TRAIN Law Philippines: Tax Rates, Brackets, and Deadlines

The TRAIN law in the Philippines, formally Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act, took effect on January 1, 2018 and reshaped how individuals and businesses are taxed. It zeroed out income tax on the first 250,000 PHP of annual taxable income, replaced the old graduated estate and donor’s tax schedules with a flat 6%, raised the VAT registration threshold to 3,000,000 PHP, and added or increased excise taxes on fuel, sweetened drinks, automobiles, tobacco, and cosmetic procedures. Several TRAIN provisions have since been refined by later laws including the CREATE Act and the Ease of Paying Taxes Act.¹

Personal Income Tax Rates

TRAIN’s permanent income tax schedule, in force since 2023 and applicable for 2026 filings, exempts annual taxable income up to 250,000 PHP. Above that, rates are graduated:²

Over 250,000 to 400,000 PHP: 15% of the excess over 250,000
Over 400,000 to 800,000 PHP: 22,500 plus 20% of the excess over 400,000
Over 800,000 to 2,000,000 PHP: 102,500 plus 25% of the excess over 800,000
Over 2,000,000 to 8,000,000 PHP: 402,500 plus 30% of the excess over 2,000,000
Over 8,000,000 PHP: 2,202,500 plus 35% of the excess over 8,000,000

The math is progressive slice by slice. Someone with 1,000,000 PHP in taxable income pays nothing on the first 250,000, then works up through the brackets: 102,500 plus 25% of the 200,000 above 800,000, for a total of 152,500 PHP.

The 8% Flat Tax Option

Self-employed individuals and professionals with annual gross sales or receipts of 3,000,000 PHP or less can choose a flat 8% tax in place of the graduated brackets. The 8% applies only to gross sales or receipts above 250,000 PHP, so the first 250,000 stays tax-free. Electing this option also replaces the 3% percentage tax that would otherwise apply under Section 116.²

You cannot elect the 8% rate if you are already VAT-registered, even after your sales dip below the threshold, unless you first cancel that registration. Corporations, one-person corporations, and partnerships taxed as corporations are also excluded. The election is made on your first quarterly income tax return for the year or at the start of business operations.

Whether the flat rate saves money depends on your expenses. High-margin work with modest deductions favors the 8% option for its simplicity. Businesses with heavy deductible costs may pay less under the graduated brackets using itemized or optional standard deductions.

Estate Tax

TRAIN replaced the old graduated estate tax that topped out at 20% with a single 6% rate on the net estate. The net estate is the gross estate minus allowable deductions:²

A 5,000,000 PHP standard deduction, automatic and requiring no documentation
A family home deduction of up to 10,000,000 PHP of current fair market value, with any excess added back into the taxable estate
Claims against the estate for legitimate debts, supported by notarized instruments
Transfers for public use to the Philippine government or its subdivisions
A declining percentage deduction for property inherited within the five years before the decedent’s death

Funeral and judicial expenses no longer count as separate deductions, but the 5,000,000 PHP standard deduction more than compensates for most families. The estate tax return is due within one year from the date of death. The BIR Commissioner may extend that by up to five years for judicial settlements or thirty days for extrajudicial ones.

Donor’s Tax

Gifts totaling more than 250,000 PHP in a calendar year are taxed at a flat 6% on the excess, regardless of whether the recipient is a relative or a stranger. The old 30% rate for donations to strangers is gone.²

The 250,000 PHP exemption is per donor per year, not per recipient. Give 150,000 PHP to one person and 200,000 PHP to another in the same year, and your total gifts are 350,000 PHP, so you owe 6% on the 100,000 PHP above the threshold. Donor’s tax returns are filed within thirty days of the donation.

Capital Gains Tax

Real property classified as a capital asset is taxed at a flat 6%, computed on whichever is highest among the selling price, the BIR zonal value, or the assessed value.²

Unlisted shares of stock are taxed at 15% of the net capital gain, replacing the earlier two-tier system of 5% on the first 100,000 PHP and 10% above. Shares traded on the Philippine Stock Exchange carry no capital gains tax but instead a stock transaction tax of 0.6% of the gross selling price, which applies whether the trade produced a gain or a loss.²

Value Added Tax and Percentage Tax

TRAIN raised the VAT registration threshold from 1,919,500 PHP to 3,000,000 PHP in annual gross sales or receipts. Below that, businesses stay out of VAT and instead pay percentage tax at 3% of quarterly gross sales. (The CREATE Act temporarily cut this to 1%, but the rate has since returned to 3%.)²

Some goods and services are VAT-exempt to soften the reach of higher excise taxes:

Prescription medicines for diabetes, high cholesterol, and hypertension (effective January 1, 2019)
Residential leases with monthly rent of 15,000 PHP or less
Socialized housing and residential lots and dwellings below certain value thresholds

Foreign tourists can claim VAT refunds on retail purchases of at least 3,000 PHP per single transaction from accredited stores under Republic Act No. 12079, provided the goods leave the Philippines as accompanied baggage within sixty days. Services like accommodation and transportation do not qualify.³

Excise Taxes That Affect Consumer Prices

Fuel excise taxes phased in from 2018 through 2020 and remain at these final rates:²

Unleaded premium gasoline: 10 PHP per liter
Diesel fuel oil: 6 PHP per liter
Liquefied petroleum gas: 3 PHP per kilogram

Sweetened beverages carry an excise for the first time under Philippine law. Drinks using caloric or non-caloric sweeteners (or a mix) are taxed at 6 PHP per liter; drinks using high-fructose corn syrup, alone or in combination, are taxed at 12 PHP per liter. Milk products, 100% natural fruit or vegetable juices, meal replacement beverages, medically indicated beverages, and coffee products (ground, instant, and pre-packaged powdered coffee) are excluded.⁴

Automobile excise runs on four brackets keyed to the net manufacturer’s or importer’s selling price:²

Up to 600,000 PHP: 4%
Over 600,000 to 1,000,000 PHP: 10%
Over 1,000,000 to 4,000,000 PHP: 20%
Over 4,000,000 PHP: 50%

Purely electric vehicles and pick-ups are exempt. Hybrids pay half the rate for their price bracket.⁵

Invasive cosmetic procedures, surgeries, and body enhancements done purely to improve appearance carry a 5% excise on gross receipts net of VAT. Procedures correcting congenital defects, trauma injuries, or disfiguring disease are exempt, as are treatments covered by PhilHealth.²

One boundary worth noting: TRAIN set the original tobacco excise schedule, but Republic Act No. 11346 and Republic Act No. 11467 accelerated the rate increases well beyond that trajectory. For current cigarette excise rates, look to those later laws rather than TRAIN.

Documentary Stamp Tax

TRAIN roughly doubled DST rates on many financial instruments. Bank checks went from 1.50 PHP to 3.00 PHP each; certificates of profits or interest, insurance policies, and debt instruments saw similar bumps.²

Deeds of sale or conveyance of real property carry DST of 1.5% on the higher of the selling price or fair market value. Lease agreements are taxed at 6 PHP for the first 2,000 PHP of annual rent (or fraction) plus 2 PHP for every additional 1,000 PHP or fraction, applied for each year of the lease term.⁶

Small on paper, these rates add up quickly. A 5,000,000 PHP property sale generates 75,000 PHP in DST on the deed alone, before capital gains tax and transfer tax. Budget for it.

Deadlines and Penalties

The annual income tax return for individuals (BIR Forms 1700, 1701, or 1701A) is due on April 15 following the close of the calendar year. Quarterly percentage tax returns are due within 25 days after the end of each quarter.⁷

Miss a deadline and two penalties stack. A 25% surcharge is added to the unpaid tax for failure to file or pay on time, and interest of 20% per year accrues on the outstanding balance from the original due date until you pay in full.⁸

Republic Act No. 11976, the Ease of Paying Taxes Act, softens these penalties for micro and small taxpayers (annual gross sales below 20,000,000 PHP). Those businesses pay a 10% surcharge instead of 25%, their interest rate is halved, and compromise penalties for common violations such as failing to issue receipts are cut by at least 50%.⁹

Electronic filing is mandatory for most taxpayers. If you use an accredited tax agent, file a no-payment return, or fall into other BIR-designated categories, you file through eBIRForms or the Electronic Filing and Payment System (eFPS). Paper returns submitted outside these channels are generally not accepted.¹⁰

If You Are a U.S. Citizen Living in the Philippines

Paying tax under TRAIN does not end your U.S. tax obligations. U.S. citizens and green card holders owe federal income tax on worldwide income no matter where they live. The Foreign Tax Credit on IRS Form 1116 offsets your U.S. tax by the Philippine income tax you paid and is usually more valuable than deducting foreign taxes.¹¹ If you use the Foreign Earned Income Exclusion instead, you cannot also claim a foreign tax credit on the excluded income.

Two reporting obligations sit on top of the tax itself. The FBAR is required if your foreign accounts exceed $10,000 in aggregate at any point during the year, filed through FinCEN’s BSA E-Filing System by April 15 with an automatic extension to October 15.¹² Form 8938 applies at higher thresholds. Living abroad and filing individually, you report when foreign financial assets exceed $200,000 on the last day of the year or $300,000 at any point during it. Joint filers abroad face $400,000 and $600,000 thresholds. Form 8938 is filed with your federal return.¹³

1
Department of Finance. The Tax Reform for Acceleration and Inclusion (TRAIN) Act
2
The LawPhil Project. Republic Act No. 10963 – Tax Reform for Acceleration and Inclusion Act
3
Bureau of Internal Revenue. Implementing Rules and Regulations of RA No. 12079 – Annex A of RMC No. 53-2025
4
Bureau of Internal Revenue. Revenue Regulations No. 20-2018
5
Bureau of Internal Revenue. Revenue Regulations No. 5-2018
6
Supreme Court E-Library. Revenue Regulations No. 4-2018
7
Bureau of Internal Revenue. Tax Reminder
8
Bureau of Internal Revenue. Penalties for Late Filing of Tax Returns
9
The LawPhil Project. Republic Act No. 11976 – Ease of Paying Taxes Act
10
Supreme Court E-Library. BIR Revenue Regulations No. 6-2014
11
Internal Revenue Service. Foreign Tax Credit
12
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
13
Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets?