You are on page 1of 5

OTHER PERCENTAGE TAXES

NATURE: Percentage tax is also a type business tax imposed on the gross sales/receipts of a taxpayer. Unlike VAT (particularly output VAT on sales),
percentage tax is a deductible tax under Sec. 34(C) of the Tax Code, except for stock transactions tax and percentage tax on initial public offerings.

ORDINARY PERCENTAGE TAX:

THRESHOLD PROVISION: Under Section 109(BB), sale of goods or services not exceeding P3,000,000 shall be exempt from VAT. These, however, are
subject to the 3% percentage tax, except the following:
1. Cooperatives; and
2. Self-employed individuals and professionals availing of the 8% flat rate of income tax.

OTHER VAT-EXEMPT TRANSACTIONS: Those which are VAT-exempt under Sections 109(A) to (AA) are likewise exempt from the 3% percentage
tax. OPT is only applicable to transactions which would have otherwise been subject to VAT had the gross sales/receipts exceeded P3,000,000.

As such, if a vendor sells agricultural or marine food products in their original state which is exempt under Setion 109(A) of the Tax Code, it would likewise be
exempt from the 3% OPT.

NO VAT REGISTRATION: To be subject to the 3% percentage tax, the taxpayer likewise did NOT avail of the optional VAT registration, otherwise, even if
the gross receipts/sales did not exceed the P3,000,000, he would be liable for VAT and not the 3% OPT.

PERCENTAGE TAXES UNDER TITLE V OF THE TAX CODE:

Line of Business Tax Base Tax Rate Reference


Domestic Carriers and Keepers of Garage Gross Receipts 3% Sec. 117

International air and shipping Carriers – CARGO Gross Receipts 3% Sec. 118

Franchisees
Radio and/or Television Broadcasting Gross Receipts (not 3% Sec. 119
exceeding P10M for
Gas and Water Utilities Radio/TV Broadcasting) 2%

Banks, Non-Bank Financial Intermediaries and Financing Gross Receipts 0%/1%/


Companies (see discussion below) 5%/7%
Depending on the
type of income
Overseas Dispatch, Message or Conversation Originating Gross Receipts 10% Sec. 120(A)
from the Philippines

Life Insurance Premiums 2% Sec. 123

Agents of Foreign Insurance Companies Premiums 4% Sec. 124

Life Insurance directly taken from foreign insurance Premiums 5% Sec. 124
companies

Winnings in horse races Winnings or “dividends” 10% Sec. 126


after deducting the cost
of the ticket

Winnings from double, forecast/quinella and trifecta bets 4%

In the case of owners of winning race horses. 10%

COMMON CARRIER’S TAX: In computing the percentage tax provided in this Section, the following shall be considered the minimum quarterly gross receipts
in each particular case:

Jeepney for hire –


1. Manila and other cities P 2,400
2. Provincial 1,200

Public utility bus -


Not exceeding 30 passengers 3,600
Exceeding 30 but not exceeding 50 passengers 6,000
Exceeding 50 passengers 7,200

Taxis -

1 Cesar Nickolai F. Soriano Jr.


University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
PERCENTAGE TAXES
1. Manila and other cities P 3,600
2. Provincial 2,400

Car for hire (with chauffer) 3,000


Car for hire (without chauffer) 1,800

Applicability: this tax is applicable only to (1) domestic carriers (2) by land for (3) transport of passengers. If any one of the three is different, the
3% common carriers tax is not applicable, as follows:

a. International Carriers:
a. Carriage of passengers - exempt from VAT and percentage taxes under Sec. 109(S).
b. Carriage of cargo – subject to the 3% Percentage Tax on International Carriers under Section 118.
b. By sea or air:
a. Domestic transport (PH to PH) – 12% VAT if gross sales/receipts exceed P3,000,000 or is VAT registered; otherwise 3% Other Percentage Tax
b. International transport (PH to Foreign Country) – 0% VAT if VAT-registered; VAT-exempt if not VAT-registered.
c. Transport of cargo – 12% VAT or 3% Other Percentage Tax (if gross sales/receipt do not exceed P3,000,000 and did not avail of optional registration
for VAT)

FRANCHISEES:

Radio and/or Television Broadcasting: is subject to the 3% Franchise Tax. However, if their gross receipts exceed P10M, they will be subject to VAT. If
their sales are below P10M, they have an option to be registered as a value-added taxpayer. Provided, that once the option is exercised, it shall not be revoked.

Gas and Water Utilities: are subject to the 2% Franchise Tax regardless of the amount of gross receipts arising from their businesses covered by the law
granting such franchise. If there are income items arising not from their franchise (e.g., rent income), the same will not be subject to the 2% Franchise Tax
but to the 12% VAT or 3% Other Percentage Tax, whichever is applicable.

PAGCOR: income of PAGCOR arising from its casino operations shall be subject to the 5% franchise tax in accordance with its charter, and this tax is in lieu
of all other taxes, including VAT/OPT and Income Tax.

However, income from sources other than casino operations shall be subject to the 30% regular corporate income tax but still exempt from VAT.

Other Franchisees: shall be subject to the 12% VAT or 3% Other Percentage Tax, depending on the gross sales/receipts and VAT-registration.

OVERSEES COMMUNICATION TAX: The tax imposed shall be payable by the person paying for the services rendered and shall be paid to the person
rendering the services who is required to collect and pay the tax within twenty (20) days after the end of each quarter.

Subject to the following exemptions under Sec. 120(B)


(1) Government. - Amounts paid for messages transmitted by the Government of the Republic of the Philippines or any of its political subdivisions or
instrumentalities;
(2) Diplomatic Services. - Amounts paid for messages transmitted by any embassy and consular offices of a foreign government;
(3) International Organizations. - Amounts paid for messages transmitted by a public international organization or any of its agencies based in the Philippines
enjoying privileges, exemptions and immunities which the Government of the Philippines is committed to recognize pursuant to an international agreement;
and
(4) News Services. - Amounts paid for messages from any newspaper, press association, radio or television newspaper, broadcasting agency, or newstickers
services, to any other newspaper, press association, radio or television newspaper broadcasting agency, or newsticker service or to a bona fide correspondent,
which messages deal exclusively with the collection of news items for, or the dissemination of news item through, public press, radio or television broadcasting
or a newsticker service furnishing a general news service similar to that of the public press.

PREMIUMS TAX ON LIFE INSURANCE PREMIUMS:


1. Domestic insurance companies – 2% on premiums collected;
2. International/Foreign insurance companies:
a. Agent – 4% on premiums collected;
b. If directly contracted by the insured in the Philippines – 5% on premiums paid.

Exemptions: the following are not subject to the percentage tax on life insurance premiums:
1. Premiums refunded within six (6) months after payment on account of rejection of risk or returned for other reason to a person insured;
2. Reinsurance premiums
3. Those doing business outside the Philippines on account of any life insurance of the insured who is a non-resident, if any tax on such premium is imposed
by the foreign country where the branch is established nor upon premiums collected or received on account of any reinsurance, if the insured, in case of
personal insurance, resides outside the Philippines, if any tax on such premiums is imposed by the foreign country where the original insurance has been
issued or perfected;
4. Premiums collected or received by the insurance companies on variable contracts (as defined in section 232(2) of Presidential Decree No. 612), in excess
of the amounts necessary to insure the lives of the variable contract workers.

WINNINGS ON HORSE RACES

Withholding mechanism: The tax herein prescribed shall be deducted from the 'dividends' corresponding to each winning ticket or the "prize" of each
winning race horse owner and withheld by the operator, manager or person in charge of the horse races before paying the dividends or prizes to the persons
entitled thereto.
2 Cesar Nickolai F. Soriano Jr.
University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
PERCENTAGE TAXES
Example: the amount of winnings is P10,200 and the cost of the ticket is P200, the corresponding percentage tax is P1,000 ([10,200 less 200] * 10%) –
this amount will be deducted from the “prize” given to the bettor, such that he will only receive P9,200 (P10,200 winnings less P1,000 tax).

The P1,000 shall be remitted by the operator, manager or person in charge of the horse race to the BIR.

GROSS RECEIPTS TAX (BANKS/NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS)

The gross receipts tax has been re-imposed under RA No. 9238 beginning January 1, 2004, as implemented by RR No. 9-2004.

Section 2 of the said RR provides for the definition of the following:


1. Financial Institution shall refer to banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial
intermediaries including finance companies. However, this does not include insurance companies.
2. Banks or Banking Institutions shall refer to those entities as defined in Sec. 3 of RA No. 8791, as amended, otherwise known as the General Banking
Law of 2000 and shall include universal banks, commercial banks, thrift banks (savings and mortgage banks, stock savings and loan associations and
private development banks), cooperative banks, rural banks Islamic banks and other classifications of banks. Under Sec. 3.1 of said RA, “banks” shall
refer to those entities engaged in the lending of funds obtained in the form of deposits.
3. Non-Bank Financial Intermediaries shall refer to persons or entities whose principal functions include the lending, investing or placement of funds
or evidences of indebtedness or equity deposited with them, acquired by them or otherwise coursed through them, either for their own account or for
the account of others. This includes all entities regularly engaged in the lending of funds or purchasing of receivables or other obligations with funds
obtained from the public through issuance, endorsement or acceptance of debt instruments of any kind for their own account, or through issuance of
certificates, or of repurchase agreements, whether any of these means of obtaining funds from the public is done on a regular basis or only occasionally.
4. Quasi-banking activities shall refer to the borrowing of funds from twenty or more personal or corporate lenders at any one time, through the issuance,
endorsement or acceptance of debt instruments of any kind other than deposits for the borrower’s own account, or through the issuance of certificates
of assignment or similar instruments, with recourse, or of repurchase agreements for purposes of relending or purchasing receivables and other similar
obligations. Provided, however, that commercial, industrial and other non-financial companies, which borrows funds through any of these means for the
limited purpose of financing their own needs or the needs of their agents or dealers, shall not be considered as performing quasi-banking functions.
5. Financing Companies shall refer to corporations except banks, investment houses, savings and loan associations, insurance companies, cooperatives,
and other financial institutions organized or operating under other special laws, which are primarily organized for the purpose of extending credit facilities
to consumers and to industrial, commercial or agricultural enterprises, by direct lending or by discounting or factoring commercial papers or accounts
receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by financial leasing of movable as well
as immovable properties (RA No. 5980, as amended by RA No. 8556)

Imposition of GRT on Banks and Non-Bank Financial Intermediaries performing Quasi-Banking Functions:

On interest, commissions and discounts from lending activities as well as


income from financial leasing, on the basis of remaining maturities of instruments
from which such receipts are derived:

Remaining maturity period of 5 years or less 5%


Remaining maturity period is more than 5 years 1%

On dividends and equity shares in net income of subsidiaries 0%

On royalties, rentals of property, profits from exchange and all other items treated
as gross income for income tax 7%

On net trading gains on foreign currency, debt instruments, derivatives and other
similar financial instruments.* 7%

*Net trading losses may be deducted only from net trading gains and not from any other item subject to the gross receipts tax. All other revenues subject to
GRT are gross in amount and no deductions are allowed.

Imposition of GRT on Other Non-Bank Financial Intermediaries (not performing quasi banking functions)

From interest, commissions, discounts and all other items treated as gross 5%
income
On interest, commissions and discounts from lending activities, as well as
income from financial leasing*, on the basis of remaining maturities of the
instruments from which such receipt is derived:
Remaining maturity period of 5 years or less 5%
Remaining maturity period is more than 5 years** 1%

*In the case of financial leasing, the taxable gross receipts shall consist only of interest income (recovery of principal not included). However, in the case of
transactions under operating lease agreements, the gross receipts shall be the gross rental amount. Whether the lease transaction is “finance lease” or
“operating lease” shall be determined by the contents of the document evidencing the lease agreement.

**In case the maturity period is shortened through pre-termination, then the maturity period shall be reckoned to the end as of the date of pre-termination

3 Cesar Nickolai F. Soriano Jr.


University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
PERCENTAGE TAXES
for purposes of classifying the transaction and the application of the correct tax rate.

In the above cases, the generally accepted accounting principles as may be prescribed by the Securities and Exchange Commission for other non-bank financial
intermediaries shall be the basis for the calculation of the taxable gross receipts.

GROSS RECEIPTS TAX BASE INCLUDES THE 20% FINAL WITHHOLDING TAX ON INTEREST INCOME:

if X bank earned P1,000 from a bank deposit and the depository bank withheld P200 FWT, such that X Bank received only P800, for GRT purposes the tax
base is still P1,000, the amount withheld and remitted to the BIR as FWT is considered constructively received and forms part of X Bank’s “gross receipts”
subject to GRT.

AMUSEMENT TAXES

There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games,
Jai-Alai and racetracks, a tax equivalent to:

18% Cockpits, cabarets, night or day


clubs
10% Boxing exhibitions
15% Professional basketball games
30% Jai-alai and racetracks

Gross Receipts: For the purpose of the amusement tax, the term "gross receipts" embraces all the receipts of the proprietor, lessee or operator of the
amusement place. Said gross receipts also include income from television, radio and motion picture rights, if any. A person or entity or association conducting
any activity subject to the tax herein imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it.

Exempt Boxing Exhibitions:


1. What is at stake is a Work or Oriental Championship in any division;
2. At least one of the contenders is a citizen of the Philippines and
3. Said exhibition is promoted by a citizen/s of the Philippines or by a corporation or association at least 60% of the capital is owned by such citizens.

Professional Basketball Games: are subject to the 15% amusement tax as provided under PD No. 871. This tax, however, is in lieu of all other percentage
taxes of whatever nature and description.

STOCK TRANSACTIONS TAX: TAX ON SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND TRADED THROUGH LOCAL STOCK
EXCHANGE: There shall be levied, assessed and collected on every sale, barter, exchange, or other disposition of shares of stock listed and traded through
the local stock exchange other than the sale by a dealer in securities, a tax at the rate of 6/10 of 1% (1/2 of 1% prior to the TRAIN) of the gross selling price
or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor.

Note that if the stock is NOT listed or traded through a local stock exchange, the applicable tax shall be the Capital Gains Tax.

Duty of Stockbroker: the stockbroker who effected the sale shall remit the tax to the BIR within 5 days from the date of collection thereof and to submit
on Mondays of each week to the secretary of the stock exchange, a true and complete return which shall contain a declaration of all the transactions effected
through him during the preceding week and of taxes collected by him and turned over to the BIR.

TAX ON SALE, BARTER OR EXCHANGE OF SHARES OF STOCK THROUGH INITIAL PUBLIC OFFERING: There shall be levied, assessed and collected
on every sale, barter, exchange or other disposition through initial public offering of shares of stock in closely held corporations, as defined herein, a tax at
the rates provided hereunder based on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed
in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing
in the local stock exchange:

Up to twenty-five percent (25%) 4%


Over twenty-five percent (25%) but not over thirty-three 2%
and one third percent (33 1/3%)
Over thirty-three and one third percent (33 1/3%) 1%

The tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary offering

CLOSELY HELD CORPORATION means any corporation at least fifty percent (50%) in value of outstanding capital stock or at least fifty percent (50%) of
the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals.

For purposes of determining whether the corporation is a closely held corporation, insofar as such determination is based on stock ownership, the following
rules shall be applied:
(1) Stock Not Owned by Individuals. - Stock owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned
proportionately by its shareholders, partners or beneficiaries.
(2) Family and Partnership Ownerships. - An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family, or by or for
his partner. For purposes of the paragraph, the 'family of an individual' includes only his brothers and sisters (whether by whole or half-blood), spouse,
ancestors and lineal descendants.
(3) Option. - If any person has an option acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option

4 Cesar Nickolai F. Soriano Jr.


University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
PERCENTAGE TAXES
to acquire such an option and each one of a series of options shall be considered as an option to acquire such stock.
(4) Constructive Ownership as Actual Ownership. - Stock constructively owned by reason of the application of paragraph (1) or (3) hereof shall, for purposes
of applying paragraph (1) or (2), be treated as actually owned by such person; but stock constructively owned by the individual by reason of the application
of paragraph (2) hereof shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the constructive owner
of such stock.

Duty of Corporate Issuer: the corporate issuer shall file the return and pay the corresponding tax within thirty (30) days from the date of listing of the shares
of stock in the local stock exchange. In the case of secondary offering, the provision of Subsection (C)(1) of this Section shall apply as to the time and manner
of the payment of the tax.

Determination of the proper rate applicable: the rate applicable (i.e., 4, 2 or 1 percent) depends on the ratio of the shares SOLD over the TOTAL
OUTSTANDING SHARES after the IPO (meaning, including the shares sold during the IPO).

Example: if there are 100,000 outstanding shares prior to the IPO and 50,000 shares were sold in the IPO, the ratio would be 33% (50,000 sold shares
over 150,000 outstanding shares after the IPO), the rate of percentage tax would then be 2% in accordance with the above.

Percentage Tax on an IPO is likewise applicable to a stockholder: if an existing stockholder sells his shares at the time of the IPO, he shall likewise
be subject to the 4%,2% or 1% percentage tax depending on the ratio of the shares sold over the total outstanding shares after the IPO. Note, however, that
the individual stockholder will have his own ratio, such that the sold shares he will use as numerator in the formula is only the shares he sold and not including
those sold by the issuing corporation in the IPO.

In the above illustration, assume that Mr. X also sold 10,000 shares during the IPO, his own ratio would be (10,000 over 150,000) or 6.67% and the rate
then applicable to him would be 4%.

If the stockholder sold the shares AFTER the IPO, the same would be subject to the ½ of 1% STT since at the time of sale, the shares of stock are already
listed in the stock exchange, provided that the sale was made through the stock exchange.

STT and Percentage on IPO is not applicable to:


1. Dealers in Securities – who are subject to VAT on their gross receipts (which is gross sales less cost of the securities)
2. Investor in shares of stock ina mutual fund company in connection with the gain realized by said investor upon redemption of said shares of stock in a
mutual fund company; and
3. All other persons, whether natural or juridical, who are specifically exempt from national internal revenue taxes under existing investment incentives and
other special laws.

Exemption from Income Tax: gains derived from sale, barter or exchange of shares of stock listed and traded through local stock exchange or through
initial public offering exempt from income tax under Sec. 127(D) of the NIRC and the tax paid is not deductible expense for income tax purposes.

RETURNS AND PAYMENT OF PERCENTAGE TAXES:

TRAIN AMENDMENT: Percentage Tax Returns (except stock transactions tax and tax on IPO) are now to be filed within 25 days from the close of the
quarter. As such, there is no longer monthly filing of the percentage taxes beginning Jan. 1, 2018.

Prior to the TRAIN, the deadlines were as follows:


1. Monthly Percentage Tax Return - or BIR Form No. 2551M will be filed and the corresponding tax liability to be paid within 20 days from the end of
each month (except for EFPS filers who can file and pay within 21-25 days depending on their industry). The monthly percentage tax return shall apply
to those:
a. Subject to the 3% OPT because their sales/receipts do not exceed P3,000,000 except if the individual taxpayer availed of the 8% flat rate
b. Subject to 3% Common Carrier’s Tax
c. Subject to the 3% tax on International air/shipping carriers for their gross receipts from transport of cargo from the Philippines to another country
d. Banks and non-bank financial intermediaries performing quasi-banking functions
e. Other non-bank financial intermediaries
f. Doing life insurance business
g. Doing fire, marine or miscellaneous agents of foreign insurance companies

2. Quarterly Percentage Tax Return – or BIR Form No. 2551Q will be filed and the corresponding tax liability to be paid within 20 days from the end
of each quarter. This return is applicable to:
a. Those subject to amusement taxes
b. Overseas communications tax

3. Percentage Tax Return for Transactions Involving Shares of Stocks Listed and Traded Through the Local Stock Exchange or Through
Initial and/or Secondary Offering – or BIR Form No. 2552 is to be filed and the corresponding tax to be paid:
a. Stock transactions tax - within 5 banking days from date of collection.
b. Tax on IPO – within 30 days from the date of listing in the local stock exchange
c. Tax on Secondary Public Offering – within 5 banking days from date of collection.

5 Cesar Nickolai F. Soriano Jr.


University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
PERCENTAGE TAXES