Percentage Tax • NU LAGUNA

Business and Transfer

Taxes

Course Material No. 2:

Percentage Taxes

Marina V. Justiniani, CPA, MBA

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Percentage Tax • NU LAGUNA

Percentage Taxes 2
LEARNING OUTCOMES

Here’s what I will teach you in this course material:

LESSON OUTLINE 1. Understand the scope of the 3% General Percentage Tax

2. Identify the list of services specifically subject to Percentage Tax

 Definition of Percentage Tax
3. Determine the various tax rates and exceptions on services specifically
 Scope of Percentage Tax subject to Percentage Tax

 List of Services specifically

Subject to Percentage Tax
(BICAP FLOW) RESOURCES NEEDED
 Withholding of Percentage
Tax at Source
For this lesson, you would need the following resources:
 Tax on other Taxable Sales of  Business and Transfer Taxation by Rex B. Banggawan
Non-VAT persons

 Exemption from Percentage

Tax
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TABLE OF CONTENTS
Percentage Tax • NU LAGUNA
Questions for Review and
Discussion

Accountant’s Word Hunt

Percentage Tax

Before you start, try answering the following questions.

25 Test Yourself
Indicate the tax type (VAT or % Tax) that applies to each of the
following services. If there is no applicable tax, indicate “Exempt.”
3
. 28 References
1. Common carrier by land
transport ofpassenger
2. Common carrier by land –
transport of cargoes
3. Common carrier by sea
4. Common carrier by air
5. International carrier –
passenger
6. International carrier –
cargoes, baggage ormails
7. Non-life insurance
8. Life insurance
9. Bank – short-term loans
10. Bank – long-term loans

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Percentage Tax • NU LAGUNA

Percentage Taxes

The lesson discusses about

Percentage Tax, its definition and

Scope. It also specifically identifies

The services subject to Percentage

Tax.

Also, the lesson discusses taxes on

Banks and non-bank financial

Intermediaries performing quasi-

Banking functions.

Furthermore, the lesson discusses

The following:

 Percentage tax on International

Carrier

 Percentage tax on Domestic

Carriers and Keepers of Garage

 Amusement Tax

 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 Life Insurance

Premiums

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Percentage Tax • NU LAGUNA

r on the
Accountant’s Word Hunt
Find accounting words as much as you can. You can choose any
letters inside the box but you can only use it once. The student who
has the most points will have special reward. Write your answer on
the right side of the paper.

P E R C E N T A G E C T

U A N N A I C I U N T G

V A L U E A D D E D I G

N A N A A A O O U O A I

B A N K S G M A E T T R

B O C A V C H S J V N S

F I E E D D I E O C T L

N O N B A N K T Y D L M

M B N C F D C T K R E B

Q U A S I B A N K A L S

L W X L R V O S T T T N

C A R R I E R S O N A E

A M U S E M E N T T A E

L I F E I N S U R A N C

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Percentage Tax • NU LAGUNA

Percentage Taxes

Hello Class! Let us talk about Percentage taxes.

What is a 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 or bartered; or of the gross receipts or earnings derived by any person engaged in

the sale of services.

Now let us talk about the Scope of Percentage Tax.

Coverage Type of % Tax Tax Rates

1. Services specifically subject to percentage tax Specific % Tax Various tax rates

2. Sales of goods or other service not exempted General % Tax 3% Percentage Tax

Who pays percentage tax?

Type of Percentage Tax VAT Registered Non-VAT

Taxpayers Taxpayers
Specific percentage tax √ √

General percentage tax X √

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 are as follows:

1. Banks and non-bank financial intermediaries

2. International carriers on their transport of cargoes, excess baggage and mails only

3. Common carriers on their transport of passengers by land and keepers of garage

4. Certain amusement places

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Percentage Tax • NU LAGUNA

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.

Let us discuss each item in details.

TAX ON BANKS AND NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASI-BANKING

FUNCTIONS

Banks refer to entities engaged in the lending of funds obtained in the form of deposits. Banks include

commercial banks, savings banks, mortgage banks, development banks, rural banks, stocks and savings

associations, branches and agencies of foreign banks.

The term also includes cooperative banks, Islamic banks and other banks as determined by the Monetary

Board of the Bangko Sentral ng Pilipinas.

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 of for the account of others. This

includes all entities regularly engaged in the lending of funds or purchasing of receivables or other

obligations with funds obtained from the public through the issuance, endorsement or acceptance of debt

instruments of any kind for their own account, or through the issuance of certificates, or of repurchase

agreements, whether any of these means of obtaining funds from the public is done on a regular basis or

only occasionally.

What is Quasi-Banking Function?

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
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Percentage Tax • NU LAGUNA

similar instruments, with recourse, or of repurchase agreement for purposes of relending or purchasing

receivables or other similar obligations.

Provided, however, that commercial, industrial and other non-financial companies, which borrows funds

through any of these means for the limited purpose of financing their own needs or the needs if their agents

or dealers shall not be considered as performing quasi-banking functions.

Non-bank financial intermediaries performing quasi-banking functions are commonly referred to as “Quasi-

banks”

Tax Rates on Bank and Quasi-banks

Source of Income or Receipts % of 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 subsidiaries 0%

3. On royalties, rentals of property, real or personal, profits from exchange and 7%

all other items treated as gross income under Section 32 of NIRC
4. On net trading gains within the taxable year on foreign currency, debt 7%
securities, derivatives, and other similar financial instruments

Note:

1. The percentage tax on banks, quasi-banks and other non-bank financial institution is commonly known

as the “gross receipt tax.”

2. The BSP usually makes a periodic publication of the list of quasi-banks. Non-bank financial

intermediaries not performing quasi-banking functions are subject to a separate set of gross receipt tax

rates.

Meaning of “Gross Income”

The items of gross income referred to in Section 32 of NIRC include only those items of gross income

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Percentage Tax • NU LAGUNA

subject to regular income tax. It can be argued therefore that only those items of gross income subject to

the regular tax are included as “gross receipts” for purposes of the percentage tax.

Under current jurisprudence, however, the term “Gross income” of banks was held to include those items of

gross income subject to final tax. Furthermore, 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

The tax clearly applies to the annual net gains from this category. According to RR4-2009, 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. The net trading loss shall not be deductible to other categories of receipts. If the bank has a

cumulative net loss at the end of the year, the same cannot be carried over as deduction against trading

gains in the following year.

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 Pilipinas (BSP) from its transactions undertaken in pursuit of its legally mandated functions.

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Percentage Tax • NU LAGUNA

TAX ON OTHER FINANCIAL INTERMEDIARIES WITHOUT QUASI-BANKING FUNCTIONS

Source of income or receipt % of 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:
a. Maturity period is five years or less 5%

b. Maturity period is more than five years 1%

2. From all other items treated as gross income under the NIRC 5%

Examples of non-bank financial intermediaries without quasi-banking functions include:

a. Pawnshops

b. Money changers

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. Bangko Sentral ng Pilipinas – for banks and quasi-banks

b. Securities and Exchange Commission – for other non-bank financial intermediaries

Both agencies prescribe the Philippine Financial Reporting Standards (PFRS) based upon International

Accounting Standards (IAS) as GAAP.

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.

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Percentage Tax • NU LAGUNA

The taxable 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

In the case of pre-termination, 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-banks 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.

There are two types of international carriers:

a. International air carriers

b. International shipping carriers

The term “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.

The 3% quarterly 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 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 or payment of the passage documents.

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Percentage Tax • NU LAGUNA

Taxation of Gross Receipts on Flights or Voyages

International Operation
Domestic
Types of Carriers Operation Outgoing Incoming

Domestic Carrier 12% VAT 0% VAT Exempt

International Carrier

- Passengers NA Exempt Exempt

- Goods, mails or cargoes NA 3% OPT Exempt

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 to cover

off-line flights or voyage of its principal or head office, or for other airline or sea carriers covering flights or

voyages originating from Philippine ports or off-line flights or voyages. These entities may be subject to

VAT.

Domestic sea or air carriers with international operation are vatable on their outgoing shipment of

passengers, excess baggage, cargoes or mails. They are actually subject to a zero-rate VAT on such

shipment.

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

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Percentage Tax • NU LAGUNA

PERCENTAGE TAX OF DOMESTIC CARRIERS AND KEEPERS OF GARAGE

A common carrier is any person, corporation, firm or association engaged in the business of carrying or

transporting passengers or goods or both, by land, water, or air, for compensation, and offering their

services to the public.

For purposes of the percentage tax, 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.

The following table summarizes the 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

I t must be recalled that the term “Vatable” mean subject to VAT if the taxpayer is VAT-registered or a

registrable person. Otherwise, the 3% general percentage tax applies.

Under the NIRC, 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” In practice, this quarterly tax is

paid in three monthly payments.

The tax base of the quarterly percentage tax is subject to the following minimum presumptive gross

receipts

Minimum presumptive gross receipts for common carriers and keepers of garage

Quarterly Monthly

Jeepney for hire:

Manila and other cities P2,400 P800

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Percentage Tax • NU LAGUNA
Provincial 1,200 400

Public Utility Bus:

Not exceeding 30 passengers 3,600 1,200

Exceeding 30 but not 50 6,000 2,000

Exceeding 50 passengers 7,200 2,400

Taxis:

Manila and other cities 3,600 1,200

Provincial 2,400 800

Car for hire:

With chauffeur 3,000 1,000

Without chauffeur 1,800 600

Note: These presumptive gross receipts were set by NIRC in 1997 and are too low compared to current

price levels. The BIR tried to adjust these to the current price level under RR9-2007, but the same was

recommended for suspension under Senate Committee Report No. 37 (February 11, 2008) since no proper

consultation were first conducted before its implementation.

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

The gross receipts of common carriers derived from their incoming and outgoing freight shall not be

subject to the local taxes under the Local Government Cost of 1991.

Exemptions to the Common Carriers Tax

Note that owners of bancas and animal-drawn two-wheeled vehicles are exempt from the percentage tax.

The is silent regarding pedicabs but these businesses may qualify as “business for mere subsistence” hence,

these are also exempt from business tax.

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Percentage Tax • NU LAGUNA

AMUSEMENT TAX

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%

Note that other operators of amusement places such bowling alleys, golf courses, and billiard halls are

vatable. Cinemas and theaters is not subject to this national amusement tax because it is exclusively

subject to local amusement tax.

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

For the purpose of the amusement tax, gross receipts embrace all receipts of the proprietor, lessee or

operator of the amusement places. Said receipts 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.

The tax will be payable within 20 days after the end of each quarter. The proprietor, lessee, or operator

shall make a true and complete return of the amount of the gross receipts derived during the preceding

quarter and pay the tax thereon.

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Percentage Tax • NU LAGUNA

Illegal Cockpits

Persons who are engaged in the same operations such as operators of illegal “tupada” cockpit are also

taxed at 18% of their gross receipts.

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 exchange of stocks listed and traded through the Philippine Stock Exchange (PSE)

The sale, barter or exchange, including block sale, of listed stocks through the PSE, other than by dealers in

securities, is subject to a tax of 60% of 1% based on gross selling price or gross value in money of the shares

of stocks sold. This percentage tax is commonly known as “stock transaction tax.”

The same shall be paid by the seller or transferor and is to be collected by the stock broker who effected the

sale. The stock broker shall remit the tax to the BIR within five banking days from the date of collection.

Tax on the Shares of Stock Sold or Exchanged through an Initial Public Offering (IPO)

The sale, barter, exchange or other disposition through initial public offering of shares of stock in a closely

held corporation is subject to the following tax rates based on the gross selling price or gross value in

money in proportion to the shares sold, bartered or exchanged or otherwise disposed.

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%

This percentage tax is commonly known as the IPO tax. Note that the IPO tax applies only to the initial

public offering of a closely held corporation.

Closely-held corporation means any corporation at least 50% in the value of the outstanding capital stock

or at least 50% of all classes of stock entitled to vote is owned directly or indirectly by not more than 20

individuals.

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Percentage Tax • NU LAGUNA

It must be noted that the IPO tax applies only to IPO of closely-held corporation as defined above. Be it

noted therefore that the IPO of a corporation which is diversely owned or those whose 50% of capital stock

is owned by more than 20 people is not subject to the IPO tax.

The determination of the proportion of stocks sold in an IPO depends upon the type of offering:

1. Primary offering – unissued shares of the closely held corporation to be sold in the IPO

2. Secondary offering – issued shares or shares of existing shareholders who wish to sell their shares in

the IPO.

Proportion of share offering

1. Primary offering = Primary shares ÷ outstanding shares after IPO

2. Secondary offering = Secondary shares ÷ outstanding shares before IPO

TAX ON FRANCHISES

Generally, franchises are vatable. Exceptionally however, there are only two types of franchises that are

specifically subject to percentage taxes under the NIRC:

Franchise Grantees % Tax Rates

1. Radio or television broadcasting companies whose annual 3%

gross receipts do not exceed P10,000,000
2. Gas and water utilities 2%

The percentage tax on these franchise grantees is referred to as “franchise tax”

Franchise grantees of radio or television broadcasting companies are mandatorily required to register as

VAT taxpayer if they exceed the P10,000,000 gross receipt threshold. Even if below the threshold, they

may register as VAT taxpayer. Once the option is exercised, said option shall be irrevocable. On other

words, the VAT registration of these entities is non-cancellable until the dissolution of their business. Note

that there is no similar provision for franchise grantees of gas and water utilities. Hence, they are subject to

percentage tax even if they exceed the P10,000,000 gross receipts threshold.

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Percentage Tax • NU LAGUNA

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

TAX ON LIFE INSURANCE PREMIUMS

A person, company or corporation (except purely cooperative companies or associations) doing life

insurance business of any sort in the Philippines is subject to a tax of 2% on the premiums collected,

whether such premium is paid in money, notes, credit or any substitute for money.

A life insurance company is a company which deals with the insurance on human lives and insurance

appertaining thereto or connected therewith. The service likewise includes soliciting group insurance and

health and accident insurance policies which the company is nevertheless authorized to pursue as part of its

business activity.

Hence, premiums on health and accident insurance underwritten by life insurance companies are subject to

the premium tax. However, premiums on health and accident insurance underwritten by non-life insurance

policies are vatable.

The following shall not be included in gross receipts of an insurance company

a. Premiums refunded within 6 months after payment on account if 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

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Percentage Tax • NU LAGUNA

d. Excess of premiums on variable contracts in excess of the amounts necessary to insure the lives of the

variable contract owners.

Refunded premiums are certainly not receipts, hence, these are properly excluded from the tax base.

Premiums on life-insurance of non-residents purchased abroad constitute an exempt foreign consumption.

Furthermore, the excess of variable contracts over the life insurance premium represents investments

rather than premiums.

Type of Insurance Business

a. Direct insurance

b. Reinsurers

c. Retrocessionaires

A direct insurance business underwrites insurance policy and negotiates them to policyholders through

insurance agents. To minimize risks, insurers assign parts of their insurance premiums to reinsurers who

shall undertake to assume part of the risks. Reinsurers are thus insurers of insurers. Retrocessionaires are

insurers of reinsurers.

Upon collection of the premiums by direct insurers, the 2% premium tax for life insurance policies or VAT

for non-life insurance policies applies. When insurers cede part of these premiums to reinsurers, it should

not be taxed again. Otherwise, double taxation occurs.

Cooperative companies or associations are those conducted by the members thereof with the money

collected from among themselves and solely for their own protection and not for profit.

Except for crop insurance, non-life insurance is vatable. Non-life insurance includes surety, fidelity,

indemnity, bonding companies, marine, fire and casualty insurance.

Taxation of other Receipts of Life Insurance Business

1. Renewal or re-insurance fee, re-instatement fee and penalties – these are considered incidental to or

connected to insurance policy contracts are akin to premium; hence, subject to the 2% premium tax

2. Management fees, rental income, or other income from unrelated services – these are vatable

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Percentage Tax • NU LAGUNA

3. Investment income

If investment income is realized from the investment of premiums earned, it is exempt. Note that the

premiums which have been the source of the funds invested had already been subject to 2% premium

tax.

If investment income is realized from the investment of funds obtained from others, it is considered

income from quasi-banking; hence, subject to the gross receipt tax imposed on non-bank financial

intermediaries.

The investment income that 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.

TAX ON AGENTS OF FOREIGN INSURANCE

Under Section 124 of the NIRC, fire, marine or miscellaneous insurance agents authorized under the

Insurance Code to procure policies of insurance on risks located in the Philippines for companies not

authorized to transact business on the Philippines are subject to a tax equal to twice the tax imposed on life

insurance premiums.

RA 10001 reduced the tax on life insurance premium from 5% to 2%. Therefore, the tax on agents of

foreign insurance is 4% now.

Direct Insurance from abroad

If property owners obtain insurance directly from abroad without the services of an insurance agent, the tax

shall be 5% of the premium paid. It shall be the duty of the owner to report each transaction to the

Insurance Commissioner and to the Commissioner of Internal Revenue.

TAX ON OVERSEAS DISPATCH, MESSAGE OR CONVERSATION ORIGINATING FROM THE

PHILIPPINES

The overseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph,

telewriter exchange, wireless and other communication equipment services is subject to a 10% percentage

tax. This percentage tax is commonly referred to as the “overseas communication tax.”

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The following table summarizes the business tax rules:

Call Origin Call Destination Business Tax

Philippines Philippines 12% VAT

Abroad Philippines 0% VAT

Philippines Abroad 10% overseas communication tax

Exemptions:

The overseas communication tax shall not apply to the outgoing calls of the following:

1. Government – including any of its political subdivisions or instrumentalities

2. Diplomatic services – embassies and consular offices of foreign governments

3. International organizations – those enjoying privileges, exemptions and immunities under

international agreements

4. News services

WINNINGS FROM HORSE RACE OR JAI-ALAI

Winnings from race tracks and jai-alai are subject to the following 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%

Types of race winnings

A. Combination bets

1. Double – a bet to select the winners in two specific races

2. Daily double – a bet to forecast the first winning horse on two consecutive races

3. Forecast – a bet to predict the first and second finisher of a particular race

4. Exacta or perfecta – a bet to pick the first two finishers in exact order

5. Quinella – a bet where at least the first two finishers must be picked in either order

6. Trifecta – a bet to predict the first three finishers in a race in exact order
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B. Straight Wagers

1. Win – the selected horse must finish first

2. Place – the selected horse must come first or second

3. Show – the selected horse must come first, second or third

Tax on Winnings

The pay-out on combination bets is subject to 4% on the net winnings. The pay-out on straight wagers is

taxable at 10%.

The tax shall be deducted from the “dividend” corresponding to each winning ticket or the “prize” of each

winning race horse owner and withheld by the operator or person in charge of the horse race before paying

the dividends or prizes to the person entitled thereto. The tax shall be paid within 20 days from the date it

is withheld.

WITHHOLDING OF PERCENTAGE TAX AT SOURCE

The sale to government agencies and instrumentalities including government-owned and controlled

corporation (GOCC) is subject to a withholding tax of 3% at source.

The government agency, instrumentality or GOCC withholds the 3% percentage tax and issues to the

taxpayer BIR Form 2307. The taxpayer shall attach BIR 2307 in filing his monthly percentage tax return.

The same procedure is employed for withholdings made by the BSP on gross receipts of banks and quasi-

banks on their special deposit accounts or liquidity reserve accounts.

EXEMPTION FROM PERCENTAGE TAX

The percentage tax does not cover:

1. VAT Taxpayers

2. Self-employed and or professional who opted to the 8% income tax

3. Cooperatives

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Self-employed and or professional who opted to the 8% income tax

Under income taxation, self-employed individuals and or professionals may opt to be taxed to the 8%

income tax which is a bundled tax that covers both income tax and the percentage tax. As such, they are no

longer subject to 3% percentage tax as the 8% tax is in lieu of regular income tax and the 3% general

percentage tax.

Individuals paying the 8% income tax shall only file BIR Form 1701A. There is no need to file BIR From

2551Q.

Exemption of Cooperative from Percentage Tax

Under the Section 116 of the NIRC of 1997, cooperatives shall be exempt from the 3% percentage tax.

This exemption, however, is not absolute. Sales or receipts of cooperatives outside their registered

activities are still subject to business tax similar to the business tax treatment of government agencies and

nonprofit institutions.

SUMMARY OF SPECIFIC PERCENTAGE TAXES

Business or Activity Percentage Tax Tax Rates

Banks and financial intermediaries Gross receipt tax 5%, 1%, 7%

International carriers International carrier’s tax 3%

Common carriers Common carrier’s tax 3%

Amusement places Amusement tax 10%, 15%, 18%, 30%

Sales of stocks by an investor Stock transaction tax 60% x 1%

Sale of stocks during an initial public offering (IPO) IPO tax 4%, 2%, 1%

Franchise Franchise tax 3%

Life insurance Premiums tax 2%, 4%, 5%

Overseas calls Overseas 10%

communication
tax
Amusement betting Winnings tax 10%, 4%

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Do you understand, class?

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Percentage Taxes • NU LAGUNA

Choose the best answer

Test yourself
1. The percentage tax rates on services specifically subject to percentage tax ranges from
a. ½ of 1% to 3%
b. ½ of 1% to 30%
c. 1% to 3%
d. 1% to 30%

2. To be subject to the general percentage tax, a taxable person must not be

a. VAT-registered
b. Non-VAT registered
c. Operating below the VAT threshold
d. All of these

3. Which domestic common carrier is specifically subject to percentage tax?

a. Common carrier by land
b. Common carrier by air
c. Common carrier by sea
d. All of these

4. To an operator of a domestic sea transport vessel, which of the following is vatable?

a. Fares from passengers
b. Fares from baggage
c. Fares from cargoes and malls
d. All of these

5. Which of these is vatable?

a. City taxis
b. Sea vessels
c. Provincial buses
d. City buses

6. Which is subject to 3% percentage tax?

a. Kalesa
b. Bangka
c. Bulldozer
d. Car for hire

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Percentage Taxes • NU LAGUNA

7. A jeepney operator with gross receipts from passenger fares exceeding P3,000,000 in any 12-
month period is subject to
a. 3% percentage tax
b. 8% percentage tax
c. 12% VAT
d. 0% VAT

8. Franchise grantees of telephone, telegraph, and other communication equipment are subject
to percentage tax on
a. Overseas dispatch of message
b. Domestic dispatch of message
c. Both A and B
d. Neither A nor B

9. Which is not exempt from the overseas communication tax?

a. PEZA locators
b. Government
c. Diplomatic services
d. News services

10. The overseas communication tax is

a. 10% of revenue
b. 10% of gross receipts
c. 3% of revenue
d. 3% of gross receipts

11. A radio or television broadcasting company with annual gross receipts of P12,000,000 shall
pay
a. VAT
b. 3% percentage tax
c. 2% percentage tax
d. no business tax

12. Which winning is subject to percentage tax?

a. Winnings from lotto
b. Winnings from derby
c. Winnings from horse race
d. Winnings from gambling

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Percentage Taxes • NU LAGUNA

13. Which of the following events is not exempt from amusement tax?
a. World championship
b. Oriental championship
c. National championship
d. None of these

14. Operators or discos or cabarets are subject to an amusement tax of

a. 10%
b. 15%
c. 18%
d. 30%

15. Which is incorrect with respect to the requisites of exemption of receipts from professional
boxing?
a. Both contenders must be Filipinos
b. The promoter must be a Filipino or corporation with at least 60% Filipino ownership
c. The competition must be a world or oriental championship
d. All of these

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Percentage Taxes • NU LAGUNA

Reference

Books and Journals

Valencia, Edwin G. (2016). Transfer and Business Taxation: Principles and Laws with Accounting
Applications

Tabag, Enrico D. & Garcia, Earl Jimson. (2017).Transfer and Business Taxation

Valencia, Edwin G. and Roxas, Gregorio F. (2016). Transfer and Business Taxation: Principles and Laws
with Accounting Applications 7th ed.

Banggawan, Rex B. (2017). Business and Transfer Taxation: Laws Principles and Applications/ 2017 ed.

Reyes, Virgilio. (2015). Philippine Transfer and Business Taxation/ c2015

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