In 2018, the Philippine tax reform bill known as the Tax Reform for Acceleration and Inclusion or TRAIN law was implemented. One of the main beneficiaries of the law are workers who earn an annual income of P250,000. Under the law, they will be exempted from paying income tax.

Small businesses are also beneficiaries of the new law. Under the TRAIN law, the tax threshold for micro, small and medium enterprises (MSMEs) was raised from P1.5 million to P3 million. MSMEs with gross sales below the threshold can choose to pay a flat rate of just 8% instead of paying the regular income tax.

For example, a sari-sari store that makes P500,000 in gross sales a year would have to pay P52,500 in taxes under the old rules. With the new rules, the store’s tax bill will go down to P25,000 using the lower income tax or P20,000 using the flat tax.

The simplified tax procedures is expected to benefit MSMEs that do not have the time or money to hire accountants to go over their books. The TRAIN law cuts down the income tax returns from 12 pages to four. It also extended the deadline for taxpayers to pay the second installment of their tax liabilities from July 15 to October 15.

The other effects of the new TRAIN law are:

  • Hike in oil prices. While there will be an increase in the take home pay for monthly earners of P20,000, people will still experience additional spending. An increase in oil prices also means an increase transportation of goods throughout the country.

 

  • Increase in product prices. The Department of Trade and Industry assures that there will be minimal effect on prime commodities such as canned goods, rice, milk and bread. However, there will still be increases in the price of cars, sugar sweetened products like soft drinks and tobacco.

 

  • Decrease in certain product stocks. Buyers and small business owners who sell sugar-sweetened products like softdrinks and tobacco will think twice about buying such items on a regular basis because of the price increase.

 

Small business owners can also look for other ways to decrease the amount of taxes that they need to pay.

  • Hire independent contractors instead of hiring regular employees. Depending on your arrangement with the independent contractor, you may only have to withhold their taxes. You do not need to shell out any additional payment for their Social Security or Pag Ibig payments.

 

  • Maximize deductions. There are two ways of maximizing. One is by keeping excellent records and receipts and second is to rely on a tax professional for guidance. Some key categories to consider for tax write offs are start-up costs, office expenses, furniture, education, travel, insurance, memberships and conferences.

 

  • Pay your bills by year’s end. If you business related bills (rent, phone, electricity, etc.) are due in early January but cover expenses incurred in the previous year, pull out the checkbook before the start of the new year. All these expenses can help reduce your tax burden in April.

 

  • Purchase what you need now. Taxwise, it is smarter to invest in your business now rather than wait for the New Year. Poor equipment in particular can cause headaches for small businesses. Help yourself by fixing or replacing worn out products next week and get some of that investment in deductions that could return your money next year.

 

  • Give to charity. Before making a donation, check to ensure that the charity is qualified and that donations are tax-deductible.

 

The new TRAIN law has both negative and positive effects that will affect consumers and small business owners. The ultimate objective in simplifying the rules is to encourage compliance for small businesses and to challenge them to upgrade their services and offers.

 

Thinking to start a new business? 

DJKA Business Services Inc. is here to help you with your business registration, tax compliance, accounting and bookkeeping needs.

You can call us at (02) 618-8003 or schedule an online consultation with our finance and admin manager at your most convenient time and date here.

 

About the Author:

Anne Ruth Dela Cruz is a seasoned writer who has interests in health, wellness and business start ups. She has also dabbled in corporate communications and public relations. A mother of four, Anne also loves videoke sessions and reading a good book. My posts appear on: Negosentro, World Executives Digest, Executive Chronicles, Get Health Access, and Trade & Travel Journal.