Tax Laws for MSMEs

Other Business Taxes

Atty. Luis Gerardo C. Manabat, C.P.A., F.I.C.D.

De La Salle University
The Tax Code
Percentage Taxes
Module 7
PERCENTAGE TAX
Percentage tax is a business tax which is based on a given
ratio between the gross sales or receipts and the burden
imposed upon the taxpayer.
This tax, like all business taxes, is a privilege tax imposed on
persons for the right to operate in the specific trades or
businesses enumerated by the law. Unlike income taxes,
however, percentage tax is not subject to withholding taxes.

Because the taxes imposed by Percentage Tax is

different from income tax, there is no double taxation for
imposing both taxes on a taxpayer.
PERCENTAGE TAX
Businesses/Activities subject to Percentage Tax:
 Small business enterprises
 Domestic Carriers and Keepers of Garages
 International Carriers
 Franchise holders or grantees
 Persons paying for overseas communication service
 Banks and non-bank financial intermediaries
 Life insurance companies and agents of foreign insurance
companies
PERCENTAGE TAX
Businesses/Activities subject to Percentage Tax: (continued)
 Amusement Tax – Tax on Proprietors, lessees or operators
of amusement places.
 Winners of Prizes in horse racing and jai alai and owners
of winning race horses.
 Sellers or transferors of shares of stocks listed and traded
through a local stock exchange.
 Closely-held corporations with respect to shares of stocks
sold or otherwise disposed of through initial public offerings
of the shares of stocks in the closely-held corporation.
PERCENTAGE TAX
Small Business Enterprises
 Any person whose gross annual sales or receipts from
sale, or lease of goods or properties, or the performance of
service does not exceed P3,000,000 and who are not VAT
registered taxpayers, shall be subject to Percentage Tax.
 In effect, small business enterprises which are subject to
Percentage Tax are exempt from VAT.
 It is normal therefore that start-up businesses are initially
subjected to Percentage Tax and when their income
exceeds the threshold, becomes subject to VAT.
PERCENTAGE TAX
Small Business Enterprises
 The catch with this arrangement is that when a taxpayer
exceeds the threshold and registers as a VAT taxpayer, the
said taxpayer can no longer return to being subject to
Percentage Tax unless it can establish that the business is
still viable and not closing, and will remain viable but at a
reduced level of revenue.
 It is more normal for businesses to close down a business
and then opening a new one, rather than changing the
registration from VAT back to Percentage Tax.
PERCENTAGE TAX
Tax on Carriers and Keepers of Garage
 Those subject to this tax are as follows:
 Cars for rent or hire driven by the lessee
 Transportation contractors including persons who transport
passengers for hire.
 Other domestic carries by land for the transport of
passengers
 Keepers of Garages
However, those subject to this tax is still subject to VAT
for the transport of goods.
PERCENTAGE TAX
Tax on Carriers and Keepers of Garage
 Those not subject to this tax are as follows:
 Owners of bancas
 Owners of animal-drawn two-wheeled vehicles
 Domestic carriers by land for the transport of goods and
cargoes
 Domestic carriers by air or water for the transport of
passengers, goods or cargoes.
The first two may be subject to Percentage Tax on Small
businesses, the last two is subject to VAT.
PERCENTAGE TAX
Tax International Carriers
 International carriers, whether by air or water, doing
business in the Philippines are liable for this tax.
 International carriers must be doing business in the
Philippines to be subject to the tax.
 Casual trips by an international carrier who do not have
regular flights into the Philippines are not subject to the tax
as this is a result of a charter and not common carriage.
PERCENTAGE TAX
Franchise Tax
 Franchise, under this tax, is the special privilege or right
conferred on the individual or corporation by the state
through the legislature.
 Right to operate radio and/or television stations whose gross
annual receipts do not exceed P10,000,000
 Gas and Water Utilities from businesses covered by the law
granting the franchise.
 National Grid Corporation on all its gross receipts derived
from its operations covered by the law granting the
franchise.
PERCENTAGE TAX
Overseas Communication Tax
 Overseas Communication Tax applies to every overseas
dispatch, message or conversation transmitted from the
Philippines by telephone, telegraph, telewriter exchange,
wireless and other communication equipment services.
 The tax applies only to communication originating from the
Philippines to a foreign land and not the other way around.
 To date however, there is still mixed interpretation with
respect to internet based communications like messenger,
whatsapp, telegram and similar social media services.
PERCENTAGE TAX
Overseas Communication Tax
 Exempted from this tax are communications of:
 Government
 Diplomatic Services
 International organizations
 News Services
PERCENTAGE TAX
Tax on Banks and Non-bank Financial Intermediaries
 These taxes covers all financial institutions, or institutions
engaged in banking and quasi-banking activities, but not
insurance companies.
 Banking activities are such activities performed by banks in
the ordinary course of their business with respect to their
clients.
 Quasi-banking activities are those activities that are similar
to banking activities but are not limited to banks or are
done by non-banking institutions.
PERCENTAGE TAX
Tax on Life Insurance Companies and Agents of Foreign
Insurance Companies
 Insurance Companies includes every person, partnership,
association or corporation holding a certificate of authority
from the Insurance Commission to engage in the business
of underwriting insurance.
 In short, this refers to an entity who undertakes for
consideration to indemnify another (insured) against loss,
damage or liability arising from an unknown or contingent
event.
PERCENTAGE TAX
Amusement Tax
 This tax is imposed on the proprietor, lessee or operator of amusement
places like cockpits, cabarets, day and night clubs, boxing exhibitions,
professional basketball games, jai alai and race tracks, irrespective of
whether or not any amount is charged or paid for admission.
 Amusement Taxes are also imposed on winnings collected from every
person who wins in horse races and owners of winning race horses.
(Foreigners have 50% discount)
 The Tax on Admissions are not amusement taxes within the meaning
of this tax because those are taxes that are imposed by the local
government and not a national tax.
PERCENTAGE TAX
Tax on Sale, Barter or Exchange of Shares of Stocks
 The Stock Transfer Tax shall be levied, assessed and
collected on every sale, barter, exchange or other
disposition of shares of stocks listed and traded in the local
stock exchange other than the sale by a dealer in
securities.
 Dealers in Securities are subject to the regular income taxes
as their business is in the buy and sale of securities as
opposed to brokers, who facilitate the sale, barter, exchange
and disposition of shares in the stock market.
 This is roughly the same as shares sold by companies in
their initial public offerings (IPOs).
The Tax Code
Excise Tax
EXCISE TAX ON CERTAIN GOODS
Excise Taxes refers to taxes applicable to certain specified
goods or articles manufactured or produced in the Philippines
for domestic sale or consumption or for any other disposition
and to things imported into the Philippines.

There are two kinds of Excise Tax:

• Ad valorem Taxes – Excise Tax based on selling price or
value of the goods.
• Specific Taxes – Excise Tax imposed on goods based on
weight or volume or any other physical unit of measurement
EXCISE TAX ON CERTAIN GOODS
Excise Taxes are property taxes or those imposed directly on
certain goods manufactured or imported.

The purpose of Excise Taxes are:

• To curtail consumption of certain goods.
• To protect domestic industry
• To distribute the tax burden in proportion to benefit derived
from a particular government service
• To raise revenue

The Tax is imposed on the manufacturer and/or importer of the

specific goods and not on the sellers or consumers.
EXCISE TAX ON ALCOHOLIC PRODUCTS
Excise Taxes on Alcoholic Products are part of the “SIN” Taxes,
or a tax on vices, which is imposed primarily to curtail
consumption thereof. The general kinds of Alcoholic Products
are:

• Distilled spirits and preparations of which distilled spirits form

the chief ingridients (ST/AV)
• Wines (ST/AV)
• Fermented Liquor (ST)
EXCISE TAX ON TOBACCO PRODUCTS
Excise Taxes on Tobacco products is another of the “SIN”
Taxes that is imposed in order to reduce the consumption of
Tobacco and therefore improve the health of the citizens of the
country. This tax is imposed on:

• Tobacco Products (ST)

• Cigars (ST/AV)
• Cigarettes (ST)
EXCISE TAX ON PETROLEUM PRODUCTS
Excise Taxes on Petroleum products are taxes on some
products of Petroleum that intends to reduce the consumption
of these toxic products, which includes:

• Lubricating oils and • Naptha, regular gasoline

greases and similar
• Processed gas • Premium gasoline
• Waxes and petrolatum • Aviation jet fuel
• Denatured Alcohol for • Diesel fuel oils and
motive power similar fuel oils
• Asphalt • Kerosene
• Bunker Fuel and Oil • LPG
• Raw naptha
EXCISE TAX ON MINERAL PRODUCTS
Excise Taxes on mineral products are imposed on mining
activities that is intended to protect nature and the communities
that has been disrupted by mining. These activities are those
engaged in the following:

• Coal and coke (ST)

• Non-metallic minerals and quarry resources (AV)
• Metallic minerals (AV); and
• Indigenous petroleum (AV)
EXCISE TAX ON MISCELLANEOUS ARTICLES (AV)
Excise Tax on Miscellaneous Articles used to be referred to as
the Luxury Taxes which aims to tax the rich in order to level the
wealth distribution in the country.

The second type of Miscellaneous Articles makes this tax

apparent as it imposes a 20% tax on the following:
• Jewelries
• Pearls, precious and semi-precious stones and immitations thereof
• Goods made of ornamented, mounted, fitted with precious metals except
surgical/dental instruments, silver plated wares, frames of glasses and dental
alloys
• Opera glasses and lorgnettes
• Perfumes and toilet waters
• Yatchs and other vessels for pleasure or sports
EXCISE TAX ON MISCELLANEOUS ARTICLES (AV)
The First type of Miscellaneous Articles comprises Automobiles.
This tax has been changed by TRAIN as is taxed as follows:

Pick-up trucks and electric vehicles will be exempted from additional

taxes. Hybrid cars, as seen in the table above, will be charged 1/2
(half) the taxes imposed on non-hybrid automobiles.
 Documentary stamp
tax
Buslaw III
De La Salle University
The Tax Code
Documentary Stamp Taxes
DOCUMENTARY STAMP TAXES
Documentary Stamp Taxes (DST) is indicated to be a tax on
documents, instruments and papers evidencing the
acceptance, assignment, sale or transfer of an obligation,
right or property thereto (Sec. 173, NIRC)

But actually, DSTs is actually a tax on the privilege to enter

into a transaction that the document evidences and not the
actual document in itself. The fact that the document is
actually the evidence, it is often confused to be the item being
taxed and not what it represents.

Generally, private legal documents that needs to be notarized

are subject to DST.
DOCUMENTARY STAMP TAXES
Documents subject to DSTs are:
• Original issues of shares of stocks
• Documents relating to sale of shares or certificates of stock or proxies
• Bonds, debentures, certificates of stock or indebtedness issued in foreign countries.
• Cetificates of profits or interest in property or accumulations.
• Bank drafts, checks, certificates of deposits, debt instruments, negotiable instruments, warehouse
receipts and bills of lading
• Life and non-life insurance policies, annuities and pre-need plans
• Certificates issued by a public official or person acting in a public capacity.
• Jai-alai or horse race tickets, lotto or other numbers game
• Powers of attorneys
• Leases, charter parties and other hiring agreements
• Mortgages, pledges and deeds of trust
• Sales and conveyance of real property
 End of Module 7

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