INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

1st Sem
Department of Accountancy 2021-2022
BUSINESS TAXATION

MODULE 5 – PERCENTAGE TAXES

PERCENTAGE TAX
- A tax imposed on sale, barter or exchange of goods or sale of services based upon gross sales, value in
money or receipts (except insurance companies) derived by the manufacturer, producer, or seller
measured by certain percentage of the gross selling price or receipts.

BASIS OF TAX
The tax is based on gross sales, receipts or earnings except on insurance companies where the basis of tax is the
total premium collected/paid.

"Gross receipts" means all amounts received by the prime or principal contractor, undiminished by any amount
paid to any subcontractor under a subcontract arrangement.

For the purpose of the amusement tax, the term “gross receipts” embraces all the receipts of the proprietor,
lessee or operator of the amusement place. Said gross receipts also include income from television, radio and
motion picture rights, if any.

Characteristics of Percentage Tax:

1. It is a business tax
2. It is a form of sales tax
3. It is a deduction from gross income
Percentage Tax in NIRC Tax Base Tax Rate
Sec. 116 – Tax on persons exempt from VAT or
whose annual gross sales or receipts do not exceed
P3 Million. Quarterly Gross Sales or Receipts 1%
(7/1/20 –
Notes: (Old Rule – monthly) 6/30/23)
1. Self-employed individuals who availed 8%
preferential tax is not subject to 3% 3%
percentage tax (1/1/98 –
2. Cooperatives are exempted 6/30/20)
3. RC, NRC, RA, NRAE whose business income
was subjected to graduated tax rate may be 3%
subject to 3% tax 7/1/23 -
4. CREATE LAW: Effective April 11, 2021 onwards

Sec. 117 – Percentage tax on domestic carriers and

keepers of garage (transport of passengers) Common Carriers Tax is actual or minimum 3%
quarterly gross receipts whichever is higher
Notes:
1. Applicable to the following: Note:
• Cars for rent or for hire Table of monthly or quarterly gross receipts per
• Transport contractors of passengers Unit Carrier as updated under Revenue
• Keepers of garages Regulations No. 9-2007 is suspended.
2. Does not apply to:
• Owner of bancas • Applicable to:
• Animal-drawn two-wheeled vehicles • Jeepneys for hire
3. Domestic air or sea are subject to VAT • Public utility buses
4. Transport Network Companies or Transport • Taxis
Network Vehicle System (Grab/Uber) are • Cars for hire

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 INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
1st Sem
Department of Accountancy 2021-2022
BUSINESS TAXATION

treated as follows:
• With Certificate of Public
Convenience (franchise) subject to
3%
• Without CPC - 3% if gross receipts
does not exceed P3M; 12% VAT if
gross receipts exceeded P3M
Sec. 118 – Percentage tax on international carriers Gross receipts
• International air carrier - flights originating 3%
from the Philippines NOTE: If with reciprocity, it can be exempted or
• International sea carrier – shipment be subjected to lower than 3%
originating from the Philippines
On cargo/mail (does not include passenger or
excess baggage) with uninterrupted flight
regardless whether the tickets are sold
within/without
Sec. 119 – Tax on franchises Franchise tax is based from Gross receipts:

Note: electric utilities are subject to 12% VAT Franchises on radio and/or TV broadcasting
companies whose annual gross receipts of the 3%
preceding year do exceed Php 10 Million
------------------------------------------------------------- -----------
- Franchises on gas and water utilities 2%
-------------------------------------------------------------- -----------
Gaming operations of PACCOR 5%
-------------------------------------------------------------- -----------
Transmission operation of National Grid 3%
Corporation of the Philippines
Sec. 120 – Tax on overseas dispatch, message or Overseas Communication Tax is based on the
conversation originating from the Philippines amount paid for such services (by the person
who used the communications facilities) 10%
Exceptions:
a. government to gov’t calls
b. diplomatic services (embassies and
consular offices of foreign
governments)
c. international organizations – for
messages transmitted by
international organization or any of
its agencies based on the Philippines
enjoying privileges, exemptions and
immunities which the Philippine
Government recognize pursuant to
international agreements
d. news services
Sec. 121 – Tax on banks and non-bank financial Gross receipts tax is based from:
intermediaries performing quasi-banking functions Gross receipts on interest, commissions and
discounts from lending activities; income from
Notes: financial leasing:
1. Banks refer to persons and entities engaged Remaining maturity period of instrument is 5
in lending funds obtained from public. years or less

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 INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
1st Sem
Department of Accountancy 2021-2022
BUSINESS TAXATION

2. Non-bank financial intermediaries are ------------------------------------------------------------

persons or entities whose principal --Remaining maturity period of instrument is 5%
functions include lending, investing or more than 5 years ----------
placement of funds or evidences of ------------------------------------------------------------
indebtedness or equity deposited with -Dividends and equity shares in net income of 1%
them, acquired by them, or otherwise subsidiaries -----------
coursed through them, wither for their own ------------------------------------------------------------ 0%
account or for the account of others -Royalties, rentals of property, real or
3. This rule applies to Money changers personal, profits from exchange and all other ----------
items treated as gross income under the Tax
Code 7%
------------------------------------------------------------
- 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,
intermediaries (not performing quasi-banking commissions, discounts and all other items 5%
functions) treated as gross income under the Tax Code
-------------------------------------------------------------- ----------
Notes: This rule applies to: -
1. Pawnshops Interests, commissions and discounts from
2. Non-stock Savings and Loan Associations lending activities, as well as income from 5%
financial leasing:
Remaining maturity of instrument is 5 years
or less
-------------------------------------------------------- ----------
- Remaining maturity of instrument is more 1%
than 5 years
Sec. 123 – Tax on life insurance premiums Total premiums collected
2%
Exceptions:
1. Purely cooperative companies Note: 5%
2. Premiums refunded within 6 months after under
payment RMC 59-
3. Reinsurance by a company (local or foreign) 2008
that has already paid the tax
4. Premiums of insured who is non-resident and
taxes are paid abroad
Note: Premium on Health and Accident Insurance,
whether received by a life or non-life insurance
company, shall be considered as premium on life
insurance and, therefore, likewise subject to
Premium Tax and not Value-added Tax.
Sec. 124 – Tax on agents of foreign insurance Total premiums collected/paid (twice of Sec. 4%
companies (fire, marine or miscellaneous 122)
insurance) --------------------------------------------------------- -----------
Owners of property obtain insurance directly 5%
with foreign insurance companies
Sec. 125 – Amusement taxes Gross receipts
Jai-alai and racetracks 30%

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 INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
1st Sem
Department of Accountancy 2021-2022
BUSINESS TAXATION

Note: For boxing exhibitions, to be exempt, a World --------------------------------------------------------- -----------

or Oriental Championships in any division is at stake Cockpits, cabarets, night or day clubs 18%
provided that one boxer is a citizen and promoter is ------------------------------------------------------------ -----------
a corporation or organization owned by at least Videoke, karaoke bars, karaoke TVs, karaoke 18%
60% by Filipino citizens boxes, music lounges -
------------------------------------------------------------ ----------
Professional basketball games (in lieu of all 15%
other percentage taxes of whatever nature) -----------
---------------------------------------------------------- 10%
Boxing exhibitions
Sec. 126 – Tax on winnings on race horses Bettor: Winning or dividends less cost of the 10%
ticket
-------------------------------------------------------------- -----------
-Bettor: Winnings or dividends less cost of 4%
ticket from double, forecast/quinella and
trifecta bets
-------------------------------------------------------------- ----------
-Owner of horse: Prize of winning race horse 10%
owners
Sec. 127
(A) Tax on sale, barter or exchange of shares of
stock listed and traded through the local stock Gross selling price or gross value in money
exchange 6/10 of
1%
------------------------------------------------------ -------------------------------------------------------------- ----------
(B) Tax on shares of stock sold or exchanged -
through public offerings Gross selling price or gross value in money in (OLD
accordance with the proportion of shares of RATES)
stock sold, bartered, exchanged or otherwise REPEALED
disposed to the total outstanding shares of
stock after listing in the local stock exchange
Up to 25% 4%
---------------------------------------------------------- ---------
- Over 25% but not over 33 1/3% 2%
-------------------------------------------------------- -----------
Over 33 1/3% 1%

-------------------------------------------------------- -------------------------------------------------------- -----------

Note: Bayanihan to Recover as One Act (R.A. 11494) every sale, barter, exchange or other REPEALED
(Express repeal of Sec. 127 (B) disposition through IPO of shares of stock in
closely held corporations shall no longer be
subject to the tax
SPECIAL CONSIDERATIONS:
1. Lending Investors – gross receipts are subject to 12% VAT
2. Micro-Finance NGOs – gross receipts are subject to 2% gross receipts tax
GOVERNMENT MONEY PAYMENTS
Purchases made by:
1. Government-Owned and Controlled Corporations (GOCCs)
2. National Government Agencies (NGAs)
3. Local Government Units (LGUs)
4. Other Government Instrumentalities

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 INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
1st Sem
Department of Accountancy 2021-2022
BUSINESS TAXATION

To persons/entities subject to Percentage Tax shall withhold using the rates prescribed below:
Period Rate
January 1, 1998 to June 30, 2020 3%
July 1, 2020 to June 30, 2023 1%
July 1, 2023 onwards 3%
PERCENTAGE TAX RETURNS
Transaction Form or Return Deadline
Section 116 – Below P3M 2551Q 25th day after the end of each
Section 117 – Common carriers taxable quarter
Section 118 – International carriers Quarterly
Section 119 – Franchise grantees Percentage Tax
Section 120 – Overseas dispatch Return
Section 121 – Banks and non-banks
Section 122 – Other non-bank financial intermediaries
Section 123 - Life insurance premiums
Section 124 – Agents of foreign insurance companies
Section 125 – Amusement Places
Section 126 – Tax on Winnings 1600-WP 20th day after the end of month
Section 127 2552
1. For tax on sale of shares of stock listed and
traded through the Local Stock Exchange (LSE) – 1. within five (5) banking
days from date of
2. a.) For shares of stock sold or exchanged through collection
primary Public Offering – REPEALED 2. a. within thirty (30) days
from date of listing of
b.) For tax on shares of stock sold or exchanged shares of stock in the LSE
through secondary public offering - REPEALED
b. within five (5)
banking days from
date of collection.

Special Law (e.g. PAGCOR) 2553 On or before the due date for
payments of tax as stated in the
Special Law
Notes:
1. Filing under Section 116 may be consolidated or separately (Head Office and Branches)
2. Quarterly filing began January 1, 2018
END

References:
1. National Internal Revenue Code of 1997, as amended
2. R.A. 10963 or the Tax Reform for Acceleration and Inclusion Act
3. Revenue Regulations No. 16-2005, as amended
4. Revenue Regulations No. 6-2008, as amended
5. R.A. 11534 or the CREATE Law

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