Most of the businesses in the Philippines are engaged in buying and selling. Such companies are subject to percentage tax or value-added tax depending on the number of sales or income. In this article, we’ll help you to answer some of those commonly asked questions. We’ll highlight how to file percentage tax under create law.
Before implementing CREATE law, the percentage tax rate is three percent (3%) of gross sales or gross receipts. However, due to create law in 2020, the percentage reduces from 3% to one percentage (1%) tax rate.
Percentage tax vs VAT
How can you know if your business is subject to percentage tax or value-added tax? You need to compute the gross sales or gross receipts, either expected or from the previous year. If the gross sales or receipts are less than three million, you are subject to percentage tax rates.
However, if it is more than three million (3,000,000), you are required to file under value-added tax at twelve percent (12%). Even if the business income or sales don’t exceed the vat threshold, you can still file under a value-added tax rate.
Frequently Asked Questions (FAQs)
Here are the commonly asked questions regarding the percentage tax under create law. If your questions are not listed below, drop your questions in the comment below.
Is percentage tax a deductible expense
Percentage tax is a deductible account of the gross income. However, you can only claim to the non-individual taxpayer. It means, if you’re filing individual tax under bir for 1701, any percentage tax payments are not a deductible expense account.
However, suppose the total amount of 3% has been claimed as a tax deduction in the annual income tax return. In that case, you cannot apply to carry over any overpaid amount from the previous percentage tax return.
Who are subject to percentage tax?
Primarily, any persons who are not VAT registered and whose gross income or sales is less than three million (3,000,000) thresholds will be subject to percentage tax. These include estates, trusts, partnerships, and corporations.
The percentage tax rate is one percent (1%) starting June 2020. However, some of these incomes may vary depending on the type of transactions. Here are some of those transactions and tax rates.
Was the decrease of Percentage tax rate of 1% intended for corporate taxpayers only?
CREATE law applied to both corporate and self-employed individual and professional taxpayers whose gross sales or receipts don’t exceed 3,000,000. However, this reduction doesn’t apply to cooperatives and self-employed individuals and professionals who opted to file at 8% income tax rates.
Are non-VAT registered taxpayers required to amend using 1% tax rates?
A non-VAT registered person can amend their previous percentage tax returns using the 1% tax rate to reflect the overpayment of taxes.
Any amendments of percentage tax returns will not be subject to penalty for carrying over the overpayment of percentage tax. Excess payments from the previous returns will be carry over to utilize the overpayment against the future tax liabilities.
In the bir form 2551q, there is no option to carry over the overpaid amount. This form shows only the tax refund and issuance of tax credit certificates (TCC). Make sure to follow the guidelines below:
- For manual filing using bir form 2551q, use the options “to be refunded or to be issued tax credit certificate” should be used in filling for carryover. Replace the item as “To be Carried Over” on the return.
- For online filing using eFPS or eBIRForms, the option “To be Issued Tax Credit Certificate” is used in filing carry over. If you use this item, it is presumed as carry over the overpaid tax to the succeeding taxable quarter.
However, if you intend to make a refund, you must inform the BIR or RDO thru bir form 1914 or the “Application for Tax Credits/Refunds.”
Suppose you carry over the overpayment due to the decrease of percentage tax rates without amending the affected percentage tax returns to any quarters it disallowed. If you want to carry over the overpaid amount, you should amend it first before filing a carryover amount to a percentage tax return.
Note: Before filing to carry over the overpaid amount, make sure to file an amendment.
Can I refund the excess or overpayment from the previous percentage tax returns?
If you have excess from the previous percentage tax return due to a 3% to 1% tax rate reduction, you can file for a tax refund. Any person can file a tax refund under the following circumstances.
- Any person whose gross sales or receipts exceed three million (3,000,000) thresholds.
- If you choose to avail of the eight percent (8%) tax rate.
Can I file a tax refund from the overpaid taxes as Job Order (JO) or Service Contract Agreement (SCA)?
No. If you’re working as JO who availed substituted filing on Percentage tax, you can’t claim tax refund but only to carry over. Issue an authorization to file a tax refund and submit the certificate of withholding of percentage tax (bir form 2306) to your agency or government agency.
The withholding agent will carry over the over-remitted taxes to the subsequent filing of percentage tax returns.
If you’re not a substituted filer, the overpayment is carried over to the next quarter.
What percentage tax should I withhold?
There are two types of withholding taxes involving government money payments. These are income tax and Sales tax. In income tax, it’s in the form of creditable withholding tax, while sales could be 5% or 1% creditable withholding tax.
Five percent (5%) creditable withholding is collected if the supplier is a VAT registered, and one percent (1%) if the supplier is subject to percentage tax.
How to file Percentage tax return under CREATE law?
In filing percentage tax, you can file manually or online filing. In the online filing of percentage tax returns, you can use eFPS or eBIRForms. Here are the procedures for filing and payment of returns. The filing of percentage tax returns should be twenty-five (25) days after the end of each taxable quarter.
- Download and fill-up the bir form 2551q in triplicate copies.
- Pay the percentage tax amount with the Revenue Collection Officer (RCO) or Revenue District Office (RDO).
- Pay online using Gcash mobile payment, LandBank of the Philippines, or DBP tax Online.
1. Using eFPS
- Use the existing and enhanced bir form 2551q, which contains all the alphanumeric tax codes enumerated.
- Proceed to online payment by clicking the payment button using the different modes of payments.
2. Using eBIRForms
- Use the old bir form 2551q.
- Proceed to any Authorized Agent Bank (AAB) with the location of your business. Submit the duly accomplished BIR Form and other requirements.
Percentage tax under CREATE law provides incentives by reducing the tax rates from 3% to 1% tax rate. A person will be subject to percentage tax if the gross sales or receipts are less than three million pesos.
If you have other questions not listed above, let us know in the comment below. Don’t forget to share this article.
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