Business taxpayers should note that the Bureau of Internal Revenue (BIR) has released a new order that lays down the criteria for the classification of taxpayers from micro through large depending on gross sales. The revenue memorandum order (RMO) also gives the guidelines and procedure for determining the initial classification of taxpayers and for requesting for a reclassification if necessary.
RMO No. 37-2024, issued September 4, 2024, prescribes the policies, guidelines and procedures in classifying business taxpayers pursuant to Section 21(b) of the Tax Code as amended, in relation to Section 47 of the Ease of Paying Taxes (EOPT) Act.
RMO 37-2024 provides the following criteria for the classification of business taxpayers based on gross sales:
• Micro taxpayer – a taxpayer whose gross sales for a taxable year is less than P3 million
• Small taxpayer – a taxpayer whose gross sales for a taxable year is P3 million to less than P20 million
• Medium taxpayer – a taxpayer whose gross sales for a taxable year is P20 million to less than P1 billion
• Large taxpayer – a taxpayer whose gross sales for a taxable year is P1 billion and above.
According to the BIR, gross sales shall refer to total sales revenue, net of value-added tax or VAT, if applicable, during the taxable year, without any other deductions. Gross sales shall only cover business income, excluding compensation income earned under employer-employee relationship, passive income, and income excluded under Section 32(B), all of the Tax Code. Business income shall include income from the conduct of trade or business or the exercise of a profession.
Further, the RMO states the guidelines and policies for initial classification and reclassification of taxpayers.
For initial classification, taxpayers registered in 2022 and prior years shall be classified on the basis of their gross sales as declared in their income tax returns filed for taxable year 2022 in accordance with the threshold values above.
For those taxpayers who have not filed their ITR for taxable year 2022, they shall initially be classified as micro, except VAT-registered taxpayers, who shall be classified as small.
“The said initial classification shall remain effective until reclassified,” states the order.
Taxpayers registered in 2023 and 2024 before the effectivity of Revenue Regulations (RR) No. 8-2024, or before April 27, 2024, shall initially be classified as micro, except VAT-registered taxpayers, who shall be classified as small. The said initial classification shall remain effective until reclassified.
Per the new RMO, taxpayers who shall register after the effectivity of RR No. 8-2024, or after April 27, 2024, shall initially be classified based on their declaration in their Registration Forms (i.e., BIR Form No. 1901 or 1903) starting the year they registered and shall remain effective until reclassified.
For mixed-income earners, only business income as defined under Section 2 of RR No. 8-2024 shall be classified for purposes of classifying taxpayers.
For taxpayers with branches, the classification shall follow the classification of the head office.
On the other hand, on the reclassification of taxpayers, RMO 37-2024 says they may be reclassified according to the threshold values stated in this order. Reclassification may be either taxpayer-initiated or BIR-initiated.
For taxpayer-initiated reclassification, taxpayers may submit a request to move from a lower to a higher classification, or from higher to lower.
The requests, together with supporting documents, may be submitted via the BIR online facility called Online Registration and Update System or ORUS, or manually by submitting the applicable registration update form to the taxpayer’s home Revenue District Office (RDO).
“These requests shall automatically be processed for approval,” according to the RMO.
On the other hand, the BIR may also initiate its own taxpayer reclassification depending on any verified information, to be undertaken by the National Office or the Revenue Regions/Large Taxpayers Service.
The order takes immediate effect.