Tax Applications for Sari-Sari Store Owners with Low Income in the Philippines

(A practitioner-oriented legal guide)

Scope. This article focuses on individual sari-sari store owners (sole proprietors) with relatively small or “low income” operations. It synthesizes the applicable national tax rules under the National Internal Revenue Code (NIRC), as amended—notably by the TRAIN Law (R.A. 10963), CREATE Act (R.A. 11534)—and key allied statutes (e.g., R.A. 9178 on BMBEs), as well as typical local licensing requirements under R.A. 7160 (Local Government Code). Precise rates and forms evolve; always check the most current BIR issuances that implement these laws.

I. Who is a “sari-sari store owner” for tax purposes?

Legal personality: A sari-sari store run by one person is generally a sole proprietorship. The owner is the taxpayer; the “business” itself is not a separate taxpayer (unless you incorporate, which this article does not cover).
Taxpayer class: You are treated as a self-employed individual/sole proprietor engaged in trade or business under the NIRC.

II. Core legal bases & policy anchors

NIRC (Tax Code), as amended. Governs registration, invoicing/receipting, books of accounts, income tax, percentage tax, VAT, withholding and penalties.
TRAIN Law (R.A. 10963; effective 2018).
- Kept the ₱250,000 zero-tax bracket under the graduated income tax for individuals.
- Introduced the optional 8% income tax on gross in lieu of both graduated income tax and percentage tax, for qualifying self-employed individuals (see §V).
- Retained the ₱3,000,000 VAT-threshold, above which VAT registration is mandatory.
CREATE Act (R.A. 11534; 2021). Temporarily reduced the percentage tax rate for non-VAT taxpayers during specified periods (be mindful of current BIR guidance on the operative rate in any given year).
R.A. 9178 (BMBE Law). Grants income tax exemption to duly registered Barangay Micro Business Enterprises (BMBEs) on income arising from BMBE operations, subject to documentary and procedural compliance; does not automatically exempt from percentage tax/VAT or local business taxes, unless local ordinances provide relief.
R.A. 7160 (Local Government Code). Empowers LGUs to collect local business tax, fees and charges; requirements vary by city/municipality.

III. Getting legal: registration & baseline compliance

Business name (DTI).
- If you trade under a name other than your real name (e.g., “Aling Nena’s Sari-Sari”), register the Business Name with DTI.
Local licenses (LGU).
- Secure Barangay Clearance and Mayor’s/Business Permit, and meet ancillary clearances (fire safety, sanitation). Local rates and deadlines vary.
BIR registration (national taxes).
- TIN: If you don’t have one, apply.
- Form: Sole proprietors use BIR Form 1901 (initial registration).
- Certificate of Registration (COR / BIR Form 2303). Shows your tax types (e.g., Income Tax, Percentage Tax or VAT, Withholding if any).
- Books of Accounts. Choose manual (columnar), loose-leaf, or computerized (subject to BIR rules). Maintain sales, purchases, cash receipts, and cash disbursements journals/ledgers appropriate to your size.
- Receipts/Invoices.
  - As a non-VAT taxpayer, issue non-VAT Sales Invoices (for sale of goods).
  - If VAT-registered, issue VAT Sales Invoices (with VAT separately shown).
  - Always issue a receipt/invoice for every sale upon request and for transactions meeting or exceeding BIR’s receipting threshold; keep copies and follow retention rules (keep books and source docs for up to 10 years under the Tax Code record-retention regime).

Note: The Annual Registration Fee has been removed by law; check your COR for currently required tax types and the BIR RDO’s latest instructions on e-services, e-invoicing coverage (usually for large taxpayers/exporters), and returns e-filing/e-payment.

IV. Which taxes typically apply to a small sari-sari store?

A. Income Tax (individual, business income)

You have two main paths if your gross sales/receipts do not exceed the ₱3,000,000 VAT-threshold:

Graduated Income Tax (default).
- Compute Taxable Income = Gross Sales – Allowable Cost of Sales – Allowable Deductions (ordinary & necessary business expenses; choose itemized deductions or, if qualified, OSD at 40% of gross in lieu of itemized).
- Apply the individual tax brackets, with ₱250,000 of net taxable income taxed at 0%. Tax rates escalate above that.
8% Income Tax on Gross (Optional).
- Available to purely self-employed individuals not exceeding the VAT-threshold and who opt in (on the 1st quarterly/annual return or via registration update).
- Tax base (purely self-employed, no compensation): 8% of gross sales/receipts and other non-operating income in excess of ₱250,000, in lieu of both graduated income tax and percentage tax.
- Mixed-income earners (with compensation + business): the ₱250,000 reduction is consumed by the compensation side; the 8% (if allowed) applies to gross business income without the ₱250,000 deduction. Carefully evaluate before opting in.

Planning tip: If your net margin is low and expenses are high, the graduated route may yield little or no income tax (because of the ₱250,000 zero-tax band). If your net margin is high and record-keeping is simple, the 8% route may be better (it also eliminates percentage tax).

B. Business Taxes on Sales: VAT vs Percentage Tax

VAT-registered (12% VAT). Mandatory if gross sales/receipts exceed ₱3,000,000 in any 12-month period (or if you voluntarily register). VAT requires monthly/quarterly processes and allows input VAT credits on purchases.
Non-VAT (Percentage Tax). If you do not exceed the VAT-threshold and do not opt for VAT, you are non-VAT and generally subject to Percentage Tax (historically 3% of gross sales/receipts for most sellers of goods).
- Important: Laws temporarily reduced the rate during certain periods (e.g., CREATE). Always confirm the applicable rate for the current year/quarter.
- If you validly opt into the 8% income tax, you do not pay percentage tax for that year.

Sari-sari reality: Most small stores are non-VAT by size and either (a) pay percentage tax quarterly or (b) opt into 8% (no percentage tax) if eligible.

C. Withholding Taxes (as payee or as employer)

As payee (you sell to companies): A corporate customer may withhold expanded tax (EWT) from your payment (commonly 1% or 2% for goods/services under BIR rules). They must issue BIR Form 2307 to you; you claim this as a tax credit in your quarterly/annual income tax.
As employer: If you have employees, register as a withholding agent and remit compensation withholding taxes (monthly/quarterly forms) and year-end alphalist. Observe minimum wage and labor law rules (BMBE status affects wage law coverage but has separate compliance).

D. Local Government Taxes & Fees

LGUs impose annual business tax based on gross sales/receipts brackets, plus barangay fees, sanitary, fire, etc. Rates and deadlines are by ordinance; coordinate with your City/Municipal Treasurer.

E. Excise and regulated products (practical note)

You may retail excise-taxed goods (e.g., alcohol, tobacco, sweetened beverages). The excise is embedded at the manufacturer/importer level; retailers do not compute excise, but must comply with labeling/age-restriction and other regulatory rules. Keep purchase invoices from legitimate suppliers.

V. Choosing between Graduated vs 8%: decision framework

Purely self-employed and ≤ ₱3M gross? You may elect 8% (in lieu of percentage tax + graduated income tax).
Have compensation income too? You can still run a business, but the ₱250,000 reduction belongs to your salary side; the 8% election typically applies to your business gross without the ₱250,000 deduction—run the numbers.
Thin margins and small profits? Graduated often yields lower tax (or zero if net taxable income ≤ ₱250,000).
High margins, simple books? 8% can be simpler and cheaper, plus no percentage tax.

VI. Filing calendars (typical; confirm current e-platforms & exact due dates)

Income Tax (individuals, business income):
- Quarterly (1701Q): Generally due on or before the 15th day of the second month following each quarter (e.g., Q1 → May 15).
- Annual (1701 or 1701A): On or before April 15 of the following year. (Use 1701A if you availed of 8%.)
Percentage Tax (2551Q): Quarterly, typically on or before the 25th day after the close of the quarter.
VAT (if applicable): Observe the prevailing monthly/quarterly filing/remittance schedules under current BIR rules.
Withholding (if employer/withholding agent): Monthly remittances and quarterly summaries (e.g., 1601C, 1601-EQ/1604 series), plus alphalist.
Local taxes & permits: Annual renewal is usually in January; check your LGU ordinance.

E-compliance: The BIR increasingly requires e-filing (eFPS/eBIRForms) and e-payments; some RDOs use online appointment/registration portals. Keep your email and COR details current.

VII. Record-keeping & receipts: how much is “enough”?

Books & source documents: Keep 10 years of books, invoices/receipts, and proof of e-filings/e-payments.
Daily sales tracking: Small stores benefit from a simple daily cash sheet (opening cash + sales – purchases – expenses = closing cash).
Inventory: Track stocks (beginning + purchases – ending = cost of goods sold). Even basic counts help defend your margins in an audit.
Receipting: Always issue a sales invoice when requested and retain your duplicate. For supplies, buy only from legitimate sources and keep supplier invoices.

VIII. Special regimes & relief for very small stores

1) BMBE (R.A. 9178)

Who may qualify: Micro businesses with assets not exceeding ₱3,000,000 (excluding land), duly registered as BMBE with DTI/LGU and issued a Certificate of Authority.
Benefit: Income tax exemption on income arising from BMBE operations (not other income).
Non-exempt items: Percentage tax/VAT generally still apply (unless local or special rules provide otherwise). Local business tax may still apply (LGU-dependent).
Compliance: You still file returns (even if “no tax due” on income tax) and keep books. Renew the BMBE certificate as required.

2) Marginal income & informality

“Marginal income earners” (very small, subsistence businesses) are still taxpayers under the NIRC when engaged in trade. Many practical accommodations exist (simplified books), but registration and filing duties remain unless a specific lawful exemption applies.

IX. Worked scenarios (illustrative)

Assumptions (for illustration only; ignore municipal/local taxes and any EWT withheld by customers).

Scenario A — Very low profit; graduated tax likely best

Gross sales: ₱300,000
Cost of goods/expenses: ₱240,000
Net taxable income: ₱60,000
Income tax (graduated): ₱0 (within the ₱250,000 zero-tax band).
Percentage tax: Apply the prevailing rate (historically 3% unless a temporary lower rate applies) quarterly to gross sales (₱300,000 × rate).
Alternative (8%): 8% on excess over ₱250,000 → 8% of ₱50,000 = ₱4,000 (but no percentage tax).
Takeaway: If the percentage tax (or its then-current reduced rate) across the year is less than ₱4,000, graduated may be cheaper; if 8% yields less and simplifies, consider opting in.

Scenario B — Healthy margin; 8% may be simpler

Gross sales: ₱900,000
Expenses: ₱300,000
Net income: ₱600,000
Graduated tax: Taxable income exceeds ₱250,000; compute via brackets (could be substantial).
8% option (purely self-employed): 8% of (₱900,000 – ₱250,000) = ₱52,000, in lieu of percentage tax.
Takeaway: Run both computations; 8% often wins when margins are high and books are simple.

Scenario C — Mixed-income earner (with salary)

Compensation income: ₱300,000 (subject to withholding by employer).
Store gross sales: ₱400,000; expenses: ₱220,000 → net ₱180,000.
8% option: The ₱250,000 reduction is used up by compensation; thus 8% would apply to ₱400,000 (no ₱250,000 deduction).
Graduated route: Add ₱180,000 net business income to compensation and compute under the brackets (with credits for compensation withholding). Often graduated is better for mixed-income small stores.

X. Common pain points & how to avoid penalties

Late registration/filing/payment: Expect surcharges (up to 25%/50%), interest, and compromise penalties.
Wrong tax type on COR: Update via BIR Form 1905.
Missing receipts or unregistered books: Can trigger disallowances and estimated assessments. Keep your ORs/SIs, supplier invoices, and books.
EWT not claimed: Keep Form 2307 from customers and credit it against your income tax due.
Crossing the VAT threshold unnoticed: You must update to VAT when you exceed ₱3,000,000; failure leads to VAT assessments plus penalties.

XI. Practical checklist for a low-income sari-sari store

Register properly (DTI name if needed, Barangay/Municipal permits, BIR via 1901; secure COR).
Decide early: Graduated vs 8% (watch the VAT-threshold).
Know your business taxes: Percentage tax if non-VAT and you did not opt for 8%; otherwise VAT if you cross ₱3M.
Keep simple but complete books: daily sales sheet, purchase invoices, expense receipts, inventory counts.
File on time: quarterly income tax, annual income tax; quarterly percentage tax (if applicable); withholding returns (if employer).
Retain documents for up to 10 years; back up e-filing acknowledgments and e-payment confirmations.
Consider BMBE if you qualify; keep the Certificate of Authority current and observe conditions.
Recheck rates yearly: percentage tax/VAT rules and e-platforms change; align your COR and forms.
If selling to companies: collect Form 2307; reconcile quarterly.
If you start to scale: monitor cumulative 12-month gross for the ₱3M VAT trigger.

XII. Frequently asked micro-issues

Do I need a cash register/POS? Not by tax law per se for very small retailers, but LGUs or special programs may require POS. You must issue sales invoices and maintain books.
Can I be both VAT-registered and 8%? No. The 8% option is for non-VAT taxpayers within the VAT-threshold.
If I choose 8%, can I change mid-year? The election applies for the entire taxable year; plan early.
I earn almost nothing—still file? Generally yes. Even if no tax due, file returns to avoid penalties and preserve compliance history.
Is annual BIR registration fee still due? It has been removed by law; verify your COR for current tax types and obligations.

XIII. Bottom line for low-income sari-sari owners

Register with BIR and LGU; get your COR right.
Choose Graduated (good for thin margins; may be ₱0 tax under the ₱250,000 band) or 8% (simple, often good for high margins; no percentage tax).
If you don’t choose 8% and you’re non-VAT, expect Percentage Tax quarterly.
Keep books/receipts, file on time, and consider BMBE if you qualify.
Revisit your choice each year and watch the ₱3M VAT-threshold as you grow.

Annex: Quick reference (typical forms for sole proprietors)

1901 (BIR Registration – self-employed/sole proprietor)
2303 (Certificate of Registration)
Books of Accounts (manual/loose-leaf/computerized)
1701Q / 1701 / 1701A (Quarterly/Annual Income Tax Returns)
2551Q (Percentage Tax – if non-VAT and not on 8%)
0605/1905 (various payments/updates as needed)
1601C / 1601-EQ / 1604-C (withholding—if employer/withholding agent)
2307 (Certificate of Taxes Withheld at Source—creditable EWT you can claim)

This article distills the operative framework for small sari-sari stores. Because rates, return forms, and e-systems are periodically updated by BIR circulars and revenue regulations, verify the current period’s rate tables and e-filing directions before you compute and file.