Question

Enumerate allowable deductions and explain the kinds of personal exemptions allowed based on "Train" Law.

Answer 1

Tax Reforms for acceleration and inclusion Law. The law contains amendments to several provisions of the National Internal Revenue Code of 1997 (“Tax Code”) on individual income taxation, passive income for both individuals and corporations, estate tax, donor’s tax, value-added tax (“VAT”), excise tax, and documentary stamp tax (“DST”), among others.

On exemption of 13th month pay and other benefits exemption Sec. 32 (B) (7) (e) 13th month pay and other benefits amounting to PHP82,000 is excluded from the computation of gross income. The President shall adjust the amount of income tax exemption to its present value using the Consumer Price Index (“CPI”) for other benefits such as productivity incentives and Christmas bonus every three years. Amount of exempt 13th month pay and other benefits is increased to PHP90,000.

The provision of power of the President to make adjustments on the said amount is removed.

Fringe benefit tax given to non-rank and file employees Sec. 33 (A) Fringe benefits given to non-rank and file employees are subject to 32% final tax rate. The grossed-up monetary value is determined by dividing the actual monetary value by 68%. Effective 1 January 2018, fringe benefits given to non-rank and file employees are subject to 35% final tax rate. The grossed-up monetary value is determined by dividing the actual monetary value by 65%.

Optional standard deduction (“OSD”) Sec. 34 (L) In lieu of the itemized allowable deductions, an individual subject to tax, other than a nonresident alien, may elect an OSD of 40% of gross sales or gross receipts. In case of a general professional partnership, the OSD may be availed only once by either the general professional partnership or the partners comprising such partnership.

*Deduction of premium payments on health and/or hospitalization insurance Sec. 34 (M) Allowed deduction of PHP2,400 per year or PHP200 per month worth of premium payments on health and/or hospitalization insurance of an individual provided that the family has a gross income not exceeding PHP250,000 for the taxable year. Repealed

On personal and additional exemptions Secs. 35 and 79 (D) Exemptions on the following: • PHP50,000 worth of basic personal exemption • PHP25,000 worth of additional exemption per qualified dependent not exceeding four. • Personal exemption allowable to nonresident alien individual Repealed

Exemption allowed to estate and trust Sec. 62 Exemption of PHP20,000 allowed from the income of the estate or trust. Repealed

Income tax collected at source – husband and wife Sec. 79 (F) Husband deemed head of the family and proper claimant of the additional exemption. Taxes to be withheld from the wages of the wife must be in accordance with the table for zero exemption of the withholding tax .

Allowed deductions Sec. 86 (A) Citizens or residents are allowed the following deductions, among others: • Expenses, losses, indebtedness, and taxes (among others, funeral expenses not to exceed PHP200,000 and judicial expenses) • Family home not to exceed PHP1m • Standard deduction of PHP1m • Medical expenses not to exceed PHP500,000 • Removed the allowance for deductions of funeral expenses, judicial expenses, and medical expenses. • Increased allowance for deduction of family home to PHP10m. • Increased the standard deduction to PHP5m.

Sec. 86 (B) A nonresident not a citizen of the Philippines is allowed the following deductions, among others: • Expenses, losses, indebtedness, and taxes (among others, funeral expenses not to exceed PHP200,000 and judicial expenses) • Property previously taxed • Transfers for public use • Removed allowance for deduction of expenses, losses, indebtedness, and taxes. • Provides for a standard deduction of PHP500,000. • Provides that a proportion of the claims against the estate, claims against insolvent persons, and unpaid mortgages may be claimed as a deduction from the estate.

Sec. 86 (D) An Individual who is a nonresident not citizen of the Philippines shall not be allowed to claim any deduction unless the value of the nonresident’s gross estate situated outside the Philippines is included in the return filed.