Chapter 3

Percentage Taxes

 The Percentage Taxes

Under section 116 to 127 of the National Internal Revenue Code, the percentage
taxes are:
 3% percentage tax on persons exempt from the value added tax because
their gross annual sales or receipts do not exceed ₱3,000,000; 1% from
July 1, 2020 to June 30, 2023 (CREATE)
 Persons who lease residential units where the monthly rental per unit
exceeds ₱15,000 but the aggregate of such rentals of the lessor during
the year does not exceed three million pesos ₱3,000,000;
 Tax on domestic carriers;
 Tax on international carriers;
 Tax on franchises;
 Overseas communications tax;
 Tax on banks and non-bank financial intermediaries;
 Tax on other non-bank financial intermediaries (including pawnshops);
 Tax on life insurance premiums;
 Tax on agents of foreign insurance companies;
 Amusement taxes;
 Tax on winnings;
 Stock transactions tax.

 3% Percentage Tax
The percentage tax is based on gross sales or receipts, without any deduction. (Sec.
116 NIRC)

Illustration 1
Mr. Arevalo is a trader. His gross sales in the preceding year amounted to
₱112,500. How much is the percentage tax?

Illustration 2
Mr. Balboa sells agricultural food products in their original state. Last year his
gross sales amounted to ₱3,900,000. What business tax would he pay?

 Tax on Domestic Carriers and Keepers of Garages

The following shall pay a tax equivalent to three percent (3%) of their quarterly
gross receipts: (Sec. 117 NIRC & Sec. 14 RA, 9337)
 Cars for rent or hire driven by the lessee; (rent-a-car)
 Transportation contractors, including persons who transport passengers
for hire;
 Other domestic carriers by land for transport of passengers (except
owners of bancas and animal-drawn two-wheeled vehicles); and
 Keepers of garages.

The tax is also known as common carrier’s tax.

The gross receipts of common carriers derived from their incoming and outgoing
freight shall not be subjected to the local taxes imposed under Local Government
Code.

Gross receipts shall refer to the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty,
including the amount charged for materials supplied with the services and advance
payments actually or constructively received during the taxable period for the
services performed or to be performed for another person, excluding VAT, but shall
not include amount earmarked for remittance to a third party as agreed in an
implied or express contract or mandated by law and invoiced/receipted by such
third party directly to the real customer or actual recipient of the service. (RMC 46-2008)

For common carriers by air, a gross receipt is the amount actually or constructively
received as compensation for their services of undertaking the contract of carriage
by air.
Common carrier refers to individuals, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land,

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water, or air, for compensation, offering their services to the public and shall
include transportation contractors. (RMC 46-2008)

Table 3-1. VAT or Common carrier’s tax (RMC 46-2008)

Common Carrier Transporting passengers Transporting goods

Land 3% Common carrier’s tax 12% Value-added tax

Air – Domestic flight

Water – Domestic trip 12% Value-added tax 12% Value-added tax

Air – International flight

Water – International trip 0% Value-added tax 0% Value-added tax
from the Philippines to a foreign country

Illustration 3
Cabrera Transport Corporation had the following gross receipts during the
month:
Passenger Cargo
Jeepney…………….. ₱ 72,500
Buses………………. 290,625 ₱ 16,250
Taxi…………………. 85,625
Sea vessel …………. 113,250 34,750
Required: Compute the common carrier’s tax.

Table 3-2. Statutory minimum quarterly gross receipts (RR 9-2007)

Quarterly
Jeepney for hire:
Manila and other cities………………………... ₱ 2,400
Provincial………………………………………. 1,200
Public utility bus:
Not exceeding 30 passengers………………. 3,600
Exceeding 30 but not 50 passengers………. 6,000
Exceeding 50 passengers…………………… 7,200
Taxis:
Manila and other cities……………………….. 3,600
Provincial………………………………………. 2,400
Car for hire:
With chauffeur………………………………… 3,000
Without chauffeur…………………………….. 1,800

Illustration 4
Mr. Dayrit a jeepney operator in Quezon City, with 2 two units of jeepney, has
the following gross receipts from his jeepney operation for the period:
Unit 1 Unit 2
January…………………………….. ₱ 720 ₱ 900
February…………………………… 600 1,250
March………………………………. 960 1,800
April………………………………… -0- 1,200
Required: Compute the percentage tax for the first quarter.

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 Tax on International Carriers

 International air carriers doing business in the Philippines shall pay a tax
of three percent (3%) of their quarterly gross receipts. (Sec. 118, ibid.)

 International shipping carriers doing business in the Philippines shall pay a

tax equivalent to three percent (3%) of their quarterly gross receipts.

Taxable Base: Gross receipts on transport of cargo from the Philippines to a

foreign country. (Transport of passengers by international carriers
is VAT-Exempt Transaction)

International air carrier shall refer to a foreign airline corporation doing business in
the Philippines having been granted landing rights in any Philippine port to perform
international air transportation services/activities or flight operations from the
Philippines to anywhere in the world and vice versa, in the case of on-line carrier,
or having maintained business establishment, agent or representative office in the
Philippines for the sale of its own tickets/passage documents or tickets/passage
documents of other airline companies, which airline companies operate without
touching any Philippine port, in the case of off-line carrier.

Note: Off-line carriers, which sell tickets (a) covering off-line flights/voyages or (b)
flights or voyages of other carriers, are not considered engaged in business as an
international carrier in the Philippines and therefore are exempt from the OPT
under Section 118. (Off-line flights/voyages refer to flights/voyages outside the Philippines, and which do not touch
any port or point in the Philippines.)

 Tax on Franchises
A franchise is a special privilege or right conferred on an individual or corporation
by the State through the lawmaking body, to operate a public utility.
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 ₱10,000,000, a tax of
three percent (3%)
 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
That radio and television broadcasting companies shall have an option to be
registered as a value-added taxpayer and pay the tax due thereon. Once the
option is exercised, said option shall be irrevocable. (Sec. 119, NIRC & Sec. 15 RA 9337)

Note: P.D. No. 1869 PAGCOR is subject to a franchise tax of five percent (5%) of the gross revenue or
earnings it derives from its operations and licensing of gambling casinos, gaming clubs and other similar
recreation or amusement places, gaming pools, and other related operations as described above.

Illustration 5
Manila Water Company, Inc. is a holder of a franchise to operate a water
system and sells water. In a month, it had gross receipts from the sale of
water of ₱6,250,000. How much is the percentage tax?

Illustration 6
UNTV Company is a holder of a franchise to operate a radio/television
network. Its gross receipts last year was ₱8,550,000. For January of this year,
it had gross receipts of ₱900,000 any tax not included, and total payments to
VAT-suppliers of goods and services of P360,000, any tax not included. How
much is the percentage tax for the month of January?

Illustration 7
Using illustration 6, UNTV opted to be a VAT taxpayer in January. How much
is the value-added tax payable for the month of January?

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 Tax on Overseas Dispatch, Message or Conversation Originating from the

Philippines
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 (Sec. 120, NIRC). This is known as overseas
communication tax.

The tax 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 (25) days after the end of each quarter.

The following are exempt from the overseas communication tax:

 Government - Amounts paid for messages transmitted by the Government
of the Republic of the Philippines or any of its political subdivisions or
instrumentalities;
 Diplomatic Services - Amounts paid for messages transmitted by any
embassy and consular offices of a foreign government;
 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
 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
bona fide 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.

Illustration 8
The Bayan Telephone Company is selling telephone services to the public.
Mr. Gozon availed of its services by calling his girlfriend in Hongkong. He was
billed ₱5,000 for a twenty five-minute call. How much is the overseas
communication tax?

 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 following schedule: (Sec. 121, ibid.)

1. Interest, commissions and discounts from lending activities as well as

income from financial leasing, on the basis of remaining maturities of
instruments from which such receipts are derived:
Maturity period is five (5) years or less…………………………………. 5%
Maturity period is more than five (5) years……………………………… 1%
2. Dividends and equity shares and net income of subsidiaries ………….. -0-%
3. Royalties, rentals of property, real or personal, profits, from exchange
and all other items treated as gross income under Tax Code ………….. 7%
4. Net trading gains within the taxable year on foreign currency, debt
securities, derivatives, and other similar financial instruments …………. 7%

In case the maturity period referred to in paragraph (1) is shortened thru pre-
termination, then the maturity period shall be reckoned to end as of the date of pre-
termination for purposes of classifying the transaction and the correct rate of tax
shall be applied accordingly.

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Non-bank Financial Intermediaries shall refer to persons or entities whose principal

function include the 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.
This includes all entities 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 of any kind for their own
account, or through the issuance of certificates, or of repurchase agreements,
whether any of these means of obtaining funds from the public is done on a regular
basis or only occasionally. (RR 8-2008)
Quasi-banking Functions shall refer to 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 relending or purchasing receivables or other similar obligations.
Provided, however, that commercial, industrial and other non-financial companies,
which borrows funds through any of these means for the limited purpose of
financing their own needs or the needs if their agents or dealers, shall not be
considered as performing quasi-banking functions. (RR 8-2008)

Illustration 9
Bank of Philippine Islands a domestic banking institution had the following
gross receipts and income in a month:
Rentals from safety deposit boxes and real property acquired in
foreclosure proceedings……………………………………………. ₱625,000
Net foreign exchange gains (difference between the value of foreign
currencies sold and purchased)…………………………… 500,000
Net trading gains from trading in securities, commercial papers and
other financial papers and other financial instruments (difference
between the yield or selling price and the cost of obtaining the
same)…………………………………………………. 375,000
Service fees…………………………………………………………… 125,000
Dividends and equity shares in the net income of subsidiaries…. 625,000
Amounts received from lending activities on instruments with
remaining maturities of:
Five years and less…………………………………………. 875,000
More than five years……………………………………….. 750,000

How much is the percentage tax?

 Tax on Other Non-Bank Financial Intermediaries

Gross receipts of other non-bank financial intermediaries (non-bank financial
intermediary not performing quasi-banking functions) doing business in the
Philippines shall be Gross Receipts Tax at rates and on items of income provided
hereunder: (Sec. 4, RR 9-2004) TB A& V
1. Interest, commissions, discounts and all other items treated as gross
income under the Tax Code…………………………………………………. 5%
2. Interest, commissions and discounts from lending activities as well as
income from financial leasing, on the basis of remaining maturities of
instruments from which such receipts are derived:
Maturity period is five (5) years or less…………………………………. 5%
Maturity period is more than five (5) years……………………………… 1%

In case the maturity period referred to in paragraph (2) is shortened thru pre-
termination, then the maturity period shall be reckoned to end as of the date of pre-
termination for purposes of classifying the transaction and the correct rate of tax
shall be applied accordingly. (RR 10-2004 has classified pawnshops as under “non-
bank financial intermediaries”, thus are now subject to 5% gross receipts tax.)

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 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. (Sec.
123, NIRC)
The following premiums are exempt from tax:
 Premiums refunded within six (6) months after payment on account of
rejection of risk or returned for other reason to a person insured;
 Premiums paid upon reinsurance by a company that has already paid the
tax;
 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 nonresident, if any tax on such
premium is imposed by the foreign country where the branch is
established;
 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;
 Premiums collected or received by the insurance companies on variable
contracts (as defined in section 232(2) of Presidential Decree No. 612), in
excess of the amounts necessary to insure the lives of the variable
contract workers. Note: Non-life insurance premium is subject to 12% VAT.
Illustration 10
Henson Co. is an insurance company that sells life and non-life insurance to
its clients. In a month, it had the following revenues/receipts:
Life insurance:
Payments received in cash………………………… ₱250,000
Payments received in post-dated checks.………… 375,000
Payments received by way of credit cards………… 187,500
Non-life insurance:
Payments received in cash………………………… 312,500
How much is the percentage tax?

 Tax on Agents of Foreign Insurance Companies

A tax of four (4%) percent of the total premium collected shall be imposed upon
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. This shall not apply to
reinsurance. (Sec. 124, ibid.)
An owner of property can 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 BIR each case and shall pay the tax of five percent (5%) on
premiums paid, in the manner required by Section 123.
Reinsurance is insurance that is purchased by an insurance company (ceding
company) from one or more other insurance companies (reinsurer) as a means of
risk management.
For example, assume an insurer sells 1000 policies, each with a P1 million policy
limit. Theoretically, the insurer could lose P1 million on each policy – totaling up to
P1 billion. It may be better to pass some risk to a reinsurer as this will reduce the
ceding company's exposure to risk.

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 Amusement Taxes
A tax shall be collected from the proprietor, lessee or operator of the following
amusement places:

Table 3-3. Amusement tax (Sec. 125, ibid.)

Amusement place Tax rate
On gross receipts from/of:
1. Cockpits, cabarets or night and day clubs, videoke bars,
karaoke bars, karaoke televisions, karaoke boxes and
music lounges …………………………………………… 18%
2. Boxing exhibitions………………………………………… 10%
3. Professional basketball games ………………………….. 15%
Note:
4. Jai-alai and racetracks…………………………………….
Gross rec eipts on cabaret and nightcl ubs ar e now incl uded i n 12% VAT taxable trans acti ons.
30%

Boxing exhibitions wherein World or Oriental Championships in any division is at

stake shall be exempt from amusement tax, if one of the contenders 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.

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.

Illustration 11
The PBA is a professional basketball organization. In a basketball series
within a month, it had gross receipts from the gates of ₱1,250,000. In
addition, television coverage gave it additional gross receipts of ₱1,250,000.
Advertisements in streamers inside the coliseum where the games were
conducted gave it additional gross receipts of ₱1,250,000. How much is the
amusement tax?

Illustration 12
Solar Sports a domestic corporation wholly owned by citizens of the
Philippines sponsored a world boxing event for World Championship in the
lightweight division between a Korean boxer and a Filipino boxer. Gate
receipts amounted to ₱12,500,000, out of which the purse of the winner was
₱2,500,000, and of the loser was ₱1,250,000. Satellite coverage gave the
corporation an additional gross receipts of ₱1,500,000. How much is the
amusement tax?

Illustration 13
The Balls Entertainment, a domestic corporation, had the following gross
receipts from championship events it conducted in the Philippines:

Billiard……………………………… ₱1,250,000
Tennis……………………………… 1,500,000
Ping-pong………………………… 625,000
Volleyball…………………………. 750,000
Baseball…………………………… 1,000,000
Basketball (amateur)…………….. 1,125,000
Chess…………………………….. 500,000

How much is the amusement tax?

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 Tax on Winnings
Every person who wins in horse races shall pay following:

Table 3-4. Tax on winnings (Sec. 126, ibid.)

1. On winnings or dividends in horse races……………………. 10%

The tax is based on the actual amount paid to him for
every winning ticket after deducting the cost of the ticket
2. On winnings from double, forecast/quinella and trifecta bets
in horse races…………………………………………………… 4%
3. On the prize of owners of winning horses…………………… 10%

Illustration 14
Mr. Kho Choc is an owner of a race horse. On June 12 Special Independence
Day Race he won a ₱6,250,000 prize. How much is the tax on winnings?

 Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded

Through the Local Stock Exchange or Through Initial Public Offering
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 (6/10 of 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. (Sec.127, ibid.) This percentage tax is
called stock transaction tax.

Illustration 15
Mr. Lee sold shares of stock of domestic corporations listed and traded in the
Philippines Stock Exchange, thru his stock broker, as follows:
 Shares of San Miguel Corporation with a cost of ₱2,500,000 and a
selling price of ₱3,500,000.
 Shares of Ayala Corporation with a cost of ₱3,125,000 and a selling
price of ₱2,500,000.
How much is Mr. Lee’s stock transaction tax?

 Filing of Return and Payment of Percentage Taxes

Every person liable to pay percentage taxes shall file a quarterly return (BIR Form
No. 2551Q) of the amount of his gross sales, receipts, or earnings and pay the tax
due thereon within twenty (25) days after the end of each taxable quarter. (RA 10963)

The 25-day period for filing and payment does not apply in the following instances:
1. For tax on sale of shares of stocks listed and traded through the local
stock exchange (LSE) – within 5 banking days from the date of collection
2. For tax on shares of stocks sold or exchanged through primary offering -
within 30 days from the date of listing in the LSE
3. For tax on shares of stocks sold or exchanged through secondary public
offering - within 5 banking days from the date of collection
BIR Form 2552 - Percentage Tax Return for Transactions Involving Shares of
Stocks Listed and Traded Through The Local Stock Exchange or Through Initial
and/or Secondary Public Offering.