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

Introduction

In the Philippines, sari-sari stores represent a cornerstone of local economies, particularly in rural and urban poor communities. These small retail outlets, often operated from homes or modest storefronts, sell everyday essentials like snacks, beverages, and household items. For owners with low income—typically those generating annual gross sales or receipts below certain thresholds—navigating the tax system is crucial to ensure compliance while minimizing financial burdens. The Philippine tax framework, governed primarily by the National Internal Revenue Code (NIRC) as amended by Republic Act (RA) No. 10963 (TRAIN Law), RA No. 11534 (CREATE Law), and various Bureau of Internal Revenue (BIR) regulations, provides specific provisions tailored to small-scale businesses. This article comprehensively explores the tax obligations, exemptions, registration processes, filing requirements, and potential relief measures applicable to low-income sari-sari store owners, emphasizing practical implications within the Philippine legal context.

Legal Framework Governing Taxation of Small Businesses

The taxation of sari-sari stores falls under the jurisdiction of the BIR, an agency under the Department of Finance. Key laws include:

National Internal Revenue Code (NIRC) of 1997 (RA 8424): Establishes the general principles of income taxation, value-added tax (VAT), percentage taxes, and excise taxes.
TRAIN Law (RA 10963): Introduced in 2018, it reformed personal income tax rates and adjusted thresholds for VAT and other taxes.
CREATE Law (RA 11534): Enacted in 2021, it lowered corporate income tax rates and provided incentives for micro, small, and medium enterprises (MSMEs), indirectly benefiting individual proprietors.
Barangay Micro Business Enterprises (BMBE) Act of 2002 (RA 9178): Specifically designed for micro-enterprises like sari-sari stores, offering tax exemptions and simplified compliance.
Ease of Paying Taxes (EOPT) Act (RA 11976): Signed in 2024, it streamlines tax processes, including digital filing and reduced documentation for small taxpayers.

These laws recognize the economic role of low-income entrepreneurs and aim to foster growth by reducing administrative hurdles.

Definition of Low-Income Sari-Sari Store Owners

For tax purposes, "low income" is not rigidly defined but is inferred from gross sales or receipts thresholds:

Businesses with annual gross sales/receipts not exceeding PHP 3 million are generally classified as non-VAT taxpayers.
Under the BMBE Act, enterprises with total assets (excluding land) not exceeding PHP 3 million qualify as micro-businesses.
Sari-sari stores typically fall under sole proprietorships, where the owner's personal income tax applies to business profits.

Owners earning below the poverty threshold (as determined by the Philippine Statistics Authority, around PHP 12,000–15,000 monthly per family in 2025) may still have minimal tax liabilities but must comply with registration and reporting.

Tax Registration Requirements

All sari-sari store owners, regardless of income level, must register with the BIR before commencing operations. Failure to register can result in penalties under Section 236 of the NIRC.

Process:
- Obtain a Taxpayer Identification Number (TIN) via BIR Form 1901 for individuals.
- Register the business using BIR Form 0605 (Payment Form) and Form 1901, submitting to the Revenue District Office (RDO) covering the store's location.
- Required documents: Barangay clearance, Mayor's permit, DTI registration (for sole proprietors), and proof of address.
- For low-income owners, registration is free, but annual renewal fees apply (PHP 500 for the Certificate of Registration).
Special Registration under BMBE:
- Eligible sari-sari stores can register as BMBEs with the local government unit (LGU), such as the city or municipal treasurer's office.
- Upon approval, a Certificate of Authority is issued, granting exemptions from income tax on business income and certain local fees.
- Registration is perpetual unless revoked, with no fees charged.

Digital registration via the BIR's Online Registration and Update System (ORUS) is encouraged under the EOPT Act, simplifying the process for remote areas.

Types of Taxes Applicable

Low-income sari-sari store owners are subject to several taxes, but thresholds and options reduce the burden.

1. Income Tax

Computation: Business income is treated as part of the owner's gross income, subject to graduated rates under the TRAIN Law:
- 0% on annual taxable income up to PHP 250,000.
- 20% on PHP 250,001–400,000.
- Higher brackets up to 35% for over PHP 8 million.
For low-income owners (e.g., net income below PHP 250,000), effective tax is zero.
Optional 8% Tax Regime: Under RA 10963, taxpayers with gross sales/receipts not exceeding PHP 3 million can opt for an 8% tax on gross sales/receipts in lieu of graduated income tax, percentage tax, and VAT. This simplifies computation—no need for itemized deductions.
BMBE Exemption: Registered BMBEs are exempt from income tax on income arising from operations, provided assets remain below PHP 3 million.

2. Value-Added Tax (VAT)

Threshold: Businesses with annual gross sales/receipts exceeding PHP 3 million must register for VAT (12% on sales).
For low-income sari-sari stores below this threshold: Exempt from VAT. Instead, they may be subject to percentage tax.
Exemption applies to sales of basic necessities like rice, salt, and fresh produce, common in sari-sari stores.

3. Percentage Tax

Applicable to non-VAT taxpayers: 3% on gross quarterly sales/receipts exceeding PHP 750,000 (TRAIN Law threshold).
For stores below this: No percentage tax if opting for the 8% regime or if BMBE-registered.
Filed quarterly via BIR Form 2551Q.

4. Excise Taxes

Relevant for stores selling excisable goods like cigarettes, alcohol, and sweetened beverages.
Rates: Vary (e.g., PHP 60–70 per pack for cigarettes under RA 11346).
Owners act as withholding agents, remitting excise taxes collected from suppliers.

5. Local Business Taxes and Fees

Imposed by LGUs under the Local Government Code (RA 7160).
For low-income stores: Often minimal or waived for BMBEs (exempt from local business taxes, fees, and charges).
Examples: Mayor's permit (PHP 200–500 annually), sanitary fees.

6. Withholding Taxes

If the store hires employees (rare for small sari-sari stores), withhold income tax on wages.
For purchases from suppliers: Expanded withholding tax (1–2% on goods) if the store is classified as a top withholding agent (unlikely for low-income operations).

Exemptions and Incentives for Low-Income Owners

To support micro-entrepreneurs:

BMBE Benefits:
- Income tax exemption on business earnings.
- Exemption from minimum wage law (but fair wages encouraged).
- Priority access to government financing programs like those from the Small Business Corporation.
- Simplified bookkeeping: No need for audited financial statements.
COVID-19 and Disaster Relief: Under BAYANIHAN Laws (RA 11469 and 11494) and subsequent extensions, temporary tax amnesties and deferrals were provided. As of 2025, similar relief may apply during calamities via BIR issuances.
Senior Citizen/PWD Discounts: If the owner qualifies, additional deductions on personal income tax.
CREATE Law Incentives: While primarily for corporations, individual MSMEs benefit from reduced compliance costs and access to fiscal incentives through the Strategic Investment Priority Plan.

Compliance and Filing Requirements

Compliance is essential to avoid penalties (25–50% surcharges plus interest under Section 248–249 of NIRC).

Bookkeeping:
- Simplified books for non-VAT taxpayers: Cash receipts journal, cash disbursements journal.
- BMBEs: Minimal records; no formal audits required.
Filing Schedules:
- Annual Income Tax Return (BIR Form 1701): Due April 15.
- Quarterly Percentage Tax (if applicable): 25th day after quarter-end.
- Annual Registration Fee: January 31.
- Electronic filing via eBIRForms or EFPS is mandatory for most, but manual options exist for low-income filers in remote areas under EOPT.
Audits and Assessments: BIR may audit if discrepancies arise. Low-income stores are low-priority unless red flags like underreporting.

Penalties and Remedies

Common Violations: Non-registration (PHP 5,000–20,000 fine), late filing (25% surcharge), underpayment (interest at 12% per annum).
Amnesty Programs: Periodic tax amnesties (e.g., under RA 11213) allow settlement of delinquencies without penalties.
Appeals: Disputes can be appealed to the Court of Tax Appeals (CTA) under RA 9282.

Practical Advice and Government Support

Low-income sari-sari store owners should consult free BIR seminars or LGU business one-stop shops. Programs like the Department of Trade and Industry's Negosyo Centers offer tax education. Digital tools, such as the BIR Mobile App, facilitate compliance. In summary, while taxes apply, exemptions like BMBE status make the system accessible, promoting sustainable operations in the Philippine economy.