#AskTheTaxWhiz: Are all professionals subject to VAT?
I am a doctor and my husband is a lawyer. Since I am earning very little compared with my husband, I was advised to register as non-Value Added Tax (VAT) taxpayer in 2012. Are all professionals subject to VAT? Is there a threshold or exemption available for those earning below threshold?
Yes. Effective January 1, 2003, all professional services are subject to VAT. Consequently, professionals are required to register as VAT-taxpayer except those whose gross receipts for the preceding year (or expected gross receipts for the current year, for new taxpayers) do not exceed the threshold (Revenue Regulations 1-2003 and 11-2003).
The threshold amount is P1,919,500 ($43,938.92*). However, the threshold is more of an exception than a general rule. A professional is still liable to register as VAT-taxpayer if there are reasonable grounds to believe that his gross receipts/professional fees for the next 12 months will exceed P1,919,500 (Revenue Regulation 16-2011).
Are only the lawyers and doctors considered professionals?
No. Professionals, classified as self-employed, refer to an individual or a group, practicing his/her or their profession or calling, with or without license under a regulatory board or body (Revenue Memorandum Circular 64-2012).
Assuming we don’t register as VAT-taxpayer following the advice of our consultant, are we still required to pay VAT? Assuming we don’t exceed the threshold amount, what then do we pay in lieu of VAT?
Yes. A professional whose gross receipts/professional fees are more than the threshold amount of P1,919,500 shall be liable to VAT, regardless of whether or not he/she registers as a VAT-taxpayer.
However, if a professional earns equal to or below the threshold amount of P1,919,500, he/she is liable to pay only 3% percentage tax provided he/she has not yet registered as VAT-taxpayer.
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Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country’s first social enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. Mon's tax handbook, "Got a Question About Taxes? Ask the Tax Whiz!" is now available in all bookstores nationwide. Follow Mon on Twitter: @askthetaxwhiz or visit his group’s Facebook page. You may also email him at firstname.lastname@example.org.
*($1 = P43.69)
VAT image from Shutterstock