Train Law and Its Effect on Real Estate

The Tax Reform for Acceleration and Inclusion Law (TRAIN) or Republic Act No. 10963 under the Comprehensive Tax Reform Program (CTRP) intends to improve several insufficiencies in the Philippine tax system and make it more manageable, fair, and effective.

It was signed into law by President Rodrigo Roa Duterte on December 19, 2017. The primary feature of TRAIN Law is to lower personal income tax and higher consumption tax.

The TRAIN Law is intended to generate revenue to achieve the vision of President Rodrigo Roa Duterte vision – to eradicate poverty, to create institutions that will offer equal opportunities to all, and to achieve higher income country status.

70 percent of the revenue generated to TRAIN will go to infrastructure and the Build, Build, Build program, while the remainder will go to social services programs.

SALIENT PROVISIONS

Personal Income Tax

Individual taxpayers with taxable income not exceeding PHP 250,000 annually are exempted from income tax. This will reduce income taxes to almost 99 percent of income taxpayers which is a relief after 20 years of non-adjustment.

As of January 2021, the Personal Income Tax (PIT) adjustment are:

Small and micro Self-employed and Professionals or SEPs

Small and micro Self-employed and Professionals or SEPshave an option to pay a simpler, flat tax of eight percent on gross sales instead of the income and percentage tax.

With TRAIN small and micro SEPs can also file and pay four times a year instead, eight times a year.

Unconditional Cash Transfers

Unconditional Cash Transfers were given to households and individuals affected by TRAIN law. Ten million indigent households and individuals who received cash transfers of PHP 200 per month in 2018 got PHP 300 per month in 2019 and 2020.

Estate Tax

TRAIN reduces and restructures the estate tax to a single tax rate of six percent based on the net value of the estate with a standard deduction of PHP 5 million and the exemption for the first PHP 10 million for the family home.

Donor’s Tax

Before TRAIN law, donor’s tax ranges from two to 15 percent for related donors and donee and 30 percent for strangers.TRAIN simplified the payment of donor’s taxes to a single tax rate of six percent of net donations. This rate is imposed for gifts above P250,000 yearly regardless of the relationship to the donor.

Higher Consumption Tax

Higher excise tax on tobacco products, petroleum products, automobiles, tobacco, and additional excise tax on sweetened beverages and non-essential, invasive cosmetic procedures were introduced.

To make the VAT system fair, 54 laws with non-essential VAT exemptions were abolished. This does not affect average Filipinos since exemptions were just given to a certain group of Filipino.

Exception in tax code was given to cooperatives (except electric cooperatives), VAT on medicines for diabetes, high cholesterol, and hypertension, and condominium and association dues. Aside from this, special laws were granted to PAGCOR and casino, domestic coal, renewable energy, credit surety, countryside barangay business enterprise, mini-hydro, and tourism.

ADJUSTED EXCISE TAXES

There was a staggering increase of oil excise tax by up to PHP 6 per liter over three years, with lower rates for essentials such as diesel, kerosene, and LPG to protect households and commuters. Drivers and operators who were affected by this can apply for social assistance program under Unconditional Cash Transfers or UTC.

Aside from oil, automobiles also have an adjustment on their tax rate. The automobile tax rate will be based on the net manufacturing or importer’s price. Four percent adjustment will be made for automobiles up to PHP 600,000 while 10 percent for automobiles above PHP 600,000 to 1 million, 20 percent for above PHP 1 million to 4 million, and 50 percent for above PHP 4 million. While pick-ups and purely electric vehicles are exempted. Hybrid cars are taxed at 50 percent of the equivalent automobile.

Excise tax in sweetened beverage was adjusted to PHP 6 per liter for drinks with caloric or non-caloric sweetener, and PHP 12 per liter for drinks were adjusted to containing high-fructose corn syrup or combination. 3-in-1 coffee and milk are exempted.

OTHER ADJUSTED TAXES UNDER TRAIN LAW ARE:

• Mining excise tax – double the rates from two percent to four percent.
• Tobacco excise tax – increase the rate from PHP 31.2 per pack in 2018 to P 32.5 between January to June 2018, PHP 35 per pack from July 2018 to December 2019, PHP 37.5 per pack in 2020 and 2021, and PHP 40 per pack in 2022 and 2023, followed by annual indexation of four percent.
• Cosmetic excise tax – a new tax at five percent of gross receipts.
• Documentary stamp tax – 50 to 100 percent increase except for property, savings, and non-life insurance.
• Foreign currency deposit unit (FCDU) – increased from 7.5 percent to 15 percent final tax on interest income.
• Capital gains of non-traded stock – increased from five to ten percent to 15 percent final tax on net gains.
• Stock transaction tax – increased from 0.5 percent to 0.6 percent of the transaction value.

WHAT WILL TRAIN FUND?

MEDICINES EXEMPTED WITH VAT

Effective January 1, 2019, people can start availing themselves of VAT-exempt medicine provided by Food and Drug Administration (FDA) for diabetes, high cholesterol, and hypertension.

These are the medicines FDA provided for tax exemption:

• DIABETES- Insulins and Analogues, Blood Glucose-Lowering Drugs, excluding Insulins, Sulfonylureas, Combinations of oral blood glucose-lowering drugs, Alpha-glucosidase inhibitors, Thiazolidinediones, Dipeptidyl peptidase 4 inhibitors, and other blood-glucose-lowering drugs, excluding insulins such Repaglinide and Nateglinide.

• HYPERTENSION- Antihypertensive, diuretics, beta-blocking agents, calcium channel blocker, and agents acting on the renin-angiotensin system.

• HIGH CHOLESTEROL- HMG CoA Reductase Inhibitors, fibrates, HMG CoA Reductase Inhibitors in combination with another lipid-modifying agent, HMG CoA Reductase Inhibitors with other combinations.

For full list of medicine: https://dpw.doh.gov.ph/VatExempted

EDUCATION

TRAIN intends to produce a more conducive learning environment with the right teacher-to-student ratio and classroom-to-student ratio. With Train funds, it aims to attain 100 percent enrollment and completion rates. Build 113,554 additional classrooms and hire 181,980 additional teachers in 2017 and 2020.

HEALTHCARE

With train funds, the government can purchase better quality healthcare services. TRAIN intends to:

• Upgrade 704 local hospitals and establish 25 local hospitals.
• Achieve Philhealth coverage of a hundred percent with a higher quality of services.
• Upgrade and/or relocate 263 rural and urban health units to disaster-resilient facilities
• Build 15,988 new barangay health stations
• Build 2,424 new rural health units and urban health centers
• Hire an additional 2,424 doctors, 29,466 nurses, 1,114 dentists, 3,288 pharmacists, 2,682 medical technologists, 911 public health associates, and 2,497 UHC implementers between 2017 and 2022.

INFRASTRUCTURE

The TRAIN fund will also be used to fund the Build, Build, Build program of the Department of Public Works and Highways (DPWH). Their major projects include:

• Bonifacio Global City-Ortigas Center Link Road
• UP-Miriam-Ateneo Viaduct along C-5/Katipunan
• Camarines Sur/Albay Diversion Road
• Pulilan-Baliuag Diversion Road
• Maasin City Coastal Bypass Road cum Sea Wall
• Tacloban City By-Pass Road
• Panay East-West Road
• Daang Maharlika (Alternate Route) (NRJ-Mayor Democrito D. Plaza II Avenue-Las Nieves-Sibagat), (Mandamo-Las Nieves Section)
• Cagayan De Oro Diversion Road, Cagayan De Oro City
• Valencia City-Pangantucan Diversion Road
• Concretize 3,741 km of national gravel roads, 10,473 km of national asphalt roads, 30,209 km of local gravel roads
• Irrigate 1.3 million hectares of land
• Provide 7,834 isolated barangays and 23,293 isolated sitios with road access

MITIGATING FROM TRAIN MEASURES

To help Filipinos adapt to the changes made by TRAIN LAW, the government implemented measures such as UCT or Unconditional Cash Transfers. UTC is a cash grant or subsidy that will be used to ease the impact of TRAIN. This impact may be due to fuel excise or households who may not benefit from the tax exemption provided by TRAIN but are affected by a price increase. Poorest 10 million households and/or individual is affected by this.

Currently, the annual UCT grant is P3,600 per indigent family. In March 2020, the Land Bank of the Philippines released 40.61 billion unconditional cash transfers for household beneficiaries of the Duterte administration’s social mitigation program under TRAIN Law.

PANTAWID PASADA PROGRAM (PPP)

The PPP or Pantawid Pasada Program is a fuel subsidy given to qualified public utility jeepneys (PUJs) drivers and operators to compensate for the impact of higher excise taxes on fuel products and to partially compensate for the decrease in income due to fare discounts.

As of May 28, 2019, around PHP 518 million worth of fuel cards were distributed to 103,567 beneficiaries. In February 2020, around P2.27 billion was released to 110,434 beneficiaries nationwide through the Land Bank of the Philippines.

TRAIN AND REAL ESTATE

Aside from income tax and excise tax adjustment, real estate is also affected by TRAIN LAW.

One feature of TRAIN LAW is to address inequality by providing a fairer national tax system. With the adjustments made from income tax to real estate tax Filipinos are given the chance to afford a safe and affordable house and lot for sale in the Philippines.

TRAIN LAW affects the real estate industry on the following:

1. DONORS TAX

Before TRAIN, Donors Tax ranges from two to 15 percent for related donors and donee and 30 percent for strangers. With TRAIN no matter what the relationship of the donor to the donee the tax percentage is 6, net donations. This rate is imposed for gifts above P250,000 yearly.

With these changes, the donor’s tax for inheriting properties from family and relatives would be bearable to the inheritor.

2. ESTATE TAX

A significant change in TRAIN LAW for real estate is the decrease from 20 percent to six percent of the property if the amount is above P5 million.

Groups exempted from estate tax also includes:

• Estate with a net value of PHP 5 million and below.
• Homes that with PHP 10 million or less value.

With these changes, more Filipinos can get the chance to buy houses and lots for sale from real estate developers that provide affordable houses and lots in a secure and safe community.

3. LOWER INCOME TAX

Individual taxpayers with taxable income not exceeding PHP 250,000 annually are exempted from income tax. On the other hand, Small and micro Self-employed and Professionals or SEPs tax also went to eight percent on gross sales instead of the income and percentage tax.

With these changes, Filipino’s buying power to purchase houses and lots for sale increases. This means more Filipinos can have a home that they can call their own.

4. ESTATE TAX SETTLEMENT

A. Certifications are now required for estate tax returns exceeding a gross value of PHP 5 million. CPA or Certified Public Accountant certifications are already required for estate tax returns PHP 2 million and above in the late system.

B. TRAIN Law amended the allowed period for filing of estate-tax returns from 6 months from the decedent’s death to 1 year.

C. The TRAIN implies that full estate-tax liability must be settled within two years – this limit was not included in the previous tax system.

5.Real Estate Transactions and VAT

TRAIN lowered the VAT exemption of residential dwellings such as houses and condominiums from Php 3,199,200 to Php 2,500,000. This means houses and lots that were previously tax-exempt (Php2,500,001 to Php3,199,200) are now subject to VAT.

Effective January 1, 2021, the exemption shall be lowered again from Php2,500,000 to Php2,000,000, and every three years thereafter.

TRAIN also lowered the VAT exemption of residential lots to Php1,500,000. This means residential lots that are worth Php1,500,001 to Php1,919,500 which are previously tax-exempted are now subject to VAT.

TRAIN Law reduced not just income tax and increasing the excise charged on certain goods and services, it also modified real estate tax and transactions.

WHEN IS THE RIGHT TIME TO INVEST IN REAL ESTATE?

The best time to invest in real estate is NOW. Amidst the pandemic that we have, we can make it an opportunity to look for houses and lots for sale that will fit our needs and budget.

Aside from that, with Train Law, Individual taxpayers with taxable income not exceeding Php250,000 annually are exempted from income tax, which allows purchasing houses and lots possible to Filipinos.

Tax exemption for real estate also lowers every three years. Effective this year, real estate tax exemption is at Php2,000,000 after three years it will go down to Php1,500,000. Having a real estate tax exemption is a lot of savings since you don’t need to pay for the value-added tax. All you have to pay is the price of the property.

If you are wondering where to look for houses and lots for sale that amounts from Php2,000,0000 and below, you can check All Properties listing.

All Property PH is a property listing platform of ready homes, and lots for sale under one of the country’s biggest real estate companies, Vista Land and Landscapes.

All Properties listing includes Vista Land’s subsidiaries, Britanny, Crown Asia, Camella, and Lessandra located in Ilocos Sur, Pampanga, Pangasinan, Antipolo, Cavite, Iloilo, and Cebu.

With All Properties, you can get your dream house in a well-developed and secured  community.