Are you a small business owner who feels overwhelmed by multiple taxes and complex filing requirements? The 8% Gross Income Tax (GIT) Rate under the TRAIN Law (RA 10963) might be the simplification you’ve been waiting for.
Implemented on January 1, 2018, this new option allows qualified self-employed individuals and professionals to pay a flat 8% tax on gross income, making tax compliance easier and more efficient.
What Are the Benefits of the 8% Gross Income Tax?
- No business taxes – Once you qualify and opt for the 8% Gross Income Tax, you are exempt from paying the 3% percentage tax every quarter.
- Lower and simpler tax rate – Instead of the graduated tax rates ranging from 0% to 35%, you’ll only pay 8% of your gross sales/receipts and other non-operating income, net of returns and discounts.
- No Need to Substantiate Every Expense – Since the tax is computed on gross income, you don’t need to track and prove every business expense. This removes a major compliance burden compared to the graduated income tax.
- ₱250,000 Allowable Deduction – Individuals earning purely from business or professional practice are entitled to a ₱250,000 deduction from gross income annually.
- Easier Computation – since computation is only based on gross income after deducting the P250,000, as the case may be, you just need to compute the 8% GIT outright of the difference of the two. Thus, the following formula may be use
Gross Income – ₱250,000 = Taxable Amount
Taxable Amount × 8% = Tax Due - No need to file Audited Financial Statements (AFS) signed by an independent CPA – as a benefit of availing 8% Gross Income Tax, you are no longer required to file AFS. Thus, eliminating the need to hire an independent external auditor.
- Lower Risk of Audit – there will be small chance that your company will be selected for audit unlike when you avail the Graduated Income Tax Rate wherein you need to support every expenses claimed thru documentation.
- Save time and Effort – It will save your time and effort because the computation now is simple and easy.
8% Gross Income Tax vs. Graduated Income Tax
Here’s a quick comparison between the 8% Gross Income Tax and the traditional Graduated Income Tax system to help you decide which may work better for your business.
| Criteria | 8% Gross Income Tax (GIT) | Graduated Income Tax |
|---|---|---|
| Tax Basis | Gross income (no expense deductions) | Net income (after deducting expenses) |
| Tax Rate | Flat 8% | 0% – 35% (progressive) |
| Percentage Tax | Exempt | Must pay 3% quarterly (if non-VAT) |
| Deduction | ₱250,000 standard deduction | Actual business expenses |
| Financial Statement | Not required | Required for those above ₱3M |
| Complexity | Simple and easy to compute | Requires documentation and accounting records |
| Best For | Freelancers, professionals, and low-expense businesses | Businesses with high operating costs and deductions |
When Is the 8% Gross Income Tax a Good Option?
The 8% tax rate is best for freelancers, consultants, and self-employed professionals whose operating expenses are relatively low. If your expenses are small compared to your income, this option may result in lower taxes overall.
However, for businesses with significant expenses or cost of sales, the graduated tax might be more favorable since you can deduct these expenses.
The TRAIN Law aims to simplify tax filing and compliance, especially for small business owners and professionals. By removing unnecessary paperwork and reducing the burden of documentation, it allows entrepreneurs to concentrate on what they do best – running their business.
Can small apartment business (earning less than 1M per year) avail of this 8% fixed tax? Do we need to go to Rdo to update our CIR if it only shows now just ITR and registration taxes? Or can we just tick on the 8% option once we filed the 1701q and 1701? Thanks
Thank you for your comment. Yes, you can avail of the 8%. However, you must need to first update your registration to the BIR to signify your intention to avail of the 8% and they will re-issue you a new COR. Hope this helps.
Thank you for your reply. In my opinion, if you never paid Percentage Tax (2551M) before, you can proceed just filing Income tax return (1701Q/1701). But if you are paying Percentage Tax (2551M) before, it’s safer to update your COR and inform BIR of your intention to be under 8%. The choice of 8% is done every first quarter of the year and choice can be done/change yearly.