Cecilia Lopena

Other Percentage Taxes

Percentage tax is a business tax imposed on persons, entities, or transactions specified under
Sections116 to 127 of the National Internal Revenue Code of 1997 (also known as Tax Code), as
amended, and as required under special laws.

Section 116- Tax on Persons Exempt from Value-Added Tax (VAT)

Any person whose sales or receipts are exempt under Section 109(z) of this Code from
the payment of value-added tax and who is not a VAT-registered person shall pay a tax
equivalent to three percent (3%) of this gross quarterly sales or receipts: Provided, that
cooperatives shall be exempt from the three percent (3%) gross receipts tax herein imposed.

Requisite/S:
1. The sales or receipts are not vat exempt under sections 109(A) to 109 (AA)
2. Annual Gross sales/ receipts of not more than P3m
3. The entity should not be a Vat registered.
4. If self-employed or practicing professional, 8% Gross sales tax must not be chosen.
5. Not included in the section 117-127.

Section 117- Percentage Tax on Domestic Carriers and Keepers of Garages.

Cars for rent or hire driven by the lessee, transportation contractors, including persons who
transport passengers for hire, and other domestic carriers by land for the transport of passengers,
except owners of bancas and owner of animal-drawn two wheeled vehicle, and keepers of garages
shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts.

The gross receipts of common carriers derived from their incoming and outgoing freight shall not be
subjected to the local taxes imposed under Republic Act No. 7160, otherwise known as the Local
Government Code of 1991.
-known as 3% Common Carriers Tax (CCT)
-for domestic common carriers tax by land for the transport of passengers only.

Exemption:
1.Domestic common carriers by air or sea are subject to VAT on their gross receipts from their
transport of passengers, goods or cargoes from one place in the PH to another place in the PH.
2.International flights or shipments of domestic carriers by air or sea shall either be subject to 0%
VAT (zero rated) or VAT exempt, depending on whether the entity is VAT-registered.

3.Zero rated VAT shall apply only to VAT-registered domestic carriers while non-VAT registered
carriers are exempt from VAT.
 Transportation Network Companies (TNC’s)-RMC 70-2015:
TNC or Transportation Network Vehicle System (TNVS) is a pool of land transportation vehicles
whose accessibility to the riding public is facilitated through the use of common point of contact
which may be in the form of text, telephone and/or cellular calls, email, mobile applications or by
means. The vehicles used in transporting passengers and /or goods in the TNC may be owned by
other people and/or entities (“Partners”) other than TNC.

Note:
VAT is imposed on sale of goods or services in the PH only;
Transport of passengers and goods from international flights of domestic carriers are not subject to VAT;
Transport operations of common carriers originating abroad is not subject to business tax in the PH.

Section 118 Percentage Tax on International Carriers

A. International air carriers doing business in Philippines on their gross receipts derived from transport of
cargo from the Philippines to another country shall pay a tax of 3% of their quarterly gross receipts.

B. International shipping carriers doing business in phil. on their gross receipts derived from transport of
cargo from the Philippines to another country shall pay a tax of 3% of their quarterly gross receipts.
International Carriers (air transport or shipping company)

From Phil. To Abroad

Transport of:

Business Tax
Exempt Section 118
  Percentage tax in this Section is also known as Common Carriers Tax (CCT) on international
Carriers.
 International carriers pertain to foreign air and shipping carriers doing business in the Philippines
(Resident Foreign Corporation).
 Gross receipts shall include, but not limited to, the total amount of money or its equivalent
representing the contract, freight/cargo fees, mail fees, deposits applied as payments, advance
payments and other service charges and fees actually or constructively received during the
taxable quarter from cargo and/or mail, originating from the PH in a continuous and
uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the
passage documents.

Section 119 Percentage Tax on Franchise

On the AGR derived by the franchise grantees of:

1. Gas and water utilities from the business covered by the law granting franchise of 2%.

2. Radio and/or television broadcasting companies whose annual gross receipts of the preceding year do
not exceed 10million-3%.

“Companies whose annual gross receipts of the preceding year exceed 10million are subject to Vat. Said
companies with gross receipts not exceeding the threshold may option to registered as a Vat taxpayer.
The option once exercised cannot revoked.”
Summary:

FRANCHISE GRANTOR BUSINESS TAX OF FRANCHISE “GRANTEES”

Private VAT or OPT (Sec.116) or unless exempt
Government VAT; or
OPT
 Section 119
 Gas and Water – 2%
 Radio Television Broadcasting Cos.-3% or VAT

 Unless exempt or as provided under other special laws

-
Note:
Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding
year do not exceed P10M, derived from the business covered by the Law granting the franchise may opt
for VAT registration. This option, once exercised shall be irrevocable. (Sec.119, Tax Code).

Section 120 Overseas Communication Tax

 On the amount paid on every overseas dispatch, messages or conversation transmitted by

telephone, telegraph, telewriter exchange, wireless and other communication equipment
services-10%.
 The tax shall payable by the person paying for the services rendered and shall be paid to the
person rendering the services.
 The tax does not apply to the amounts paid for messages transmitted by:
 The Government, its political subdivisions or instrumentalities;
 Diplomatic services;
 Public International organizations or any of their agencies based in the Philippines; and
 News Services

Section 121- TAX ON BANKS and NON-BANKS FINANCIAL INTERMEDIARIES PERFORMING QUASI-
BANKING OPERATIONS

“Banks” shall refer to entities Borrowing of funds from twenty (20) or

engaged in the lending of funds more personal or corporate lenders at any
obtained in the form of deposits. one time.

Exemptions:
1.Income by BSP earned in the pursuit in its legally mandated functions.
2. Income of Rural banks
- rural banks that are at least 5 years in operations before April2, 1993.
3. Credit Cooperatives

Kind Of Income
A.) On interests, commissions and discounts from lending activities as well as income from financial
leasing, on the basis of remaining maturities of instruments of instrument from which such receipts are
derived:
Maturity period is five years or less 5%

Maturity period is more than five years 1%

Example:
Juan executed on January 1, 2010, a long-term loan from MBC Bank in the amount of P5,000,000
payable within 10 years, with an annual interest of 2%. However, on January 31, 2014, the loan was pre-
terminated. Assuming the bank declared correctly the interest from 2010 to 2013 and the applicable
gross receipts taxes were paid, how much gross receipts tax should be paid for the year 2014?
 Answer/Solution:

Interest from 2010- 2013

(5M x 2% x 4 years) P400,000
GRT rate applied 1%
GRT ( paid) P4,000
Recomputed GRT (400,000 x 5%) 20,000
Difference (payable) P16,000

Add: GRT for Jan. 2014

[(P5M x 2%)/12mos.] x 5% 417
TOTAL GRT for Jan.2014 P16,417

“Provided however, that in case the maturity period referred to I paragraph (A) is shortened through pre-
termination, then the maturity period shall be reckoned to end as of the date of pre-termination for
purposes of classifying the transaction and the correct rate of tax shall be applied accordingly.”

B). Dividends and equity shares and 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 Section 32 of the Code 7%

D.) On the trading gains within the taxable year on foreign currency, debt securities, derivatives, and
other similar financial instruments 7%

Illustration1:
MBC Bank has the following data for January to March 2020. Determine the correct amount of GRT for
the 1st quarter.
Interest Income, the remaining maturity of the instrument is 5 years 200,000

Rentals (gross of 5% expanded withholding tax ) 50,000

Net trading loss ( 20,000)

Solution:

Interest income-maturity ≤ 5years P10,000

(P200,000 x 5%)
Rentals (50,000 x 7%) 3,500
GRT, 1st quarter P13,500

Illustration 2:
MBC Bank has the following data for April to June 2020. Determine the correct amount of GRT for the 2 nd
quarter.

Interest income, the remaining maturity of the instrument is 5 years 250,000

Rentals (gross of 5% expanded withholding tax) 80,000

Net trading gain 50,000

Solution/Answer:
Interest Income, maturity ≤ 5years P12,500
( P250,000 x 5%)
Rentals (80,000 x 7% ) 5,600
Net Trading Gain
( 50,000- 20,000) 7% 2,100
GRT, 2nd Quarter P20,200

Determining the correct amount of Net Trading Gain

In computing the net trading gain within the taxable year, the figure to be reported in the percentage tax
return shall be the cumulative total of the net trading gain or loss since the first moths of the same
taxable year. Provided, that the net trading loss may only be deducted gain, but not from any other items
of gross receipt to arrive at the total monthly gross receipts due (RR- 2008).