TWENTIETH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES ) 
First Regular Session 
)
25 J'JL -1 P1 ;59
S. No.
SENATE
231
Introduced by Senator Francis G. Escudero
AN ACT
PROMOTING BUSINESS GROWTH AND RECOVERY BY REDUCING THE COST 
OF BUSINESS COMPLIANCE FOR MICRO, SMALL AND MEDIUM 
ENTERPRISES, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL 
REVENUE CODE OF 1997, AS AMENDED
EXPLANATORY NOTE
The Micro, Small and Medium Enterprise (MSME) sector is one of the primary 
drivers of economic growth in the country. The MSME data from Department of Trade 
and Industry revealed that in 2023, some 99.63% of the 1,241,733 establishments in 
the country are classified as MSMEs. During the same year, the sector generated 
66.97% of the total establishment-based employment. Additionally, their distribution 
across industrial sectors and geographic locations enables them to stimulate economic 
activities outside traditional urban centers, thus aiding government efforts to 
redistribute wealth, reduce poverty incidence, and develop the Philippine countryside.
Despite its pivotal role in the economy, factors such as the escalating cost of 
doing business, restricted access to financing and markets, and declining productivity 
and efficiency are impeding the development of the MSME sector. With limited 
resources and capabilities, many MSMEs are not adequately equipped to respond to 
the challenges and opportunities posed by domestic and international markets. This 
was particularly true during the height of the coronavirus pandemic in 2020, when the 
number of MSME establishments and their level of employment declined by 42,776 
and 129,945, respectively.


To develop an MSME sector capable of contributing to the country's economic 
and social development, this bill seeks to improve the sector's competitiveness by 
reducing the compliance cost of tax regulations. First, it seeks to make the optional 
tax on gross sales or receipts introduced under Republic Act No. 10963, or the Tax 
Reform for Acceleration and Inclusion (TRAIN) Law, more appealing to MSMEs by 
reducing the tax rate from eight percent (8%) to five percent (5%) of gross sales or 
receipts. Second, the bili seeks to simplify the convoluted rates under the creditable 
withholding tax system by reducing the number of rates be used to two: one percent 
(1%) for the purchase of goods and properties, and two percent (2%) for the purchase 
of services.
Through these twin interventions, it is hoped that MSMEs would be afforded 
additional funds to expand business operations, recruit additional manpower, and 
mitigate inflation of business inputs, which in turn could facilitate growth and 
deveiopment for all Filipinos.
In view of the foregoing, the approvai of this measure is earnestly sought.
FRANCIS G. ESCUDERO


TWENTIETH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES ) 
First Regular Session 
)
25 JUL -7 P1 59
SENATE
S. No.
231
Introduced by Senator Francis G. Escudero
AN ACT
PROMOTING BUSINESS GROWTH AND RECOVERY BY REDUCING THE COST 
OF BUSINESS COMPLIANCE FOR MICRO, SMALL AND MEDIUM 
ENTERPRISES, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL 
REVENUE CODE OF 1997, AS AMENDED
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assemble
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Section 1. Section 24 of the National Internal Revenue Code of 1997, as
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amended, is hereby further amended to read as follows:
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"Sec. 24. Income Tax Rates. -
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"(A) Rates of Income Tax on Individual Citizen and Individual
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Resident Alien of the Philippines. -
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"(1) X X x;
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"(2) Rates of Tax on Taxable Income of Individuals. - The tax
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shall be computed in accordance with and at the rates established in the
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following schedule:
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"(a) X X x;
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"(b) Rate of Tax on Income of Purely Self-employed
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Individuals and/or Professionals Whose Gross Sales or Gross
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Receipts and Other Non-operating Income Does Not Exceed the
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Value-added Tax (VAT) Threshold as Provided in Section


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[109(BB)] 109(CC). - Self-employed individuals and/or 
professionals shall have the option to avail of [an eight percent 
(8%)] A FIVE PERCENT (5%) tax on gross sales or gross 
receipts and other non-operating income in excess of Two 
hundred fifty thousand pesos (P250,000) in iieu of the graduated 
income tax rates under Subsection (A)(2)(a) of this Section and 
the percentage tax under Section 116 of this Code.
"(c) Rate of Tax for Mixed Income Earners. - Taxpayers 
earning both compensation income and income from business or 
practice of profession shall be subject to the following taxes:
"(1) X X x;
"(2) All Income from Business or Practice of 
Profession. -
"(a) If Total Gross Sales and/or Gross Receipts and 
Other Non-Operating Income Do Not Exceed the VAT 
Threshold as Provided in Section [109(BB)] 109(CC) of 
this Code. - The rates prescribed under Subsection 
(A)(2)(a) of this Section on taxable income, or of [ei§bt 
percont (8%)] FIVE PERCENT (5%) income tax based 
on gross sales or gross receipts and other non-operating 
income in lieu of the graduated income tax rates under 
Subsection (A)(2)(a) of this Section and the percentage 
tax under Section 116 of this Code.
"x X X."
Sec. 2. Section 57 of the National Internal Revenue Code of 1997, as amended 
is hereby further amended to read as follows:
"Sec. 57. Withholding of Tax at Source. -
"(A) X X x;


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"(B) Withholding of Creditable Tax at Source. - The Secretary of 
Finance may, upon the recommendation of the Commissioner, require 
the withholding of a tax on the items of income payable to natural or 
juridical persons, residing in the Philippines, by payor- 
corporation/persons as provided for by law, at the rate of [not more 
than fiftoon porcont (15%) thereof] ONE PERCENT (1%) FOR THE 
PURCHASE OF GOODS AND PROPERTIES, AND TWO PERCENT 
(2%) FOR THE PURCHASE OF SERVICES INCLUDING THE 
EXERCISE OF PROFESSION AND LEASE OF PROPERTIES, which 
shall be credited against the income tax liability of the taxpayer for the 
taxable year;
"X X X."
Sec. 3. Implementing Rules and Regulations. - Within thirty (30) days from the 
effectivity of this Act, the Department of Finance shaii, in coordination with the Bureau 
of Internal Revenue, promulgate the rules and regulations to effectiveiy implement 
the provisions of this Act.
Sec. 4. Separability Clause. - If any provision or part hereof is declared 
unconstitutional, the remainder of this Act or any provision not affected thereby shall 
remain in fuli force and effect.
Sec. 5. Repealing Clause. - Ali laws, acts, decrees, executive orders, issuances, 
and rules and regulations or parts thereof which are contrary to and inconsistent with 
this Act are hereby repeaied, amended or modified accordingiy.
Sec. 6. Effectivity. - This Act shall take effect fifteen (15) days after its 
publication in the Official Gazette or at least two (2) newspapers of general circulation.
Approved,