M8PLR The value-added tax and income tax

PERALTA, CLARICEL JOY A.

BSA 2D

1. What concept did you learn today?

The concept that I learned is the detailed discussion about value added tax with graduated
income tax and value-added tax with the 8% or graduated income tax. Formulas are provided to
so that you may focus on application of tax rules, rather than mere memorization. I was able to
understand the rules that apply to individuals in business or practice of profession. I also
determined which tax rate to used and whom taxes are imposed. And lastly, I was able to acquire
knowledge on the meaning and purpose of RMO No. 23-2018.
In terms of VAT with graduated income tax, if the gross sales or gross receipts of the
individual from business or practice of profession exceed the VAT threshold of three million
pesos (₱3,000,000), hence, that individual is subject to income tax at graduated rates and value-
added tax. In addition, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum
Order (RMO) No. 23-2018 on May 21 prescribing the policies, guidelines and procedures for
availing of eight percent income tax rate option for individuals earning from self-employment,
business, and/or practice of profession in line with implementing Republic Act No. 10963 or the
Tax Reform for Acceleration and Inclusion (TRAIN) Act wherein the RMO takes effect
immediately.
Under RMO No. 23-2018, the following policies and guidelines apply that the income of
self-employed individuals—including single proprietors, professionals, and mixed income
earners—is generally subject to graduated income tax rates, as provided in the Tax Code, as
amended; Self-employed individuals earning income purely from self-employment, business,
and/or practice of profession whose gross sales and/or receipts and other non- operating income
does not exceed the new value-added tax (VAT) threshold of ₱3,000,000 can avail one of the
following options: (a) Graduated income tax rates, as provided in the Tax Code, as amended, or
(b) Eight percent (8%) tax on gross sales or receipts and other non-operating income exceeding
₱250,000; Mixed income earners or individuals earning income both from compensation and
self-employment (business or practice of profession) will be subject to the graduated tax rate, as
provided in the Tax Code, as amended, on compensation income under an employer-employee
relationship.
Lastly, in terms of VAT with the 8% or graduated income tax, If the gross sales or gross
receipts of the individual from business or practice of profession did not exceed the VAT
threshold of three million pesos (₱3,000,000), and whereas the taxpayer would have been subject
to the 3% percentage tax, the taxpayer may opt to be VAT registered. Moreover, the 8% income
tax can still apply because the VAT threshold of ₱3,000,000 had not been reached. About the 8%
Income Tax Rate -This filing option is available for self-employed individuals whose gross
sales/receipts and other non-operating income for the year does not exceed the three million peso
(₱3,000,000) Value Added Tax (VAT) threshold, and are not subject to Percentage tax. In this
case, they have the option to avail such as graduated income tax rates (follow the regular rates
for individuals), avail for an 8% tax on gross sales/receipts in excess of ₱250,000, ne the best
advantages in availing this option is that once you availed the 8% tax rate.

2. What aspects of the lesson do you believe are most useful in your understanding of
the subject matter?
The aspects of the lesson I do believe are most useful in my understanding of the subject
matter is the importance and significance of the value-added tax and income tax in terms of
graduated tax. I would like to believe that the government achieved its objectives to promote a
balanced, equitable, progressive and simplified tax system for individual taxpayers.
Wherein, a taxpayer who opts to be taxed at 8% is not required to attach Financial Statements
(FS) when filing his annual income tax return. To note that the individual taxpayer must imply
his objective or intent to avail of the 8% income tax rate either in the 1st Quarter Percentage
and/or Income Tax Return, or in the initial quarter return of the taxable year upon the start of a
new business or practice of profession is important and necessary or else the taxpayer shall be
reflected as having availed of the graduated rates. It is irrevocable for the taxable year if the
option to choice the flat rate of 8% (or graduated rates), and no amendment of the option shall be
made throughout the taxable year after the choice is completed.
On the other hand, the individual’s income tax shall be calculated and figured using the
graduated income tax rates if the gross sales/receipts and other non-operating income surpasses
the VAT threshold throughout the taxable year even if he primarily selected the 8% income tax
rate. For that reason, the 8% income tax rate funded in the prior quarters shall be permitted as tax
credit. In addition to income tax, the taxpayer, shall be subject to business taxes subsequently,
such as percentage tax and VAT. However, when a non-VAT taxpayer such as the one who has
not breached the P3-million VAT threshold opts to be taxed under the graduated income tax
rates, he shall continue to pay the mandatory percentage tax under Section 116 of the Tax Code.
A taxpayer who opts for the 8% tax rate with regards to documentation, needs to
complete BIR Form No. 1905 also known as the Application for Registration Information
Update/Correction/Cancellation) to influence the end date for his VAT or percentage tax
registration, in which he is no longer obligated and mandated to file VAT or percentage tax
returns. However, he shall remain to file a “zero” or NIL percentage tax return with a
representation that he is availing of the 8% income tax rate option for the taxable year if a non-
VAT taxpayer is not capable to suitably update his registration. But he will not succeed to avail
of the 8% tax rate in anticipation of his de-registers for VAT in the case of a VAT taxpayer.
Lastly, the tax base shall be the net income if the taxpayer earning income from self-employment
or practice of profession opts to be taxed at graduated rates or has unsuccessful to imply the
chosen option of 8%.