In view of Republic Act No. 11534, or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, the 3% Percentage Tax was lowered to 1% beginning on 1 July 2020 until 30 June 2023. Thus, taxpayers must pay the original tax rate of 3% effective from 1 July 2023.

The Percentage tax is a type of tax levied on individuals or businesses that are not VAT-registered, and have annual gross sales or receipts not exceeding PHP3,000,000.00.

 

Implications of the New Tax Rate

The change in the Percentage Tax rate has raised concerns among taxpayers, particularly among small business owners, who may find it challenging to comply with the new tax rates, given that the economy is still slowly recovering from the impact of COVID-19.

For instance, small businesses that are already struggling to make ends meet may find it difficult to cope with the increased tax rate. This can result in a decline in their profitability and competitiveness, ultimately leading to their closure.

Moreover, the increase in tax rate may deter entrepreneurs from starting a business or expanding their existing ones because the added tax burden can make it more challenging for them to compete with larger and more established businesses that may have more resources to absorb the added costs.

But, on the bright side, the increase in the tax rate for the Percentage tax can also have positive implications for the government and the economy as a whole, as it can help fund various public projects and initiatives that can stimulate economic growth and development.

 

What Small Business Owners should do?

To cope with the increase in the tax rate for Percentage tax, small business owners can take several steps to minimize their tax liabilities.

For example, they can explore various tax deductions and exemptions that they may be eligible for, helping reduce their taxable income and ultimately lowering their tax bill.

Small business owners can also consider optimizing their operations to minimize their tax liabilities, such as increasing their operational efficiency to reduce costs, which can help offset the added tax burden. They can also explore various tax planning strategies, such as deferring income or accelerating deductions, to reduce their taxable income.

Given that the increase in the tax rate for Percentage tax starting in July 2023 is evitable, it is crucial for small business owners to plan and prepare for the added tax burden to ensure that their businesses remain viable and profitable amidst these changes.

Additionally, small business owners can also consider outsourcing their accounting and tax compliance needs to reputable professional services firms. This can help them ensure that their books are in order and that they are complying with their tax obligations, which can be cost-effective, especially for small businesses that may not have the resources to hire a full-time accountant.

Our team at DJKA Business Services would be happy to help you with all your tax compliance needs. Just send us a message at info@djkaaccounting.com to learn how we can help you with your tax obligations.

 

About Divina Joy Ayungo-Martinez, CPA

Divina Joy Ayungo-Martinez, has 10 years of accumulated working experience with a vigorous background in general accounting, financial statements and management reports preparation. In 2014, she started her service-based business to help various small businesses here in the Philippines with their business registration, accounting, and tax compliance needs. Throughout her journey, she dealt with clients in a variety of industries including startups, small and medium-sized enterprises, manufacturing, and trading by providing tailored business solutions for their company needs. Divina wakes up each morning to serve businesses with their non-core business processes to help them stick to the things they are really passionate at.

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