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Let’s backtrack to 2021, when Republic Act No. 11534, otherwise known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, was implemented.  With the aim to establish the country as an attractive market for foreign investments and provide tax relief to taxpayers as part of a package of economic recovery measures, the government sought to address the varying needs and concerns of the business sector brought about by the COVID-19 pandemic.

It has been two years since and with the projected recovery from the pandemic, some of the reliefs offered by CREATE are set to expire by the middle of this year. One of those is the temporary reduction of the percentage tax rate imposed under Section 116 of the Tax Code, as amended.

The reduced percentage tax rate of 1% will only be applied from 1 July 2020 until 30 June 2023 as provided under Section 13 of the CREATE Law. The reversion to the original rate will start on 1 July 2023 and any person whose sales or receipts are exempt under Section 109 (CC) of the Tax Code from the payment of Value-Added Tax (VAT) and who is not a VAT-registered person shall pay a tax equivalent to 3% of his gross quarterly sales or receipts.

If you are a self-employed individual or professional whose gross sales or gross receipts do not exceed three million pesos (Php3,000,000.00) and is not availing the 8% income tax rate, you need to take note of this change in preparation for your 3rd quarter percentage tax return filing this year. 

Since the country's economy is still on its way to full recovery, the return of a 3% percentage tax rate would mean an incremental expense to taxpayers. It would be great, however, to think that it will help the country for the better.

Taxpayers are expectant and at the same time concerned if this impending change will have a smooth transition due to the challenges encountered during the 2021 transition such as the unavailability of the revised BIR Form No. 2551Q in eFPS resulting in taxpayers filing using eBIRForms and paying their tax due in the eFPS using BIR Form No. 0605, and the workaround process for carry-over treatment of overpaid percentage taxes.

In reinstating the 3% tax rate, it is likely that similar issues in the past will arise such as the timely availability of the updated BIR Form No. 2551Q in both eBIRForms and eFPS during the transition period for tax filing. Considering that there are three months left before the reversion to the original rate, we expect the BIR to provide guidelines and further clarifications as necessary on this upcoming tax rate change.

It can be overwhelming and exhausting to keep track of all the continuous changes in the tax rules especially since the income tax return filing deadline is just around the corner. Nevertheless, taxpayers should always be abreast of the current rules and necessary information to become compliant and responsible taxpayers. 

Ivy Dianne M. Galzote
Tax Manager
KPMG in the Philippines

Ivy Dianne M. Galzote is a Tax Manager from Global Mobility Services under the Tax Group of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Ivy Dianne M. Galzote or Karen Jane S. Vergara-Manese through ph-kpmgmla@kpmg.com, social media or visit www.home.kpmg/ph.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.