Taxation changes for 2023

By Joshua Corcuera

As we welcome the year 2023, it seems that everything is back to normal after dealing with the pandemic for over two years. Likewise, changes in taxation will occur this year.

During the pandemic, changes in taxation laws occurred to alleviate the suffering of Filipinos brought by lockdowns and, as a result thereof, slow economic activity. For instance, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act or RA 11534, which was signed into law in March 2021, reduced corporate income tax rates to help businesses.

Specifically, the regular corporate income tax (RCIT) rate for domestic corporations, starting July 1, 2020, was reduced from 30% of taxable income to 25% of taxable income. Moreover, small businesses have to pay even smaller RCIT at 20% of taxable income. When we speak of small businesses, we pertain to those with (1) taxable income not exceeding PhP 5 million, and (2) total assets not exceeding PhP 100 million, not including the value of the land in which the office, plant, and equipment of the business is located. Also, only domestic corporations can qualify for the 20% RCIT rate. [Section 27 (A), National Internal Revenue Code]

Moreover, the minimum corporate income tax (MCIT) rate for domestic corporations has been reduced starting July 1, 2020 from 2% to 1% of gross income. Businesses are liable whichever is higher between RCIT and MCIT. Speaking of the latter, the tax rate shall revert back to 2% on July 1, 2023, however the tax rate for the former shall remain at 25% or 20% whichever the case may be. [Section 27 (E), National Internal Revenue Code]

Further, the tax rate for proprietary educational institutions and non-profit hospitals has been reduced from 10% to 1% of net income starting July 1, 2020, provided that their gross income from unrelated activities does not exceed 50% of total gross income. However, this will also change and revert back to 10% starting July 1, 2023. [Section 27 (B), National Internal Revenue Code]

Moving to individuals, the tax table will change as well due to the provisions of the Tax Reform for Acceleration and Inclusion (TRAIN) Law. Below is the tax table effective January 1, 2023.

Net taxable income		Tax rate
Over	But not over
	250,000	0%
250,000	400,000	15% of excess over 250,000
400,000	800,000	22,500 + 20% of excess over 400,000
800,000	2,000,000	102,500 + 25% of excess over 800,000
2,000,000	8,000,000	402,500 + 30% of excess over 2,000,000
8,000,000		2,202,500 + 35% of excess over 8,000,000

 

From the table above, it can be seen that those earning PhP 250,000 or less in a year are exempt from income tax. Meanwhile, the variable tax rate now ranges from 15% to 35% while the fixed component of the tax rate has decreased across all brackets.

For individual taxpayers, the year may be promising and positive, though it may be problematic for the-powers-that-be as revenues are much needed amid growing debt and ambitious infrastructure projects.

As society goes back to normal and moves on from the difficulties brought by the pandemic, changes in taxation are expected within the year.