteners and noncaloric sweeteners*

P12/liter high fructose corn syrup SP @ P50 *Coconut sap and purely steviol glycosides - Exempt Page 24

SP @ P62

SP @ P74

ExciseTax TaxRates on Sweetened Beverages Excise on Automobiles EXCLUSIONS

100%

COFFEE Meal replacement and medically indicated beverages

100% (Ground coffee, instant soluble coffee, pre-packaged coffee products) Page 25

Excise Tax on Mineral Products

Excise Tax on Products (RR No. 1-2018 dated Jan.Mineral 5, 2018 - received by BIR Records Management Division on January 15, 2018)

2% 2018 – P50 2019 – P100 2020 up – P150

P10/MT

Indigenous petroleum

3%

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6%

4%

Documentary Stamp Tax

Documentary Stamp Tax by BIR Records Management Division (RR No. 4-2018 dated Dec. 19, 2017 - received on January 15, 2018) PARTICULARS

TAXABLE UNIT

CURRENT TAX CODE PROVISION

AMENDMENT UNDER TRAIN

Original issuance of shares of stocks

PhP 200, or fractional thereof, of the par value

PhP 1.00

PhP 2.00

Sales, agreements to sell, memoranda of sales, deliveries or transfer of shares or certificates of stock

PhP 200, or fractional part thereof, of the par value

PhP 0.75

PhP 1.50

DST paid upon original issue in case of stock without par value

25%

50%

Certificates of profits or interest in property or accumulations

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PhP 200 pesos, or fractional part thereof, of the face value

PhP 0.50

PhP 1.00


(RR No. 4-2018 dated Dec. 19, 2017 - received by BIR Records Management Division on January 15, 2018) PARTICULARS

TAXABLE UNIT

Bank checks, drafts, certificates of deposit not bearing interest, and other instruments



PhP 1.50

PhP 3.00

All debt instruments

PhP 200, or fractional part thereof, of the issue price

PhP 1.00

PhP 1.50

All bills of exchange or drafts

PhP 200, or fractional part thereof, of the face value

PhP 0.30

PhP 0.60

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TAXABLE UNIT



Amount of insurance not exceeding

Exempt

Exempt

PhP 10.00

PhP 20.00

PhP 25.00

PhP 50.00

PhP 100,000

Life insurance policies

Amount of insurance exceeds

PhP 100,000 but does not exceed

PhP 300,000



PhP 500,000

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TAXABLE UNIT



PhP 50.00

PhP 100.00

PhP 75.00

PhP 150.00

PhP 100.00

PhP 200.00



Life insurance policies

PhP 750,000 Amount of insurance exceeds


PhP 1,000,000 Amount of insurance exceeds

PhP 1,000,000

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Policies of annuities

TAXABLE UNIT

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PhP 0.50

PhP 1.00

PhP 0.20

PhP 0.40

PhP 15.00

PhP 30.00

PhP 200 or fractional part thereof, of the premium or contribution collected

Certificates


PhP 200 or fractional part thereof, of the premium or installment payment or contract price collected

Pre-need plans




TAXABLE UNIT

Warehouse receipt*

PhP 1



PhP 15.00

PhP 30.00

PhP 0.10

PhP 0.20

PhP 0.10

PhP 0.20

cost of ticket

Jai-alai, horse race tickets, lotto or other authorized numbers games

Additional DST on every

PhP 1 cost of ticket if it exceeds

PhP 1 * A document that provides proof of ownership of commodities that are stored in a warehouse, vault, or depository for safekeeping.

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TAXABLE UNIT

Bills of lading or receipts Value of goods

Proxies

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PhP 1.00

PhP 2.00

if the value of the goods exceed


PhP 100

PhP 100

PhP 10.00

PhP 20.00



PhP 1,000

PhP 1,000

PhP 15.00

PhP 30.00



TAXABLE UNIT

Powers of attorney



PhP 5.00

PhP 10.00

PhP 3.00

PhP 6.00

PhP 1.00

PhP 2.00

First

PhP 2,000 or fractional part thereof

Leases and other hiring agreements

For every

PhP 1,000 or fractional part thereof, in excess of the first

PhP 2,000 for each year of the term of the said contract or agreement

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Mortgages, pledges, and deeds of trust

TAXABLE UNIT

First

PhP 5,000

CURRENT TAX AMENDMENT UNDER CODE PROVISION TRAIN PhP 20.00

PhP 40.00

PhP 10.00

PhP 20.00

of the amount secured On each

PhP 5,000

or fractional part thereof in excess of the first

PhP 5,000

Deed of sale, conveyances and donation of Real Property

On the consideration contracted to be paid for such realty or on its FMV, whichever is higher

PhP 15.00

Retained; Added donation as one of the mode of transfer of property*

*Transfers exempt from donor’s tax under Section 101 (a) and (b) of this Code shall be exempt from the tax imposed under this Section.

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Charter Parties and Similar Instruments

TAXABLE UNIT


PhP 500 Registered gross tonnage of the ship, vessel or steamer does not Additional exceed one thousand (1,000) tons, PhP 50 and the duration of the charter and for each month or fraction contract does not exceed six (6) of a month in excess of 6 months months

PhP 1,000 Registered gross tonnage exceeds one thousand (1,000) tons and do Additional not exceed ten thousand (10,000) PhP 100 tons, and the duration of the for each month or fraction charter and contract does not of a month in excess of 6 exceed six (6) months months

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AMENDMENT UNDER TRAIN PhP 1,000 Additional

PhP 100 for each month or fraction of a month in excess of 6 months

PhP 2,000 Additional

PhP 200 for each month or fraction of a month in excess of 6 months


(RR No. 4-2018 dated Dec. 19, 2017 - received by BIR Records Management Division on January 15, 2018)

DST PARTICULARS

Charter Parties and Similar Instruments

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TAXABLE UNIT



Registered gross tonnage exceeds ten thousand (10,000) tons, and the duration of the charter and contract does not exceed six (6) months

PhP 1,500

PhP 3,000

Additional

Additional

PhP 150

PhP 300

for each month or fraction of a month in excess of 6 months

for each month or fraction of a month in excess of 6 months

Other Penalties • P1,000 – P50,000

Failure or refusal to issue receipts or invoices

• 2 – 4 years

• P500,000 – P10million • 6 – 10 years

Attempt to evade or defeat tax

• P30,000 – P100,000 • 2 – 4 years

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Appropriation of Incremental Revenues Final Tax from TRAIN < 70%

< 30%

To fund infrastructure projects

To fund for: (1) programs under RA 10659 (i.e., Sugarcane Industry Dev’t Act of 2015); (2) Social mitigating measures and investments; and (3) Social welfare and benefits program

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Appropriation of Incremental Revenues from TRAIN (cont’d) (3) Social welfare and benefits program (cont’d) Unconditional cash transfer to households in the 1st to 7th month income deciles of the National Household Targeting System for Poverty Reduction (NHTS-PR), PPP Program, and the social pension program for a period of 3 years from the effectivity of this Act

Fuel vouchers to qualified franchise holders of Public Utility Jeepneys (PUJs)

For minimum wage earners, unemployed, and the poorest 50% of the population: (1) 10% fare discount; (2) NFA purchase discount; (3) Free skills under TESDA

Other social benefits programs to be developed and implemented by the government.

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Other Amendments: Income Tax Simplified Filing of Tax Returns (i.e., 4-page ITR, May 15 (before April 15) for 1st Qtr. ITR filing for individual, October 15 (before July 15) installment payment of tax due for individual)

Revised withholding tax table starting January 1, 2018 Compensation of employees of RHQ, ROHQ, OBU and Petroleum Service Contractors subject to regular tax rates Quarterly (before monthly) filing of final and creditable withholding taxes

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Other Amendments: Estate Tax Change in tax rate to 6% (before 5% - 20%)

Removal of the following: (1) Deduction for expenses, losses and indebtedness, and (2) Medical expenses Increase of standard deduction to P5M (before P1M) and family home to P10M (before P1M) Requirement for certification of CPA for gross value of more than P5M (before P2M) and deadline of filing is changed to 1 year (before 6 months) from death of decedent

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Other Amendments: Value Added Tax Removal of VAT Zero Rating on foreign currency denominated sale transactions For 2018 to 2020: Retained VAT exempt treatment on: (1) sale of residential lot < P1,919,500 (?); (2) sale of house and lot, and other residential dwellings < P3,199,200 (?); and (3) sale of low-cost and socialized housing For 2021 onwards: (1) sale of residential lot < P1,919,500 will no longer be exempt from VAT; (2) sale of house and lot, and other residential dwellings is exempt if < P2,000,000 (before P3,199,200); and (3) only the sale of socialized housing (i.e., not including low-cost) will be VAT exempt

P15,000 (before P12,800) per month lease of residential units is VAT exempt

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Other Amendments: Value Added Tax (cont’d) Additional VAT exempt transactions: (1) sale or lease of goods and services to senior citizens and PWDs pursuant to RA No. 9994 and RA No. 10754, respectively; (2) tax-free exchange; (3) sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension starting Jan. 1, 2019; and (4) association dues collected by homeowners associations and condominium corporations

Amortization of input tax on capital goods allowed only until December 31, 2021

Quarterly filing of VAT effective January 1, 2023 and final withholding VAT on sales to government will shift to creditable system effective January 1, 2021

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Other Amendments: Excise Tax

5% excise tax on non-essential services (e.g., invasive cosmetic procedures, surgeries and body enhancements). Exceptions are: (1) services related to congenital or development defect or abnormality; (2) personal injury resulting from an accident or trauma; and (3) disfiguring disease, tumor, virus or infection.

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Other Amendments: Admin Matters Issuance of receipts and invoices on sale of merchandise and service rendered valued at P100 (before P25) or more. And, issuance of electronic receipts and invoices (within 5 years from effectivity of this act) by exporters, those engaged in e-commerce and taxpayers under the jurisdiction of the Large Taxpayers Service

Electronic reporting of sales data to the BIR through the use of electronic POS System for exporters and large taxpayers (within 5 years from effectivity of this act)

Penalties on failure to transmit sales data

Penalties on use/possession of automated sales suppression devices

Change of interest for unpaid amount of tax from 20% (40% for deficiency and delinquency interests) to double of legal rate of interest (i.e., 2 x 6%)

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Questions?

The better the question. The better the answer. The better the world works.

Thank you! In providing our comments in this presentation, we have relied upon our understanding of current Philippine tax laws, regulations, rules, and issuances of the relevant tax authorities as of this date. Should these laws, regulations, rules, and issuances change, some of the issues/conclusions discussed in this presentation may change as well. We will not be responsible for updating the information herein, unless we are specifically requested to do so. Please also note that our comments and conclusions have been put together on the basis of our understanding of the facts. This presentation is solely for your needs and is not to be relied upon by any other person or entity. Hence, if you wish to disclose copies of this presentation to any other person or entity, you must inform them that they may not rely upon our work for any purpose without our written consent.

SGV and Co Presentation on TRAIN Law

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