Percentage Tax

Percentage tax is a business tax imposed on persons, entities, or transactions

specified under Sections 116 to 127 of the National Internal Revenue Code of 1997
(also known as Tax Code), as amended, and as required under special laws.

Who are required to pay percentage tax?

 Persons, who are not VAT-registered, who sell goods, properties or

services, whose annual gross sales and/or receipts do not exceed three
million pesos (Php3,000,000.00) and are exempt from value-added tax
(VAT) under Section 109 (BB)
 Persons who lease residential units where the monthly rental per unit
exceeds fifteen thousand pesos (Php15,000.00) but the aggregate of such
rentals of the lessor during the year does not exceed three million pesos
(Php3,000,000.00)
 Persons engaged in specific industries/transactions

General Percentage Tax

NIRC. Section 116. Tax on Persons Exempt from Value-Added Tax (VAT)
Any person whose sales or receipts are exempt under Section 109(CC) of this Code from the
payment of value-added tax and who is not a VAT-registered person shall pay a tax
equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, that
cooperatives, shall be exempt from the payment of the three percent (3%) gross receipts tax
herein imposed: Provided, further, that effective July 1, 2020 until June 30, 2023, the rate
shall be one percent (1%).*

*As amended by the new CREATE Law passed into law on March 26, 2021.

Coverage:  Sale of goods or properties or performance of services.

Rate and base: 3% 1% of gross selling price or gross receipts

Requisites:

1. Annual sales or receipts do not exceed P3 million, and

2. Taxpayer is not VAT-registered

Exemption:
 1. Cooperatives
2. Marginal income earners
3. Qualified individuals who opted for the 8% income tax option

Aggregation of sales or receipts:

 Husband and wife are considered separate taxpayers.

 Home office and branches of the same business are one taxpayer
 Parent and subsidiary companies are separate taxable persons
The specific percentage taxes are as follows:
AssetPro Mnemonic:

CCT Common Carriers Tax

AT Amusement Taxes
LIPT  Life Insurance Premiums Tax
FICAT  Foreign Insurance Company Agents Tax 
FT Franchise Tax
RHWT     Racehorse Winnings Tax
OCT Overseas Communications Tax
GRT Gross Receipts Tax
Stocks Initial/Secondary Public Offerings Tax
Stocks Transactions Tax
Tax Code:
Sec
Domestic carriers and keepers of garages
117
118 International carriers
119 Franchises
120 Overseas dispatch, message or conversation
121 Banks and non-bank financial intermediaries
122 Other non-bank financial intermediaries
123 Life insurance premiums
124 Agents of foreign insurance companies
125 Amusement taxes
126 Winnings
127  Shares of stock listed and traded

Common Carriers Tax

NIRC Section 117. Percentage Tax on Domestic Carriers and Keepers of Garages.
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 vehicle), and
keepers of garages shall pay a tax equivalent to three percent (3%) of their quarterly gross
receipts.
NIRC Section 118. Percentage Tax on International Carriers.
(A)    International air carriers doing; business in the Philippines on their gross receipts
derived from transport of cargo from the Philippines to another country shall pay a tax of
three percent (3%) of their quarterly gross receipts.

(B)    International shipping carriers doing business in the Philippines on their gross receipts
derived from transport of cargo from the Philippines to another country shall pay a tax
equivalent to three percent (3%) of their quarterly gross receipts.

Common Carriers

 persons, corporations, firms or associations engaged in the business of

carrying or transporting passengers or goods or both, by land, water, or air,
for compensation, offering their services to the public. (Art 1732 CCP)

Domestic Carriers

 covers
o cars for rent or hire driven by the lessee;
o transportation contractors, including persons who transport passengers
for hire,
o and other domestic carriers by land for the transport of passengers
 excludes bancas and owners of animal-drawn two wheeled vehicle

International carriers

 Shipping or air transport

 Owned by resident foreign corporations doing business in the Philippines
 Exempt on their international transport of passengers

Common Carriers Tax - 3%

Applicable to:

 Domestic land transport of passengers

 Keepers of garage
 International air or shipping carrier transport of cargoes
Domestic Carriers
Passengers  Cargoes 
VAT-
Land 3% CCT
able
Sea or air

 Domestic
VAT VAT
 International
0% VAT 0% VAT
Outgoing
Exempt Exempt
 International
Incoming

International Carriers
Passengers  Cargoes 
Sea or air

 International Exempt 3% CCT

Outgoing Exempt Exempt
 International Incoming

NIRC Section 125. 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:

a. Eighteen percent (18%) in the case of cockpits;

b. Eighteen percent (18%) in the case of cabarets, night or day clubs;
c. Ten percent (10%) in the case of boxing exhibitions: Provided, however, That
boxing exhibitions wherein World or Oriental Championships in any division is
at stake shall be exempt from amusement tax: Provided, further, That at least
one of the contenders for World or Oriental Championship is a citizen of the
Philippines and said exhibitions are promoted by a citizen/s of the Philippines
or by a corporation or association at least sixty percent (60%) of the capital of
which is owned by such citizens;
d. Fifteen percent (15%) in the case of professional basketball games as
envisioned in Presidential Decree No. 871: Provided, however, That the tax
herein shall be in lieu of all other percentage taxes of whatever nature and
description; and
e. Thirty percent (30%) in the case of Jai-Alai and racetracks of their gross
receipts, irrespective, of whether or not any amount is charged for
admission. 
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.
The taxes imposed herein shall be payable at the end of each quarter and it shall be
the duty of the proprietor, lessee or operator concerned, as well as any party liable,
within twenty (20) days after the end of each quarter, to make a true and complete
return of the amount of the gross receipts derived during the preceding quarter and
pay the tax due thereon.

Proprietors, Lessees or Operators

Tax Rate
of:  
•    Boxing exhibitions 10%
•    Professional basketball games 15%
•    Cockpits, cabarets and clubs 18%
•    Jai-alai and racetracks 30%

Boxing exhibitions shall be exempt from amusement tax if:

1. world or oriental championships in any division is at stake

2. one of the contenders is a Filipino, and
3. said exhibitions are promoted by
o citizens of the Philippines, or by
o a corporation or association at least 60% of the capital of which is
owned by Filipinos

Life Insurance Premiums Tax

NIRC Section 123. Tax on Life Insurance Premiums.

There shall be collected from every person, company or corporation (except purely
cooperative companies or associations) doing life insurance business of any sort in
the Philippines a tax of two percent (2%) of the total premium collected, whether
such premiums are paid in money, notes, credits or any substitute for money; but
premiums refunded within six (6) months after payment on account of rejection of
risk or returned for other reason to a person insured shall not be included in the
taxable receipts; nor shall any tax be paid upon reinsurance by a company that has
already paid the tax; nor upon premiums collected or received by any branch of a
domestic corporation, firm or association 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; nor upon that portion of the premiums collected or received by
the insurance companies on variable contracts, in excess of the amounts necessary to
insure the lives of the variable contract owners.
Cooperative companies or associations are such as are conducted by the members
thereof with the money collected from among themselves and solely for their own
protection and not for profit.

Tax rate and tax base: 2% on premiums collected

Applicable to:

 every person, company or corporation (except purely cooperative

companies or associations) doing life insurance business of any sort in the
Philippines

Excluded in the taxable receipts:

o Premiums refunded within 6 months after payment

o Re-insurance premiums that has already paid the tax
o Premiums from non-residents received from abroad by branches of the
insurance company doing business outside the Philippines, if taxed by
the foreign country
o premiums collected or received on account of any reinsurance of a
non-resident, if taxed by the foreign country
o Excess of premiums on variable contracts in excess of the amounts
necessary to insure the life of the contract owner

Foreign Insurance Tax

Section 124. Tax on Agents of Foreign Insurance Companies.

Every fire, marine or miscellaneous insurance agent authorized under the Insurance
Code to procure policies of insurance as he may have previously been legally
authorized to transact on risks located in the Philippines for companies not
authorized to transact business in the Philippines shall pay a tax equal to twice the
tax imposed in Section 123: Provided, That the provision of this Section shall not
apply to reinsurance: Provided, however, That the provisions of this Section shall not
affect the right of an owner of property to apply for and obtain for himself policies in
foreign companies in cases where said owner does not make use of the services of
any agent, company or corporation residing or doing business in the Philippines.
In all cases where owners of property obtain insurance directly with foreign
companies, it shall be the duty of said owners to report to the Insurance
Commissioner and to the Commissioner each case where insurance has been so
effected, and shall pay the tax of five percent (5%) on premiums paid, in the manner
required by Section 123.

Tax rate and tax base:

 4% of the total premiums collected by every  non-life insurance

agents authorized under the Insurance Code to procure policies of
insurance as he may have previously been legally authorized to transact
business in the Philippines
 5% on the total premiums paid shall be collected from owners of
property obtaining insurance directly with foreign insurance companies.

Franchise Tax

NIRC Section 119. Tax on Franchises.

Any provision of general or special law to the contrary notwithstanding, there shall
be levied, assessed and collected in respect to all franchises on radio and/or
television broadcasting companies whose annual gross receipts of the preceding
year does not exceed Ten million pesos (PhP10,000,000), subject to Section 236 of
this Code, a tax of three percent (3%) and on gas and water utilities, a tax of two
percent (2%) on the gross receipts derived from the business covered by the law
granting the franchise: Provided, however, That radio and television broadcasting
companies referred to in this Section shall have an option to be registered as a
value-added taxpayer and pay the tax due thereon: Provided, further, That once the
option is exercised, said option shall be irrevocable.

Applicable to:

 Water and gas utilities:  2% FT

 Radio, TV broadcasting companies
 Non-VAT registered and annual gross receipts not
exceeding P10M:  3% FT
 VAT-registered or annual gross receipts > P10M:  VAT
 have the option to irrevocably register under VAT
 

Racehorse Winnings Tax

NIRC Section 126. Tax on Winnings. Every person who wins in horse races 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
owners of winning race horses, the tax shall be ten percent (10%) of the prizes.

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.

The operator, manager or person in charge of horse races shall, within twenty (20)
days from the date the tax was deducted and withheld in accordance with the
second paragraph hereof, file a true and correct return with the Commissioner in the
manner or form to be prescribed by the Secretary of Finance, and pay within the
same period the total amount of tax so deducted and withheld.

Applicable to winners in horse race betting:

Overseas Communication Tax

NIRC Section 120. Tax on Overseas Dispatch, Message or Conversation

Originating from the Philippines.
(A)    Persons Liable. – There shall be collected upon every overseas dispatch,
message or conversation transmitted from the Philippines by telephone, telegraph,
telewriter exchange, wireless and other communication equipment service, a tax of
ten percent (10%) on the amount paid for such services. The tax imposed in this
Section 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.

(B)    Exemptions. – The tax imposed by this Section shall not apply to:

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
bonafide 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.

Applicable to:

 Overseas dispatch, message, or conversation transmitted from the Philippines

by
o telephone, telegraph, telewriter exchange, wireless and other
communications equipment

Liable

 the person paying for the services rendered

 paid to the service provider who will remit the payment
Exemptions:

 Diplomatic services
 International organizations
 News services

 Government

Gross Receipts Tax

NIRC Section 121. Tax on Banks and Non-Bank Financial Intermediaries

Performing Quasi-Banking Functions.
There shall be collected a tax on gross receipts derived from sources within the
Philippines by all banks and non-bank financial intermediaries in accordance with the
[schedule below]...

NIRC Section 122. Tax on Other Non-Bank Financial Intermediaries. 

There shall be collected a tax of five percent (5%) on the gross receipts derived by
other non-bank financial intermediaries doing business in the Philippines, from
interest, commissions, and discounts from lending activities, as well as income from
financial leasing, shall be taxed on the basis of remaining maturities of the
instruments from which such receipts are derived in accordance with the [schedule
below]...

Banks or banking institution - persons and entities engaged in the lending of

funds obtained from the public through the receipts of deposits or the sale of bonds,
securities, or obligations of any kind, and all entities regularly conducting such
operations. A bank may either be a commercial bank, a thrift bank, a development
bank, a rural bank or a specialized government bank.
Financial Intermediaries - persons or entities whose principal functions include
the lending, investing or placement of funds or 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.

Quasi-banking activities – the borrowing of funds from twenty (20) 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 re-lending
or purchasing receivable and other similar obligations: Provided, however, That
commercial, industrial and other non-financial companies which borrow 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.

Non-Bank Financial Intermediaries not performing Quasi-Banking Operations:

 Money changers
 Pawnshops
 Illustration:

Love Financing Company had the following receipts during a period:

Interest income from loans maturing within 4 years P3,000,000
Interest income from loans maturing within 5 years 1,000,000
Interest income form loans maturing within 6 years 2,000,000
Processing and service fees  200,000
Dividend income 100,000
Rent income from real and other properties acquired   500,000
Net trading gains 100,000

How much is the gross receipts tax?

Answer:
Interest on short-term  P
   5%    P 200,000
loans 4,000,000
Interest on long-term loans 2,000,000 1%  20,000
Other income (fees, rent) 700,000 7%  49,000
Net trading gains 100,000 7%  7,000
Dividends 100,000 0%  0
 
Gross Receipts Tax  276,000

Stocks Percentage Taxes

NIRC Section 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and
Traded through the Local Stock Exchange or through Initial Public Offering.

(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded
through the 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 six-tenths of one
percent (6⁄10of 1%) 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.

(B) Tax on Shares of Stock Sold or Exchanged 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 and one third
percent (33 1/3%) 2%; 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.

Initial Public Offering Tax

Applicable to:

 Closely-held corporation on every sale, barter, exchange or disposition of

shares of stocks through an initial public offering
 Shareholders selling their existing shareholdings to the public at the time of
the IPO

Tax Base and Tax Rate

 Gross selling price or gross value of money of the shares of stock sold, in
accordance with the proportion of the shares of stocks to the total
outstanding shares of stock after listing in the local stock exchange
Stocks Transactions Tax

Applicable to:

 Every sale, barter, exchange or disposition of shares listed and traded thru a
local stock exchange, other than by a dealer in securities

Tax Rate:

 60% of 1%

Filing and payment

 Within 5 banking days from the date of collection

Filing and Payment

Due Date – on or before

Description Tax Return
the
Quarterly Percentage Tax BIR Form 2551Q 25th day following the close
of each taxable quarter
Quarterly Percentage Tax BIR Form 2552Q 5th banking day from the
date of collection
For Transactions Involving Shares of
Stocks Listed and Traded Through
the Local Stock Exchange or Sold
Through Secondary Public Offering
Quarterly Percentage Tax BIR Form 2552Q 30th day from the date of
listing in the local stock
For Transactions Involving Shares of exchange
Stocks Exchanged or Sold Through
Initial Public Offering