President Marcos signed Republic Act 12054 — the TRAIN 3 law — on Monday, raising the personal income tax exemption threshold to ₱400,000, expanding VAT-exempt goods, and reducing corporate income tax to 20% for MSMEs.
The long-debated TRAIN 3 law was signed Monday by President Marcos, delivering the most significant overhaul of Philippine personal income taxes since the original TRAIN law in 2018, and extending VAT exemptions to a broader basket of basic goods.
| Annual Taxable Income | New Tax Rate |
|---|---|
| ₱0 – ₱400,000 | 0% (Exempt) |
| ₱400,001 – ₱800,000 | 15% on excess over ₱400K |
| ₱800,001 – ₱2,000,000 | ₱60,000 + 20% on excess over ₱800K |
| ₱2,000,001 – ₱8,000,000 | ₱300,000 + 25% on excess over ₱2M |
| Over ₱8,000,000 | ₱1,800,000 + 35% on excess over ₱8M |
The previous exemption threshold was ₱250,000. The new ceiling means approximately 4.2 million minimum-wage earners and low-income salaried workers will pay zero income tax starting next year, according to the Bureau of Internal Revenue (BIR).
Republic Act 12054 expands VAT exemptions to include:
The corporate income tax rate for micro, small, and medium enterprises with gross revenues below ₱50 million will be reduced from 25% to 20%, a move the Philippine Chamber of Commerce and Industry called “the most impactful business incentive for small entrepreneurs since the Bayanihan laws.”
The Department of Finance projects a revenue reduction of ₱147 billion annually, to be offset by a 2-percentage-point increase in the capital gains tax on real property and a new levy on single-use plastics.
Finance Secretary Ralph Recto expressed confidence the measures were “fiscally balanced” and would not derail the government’s infrastructure spending program.
The law takes effect 15 days after publication in the Official Gazette.
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Patricia Lim
Reporter
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