The TRAIN Law and MSMEs



It is safe to assume that all Filipinos are familiar with the “sari-sari store,” the ubiquitous Filipino establishment found on almost every street in every barangay in the Philippines. The appeal of the sari-sari store lies mainly in its ability to sell goods on a retail basis (i.e., ¼ kilo of sugar, 8 ounces of cooking oil) that would otherwise have been tedious for the bigger grocery stores.

Sari-sari stores are actually considered as “Micro, Small and Medium Enterprises” (MSMEs) under Republic Act (RA) No. 6977, “The Magna Carta for Small Enterprises”, as amended by RA No. 8289. Depending on the amount of its total assets, a sari-sari store may be considered as either micro (P1.5 million or less); small (P1,500,001 to P15 million); or medium (P15,000,001 to P60 million).

Just over a year ago, sari-sari stores were under the close scrutiny of the Bureau of Internal Revenue (BIR), as the bureau planned to target sari-sari stores with the goal of increasing the taxpayer base for tax collection purposes. According to BIR Commissioner Caesar R. Dulay, bringing the tax collection drive to the grassroots level is one of the bureau’s programs designed to further improve tax enforcement activities and voluntary compliance.

Now, with the advent of the Tax Reform for Acceleration and Inclusion (TRAIN) Law or RA No. 10963, the BIR’s goal of increasing the taxpayer base may be closer to reality, as MSMEs will now find it less burdensome to declare their income and pay the proper taxes under the administration’s tax reform law.

Under the TRAIN Law, self-employed individuals whose gross sales/receipts are more than P250,000 but do not exceed P3 million are given the option to be taxed at either 8 percent of gross sales/receipts in excess of P250,000; or new graduated income tax rates under the TRAIN Law.

The effect of the 8 percent flat income tax rate option on MSMEs is clearly seen when we compare how MSMEs were taxed under the old provisions of the Tax Code. Under the old graduated personal income tax rates [Section 24(A)(2)], a sari-sari store with gross sales/receipts of P350,000 for the year would be subject to income tax of P80,000 (P50,000 plus 30 percent of the excess over P250,000).

Under the provisions of the TRAIN Law, the same sari-sari store will have the option to be taxed at P8,000 (8 percent of P100,000), or P20,000 (20 percent of the excess over P250,000). With either of the options (P8,000 or P20,000), the benefits under the TRAIN Law are clearly seen over the old graduated personal income tax rates (P80,000).

One has to note, however, that the above illustration merely looks at a specific provision of the TRAIN Law, and does not take into consideration how the other provisions of the TRAIN Law may affect MSMEs in general—and our lowly sari-sari store in particular. Will the TRAIN Law be a boon, or a bane to MSMEs? Let us wait and see.

Atty. Maria Louella “Peaches” Aranas is a seasoned tax lawyer and Managing Partner of LMA Law office.


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