NINETEENTH CONGRESS 0F THE   )
REPUBLIC OFTHE PHILIPPINES      )
Second Regular session                  )
HOUSE OF REPRESENTATIVES
House Bill No. 8653
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RECEIVED
DATE 3  1  JUL
TIME
2023
Introduced by Representative Ralph G. Recto
AN Aor
ENHANCING THE EASE OF DOING BUSINESS BY EXEMPTING MICRO, SMALL
AND MEDluM ENTERPRISEs FlroM THE pAyMENT OF PERCENTAGE TAx
EXPLANATORY NOTE
The  contribution  of  micro,  small  and  medium  enterprises  (MSMEs)  to  the
country's   economic  development  cannot   be  overemphasized.   They  account  for
99.58%  of the  total  registered  business  enterprises  operating  in  the  country.1    In
terms of employment, MSMEs generate a total of 5.46 million jobs or 64.67% of the
country's  total  employment.2  Moreover,   industries  falling  under  these  categories
propel  economic  growth   by  promoting  development  in  the  rural  areas,  thereby
bringing    in    employment   opportunities,    decentralizing    economic   activities    and
redistributing wealth throughout the country.
Percentage tax is a  business tax imposed  on  persons or entities who sell  or
lease goods, properties or services in the course of trade or business. Section 116 of
the  National  Internal  Revenue Code  of  1997  (NIRC),  as amended,  imposes a  three
percent  (3%)  percentage  tax  on  persons  or  entities  whose  gross  annual  sales  or
receipts are exempt from the payment of value-added tax (VAT) as provided  under
Section  109 (CC) of the NIRC, and who are not VAT-registered.
1 2021 MSME Statistics, Department of Trade and Industry
2 2021 MSME Statistics, Department of Trade and Industry
1


MSMEs whose gross annual sales or receipts do not exceed P3 million and who
are  not VAT-registered,  are exempt from  the  payment of VAT.  However,  generally
they are still  liable to pay the 30/o percentage tax under Section  116 of the  NIRC.  By
the   nature  of  percentage  tax  as  a   business  tax,   its   imposition   may   be   more
burdensome than VAT because the liability to pay and the burden of the said tax may
fall on one and the same person or entity.
Aside from the burden of paying the percentage tax, MSMEs also find it difficult
to comply with the complicated requirements of existing tax laws and regulations for
the  payment of taxes. This would  entail  additional  cost of doing  business and  such
cost may be substantial to some taxpayers especially to small entrepreneurs.
This  bill  seeks  to  exempt  MSMEs  from  the  payment  of  percentage  tax  by
repealing Section 116 of the NIRC on Tax on Persons Exempt from VAT. The purpose
and intent of this proposed measure is to lessen the burden of MSMEs in paying the
tax and in complying with the requirements of the law for its payment. The objective
is to  help  these  industries  recover from  the  crisis  brought about  by the  COVID-19
pandemic,  and   maximize  their  time,  effort  and  resources  in  expanding  business
operations,   thereby   stimulating   economic   growth   and   generating    more   jobs
throughout the country.
/jiao
2


NINFTEENlll CONGRESS OF THE   )
REPUBLIC OFTHE PHILIPPINES      )
Second Regular session                   )
HOUSE OF REPRESENTATIVES
HouseBillNo.    8653
Introduced by Representative Ralph G. Recto
AN ACT
ENHANCING THE EASE OF DOING BUSINESS BY EXEMPTING MICFIO, SMALL
AND MEDIUM ENTERPRISES FFIOM THE PAYMENT OF PERCENTAGE TAX
Be  it  enacted  by  the  Senate  and  House  of  Representatives  of the  Philippines  in
Congress assembled :
1                   Section  1.  Section  116  of the  National  Internal  Revenue  Code  of  1997,  as
2      amended,   is   hereby   repealed   and   the   succeeding   Sections   are   renumbered
3       accordingly.
4
5                    Pefs€
6                      frefFT
7SEN
8                    feeefl
gen
Sec.  2. Section  128 (A)(1) of the National Internal  Revenue Code of 1997, as
12      amended is hereby further amended to read as follows:
13
14
15
16
17
18
"SIHC. T2:8. Returns and Payment of Percentage Taxes. -
"uA:) Returns of Gross Sales, Receipts or Earnings and Payment of Tax.-
"(I) Persons Liable to Pay Percentage Taxes. -E!Nctry person sirdf uctto
the percentage taxes imposed under this Tile shall file a quarteriy return of the
amount of his gross sales,  receipts or earnings and  pay the tax due thereon
within twenty-five (25) days after the end of each taxable quarter I: ,",-G+','.Jct7,
1


3                      accrijc TTcrTI Hc c:alc  cT car:cc::aTdJcr: ar:c;  =rt=;:  EL"  pe;c;  :r,  =cccrc:aricc  ',',.;Iri  [ric
4                    provisions of this scction].
5                                   `)KX)/:
6                  Se!c. 3.  Implementing  Rules and  Regulations (IRR). -VINhim T!hirty (3N) dHrys
7      from the eifectivfty of this Act, the secretary of Finance, upon the recommendation of
8      the  Commissioner  of  Internal  Revenue,  shall  promulgate  the  necessary  rules  and
9      regulations for its effective implementation.
io                   Sec.  4.   5Efrara4M./rtyr  CrBtAs€.  -  If  any  provision  or  part  hereof  is  declared
11      unconstitutional, the remainder of this Act or any provision not affected thereby shall
12       remain in full force and effect.
13                   Sec. 5. Ale;pf3a/x'ng c7a«se, -AIl laws, acts, decrees, executive orders, issuances,
14      and rules and regulations or parts thereof which are contrary to and inconsistent with
15      this Act are hereby repealed, amended or modified accordingly.
16                    Sec. 6. fifacz]114ftyr, -This Act shall take eifect fifteen (15) days after its complete
17      publication  in  the   Offc/a/  CaLz]iafze  or  in  at  least  two  (2)  newspapers  of  general
18       circulation.
Approved,
2