Are you small business owner who constantly get hassled with the several taxes you pay and wished it’s more simplified? We have a little good news for you. Let’s talk about it!
Last January 1, 2018, a new big thing has been released that will change the way you look taxes here in the Philippines, it is the effectivity of Tax Reform for Acceleration and Inclusion (TRAIN) Law or RA 10963. One significant change is the new method on how to simplify your filling of income tax return and business tax. It is called the 8% Gross Income Tax Rate.
What are the benefits of availing 8% Gross Income Tax (GIT)?
- No business taxes – Once you avail and qualify for the 8% GIT you are no longer required to pay the 3% Percentage Tax on the quarterly basis.
- Lower tax rate – Compare to the Graduated Income Tax Rate which is ranging from 0% to 35% of the taxable income; the new tax rate is only 8% of gross sales/receipts and other non-operating income, net of returns and cash discounts.
- Tax due is based on gross income – Thus, eliminating the need to prove or substantiate every expenses for income tax purposes. Unlike if you avail the Graduated Tax Rate you need to substantiate and support all those claimed costs and expenses.
- Allowed Deduction of P250,000 – You are entitled for P250,000 deduction per year from gross income, for those individual whose income comes purely from business/practice of profession; otherwise, no reduction/deduction is allowed.
- No need to hire an accountant – 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
Total Gross Receipts/Revenue xxx,xxx Less: Allowed Deduction 250,000 Difference xxx,xxx Multiply by Tax Rate 0.08 Tax Due and Payable xx,xxx - No need to file Audited Financial Statements (AFS) signed by an independent CPA – as a benefit of availing 8% GIT, you are no longer required to file AFS. Thus, eliminating the need to hire an independent external auditor.
- Small chance to be a candidate for 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.
TRAIN Law was enacted to simplify filling and compliance with the Bureau of Internal Revenue(BIR). Availing such privileges will make your filling more easier specially to start-up proprietors and professional. Thus, giving you more time to focus on what you do best.
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.