The 3% percentage tax for non-VAT businesses.
Percentage tax due
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Annualized gross
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Rate
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The turnover tax for small, non-VAT businesses
Percentage tax is the simplest business tax in the Philippine system. If your business or practice is not registered for VAT, you generally pay a flat 3 percent on your gross sales or receipts, with no deductions and no input-output offsetting. This calculator takes one quarter of gross and applies that rate, because percentage tax is filed quarterly on BIR Form 2551Q. It also annualizes the quarter, multiplying by four, to check whether you are still under the VAT registration threshold. The 3 percent rate and the PHP 3,000,000 threshold used here are the figures this calculator applies, so verify both against current Bureau of Internal Revenue rules, especially since a temporary reduced rate was in force during the pandemic period and has since lapsed.
Percentage tax, VAT, or the 8 percent shortcut
Percentage tax does not exist in isolation, and choosing the wrong regime is a costly, common error. Three paths sit side by side for small earners:
- Percentage tax at 3 percent on gross, for non-VAT taxpayers under the threshold. This is what this tool computes, and it is separate from your income tax, which you still owe on profit.
- VAT at 12 percent, which becomes mandatory once your annual gross crosses PHP 3,000,000. VAT lets you credit input tax on purchases, but it is heavier to administer.
- The 8 percent flat tax, an option for eligible self-employed individuals and professionals under the VAT threshold. Electing it replaces both the percentage tax and the graduated income tax with a single 8 percent rate on gross above the first PHP 250,000. For many solo professionals this is simpler and sometimes cheaper than paying percentage tax plus graduated income tax separately.
The takeaway: percentage tax is one piece of your total burden, not the whole bill, unless you elect the 8 percent option, which folds them together. Run the numbers under both before you register, and confirm eligibility with the BIR.
A quarter at 500,000 in sales
Say a non-VAT service business books PHP 500,000 of gross receipts in a quarter, the calculator's default. The percentage tax due is 3 percent of PHP 500,000, which is PHP 15,000, payable on the quarterly Form 2551Q. Annualizing that quarter, four times PHP 500,000 is PHP 2,000,000, comfortably below the PHP 3,000,000 VAT threshold, so the business stays in the percentage tax regime rather than being pushed into VAT. These figures use the rate this calculator applies.
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The chart plots the annualized gross against the VAT line. As long as the teal bar stays under the dashed grey threshold, percentage tax remains an option rather than VAT.
The 3 million peso line you cannot ignore
The threshold is a rolling annual test, not a once-a-year snapshot. Cross PHP 3,000,000 in actual gross over twelve months and you are required to register for VAT, after which percentage tax no longer applies and you charge and remit 12 percent VAT instead. The practical tip for a growing business: watch your trailing annual gross, not just the current quarter, so a strong run of sales does not trigger a mandatory VAT registration you were not prepared for. The transition involves updating your registration and issuing VAT receipts, so plan it rather than scramble. Confirm the current threshold and registration steps with the BIR.
Filing and timing questions
Is percentage tax instead of income tax?
No, they are different taxes unless you elect the 8 percent option. Percentage tax is on gross sales or receipts and is filed quarterly. Income tax is on your net profit and is filed separately. A non-VAT business under the graduated regime pays both. Electing the 8 percent flat tax is the one path that consolidates them.
When is Form 2551Q due?
Percentage tax is filed and paid quarterly, with each return covering one quarter's gross. The exact filing deadline after each quarter ends is set by the BIR, so check the current schedule and file on time to avoid surcharges and interest. The calculator computes the tax for a single quarter, which is the figure you would report.
Can I switch to the 8 percent rate mid-year?
The 8 percent option is generally elected at the start of the year or upon registration, and the timing rules matter. You usually cannot toggle freely once a year is underway. If the 8 percent route looks better for your numbers, confirm the election deadline and procedure with the BIR before the year begins.