How to Avail of the 8% Income Tax Rate on Gross Sales/Receipts

By March 19, 2018How To, Tax reform, TRAIN
changing-TRAIN-8-income-tax-rate-gross-sales-receipts

Income Tax for 2018 in the Philippines has been an interesting space lately because of the TRAIN Law (aka R.A. 10963). For self-employed individuals, it has been of particular interest because they now have an option to avail of a simpler 8% Income Tax Rate Option.

The BIR released Revenue Regulation 8-2018 which details how the income tax changes as per TRAIN will be applied. It answers a LOT of questions but it still leaves a few unanswered.

Who can avail of the 8% Income Tax Rate on Gross Sales/Receipts?

Any self-employed individual whose gross sales/receipts for the year does not exceed P3,000,000 (aka the VAT Threshold) can avail of the 8% Income Tax Rate on Gross Sales/Receipts.

Do I really save money if I go with 8% Income Tax Rate Option?

That exact question sounds so familiar… right, we wrote an article about exactly that: TRAIN’s new 8% Tax – Does it really save you money?

That article even comes with a calculator so click on over!

I’m currently registered as VAT tho – can I downgrade to non-VAT and opt in to 8% Income Tax Rate?

If your gross sales/receipts and other non-operating income in the preceding year (last year) did not exceed P3,000,000, then you have the option to change your registration to non-VAT until March 31, 2018. You have to do so via a Form 1905 submitted to your RDO.

EDIT: The deadline has been moved to April 30, 2018 as per a new RR released by the BIR – RR No 15-2018.

In this article, you can read more about switching from VAT to non-VAT.

Whew – I’m non-VAT! What happens to my percentage taxes if I opt for 8% Income Tax Rate?

You should submit a Form 1905 to end-date or, essentially, remove “percentage tax” from your registration. If you don’t, you will need to continue submitting quarterly percentage tax returns BUT with one big difference: the tax dues will always be ZERO and you should include a notation that says you are availing of the 8% income tax rate option. The process to do is similar to filing a Form 1905 to change your RDO.

And what happens to my Quarterly Income Tax returns?

You still need to file your initial quarterly income tax return with a note that says you are availing of the 8% income tax option. The initial quarterly income tax return is either the Q1 tax return OR the first quarterly income tax return you’re supposed to file right after you register. This opting in needs to be done on a yearly basis.

If you’re intending to file this online with Taxumo, this should be made simpler by choosing the option relevant to your situation, and Taxumo will handle the rest. Below is the link to the article:

How do I submit 2551Q and 1701Q with notation in line with opting in to the 8% Flat Income Tax Rate for Gross Receipts/Sales?

 

File 1701Q online and cut back on forms and lines

What if I file my Quarterly Income Tax return late or I miss notifying them that I want to opt in?

Then you will have to file your Income Tax Returns using the Graduated Income Tax Table AND also file quarterly percentage tax returns. Yup, back to normal PLUS… not certain yet, but you may have to also update your registration via Form 1905 and bring back percentage tax to your registration. Whooptidoo.

Wait wait… so how do I opt in again?

Ok so if you’re eligible, you can opt in by doing the following:

  1. End date percentage tax on your registration via Form 1905.
  2. If you did not end-date percentage tax, you need to keep submitting a zero tax value quarterly percentage tax return (2551Q) with a note that says you’re opting in for 8% Gross Sales/Receipts Tax.
  3. Submit the initial quarterly income tax return (1701Q) for the year with a note that says you are opting in for 8% Gross Sales/Receipts Tax.

Note that you can do Steps #2 and #3 above through Taxumo! We can help you file a 2551Q with the necessary notation by April 1. We can also help you file a 1701Q with that notation by May 1 (note that the deadline for 1701Q Q1 has changed to May 15).

 

EDIT: Regarding #2 above, Taxumo has already closed its filing of 2551Q 0-tax with notation. Do note that Taxumo CAN still file a non-8% Percentage Tax Return until April 20.

EDIT #2: Regarding #2 above, it has come to our attention that different RDO’s are implementing this ruling differently. Even though RR No 08-2018 specifically says “If the taxpayer is unable to timely update the required registration, s/he shall continue to file the percentage tax return reflecting a zero-amount of tax with a notation that s/he is availing of the 8% income tax.” So before you file this yourself, best to check with your RDO and see how they want you to process that filing.

EDIT #3: The BIR recently released RMC 32-2018, which clarifies how to opt in to the Flat Income Tax Rate:

Taxpayer shall signify his/her intention to elect the 8% income tax rate either by updating his/her registration using BIR Form No. 1905 or by checking/clicking Item No. 13 in BIR Form No. 2551Q or Item No. 16 in BIR Form No. 1701Q, and such election/option shall be irrevocable for the taxable year.

Our understanding is that they’re basically telling us that you can indicate your opt-in EITHER by (1) updating your registration via BIR Form 1905 or (2) ticking the appropriate option in the new 2551Q form or the new 1701Q form. You’re then stuck with what you chose for the taxable year. Looks like this would be similar to how taxpayers currently opt in to OSD.

So how do I compute for my new tax dues with the 8% Income Tax Rate?

So the first thing you have to answer is: does your income come solely from your business or practice of profession? OR are you a mixed income earner earning from both compensation and your business/profession?

If you’re the first (income solely from business), then use this formula:

Total Income Tax Due = 0.08 * (Gross Sales - 250,000)

If you’re the latter (mixed income), then use this formula:

Total Income Tax Due = (0.08 * Gross Sales) + Tax Due on Compensation

The main difference, as you can see, is that the P250,000 deduction is not applied for Mixed Income earners. Now, before you start rallying out on the streets, the reason is pretty straightforward: the P250,000 has already been deducted when you computed your tax due on compensation so it’s not being applied anymore to the tax from your business. Makes sense, right?

What if I suddenly exceed the VAT threshold?

First of all, congratulations! That’s a good problem to have, rainmaker!

These are the things you’re supposed to do once you exceed the threshold:

  1. Submit a Form 1905 to change your tax type to VAT. You have to do this within the month AFTER you exceeded the VAT threshold. So let’s say your gross sales reached P3.1 million in June. That means by July, you should update your tax type to VAT!
  2. You have to pay percentage tax from the start of the taxable year until the time you became liable for VAT. Continuing the example above, you’ll file percentage tax covering January to June. You have to pay the whole tax due by July 20 – when the next quarterly tax return is due. If you do so by then, no penalties are applied.
  3. Starting July, you are now liable to pay VAT. So that means that on the subsequent months, you’re filing VAT returns: 2550M (Aug, Sep, Nov, Dec) and 2550Q (Oct, Jan following year).
  4. For your income tax, you are now back on the Graduated Income Tax Table. Any income taxes paid while you were on the 8% Income Tax Rate option are deducted from your tax due.

Great! Got it! So how do I file for my 8% Income Tax?

Remember, what I said about there being some unanswered questions? That’s one of them. There are no details yet regarding the specific form to submit once you opt in. There are also no details yet on how frequent the submission of this form is supposed to be (although some sources say the BIR is leaning towards quarterly given the impact on the government’s cashflow if they only receive the cash once a year).

So we’re waiting again?

Yup! The TRAIN introduced a TON of changes so the BIR will need time to iron out the processes to ensure a smooth transition.

Every time some new IRR’s are released, we’ll be sure to share them with you!

Ready to file and pay your taxes online with Taxumo?

 

Author EJ Arboleda

EJ has 17 years of experience in IT, Service Management, Project Management, Development, and Marketing. He is also the CEO of Taxumo and a Trainer/Consultant for Digital Marketing.

More posts by EJ Arboleda

Join the discussion 42 Comments

  • Amelita says:

    I like your information on taxation. Very educational. Moreso it’s free. I wush to learn more from you. Thank you very much

  • Jo says:

    Can we still use the OSD instead of the Itemized Deduction if we do not opt for the 8% Income tax rate?

  • Jovic Balbuena says:

    Hi Ej,
    Thank you for sharing a very useful and helpful
    Information.

  • Lara says:

    Thank you. This is very helpful! Question: How exactly does a notation look like?

    • EJ Arboleda says:

      Hi Lara, I can’t say for sure as the BIR didn’t release anything more specific than “notation.” However, with Taxumo, we’ll take care of that notation for you so you don’t have to worry about doing it incorrectly. 🙂

      • reese says:

        Pls help

        -shall i file 1905 to rdo to remove percentage tax when is the deadline for this?
        -if i filed the 1905 i dont need to submit zero tax 2551-q i just need to submit the 1701q?
        -i paid jan and feb 2551-m will i get a refund? how to claim refund or credits

        Thanks

        • EJ Arboleda says:

          Shall i file 1905 to rdo to remove percentage tax when is the deadline for this?
          – Ideally you should end date your percentage tax before the percentage tax deadline. The RR did state that if you missed that deadline you’ll have to pass a zero-tax 2551Q with notation that you’re opting in to 8%. I assume you’ll have to keep doing this until you finally update your records.

          If i filed the 1905 i dont need to submit zero tax 2551-q i just need to submit the 1701q?
          – If you were able to do so before the percentage tax deadline, then yes, just need to submit the 1701Q with notation that you’re opting in.

          I paid jan and feb 2551-m will i get a refund? how to claim refund or credits
          – No guidelines/rules released by the BIR regarding this. We were able to find a way to refund Taxumo users but can’t say the same for non-Taxumo users, unfortunately. You may have to get a formal Tax refund (or at least refund certificate) from the BIR for this.

  • Laya says:

    Thank you for this good article! I have a number of questions:
    1) When is the deadline of updating of COR (filing of 1905) if you opted for 8% Income tax? From what I understand, it should be updated by April 1 since it is the deadline of 2551Q filing. Is it correct? What happens if you were not able to file (even if you intended to do so) because of the long lines in BIR. Given that this updates were only released this week and there will only 3 working days next week…
    2) For project-based staff (considered as professionals) funded by the government, our 3% percentage tax were automatically deducted and supposedly remitted by the agency (for instance, state university)… So, if they still do that then there will be conflict when we opt for 8% income tax since they will still issue our quarterly 2307 with automatic 3% deduction.. right?

    • EJ Arboleda says:

      Hi Laya, to answer your questions:
      1. As per the blog: If you did not end-date percentage tax, you need to keep submitting a zero tax value quarterly percentage tax return (2551Q) with a note that says you’re opting in for 8% Gross Sales/Receipts Tax.
      Having said that, we do still recommend that you update your COR as soon as your able to.
      2. It’s not really a conflict as they should be giving you a Form 2307 – a certificate of creditable tax withheld. You use this to claim a deduction from your tax due. To illustrate (and this is an oversimplification) your form will show that you have a tax due of 8% and then you deduct the 3% withheld so the net would be the 5%.

    • Laya says:

      Thank you! I managed to update my COR this week.

  • Tanya says:

    HI! Can you make a sample computation for 1701Q?
    For example my income for the quarter is 30000.

    My 1701Q will have to be
    30000*8%? So ill pay 2400 for quarter tax?
    Or
    30000-250000? In which case, i won’t have to pay anything?

  • minnie says:

    Hi!
    i have a few questions.
    1. after filing first 1701Q, do i need to file succeeding 1701Q?
    2. Do i pay 8% tax still for 1701Q?

    • EJ Arboleda says:

      1. Our assumption is that yes, you still do have to file 1701Q ongoing. It may actually be the case that the 1701Q is the same form you’ll file for 8% as well. We’ll see once the RR related to that is released.
      2. We’re still waiting for what form to file for the 8%. If the BIR confirms that it’s also the 1701Q, then yes, you’ll apply your 8% there.

  • krissy says:

    For this post, is the example for a quarter or for a year?

  • reese says:

    Hi Sir thanks for the info just a followup
    Shall i file 1905 to rdo to remove percentage tax when is the deadline for this?
    – Ideally you should end date your percentage tax before the percentage tax deadline. The RR did state that if you missed that deadline you’ll have to pass a zero-tax 2551Q with notation that you’re opting in to 8%. I assume you’ll have to keep doing this until you finally update your records.

    ***********percentage tax deadline is Apr20 (for mo. of March hence I should submit 1905 to end date percentage tax before Apr20?

    if im not able to submit 1905.. when is the deadline of 2551q?

    Thank you

  • Gerian marez says:

    Sir, I want to end-date my percentage tax through form 1905.
    Problem is, what option should I mark x? Is it change in tax type details or others? I really have no idea

  • Andrea C. Enriquez says:

    Sir, i am a freelance tutor (not online) and for jan-mar, i earned 53,000.00. My questions are:

    1. I will be paying using 2551Q and deadline is on april 15, will i be using 3% or 8%?

    2. For the 1701Q deadline is on the 15th of May? What if i don’t opt for the 8% tax will i still cintinue to use OSD? (this is the option i have chosen eversince)

    3. If the new train law table will be used as basis for tax due then, i won’t be paying any? 53,000 – 250,000 = negative

    4. Do i still need to file it? Since it’s no payment i have to file it online and succeeding filing will be thru EFPS? If with payment i still need to go to the bank to pay? (i need to register online then…sigh!)

    5. Is it okay not to update my COR since i not opting for the 8% tax? ( My annual income does not exceed 250,000.)

    6. Is it okay not to update my COR? I really don’t like going to the BIR. Sa totoo lang po kahit wala ako iincome for a certain month, gagawan ko na lang ng income para lang di pumunta sa BIR kasi nauubos time sa haba ng pila and nagsasabi ka ng totoo na wala ka kita for the month, palalabasin pa na nagsisinungaling ka.

    6. Lastly, will i get a refund for my january payment?

    Thank you very much.

    • EJ Arboleda says:

      Hi Andrea, to answer your questions:
      1. For 2551Q, what you pay will depend on what ATC you’re using. Most people are using PT010 which would be 3%. The computation for this is done automatically in [Taxumo] so you may want to give it a shot. 🙂
      2. Yes it’s now 15th of May. If you’re not opting in to 8% then status quo for you. Note that we also updated [Taxumo] with the updated graduated income tax tables so the correct income tax is also computed for you there.
      3. That’s not how you use the graduated income tax table though.
      4. Yes you still file zero due filings.
      5. You may still have to to update your 2551M to a 2551Q.
      6. We recommend you still update.
      7. May I direct you to [this FAQ article please].

  • Tracy Ong says:

    Hi EJ,

    I note in the end that we don’t have any guidance yet (whether as to the form or to the frequency of filing) on how to file the 8% income tax. So this is different from the 1701Q talked about earlier in the article? If there is no official guidance yet, what do we do, do we still file the 1701Q for the first quarter? Thanks!

  • dee says:

    Thank you for this info EJ.
    Madaling intindihin.

  • Jan Sabaybay says:

    Hi Sir,

    I f I’ve already paid the percentage tax 2551Q, can I still avail the 8%? Thanks

    • Heidi Micayabas says:

      Hello Jan,
      The opting in needs to be done on a yearly basis. Since you already paid the 2551Q, it is best to avail the 8% tax by next year. 🙂

  • Marj says:

    Hi EJ,

    Ive recently updated my 2303. When i was applying, the revenue officer asked me to write a notation that i would avail the 8% income tax rate. However, when i received my 2303 it’s still indicated that i need to file a quarterly percentage tax. How do i go about this?

    Thanks and more power!

    • EJ Arboleda says:

      This differs per RDO – some remove the Percentage Tax Quarterly but MOST still put in Percentage Tax Quarterly. From my understanding, opting in to 8% has to be done in an annual basis moving forward, via the 1701Q form. Short answer – best to check with your RDO. At this point, how they implement differs so best to check with them.

  • Ces says:

    Hi! Just a question since I have been an employee all my life and has recently accepted a consultant role. For the computation of income tax, it would be (Gross-250,000)*0.08? There will be no need to deduct the contributions in SSS, Pagibig and Philhealth to the gross before subtracying 250,000? Just asking since this is the case for employees. Thanks.

    • EJ Arboleda says:

      It’s a little bit more complicated than that (filing quarterly, depending on where your income is coming from, whether you were able to opt in on time), etc. 🙂

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