By: Garry S. Pagaspas
As the Bureau of Internal Revenue (BIR) defines it, Other Percentage Tax (OPT or non-VAT as commonly termed) is a business tax imposed on persons or entities who sell or lease goods, properties or services in the course of trade or business whose gross annual sales or receipts do not exceed P1,919,500 (effective 2012), and are not value-added tax (VAT) registered. This simple definition, may a bit confusing in relation to the application of the Value Added Tax (VAT) rules. Thus, we take a few lines to share views on its application. Please see below some of its overview.
OPT is a business tax like VAT
As a business tax, OPT is imposed upon those engaged in trade or business or practice of profession. You will be taxed either OPT or VAT because you are engaged in trade or business or in the practice of profession. Non-registration does not mean non-liability, if you are actually continuously engaged in business or profession. Non-registration will only expose you to liability for penalties on non-registration, penalty for non-filing and payment of business taxes. Worst, BIR may consider it as fraudulent, if tax evasion is intended, so you might be prosecuted.
OPT is a direct tax based on gross sales or gross receipts
In OPT, direct tax means the seller is the one who shoulders the tax and not passed on to buyer. Seller may add it on to the selling price but still, the BIR looks at the seller as the actual payor of the OPT. In computing the OPT, you simply multiply the rate to the taxable base and the resulting amount is the OPT due and payable to the BIR without deduction. Remember in VAT, you deduct input VAT from output VAT to arrive at the VAT due and payable. No deduction in OPT like that of VAT so computation of the tax is very much simple.
Example: if you sold P300,000 of goods, then your OPT liability will be P9,000. You simply multiply 3% by the amount of p300,000 and you pay BIR the P9,000 using BIR Form 2551M.
OPT is applicable to VATable activities below the VAT threshold
OPT application is of two groups. First group applies to those VATable activities, but whose gross sales does not exceed the VAT registration threshold, and initially registered with the BIR as OPT or non-VAT taxpayer. In short, Vatable activity, but non-VAT registered with gross sales or receipts of not more than P1,919,500 in the preceeding year. Sometimes, OPT is termed as business tax for small business because of this rule.
Taxpayers registered under this are liable for 3% percentage tax under Section 116 of the National Internal Revenue Code (NIRC or Tax Code, as amended). As soon as their gross sales or gross receipts exceeded P1,919,500, then, it shall become mandatory to update registration to that of 12% Value Added Tax (VAT) because every succeeding sale shall be subject to 12% VAT. If you fail to register, you will be liable for 12% VAT on gross sales or gross receipts, but you cannot claim input VAT as deduction against your output VAT because it only applies to VAT registered. On the transition, you are entitled to claim transitional input VAT of 2% beginning inventory of goods, materials, and supplies or the actual VAT on such goods, materials, or supplies, whichever is higher.
OPT applies to specific business or transactions regardless of VAT threshold
This is the OPT of the second group where OPT of specific percentage applies irregardless of the VAT registration threshold of P1,919,500.00. This means that if your business falls under the industries and transactions covered, you will be subject to the applicable rate (not necessarily 3% of gross sales or gross revenue) even if your gross sales or gross receipts exceed the VAT registration threshold of P1,919,500. Here are the industries covered:
OPT Return is filed monthly or quarterly
In OPT, you either file monthly VAT return using BIR Form No. 2551M or quarterly using BIR Form No. 2551Q depending on the transaction or industry type. In general, you do it on a monthly basis so if you made an error in one month, you may have to amend the return for the corresponding month only. It is different with VAT returns where you file monthly using BIR Form No. 2550M and quarterly using BIR Form No. 2550Q.
Summary List of Sales or Purchases not required
All VAT registered taxpayers are mandated to submit a summary list of sales, summary list of purchases, and summary list of importation on a quarterly basis. This does not apply to OPT-registered or non-VAT registered.
(Garry S. Pagaspas is a Resource Speaker with Tax and Accounting Center, Inc. He is a Certified Public Accountant and a degree holder in Bachelor of Laws engaged in active tax practice for more than seven (7) years now and a professor of taxation for more than four (4) years now. He had assisted various taxpayers in ensuring tax compliance and tax management resulting to tax savings rendering tax studies, opinions, consultancies and other related services. For comments, you may please send mail at firstname.lastname@example.org.)
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.
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