PRACTICE SET: PERCENTAGE TAX

a. Sec. 123 – Tax on Life Insurance Premiums

1) Persons subject to tax Person, company or corporation (except purely cooperative companies or
associations) doing life insurance business of any sort in the Philippines.
2) Tax base Total premiums collected, whether such premiums are paid in money, notes,
credits or any substitute for money.
3) Tax rate 2% (per Sec. 1, R.A. No. 10001) (used to be 5%)

4) Other items subject to a) Premium on Health and Accident Insurance, whether received by a life or
the premium tax (RMC non-life insurance company
No. 49-2010) b) Re-issuance fees, reinstatement fees, renewal fees as well as penalties
paid to the life insurance company which are incidental to or in connection
with the insurance policy contracts issued
c) Investment income realized from the investment of funds obtained from
others allowed and approved by the Insurance Commission
5) Items earned by life a) Insurance and reinsurance commissions, whether life or non-life
insurance company b) Management fees
subject to VAT or c) Rental income
percentage tax as the d) Other income earned which can be pursued independently of the insurance
case may be (RMC No. business activities
49-2010)
6) Investment income The interest income earned by the life insurance companies from
realized from the investing the premiums received in marketable securities, bonds and other
investment of financial instruments is considered exempt from further imposition of
premiums earned business tax since the premiums which have been the source of the funds
invested had
already been subject to the premium tax (RMC No. 49-2010).
7) Persons subject to VAT 1) Non-life insurance companies (except their crop insurance) including
surety, fidelity, indemnity and bonding companies;
2) Pre-need companies;
3) Health Maintenance Organizations (HMOs).

8) Determine which business taxes will the following be subject to

a) Premium on Health and Accident Insurance received by a life insurance company
b) Premium on Health and Accident Insurance received by a non-life insurance company
c) Insurance and reinsurance commissions received by a life insurance company, not VAT
registered, annual gross receipts do not exceed P3,000,000
d) Insurance and reinsurance commissions received by a non-life insurance company, VAT
registered, annual gross receipts do not exceed P3,000,000
e) Insurance and reinsurance commissions received by a life insurance company, not VAT
registered, annual gross receipts exceed P3,000,000
f) Interest income earned by the life insurance companies from investing the premiums
received in marketable securities, bonds and other financial instruments
g) Non-life insurance premiums received by a non-life insurance company, VAT-registered,
gross receipts do not exceed P3,000,000
h) Non-life insurance premiums received by a non-life insurance company, not VAT-registered,
gross receipts exceed P3,000,000
i) Non-life insurance premiums received by a non-life insurance company, not VAT-registered,
gross receipts do not exceed P3,000,000
j) Health and accident insurance premiums received by a life insurance company, gross
receipts exceed P3,000,000
k) Health and accident insurance premiums received by a non-life insurance company, gross
receipts exceed P3,000,000
l) The Nativity Insurance Co., with life and non-life insurance business, had the following data on
premiums and expenses for a quarter:
Life insurance business, on premiums:
Cash received P520,000
Accounts 365,000
receivable Post- 315,000
dated checks
Non-life insurance business, on premiums: 800,000
Cash received, excluding VAT of P96,000 342,000
Accounts receivable 672,000
Payments on operational expenses, including rentals, all to VAT registered persons
Question 1 – How much is the percentage tax payable?
Question 2 – How much is the value-added tax payable, if VAT registered?
 b. Sec. 124 – Tax on Agents of Foreign Insurance Companies
1) Persons subject to tax Every fire, marine or miscellaneous insurance agent authorized under the
Insurance Code to procure policies of insurance on risks located in the
Philippines.
2) Tax base Total premiums collected
3) Tax rate 4%
4) Direct insurance with In all cases where owners of property obtain insurance directly with foreign
foreign insurance companies, they shall pay the tax of 5% on premiums paid.
companies

c. Sec. 125 – Amusement Taxes

1) Persons subject to tax PROPRIETOR, OPERATOR OR LESSEE OF:
1) cockpits; 4) Professional basketball games;
2) cabarets, night and day clubs; 5) Jai-alai and race tracks.
3) boxing exhibitions;
2) Tax base and tax rates TAX BASE TAX RATE
JAI-ALAI AND RACE TRACKS GROSS RECEIPTS 30%
COCKPITS GROSS RECEIPTS 18%
CABARETS, NIGHT AND DAY CLUBS GROSS RECEIPTS 18%
PROFESSIONAL BASKETBALL GAMES GROSS RECEIPTS 15%
BOXING EXHIBITIONS GROSS RECEIPTS 10%

NOTE: THE TERM “CABARETS, NIGHT AND DAY CLUBS” INCLUDES VIDEOKE BARS, KARAOKE
BARS, KARAOKE TELEVISIONS, KARAOKE BOXES AND MUSIC LOUNGE. (RMC NO.
18-2010)
3) Payment of tax 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 GROSS RECEIPTS DERIVED
DURING THE PRECEDING QUARTER AND PAY THE TAX DUE THEREON.
4) Exempt boxing Boxing exhibitions wherein World or Oriental Championships in any division
exhibition is at stake shall be exempt from amusement tax provided that at least one
of the contenders is a citizen of Philippines, and said exhibitions are
promoted by citizen/s of the Philippines or by a corporation or association
at least 60% of the capital is owned by such citizens.
5) 15% tax on professional The 15% tax on professional basketball games shall be in lieu of all other
basketball games in lieu percentage taxes of whatever nature and description.
of all other percentage
taxes
6) 30% tax and other taxes The 30% tax in the case of Jai-Alai and racetracks of their gross receipts is
imposed even if no irrespective of whether or not any amount is charged for admission
amount is charged for
admission
7) Meaning of gross For the purpose of amusement tax, the term “gross receipts” embraces
receipts 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 right, if any.

8) Exercise
a. Ms. N is a caterer and a videoke bar operator. In a taxable period, she had the following data, tax not
included:
Sales:
From operations of the Truluv Catering Service:
Cash sales P400,000
Accounts receivable (catering) 250,000
Credit card sales 243,000
From operations of the Dude Videoke Bar:
Cash sales 1,360,000
Credit card sales 624,200
Payments for catering service, based on gross receipts (80% of which are to 60%
VAT taxpayers)

Question 1 – How much is the amusement tax payable?

b. The following data are presented to you: Answers are provided below)
Gross receipts, sale of tickets P 500,000
Gross receipts, sale of food and drinks inside the amusement place 1,000,000
Gross receipts, sale of souvenir items inside the amusement place 300,000
 Compute the amusement tax assuming the amusement place is a:
1) Race track.
2) Cockpit.
3) Videoke bar.
4) Venue where professional basketball games are held.
5) Venue where boxing exhibitions featuring Philippine championship.
6) Venue where world boxing championship is held involving a Filipino boxer and promoted by a
domestic corporation.

d. Sec. 126 - Tax on Winnings

1) Persons subject to 1) Every person who wins in horse races;
tax 2) Winning from double, forecast/quinella and trifecta bets;
3) Owners of winning race horses
2) Tax base and tax Tax base Tax rate
rates Amount paid for every winning 10% (person who wins in horse
ticket less cost of the tickets races)
Amount paid for every winning 4% (double, forecast/quinella and
ticket trifecta bets)
less cost of the tickets
Prize 10% (owners of winning race
horses)
3) Definition of terms 1) Daily double or extra 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.
2) Forecast is an event wherein the bettor selects two (2) numbers in a selected
race, and the selection must finish first and second in the correct order.
3) Double quinella is an event wherein the bettor selects two (2) numbers in
each of the two (2) selected races, and the selection in each race must finish
first and second in either order.
4) Trifecta is an event wherein the bettor selects three (3) numbers in a selected
race and the selection must finish first, second and third in the correct order.
4) Collection of tax 1) Tax on winnings shall be deducted from the “dividends” corresponding to each
winning ticket or the “prize” of each winning racehorse.
2) Tax on winnings shall be withheld by the operator, manager or person in charge
of the horse races before paying the dividends or prizes.
5) Remittance of tax The operator, manager or person in charge of horse races shall remit the taxes to
to BIR the BIR within 20 days from the date the tax was deducted and withheld.

e. Sec. 127 (A) - Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded Through the
Local Stock Exchange.
1) Persons subject to tax Seller or transferor of shares of stock
2) Person not subject to Dealer in securities
tax
3) Tax base Gross selling price or gross value in money
4) Tax rate 6/10 of 1% (.006) effective January 1, 2018 (used to be 1/2 of 1%)
5) Collection of tax It shall be the duty of every stock broker who effected the sale to collect the
tax.
6) Remittance of tax The tax collected shall be remitted within 5 banking days from the date of
collected collection.
7) Not deductible for The tax on sale, etc. of shares of stock listed and traded through the local
income tax purposes stock exchange shall not be deductible for income tax purposes
8) Gain derived from sale, Any gain derived from the sale, barter, exchange or other disposition of
barter, exchange or shares of stock under Sec. 127 shall be exempt from capital gains tax and
other disposition of from the regular individual or corporate income tax.
shares stock of under
Sec. 127
9) Exercise: Pink Yummy has shares of stock of Manila Trading Corp valued at P500,000 which are held as
investment. She sold them for P300,000.

REQ: a. How much is the percentage tax on the sale of the shares listed and traded in the local stock exchange
assuming the sale is on January 5, 2018?
b. How much is the capital gains tax assuming the shares are sold January 5, 2018 directly to a buyer and
not through the stock exchange?
c. How much is the value-added tax assuming the shares are held as inventory and Pink Yummy is a VAT-
registered dealer in securities?
f. Sec. 127 (B) - Tax on Shares of Stock in Closely Held Corporation Sold or Exchanged Through
Initial Public Offering.
1) Persons subject to tax 1) Issuing corporation in initial public offering;
2) Seller in secondary offering.
2) Tax base Gross selling price or gross value in money
3) Tax rates Shares sold, bartered, exchanged
--------------------------------- = Up to 25% - 4%
Total outstanding shares = Over 25% but not over 33 1/3% - 2%
= Over 33 1/3% - 1%

4) Payment of tax 1) In case of primary offering – The corporate issuer shall file the return and
pay the tax within 30 days from the date of listing of the shares in the
local stock exchange.
2) In case of secondary offering – The stock broker shall collect the tax and
remit the same to BIR within 5 banking days from the date of collection.
5) Not deductible for The tax paid on initial public offering and secondary offering shall not be
income tax purposes deductible for income tax purposes.
6) Gain derived from sale, Any gain derived from the sale, barter, exchange or other disposition of
barter, exchange or shares of stock under Sec. 127 shall be exempt from capital gains tax and
other disposition of from the regular individual or corporate income tax.
shares stock of under
Sec. 127
7) Repeal by Bayanihan Section 6 of Republic Act No. 11494, otherwise known as Bayanihan to
Law 2 Recover as One Act, repeals Section 127(B).

Tax on shares of stocks sold, bartered, exchanged or other disposition

through Initial Public Offering (IPO) provided under Section 127 (B) of the NIRC
of 1997, as amended, is repealed. Thus, every sale, barter, exchange or
other disposition through IPO of shares of stock in closely held corporations
shall no longer be subject to the tax imposed under Section 127 (B) upon the
effectivity of RA No. 11494. (Section 3, Revenue Regulations No. 23-2020)

2. RETURNS AND PAYMENTS OF PERCENTAGE TAXES

a. Quarterly Return Every person subject to the percentage taxes imposed shall file a quarterly
return of the amount of his gross sales, receipts or earnings and pay the tax
due thereon within twenty-five (25) days after the end of each taxable
quarter.
b. Consolidated return of Large taxpayers shall file a consolidated return and pay the tax accordingly.
large taxpayers
c. Large taxpayers 1) As to tax payments
Percentage tax At least P200,000 per quarter
VAT At least P200,000 per quarter
Excise tax At least P1,000,000 per year
Income tax At least P1,000,000 per year
Documentary stamp tax At least P1,000,000 per year
Withholding tax At least P1,000,000 annually

2) As to financial condition
Gross sales/receipts At least P1,000,000,000 per year
Gross purchases At least P800,000,000 for the preceding
year
Net worth At least P300,000,000 at the close of
each calendar or fiscal year
d. Person whose VAT In the case of a person whose VAT registration is cancelled and who becomes
registration is cancelled liable to the 3% tax on VAT-exempt persons, the tax shall accrue from the
date of cancellation and shall be paid within 25 days after the end of
each
taxable quarter.
e. Person retiring from a Any person retiring from a business subject to percentage tax shall notify the
business subject to nearest internal revenue officer, file his return and pay the tax due thereon
percentage tax within 20 days after closing his business.
f. Withholding of Any person, natural or juridical, with respect to his/its purchase in the course
percentage tax of trade or business from non-VAT taxpayers subject to the 3% percentage
under Section 116 of the Tax Code shall be subject to a percentage tax
withholding at source at a rate of 3% based on the payee’s (or seller’s)
sales/receipts. The withholding shall be done if the taxpayer-payee opts to
remit his percentage tax through withholding by filing “Notice of Availment
of the Option to Pay the Tax Through the Withholding Process”.
g. Commissioner of The Commissioner of Internal Revenue may prescribe a minimum amount of
Internal Revenue may gross receipts under the following cases:
prescribe a minimum 1) When a taxpayer fails to issue receipts or invoices;
amount of gross receipts 2) When no return is filed;
3) When there is reason to believe that the books of accounts or other
records do not correctly reflect the declarations made or to be made in
return.
h. Place of filing the 1) Authorized agent bank;
return and payment of 2) Revenue District Office/Large Taxpayer District Office/Large Taxpayer
the percentage tax Assistance Division;
3) Collection Agent;
4) Duly authorized Treasurer of the city or municipality where the business or
principal place of business is located, as the case may be.
i. Option to file a separate A person liable to percentage tax (except large taxpayers) may, at his option,
return or consolidated file a separate return for each branch or place of business, or a consolidated
return return for all branches or places of business.