One of the goals in passing the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act is to support businesses to recover from the global pandemic. With the easement of restrictions imposed during the pandemic, the imposition of certain tax rates will revert to their application pre-pandemic, i.e., the higher tax rates will now again be applied. This, however, is mitigated by the decrease in the tax rates/brackets for individual income taxpayers. Updates in 2023 for both the application of the Tax Reform for Acceleration and Inclusion (TRAIN) Law and the CREATE Act are discussed below.

1. Updates on the Tax Reform for Acceleration and Inclusion (TRAIN) Law

1. Income Tax

            Starting 1 January 2023 onwards, the new individual annual income tax rates are as follows:

            As in the previous tax schedule, i.e., from 1 January 2018 until 31 December 2022, income not exceeding PHP 250,000.00 are exempt from tax. Further, the previous income tax rates ranging from 20% to 32% are now lowered to 15% to 30% as can be seen above, with the corresponding decrease in the fixed amount of tax to be paid per level of income. Lastly, any excess of income over PHP 8,000,000 remains to be subject to 35%.

            With these reductions, taxpayers certainly would benefit, but the question is: up to what extent? For instance, previously, an individual earning PHP 30,000.00 per month (PHP 360,000.00 per year) was required to pay PHP 1,833.33 per month (PHP 22,000.00 per year) of income tax, i.e., PHP 28,166.67 net income after tax. Starting 1 January 2023, given similar facts, the taxpayer is only liable for PHP 1,375.00 per month (PHP 16,500.00 per year). There is a PHP 5,500.00 annual difference, which would mean a higher take-home pay for individual taxpayers. Of course, also to be considered to determine the net take-home pay are the basic monthly deductions such as the Social Security System (SSS), PhilHealth, Pag-IBIG, among others. 

2. Value-added Tax (VAT)

As regards VAT, beginning 1 January 2023, the filing and payment need only to be made every quarter, i.e., within 25 days following the close of each taxable quarter using Bureau of Internal Revenue (BIR) Form 1550Q. Previously, taxpayers need to file a monthly return using BIR Form 1550M.

According to Commissioner Romeo D. Lumagui, Jr. of the BIR, with the quarterly filing of VAT Returns, it is expected that VAT taxpayers would be fully compliant with their duties and responsibilities to file their tax returns and pay the correct taxes on time.

2. Updates on the CREATE Act

During the pandemic, the tax rates per the National Internal Revenue Code (NIRC) were lowered through the CREATE Act to help alleviate the taxpayers’ plight then. From 1 July 2020 – 30 June 2023, the tax rates for minimum corporate income tax (MCIT), percentage tax, and the special tax rate for non-profit proprietary educational institution and hospitals were lowered to 1%, and starting 1 July 2023 will revert to 2%, 3%, and 10%, respectively—the tax rates pre-pandemic.

Taxpayers must take note of these changes for 2023, so they can make use of the benefits of the lower income tax rates (for individuals). As for those affected by the changes in relation to the CREATE Act, they must observe the new rates so they can accurately compute for their tax liabilities, for otherwise, they might be liable for penalties and surcharges.

3. Others

Note that Rep Act No. 11569—which was approved on 14 February 2019—amended Rep Act No. 11213 or the Tax Amnesty Act, which provides for the conditions for the availment of the estate tax amnesty. The tax amnesty covers the estate of the decedents who died on or before 31 December 2017, with or without assessments duly issued therefor, whose estate taxes have remained unpaid or have accrued as of 31 December 2017. The immunities and privileges of the amnesty include the payment of estate tax amnesty at the rate of 6% based on the decedent’s total net estate at the time of death, and immunity from the payment of civil, criminal, and administrative penalties.

From 15 June 2021, the period within which to avail of the amnesty was extended until 14 June 2023.

For any legal assistance you may need, you may send your inquiries and other legal concerns to info@gqlaw.com.ph.