Taxation 101: Taxumo’s Tax Tips for SMEs and the New TRAIN Law

Last April 26, Taxumo, in partnership with Globe MyBusiness Academy, discussed the basics of taxation and the new Tax Reform Acceleration and Inclusion (TRAIN) law to help small and medium enterprises (SMEs) deal with the complexities of taxation for businesses.

In a live video, CEO and co-founder of Taxumo Eugene Jose Arboleda facilitated a panel discussion that featured Taxumo’s in-house experts like Chief Legal Officer Kevin Baldonado, resident CPA Ivan Ricafrente, and Chief Marketing Officer Evan Tan.

Together, they answered FAQs from business owners on filing and paying their taxes and discussed how the TRAIN law could affect the process. In this article, we’ve compiled key takeaways from the discussions to help entrepreneurs:

• What are the things to consider when registering with the Bureau of Internal Revenue (BIR)?

Kevin: You have to look into what kind of business you want to form, because there’s a different taxing process for sole proprietorships versus corporations. It’s also smart to look at the different kind of taxes you’ll have to pay.

• What are the different taxes that you have to consider?

Ivan: SME’s must consider the value-added tax (VAT), percentage tax, income tax, and withholding tax. As a taxpayer, you would either be paying VAT or percentage tax. For VAT, you pay 12%. For percentage tax, you pay 3%. If you’re earning less than P3 million, you should register as a percentage taxpayer. Otherwise, register for VAT.

Also, everyone needs to pay income tax, which is based on the yields and profits that you have, and withholding tax, which is like an advanced payment. Income tax should be paid on a quarterly and annual basis, while withholding tax is paid more regularly.

• What other considerations should businesses have on dues like local taxes?

Ivan: Well, that’s another kind of tax called local business tax. Before securing a business permit, in order to register your business, you have to pay a certain amount to the city. […] This payment is made every year.

• Are there tax exemptions for SMEs?

Kevin: Some can qualify as barangay microbusiness enterprises. SMEs can also check their city’s  investments priority plan, to see if they qualify for a tax incentive.

• We’ve heard of an 8% tax. What is it?

Kevin: Under TRAIN, there’s a new 8% gross receipts tax. It affects self-employed professionals and mixed compensation earners. Essentially, it’s an 8% gross tax on your income.

Note that to qualify for this, sole proprietors should be non-VAT.

• Is there a benefit to not availing the 8% tax?

Kevin: It is a gross computation, so if your margin is very low, it might not be worthwhile or profitable.

EJ: If you have a lot of business expenses, then it still makes sense to go with a non-8% option. Otherwise,   8% would be an easier option.

• What are the implications of missing the deadline for paying your taxes?

Ivan: Of course, you would have to pay penalties and charges depending on the grounds and what extent.

Kevin: For example, if you missed it and you filed a return, it might be subject to interest. But let’s say you did it willfully, or fraudulently submitted a wrong return, then there would be higher penalty.

• What changes happened under the TRAIN Law?

Kevin: The biggest change would be the increase in the VAT threshold. It used to be P1.9 million, but right now it’s P3 million. […] This means that if you reach P3 million, you are mandated to switch your tax type. With that threshold, a lot of new businesses could now qualify as non-VAT.

Ivan: Another change is the lowering of the personal income tax. If you check the DoF (Department of Finance) website, you can see that the rates have been lowered. In terms of income, you’ll be paying less in taxes.

• What were the changes on the deadlines imposed under TRAIN?

Ivan: For the income tax, the first quarter payment has been moved to May 15 instead of April 15. The rest of the deadlines stay the same. Also, let me add that before, there used to be a monthly percentage tax. Now, it’s gone.

• Are there new regulations for businesses under TRAIN?

Ivan: There’s a new excise tax on sweetened beverages and cosmetic surgery. […] The sin tax remained pretty much the same. [Businesses in these industries would have to adjust their pricing as well as file for these new kinds of taxes.

• What advice can you give entrepreneurs who run their businesses without accountants?

Evan: They can use Taxumo. Taxumo is an online, end-to-end, do-it-yourself tax filing and payment platform. It helps you compute everything and tells you what, when , how, and where to pay.

Taxumo shows you the forms to fill up and provides options to pay. It  then remits the payments to the government and we give proof that payment was made.

• What are your tips for SMEs?

Evan:  Legalize yourself. A lot of the people who consult us think that having a TIN is enough. They don’t understand that it is different to have a Certificate of Registration.

Kevin: [Beyond registering yourself, putting up a business is not simple. When you are the business owner, your performance will dictate your success.

EJ: As a business owner, you may get dragged down by the details and you forget why you started in the first place. You have to always see and rediscover the passion behind your business.

Want a quick tax guide for your business needs? Download Taxumo and Globe MyBusiness’ Tax Cheat Sheet here. Sign up and get updates on seminars and other events for SMEs.

Note: This  interview was edited for length and better comprehension.