Previously, MyFinanceMD, has been clamoring for TAX REFORMS, since our tax system has not been updated to reflect inflation.
See this post: AlDub and Philippine Tax Reform
In fact, our tax system’s last update was made 20 years ago. Imagine that! If you are earning more than 500K per year, you are being taxed at the same tax rate as the rich and famous celebrities like Kris Aquino or Manny Pacquiao.
Now, wish granted, probably many of you know there are major changes in the income tax return this year, which we call now the TRAIN Law. Will it be good or bad for doctors?
Let me break it down to you the most important things I think doctors and non-doctors need to know.
FACT #1: What is TRAIN again?
TRAIN – Tax Reform for Acceleration and Inclusion or RA No. 10963
Tax Reform – It is basically a tax reform that changes the previous tax system. It contains major amendments on income tax, estate tax, donor tax, and excise tax.
Acceleration – means, the government wants to add to economic investment. The 70% of the revenues this law (through excise taxes) will gain will be used in the BUILD, BUILD, BUILD Infrastructure Program. Building bridges, public schools, hospitals and other government facilities to better provide for the people. The 30% of which will be used in subsidy of the poorest 10M families of our country.
Inclusion – means our tax system is designed to be inclusive to all. It aims to simplify the tax system and make it more effective. The bracket was adjusted for inflation. Also, the lowest income families will not be taxed, the middle class will be taxed less and the ultra-rich will be taxed higher.
FACT #2: About 99.9% of the population will enjoy lower income tax rates.
- For those earning below 250,000 annually (below 21,000 per month), you will now enjoy tax-free payouts. Included in this bracket is the 83% of the population.
- Even if you are earning more than 21,000/month, you will still enjoy tax savings. This is good for all unless you belong to the 0.1% of the population who are earning more than 8M per year.
See the new graduated tax rates below:
FACT #3: This TRAIN tax is a little bad news for those earning more than 8M/year. Those belonging to this bracket, which is about 0.1% of the population will have a higher tax of 35% from previous 32%.
FACT #4: The change in tax rates increases the tax savings of both employed and self-employed physicians.
Case #1: EMPLOYED PHYSICIAN
Doctor C is a resident doctor. He is only earning 21,000 per month in a private hospital. His status is employed. Meaning, he is receiving BIR form 2316 and the hospital files for her income tax return yearly.
What is the difference of her salary now under TRAIN from the previous income tax system?
Doctor C now enjoys an additional Php1,862.80 per month or Php22,353.60 per year.
Case #2: SELF-EMPLOYED PHYSICIAN (PRIVATE PRACTICE) – earning less than 3M gross per year
For self-employed physicians:
If the gross receipts/income do not exceed Php3M VAT threshold, the taxpayer may opt to be taxed at:
- 8% of gross receipts in excess of Php250,000 in lieu of the graduated rates and percentage tax;
- Use the graduated rates or the new TRAIN tax table above.
Note: The personal exemption (50,000) and additional exemptions (25,000 per dependent) are removed in the new TRAIN tax system, in exchange, all taxpayer regardless of the number of dependents are given the first 250,000 as an exemption.
Dr. Dy is a practicing internist with a total annual gross income of Php730,000 for the entire year, how much would be his tax due as compared with the previous tax code from the new TRAIN graduated rates and if he opts to use the 8% flat tax? Note: He has 2 dependent kids.
Note: You should decide during the first quarter of the year if you will be using the flat rate 8% because if not, you will be considered to be using the graduated rates under the new tax system. This will be irrevocable for the entire taxable year.
FACT #5: The VAT threshold was raised from Php1,919,500 to 3M total gross receipts/income. If you earn more than 3M in a year or if you are VAT-registered, you cannot use the 8% flat rate. You will be using the graduated rate plus 12% VAT.
FACT #6: If you were previously a VAT registered taxpayer (earning above the previous threshold of Php1,919,500), but now you think you will not earn more than 3M total gross receipts/income this year, you can opt to change from VAT to NON-VAT by filing the duly accomplished BIR Form No. 1905 “APPLICATION FOR REGISTRATION INFORMATION UPDATE” of your RDO on or before MARCH 31, 2018.
FACT #7: For mixed income earners: meaning you are both employed at the same time has a business or earns as a professional, you shall be taxed as follows:
- On your compensation income (employment) – at graduated rates; and/or
- On income from the conduct of a trade or business or practice of profession:
- If exceeding the VAT threshold – at graduated rates;
- If below VAT threshold – either flat 8% of gross in excess of 250,000 or use the graduated rates plus percentage tax.
FACT #8: Some administrative reforms included in the TRAIN Law:
All I can say is that this is the tax reform we are all been waiting for. It may not be perfect, but definitely, it’s an improvement. Even if there are other prices that increased because of this, we cannot deny the fact that we were given more tax savings, therefore more money to spend or save. The power is in our hands. It’s up to us how to use it. It is up to us if we want to spend all our tax savings. Or is it time to save for our future.
If you choose to be the responsible one, you can contact me here, so I can guide you.
For your Financial Health,
- FILIPINO DOCTORS AND TAXATION Part 1: The Ultimate Guide on How to Register as a Doctor/Physician in BIR
- Top 6 Saving Tips this 2018 to Start Your Year Right
- How I Got 41,600 from SSS Maternity Benefit
- Rules for Female Doctors: Changing Names after Getting Married
- A Simple Trick for Doctors to Know Whether Their Accountant is Honest
- For Doctors: How to Avoid Tax Mapping Penalties when BIR goes to your Clinic
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