MODULE

4 BUSINESS TAX: NON-VAT TAXPAYERS

INTRODUCTION

This chapter discusses the application of percentage tax to business taxpayers.

INTENDED LEARNING OUTCOMES

After this chapter, readers are expected to master:

1. The scope of the 3% general percentage tax
2. The list of services specifically subject to percentage tax
3. The various tax rates and exceptions on services specifically
percentage tax

LEARNING CONTENT

PERCENTAGE TAX

Percentage Tax is a business tax imposed on the gross sales/receipts of a taxpayer.

Unlike VAT percentage tax is a deductible tax (under taxes and licenses expense)
under Sec. 34(C) of the Tax Code, except for stock transactions tax.
Kinds of Percentage Taxes:
1. Ordinary/Other Percentage Tax (Sec. 109 and 116)
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: Provided, That cooperatives, shall be exempt from the three
percent (3%) gross receipts tax herein imposed: Provided, further, That
effective July 1, 2020 until June 30, 2023, the rate shall be one percent (1%)

Exempt taxpayers:
a. Cooperatives; and

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 b. Self-employed individuals and/or professionals availing of the 8% flat rate of
income tax.

Tax Rate: • July 1, 2020-June 30, 2023- 1%

• Before July 1, 2020 and after June 30, 2023- 3%

Requisites:
• Non-VAT registered person;
• The annual gross sales/receipts do not exceed P3,000,000; and
• Not exempt from VAT under section 109(1)(A) to 109(1)(BB) of the tax code.
2. Common Carrier’s Tax (Sec 117)

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 vehicles), and keepers of garages shall pay a tax
equivalent to three percent (3%) of their quarterly gross receipts.

The gross receipts of common carriers derived from their incoming and
outgoing freight shall not be subjected to the local taxes imposed under
Republic Act No. 7160, otherwise known as the Local Government Code of
1991.

Requisites:
• The taxpayer must be a domestic carrier;
• The mode of transport should be by land; and
• It should be for transport of passengers.

Absence of any of the three requisites will render the Common Carrier’s Tax
not applicable.

In computing the percentage tax provided in this Section, the following shall be
considered the minimum quarterly gross receipts in each particular case:
(Presumptive Minimum Quarterly GR for the purpose of computing CCT)

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3. Percentage Tax on International Carriers (Sec 118) (A)

International air carriers doing business in the Philippines on their gross

receipts derived from transport of cargo from the Philippines to another
country shall pay a tax of three percent (3%) of their quarterly gross receipts.
(B) International shipping carriers doing business in the Philippines on their
gross receipts derived from transport of cargo from the Philippines to another
country shall pay a tax equivalent to three percent (3%) of their quarterly
gross receipts.

4. Franchise Tax (Sec 119)

Any provision of general or special law to the contrary notwithstanding, there

shall be levied, assessed and collected in respect to all franchises on radio
and/or television broadcasting companies whose annual gross receipts of the
preceding year do not exceed Ten million pesos (P10,000.00), subject to
Section 236 of this Code, a tax of three percent (3%) and on gas and water

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 utilities, a tax of two percent (2%) on the gross receipts derived from the
business covered by the law granting the franchise: Provided, however, That
radio and television broadcasting companies referred to in this Section shall
have an option to be registered as a value-added taxpayer and pay the tax due
thereon: Provided, further, That once the option is exercised, said option shall
be irrevocable.

5. Overseas Communication Tax (Sec 120)

There 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, a
tax of ten percent (10%) on the amount paid for such services. The tax imposed
in this Section shall be payable by the person paying for the services rendered
and shall be paid to the person rendering the services who is required to
collect and pay the tax within twenty (20) days after the end of each quarter.

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 Exemptions.
a. Government. - Amounts paid for messages transmitted by the Government of
the Republic of the Philippines or any of its political subdivisions or
instrumentalities;
b. Diplomatic Services. - Amounts paid for messages transmitted by any
embassy and consular offices of a foreign government;
c. International Organizations. - Amounts paid for messages transmitted by a
public international organization or any of its agencies based in the Philippines
enjoying privileges, exemptions and immunities which the Government of the
Philippines is committed to recognize pursuant to an international agreement;
and
d. News Services. - Amounts paid for messages from any newspaper, press
association, radio or television newspaper, broadcasting agency, or news
tickers services, to any other newspaper, press association, radio or television
newspaper broadcasting agency, or news ticker service or to a bona fide
correspondent, which messages deal exclusively with the collection of news
items for, or the dissemination of news item through, public press, radio or
television broadcasting or a news ticker service furnishing a general news
service similar to that of the public press.

6. Gross Receipt Tax on Banks and Non-Bank Financial Intermediaries

performing Quasi-Banking Operations (Sec 121)

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:

7. Tax on Other Non-Bank Financial Intermediaries (Sec 122)

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

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 income under this code.: Provided, That 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%

8. Tax on Life Insurance Premiums (Sec 123)

There 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 a tax of two percent (2%) of the total premium
collected, whether such premiums are paid in money, notes, credits or any
substitute for money

Exemptions:
a. Premiums refunded within 6 months after payment on account of rejection of
risk or returned for other reasons to the insured;
b. Reissuance premiums where tax has previously been paid;
c. Premiums collected or received by any branch of a domestic corporation,
firm, or association doing business outside the Philippines on account of any
life insurance of a NON-RESIDENT insured, if any tax on such premium is
imposed by a foreign country where the branch is established;
d. Premiums collected or received on account of re-issuance if the insured, in
case of personal insurance resides outside the Philippines, if any tax on such
premiums is imposed by a foreign country where the original insurance has
been issued or perfected; and
e. Portion of the premiums collected or received by the insurance companies
on variable contracts in excess of the amounts necessary to insure the lives of
the variable contract workers.

MODULE ACTIVITY/ASSESSMENT

TO BE SENT AFTER THE DISCUSSION