TRAIN exempts SMEs from VAT, collections drop in first half

MANILA, Philippines — Value-added tax collections of the Bureau of Internal Revenue’s regional offices declined in the first six months as more small and medium enterprises (SMEs) became VAT-exempt, according to the Department of Finance.

Citing data from the BIR, the DOF said value-added tax (VAT) collections of BIR regional offices as of end-June fell by more than 13 percent to P63.217 billion from the P72.813 billion recorded in the same period last year.

Finance Secretary Carlos Dominguez said the lower VAT collection means SMEs have now benefited from TRAIN’s provision, which raised their VAT-exempt threshold to P3 million in gross receipts from the previous level of P1.9 million.

In addition, Dominguez said SMEs which did not exceed the VAT threshold now have the opportunity to choose their income tax scheme under the TRAIN, so that they can pay lower taxes.

As more SMEs became VAT-exempt, the finance chief said more are now opting to pay either an eight percent income tax on their gross receipts and other non-operating income, or a percentage tax and the graduated income tax rates under TRAIN.

As a result, the DOF said percentage tax collections of BIR regional offices from January to June rose 49.04 percent to P18.079 billion from P12.130 billion last year. This was also above the BIR’s percentage tax target for the period.

Income tax collections of BIR regional offices likewise increased to P207.33 billion from P206.45 billion a year ago, surpassing the goal of P198.62 billion.

Republic Act 10963 or the TRAIN Act aims to simplify the country’s tax system by lowering personal income tax rates.

It also seeks to adjust excise taxes of fuel, automobile, coal and sugar-sweetened beverages, and expand the tax base by removing value-added tax exemptions.

Under the TRAIN Law, persons or businesses who engage in the sale or lease of goods or properties, or the performance of services with gross annual sales or receipts not exceeding P3 million are exempted from paying the VAT.

The law also stated that self-employed individuals and professionals now have “ the option to avail of an eight percent tax on gross sales or gross receipts and other non-operating income in excess of P250,000 in lieu of the graduated income tax rates and the percentage tax” provided that they do not exceed the stated VAT threshold.

For the entire country, the BIR’s income tax collections in the first six months grew 2.27 percent to P500.58 billion from the P489.46 billion recorded in the same period last year. This was also 11.15 higher than the goal of P450.38 billion for the period.

Total VAT collections as of end-June reached P179.95 billion, short of the goal of P222.42 billion, but slightly higher than last year’s level of P178.44 billion.   

Percentage taxes also rose to P44.158 billion, higher than the target of P43.74 billion and the first half 2017 collection of P38.24 billion.