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REVENUE MEMORANDUM CIRCULAR NO. 67-2021 issued on May 24, 2021 clarifies the issues relative to the temporary reduction of Percentage Tax rate imposed under Section 116 of the NIRC of 1997 (Tax Code), as amended by Section 13 of Republic Act (RA) No. 11534 [Corporate Recovery and Tax Incentives for Enterprises (CREATE Act)].
           The decrease of Percentage Tax rate from 3% to 1% effective July 1, 2020 until June 30, 2023 applies to both corporate taxpayers and self-employed individuals and professionals whose gross sales or gross receipts are not exceeding the Three Million Pesos (₱ 3,000,000.00) threshold, except for cooperatives and self-employed individuals and professionals availing the 8% Income Tax rate.
           The 1% Percentage Tax rate covers all those under Section 116 of the Tax Code, which provides that any person whose sales or receipts are exempt under Section 109(1)(CC) of the Tax Code from the payment of Value-Added Tax (VAT) and who is not a VAT-registered person shall be subject to Percentage Tax, provided, that the taxpayer did not opt to be VATregistered even if the ₱ 3,000,000.00 threshold was not breached.
        The reduced rate of 1% for Percentage Tax prescribed under Section 116 is imposed on transactions or activities which are neither specifically exempt under Section 109 of the Tax Code nor are subject to VAT, because they have not reached the Three Million Pesos VAT threshold as provided for under Section 109(1)(CC) of the same Code.
       Taxpayers, including non-VAT registered taxpayers, who filed their 3rd and 4th quarter Percentage Tax returns (BIR Form No. 2551Q) for the third (3rd) and fourth (4th) quarters of 2020 and those who may have filed their 1st quarter Percentage Tax returns for 2021 using the 3% rate are required to amend their duly filed Percentage Tax returns using the 1% rate to reflect the overpaid taxes.
          Amendment of Percentage Tax returns is not subject to penalty for affected taxpayers which/who will carry over the overpaid Percentage Taxes to the succeeding period/s. The carryover is intended for Percentage Taxpayers who are regularly filing the returns and are expected to have overpaid taxes as a result of the retroactive application of CREATE starting July 1, 2020. The transitory provisions in Revenue Regulations (RR) No. 4-2021 allows flexibility to affected taxpayers by allowing them to carry over the overpaid taxes in order for taxpayers to utilize the overpaid amount against future percentage tax liabilities.
              Percentage Taxpayers who have overpaid taxes as a result of the decrease of tax rate from 3% to 1% starting July 1, 2020 until the effectivity of RR No. 4-2021 are allowed for a tax refund in the event that:
              a. The taxpayer shifted from non-VAT to VAT-registered status; or
              b. The taxpayer has opted to avail the 8% Income Tax rate at the beginning of TY 2021.
              In the current Percentage Tax Return (BIR Form No. 2551Q), the only option reflected in the                  said form is for refund or issuance of Tax Credit Certificate (TCC). The Percentage Taxpayer                who shall carry-over the overpaid amount should observe the following guidelines: a. For                      taxpayers filing BIR Form No. 2551Q manually, neither of the options “To be Refunded” or                     “To  be Issued a Tax Credit Certificate” shall be marked in the said tax return but rather                          write  the phrase “To be Carried Over” on the return; or
              b. For eFPS and eBIRForms filers, the option “To be Issued Tax Credit Certificate” shall be                    marked as a workaround procedure to proceed with the electronic filing. For purposes of                      the transitory provisions in Section 3 of RR No. 4-2021, it is presumed that the taxpayer will                  carry over the overpaid tax to the succeeding taxable quarter once the said option was                        chosen. However, if the taxpayer is intent in having the overpaid tax to be refunded or i                        ssued with TCC for any of the reason stated in Q&A No. 6 of this Circular, the BIR shall be                      informed thru BIR Form No. 1914 or the “Application for Tax Credits/Refunds” by indicating                    therein that it shall be in the form of refund or TCC.
        The same procedure shall be undertaken, whether the return was filed manually or electronically by the Percentage Taxpayer until the overpaid amount has been fully utilized. If the Percentage Taxpayer will carry over the overpayment but has inadvertently marked either tax refund or issuance of TCC on the return, the BIR will presume that the overpaid amount will be carried over. Once the overpayment has been carried forward, the option initially chosen shall automatically be superseded.
            In case a Percentage Taxpayer carried over the alleged overpayment without amending the affected Percentage Tax returns to any quarter/s starting 2021, the carried over Percentage Tax will be disallowed. The amended Percentage Tax returns showing the overpayment shall be the basis for the carry over.
              The withholding agent/government agency shall be responsible in refunding the overpaid Percentage Taxes of individuals under Job Order or Service Contract Agreement who availed of substituted filing on Percentage Tax pursuant to RMC No. 51-2018. Individual contractors claiming for the refund shall issue an authorization and shall surrender the Certificates of Withholding of Percentage Taxes (BIR 2306) with the withholding agent/government agency. The withholding agent/government agency shall carry over the overremitted taxes to the next succeeding quarter/s in accordance with Section 3 of RR No. 4-2021,attaching thereto the authorization and the certificate (BIR 2306) from the payee.
                 For Percentage Taxpayers who are not substituted filers, the overpayment shall be carried forward to the succeeding quarter/s pursuant to the transitory provisions in Section 3 of RR No. 4-2021, assuming that the Percentage Taxpayer has not shifted from non-VAT to VAT registration status or did not avail of the 8% Income Tax rate pursuant to RMC No. 51-2018. The government, its instrumentalities, LGUs, SUCs, including GOCCs and GFIs that will refund the overpaid taxes shall amend previously filed returns, including the respective Alphalists, if any, but the reduction or resulting overpayment shall only be to the extent of the amount to be refunded.
                   Under the CREATE Act, only the rate was reduced for Percentage Tax imposed in Section 116 of the Tax Code from 3% to 1% effective July 1, 2020 until June 30, 2023. Consistent with the repealing clause of Section 4 of RR No. 4-2021, previous issuances where the 3% Percentage Tax was mentioned are deemed modified and reduced to 1%. There are two (2) types of Withholding Taxes involving government money payments pursuant to the provisions of RR No. 2-98, as amended, summarized as follows:

                a. Income Tax – in the form of creditable withholding taxes with the rates depending
                    on the nature of the transaction as required under existing issuances; and
               b. Sales Tax – in the form of 5% creditable withholding VAT if the supplier is VATregistered                      or 1% Percentage Tax if the supplier is subject to Percentage Tax under Section 116 of the                    Tax Code, or any other applicable rate depending on the transaction as prescribed under                     existing issuances.
               If the whole amount of 3% Percentage Tax has been claimed as deductible expense for purposes of computing the Income Tax due, the taxpayer can no longer be allowed to carry over or apply for tax refund/TCC the alleged overpaid Percentage Tax. Only Income Tax Returns (ITR/s) filed for TY 2020 by taxpayers under the calendar year period or quarterly ITR for fiscal year are needed to be amended if a return has been filed reflecting the 3% Percentage Taxes paid without necessarily amending the corresponding Audited Financial Statements (AFS). However, if the AFS will not be amended, the overpaid Percentage Tax shall be reflected as a reconciling item in the amended ITR/s.