Tax Reform: How to Change from VAT to Non-VAT

By January 19, 2018Tax reform, TRAIN
Tax Reform TRAIN Changing from VAT to Non-VAT

The Tax Reform for Acceleration and Inclusion, more popularly known as TRAIN, has amended the tax code to increase the VAT Threshold from P1.919 Million to P3.0 Million. If you are a registered VAT taxpayer earning less than P3.0 Million, you may now opt to be non-vat instead. This is great for services and high margin businesses as this will most likely result in tax savings.

Who’s eligible to change their tax type from VAT to Non-VAT?

Taxpayers whose Gross Sales/Receipts are less than or equal to exactly P3.0 Million in 2017. To be clear, by Gross Sales/Receipts, this is your earnings before ANY deductions.

How do I change from VAT to Non-VAT?

The Commissioner of Internal Revenue has recently released an advisory on how to change from VAT to Non-VAT. You can download and read the actual advisory here.

You can follow the following procedure:

  1. Download Form 1905 (xls / pdf) – Application for Registration Update. Do make sure you check for the latest version of this form on the BIR website.
  2. Fill out your form 1905 this way:
  • Part I, Field 1: Enter your TIN
  • Part I, Field 2: Enter your RDO Code
  • Part I, Field 3: Enter Taxpayer’s Name (we recommend you double check with your COR and check the matching fields there)
  • Part II: Tick (‎✔) letter G
  • Part II, Field 4G: Write Value-Added Tax under Cancelled Tax Types (the BIR will fill out the rest of these fields)
  • Part II, Field 5: Fill out and sign this section.

Additional Tips:

You MAY need to change your books of accounts AND your receipts. There are variances between RDO’s on this so better ask them when you submit your Form 1905.  If you do need to change your receipts, you need to fill out a Form 1906 – Authority to Print Receipts so it may be a good idea to have it ready. Also, may be good to purchase 2 to 4 columnar books so that you don’t have to pay for overpriced ones that are invariably sold beside the RDOs.

When do I have to do this?

According to the advisory, you must file the accomplished BIR Form 1905 on or before March 31, 2018. Since March 31 is a Saturday, we recommend that you file on March 30, 2018 at the very latest. Of course, the earlier the better!

EDIT: The BIR recently released RR No 15-2018, extending this deadline to April 30, 2018. So if you want to change from VAT to non-VAT, do it before then!

What happens if I forget to file my Form 1905?

If the BIR does not receive your Form 1905, the BIR will take that as you opting to still pay VAT.

EDIT: If you missed the March 30, 2018 deadline, you can still update your registration via Form 1905, BUT you will have to show that you did not exceed P3,000,000 gross sales/receipts in the previous THREE years.

 

This article was written to help demystify and simplify the changes brought about by the TRAIN law. Taxumo was also created to continuously improve with the same spirit, by letting you compute and file your taxes online in minutes!

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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.

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Join the discussion 57 Comments

  • Tusing Bado says:

    Right now I am a NonVat registered taxpayer. Do I still need to do this? Mr receipts are printed NonVat..

  • Ruel Liguid says:

    Hi EJ,

    Following the BIR Tax Advisory, what is meant buy this statement ” Unless the taxpayer signifies in the 1st quarter of the taxable year the intention to elect the 8% income tax rate, the taxpayer shall be considered as having availed if the graduated rates under section 24(a) of the tax code.”

    If we would like to elect 8%, does this mean we need to request it in writing to the RDO or would BIR Form 1905 (change of tax type to remove percentage tax since I am non-vat) suffice? Or if there;s another process process? Please advise. Thanks.

  • Irine Catapang says:

    Im non-vat do i need to file 2551m monthly?

  • Irene Datu says:

    Hi.
    I have been a VAT taxpayer for the 3 or 5 years. Since My income last year was below the 3 M threshold, can i apply for NonVat before March 31?
    I was told by my accountant that i need to wait for 3 years to downgrade, even if my income is below the new threshold.
    Thank you

  • Johnnel Zapanta says:

    Is there a fee to be paid to the BIR when I file 1905 to change from VAT to NON VAT?

  • felicito f. baylas says:

    my client is a vat registered but stopped selling vatable goods in 2010. at present he is using the vat receipt since he has not changed his tax type from to non-vat. is there a penalty for not changing the tax type?

    • EJ Arboleda says:

      Even if you’re earning less than the VAT threshold, you can still opt for VAT. So technically, as long as you’re client is filing the correct forms as per his/her COR, then he/she should be all good.

  • Mira says:

    I am registered as VAT TAxpayer but my gross income is less than 3M…I am opting to change from VAT to Nonvat…do i still have to file my monthly VAT until Im done processing with my tax update? thanks

  • Lika says:

    Hello I am vat registered now would like to change to non vat but my accountant said Vat to percentage tax only is possible.Not Vat to non- Vat.

    I need clarification and advises
    Thanks!

  • susana says:

    Do you know how much are to fees? BIR change vat to non vat

  • Minerva Pepito says:

    Greetings! You said gross sales of 2017. But my bookeeper told me that i should have not exceeded 3M for the past 3 years. Which is true? Tnx for your reply.

  • Lani says:

    Hi, from VAT reg to non Vat registered business , how do we deals with the 12% VAT exeptions of Seniors and diplomats? I am in a restaurant business., thanks

    • EJ Arboleda says:

      Hi Lani, percentage tax (non-vat) is applied to the cash/amount you received. So it would be after any discount you gave. Note that there would of course, no longer be any vat exemption as you’re no longer vat. 🙂

  • Marie Grace Porcel says:

    Hi! I have just registered my small business last Feb to VAT but now I am thinking of reverting it back to non VAT. Will I still be allowed if I already claimed my COR?

  • Jane says:

    Tax Advisory is for Individuals, is this as well applicable to Corporations, ie, condo corp? Assoc Dues are now Non-VAT. Thanks.

  • benjie tinidor says:

    hi sir non vat po kami..sa train law po ba imbes na 3percent magiging 8percent na babayaran sa gross sales?.

  • Lani Onodera says:

    Hi, how do you compute the Senior Citizen’s discount if you change from VAT to NON VAT?

  • Lee Cruz says:

    Thanks for this! I’ll be filing form 1905 tomorrow for change of tax type to 8% flat rate. I guess it’s the same procedure. Thank you so much.

  • Leli says:

    Hi, is it still at 3% rate?

  • Eliza says:

    Hi Sir,
    Vat reg po ako (self employed) pero ang income ko is less 250k. Kung hindi ako mag change from Vat to Non Vat, meron pa rin po ba ako personal exemption na 50k? Kasi under new law they removed the personal exemption and additional exemption po.

  • Nico Nanquil says:

    Does BIR requires 2017 Returns before accepting Form 1905?

  • Nico Nanquil says:

    If we have 1 type of government, same laws to implement, why does each RD have their own set of requirements?

    • EJ Arboleda says:

      A question for the BIR, my friend. Our question as well. 😉 With [Taxumo] we are helping the BIR adapt to changes – what were formally seen as advantages but are now becoming hindrances, can be fixed through technology. With your support we can continue to help the BIR become a world class government department!

  • jon tseswaks says:

    what form do we submit to avail the flat 8%?is there a deadline?also,what happens if we file the 1905 1st week April?thank you

  • Gina says:

    Hi, In RDO 39, they require us to submit Verification Slip together with Form 1905, may I ask verification slip of what kaya yun. Sobra ang haba ng pila, di nila in-explain basta iniabot ang list ng requirements. Thank you.

  • Dyan says:

    Hanggang ngayong march 31 nalang po pasahan ng 1905. May iba pa po bang date or extension na pwede magpasa? May penalty po ba kung pwede magpasa na lagpas march 31? Salamat!

    • EJ Arboleda says:

      As per the blog:
      “If you missed the March 30, 2018 deadline, you can still update your registration via Form 1905, BUT you will have to show that you did not exceed P3,000,000 gross sales/receipts in the previous THREE years.”
      No penalty po.

  • Des Malanum says:

    Di po namin naabot ang 3m as vat taxpayer mas maganda po bang iconvert na lang thanks papalitan po ba pati resibo

    • EJ Arboleda says:

      It depends po on whether your VAT-relevant expenses are enough to drive down your vat dues. If it is, VAT may still be a good option for you. For manufacturing/sales of goods where there are a lot of expenses, this may likely be the case. For services, however, most of the time their VAT-relevant expenses are not enough to drive down your VAT dues (at 12%) so definitely the non-vat is a more attractive option.

      Having said that, it does vary from case to case so it would be specific to your particular business.

  • Ana Ysabel says:

    Hi!

    Planning to change from vat to non vat?

    Aside from the documents to be submitted and fees, is there any kind of audit? Like submit ORs etc.

    • EJ Arboleda says:

      Hi Ana – normally, they would check if you have any open cases. So if you have any unsubmitted filings, they will point that out and tell you. They may also want to check your books of accounts and see if you filled them out properly. It won’t be a full blown audit but they may do some checks. Now with respect to ORs, you may need to replace all your OR booklets if you change from VAT so they may ask for those booklets as well. 🙂 Hope that helps!

  • allahlea says:

    Does the 3 year rule to revert back to nonvat still applies? now that the vat threshold is 3m.

  • JC says:

    Hi Sir EJ, I want to know if VAT sales is included in the said gross sales in order to be qualified in Non-VAT? What are the pros and cons when you’re a Non-VAT taxpayer?

    • EJ Arboleda says:

      Hi JC, the gross sales (inclusive of taxes) is considered when checking the P3M threshold for VAT. If your gross sales are less than P3M, you can opt to be non-VAT.

      Non-Vat Taxpayers pay a (usually) 3% Percentage Tax on Gross Sales + Income Tax. Also less compliance requirements.
      VAT Taxpayers pay 12% on their sales + Income Tax. Granted they can deduct the input taxes they get from sales to effectively lower it – but this would usually make sense only if your expenses are a considerable part of your income (low margin businesses). Also, there’s much more compliance requirements for VAT.

      Hope that helps!

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