How to Switch from Graduated Tax to 8% Flat Tax Philippines
Tired of computing separate percentage tax and graduated income tax every quarter? The short answer is that you can switch to 8% flat tax Philippines rules whenever a new taxable year begins, as long as your annual gross sales or receipts stay at ₱3,000,000 or below. Good news, the process itself is straightforward once you know the exact timing and forms involved. Here is exactly how to make the switch correctly.
Quick Answer: To switch to 8% flat tax Philippines rules, self-employed individuals and professionals must signify their election on their first quarterly return of the taxable year, either BIR Form 1701Q or 2551Q, or by updating their registration through BIR Form 1905. This election is irrevocable for that entire taxable year.
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What This Switch Involves and Who It Applies To
Change tax type BIR Philippines rules allow self-employed individuals and professionals currently under graduated income tax rates to switch to the simplified 8% flat tax option, provided their expected gross annual sales or receipts stay at ₱3,000,000 or below. This applies to freelancers, sole proprietors, and professionals who previously elected graduated rates or never made an election at all.
The 8% option combines your income tax and percentage tax into one flat rate on gross sales or receipts, replacing the need to compute both separately. Our 8% vs graduated tax comparison breaks down which option might actually save you more, depending on your income and expense levels.
Once you make the switch and qualify for the simplified annual filing, our how to file 1701A guide walks through that specific return in more depth.
Step-by-Step: Making the Switch to 8%
Here is exactly how to signify your election correctly.
If You Are Currently Under Graduated Rates
- File BIR Form 1905, the Application for Registration Information Update, at the start of the new taxable year, to end-date your quarterly percentage tax registration if you are currently non-VAT registered.
- Select the 8% income tax rate option on your first quarterly income tax return for that year, BIR Form 1701Q, in the designated field for this election.
- Alternatively, if you also file percentage tax, indicate the same election on your first BIR Form 2551Q for the year before that requirement is suspended.
- Confirm your expected gross annual sales or receipts genuinely stay at ₱3,000,000 or below, since exceeding this threshold during the year automatically shifts you back to graduated rates.
If You Are a New Business Registrant
- Register your business using BIR Form 1901.
- Select the 8% income tax rate option on your very first quarterly return filed after commencing business or professional practice.
- Skip filing a separate percentage tax return going forward, since the 8% rate already covers that obligation.
Election Deadlines Table
| Item | Detail | Applies To |
|---|---|---|
| 8% Election Timing | On your first quarterly return of the taxable year (1701Q and/or 2551Q) | Existing self-employed taxpayers |
| 8% Election Timing (New Registrants) | On your initial quarterly return after commencing business | Newly registered self-employed taxpayers |
| 8% Eligibility Threshold | ₱3,000,000 or below in expected annual gross sales or receipts | All 8% option elections |
| Irrevocability | Election cannot be changed for that same taxable year once made | All 8% option elections |
Verify the latest deadline with the BIR website or ask BB for the most current information for your exact first-quarter filing date each year.
How to Pay Your 8% Tax via GCash
Once you have made the switch, paying your quarterly 8% tax works the same as any other filing.
- Compute your cumulative 8% tax due after subtracting the ₱250,000 annual deduction, if applicable, and any prior quarterly payments.
- Go to the BIR online payment portal and select GCash as your payment channel.
- Enter your TIN, the form type, and the exact tax period you are paying for.
- Confirm the amount and complete payment through your GCash app.
- Save your payment confirmation and reference number for your records.
Keeping every quarterly payment organized makes your annual reconciliation under the 8% option straightforward.
Common Mistakes When Switching Tax Types
Avoid these when making your election.
- Missing the first quarterly return deadline, which defaults you to graduated rates for the entire year with no option to switch mid-year.
- Assuming you can change your mind after your first quarterly return is filed, when the election is explicitly irrevocable for that taxable year.
- Continuing to file a separate percentage tax return after electing 8%, when that obligation is already covered within the flat rate.
- Not monitoring your gross sales throughout the year, since exceeding ₱3,000,000 automatically shifts you to graduated rates regardless of your original election.
- Forgetting to file BIR Form 1905 to end-date your percentage tax registration if you were previously filing 2551Q regularly.
A Filipino Example: Arvin’s Switch to 8% in Bacolod
Arvin runs a freelance IT consulting business in Bacolod, previously filing under graduated rates with the 3% percentage tax, earning around ₱1,600,000 a year. After reviewing his numbers, he decided the 8% option would simplify his filings without costing him much more in tax.
At the start of the new taxable year, Arvin filed BIR Form 1905 to end-date his quarterly percentage tax registration, then selected the 8% income tax rate option on his first BIR Form 1701Q for that year.
From that point forward, Arvin only files his quarterly 1701Q and skips the separate 2551Q entirely, since his 8% rate already covers what percentage tax used to handle.
Frequently Asked Questions
- Can I switch from graduated tax to 8% flat tax in the Philippines?
- When is the deadline to elect the 8% flat tax for the following year?
- How do I inform BIR that I want to use the 8% flat tax?
- What form do I file to switch my tax type with BIR?
- Can I switch back from 8% to graduated tax later?
Still have questions? Chat with BB for free. BB is our AI tax assistant available 24 hours a day in English and Filipino. Just click the green BB button at the bottom right of this page.
Final Thoughts
Learning how to switch to 8% flat tax Philippines rules really comes down to timing. Make your election on your first quarterly return of the new taxable year, file Form 1905 to end-date your percentage tax registration if applicable, and remember this choice locks in for the full year.
Getting the timing right the first time saves you from being stuck with an option you did not actually want for twelve months. BB is available 24/7 if a specific form or deadline has you unsure. Review your numbers now, and you will know exactly what to do when the new taxable year begins.
Disclaimer: This guide is for informational purposes only and does not constitute legal or accounting advice. For complex tax situations, consult a licensed CPA.