Chapter 10 PERCENTAGE TAXES - 2 The tax ies beet fe A. 3% percentage tax Gross sales! e : Grose rece’ B. Domestic common carriers tax; i a Intemational common carrier's tax Sioss eee’ ©: Franchise tax on: Gas and water facities o Radio and/or broadcasting companies | Gross receipts whose gross receipts in the preceding year did not exceed P10,000,000 108 . Overseas communications tax ‘Amount paid we E. Tax on banks and non-bank finan- Gross receipts, | 1% ial intermediaries performing from lendinafir | 3 quesi judicial functions ancial lees a Gross receipts ™% from other gross income items Dividends oe F.‘Tax on other non-bank financial Gross receipts. | | 1% intermediaries font ee oe nancial leasing” | 5% Gross receipts 5% from other gross ” Taxon life insurance companies Income items Premiums Collected — HH. Tax on agents of foreign insurance Premiums 4% companies collected 1, Amusement taxes on: Boxing exhibitions Gross receipts 10% Professional basketball games Gross receipts 18% Ce , cabarets and night clubs Gross receipts 18% Jai-alai and race tracks Gross receipts 30% I. Tax on winnings: On winnings or dividends of persons in horse races or jai-alai ‘Winnings 10% but if from double, forcast, quinelta and trifecta bets ‘Winnings 4% On winnings of owners of winning horses | _ Winnings 10% K. Stock transaction tax (second- Selling price 6/10 ary offering) __ of 1% 10-1 ‘A Study on Business Taxes and Transfer Taxes7 2% and 3% on franchises. ain't i thorizes a certain person, nati hise is 2 law. It authoriz iis ‘ aes Je hip or corporation), to operate a public utity juridical (Pr ration that will operate a railway system, or ell electricity will need a franchise. are subject to a percentage tax commonly called Tax of The following sfranchise tax - .d water utilities ‘ ; 2% eas andlor television broadcasting companies whose annual gross receipts of the preceding year did not exceed P1 0,000,000 3% grantees are subject to the value-added tax on Other franchise sale of services. is on gross receipts from The franchise tax of 2% or 3% i activities covered by the franchise. Other gross receipts may be subject to the value-added tax. Special rule on radio/television broadcasting. in the preceding y 10,000,000, (b) If gross receipts in the preceding ’ year did not exceed P10,000,000, Percentage tax (but may opt to be. registered under the VAT system) IMlustration 10-1. H Co. is a holder of a franchise to sell and distribute water. In a month, it had gross receipts from the sale of water of P5,000,000 and rent income from heavy equip- ment (received from subdivision owners) of P50,000. The fran- chise tax was 2% of P5,000,000, or P100,000. Mustration 10-2. | Co. is a holder of a franchise to operate a radio/television network. Its gross receipts in 2018 was 9,000,000. In the first month of 2019, it had gross receipts of (a) If gross receipts ir ear exceeded Value-added tax A Study or ir ly on Business Taxes and Transfer Taxes a1P700,000 and total payments to VA’ i ‘T-suppliers peor of P250,000, taxes not included It Maanot abe a6 i ye i tax since the gross receipts did not oe J 40,000,000 in a year. The percentage tax for the month w i have been P700,000 x 3%, or P21,000. ee IMlustration 10-3. In the preceding illustration of | Co., if | Co. opted to be a value-added taxpayer in 2019, the value-ad 5 add le for the ‘first month would have involved compte tax payabl tations, as follows: : Output taxes (P700,000 x 12%) P84,000 Less: Input taxes, (P250,000 x 12%) 30,000 Value-added tax payable P54,000: PROBLEMS. Solve Problems 10-1 and.10-2 Amusement tax. is of amusement places, but not all are nt taxes. There are many activities for amusement, but-not all are subject to the amusement taxes. At present there is an amusement tax which is a local tax. This is the amusement tax on ‘admissions to theaters, cinematographs, coricert halls, circuses and other. places of amusement. 3 Tax base. The-tax is based on gross receipts. “Gross receipts’ embraces all the receipts of the proprietor, sement place. It includes income lessee or operator of the amu! from television, radio and motion picture rights, if any. -There are many kind: subject to the amusemer Taxable amusement places and activities (See Figure 10-1). Figure 10-1. Amusement Tax Tax Amusement Place Place for boxing exhibition 10% Place for professional basketball games (which isin lieu of all percentage taxes of whatever name A Study on Business Taxes and Transfer Taxes15% and description) 1 Cockpits, cabarets, night or day clubs 1% id or Oriental Champion. it ‘pitions where Worl Boxing exhibitions W"" veake will be aeaiigl fom i i ivisi is ee ed of one of the contenders is a citizen of the Philippines and said ‘exhibitions are promoted by cite zens of the Philippines oF by a corporation oF association i nt (60%) ‘of the capital of which is at least sixty perce! ‘owned by such citizens. stration 10-4. The PNBA is 2 professional basketball or- ae om within a month, it had gross ji ketball series senza th 2 gates ‘of P1,000,000. In addition, television coverage gave it additional gross receipts of P 1,000,000. Ad- vertisements in streamers inside the coliseum where the games were conducted gave it additional gross receipts of 1,000,000. The amusement tax was 45% of P3,000,000, or 450,000, Mustration 10-5. Sports, Unlimited, @ domestic corpo- ration wholly owned by citizens of the Philippines, sponsored a world boxing event for World Championship in the lightweight division between @ Korean boxer and a Filipino | boxer. Gate receipts amounted to 10,000,000. Satellite co- gave the corporation an additional gross receipts of 1,200,000. The gross receipts of Sports, Unlimited was 11,200,000. There is no amusement tax. All the require- ments for the exemption ‘of the boxing exhibition from the amusement tax were present. Mustration 10-6, The Total Entertainment, a domestic cor- poration had the following gross receipts from championship events it conducted in the Philippines: ed 9 P 500,000 Tennis 4,000,000 4,200,000 Noteybal 600,000 Baseball 800.000 Basketball ! a azo There was no amusement tax because the activities were not ‘A Study on Business Taxes and Transfer Taxes 8 £ 10-4among those mentioned in the law which are subject to a- musement tax. PROBLEMS. Solve Problems 10-3 and 10-4 taxon winnings. Figure 10-2. Tax on winnings Winnings in horse races or jai-alai 10% but if from: Double, forecast, quinella and trifecta bets 4% Owner of winning horse. 10% Daily double is an event wherein the bettor selects a number in each of two consecutive races and the selection in each race must finish first. Extra double is an event wherein the bettor selects a number in each of wo races and the selection in each race must finish first. Forecast is an event wherein the bettor selects two numbers in a selected race, and the selection must finish first and i! second in the correct order. Double quinella is an event wherein the 7 bettor selects the numbers in each of two selected races, and the : selection in each race must finish first arid second in either order. Trifecta is an event wherein the bettor ‘selects three. numbers in 2 selected race and the selections must finish first, second and third in the correct order. Who is the taxpayer of the tax on winnings? (a) The person who wins in horse races and jai-alai, based on his winnings or “dividends” (the tax to be based on the ac- tual amount paid to him for every winning ticket, after de- ducting the cost of ticket); and {b) The owner of winning race horses, ased on the prize. How is the tax paid? The tax will be withheld from the “dividends” or “prize”, by the operator, manager or person in charge of the horse races or jai-alai. Mlustration 10-7. Mr. Lis an owner of a race horse who, on June 12, from a Special Independence Day Race won a prize ‘a — ea the winnings would in the amount of P5,000,000 .The tax on nw have been withheld at 10% of P5,000,000, or P500,000. PROBLEMS. Solve Problems 10-5 Tax on stock transactions. This percentage tax is called “stock transaction tax”, i ition of shares On a sale, barter, exchange or other disposi * listed and traded thru a local stock exchange, other than by adealer in securities; The tax base: Gross selling price or gross value in money of the shares sold, bartered, exchanged or other- wise disposed of; The tax rate: Six tenth of one percent (6/10 of 1%). The taxpayer: The seller. {b) On the sale, barter, exchange or other disposition thru initial rE public offering of shares of stock in a closely held corporation: . The tax base: Gross selling price. The tax rates: In accordance with the proportion of the shares . sold, bartered, exchanged or otherwise disposed of to the total outstanding shares of stock after the listing in the local stock exchange, as fol lows: Up to twenty-five percent (25%) 4% Over twenty-five percent (25%), but not over thirty-three and one-third percent (33-1/3%) 2% Over thirty-three and one-third percent 1% ‘The taxpayer: The issuing corporation in primary offering, and the seller in secondary offering. ea Sait eh gi (MGR a as wR A “Closely-held Corporation” means any corporation at least fifty oe (50%) in value of the outstanding capital stock or least fifty percent (50%) of the total combined voting power ‘a s Study on Business Taxes and Transfer Taxes =NS of all classes of stock entitled to vote, is owned directly or in directly by or for not more than twenty individuals Mustration 10-8. Mr. M sold shares of stock of domestic corporations listed and traded in the Philippine Stock Exchange, thru his stock broker, as follows (a) Shares of N Co, with a cost of 2,000,000 and a selling price of P2,800,000 (b) Shares of O Co. with a cost of P2,500,000 and a selling price of P2,000,000 How much is the aggregate of the separate stock transact- ion tax payments? On the shares of N Co. (P2,800,000 x 6/10 of 1%) P'14,000 On the shares of O Co. (P2,000,000 x 6/10 of 1%) 10,000 Total 24,000 Mustration 10-9. P Co. was a closely held corporation. In opening itself to the public, it made an initial public offering (IPO) of its shares of stock on a selling price of P5,000,000 for shares of stock which would give the buying public an interest after the listing of 30% in the corporation. How much was the stock transaction tax? The tax was P5,000,000 x 2%, or P100,000. PROBLEMS. Solve Problems 10-6 and 10-7. ‘ Return and payment of percentage taxes. The taxpayer may file a separate return for each branch or place of business, or a consolidated return for all. General rule: Every person liable to pay a percentage tax will file a monthly return of the amount of his gross receipts and pay the tax thereon, within twenty (20) days after the end of each taxable month. Exceptions: Of those 6 discussed in this Chapter. Overseas communica- Within twenty (20) days after the end of tions tax the quarter Amusement tax Within twenty (20) days after the end of ASudy on Business Taxes and Transfer Taxes 107* the quarter. Remitted to the Bureau of Internal Rey within twenty (20) days from the d: ft held rm Remitted to the Bureau of Internal Reve. Tax on winnings Stock transaction tax ted 6/10 of 1% nue within five (5) banking days from th date withheld by the broker. . Stock transaction tax On primary offering, within 30 days of from A%, 2% and 1% from the date of listing in the loca} stock exchange ne A Study on Business Taxes and Transfer Taxes. -PROBLEMS 40-1.The Z Co. isa holder of several franchises to ope- rate essential public utitities. Gross receipts, VAT ot included, from activities covered by the fran- chise were: For selling electricity P. 2,000,000 For selling water 4,800,000 For operating a stretch of superhighway 2,300,000 and in addition had gross receipts from: Rent of heavy equipment 500,000 Percentage tax? Output value-added tax? sede 40-2.The A Co. and the G Co. are stiff competitors in radio and television broadcasting, one against the govern- ment administration, and the other 2 defender of the government administration. In 2018, the gross receipts of the two companies were: ACo. P 4,800,000 BCo. 41,000,000 In January 2019, the two companies had gross re- ceipts of. } ACo. P 300,000 BCo. 4,000,000 Percentage tax for January, 2019? Output value-added tax? 40-3.Mr. SP, a citizen of the Philippines, is a sports promo- ter, promoting sports competitions and events in the Philippines. He had the following data in a month, any tax not included: Gross receipts, professional boxing, with MPqio as defending world champion P 3,000,000 Gross receipts, intemational football 4,500,000 Gross receipts, Asian swimming meet 4,000,000 Gross receipts, world chess championship 4,300,000 Gross receipts, Philippine professional basketball 900,000 The percentage tax? 10-4.Mr, NC operates a cabaret. Gross receipts were: Study on Business Taxes and Transfer Taxes 10-9Received by Mr. NC from patrons dancing on 600,000 \ the dance floor i Received by Mr. NC from alcoholic beverages 300,000 ‘and soft drinks purchased by patrons Rewaived by Mr. XY, for food purchased from ae him and served to patrons of Mr. NC )' The percentage tax of Mr. NC? ee 40-5.Horse racing on Independence Day gave the 1 following gross receipts (winnings) To Mr. A, winnings on his tickets, net of ) is winning tit P 29,000 P1,000 cost of his winning tickets / sgg000 To Mr, B, owner of the winning ‘ The percentage tax of Mr. A? i The percentage tax of Mr. B? estat 40-6.Mr. SE is actively trading in a stock exchange thru his stock broker. (na month he fad the following tL sales: Gain \ Sold for Cost (Loss) 1 ‘ ACo. shares P 120,000 P 80,000 P 40,000 B Co. shares 900,000 400,000 500,000 C Co. shares 1,000,000 1,200,000 (200,000) How much was the percentage tax? 40-7.The F Co. is a family corporation, with shares of stock owned by the five members of the family. With authority for initial public offering (1PO) from the Securities and Exchange Commission, it sot: selto the pub shares of stock for P5,000,000. je il ji i Piigln penne, x ifthe IPO would give to the public: (b) 30% control? (c) 40% control? A Study on Business Taxes and Transfer Taxes 10-10