The Eight Percent Rule

The Eight Percent Rule (not for investing, but for self-employed individual taxpayers)

Wonder how you can save on taxes? The eight percent option might work for you.

Here are the 4 conditions:

1. You must have less than P3M gross sales/receipts;
2. You are not VAT registered, and are not subject to any other kind of percentage taxes;
3. You are self-employed (sole proprietorship or professional);
4. You have very minimal expenses or you have lots but don’t want to account for it. If the latter is the case, the law will not prevent you from availing of the 8% tax option if you met the first 3 conditions.

The eight percent option has been in effect since 2018 when the TRAIN law (R.A. 10963) was promulgated.  What are the benefits that you can get?

Well, it includes but may not be limited to the following:

1. Easy to compute.  The 8% tax is based on gross sales/receipts after deducting the P250K deduction – that’s why it is called simplified taxation;
2. No hassle in filing the tax return – it is done quarterly;
3. You are exempted from paying the quarterly percentage tax of 3% of gross sales (now, 1% under CREATE Act )
4. No need to account for various expenses.

To illustrate, let’s say, you grossed P800K for the year, and you have P190K in expenses.   Let’s compute the tax due using three (3) tax options available for non-VAT registered business owners. 

Table of comparison:  3 tax options for self-employed individuals in the Philippines.

Important reminder, you must choose your tax option at the beginning of the year, once chosen, it is effective for the current taxable year.  The Bureau of Internal Revenue issued Revenue Regulation 8 – 2018, which detailed how taxpayers can apply the 8% tax option.

Even if you’re a small business, it pays to plan your taxes.

A Peso saved is a Peso earned.

Socorro L. Abadier is the founder of SGL Accounting and Business Solutions. Before establishing her practice, she worked as an Internal Auditor and Branch Manager at one of the major banks in the Philippines and as an External Auditor of one of the top 4 Accounting firms in the Philippines.