[Ask the Tax Whiz] Do I need to submit an audited financial statement?

I am a registered freelancer in Quezon City. Before the April 15 deadline, I filed my annual income tax return using BIR Form 1701A since I opted for the 8% income tax. Is that correct? Am I still required to submit an audited financial statement?

As long as your annual gross revenues do not exceed P3 million, you are qualified for optional 8% income tax and required to use BIR Form 1701A in filing your annual income tax return.

If you are qualified for optional 8% income tax, you are not required to submit a financial statement.

If I opted for 8% income tax in 2020, can I still avail of the reduced percentage tax rate from 3% to 1% in 2021? If yes, can I also use optional standard deduction (OSD) in computing for my taxable income? Can I continuously use the 1% percentage tax since it’s much lower now?

You can still get the reduced rate. Just choose the graduated rates instead of optional 8% when you file your 1701Q on or before May 15. Also, you should have filed your BIR Form 2551Q for the 1st quarter due on or before April 15 using the reduced rate of 1%.

You may also choose either OSD or itemized deduction when filing your 1701Q for the 1st quarter.

Unfortunately, however, the reduction of percentage tax from 3% to 1% from July 1, 2020 is only until June 30, 2023, as it is one of the tax relief measures provided in the Corporate Recovery and Tax Incentives for Enterprises or CREATE law.

Who are required to submit a financial statement as attachment to the annual income tax return? Does an independent auditor have to sign the financial statement? Until when can it be submitted? Any penalty or extension of deadline due to the quarantine? And if I have other tax questions, where can I turn to?

In the case of a purely self-employed or professional individual taxpayer who opted for the graduated income tax rates and itemized deductions, he or she is required to submit financial statements 15 days after electronically filing the annual income tax return. However, for those who filed or opt to file manually, the required financial statement must already be attached upon submission.

If annual gross revenues exceed P3 million, an independent certified public accountant must audit and sign the financial statements. Otherwise, an audited financial statement is not required for those with P3 million or less in annual gross revenues.

No penalty will be imposed for non-submission of required attachments to the filed annual income tax return provided that the same attachments are submitted on or before May 30, 2021, through the Electronic Audited Financial Statement (eAFS) System.

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– Rappler.com

Mon Abrea, CPA, MBA, is the co-chair of the Paying Taxes-EODB Task Force. With the TaxWhizPH mobile app as his brainchild, he was recognized as one of the Outstanding Young Persons of the World, an Asia CEO Young Leader, and one of the Ten Outstanding Young Men of the Philippines because of his tax advocacy and expertise. Currently, he is the chairman and CEO of the Asian Consulting Group and trustee of the Center for Strategic Reforms of the Philippines – the advocacy partner of the Bureau of Internal Revenue, Department of Trade and Industry, and Anti-Red Tape Authority on ease of doing business and tax reform. Visit www.acg.ph for more information or email him at mon@acg.ph and download the TaxWhizPH app for free if you have tax questions.