Is the 15% Gross Income Tax Option for Corporations Still Available in the Philippines? NIRC Section 27(A) Explained

A 15% Gross Income Tax (GIT) option for corporations has existed in the Tax Code since 1997, but it has never actually been available to any taxpayer — NIRC Section 27(A) makes it contingent on the President certifying that four specific fiscal-ratio conditions have been met, and those conditions have never been satisfied. Every domestic corporation still computes tax on net income under the regular corporate rate or the Minimum Corporate Income Tax (MCIT), not this dormant alternative.

For the rates that actually apply today, see Corporate Income Tax Rates in the Philippines: 25% vs 20% for MSMEs Under the CREATE Act and Minimum Corporate Income Tax (MCIT): BIR Rules and When It Applies.

What does Section 27(A) actually authorize? #

NIRC Section 27(A) gives the President a standby power — not a self-executing right for taxpayers — to let domestic corporations elect a flat 15% tax on gross income instead of the regular net income tax, once four macroeconomic conditions are simultaneously met. The provision reads:

“The President, upon the recommendation of the Secretary of Finance, may, effective January 1, 2000, allow corporations the option to be taxed at fifteen percent (15%) of gross income as defined herein, after the following conditions have been satisfied: (1) A tax effort ratio of twenty percent (20%) of Gross National Product (GNP); (2) A ratio of forty percent (40%) of income tax collection to total tax revenues; (3) A VAT tax effort of four percent (4%) of GNP; and (4) A 0.9 percent (0.9%) ratio of the Consolidated Public Sector Financial Position (CPSFP) to GNP.”

Because all four conditions have to hold at once, and the provision requires an affirmative Presidential act even then, the GIT option is best understood as a contingent, never-triggered mechanism rather than a live election any corporation can make on its own initiative — unlike the individual taxpayer’s 8% income tax option, which a self-employed person or professional can elect simply by checking a box on BIR Form 1701Q.

Why the option has stayed dormant #

None of the four ratios required to activate Section 27(A) has been certified as met since the provision took effect, which is why the GIT option has never actually applied to a single taxable year. Tax practitioners and academic commentary have consistently flagged this provision as a standing curiosity in the Tax Code — a rate structure written into law but never switched on, because the underlying fiscal thresholds it depends on remain unmet. A corporation cannot simply decide to compute tax at 15% of gross income by pointing to Section 27(A); absent the Presidential certification the law requires, there is no valid legal basis to use it, and doing so would understate tax due under the regular rate that actually applies.

Who would even qualify if it were ever activated? #

Section 27(A) additionally limits eligibility to corporations whose cost of sales — or cost of services, for a service business — does not exceed 55% of gross sales or receipts from all sources, and requires that, once elected, the option stays in effect for three consecutive taxable years. This 55% ceiling matters because a gross income tax is only attractive to a business with a thin cost base relative to revenue; a company with high cost-of-sales ratios would generally owe more tax under a 15%-of-gross-income computation than under the regular rate applied to net income after deductions, so the eligibility test itself is designed to keep the option from being a windfall for capital-intensive, high-cost businesses.

Worked illustration: why “gross income” tax and “net income” tax diverge #

The gap between a gross-income basis and a net-income basis is exactly why this dormant provision would matter if it were ever switched on — and why understanding it helps a business owner read the Tax Code correctly instead of assuming a 15% headline rate is a live option.

A corporation with ₱10,000,000 in gross sales, ₱4,000,000 in cost of sales (a 40% ratio, within the 55% eligibility ceiling), and ₱3,500,000 in other operating expenses would owe 25% of ₱2,500,000 net income — ₱625,000 — under the current regular rate. Under the hypothetical, never-activated 15% GIT basis, the same company would owe 15% of ₱6,000,000 gross income (sales less cost of sales only) — ₱900,000 — illustrating why the option isn’t automatically a tax-saving alternative even for companies that would meet the 55% eligibility test, and reinforcing why the provision’s continued dormancy hasn’t been a major point of taxpayer advocacy to activate.

Frequently asked questions #

What is the 15% Gross Income Tax (GIT) option under the Tax Code? #

NIRC Section 27(A) authorizes the President, on the recommendation of the Secretary of Finance, to allow domestic corporations the option to be taxed at 15% of gross income instead of the regular net income tax, but only after the government certifies that four specific fiscal-ratio conditions have been met.

Can a corporation elect the 15% Gross Income Tax rate today? #

No. The four conditions in Section 27(A) — tied to tax effort, income tax collection share, VAT effort, and the Consolidated Public Sector Financial Position ratio — have never been certified as satisfied since the provision took effect, so the option has never actually been activated for any taxable year.

What conditions have to be met before the GIT option becomes available? #

Section 27(A) requires four ratios to Gross National Product and total tax revenue to be reached at the same time: a 20% tax effort ratio, a 40% ratio of income tax collections to total tax revenue, a 4% VAT tax effort ratio, and a 0.9% Consolidated Public Sector Financial Position ratio.

Which corporations would even qualify if the option were activated? #

Section 27(A) limits eligibility to corporations whose cost of sales to gross sales or receipts ratio does not exceed 55% — meaning businesses with thin cost structures relative to revenue, since the option taxes gross income rather than net income after deductions.

What income tax rules actually apply to domestic corporations right now? #

Domestic corporations currently compute tax on net taxable income at the regular corporate income tax rate — 25%, or 20% for qualifying MSMEs under the CREATE Act — subject to the Minimum Corporate Income Tax where applicable, not the dormant 15% gross income alternative.

Summary #

NIRC Section 27(A)’s 15% Gross Income Tax option is a real provision in the Tax Code, but it has never taken effect for any corporation because the four fiscal-ratio conditions that trigger it have never been certified as met. Every domestic corporation should keep computing and filing under the regular net income tax rate — or the MCIT where it applies — rather than treating Section 27(A) as an election available today.