BUSINESS AND TRANSFER TAXATION

1
Percentage Tax

Who pays percentage tax?

Type of Percentage Tax VAT-registered taxpayers Non-VAT taxpayers
Specific percentage tax ✓ ✓
General percentage tax  ✓

Tax on banks and non-bank financial intermediaries performing quasi-banking functions

Source of income or receipt % Tax rate
1. Interest income, commissions, and discounts from lending activities, and
income from financial leasing, on the basis of remaining maturities of
instruments from which the receipts were derived:
a. maturity period of five years or less 5%
b. maturity period of more than five years 1%
2. Dividend and equity shares in the net income of subsidiaries 0%
3. On royalties, rentals of property, real or personal, profits from exchange 7%
and all other items treated as gross income
4. On net trading gains within the taxable year on foreign currency, debt 7%
securities, derivatives, and other similar financial instruments

Tax on other financial intermediaries without quasi-banking functions (pawnshops, money

changers)
Source of income or receipt % Tax rate
1. Interest income, commissions, and discounts from lending activities, and
income from financial leasing, on the basis of remaining maturities of
instruments from which the receipts were derived:
a. maturity period of five years or less 5%
b. maturity period of more than five years 1%
2. From all other items treated as gross income under the NIRC 5%

Under RR4-2009, the basis of the calculation of gross receipts shall be the generally accepted
accounting principles (GAAPs) prescribed by the:
1. Bangko Sentral ng Pilipinas – banks and quasi-banks
2. Securities and Exchange Commission – other non-bank financial intermediaries
 BUSINESS AND TRANSFER TAXATION
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Percentage Tax

Percentage tax on international carriers

Domestic International operation
Types of carriers
operation Outgoing Incoming
Domestic carrier 12% VAT 0% VAT Exempt
International carrier
- passengers N/A Exempt Exempt
- goods, mails, or cargoes N/A 3% OPT Exempt

Percentage tax on domestic carriers and keepers of garage

A 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. (Art. 1732, Civil Code)

For purposes of the percentage tax, common carriers include cars for rent or hire driven by the
lessee, transportation contractors, persons who transport passengers for hire and other domestic
land carriers on their transport of passengers, except owners of bancas and owners of animal-
drawn two-wheeled vehicles. The law is silent regarding pedicabs but these businesses may
qualify as “business for mere subsistence”; hence, these are also exempt from business tax.

Mode of transport Passengers Baggage/Mails/Cargoes

By land 3% percentage tax vatable
By water or sea vatable vatable
By air vatable vatable

Amusement tax
Proprietor, lessee, or operator of the following amusement places shall pay the following
respective tax rates on their quarterly gross receipts:

Places of boxing exhibitions 10%

Places of professional basketball games 15%
Cockpits (legal or illegal), cabarets, night or day clubs 18%
Jai-alai and race tracks 30%

Conditions for exempt receipts on professional boxing:

1. World or Oriental championship
2. At least one contender is a Filipino citizen
3. The promoter is a Filipino citizen or a corporation 60% of which is owned by Filipino
citizens

The amusement tax shall be payable within 20 days after the end of each quarter.

Tax on sale, barter, or exchange of stocks listed and traded through the Philippine Stock
Exchange
The sale, barter, or exchange, including block sale, of listed stocks through the PSE, other than
by dealers in securities, is subject to a tax of 60% of 1% based on the gross selling price or gross
value in money of the shares of stocks sold. This percentage tax is commonly known as “stock
transaction tax”. The same shall be paid by the seller or transferor and is to be collected by the
stock broker who effected the sale. The stock broker shall remit the tax to the BIR within 5 banking
days from the date of collection.
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Percentage Tax

Tax on the shares of stocks sold or exchanged through an Initial Public Offering (IPO)
Proportion of shares sold, bartered, or exchanged Tax Rate
Up to 25% 4%
Over 25% but not over 33 1/3% 2%
Over 33 1/3% 1%

Note that the IPO tax applies only to the initial public offering of a closely held corporation.

Closely held corporation means any corporation at least 50% in the value of the outstanding
capital stock or at least 50% of all classes of stock entitled to vote is owned directly or indirectly
by not more than 20 individuals. Therefore, the IPO of a corporation which is diversely owned or
whose 50% of capital stock is owned by more than 20 people is not subject to the IPO tax.

Determination of the proportion of stocks sold in an IPO:

1. Primary offering = Primary shares divided by Outstanding shares after IPO
2. Secondary offering = Secondary shares divided by Outstanding shares before IPO

Tax on franchises
Generally, franchises are taxable. There are only two types of franchises that are specifically
subject to percentage taxes under the NIRC:
1. Radio or television broadcasting companies whose annual
gross receipts do not exceed P10,000,000 - 3%
2. Gas and water utilities - 2%

Franchise grantees of radio or television broadcasting companies are required to register as VAT
taxpayers if they exceed the P10,000,000 gross receipt threshold. Once the option is exercised,
said option shall be irrevocable. In other words, the VAT registration of these entities is non-
cancellable until the dissolution of their business.

Vatable franchises
1. Electricity
2. Telecommunication – except on receipts from outgoing messages since these are
subject to the 10% overseas communication tax
3. Transportation – except receipts of common carriers by land on their transport of
passengers since these are subject to the 3% common carriers tax
4. Private franchises

Tax on life insurance premiums

A person, company, or corporation (except purely cooperative companies or associations) doing
life insurance business of any sort in the Philippines is subject to a tax of 2% on the premiums
collected, whether such premium is paid in money, notes, credits, or any substitute for money.

Non-life insurance is vatable (except for crop insurance). The gross receipts/premiums collected
by non-life business do not include promissory notes.

Tax on agents of foreign insurance

The tax on agents of foreign insurance is equal to twice the tax imposed on life insurance
premiums (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.
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Percentage Tax

Tax on overseas dispatch, message, or conversation originating from the Philippines

Call origin Call destination Business Tax
Philippines Philippines 12% VAT
Abroad Philippines Exempt
Philippines Abroad 10% overseas communication tax
Exemptions:
The overseas communication tax shall not apply to the outgoing calls of the following:
1. Government – including any of its political subdivisions or instrumentalities
2. Diplomatic services – embassies and consular officer of foreign governments
3. International organizations – those enjoying privileges, exemptions, and immunities under
international agreements
4. News services

Winnings from horse race or jai-alai (tax base : net winnings)

Winnings in horse race or jai-alai, in general 10%
Winnings from double, forecast/quinella and trifecta bets 4%
Owners of winning race horses 10%

A. Combination bets
1. Double – a bet to select the winners in two specific races
2. Daily double – a bet to forecast the first winning horse on two consecutive races
3. Forecast – a bet to predict the first and second finisher of a particular race
4. Exacta or perfecta – a bet to pick the first two finishers in exact order
5. Quinella – a bet where at least the first two finishers must be picked in either order
6. Trifecta – a bet to predict the first three finishers in a race in exact order
B. Straight wagers
1. Win – the selected horse must finish first
2. Place – the selected horse must come first or second
3. Show – the selected horse must come first, second, or third

Illustration:
A race track operator had the following dividends for winning tickets during an event:

Total winnings on straight bets (cost of winning tickets, 10,000) 80,000

Total winnings in daily double, forecast, and quinella (cost of
winning tickets, 600) 40,000
A winner of trifecta (cost of ticket, 200) 30,000
Prize of the owner of winning horses 100,000
Total prizes, winnings or dividends 250,000

The following tax must have been withheld from these winnings before their release to the
winners:

Net winnings in daily double, forecast, and quinella (40,000-600) 39,400

Net winnings on trifecta (30,000-200) 29,800
Total 69,200
Multiply by 4%
Percentage tax 2,768

Prize of the winning horse 100,000

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Percentage Tax

Net winnings on straight bets (80,000-10,000) 70,000

Total 170,000
Multiply by 10%
Percentage tax 17,000

Total percentage tax on winnings (2,768 + 17,000) 19,768

Withholding of percentage tax at source

The sale to government agencies and instrumentalities including government owned and
controlled corporations (GOCCs) is subject to a withholding tax of 3% at source.

Goodyear Corporation, a non-VAT taxpayer paying the 3% percentage tax, had the following
receipts in the quarter:

Taxable sales to government entities 150,000

Taxable sales to private entities 60,000
Exempt sales 180,000
Total sales 390,000

The total creditable percentage tax withheld at source (150,000 x 3%) was P4,500.

The percentage tax payable for the month to be presented in BIR Form 2551Q shall be:

Taxable sales to government entities 150,000

Taxable sales to private entities 60,000
Total taxable sales 210,000
Multiply by 3%
Percentage tax due 6,300
Less: withheld percentage tax under BIR Form 2307 4,500
Percentage tax payable 1,800

Exemption from percentage tax

1. VAT taxpayers
2. Self-employed and/or professional who opted to the 8% income tax
3. Cooperatives