MANILA, Philippines — Are remittances from overseas Filipino workers affected by the tax reform law?
On Tuesday, December 19, President Rodrigo Duterte signed Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) Act into law, which aims to generate revenue to fund a multibillion-dollar infrastructure program that is central to the government's economic agenda.
The TRAIN law is the first package of the administration’s much-awaited Comprehensive Tax Reform Program.
It took effect on January 1.
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The tax reform program will increase take-home pay for most wage earners, compensating for the projected foregone revenue through higher excise taxes, including documentary stamps tax.
The Bureau of Internal Revenue defines DST as "a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto."
Higher DST on money transfers to the Philippines
Section 57 of the TRAIN law doubled the DST imposed on each P200 (or the Philippine equivalent of such value, if expressed in foreign currency) worth of transactions involving the transfer of money to the Philippines from 30 centavos to 60 centavos.
The TRAIN act’s Section 57 amended Section 181 of the National Internal Revenue Code.
But even before this tax rate adjustment was made, the BIR in 2012 issued Revenue Regulations No. 11-2012, which spells out that remittances of all OFWs are exempt from paying DST upon showing “valid proof of entitlement.”
Such proofs include Overseas Employment Certificate, valid Overseas Workers Welfare Administration membership certificate, or electronic receipt issued by the Philippine Overseas Employment Administration.
In addition to the original copy, a duplicate copy or certified true copy of the “valid proof of entitlement” must be secured by the OFW from the POEA or OWWA, and must be used by the recipient of remittances to avail the DST exemption.
If the remittances were sent through a bank and withdrawn through an automatic teller machine, or sent through “non-bank money transfer agents,” the BIR said it is the responsibility of the OFW to show the valid proof of entitlement when making arrangement for his/her remittance transfers.
For its part, the Department of Finance in June last year clarified that money sent by OFWs were not covered by the proposed Comprehensive Tax Reform Program of the Duterte administration, saying the government has no legal jurisdiction over remittances sent from abroad.
According to Finance Undersecretary Karl Kendrick Chua, the Philippine government only has jurisdiction over domestic remittances, which are not taxed, adding that value-added tax is not imposed on the money sent but on the transfer fees charged by remittance companies.
“We have to distinguish between the foreign and the domestic remittances. Those coming from abroad are not within our tax regime, so that is not [covered] (under the CTRP),” Chua said.
Latest data from the central bank showed both personal and cash remittances rose in the first 10 months of 2017 due to sustained demand for skilled Filipinos abroad.
READ: Winners and losers: How the TRAIN law affects rich, poor Filipinos