TAX102: Transfer and Business Taxation: Optional Registration

TAX102: Transfer and Business Taxation
CONCEPT AND NATURE OF PERCENTAGE TAX

Tax rates. Table shows tax rates that should be observed in determining the business tax on domestic
carrier:
OPTIONAL REGISTRATION
Transporting passenger, goods or cargoes by air or sea from the Philippines to other countries.
Basic rule. Generally, business entities subject to percentage tax shall register under such taxation
system.
However, the law allows optional registration for business covered by percentage tax system. In relation
to the optional registration of business subject to percentage tax, the following guidelines may be
observed:
1. Businesses with annual gross sales of less than P100,000 are exempt from VAT and percentage tax;
2. Businesses with annual gross sales in the preceding year of less than P1,500,000 are subject to 3%
percentage tax; and
3. Businesses subject to 3% percentage tax may opt to register under the VAT system.
Taxpayers subject to percentage tax. The following businesses are subject to percentage tax:
Businesses with gross annual sales of not more than P1,500,000 are subject to 3% percentage tax.
Under Section 116 to 127 of the National Internal Revenue Code (NIRC), the following businesses are
also subject to percentage tax:
1. Carriers (domestic and international) and keepers of garages;
2. International carriers
3. Franchise grantees;
4. Overseas communication from the Philippines;
5. Banks and non-banks financial intermediaries;
6. Other non-bank financial intermediaries;
7. Life insurance companies;
8. Agents of foreign insurance companies;
9. Amusement places;
10. Tax on winnings; and
11. Sale of shares of stock through the local stock exchange.
llustration 5.2
Mr. Alfredo opened a business in January 2011. For 2011, the annual gross sales of the business totaled
P1,100,000. In January 2012, the business gross sales amounted to P280,000 with purchases from VAT-
registered suppliers of P110,000, exclusive of VAT.
Query: What business tax/es is/are applicable to the business of Mr. Alfredo in year 2008?
I
Answer: Generally, Mr. Alfredo will be subject to percentage tax of 3% or P8,400 (P280,000x3%).
However, he may opt to register under the VAT system. In case Mr. Alfredo will favor the VAT
registration, his business tax liability will be as follows:
Output tax (P280,000x12%) P33,600
Less input tax 13,200
Value-added tax payable P20,400
Generally, the law on percentage tax is implemented to cover business entities that render services. It is
likewise imposed on business entities not subject to value added tax when the gross sales or receipts of
the preceding taxable period are less than P1,500,000.
Basically, percentage tax is a gross receipt tax. This is a business tax imposed on persons or entities who
sell or lease goods or services in the course of trade or business in the Philippines. Percentage tax, which
is imposed on the privilege of doing business, is a broad-based, low rate tax imposed on all income
received by a business without any deduction for costs of doing business.
TAX BASE
The computation of percentage tax is based on gross receipts.
What are gross receipts?
Definition: Gross receipts refer to total money or its equivalent actually or constructively received including
the amount charged to services rendered and advance payments
Receivables do not represent money collected; hence, they should not be included as part of the gross
receipts.
As the word “gross” suggests, no deduction or expenses should be made or allowed.
CONCEPT AND NATURE OF PERCENTAGE TAX

0% VAT
Illustration 5.1
Land Company, a taxpayer subject to percentage tax, had the following data for the second quarter of the
year:
Cash received from customers P800,000
Receivables from customers 450,000
Cash expenses incurred 520,000
Query: how much are the gross receipts subject to percentage tax?
Answer: The gross receipts which will be the basis for the percentage tax is P800,000. Although there is
already income recognized on the receivable following the accrual concept, the amount of receivable will
not be included in the determination of gross receipts subject to percentage tax.
Definition. Common carrier refers to one who is engaged in the business of transporting passengers or
cargo by land, water or air. Percentage tax on domestic carrier is also known as common carrier tax.
Persons subject to common carrier tax. The following taxpayers shall be subject to 3% common carrier
tax based on actual or minimum monthly gross receipts, whichever is higher:
1. Keepers of garage;
2. Domestic carrier by land transporting passengers;
3. Transportation contractors; and
4. Car for rent driven by lessee.
Persons not subject to common carrier tax. The following taxpayers are exempted from 3% common
carrier tax:
1. Owners of bancas; and
2. Owners of animal-drawn two-wheeled vehicles.
TAX102: Transfer and Business Taxation

DOMESTIC CARRIERS AND KEEPERS OF GARAGES
(Sec. 117, NIRC, as amended)
PERSONS EXEMPT FROM VALUE-ADDED TAX
(Sec. 116, NIRC, as amended)
Any person whose sales or receipts are exempt under Section 109(V) of the Tax Code from payment of
VAT and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross
quarterly sales or receipts.
In other words, a person with an annual gross sales of the preceding year of not more than P1,500,000
shall be exempt from VAT, but shall be subject to a percentage tax of three percent (3%). Such taxpayer
may opt to register under the VAT system not later than 10 days before the beginning of the taxable
quarter. Once registered under optional VAT registration, he/she shall not be allowed to cancel his/her
registration for the next three (3) years.
However, cooperatives, other than electric cooperatives, shall be exempt from the three percent (3%)
gross receipts tax.
BUSINESSES SUBJECT TO PERCENTAGE TAX

(Title V, NIRC, as amended)
Tax rate Domestic carrier
3% common carrier tax Transporting passengers by land
12% VAT Transporting passengers by air or sea
Transporting goods or cargoes by
land, air or sea

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TAX102: Transfer and Business Taxation

CONCEPT AND NATURE OF PERCENTAGE TAX

CONCEPT AND NATURE OF PERCENTAGE TAX

TAX102: Transfer and Business Taxation

BUSINESSES SUBJECT TO PERCENTAGE TAX

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