Question & AnswerQ&A (REVENUE MEMORANDUM ORDER NO. 23-2018)
The main objective of Revenue Memorandum Order No. 23-2018 is to prescribe policies, guidelines, and procedures in availing the eight percent (8%) income tax rate option for individuals earning from self-employment and/or practice of professions relative to the implementation of Republic Act No. 10963 (TRAIN Law).
Qualified individuals are self-employed individuals (single proprietors, professionals, and mixed income earners) whose gross sales/receipts and other non-operating income did not exceed the VAT threshold of Three Million Pesos (P3,000,000) during the taxable year, registered and subject only to percentage tax under Section 116 or exempt from VAT or other percentage taxes, and who have signified their intention to elect the 8% income tax rate option in accordance with the Order.
No. Purely compensation income earners are not eligible to avail of the 8% income tax rate option and shall be taxed based on the graduated income tax rates under Section 24 (A)(2)(a) of the NIRC.
They have the option to be taxed either under the graduated income tax rates as provided in the NIRC or at an 8% tax on gross sales/receipts and other non-operating income in excess of P250,000 in lieu of graduated income tax rates and percentage tax.
For mixed income earners opting for the 8% income tax rate, the taxable income is based on the gross sales/receipts and other non-operating income without the P250,000 reduction. Their compensation income is taxed under graduated rates, and the 8% tax is applied to their gross receipts from business or profession.
No. Once the taxpayer elects the 8% income tax rate option, the election is irrevocable for that taxable year, and no amendment shall be made for that taxable year.
They are required to file the Quarterly Income Tax Return (unless exempted by revenue issuances), the Annual Income Tax Return (without the need to attach financial statements), are not required to file the Quarterly Percentage Tax Return, must maintain books of accounts, and issue receipts/invoices.
If the gross sales exceed P3,000,000 during the taxable year, the taxpayer is automatically subject to graduated income tax rates and VAT prospectively. They must update their registration within the following month to reflect the change in tax profile and pay percentage tax from the start of the year until they become liable to VAT.
A new business registrant can signify the intention by filing BIR Form No. 1901 and/or 1701Q upon registration or on the initial quarterly income tax return (BIR Form 2551Q and/or 1701Q) of the taxable year after starting the business or profession.
Disqualified individuals include purely compensation earners, VAT-registered taxpayers regardless of income amount, taxpayers exempt from VAT whose income exceeds the P3,000,000 threshold, taxpayers subject to other percentage taxes except Section 116, partners of a General Professional Partnership (GPP), and individuals enjoying income tax exemption such as registered Barangay Micro Business Enterprises (BMBEs).
The taxpayer must signify their intention to avail the 8% income tax rate every taxable year if they wish to continue being covered by that rate, as the default tax rate at the start of each taxable year is the graduated income tax rates.
The Revenue District Office receives and validates the application whether the taxpayer qualifies for the 8% option, updates the Integrated Tax System or Electronic Tax Information System accordingly, generates Certificates of Registration reflecting the 8% income tax rate status, and issues reminders regarding filing requirements.
No, financial statements are not required to be attached when filing the Annual Income Tax Return for taxpayers availing of the 8% income tax rate option.
Yes, a VAT-registered person whose gross sales and/or receipts for three consecutive years did not exceed P3,000,000 may update their registration to Non-VAT to qualify and avail of the 8% income tax rate option before the first quarter of a taxable year, subject to rules on registration and verification.