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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