CREATE: Reduction of Percentage Tax to 1%

By: Pamela Ruth G. Calog, CPA

2 months ago

On March 26, 2021, Republic Act. No. 11534, or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act was signed to amend the Tax Code and serve as a Coronavirus disease (COVID-19) relief measure.

Albeit temporary, one of the key changes was the reduction of percentage tax for Non-VAT taxpayers from 3% to 1%.

Percentage tax is a business tax imposed on persons, entities, or transactions specified under Sections 116 to 127 of the Tax Code, as amended, and as required under special laws. Section 116 is hereby further amended by CREATE to read as follows:

“Any person whose sales or receipts are exempt under Section 109 (BB) of this Code from the payment of value added tax and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, That cooperatives, shall be exempt from the three percent (3%) gross receipts tax herein imposed.


Notably, the effectivity of the CREATE percentage tax rate of 1% shall retroact from July 1, 2020. Hence, it will affect returns already submitted such as:

  1. BIR Form No. 2551M - Monthly Percentage Tax Return

  2. BIR Form No. 2551Q - Quarterly Percentage Tax Return

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Frequently Asked Questions

  • No, there are no annual returns for persons subject to Percentage Tax. Hence, there is no requirement to do so.

  • Only persons (1) whose sales or receipts are exempt from VAT and (2) not VAT-registered will benefit the temporary rate of 1%. All others are not amended.

  • Any person who, in the course of trade or business, sells barters or exchanges goods or properties or engages in the sale or exchange of services  shall be liable to register if:

    a. His gross sales or receipts for the past twelve (12) months, other than those that are exempt under Section 109 (A) to (U), have exceeded Three Million Pesos (P3,000,000.00): or


    b. There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months, other than those that are exempt under Section 109 (A) to (U), will exceed Three Million Pesos (P3,000,000.00).

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