Lower, Flat Tax Rate and Simpler, One-Time Tax Filing Offered to Self-Employed, Professionals under Senate’s Train-Angara

To really encourage payment of correct taxes, the Senate version of the first tax reform package has made available to self-employed individuals and professionals a flat tax regime that is simpler and easier to comply.

Under Senate Bill 1592 or the Tax Reform for Acceleration and Inclusion (TRAIN), self-employed individuals and professionals can choose between an 8% flat tax on gross sales or receipts to be filed only once a year or the schedular personal income tax rate with allowable deduction.

The 8% tax will be in lieu of the personal income tax, which is currently filed quarterly, and the percentage tax, filed monthly.

“The Congress is making a distinction between the tax treatment of compensation income earners and self-employed individuals and professionals because we recognize the need to really simplify the process and make it easier for them to comply and pay correct taxes,” said Senate Sonny Angara, chairman of the ways and means committee.

According to BIR data, self-employed and professionals only contribute 15% of the total income tax collection, while the 85% is shouldered by compensation income earners.

“Income taxes of compensation income earners–like our teachers, nurses, call center agents–are automatically withheld by their employers. On the other hand, self-employed and professionals–like owners of sari-sari stores and carinderia, and our doctors and lawyers–have to file their taxes on their own or with the help of accountants, which they can’t afford to hire most of the time. Kung kaya, marami sa ating mga self-employed at professionals and hindi nakakasunod nang tama sa mga regulasyon ng pagbubuwis,” the lawmaker said.

“The previous administration opted for the scare and shame tactic, but I believe a developmental approach or incentivizing them to follow tax rules would be a more effective strategy. That’s why we introduced an 8% flat tax for easier compliance. Padaliin na natin and sistema lalo na para sa mag maliliit na negosyante,” he added.

In an Inquirer article by Raymond Abrea of the Center for Strategic Reforms of the Philippines, he noted that “simplified bookkeeping and tax compliance is one of the best amendments in the tax code.“

Moreover, with higher income tax exemption, marginal income earners will be exempt from paying income taxes. These include farmers and fisherfolk, sari-sari store owners, carinderia owners, market vendors, and tricycle drivers.

“By automatically exempting them from income tax, in effect, marginal income earners would finally be afforded equal protection and benefits that the minimum wage earners have long been enjoying,” the senator said, highlighting that 99% of individual income taxpayers will enjoy higher take-home pay due to lower tax rates.

The value-added tax (VAT) threshold is also raised from P1.9 million to P3 million, thus exempting small businesses with total annual sales of P3 million and below from paying VAT.

Angara said this would provide them due tax relief that would encourage them to grow, and generate more and better jobs for Filipinos.

senate.gov.ph