Percentage Tax

Nature and Characteristics of Percentage Tax

A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered, or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services.

By its nature, a gross receipts tax applies to the entire receipts without any deduction, exemption or exclusion, unless the law clearly provides otherwise.

Persons Subject To Percentage Tax

The following persons are subject to Percentage Tax:

1) Persons, who are not VAT-registered, who sell goods, properties or services, whose annual gross sales and/or receipts do not exceed three million pesos (Php3,000,000.00) and are exempt from value-added tax (VAT) under Section 109 (BB) of the National Internal Revenue Code, as amended by Republic Act (RA) No. 10963.

2) Persons who lease residential units where the monthly rental per unit exceeds fifteen thousand pesos (Php15,000.00) but the aggregate of such rentals of the lessor during the year does not exceed three million pesos (Php3,000,000.00)

3) Persons engaged in the following industries/transactions:

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 owners of animal-drawn two-wheeled vehicle) and keepers of garages
International air/shipping carriers doing business in the Philippines on their gross receipts derived from transport of cargo from the Philippines to another country
Franchise grantees of – (a) radio and/or television broadcasting companies whose annual gross receipts for the preceding year do not exceed Php 10,000,000.00 and did not opt to register as VAT taxpayers, and (b) gas and water utilities.
Overseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph, tele-writer exchange, wireless and other communication equipment services, except those transmitted by: (a) The Philippine Government or any of its political subdivisions or instrumentalities; (b) Diplomatic services; (c) Public international organizations or any of their agencies based in the Philippines enjoying privileges, exemptions and immunities which the Philippine Government is committed to recognize pursuant to international agreement; and (d) News services for messages which deal exclusively with the collection of news items for, or the dissemination of news item through, public press, radio or television broadcasting or a newsticker service furnishing a general news service similar to that of the public press.
Banks, non-bank financial intermediaries performing quasi-banking functions
Other non-bank financial intermediaries (including pawnshops as clarified under Revenue Regulations [RR] No. 10 – 2004)
Person, company or corporation (except purely cooperative companies or associations) doing life insurance business in the Philippines
Fire, marine or miscellaneous agents of foreign insurance companies
Proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks, including videoke bars, karaoke bars, karaoke televisions, karaoke boxes and music lounges as clarified under Revenue Memorandum Circular (RMC) No. 18 – 2010
Winnings or 'dividends' in horse races

Transactions Subject To and/or Exempt From Percentage Tax

Percentage tax is a business tax imposed on persons, entities, or transactions specified under Sections 116 to 127 of the National Internal Revenue Code of 1997 (also known as Tax Code), as amended, and as required under special laws.

All exempt transactions enumerated in subsection (1)(A to CC) of Section 109, except subsection (1)(E), referring to services subject to percentage tax under Title V, are exempt both from VAT and percentage tax.

Percentage Tax Due

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

Any person whose sales or receipts are exempt under Section 109(CC) 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 his gross quarterly sales or receipts:

To be subject to the 3% percentage tax, the person

must be exempt under Section 109(1)(C) and
is not a VAT-registered person.

For example, a non-VAT taxpayer had gross receipts of P2,500,000. How much is the business tax due?

= 2,500,000 x 3%

= 75,000

If a non-VAT taxpayer had gross receipts of P3,500,000, how much is the business tax due?

= 3,500,000 x 12%

= 420,000

If a VAT taxpayer had gross receipts of P2,500,000, how much is the business tax due?

= 2,500,000 x 12%

= 300,000

If a VAT taxpayer had gross receipts of P3,500,000, how much is the business tax due?

= 3,500,000 x 12%

= 420,000

The following shall be exempt from the payment of 3% percentage tax:

Cooperatives
Self-employed individual and professionals availing of the 8% tax on gross sales and/or receipts and other non-operating income.

Note that effective July 1, 2020 until June 30, 2023, the rate shall be one percent (1%).

Sec. 117. Common Carriers Tax

Common Carriers Tax of 3% of gross receipt applies to common carriers engaged in the transport of passengers by land.

Cars for rent (rent-a-car business)
Cars for hire driven by the lessee
Transportation contractors including those who transport passengers such as tourist buses for hire
Other domestic carriers by land for transport of passengers, and
Keepers of garages.

Persons exempt from Common Carrier Tax

Owners of bancas; and
Owners of animal-drawn two-wheeled vehicles

Domestic transport of passengers by air and water is subject to VAT under RA 9337.

Likewise, under RMC 70-2015, transport network companies, such as but not limited to the likes of UBER, GRAB TAXI, their Partners/suppliers and similar arrangements, which are holders of a valid and current Certificate of Public Convenience are known as common carriers subject to the 3% common carriers tax under Sec. 117. Otherwise, they are classified as land transportation service contractors subject to the 12% VAT.

By Land for the transport of
Passengers (regardless of gross receipts); Sec. 117	OPT
Goods or Cargoes
• Gross receipts > P3,000,000	VAT
• Gross receipts < P3,000,000 and not VAT Registered; Sec. 116	OPT
• VAT Registered (regardless of gross receipts)	VAT
By Air and Sea for the transport of Passengers or Cargoes	VAT

For example, AAA Bus Liner is a domestic carrier by land. It is a non-VAT registered entity. It had the following data for the year:

Gross receipts – transport of passengers, P50,000,000

Gross receipts – transport of goods, P15,000,000

How much is the total business taxes?

a. Common Carrier's Tax

= Gross receipts – transport of passengers, x 3%

= P50,000,000 x 3%

= P1,500,000

b. Value-Added Tax

= Gross receipts – transport of goods x 12%

= P15,000,000 x 12%

= P1,800,000

Note that 12% VAT is the applicable rate because in this case, the gross receipts from the carriage of goods exceed P3,000,000.

c. Total business taxes

= Common Carrier's Tax + Value-Added Tax

= 1,500,000 + 1,800,000

= P3,300,000

If AAA Bus Liner (non-VAT registered entity) had the following data in 2022:

Gross receipts – transport of passengers, P50,000,000

Gross receipts – transport of goods, P1,500,000

How much is the total business taxes?

a. Common Carrier's Tax

= Gross receipts – transport of passengers, x 3%

= P50,000,000 x 3%

= P1,500,000

b. Value-Added Tax

= Gross receipts – transport of goods x 12%

= P1,500,000 x 1%

= P15,000

Note that 1% Percentage Tax is the applicable rate because in this case, the gross receipts from the carriage of goods do not exceed P3,000,000. Effective July 1, 2020 until June 30, 2023, the rate shall be one percent (1%).

c. Total business taxes

= Common Carrier's Tax + Value-Added Tax

= 1,500,000 + P15,000

= P1,515,000

Assume that AAA is a VAT registered domestic Air Carrier. with the following data in 2022:

Gross receipts – transport of passengers, P50,000,000

Gross receipts – transport of goods, P10,000,000

Purchases, net of VAT, P20,000,000

How much is the VAT Payable?

a. Output VAT

= gross receipts x 12%

= (P50,000,000 + 10,000,000) x 12%

= P60,000,000

= P7,200,000

b. Input VAT

= Purchases, net x 12%

= P20,000,000 x 12%

= P2,400,000

c. VAT Payable

= Ouput VAT - Input VAT

= P7,200,000 - P2,400,000

= P4,800,000

Sec. 118, International Air Carrier

International carriers refer to international air carriers and international shipping carriers doing business in the Philippines (resident foreign corporation)

	Transaction	Rate	Tax Base
Sec. 118	Percentage Tax on International Carriers	3%	Gross Receipts derived from transport of cargo from the Philippines to another country
Sec. 109 (S)	VAT Exempt Transaction	Exempt	Transport of passengers by international carriers

For example, AAA Air Carrier is an international air carrier with the following data:

Gross receipts – transport of passengers, P50,000,000

Gross receipts – transport of goods, P10,000,000

Purchases, net of VAT, P20,000,000

How much is the business tax due if all revenues were from international flights?

Transport of passengers shall be exempt while transport of goods shall be subject to 3% percentage tax under Sec. 117, NIRC.

= Gross receipts – transport of goods x 3%

= P10,000,000 x 3%

= P300,000

Note that only the gross receipts derived from the transport of cargo from the Philippines to another country are considered in the computation of percentage tax under Sec 117.

For example, An International Carrier showed the following gross receipts:

Point of Origin	Point of Destination	Gross Receipts
Singapore	Australia	P900,000
Philippines	Iran	1,200,000

How much is the applicable business tax?

= P1,200,000 x 3%

= P36,000

Sec. 119, Percentage Tax on Franchise

Radio and/or Television Broadcasting Companies

Radio and/or television broadcasting companies whose annual gross receipts of the preceding year do not exceed Ten million pesos (P10,000.00) shall be subject to three percent (3%) on the gross receipts.

For example, 123 TV is a franchisee and the leading television broadcasting company in the country. It had gross receipts for the preceding year of P10,000,000. The company is a non-VAT registered entity. How much is the business tax due?

= 10,000,000 x 3%

= P300,000 (Franchise Tax)

If 123 TV had gross receipts for the preceding year of P12,000,000, how much is the business tax due?

= 12,000,000 x 12%

= 1,440,000 (VAT)

The company will be liable for VAT even if it is a non-VAT registered entity.

Moreover, radio and television broadcasting companies shall have an option to be registered as a value-added taxpayer and pay the tax due thereon: Once the option is exercised, said option shall not be irrevocable.

Gas and Water utilities

Gas and water utilities shall be subject to a tax of two percent (2%) on the gross receipts derived from the business covered by the law granting the franchise.

For example, Too Big Company, a water utility franchise grantee had gross receipts from business covered by the franchise amounting to P10,000,000 and from renting out amounting to P5,000,000.

How much is the business tax due?

a. Franchise Tax

= Gross receipts covered by franchise x 2%

= P10,000,000 x 2%

= P200,000

b. Value-Added Tax

= Rental income x 12% (VAT)

= P5,000,000 x 12%

= P600,000

c. Total Business Tax

= Franchise Tax + Value-Added Tax

= P200,000 + P600,000

= P800,000

Sec. 120, Overseas Communication Tax

A tax of ten percent (10%) shall be collected upon every overseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication equipment service.

Exemptions: Government, Diplomatic Services, International Organizations, News Services.

For example, Quick Telco Company presented the following data on its gross receipts:

From domestic calls and messages, P450,000

From overseas calls and messages, P700,000

How much is the business tax liability?

a. Overseas Communication Tax

= Gross receipts from overseas calls and messages x 10%

= P700,000 x 10%

= P70,000

b. Value-Added Tax

= Gross receipts from domestic calls and messages x 12%

= P450,000 x 12%

= P70,000

c. Total business liability

= Overseas Communication Tax + Value-Added Tax

= P70,000 + P54,000

= P124,000

Sec. 121, Gross Receipts Tax

There shall be collected a tax on a gross receipt derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule:

Taxable Base	Tax Rate
Interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which receipts are derived:
• If maturity period is five years or less	5%
• If maturity period is more than five years	1%
Dividends and equity shares and net income of subsidiaries	0%
Royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income under Sec. 32 of the Tax Code, as amended	7%
Net trading gains within the taxable year of foreign currency, debt securities, derivatives and other similar financial instruments

Sec. 122. Tax on Other Non-Bank Financial Intermediaries.

There shall be collected a tax of five percent (5%) on the gross receipts derived by other non-bank financial intermediaries doing business in the Philippines, from interests, commissions, discounts and all other items treated as gross income under this code.

Interests, commissions and discounts from lending activities, as well as income from financial leasing, shall be taxed on the basis of the remaining maturities of the instruments from which such receipts are derived, in accordance with the following schedule:

Maturity period is five years or less 5%

Maturity period is more than five years 1%

Sec. 123, Life Insurance Premiums

A percentage tax of two percent (2%) shall be collected from every person, company or corporation (except purely cooperative companies or associations) doing life insurance business of any sort in the Philippines of the total premium collected, whether such premiums are paid in money, notes, credits or any substitute for money

Excluded from Taxable Receipts

Premiums refunded within six (6) months after payment on account of rejection of risk or returned for other reason to a person insured
Reinsurance premium by a company that has already paid the tax
Doing business outside the Philippines on account of any life insurance of the insured who is a nonresident, if any tax on such premium is imposed by the foreign country where the branch is established
Premiums collected or received on account of any reinsurance , if the insured, in case of personal insurance, resides outside the Philippines, if any tax on such premiums is imposed by the foreign country where the original insurance has been issued or perfected
Portion of the premiums collected or received by the insurance companies on variable contracts (as defined in Section 232(2) of Presidential Decree No. 612), in excess of the amounts necessary to insure the lives of the variable contract workers.

Sec. 124, Agents of Foreign Insurance Companies(except reinsurance premium):

Coverage	Taxable Base	Tax Rate
Insurance agents authorized under the Insurance Code to procure policies of insurance for companies not authorized to transact business in the Philippines shall pay a tax equal to twice the tax imposed in Sec. 123.	Total premiums collected	4%
Owners of property obtaining insurance directly with foreign insurance companies	Total premiums paid	5%

Sec. 125, Amusement Taxes

There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks, a tax equivalent to:

Coverage/Gross receipts	Tax Rate
Cockpits	18%
Cabarets, Night or Day Clubs, videoke bars, karaoke bars, karaoke televisions, karaoke boxes and music lounges	18%
Boxing exhibitions	10%
Professional basketball games (in lieu of all other percentage taxes of whatever nature and description)	15%
Jai-alai and race track	30%

Exception on amusement tax on boxing exhibitions

when the World or Oriental Championship is at stake in any division,
at least one of the contenders for World Championship is a citizen of the Philippines
said exhibitions are promoted by a citizen/s of the Philippines or by a corporation/ association at least 60% of the capital of which is owned by said citizen/s)

Gross Receipts

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.

A person or entity or association conducting any activity subject to the tax herein imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it.

For example, Masaya Cockpit had the following data.

Entrance fee, P35,000

Sale of soft and hard drinks, P90,000

Sale of cigarettes and other food items, P65,000

How much is the percentage tax liability?

= Gross Receipts x 18%

= (P35,000 + 90,000 + 65,000) x 18%

= P190,000 x 18%

= P34,200

The taxes imposed herein shall be payable at the end of each quarter and it shall be the duty of the proprietor, lessee or operator concerned, as well as any party liable, within twenty (20) days after the end of each quarter, to make a true and complete return of the amount of the gross receipts derived during the preceding quarter and pay the tax due thereon.

Sec. 125-A, Gaming Tax on Services Rendered by Offshore Gaming Licensees.

Any provision of existing laws, rules or regulations to the contrary notwithstanding, the entire gross gaming revenue or receipts or the agreed predetermined minimum monthly revenue or receipts from gaming, whichever is higher, shall be levied, assessed, and collected a gaming tax equivalent to (5%), in lieu of all other direct and indirect internal revenue taxes and local taxes, with respect to gaming income.

Gross gaming revenue or receipts shall mean gross wages less payouts.

The gaming tax shall be directly remitted to the Bureau of Internal Revenue not later than the 20th day following the end of each month.

The Philippine Amusement and Gaming Corporation or any special economic zone authority or tourism zone authority or freeport authority may impose regulatory fees on offshore gaming licensees which shall not cumulatively exceed two percent (2%) of the gross gaming revenue or receipts derived from gaming operations and similar related activities of all offshore gaming licensees or a predetermined minimum guaranteed fee, whichever is higher

The taking of wagers made in the Philippines and the grave failure to cooperate with the third-party auditor shall result in the revocation of the license of the offshore gaming licensee.

Moreover, the following shall be considered subject to zero percent (0%) VAT:

Sales of goods and properties to offshore gaming licensees subject to Gaming Tax
Services rendered to offshore gaming licensees subject to Gaming Tax, by service providers, including accredited service providers.

Sec. 126, Tax on Winnings

Every person who wins in horse races shall pay a tax equivalent to ten percent (10%) of his winnings or 'dividends', the tax to be based on the actual amount paid to him for every winning ticket after deducting the cost of the ticket:

In the case of winnings from double, forecast/quinella and trifecta bets, the tax shall be four percent (4%).

In the case of owners of winning race horses, the tax shall be ten percent (10%) of the prizes.

For example, V bought a ticket of P500 and placed his bet on the race horse Pa-Star owned by T. The race horse won and the price money for the ticket was P25,000 and that of the winning horse was P300,000. How much is the business tax liability of V and T.

a. Mr. V (Bettor)

= (P25,000 – 500) x 10%

= P2,450

b. Mr. T (Horse owner)

= P300,000 x 10%

= P30,000

Note that Tax on winnings to be withheld by the owner of the race track.

Payment of Tax

The operator, manager or person in charge of horse races shall, within twenty (20) days from the date the tax was deducted and withheld in accordance with the second paragraph hereof, file a true and correct return with the Commissioner in the manner or form to be prescribed by the Secretary of Finance, and pay within the same period the total amount of tax so deducted and withheld.

Sec. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange or through Initial Public Offering. -

(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange.

There shall be levied, assessed and collected on every sale, barter, exchange, or other disposition of shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities, a tax at the rate of six-tenths of one percent (6/10 of 1%) of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor.

For example, Mr. G sold 2,000 shares of domestic corporation through the Philippine Stock Exchange at 110. The shares were acquired at P100 per share five years ago. How much is the business tax due?

= selling price x 6/10 x 1%

= 2,000 shares x P110/share x 6/10 of 1%

= P220,000 x 0.6%

= P1,320

It shall be the duty of every stock broker who effected the sale subject to the tax imposed herein to collect the tax and remit the same to the Bureau of Internal Revenue within five (5) banking days from the date of collection thereof and to submit on Mondays of each week to the secretary of the stock exchange, of which he is a member, a true and complete return which shall contain a declaration of all the transactions effected through him during the preceding week and of taxes collected by him and turned over to the Bureau Of Internal Revenue.

(B) Repealed under Section 6 of Republic Act No. 11494, otherwise known as the "Bayanihan to Recover As One Act."

Tax Return Preparation and Filing and Tax Payments

Filing and Payment. All taxpayers subject to percentage tax pursuant to Section 116 of the Tax Code and those who will be subject thereto due to change of registration from VAT to Non-VAT, are required to pay the percentage tax on a quarterly basis using BIR Form No. 2551Q.

There is no need to file and pay monthly percentage tax on their monthly gross receipts using BIR Form No. 2551M.

Section 40 of the TRAIN Law mandates taxpayers, subject to percentage taxes under Title V of the Tax Code, as amended, to file quarterly returns of their gross sales, receipts or earnings and pay the tax due thereon within 25 days after the end of each taxable quarter.

Withholding. Taxpayers who are required to withhold Other Percentage Taxes and Value-added Tax under Revenue Regulations No. 2-98, as amended, shall continue to withhold and remit taxes on a monthly basis using BIR Form No. 1600 - Remittance Return of VAT and Other Percentage Taxes Withheld, considering that taxes withheld are held in trust for the government.

Closure of Business. Any person retiring from a business subject to percentage tax shall notify the nearest internal revenue officer, file his return and pay the tax due thereon within twenty (20) days after closing his business.

Place of filing. Except as the Commissioner otherwise permits, every person liable to the percentage tax may, at his option, file a separate return for each branch or place of business, or a consolidated return for all branches or places of business with the authorized agent bank, Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or municipality where said business or principal place of business is located, as the case may be.