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PERCENTAGE TAXES

NATURE: Percentage tax is also a type business tax imposed on the gross sales/receipts of a taxpayer. Unlike VAT (particularly output VAT on sales), percentage tax is a deductible tax under Sec. 34(C) of the Tax Code, except for stock transactions tax and percentage tax on initial public offerings.

ORDINARY PERCENTAGE TAX:

THRESHOLD PROVISION: Under Section 109(BB), sale of goods or services not exceeding P3,000,000 shall be exempt from VAT. These, however, are subject to the 3% percentage tax, except the following:

1. Cooperatives; and

2. Self-employed individuals and professionals availing of the 8% flat rate of income tax.

OTHER VAT-EXEMPT TRANSACTIONS: Those which are VAT-exempt under Sections 109(A) to (AA) are likewise exempt from the 3% percentage tax. OPT is only applicable to transactions which would have otherwise been subject to VAT had the gross sales/receipts exceeded P3,000,000.

As such, if a vendor sells agricultural or marine food products in their original state which is exempt under Setion 109(A) to (AA) of the Tax Code, it would likewise be exempt from the 3% OPT.

NO VAT REGISTRATION: To be subject to the 3% percentage tax, the taxpayer likewise did NOT avail of the optional VAT registration, otherwise, even if the gross receipts/sales did not exceed the P3,000,000, he would be liable for VAT and not the 3% OPT.

PERCENTAGE TAXES UNDER TITLE V OF THE TAX CODE:

 

Line of Business

Tax Base

Tax Rate

Reference

Common Carriers Tax

Domestic Carriers and Keepers of Garage

Gross Receipts

3%

Sec. 117

Tax on International air and shipping carriage of cargo

International air and shipping Carriers CARGO

Gross Receipts

3%

Sec. 118

Franchise Tax

Franchisees

     
 

Radio and/or Television Broadcasting

Gross Receipts (not exceeding P10M for Radio/TV Broadcasting)

3%

Sec. 119

 

Gas and Water Utilities

2%

Gross Receipts Tax

Banks, Non-Bank Financial Intermediaries and Financing Companies (see discussion

Gross Receipts

0%/1%/

 

5%/7%

below)

Depending on the type of income

Overseas Communications Tax

Overseas Dispatch, Message or Conversation Originating from the Philippines

Gross Receipts

10%

Sec. 120(A)

Premiums Tax

Life Insurance

Premiums

2%

Sec. 123

 

Agents of Foreign Insurance Companies

Premiums

4%

Sec. 124

 

Life Insurance directly taken from foreign insurance companies

Premiums

5%

Sec. 124

Amusement Tax

Cockpits

Gross Receipts

18%

Sec. 125

Boxing Exhibitions

10%

Cabarets, Night or Day Clubs

18%

Professional Basketball Games

15%

Jai-Alai and Racetracks

30%

Tax on Winnings

Winnings in horse races

Winnings or “dividends” after deducting the cost of the ticket

10%

Sec. 126

Winnings from double, forecast/quinella and trifecta bets

4%

10%

In the case of owners of winning race horses.

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Cesar Nickolai F. Soriano Jr. University of Santo Tomas AMV College of Accountancy 2010-6213 Arellano University School of Law 2011-0303 PERCENTAGE TAXES

Stock Transactions Tax

Sale

of

shares through

the

local

stock

Gross selling price or gross value in money

6/10 of 1%

Sec. 127

exchange

 

Tax on Initial Public Offering

Initial Public Offerings

   

4%/2%/1%

Sec. 127

 

Gross Proceeds from the IPO

depending on the ratio of the shares sold over the outstanding capital shares after IPO

COMMON CARRIER’S TAX

COMMON CARRIER’S TAX: In computing the percentage tax provided in this Section, the following shall be considered the minimum quarterly gross receipts in each particular case:

Jeepney for hire

1. Manila and other cities

2. Provincial

Public utility bus -

Not exceeding 30 passengers Exceeding 30 but not exceeding 50 passengers Exceeding 50 passengers

Taxis -

1. Manila and other cities

2. Provincial

Car for hire (with chauffer) Car for hire (without chauffer)

P 2,400

1,200

3,600

6,000

7,200

P 3,600

2,400

3,000

1,800

Applicability: this tax is applicable only to (1) domestic carriers (2) by land for (3) transport of passengers. If any one of the three is different, the 3% common carriers tax is not applicable, as follows:

a. International Carriers:

a. Carriage of passengers - exempt from VAT and percentage taxes under Sec. 109(S).

b. Carriage of cargo subject to the 3% Percentage Tax on International Carriers under Section 118.

b. By sea or air:

a. Domestic transport (PH to PH) 12% VAT if gross sales/receipts exceed P3,000,000 or is VAT registered; otherwise 3% Other Percentage Tax

b. International transport (PH to Foreign Country) 0% VAT if VAT-registered; VAT-exempt if not VAT-registered.

c. Transport of cargo 12% VAT or 3% Other Percentage Tax (if gross sales/receipt do not exceed P3,000,000 and did not avail of optional registration

for VAT)

FRANCHISE TAX

Radio and/or Television Broadcasting: is subject to the 3% Franchise Tax. However, if their gross receipts exceed P10M, they will be subject to VAT. If their sales are below P10M, they have an option to be registered as a value-added taxpayer. Provided, that once the option is exercised, it shall not be revoked.

Gas and Water Utilities: are subject to the 2% Franchise Tax regardless of the amount of gross receipts arising from their businesses covered by the law granting such franchise. If there are income items arising not from their franchise (e.g., rent income), the same will not be subject to the 2% Franchise Tax but to the 12% VAT or 3% Other Percentage Tax, whichever is applicable.

PAGCOR: income of PAGCOR arising from its casino operations shall be subject to the 5% franchise tax in accordance with its charter, and this tax is in lieu of all other taxes, including VAT/OPT and Income Tax.

However, income from sources other than casino operations shall be subject to the 30% regular corporate income tax but still exempt from VAT.

Other Franchisees: shall be subject to the 12% VAT or 3% Other Percentage Tax, depending on the gross sales/receipts and VAT-registration.

GROSS RECEIPTS TAX (BANKS/NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS)

The gross receipts tax has been re-imposed under RA No. 9238 beginning January 1, 2004, as implemented by RR No. 9-2004.

Section 2 of the said RR provides for the definition of the following:

1. Financial Institution shall refer to banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries including finance companies. However, this does not include insurance companies.

2. Banks or Banking Institutions shall refer to those entities as defined in Sec. 3 of RA No. 8791, as amended, otherwise known as the General Banking Law of 2000 and shall 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. Under Sec. 3.1 of said RA, “banks” shall refer to those entities engaged in the lending of funds obtained in the form of deposits.

3. Non-Bank Financial Intermediaries shall refer to persons or entities whose principal functions include the lending, investing or placement of funds

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Cesar Nickolai F. Soriano Jr. University of Santo Tomas AMV College of Accountancy 2010-6213 Arellano University School of Law 2011-0303 PERCENTAGE TAXES

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 issuance, endorsement or acceptance of debt instruments of any kind for their own account, or through 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.

4. Quasi-banking activities shall refer to the borrowing of funds from twenty 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. 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 of their agents or dealers, shall not be considered as performing quasi-banking functions.

5. Financing Companies shall refer to corporations except banks, investment houses, savings and loan 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 evidence of indebtedness, or by financial leasing of movable as well as immovable properties (RA No. 5980, as amended by RA No. 8556)

Imposition of GRT on Banks and Non-Bank Financial Intermediaries performing Quasi-Banking Functions:

On 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:

 

Remaining maturity period of 5 years or less Remaining maturity period is more than 5 years

5%

1%

On dividends and equity shares in net income of subsidiaries

0%

On royalties, rentals of property, profits from exchange and all other items treated as gross income for income tax

7%

On net trading gains on foreign currency, debt instruments, derivatives and other similar financial instruments.*

7%

*Net trading losses may be deducted only from net trading gains and not from any other item subject to the gross receipts tax. All other revenues subject to GRT are gross in amount and no deductions are allowed.

Imposition of GRT on Other Non-Bank Financial Intermediaries (not performing quasi banking functions)

From interest, commissions, discounts and all other items treated as gross income

5%

On interest, commissions and discounts from lending activities, as well as income from financial leasing*, on the basis of remaining maturities of the instruments from which such receipt is derived:

 

Remaining maturity period of 5 years or less Remaining maturity period is more than 5 years**

5%

1%

Lease Transactions: In the case of financial leasing, the taxable gross receipts shall consist only of interest income (recovery of principal not included). However, in the case of transactions under operating lease agreements, the gross receipts shall be the gross rental amount. Whether the lease transaction is “finance lease” or “operating lease” shall be determined by the contents of the document evidencing the lease agreement.

**In case the maturity period is shortened through pre-termination, then the maturity period shall be reckoned to the end as of the date of pre-termination for purposes of classifying the transaction and the application of the correct tax rate.

In the above cases, the generally accepted accounting principles as may be prescribed by the Securities and Exchange Commission for other non-bank financial intermediaries shall be the basis for the calculation of the taxable gross receipts.

Gross receipts tax base includes the 20% final withholding tax on interest income:

if X bank earned P1,000 from a bank deposit and the depository bank withheld P200 FWT, such that X Bank received only P800, for GRT purposes the tax base is still P1,000, the amount withheld and remitted to the BIR as FWT is considered constructively received and forms part of X Bank’s “gross receipts” subject to GRT.

OVERSEAS COMMUNICATION TAX

The tax imposed 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 (20) days after the end of each quarter.

Subject to the following exemptions under Sec. 120(B) (1) Government. - Amounts paid for messages transmitted by the Government of the Republic of the Philippines or any of its political subdivisions or

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Cesar Nickolai F. Soriano Jr. University of Santo Tomas AMV College of Accountancy 2010-6213 Arellano University School of Law 2011-0303 PERCENTAGE TAXES

instrumentalities; (2) Diplomatic Services. - Amounts paid for messages transmitted by any embassy and consular offices of a foreign government; (3) 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 (4) 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.

PREMIUMS TAX ON LIFE INSURANCE PREMIUMS

Tax Rates

1. Domestic insurance companies 2% on premiums collected;

2. International/Foreign insurance companies:

a. Agent 4% on premiums collected;

b. If directly contracted by the insured in the Philippines 5% on premiums paid.

Exemptions: the following are not subject to the percentage tax on life insurance premiums:

1. Premiums refunded within six (6) months after payment on account of rejection of risk or returned for other reason to a person insured;

2. Reinsurance premiums

3. Those 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 nor upon 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;

4. 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.

WINNINGS ON HORSE RACES

Tax Base: Winnings or “dividends” after deducting the cost of the ticket.

Tax Rates:

Type of Bet

Rate

Ordinary Bets

10%

Double, forecast/quinella and trifecta bets

4%

Owner of the winning horse: is subject to 10% and the basis is the winnings (without any deduction for cost).

Withholding mechanism: The tax herein prescribed shall be deducted from the 'dividends' corresponding to each winning ticket or the "prize" of each winning race horse owner and withheld by the operator, manager or person in charge of the horse races before paying the dividends or prizes to the persons entitled thereto.

Example: the amount of winnings is P10,200 and the cost of the ticket is P200, the corresponding percentage tax is P1,000 ([10,200 less 200] * 10%) – this amount will be deducted from the “prize” given to the bettor, such that he will only receive P9,200 (P10,200 winnings less P1,000 tax).

The P1,000 shall be remitted by the operator, manager or person in charge of the horse race to the BIR.

AMUSEMENT TAXES

There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks, a tax equivalent to:

18%

Cockpits, cabarets, night or day clubs

10%

Boxing exhibitions

15%

Professional basketball games

30%

Jai-alai and racetracks

Gross Receipts: 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. A person or entity or association conducting any activity subject to the tax herein imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it.

Exempt Boxing Exhibitions:

1. What is at stake is a Work or Oriental Championship in any division;

2. At least one of the contenders is a citizen of the Philippines and

3. Said exhibition is promoted by a citizen/s of the Philippines or by a corporation or association at least 60% of the capital is owned by such citizens.

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Cesar Nickolai F. Soriano Jr. University of Santo Tomas AMV College of Accountancy 2010-6213 Arellano University School of Law 2011-0303 PERCENTAGE TAXES

Professional Basketball Games: are subject to the 15% amusement tax as provided under PD No. 871. This tax, however, is in lieu of all other percentage taxes of whatever nature and description.

STOCK TRANSACTIONS TAX

TAX ON SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND TRADED THROUGH LOCAL STOCK EXCHANGE: 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 6/10 of 1% (1/2 of 1% prior to the TRAIN) 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.

Note that if the stock is NOT listed or traded through a local stock exchange, the applicable tax shall be the Capital Gains Tax.

Duty of Stockbroker: the stockbroker who effected the sale shall remit the tax to the BIR within 5 days from the date of collection thereof and to submit on Mondays of each week to the secretary of the stock exchange, a true and complete return which shall contain a declaration of all the transactions effected through him during the preceding week and of taxes collected by him and turned over to the BIR.

TAX ON SALE, BARTER OR EXCHANGE OF SHARES OF STOCK THROUGH INITIAL PUBLIC OFFERING (IPO)

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:

Up to twenty-five percent (25%)

4%

Over twenty-five percent (25%) but not over thirty-three

2%

and one third percent (33 1/3%) Over thirty-three and one third percent (33 1/3%)

1%

The tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary offering

CLOSELY HELD CORPORATION means any corporation at least fifty percent (50%) in value of outstanding capital stock or at least fifty percent (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 twenty (20) individuals.

For purposes of determining whether the corporation is a closely held corporation, insofar as such determination is based on stock ownership, the following rules shall be applied:

(1) Stock Not Owned by Individuals. - Stock owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by its shareholders, partners or beneficiaries. (2) Family and Partnership Ownerships. - An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family, or by or for his partner. For purposes of the paragraph, the 'family of an individual' includes only his brothers and sisters (whether by whole or half-blood), spouse, ancestors and lineal descendants. (3) Option. - If any person has an option acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option and each one of a series of options shall be considered as an option to acquire such stock. (4) Constructive Ownership as Actual Ownership. - Stock constructively owned by reason of the application of paragraph (1) or (3) hereof shall, for purposes of applying paragraph (1) or (2), be treated as actually owned by such person; but stock constructively owned by the individual by reason of the application of paragraph (2) hereof shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the constructive owner of such stock.

Duty of Corporate Issuer: 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. In the case of secondary offering, the provision of Subsection (C)(1) of this Section shall apply as to the time and manner of the payment of the tax.

Determination of the proper rate applicable: the rate applicable (i.e., 4, 2 or 1 percent) depends on the ratio of the shares SOLD over the TOTAL OUTSTANDING SHARES after the IPO (meaning, including the shares sold during the IPO).

Example: if there are 100,000 outstanding shares prior to the IPO and 50,000 shares were sold in the IPO, the ratio would be 33% (50,000 sold shares over 150,000 outstanding shares after the IPO), the rate of percentage tax would then be 2% in accordance with the above.

Percentage Tax on an IPO is likewise applicable to a stockholder: if an existing stockholder sells his shares at the time of the IPO, he shall likewise be subject to the 4%,2% or 1% percentage tax depending on the ratio of the shares sold over the total outstanding shares after the IPO. Note, however, that the individual stockholder will have his own ratio, such that the sold shares he will use as numerator in the formula is only the shares he sold and not including those sold by the issuing corporation in the IPO.

In the above illustration, assume that Mr. X also sold 10,000 shares during the IPO, his own ratio would be (10,000 over 150,000) or 6.67% and the rate then applicable to him would be 4%.

If the stockholder sold the shares AFTER the IPO, the same would be subject to the ½ of 1% STT since at the time of sale, the shares of stock are already listed in the stock exchange, provided that the sale was made through the stock exchange.

STT and Percentage on IPO is not applicable to:

1. Dealers in Securities who are subject to VAT on their gross receipts (which is gross sales less cost of the securities)

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Cesar Nickolai F. Soriano Jr. University of Santo Tomas AMV College of Accountancy 2010-6213 Arellano University School of Law 2011-0303 PERCENTAGE TAXES

2.

Investor in shares of stock ina mutual fund company in connection with the gain realized by said investor upon redemption of said shares of stock in a mutual fund company; and

3. All other persons, whether natural or juridical, who are specifically exempt from national internal revenue taxes under existing investment incentives and other special laws.

Exemption from Income Tax: gains derived from sale, barter or exchange of shares of stock listed and traded through local stock exchange or through initial public offering exempt from income tax under Sec. 127(D) of the NIRC and the tax paid is not deductible expense for income tax purposes.

RETURNS AND PAYMENT OF PERCENTAGE TAXES

TRAIN AMENDMENT: Percentage Tax Returns (except stock transactions tax and tax on IPO) are now to be filed within 25 days from the close of the quarter. As such, there is no longer monthly filing of the percentage taxes beginning Jan. 1, 2018.

Prior to the TRAIN, the deadlines were as follows:

1.

Monthly Percentage Tax Return - or BIR Form No. 2551M will be filed and the corresponding tax liability to be paid within 20 days from the end of each month (except for EFPS filers who can file and pay within 21-25 days depending on their industry). The monthly percentage tax return shall apply to those:

a. Subject to the 3% OPT because their sales/receipts do not exceed P3,000,000 except if the individual taxpayer availed of the 8% flat rate

b. Subject to 3% Common Carrier’s Tax

c. Subject to the 3% tax on International air/shipping carriers for their gross receipts from transport of cargo from the Philippines to another country

d. Banks and non-bank financial intermediaries performing quasi-banking functions

e. Other non-bank financial intermediaries

f. Doing life insurance business

g. Doing fire, marine or miscellaneous agents of foreign insurance companies

2.

Quarterly Percentage Tax Return or BIR Form No. 2551Q will be filed and the corresponding tax liability to be paid within 20 days from the end of each quarter. This return is applicable to:

a. Those subject to amusement taxes

b. Overseas communications tax

3.

Percentage Tax Return for Transactions Involving Shares of Stocks Listed and Traded Through the Local Stock Exchange or Through Initial and/or Secondary Offering or BIR Form No. 2552 is to be filed and the corresponding tax to be paid:

a. Stock transactions tax - within 5 banking days from date of collection.

b. Tax on IPO within 30 days from the date of listing in the local stock exchange

c. Tax on Secondary Public Offering within 5 banking days from date of collection.

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Cesar Nickolai F. Soriano Jr. University of Santo Tomas AMV College of Accountancy 2010-6213 Arellano University School of Law 2011-0303 PERCENTAGE TAXES