DRAFT IMPLEMENTING GUIDELINES
Vat threshold
Income Tax Rates for Self Employed
Individuals Earning Purely from Self-
Employment or Practice of Profession
Refers to the ceiling to determine VAT registrable taxpayers,
currently set at P3, 000,000 pesos. It is the same threshold to
be used to determine the income tax liability of self-
employed and or professionals.
The rate of tax of purely self-employed individuals and/or
professionals whose gross sales/receipts and other non-
operating income does not exceed the value-added tax (VAT)
threshold as amended shall have the option to avail of:
1. An 8% tax on gross sales/receipts and other non-
operating income in excess of P250,000 in lieu of the
graduated income tax rates under Section 24 (A) and
percentage tax under Section 116 all under the Tax
Code, as amended;
OR
2. The graduated rates under Section 24(A)(2) of the Tax
Code, as amended.
Unless the taxpayer signifies in the 1st Quarter Return of the
taxable year the intention to elect the 8% income tax, the
taxpayer shall be considered as having availed of the
graduated rates under Section 24(A) of the Tax Code, as
amended, and such election shall be irrevocable. Provided,
that, at any time during a given taxable year, a taxpayer’s
gross sales or receipts exceeded the VAT Threshold
(P3,000,000), he/she shall automatically be subjected to the
graduated rates under Section 24 (A)(2)(a) of the Tax Code, as
amended.
A VAT-registered taxpayer, regardless of the gross
sales/receipts can no longer avail of the 8% option. On the
other hand, a non-VAT registered taxpayer who initially opted
to avail of the 8% option but has exceeded the VAT Threshold
during the taxable year, shall be subject to 3% percentage Tax
on the first P3, 000,000 of his/her gross sales/receipts under
Section 116 of the Tax Code as amended, without imposition
of any penalty if payment is timely made on the following
month when the threshold is breached. Then, the excess of
the threshold shall be subject to VAT prospectively, and the
8% income tax previously paid shall be credited to the Income
Tax Due under the graduated rates provided in Section
24(A)(2)(a) of the Tax Code, as amended.
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, have no option to avail
of the 8% income tax rate under the law.
Likewise, partners of a General Professional Partnership
(GPP) by virtue of their distributive share from GPP which is
already net of cost and expenses cannot avail of the 8%
income tax rate option.