CHAPTER 5 and corporations or shareholders on

initial public offerings

1. What is PERCENTAGE TAX?
f. Certain franchise grantees
Percentage tax is a national tax measured by a g. Life insurance companies and agents of
certain percentage of the gross selling price or gross foreign insurance
value in money of goods or bartered; or of the gross h. Telephone companies on overseas
receipts or earnings derived by any person engaged in communication
the sale of services. i. Jai-alai and cockpit operators on
winnings
NOTE: Percentage tax is DEDUCTIBLE TAX while VAT is 5. What is TAX ON BANKS?
NON-DEDUCTIBLE.
Banks refers to entities engaged in the lending
2. What is the SCOPE OF PERCENTAGE TAX? of funds obtained in the form of deposits. It
COVERAGE TYPE OF % TAX RATES includes the following:
TAX a. Commercial banks
Service specifically SPECIFIC % Various tax
b. Saving banks
subject to TAX rates
c. Mortgage banks
percentage tax
d. Development banks
Sales of goods or GENERAL % 3%
other services TAX percentage e. Rural banks
NOT EXEMPTED tax f. Stock and savings associations
g. Branches and agencies of foreign banks
6. What is TAX ON NON-BANKS FINANCIAL
3. Who pays PERCENTAGE TAX? INTERMEDIARIES?
TYPE OF VAT registered NON-VAT It refers to a persons or entities whose principal
PERCENTAGE taxpayers taxpayers functions includes lending, investing or placement
TAX of funds or evidences of indebtedness or equity
SPECIFIC ✔ ✔
deposited with them, acquired by them or
PERCENTAGE
otherwise coursed through them, either for their
TAX
own account or for the account of others.
GENERAL ❌ ✔
PERCENTAGE 7. What is QUASI-BANKING FUNCTION?
TAX
NOTE: NON-VAT TAXPAYERS are those who did not Quasi-banking functions refers to borrowing of
exceed the VAT THRESHOLD and who did not register as funds from (20) or more personal or corporate
VAT Taxpayers. lenders at any time, through the issuance,
endorsement or acceptance of debt instruments of
4. What are the SERVICES SPECIFICALLY SUBJECT any kind, other than deposits, for the borrower’s
TO PERCENTAGE TAX? BICAP FLOW own account or through the issuance of certificates
a. Banks and non-bank financial of assignment or similar instruments, with recourse,
intermediaries or of repurchase agreement for purpose of
b. International carriers on their transport relending or purchasing receivables or other similar
of cargoes, excess baggage and mails obligations.
only
c. Common carriers on their transport of NOTE: Non-bank financial intermediaries
passengers by land and keepers of performing quasi-banking functions are commonly
garage referred to as “Quasi-banks.”
d. Certain amusement places
e. Brokers in effecting sales of stock
through the Philippine Stock Exchange

8. TAX RATES ON BANKS AND QUASI-BANKS
SOURCE OF INCOME OR RECEIPT % TAX
RATE
1. Interest Income, commissions and
discounts from lending activities and income
from financial leasing, on the basis of
remaining maturities of instruments from
which the receipt was derived:
a. Maturity period of 5 years or less 5%
b. Maturity period of MORE THAN 5 1%
YEARS
2. Dividend and equity shares in the net 0%
income of subsidiaries
3. On royalties, rentals of property, real or 7%
personal profits from exchange and all other
items treated as GROSS INCOME under
SECTION 32 of NIRC
4. On net trading gains within taxable year on 7%
foreign currency, debt securities, derivatives,
and other similar financial instruments
Note:
1. The percentage tax on banks, quasi-banks and
other non-bank financial institution is
commonly known as the “gross receipt tax”
2. The BSP usually makes a periodic publication of
the list of quasi-banks. Non-bank financial
intermediaries not performing quasi-banking
functions are subject to a separate set of gross
receipt tax rates.
9. What is GROSS INCOME?
The items of gross income referred to Section 32 of
the NIRC include only those items of gross income
subject to regular income tax. It can be argued
therefore that only those items of gross income subject
to the regular tax are includible as “gross receipt” for
purposes of the percentage tax.
NOTE: Under current jurisprudence, however, the
term “gross income” of banks was held to include
those items of gross income subject to final tax.
Furthermore, it was also held that the amount of gross
income to be included in gross receipts for purposes of
the gross receipt tax shall be the amount of the income,
gross of the final income tax.
10. What are NET TRADING GAINS WITHIN
TAXABLE YEAR ON FOREIGN CURRENCIES,
DEBTS, SECURITIES, DERIVATIVES AND OTHER
FINANCIAL INSTRUMENTS?
The tax clearly applies to the annual net gains from
this category. According to RR4-2009, the figure to be
reported in the monthly (quarterly) percentage tax
return shall be cumulative total of the net trading gain
loss since the start of the taxable year less the figures
already reflected in the previous months of the taxable
year.
Net trading loss sustained from this category shall
be deductible only to the gains from trading on the
same category. The net trading loss shall not be
deductible to other categories of receipts.
NOTE: If the bank has a cumulative net loss at the
end of the year, the same cannot be carried over as
deduction against trading gains in the following year.
11. What are the EXEMPTIONS FROM THE GROSS
RECEIPT TAX?
The gross receipt tax imposed on banks does
not apply to the income or revenue realized by the
Bangko Sentral ng Pilipinas (BSP) from the
transactions undertaken in pursuit of its legally
mandated functions.
12. TAX ON OTHER FINANCIAL INTERMEDIARIES
WITHOUT QUASI-BANKING FUNCTIONS
SOURCE OF INCOME OR RECEIPT % TAX RATE
1. Interest Income, commissions
and discounts from lending
activities and income from
financial leasing, on the basis of
remaining maturities of
instruments from which the
receipt was derived:
a. Maturity period of 5 years 5%
or less
b. Maturity period of MORE 1%
THAN 5 YEARS
2.From all other items treated as 5%
gross income under the NIRC
 13. What are the COMMON RULES FOR BANKS, institutions on all its payments to special deposits
QUASI-BANKS AND OTHER FINANCIAL accounts and reserve liquidity accounts.
INSTITUTIONS?
18. What is PERCENTAGE TAX ON INTERNATIONAL
a. Accounting Rules
CARRIERS?
b. Finance lease and operating lease
c. Pre-termination of instruments International Carriers doing business in the
14. What are the ACCOUNTING RULES? Philippines shall pay a tax equivalent to 3% of their
The basis of calculation of gross receipts shall be the quarterly gross receipts derived from the transport of
GAAP prescribed by the: cargoes, baggage or mails from the Philippines to other
country.
a. Bangko Sentral ng Pilipinas- for banks
and quasi-banks 19. What are the TWO TYPES OF INTERNATIONAL
b. Securities and Exchange Commission- CARRIERS?
for other non-bank financial a. International Carriers
intermediaries b. International Shipping Carriers
20. What are INTERNATIONAL CARRIERS?
Both agencies prescribe by the PFRS based upon IAS
as GAAP. It refers to the air or sea carriers owned by foreign
corporations that operate in the Philippines and
15. What is the FINANCE & OPERATING LEASES? transport passengers or cargoes from the Philippines to
Finance Lease (direct financing lease) is a sale of overseas and vice versa.
property whereby the seller earns only interest income NOTE: It is subject to 3% quarterly percentage tax
on the arrangement; there is a transfer of property derived from the transport of cargoes, baggage, or mails
while the Operating lease is not a sale and does not from the Philippines to another country regardless of
transfer ownership over the leased property. the place where they are actually billed.
Note: 21. TAXATION OF GROSS RECEIPT ON FLIGHTS OR
• The interest income is computed as beginning VOYAGES
balance of the loan x interest rate.
• The principal reduction is computed as INTERNATIONAL
collection less interest income. OPERATIONS
• The ending balance is computed as beginning TYPES OF DOMESTI OUTGOI INCOMI
CARRIERS C NG NG
balance less principal reduction.
OPERATIO
16. What is Pre-termination? NS
Domestic 12% VAT 0% VAT EXEMPT
In the case of pre-termination, the maturity period Carrier
shall be reckoned to end as of the date of pre- International
termination for purposes of classifying the transaction - Passen N/A EXEMPT EXEMPT
and applying the correct rate of tax. gers
- Goods, N/A 3% OPT EXEMPT
NOTE: The additional gross receipt tax due shall be mails
reflected as separate line item in the Gross Receipt Tax or
return covering all transactions of the month in which cargoe
that pre-termination took place. s
Note:
17. What is WITHHOLDING PERCENTAGE TAX ON 1. Only outbound fares for cargoes, excess baggage
BANKS? or mails are included in the tax base. The place
of actual billing is ignored.
The Bangko Sentral ng Pilipinas shall withhold the 2. The same tax rules apply to international
percentage tax on banks and non-bank financial shipping carriers
 3. Domestic sea or air carriers with
international operation are vatable on their
going shipment of passengers, excess baggage,
cargoes or mails. They are actually subject to a
zero-rated VAT on such shipment.

22. TABLE OF COMPARISON: Tax Rules Outgoing

Flight or Voyage

Sea or air carriers owned by

DOMESTIC FOREIGN
CORPORATIONS CORPORATION
S
Passengers VATABLE EXEMPT
Cargoes/baggag VATABLE 3%
e’s PERCENTAGE
TAX

23. What is PERCENTAGR TAX ON DOMESTIC

CARRIERS AND KEEPERS OF GARAGE?

Common carrier is any person, corporations, firms

or associations engaged in the business of carrying or
transporting passengers or goods or both, by land,
water or air for compensation and offering their
services to the public; subject o 3% percentage tax.

24. MINIMUM PRESUMPTIVE GROSS RECEIPTS

FOR COMMON CARRIERS AND KEEPERS OF
GARAGE.