What is Percentage Tax?

is a business tax imposed on persons or entities who sell or lease goods, properties or
services in the course of trade or business whose gross annual sales and/or receipts do
not exceed P1,919,500 and who are not VAT-registered.

The diagram below shows whether a business should be subjected to VAT or
PERCENTAGE TAX


Is the Business VAT Registered ?
YE NO
*Gross receipts or sales
subject to 10% output VAT
and a benefit of input VAT on
purchases.
Does the annual gross receipts
or sales exceed 1,919,500?
YES NO
Gross receipts or sales
subject to 10% *output VAT
but no benefit of input VAT
on purchases.
Explanation:
Could not claim Input VAT credit
because it is not registered under VAT
system.
Gross receipts or sales
subject to 3%
percentage tax and no
*input tax allowed.
Percentage Tax on Sales and Receipts of Non-VAT Registered Business
1. Sale or lease of goods or properties or the performance of services
Sale or lease of *goods or properties or the performance of services of non-VAT
registered *persons, other than the transactions mentioned in paragraphs (A) to (U) of
Section 109(1) of the Tax Code, the gross annual sales and or receipts of which does not
exceed the amount of One Million Nine Hundred Nineteen Thousand Five Hundred
(1,919,500). = 3%

2. Domestic carriers and keepers of garages
On gross receipts of operators of cars for rent or hire driven by the lessee; transportation
contractors, including those who transport passengers for hire; and other domestic carriers
by land for transport of passengers (except owners of bancas and animal-drawn two
wheeled vehicle) ; and keepers of garages. = 3%
The gross receipts of common carriers derived from their incoming and outgoing freight
shall not be subjected to the local taxes imposed under R.A. 7610 (Local Government
Code 0f 1991).
In computing the percentage tax the following shall be considered the minimum gross
receipts:
QUARTERLY MONTHLY
Jeepney for Hire:
1. Manila and other Cities

P 65,700

P 21,900
2. Provincial 32,900 10, 967
Public Utility Bus:
1. Not Exceeding 30 passengers

98, 600

32, 867
2. Exceeding 30 but not
exceeding 50 passengers

164, 200

54, 733
3. Exceeding 50 passengers 197, 100 65, 700
Taxis:
1. Manila and other Cities

98, 600

32, 867
2. Provincial 65,700 21,900
Car for Hire:
1. With Chauffeur

82, 100

27, 367
2. Without Chauffeur 49,300 16, 434

EXAMPLE:
1.) Mr. Dela Pena is a jeepney operator with three(3) jeepney units operating at
Midsayap, Cotabato. During the second quarter of the current taxable year,
the gross receipts are as follows:
April P 28,000
May 30,000
June 26,000
Note:
The transports of cargo, by land, air or water are VAT Taxable.


Computation:
Actual Gross Receipts (P 28,000 + 30,000 + 26,000) = P 84,000

Statutory Minimum Requirement (P 32,900 x 3 ) = P 98,700

Percentage Tax (P 98,700 x 3%) = P 2,961


1.) Biyahe Pilipinas Bus is a common carrier by land. During the month of April 2011,it
has the following gross receipts:
Transport of Passengers P1,500,000
Transport of Cargoes 750,000
Excess Baggage 250,000

1. How much is the CCT(Common Carriers Tax)?
2. How much is the value-added tax?
Solution:
Percentage Tax on Transport of
Passengers
P 1,500,000
x 3%
P45,000 is the CCT
Value-added Tax on Excess
Baggage
P250,000
x 10%
P25,000 is the VAT






3.) International Carriers
On gross receipts of International air carriers and international shipping carriers doing
business in the Philippines = 3%

EXAMPLE:
1.)Elegant Air Cargo, an international air and shipping carrier has the following gross
receipts during the second quarter:
Origin Destination
Singapore Australia
Philippines China
Philippines Iran( transshipments from Iran
to Turkey 30%)



Computation:
Gross Receipts
Philippines to China P 1,200,000
Philippines to Iran (P 700,000 x 70%) 490,000
Total Philippine Gross Receipts 1,690,000
Multiplied by 3%
Common carrier tax P 50,700

4.) Franchises
Franchise is a right and privilege acquired by special grants from the public through the
legislature which imposes on the grantee as a consideration, a duty to the public to see
that they are properly used.
On gross receipts of all franchises on radio and/ or television broadcasting companies
whose annual gross receipts of the preceding year do not exceed P10,000,000. = 3%
On gross receipts of franchises on gas and water utilities derived from the business
covered by the law granting the franchise. = 2%

EXAMPLES:
1.) Tra Poe is a grantee of several franchises. Her gross receipts for the year included
the following:
From water distribution P 1,500,000
From other franchises 2,000,000
Total receipts P 3,500,000

Computation:
Percentage tax receipts from water distribution
(1,500,000 x 2%) = P30,000
VAT on other franchises
(2,000,000 x 10%) = 200,000
TOTAL BUSINESS TAX PAYABLE P230,000

2.) Radio QRST, a non-VAT entity, reported the following receipts for broadcasting
services:
Year 1 P 8,000,000
Year 2 12,000,000

Computation:
Percentage Tax for year 1
(8,000,000 x 3%) = P 240,000
VAT on receipts for year 2
(12,000,000 x 10%) = P 1,200,000

5.) Overseas Dispatch, Message or Conversation Originating from the Philippines
On the amount collected upon every overseas dispatch, message or conversation
transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless
and other communication equipment services is 10%. The 10% percentage tax is the
expense of the caller to be withheld by the service provider.
The tax imposed in this Section 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.

EXAMPLE:
1.) Tela-Pono Company , a franchise grantee of telephone services reported the following
receipts for the quarter.
Receipts from overseas calls P 3,000,000
Receipts from domestic calls 2,000,000
Total receipts P 5,000,000

Tela-Pono is liable to remit to the BIR the following :
Percentage tax on overseas calls
(P3,000,000 x 10%) P 300,000

VAT on domestic calls
(P2,000,000 x 12%) 240,000
TOTAL business tax payable P 540,000


6.) Banks and non-bank financial intermediaries performing quasi-banking functions
There shall be collected on gross receipts from sources within the Philippines by all banks
and non-bank financial intermediaries performing quasi-banking functions in accordance
with the following schedule:
a) 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:
Maturity period is five (5) years or less = 5%
Maturity period is more than five (5) years = 1%
b) On dividends and equity shares in net income of subsidiaries = 0%
c) On royalties , rentals of property, real or personal, profits from exchange
and all other items treated as gross income under Sec. 32 of the Code
= 7%
d) On net trading gains within the taxable year on foreign currency, debt
securities, derivatives and other similar financial instruments = 7%

7.) Other non-bank financial intermediaries not performing quasi-banking functions.
a. From interest , commissions discounts and all other items treated as gross income under
the Code = 5%
b. 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
receipts are derived:
i. Maturity period is five (5) year or less = 5%
ii. Maturity period is more than five (5) years = 1%

8.) Insurance Companies
As a rule governing life insurance premium, a percentage tax of 5% of the total premium
collected shall be imposed on collection from every person, except in the following:
a) The life insurance premium is refunded within six (6) months; and
b) Premiums collected outside the Philippines from nonresident person

EXAMPLE:
Deli Cado acquired a life insurance policy of 5,000,000 from a domestic insurance
company. Her annual insurance premium is 5,000. payable semi-annually at 2,500 on
June and December.
How much would be the percentage tax on the premium collected in December?
The percentage tax on the premium collected in December would be 125, computed as
follows:

December Collection P 2,500
Multiplied by 5%
Percentage tax on premium P 125
for December

9.) Agents of foreign insurance companies
10 % on premiums received by every fire, marine, or miscellaneous insurance on legally
authorized under the Insurance Code to procure policies of insurance on risk located in the
Philippines for companies not authorized to transact business in the Philippines except on
reinsurance premium.
5 % on premium payments obtained directly with foreign companies where the owner of
the property does not make use of the services of any agent, company or residing or doing
business in the Philippines, in which case, it shall be duty of said owners to report to the
Insurance Commissioner and to the BIR Commissioner each case where the insurance
has been effected.


EXAMPLES:
On January 2 of the current taxable year, Mr. Mission, a taxpayer, is planning to insure his
property to a foreign insurance company. The taxpayer is evaluating the two alternatives: 1)
Insuring the property directly to the foreign insurance company or 2) Insuring to the foreign
insurance company through its authorized agent.
In case Mr. Mission will insure directly with the foreign insurance company, he will pay a
premium of P230,000. However, in the event Mr. Mission will insure his property through the
authorized agent, he will pay a premium of P240,000.
Required : Determine the following under both alternative
a) Amount of percentage tax;
b) Total cost on the part of Mr. Mission
ANSWER A
The amount of percentage tax on both alternatives is computed as follows:
Alternative 1 : INSURED DIRECTLY with the foreign insurance company
Total premium paid P 230,000
Multiplied by 5%
Percentage tax payable P 11,500

Alternative 2 : INSURED THROUGH AUTHORIZED AGENT

Total premium paid P 240,000
Multiplied by 10%
Percentage tax payable P 24,000

ANSWER B
The total cost on the part of Mr. Mission appears as follows under both alternatives:

Alternative 1 : INSURED DIRECTLY with the foreign insurance company

Total premium paid P 230,000
ADD : Percentage tax to be paid 11,500
Total cost on the part of Mr. Mission P 241,500

Alternative 2 : INSURED THROUGH AUTHORIZED AGENT
Total premium and total cost of Mr. Mission P 240,000



10.) Amusements
Gross payments received by proprietor, lessee, or operator of cockpits, cabarets, night and
day clubs, videoke bars, karaoke bars, karaoke televisions, karaoke boxes, music lounges
and other similar establishments, boxing exhibitions, professional basketball games, jai-
alai and racetracks.
18% - cockpits
18% - cabarets, night and day clubs, videoke bars, karaoke bars, karaoke
televisions, karaoke boxes, music lounges and other similar
establishments.
10% - boxing exhibitions except those wherein World or Oriental
Championship in any division is at stake and at lease one of the
contenders is a citizen of the Philippines and promoted by a citizen/s of
the Philippines or by corporation or association at least 60% of the capital
of which is owned by such citizen.
15% - professional basketball games as envisioned in Presidential Decree
871.
30% - jai-alai and racetracks irrespective of whether or not any amount is
charged for admission.
EXAMPLES
1.) Mr. Cabriles operates the Midsayap Great Cockpit. The following data relate to its
operation during the current taxable year period:

Gross receipts on the following:
Entrance fee P 35,000
Sale of soft and hard drinks 90,000
Sale of cigarettes and other food items 65,000
Purchases of items sold in the cockpit:
from VAT taxpayers, inclusive of VAT 56,000
from Non-VAT taxpayers 20,000

Computation

P 35,000 + 90,000 + 65,000 = P 190,000
x 18%
Amusement Tax Payable P 34,200


11.) Winnings
10% - horse races, the basis of 10% tax on winnings or dividends is the actual amount
paid to him for every winning ticket after deducting the cost of the ticket.
4% - double, forecast /quinella and trifecta bets.
10% - owners of winning race horses.
EXAMPLES:
1.) On March 12 of the current taxable period, Mr. V. Cruz spent his day at the horse
track. He bought a ticket of P500 and placed his bet on the race horse
Karakaraka owned by Mr. S. Tomas. The race horse won and the price money
for the ticket was P25,000 and that of the winning horse was P300,000.
Required : Compute the business tax liability of:
a.) Mr. V. Cruz; and
b.) Mr. S. Tomas

ANSWER A : Tax liability of Mr. V. Cruz
Prize money won P 25,000
LESS: Cost of the ticket 500
NET P 25,000
Multiplied by percentage tax rate 10%
Amusement Tax to be Withheld by
the owner of the race track P 2,450

ANSWER B : Tax liability of Mr. S. Tomas

Prize money won P 300,000
Multiplied by percentage tax rate 10%
Amusement tax to be withheld by
the owner of the race track P 30,000

12.) Sale of share of stock
of 1% or 0.5% - Sale, barter or exchange of shares of stock listed and traded through
the local stock exchange.
EXAMPLE:
On March 1 of the current taxable year, Mr. O. David bought shares of stocks through his stock
broker from publicly listed companies at the Philippine Stock Exchange which are as follows:
From Midnight Company P 400,000
From Twilight Company P 420,000
Two months later, he sold 5,000 shares of Midnight Company for P 325,000 and 2,000 shares
of Twilight Company for P180,000.
Q: What is the stock transaction tax liability of Mr. David?
ANSWER
On Midnight Company (P325,000 x 0.5%) = P 1,625
On Twilight Company ( P 180,000 x 0.5%) = 900
Total Stock Transaction = P 2,525

13.) Shares of stock sold or exchanged through Initial Public Offerings at the following prescribed rates:
Not over 25% 4%
Over 25% but not exceeding 33 1/3% 2%
Over 33 1/3% 1%

EXAMPLE:
1.) Dairy Company, a closely held corporation, has an authorized capital stock of
5,000,000 shares with par value of P100. Before it goes into a publicly listed company, the
outstanding shares of stock were 3,000,000 shares. During the initial public offering, Dairy
Company sold 1,000,000 shares of stock at P130 per share.
Required : Determine the stock transaction tax of Dairy Company

Gross Selling Price
(1,000,000 shares at P130 per share) P130,000,000
Multiplied by Percentage tax rate
(1/4 = 25%; hence, tax rate to be used is 4%) 4%
Percentage tax P 5,200,000


Advance Percentage Tax On Tiangges
A Privilege Store (TIANGGES) refers to a stall or outlets which is:
o Not registered with the BIR
o Not permanently fixed to the ground and is
o Normally set up in the places like shopping malls, hospitals, office
buildings, hotels, village or subdivision, churches and other public places
for the purpose of selling and variety of goods/services for short duration
of time or special events.

Returns on Capital Gains from Sale of Shares of Stocks
o It shall be the duty of every stock broker who effected the sale subject to
the tax imposed herein to collect the tax and remit the same to the Bureau
of Internal Revenue within five(5) banking days from the date of collection
thereof
o And submit on Mondays of each week to the secretary of the stock
exchange, of which he is a member, a true and complete return which
shall contain a declaration of all transaction effected through him during
the proceeding week and of taxes collected by him and turned over to the
Bureau of Internal Revenue.

Public Offerings of Shares of Stock
o In case of primary offering, the corporate issuer shall file the return and
pay the corresponding tax within thirty(30) days from the date of listening
of the shares of stock is the Local Stock Exchange.
o In the case of secondary offering, the provision of subsection(CX1) of this
section of the Tax Code shall apply as to the time and manner of the
payment of the tax.
Exemption From Percentage Tax
Business by an individual whose receipts do not exceed P100,000 during any 12month
period principally for livelihood or subsistence and not in the field of business.
Individual Taxpayers shall register but EXEMPT in paying of registration fee and
percentages taxes.

Returns and Payment of Percentage Taxes
For non-large tax payers
Percentage tax shall be filed within 20 days
To those non-large tax payers who availed of filing & payment system
through EFPS shall be 5 days later than its deadline set.
For large tax payers
Shall file a consolidated return, pay the aggregate due taxes within 10
days after end of each month
To those who availed who availed for percentage tax & paying the taxes
due through EFPS shall be 5 days later than the set deadline.
Any person retiring from a business subject to percentage tax shall notify the
nearest internal revenue officer, file his return & pay the tax due within 20 days
after closing his business.
The commissioner may prescribe some other time intervals for filing the return for
a particular class or classes of taxpayers after considering the following:
Volume of Sales
Financial Condition
Adequate Measures of Security
Other relevant information
The commissioner permits every person liable to percentage tax, shall have an
option where as to file a separate return for each branch or place of business or a
consolidated return for all branches of places with authorized agents.
Withholding of Percentage Taxes
Percentage taxes on gross money payments to the following are subject to
withholding at the various rates:
1. Domestic carriers and keepers of garages. On gross payments to operators of cars for rent or
hire driven by the lessee; transportation contractors, including those who transport passengers
for hire; and other domestic carriers by land for transportation of passengers ( except owners
of animal-drawn two wheeled vehicle); and keepers of garages.

2. International carriers.
a. On gross payments to international air carriers doing business in the Philippines. -3%
b. On gross payments to international shipping carriers doing business in the Philippines.
-3%

3. Franchises.
a. On gross payments to all franchises on radio and /or television broadcasting
companies whose annual gross receipts of the preceding year do not exceed
P10,000.00.-3%
b. On gross payments to franchise on gas and water utilities.-2%

4. Banks and non-bank financial intermediaries performing quasi-banking functions
a. On interest, commissions and discounts from lending activities as well as income from
financial leasing, on the basis of remaining maturities of instrument =s from which such
receipts are derived:
Maturity period is five (5) years or less . . . . . . . . . . . 5%
Maturity period is more than five (5) years . . . . . . . . 1%

b. On dividends and equity shares in net income of subsidiaries . . . . . . . . 0%
c. On royalties, rentals of property, real or personal, profits from exchange and all other
items treated as gross income underSection 32 of this Code. .. . . . . . . . . 7%
d.On net trading gains within the taxable year on foreign currency,debt securities,
derivatives and other similar financial instruments . . . . . . . . . .7%

5. Other non-bank financial intermediaries not performing quasi- banking functions
a. From interest, commissions, discounts and all other items treated as gross income
under the Code . .. . . . . . .5%
b. 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 receipts are derived.
Maturity period is five (5) years or less . . . . . . 5%
Maturity period is more than five (5) years . . .1%
6. Life insurance premiums. On the total premiums paid to persons doing life insurance business
of any sort in the Philippines. 5% (now at 2% based on R.A.10001).

7. Agents of foreign insurance companies.
a. On premiums paid to every fire, marine, or miscellaneous insurance agent legally
authorized under the Insurance Code to procure policies of insurance on risk located
in the Philippines for companies not authorized to transact business in the Philippines
except on reinsurance premium. 10%
b. On premium payments obtained directly with foreign companies where the owner of
the property does not make use of the services of any agent, company or corporation
residing or doing business in the Philippines, in which case, it shall be the duty of said
owners to report to the Insurance Commissioner and to the BIR Commissioner each
case where the insurance has been so affected. 5 %

8. Amusements. On gross payments to the proprietor, lessee, or operator of cockpits, cabarets,
night and day clubs, videoke bars, karaoke bars, karaoke televisions, karaoke boxes, music
lounges and other similar establishments, boxing exhibitions, professional basketball games,
Jai-alai and racetracks at the rates herein prescribed:
a. Cockpits. 18%
b. Cabarets, night and day clubs, videoke bars, karaoke bars, karaoke televisions,
karaoke boxes, music lounges and other similar establishments (RMO 78-2010).-18%
c. Boxing exhibitions except those wherein World or Oriental Championship in any
division is at sake and at lease one of the contenders is a citizen of the Philippines and
promoted by a citizen/s of the Philippines or by a corporation or association at least
60% of the capital of which is owned by such citizens. -10%
d. Professional basketball games as envisioned in Presidential Decree 871. -15%
e. Jai-ailai and racetracks irrespective of whether or not any amount is charged for
admission. -30%

9. Sale, barter or exchange of shares of stock listed and traded through the local stock exchange.
On the gross selling price or gross value in money derived on every sale, barter or other
disposition of shares of stock listed and traded through the local stock exchange other than the
sale by a dealer in securities. of 1%

10. Shares of stock sold or exchanged through initial public offering. On the gross selling price or
gross value in money derived on every sale , barter , exchange or other disposition through
initial public offering of shares of stock in closely held corporations in accordance with the
proportion of such shares to the total outstanding shares of stock after the listing on the local
stock exchange at the rates herein prescribed:

a. Not over 25% 4%
b. Over 25% but not exceeding 33 1/3% 2%
c. Over 33 1/3% 1%
Returns and Payments Of Taxes Withheld
No money payments shall be made by any government office or agency unless
the taxes due thereon shall have been deducted and withheld.
Taxes deducted and withheld shall be covered by the Monthly Return of Internal
Revenue Taxes withheld on Government Money Payments in duplicate to be filed
and the tax to be paid to the Authorized Agent Bank located within the Revenue
District Office (RDO) having Jurisdiction over the place where the government
office is locted.
In places where there are no authorized agent bank, the return shall be filed
directly with the Revenue District Officer, Collection Officer or the duly authorized
Treasurer if the City or municipality where the government office is located except
in cases where the Commissioner otherwise permits. The required return shall be
filed and payments made within ten(10) days following the end of the month the
withholding was made.
Remittance of Withholding Tax
Tax Covered

Number of Payors

Form to be used be
Payor in remitting tax

Effect on Tax Payer-
Payee

Form required to be
furnished
to Payor

Percentage Tax

One

-BIR Form 1600
(monthly remittance
return of VAT and
other percentage taxes
withheld)

- Tax withheld by the
payor shall be treated
as a final tax by the
payee.

-The filing of BIR Form
1600 by the sole payor
serves as a substituted
percentage tax return
of the payee.

-For sellers of services
whose gross receipts
have been subjected to
the withholding tax,
-Payor issues BIR
Form 2306 (certificate
of final tax withheld at
source March 2003
version) to the payee
within 10 days
following the end of the
month the withholding
was made.

they shall be exempted
from the obligation.

Several

-BIR Form 1600
(monthly remittance
return of VAT and
other percentage taxes
withheld)

-Tax withheld by the
payor shall be treated
as creditable tax by the
payee.

-Taxpayer-payee still
needs to file
percentage tax return
(BIR Form 2551M)

-For sellers of services
whose gross receipts
have been subjected to
the withholding tax,
they shall be exempted
from the obligation.

- Payor issues BIR
Form 2307 (certificate
of creditable tax
withheld at source
March 2003 version) to
the payee.



LIABILITY OF DESIGNATED OFFICERS
Additions to the Tax
Punishable Acts or Omissions
a.) Fails or causes the failure to deduct and withhold any interval revenue
tax covered by these regulations
b.) Fails or causes the failure to remit the taxes deducted and withheld
within the time prescribed therein;
c.) Fails or causes the failure to file the return or issue certificate required.














N.B.
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