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Salceda: Lower income tax to greet ordinary employees in 2023 due to TRAIN Law; US-employed Pinoy freelancers to get two months’ worth of added take-home if PH Senate ratifies US-PH tax treaty

January 2nd, 2023

“A 13.5th month bonus” is how House Ways and Means Chair Joey Sarte Salceda describes the cuts to the personal income tax rates in 2023, thanks to the Tax Reform for Acceleration and Inclusion or TRAIN Law, which Salceda principally authored and sponsored.

“The TRAIN Law PIT cut will be equivalent to around 5% in gross income in added take home pay. That’s around half a month’s worth of additional disposable income,” Salceda said.

The new annual income tax rates will reduce taxes by around 5% for those earning between over P250,000 and P2 million. 

Individuals with taxable income above P2 million but not greater than P8 million will see a 2% decrease in personal income tax. Income below P250,000 will still be exempt from PIT.

“It will increase disposable income for Filipino families by around P32 billion by our emerging estimates. That will boost consumer spending and also leave some room for savings for homeownership,” Salceda added.

Salceda says that the cut will also cushion workers from the impact of the 1 percentage point increase in SSS contributions and the 0.5 percentage point increase in Philhealth premiums.

“Take home is still up 3.5 percentage points more or less,” Salceda said.

Implement US-PH tax treaty to lower taxes for Youtubers, freelancers with US employers

Salceda also said that freelancers with US employers can benefit from the reduced personal income tax rates under the TRAIN Law if the US-Philippine Income Tax Convention can be implemented with an automatic exchange of information mechanism. 

“The TRAIN Law will massively benefit US-employed Pinoy freelancers, if the rates can be implemented.”

The US implements a 30% withholding tax on income derived from the US by foreign citizens abroad. This, Salceda explains, includes online influencers working through US companies such as Youtube.

“From 30%, their taxes go down to around 15% if the Philippines’ reduced rates are imposed on them instead. That’s a two-month bonus,” Salceda explained.

Salceda adds that the Philippine Senate needs to ratify the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MCMAAT) so that the tax authorities of the US and the Philippines can implement the tax treaty better, allowing both countries to impose the proper rates on their nationals.

“I hope the Senate realizes this, and finally ratifies the convention on the 9th year since we signed it.”

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