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PERCENTAGE TAX

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Cindy Claire Pinili

on 19 February 2013

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Transcript of PERCENTAGE TAX

PERCENTAGE TAXES Advance Percentage tax on ‘Tiangges’ Certificate of Percentage Tax Withheld at Source Percentage Taxes under the
National Internal Revenue Code: -Privilege store (tiangges) refers to a stall or outlet.

Imposition of Advance Payment of Taxes

Percentage tax City/First Class Municipality Air-conditioned

Per day Per month Yes No Yes No
P150 P4500 / /
P100 P3000 / /
P75 P2500 / /
P50 P1000 / / Returns on Capital Gains from Sale of Shares of Stocks A.Shares of stock listed and traded in the Local Stock Exchange
Stock broker has the duty to collect the tax and remit the same to the BIR within 5 banking days from the date of collection thereof and submit on Mondays of each week to the secretary of the stock exchange.

B. Public Offerings of Shares of Stock
Primary offering- (the issuing corporation) within 30 days from the date of listing of the shares of stock in the local stock exchange.
Secondary offering- ( seller) the provision of this subsection(C)(1)of this section of the tax code RETURN AND PAYMENT OF PERCENTAGE TAXES General Rule: Every person liable to pay a percentage tax will file a monthly return of the amount of his gross receipts & pay the tax w/in 20 days after the end of each taxable month.

Exceptions:
(a) 3% percentage tax
- w/in 20 days after the end of the month except when the tax was a final tax through the withholding tax system.
(b) Overseas Communication tax
- 20 days after the end of the quarter
(c) Amusement tax
- 20 days after the end of the quarter
(d) Tax on Winnings
- 20 days from the date withheld; remitted to the BIR
(e) Stock transaction tax of of 1%
- w/in 5 banking days from the date withheld by the banker
(f) Stock transaction tax of 4%, 2% & 1%
- 30 days from the date of listing in the local stock exchange A. Persons exempt from the VAT because their gross annual sales do not exceed P1,919,500
B. Tax on Domestic Carriers
C. Tax on International Carriers
D. Franchise Tax
E. Overseas Communication Tax
F. Tax on banks and non-bank financial intermediaries performing quasi-banking functions
G. Tax on other non-bank financial intermediaries not performing quasi-banking functions
H. Tax on Life Insurance Companies
I. Tax on Agents of Foreign Insurance Companies
J. Amusement Tax
K. Tax on Winnings
L.Tax on Stock Transactions Note: One who is subject to any of the percentage taxes cannot be subject to VAT but REGISTERED BUSINESSES may have two line of activities thus either may be subject to VAT and percentage tax. GENERAL RULE: Percentage taxes are based on Gross Receipts. Gross Receipts mean cash actually or constructively used.

Note: Receivables are NOT yet taxable Who is the taxpayer of Percentage Tax?
GENERAL RULE: Sellers
EXEMPTION: Overseas Communication Tax – payable by the user of the facilities. A. Tax of 3% on sale of goods and services B. Tax 3% on Domestic Carriers C. International Air Carriers
and International Shipping Carrier D. Tax of 2% and 3% on Franchises E. Tax of 10% on overseas communication tax F. Tax on bank and non-bank
financial intermediaries
performing quasi-banking functions G. Tax on other non-bank
financial intermediaries H. Tax of 2% on life insurance
companies ( Premium Tax ) I. Tax on 10% on agents of foreign
insurance companies J. Amusement K. Tax on Winnings Persons who are exempt from VAT because their gross annual sales/receipt do not exceed P1,919,500 are subject to the 3% percentage tax.
Tax base is gross sales or receipts w/out any deduction.
Persons subject to the 3% percentage tax may opt to be under the VAT system by registering with BIR as VAT taxpayer.

Exemptions:
1.Cooperatives
2.Gross sales not exceeding P100,000 during any 12 month – considered as livelihood and not in the course of business. Illustration: Mr. WKA had gross sales of P1,000,000 in 2012. In the first month of 2013, his gross sales amounted to P200,000 any tax not included, with purchases from VAT registered suppliers of P40,000. Value added tax not included.

Solution:
Gross Sales of the preceding year not exceeding P1,919,500

OPTION 1: not VAT registered
Percentage Tax:
P200,000 x 3%P6,000

OPTION 2: VAT registered
Percentage Tax:
Output Taxes ( P200,000 x 12% )P24,000
Less: Input Taxes ( P40,000 x 12% )P(4,800)
Value Added Tax Payable P19,200 Common Carrier – is a person, corporation, firm or association, engaged in business of carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering services to the public and shall include transportation contractors.

Subject to Common Carrier’s Tax:
(a) Rent - a - car
(b) Transportation contractors, including persons who transport passengers for hire
(c) Other domestic carriers by land for their transport of passengers, except owners of animal-drawn two wheeled vehicles
(d) Keepers of garages
*Computed on gross receipts as tax base. COMMON CARRIER BY LAND
Transporting goods and cargos 12% VAT
Transporting passengers 3% common carrier’s tax

COMMON CARRIER BY AIR OR SEA

Philippines to Philippines
Transporting goods and cargos 12% VAT
Transporting passengers 12% VAT

Philippines to Outside Philippines
Transporting goods and cargos 0% VAT
Transporting passengers 0% VAT

Garage
-is a closed shelter for automobiles
-a business establishment where automobiles are repaired, stored, etc. How do we determine the actual Gross Receipts of a taxi or jeepney?
The law provides statutory minimum quarterly gross receipts:

JEEPNEY FOR HIRE: Quarterly Monthly
Manila and other cities 2,400 800
Provincial 1,200 400

PUBLIC UTILITY BUS
Not exceeding 30 passengers 3,600 1,200
Exceeding 30 passengers 6,000 2,000
Exceeding 50 passengers 7,200 2,400

TAXIS:
Manila and other cities 3,600 1,200
Provincial 2,400 800

CAR FOR HIRE:
With Chauffeur 3,000 1,000
Without Chauffeur 1,800 600 -doing business in the Philippines shall pay 3% of their Gross Receipts from shipping outgoing from the Philippines as tax. Franchise
is a law
it authorizes a certain person, natural or juridical to operate a public utility

Subject to Franchise Tax:
(a) Gas and water utilities – 2%
(b) Radio and/or television broadcasting companies whose annual gross receipts of the preceding year did not exceed P10,000,000. – 3% Other franchise grantees are subject to the value – added tax on sale of services

2% or 3% are from the activities covered by the franchise
Gross Receipts
Other Gross Receipts not covered by the franchise is subject to
VAT

Special rule on radio / television broadcasting:

(a)Gross Receipts > P10,000,000 (preceding year) VAT
(b)Gross Receipts < P10,000,000 (preceding year) Percentage Tax
*but may opt to be registered under VAT system (1) Taxable Transaction
The tax is on overseas dispatch message or conversation originating from the Philippines ( outgoing message )
(2) Tax Base
Based on the amount paid by the user to the provider of the communication facility
(3) Taxpayer
Imposed on the person paying for the services rendered
*provider is considered merely as collector of that tax
(4) Tax Rate
10% of amount paid

Exceptions to overseas communications tax:
(a)Government of the Philippines or any of its political subdivisions
(b)Diplomatic services
(c)International organizations
(d)News Services Tax Base – GROSS RECEIPTS from sources WITHIN THE PHILIPPINES

A. On interest, commissions and discounts from lending activities as well as income from financial leasing.
Maturity Period = < 5 years - 5%
Maturity Period > 5 years - 1%

B. On dividends and equity shares in net income of subsidiaries – 0%

C. On royalties, rentals of property ( real/personal ), profits from exchange and all other items treated as Gross Income under Income tax law - 7%

D. Net trading gains on foreign currency, debt instruments, derivatives, and other similar financial instruments - 7% Tax Base – GROSS RECEIPTS from sources WITHIN THE PHILIPPINES

A. On interest, commissions and discounts from lending activities as well as income from financial leasing.
Maturity Period = < 5 years - 5%
Maturity Period > 5 years - 1%

B. On interest, commissions, discounts and all other items treated as gross income under the income tax law.-5%

Pretermination of Maturity Value of F & G
-Shall be reckoned to end as of the date of pretermination Kinds of insurance companies:
(a)Life Insurance Companies
(b)Non-Life Insurance Companies – are taxed via VAT because they are considered as selling services.

Tax Base: Total life insurance premiums collected ( Gross Receipts ) whether in money, notes, credits, or any substitute for money.

Tax Rate: 2% Exemptions:

(a) Premiums refunded w/in 6 mos. After payment on account of rejection of risk or returned for other reasons to the insured;

(b) Reinsurance premiums where the tax has previously been paid;

(c) 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;

(d) 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 a foreign country where the original insurance has been issued or perfected;

(e) 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. 1.Companies not authorized to transact business in the Philippines - 10%
*except on reinsurance premiums

2.Premium payments obtained directly with foreign companies and - 5%
Reported to the Commissioner of Internal Revenue Tax Base: Gross Receipts
Includes all the receipts if the proprietor, lessee and operator of the amusement place
Includes all the receipts if the proprietor, lessee and operator of the

Amusement Places: Tax Rate:
(a)Place for boxing exhibition 10%
(b)Place for professional basketball games 15%
(c)Cockpits, cabarets, night or day clubs 18%
(d)Jai-alai and race tracks 30%

*Boxing exhibitions where WORLD or ORIENTAL CHAMPIONSHIPS in any division is at stake.

EXEMPT
-if one of the contenders is a citizen
-promoted by citizens of the Philippines/Corporation/Association at least 60% of the capital Tax Payer:
(a)Person who wins in horse races & jai-alai based on his winnings or dividends
(b)Owner of winning race horses, based on prize

How is it paid?
1. Tax will be withheld from the dividends or prize by the operator, manager or person in charge of the horse racer or jai-alai.
2. 20 days from the date the tax was deducted & withheld.

Winnings in horse races or jai-alai 10%
But if from:
(a)Double, forecast, quinella and trifecta bets 4%
(b)Owner of winning horse 10% L. Tax on stock transactions
( Stock Transaction Tax ) (1)On a sale, barter, exchange, or other disposition of shares listed & traded thru a local stock exchange, other than by a dealer in securities
Tax Base: Gross selling price/Gross value in money of the shares sold, bartered, exchanged or otherwise disposed of.
Tax Rate: One-half of 1%
Tax Payer: Seller
(2)On the sale, barter, exchange or other disposition thru initial public offering of shares of stock in a closely held corporation
Tax Base: Gross Selling Price
Tax Rates: Proportion of the shares disposed to the total outstanding shares of stock after the listing in the local stock exchange
Not over 25% 4%
26% - 33 1/3% 2%
33 1/3% - Up 1%

Tax Payer: Issuing Corporation – Primary offering
Seller – Secondary offering

Closely-held corporation – means any corporation at least 50% in value of the outstanding capital stock or at least 50% of the total voting power owned directly or indirectly by or for not more than 20 individuals. Exemption from percentage tax Any business or business pursued by the individual where the aggregate gross of sale or receipts do not exceed P100,000 during any 12-month period . TIME FOR FILING AND PAYMENT OF PERCENTAGE TAX

•Non –large taxpayers- w/in 20 days after the end of each month.
•Non –large taxpayers (EFPS) - 5 days later than the deadline set above.
•Large taxpayers- w/in 10 days after the end of each month.
•Large taxpayers- 5 days later than the deadline set above.

EXCEPTIONS:

•PERSONS RETIRING FROM BUSINESS
-shall notify the nearest internal revenue
-file his return and pay taxes w/in 20 days after closing his business.
•PERSONS SUBJECT TO ADVANCE SALES TAX AND COMPENSATION
-are not required to file percentage tax returns. The import entry may substitute for the return. WHERE TO FILE RETURN

Except in cases where the commissioner otherwise permits, the percentage tax returns are filed with the ff. Persons:
•Revenue District Officer
•BIR Collection Agent
•Duly Authorized Treasurer of the City or Municipality in which such person has his legal or principal place of business.

Note: Every person has the option to file:
(a)Separate return
(b)Consolidated return WITHHOLDING OF PERCENTAGE TAX -Bureaus, offices and instrumentality of the government are required to deduct and withhold the taxes due to payees on account of such money payments.

Rates and Basis:
General Rule: There shall be withheld 3% on gross payments to persons who are exempt under the paragraphs (A) to (U) of Sec. 109(1) of the Tax Code from payment of value-added tax and who is not a VAT registered person except payment to cooperatives.

Various rates of withholding of percentage tax:
(1) Domestic Carriers and Keepers of garages.-3%
(2) International Carriers.
(a) On gross payments to international air carriers doing business in the Phil.-3%
(b) On gross payments to international shipping carriers doing business in the Phil. -3%
(3) Franchises
(a)Gas and water utilities – 2%
(b)Radio and/or television broadcasting companies whose annual gross receipts of the preceding year did not exceed P10,000,000. – 3% (4) Bank and non-bank financial intermediaries performing quasi-banking functions
(a) On interest, commissions and discounts from lending activities as well as income from financial leasing.
Maturity Period = < 5 years - 5%
Maturity Period > 5 years - 1%
(b) On dividends and equity shares in net income of subsidiaries – 0%
(c) On royalties, rentals of property (real/personal), profits from exchange and all other items treated as Gross Income under Income tax law.-7%
(d) Net trading gains on foreign currency, debt instruments, derivatives, and other similar financial instruments.-7%
(5) Tax on other non-bank financial intermediaries
(a) On interest, commissions and discounts from lending activities as well as income from financial leasing.
Maturity Period = < 5 years - 5%
Maturity Period > 5 years - 1%
(b) On interest, commissions, discounts and all other items treated as gross income under the income tax law.-5%
(6) Life insurance premiums.
Total life insurance premiums collected ( Gross Receipts ) whether in money, notes, credits, or any substitute for money.-2% (7) Agents of foreign insurance companies
(a) Companies not authorized to transact business in the Philippines10%
*except on reinsurance premiums
(b)Premium payments obtained directly with foreign companies and 5%
Reported to the Commissioner of Internal Revenue
(8) Amusements
(a)Place for boxing exhibition 10%
(b)Place for professional basketball games 15%
(c)Cockpits, cabarets, night or day clubs 18%
(d)Jai-alai and race tracks 30%
(9) On a sale, barter, exchange, or other disposition of shares listed & traded thru a local stock exchange - 1/2 of 1%
(10) On the sale, barter, exchange or other disposition thru initial public offering
Not over 25% 4%
26% - 33 1/3% 2%
33 1/3% - Up 1% Returns and Payments of Taxes Withheld

-Covered by the Monthly Return of Internal Revenue Taxes withheld on Government Money Payments in duplicate to be filed and tax to be paid to the Authorized Agent Bank located w/in the Revenue District Office.
-In case of places where there are no Authorized Agent Bank, the return shall be filed with the Revenue District Officer, Collection Officer or the duly authorized Treasurer of the City or Municipality where the gov’t office is located EXCEPT when the Commissioner permits.

When will the return be filed?
-Within 10 days following the end of the month the withholding was made.

Note: No money payments shall be made by any government office/agency unless the taxes due have been deducted and withheld. Remittance of Withholding Tax

Percentage Tax:

Form to be used by payor in remitting tax Form required to be furnished to payor

1 Payor BIR Form 1600 (monthly remittance return Payor issues BIR form 2306 to the payee
of VAT and other percentage taxes withheld) w/in 10 days following the end of the
month the withholding was made

* Tax withheld by payor shall be treated as final tax by the payee.

Form to be used by payor in remitting tax Form required to be furnished to payor

Several BIR Form 1600 (monthly remittance return Payor issues BIR form 2306 to the payee
Payors of VAT and other percentage taxes withheld)

* Tax withheld by the payor shall be treated as creditable tax by the payee. Every withholding agent shall furnish each proprietor, operator, common carrier, etc. the Certificate of Credible Tax Withheld at Source to be accomplished in triplicate, 2 copies to the payee together with the money payments not later than the 5th day of the following month. The 3rd copy shall be the file copy of the withholding agent.

Liability of Designated Officers

A..Additions to the Tax
B.Punishable Acts or Omissions
- Be fined in a sum not less than P5,000 but not more than P50,000 or imprisoned for a term of not less than 6 mos. and 1 day but not more than 2 years, or both if:
(a) Fails or causes the failure to deduct and withhold any internal revenue tax covered by these regulations
(b) Fails or causes the failure to remit the taxes deducted and withheld within the time prescribed
(c) Fails or causes the failure to file the return or issue certificate required
PENALTIES AND REMEDIES Civil Penalties

A penalty of 25% on the amount due when:
(a)Failure to file any return and pay the tax due thereon as required on the date prescribed
(b)Filing a return with an internal revenue officer other than those with whom the return is required to be filed, unless otherwise authorized by the Commissioner.
(c)Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment
(d)Failure to pay the full or part of the tax due on any return or the full amount of the tax due where no return is to be filed, on or before the date prescribed for payment

A penalty of 50% of the tax when:
(a)Willful neglect to file the return on the date prescribed.
* presumed when he was unable to file after a considerable length of time
(b) Willful filing or false or fraudulent return.

Interest

An interest rate of 20% in case of failure to pay:
(a)The amount of the tax due on any return required to be filed.
(b)The amount of tax due for which no return is required.
(c)The deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner. Criminal Penalties

Fine imposed: not lower than P30,000 or twice the amount of taxes, interest & surcharges due from the taxpayer, whichever is higher.
* A person criminally penalized is liable not only for the payment of tax but penalties imposed as well.

If offender is:
(a)Not a citizen of the Phil. – deported immediately after serving the sentence w/out further proceedings
(b)Public officer/employee – max penalty shall be imposed & he shall be dismissed from public service & perpetually disqualified from holding any public office. He is also disqualified to vote & participate in any election
(c)CPA – his certificate as CPA shall be automatically revoked or cancelled
(d)Association, Partnership or Corporation – penalty shall be imposed on the partner, president, general manager, branch manager, treasurer, officer-in-charge & employees responsible
(e)Person who willfully attempts to evade tax – fined for not less than P100,000 & imprisonment not less than 2 years but not more than 4 years. Remedies

A. Period of Limitation upon Assessment & Collection
General Rule: Within 3 years after the last day prescribed by law for the filing of the return.
In case of FRAUD with intent to EVADE tax or of FAILURE to file a return:
-Within 10 years after the discovery of the falsity, fraud/omission The Commissioner of Internal Revenue may:

A. Compromise the payment of any internal revenue tax when:
(1) Reasonable doubt to the validity of the claim against the taxpayer
(2) The financial position of the taxpayer shows a clear inability to pay the assessed tax

The compromise settlement of any tax liability is:
(a)Financial Incapacity – minimum to 10% of the basic assessed tax
(b)For other cases – minimum of 40% of the basic assessed tax
Note: If the basic tax involved exceeds P1,000,000 or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board. All criminal violations may be compromised EXCEPT those already filed in court /those involving FRAUD.

B. Abate or cancel a tax liability when:

(a)Tax or any portion appears to be UNJUSTLY or EXCESSIVELY assessed.
(b)Administration & collection costs involved do not justify the collection of the amount due.

C. Credit or refund on:
(a) Taxes erroneously/illegally received
(b) Penalties imposed w/out authority
(c) Value of internal revenue stamps (good condition)
(d) Redeem/change unused stamps Remedies for the collection of Delinquent Taxes

A. By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and right to personal property, and by levy upon real property and interest in or rights to real property

B. By civil or criminal action.

Note: Both of these can be simultaneously pursued, however, that the remedies of distraint and levy shall not be availed of where the amount of tax involved is not more than P100. Constructive Distraint of Property-The owner is merely prohibited from disposing of his properties.
-The Commissioner may place under constructive distraint of property on any delinquent or normal taxpayer who, in his opinion, is retiring from any business subject to tax, or isintending to leave the Philippines or to remove his property therefrom, or to hide or conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him.

Distraint of Personal Property
-The Commissioner or Revenue District Officer shall seize and distrain any goods,chattels, or effects, and the personal property including the interest and rights to the property to satisfy the tax, or charge, together with any increment thereto incident to delinquency, and the expenses of the distraint and the cost of the subsequent sale if:
(a)The amount involved is in excess of P1,000,000
(b)The amount involved is P1,000,000 or less Levy on Real Property

-After the expiration of the time required to pay the delinquent tax or delinquent revenue, real propery may be levied upon, before, simultaneously, or after the distraint of personal property belonging to the delinquent.
Protesting of Assessment

A pre-assessment notice shall not be required:
(a)When the finding of any deficiency tax is the result of mathematical error in the computation of the tax
(b)When the discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent
(c)When a taxpayer who opted to claim a refund of excess creditable withholding tax was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter/s of the succeeding taxable year
(d)When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machinery and spare parts, has been sold, traded or transferred to non-exempt persons.

Note: If the taxpayer fails to respond, the Commissioner or his authorized representative shall issue an assessment based on his findings.

Forfeiture of Refund – a refund check or warrant issued which shall remain unclaimed or uncashed w/in 5 years from the date the said warrant or check was mailed or delivered.

Forfeiture of Tax Credit – a tax credit certificate issued which shall remain unutilized after 5 years from the date of issue, unless revalidated.
Ethical Considerations

Tax Avoidance – a taxpayer minimizes his tax liability by taking advantage of legally available tax planning opportunities.

Tax Evasion – a taxpayer resorts to UNLAWFUL means to lessen or to get away with his liability.
Factors:
(1)End to be achieved ( to pay less tax )
(2)Accompanying state of mind ( bad faith, willful, or deliberate and not accidental )
(3)Course of action ( unlawful )

Tax Planning
-Arrange one’s activities so as to avoid the impact of the tax law as much as possible. 2 Approaches of Tax Planning

(1)Avoiding Income Recognition
-To obtain economic wealth in some manner that is not recognized as income under the tax law. One can do this by earning in-kind income, by debt or by taking advantage of the many exclusions permitted under the law.

Illustration: Aljur earned P180,000 working as a carpenter during 2012. His income is subject to income tax on the gross amount less deductions for personal exemptions. Rayver, also a carpenter by trade, worked the entire year building his own house and thus, had no taxable income.

(2)Delaying Income Recognition
-One can delay the payment of tax and hence can continue to enjoy the use of that money by delaying the recognition of gross income or by accelerating deductions. Filing for a request for reconsideration/reinvestigation – w/in 30 days from receipt of the assessment

Finalization of the assessment – w/in 60 days from filing of the protest and all relevant supporting documents is not yet submitted

If the protest is denied or not acted upon 180 days from submission of documents, the taxpayer may appeal to the Court of Tax Appeals w/in 30 days from receipt of the said decision, or from the lapse of 180-day period, otherwise, the decision shall be final, executory and demandable.
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