I'm Giancarlo Enrico S. Pozon, a Wushu instructor, investor and Barrister... That's right, Barrister; I graduated from law school and took the Bar Exams, now I'm waiting for the results. I created this blog to make Philippine Law easy to understand for the average person. It's all about free legal advice. There are many law blogs. But the problem is that many of them are written for lawyers and law students. They use words that can't be understood by ordinary people.
Many lawyers, judges and law students consider themselves as superior to most human beings because of their knowledge of the law. It bothers me since the law is supposed to serve society. Since the law is meant to serve society as a whole, it is important that is must be understood by everybody.
This does not mean that we should all become lawyers. It means that although law is a highly specialized profession, the first duty of everybody in this profession is to make the law understandable to all; that's why all these articles are free legal advice.
Like I said, this blog is about law -but it's for the ordinary people, not the lawyers. It's for the ordinary folk so they will know what is good and bad for them, and that making them aware of the law will help us all improve society as a whole. This is free legal advice for everybody!
Let's take a little detour from Very Abusive Tax (my reading of "VAT") for a moment. Here are some other percentage taxes that you also need to watch out for. They're computed separately from VAT and, depending on the subject, may or may not be an alternative to VAT. Also, remember gross selling price and gross receipts. They're important in this article. Take note also of the other taxation articles as well.
For persons who are exempt from VAT, there is a 3% tax on gross sales or receipts if the total annual sales don't exceed the Php1,919,500 limit (see no. 22 in the previous post.) Cooperatives are exempted from this tax (and are exempted from VAT as well.)
Domestic Carriers and Garage Keepers
"Garage" here doesn't mean the part of your house where you park your car; it refers to gasoline stations, repair shops and other related businesses. A 3% tax on gross receipts is imposed on domestic carriers and garage keepers and covers the following:
1.) Cars for rent or hire driven by the lessee
2.) Transportation contractors
3.) Persons who transport passengers for hire
4.) Other domestic land carriers for the transport of passengers
5.) Keepers of garages
The tax won't apply to the owners of bancas and animal-drawn, 2-wheeled vehicles (read: carts.) Gross receipts of common carriers from their incoming and outgoing freight are exempt from local taxes under the Local Government Code.
International Carriers
Besides the tax on gross Philippine billings, there is also a 3% tax on gross receipts of international air and shipping carriers doing business in the Philippines.
Franchises
"Franchise" here refers to government franchises, not private ones. 2% on gross receipts is collected from gas and water utilities.
Radio and/or television broadcasting companies whose annual gross sales of the previous year don't exceed Php10,000,000. These companies can choose to be VAT-registered and pay the VAT due. A warning, however: once this option is taken, it can't be revoked.
Overseas Communications Taxes
A 3% tax is collected from the amount paid for every overseas dispatch, message or conversation transmitted from the Philippines by phone, telegraph, telewriter exchange, wireless and other communication equipment services. This is paid by the person paying for the services and is paid to the person rendering the services in question. The latter then remits the tax to the government. This tax doesn't apply to the following:
1.) Government
2.) Diplomatic services
3.) International organizations
4.) News services
Banks and Non-bank Financial Intermediaries
The tax is collected from the gross receipts from sources in the Philippines and is imposed on:
1.) Interest, commissions, discounts from lending activities and income from financial leasing based on the remaining maturities instruments as follows:
a.) 5% if the maturity period is 5 years or less
b.) 1% if the maturity period is longer than 5 years
In case there's pre-termination, the maturity period ends on the date of pre-termination.
2.) Dividends, equity shares and net income of subsidiaries: 0%
3.) Royalties, rental of real or personal property, profits from exchange and all other items of gross income: 7%
4.) Net trading gains on foreign currency, debt securities, derivatives and other similar instruments within the taxable year: 7%
Non-bank financial intermediaries refer to persons or entities besides banks that are engaged in lending, investing or placement of funds or evidence of indebtedness or equity deposited with them, acquired by them or coursed through them either for their own accounts or for the accounts of others.
Other Finance Companies
3% on gross receipts from items of gross income; provided that interest, commissions and discounts from lending activities and income from financial leasing will be based on the remaining maturities in the following manner:
1.) Short-term (2 years or less) 5%
2.) Medium-term (more than 2 years up to 4 years) 3%
3.) For long-term, 1% if more than 4 years but not more than 7 years and 0% if more than 7 years
The same pre-termination rule on banks applies here.
Insurance
Check this article out and see how RA10001 deals with taxes on life insurance
Amusement Taxes
The tax base is the gross receipts, which will include income from television, radio and motion picture rights (if any.) The national government imposes amusement taxes based on gross receipts and winnings while the local government unit (LGU) imposes amusement taxes on the admission fees. Theaters and movie houses pay VAT on their tickets instead of these amusement taxes. The amusement taxes are the following:
1.) Cockpits: 18%
2.) Cabarets, nightclubs, day clubs and karaoke bars: 18%
3.) Boxing matches 10%
4.) Professional basketball games: 15%
5.) Jai-alai and racetracks: 30%
Gross receipts of amusement places include the following:
1.) Receipts from the amusement places
2.) Admission fees
3.) Income from television, radio and movie rights
4.) Rentals for the lease of bars, restaurants and other concessions within the amusement places
Regarding no.4, if the owner of the restaurant, etc. is also the owner of the amusement place, the restaurant, etc. is also subject amusement tax. If the owner is someone else, the restaurant, etc. is subject to VAT instead of amusement tax.
Boxing matches are exempt from amusement taxes if the following are present:
1.) It involves a bout where the World or Oriental Championship in any division is at stake
2.) At least one of the contestants is a Filipino citizen
3.) The promoters are Filipino citizens or corporations/associations where at least 60% of the capital stock is Filipino-owned
Winnings in Horse Races
The cost of the ticket is deducted and the rest of the prize will be taxed. The operator, manager or person in charge of the races will withhold the tax from the winnings and remit it to the government. The taxes on the prizes are:
1.) Regular bets: 10%
2.) Double, forecast/quinella and trifecta bets: 4%
3.) Racehorse owners: 10%
By nature, the percentage tax on horse race winnings is an amusement tax imposed on the bettors who win in the horse races as well as on the owners of the winning horses based on the winnings (after the ticket cost is deducted) and prizes. Note: this tax is limited only to race tracks and doesn't include winnings and prizes from derbies and hackfights in cockfights.
Sale/Exchange of Shares of Stock Listed and Traded at the Stock Exchange
See corporate tax basics. 1/2 of 1% of the gross selling price or gross value. For an IPO of shares in closely-held corporations, the rates to be applied in accordance with the proportion of shares sold or exchanged to the total outstanding shares of stock after the listing at the stock exchange in the following way:
1.) 25% or less: 4%
2.) More than 25% but not more than 33 1/3%: 2%
3.) More than 33 1/3%: 1%
Closely-held corporations are corporations where at least 50% of the value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock is directly or indirectly owned by, or for, 20 individuals or less. The nature of this tax is a final tax based on the gross selling price/gross value of the stock. Once taxed, it's no longer subject to income tax. It must be filed on or before the 20th day following the close of the taxable month.
Domestic Carriers and Garage Keepers
"Garage" here doesn't mean the part of your house where you park your car; it refers to gasoline stations, repair shops and other related businesses. A 3% tax on gross receipts is imposed on domestic carriers and garage keepers and covers the following:
1.) Cars for rent or hire driven by the lessee
2.) Transportation contractors
3.) Persons who transport passengers for hire
4.) Other domestic land carriers for the transport of passengers
5.) Keepers of garages
The tax won't apply to the owners of bancas and animal-drawn, 2-wheeled vehicles (read: carts.) Gross receipts of common carriers from their incoming and outgoing freight are exempt from local taxes under the Local Government Code.
International Carriers
Besides the tax on gross Philippine billings, there is also a 3% tax on gross receipts of international air and shipping carriers doing business in the Philippines.
Franchises
"Franchise" here refers to government franchises, not private ones. 2% on gross receipts is collected from gas and water utilities.
Radio and/or television broadcasting companies whose annual gross sales of the previous year don't exceed Php10,000,000. These companies can choose to be VAT-registered and pay the VAT due. A warning, however: once this option is taken, it can't be revoked.
Overseas Communications Taxes
A 3% tax is collected from the amount paid for every overseas dispatch, message or conversation transmitted from the Philippines by phone, telegraph, telewriter exchange, wireless and other communication equipment services. This is paid by the person paying for the services and is paid to the person rendering the services in question. The latter then remits the tax to the government. This tax doesn't apply to the following:
1.) Government
2.) Diplomatic services
3.) International organizations
4.) News services
Banks and Non-bank Financial Intermediaries
The tax is collected from the gross receipts from sources in the Philippines and is imposed on:
1.) Interest, commissions, discounts from lending activities and income from financial leasing based on the remaining maturities instruments as follows:
a.) 5% if the maturity period is 5 years or less
b.) 1% if the maturity period is longer than 5 years
In case there's pre-termination, the maturity period ends on the date of pre-termination.
2.) Dividends, equity shares and net income of subsidiaries: 0%
3.) Royalties, rental of real or personal property, profits from exchange and all other items of gross income: 7%
4.) Net trading gains on foreign currency, debt securities, derivatives and other similar instruments within the taxable year: 7%
Non-bank financial intermediaries refer to persons or entities besides banks that are engaged in lending, investing or placement of funds or evidence of indebtedness or equity deposited with them, acquired by them or coursed through them either for their own accounts or for the accounts of others.
Other Finance Companies
3% on gross receipts from items of gross income; provided that interest, commissions and discounts from lending activities and income from financial leasing will be based on the remaining maturities in the following manner:
1.) Short-term (2 years or less) 5%
2.) Medium-term (more than 2 years up to 4 years) 3%
3.) For long-term, 1% if more than 4 years but not more than 7 years and 0% if more than 7 years
The same pre-termination rule on banks applies here.
Insurance
Check this article out and see how RA10001 deals with taxes on life insurance
Amusement Taxes
The tax base is the gross receipts, which will include income from television, radio and motion picture rights (if any.) The national government imposes amusement taxes based on gross receipts and winnings while the local government unit (LGU) imposes amusement taxes on the admission fees. Theaters and movie houses pay VAT on their tickets instead of these amusement taxes. The amusement taxes are the following:
1.) Cockpits: 18%
2.) Cabarets, nightclubs, day clubs and karaoke bars: 18%
3.) Boxing matches 10%
4.) Professional basketball games: 15%
5.) Jai-alai and racetracks: 30%
Gross receipts of amusement places include the following:
1.) Receipts from the amusement places
2.) Admission fees
3.) Income from television, radio and movie rights
4.) Rentals for the lease of bars, restaurants and other concessions within the amusement places
Regarding no.4, if the owner of the restaurant, etc. is also the owner of the amusement place, the restaurant, etc. is also subject amusement tax. If the owner is someone else, the restaurant, etc. is subject to VAT instead of amusement tax.
Boxing matches are exempt from amusement taxes if the following are present:
1.) It involves a bout where the World or Oriental Championship in any division is at stake
2.) At least one of the contestants is a Filipino citizen
3.) The promoters are Filipino citizens or corporations/associations where at least 60% of the capital stock is Filipino-owned
Winnings in Horse Races
The cost of the ticket is deducted and the rest of the prize will be taxed. The operator, manager or person in charge of the races will withhold the tax from the winnings and remit it to the government. The taxes on the prizes are:
1.) Regular bets: 10%
2.) Double, forecast/quinella and trifecta bets: 4%
3.) Racehorse owners: 10%
By nature, the percentage tax on horse race winnings is an amusement tax imposed on the bettors who win in the horse races as well as on the owners of the winning horses based on the winnings (after the ticket cost is deducted) and prizes. Note: this tax is limited only to race tracks and doesn't include winnings and prizes from derbies and hackfights in cockfights.
Sale/Exchange of Shares of Stock Listed and Traded at the Stock Exchange
See corporate tax basics. 1/2 of 1% of the gross selling price or gross value. For an IPO of shares in closely-held corporations, the rates to be applied in accordance with the proportion of shares sold or exchanged to the total outstanding shares of stock after the listing at the stock exchange in the following way:
1.) 25% or less: 4%
2.) More than 25% but not more than 33 1/3%: 2%
3.) More than 33 1/3%: 1%
Closely-held corporations are corporations where at least 50% of the value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock is directly or indirectly owned by, or for, 20 individuals or less. The nature of this tax is a final tax based on the gross selling price/gross value of the stock. Once taxed, it's no longer subject to income tax. It must be filed on or before the 20th day following the close of the taxable month.
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