Final Tax is the tax on Passive Income earned within the Philippines. The train law made some changes regarding certain rates. The differences between the old law and the TRAIN law will be discussed in detail in this post.
What is Passive Income?
Passive income is income that is earned with very minimal to no effort. Examples of passive income include prizes from competitions, winnings from raffle draws, dividend income, interest income, royalties and the like. It is different from active income wherein there is material participation by the person involved in earning such income. Examples of active income include compensation income,business income, and income from practice of profession.
Updated Final Tax Rates on Passive Income
Changes Made by the Train Law
- PCSO Lotto Winnings
Before the train law was implemented, all PCSO Lotto winnings were exempt from tax. When the Train Law presented the updated final tax rates, it has limited the exemption of the winnings to the first P10,000. A final tax of 20% is now imposed on the PCSO lotto winnings of Citizens and Resident Aliens on the excess of P10,000.
- Interest Income from a Depository Bank under a Foreign Currency Deposit System
The previous final tax rate for Citizens and Residents on interest received under a FCDS was 7.5%. The Train Law doubled the said rate and made it 15% except for nonresident aliens and foreign corporations.
- Capital Gains Tax
Capital Gains Tax on the sale of Unlisted Domestic Stocks was also amended under the Train Law. For a complete discussion of Capital Gains Tax, click here.
*For board exam purposes, all final tax rates should be memorized by the examinee.