A few months back, there have been drastic changes in our taxation. The Tax Reform for Acceleration and Inclusion (TRAIN) comprehensive tax reform allowed most of the working public to get more take-home pay by giving out more equitable tax rates.
In exchange, the government levied more taxes on consumer goods such as the Sweetened Beverage Tax, Tobacco Excise Tax, and Taxes on Coal, Petroleum, and Mining. (Which debatably made the gains null. Some may argue “At least they have control over when to spend”. Regardless, this is a whole topic altogether.)
Along with the changes in rates, TRAIN focuses also on ease of paying taxes (which launched an online facility to pay taxes with your credit card) and ease of filing.
As this might be the predicament for almost all freelance workers, the government implemented an option to avail an 8% Flat Tax Rate in lieu of percentage taxes. This allows us to focus on our work and file our taxes in a simple manner.
But we are clueless as to how to enjoy this tax break. With the recent revenue memorandum order no. 23-2018, we don’t have to walk in the dark anymore.
Based on the memorandum, this is how you can avail the 8% Flat Tax Rate for your business and profession.
What Entails Availing the 8%
Self-Employed Individuals who are Non-VAT Registered and with a gross income not exceeding 3,000,000 PHP can avail of the tax incentive.
Take note, in the eyes of the government, self-employed individuals include single proprietors, professionals, and mixed-income earners.
Availing this will allow the taxpayer to enjoy the rates for that SPECIFIC CALENDAR YEAR ONLY. You have to renew this EVERY YEAR. If you failed to explicitly avail this year or renew for the next year, you are taxed with the graduated brackets again.
Moreover, you have to think this thoroughly because you cannot withdraw your decision for at least the current year.
Upon successful application, you are taxed with 8% on your gross income after deducting the 250,000 PHP tax exemption. You are also not required to file percentage taxes anymore.
Mixed-Income Earners and Those Exempted From Other Laws
What if you’re a mixed-income earner? Need not worry.
Your compensation income (income from your job) is subjected to the graduated rates. And you have the option to avail the 8% for your self-employed income. But then, you can’t apply the 250,000 PHP to your self-employed income because it is already used up in your compensation income taxes.
If your business is also under Barangay Micro Business Enterprises Act (BMBE), you cannot avail of the 8% at the same time because taxpayers are not allowed to avail of double or multiple tax exemptions under different laws, unless specifically provided by law.
How to Avail
It’s easy. For the new registrants, you just have to signify in your BIR Form No. 1901 that you will be availing the 8% tax rates.
For those who are already registered, you just have to update your Certificate of Registration (COR) by filing form 1905 (Application for Registration Information Update) and pick the 8% tax rates.
Don’t stress yourself if you don’t understand the forms. In my experience, the BIR staff is kind enough to guide me through the process. They are mostly nice people. I just asked them what to fill out. And I just did what they asked.
After all this, you will receive your new COR signifying the 8% tax rate for the year. That’s it. All done!
With that, I hope you enjoy this tax break’s equitability and convenience. You can also check out our other tax guide to help you file your taxes as a freelancer. Good luck!