We’ve been witnessing a lot of activity from the Bureau of Internal Revenue (BIR) lately, particularly with the issuance of Revenue Regulations (RR) No. 8-2018, implementing the income tax provisions of Republic Act (RA) No. 10963, or the “Tax Reform for Acceleration and Inclusion” (TRAIN) Law.
Specifically, 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, as amended, specifically the rules on the taxation of individuals. However, even if RR 8-2018 was published in the BIR website last February 22, 2018, the new income tax rules became effective on January 1, 2018, the date of effectivity of the TRAIN Law.
What is clearly evident from RR 8-2018 is its liberal use of illustrations to properly explain how the new income tax rules will affect individual taxpayers. As explained by BIR Deputy Commissioner, Legal Group, Marissa O. Cabreros, RR 8-2018 is different from other BIR regulations that are straightforward, as it employs real-life, scenario-based illustrations that taxpayers can easily relate to.
As an implementing regulation, RR 8-2018 reproduces most of the provisions of the TRAIN Law, such as the new graduated income tax rates, which are more easily understood as it is presented in tabular form. Starting January 1, 2023, the income tax rates will be lowered to reflect the administration’s goal to make taxes less burdensome to taxpayers.
Of particular interest are the provisions relating to an option for individual taxpayers to avail of an 8 percent tax on gross sales or receipts. Under RR 8-2018, 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 (which is currently now at P3 million), 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.
Ordinarily, taxpayers whose gross sales or receipts do not exceed the current VAT threshold of P3 million are exempt from the payment of VAT, and are instead liable to a 3 percent percentage tax under Section 116 of the Tax Code. With the option to be taxed at 8 percent, a taxpayer will be exempt from the payment of the 3% percentage tax. In addition, Financial Statements (FS) are not required to be attached in filing the final income tax return.
The option to be taxed at 8 percent is however not available to everyone whose gross sales/receipts do not exceed P3 million (current VAT threshold), as RR 8-2018 lists down the following taxpayers who may not avail of the option:
VAT-registered taxpayers, regardless of the amount of gross sales/receipts;
Taxpayers subject to percentage tax other than those under Section 116 of the Tax Code (international carriers, franchises, banks, finance companies, among others);
Partners of a General Professional Partnership by virtue of their distributive share (which is already net of cost and expenses)
A taxpayer will have to signify his intention to elect the 8 percent income tax rate in the 1st Quarter Percentage and/or Income Tax Return, otherwise, he shall be considered as having availed of the graduated tax rates. Such election shall be irrevocable and no amendment of the option shall be made for the said taxable year.
Atty. Maria Louella “Peaches” Aranas is a seasoned tax lawyer and Managing Partner at LMA Law office. She is also at the forefront of The Sandy Project, a dengue awareness and prevention advocacy that she started in 2013.