Introduction
If you’re running a small business in the Philippines, understanding your tax obligations is key to staying compliant with the Bureau of Internal Revenue (BIR). One of the most common — and often misunderstood — taxes for micro and small enterprises is the percentage tax. This article aims to explain what percentage tax is, who should file it, how to compute it, and what recent laws affect it.
What Is Percentage Tax?
Percentage tax is a business tax imposed on individuals or entities not registered as VAT taxpayers. Instead of charging VAT to customers, these businesses pay a small percentage of their gross monthly or quarterly sales or receipts to the BIR.
It’s governed under Section 116 of the National Internal Revenue Code (NIRC) and is sometimes referred to as a “non-VAT” business tax.
Who Is Required to Pay Percentage Tax?
You are generally subject to percentage tax if:
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You are self-employed or a sole proprietor, and
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Your annual gross sales/receipts do not exceed ₱3 million, and
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You are not VAT-registered
Examples of affected taxpayers include:
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Sari-sari store owners
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Freelancers and online sellers
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Home-based food businesses
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Small service providers like tailors, barbers, or mechanics
How Much Is the Percentage Tax?
As of 2025, the standard percentage tax rate is 1% of gross sales or receipts, thanks to the extended provisions under the CREATE Law.
🔍 Note: The 1% rate was a temporary reduction (from the previous 3%) under R.A. 11534 (CREATE Law), and may revert after 2026 unless further extended by legislation.
How to Compute Percentage Tax
Let’s say you earned ₱50,000 this month from your home bakery business.
Percentage Tax Payable = 1% of ₱50,000 = ₱500
That’s the amount you need to remit to the BIR using the correct form (see below).
How to File and Pay
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Form to Use: BIR Form 2551Q – Quarterly Percentage Tax Return
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Filing Schedule: Within 25 days after the end of each taxable quarter
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Q1: by April 25
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Q2: by July 25
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Q3: by October 25
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Q4: by January 25 (of the following year)
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Where to File:
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eFPS or eBIRForms (online), or
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Over the counter at Authorized Agent Banks (AABs)
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💡 Tip: Keep clear records of receipts, invoices, and income summaries. Even if you’re non-VAT, the BIR can audit you based on your declared gross income.
Common Misconceptions
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“I don’t need to pay taxes because my business is small.”
✅ Wrong. Even small businesses below ₱3M are required to register and pay either VAT or percentage tax. -
“I sell online, so BIR doesn’t track me.”
✅ Incorrect. The BIR now monitors online sellers and marketplaces through digital platforms and partnerships. -
“Percentage tax and income tax are the same.”
✅ No. Percentage tax is based on gross receipts, while income tax is based on net income. You may be subject to both.
Recent Legal Updates
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CREATE Law (RA 11534) temporarily reduced the percentage tax rate from 3% to 1% (2020–2023) and was extended through 2025.
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A BIR advisory in early 2025 emphasized stricter enforcement on online and small businesses.
Keep updated through BIR’s official website or NIT’s news bulletins.
Conclusion
Paying percentage tax is part of being a responsible business owner in the Philippines. It may seem simple, but compliance errors can lead to penalties. Take the time to understand your obligations — or enroll in a tax education program — and you’ll avoid costly surprises.
Further Learning from NIT
Want to learn more? Explore our Certified Tax Bookkeeper course or attend one of our Free Tax Webinars.
📚 Stay informed. Stay compliant.
National Institute of Taxation (NIT)
