New BIR forms under Train
Credit to Author: RON ARRIESGADO| Date: Sat, 09 Feb 2019 16:27:24 +0000
Last year, we discussed Revenue Regulations (RR) 8-2018, which implements the income tax provisions of Republic Act (RA) 10963, or the
“Tax Reform for Acceleration and Inclusion” (Train) Law. RR 8-2018 implements the new income tax rates for individual citizens, resident aliens and non-resident aliens, among others, and amends most of the income tax provisions of Title II of the Tax Code, specifically the rules on the taxation of individuals. However, even if RR 8-2018 was published in the BIR website last Feb. 22, 2018, the new income tax rules became effective on Jan. 1, 2018, the date of effectivity of the Train Law.
Of particular interest are the provisions relating to the option for individual taxpayers to avail of the 8 percent tax on gross sales or receipts.
Individuals earning income purely from self-employment and/or practice of profession whose gross sales/receipts do not exceed the value-added tax (VAT) threshold of P3,000,000 shall have the option to avail of:
– The new graduated income tax rates; OR
– An 8 percent tax on gross sales or receipts in excess of P250,000 in lieu of the graduated income tax rates and the percentage tax under Section 116 of the Tax Code.
With the intention of providing clearer guidelines on how taxpayers may avail of the 8 percent tax rate option, the BIR issued Revenue
Memorandum Order (RMO) 23-2018 dated May 21, 2018. It would be worthwhile to take another look at the salient provisions of RMO 23-2018:
The RMO provides for criteria which should be satisfied to qualify and avail of the 8 percent tax rate option:
Those who can avail are individuals earning from self-employment and/or practice of profession;
Taxpayer’s gross sales/receipts do not exceed the VAT threshold of P3,000,000;
Taxpayer should be registered and subject only to percentage tax OR exempt from VAT or from other percentage taxes;
Taxpayer must have signified his intention to choose the 8 percent tax rate option under the necessary quarterly/annual income tax returns (financial statements need not be attached);
To be able to be continuously covered by the 8 percent tax rate option, one should signify his intention every taxable year;
Taxpayers who are qualified and have availed of the option are required to maintain books of accounts and issue corresponding receipts/invoices.
The challenge with trying to avail of the 8 percent tax rate option, especially last year, was that the BIR had not provided for appropriate BIR forms that would take into consideration the stringent criteria under RMO 23-2018. However, just recently, the BIR issued Revenue Memorandum Circular (RMC) 17-2019, dated Jan. 23, 2019, which provides for the new BIR Form No. 1701A — annual income tax return for individuals earning income from business/profession, specifically those:
Under the graduated income tax rates with the “Optional Standard Deduction” (OSD) as mode of deductions; OR
Those who opted to avail of the 8 percent flat income tax rate.
Under RR 8-2018, in computing for gross income, taxpayers are allowed either itemized deductions or an OSD. For individual taxpayers, the OSD shall be 40 percent of gross sales/receipts, while corporations may elect an OSD not exceeding 40 percent of its gross income. Note that no deductions shall be allowed to individual taxpayers earning compensation income arising from personal services rendered under an employer-employee relationship, and those who avail of the 8 percent flat income tax rate option.
Ron Arriesgado is a tax lawyer, a transfer pricing specialist, and is a Partner at the LMA Law Offices in Makati City. He has managed and resolved taxation issues of local and multinational entities; resolved various tax assessment cases issued by the Bureau of Internal Revenue; and provided clients with the proper tax strategies to cancel or substantially lower tax assessments, among others.
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