Filipinos earning purely compensation income are set to have more spending power in the coming months, thanks to the new tax rates for 2023 implemented by the Bureau of Internal Revenue (BIR). Enforced under the TRAIN or the Tax Reform for Acceleration and Inclusion Law, individuals with taxable earnings of less than P8 million yearly will have a 15% to 30% tax rate starting January 1, 2023, depending on the tax bracket they belong to.
Meanwhile, Filipinos earning below P250,000 are still exempt from paying personal income taxes, while those whose annual taxable income exceeds P8 million will still have a tax rate of 35%.
- 1 How will the new tax rates affect take-home pay?
- 2 What other changes in the Philippine tax system can we expect?
- 2.1 Which lowered tax rates are reverting to their original rate?
- 2.2 Are all businesses and employers required to comply with the tax updates for 2023?
- 2.3 BIR new tax rates for 2023 FAQs
- 2.4 What is the TRAIN Law?
- 2.5 Will the tax cuts hamper economic growth in the Philippines?
- 2.6 How can a tax service provider help me in tax compliance?
How will the new tax rates affect take-home pay?
With the new rates, Filipinos will have lower income deductions on their next paycheck, which increases their take-home pay. The additional money in their monthly salary will then increase their spending power and cushion them from the increase in premiums of the mandated Social Security Services (SSS) contributions, implemented this year.
Below is the revised withholding tax table that employers may refer to for the computation of withholding taxes on the compensation of their employees.
What other changes in the Philippine tax system can we expect?
Aside from the increase, Value Added Tax-registered taxpayers are no longer required to pay their monthly dues and file the monthly VAT Return or the BIR Form 2550M. Instead, VAT-registered companies will only have to file and pay their VAT returns quarterly. This means they only have to submit four BIR Form 2550Q or the Quarterly VAT Return. No changes on the due dates of the filing have been stated so taxpayers need to submit their returns within 25 days following the close of each taxable quarter.
If you are a VAT-registered taxpayer, quarterly filing and payment of value-added tax returns affect cash flow management, especially if you have a small business or a medium enterprise. While it gives you the opportunity to use the cash on your business during the first two months of each quarter, you have to be mindful of a potentially significant amount of obligation, which was being paid on a staggered monthly basis before.
If you are worried about this issue, you should consider having a trusted tax filing and compliance services provider sort things out for you tax-wise. You can avail of tax consultation services from a trusted and expert provider so you will have proper guidance on all the relevant tax documentation and ensure compliance with the BIR.
Which lowered tax rates are reverting to their original rate?
Meanwhile, taxes lowered to certain taxpayers under the Corporate Recovery and Tax Incentives for Enterprise (CREATE) Law will return to their original rates this year. These taxes were lowered to help taxpayers and businesses recover from the adverse effects of COVID-19.
Below are the updates for taxes lowered under the CREATE Law for 2023:
- Percentage Tax– Starting July 1, 2023, percentage tax returns to its original rate of 3% from the previously lowered 1%.
- Minimum Corporate Income Tax (MCIT) – Starting July 1, 2023, MCIT will be back to its original rate of 2% from its reduced rate of 1%.
- Special Income tax for Non-Profit Proprietary Education Institution and Hospitals- Starting July 1, 2023, tax rates for Non-Profit Proprietary Education Institution and Hospitals will return to their original rate of 10%. It was reduced to 1% effective July 1, 2022, to June 30, 2023, with the qualification that their gross income from unrelated activities does not exceed half of their total gross income.
Are all businesses and employers required to comply with the tax updates for 2023?
Yes, all businesses, employers, and individuals are required to comply with the tax updates implemented by the BIR this year. Making sure that your corporation and employees’ taxes are up to date will help you avoid legal impediments in the future. By making sure that you pay the right amount of tax, you can help your employees have more spending power for goods and services. Moreover, your business will help the rising economy of the Philippines to thrive.
BIR new tax rates for 2023 FAQs
What is the TRAIN Law?
The Tax Reform for Acceleration and Inclusion Law (TRAIN) or the Republic Act No. 10963 is the initial package of the Comprehensive Tax Reform Program of 2007. TRAIN Law introduced changes in personal income tax, estate tax, donor’s tax, VAT, documentary stamp tax (DST), and the excise tax of tobacco, petroleum, and mineral products as well as automobiles, sweetened beverages, and cosmetic procedures. One of the prominent features of the law is the income tax exemption of individual taxpayers with taxable income not exceeding P250,000.
Will the tax cuts hamper economic growth in the Philippines?
Not necessarily. While the economic growth may slow down, it will not be put to a stop.
According to economists and tax experts, the disposable income created by the reduction of personal income taxes can lead to higher consumption taxes, which are aimed to boost government revenue. Moreover, it may help in easing the impact of inflation.
How can a tax service provider help me in tax compliance?
Tax service providers can help you in filing your taxes and build your tax compliance processes, controls, and systems. For example, as a tax service and compliance provider, CloudCfo gives timely notifications on the documents and information required to file your taxes on time. We also do ongoing monitoring and recording of tax payments in your company ledgers and books of accounts. Contact us today to learn more.