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TRAIN sets 8% flat tax on gross sales

For self-employed, professionals


By Bernie Cahiles-Magkilat

Self-employed individuals and professionals can choose between an 8 percent flat tax on gross sales or receipts to be filed only once a year or the schedular personal income tax rate with allowable deduction under Senate Bill 1592 or the Tax Reform for Acceleration and Inclusion (TRAIN).

The 8 percent tax will be in lieu of the personal income tax, which is currently filed quarterly, and the percentage tax, filed monthly.

Senator Sonny Angara, chairman of the ways and means committee, said the Senate version of the first tax reform package has made available to self-employed individuals and professionals a flat tax regime that is simpler and easier to comply.

“The Congress is making a distinction between the tax treatment of compensation income earners and self-employed individuals and professionals because we recognize the need to really simplify the process and make it easier for them to comply and pay correct taxes,” said Angara.

According to BIR data, self-employed and professionals only contribute 15 percent of the total income tax collection, while the 85 percent is shouldered by compensation income earners.

“Income taxes of compensation income earners — like our teachers, nurses, call center agents — are automatically withheld by their employers. On the other hand, self-employed and professionals — like owners of sari-sari stores and carinderia, and our doctors and lawyers—have to file their taxes on their own or with the help of accountants, which they can’t afford to hire most of the time. Thus, many of the self-employed and professionals cannot follow the tax regulations,” he said.

“The previous administration opted for the scare and shame tactic, but I believe a developmental approach or incentivizing them to follow tax rules would be a more effective strategy. That’s why we introduced an 8 percent flat tax for easier compliance. Let’s make the system for compliance easier for our small enterprises,” he added.

In addition, Angara said that with higher income tax exemption, marginal income earners will be exempt from paying income taxes. These include farmers and fisherfolk, sari-sari store owners, carinderia owners, market vendors, and tricycle drivers.

“By automatically exempting them from income tax, in effect, marginal income earners would finally be afforded equal protection and benefits that the minimum wage earners have long been enjoying,” the senator said, highlighting that 99 percent of individual income taxpayers will enjoy higher take-home pay due to lower tax rates.

The value-added tax (VAT) threshold is also raised from P1.9 million to P3 million, thus exempting small businesses with total annual sales of P3 million and below from paying VAT.

Angara said this would provide them due tax relief that would encourage them to grow, and generate more and better jobs for Filipinos.

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  • Renato Bernardo

    Tax based on Gross sales without allowing the deduction of its business expenses; like cost of goods, salaries, operating cost and other related expenses, will force most establishments to shut down.
    Imagine a business with a 10% profit margin on its products being taxed by a fixed 8%. Obviously, the 2% left won’t be enough to pay even for employee’s salaries. Then there’s the 20% discount for seniors.
    Hope I’ve misunderstood the article.