Clarification on business taxes on professionals

The Bureau of Internal Revenue (BIR) issued the following clarifications on the applicable business taxes on the services performed by persons engaged in the practice of profession or calling.

a. Value-added tax (VAT) – A professional shall be liable to VAT at the rate of 12% if his gross receipts/professional fees for the past 12 months amount to more than P1,919,500. He is likewise liable to register as a VAT-taxpayer if there are reasonable grounds to believe that his gross receipts/ professional fees for the next 12 months will exceed P1,919,500.

For purposes of the P1,919,500 VAT threshold, a husband and wife shall be considered separate taxpayers. If the professional fails to register as a VAT-taxpayer, he shall be liable to pay the 12% output tax as if he were a VAT-registered person, but without the benefit of input tax credits for the period in which he was not properly registered.

b. Percentage tax – A professional is liable to the 3% percentage tax if his gross receipts  /professional fees for the past 12 months do not exceed P1,919,500 and he is not a VAT-registered person.

If the professional registers as a VAT-person, he shall be liable to VAT upon registration as a VAT taxpayer, and not to percentage tax, regardless of the amount of his gross receipts/professional fees. A person who is not required to register for VAT may elect to be VAT-registered but he shall not be allowed to cancel such registration for the next three years from the quarter the election was made.

(Revenue Memorandum Circular No. 64-2012, October 31, 2012)

Tax Brief – December 2012

Punongbayan and Araullo