The reform on estate and donor’s tax is vastly favorable to the very few wealthy

segment of the populace with properties to transfer. The graduated tax schedule for
estate and donor’s taxes has been discarded and replaced with the uniform flat rate
of 6%. A P10 Million net estate that would have owed P1.215 Million in taxes under
the NIRC is now only liable for a tax of P600,000!

Other Changes in Estate Taxation

 Notice of Death is no longer required (Section 89 has been repealed)
 Estate Tax Returns must be filed and the tax due therefrom paid within 1 year
(previously within 6 months) from the decedent’s death [Sections 90(B) and
91(A) as amended].
 Estates with gross value of P5 Million (previously P2 Million) must file an
estate tax return supported with a statement duly certified by a CPA [Section
90 as amended].
 Other than extension of time for payment, estate taxes may now be paid in
installment within two (2) years from the statutory date for its payment without
civil penalty and interest when the estate has insufficient cash [Section 91(C)
as amended].
 Withdrawal from the bank account of the decedent is already allowed but
subject to FWT of 6% (withdrawal of more than P20,000 used to be prohibited
without certification from the CIR that taxes have been paid) [Section 97 as
amended].
 ON December 19, 2017, package 1 of the Tax Reform for Acceleration and Inclusion
(TRAIN), otherwise known as Republic Act (RA) 10963, was signed into law.

 The law made several amendments to the National Internal Revenue Code of 1997
(Tax Code), specifically on personal-income taxation, passive income, estate tax,
donor’s tax, value-added tax, excise tax and documentary stamp tax. The law took
effect on January 1, following its complete publication in the official gazette. Below is
a brief discussion of the changes under estate taxation under the Train law.

 I. Amendment of the Estate Tax Rate

 Section 22 of the TRAIN law amends Section 84 of the Tax Code, which provides
for the estate-tax rate. Previously, a tax based on the value of the net estate of the
decedent, whether resident or nonresident of the Philippines, was computed based on
a tax schedule where an estate worth P200,000 and over was taxed from 5 percent to
20 percent. Under the TRAIN law, it will now be subject to a flat rate of 6 percent.

 II. Amendments on Estate Tax Deductions

 Section 23 of the TRAIN law amends Section 86 of the Tax Code, which provides
for the computation of the net estate or, effectively, the deductions allowed to the
gross estate of an individual.
 The TRAIN law removes funeral expenses, judicial expenses and medical expenses as
allowable deductions.

 Instead, the law increases the Standard Deduction to P5 million, which previously
only amounted to P1 million. Only available to citizens (resident or nonresident) and
resident aliens, TRAIN law now provides that nonresident aliens can avail themselves
of a standard deduction, although only up to P500,000.

 Another TRAIN law significant change from the old tax rule is that now, family
homes that are worth up to P10 million will be exempted from estate tax. Previously,
only family homes worth P1 million are exempted.

 III. Amendments on the Procedure for Estate Tax Settlement

 A. Repeal of Filing of Notice of Death provision

 Section 24 of the TRAIN law repeals Section 89 of the Tax Code. The repealed
provision provides for when a notice of death should be filed and the period to file
the same.

 B. Amendment on Filing of Estate Tax Return

 Section 25 of the TRAIN law amends Section 90 of the Tax Code, which provides
for the procedural requirements for the estate-tax return.

 The TRAIN law requires that estate-tax returns showing a gross value exceeding P5
million must be certified by a certified public accountant. This is P3 million higher
than the old tax rule, which only required CPA certifications for estate-tax returns
that exceed a gross value of P2 million. The TRAIN law has also increased the period
for filing of estate-tax returns from six months from the decedent’s death to one year.

 C. Amendment of Payment of Estate Tax by Installment

 Section 26 of the TRAIN law amends Section 91(c) of the Tax Code, which provides
for the payment of estate tax by installment.
 Under the TRAIN law, payment by installment has been particularly simplified.
However, the law has provided for an implied limitation of two years for the payment
of the full estate-tax liability, which was previously not contained in the old tax rule.

 IV. Amendment on Withdrawals from Deceased’s Bank Account

 Section 27 of TRAIN Law amends Section 97 of the Tax Code, which concerns
allowable withdrawals from the deceased person’s account.

 Under the old Tax Rule, only withdrawals up to P20,000 are allowed. The
administrator of the estate or any one of the heirs may, when authorized by the
commissioner, withdraw an amount not exceeding P20,000. However, the Train Law
has increased allowable withdrawals from the deceased person’s account to any
amount, subject to a 6-percent final withholding tax.

 The amendments on estate taxes were enacted with the end in view of enticing the
heirs to declare the real value of their deceased kin’s estate and to pay the proper
estate tax. Filing requirements have also been made simpler and filer-friendly. It
remains to be seen whether collection of estate taxes will improve.

 But, as the saying goes, “You can bring the horse to the water, but you cannot force
the horse to drink!”

 PREVIOUSLY, the National Internal Revenue Code provided a table of rates that
the estate of a decedent would pay if the value of the net estate met a certain
threshold. To get the value of the net estate, we would subtract the deductions
allowed by law from the gross value of the estate.

 For instance, if the net taxable estate’s value was over P10 million, it would pay the
amount of P1,215,000 plus an additional rate of 20 percent for the excess of P10
million.

 Thus, if the value of net estate is P11 million, the estate shall pay P1,215,000. An
additional P200,000 shall be imposed, which is the 20 percent of the excess of P10
million. The total amount would be P1,415,000.
 The Tax Reform for Acceleration and Inclusion (TRAIN) law has simplified the
computation of the net estate tax. There is no longer a table or graduated rates. The
estate tax is now fixed at 6 percent of the value of the net estate. So, using the
previous example of P11 million, the estate tax shall be P660,000.

 The TRAIN law has simplified deductions, as well. Originally, there were two
categories of deductions: ordinary and special. These two categories were composed
of several other items, most of which required proof through official receipts and the
like. Further, the allowable deductions were subject to limitations that were
cumbersome to derive.

 Broadly speaking, the TRAIN law provides for three types of deductions.

 There is the standard deduction of P5 million. This amount is an increase from the
original, which was P1 million. The value of the family home is another deduction,
the amount of which is capped at P10 million. This is another increase. Before the
amendment, such deduction was pegged at P1 million. If the value of the family
home exceeds P10 million, the excess would be subject to estate tax. The final
deduction shall be the debts of the decedent.

 The fact that the P5 million is considered as a standard deduction is a boon for many
Filipinos. Since it is a standard deduction, there is no need to substantiate the same
with receipts—it can be automatically claimed.

 An interesting situation arises regarding bank deposits of decedents. Originally, the

heirs could only withdraw up to P20,000 from the deposits. The TRAIN law has
removed that cap, but the amount withdrawn would be subject to a final withholding
tax of 6 percent.

 Now, this situation could arise: What if the amount of the net estate tax due, after
deductions, was zero or less than the amount subjected to final withholding tax? Such
a situation would be possible and there may not be a tax liability in the first place if
the gross estate and deductions are considered. The advanced deduction from the
final withholding tax prejudices the estate of the decedent when it should not. In
effect, the withdrawn amount of deposit is taxable by itself, regardless of the net
estate of the decedent.
 How should this be resolved? The author is of the opinion that, instead of a final
withholding tax, it serves the purpose of the TRAIN law better if it is a creditable
withholding tax. This is so that the withheld amount could still be utilized against the
tax imposed on the net estate and, perhaps, refunded if there is excess. Such change
in treatment, however, would require an amendment and not a mere implementing
regulation.

 There are, however, other peculiarities in this final withholding tax approach that may
be clarified further through the implementing rules and regulations (IRR). The
requirement is to impose a final withholding tax on the withdrawn amount. Should all
withdrawals from a deposit account, where a decedent is the depositor, a joint or a
codepositor, be subject to the 6-percent final withholding tax? In a joint account, for
example, the surviving depositor may actually be withdrawing his own share from the
joint deposit. Would that still be subject to a final withholding tax? Also, even in a
case where the sole depositor is the decedent, it is possible that the deposit is
considered part of the conjugal assets where the surviving spouse owns a part of it.
The withdrawn amount may pertain to the share of the surviving spouse. Would that
still be subject to a final withholding tax? While these are not clear in the TRAIN law,
perhaps these instances can be clarified by the IRR, as it may not have been the
intention of the law subject to final withholding tax deposits that are not part of a
decedent’s estate.