Percentage Tax Under Section 116: A Guide for Non-VAT Businesses

Percentage tax shows up on a lot of registration certificates, but the explanations often stop at “3% of sales.” That is the rate, but it is not the whole picture. Whether you owe it at all depends on your VAT registration status and your income tax election, and getting that wrong in either direction causes real filing problems.

This is a companion to two other guides on this site: the 8% income tax option, which replaces this tax for taxpayers who elect it, and the BIR tax calendar, which lists the standard 2551Q due dates for the rest of 2026.

What Section 116 percentage tax is

Section 116 of the Tax Code imposes a percentage tax on the gross quarterly sales or receipts of persons who are not VAT-registered and whose sales are not otherwise VAT-exempt under a different provision. It is a business tax, separate from income tax, and it is computed on gross receipts without deductions for expenses.

The current rate is 3%

The standard Section 116 rate is 3%. The CREATE Act temporarily cut it to 1% from July 1, 2020 through June 30, 2023 as part of pandemic-era relief. That reduction expired, and the BIR confirmed the reversion to 3% effective July 1, 2023 in RMC No. 69-2023. For all quarters in 2026, the applicable rate is 3%.

If you are working from an older article, calculator, or spreadsheet that still uses 1%, the figure is out of date.

Who generally pays it

Status	Percentage tax treatment
Not VAT-registered, gross sales/receipts at or below the PHP 3,000,000 VAT threshold, graduated rates elected or no valid 8% election	Subject to 3% percentage tax on gross quarterly sales or receipts
VAT-registered, or gross sales/receipts exceed the VAT threshold	Subject to VAT instead; not subject to Section 116 percentage tax
Validly elected the 8% income tax option	Not subject to a separate Section 116 percentage tax; the election covers it
Marginal income earner, gross sales at or below PHP 100,000 in a 12-month period	Exempt from percentage tax and VAT

Registration status controls this, not intent. If your Certificate of Registration lists percentage tax as an active tax type, the BIR’s systems generally expect a 2551Q filing for each quarter until that tax type is properly updated, even for a quarter with zero sales.

Where the 8% option fits in

The 8% income tax option is not an addition to percentage tax; it stands in for it. A taxpayer who is qualified and properly elects the 8% rate is taxed on gross sales or receipts and other non-operating income in place of both the graduated income tax and the Section 116 percentage tax on that income.

This only works if the election is valid and properly made for the taxable year, and only if you remain within the conditions described in that guide, including staying below the VAT threshold and not being VAT-registered. If the election lapses or was never properly made, graduated rates and separate percentage tax filings apply by default.

A basic computation

For a non-VAT taxpayer who has not elected the 8% option:

Item	Amount
Gross sales or receipts, one quarter	PHP 200,000
Percentage tax rate	3%
Percentage tax due	PHP 6,000

This is computed on gross receipts for the quarter, with no deduction for business expenses. It is separate from whatever income tax is later computed on the annual or quarterly income tax return.

Filing Form 2551Q

Form 2551Q, the Quarterly Percentage Tax Return, is generally due on the 25th day after the close of each calendar quarter. The BIR tax calendar on this site lists the standard second-half 2026 dates, including July 25 and October 25.

As with any statutory date, a weekend, holiday, BIR system issue, or formal extension can move the operative deadline. Confirm the current date through the BIR rather than relying on a fixed date alone.

Common mistakes

Filing 2551Q after switching to VAT registration

Once you register for VAT, percentage tax no longer applies to the covered sales. Confirm your registered tax types were updated so you are not filing (or being expected to file) both.

Continuing to file 2551Q after a valid 8% election

If the 8% option was properly elected, a separate percentage tax filing for that income is generally not required. Mismatched registered tax types are a common source of stray BIR notices.

Assuming zero sales means no filing is due

A registered tax type generally still expects a return for the period, even if it shows zero, until the registration is updated. Confirm this with your RDO rather than skipping the filing.

Deducting expenses before applying the 3% rate

Percentage tax is computed on gross sales or receipts. There is no deduction for cost of sales or operating expenses in this computation.

Before you file

• Confirm whether percentage tax is an active tax type on your Certificate of Registration.
• Confirm whether you are VAT-registered or have a valid 8% election, either of which changes the treatment above.
• Reconcile gross quarterly sales or receipts before computing the 3% due.
• File Form 2551Q by the standard deadline, verified against current BIR advisories.

Tamoogi can help track which tax types are active on your registration and keep quarterly filing tasks and proof of payment together. It does not determine your tax status or file the return for you.

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This article is general information, not tax advice. Confirm your registration status, applicable rate, and current filing deadlines with the BIR or a qualified tax professional.