Because it’s the New Year, there are updates in taxation that taxpayers must take note of to prevent mistakes and avoid costly penalties. The new sets of tax rules that taxpayers ought to take note of are the lowering of income tax rates for those earning purely compensation income of a certain bracket. At the same time, there will be a decrease in the number of VAT returns to be filed.
However, it’s not all good news because the reliefs offered by the CREATE Act or Corporate Recovery and Tax Incentives for Enterprises are set to expire by the middle of this year. Here are some changes that you should take note of as they are slated to take effect this 2023.
Filipino Workers Set to Take a Higher Take-Home Pay This 2023
Good news for Filipino workers with meager incomes! You are all set to take a higher take-home pay in 2023 as the Tax Reform for Acceleration and Inclusion Law (TRAIN) slashes personal income taxes. Starting January 1, 2023, workers earning purely compensation income with a taxable learning of less than P8 million will have lower tax rates by 15% to 30% (depending on income). Those who earn below P250,000 are still exempted from paying personal income taxes.
But what does this news mean for the rest? There’s a significant decrease in tax dues for people who earn above P250,000 but no more than P8 million. The reduction in income tax rates means those earning pure compensation income will have lower withholding tax deductions coming from their monthly salary, resulting in higher take-home pay. Noteworthy, from 2018 to 2022, this bracket of workers was levied 20% to 32% taxes. Thus, those at the bottom of the income bracket can enjoy as much as a 5% decrease on their tax dues. For those at the higher end of the spectrum, the discounted rate is around 2%. To illustrate, those with a taxable income of P2 million will see a 2% decline in their personal income taxes.
However, those who earn more than P8 million will be levied a much higher tax rate of 35%. There is a 3% jump from the previous year’s 2%. By the same token, the TRAIN law has increased income taxes on non-essentials like tobacco, cars, and sugary beverages. Unfortunately, fuel is also included in the list, which is why many Filipinos are still complaining about their taxes. At the same time, those who have been exempted from paying taxes or are in the lower bracket still feel the impact of soaring prices on commodities due to TRAIN.
Changes in VAT Returns Quarterly Reporting
The TRAIN will also provide relief for VAT-registered persons this 2023 because they get a reprieve from filing too many tax returns in a year. This new year, if you are VAT registered, you are no longer required to file and pay BIR Form 2550-M (Monthly VAT Declaration). Instead, you do those every quarter using Form No 2250-Q (Quarterly VAT Return) or within 25 days following the close of each taxable quarter.
This amendment gives you a huge break because you’re only required to pay four VAT returns as opposed to the old 12 times annually. This means you can save a lot of time and energy. More importantly, you will now have sufficient time to gather supporting documents and make correct input VAT claims.
CREATE Ending with Reversion to Original Rates
In 2021, the CREATE Act was enforced to provide relief for all sectors because of the pandemic. Certain tax rates were cut as a part of the country’s recovery measures, but only for a specific period. By the middle of this year, the tax reliefs will cease and taxpayers like you now have to revert to the original rates. Important things to take note of are:
- 2% MCIT or Minimum Corporate Income Tax
Under the CREATE Act, the MCIT was lowered effective July 1, 2020 to June 30, 2023. After this date, corporations (except non-profits like schools and hospitals, along with non-resident foreign corporations) must pay the original 2% MCIT on their gross income.
- 10% Special Income Tax Rate for Non-Profits
The same bill also lowered the tax rates for non-profits and hospitals starting July 1, 2020 to June 30, 2023. Hence, on July 1, 2023, those who belong to this category will jump from paying 1% to the original 10%. And any activity that exceeds 50% of gross income for unrelated trade or activity shall be subject to regular income tax rates.
- 3% Percentage Tax for Non-Vat
In the same token, the 3% percentage tax was lowered to 1% from July 1, 2020 to June 30, 2023. After this period, Non-Vat registered taxpayers who opt for percentage will be levied 3% taxes on gross receipts.
WFH Amendments This 2023
Finally, all Information Technology-Business Process Management Entities (IT-BPM) were allowed to adopt a work-from-home arrangement not exceeding 30% to keep their tax incentives intact until the end of 2022. Now that it’s the new year, these entities must transfer their registration to the Board of Investment (BOI) from the economic zone or free port zone where they are located. They have to comply with the BOI registration if they wish to continue with a WFH arrangement.
Dealing with these constant changes in taxation is exhausting. That’s why you need an ally to help you navigate this confusing world of taxes. If you don’t have the right information, you could make mistakes that result in penalties. It’s better to seek professional help to ensure compliance. Call our team of CPAs and grab our free 30-minute consult so we can assist you.