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TAX Chapter 5 Reviewer - Summary Principles of Business

Taxation
Accountancy (Adamson University)

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SERVICES SPECIFICALLY SUBJECT TO PERCENTAGE TAX

Important Terms:
1. Bank and Non-bank financial intermediaries (Gross receipts tax) 1. Banks
2. Non-Bank financial Intermediaries
TAX RATE ON BANK AND QUASI-BANKS 3. Quasi-banking function

1. Interest income, commissions and discount from lending activities

and income from financial leasing, on the basis of remaining
maturities of instrument from which the receipt are derived:
a. Maturity period less than 5 years 5%
b. Maturity period more than 5 years 1%
2. Dividend and equity shares in the net income of subsidiaries 0%

3. On royalties, rent of property, personal or real, profit on exchange 7%

and all other items treated as gross income under section 32 of the
NIRC
4. On net trading gains within the taxable year on foreign currency, 7%
debt securities, derivatives and other similar financial instrument

TAX ON OTHER FINANCIAL INTERMEDIARIES W/OUT QUASI-BANKING

1. Interest income, commissions and discount from lending activities

and income from financial leasing, on the basis of remaining
maturities of instrument from which the receipt are derived:
a. Maturity period less than 5 years 5%
b. Maturity period more than 5 years 1%
2. From all other items treated as gross income under NIRC 5%
Examples are: pawnshop and money changers

2. International Carrier on their transport of cargoes, excess baggage and mails only
(International Carrier Tax)

Domestic Operation International Operation

Outgoing Incoming
Domestic Carrier 12% VAT 0% VAT Exempt
International Carrier
Passengers N/A Exempt Exempt
Good, mails or N/A 3% OPT Exempt
cargoes
Important Terms:
1. International carriers

3. Common Carrier on their transport of passengers, by land and keepers of garage (Common
Carrier Tax)

Passengers Baggage/Mails/Cargoes
By land 3% percentage tax Vatable
By water/sea Vatable Vatable
By air Vatable Vatable

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4. Certain Amusement places (Amusement Tax)

Places of boxing exhibitions 10%

Places of professional basketball games 15%
Cockpits, cabaret, day or night clubs 18%
Jai-Alai and race tracks 30%

5. Brokers in effecting sale of stocks through the Philippine Stock Exchange and Corporation or
Shareholders of Initial Public Offering (Stock Transaction Tax)

Listed stocks through PSE 60% of 1%

Important Terms:
1. Closely-held corporation
IPO TAX TAX RATE 2. PRIMARY OFFERING
Up to 25% 4% 3. SECONDARY OFFERING
Over 25% but not over 33 1/3% 2%
Over 33 1/3 % 1%

PRIMARY OFFERING = primary shares / outstanding shares after IPO

SECINDARY OFFERING = secondary shares / outstanding shares before IPO

6. Certain Franchise Grantees (Franchise Tax)

Radio or television broadcast whose gross annual not exceeding 10,000,000 3%

Gas and water utilities 2%

7. Life Insurance (Premium Tax) and Agents of Foreign Insurance

Life insurance (Philippines) 2%

Foreign life insurance 4%
Insurance directly from abroad 5%

8. Telephone companies on overseas communication (Overseas Communication Tax)

Philippines – Philippines 12% VAT

Philippines – Abroad 10%
Abroad – Philippines 0% VAT

9. Jai-Alai and Cockpits operators on winnings (Winnings Tax)

Winnings in horse race or jai-alai (straight bets/wagers) 10%

Winnings from double, forecast/quinella and trifecta bets 4%
Owners of winning race horses 10%

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ENUMERATION

SCOPE OF PERCENTAGE TAX 1. International air carriers

2. International shipping carriers
1. Services specifically subject to
percentage tax – specific % tax – various
tax rates
2. Sales of goods or other services not TYPES OF CARRIERS
exempted – general % tax – 3% 1. Domestic carrier
percentage tax 2. International carrier
TYPES OF PERCENTAGE TAX EXEMPT RECEIPTS ON
1. Specific percentage tax PROFESSIONAL BOXING
2. General percentage tax 1. World and oriental championship
SERVICES SPECIFICALLY SUBJECT TO 2. At least one of the contenders is a
PERCENTAGE TAX Filipino citizen
3. The promoter is a Filipino citizen or a
1. Bank and Non-bank financial corporation 60% of which owned by
intermediaries Filipino citizen
2. International Carrier on their transport of
cargoes, excess baggage and mails only VATABLE FRANCHISES
3. Common Carrier on their transport of 1. Electricity
passengers, by land and keepers of 2. Telecommunication
garage 3. Transportation
4. Certain Amusement places 4. Private franchises
5. Brokers in effecting sale of stocks
through the Philippine Stock Exchange TYPES OF INSURANCE BUSINESS
and Corporation or Shareholders of
1. Direct insurance
Initial Public Offering
2. Reinsurers
6. Certain Franchise Grantees
3. Retrocessionaires
7. Life Insurance and Agents of Foreign
Insurance TAXATION OF OTHER RECEIPTS OF
8. Telephone companies on overseas LIFE INSURANCE
communication
9. Jai-Alai and Cockpits operators on 1. Renewal or re-insurance fee,
winnings reinstatement fee and penalties
2. Management fees, rental income, or
COMON RULES FOR BANKS,QUASI- other income from unrelated services
BANKS AND OTER FINANCIAL 3. Investment Income
INSTITUTION
EXEMPTIONS TO OVERSEAS
1. Accounting rules COMMUNICATION TAX
2. Finance lease and operating lease
3. Pre-termination of instruments 1. Government
2. Diplomatic services
TYPES OF INTERNATIONAL CARRIER 3. International Organization

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4. News services

EXEMPTION FROM PERCENTAGE TAX

1. VAT Taxpayers
2. Self-employed or professionals who
opted to the 8% income tax
3. Cooperatives

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