Percentage Tax

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a) who is exempt from the value-added tax under

paragraphs (s) of Section 109 of the National


Internal Revenue Code (gross sales or receipts
PERCENTAGE TAX P-1
in the preceding year did not exceed
P3,000,000), and not under any other paragraph
of the same section; and
PERCENTAGE TAX b) did not avail of Optional VAT registration.
➢ the three percent (1%)* percentage tax on gross
sales or gross receipts
➢ Before the Create Law, the rate was 3%. Illustration 1.
➢ Under the Create Law, It will be 1% from July
Mr. A, whose gross annual sales never exceeded
1, 2020-June 30, 2023, Thereafter, 3%
P3,000,000 had, in a taxable month, gross sales of
P100,000, sales returns and allowances of P5,000, and
sales discounts of P2,000. The percentage tax
The Percentage taxes under Title V of the National is____________
Internal Revenue code are as follows:
(1) Tax on domestic carriers;
(2) Tax on international carriers
(3) Franchise tax:
(4) Overseas communication tax
(5) Tax on banks and non-bank financial intermediaries
performing quasi-banking functions; Illustration 2.

(6) Tax on other non-bank financial intermediaries: Mr. B is a trader. His gross sales in the preceding year
amounted to P3,000,000. His gross annual sales in the
(7) Tax on life insurance companies: preceding year did not exceed P3,000,000. Is he subject
(8) Tax on agents of foreign insurance companies: to the three percent (1%) percentage tax.

(9) Amusement Tax ➢ Yes, because his gross sales did not exceed the
3M threshold for VAT.
(10) Tax on Winnings
(11) Tax On stock Transaction
Illustration 3
Mr. C sells agricultural food product. In 202a his gross
GENERAL RULES on tax base and taxpayer of sales amounted to P440,000. For the first month of 202b
percentage taxes. his gross sales amounted to P100,000, What business
tax would he pay in 20A
Generally, percentage taxes are based on gross receipts.
The term "gross receipts" means cash actually or ➢ None. He is not subject to the value added tax
constructively received. Receivables, although Income because he is exempt under paragraph (a) of
thereon is earned already, are not yet taxable. Section 109 of the National Internal Revenue
Code. He is not subject to the one percent (1%)
percentage tax because his exemption is not
under paragraph on volume sales.

There are no deductions from gross receipts to arrive at


the taxable gross receipts, except, returns and
Illustration 4.
allowances, and discounts. The taxpayer is the seller of
the goods or services (with exceptions) Mr. D had gross sales of P3,000,000 in 202a. In the first
month of 202b, his gross sales amounted to P200,000,
The taxpayer of the 1% percentage tax:
any tax not included, with purchases from VAT-
A taxpayer: registered suppliers at fifty percent (50%) of the selling
price, value-added tax not included. For 20B, what is May12 Purchase from a non-VAT supplier, of goods be
the business tax due and how much? sold, P90,000
➢ For B, Mr. D was subject to the 1% percentage May 15 Sale of P30,000.
tax, or P2,000.
May 26 Sale of P10,000.
- Gross receipts of P3,000,000 is exactly the threshold
How much is the percentage tax of May?
amount. It did not exceed the threshold of P3,000,000.

OPTIONAL VAT REGISTRATION.


When the gross sales or receipts of the preceding year
did not exceed three million pesos (P3,000,000), to
determine whether it is better to be VAT-registered or
remain subject to the 1% percentage tax, one must not
look only at, and compare, the percentages - the 1% and
the 12% (of net sales or receipts). One has to look into
the net effect of all the business taxes that converge on RETURN AND PAYMENT OF THE 3%
the operations of the business. PERCENTAGE TAX.
A monthly percentage tax return must be filed and t tax
paid within twenty (20) days after the end of the month
Illustration 5.
The taxpayer, with several branches or place of bus
Sales ness, but all subject to the percentage tax, may file a
200,000 separate return for each branch or place of business, or
Purchases from VAT registered persons a consolidated return for all.
100,000
Expenses, paid to VAT registered persons THE TRANSITION.
60,000
A taxpayer who initially presumed that the gross
sales/receipts and other non-operating income for the
taxable year will not exceed the three million pesos
(P3,000,000) VAT threshold but has actually exceeded
the same during the taxable year, will be liable to VAT
prospectively starting on the first day of the month
following the month when the threshold is breached.
The taxpayer will pay the required percentage tax
covering gross sales/ receipts and other non-operating
income from the beginning of the taxable year of
commencement of business/practice of profession until
the time the taxpayer became liable to the VAT, without
Which is the Business tax to pay: imposition of penalty it timely paid on the immediately
A. Other percentage tax ( Under Title V of NIRC) succeeding month/quarter. Thus, there may be an
instance when a taxpayer has two business returns in a
B. The 1% Percentage Tax or month/quarter-ie., percentage and VAT returns.
C. Value added Tax A non-VAT taxpayer who volunteers to be a VAT
taxpayer knowing that their gross receipts and other
non-operating income will exceed the VAT threshold
Illustration 6. within the taxable year, will automatically be subject to
the graduated income tax rates if the 8% income tax rate
A taxpayer had on record, in his books o accounts, the is initially selected. Any income tax under paid under
following: the said flat 8% income tax rate will be deducted from
May 2 Purchase from a VAT supplier, of goods to be sol the income tax due under the graduated income tax.
P50,000, VAT of P6,000, not included.
Application
1. The Taxpayer began his business in 202a, He did not
register as VAT taxpayer because he anticipated that his
gross sales for the year shall not exceed P 3,000,000. He
had a sales of 2,800,000 and cost of sales of 1,400,000
in 202B. How much was the tax on his business for
20A?

2. Before the year 2O2B, A Co. had a gross sales never


exceeding 3,000,000. It was not VAT registered. From
January 2 to March 10, 202B, A Co. had the following
data( sales and purchases figures have no VAT
component).
Sales 3,000,000
Purchases from VAT 1,500,000
And from March 11 to December 31, 202 b, It had the
following data:
Sales 9,000,000
Purchases from VAT suppliers 4,500,000
How much were the business taxes paid:
On January to March 10, 202B
On March 11 to December 31 202B

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