BUSINESS AND TRANSFER TAXATION

Business Taxation (Students’ Handouts)

CHAPTER 5 – PERCENTAGE TAX

A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross
value in money of goods sold or bartered; or of the gross receipts or earnings derived by any person
engaged in the sale of services.

Services specifically subject to percentage tax

1. Common carriers on their transport of passengers by land and keepers of garage
• Minimum presumptive gross receipt
• Exemptions to the common carriers tax
Cendong is an operator of five jeepneys and two buses. The monthly receipts were as follows:
Passengers Cargoes Total
Jeepneys P 150,000 P 10,000 P 160,000
Buses 200,000 40,000 240,000

2. International carriers on their transport of cargoes, excess baggage and mails only
Incoming Outgoing Total
Transport of passengers P 24,000,000 P 36,000,000 P 60,000,000
Transport of baggage 8,000,000 11,000,000 19,000,000

3. Certain franchise grantees

Franchise Grantees % Tax Rates

Radio or television broadcasting companies whose annual 3%
gross receipts do not exceed P10,000,000
Gas and water utilities 2%

4. Telephone companies on overseas communication

Call origin Call Destination Business Tax

Philippines Philippines 12% VAT
Abroad Philippines 0% VAT*
Philippines Abroad 10% overseas communication tax
Exemptions:
• Government
• Diplomatic services
• International organizations
• News services

5. Banks and non-bank financial intermediaries

Banks and Quasi-banks

Source of income or receipt % Tax Rates
1. Interest income, commissions and discounts from lending
activities, income from financial leasing, on the basis of
remaining maturities of instruments from which the receipts
were derived:
a. maturity period is five years or less 5%
b. maturity period is more than five years 1%
2. dividend and equity shares in the net income of subsidiaries 0%
3. on royalties, rental of property, real or personal, profits, from 7%
exchange 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 7%
currency, debt securities, derivatives and other similar financial
instruments

Financial intermediaries withour quasi-banking functions

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

Based on R.B.Banggawan’s Business and Transfer Taxation (2019) Page 1 of 2

BUSINESS AND TRANSFER TAXATION
Business Taxation (Students’ Handouts)

6. Life insurance companies

Life Policies Non-life
Cash collections P 2,000,000 P 1,500,000
Checks 400,000 600,000
Promissory note 500,000 400,000

7. Agents of foreign insurance companies

• Insurance agents – 4%
• Directly with foreign insurance companies – 5%

8. Certain amusement places

Proprietor, lessee or operator:
• Boxing exhibitions – 10%
• Professional basketball – 15%
• Cockpits, cabarets, night or day clubs – 18%
• Jai-alai and race tracks – 30%

9. Jai-alai and cockpit operations on 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%

Gamby operates a race track. It had the following dividends for winning tickets during an event:
Total winnings on straight bets (cost, P10,000) P 80,000
Total winnings in daily double, forecase and quinella (cost, P600) 40,000
A winner of trifecta (cost, P200) 30,000
Prize of the owner of winning horses 100,000

10. Brokers in effecting sales of stocks through the Philippine Stock Exchange and corporation or
shareholders on initial public offerings
-Stock Transaction Tax : 6/10 of 1% of gross selling price

Orion Securities effected the sale of the following stocks during a trading day:
Type of Stocks Owner Selling Price Cost
Through the trading facilities of the PSE:
Preferred stocks Client P 3,000,000 P 2,900,000
Common stocks Client 2,800,000 3,000,000
Stock options Client 400,000 450,000
Common stocks Orion Securities 4,000,000 3,000,000

Directly to Buyer:
Common stocks Client P 800,000 P 500,000
Preferred stocks Orion Securities 2,000,000 2,100,000

-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%

Queen Corporation is owned by the following shareholders:

A 25,000 shares
B 20,000 shares
C 40,000 shares
D 10,000 shares
E 5,000 shares
Total 100,000 shares
Queen Corporaiton conducted an IPO involving 40,000 unissued shares to be sold to the public at
P5. B decided to sell 15,000 of his shares to the public during IPO at P5.

*Withholding of Percentage Tax at Source

Based on R.B.Banggawan’s Business and Transfer Taxation (2019) Page 2 of 2