CONGAYO (168 TAX ON FRANCHISE- 173 SUMMARY OF TAX RULES)

So proceed tayo with the franchise, so the first letter of flow is letter F which pertains to
Franchises
TAX ON FRANCHISES
-Sinasabi dito na Generally, franchises are vatable it means lahat ng franchises ay vatable.
However, there are only two types of franchises that are specifically subject to percentage
taxes under NIRC:

FRANCHISE GRANTEES % TAX RATES

1. Radio or television broadcasting companies whose annual gross 3%
receipts do not exceed P10,000,000. So hindi daw lalagpas sa
10million if that’s the case radio and television ay hindi nageexceed
ng 10mllion, therefore the applicable tax is percentage tax, which is
3percent. However if the radio and television broadcasting
companies exceed this threshold ang magiging applicable tax for
them ay value added tax.
2. Let’s proceed to the 2nd type of franchise the Gas and water 2%
utilities, there’s no threshold as long as services to gas and water
therefore the applicable tax is still percentage stocks with 2percent
rate.
The percentage tax on these franchise grantees is referred to as “franchise tax”

VAT REGISTRATION
-Franchise grantees of radio or television broadcasting companies are mandatorily required to
register as VAT taxpayer if they exceed the P10,000,000 gross receipt threshold. Even if
below the threshold, they may register as VAT taxpayer. The VAT registration of these
entities is non- cancellable until the dissolution of their business. Therefore they still need to
apply business tax as value added tax.

Note that there is no similar provision for franchise grantees of gas and water utilities.
Hence, they are subject to percentage tax even if they exceed the P10M gross receipts
threshold.

Illustration 1: RADIO FRANCHISE GRANTEES

Radio Filipino exceeded the P10,000,000 annual gross receipts last year due to increase in ads
income brought about by the national election. Radio Filipino is only expected to reach it’s
P6,000,000 average annual receipt this year. If lumagpas na sya ng 10million ang 6million ay
still subject sa value added tax

Illustration 2: GAS UTILITIES

City Gas Corporation, a gas utility, consistently had gross sales exceeding P10,000,000 every
year. Since wala naman ditong threshold as long as gas utility yan, kahit lumagpas pa ng
10million or whatsoever that is subject at two percent percantage tax.So 2percent franchise
tax which is 12million multiplied by 2percent.

Illustration 3: WATER UTILITIES

Baguio Water District reported a P12,000,000 receipt in a month from water bills of Baguio
City residents. So it was the same sa illustration number 2 na gas utilities which is 12million
multiplied by 2percent franchise tax.
VATABLE FRANCHISES
A. Electricity- electric generation or transmission and distribution by electric cooperatives are
vatable.
B. Telecommunication- telecom companies are vatable, except on their receipts from outgoibg
messages since these are subject to the 10% overseas communication tax.
C. Transportation- transport companies are vatable, except receipts of common carriers by
land on their transport of passengers since these are subject to the 3% common carriers tax.
D. Private Franchises
And that’s it for the franchise let’s proceed to the next letter on the BICAP FLOW, the
letter F is franchise and the letter L is Life insurance.

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.
For example si Sunlife insurance company and ako yung insured person kasi kumuha
ako ng insurance sa sunlife, so ako ay magbabayad ng monthly, quarterly or semi
annually, so yung amount na binabayad ko kay sun life ay premium.The amount or the
preium collected by sunlife is subject sa 2% percantage tax.

A life insurance company is a company which deals with the insurance on human lives and
insurance appertaining thereto or connected therewith. The service likewise includes
soliciting group insurance, and health and accident insurance policies which the company is
nevertheless authorized to pursue as part of its business activity.

The following shall not be included in gross receipts of an insurance company:

a. Premiums refunded within 6 months
b. Re-insurance premiums
c. Premiums from life insurance of non-residents received from abroad
d. Excess of premiums on variable contracts

TYPES OF INSURANCE BUSINESS

a. Direct insurance
b. Reinsurers
c. Retrocessionaires

Illustration 1
Absolute Insurance underwrites both life and non-life insurance policies. The following were
the premiums collected in a month:
Life Policies Non-life
Cash collections P2,000,000 P1,500,000
Checks 400,000 600,000
Promissory note 500,000 400,000
Total P2,900,000 P2,500,000
The percentage tax will be computed as:
Cash collections P2,000,000
Checks 400,000
Promissory notes 500,000
Total premiums P2,900,000
Multiply by: percentage tax rates 2%
Premiums tax P58,000

Illustration 2
Phinoy Reinsurance, a domestic reinsurance company, reported the following premiums and
retrocessionnaire during the month:
Reinsurance premiums P12,000,000
Less: Retroceded premiums 8,000,000
Retention P4,000,000
Commissions from retroceded reinsurance 500,000
contracts

Illustration 3
Sihra Life Insurance Philippines offers life insurance and variable insurance products. The
following relates to its monthly receipts:
Life Plans Variable Life Plans
Total premiums P2,000,000 P8,000,000
Less: Insurance charges - 5,000,000
Credits to client account balances P - P3,000,000

The premium tax shall be computed as follows:

Life premiums P2,000,000
Insurance charges on variable life plans 5,000,000
Total life insurance premiums 7,000,000
Multiply by: 2%
Premium tax P140,000

TAXATION OF OTHER RECEIPTS OF LIFE INSURANCE BUSINESS

1. Renewal or re-insurance fee, re-instatement fee and penalties
2. Management fees, rental income, or other income from unrelated services
3. Investment income
SUMMARY OF TAX RULES ON INSURANCE:

Republic of the Philippines

Re-insurers
Re-insurance
Foreign
premium (0%) Domestic/Resident
insurers
life insurers

2% premiums tax

Agent Insured
5% percentage tax

4% premiums tax

Life Insurance Non-life Insurance

Direct premiums 2% premiums tax Vatable
Re-insurance premiums Exempt Exempt
Insurance commissions Vatable Vatable