Tax 302 – Business and Transfer Tax

Prepared by: Mark Paul I. Ramos

MODULE 5
Other Percentage Taxes

INTRODUCTION
This module introduces the Other Percentage Taxes as indicated in the National
Internal Revenue Code with amendments as adopted from TRAIN, CREATE, and EOPT Law.
This will enlist transactions that are subject to different percentage taxes, compliance or filing
of BIR returns and payment of tax, and place of filing.

INTENDED LEARNING OUTCOMES

ILO 1 – Understanding the transactions subject to other percentage taxes and their applicable
business tax rates
ILO 2 – Application of business tax rates and the filing and payment of applicable tax returns

Introduction to Other Percentage Taxes

The Other Percentage Taxes in the National Internal Revenue Code are the taxes
which are not subject to VAT but are not also exempt from business tax.

These are unusually measured by a certain percentage of the gross selling price and
are on the sale of goods or services and not on their manufacturer, production, or importation.

Other percentage taxes are in addition to income and other taxes paid, unless
specifically excepted.

Generally, if the transaction or establishment is subject to Other Percentage Taxes,

then it is exempt from VAT, and vice-versa.

It is possible, however, that an individual engaged in business or businesses is exempt

both from the payment of VAT and from any OPT imposed by the National Internal Revenue
Code.

Tax on persons exempt from VAT (3% Non-VAT)

Any person whose gross annual sales do not exceed the amount of P3,000,000, and
who is not VAT-registered shall pay a tax equivalent to 3% of his gross monthly sales.

To be subject to this tax, the following requisites must be satisfied:

1. The gross annual sales do not exceed P3,000,000; and
2. The taxpayer is not a VAT-registered person.

Thus, even if the sales do not exceed P3,000,000 if the taxpayer is registered under
the VAT system, he shall be subject to VAT.

Conversely, even if he does not register if his gross annual sales exceed P3,000,000,
he shall be subject to VAT.

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It is also be noted that marginal income earners are not subject to business taxes
because they are not considered as engaged in trade or business.

A marginal income earner is any individual deriving gross sales of not exceeding
P100,000 during any 12-month period.

Cooperatives and persons who decided to be taxed under the 8% income tax option
are exempt from payment of OPT.

ILLUSTRATION What rate of tax shall be applied in computing the tax on the following
independent cases?

Gross Sales Registered? ANSWER

Case 1 1,200,000 Yes 12% VAT
Case 2 4,000,000 Yes 12% VAT
Case 3 3,600,000 No 12% VAT
Case 4 2,000,000 No 3% non-VAT
Case 5 90,000 No Exempt
Case 6 1,500,000 Yes 12% VAT

Section 116 of the Tax Code, as amended by CREATE Law provides: Any person
whose sales or receipts (EOPT: gross sales) are exempt under Section 109(1)(CC) of the Tax
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 (EOPT: gross
sales): 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%).

The Other Percentage Taxes (OPT) in the Tax Code

1. Tax on persons exempt from VAT (Sec 116)
2. Percentage tax on domestic carriers by land and keepers of garages (Sec 117)

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 Tax 302 – Business and Transfer Tax
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3. Percentage on international carriers (Sec 118)

4. Tax on franchises (Sec 119)
5. Tax on overseas dispatch, message, or conversation originating from the Philippines
(Sec 120)
6. Tax on banks, and non-bank financial intermediaries (Sec 121)
7. Tax on other non-bank financial intermediaries (Sec 122)
8. Tax on life insurance premiums (Sec 123)
9. Tax on agents of foreign insurance companies (Sec 124)
10. Amusement taxes (Sec 125)
11. Tax on POGOs (Sec 125-A)
12. Tax on winnings (Sec 126)
13. Tax on sale, barter, or exchange of shares of stock listed and traded through the local
stock exchange or through initial public offering (Sec 127)

A. Percentage tax on domestic carriers and keepers of garages (Common Carrier’s

Tax)
Common carriers refer to persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods, or both, by land, water, or air, for
compensation, offering their services to the public, and shall include transportation
contractors.

Establishments that are subject to Common Carrier’s Tax include Victory Liner
Corporation and Ceres Bus Lines.

The persons subject to this tax shall be taxed at a rate of 3% based on the quarterly
gross sales.

Gross sales means cash actually or constructively received during the taxable period
for the services performed or to be performed for another person.

The basis in computing the 3% tax is the gross money payments to the common
carrier, thus the term gross sales is gross of expenses for gasoline, oil, compensation
payments to drivers and conductors, etc.

The persons subject to this tax rate are:

1. Cars for rent or hire driven by the lessee
2. Transportation contractors, including persons who transport passengers for hire
3. Other domestic carriers by land for the transport of passengers, and
4. Keepers of garages

The persons exempt from this tax are:

1. Owners of bancas; and
2. Owners of animal-drawn two wheeled vehicle

Examples of common carriers by land which are subject to the common carrier’s tax
on gross sales are those engaged in the carriage of passengers such as operators of taxicabs,
utility cars for rent or hire driven by the lessees (rent-a-car companies), and tourist buses.

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 Tax 302 – Business and Transfer Tax
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The gross sales of common carriers derived from their incoming and outgoing freight
shall not be subject to the local taxes imposed under the Local Government Code.

Transporting goods or cargoes by land, air, and water by transportation contractors,

as well as domestic common carriers including persons who transport goods or cargoes for
hire, in the course of business is subject to VAT.

Thus, Cebu Pacific Air, Philippine Airlines, Montenegro Shipping Line and Negros
Navigation are subject to VAT.

Common Carrier by Carriage of passenger Carriage of goods

Land (bus, jeepney, etc) Common Carriers Tax VAT
(subject to P3M threshold)
Air (airplane, etc) VAT VAT
Sea (ship, boat, etc) VAT VAT

In computing the percentage tax provided in Section 117 (Common Carriers Tax) of
the NIRC, the following shall be considered the minimum quarterly gross sales in each
particular case:

Areas of Business Operation

Cities Provinces
Jeepney for hire 2,400 1,200
Public utility bus
30 seaters and below 3,600 3,600
Exceeding 30 but not exceeding 50 passengers 6,000 6,000
Exceeding 50 passengers 7,200 7,200
Taxis 3,600 2,400
Car for hire (with chauffeur) 3,000 3,000
Car for hire (without chauffer) 1,800 1,800

For purposes of fixing the minimum gross sales, a jeepney for hire is considered for
Metro Manila and other cities if the operation is from/to Manila and/or other cities of the
country.

Thus, common carriers which ply route from Meycauayan, Bulacan to CM Recto Ave.,
Manila and vice versa shall be covered by the minimum prescribed gross sales for Manila and
other cities.

ILLUSTRATION Barbosa Lines operates seven units of buses with a capacity of 40

passenger, plying the route Naga City to Iriga City, and Iriga to Naga. During the month, it had
the following data:
Gross sales from passengers 250,000
Gross sales from carriage of goods, net of tax 50,000
Purchases of spare tire (inclusive of tax) 38,640
Purchases of supplies from VAT suppliers (invoice value) 1,400

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 Tax 302 – Business and Transfer Tax
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REQUIRED: Compute the business taxes payable by Barbosa Lines:

a. From carriage of passengers
Gross sales 250,000
Rate of Tax 3%
Common carriers’ tax 7,500

b. From carriage of goods

Other percentage tax (P50,000 x 3%) 1,500

B. Domestic air carrier engaged in both domestic and international transport

operations
Domestic air carriers are subject to 12% VAT on their services performed within the
Philippines.

However, if their international transport operations involve both services performed

within the Philippines and services performed without, the income from services involving the
transport of passengers, goods and cargoes from the Philippines to a foreign country are
derived from within but subject to zero-rate (0%) VAT.

On the other hand, their income from international transport operations involving the
transport of passengers, goods or cargoes from a foreign country to the Philippines are income
derived from services rendered outside the Philippines, hence, exempt from business taxes
(including VAT) due to lack of tax jurisdiction.

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Domestic air carriers with international operations cannot be considered as

international air carriers and be subject to the 3% percentage tax instead of zero-rate VAT
because international air carrier refers to foreign airline companies only and does not include
domestic airline corporation with international operation.

Thus, they are subject to VAT of 0% instead of the 3% percentage tax.

ILLUSTRATION Philippine Airline, a domestic airline company is engaged in domestic

and international transports. During the month, it had the following gross sales:
Place of travel Passenger Cargo
From the Philippines to other Asian countries 10,000,000 1,000,000
From other Asian countries to the Philippines 12,000,000 1,500,000
Domestic operation only 20,000,000 2,000,000
Is the airline company subject to Common Carriers’ Tax or to VAT?

ANSWER It is subject to VAT. The output tax is computed as follows:

From domestic operation:

Passenger (20,000,000 x 12%) 2,400,000
Cargo (2,000,000 x 12%) 240,000 2,640,000

From Philippines to other Asian countries

(10,000,000 + 1,000,000) x 0% -
Output Tax 2,640,000

C. Percentage tax on international carriers

This tax is imposed on gross sales of international air carriers and international sea
carriers doing business in the Philippines.

International air carrier shall refer to a foreign airline corporation doing business in the
Philippines having been granted landing rights in any Philippine port to perform international
air transportation services/activities or flight operations from the Philippines to anywhere in the
world.

Off-line carrier shall refer to an international air carrier having no flight operations to
and from the Philippines.

On-line carrier shall refer to an international air carrier having or maintaining flight
operations to and from the Philippines.

Examples of international air carriers are Singapore Airlines and Cathay Pacific
Airways.

Considered to be the biggest and second biggest international shipping carriers in the
world are APM Maersk and MSC Mediterranean Shipping Company S.A.

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 Tax 302 – Business and Transfer Tax
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International air and shipping carriers doing business in the Philippines on their gross
sales derived from transport of cargo from the Philippines to another country shall have a tax
equivalent to 3% of their quarterly gross receipts.

This tax is imposed together with the income tax on international carriers of 2.5% of
gross Philippine billings.

The business tax imposable on international carriers are summarized as:

Passenger Goods or Cargo
Abroad to Philippines Not taxable Not taxable
Philippines to abroad Not taxable 3%

D. Tax on franchise
A franchise is a special privilege or right conferred on an individual or corporation by
the State through the lawmaking body, to operate a public utility.

Any provision or special law to the contrary notwithstanding, there shall be levied,
assessed, and collected with respect to all franchises on:
1. Radio and/or television broadcasting companies whose annual gross sales of the
preceding year do not exceed P10,000,000, a tax of 3%; and on
2. Gas and water utilities, a tax of 2% on the gross sales derived from business
covered by the law granting the franchise.

The radio and/or television broadcasting companies whose gross annual sales during
the preceding year did not exceed P10,000,000 shall have an option to be registered as VAT
taxpayer and pay the tax due thereon. Provided, that once the option is exercised, it cannot
be revoked anymore.

If the gross annual sales of radio and/or television companies exceed the amount of
P10,000,000, they shall be subject to VAT in the succeeding year.

Franchise holders other than those enumerated above shall be subject to VAT
regardless of the amount of their gross sales.

If they are subject to VAT, they are no longer subject to franchise tax.

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 Tax 302 – Business and Transfer Tax
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ILLUSTRATION Korakuta Company, a television broadcasting company had the

following data:
Gross sales during the month 2,000,000
Purchases of materials and services (subject to VAT 165,000
Purchases of materials and services (not subject to VAT 130,000

Compute the following:

1. The Other Percentage Tax due if the gross sales last year amounted to P9,750,000
2. The VAT payable if the gross sales last year amounted to P13,600,000

ANSWERS
1, The OPT due is computed as:
Gross sales 2,000,000
Multiply by 3%
Franchise Tax 60,000

2. The VAT payable is computed as:

Output tax (2,000,000 x 12%) 240,000
Less: Input tax (165,000 x 12%) 19,800
VAT payable 220,200

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E. Tax on overseas dispatch, message or conversation originating from the

Philippines
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 services, a tax of 10% on the amount paid for such services.

This is known as “overseas communication tax”.

This tax 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 the tax and pay within 20
days after end of each quarter.

ILLUSTRATION The Bayani Telephone Company is engaged in selling telephone

services to the public. Tely Babad availed of its services by calling her boyfriend in Hongkong.
She was billed P4,000, exclusive of tax, for a twenty-minute call.
a. How much is the overseas communication tax?
The overseas communication tax is P400 (4,000 x 10%). This is payable
by Tely Babad to the telephone company who in turn shall remit the tax to
the government within 20 days after the end of the month.

b. What business tax is due if the telephone call was transmitted to her
boyfriend in Zamboanga City?
All domestic long-distance calls and regular monthly telephone bills are
subject to VAT; they are not subject to overseas communication tax.

The overseas communication tax shall not apply to:

1. Government
Amounts billed for messages transmitted by the Government of the Republic of the
Philippines or any of its political subdivisions or instrumentalities.

2. Diplomatic services
Amounts billed for messages transmitted by any embassy and consular offices of
a foreign government.

3. International organizations
Amounts billed for messages transmitted by a public international organization or
any of its agencies in the Philippines enjoying privileges, exemptions, and
immunities which the government of the Philippines is committed to recognize
pursuant to an international agreement.

4. News services
Amounts billed for messages from any newspaper, press association, radio or
television newspaper, broadcasting agency, or newsticker service, or to a bona
fide correspondent, which messages deal exclusively with the collection of news
items for, or the dissemination of news time through, public press, radio or
television broadcasting or newsticker service furnishing a general news service
similar to that of the public press.

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F. Tax on banks and non-bank financial intermediaries

There shall be collected a tax on gross receipts derived from sources within the
Philippines by all banks and non-bank financial intermediaries performing quasi-banking
functions in accordance with the following schedule:
a On interest, commissions, and discounts from lending activities as well
as income from financial leasing, on the basis of remaining maturities of
instruments from which such sales are derived:
Maturity Period:
5 years or less 5%
More than 5 years 1%
b On dividends and equity shares and net income of subsidiaries 0%
c On royalties, rentals of property, real or personal, profits, from exchange
and all other items treated as gross income 7%
d On net trading gains within the taxable year on foreign currency, debt
securities, derivatives, and other similar financial instruments 7%

In case the maturity period is shortened thru pretermination, then the maturity period
shall be reckoned to end as of the date of pretermination for purposes of classifying the
transaction and the correct rate of tax shall be applied accordingly.

Banks or banking institutions are persons and entities engaged in the lending of funds
obtained from the public through the receipt of deposits or the sale of bonds, securities, or
obligations of any kind, and all entities regularly conducting such operations.

Financial intermediary shall mean persons or entities whose personal functions 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
or for the account of others.

ILLUSTRATION The Filipino Bank has the following income/loss:

March April
Interest income with maturity of less than 5 years 50,000 100,000
Rentals 50,000 50,000
Net trading gain/(loss) (10,000) 20,000
Compute the gross receipts tax for the months of March and April.

ANSWERS:
MARCH
Interest income with maturity of less than 5 years (50,000 x 5%) 2,500
Rentals (50,000 x 7%) 3,500
Gross receipts tax, March 6,000

APRIL
Interest income with maturity of less than 5 years (100,000 x 5%) 5,000
Rentals (50,000 x 7%) 3,500
Net trading gain, April 20,000
Less: Net trading loss, March (10,000)

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Adjusted net trading gain 10,000

Multiply by tax rate 7% 700
Gross receipts tax, April 9,200

1. The figure to be reported in the monthly return shall be the cumulative total
of the net trading gain/loss since the first month of the applicable taxable
year less the figures already reflected in the previous months of the taxable
year.
2. The net trading loss is deductible only from the net trading gain.

G. Tax on other non-bank financial intermediaries

Gross receipts of other non-bank financial intermediaries (non-bank financial
intermediary performing quasi-banking functions) doing business in the Philippines shall be
subject to Gross Receipts Tax at rates and on items of income provided hereunder:
a On interest, commissions, and discounts from lending activities as well
as income from financial leasing, on the basis of remaining maturities of
instruments from which such receipts are derived:
Maturity Period:
5 years or less 5%
More than 5 years 1%
b From interest, commissions, discounts, and all other items treated as
gross income under the Code 5%

Non-bank financial intermediaries shall refer to persons or entities whose principal

functions 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 or for the account of others.

This includes all entities 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 issuance of
certificates of assignment or similar instruments with recourse, trust certificates, or of
repurchase agreements, whether any of these means of obtaining funds from the public is
done on a regular basis or on occasionally.

Quasi-banking activities shall refer to the borrowing of funds from 20 or more personal
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 similar instruments, with recourse, or of repurchase
agreements for purposes of relending or purchasing receivables and other similar obligations.

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

which borrows funds through any of these means for a limited purpose of financing their own
needs or the needs of their agents or dealers, shall not be considered as performing quasi-
banking functions.

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H. Tax on Life Insurance Premiums

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; but premiums refunded within
six (6) months after payment on account of rejection of risk or returned for other reason to a
person insured shall not be included in the taxable receipts, nor shall any tax be paid upon
reinsurance by a company that has already paid the tax, nor upon doing business outside the
Philippines on account of any life insurance of the insured who is a nonresident, if any tax on
such premium is imposed by the foreign country where the branch is established nor upon
premiums collected or received on account of any reinsurance , if the insured, in case of
personal insurance, resides outside the Philippines, if any tax on such premiums is imposed
by the foreign country where the original insurance has been issued or perfected; nor upon
that portion of the premiums collected or received by the insurance companies on variable
contracts (as defined in Section 232(2) of Presidential Decree No. 612), in excess of the
amounts necessary to insure the lives of the variable contract workers.

'Cooperative companies or associations' are such as are conducted by the members

thereof with the money collected from among themselves and solely for their own protection
and not for profit.

The following shall NOT be included in the taxable receipts:

1. Premiums refunded within six (6) months after payment on account of rejection
of risk or returned for other reasons to the insured.
2. Reinsurance premiums where tax has previously been paid.
3. 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.
4. Premiums collected or received on account of RE-INSURANCE, 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.
5. 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.

I. Tax on agents of foreign insurance companies

A tax of 4% of the total premium collected shall be imposed upon every fire, marine,
or miscellaneous insurance agent authorized under the Insurance Code to procure policies of
insurance as he may have previously been legally authorized to transact on ricks located in
the Philippines for companies not authorized to transact on risks located in the Philippines.

A tax of 5% on premiums paid shall also be imposed on owners of property who obtain
insurance directly with foreign companies.

This tax shall not apply to reinsurance premiums.

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J. Amusement taxes
A tax shall be imposed on the proprietor, lessee, or operator of the following
amusement places:
Amusement place Tax rate
Cockpits, cabarets, night or day clubs 18%
Boxing exhibitions 10%
Professional basketball games 15%
Jai-Alai and racetracks 30%

Night clubs are resorts frequented by pleasure seekers at night where foods and wines
and drinks are served, and music furnished and the patrons allowed to dance whether with
their own partners or professional hostesses furnished by such resorts.

If the resort is frequented by pleasure seekers during the day, it is a Day Club.

The tax is based on the gross receipts, irrespective of whether or not any amount is
charges for admission.

Videoke bars, KTV bars, music lounges, and other places for similar nature are subject
to amusement tax and not VAT.

For the purpose of this tax, the term “gross receipts” embraces all the receipts of the
proprietor, lessee, or operator of the amusement place.

Said gross receipts include also income from television, radio, and motion picture
rights, if any.

ILLUSTRATION Carrie Rista operates a racetrack. Other than the restaurant that it
operates, it also allows “Burger ka Dyan Burger” a burger stand operated by a concessionaire,
to sell foods inside its premises. The gross receipts during the month are as follows:

From operation of racetrack 1,200,000

From restaurant 600,000
From television coverage 400,000
From “Burger ka Dyan Burger” 450,000

Question 1: How much amusement tax is payable by Carrie Rista?

Racetrack 1,200,000
Restaurant 600,000
Television coverage 400,000
Gross receipts 2,200,000
Rate of tax 30%
Amusement tax 660,000

Question 2: Is “Burger ka Dyan Burger” subject also to amusement tax?

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When a restaurant is owned or operated by a person other than the proprietor, lessee
or operator of the amusement place, the receipts derived from the operation of the restaurant
is subject to either VAT or to 3% Percentage tax on persons exempt from VAT.

Boxings exhibitions wherein World or Oriental Championships in any division is at

stake shall be exempt from amusement tax. Provided, that at least one of the contenders is a
citizen of the Philippines and said exhibitions are promoted by citizen/s of the Philippines or
by a corporation or association at least 60% of the capital of which is owned by such citizens.

The tax is exclusive of the amusement taxes being collected by the local government
units, pursuant to their authority under the Local Government Code.

K. Gaming Tax on Services Rendered by Offshore Gaming Licensees (OGLs)

This is a new provision in the Tax Code as amended by RA 11590, otherwise known
as “An Act Taxing Philippine Offshore Gaming Operations (POGOs)” amending for the
purpose, Sections 22, 25, 27, 28, 106, 108, and adding New Sections 125-A and 288 (G) of
the Tax Code of 1997.

Section 125-A of the Tax Code (GAMING TAX), provides:

Any provision of existing laws, rules or regulations to the contrary notwithstanding, the
entire gross gaming revenue (GGR) or receipts or the agreed predetermined minimum
monthly revenue or receipts from gaming, whichever is higher, shall be levied,
assessed, and collected a GAMING TAX equivalent to five percent (5%), IN LIEU of all
other direct and indirect internal revenue taxes and local taxes, with respect to gaming
income.

Provided, That the gaming tax shall be directly remitted to the Bureau of Internal
Revenue not later than the 20th day following the end of each month: Provided, further, That
the Philippine Amusement and Gaming Corporation or any special economic zone authority
or tourism zone authority or freeport authority may impose regulatory fees on offshore gaming
licensees (OGLs) which shall not cumulatively exceed two percent (2%) of the gross gaming
revenue or receipts derived from gaming operations and similar related activities of all offshore
gaming licensees or a predetermined minimum guaranteed fee, whichever is higher.

• INCOME FROM GAMING OPERATIONS

In LIEU of ALL other direct and indirect internal revenue taxes and local taxes, there
shall be levied, assessed and collected from OGLs (whether Philippine-based or Foreign-
based) a GAMING TAX equivalent to (whichever is higher) between:
➢ 5% of Gross Gaming Revenue (GGR)
➢ 5% of the Agreed Pre-determined minimum monthly revenue (APMMR) from
gaming operations

Income from Gaming Operations refers to income or earnings realized or derived from
operating online games of chance or sporting events via the internet using a network and
software or program.

FORMULA based on RR 20-2021 dated December 1, 2021:

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o Gross Wagers refer to the total amount of money that offshore gaming customers.
o Payouts refer to the total amount paid out to offshore gaming customers for winning.
o Agreed Pre-determined, Minimum Monthly Revenue from gaming operations refers to
the amount that is derived after dividing the minimum monthly fee or its equivalent, as
imposed by a Philippine Offshore Gaming Operation (POGO) Licensing Authority, by
the rate of proscribed regulatory fee.

• PAYMENT OF GAMING TAX

The Gaming Tax shall be directly remitted to the BIR not later than the 20th day
following the end of each month.

• INCOME FROM NON-GAMING OPERATIONS

The non-gaming revenues of operations of all OGLs shall be subject value added tax
(vat) or percentage tax, whichever is applicable. Income from Non-Gaming Operations refers
to any other income or earnings realized or derived by OGLs that are not classified as income
from gaming operations.

• DEFINITION OF TERMS (Based on RR 20-2021 dated November 26, 2021)

o Philippine Offshore Gaming Operation (POGO)
Refers to the operation by an Offshore Gaming Licensee (OGL) on online games of
chance or sporting events via the internet using a network or software or program
exclusively for offshore customers/players who are non-Filipinos.
The term POGO shall also refer OGLs and Accredited Service Providers

o Offshore Gaming Licensee (OGL)

Refers to an offshore gaming operator, whether organized in the Philippines
(Philippine-based) or abroad (Offshore or Foreign-based), duly licensed or authorized
through a gaming license issued by a POGO Licensing Authority to conduct offshore
gaming operations including the acceptance of bets from offshore customers.
OGLs, also known as Interactive Gaming Licensees, shall be considered engaged in
doing business in the Philippines.

o POGO Licensing Authority

Refers to Philippine Amusement and Gaming Corporation (PAGCOR) or any other
special economic zone authority, tourism zone authority or freeport authority authorized
by their respective charters to issue gaming licenses and accreditation to POGO
entities.

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L. Tax on winnings
Every person who wins in horse races shall pay the following:
1. Winning in horse races – 10% of the winnings or dividends
The tax is based on the actual amount paid to him for every winning ticket after
deducting the cost of the ticket.

2. Winnings from double, forecast/quinella and trifecta bets – 4% of the winnings

3. Owners of winning racehorses – 10% of the prizes

The tax shall be deducted from the dividends corresponding to each winning ticket or
the prize of each winning racehorse owner and withheld by the operator, manager, or person
in charge of the horse races before paying the dividends or prizes to the persons entitled
thereto.

In “daily double”, the bettor selects a number in each of the two consecutive races and
the selection in each race must finish first, while in “extra double” the bettor selects a number
in each of two selected races and the selection in each race must finish first.

Double quinella is an event where the bettor selects the numbers in each of two
selected races, and the selection in each race must finish first and second in either order.

Trifecta is an event wherein the bettor selects the numbers in a selected race and the
selections must finish first, second and third in the correct order.

ILLUSTRATION Mr. Mananaya had the following records of his winnings from race
horses for the month:

Type of Winnings Gross Winnings Cost of Winnings

Trifecta P 100,000 P 50,000
Ordinary 300,000 100,000
Double 50,000 10,000
Ordinary 75,000 25,000

How much is the business tax on winnings?

ANSWER
Type of Winnings Net Winnings OPT Rate OPT
Trifecta 50,000 4% P 2,000
Ordinary 250,000 10% 25,000
Double 40,000 4% 1,600
TOTAL Business Taxes on winnings P 28,600

M. Tax on sale, barter or exchange of shares of stock which are listed and traded
through the local stock exchange (Stock Transaction Tax)
There shall be levied, assessed and collected on every sale, barter, exchange or other
disposition of shares of stock listed and traded through the local stock exchange, other than

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the sale by a dealer in securities a stock transaction at the rate of six-tenth of one percent
(6/10 of 1%) based on the gross selling price or gross value in money of the shares of stock
sold, bartered, exchanged or otherwise disposed of.

The tax shall be assumed and paid by the seller or transferor through the remittance
of the stock transaction by the seller or transferor’s broker.

For purposes of this tax, the following definitions of words and phrases are hereby
adopted:

Gross selling price refers to the total amount of money or its equivalent which the
purchaser pays the seller as consideration for the shares of stock.

Gross value in money means the “fair market value”. In the case of shares traded
through stock exchange, fair market value shall consist of the actual selling price at which the
transaction was executed in the trading system and/or facilities of the Local Stock Exchange.

Shares listed and traded through the local stock exchange refers to all sales, trades or
transactions of listed shares of stock executed through the trading system and/or facilities of
the local stock exchange. This term includes block sale or other types of sales, trades or
trading system and/or facilities of the local stock exchange in accordance with the rules of the
local stock exchange as approved by the Securities and Exchange Commission.

The following sellers or transferors of stock are liable to this tax:

a. Individual taxpayer, whether citizen or alien
b. Corporate taxpayer, whether domestic or foreign; and
c. Other taxpayers not falling under (a) and (b) above, such as estate, trust, trust
funds and pension funds, among others.

This tax shall not apply to the following:

1. Dealers in securities
2. Investor in shares of stock in a mutual fund company in connection with the gains
realized by said investor upon redemption of said shares of stock in a mutual fund
company; and
3. All other persons, whether natural or juridical, who are specifically exempt from
national internal revenue taxes under existing investment incentives and other
special laws.

If the stocks are not traded through a local stock exchange, the tax shall be based on
the net capital gain.

Instead of business tax, the tax shall be an income tax which shall be subject to a tax
rate of 15% of the capital gain.

ILLUSTRATION Celeste sold 10,000 shares of stock costing P95,000 for P100,000. The
par value of the stocks is P9 per share.

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1. If the shares are listed and traded in the Philippine Stock Exchange, how much is the
Stock Transaction Tax on the sale?

Gross selling price 100,000

Multiply by 6/10%
Stock transaction tax 600

2. If the shares are not listed and traded in the Philippine Stock Exchange, how much is
the Stock Transaction Tax on the sale?
None. However, the sale shall be subject to a final withholding tax computed as follows:
Gross selling price 100,000
Less: cost 95,000
Net capital gain 5,000
Multiply by 15%
Final withholding tax (income tax) 750

The stockholder who effected the sale shall collect the tax from the seller and remit the
same to the collecting bank within 5 banking days from the date of collection thereof and to
submit on Mondays of each week to the secretary of the local stock exchange a true and
complete return who shall reconcile the records of the Local Stock Exchange with weekly
reports of stockbrokers and in turn transmit to the Revenue District Office (RDO), on or before
the 15th day of the following month, a consolidated return of all transactions effected during
the preceding month through the Local Stock Exchange.

N. Tax on sale, barter or exchange or issuance of shares of stock through initial public
offering (IPO tax)
There shall be levied, assessed and collected on every sale, barter, exchange or other
disposition through initial public offering (IPO) of shares of stock in closely held corporations
in proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total
outstanding shares of stock after the listing in the Local Stock Exchange:

Proportion of Disposed Shares to Tax Rate

Outstanding Shares
Up to 25% 4%
Over 25% but not over 33 1/3% 2%
Over 33 1/3% 1%

The tax shall be gross selling price or gross value in money of the shares sold,
bartered, exchanged or otherwise disposed of.

For purposes of this tax, the following definitions of words and phrases are hereby
adopted:

Initial public offering (IPO) refers to a public offering of shares of stock made for the
first time in the Local Stock Exchange.

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Primary offering refers to the original sale made to the investing public by the issuer
corporation of its unissued shares of stock.

Secondary offering refers to an offer for sale to the investing public by the existing
shareholders of their securities which is conducted during an IPO or a follow on/follow-through
offering.

Follow-on/follow-through offering of shares refers to an offering of shares to the

investing public subsequent to an IPO.

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

outstanding capital stock or at least 50% of the total combined voting power of all classes of
stock entitled to vote is owned directly or indirectly by or for not more than 20 individuals.

ILLUSTRATION Printers Corporation, closely held, has an authorized capital stock of

10,000 shares with a par value of P1.00 per share as of January 1, 2015.

Of the 10,000 authorized shares, 2,500 thereof is subscribed and fully paid up by the
following stockholders:
Galog 500
Oyang 500
Idong 500
Kulas 500
Manay 500
Total shares outstanding 2,500

Printers Corporation finally decides to conduct an initial public offering and initially
offers 2,500 of its unissued shares to the investing public. After the IPO in March 2015, Printers
Corporation’s total issued shares increased from 2,500 to 5,000 shares.

At the IPO, one of the existing shareholders, Manay has likewise decided to sell her
entire 500 shares to the public.
Question 1: If the unissued shares were offered at P10 per share, how much is the tax due on
the primary offering?

Shares offered to public 2,500

Divide by number of shares outstanding 5,000
Proportion of disposed to outstanding shares 50%

Initial offer price (2,500 x P10) 25,000

Rate (because 50% proportion) 1%
Initial public offering tax 250

Question 2: if the shares of Manay were offered also at P10 per share, how much is the total
tax due on the Initial Public Offering?

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On primary offering 250

On secondary offering:
Shares offered by Manay to the public 500
Divide by number of shares outstanding 5,000
Proportion of disposed to outstanding shares 10%
Offer price (500 x P10) 5,000
Rate (because 10% proportion) 4% 200
Total tax on initial public offering 450

Question 3: In case of Oyang decides to offer his existing 500 shares to the public subsequent
to the IPO at P20 per share, will the sale bu subject to IPO tax?
No. In case another stockholder decides to offer his existing shares to the public
subsequent to IPO, he shall be subject to a tax of 6/10 of 1% of the gross selling price.

Filing of return and payment of tax

Every person liable to pay percentage taxes shall file a quarterly return of the amount
of his gross sales, receipts or earnings and pay the tax due thereon within 25 days after the
end of each quarter.

This return shall be filed in triplicate (BIR form 2551Q) by the following:
1. Persons whose gross annual sales and/or receipts do not exceed P3,000,000 and
who are not VAT-registered persons
2. Domestic carriers and keepers of garages, except owners of bancas and owners
of animal-drawn two-wheeled vehicle
3. Operators of international air and shipping carriers doing business in the
Philippines
4. Franchise grantees of gas and water utilities
5. Franchise grantees of radio/television broadcasting companies whose gross
annual receipts of the preceding year do not exceed P10,000,000 and did not opt
to register as VAT taxpayers
6. Franchise grantees sending overseas dispatch, messages or conversations from
the Philippines
7. Proprietors, lessees or operators of cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, jai-alai and racetracks
8. Banks, non-bank financial intermediaries and finance companies
9. Life insurance companies
10. Agents of foreign insurance companies.

Provided that cooperatives shall be exempt from the 3% gross receipts tax.

The 25-day period for filing and payment does not apply in the following instances:
1. Tax on winnings – the tax shall be remitted to the Bureau of Internal Revenue within
20 days from the date the tax was deducted and withheld (BIR form 1600WP)
2. Initial Public Offering tax of 4%, 2% and 1% - On primary offering, within 30 days
from the date of listing in the local stock exchange (BIR form 2552)
3. Stock Transaction Tax – within 5 banking days from the date of collection thereof
(BIR form 2552)

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Where to File and Pay?

Section 128(A)(1) of the Tax Code as amended by RA 11976 or the EOPTA
• TO any of the following
▪ Authorized Agent Bank (AAB); Or
▪ Revenue District Office through Revenue Collection Officer; or
▪ Authorized Tax Software Provider (ATSP)

Persons whose VAT registration is cancelled

Section 128(A)(1) of the Tax Code as amended by RA 11976 or the EOPTA:

A person whose VAT registration is cancelled and who becomes liable to the tax
imposed in Section 116 of the Tax Code, as amended the tax shall accrue from the date of
cancellation and shall be paid on a quarterly basis on or before the 25th day following the end
of the quarter.

Persons retiring from business

Section 128(A)(2) of the Tax Code as amended by RA 11976 or the EOPTA

Any person retiring from a business subject to percentage tax shall notify the nearest
internal revenue officer, file, either electronically or manually, the person's return and pay,
either electronically or manually, the tax due thereon within twenty (20) days after closing the
business.

Reference:

Tabag, E.D and Garcia, E. J. (2024), Transfer & Business Taxation

Ampongan, O. E. G. (2021), Transfer, Business & Local Taxation (with Practice Set) 13/e

Bureau of Internal Revenue, Value-Added Tax, [Link]

[Link]

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