OTHER PERCENTAGE TAXES

Lecture Notes

In lieu of the VAT, OPTs are imposed on the following persons/transactions:

1. Section 116: Tax on Persons Exempt from VAT

Persons Subject: Persons who engage in VATable sales or leases of properties, or services in the
course of trade or business:
a) Whose gross sales or receipts ≤ ₱3,000,000; AND
b) Are not VAT-registered.

Tax: 3% of quarterly gross sales or receipts (also called gross receipts tax (GRT). However,
effective July 1, 2020 to June 30, 2023, the rate shall be one percent (1%).

Persons exempt from the 3% GRT:

a) Self-employed individuals and professionals availing of the 8% tax on gross sales and/or
receipts and other non-operating income;
b) Cooperatives, except:
Duly registered cooperatives which transact business with members and non-members,
and with accumulated reserves and undivided net savings of more than Ten Million Pesos
(₱10,000,000.00) shall be subject to the percentage tax on all sales of goods and/or
services to non-members.
c) Fees, per diems, allowance, and other income received by corporate directors of which
they are not employees.
d) Marginal income earners or individuals who are self-employed and deriving gross
sales/receipts ≤ ₱100,000 during any 12-month period.
e) Persons who are VAT-registered, regardless of level of sales.
f) Persons whose line of business is non-exempt (from VAT) and are NOT VAT-registered, but
whose gross annual sales or receipts > ₱3,000,000

2. Section 117: Common Carrier’s Tax

Percentage tax on domestic carriers and keepers of garages.

Persons Subject:
a) Lessors of cars for rent or hire driven by the lessee;
b) Transportation contractors including persons who transport passengers for hire; and
c) Other domestic carriers by land for the transport of passengers; and
d) Keepers of garages.

Exempt Persons:
a) Banca owners
b) Owners of animal-drawn two-wheeled vehicles.

Tax: 3% of quarterly gross sales or receipts from the transport of passengers, provided the gross
receipts are ≥ minimum levels provided by law. The table below provides the minimum quarterly
receipts:
Domestic Carrier
Jeep for hire:
Provincial P 1,200
Manila and other cities 2,400
Public utility bus:
Not exceeding 30 passengers P 3,600
Exceeding 30 but not exceeding 50 passengers 6,000
Exceeding 50 passengers 7,200
Taxis:
Provincial P 2,400
 Manila and other cities 3,600
Car for hire (without chauffeur) P 1,800
Car for hire (with chauffeur) P 3,000

3. Section 118: % Tax on International Carriers (Foreign Carriers)

Persons Subject:
a) International air carriers doing business in the Philippines; and
b) International shipping carriers doing business in the Philippines.

Tax: 3% of quarterly gross receipts from the transport of cargo from the Philippines to another
country

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.

4. Section 119: Franchise Tax

Persons Subject:
a) Radio and/or television broadcasting companies whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos (₱10,000,000), and which did not choose
to be registered under the VAT system; and
b) Gas and water utilities.

Tax:
Franchise OPT
Radio or television broadcasting with 3% of gross receipts derived from the
gross annual receipts ≤ ₱10 M business covered by the law granting the
franchise
Gas and water utilities 2% of gross receipts derived from the
business covered by the law granting the
franchise

5. Section 120: Overseas Communications Tax

Tax on overseas dispatch, message, or conversation originating from the Philippines
by telephone, telegraph, telewriter exchange, wireless, and other communication
equipment or service.

Note: Domestic calls are subject to VAT.

Persons Subject: Payor of the service

The payee (person/entity rendering the service) collects and remits the tax to the BIR within 20
days after the end of each quarter.

Tax: 10% of the amount paid for the service.

Exemptions: The tax shall not apply to amounts paid by:

a) The Government;
b) Embassies or consular offices of a Foreign Government;
c) International organizations pursuant to international agreements;
d) News services: amounts paid for messages from any newspaper, press association, radio
or television newspaper, broadcasting, or newsticker services to any other newspaper,
press association, radio or television newspaper broadcasting agency, newsticker service,
or to a bona fide correspondent. The messages must deal exclusively with the
collection or dissemination of news items.
6. Section 121: Tax on Banks and Non-Bank Financial Intermediaries Performing Quasi-
Banking Functions (“GRT”)

Persons Subject:
a) Banks; and
b) Non-bank financial intermediaries performing quasi-banking functions.

Note:
• The term “bank” shall refer to entities engaged in the lending of funds obtained in the form
of deposits.
• The term “non-bank financial intermediaries” shall refer to persons or entities whose
principal functions 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.
• The term “quasi-banking activities” 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
and other similar obligations.

Tax:
On interest, commissions, discounts from lending activities as
well as income from financial leasing, on the basis of the
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%
On dividends and equity shares and net income of subsidiaries 0%
On royalties, rentals of property (real or personal), profits from
exchange, and all other items treated as gross income under 7%
Section 32 of the Tax Code
On net trading gains within the taxable year on foreign currency,
debt securities, derivatives, and other similar financial 7%
instruments

Note: BSP is not a bank nor a non-bank financial intermediary. In the performance of its proprietary
functions, it shall not be subject to the percentage tax. However, it can subject to VAT if it engages
in any of the transactions under Section 105 of the Tax Code.

7. Section 122: Tax on Finance Companies

Persons subject:
a) Finance companies; and
b) Other non-bank financial intermediaries not performing quasi-banking functions, doing
business in the Philippines.
Note:
• The term “finance companies” shall refer to corporations except banks, investment
houses, savings and loans associations, insurance companies, cooperatives, and other
financial institutions organized or operating under other special laws, which are primarily
organized for the purpose of extending credit facilities to consumers and to industrial,
commercial, or agricultural enterprises, by direct lending or by discounting or factoring
commercial papers or accounts receivables, or by buying and selling contracts, leases,
chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable
as well as immovable properties.
 • The term “other non-bank financial intermediaries” above shall include pawnshops and
non-stock savings and loan associations.

Tax:
On interest, commissions, discounts from lending activities as
well as income from financial leasing, on the basis of the
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%
On gross receipts derived from interest, commissions, discounts,
5%
and all other items treated as gross income under the Tax Code

8. Section 123: Tax on Life Insurance Premiums (Premium Tax)

Person Subject: Any person/entity offering life insurance in the Philippines, except purely
cooperative companies or associations.

Tax: 2% of gross premiums collected.

“Gross premiums” shall include re-issuance fees, reinstatement fees, renewal fees, penalties paid
to the insurance company in connection with the insurance policy, and premiums on health and
accident insurance.

Exemptions: The following premiums are exempt from the premium tax:
a) Premiums received by purely cooperative companies or associations;
b) Premiums refunded within six (6) months after payment on account of rejection of risk, or
returned for any other reason to a person insured;
c) Premiums paid upon reinsurance by a company that has already paid the tax;
d) 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;
e) 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 premium is imposed
by the foreign country where the original insurance has been issued or perfected; and
f) 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.
g) Management fees, rental income, or any other income earned by the life insurance
company from services which can be pursued independently of the insurance business
activity;
h) Investment income earned by the life insurance company from investing the premiums;

Note: If investment income arises from funds solicited for purposes other than for the
payment of premiums, the same shall be subject to the GRT under Section 121 of the Tax
Code.

9. Section 124: Tax on Agents of Foreign Insurance Companies

Persons Subject:
a) 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; and
b) Owners of property who obtain insurance directly with foreign companies.
Tax:
For fire, marine, or miscellaneous insurance agent 4% of total premiums collected
For owners of property who obtain insurance
5% of premiums paid
directly with foreign companies

Exemption: Does not apply to reinsurance premiums.

10. Section 125: Amusement Taxes

Persons Subject: Proprietor, lessee, or operator of cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, jai-alai, and race tracks

Amusement Place Tax

Cockpits 18% of gross receipts
Cabarets 18% of gross receipts
Night or day clubs 18% of gross receipts
Boxing exhibitions 10% of gross receipts
Professional basketball games 15% of gross receipts
Jai-alai 30% of gross receipts
Race tracks 30% of gross receipts

Notes:
a) Gross receipts include admission charges, rents, and income from television, radio, and
motion picture rights.
b) If the proprietor, lessee, or operator of the amusement place also operates, at the same
time within the premises, a bar or restaurant, the receipts of the bar or restaurant shall form
part of gross receipts subject to the amusement tax above.
c) If such bar or restaurant in (b) is operated by a third person, the gross receipts thereof shall
be subject either to VAT or to the 3% OPT under Section 116.
d) Amusement places include videoke bars, karaoke bars, karaoke televisions, karaoke boxes,
and music lounges.

Exemption: Boxing exhibition where:

a) The world or oriental title is at stake;
b) One of the contenders is a Filipino citizen; and
c) Is promoted by a Filipino citizen, or a by a corporation/association which is ≥ 60% owned
by Filipinos.

11. Section 125-A: Gaming Tax of Offshore Gaming Licensees (“OGLs”)

Persons Subject: Offshore gaming licensees

An offshore gaming licensee is an offshore gaming operator, whether organized abroad or in the
Philippines, duly licensed and authorized to conduct offshore gaming operations, including the
acceptance of bets from offshore customers (Sec. 22(II), NIRC).

Tax: 5% of the entire gross gaming revenue or receipts, or the agreed pre-determined minimum
monthly gaming revenue or receipts, whichever is higher. Such 5% gaming tax shall be in lieu of all
other direct and indirect internal revenue taxes and local taxes.
This shall be directly remitted to the BIR not later than the 20th day following the end of each
month.

However, PAGCOR or any special economic zone, tourism zone, or freeport authority may impose
regulatory fees which shall not cumulatively exceed 2% of the gross gaming revenue or receipts of
all offshore gaming licensees, or a pre-determined minimum guaranteed fee, whichever is higher
(Sec. 125-A, NIRC).
Notes:
a) Gross gaming revenue or receipts shall mean gross wagers less payouts.
b) Non-gaming revenue. The non-gaming revenues of a duly-licensed offshore gaming
licensee shall be subject to an income tax equivalent to twenty-five percent (25%) of
taxable income. Such non-gaming revenues of OGLs shall also be subject to the VAT or
OPT, whichever is applicable.

PAGCOR or any special economic zone, tourism zone, or freeport authority shall engage the
services of a third-party audit platform that would determine the gross gaming revenues or receipts
of offshore gaming licensees (Sec. 125-A, NIRC).

12. Section 126: Winnings (from Horse Races)

Persons Subject:
a) Persons who win horse races; and
b) Owners of winning race horses.

Tax:
Winnings in horse races Ten percent (10%) of winnings or "dividends"
Winnings from double, forecast/quinella,
Four percent (4%) of winnings or "dividends”
and trifecta bets in horse races
Owners of winning race horses Four percent (4%) of winnings or "dividends

Notes:
a) The tax in winnings in horse races, and winnings from double, forecast/quinella, and trifecta
bets in horse races, shall be based on the actual amount paid for every winning ticket after
deducting the cost of the ticket.
b) The tax shall be withheld by the operator, manager, or person in charge of the horse races
before paying the dividends or prizes.

13. Section 127: Stock Transaction Tax

a) Sale, Barter, or Exchange of Shares Listed and Traded Through the Local Stock Exchange
(Sec. 127(A), NIRC)

Persons Subject:
The tax is imposed on the seller or transferor of the shares of stock, whether individual (citizen or
alien), corporation (domestic or foreign), or other taxpayer such as estates, trust funds, and
pension funds.
However, the following are not liable for the tax on such sales, namely:
a) Dealers in securities;
b) Investors in shares of stock in a mutual fund company upon redemption of said shares of
stock in a mutual fund;
c) All other persons, whether natural or juridical, who are specifically exempt from national
internal revenue taxes under existing investment incentives and other special laws.

Rate and Base of the Tax: (6/10 of 1%) of the gross selling price.

Duty of the Stockbroker:

To withhold the tax and remit the same to an authorized agent bank (AAB) or Revenue District
Office (RDO) where the broker is registered within 5 days from the date of collection.
(b) Sale or Exchange Through Initial Public Offering (“IPO”) of Shares of Stock in Closely-
Held Corporations (Sec. 127(B), NIRC)
This OPT provided under Section 127(B) of the Tax Code has been repealed by Section 6 of R.A.
No. 11494. Consequently, every sale, barter, exchange, or other disposition through an IPO of
shares of stock in closely held corporations shall no longer be subject to the tax imposed under
said Section 127(B) upon the effectivity of R.A. No. 11494 (September 15, 2020).

Persons Subject
The tax is imposed on:
a) the issuing corporation in a primary offering, or
b) the selling shareholder of the shares in a secondary offering during an IPO.

Note: Any initial public offering and secondary offering of shares of stock issued by a real
estate investment trust (“REIT”) or derivatives thereof shall be exempt from the stock
transaction tax imposed under Section 127 (B) of the Tax Code.

Rate and Base of the Tax

The tax shall be based:
a) on the gross selling price or gross value in money of the shares of stock sold
b) in accordance with the proportion of shares of stock sold to the total outstanding shares
of stock after the listing in the local stock exchange:

Tax Rate
Up to twenty-five percent (25%) 4%
Over twenty-five percent (25%) but not over
2%
thirty-three and one-third percent (33 1/3%)
Over thirty-three and one-third percent (33
1%
1/3%)

Who pays the tax?

a) In the case of a primary offering, the corporate issuer shall file the return, and pay the
corresponding tax within thirty (30) days from the date of listing of the shares of stock in
the local stock exchange.
b) In the case of a secondary offering, it shall be the duty of the stockbroker who effected
the sale to collect the tax, and remit the same to the BIR within five (5) banking days from
the date of collection.

Note: The stock transaction tax under Section 127(A) and (B) shall not be deductible for income
tax purposes.

FILING AND PAYMENT OF PERCENTAGE TAXES

A. In general, every person subject to OPT shall file a quarterly return (BIR Form No. 2551Q)
showing the amount of his gross sales, receipts, or earnings, and pay the tax due thereon
within twenty-five (25) days after the end of each taxable quarter.

However, the following percentage taxes have filing and payment rules which differ from
the abovementioned rule:
a) Overseas communication tax under Section 120 of the Tax Code – the tax shall be
paid to the person rendering the service, and such person is required to collect and
pay the tax within twenty (20) days after the end of each quarter;
b) Amusement tax under Section 125 of the Tax Code – the tax shall be payable within
twenty (20) days after the end of each quarter;

B. The following taxpayers, however, are required to file the monthly return (BIR Form No.
2551M) in addition to the quarterly return:
a) Taxpayers whose gross annual sales and/or receipts do not exceed ₱3,000,000,
and who are not VAT-registered taxpayers;
 b) Domestic carriers and keepers of garages;
c) Operators of international air and shipping carriers doing business in the
Philippines;
d) Franchise grantees of gas or water utilities;
e) Franchise grantees of radio and/or television broadcasting companies whose gross
annual receipts of the preceding year do not exceed ₱10,000,000, and are not VAT-
registered taxpayers;
f) Banks, non-bank financial intermediaries, and finance companies;
g) Life insurance companies; and
h) Agents of foreign insurance companies.
i) Offshore gaming licensees.

BIR Form No. 2551M shall be filed not later than the 20th day following the end of each
month.

C. Person Retiring from Business

Any person retiring from a business subject to the percentage tax shall notify the nearest
internal revenue officer, file his return, and pay the tax due thereon within twenty (20) days
after closing his business.

D. The following percentage taxes have filing and payment rules which differ from the above-
mentioned rules:
a) Tax on winnings under Section 126 of the Tax Code – the tax shall be withheld by the
operator, manager, or person in charge of the horse races, and must be remitted to the
BIR within twenty (20) days from the date of withholding;
b) Stock transaction tax under Section 127(A) of the Tax Code – the tax shall be withheld
by the stockbroker who effected the sale, and shall be remitted to the collecting bank
or Revenue District Office where the broker is registered within five (5) banking days
from the date of collection;

BIR Form No. 2552 shall be used in the filing and payment of the stock transaction tax
under Section 127(A) of the Tax Code.

c) Taxpayers who are required to withhold OPT shall withhold and remit taxes on a
monthly basis using BIR Form No. 1600-PT (Remittance Return of OPT Withheld). This
return shall be filed and the tax paid on or before the tenth (10th) day of the month
following the month in which withholding was made (see discussion on withholding of
OPT below).
d) Advance OPT:
i. Sale of Sugar
A seller of sugar (other than “raw cane sugar”) whose gross annual sales do not
exceed P3.0 million and who is not VAT-registered, shall pay a percentage tax
equivalent to 3% of gross monthly sales or receipts. In general, such percentage
tax shall be paid in advance by the owner or seller before any warehouse receipt
or quedans are issued, or before the sugar is withdrawn from any sugar refinery
or mill.
ii. Transport of naturally grown and planted timber products
The advance percentage tax shall be determined by applying the rate of 3% on
the corresponding value per cubic meter of the different species of naturally
grown and planted timber products in accordance with the schedules issued
by the BIR;
iii. Sale of jewelry, gold, and other metallic minerals to non-resident
individuals not engaged in business in the Philippines and/or non-resident
foreign corporations.
Change in Status
a) In the case of a person whose VAT registration is cancelled, and who becomes liable to the
tax imposed in Section 116 of the Tax Code, the tax shall accrue from the date of
cancellation, and shall be paid in accordance with the provisions of Section 128 of the Tax
Code.
b) For those who are not VAT-registered and who have chosen to be taxed under the 8%
income tax rate option, but have subsequently become liable to VAT:

i. He is required to update his registration immediately within the month following

the month he exceeded the VAT threshold. And he shall be liable to VAT
prospectively starting on the first day of the month following the month when
the threshold is breached.
ii. The taxpayer shall pay the required OPT covering the sales/receipts from the
beginning of the taxable year or commencement of business/practice of
profession until the time the taxpayer becomes liable for VAT. He shall not be
imposed any penalty if the OPT is timely paid on the immediately succeeding
month/quarter.

A non-VAT taxpayer who initially presumed that his gross sales/receipts plus other non-
operating income for the taxable year will not exceed the ₱3,000,000 VAT threshold but
has actually exceeded the same during the taxable year, shall immediately update his
registration to reflect the change in tax profile from non-VAT to VAT taxpayer (RR 8-2018).

Where to File Return

Every person liable to the OPT may, at his option, file a separate return for each branch or place of
business, or a consolidated return for all branches or places of business with the authorized agent
bank, Revenue District Officer, Collection Agent, or duly authorized Treasurer of the city or
municipality where said business or principal place of business is located, as the case may be.
 OTHER PERCENTAGE TAXES
Multiple Choice Questions

1. A is the owner of a small variety store. His gross sales in any one year do not exceed P3,000,000. He is
not VAT-registered. The following data are taken from the books of the variety store for the quarter ending
March 31, 2018:
Merchandise inventory, December 31, 2017 P100,000
Gross sales 450,000
Purchase from VAT-registered suppliers, gross of VAT 350,000

The percentage tax due is:

A. P10,000
B. P13,500
C. P16,500
D. None

2. In the third quarter of 2021, a taxpayer engaged in the sale of services whose annual gross receipts do
not exceed P3,000,000, had the following data:
Accounts receivable, beginning of the quarter P 50,000
Sales during the quarter 100,000
Accounts receivable, end of the quarter 75,000
Purchase of supplies, total invoice amount 11,200

The percentage tax due for the quarter is:

A. P2,250
B. P3,000
C. P750
D. P6,500

3. “A” operates a ferryboat. During a particular quarter, its receipts consist of the following gross receipts
(without VAT):
Transport of passengers P2,000,000
Transport of goods 1,500,000
Transport of cargoes 500,000

The common carrier’s tax payable is

A. P30,000
B. P90,000
C. P100,000
D. None

4. Using the data above, the output VAT is:

A. P480,000
B. P90,000
C. P100,000
D. P240,000

5. A person whose business is to keep automobiles for hire or keep them stored for use or order
A. Keepers of garages
B. Common carrier
C. Taxicab operators
D. Tourist bus operator

6. Which of the following statements is incorrect?

A. A taxpayer whose annual gross receipts/sales exceed P3,000,000 shall pay VAT only if he is VAT-
registered.
B. A taxpayer whose annual gross receipts/sales do not exceed P3,000,000 but who is VAT-registered
shall pay VAT.
C. Excise tax may be imposed together with VAT.
D. Percentage tax may be imposed together with excise tax.
7. One of the following is subject to common carrier’s tax
A. Owners of banca
B. Owners of animal-drawn two wheeled vehicles
C. Common carriers by land for transport of goods or cargoes
D. Common carriers by land for transport of passengers

8. The franchise tax of grantees of radio and television broadcasting whose annual gross receipts of the
preceding year do not exceed P10,000,000 shall be
A. 2% of the gross receipts
B. 3% of the gross receipts
C. 4% of the gross receipts
D. 5% of the gross receipts

9. One of the following is not subject to the 3% percentage tax

A. International air carrier doing business in the Philippines
B. International shipping carrier doing business in the Philippines
C. Domestic carriers and keepers of garage
D. Franchise grantee of electric utilities

10. Franchise grantees of city gas and water utilities are subject to franchise tax of
A. 2%
B. 3%
C. 4%
D. 5%

11. Amounts received for overseas dispatch, message or conversations originating from the Philippines are
subject to
A. 3% franchise tax
B. 10% overseas communication tax
C. 2% franchise tax
D. 10% VAT

12. A tax on the right or privilege to enter places of amusement

A. VAT
B. Franchise tax
C. Amusement tax
D. Income tax

13. One of the following is not subject to amusement tax on gross receipts
A. Disco houses
B. Cockpits
C. Professional basketball games
D. Bowling alleys

14. All of the following except one are liable to the 6/10 of 1% stock transaction tax. Which one is not?
a. Individual taxpayers, whether citizens or alien
b. Corporate taxpayers, whether domestic or foreign
c. Estates and Trust
d. Dealers in securities

15. ABC Insurance Corporation, a domestic corporation, received the following premiums (net of any tax):
INSURANCE
Life Fire Marine
Cash received P 400,000 P 300,000 P 300,000
Promissory notes 100,000
Total P 500,000 P 300,000 P 300,000

a. The amount subject to percentage tax is

A. P400,000
B. P500,000
C. P900,000
D. P1,000,000
 b. The percentage tax due is
A. P10,000
B. P8,000
C. P5,000
D. P20,000

c. The output tax is

A. P36,000
B. P24,000
C. P72,000
D. P120,000

16. ABC Corporation, a VAT-registered domestic corporation, is a holder of a franchise to operate

transportation units on land. The records for the month show (net of any tax):
Cargo Passenger
Gross receipts from transporting P 2,000,000 P 3,000,000
Cargo Passenger
Payments to P 800,000 P 300,000

The percentage tax due is

A. P150,000
B. P60,000
C. P90,000
D. P144,000

17. Using the preceding number, but the franchise is for air and sea transport, within the Philippines, the
VAT payable is
A. P144,000
B. P600,000
C. P468,000
D. P504,000

18. Using the preceding number, but the route is from the Philippines to foreign country, which of the
following is correct?
A. The corporation is exempt from VAT.
B. The corporation is subject to percentage tax.
C. The output vat is 0, hence the corporation cannot claim input tax.
D. May claim a refund or credit the input taxes against other internal revenue taxes.

19. “A” is a holder of franchise to sell electricity. In a particular quarter, its gross receipts amounted to
P3,000,000 from the sale of electricity. It has also receipts from the lease of its auditorium and theater
amounting to P600,000. The percentage tax due for the quarter is
A. P40,000
B. P60,000
C. P100,000
D. None

20. “A” operates a cockpit. Inside the cockpit, he also operates a restaurant. Data for the particular quarter
in 2019 follow:
Gross receipts:
Cockpit operations P500,000
Restaurant operations:
Sale of food 100,000
Sale of liquor 150,000

The amusement tax due from A is

A. P90,000
B. P135,000
C. P225,000
D. P75,000
21. Using the above data, except that the restaurant is not owned by A but is owned by another person, B,
not VAT-registered and whose annual gross sales never exceeded P3,000,000. The amusement tax due
from A is
A. P90,000
B. P135,000
C. P225,000
D. P75,000

22. Continuing the preceding number, the percentage tax due from B is
A. P90,000
B. P135,000
C. P225,000
D. P7,500

23. A, a resident citizen, promoted a world boxing championship in Manila featuring B, a Filipino champion.
Gate receipts amounted to P3,000,000 and additional receipts from television coverage was P2,000,000.
The amusement tax due is
A. None
B. P500,000
C. P300,000
D. P900,000

24. Assuming that the above data is not a world championship but a Philippine national boxing
championship, how much is the amusement tax?
A. None
B. P500,000
C. P300,000
D. P900,000

25. “A” is a radio-TV broadcasting franchise grantee. During the preceding year, its gross receipts did not
exceed P10,000,000. During the first quarter of the current year, it had the following data:
Gross receipts, sale of airtime P 2,000,000
Gross receipts, use of radio station’s communication facilities 500,000
Business expenses 700,000
The franchise tax due for the first quarter is
A. P60,000
B. P40,000
C. P75,000
D. P39,000

26. A horseracing enthusiast has the following winnings during a particular racing day
Total winnings P10,000
Cost of winning tickets 500
The OPT on winnings is
A. P1,000
B. P400
C. P950
D. Zero

27. Using the data above, but the total winnings came from double bet, the percentage tax on winnings is
A. P1,000
B. P400
C. P950
D. P380

28. MuniCity Bank has the following income/loss items for the months of March and April 2021:

March 2021
Interest income with maturity of less than 5 years P 70,000
Rental income 80,000
Net trading loss (20,000)
April 2021
Interest income with maturity of less than 5 years P80,000
Rental income 90,000
Net trading gain 50,000

How much GRT is it liable for in March 2021 and in April 2021:
A. P3,500; P5,600
B. P9,100; P5,600
C. P9,100; P12,400
D. None of the above.

29-31. ABC Corporation, a closely held corporation, has an authorized capital stock of 1,000,000 shares
with a par value of P100/share as of January 1, 2018. Of the 1,000,000 authorized shares, 250,000 thereof
were subscribed and fully paid by the following stockholders:
A- 150,000
B- 50,000
C- 25,000
D- 12,500
E- 12,500
Total shares outstanding 250,000

On March 1, 2018, ABC Corporation finally decided to conduct an IPO and initially offered 250,000 of its
unissued shares to the investing public at P150/share. At the IPO, two of the existing stockholders, A and
B, likewise decided to sell their entire 150,000 and 50,000 shares, respectively, to the public also at
P150/share.

a. The percentage tax due for the primary offering is

A. P375,000
B. P750,000
C. P1,500,000
D. P0

b. The percentage tax due for the sale of A’s shares is

A. P225,000
B. P450,000
C. P900,000
D. P0

c. The percentage tax due for the sale of B’s shares is

A. P75,000
B. P150,000
C. P300,000
D. P0

30. Later, on August 1, 2018, another stockholder C, sold his 25,000 shares to the public subsequent to
the IPO at P200.00/share. The percentage tax due is
A. P30,000
B. P50,000
C. P100,000
D. P200,000

31. Using the preceding number, on September 1, 2018, ABC Corporation again decided to increase
capitalization by offering another 300,000 of unissued shares to the public at P200.00/share consequently
bringing the total issued shares to 800,000 shares, the percentage tax due is
A. P600,000
B. P1,200,000
C. P2,400,000
D. P0

32. In number 29, if the IPO was held on or after September 15, 2020, the percentage taxes due on the sale
of shares by ABC Corporation, shareholder A, and shareholder B through the IPO shall total:
A. P675,000
 B. P1,350,000
C. P0
D. None of the above

33. Sale, importation, printing, or publication of books and any newspaper, magazine, review, or bulletin
which appears at regular intervals with fixed prices for subscription and sale, and which is not devoted
principally to the publication of paid advertisements is:
A. Subject to VAT and OPT
B. Subject to VAT, exempt from OPT
C. Exempt from VAT and OPT
D. Exempt from VAT, subject to OPT

34. International carriers doing business in the Philippines is subject to the:

A. 3% percentage tax on gross receipts derived from the transport of cargo and/or mail from the
Philippines to another country.
B. 3% percentage tax on gross receipts derived from the transport of cargo, mail and passenger from
the Philippines to another country.
C. 12% value-added tax on their gross receipts derived from the transport of cargo from the
Philippines to another country.
D. 0% percent value-added tax on their gross receipts derived from the transport of cargo and
passenger from the Philippines to another country

35. For the period starting July 1, 2020 to June 30, 2023, the percentage rate of VAT-exempt person under
Section 109 (CC) shall be:
A. 5%
B. 4%
C. 3%
D. 1%

36. The following data are taken from the books of Ms. Tala Datsrite, (not VAT-registered and gross sales do
not exceed the VAT threshold), who owns various businesses for the first calendar quarter of 2020:
Gross sales from sale of shoes and clothes P30,000
Gross sales from her boutique 40,000
Gross receipts from her parlor 50,000

Is Tala subject to VAT?

A. Yes, because all his transactions are VAT-subject.
B. No, because he is not VAT-registered and his aggregate gross sales and receipts do not exceed the
VAT threshold amount.
C. Yes, because once a taxpayer has several businesses, he is automatically subject to VAT.
D. No, all his transactions are not VAT-subject.

37. To what percentage tax, if any, will he be subject?

A. Percentage tax on VAT-exempt persons
B. Percentage tax on domestic common carriers
C. Percentage tax on franchise grantees
D. None of the choices

38. How much is the percentage tax due for the quarter?
A. P2,400
B. P2,700
C. P3,600
D. P6,000

39. Can Tala register his transactions under the VAT system?
A. Yes. Any person who is VAT-exempt under Section 109 (cc) not required to register for VAT may
elect to be VAT-registered by registering optionally under the VAT system.
B. No. Any person who is VAT-exempt cannot optionally register his transactions which would have
been exempt from VAT under the VAT system.
C. Yes. As a rule, it is mandatory for all taxpayers with several VAT-subject transactions to register
them under the VAT system.
D. No. It is unwise to register because the taxpayer cannot claim input tax credits.
 EXCISE TAX
Lecture Notes

Rationale:
▪ In addition to the VAT (or OPT).
▪ Taxes which apply to certain goods manufactured or produced in the Philippines for
domestic sale or consumption, and to things imported.
▪ Excise tax shall also apply to certain services performed in the Philippines.
▪ Deductible for income tax purposes

Purposes of Excise Tax:

1) To raise revenue;
2) To curtail the consumption of certain commodities;
3) To protect domestic industries;

Type of Excise Taxes

A. Specific Tax – excise tax imposed on goods or articles based on weight or volume capacity or
any other physical unit of measurement.

ALCOHOL PRODUCTS
1. Distilled spirits (including proof spirits) whisky, brandy, rum, gin, and vodka, fortified wines;
2. Wines – sparkling wines, champagne, still wines
3. Fermented liquor – beer, lager beer, ale, porter and other fermented liquors except tuba, pasi,
tapuy.

TOBACCO PRODUCTS
4. Tobacco products (except stemmed leaf tobacco or tobacco by-products which are to be
exported or used in the manufacture of cigars and cigarettes)
▪ Includes tobacco specially prepared for chewing
▪ Heated tobacco products
▪ Vapor products
5. Cigars
6. Cigarettes

Note:
▪ Heated tobacco products refer to tobacco products that may be consumed through
heating tobacco, either electrically or through other means sufficiently to release an
aerosol that can be inhaled, without burning or any combustion of the tobacco. Heated
tobacco products include liquid solutions and gels that are part of the product, and are
heated to generate an aerosol.
▪ Vapor products shall mean any liquid solution or gel which contains nicotine that
transforms into an aerosol without combustion through the employment of a mechanical
heating element, battery, or circuit that can be used to heat such solution or gel, and
includes but is not limited to a cartridge, a tank, and the device without a cartridge or tank.
It is commonly known as e-liquids for e-cigarettes.

PETROLEUM PRODUCTS
7. Lubricating oils and greases;
8. Processed gas;
9. Waxes and petrolatum;
10. Denatured alcohol to be used for motive power;
11. Naphtha, regular gasoline, and other similar products of distillation;
12. Leaded and unleaded premium gasoline;
13. Aviation turbo jet fuel;
14. Asphalts
15. Kerosene;
16. Diesel fuel oil;
17. Liquefied petroleum gas;
18. Bunker fuel oil

MINERAL PRODUCTS
19. Coal and coke

SWEETENED BEVERAGES
Imposes a tax per liter of volume capacity on sweetened beverages.

The excise tax shall be based on the following schedule:

Using purely caloric sweetener, purely non-caloric sweetener, or mixture or both P6/liter
Using purely high-fructose corn syrup, or in combination with any caloric or
P12/liter
non-caloric sweetener
Using purely coconut sap sugar/purely steviol glycosides Exempt

The following products are excluded from the excise tax on sweetened beverages:
▪ All milk products;
▪ 100% natural fruit juices;
▪ 100% natural vegetable juices;
▪ Meal replacement and medically indicated beverages; and
▪ Coffee – ground coffee, instant soluble coffee, and pre-packaged powdered coffee
products.

B. Ad Valorem Tax – excise tax imposed on goods or articles based on the selling price or other
specified value of the goods, exclusive of VAT and tariff and customs duties (if imported).

(Note: But in computing VAT on importation, excise tax and tariff and customs duties are included
in the tax base.)

1. Distilled sprits
2. Cigars
3. Automobiles excluding:
▪ Buses, trucks;
▪ Cargo vans;
▪ Jeepneys/jeepney substitutes;
▪ Single cab chassis;
▪ Special-purpose vehicles; and
▪ Automobiles used exclusively within the Freeport zones.

Provided:
1) Purely electric vehicles and pick-ups are exempt from excise tax.
2) Hybrid vehicles shall be taxed at 50% of the applicable excise tax rates.

Note: Pick-ups are considered trucks, and therefore exempt from excise tax. Jeeps are considered
automobiles subject to excise tax.

NON-ESSENTIAL GOODS
4. Jewelry, whether real or imitation; pearls; precious and semi-precious stones and imitations;
5. Goods made of or ornamented, mounted or fitted with precious metals or imitations thereof or
ivory;
Except:
▪ surgical and dental instruments;
▪ silver-plated wares, frames, or mountings for spectacles or eyeglasses; and
▪ dental gold or gold alloys and other precious metals used in filling, mounting, or fitting the
teeth.
6. Opera glasses and lorgnettes;
7. Perfumes and toilet waters;
8. Yachts and other vessels intended for pleasure or sports.

MINERAL PRODUCTS
9. Non-metallic minerals and quarry resources such as marble, granite, volcanic cinders, basalt,
tuff and rock phosphate;
10. Metallic minerals:
▪ Copper and other metallic minerals;
▪ Gold and chromite
11. Indigenous petroleum including locallyextracted mineral oil, hydrocarbon gas, bitumen, crude
asphalt, mineral gas.
Except:
▪ Locally-extracted natural gas; and
▪ Locally-extracted liquefied natural gas.

NON-ESSENTIAL SERVICES – 5% tax on gross receipts, net of excise tax and VAT, derived from
the performance of invasive cosmetic surgeries, procedures, and body enhancements for
aesthetic/cosmetic purposes.

The following shall be exempt from the 5% excise tax:

a) Procedures to ameliorate a deformity arising from or directly related to a congenital or
developmental defect or abnormality, a personal injury resulting from an accident or
trauma, or disfiguring disease, tumor, virus, or infection; and
b) Cases or treatments covered by the National Health Insurance Program.

Gross Selling Price of Goods Subject to Ad Valorem Tax

1. The price, excluding the VAT, at which the goods are sold at wholesale or through sales
agents;
2. If the manufacturer also sells the goods at wholesale in another establishment of which he
is the owner, the wholesale price in the latter establishment shall be the gross selling price;
3. If the price is less than the cost of manufacturing plus expenses, the gross selling price
shall equal such cost + expenses + a proportionate margin of profit (≥ 10% of the cost +
expenses).

Persons Subject to Excise Tax

1. Domestic Products
a. Generally, the manufacturer or producer of the domestic products shall file the
return and pay the excise taxes before the removal of the domestic products from
the place of production; or
b. Owner or person having possession of domestic products which were removed
from place of production without payment of the excise tax; or
c. The first buyer, purchaser, or transferee for local sale or transfer in the case of
indigenous petroleum, natural gas, or liquefied natural gas;

2. Imported Products
a. The importer shall file the return and pay the tax before removal of the imported goods
from the customhouse or customs custody; or
b. The person who is found in possession of articles which are exempt from excise taxes
other than those legally entitled to exemption.

Credit for Excise Taxes on Goods Actually Exported

Excise taxes paid on goods actually exported shall be credited or refunded upon submission of
proof of actual exportation and upon receipt of the foreign exchange payment.
Provided: Excise tax on mineral products (except coal and coke) shall not be creditable nor
refundable even if the mineral products are actually exported.

Changes under the TRAIN:

1. Cigarettes packed by hand, and packed by machines follow the same schedule of specific
excise taxes.
2. Excise taxes on the following products were increased:
▪ Cigarettes packed by hand, and cigarettes packed by machine;
▪ Manufactured oils and other fuel oils;
Note: Diesel fuel, liquefied petroleum gas, kerosene, and bunker fuel oil which were
all exempt before the effectivity of the TRAIN are now taxed under the TRAIN.

▪ Locally manufactured and imported automobiles;

▪ Domestic or imported coal and coke;
▪ Non-metallic and metallic minerals;
▪ Indigenous petroleum.

Exemptions from the Excise Tax:

a. Naptha and pyrolysis gasoline used as raw material in the production of petrochemical
products or in the refining of petroleum products, or as replacement fuel for natural-gas-
fired-combined cycle power plant;
b. Production of petroleum products, whether or not they are classified as products of
distillation, and for use solely for production of gasoline;
c. Liquefied petroleum gas when used as a raw material in the production of petrochemical
products;
d. Petroleum coke, when used as feedstock to any power generating facility;
e. Purely electric vehicles, and pick-ups;
Note: Hybrid vehicles shall be subject to 50% of the applicable excise tax rates on
automobiles.
 EXCISE TAX
Multiple Choice Questions

1. Allan Drinks Corporation, a manufacturer of carbonated drinks, will remove from its place of production
200 cases of its beverage containing high fructose corn syrup (“HFCS”) and a non-caloric sweetener. Each
case contains 6 bottles of 1.5 liters each. The excise tax is P12/liter. Compute the excise tax to be paid
before removal.
A. P21,600
B. P25,400
C. P43,100
D. None of the above.

2. To improve her body image, Lorna decided to undergo a liposuction procedure. She sought the services
of Body Beautiful Clinic. Body Beautiful charged her the amount of P50,000, inclusive of both the VAT and
the 5% excise tax. Compute the VAT and the excise tax therein.
A. VAT: P5,357; Excise tax: P2,126
B. VAT: P5,300; Excise tax: P2,100
C. VAT: P5,625; Excise tax: P2,232
D. None of the above

3. Non-essential services may be subject to:

A. VAT only.
B. Excise tax only.
C. VAT and excise tax.
D. Neither VAT nor excise tax.

4. Distilled spirits shall be subject to:

A. Ad valorem excise tax only.
B. Specific excise tax only.
C. Both ad valorem and specific excise tax.
D. Neither ad valorem nor specific excise tax.

4. Cigarettes packed by hand and by machine are subject to:

A. Specific excise tax.
B. Ad valorem excise tax.
C. Both specific and ad valorem excise tax.
D. Neither specific nor ad valorem excise tax.

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