NINETEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session
)
)
SENATE 
S. No. 54
k(/> TIME:
BILLS w INDEX
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. The preliminary MSME Data from the Philippine Statistics 
Authority revealed that in 2021, some 99.6% of the 1,080,638 establishments in the 
country are classified as MSMEs. In 2020, the sector generated 63% of the total 
establishment-based employment and about 36% of all value of goods and services 
produced in the country. 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 
is particularly true during the height of the coronavirus pandemic in 2020, where 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 bill seeks to simplify the convoluted rates under the creditable 
withholding tax system by reducing the rates to 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 
development of all Filipinos.
In view of the foregoing, the approval of this measure is earnestly sought.
FRANCIS G. ESCUDEROir


NINETEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES ) 
First Regular Session 
)
SENATE
s. No. 54
TIME:
BILLS & \1NDEX
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 Blouse of Representatives of the Philippines in 
Congress assembled:
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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 Resident
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Alien of the Philippines. -
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"(1) XXX
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"(2) Rates of Tax on Taxable Income of Individuals. - The tax shall be
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computed in accordance with and at the rates established in the following
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schedule:
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"(a) XXX
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"(b) Rate of Tax on Income of Purely Self-employed Individuals and/or
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Professionals Whose Gross Sales or Gross Receipts and Other Non-Operating
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Income Does Not Exceed the Value-added Tax (VA T) Threshold as Provided In
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Section \4G9(BBJ\ 109(CC). - Self-employed individuals and/or professionals
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shall have the option to avail of [an eight percent (8%)] A FIVE PERCENT
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(5%) tax on gross sales or gross receipts and other non-operating income in
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excess of Two hundred fifty thousand pesos (P250,000) in lieu of the graduated


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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 shaii 
be subject to the foilowing taxes:
"(1) AH Income from Compensation. - The rate prescribed under 
Subsection (A)(2)(a) of this Section.
"(2) AH Income from Business or Practice of Profession. - 
"(a) If Totai Gross Saies and/or Gross Receipts and Other Non-Operating 
Income Do Not Exceed the VAT Threshold as Provided in Section 
109(CC) of this Code. - The rates prescribed under Subsection (A)(2)(a) of 
this Section on taxabie income, or [el§bt-f)ef€-ent-(8%)] FIVE PERCENT (5%) 
income tax based on gross saies 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.
"xxx"
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) xxx
"(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 [Rot-icsG than one percent (l%) -but not-morc-than thirty-two-percent
(3-2%)-thereof, which shall bo crcditcd against- thc income tax -liability of the
taxpayer for-the taxable year: Provided, -That beginfmg Januefy-47-2-Ql9-,--the
f-ate-of-withholding shall not be less than one-percent (1%) but not-more than
fifteen pcrcent-(15%-)-of--the income payment.] 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
.
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CREDITED AGAINST THE INCOME TAX LIABILITY OF THE TAXPAYER 
FOR THE TAXABLE YEAR.
"xxx"
Sec. 3. Implementing Rules and Regulations (IRR). - Within thirty (30) days 
from the effectivity of this Act, the Department of Finance shall, in coordination with 
the Bureau of Internal Revenue, promulgate the rules and regulations to effectively 
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 full force and effect.
Sec. 5. Repealing Clause. -All laws, acts, decrees, executive orders, issuances, 
and rules and regulations or parts thereof which are contrary to and inconsistent with 
this Act are hereby repealed, amended or modified accordingly.
Sec. 6. Effectivity.-J\\\s Act shall take effect fifteen (15) days after its complete 
publication in the Official Gazette or in at least two (2) newspapers of general 
circulation.
Approved,