TX 102
Module 6 – OPTIONAL INCOME TAX RATE
Here are the normal (regular) income tax rates for [Link] places (boxing, basketball,
individuals in the Philippines under the TRAIN Law, karaoke, music lounges, nightclubs, Jai Alai,
effective January 1, 2023, onwards. race tracts)
4. Must opt for 8% in the first quarter return
Graduated Income Tax Table (for ITR 1700 & 1701) ➢ The taxpayer must choose the 8% tax rate
when filing the first quarter return.
➢ If not chosen in the first quarter, they must
follow the regular graduated income tax rates
for the whole year.
Formula for 8% Tax:
Tax Due = (Gross Sales / Receipts - P250,000 Exemption) x
8%
• The first ₱250,000 is tax-exempt.
• The remaining amount is taxed at 8%.
Applies to self-employed individuals, professionals, and
employees who did not opt for the 8% flat tax, When to File?
• Quarterly and annually using BIR Form 1701Q
REVENUE REGULATION 8-2018 (OPTIONAL 8% INCOME (Quarterly) and BIR Form 1701 (Annual).
TAX RATE FOR SELF-EMPLOYED & SOLE PROPRIETOR) • Deadline for annual income tax: April 15 of the
following year.
Who can avail?
- Under TRAIN LAW, the 8% optional income tax rate on Important Restrictions on the 8% Optional Income Tax
business income (operating and non-operating) is Rate
applicable only to: The 8% optional income tax is a simplified tax scheme for
1. Self-employed individuals (sole proprietors and self-employed individuals and professionals in lieu of:
professionals) whose gross receipts or gross sales • Graduated income tax rates, and
and other non-operating income for the year do not • Business tax (Percentage Tax or VAT).
exceed the three million pesos (P3,000,000) value-
added tax (VAT) threshold. However, not all taxpayers can opt for the 8% tax rate.
2. Non-VAT registered Below are the categories of individual taxpayers who are
➢ The taxpayer must not be VAT-registered (i.e., NOT eligible and must use the graduated income tax
should not be subject to the 12% VAT). rates instead:
➢ Instead, they should be registered under the 1. Purely compensation income earners
percentage tax system (but will no longer pay ➢ Employees who only earn salaries/wages from an
percentage tax if they opt for the 8% rate). employer (compensation income). They cannot
3. Not subject to other types of percentage tax (Sec avail of the 8% tax because their tax is already
117-127 of NIRC) computed via withholding tax on compensation.
The taxpayer must not be engaged in a business 2. VAT-registered taxpayers, regardless of the gross sales
that is subject to other percentage taxes, such as: or receipts and other nonoperating income
a. Domestic carriers and keepers of garages ➢ Any self-employed individual, sole proprietor, or
b. International air/shipping carriers (on sales of professional who is VAT-registered, even if their
cargo tickets from Philippine port) income is below P3M.
c. Franchise grantees (water/electric ➢ The 8% tax replaces Percentage Tax, but VAT-
companies, TV/radio stations with revenue ≤ registered taxpayers are already covered by the
P10M/year) 12% VAT system, so they must use the graduated
d. Banks and non-bank financial intermediaries tax rates instead.
e. Insurance companies 3. Taxpayers exempt from VAT or other percentage taxes
whose gross sales/receipts and other nonoperating
income exceeded the P3,000,000 VAT threshold during
the taxable year
➢ If a self-employed individual’s gross sales/receipts
exceed P3M in a year, they are automatically
required to register for VAT.
➢ This makes them ineligible for the 8% tax rate and
forces them into the graduated tax system + VAT
filing.
4. Taxpayers, who are subject to Other Percentage Taxes
under Title V of the Tax Code, as amended, except
those subject under Section 116 of the same title
➢ Businesses subject to special percentage taxes
under Title V of the Tax Code (except Sec. 116).
➢ These businesses cannot switch to the 8% tax rate
because they follow specific tax rules.
5. Partners of a General Professional Partnership (GPP)
6. Individuals enjoying income tax exemption
➢ People who are already tax-exempt under special
laws cannot be availed of the 8% tax rate because
they don’t need to pay tax in the first place.