Percentage Tax Notes PDF

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CHAPTER 5 – PERCENTAGE TAXfocus notesPERCENTAGE TAX National tax measured by a certain percentage of: o Gross selling price of goods sold; o Gross value in money of goods bartered; or o Gross receipts/earnings derived by any person engaged in the sale of services. File/Pay within twenty-five (25) da...

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CHAPTER 5 – PERCENTAGE TAX focus notes PERCENTAGE TAX - National tax measured by a certain percentage of: o Gross selling price of goods sold; o Gross value in money of goods bartered; or o Gross receipts/earnings derived by any person engaged in the sale of services. - File/Pay within twenty-five (25) days after the end of each quarter SERVICES SUBJECT TO PERCENTAGE TAX 1. Banks and non-bank financial intermediaries 2. International carriers on their transport of cargoes, excess baggage and mails only 3. Common carriers on their transport of passengers by land and keepers of garage 4. Certain amusement places 5. Brokers in effecting sales of stocks through the Philippine Stock Exchange and corporations or shareholders on initial public offerings 6. Certain franchise grantees 7. Life insurance companies and agents of foreign insurance 8. Telephone companies on overseas communication 9. Jai-alai and cockpit operators on winnings Mnemonic: BICAP FLOW BANKS AND NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS Banks refer to entities engaged in lending of funds obtained in the form of deposits. They include commercial banks, savings banks, mortgage banks, development banks, rural banks, etc. Non-bank financial intermediaries refer to persons or entities whose principal function include lending, investing or placement of funds. Quasi-banking function refers 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. - Its purposes include relending or purchasing receivables or other similar obligations. If the purpose is for financing their own needs or the needs of their agents, it’s not considered as performing quasi-banking functions. INTERNATIONAL CARRIERS International carriers mean air or sea carriers owned by foreign corporations that operate in the Philippines and transport passengers or cargoes from the PH to overseas and vice versa. Common carrier is any person, corporation, firm, or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, air, for compensation, and offering their services to the public. - Exempt from local taxes. AMUSEMENT TAXES Operators of bowling alleys, golf courses, and billiard halls are vatable. Cinemas and theaters are subject to local taxes not amusement taxes. The gross receipts embrace all receipts including income from TV, radio, and motion rights, if any. Illegal cockpits are also taxed 18% of their gross receipts.

FRANCHISES Generally, franchises are vatable except for: 1. Radio or TV broadcasting companies whose annual gross receipts do not exceed P10,000,000 - If they exceed the P10M threshold, they are required to register as VAT taxpayer. This registration is noncancellable until the dissolution of their business. 2. Gas and water utilities LIFE INSURANCE PREMIUMS A life insurance company deals with the insurance on human lives and insurance appertaining thereto or connected therewith. Its service includes soliciting group insurance, and health and accident insurance policies which the company is nevertheless authorized to pursue as part of its business activity. Subject to premiums tax are premiums on health and accident insurance underwritten by life insurance companies while those underwritten by non-life insurance companies are vatable. The ff. shall not be included in gross receipts of an insurance company: a. Premiums refunded within 6 months after payment on account of rejection of risk or returned for other reasons b. Re-insurance premiums c. Premiums from life insurance of non-residents received from abroad by branches of domestic corporation, firm, or association doing business outside the PH. d. Excess of premiums on variable contracts in excess of the amounts necessary to insure the lives of the variable contract owners. Note: Refunded premiums are not receipts.

AGENTS ON FOREIGN INSURANCE Under section 124 of the NIRC, fire, marine or miscellaneous insurance agents authorized under the Insurance Code to procure policies of insurance on risks located in the PH for companies not authorized to transact business in the PH are subject to a tax of 4% If property owners obtain insurance directly from abroad without the services of an insurance agent, the tax shall be 5% of the premium paid. OVERSEAS DISPATCH, MESSAGE OR CONVERSATION ORIGINATING FROM THE PHILIPPINES -

Includes telephone telegraph, telewriter exchange, wireless and other communication equipment services.

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Summary of business tax rules: Call Origin Philippines Abroad Philippines

Call Destination Philippines Philippines Abroad

Business Tax 12% VAT 0% VAT 10 % Overseas Communication Tax

WINNINGS FROM HORSE RACE OR JAI-ALAI The pay-out on combination bets is subject to 4% on the net winnings. The pay-out on straight wagers (noncombination bets) is taxable at 10% Quarterly Percentage Tax Tables (BIR Form 2551Q)

Coverage Persons exempt from VAT (Sec. 116) Annual gross sales/receipts do not exceed Php3M Domestic carriers and keepers of garages (Sec.117) Exemptions:  Bancas  Animal-drawn two-wheeled vehicles International air/shipping carriers doing business in the Philippines (Sec. 118) Transport of cargoes, baggage, or mails (outgoing)

Taxable Base

Tax Rate

Gross quarterly sales or receipts

1%

Gross receipts

3%

common carrier’s tax

Gross receipts on transport of cargo from the Philippines to a foreign country

3% international carrier’s tax

Franchise grantees (Sec. 119) 

Gas and water utilities Note: franchise tax does not apply to water refilling stations.



Radio and television broadcasting companies whose annual gross receipts do not exceed Php10M Overseas dispatch, message or conversation originating from the Philippines (Sec. 120) Exemptions:  Government  Diplomatic services  International organizations  News services Banks and non-bank financial intermediaries performing quasi-banking functions (Sec. 121)

Gross receipts Gross receipts (not exceeding Php10M) and did not register as VAT taxpayer

franchise tax

Amount paid for the service

10%

overseas communication tax

a.

Interest, commissions, and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which receipts are derived: -

Other non-bank financial intermediaries without quasi-banking functions (Sec. 122) Examples:

2% 3%

Maturity period of five years or less Maturity period of more than five years

5% 1%

b.

Dividends and equity shares and net income of subsidiaries

0%

c.

Royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income Sec. 32 of the Tax Code, as amended

7%

d.

Net trading gains within the taxable year of foreign currency, debt securities, derivatives, and other similar financial instruments Interest, commissions, discounts, and all other items treated as gross income under the Tax Code, as

7%

c.

gross receipts tax

5%

a. b.

Pawnshops Money changers

d.

Life Insurance Company/Agent/Corporation except purely cooperative companies or associations (Sec.123) Agents of foreign insurance companies except reinsurance premium (Sec. 124)

amended Interest, commissions, discounts from lending activities, as well as income from financial leasing on the basis of remaining maturities of instruments from which such receipts are derived: - Maturity period is five (5) years or less - Maturity period is more than five (5) years

Total premiums collected whether paid in money, notes, credits, or any substitute for money

5% 1% gross receipts tax

2% premiums tax



Insurance agents authorized under the insurance code to produce policies of insurance for unauthorized companies to transact business in the Philippines

Total premiums collected

4%



Owners of property obtaining insurance directly with foreign insurance companies

Total premiums paid

5% premiums tax

Proprietor, lessee, or operator of the following (Sec. 125):  Cockpits  Amusement places cabarets, night/day clubs, videoke bars, karaoke bars, karaoke television, karaoke boxes, music lounges, and other similar establishments

 Boxing exhibitions Exemptions:  If a world or oriental championship in any division is at stake  One of the contenders for World Championship is a Filipino citizen  Promoted by a Filipino citizen or corporation at least 60% of the capital is Filipino owned

 Professional basketball games  Jai-alai and race tracks Winnings on horse races (Sec. 126)  Owners of winning race horses  Winner from double forecast/quinella and trifecta bets  Person winning not in double, forecast/quinella and trifecta bets

Gross receipts Gross receipts

18% 18%

Gross receipts 10%

Gross receipts Gross receipts

15% 30% amusement tax

Prize received

10% 4%

Prize received (net cost of ticket) 10% Net receipts (net cost of ticket) winnings tax

Percentage Tax for Transactions Involving Shares Rates Table (BIR Form 2552)

Coverage Sale, barter, or exchange of shares of stocks listed and traded through the Local Stock Exchange (LSE) (Sec. 127-A) Tax paid by seller  collected by stock broker  remit tax to BIR within five (5) banking days from date of collection

Taxable Base Gross selling price or gross value in money

Tax Rate 60% x 1%

stock transaction tax

Sale, barter, or exchange or other disposition of shares of stocks through (Sec. 127-B): 



Initial Public Offering (IPO) – the issuing corporation shall pay the imposed tax (IPO tax applies only to *IPO of closely-related corporations at initial listing) Secondary Public Offering – the seller shall pay the imposed tax

Gross selling price or gross value in money **Proportion of disposed shares to total outstanding shares after the listing in the LSE: a. Up to 25% b. Over 25% but not over 33 1/3% c. Over 33 1/3%

4% 2% 1% IPO tax

*The subsequent sale after the IPO is called a “follow through offering”, which is no longer subject to the IPO tax since the tax applies only to the initial listing. **Determination of the proportion of stocks sold in an IPO depends on the type of offering:  Primary offering – unissued shares of the closely held corporation to be sold in the IPO  Secondary offering – issued shares or shares of existing shareholders who wish to sell their shares in the IPO. Note: 1. 2. 3.

The tax applies on listed stocks (domestic or foreign) sold through the PSE and without regard to the type of stocks sold. Type of stocks include preferred, common, stock options and warrants. The stock transaction tax does not apply to dealers in securities on their sales of stock inventory. Their sale whether through PSE or directly to buyer and their commissions are vatable.

WITHHOLDING OF PERCENTAGE TAX AT SOURCE The sale to government agencies, and instrumentalities including GOCC is subject tot a withholding tax of 3% at source. GOCC withholds the 3% percentage tax and issues to the taxpayer BIR Form 2307. The taxpayer shall attach BIR Form 230 in filing his monthly percentage tax return. TAX ON OTHER TAXABLE SALES OF NON-VAT TAXPAYERS The imposable percentage tax on taxable sales or receipts, other than from services or transactions specifically subject to percentage tax, of non-VAT registered persons is 3%. EXEMPTION FROM PERCENTAGE TAX 1. VAT taxpayers 2. Self-employed and/or professionals who opted to the 8% income tax – only file BIR form 1701A 3. Cooperatives – exemption not absolute. Sales or receipts outside registered activities are still subject to business tax....