Subsistence Livelihood Tax Exemption Rules

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BIR MEMORANDUM CIRCULAR NO. 4-98: Subsistence Livelihood Tax Exemption Rules

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Title Source: Supreme Court: Subsistence Livelihood Tax Exemption Rules

Law: Bir Memorandum Circular No. 4-98

Decision Date: Jan 21, 1998

BIR Memorandum Circular No. 4-98 exempts individual taxpayers engaged in subsistence livelihood activities, with gross sales not exceeding P 100,000 annually, from paying value-added tax, percentage tax, and registration fees to promote equitable relief and enhance economic activity.

Law Summary

Scope of Persons Liable to Value-Added Tax (VAT)

VAT applies to any person who, in the course of trade or business:
- Sells, barters, exchanges, or leases goods or properties.
- Renders services.
- Imports goods.
"In the course of trade or business" means regular conduct or pursuit of commercial or economic activities, including incidental transactions.
This definition covers all persons, including non-stock, non-profit private organizations.

Definition of "In the Course of Business" and Subsistence Livelihood Threshold

Revenue Regulations No. 7-95 further qualifies the term "in the course of business".
Individual businesses with aggregate gross sales or receipts not exceeding P100,000.00 within any 12-month period:
- Are considered to be operating for subsistence or livelihood.
- Such activity is not regarded as "in the course of business" for VAT purposes.

Registration and Tax Exemption for Qualified Individual Taxpayers

Individuals qualifying under the subsistence livelihood definition must register.
These individuals are exempt from paying the registration fee prescribed under Section 236 (B) of the Tax Code.
They are also exempt from paying the following taxes where applicable:
1. Value-Added Tax (VAT) under Title IV, Chapter I of the National Internal Revenue Code (NIRC) of 1997.
2. Percentage Taxes under Title V of the NIRC of 1997.

Implementation and Administrative Guidance

All internal revenue officers and concerned parties are instructed to:
- Follow the provisions and guidelines of this Memorandum Circular strictly.
- Ensure wide publicity and dissemination of this policy for public awareness and compliance.

Legal Authority

Issued by the Commissioner of Internal Revenue on January 21, 1998.
Enforces equitable tax relief measures in accordance with the Tax Reform Act of 1997 (R.A. 8424).

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