Amante, Bianca Dennisse G.

Focus Notes on Percentage Tax Group 2 MW 6:30 – 7:00

PERCENTAGE TAX
Percentage tax- is a national tax measured by a certain percentage on the gross selling price or gross value in money of
goods sold or bartered; or of the gross receipts or earnings derived by a person engaged in the sale of services.

THE SCOPE OF PERCENTAGE TAX

Coverage Type of % tax Tax rates

1. Services specifically Specific % of tax Various tax rates
subject to percentage
tax
2. Sales of goods or other General % of tax 3 % percentage tax
services not exempted

Who pays percentage tax?

Type of Percentage tax VAT registered taxpayers Non- VAT taxpayers

Specific percentage tax  
General percentage tax × 

Non-VAT taxpayers

those who did not exceed the VAT threshold

who did not register as VAT taxpayers

SERVICES SPECIFICALLY SUBJECT TO PERCENTAGE TAX

(BICAP FLOW) – Mnemonic for services subject to % tax

1. Banks and non-bank financial intermediaries

2. International carriers on their transport of cargoes, excess baggage and mails only ( RA 10378)
3. Common carriers on their transport of passengers by land and keepers of garage
4. Certain amusement places
5. Brokers in effecting sales of stocks through the Philippine Stock Exchange and corporations or shareholders
on initial public offerings
6. Certain franchise grantees
7. Life insurance companies and agents of foreign insurance
8. Telephone companies on overseas communication
9. Jai-alai and cockpit operators on winnings
Amante, Bianca Dennisse G. Focus Notes on Percentage Tax Group 2 MW 6:30 – 7:00

TAX ON BANKS AND NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS

Banks – refers to entities engaged in the lending of funds obtained in the form of deposits.
- Commercial banks
- Savings banks
- Mortgage banks
- Development banks
- Rural banks
- Stock and savings associations
- Branches and agencies of foreign banks
- Cooperative banks
- Islamic banks
- Banks determined by the Monetary board of BSP

Non-bank financial intermediaries- refers to persons or entities whose principal function include 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.

o All regularly engaged in the lending of funds or purchasing of receivables or other obligations with funds
obtained from the public through the issuance, endorsement or acceptance of debt instruments

Quasi- banking function - refers to the borrowing of funds from twenty (20) or more personal or corporate lenders

Quasi-banks- non-bank financial intermediaries performing quasi-banking functions

TAX RATES ON BANK AND QUASI-BANK

Source of Income or receipt % of 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 receipts were derived:

a. Maturity period of five years or less 5%

b. Maturity period of more than five years 1%
2. Dividend and equity shares in the net income of 0%
subsidiaries
3. On royalties, rentals of property, real or personal, 7%
profits from exchange and all other items treated
as gross income under section 32 of the NIRC
Amante, Bianca Dennisse G. Focus Notes on Percentage Tax Group 2 MW 6:30 – 7:00

4. On the net trading gains within the taxable year 7 %

on foreign currency, debt securities, derivatives
and other similar financial instruments ( RA 9337)

Note:
Gross receipt tax- the percentage tax on banks, quasi-banks and other financial institution

Meaning of Gross Income

Gross Income- includes only those items of gross income subject to regular tax for purposes of the percentage tax
Gross Income of banks- includes those items of gross income subject to final tax
o To be included in gross receipts for the purpose of the gross receipt tax shall be the income, gross of the
final income tax
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- deductible only to the gains from trading on the same category
Cumulative net loss at the year-end – cannot be carried over as a deduction against trading gain in the following year
Exemption from the gross receipt tax – BSP’ income; legally mandated functions

TAX ON OTHER FINANCIAL INTERMEDIARIES WITHOUT QUASI-BANKING FUNCTIONS

 Pawnshops
 Money changers

Source of Income or receipt % Tax rate

1. Interest income , commissions and discounts
from lending activities, income from financial
leasing, on the basis of remaining maturities of
instrument from which the receipts were derived:
c. Maturity period is five years or less 5%
d. Maturity period is more than five years 1%
2. From all other items treated as gross income 5%
under the NIRC

COMMON RULES FOR BANKS, QUASI-BANKS, OTHER FINANCIAL INSTITUTIONS

1. Accounting rules – basis of the calculation of gross receipts shall be the GAAP prescribed by the :
a. BSP – banks and quasi-banks
b. SEC- other non-bank financial intermediaries

2. Finance and operating lease

 Finance lease – sale of property whereby the seller earns only interest income
 Taxable gross receipt: interest income excluding collections of principal
 Operating lease – not a sale and does not transfer ownership over the leased property
Taxable gross receipt: include Gross Rentals received
3. Pre-termination of loans
Maturity period – reckoned to end as the date of pre-termination for purposes of classifying the transaction and
applying the correct tax rate
Withholding of Percentage Tax on Banks- all its payments to special deposit and reserve liquidity accounts
Amante, Bianca Dennisse G. Focus Notes on Percentage Tax Group 2 MW 6:30 – 7:00

PERCENTAGE TAX OF INTERNATIONAL CARRIERS - international carriers doing business in the Philippines shall pay 3 %
of their quarterly gross receipts

Two types of international carriers:

a. International air carriers
b. International shipping carriers
c.

International operation
Types of carriers Domestic operation
Outgoing Incoming
Domestic carrier 12 % VAT 0 % VAT Exempt
International carriers
- Passengers N/A Exempt Exempt
- Goods, mails or N/A 3 % OPT Exempt
cargoes

Sea or air carriers owned by

Domestic corporation Foreign corporation
Passengers Vatable Exempt
Cargoes/ baggages Vatable 3 % percentage tax

PERCENTAGE TAX ON DOMESTIC CARRIERS AND KEEPERS OF GARAGE

• Common carrier – any person, corporation, firm or association 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
• Includes: cars for rent, transportation contractors, person who transport passengers for hire, other domestic
land carriers on their transport of passengers
• 3% percentage tax – due quarterly upon the gross receipts of common carriers by land; common carrier’s tax
• Common carriers – exempt from local taxes; those derived from their incoming and outgoing freight

Exemptions to the common carrier’s tax:

▪ Owners of bancas and animal-drawn two-wheeled vehicles, pedicabs – business for mere subsistence

Mode of transport Passengers Baggage/ Mails/ Cargoes

By land 3 % percentage tax Vatable
By water or sea Vatable Vatable
By air Vatable Vatable

AMUSEMENT TAXES – based on quarterly gross receipts

 Boxing exhibitions places 10%
 Professional basketball games places 15%
Amante, Bianca Dennisse G. Focus Notes on Percentage Tax Group 2 MW 6:30 – 7:00

 Cockpits, cabarets, night/day clubs 18%

 Jai-alai and race tracks 30%

Exempt receipts on Professional Boxing

1. World/Oriental Championship
2. Filipino citizen – at least one of the contender
3. The promoter – a Filipino citizen or a corporation 60% owned by Filipino citizens

Tax should be payable within 20 days after the end of each quarter with true and complete return of the gross receipts
derived during the preceding quarter.

o Bowling, golf, billiard halls – vatable

o Cinemas and theatres – local amusement tax

TAX ON SALE OR BARTER OF SHARES LISTED AND TRADED IN THE STOCK EXCHANGE OR IPO

• Stock Transaction Tax – 60% of 1% on the gross selling price of the stocks sold
• Stock broker – shall remit the tax to BIR within 5 banking days from date of collection
• IPO TAX – in a closely held corporation, based on gross selling price

Proportion of Shares Sold, Bartered or Exchanged:

- Up to 25% 4%
- Over 25% but less 33 1/3% 2%
- Over 33 1/3% 1%

Determination of the Proportion of Stocks:

1) Primary offering - Primary Shares / Outstanding shares after IPO

2) Secondary offering - Secondary Shares / Outstanding before IPO

Sales made by: Before IPO During IPO After IPO

Corporate issuer No tax IPO tax as primary No Tax
offer
Shareholder investor Capital gains tax IPO tax as Stock transaction tax
secondary offer

TAXES ON FRANCHISES

General rule: Vatable

a. Electricity
b. Telecommunication – except on receipts from outgoing messages
c. Transportation
d. Private franchises
Amante, Bianca Dennisse G. Focus Notes on Percentage Tax Group 2 MW 6:30 – 7:00

Exceptions: Percentage tax – Franchise tax

- Radio/television broadcasting companies, annual gross receipts less 10M 3%
- Gas and Water utilities 2%

• Radio/television broadcasting companies – vatable when they register as VAT taxpayer even
before threshold (irrevocable) and when they exceed the 10M gross receipt threshold
• Gas and Water utilities – no threshold provision; subject to Percentage tax even if they exceed
10M threshold

TAX ON LIFE INSURANCE PREMIUMS – 2% tax on premiums collected, whether paid in money, notes etc

Life Insurance Non-life Insurance

Direct Premiums 2% premiums tax Vatable
Re-insurance premiums Exempt Exempt
Insurance commissions Vatable Vatable

▪ NOT INCLUDED in the Gross Receipts of an Insurance Company:

o Premiums refunded within 6 months – not receipts
o Re-insurance premiums
o Premiums from life insurance of non-residents received from abroad – exempt foreign consumption
o Excess of premiums on variable contracts – investment rather than premiums

TYPES OF INSURANCE BUSINESS

1. Direct Insurance – underwrites insurance policy, negotiates
2. Reinsurers – insurers of insurers
3. Retrocessionaires – insurers of reinsurers

TAXATION OF OTHER RECEIPTS OF LIFE INSURANCE BUSINESS

1) Renewal or re-issuance fee, re-instatement and penalties – these are considered incidental to or connected to
insurance policy contracts and are akin to premium, hence subject to 2% premiums tax

2) Management fees, rental income, or other income from unrelated services – vatable

3) Investment income

- Realized from the investment of premiums – exempt

- Realized from investment of funds obtained from others – considered same as quasi-banking
- Investment income cannot be specified as from premiums or borrowed funds – apportioned based on
total premiums earned for the month and the liability account balance
-

TAX ON AGENTS OF FOREIGN INSURANCE – 4% tax (twice the tax on life insurance premiums)

• Direct insurance from abroad – 5% tax on premiums paid, without an insurance agent

TAX ON OVERSEAS DISPATCH, MESSAGE ORIGINATING FROM THE PHILIPPINES

Amante, Bianca Dennisse G. Focus Notes on Percentage Tax Group 2 MW 6:30 – 7:00

Overseas communication tax – 10% percentage tax

Call Origin Call Destination Business Tax

Philippines Philippines 12% VAT

Abroad Philippines 0% VAT*

Philippines Abroad 10% overseas communication tax

EXEMPTIONS: (GDIN)

▪ Government – political subdivisions or instrumentalities

▪ Diplomatic Services – embassies and consular offices

▪ International organizations – exemptions under international agreements

▪ News Services

WINNINGS FROM HORSE RACE OR JAI-ALAI

In general 10%

Double, forecast/quinella, trifecta, combination bets 4% on net winnings

Owners of winning race horses, straight wagers 10%

Payable: within 20 days from the date it is withheld

WITHHOLDING OF PERCENTAGE TAX AT SOURCE

• Sale to Government agencies and GOCC – 3% withholding tax;

• BIR Form 2307 – issued to taxpayer to which shall be attached in his monthly percentage tax return

TAX ON OTHER TAXABLE SALES OF NON-VAT TAXPAYERS – 3%

EXEMPTION FROM PERCENTAGE TAX:

1. VAT Taxpayers
2. Self-employed and/or professionals who opted to 8% income tax (BIR Form 1701A)
3. Cooperatives – NOT absolute
- Sales/receipts outside registered activities – subject to business tax similar to government and
nonprofit institutions

• 8% Income tax Option – NOT available to SE/P if the taxpayer is specifically subject to percentage tax

SUMMARY OF SPECIFIC PERCENTAGE TAXES

Business or Activity Percentage tax Tax rates

Banks and financial intermediaries Gross receipt tax 5%, 1% ;7%
International carriers International carrier’s tax 3%
Common carriers Common carrier’s tax 3%
Amusement places Amusement tax 10% ,15%, 18%;30%
Amante, Bianca Dennisse G. Focus Notes on Percentage Tax Group 2 MW 6:30 – 7:00

Sales of stocks by an investor Stock transaction tax 60% x 1%

Sales of stocks during an initial IPO tax 4%,2%;1%
public offering ( IPO)
Franchise Franchise tax 3%
Life insurance Premiums tax 2% ,4%;5%
Overseas calls Overseas communication tax 10%
Amusement betting Winnings tax 10%;4%