Module 4 Optional Tax Rate For Self Employed

MODULE 4
OPTIONAL 8% TAX RATE FOR SELF EMPLOYED

NORMAL (REGULAR ) Income Tax Rates on the individual’s taxable income.
Effective on January 1, 2023 and onwards:

Summary of the Provisions of Revenue Regulation 8-2018
QUALIFIED TO OPT for 8%:
Self employed/Professionals/Sole proprietor whose sales or gross receipts does not exceed
P3,000,000/year,
and
- Not Registered under VAT system
- Not among those subject to specific OPT rates Title V, Section 117 to 127 of NIRC
(common carriers, amusement places operator, franchise holder)
and
- Signified in the 1st Quarter ITR the intention to elect the 8% Income Tax Rate
TITLE V
OTHER PERCENTAGE TAXES
Section 117. Percentage Tax on Domestic Carriers and Keepers of Garages
Section 118. Percentage Tax on International Carriers. -
Section 119. Tax on Franchises. franchises on radio and/or television broadcasting companies
on electric, gas and water utilities,
Section 120. Tax on Overseas Dispatch, Message or Conversation Originating from the Philippines. -
Section 121. Tax on Banks and Non-bank Financial Intermediaries.
Section 122. Tax on Finance Companies.
Section 123. Tax on Life Insurance Premiums.
Section 124. Tax on Agents of Foreign Insurance Companies.
Section 125. Amusement Taxes. – on the proprietor, lessee or operator of cockpits, cabarets, night or day clubs,
boxing exhibitions, professional basketball games, Jai-Alai and racetracks
Section 126. Tax on Winnings.
Section 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange
In computation of income tax liability using the optional 8%, the following rules should
be observed:
a. If the taxable income is purely business income,

(Sales / Gross receipts– P250,000 ) x 8%
b. If the taxable income of the taxpayer is combination of compensation and

business income,
• Taxable compensation income x graduated tax rates
• Sales/Gross Receipts x 8% (WITHOUT DEDUCTION OF FIRST 250,000)

OPTIONAL TAX RATE OF 8% in lieu of the graduated tax rate and business tax
REVENUE REGULATION 8-2018

Self-Employed Individuals Earning Income Purely from Self-Employment or Practice of Profession. –
Individuals earning income purely from self-employment and/or practice of profession whose gross
sales/receipts and other non-operating income does not exceed the value-added tax (VAT) threshold,(3,000,000) as
provided under Section 109 (BB) of the Tax Code, as amended, shall have the option to avail of:
1. The graduated rates under Section 24A(2a) of the Tax Code, as amended; OR
2. An eight percent (8%) tax on gross sales or receipts and other nonoperating income in excess of two hundred
fifty thousand pesos (P250,000.00) in lieu of the graduated income tax rates under Section 24(A) and the
percentage tax under Section 1 16 all under the Tax Code, as amended.
Unless the taxpayer signifies the intention to elect the 8% of income tax rate in the first Quarter Percentage and or
lncome Tax Return, or on the initial quarter return of the taxable year after the commencement of a new business
practice of profession, the taxpayer shall be considered as having availed of the graduated rates under Section24A(2a)
of the Tax Code, as amended. Such election shall be irrevocable and no amendment of option shall be made for the said
taxable year.
The option to be taxed at 8% income tax rate is not available to
 a VAT-registered taxpayer, regardless of the amount of gross sales/receipts, and
 to a taxpayer who is subject to Other Percentage Taxes under Title V of the Tax Code, as amended, except
those subject under Section 116 of the same Title.
 Likewise, partners of a General Professional Partnership (GPP) by virtue of their distributive share
from GPP which is already net of cost and expenses cannot avail of the 8% income tax rate option’
A taxpayer who signifies the intention to avail of the 8% income tax rate option, and is conclusively qualified for
said option at the end of the taxable year annual gross sales/receipts and other non-operating income did not
exceed the VAT threshold of 3,000,000.00) shall compute the final annual income tax due based on the actual
annual gross sales/receipts and other non-operating income. The said income tax due shall be in lieu of the
graduated rates of income tax and the percentage tax under Sec. 116 of the Tax Code, as amended.
The Financial Statements (FS) is not required to be attached in filing the final income tax return.

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MODULE 4

OPTIONAL 8% TAX RATE FOR SELF EMPLOYED

Effective on January 1, 2023 and onwards:

QUALIFIED TO OPT for 8%:

a. If the taxable income is purely business income,

b. If the taxable income of the taxpayer is combination of compensation and

• Taxable compensation income x graduated tax rates

• Sales/Gross Receipts x 8% (WITHOUT DEDUCTION OF FIRST 250,000)

REVENUE REGULATION 8-2018

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