Learn: Income Taxation RA 11534, 11494, 10963

Overview

Welcome, future CPAs and tax professionals! In this session, we’ll break down the most testable concepts from three pivotal Philippine tax laws: the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act (RA 11534), the Bayanihan to Recover as One Act (RA 11494), and the Tax Reform for Acceleration and Inclusion (TRAIN) Law (RA 10963). By the end, you’ll have a clear grasp of how these laws affect income tax, VAT, excise taxes, tax incentives, pandemic-related fiscal measures, and more. Our focus is on decoding the logic behind provisions, identifying the most relevant calculation steps, and helping you avoid common pitfalls.

Concept-by-Concept Deep Dive

Pandemic-Era Tax Relief and Stimulus under RA 11494 (Bayanihan II)

What it is:
RA 11494, or Bayanihan II, is a fiscal response law aimed at mitigating the economic impact of COVID-19. It provides targeted relief to individuals, businesses, and sectors heavily affected by the pandemic.

Key Sectors Targeted:
The law prioritizes sectors like tourism, transportation, MSMEs (micro, small, and medium enterprises), health, and education. These are considered most vulnerable to the disruptions caused by lockdowns and community quarantines.

Grace Periods and Loan Relief:

• Provisions include a mandatory one-time grace period for loan payments due within the quarantine period—crucially, without imposing additional interest, penalties, or fees.
• The law also allows for loan term extensions under certain conditions, ensuring borrowers are not further burdened.

Government Powers & Digital Infrastructure:

• The President is temporarily authorized to realign funds without prior congressional approval, but this power is time-bound.
• Ensuring continuity of government operations, especially digital infrastructure, is a key priority to maintain essential public services during lockdowns.

Common Misconceptions:

• It's easy to overlook the specificity of sectors or miss the time limits attached to certain powers and benefits. Always check for explicit coverage and effective dates.

Income Taxation and Relief under RA 10963 (TRAIN Law)

What it is:
The TRAIN Law overhauled the Philippine income tax system, lowering personal income taxes, introducing an 8% flat tax for select self-employed individuals, updating VAT exemptions, and revising excise taxes.

Components and Subtopics:

Personal and Corporate Income Tax

• Personal Exemptions: The law standardized personal exemptions and adjusted benefit thresholds.
• 8% Flat Tax: Qualified self-employed and professionals with gross income below a specified threshold can opt for an 8% flat income tax in lieu of graduated rates and percentage tax.

Estate Tax Amnesty

• Qualified beneficiaries are defined for the purpose of availing reduced rates and penalties under the estate tax amnesty provision.

VAT and Excise Tax Changes

• VAT Exemptions: Certain goods and services are explicitly exempted—know which ones.
• Excise Taxes: Petroleum products, sweetened beverages, and others are subject to revised excise tax structures. Each tax has unique characteristics, such as who bears the tax and how it is computed.

Step-by-Step Approach:

1. Always determine taxpayer classification and eligibility for special rates or exemptions.
2. For VAT and excise, identify the nature of the product/service and the transaction.
3. For benefits and exemptions, double-check updated thresholds and definitions.

Misconceptions:
Students often confuse the conditions for the 8% tax option, overlook the difference between VAT-exempt and VAT-zero-rated, or forget the specifics of de minimis benefit values.

Corporate Tax Reform and Incentives under RA 11534 (CREATE Act)

What it is:
CREATE is a landmark law that reduces corporate income tax rates and rationalizes fiscal incentives to promote recovery and long-term growth.

Key Components:

Reduced Corporate Income Tax Rates

• The law introduced reduced rates for domestic and resident foreign corporations, with special rates for MSMEs (micro, small, and medium enterprises) based on income and asset thresholds.

Minimum Corporate Income Tax (MCIT)

• The MCIT rate was temporarily reduced as a relief measure. Understand the conditions and time frame for this reduction.