What Is the TRAIN Law? (RA 10963, Explained)

The TRAIN Law — short for Tax Reform for Acceleration and Inclusion — is Republic Act No. 10963, signed into law in December 2017 and effective January 1, 2018. It was the first package of the government's Comprehensive Tax Reform Program (CTRP). Its core trade-off was simple: lower the income tax burden on ordinary wage earners and small professionals, then recover the lost revenue through a broader VAT base and higher excise taxes on fuel, automobiles, tobacco, and sweetened drinks. TRAIN deals with individuals, estates, donations, VAT, and excise — it does NOT govern corporate income tax. That came later under the CREATE Law (RA 11534), so do not conflate the two.

The single most felt change was the rebuilt graduated personal income tax table. Under TRAIN, the first ₱250,000 of annual taxable income is taxed at 0% — completely exempt. For most minimum-wage and low-to-middle-income earners, this meant a meaningfully larger take-home pay starting in 2018.

TRAIN built the new table in two phases. From 2018 to 2022, the brackets above ₱250,000 ran from 20% up to 35%. From January 1, 2023 onward, those lower-and-middle brackets were reduced further — the table now runs 15%, 20%, 25%, 30%, and 35%. The top 35% rate applies to taxable income over ₱8,000,000. The ₱250,000 exemption stayed constant across both phases.

Note that the old system of personal and additional exemptions (₱50,000 personal, ₱25,000 per dependent) was abolished and folded into the ₱250,000 zero bracket. The ₱90,000 ceiling on tax-exempt 13th-month pay and other benefits was retained.

The table below compares the pre-TRAIN graduated rates with the TRAIN rates now in force (2023 onward). All figures are annual taxable income after allowable deductions.

TRAIN introduced an optional 8% flat tax aimed at small self-employed individuals and professionals. If your gross sales or receipts (plus other non-operating income) do not exceed the ₱3,000,000 VAT threshold and you are not VAT-registered, you may elect to be taxed at a flat 8% on gross sales/receipts in excess of ₱250,000 — in lieu of both the graduated income tax AND the 3% percentage tax.

This option is elected at the start of the year (or upon registration) and is irrevocable for that taxable year. It is most attractive to service providers with low expenses, because the 8% is computed on gross — there are no deductions. Those with high costs are usually better off under the graduated rates with itemized or Optional Standard Deduction. See our guides on percentage tax and BIR Form 1701 to work out which is better for your situation.

When the 8% option fits

• Gross sales/receipts ≤ ₱3,000,000 for the year
• Not VAT-registered and not required to register for VAT
• Low operating expenses (the 8% has no deductions)
• Income from self-employment or practice of profession (not compensation)

TRAIN dramatically simplified transfer taxes. The old estate tax used a graduated schedule that climbed up to 20%. TRAIN replaced it with a single flat 6% rate on the net estate, with a standard deduction of ₱5,000,000 and a family-home deduction of up to ₱10,000,000. This made estate settlement far cheaper and simpler to compute.

Donor's tax was likewise flattened to 6% on total gifts in excess of ₱250,000 per year, regardless of whether the recipient is a relative or a stranger — eliminating the old distinction between relative and non-relative donations. Both the 6% estate and 6% donor's tax rates remain in force in 2026.

TRAIN broadened the VAT base by removing or narrowing several exemptions, while raising the VAT registration threshold to ₱3,000,000 in annual gross sales or receipts. Businesses below that threshold are generally non-VAT and pay the 3% percentage tax instead (temporarily reduced to 1% from July 2020 to June 2023 under the CREATE Law, then back to 3%).

TRAIN also began the phase-out of certain VAT exemptions and zero-rating, set rules for VAT on certain medicines, and mandated the shift toward electronic invoicing and reporting for large taxpayers — groundwork later expanded by the BIR's e-invoicing (EIS) rollout.

To fund the income tax cuts, TRAIN raised existing excise taxes and created new ones. These are the changes most ordinary consumers actually feel at the pump and the checkout counter.

Key excise tax changes under TRAIN

• Petroleum/fuel: new and increased excise on diesel, gasoline, LPG, and other products, phased in over 2018–2020
• Sugar-sweetened beverages (SSB): a NEW excise — ₱6.00 per liter for drinks with caloric/non-caloric sweeteners and ₱12.00 per liter for those using high-fructose corn syrup (purely coconut-sap-sugar and 100% natural juices exempt)
• Automobiles: a restructured, generally higher ad valorem excise based on net manufacturer/importer price
• Tobacco: stepped increases in the per-pack excise (later raised again by subsequent sin-tax laws)
• Cosmetic procedures: a NEW 5% excise on invasive elective cosmetic surgery and body enhancements
• Mineral products, coal, and certain sweetened items: increased rates

A common mistake is treating TRAIN as the law that lowered corporate tax. It did not. TRAIN (RA 10963) covers individuals, estates, donations, VAT, and excise. The CREATE Law (RA 11534, effective 2021) is the separate package that cut the corporate income tax rate (to 25%, or 20% for qualifying small domestic corporations) and rationalized fiscal incentives.

Both are part of the Comprehensive Tax Reform Program, but they touch different taxpayers. When you read about a 'flat 6% estate tax' or the '₱250,000 exemption,' that is TRAIN. When you read about the '25% corporate rate,' that is CREATE. Keeping them straight matters for compliance and for citing the correct legal basis.

TRAIN reshaped how Philippine payroll, withholding, and invoicing have to be computed. Withholding tax on compensation now follows the revised tables (RR 11-2018 and subsequent revenue regulations); the 8% option changes how some contractors are taxed; and VAT/percentage-tax classification hinges on the ₱3,000,000 threshold.

Any payroll or accounting system you run in 2026 must encode the current (2023-onward) graduated table, the ₱250,000 zero bracket, the ₱90,000 13th-month exemption, and correct withholding tables. Orkids builds BIR-compliant payroll, HR, and tax engines that keep these rules current as the law evolves — see our BIR compliance build for how we handle statutory changes.