Chapter 5

Percentage Tax
 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.
THE SCOPE OF THE PERCENTAGE
TAX
Coverage Type of % tax Tax rates
1. Services specifically Specific % tax Various tax rates
subject to percentage tax

2. Sales of goods or other General % tax 3% percentage tax

services not exempted
Who pays??
Type of % tax VAT registered Non-VAT taxpayers
taxpayers

Specific percentage ✓ ✓
tax

General percentage X ✓
tax
Non-VAT taxpayers are those who did not
exceed the VAT threshold and who did not
register as VAT taxpayers.
SERVICES SPECIFICALLY SUBJECT TO
PERCENTAGE TAX (BICAP FLOW)
1. Banks and non-bank financial intermediaries
2. International carriers on their transport of cargoes, excess
baggage andmails only (RA 10378)
3. Common carriers on their transport of passengers by land
and keepers of garage
4. Certain amusement places
5. Brokers in effecting sales of stocks through the Philippine
Stock Exchange and corporations or shareholders on initial
public offerings
6. Certain franchise grantees
7. Life insurance companies and agents of foreign insurance
8. Telephone companies on overseas communication
9. Jai-alai and cockpit operators on winnings
TAX ON BANKS AND NON-BANK
FINANCIAL INTERMEDIARIES
"Banks” refers to entities engaged in the lending of funds obtained
in the form of deposits.

"Non-bank financial intermediaries" refers to persons or entities

whose principal function include the lending, investing or
placement of funds or evidences of indebtedness or equity deposited
with them, acquired by them or otherwise coursed through them,
either for their own account or for the accountof others.
Quasi-banking function refers to the borrowing of funds
from twenty (20) or more personal or corporate lenders at
any one 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 of repurchase agreements for purposes of
relending or purchasing receivables or other
similarobligations.
 Tax rates on Bank and Quasi-banks
Source of income or receipt % Tax rate
1. Interest income, commissions and discounts from
lending activities, and income from financial leasing, on
the basis of remaining maturities of instruments from
which the receipts were derived:

a. Maturity period of five years or less 5%

b. Maturity period of more than five years 1%
2. Dividend and equity shares in the net income of 0%
subsidiaries
 Tax rates on Bank and Quasi-banks
Source of income or receipt % Tax rate
3. On royalties, rentals of property, real or personal, 7%
profits from 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 7%
foreign currency, debt securities, derivatives, and other
similar financial instruments (RA 9337)
Meaning of "gross income"
 include only those items of gross income subject to
regular income tax.

 only those items of gross income subject to the

regular tax are includible as "gross receipts" for
purposes of the percentage tax.
Gross income for Banks
 the term "gross income" of banks was held to include those
items of gross income subject to final tax.

 it was also held that the amount of gross income to be

included in gross receipts for purposes of the gross receipt
tax shall be the amount of the income, gross of the final
income tax.

-
Net trading gains within the taxable year on foreign
currencies, debts, securities, derivatives and other
financial instruments
- RR 4-2009, the figure to be reported in the monthly percentage
tax return shall be the cumulative total of the net trading
gain/loss since the start of the taxable year less the figures
already reflected in the previous months of the taxable year.

Net trading loss sustained from this category shall be deductible

only to the gains from trading on the same category.
Exemption from the gross receipt tax

The gross receipt tax imposed on banks does not

apply to the income or revenue realized by the
Bangko Sentral ng Pilipines (BSP) from its
transactions undertaken in pursuit of its legally
mandated functions.
TAX ON OTHER FINANCIAL
INTERMEDIARIES WITHOUT QUASI-
BANKINGFUNCTIONS
Source of income or receipt % Tax rate
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:

c. Maturity period is five years or less 5%

d. Maturity period is more than five years 1%
2. From all other items treated as gross income under the 5%
NIRC
Common Rules for Banks, Quasi-banks and
Other Financial Institutions

1. Accounting rules
2. Finance lease and operating leases
3. Pre-termination of instruments
Accounting rules
Under RR4-2009, the basis of the calculation of
gross receipts shall be the generally accepted
accounting principles (GAAP) prescribed by the:

a. BSP
b. SEC
Finance and operating leases
 A finance lease (also known as direct financing lease) is a
sale of property whereby the seller earns only interest
income on the arrangement.

 An operating lease is not a sale and does not transfer

ownership over the leased property.
Finance and operating leases
 gross receipt on finance leases shall consists only of interest
income excluding collections of principal.

 In operating leases, gross receipt shall include the gross

rentals received.
Pre-termination of loans
- 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.
Withholding of Percentage Tax on
banks
Effective August 1, 2014, the Bangko Sentral ng Pilipinas (BSP)
shall withhold the percentage tax on banks and non-bank financial
institutions on all its payments to special deposit accounts and
reserve liquidity accounts.
PERCENTAGE TAX ON
INTERNATIONAL CARRIERS
International carriers doing business in the Philippines shall
pay a tax equivalent to 3% of their quarterly gross receipts
derived from the transport of cargoes, baggage, or mails
from the Philippines to another country
two types of international carriers:

a. International air carriers

b. International shipping carriers
"international carriers”
 means air or sea carriers owned by foreign corporations that operate
in the Philippines and transport passengers or cargoes from the
Philippines to overseas and vice versa.

 3% quarterly percentage tax is based on the gross receipts from

thetransport of cargoes, excess baggage, or mails regardless of the
place wherethey are actually billed.
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, advanced payments, and other service charges and
fees actually or constructively received during the taxable
quarter from cargoes and/or mails, 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.
 Taxation of gross receipts on flights or
voyages
International operation
Types of carriers Domestic operation Outgoing Incoming

Domestic carrier 12% VAT 0% VAT Exempt

International carriers

- Passengers N/A Exempt Exempt

- Goods, mails or N/A 3% OPT Exempt

cargoes
The common carrier's tax herein does not apply to off-
line international carriers having a branch/office or sales
agent in the Philippines which sells passage documents
for a compensation or commission cover off-line fights
or voyage of its principal or head office, or for other
airlines or sea carriers covering flights or voyages
originating from Philippine ports or off-line flights or
voyages. (RR15-2013) These entities may be subject to
VAT.
Table of Comparison: Tax Rules Outgoing
flight or voyage
Sea or air carriers owned by

Domestic corporation Foreign corporation

Passengers Vatable Exempt

Cargoes/baggages Vatable 3% percentage tax

Mode of transport Passengers Baggage/Mails/Cargoe
s
By land 3% percentage tax vatable

By water or sea vatable vatable

By air Vatable vatable

 the 3% percentage tax is due quarterly upon the
gross receipts of common carriers on their transport
of passengers by land. This is called the "common
carrier's tax."
Under RMC 70-2015, transport network companies
like Uber and Grab Taxi and their partners and
suppliers which are holders of a valid Certificate of
Public Convenience may be considered as common
carriers qualified to the 3%percentage tax
Common carriers are exempt from local
taxes
- gross receipts of common carriers derived from
their incoming and outgoing freight shall not be
subject to the local taxes under the Local
Government Code of 1991.
Exemptions to the common carriers tax

- owners of bancas and animal-drawn two-wheeled

vehicles are exempt from the percentage tax. The
law is silent regarding pedicabs but these businesses
may qualify as “business for mere subsistence";
hence, these are also exempt from business tax.
AMUSEMENT TAXES
Proprietor, lessee or operator of the following amusement places shall
pay the following respective tax rates on their quarterly gross receipts:
Places of boxing exhibitions 10%
Places of professional basketball games 15%
Cockpits, cabarets, night or day clubs 18%
Jai-alai and race tracks 30%
Exempt receipts on professional boxing

The gross receipts from professional boxing are exempt from

percentage tax under the following conditions:
1. World or Oriental Championship
2. At least one of the contenders is a Filipino citizen
3. The promoter is a Filipino citizen or a corporation 60% of
which is owned by Filipino citizens