MODULE 5
CONSUMPTION TAX ON SALES
(PERCENTAGE TAX)
PERCENTAGE TAX
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 subject
Specific % tax Various tax rates
to percentage tax
2. Sales of goods or other
General % tax 3% percentage tax
services not exempted
Who pays percentage tax?
Type of Percentage Tax VAT Registered taxpayers Non-VAT taxpayers
Specific percentage tax Yes Yes
General percentage tax No Yes
SERVICE SPECIFICALLY SUBJECT TO
PERCENTAGE TAX
1. Banks and non-bank financial intermediaries performing quasi-banking functions
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 recipients were derived:
a. Maturity period of five years or less 5%
b. Maturity period of five years or less 1%
2. Dividend and equity share in the net income of subsidiaries 0%
3. On royalties, rentals of property, real or personal, profits from exchange 7%
and all other items treated as gross income under Section 32 of the NIRC
4. On net trading gains within the taxable year on foreign currency, debt 7%
securities, derivatives, and other similar financial instruments
1. Banks and non-bank financial intermediaries
– Percentage tax on banks, quasi-banks and other non-bank
financial institution is commonly known as the “gross
receipt tax.”
– Non-bank financial intermediaries not performing quasi-
banking functions are subject to a separate set of gross
receipt tax rates.
– Gross receipts for purposes of the gross receipt tax shall
also include those items of gross income subject to final
tax.
1. Banks and non-bank financial intermediaries
– Net trading gains within the taxable year on foreign
currencies, debts, securities, derivatives and other
financial instruments
• 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 shall be deductible only to the gains from trading
on the same category.
• Cumulative net loss at the end of the year cannot be carried over
as deduction against trading gains in the following year.
1. Banks and non-bank financial
intermediaries
– Exemption on the gross receipt tax
• Gross receipt tax does not apply to the income or
revenue realized by the BSP from its transactions
undertaken in pursuit of its legally mandated
functions.
1. Banks and non-bank financial intermediaries
– Tax on other financial intermediaries without quasi-banking functions e.g.
Pawnshops and money changers
% Tax
Source of income or receipt
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 recipients were derived:
a. Maturity period of five years or less 5%
b. Maturity period of five years or less 1%
2. From all other items treated as gross income under the NIRC 5%
1. Banks and non-bank financial intermediaries
– Common rules for banks, quasi-banks and other financial institution
1. Accounting rules
– Gross receipts calculation shall be the GAAP prescribed by the BSP
and SEC who both prescribe the Philippine Financial Reporting
Standards.
2. Finance lease and operating leases
– Taxable gross receipt on finance lease shall consists only of interest
income excluding collections of principal while in operating lease,
gross receipts shall include the gross rentals received.
3. Pre-termination of instruments
– 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
– BSP shall withhold the percentage tax on banks and non-banks
financial institutions on all its payments to special deposit accounts
and reserve liquidity accounts.
SERVICE SPECIFICALLY SUBJECT TO PERCENTAGE
TAX (BICAP FLOW)
2. 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.
– These are air or sea carriers owned by foreign corporation
that operate in the Philippines and transport passengers or
cargoes from the Philippines to overseas and vice versa.
– Types of international carriers:
a. International air carriers
b. International shipping carriers
2. Percentage tax on international carriers
– 3% percentage tax is based on the gross receipts from the
transport of cargoes, excess baggage, or mails regardless
of the place where they are actually paid.
– Gross receipts shall include, but shall not 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.
2. Percentage tax on international carriers
– Taxation of gross receipts on flights or voyages
International International
Domestic Operation
Types of carriers Operation
corporation (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
2. Percentage tax on international carriers
– Table comparison: Tax Rules Outgoing flight or voyage
Domestic Corporation Foreign Corporation
Passengers Vatable Exempt
Cargoes/baggages Vatable 3% percentage tax
SERVICE SPECIFICALLY SUBJECT TO
PERCENTAGE TAX (BICAP FLOW)
3. Percentage tax on domestic carriers and keepers of
garage
– Common carriers include cars for rent or hire driven by the
lessee, transportation contractors, persons who transport
passengers for hire and other domestic land carriers on
their transport of passengers, except owners of bancas and
owners of animal-drawn two-wheeled vehicles.
3. Percentage tax on domestic carriers and keepers of garage
– Summary rules on common carriers:
Mode of Transport Passengers Baggage/Mails/Cargoes
By land 3% percentage tax Vatable
By water or sea Vatable Vatable
By air Vatable Vatable
– 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.”
– The tax base of the quarterly tax is subject to the
3. Percentage tax on domestic carriers and keepers of garage
– 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.
– Owners of bancas, animal-drawn, two-wheeled vehicles, and
pedicabs are exempt from business tax.
SERVICE SPECIFICALLY SUBJECT TO
PERCENTAGE TAX (BICAP FLOW)
4. 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%
4. Amusement Taxes
– Exempts receipts on professional boxing
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
– Gross receipts shall consist ALL receipts the proprietor, lessee or
operator of the amusement places. It includes income from
television, radio, and motion picture rights, if any.
– Tax shall be payable within 20 days after the end of each quarter.
– Illegal cockpits are taxed at 18% of their gross receipt.
SERVICE SPECIFICALLY SUBJECT TO PERCENTAGE
TAX (BICAP FLOW)
5. Tax on sale, barter or sale of shares of stock listed and traded
through the local stock exchange or through initial public
offering
– Tax on sale, barter or sale of shares of stock listed and traded
through the PSE
• Subject to “stock transaction tax” 60% of 1% based on
gross selling price or gross value in money of the shares of
stock sold.
• Tax shall be paid by the seller or transferor and is to be
collected by the stock broker who effected the sale.
• Broker shall remit the tax to the BIR within 5 banking days
from the date of collection.
5. Tax on sale, barter or sale of shares of stock listed and
traded through the local stock exchange or through initial
public offering
• Tax on the shares of stock sold or exchanged through
an initial public offering (IPO)
Proportion of shares sold, bartered or exchanged Tax Rate
Up to 25% 4%
Over 25% but not over 33 1/3% 2%
Over 33 1/3% 1%
– The percentage tax is commonly known as the IPO
tax and its applicable only to the initial public
5. Tax on sale, barter or sale of shares of stock listed
and traded through the local stock exchange or
through initial public offering
Sales made by Before IPO During IPO After IPO
IPO tax as primary
Corporate issuer No tax No tax
offer
Shareholder IPO tax as Stock transaction
Capital gains tax
investor secondary offering tax
SERVICE SPECIFICALLY SUBJECT TO
PERCENTAGE TAX (BICAP FLOW)
6. Tax on franchises
– Generally vatable
– Franchise that are specifically subject to percentage tax
Franchise grantees % Tax
Rates
1. Radio or television broadcasting companies
whose annual gross receipts do not exceed 3%
P10,000,000
2. Gas and water utilities 2%
6. Tax on franchises
Vatable franchises
a. Electricity – electric generation or transmission and
distribution by electric cooperatives are vatable
b. Telecommunication – telecom companies are vatable
except on their receipts from outgoing messages since
these are subject to the 10% overseas communication
tax.
c. Transportation – transport companies are vatable, except
receipts of common carriers by land on their transport of
passengers since these are subject to the 3% common
carriers tax.
d. Private franchises
SERVICE SPECIFICALLY SUBJECT TO
PERCENTAGE TAX (BICAP FLOW)
7. Tax on life insurance premiums and tax on agents of
foreign insurance
• Tax on life insurance premiums
– 2% on the premiums collected, whether such premium is
paid in money, notes, credits or any substitute for money.
– Premiums on health and accident insurance underwritten
by life insurance companies are subject to the premiums
tax.
– Premiums on health and accident insurance underwritten
by non-life insurance companies are vatable.
7. Tax on life insurance premiums and tax on agents of foreign
insurance
• Tax on life insurance premiums
– The following shall not be included in gross receipts of an insurance
company:
a. Premiums refunded within 6 months after payment on account of
rejection of risk or returned for other reasons
b. Re-insurance premiums
c. Premiums from life insurance of non-residents received from
abroad by branches of domestic corporation, firm or association
doing business outside the Philippines as this constitute an exempt
foreign consumption.
d. Excess of premiums on variable contracts in excess of the amounts
necessary to insure the lives of the variable contract owners as this
represents investments rather than premiums.
7. Tax on life insurance premiums and tax on agents of foreign insurance
• Tax on life insurance premiums
– Taxation of other receipts of life insurance business
1. Renewal or re-insurance fee, reinstatement fee and penalties – subject
to 2% premiums tax
2. Management fees, rental income, or other income from unrelated
services – these are vatable
3. Investment income – if realized from the investment of premiums it is
exempt.
- If realized from the investment of funds obtained from others,
subject to the gross receipt tax imposed on non-bank financial
intermediaries.
- If cannot be specifically identified as coming from invested premiums
or borrowed funds shall be apportioned based on total premiums
earned for the month and the liability account balance.
7. Tax on life insurance premiums and tax on agents of
foreign insurance
• Tax on agents of foreign insurance
– Equal to twice the tax imposed on life insurance premiums
which is 4%
– Property owners obtaining direct insurance from abroad
without the services of an insurance agent, the tax shall be
5% of the premium paid.
Life Insurance Non-life insurance
Direct premiums 2% premiums tax Vatable
Re-insurance premiums Exempt Exempt
Insurance commissions Vatable Vatable
SERVICE SPECIFICALLY SUBJECT TO
PERCENTAGE TAX (BICAP FLOW)
8. Tax on overseas dispatch, message or conversation
originating from the Philippines
– Subject to “overseas communication tax” of 10%
percentage tax.
– Summary table of the business tax rules
Call Origin Call Destination Business Tax
Philippines Philippines 12% VAT
Abroad Philippines 0% VAT
Philippines Abroad 10% overseas communication tax
8. Tax on overseas dispatch, message or conversation
originating from the Philippines
– Exemptions to OCT
1. Government
2. Diplomatic services
3. International organizations
4. News services
SERVICE SPECIFICALLY SUBJECT TO
PERCENTAGE TAX (BICAP FLOW)
9. Winnings from horse race or jai-alai
– Amusement taxes
Winnings in horse race or jai-alai, in general 10%
Winnings from double, forecast/quinella and trifecta bets 4%
Owners of winning race horses 10%
– Tax on winnings
1. 4% on the net winnings of combination bets.
2. 10% on the pay out on straight wagers (non-combination bets)
– The tax shall be deducted by the operator or person in charge of
the horse race and shall be paid within 20 days from the date it
is withheld.
SERVICE SPECIFICALLY SUBJECT TO
PERCENTAGE TAX (BICAP FLOW)
Withholding of percentage tax returns
• The sale to government agencies and
instrumentalities including GOCCs is subject to
withholding tax of 3% at source.
• BIR Form 2307 will be issued for tax withheld and
shall attach the same in filing his monthly percentage
tax return.
• Same procedure for withholding of the BSP on gross
receipts of banks and quasi-banks on their special
deposit accounts or liquidity reserve accounts.
SERVICE SPECIFICALLY SUBJECT TO
PERCENTAGE TAX (BICAP FLOW)
Tax on other taxable sales of non-VAT taxpayers
• Subject to 3% percentage tax.
Exemption from percentage tax
1. VAT taxpayers
2. Self-employed and or professionals who opted to the
8% income tax
3. Cooperatives
