NAVOTAS POLYTECHNIC COLLEGE

Bachelor of Science in Business Administration

Taxation
Atty. Christian Wilfred D. Morales, CPA1

Module 10: Other Percentage Tax (OPT)

Intended Learning Outcomes (ILO)

At the end of this topic, the student must have understood the rationale and framework of
VAT system, the scope and limitations of VAT in relation to Exempt and Zero-Rated
transactions and be able to determine the proper VAT due.

Lecture Proper and Discussion

KINDS OF PERCENTAGE TAXES:

1) Tax on person exempt from value-added tax (Sec. 116);
2) Percentage tax on domestic carriers and keepers of garages (Sec. 117);
3) Percentage tax on international carriers (Sec. 118);
4) Tax on franchises (Sec. 119);
5) Tax on overseas dispatch, message or conversation originating from Philippines (Sec.
120);
6) Tax on banks and non-bank financial intermediaries (Sec. 121);
7) Tax on other non-bank financial intermediaries (Sec. 122);
8) Tax on life insurance premiums (Sec. 123);
9) Tax on agents of foreign insurance companies (Sec. 124);
10) Amusement taxes (Sec. 125);
11) Tax on winnings (Sec. 126);
12) Tax on sale, barter or exchange of shares of stock listed and traded through the local
stock exchange or through initial public offering (Sec. 127).

SECTION 116 - TAX ON PERSONS EXEMPT FROM VALUE-ADDED TAX

 Also known as Percentage tax on persons exempt from vat
Section 116 of the Tax Code, as amended by CREATE Law provides:
Any person whose sales or receipts are exempt under Section 109 (CC) of the
Tax Code from the payment of value added tax AND who is not a VAT-
registered person shall pay a tax equivalent to three percent (3%) of his gross
quarterly sales or receipts: Provided, that cooperatives, shall be exempt from

1
Member of the Integrated Bar of the Philippines, Member of the Philippine Institute of Certified Public Accountant,
former Associate of Maceda, Valencia and Co., Maceda Valencia & Co. (MVCo.), a member firm of Nexia
International, former Senior Financial Specialist of Financial Management Division (FMD), former Senior Internal
Control Officer and Head of Financial Audit Section (FAS) of Internal Audit Services, National Irrigation
Administration (NIA), former Professor of Law and Accounting at College of Business Administration, City of
Malabon University (CMU), Attorney II at BIR Legal Division, Law Practitioner
 the three percent (3%) gross receipts tax herein imposed: Provided, further, that
effective July 1, 2020 until June 30, 2023, the rate shall be one percent (1%).

 Persons Liable:
1) Persons, who are not VAT-registered, who sell goods, properties or services, whose
annual gross sales and/or receipts do not exceed three million pesos
(Php3,000,000.00) and are exempt from value-added tax (VAT) under Section 109
(CC) of the National Internal Revenue Code, as amended by Republic Act (RA)
No. 11534 (CREATE Law).
2) Persons who lease residential units where the monthly rental per unit exceeds fifteen
thousand pesos (Php15,000.00) but the aggregate of such rentals of the lessor
during the year does not exceed three million pesos (Php3,000,000.00)

 Exempt Person (CREATE Law; RR 4-2021):

1) Cooperatives
2) Self-employed individuals and professionals availing of the 8% tax on gross sales
and/or receipts and other non-operating income.

 Requisites
1) Not a VAT registered person
2) The annual gross sales or receipts do not exceed P3,000,000; and
3) Not exempt from vat under Section 109(1)(A) to 109(BB)**, as amended.
 NOTE: **A taxpayer with annual gross sales and/or receipts not exceeding the
vat threshold is not automatically subject to Percentage Tax under this Section
of the Tax code. If the taxpayer is engaged in any of the activities or transactions
exempt from vat under Sections 109(A) to 109(BB), as amended by the
CREATE Law, s/he is not subject to percentage tax under this Section,
regardless of the amount of gross sales and/or receipts, such as those engaged
in the sale of agricultural or marine food products in their original state. To be
subjected to percentage tax under this section (Sec. 116), the taxpayer must not
also be subject to other percentage tax under Sections 11 to 127, such as a
domestic common carrier engaged in the transport of passengers by land.

 Tax Base
Sale of goods : Gross sales
Sale of services : Gross receipts

 Formula
Tax base (gross sales or receipts) Pxxx
Multiply: Tax Rate:
 Prior to July 1, 2020 3%
 From July 1, 2020 to June 30, 2023 (CREATE law) 1%
 Beginning June 30, 2023 (CREATE law) 3%
 Percentage tax due Pxxx

 Summary Rules
Annual Gross Sales/Receipts Business Tax
More than ₱3M VAT (generally, unless exempt)
₱3M and below Generally subject to OPT under Sec. 116.
However, if the taxpayer opted to register under the
vat system, it shall be irrevocable for 3 consecutive
years (not applicable to taxpayers not subject to Sec. 116).

 Transitory Provisions
EXCESS PERCENTAGE TAX PAYMENTS
Excess percentage tax payments as a result of the decrease of tax rate from 3% to 1%
beginning July 1, 2020 may be carried forward to the succeeding quarter/s by reflecting
the excess percentage tax payment under Line 17 of the Percentage Tax Return (BIR
Form 2551Q), "Other Tax Credit/Payment", specifying therein as "Carry-over excess
percentage tax paid from previous quarter/s".

FROM VAT REGISTERED TO NON-VAT REGISTERED TAXPAYER

A VAT registered taxpayer who opted to register as non-vat as a result of the additional
vat exempt provisions introduced by the CREATE law, shall treat the resulting excess
taxes paid due to the inclusion in the items exempt from vat or adjustment in
percentage tax rates, as the case may be, in the following manner:
1. Unutilized vat on local purchase or importation may be carried over to the
succeeding taxable quarter/s or be charged as part of cost.
2. Input vat which are directly attributable to goods now classified as vat exempt
may be allowed as part of cost.
3. For input vat that cannot be attributed to goods now classified as vat exempt,
only a ratable portion thereof shall be charged to cost.

SECTION 117
PERCENTAGE TAX ON DOMESTIC CARRIERS AND KEEPERS OF GARAGES
 Also known as Common Carriers Tax on domestic** common carriers on their transport
of passengers by land.

 Common Carriers – refers to the persons, corporations, firms or associations engaged

in the business of carrying or transporting passengers or goods, or both by land, water,
and air, for compensation, offering their services to the public, and shall include
transportation contractors.
 **Shall refer to local carriers

 Persons Liable:
 1) Cars for rent or hire driven by the lessee (rent-a-car);
2) Transportation contractors including persons who transport passengers for hire;
3) Other domestic carriers by land for transport of passengers;
4) Keepers of garages.

 Exempt Person (CREATE Law; RR 4-2021):

1) Owners of bancas
2) Owners of animal-drawn two-wheeled vehicles

 Formula
Tax base Pxxx
Multiply: Tax Rate 3%
Common carrier’s tax Pxxx

 Tax Base
1) Actual Gross Receipts
2) Minimum Gross Receipts

SUMMARY RULES
Domestic Carrier Transporting Business Tax
By Land Passengers OPT; Sec 117
Cargo/Goods VAT or Sec. 116
By Air Passengers, Goods or Cargoes VAT or Sec. 116
By Sea Passengers, Goods or Cargoes VAT or Sec. 116

SECTION 118 – PERCENTAGE TAX ON INTERNATIONAL CARRIERS

 Also known as Common Carriers Tax on international carriers** on their transport of
goods or cargoes originating in the Philippines.

 Persons Liable:
1) International Air Carriers
2) International Shipping Carriers
 **Shall refer to foreign carriers doing business in the Philippines

 Formula
Tax base Pxxx
Multiply: Tax Rate 3%
Common carrier’s tax Pxxx

 Gross Receipts - shall include. but shall not be limited to, the total amount of money
or its equivalent representing the contract, freight/cargo fees, mail fees, deposits
applied as payments, advance payments and other service charges and fees actually or
 constructively received during the taxable quarter from cargo and/or mail, originating
from the Philippines in a continuous and uninterrupted flight, irrespective of the place
of sale or issue and the place of payment of the passage documents. (RA No. 10378,
RR No. 15-2013)

SUMMARY RULES
International Carrier transporting Business Tax Applicable
Passengers originating in the Phils. Exempt
Goods and/or mail originating in the Phils. OPT, Sec. 118
NOTE: Transport of passengers or goods/mails originating abroad are not subject to business
tax in the Philippines regardless (domestic or foreign airline/shipping).

SECTION 119 – TAX ON FRANCHISES

 Also known as Franchise Tax on Franchise Grantees

 Persons Liable:
1) Franchises on Gas and Water Utilities
2) Franchises on Radio and/ or Television Broadcasting Companies

 Requisites for franchises on Radio and/ or Television Broadcasting Companies:

1) Not a VAT registered person; and
2) Annual gross receipts of the preceding year do not exceed P10,000,000.

Summary Rules Applicable to Radio &/or Television Broadcasting Companies

Annual Gross Receipts Business Tax
More than P10,000,000 Prior Year VAT
P10,000,000 and below Prior Year VAT or OPT
If the taxpayer opted to register under the vat
system, said option shall be irrevocable.

 Formula
Tax base Pxxx
Rate xx%
Franchise tax Pxxx

 Rate:
1) Gas and Water – 2%
2) Radio and/or Television Broadcasting Companies – 3%

SECTION 120 – TAX ON OVERSEAS DISPATCH, MESSAGE OR CONVERSATION

ORIGINATING FROM THE PHILIPPINES
  Also known as Overseas Communication Tax (OCT)
on overseas communication originating from the Philippines.

 Requisites:
There is an overseas dispatch, message or conversation transmitted from the
Philippines by telephone, telegraph, tele-writer exchange, wireless and other
communication equipment services.

 Persons Liable – The user of the facility

 Exempt Persons:
1) The Philippine government or any of its political subdivisions or instrumentalities;
2) Diplomatic Services;
3) International Organizations; and
Public international organizations or any of their agencies based in the Philippines
enjoying privileges, exemptions and immunities which the Philippine government
is committed to recognize purusuant to international agreement.
4) News Agencies.
News services for messages which 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.

 Formula
Payments for services Pxxx
Rate 10%
Overseas communication tax Pxxx

SECTION 121 –
TAX ON BANKS AND NON-BANK FINANCIAL INTERMEDIARIES
PERFORMING QUASI-BANKING FUNCTIONS
 Also known as Gross Receipts Tax (GRT)

GROSS RECEIPTS TAX

Gross receipts or income derived from Tax Rate
 Interest, commissions and discounts from Lending activities and
Financial leasing:
(a) Remaining maturity period in 5 years or less 5%
(b) Remaining maturity period is more than 5 years 1%
 Dividends and equity shares in net income of subsidiaries 0%
 Royalties, rentals of property, real or personal, profits from 7%
exchange and all other items treated as gross income under the
Tax Code
  Net trading gains within the taxable year on foreign currency, debts 7%
securities, derivative and other similar financial instruments

 Banks or Banking institutions — refer to those entities as defined under Section 3 of

Republic Act No. 8791, otherwise known as the General Banking Law of 2000, or
more specifically, to entities engaged in the lending of funds obtained in the form of
deposits. The term "banks" or "banking institutions” are synonymous and
interchangeable and specifically include universal banks, commercial banks, thrift
banks (savings and mortgage banks, stock savings and loan associations, and private
development banks), cooperative banks, rural banks, Islamic banks and other
classifications of banks as may be determined by the Monetary Board of the BSP. (RR
No. 8-08)

 Non-bank Financial Intermediaries — 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 No. 8-08)

 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.

SECTION 122 – TAX ON OTHER NON-BANK FINANCIAL INTERMEDIARIES NOT

PERFORMING QUASI-BANKING FUNCTIONS
 Also known as Gross Receipts Tax (GRT)

GROSS RECEIPTS TAX

Gross receipts or income derived from Tax Rate
 Interest, commissions and discounts and all other items treated as
gross income under the tax code 5%
  Interest, commissions and discounts from Lending activities and
Financial leasing:
(a) Remaining maturity period in 5 years or less 5%
(b) Remaining maturity period is more than 5 years 1%

SECTION 123 – TAX LIFE INSURANCE PREMIUMS (Sec. 123)

 Also known as Premiums Tax

 Formula
Premiums collected Pxxx
Rate 10%
Premiums tax Pxxx

 Persons Liable – The user of the facility

 The following premiums are exempt from tax:
1) Premiums refund within six (6) months after payment on account of rejection of
risk or returned for other reason to a person paid the tax.
2) Premiums paid upon re-issuance by a company that has already paid the tax
3) 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.
4) Premiums collected are 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;
5) Portion of the premiums collected or received by the insurance companies or
variable contracts in excess of the amounts necessary to insure the lives of the
variable contract workers (as defined in Sec. 232(2) of Presidential Decree No.
612).
6) Premium collected by a purely cooperative company or association.

SECTION 124 (A) – TAX ON AGENTS OF FOREIGN INSURANCE COMPANIES

 Also known as Premiums Tax on agents of nonresident foreign insurance companies

 Persons Liable:
Fire, Marine or Miscellaneous Agents of non-resident Foreign Corporations engaged
in insurance business; and

 Agents of Non-resident Foreign Corporations engaged in insurance business

Premiums collected Pxxx
 Rate 10%
(the rate is twice the rate of Sec. 123)
Premiums tax Pxxx

SECTION 124 (B) – TAX ON OWNERS OF PROPERTY OBTAINING INSURANCE

DIRECTLY WITH NONERESIDENT FOREIGN INSURANCE COMPANIES
 Also known as Premiums Tax on owners of property

 Persons Liable:
Owners of property directly obtaining insurance from Non-resident Foreign
Corporations engaged in insurance business.

 Owners of property directly obtaining insurance to Non-resident Foreign Corporation

engaged in insurance business
Premiums payments Pxxx
Rate 5%
Premiums tax Pxxx

SECTION 125 – AMUSEMENT TAXES

 Persons Liable – Proprietor, lessee or operator of cockpits, cabarets, night or day
clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks.

 Formula
Gross receipts Pxxx
Rate xxx%
Amusement tax Pxxx

 Gross receipts – embraces all the receipts (such as from television, radio and motion
picture rights, if any) of the proprietor, lessee or operator of the amusement places.

 Rates:
Amusement Places Tax Rate
 Place for Boxing Exhibition 10% or exempt*
 Place for professional Basketball games 15%
 Cockpits, Cabarets, Night or Day Clubs 18%
 Jai-alai and Racetracks 30%

 Requisites for Exemption of Boxing Exhibitions:

1) World or Oriental Championships is at stake;
2) One of the contenders is a citizen of the Philippines; and
3) Promoted by citizens of the Philippines or by a corporation or association at least
sixty percent (60%) of the capital of which is owned by such citizen.
SECTION 126 – TAX ON WINNINGS
 Persons Liable:
1) Owners of the winning horse; and
2) Bettor in a horse race or jai-alai

 Owner of the winning horse

Formula:
Prize/Winnings Pxxx
Rate 10%
Tax on winnings Pxxx

 Bettor in a horse race or jai-alai

Gross winnings Pxxx
Less: Cost of winning ticket xxx
Net winnings Pxxx
Rate xx%**
Tax on winnings Pxxx

Rate
1) Ordinary Winnings – 10%
2) Special Winning (applicable only to bettors)
(Double, Forecast, Quinella, Trifecta) – 4%**

SECTION 127 – TAX ON STOCKS TRANSACTIONS

 Also known as Stock Transaction Tax (STT)

 Kinds of Stock Transaction Tax (STT):

1) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the
Local Stock Exchange (LSE); Sec. 127(A), NIRC
2) Tax on Shares of Stock Sold or Exchanged through Initial Public Offering Sec.
127(B), NIRC - REPEALED UNDER BAYANIHAN ACT II (Sept. 15, 2020).

 SECTION 127(A)
Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the
Local Stock Exchange (LSE)

Requisites:
1) Seller is not a dealer in securities; and
2) Shares sold is listed and traded through the LSE.

Formula:
Gross selling price Pxxx
x Rate .006
 Stock Transaction Tax Pxxx

 PRIOR TO RA 11494 (Bayanihan Act II)

SECTION 127(B) – Tax on Shares of Stock Sold or Exchanged through Initial
Public Offering provides:

Tax on Shares of Stock Sold or Exchanged Through Initial Public Offering. - There
shall be levied, assessed and collected on every sale, barter, exchange or other
disposition through initial public offering of shares of stock in closely held
corporations, as defined herein, a tax at the rates provided hereunder based on the
gross selling price or gross value in money of the shares of stock sold, bartered,
exchanged or otherwise disposed in accordance with the proportion of shares of stock
sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock
after the listing in the local stock exchange:

RATIO of shared sold over outstanding shares TAX RATE

 Up to 25% 4%
 Over 25% but not over 33% 2%
 Over 33% 1%

NOTE:
 Any gain derived from the sale, bater, exchange or other disposition of shares
of stock under this Section shall be exempt from the regular individual or
corporate income tax.
 Tax paid under this Section shall not be deductible for income tax purposes.

Requisites:
1) Sale is made through the Local Stock Exchange (LSE); and
2) It is an initial public offering of a "closely held corporation".

Formula:
Gross selling price Pxxx
x Rate xxx**
Stock Transaction Tax Pxxx

RATE WILL DEPEND ON THIS RATIO

(SHARES SOLD/OUTSTANDING SHARES AFTER THE SALE)
RATIO RATE
25% and below 4%
More than 25% but not more than 33 1/3% 2%
More than 33 1/3% 1%
 "Initial Public Offering (IPO)" refers to a public offering of shares of stock made for the
first time in the Local Stock Exchange.

"Closely Held Corporation" means any corporation at least 50% in value of the
outstanding capital stock or at least 50% of the total combined voting power of all
classes of stock entitled to vote is owned directly or indirectly by or for not more than
20 individuals.

Persons Liable:
1) Primary Offering — Issuing Corporation
2) Secondary Offering — Seller

“Primary offering” refers to the original sale made to the investing public by the issuer
corporation of its unissued Shares of Stock.

“Secondary Offering” refers to an offer for sale to the investing public by the existing
shareholders of their securities which is conducted during an IPO

“Follow-on/Follow-through Offering of Shares” refers to an offering of shares to the

investing public subsequent to an IPO.

 UPON EFFECTIVITY OF RA 11494 (Bayanihan Act II)

SECTION 2 of RR 23-2020
Repeal of Section 127(B) of the Tax Code as amended by RA 11494 (Bayanihan II)

Tax on shares of stocks sold, bartered, exchanged or other disposition through Initial
Public Offering (IPO) provided under Section 127 (B) of the Tax Code, as amended,
is repealed. Thus, every sale, barter, exchange or other disposition through IPO of
shares of stock in closely held corporations SHALL NO LONGER BE SUBJECT TO
THE TAX IMPOSED UNDER SECTION 127(B) upon the effectivity of RA No.
11494.

RA 11494 took effect on September 15, 2020.

RETURN AND PAYMENTS OF PERCENTAGE TAXES

Section 128 of the Tax Code, as amended. Returns and Payment of Percentage Taxes. —
(A) Returns of Gross Sales, Receipts or Earnings and Payment of Tax. —

(1) Persons Liable to Pay Percentage Taxes. — Every person subject to the percentage taxes
imposed under this Title shall file a quarterly return of 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: Provided, That in the case of a person whose VAT registration is cancelled
and who becomes liable to the tax imposed in Section 116 of this Code, the tax shall accrue
from the date of cancellation and shall be paid in accordance with the provisions of this
Section.

(2) Person Retiring from Business. — Any person retiring from a business subject to
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

(3) Determination of Correct Sales or Receipts. — When it is found that a person has failed
to issue receipts or invoices, or when no return is filed, or when there is reason to believe that
the books of accounts or other records do not correctly reflect the declarations made or to be
made in a return required to be filed under the provisions of this Code, the Commissioner,
after taking into account the sales, receipts or other taxable base of other persons engaged in
similar businesses under similar situations or circumstances, or after considering other
relevant information may prescribe a minimum amount of such gross receipts, sales and
taxable base and such amount so prescribed shall be prima facie correct for purposes of
determining the internal revenue tax liabilities of such person. (B) Where to File. — Except
as the Commissioner otherwise permits, every person liable to the percentage tax under this
Title 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.

(B) WHERE TO FILE. — Except as the Commissioner otherwise permits, every person liable
to the percentage tax under this Title 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.

-o0o-

Suggested Teaching Activities (TAs)

Refer to our Google Classroom for the Suggested Teaching Activities

Assessment Tasks / Output (ATOs)

Refer to our Google Classroom for the Assessment Task/Output

Readings and Other References

1. Taxation Law, Volume 1, Raegan L. Capuno (2020)
2. Taxation Law, Volume 2, Raegan L. Capuno (2020)
3. CPA Reviewer in Taxation, Enrico D. Tabag (2021)
4. CPA Reviewer in Taxation, Omar Erasmo G. Ampongan (2021)
5. Republic Act No. 8424 or the Tax Reform Act of 1997
6. Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Law
7. Republic Act No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises
(CREATE) Act
8. Republic Act No. 11469 or the The Bayanihan to Heal as One Act
9. Republic Act No. 11494 or the The Bayanihan to Recover as One Act
10. RR No. 8-2018 - Implements the amended provisions on Income Tax pursuant to RA
No. 10963 (TRAIN Law)
11. RR No. 2-2021 - Amends certain provisions of RR No. 2-98, as amended, to
implement the amendments introduced by RA No. 11534 (Corporate Recovery and
Tax Incentives for Enterprises Act or CREATE Act) to the NIRC of 1997, as
amended, relative to the Final Tax on certain passive income
12. RR No. 3-2021 - Prescribes the Rules and Regulations to implement Section 3 of RA
No. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act or CREATE
Act), amending Section 20 of the NIRC of 1997
13. RR No. 5-2021 - Implements the new Income Tax rates on the regular income of
corporations, on certain passive incomes, including additional allowable deductions
from Gross Income of persons engaged in business or practice of profession pursuant
to RA No. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act or
CREATE Act), which further amended the NIRC of 1997.