Republic of the Philippines 
House of Representatives 
Quezon City, Metro Manila 
NINETEENTH CONGRESS 
Second Regular Session 
House Bill No. _______ 
INTRODUCED BY REPRESENTATIVE PM VARGAS 
AN ACT 
  BUSINESS GROWTH AND RECOVERY BY REDUCING THE COST OF 
BUSINESS 
COMPLIANCE 
FOR 
MICRO, 
SMALL, 
AND 
MEDIUM 
ENTERPRISES (MSMEs), AMENDING FOR THE PURPOSE THE NATIONAL 
INTERNAL REVENUE CODE OF 1997, AS AMENDED 
EXPLANATORY NOTE 
Micro, Small, and Medium-Sized Businesses (MSMEs) are essential to 
the growth of the Philippine economy. MSMEs immediately aid in reducing 
poverty by generating employment for the nation's expanding labor population 
and promoting economic growth, particularly in rural areas. MSMEs serve as 
a training ground for aspiring business owners as well as a crucial conduit 
for large corporations as service providers. MSMEs account for 99.5% of all 
registered business establishments in the nation and employ roughly 63% of 
the existing labor force. In the past, the sector was responsible for 40% of the 
nation's Gross Domestic Product (GDP). 
The cost of business compliance can be significant for MSMEs which 
often do not have the same resources as larger businesses, making it 
challenging for them to compete and grow. By reducing the cost of compliance, 
the government can help level the playing field and create a more favorable 
environment for MSMEs to operate.  
September 7, 2023
10:44 pm
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Reducing the cost of compliance can further benefit MSMEs with 
improved efficiency, increased productivity, and profitability, essentially 
improving their competitiveness.   
 
This proposed measure seeks to make business compliance easier with 
a reduced tax rate from eight percent (8%) to five percent (5%) of gross sales 
or receipts introduced under Republic Act No. 10963, or the " Tax Reform for 
Acceleration and Inclusion (TRAIN) Law'. The bill also aims to simplify the 
convoluted rates under the creditable withholding tax system by reducing the 
rates to be used: one percent (1%) for the purchase of goods and properties, 
and two percent (2%) for the purchase of services. Through these amendments 
to the National Internal Revenue Code of 1997, this measure hopes to provide 
additional funds for business expansion for the MSMEs and grow their 
capability to contribute to economic development. 
 
In view of the foregoing immediate passage of this bill is earnestly 
sought. 
 
 
 
REP. PM VARGAS 
Fifth District, Quezon City 
 
 
 
 
 
 
 
 
 
 
 


Republic of the Philippines 
House of Representatives 
Quezon City, Metro Manila 
NINETEENTH CONGRESS 
Second Regular Session 
House Bill No. _______ 
INTRODUCED BY REPRESENTATIVE PM VARGAS 
AN ACT 
PROMOTING BUSINESS GROWTH AND RECOVERY BY REDUCING THE 
COST OF BUSINESS COMPLIANCE FOR MICRO, SMALL AND MEDIUM 
ENTERPRISES (MSMEs), 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 assembled: 
SECTION 1. Section 24 of the National Internal Revenue Code of 1997, as amended, 
is hereby further amended to read as follows: 
“SEC 24. Income Tax Rates. – 
(A) Rates of Income Tax on Individual Citizen and Individual Resident
Alien of the Philippines. - 
"(1) XXX 
"(2) Rates of Tax on Taxable Income of Individuals. - The tax shall be 
computed in accordance with and at the rates established in the following 
schedule: 
"(a) xxx 
"(b) Rate of Tax on Income of Purely Self-employed Individuals and/or 
Professionals Whose Gross Sales or Gross Receipts and Other Non-Operating 
Income Does Not Exceed the Value-added Tax (VAT) Threshold as Provided In 
Section [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 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 shall be subject to the following 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 Total Gross Sales 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 taxable income, or [eight percent (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. 
"xxx" 
 
SECTION 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 [not less than one percent (1%) but not more than thirty two 
percent (32%) thereof, which shall be credited against the income tax liability 
of the taxpayer for the taxable year: Provided, That beginning January 1, 
2019, the rate of the withholding shall not be less than one percent (1%) but 
not more than fifteen percent (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 CREDITED AGAINST THE INCOME TAX LIABILITY OF THE 
TAXPAYER FOR THE TAXABLE YEAR. 
 
“xxx” 
 
SECTION 3. Implementing Rules and Regulations (IRR). – Within thirty 
(30) days from the effectivity of this Act, the Department of Finance (DOF) 
shall, in coordination with the Bureau of Internal Revenue (BIR), promulgate 
the IRR to effectively implement the provisions of this Act. 
 
SECTION 4. Separability Clause. – If any provision or part hereof is declared 
invalid or unconstitutional, the remainder of this Act or any provision not 
affected thereby shall remain in full force and effect. 
 
SECTION 5. Repealing Clause. – All laws, acts, decrees, executive orders, 
issuances, and rules and regulations or parts thereof which are contrary to, 
or inconsistent with, this Act are hereby repealed, amended or modified 
accordingly. 
 
SECTION 6. Effectivity. – This Act shall take effect fifteen (15) days after its 
publication either in the Official Gazette or in at least two (2) newspapers of 
general circulation in the Philippines. 
 
Approved,