IN line with implementing Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) No. 23-2018 on May 21 prescribing the policies, guidelines and procedures for availing of eight percent income tax rate option for individuals earning from self-employment, business, and/or practice of profession. The RMO takes effect immediately.
Under RMO No. 23-2018, the following policies and guidelines apply:
-The income of self-employed individuals—including single proprietors, professionals, and mixed income earners—is generally subject to graduated income tax rates, as provided in the Tax Code, as amended.
-Self-employed individuals earning income purely from self-employment, business, and/or practice of profession whose gross sales and/or receipts and other non-operating income does not exceed the new value-added tax (VAT) threshold of P3 million can avail one of the following options:
-Graduated income tax rates, as provided in the Tax Code, as amended, or
- Eight percent tax on gross sales or receipts and other non-operating income exceeding P250,000.
-Mixed income earners or individuals earning income both from compensation and self-employment (business or practice of profession) will be subject to the graduated tax rate, as provided in the Tax Code, as amended, on compensation income under an employer-employee relationship.
The income from self-employment, on the other hand, is subject to the following rules:
-If the gross sales or receipts and other non-operating income do not exceed the VAT threshold, the individual has the option to be taxed as follows:
-Graduated income tax rates as provided under the Tax Code, as amended, or
-Eight percent income tax rate based on gross sales or receipts and other non-operating income, in lieu of percentage tax, as provided in the Tax Code, as amended.
-If the gross sales or receipts and other non-operating income exceed the VAT threshold, the individual will be subject to graduated tax rates under the Tax Code, as amended.
-The following individuals cannot opt for the right percent income tax rate option. They will be subject to graduated tax rates, as provided in the Tax Code, as amended.
-Purely compensation income earners;
-VAT-registered taxpayers, regardless of the amount of gross sales or receipts and other non-operating income;
-Individuals exempt from VAT or other percentage taxes whose gross sales or receipts and other non-operating income exceeded the VAT threshold during the taxable year;
-Individuals subject to other percentage taxes under Title V of the Tax Code, as amended, except for those subject under Section 116 of the same Code;
-Partners of general professional partnerships (GPPs); and
-Individuals enjoying income tax exemption
-Self-employed individuals availing of the eight percent 8% income tax rate must signify their intention by filing any of the following documents:
-New business registrant:
-BIR Form No. 1901 and/or 1701Q upon registration; or
-Initial quarter return (BIR Form No. 2551Q and/or 1701Q) of the taxable year after the commencement of a new business or practice of profession.
-Existing individual business taxpayer:
-BIR Form 1905 (application for registration information update) at the beginning of the taxable year, to end-date the form type of quarterly percentage tax, provided that the eight income tax rate is selected in filing the initial quarterly income tax return for income tax purposes;
-First quarterly percentage tax return; and/or
-First quarterly income tax return.
Individuals availing of the eight percent income tax rate for the first time must also submit their certificate of registration (COR) for updating together with the BIR Form 1905.
The application for registration information update (BIR Form 1905) signifying the intention to avail of the eight percent income tax rate must be filed at the beginning of every taxable year; otherwise, the graduated income tax rate applies. The availment is valid and irrevocable for the taxable year when the said tax rate was chosen.
For further information, refer to the full text of RMO No. 23-2018.
SOURCE: P&A GRANT THORNTON
Certified Public Accountants Punongbayan & Araullo (P&A) is the Philippine member firm of Grant Thornton International Ltd.