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Legislative bills

Empowering MSMEs: Lawmaker Files Bill to Streamline Business Compliance

Strategic Insights

— 1 min read

House Bill 2271, filed by Quezon City Rep. Patrick Michael Vargas, aims to reduce the cost of business compliance for micro, small, and medium enterprises (MSMEs) by amending key provisions of the National Internal Revenue Code of 1997. The bill proposes to lower the optional income tax rate from 8 percent to 5 percent for self-employed individuals and professionals whose gross sales or receipts fall below the value-added tax (VAT) threshold. This move is expected to ease compliance procedures and free up resources for MSMEs to reinvest in their operations.

Key Takeaways:

  • House Bill 2271 aims to reduce the cost of business compliance for MSMEs, a sector that makes up 99.5 percent of all registered business establishments and employs around 63 percent of the labor force.
  • The bill proposes to lower the optional income tax rate from 8 percent to 5 percent for self-employed individuals and professionals whose gross sales or receipts fall below the VAT threshold.
  • The bill also proposes to streamline the creditable withholding tax system, setting the withholding tax at 1 percent for purchases of goods and properties and 2 percent for services, including professional fees and leases.
  • The adjustments aim to reduce the administrative burden on MSMEs and improve their cash flow, enabling them to scale up, generate more jobs, and contribute more meaningfully to national development.
  • The bill mandates the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) to issue implementing rules (IRR) within 30 days from the effectivity of the proposal.

Statistics:

  • MSMEs make up 99.5 percent of all registered business establishments in the Philippines.
  • MSMEs employ around 63 percent of the labor force in the country.
  • The current optional income tax rate for self-employed individuals and professionals is 8 percent.
  • The bill proposes to lower the optional income tax rate to 5 percent for self-employed individuals and professionals whose gross sales or receipts fall below the VAT threshold.

Sources:

  • Quezon City Rep. Patrick Michael Vargas, "House Bill 2271: A Bill to Amend Certain Provisions of the National Internal Revenue Code of 1997" (2023)
  • Department of Finance (DOF), "Implementing Rules and Regulations for Tax Laws" (2023)
  • Bureau of Internal Revenue (BIR), "Handbook on Tax Laws and Regulations" (2023)

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