As a Business Owner it’s crucial to understand that there are various type of taxes that you need to pay within the calendar year. This can include Income Tax, Sales Tax, Withholding Tax and more. But first we’ll focus on discussing what Sales Tax is and how it functions in the tax landscape.
Understanding Sales Tax
Sales tax is a type of tax that business owners file and pay based on their business transactions. It is available for both non-VAT and VAT taxpayers. Sales tax is typically computed based on the gross sales of your business and must be filed quarterly.
FORM 2550Q (VAT Sales Tax)
Businesses with annual gross sales exceeding PHP 3 million must file FORM 2550Q. VAT returns are filed quarterly, calculating the VAT payable based on gross sales minus the VAT on purchases and expenses (input VAT). This means you collect VAT on your sales (output VAT) and subtract the VAT you paid on your business purchases.
FORM 2551Q (Percentage Tax)
Non-VAT uses FORM 2551Q to file percentage tax. This tax applies to non-VAT taxpayers. Small businesses with annual gross sales below PHP 3 million must file percentage tax quarterly, calculated as a straightforward 3% of gross sales.
Graduated Income Tax Rate and Exemptions
The graduated income tax rate allows both VAT and non-VAT taxpayers to choose a tax rate based on their income bracket. Both VAT and non-VAT taxpayers can opt for the graduated income tax rate, requiring them to file and pay using FORM 2550Q and FORM 2551Q, respectively. However, Non-VAT taxpayers who chose 8% income tax rate are exempt from paying percentage tax but can still file for their percentage tax under zero filing.
BMBE and Percentage Tax
Businesses registered under the Barangay Micro Business Enterprises (BMBE) typically only file and pay for percentage tax, exempting them from paying income tax. The BMBE law aims to support small businesses by simplifying their tax compliance requirements and providing tax incentives.
Whether you’re a VAT taxpayer using FORM 2550Q or a non-VAT taxpayer using FORM 2551Q, understanding the nuances of sales tax is vital for effective financial management. By staying informed and organized, you can ensure your business remains compliant and potentially save on taxes each year.