Scope and General Rule on Taxation
- Income of self-employed individuals is subject to graduated income tax rates per Section 24 (A)(2)(a) of the NIRC.
- The 8% tax option is available to qualified individuals subject to certain conditions.
Eligibility for the 8% Income Tax Rate Option
- Must be self-employed or professional individuals.
- Gross sales/receipts plus other non-operating income must not exceed PHP 3,000,000 VAT threshold.
- Must be subject only to the percentage tax or exempt from VAT and other percentage taxes.
- Must formally elect the 8% income tax option as prescribed.
Tax Treatment of Mixed Income Earners
- Compensation income taxed at graduated rates.
- Business/profession income may be taxed either at graduated rates or 8% gross receipts tax if below VAT threshold.
- If business/profession receipts exceed VAT threshold, entire income taxed at graduated rates.
Exclusions from the 8% Income Tax Rate Option
- Pure compensation earners.
- VAT-registered taxpayers.
- Taxpayers exceeding VAT threshold who are exempted from VAT.
- Those subject to other percentage taxes except Section 116 percentage tax.
- Partners in General Professional Partnerships.
- Individuals enjoying income tax exemptions such as BMBEs.
Election and Revocability of the 8% Tax Option
- Initial taxation defaults to graduated income tax rates annually.
- The 8% tax option must be elected annually to be effective for that year.
- Election is irrevocable once made within the taxable year.
Procedures for Signifying Election
- New registrants elect via BIR Form No. 1901 or initial quarterly returns.
- Existing taxpayers may elect via BIR Form No. 1905 or first quarterly returns.
- Failure to choose defaults to graduated tax rates.
Filing and Compliance Requirements for 8% Tax Option Availers
- Must file quarterly income tax returns unless exempted.
- Must file annual income tax return without needing to attach financial statements.
- Not required to file quarterly percentage tax returns.
- Must maintain books of accounts and issue official receipts/invoices.
- Must update tax registration if gross receipts exceed VAT threshold mid-year.
Tax Base Calculation under the 8% Tax Option
- For pure self-employed/profession: 8% applies to gross receipts exceeding PHP 250,000.
- For mixed income earners, 8% applies to entire gross receipts without PHP 250,000 deduction.
- Compensation income for mixed income earners taxed separately at graduated rates.
Registration Update Requirements
- Election of 8% tax option requires filing BIR Form No. 1905 to update registration.
- Must keep percentage tax registration but suspend relevant forms when opting for 8% tax.
- VAT-liability triggers registration update and tax status change.
- VAT-registered persons who drop below threshold may update registration to become non-VAT and qualify for 8% tax option.
Administrative Procedures by Revenue District Offices
- Validate taxpayer eligibility for the 8% rate upon registration/update.
- Tag taxpayers and update relevant forms and tax types in the Integrated Tax System or Electronic Tax Information System.
- Issue Certificate of Registration (COR) annotated with 8% tax option and related reminders.
Information System and Automation
- Integrated Tax System and Electronic Tax Information System programmed to tag, suspend or open form registrations automatically based on taxpayer election.
- No stop-filer or open case generated for quarterly percentage tax returns for taxpayers who elected the 8% tax.
Transitory Provision
- Revenue District Offices in Region No. 8 and Makati City to use Integrated Tax System pending enhancements.
Effectivity
- The Order is effective immediately upon issuance.