ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 44  October 2022 CPA Licensure Examination

TAX-401
TAXATION A. TAMAYO  E. BUEN  G. CAIGA  C. LIM  K. MANUEL

OTHER PERCENTAGE TAXES (Part I)

1. OTHER PERCENTAGE TAXES (SUMMARIZED)
Percentage Tax Tax Base Tax Rate
Sec. 116 – Tax on persons exempt from 3%
VAT under Sec. 109 (BB) (annual gross sales 1% (July
or receipts do not exceed P3,000,000 Gross quarterly sales or receipts 1, 2020
to June
30, 2023)
Sec. 117 – Percentage tax on domestic
carriers and keepers of garage (transport of Actual or minimum quarterly gross receipts whichever is higher 3%
passengers)
Sec. 118 – Percentage tax on international
Quaterly gross receipts 3%
carriers
Sec. 119 – Tax on franchises Gross receipts:
Franchises on radio and/or TV broadcasting companies whose
annual gross receipts of the preceding year do exceed P10,000,000 3%
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Franchises on gas and water utilities 2%

Sec. 120 – Tax on overseas dispatch, Amount paid for such services (by the person who used the
message or conversation originating from the communications facilities) 10%
Philippines
Sec. 121 – Tax on banks and non-bank Gross receipts on interest, commissions and discounts from lending
financial intermediaries performing quasi- activities; income from financial leasing:
banking functions Remaining maturity period of instrument is 5 years or less 5%
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Remaining maturity period of instrument is more than 5 years 1%

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Dividends and equity shares in net income of subsidiaries; 0%

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Royalties, rentals of property, real or personal, profits from exchange
and all other items treated as gross income under the Tax Code 7%
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Net trading gains within the taxable year on foreign currency, debt
securities, derivatives and other similar financial instruments 7%
Sec. 122 – Tax on other non-bank financial Gross receipts derived from interest, commissions, discounts and all
intermediaries other items treated as gross income under the Tax Code 5%
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Interests, commissions and discounts from lending activities, as well

as income from financial leasing:
Remaining maturity of instrument is 5 years or less 5%
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Remaining maturity of instrument is more than 5 years 1%

Sec. 123 – Tax on life insurance premiums Total premiums collected 2%
Sec. 124 – Tax on agents of foreign Total premiums collected/paid
insurance companies (fire, marine or Generally 4%
miscellaneous insurance) ----------------------------------------------------------------------------------------------------------------------------------------------------- ---------------------
Owners of property obtain insurance directly with foreign insurance
companies 5%
Sec. 125 – Amusement taxes Gross receipts
Jai-alai and race track 30%
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Cockpits, cabarets, night or day clubs 18%

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Professional basketball games 15%

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Boxing exhibitions 10%

Sec. 126 – Tax on winnings Actual amount paid for every winning ticket after deducting the cost of
the ticket 10%
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Winnings from double, forecast/quinella and trifecta bets 4%

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Prize of winning race horse owners 10%

Sec. 127 (A) Tax on sale, barter or exchange
of shares of stock listed and traded 6/10 of
through the local stock exchange Gross selling price or gross value in money 1%
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(B) Tax on shares of stock sold or Gross selling price or gross value in money in accordance with the
exchanged through public offerings proportion of shares of stock sold, bartered, exchanged or otherwise
disposed to the total outstanding shares of stock after listing in the
local stock exchange
Up to 25% 4%
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Over 25% but not over 33 1/3% 2%
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Over 33 1/3% 1%

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
OTHER PERCENTAGE TAXES – PART 1 TAX-401
2. PERCENTAGE TAXES AMPLIFIED
a. Sec. 116 - Tax on Persons Exempt from VAT Under Section 109 (CC)
1) Persons subject to the tax Persons whose annual sales or receipts do not exceed P3,000,000 (used to be P1,919,500) and who
are not VAT registered. [Sec. 109 (CC)]
2) Tax base Gross quarterly sales or receipts
3) Tax rate 3% (1% effective July 1, 2020 until June 30, 2023)
4) Optional VAT registration Persons subject to the above tax may apply for registration as VAT-subject persons not later than ten (10)
days before the beginning of the taxable quarter.
5) Cancellation of VAT Any person exempt from VAT under Sec. 109 (BB) who elects to register under the VAT system shall not
registration be allowed to cancel his registration for the next three (3) years.
6) Non-VAT registered taxpayer A non-VAT registered taxpayer who initially opted to avail of the 8% option but has exceeded the VAT threshold
exceeded the VAT threshold during the taxable year, shall be subject to 3% Percentage Tax on the first P3,000,000.00 of his or her gross
sales or gross receipts under Section 116 of the Tax Code, as amended, without imposition of any penalty if
payment is timely made on the following month when the threshold is breached.

The excess of the threshold shall be subject toVAT prospectively, and the 8% income tax previously paid shall be
credited to the Income Tax Due under the graduated rates provided in Section 24(A)(2)(a) of the Tax Code, as
amended.
6) Exempt under Sec. 116 a. Cooperatives shall be exempt from the 3% gross receipts tax.
b. Self-employed individuals and professionals availing of 8% tax on gross sales and/or receipts and other
non-operating income.
7) Exercises: Determine which of the following is subject to VAT, 3% (1%) percentage tax on VAT-exempt persons or neither VAT
nor 3% percentage tax on VAT-exempt persons
a) Seller of VAT-subject goods, not VAT-registered, gross annual sales do not exceed P3,00,000
b) Service contractor, VAT-registered, gross annual receipts do not exceed P3,000,000
c) Milling for others, not VAT-registered, gross annual receipts exceed P3,000,000
d) Seller of fresh fish, gross annual sales exceed P3,000,000
e) VAT-registered seller of both VAT-subject goods and VAT-exempt goods (optionally registered VAT-exempt sales)
f) Mr. Jaime Rodriguez is the owner of a small variety store. His gross sales in any one year do not exceed the VAT threshold amount. He is not
VAT-registered. The following data are taken from the books of the variety store for the month ending November 30, 2018:
Merchandise inventory, December 31, 2021 P 150,000
Gross sales 250,000
Purchases from VAT-registered suppliers 150,000
How much is the percentage tax due and payable?
g) A taxpayer is non-VAT because his VATable sales do not exceed the VAT threshold of P3,000,000. He initially opted to pay 8% income tax in
the first three (3) quarters of 2018 because his gross sales amounted to P3,000,000 only. During the same taxable year, however, his annual
gross sales reached P4,000,000.
Question 1 – How much is the percentage tax, if any?
2 – How much is the VAT, if any?

b. Sec. 117 - Percentage Tax on Domestic Carriers and Keepers of Garage (Common Carrier’s Tax)
1) Common carrier defined Persons, corporations, firms or associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air, for compensation, offering their services to the public and shall
include transportation contractors.
2) Persons subject to common 1) Cars for rent or hire driven by the lessee
carrier’s tax 2) Transportation contractors, including persons who transport passengers
3) Other domestic carriers by land for the transport of passengers
4) Keepers of garage
3) Persons not subject to 1) Owners of banca
common carrier’s tax 2) Owners of animal-drawn two wheeled vehicle
4) Tax base Actual quarterly gross receipts or minimum quarterly gross receipts whichever is higher.
5) Tax rate 3%
6) Minimum quarterly 1) Jeepney for hire Manila and other cities P65,700 (P2,400)
receipts Provincial P32,900 (P1,200)
2) Public utility bus Not exceeding 30 passengers P98,600 (P3,600)
Exceeding 30 but not exceeding
50 passengers P164,200 (P6,000)
Exceeding 50 passengers P197,100 (P7,200)
3) Taxis Manila and other cities P98,600 (P3,600)
Provincial P65,700 (P2,400)
4) Car for hire with
chauffeur P82,100 (P3,000)
5) Car for hire
without chauffeur P49,300 (P1,800)
7) Exemption from local taxes The gross receipts of common carriers derived from their incoming and outgoing freight shall not be
subject to the local taxes imposed under the Local Government Code of 1991.
8) Transportation contractors 1) Transportation contractors on their transport of goods or cargoes;
and common carriers subject 2) Persons who transport goods or cargoes for hire;
to VAT 3) Other domestic carriers by land relative to their transport of goods or cargoes;
4) Common carrier by air and sea relative to their transport of passengers, goods or cargoes from one
place in the Philippines to another place in the Philippines.
9. Exercises: Determine which of the following is subject to VAT, 3% common carrier’s tax or neither VAT nor 3% common carrier’s
tax
a) Transport of passengers by domestic common carrier by land, gross receipts exceeded P3,000,000
b) Transport of goods and cargoes by domestic common carrier by land, VAT-registered, gross receipts do not exceed P3,000,000
c) Transport of passengers, goods and cargoes by domestic common carrier by sea, not VAT-registered, gross receipts exceeded
P3,000,000
d) Transport of passengers, goods and cargoes by domestic common carrier by air, not VAT-registered, gross receipts do not
exceed P3,000,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
OTHER PERCENTAGE TAXES – PART 1 TAX-401
e) Transport of passengers, goods and cargoes by calesa
f) Transport of passengers, goods and cargoes by banca
g) Faye Transport Co., VAT-registered, is a domestic common carrier by land and sea within the Philippines. It had the following data in a
quarter year 2021:
On land carriers:
Gross receipts from cargoes P500,000
Gross receipts from passengers 700,000
On sea carriers:
Gross receipts from cargoes 900,000
Gross receipts from passengers 1,000,000

Question 1 – How much is the percentage tax?

Question 2 – How much is the output value-added tax, if VAT-registered?

c. Sec. 118 - Percentage Tax on International Carrier (Common Carrier’s Tax)

1) Persons subject to tax 1) International air carriers doing business in the Philippines
2) International shipping carriers doing business in the Philippines
2) Tax base Gross receipts derived from the transport of cargo from the Philippines to another country
3) Tax rate 3%

4) Gross receipts defined Gross receipts shall include, but shall not be 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 Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or
issue and the place of payment of the passage documents. (Sec. 5, RR 15-2013, implementing R.A. No. 10378)
5) Exempt from VAT 1) Transport of passengers by international carriers doing business in the Philippines
(not allowed to register for 2) Transport of cargo by international carriers doing business in the Philippines
VAT purposes)
6) Off-line international Not subject to the 3% common carrier’s tax on international carriers
carrier having
branch/office as a sales
agent in t he Philippines
4) Exercises: Determine whether or not the following shall be subject to the common carrier’s tax on international carriers
a) All Nippon Airlines, maintaining flight operations to and from the Philippines, on freight and cargo fees, cargo originating from
the Philippines (passage documents sold in Japan)
b) Japan Air Lines, maintaining flight operations to and from the Philippines, on freight and cargo fees, cargo originating from the
Japan (passage documents sold in the Philippines)
c) All Nippon Airlines, maintaining flight operations to and from the Philippines, gross receipts from sale of tickets to passengers
originating from the Philippines (passage documents sold in the Philippines)
d) United Airlines, no flight operations to and from the Philippines, on gross receipts from transport of cargo from Singapore to
Tokyo (passage documents sold in the Philippines by its sales agent)

e) The following data were provided by an air carrier:

Freight and cargo fees (cargo originating from the Philippines in a continuous and uninterrupted flight
to Japan (passage documents sold in Japan) P5,000,000
Mail fees (mail originating from Japan in a continuous and uninterrupted flight to the Philippines
(passage documents sold in the Philippines) 4,000,000
Advance payments for cargo originating from the Philippines in a continuous and uninterrupted flight to Singapore
(passage documents sold in Singapore) 3,000,000
Receipts from sales of tickets to passengers originating from the Philippines in a continuous and uninterrupted flight
to Hongkong (tickets sold in the Philippines) 2,000,000
Expenses, Philippines 1,500,000

Question 1 - How much is the common carrier’s tax due from the air carrier assuming it is an international carrier doing business in the
Philippines?
2 – How much is the VAT due from the air carrier assuming it is a domestic air carrier?

d. Sec. 119 – Tax on Franchises

1) Persons subject to tax 1) Franchises on radio and/or television broadcasting companies whose annual gross receipts of the
preceding year does not exceed P10,000,000;
2) Franchises on gas and water utilities.
2) Tax base Gross receipts derived from the business covered by the law granting the franchise.

3) Tax rates 1) Franchise on gas and water utilities - 2%

4) Optional VAT registration
5) Franchise grantees subject to
VAT
6) PAGCOR and its licensees and
franchisees
2) Franchise on radio and/or TV broadcasting - 3%
3) PAGCOR and its licensees and franchisees - 5%
1) Radio and TV broadcasting companies whose annual gross receipts of the preceding year does not
exceed P10,000,000 shall have the option to be registered within 10 days before the beginning of the
calendar quarter as VAT taxpayer and pay VAT thereon.
2) Once the option is exercised, it shall not be revoked.
1) Telephone and telegraph;
2) Radio and/or television broadcasting;
3) Toll road operations;
4) All other franchisees, other than those covered by Sec. 119 of the Tax Code, regardless of how their
franchise may have been granted.
PAGCOR and its licensees and franchisees were subjected to VAT but nullified in a Supreme Court decision
(G.R. 172087 dated March 15, 2011). Subject to 5% franchise tax of the gross revenue or earnings from
its operations and licensing of gambling casinos, gaming clubs and other similar recreation or amusement
places, gaming pools, and other related operations pursuant to Section 13 (2) of P.D. No. 1869 (Revenue
Memorandum Circular No. 33-2013).).

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
OTHER PERCENTAGE TAXES – PART 1 TAX-401
6) Exercises: Determine what business tax will the following be subject to
a) Franchise grantee of radio and/or television broadcasting, not VAT-registered, gross receipts on sale of air time, P10,000,000
b) Franchise grantee of radio and/or television broadcasting, VAT-registered, gross receipts on sale of air time, P10,000,000
c) Franchise grantee of radio and/or television broadcasting, not VAT-registered, gross receipts on sale of airtime, P15,000,000
d) Franchise grantee of radio and/or television broadcasting, not VAT- registered, on gross receipts from lease of office spaces,
P3,000,000
e) Franchise grantee of radio and/or television broadcasting, VAT- registered, on gross receipts from lease of office spaces,
P3,000,000
f) Franchise grantee of radio and/or television broadcasting, not VAT- registered, on gross receipts from lease of office spaces,
P3,500,000
g) Franchise grantee of radio and/or television broadcasting payments received from persons who used its communication facilities
to make overseas calls, P3,000,000
h) Franchise grantee of water of gas and water utilities on gross receipts from sale of water and gas, P3,000,000
i) Franchise grantee of water of gas and water utilities on gross receipts from sale of water and gas, P3,500,000
j) Franchise grantee of water of gas and water utilities, not VAT-registered on gross receipts from lease of office space, P3,000,000
k) Franchise grantee of water of gas and water utilities, VAT-registered, on gross receipts from lease of office spaces, P3,000,000
l) Franchise grantee of water of gas and water utilities, not VAT-registered, on gross receipts from lease of office spaces, P3,500,000
m) PAGCOR and its licensees and franchisees on gross revenue or earnings from its operations and licensing of gambling casinos,
gaming clubs and other similar recreation or amusement places, gaming pools, and other related operations

m) As a franchisee, Ms. Kathleen En, had the following data on revenues and receivables, taxes not included:
Receivables
Revenues Beginning End
From operations:
Covered by the franchise P2,000,000 P300,000 P400,000
Not covered by the franchise 600,000 50,000

How much is franchise tax due if she is a franchise grantee of:

1) water and gas utilities.
2) electric utility.

e. Sec. 120 - Tax on Overseas Dispatch, Message or Conversation Originating from the Philippines
1) Persons subject to tax The tax imposed shall be payable by the person paying for the services rendered and shall be paid to the
person rendering the services who is required to collect and pay the tax within twenty (20) days after the
end of the quarter.
2) Persons not subject to tax 1) Philippine Government;
2) Diplomatic services;
3) International organizations;
4) News services.
3) Tax base Amount paid for the services rendered
4) Tax rate 10%
5) Examples of communication 1) Telephone;
facilities 2) Telegraph;
3) Telewriter exchange;
4) Wireless and other communication equipment services.
6) Exercise: Mr. Elirie Espenilla is a businessman with transactions in and out of the Philippines. Local and overseas calls for a period involved
(tax not included):
Overseas calls:
For calls originating from the Philippines:
Paid by the subscriber in the Philippines (personal calls amounted to P45,000) P65,000
Paid by the receiver of the calls outside the Philippines (business calls) 14,500
For calls coming into the Philippines:
Paid by Mr. Espenilla 15,000
Paid by callers 23,000
Local calls, paid by Mr. Espenilla:
Other than long distance (personal calls) 7,000
Long distance (business calls) 20,000

Question 1 - How much is the value-added tax billed to Mr. Espenilla?

Question 2 – How much is the percentage tax billed to Mr. Espenilla?

f. Sec. 121 - Tax on Banks and Non-Bank Financial Intermediaries Performing Quasi-Banking Functions (Gross Receipts Tax)
1) Bank defined
2) Non-bank financial
intermediary defined
3) Quasi-Banking activities
4) Persons subject to the tax
The term “bank” means every banking institution, as defined in Sec. 2 of R.A. No. 337, as amended,
otherwise known as The General Banking Act. A bank may either be a commercial bank, a thrift bank, a
development bank, a rural bank or a specialized government bank.
The term “non-bank financial intermediary” means a financial intermediary, as defined in Sec. 2 (D) (c) of
R.A. No. 337, as amended, otherwise known as The General Banking Act, authorized by the Bangko
Sentral ng Pilipinas (BSP) to perform quasi-banking activities
The term “quasi-banking activities” means borrowing funds from twenty (20) or more personal or
corporate lenders at any time, through the issuance, endorsement, or acceptance of debt instruments of
any kind other than deposits for the borrower’s own account, or through the issuance of certificates of
assignment or similar instruments, with recourse, or repurchase agreements for purposes of relending or
purchasing receivables and other similar obligation: Provided, however, That commercial, industrial and
other non-financial companies, which borrow funds through any of these means for the limited purpose of
financing their own needs or the needs of their agents or dealers, shall not be considered as performing
quasi-banking functions.
Banks and non-bank financial intermediaries performing quasi-banking functions

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
OTHER PERCENTAGE TAXES – PART 1
5) Tax base and tax rates
6) In case maturity is
shortened through
pre-termination
TAX-401
Tax base Tax rates
Gross receipts on interest, commissions and discounts from lending activities;
income from financial leasing:
Remaining maturity period of instrument is 5 years or less 5%
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Remaining maturity period of instrument is more than 5 years 1%
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Dividends and equity shares in net income of subsidiaries 0%
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Royalties, rentals of property, real or personal, profits from exchange and all other
items treated as gross income under the Tax Code 7%
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Net trading gains within the taxable year on foreign currency, debt securities,
derivatives and other similar financial instruments 7%
In case the maturity period is shortened thru pre-termination, the maturity period shall be reckoned to end
as of the date of pre-termination for purposes of classifying the transaction and applying the correct rate of
tax accordingly.

7) Exercise: A domestic bank had the following data in a quarter.

Rentals from safety deposit boxes and real property acquired through mortgage foreclosures, gross of applicable tax P300,000
Service fees, net of applicable tax 186,000
Dividends and equity shares in the net income of subsidiaries 500,000
Amounts received from lending activities, net of applicable tax, on instruments with maturities of:
Five years and less 760,000
More than five years 891,000
Net trading gain during the quarter 500,000
Net trading loss during the quarter (within the same year) 300,000

Compute the percentage tax for the quarter.

g. Sec. 122 – Tax on Other Non-Bank Financial Intermediaries (Gross Receipts Tax)
1) Persons subject to tax Non-bank financial intermediaries, such as money changers and pawnshops
2) Tax base and tax rates Tax base Tax rates
Gross receipts derived from interest, commissions, discounts and all other items treated as
gross income under the Tax Code 5%
Interests, commissions and discounts from lending activities, as well as income from
financial leasing:
Remaining maturity of instrument is 5 years or less 5%
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Remaining maturity of instrument is more than 5 years 1%
3) In case maturity is In case the maturity period is shortened thru pre-termination, the maturity period shall be reckoned to end
shortened through as of the date of pre-termination for purposes of classifying the transaction and applying the correct rate
pre-termination of tax accordingly.
4) Exercise A pawnshop has the following receipts:
Gross receipts from interest, commissions, discounts P100,000
Other items treated as gross income under the Tax Code 150,000
Interests, commissions and discounts from lending activities (remaining maturity
of instruments is more than 5 years) 120,000
Income from financial leasing (remaining maturity of instruments is 5 years) 140,000

Question 1 – How much is the gross receipts tax?

2 – Assuming the above taxpayer is a non-bank financial intermediary performing quasi-banking
function, how much is the gross receipts tax?

“Do not be impressed by things that can be seen by the naked eye, they are temporary. Focus instead on things that the naked eye jb
cannot see; they have eternal value.” - Tamthewise

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