What you Need to Know about the Income Tax Adjustments this 2023

With the start of a fresh new year and the opportunity to set new goals, a 2023 personal income tax rates adjustment will also be made that may alter your lifestyle. According to the Bureau of Internal Revenue, also known as BIR, individuals earning non-profession-related salary and sole proprietors earning salaries are likely to have higher take-home pay this year. Nevertheless, let us explore the good and bad effects that will be taken this year into this segment of your income tax calculation. 

Without further ado, here's everything you need to know about the different types of taxes in the Philippines, the 2023 income tax changes, and how it could affect real estate in the Philippines.

TRAIN Law

In order to make the tax system more transparent, equitable, and effective for taxpayers, TRAIN Law, or the Tax Reform for Acceleration, aims to address a number of flaws of individual income tax.

Individual taxpayers' taxable income are anticipated to decrease further during this year, 2023, leading to better take-home pay for individuals as a result of the Tax Reform.

The New Income Tax Table 2023 Philippines

Lower withholding tax deductions from residents' and non-resident aliens' monthly paychecks due to receiving purely compensation income would result in increased take-home pay, as was already mentioned.

A new set of income tax rates will be applied as of this month, January 2023, and onwards. Those earning less than P20,833.33 will still be exempted from paying personal income tax.

Taxpayers whose monthly income is P20,833 up to P33,332 are to withhold a tax of 15 percent from the previous withholding of 20 percent from their taxable income. 

Taxpayers with monthly incomes between P33,332 and P66,666 must pay a total of P1,875 in taxes plus an additional 20 percent of their taxable income. The previous tax from 2018 to 2022 was calculated as P2,500 plus 20 percent of taxable income. 

Taxpayers whose monthly income is between P66,667 and P166,666 will pay a total tax of P8,541.80 plus an additional 25 percent of their taxable income. The previous tax was calculated as P10,833.33 plus 30 percent of taxable income. 

Taxpayers who receive a monthly income of P166,667 up to P666,666 will pay a total of P33,541.33 plus an additional 30 percent of their taxable income. The previous tax was calculated as P40,833.33 plus 32 percent of their taxable income. 

However, those taxpayers who earn more than P666,666 a month will be given an additional withholding tax rate of 3 percent.

Likewise, they must now pay a total of P183,541 plus another 35 percent of their taxable income. This year's tax was higher than the previous year's, at P200,833.33, plus an additional 32 percent of their taxable income.

VAT Return

This year was also put into relief to VAT-registered companies and individuals. At the start of the year 2023, the BIR Form 2550M, also known as Monthly Value-Added Tax Declaration,  will no longer need to be filed and paid; instead, four annual VAT returns or quarterly VAT returns should be filed in lieu of the usual twelve (12) returns. It will continue to be payable for 25 days after the end of each taxable quarter. It is favorable since it will give registered entities plenty of time to collect all the evidence, they need to support their claim for input VAT, which is precisely what the taxpayer is doing.

Reverting Reduced Tax Rates

During the year peak of COVID-19, the implementation of Corporate Recovery and Tax Incentives for Enterprises, otherwise known as the CREATE Act, in the year 2021 aimed to address the varying needs of the business sectors brought on by the pandemic by offering tax relief. The CREATE Act is anticipated to cease and restore the previous tax rate state this year since the nation is gradually recovering from the pandemic's devastation. Here are some of the tax rate changes that previously came from CREATE Act:

Minimum Corporate Income Tax (MCIT)

The Minimum Corporate Income Tax was lowered by 1 percent and is effective until June 30, 2023. With the exception of non-profit proprietary educational institutions, hospitals, and non-resident foreign firms, corporations will henceforth be liable to the original rate of 2 percent based on their gross income starting July 1, 2023. 

Special Income Tax Rate for Non-Profit Proprietary Educational Institutions and Hospitals

Under the CREATE Act, the proprietary educational institutions and hospitals also reduced the rate from 10 percent down to 1 percent. Starting July 1, 2023, these corporations will be subject again to a 10 percent of tax rate. Such educational institutions or hospitals should be required to pay regular income tax/paying income tax on their taxable income subject to irrelevant business activity that contributes to more than half of their total gross income,

Percentage Tax for non-VAT taxpayers

Under the CREATE Act, the 3 percent charge on individuals who do not register for VAT because their yearly sales or receipts do not surpass the P3,000,000 VAT threshold has been reduced to 1 percent. However, starting on July 1, 2023, the tax rate will be reverted again back to 3 percent. 

Mandatory Government Contributions

Aside from the taxes and tax rate mentioned above, there will also be an increase in mandatory government contributions such as Philhealth and Social Security System (SSS) contributions this year. The premium rate for Philhealth will increase from 4 percent to 4.5 percent. The rate for SSS contributions will increase from 13 percent to 14 percent, whereas the employer's part of an employee's SSS contribution will also increase pay from 8.5 percent to 9.5 percent.

Even though some adjustments have reduced the tax rate and income taxes that are taxable, we should however be aware of how inflation and other costs of living are putting a strain on us. For instance, these tax changes might have had an impact on real estate in the Philippines. Hence, it would be wise to do some study before deciding whether or not there would be capital gains in this year's outcomes.

After all, these days, tax changes might be tedious and complex, but it is still necessary for taxpayers to be aware of and comprehend these changes in order to be responsible citizens of the country.

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