The TRAIN Law in the Philippines, formally Republic Act No. 10963, cut personal income tax for most earners and raised excise taxes on fuel, sweetened drinks, tobacco, cars, and cosmetic surgery to make up the difference. If you earn P250,000 or less per year, you owe no income tax at all. Above that, graduated rates apply, and a more generous schedule took effect on January 1, 2023 and still governs what you owe today. The law also flattened estate and donor taxes to 6%, lifted the VAT registration threshold to P3,000,000, and tightened the penalty structure for anyone who files late or pays short.
Income Tax Rates Under TRAIN
The current brackets, in force since January 1, 2023, are the ones that matter for your next filing:
- P250,000 or below: 0%
- Over P250,000 to P400,000: 15% of the excess over P250,000
- Over P400,000 to P800,000: P22,500 plus 20% of the excess over P400,000
- Over P800,000 to P2,000,000: P102,500 plus 25% of the excess over P800,000
- Over P2,000,000 to P8,000,000: P402,500 plus 30% of the excess over P2,000,000
- Over P8,000,000: P2,202,500 plus 35% of the excess over P8,000,000
These rates apply to Filipino citizens, resident aliens, and certain non-resident individuals earning taxable income in the Philippines.1Supreme Court E-Library. Republic Act No. 10963 – Tax Reform for Acceleration and Inclusion The zero-tax floor at P250,000 works out to roughly P20,833 per month, which exempts minimum-wage and entry-level workers who used to owe tax on much lower earnings.
The 8% Flat Option for Self-Employed and Professionals
If you earn income from a business or the practice of a profession, you can skip the graduated brackets and pay a flat 8% on gross sales or receipts (plus other non-operating income) above P250,000 for the year. The option is only open if your annual gross sales or receipts stay at or below the P3,000,000 VAT threshold.2Bureau of Internal Revenue. Revenue Memorandum Order No. 23-2018
Choosing 8% replaces both the graduated income tax and the 3% percentage tax, so there is less paperwork. When deductible expenses are low compared to revenue, the flat rate usually comes out cheaper. When expenses are high, the graduated rates with itemized or optional standard deductions often produce a smaller bill. You make the election on your first-quarter return or at initial registration, and it generally stays in effect for the rest of the year.
Mixed-income earners, meaning people with both a salary and business income, can elect 8% on the business side while their compensation stays under the graduated brackets.2Bureau of Internal Revenue. Revenue Memorandum Order No. 23-2018
Tax-Free Pay: 13th-Month and De Minimis Benefits
The TRAIN Law kept the combined P90,000 exemption on 13th-month pay and other benefits. Amounts your employer pays in that category above P90,000 fold into your taxable income. This ceiling has not moved since the law took effect.
Separately, small perks called de minimis benefits are fully tax-free so long as each stays within its individual cap. Effective January 6, 2026, Revenue Regulations No. 29-2025 updated the ceilings:
- Rice subsidy: up to P2,500 per month
- Uniform and clothing allowance: up to P8,000 per year
- Medical cash allowance for dependents: up to P2,000 per semester
- Actual medical assistance: up to P12,000 per year
- Laundry allowance: up to P400 per month
- Employee achievement awards: up to P12,000 per year
- Christmas and anniversary gifts: up to P6,000 per year
- CBA and productivity incentives: up to P12,000 per year
- Monetized unused vacation leave (private sector): up to 12 days per year
Government employees get full exemption on monetized vacation and sick leave with no cap. If any de minimis benefit goes over its ceiling, only the excess drops into the P90,000 “other benefits” pool, and you pay tax only on the portion that pushes past the combined P90,000.
Excise Taxes That Replaced the Lost Revenue
To offset the income tax cut, TRAIN added or raised excises on several goods. Most of these are baked into the retail price, so you pay them without filing anything, but they explain why prices moved after 2018.
Fuel
Petroleum excises phased in over three years, ending in 2020. Diesel, previously untaxed, reached P6.00 per liter. Gasoline settled at P10.00 per liter. Liquefied petroleum gas reached P3.00 per kilogram.3Lawphil. Republic Act No. 10963 – Tax Reform for Acceleration and Inclusion Later legislation has not adjusted these rates.
Sugar-Sweetened Beverages
Drinks made with caloric or non-caloric sweeteners carry a P6.00-per-liter excise. If the product uses high fructose corn syrup, alone or blended, the rate doubles to P12.00 per liter. Exempt categories include all milk products, 100% natural fruit and vegetable juices, yogurt drinks, meal replacement beverages, medically indicated drinks, and coffee products including ground, instant, and pre-packaged powdered coffee.4Bureau of Customs. Customs Memorandum Order 024-2018 – Revisions on the Guidelines on Excise Tax of Sweetened Beverages
Tobacco and Vape
Republic Act No. 11346, signed in 2019, pushed cigarette excises to P60.00 per pack by January 1, 2023 with mandatory 5% annual increases every year after.5Supreme Court E-Library. Republic Act No. 11346 For 2026 the Bureau of Customs pegs the cigarette rate at P69.46 per pack of 20 sticks.6Bureau of Customs. 2026 Excise Tax Rates Memorandum Heated tobacco products are taxed at roughly P37.63 per pack of 20 units for 2026. Nicotine salt vape liquid runs about P69.46 per 10 milliliters and conventional freebase liquid about P60.20 per milliliter.
Automobiles
Car excise is calculated on the manufacturer’s or importer’s selling price before excise and VAT:
- Up to P600,000: 4%
- Over P600,000 to P1,000,000: 10%
- Over P1,000,000 to P4,000,000: 20%
- Over P4,000,000: 50%
The jump from 20% to 50% above P4 million makes ultra-luxury vehicles significantly more expensive.7Bureau of Internal Revenue. Revenue Regulations No. 5-2018 Pickup trucks with a gross vehicle weight over 4 tons are taxed at lower rates, and purely electric vehicles have separate treatment under later legislation.
Cosmetic Procedures
Invasive cosmetic procedures, surgeries, and body enhancements performed purely for aesthetic reasons carry a 5% excise on the service provider’s gross receipts, net of excise and VAT. Procedures that treat illness, correct congenital defects, or repair injury are exempt. Non-invasive treatments such as Botox, dermal fillers, facials, chemical peels, and laser treatments fall outside the tax because they are not considered invasive.
Estate and Donor Tax: A Flat 6%
The old graduated estate tax, which ran up to 20%, is gone. TRAIN imposes a flat 6% on the net estate, meaning total assets of the deceased minus allowable deductions. Deductions became more generous too: the standard deduction rose from P1,000,000 to P5,000,000, and the family home deduction ceiling climbed to P10,000,000.8Asian Development Bank. Republic Act No. 10963 – Tax Reform for Acceleration and Inclusion The old requirement to submit receipts for funeral and medical expenses is gone; the standard deduction is a flat amount with no substantiation needed.
Donor’s tax got the same treatment. Gifts above P250,000 in a calendar year are taxed at a flat 6%, whether the recipient is a relative or a stranger. Gifts of P250,000 or less are tax-free.9Bureau of Internal Revenue. Revenue Regulations No. 13-2018
VAT Threshold and Key Exemptions
The mandatory VAT registration threshold rose from P1,919,500 to P3,000,000 in annual gross sales or receipts.8Asian Development Bank. Republic Act No. 10963 – Tax Reform for Acceleration and Inclusion Stay under it and you register as a non-VAT taxpayer, paying the simpler 3% percentage tax (or electing the 8% flat income tax, which replaces both). Cross P3,000,000 and VAT registration becomes mandatory, with a 12% output tax on your sales.
Prescription drugs for diabetes, high cholesterol, and hypertension are VAT-exempt at the point of sale.8Asian Development Bank. Republic Act No. 10963 – Tax Reform for Acceleration and Inclusion Raw agricultural and marine food products in their original state remain exempt, as do sales to senior citizens and persons with disabilities under their respective discount laws.
Filing Deadlines and the Right Form
Individuals file annual income tax returns on a calendar-year basis, with the deadline on April 15 of the following year. If your only income is compensation and your employer handles substituted filing, your tax is fully settled through withholding and you generally do not file a separate return.
Everyone else needs the correct form. Self-employed individuals and professionals earning income purely from business or their profession use BIR Form 1701A. Mixed-income earners, such as an employee with freelance income on the side, use the more detailed BIR Form 1701. Quarterly income tax returns on BIR Form 1701Q are due within 45 days after the close of each quarter for self-employed and mixed-income earners, and these are where you lock in your 8% flat rate or graduated rate election for the year.
Penalties for Late Filing or Non-Payment
Missing a deadline or underpaying triggers two automatic penalties. A 25% surcharge is added on top of the unpaid tax. It applies whether you filed late, filed with the wrong revenue district office, or simply did not pay by the due date.10Bureau of Internal Revenue. Penalties
Interest also accrues at 20% per year on the unpaid balance, running from the prescribed payment date until you pay in full.10Bureau of Internal Revenue. Penalties On a P100,000 liability paid six months late, you would owe the original P100,000 plus P25,000 in surcharge plus roughly P10,000 in interest, a 35% increase for half a year of delay. Willful failure to file or a fraudulent return can push the surcharge to 50% and open the door to criminal prosecution.