Stop wasting your money on percentage tax
When you start your dream business, you must register it with the BIR through the Revenue District Office (RDO) which has jurisdiction over the place of your business. Upon initial registration with the BIR, you will choose what business tax type you will register. It is either a Percentage Tax or a Value-Added Tax (VAT). In case you register the tax type Percentage Tax, we will discuss some of the corresponding possible violations to avoid the unnecessary penalties imposed by the BIR.
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1. Wrong BIR Form
Starting January 1, 2018, the effectivity date of TRAIN Law under R.A. No. 10963, the monthly filing and payment of percentage tax using BIR Form No. 2551M was removed and no longer required. Taxpayers shall now use the new BIR Form No. 2551Q for the filing and payment of percentage tax on a quarterly basis. The deadline for filing and payment, if any, is not later than the 25th day following the close of the quarter.
Based on the above new filing and payment of percentage tax, taxpayers may mistakenly use the old BIR Form No. 2551M resulting in tax violations and penalties. However, under Revenue Memorandum Circular No. 26-2018 (RMC 26-2018), taxpayers shall still use the new BIR Form No. 2551Q in the filing and payment, if any, of quarterly percentage tax. The erroneous percentage tax paid using BIR Form no. 2551M shall be used as a tax credit in new the BIR Form No. 2551Q.
Take note that the deadline for the filing and payment, if any, of percentage tax is still 25th day following the close of the quarter. Follow strictly this new deadline and BIR Form No. 2551Q to avoid paying penalties to the BIR.
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2. Overpaid Percentage Tax
The BIR issued Revenue Regulations No. 4-2021 (RR 4-2021) to implement the provisions of CREATE Law under R.A. No. 11534. One of its provisions is lowering the quarterly percentage tax from 3% to 1% of gross sales/receipts starting July 1, 2020 until June 30, 2023.
In some cases, the taxpayers are not fully aware of the changes in the tax rate of percentage tax and continue to pay it using the old 3% tax rate. In this regard, the BIR issued Revenue Memorandum Circular No. 65-2021 (RMC 65-2021) and Revenue Memorandum Circular No. 67-2021 (RMC 67-2021) to address these issues. Under the same BIR memorandums, taxpayers with overpaid percentage taxes using the old 3% shall amend the BIR Form No. 2551Q to reflect the new tax rate of 1%. The resulting overpayment shall be used as a tax credit to be offset in the succeeding quarterly percentage taxes using the new 1% tax rate. Please check the provisions of RMC 65-2021 and RMC 67-2021 for the complete guidelines. Moreover, it is important to remember that the tax rate of percentage tax is now 3% starting July 1, 2023.
Take note that the overpayment of percentage tax is not a tax code violation, and no corresponding penalties shall be imposed by the BIR. However, this overpayment is equivalent to paying penalties which is not necessary in the conduct of trade, business, or practice of profession.
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3. Open Case under 8% ITR Option
With the effectivity of the provisions of the TRAIN Law under R.A. No. 10963, qualified taxpayers may choose to use the new 8% income tax rate option (8% ITR). This new tax rate option exempts taxpayers from filing and payment of quarterly percentage tax using BIR Form No. 2551Q. Further, this 8% ITR is in lieu of graduated income tax and percentage tax.
Unfortunately, the implementation of this new 8% ITR by the BIR is not perfect. One error or mistake made by the agents of the BIR is imposing penalties on taxpayers who availed the 8% ITR for not filing the BIR Form No. 2551Q and paying the corresponding percentage tax. This resulted from the not updated system of the BIR and the failure of the BIR agents to check the correctness of the alleged violations of not filing and payment of percentage tax using BIR Form No. 2551Q.
Another reason invoked by BIR agents is that the taxpayers failed to update their Certificate of Registration (COR) to avail of the new 8% ITR. This is not true. Under Revenue Memorandum Order No. 23-2018 (RMO 23-2018), the new 8% ITR can be availed using BIR Form No. 1701Q or 2551Q in the first quarter of the taxable year or initial quarter. This means that the taxpayers are not required to visit the BIR every year to update their COR to avail of the new 8% ITR. Filing BIR Form No. 1701Q or 2551Q is enough to signify the intention of the taxpayer to avail of the new 8% ITR.
The alleged BIR Form No. 2551Q open case for non-filing and payment of quarterly percentage tax, when the taxpayers availed the new 8% ITR, has no legal basis to stand on. Taxpayers shall write back to the BIR to explain the above-mentioned defenses to avoid payment of illegal imposition of penalties. You may also cite the provisions of the above-mentioned RMO 23-2018 as legal basis in your letter.
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Learn more about BIR tax compliance for MSMEs
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