"2023 Tax Developments and Conclusions"

In our previous article, "2022 Tax Trends and Updates," I discussed various changes in the tax landscape designed to provide taxpayers with the tools they need for a smooth start to the year. As we approach the year 2023, it's important to be prepared for another set of tax rules coming our way, and these changes come with a mix of good and not-so-good news.

On the positive side, there are adjustments aimed at lowering income tax rates and reducing the number of VAT returns that need to be filed, which is good news for many. However, it's worth noting that some of the reliefs provided by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act are set to expire in the middle of 2023. Here are some of the changes that will take effect next year:

1. Reduced Graduated Income Tax Rates:

Individual taxpayers have something to look forward to in 2023, as income tax rates are set to decrease. The Tax Reform for Acceleration and Inclusion (TRAIN) Act, which came into effect in 2018, introduced a series of changes to lower tax rates for middle-income earners. In 2023, individuals with annual taxable income of Php 250,000 or less will remain exempt from income tax. Those earning more than Php 250,000 but not exceeding Php 8 million will see their tax rates decrease from 20% to 32% to a range of 15% to 30%. High-income earners with taxable income exceeding Php 8 million will continue to face a 35% tax rate.

It's important to note that the Department of Finance (DOF) has proposed potential changes in taxation, including deferring the reduction of income tax rates from 2023 to 2025. This proposal is still under discussion and subject to approval.

2. Quarterly Reporting of VAT Returns:

The TRAIN Act also simplifies VAT reporting for registered individuals by reducing the frequency of filing. Starting in 2023, you will no longer need to file and pay the Monthly Value-Added Tax Declaration (BIR Form No. 2550-M). Instead, you'll file and pay on a quarterly basis using BIR Form No. 2550-Q, allowing you to submit only four VAT returns throughout the year instead of the usual 12.

3. Reversion to Original Rates:

The CREATE Act, implemented in 2021, introduced tax reliefs to support businesses during the COVID-19 pandemic. However, as the country recovers, some of these relief measures will revert to their original tax rates. These changes include:

a. Minimum Corporate Income Tax (MCIT) will return to its original 2% rate starting July 1, 2023.

b. Special Income Tax Rate for Non-Profit Proprietary Educational Institutions (PEIs) and Hospitals will increase back to 10% on July 1, 2023.

c. Percentage Tax for Non-VAT Taxpayers will return to 3% on July 1, 2023.

4. Work From Home (WFH) Arrangement for Philippine Economic Zone Authority (PEZA) - Registered Information Technology (IT) - Business Process Management (BPM) Entities:

IT-BPM entities are allowed to continue the WFH arrangement, affecting up to 30% of their workforce until December 31, 2022. After this date, they can fully adopt up to 100% WFH arrangement.

Navigating these ongoing tax changes can be daunting, but it's crucial to stay informed to ensure compliance. Understanding the rules is half the battle in becoming a responsible taxpayer.