Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law that came into effect this year, the threshold for the value added tax (VAT) was raised to Php3 million from Php1.919 million.
This presents a special opportunity for a class of taxpayers who grossed between Php1.9 million and Php3 million in the preceding year whose transactions used to be covered by the 12-percent VAT. Starting January 1, 2018, these VAT-registered taxpayers are no longer covered by VAT because their gross income or receipts is less than the threshold of Php3 million.
However, exemption from VAT does not come automatically. They need to apply with the Bureau of Internal Revenue (BIR) to have their status changed from VAT-registered taxpayer to non-VAT taxpayer.
The BIR said in an advisory that these taxpayers have to apply for change of status on or before March 31 (which is a Saturday, making the deadline effectively March 30 unless the BIR decides to make March 31 a working day).
“Purely self-employed individuals and/or professionals who are VAT-registered taxpayers and whose gross sales/receipts and other non-operating income do not exceed the new value added tax (VAT) threshold of Php3 million in the preceding year may elect to change his/her status from VAT to Non-VAT by filing the duly accomplished BIR Form No. 1905 – Application for Registration Information Update – to the Revenue District Office having jurisdiction of the head office of the concerned taxpayers on or before March 31, 2018,” said the advisory.
As Non-VAT Taxpayers, they can avail of the following options in the payment of their income taxes:
- the graduated rates in accordance with the income tax table; or
- an eight-percent tax on gross sales or receipts and other non-operating income in excess of Php250,000 in lieu of the graduated income tax and the percentage tax
The BIR advisory said that non-VAT taxpayers opting to pay the eight-percent tax on gross sales or receipts should signify so when they file their first quarter return. The deadline for filing the first quarter return is on May 15, 2018.
“Unless the taxpayer signifies in the first quarter return of the taxable year the intention to elect the eight percent income tax rate, the taxpayer shall be considered as having availed of the graduated rates under section 24(a) of the tax code,” the BIR said in its advisory.
The agency further said that after the May 15 deadline, taxpayers can no longer change their option for the whole taxable year. “Such election shall be irrevocable for the taxable year,” said its advisory.
What happens if VAT-registered taxpayers fail to apply for change of status by March 30, 2018?
“There is a probability that the BIR may not allow [late] application if the intention of the taxpayer is to file eight percent flat tax rate,” cautioned Joebert Allen F. Gautier, tax supervisor and director of Tax Whiz Academy. “Thus, taxpayers will still remain liable to pay both business tax (VAT or Percentage Tax) and income tax per tax table,” he added.
Tax Whiz Academy is an initiative of the Abrea Consulting Group that offers educational programs such as strategic tax management, seminars and certification courses. It is headed by former BIR examiner and tax expert Raymond Abrea.
Pauline Macaraeg is Entrepreneur PH's data journalist. Follow her on Twitter @paulinemacaraeg