Module 3

Percentage Taxes

 Value Added Tax (VAT) and Percentage Tax are both business taxes collected from the sale of goods and
services. The similarity ends there because these taxes are different in nature. Business owners, especially the new
ones, need to know which one applies to their business to avoid future disputes with the Bureau of Internal Revenue
(BIR). 

A. Value Added Tax (VAT)

Value Added Tax (VAT) is a form of sales tax. As such, it is based on gross receipts from sale, barter,
exchange, or lease of goods or properties and services within the Philippines. It is also imposed on goods imported
into the country. VAT is an indirect tax which means the end consumer is being charged for the tax. In the
Philippines, the rate of VAT is at 12% except for export sales and other zero-rated sales which is at 0%.

  VAT taxpayers

1. Any person or entity engaged in the business of selling goods or services that are subject to VAT and
whose annual gross sales or receipts exceed or are expected to exceed One Million Nine Hundred Nineteen
Thousand Five Hundred Pesos (Php1,919,500.00).
2. Any person or entity that is not VAT exempt but failed to register.
3. Any person or entity engaged in importation of goods.

Registration of VAT taxpayer

1. Use BIR Form 0605 and pay the registration fee of Php500.00.
2. Register books of accounts like ledgers and columnar books.
3. Secure Authority to Print then register invoice and official receipt booklets.

Responsibilities of a VAT taxpayer

1. Display Certificate of Registration at the place of business.

2. Issue invoices and/or official receipts. A sales invoice is issued for every sale, barter, or exchange of goods
or property. An official receipt is issued for lease of property and sale, barter or exchange of services.
3. Keep your books. Make sure that your books are updated and always ready in case an audit is made.
4. File monthly. Use BIR Form 2550M. If there is payment, go to an Authorized Agent Bank (AAB) in the
Revenue District Office where registered. If there is no payment, submit to the RDO where registered, with
required attachments. Deadline is not later than the 20th day of the next month.
5. File quarterly. Use BIR Form 2550Q. If there is payment, go to an AAB in the RDO where registered. If there
is no payment, submit to the RDO where registered, with required attachments. Deadline is every 25th day
of the following month from the last day of covered quarter.
6. Pay annual registration fee equivalent to Php500.00 not later than January 31.
The VAT Computation- VAT Philippines: The Concept of VAT
VAT has two components:

1. Output VAT, and

2. Input VAT

Here in the Philippines, we are required to include VAT to our sales and
pass it on to the customer, generally. We are, therefore, required to remit this
VAT (equivalent to 12%) to the Bureau of Internal Revenue (BIR). That is your
Output VAT. However, during the course of business, we also incur some
expenses. That means VAT was passed on to us already. That is your Input
VAT.

So to make things even simpler, Output VAT comes from your revenues, while Input VAT comes from your
expenses.

 If you will take a look at any receipt, say, from your nearest coffee shop. You will see a breakdown at the bottom. It
would look something like this photo below. 

SALES TRANSACTIONS
Description Amount
ESP-ICED CARM MACC-V PC 170.00 VA
Total PhP 170.00
Starbucks Card -170.00
Number of Items: 1
VAT (12%) 18.21
Vatable Amount: 151.79

Notice how the VAT (12%) is separated from the Vatable Amount? In this case, the coffee shop earned Php
151.79 and the Php 18.21 goes directly to the BIR as payment for taxes.

Hopefully this will help clarify the terminologies and application in the course of your business. Below is a
spreadsheet of the breakdown with a brief explanation of how VAT (input and output) affects your business and
where to properly record them
VAT Computation:
Computation Remarks
Sales 112,000.00 Breakdown of sales is Vatable Sales (or
Vatabale Sales 100,000.00 Total Sales /1.12 VAT-exclusive) plus 12% VAT=Total
VAT (Output) 12,000.00 Vatable Sales x 0.12 Sales in more technical terms what you
record in your books is the actual
revenues or the VAT-exclusive sales.
You record the output VAT in your
Balance Sheet as an Account Payable
(to be paid and reconciled in the next
month)
Expenses 50,000.00 Sam as above You incurred some
Actual 44,642.86 Total Expenses /1.12 expenses; therefore VAT was passed on
Expenses 5,357.14 Vatable Sales x 0.12 to you. So you already paid for VAT to
VAT (Output) avoid double payment, you subtract this
value to the output VAT indicated above,
and then you get your VAT payable.
VAT Payable 6,642.86 Output VAT-Input VAT This is the amount you pay for VAT for
the said period (e.g. month of January)
Gross Profit 55,357.14 Vatable Sales-Actual This is the amount from Vatable Sales
Expenses less Actual Expenses. This one will be
subjected to income tax (assuming the
business is as simple as this example)

B. Percentage Tax
C.
For small businesses with gross annual sales and receipts that do not exceed Php750, 000.00, and are not
VAT-registered, percentage tax is imposed for sold or leased goods, properties or services. The tax rate varies
depending on the nature of business. The usual rate is 3% but it could go as high as 30%, for gross receipts of Jai-
Alai and racetrack operators for instance.

Persons required filing for the percentage tax

1. Any person exempted from VAT under Sec. 109z of the Tax Code.

"(z) Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of
Five hundred fifty thousand pesos (P550,000): Provided, That not later than January 31st of the calendar
year subsequent to the effectively of Republic Act No. 8241 and each calendar year thereafter, the amount
of Five hundred fifty thousand pesos (P550,000) shall be adjusted to its present value using the Consumer
Price Index, as published by the National Statistics Office (NSO).

2. Domestic carriers and keepers of garages.

3. International air and shipping carriers based in the country.
4. Franchise grantees of utilities.
5. Franchise grantees in broadcasting business the annual gross receipts of which do not exceed Php10M and
opted not to register as VAT taxpayers.
6. Operators of communications equipment sending dispatch, messages, or conversations overseas.
7. Life insurance premiums and agents of foreign insurance companies.
8. Proprietor, lessee, or operator of betting businesses such as cockpits, race tracks, cabarets, etc.
9. Stock brokers trading through Local Stock Exchange other than sake of dealer in securities, as well as
corporate issuers or stock brokers of domestic or foreign markets.

 Schedule of filing for Tax Returns

1. Monthly. Use BIR Form 2551M. If there is payment, go to an Authorized Agent Bank (AAB) in the Revenue
District Office where registered. If there is no payment, submit to the RDO where registered, with required
attachments. Deadline is not later than the 20th day of the next month.
2. Quarterly. Use BIR Form 2551Q. If there is payment, go to an AAB in the RDO where you are registered. If
there is no payment, submit to the RDO where registered, with required attachments. Deadline is every 20th
day of the following month from the last day of covered quarter.

Tax Computation: Percentage Tax

This is the first part of a three-part series on Tax Computation: How to Compute for Percentage
Tax. This series will help you understand the basics of taxation, particularly if you are registered as a
percentage tax payer.

The Concept of Percentage Tax

This one is fairly simple. You pay 3% of your sales to the Bureau of Internal Revenue (BIR). There
are no additional computations needed or other complexities that Value Added Tax (VAT) has.

Basically, you just add 3% to your revenues (Scenario A in spreadsheet). It is that simple. If you do
not add the 3%, what will happen is that you will still have to remit the 3% to the BIR and it will be taken from
your actual revenue (Scenario B in spreadsheet). Either one is OK or the choice is up to you. This, by the
way, also applies to our article about computing for VAT

Below is a spreadsheet that will help you understand the difference and how to compute for
percentage tax.
Percentage Computation

Scenario A Scenario B Computation Remarks

Sales 103,000.00 100,000.00 Percentage tax is
Actual Revenues 100,000.00 97,087.38 Total Sales / 1.03 computed as 3% of your
Percentage Tax 3,000.00 2,912.62 Actual Revenues x sales. So you either
0.03 incorporate it into your
rates or you will be
shouldering it.
Expenses 50,000.00 50,000.00 Same as above. You
Actual Revenues 44,642.86 44,642.86 Total Expenses / 1.12 incurred some
VAT (Input) 5,357.14 5,357.14 Actual Expenses x expenses. However, the
0.12 biggest difference here
is that whatever you
paid for VAT or not, you
will not be able to use it
at his point
Percentage Tax 3,000.00 3,000.00 This is the amount you
Payable pay for percentage tax
Gross Profit 55,357.14 52,444.52 Actual Revenues- This amount is still
Actual Expenses subjected to income tax.
The inputs VAT (at the
expense portion) that
you incurred along the
way will continue to add
up until you reach the
point that you actually
can use them.

How to Compute Percentage Tax Payable (BIR Philippines)

How to compute Percentage Tax payable in the Philippines? How to prepare and file your
percentage tax return with the Bureau of Internal Revenue (BIR) or with an Authorized Agent Bank (AAB)?
The following are steps and guidelines in the preparation and computation of percentage tax due and
payable.

  What is percentage tax?

Percentage Tax is a business tax imposed on persons or entities that sell or lease goods,
properties or services in the course of trade or business whose gross annual sales or receipts do not
exceed P1, 500,000 and are not VAT-registered.

  Who are required to file the percentage tax return?

The following persons and entities are required to file percentage tax return:

A. Required to file Monthly Percentage Tax Return (BIR Form 2551M)

1. Persons whose gross annual sales and/or receipts do not exceed P1, 500,000 and who are not
VAT-registered persons.
2. Domestic carriers and keepers of garages, except owners of bancas and owners of animal
drawn two- wheeled vehicle.

PERCENTAGE TAX ON DOMESTIC CARRIERS AND KEEPERS OF GARAGE

On the quarterly gross receipts of cars for rent or hire driven by the lessee; transportation
contractors, including persons who transport passengers for hire, and other domestic carriers by
land for the transport of passengers, except owners of bancas, and owners of animal-drawn two-
wheeled vehicles and keepers of garages – 3.
The gross receipts of common carriers derived from their incoming and outgoing freight
shall not be subject to the local taxes imposed under RA No. 7160, otherwise known as the Local
Government Code of 1991.
The following shall be considered the minimum quarterly gross receipts in each particular
case:

Jeepney for Hire:

Manila and other cities P 2, 400.00
Provincial P 1, 200.00
Public Utility Bus:
Not exceeding 30 passengers P3,600
Exceeding 30 but not exceeding 50 passengers P6,000
Exceeding 50 passengers P7,200

Taxi: P3,600
Manila and other cities P2,400
Provincial
Car for hire: P3,000
With chauffeur P1,800
Without chauffeur

3. Operators of international air and shipping carriers doing business in the Philippines.

On the gross quarterly receipts of international air carriers and international shipping
carriers doing business in the Philippines –3%

4. Franchise grantees of electric, gas or water utilities

On the annual gross receipts derived by the franchise grantees of:

a) Gas and water utilities from the business covered by the law granting the franchise –2%
b) Radio and/or television broadcasting companies whose annual gross receipts of the
preceding year do not exceed P10 million –3%. Said company may opt to be registered
as a VAT taxpayer. The option, once exercised, cannot be revoked.
c) National Grid Corporation on all its gross receipts derived from its operation covered by
the law granting the franchise –3%

5. Franchise grantees of radio and/or television broadcasting companies whose gross annual
receipts for the preceding year do not exceed Ten Million Pesos (P 10,000,000.00) and did not opt
to register as VAT taxpayers.
 6. Banks and non-bank financial intermediaries and finance companies
7. Life insurance premiums
8. Agents of foreign insurance companies

B. Required to file Quarterly Percentage Tax Return (BIR Form 2551Q)

1. Operators of communication equipment sending overseas dispatch, messages, or conversations

from the Philippines, except on services involving the following:

a. Government of the Philippines – for messages transmitted by the Government of the Republic of
the Philippines or   any of its political subdivisions and instrumentalities.

b. Diplomatic services – for messages transmitted by any embassy and consular offices of a
foreign government

c. International organizations – 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 Philippine is committed to recognize pursuant to an international agreement

d. News Services – for messages from any newspaper, press association, radio or television
newspaper broadcasting agency, or news ticker services to any other newspaper, press
association, radio or television, newspaper,  broadcasting agency or news ticker services, or to
bonafide correspondents, which messages deal exclusively with the collection of news items for, or
the dissemination of news items through public press, radio or television broadcasting or a news
ticker service furnishing a general news service similar to that of the public press

2. Proprietor, lessee, or operator of cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, jai-alai and race tracks

C. Required to file Percentage Tax Return (BIR Form 2552)

1. Every stock broker who affected a sale, barter, exchange or other disposition of shares of stock
listed and traded through the Local Stock Exchange (LSE) other than the sale by a dealer in
securities

2. Corporate issuer / stock broker, whether domestic of foreign, engaged in the sale, barter,
exchange or other disposition through Initial Public Offering (IPO) seller in secondary public
offering of shares of stock in closely held corporations

D. Required to file Percentage Tax Return (BIR Form 2553). All taxpayers liable to pay percentage tax
under special laws.

  Computation of Percentage Tax Due and Payable

Percentage tax is computed using on the following applicable tax rates depending on the
coverage.
 Coverage Basis Tax
Rate
Persons exempt from VAT under Sec Gross Sales or Receipts 3%
116
Domestic carriers and keepers of Gross Receipts 3%
garages
International Carriers: Gross Receipts 3%
International air/shipping carriers doing
business in the Philippines
Franchise Grantees: Gross Receipts 2%
Electric, gas and Water Utilities
Radio and Television, broadcasting Gross Receipts 3%
companies whose annual gross receipts
of the preceding year do not exceed P
10,000,000 and did not opt to register as
VAT taxpayer
Banks and Non-Bank Financing Interest, commissions and discounts from lending
intermediaries activities as well as income from leasing on the basis
of remaining maturities of instruments
 Short term maturity (not over 2 years) 5%
 Medium term (over 2 years but not over 4 3%
years)
 Long term maturity
 Over 4 years but not over 7 years 1%
 Over 7 years 0%
On dividends 0%
On royalties, rentals of properties, real or personal, 5%
profits from exchange and all other items treated as
gross income under Sec 32 of the Code
Finance Companies On interest, discounts, and other items of gross 5%
income paid to finance companies and other
financial intermediaries not performing quasi banking
functions
Interest, commissions and discounts from lending
activities as well as income from leasing on the basis
of remaining maturities of instruments
 Short term maturity (not over 2 years) 3%
 Medium term (over 2 years but not over 4 2%
years)
 Long term maturity
 Over 4 years but not over 7 years 1%
 Over 7 years 0%
Life Insurance Companies (except purely Total Premiums collected 5%
cooperative companies or associations)
Agents of foreign insurance companies:
(except reinsurance premium)
 Insurance agents authorized Total Premiums collected 10%
under the insurance Code to procure
policies of insurance for companies not
authorized to transact business in the
Philippines
Owners of property obtaining Total Premiums collected 5%
insurance directly with foreign insurance
companies
Proprietors, lessee or operator of the
following:
Cockpits Gross Receipts 18%
Cabarets, Night or Day Clubs Gross Receipts 18%
Boxing exhibitions Gross Receipts 10%
Jai-Alai and race track (operators Gross Receipts 30%
shall withheld tax on winnings)
Every stock broker who effected a Gross selling price or gross value in money of shares ½ of
sale, barter, exchange or other of stocks sold, bartered, exchanged or otherwise 1%
disposition of shares of stock listed and disposed
traded through the Local Stock
Exchange (LSE) other than the sale by a
dealer in securities
A corporate issuer/stock broker, whether Gross selling price or gross value in money of shares
domestic of foreign, engaged in the sale, of stocks sold, bartered, exchanged or otherwise
barter, exchange or other disposition disposed in accordance with the proportion of stocks
through Initial Public Offering (IPO)/ sold, bartered or exchanged or after listing in the
secondary public offering of shares of stock exchanged
stock in closely held corporations Up to 25% 4%
Over 25% but not over 33 1/3% 2%
Over 33 1/3% 1%

Definition of Terms

“Gross receipts” means all amounts received by the prime or principal contractor, undiminished by any
amount paid to any subcontractor under a subcontract arrangement.

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.

“Closely Held Corporation” means any corporation at least fifty percent (50%) in value of the 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.

Sample computation of Percentage Tax Due and Payable

 Assuming a person who is registered as a self-employed professional (e.g., lawyer, accountant, doctor,
architect, engineer, writer or blogger), has an annual gross receipts of P1, 200,000, and is a Non-VAT registered
taxpayer, receives gross receipts for the month of February amounted to Php 100,000.

In the case above, the person is under taxpayers who are required to file Monthly Percentage Tax Return
BIR form 2551M. The computation of his PT due and payable for the month of February is as follows:

Monthly Percentage tax due = gross receipts x 3%

=P100,000 x 3%
=P3,000

Assuming he don’t have any creditable percentage tax withheld Per BIR form 2307, is not filing an amended
return, and he is filing on or before the due date, the total amount payable for the month is equal to his percentage
tax due for the month.

Percentage tax due

Less: Creditable percentage tax withheld per BIR form 2307

Less: Tax paid in return previously filed (for amended return)
Equals: Total Percentage Tax Payable

Add: Penalties (Interest, surcharge and compromise)

Equals: Total amount payable

 When and where to file?

1. Monthly Percentage Tax Return – BIR Form No. 2551M

The return shall be filed not later than the 20th day following the end of each month. Any person
retiring from a business subject to percentage taxes shall notify the nearest Revenue District Office, file his
return and pay the tax due thereon within twenty (20) days after closing his business.

The return shall be filed with any Authorized Agent Bank (AAB) within the territorial jurisdiction of
the Revenue District Office where the taxpayer is required to register/conducting business.  In places where
there are no AABs, the return shall be filed with the Revenue Collection Officer or duly Authorized City or
Municipal Treasurer within the Revenue District Office where the taxpayer is required to register/conducting
business.

A taxpayer may, at his option, file a separate return for the head office and for each branch or
place of business or a consolidated return for the head office and all the branches except in the case of
large taxpayers where only one consolidated return is required.

2. Quarterly Percentage Tax Return – BIR Form No. 2551Q

The return shall be filed within twenty (20) days after the end of  each quarter,  provided, however,
that with respect to taxpayers enrolled with  the Electronic Filing and Payment System (EFPS),  the deadline
for e-filing  and e-paying the tax due thereon shall be five (5) days later than the deadline set above. Any
person retiring from a business subject to percentage taxes shall notify the nearest Revenue District Office,
file his return and pay the tax due thereon within twenty (20) days after closing his business.
 The return shall be filed with any Authorized Agent Bank (AAB) within the territorial jurisdiction of
the Revenue District Office where the taxpayer is required to register/conducting business.  In places where
there are no AABs, the return shall be filed with the Revenue Collection Officer or duly Authorized City or
Municipal Treasurer within the Revenue District Office where the taxpayer is required to register/conducting
business.

A taxpayer may, at his option, file a separate return for the head office and for each branch or
place of business or a consolidated return for the head office and all the branches or place of business
except in the case of large taxpayers where only one consolidated return is required.

3. Percentage Tax Return – BIR Form No. 2552

This return shall be filed as follows:

a. For tax on sale of shares of stock listed and traded through the Local Stock Exchange (LSE),
within five (5) banking days from date of collection.
b. For shares of stocks sold exchanged through primary public offering, within thirty (30) days from
date of listing of shares of stock in the LSE; and
c. For tax on shares of sold or exchanged through secondary public offering, within five (5) banking
days from date of collection.

The return shall be filed with any Authorized Agent Bank (AAB) located within the jurisdiction of the
Revenue District (RDO) where the Local Stock Exchange is located.

A stockholder or corporate issuer, in addition to BIR 2552, is required to submit on Monday of each
week to the Secretary of the Stock Exchange, of which he is a member, 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 Bureau of Internal Revenue.

4. Return of Percentage Tax Payable under Special Laws – BIR Form No. 2553

Upon filing this return, the total amount payable shall be paid to the Authorized Agen Bank (AAB)
where the return is files. In places where there are no AABs, payment shall be made directly to the Revenue
Collection Officer or duly Authorized City or Municipal Treasurer who shall issue a revenue Official Receipt
(BIR Form No. 2524) therefore.

Taxes paid by Self-Employed in the Philippines

What taxes should you pay in the Philippines? What taxes should self-employed individuals pay in
the Philippines? Self-employed taxpayers are those individuals who receive income from business or from
practice of profession. Persons who receive mixed income (income from business or practice of profession
and income from compensation) are also considered as self-employed and are also taxed similarly.

Self-employed individuals include persons who own business in the form of single proprietorship
and practicing professionals (registered or non-registered with the professional commission), such as
accountants, lawyers, doctors, engineers, architects, artists and even bloggers. If you are one of them, the
following are the ordinary taxes you may be required to pay or remit to the Bureau Internal Revenue (BIR) .

 
 Taxes that are payable monthly

1. Monthly Percentage Tax (BIR Form 2551M)

This is applicable to persons whose gross annual sales and/or receipt do not exceed P1, 919,500
(RR 16-2011, RR 3 -2012, as amended). And who are not VAT-registered persons. If paid manually (other
than EFPS), it should be paid not later than the 20th day following the end of each month.

Note: Taxpayer can either be VAT registered or NON-VAT registered. Thus, he can be
liable to either Percentage Tax or Value Added Tax, but not both.

2. Monthly Value Added Tax (BIR Form 2550M)

This is applicable to persons whose gross annual sales and/or receipt is at least P1,919,500,
persons who are required to register as VAT taxpayers and those who have opted to duly register as VAT
registered taxpayers. The deadline for monthly VAT is the same with monthly percentage tax.

Note:
Monthly VAT returns are not filed on the months that correspond the end of the quarters (i.e.,
March, June, September and December). Instead, the taxpayer must file Quarterly VAT returns
which compute the VAT Payable as of the end of the quarter. Please see #2 of taxes that are paid
quarterly.

3. Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form 1601C)

If you have employees, you are required to deduct and withhold taxes on compensation paid to
employees. The return must be filed on or before the 10th day of the month following the month in which
withholding was made. For the month of December, it must be filed on or before January 15 of the following
year. EFPS may have different deadlines of filing.

4. Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) (BIR Form 1601E)

If you are paying for rental, professional services, prime contractors/subcontractors and other
income payment subject to Expanded/Creditable Withholding taxes, you are required to deduct and withhold
taxes on those income payments. The return must be filed and remitted on or before the tenth  (10th) day of
the month following the month in which withholding was made except for taxes withheld for the month of
December which shall be filed on or before January 15 of the succeeding year.

  Taxes that are payable quarterly

1. Quarterly Income Tax (BIR Form 1701Q)

This return shall be filed by the following individuals regardless of amount of gross income:

a) A resident citizen engaged in trade, business, or practice of profession within and without the
Philippines.
b) A resident alien, non-resident citizen or non-resident alien individual engaged in trade, business
or practice of profession within the Philippines.
c) A trustee of a trust, guardian of a minor, executor/administrator of an estate, or any person
acting in any fiduciary capacity for any person, where such trust, estate, minor, or person is
engaged in trade or business.
 The deadline for filing is shown below:

1st qtr   – On or before April 15 of the current taxable year

2nd qtr  – On or before August 15 of the current taxable year
3rd qtr – On or before November 15 of the current taxable year

Note: There is no quarterly return to be filed on the fourth quarter, since the taxpayer is
filing Annual Income Tax Return where the previous three quarters tax payments are carried
forward. Please see #1 of the taxes that are payable annually.

2. Quarterly Value Added Tax (BIR Form 2550Q)

This return is filed not later than the 25th day following the close of each taxable quarter. The
term “taxable quarter” shall mean the quarter that is synchronized to the income tax quarter of the taxpayer
(i.e. Calendar quarter of Fiscal Quarter). This return shows the VAT payable at the end of the quarter.
Please see #2 of the taxes that are paid monthly.

3. Quarterly Percentage Tax (BIR Form 2551Q)

This return shall be filed by the following:
a. Franchise grantees sending overseas dispatch, messages or conversation from the Philippines;and
b. Proprietor, lessees or operators of cockpits, cabarets, night or day clubs, boxing exhibitions, professional
basketball games, jai-alai and racetracks.

The return shall be filed and the tax paid within twenty (20) days after the end of each taxable
quarter.

Taxes that are payable annually

1. Annual Income Tax (BIR Form 1701)

Aside from the 3 quarterly (1st, 2nd and 3rd) income taxes that you will pay during the taxable year,
you will also file your annual income tax return. Please see #1 on taxes that are payable quarterly. This tax
return should be paid and filed on or before April 15 of each year covering income for the preceding taxable
year.

Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal
installments, the first installment to be paid at the time the return is filed and the second installment
15 of the same year at on or before July the Authorized Agent Bank (AAB) within the jurisdiction of
the Revenue District Office (RDO) where the taxpayer is registered.

2. Annual Registration Fee (BIR Form 0605)

An annual registration fee of Php 500 should be paid on or before January 31 of the year.

3. Annual Information Return of Income Tax Withheld on Compensation and Final Withholding Taxes   BIR
(Form 1604CF)
There is no payment to be made in this return for it only reports the summary of Monthly Remittance
Return of Income Taxes Withheld on Compensation (BIR Form 1601C) you have paid and filed for the year.
Please see # 4 of the taxes that are payable monthly. This return must be filed on or before January 31 of
the year following the calendar year in which the compensation payment and other income payments
subject to final withholding taxes were paid or accrued.
 4. Annual Information Return of Creditable Income Taxes Withheld (Expanded)/ Income Payments Exempt
from Withholding Taxes (BIR Form 1604E)
Just like BIR Form 1604CF, this return is only filed to the BIR. It contains the annual summary
of your remittance of Creditable Income Taxes Withheld (Expanded)/ Income Payments Exempt from
Withholding Taxes to the BIR. Please see #5 on taxes that are payable monthly. The return shall be filed on
or before March 1 of the year following the calendar year in which the income payments subjected to
expanded withholding taxes or exempt from withholding tax were paid or accrued.

5. Annual Inventory List (only to be filed)

If you are engage in trading and merchandising business, you may have inventory. Thus, you
are also required to submit an annual inventory list not later than thirty days after the close of accounting
period.

Note:
This article only lists the regular and ordinary taxes that should be paid by self-employed
taxpayers in the Philippines. There can be other taxes and returns that may be required to be paid and filed
by particular taxpayers, such as Excise tax and other taxes payable per transactions. For more information,
please visit the BIR website or inquire at the RDO offices where your business is located. Updates on this
post will be provided.

Source:

BIR Tax Information on Percentage Tax

Sections 116 to 128 of the National Internal Revenue Code

POST TESTS:

1. Explain the Nature of VAT?

Answer: Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in the Philippines and on importation of goods into
the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of
goods, properties or services.

2. Enumerate and explain the rationale of imposing VAT.

Answer: The purpose of VAT is to raise revenue to finance government spending like any other tax. VAT is
a consumption tax, raising revenue from consumers spending. It is considered that a good tax system
should have a balance between income tax and consumption taxes.

3. What are the characteristics of VAT?

Answer: -It is an indirect tax on spending; it is not collected directly from the consumer, but from the charged
institutions and individuals who, in turn, rely on the consumer in the form of an increase in the price of sold
goods or services subject to the tax.

-It is a comprehensive tax imposed by a standard ratio at a single rate in the whole country, although some
countries apply multiple ratios.
 -It is subject to the regional tax principle as it is adopted within the state. VAT is applied regionally within the
boundaries of the territory of the state.

-It produces a large and regular tax revenue.

-It is a tax that involves the state taking part in its issuance, in the context of its financial policy, to stimulate
investment and attract capital. It is an important incentive for investment due to the tax deduction. It is based
on the consumer spending rather than on the investment, where the cost of investment might not be
increased due to the possibility of refunding the tax paid, while increasing the investor's liquidity resulting
from the preservation of funds received.

-It is a general tax levied on all goods and services, whether they are manufactured locally or imported.
None is exempted except those excluded by a special provision mentioned in the law imposed. Compliance
to the tax is the norm, whereas exemption is an exception.

-It is a tax paid fragmentally in several stages and is imposed on the commodity at its various stages of
production or movement from the producer to the consumer. Thus, it is imposed on the sales of the
producers, wholesalers, retailers and importers. However, it is not imposed on the total value but on the
value added by each of them on the sales in the tax accounting stage such that the sum of the values added
to this commodity is equal to the final value of the product.

-It is based on the system of tax deduction, which allows the reduction of the total taxes paid on purchased
goods and services from the total taxes collected on the sale of product sale and fulfillment of service at the
stage of tax accounting, where it is carried out on the total operations performed during the period of tax
accounting specified by a law imposed it.

-It helps to reduce tax evasion. Each taxpayer is responsible for organizing a tax invoice at the time of sale
and purchase in order to prove this when he submits a tax return to know his business number for the
period of tax accounting, deduction request and refund. The tax deduction feature encourages the taxpayers
to show all transactions or forces them to do so. Thus, the overall tax revenue increases in the state.

4. Give the reasons for the implementation of VAT.

Answer: The purpose of VAT is to raise revenue to finance government spending like any other tax.

5. What are the several rates applicable to:

a. Output VAT Answer: 0% and 12%
b. Input VAT Answer: 0% and 12%
6. State the rules in determining the VAT Account: Answer: Compute for the Output and the Input Tax
7. What are the components of the VAT taxable base? Answer: transactions subject to VAT
8. State the basic formula in computing VAT payable. Answer: Output tax less Input Tax = VAT Payable
9. Explain the rules of allowed deductions from gross selling price.
10. Enumerate the persons becoming liable to VAT.
 Answer: 1. Any person or entity engaged in the business of selling goods or services that are subject to
VAT and whose annual gross sales or receipts exceed or are expected to exceed 3,000,000 (based on
Train Law).

2. Any person or entity that is not VAT exempt but failed to register.
3. Any person or entity engaged in importation of goods.

11. State the VAT rules when a transmission of property is made.

12. Give a situation when additional VAT is imposed on installment sale of real property
13. Give three instances by which a sale of real property is not subject to VAT.

Answer: 1. transfer of real property, which is not done in the course of business, is not subject to VAT.
2.Sale of property not exceeding 3 Million
3. if the property sold is a capital asset.
14. What are the differences of Value Added Taxes and Percentage Taxes?

Answer: When a business entity is VAT registered, it is subject to 12% sales tax on its gross sales or
receipts. Such sales tax is referred to as VAT. On the other hand, if a business entity is NON-VAT, it is
subject to 3% sales tax on its gross sales or receipts. Such sales tax is referred to as Percentage Tax.

15. What are the other percentage taxes rules regarding winnings in the horse races?

Aanswer: Every person who wins in horse racing shall pay a tax equivalent to ten percent (10%) of his
winnings or dividends, the tax to be based on the actual amount paid to him for every winning ticket after
deducting the cost of the ticket: provided, that in the case of winnings from double, forecast/quinella and
trifecta bets, the tax shall be four percent (4%). In the case of winning race horses, the tax shall be ten
percent (10%) of the prize.

Problem Solving:

Case 1: Super Buntog, a VAT registered common carrier by land, has average, annual gross receipts of P
12,000,000.00 conmprising of P10,000,000.00 for the transport of passengers and P2,000,000.00 for excess
baggage fares. Its total purchases of parts and supplies from VAT registered person amounted to P448,000.00
inclusive of VAT.

Question: What would be Mr. Buntog’s Business Tax liability?

Answer: Output VAT 1,285,714.29

Input VAT 48,000
Vat Payable 1,237,714.29

Case 2: Karera bought a P200.00 ticket and put his bet on race horse Flash Altras who eventually won the race. The
prize winning ticket is P20, 000.00 and for the winning horse, P200, 000.00.
Question: Determine the percentage tax (amusement tax) of Karera.

Answer: 1,980