Accounting and Taxation Archives - Page 2 of 5

Aside from the taxes that we pay for our income, businesses in the Philippines are also required to pay taxes in relation to their business transactions. These are commonly known as sales taxes, and one of those taxes is percentage tax. In this article, we will walk you through the ins and outs of the percentage tax, who are required to file it, any recent and relevant updates, and tips on how to navigate this tax type. What Is Percentage Tax? Percentage tax is a sales tax where the amount is computed based on gross sales, receipts, or other bases (see Percentage Tax Table for rates and basis). For example, a non-VAT business qualified to pay a 3% percentage tax incurs net sales (total sales less discounts and allowances) amounting to ₱1,000,000. His percentage tax will then be computed as follows: ₱1,000,000 x 3% = ₱30,000 What Is the Difference Between Percentage Tax and Value-Added Tax? Both percentage tax and value-added tax are sales taxes, which means they are a tax on the primary business activity of entities whose goal is to earn a profit. However, there are crucial differences between the two, as summarized in the table below. CategoryPercentage TaxValue-added TaxTax basePercentage tax based on Net Sales/Receipts/PremiumsOutput VAT (based on Net Sales) less Input VAT (based on Net Purchases)Primary Forms filed2551Q2550M and 2550QFilingQuarterlyMonthly and QuarterlyOther submissions required related to tax typeNoneSummary list of Purchases, Summary List of SalesAccounting recognitionDeductible ExpenseLiability (VAT payable) or Asset (VAT credit) What Are the Different Kinds of Percentage Tax? There are two general types of percentage tax according to tax forms used, namely: 1. Percentage Tax Under Sections 116 to 126 of the Tax Code These are the most common percentage taxes filed by taxpayers since this is a periodic tax (this is filed every quarter, even if you do not have any transactions that incur percentage tax). This covers tax on sales, receipts, and other bases, and is filed quarterly using BIR Form 2551Q. 2. Percentage Tax Under Section 127 of the Tax Code These cover percentage tax on transactions involving shares of stocks that are listed and traded through the local stock exchange or through Initial or Secondary Public Offering. These percentage taxes are transactional taxes (filed for every instance of a transaction only) and are filed using BIR Form 2552. For this article, we will be focusing on those filed through BIR Form 2551Q. Who Is Required To File for Percentage Tax Under Bir 2551Q? There are a lot of percentage tax rates applicable for different transactions, so we’ve arranged the categories in the table below. BIR usually indicates in your Certificate of Registration (BIR Form 2303) if you are to pay Percentage Tax, Value-Added Tax, or the 8% Income Tax. Check your COR just to be sure! CategoryAlphanumeric Tax CodeTax Basis and RateNon-VAT-registered taxpayers who: - sell goods, properties, or services - whose annual gross sales and/or receipts do not exceed ₱3,000,000 - are exempt from VAT- did not opt for the 8% income tax rate on Gross Sales/Receipts over ₱250,000PT 0103% of Gross Sales or Receipts (regular rate)1% of Gross Sales or Receipts from July 1, 2020, until June 30, 2023Lessors of residential units with a monthly rental per unit exceeding ₱15,000, (except if the annual rentals of the lessor during the year exceed ₱3,000,000)PT 0103% of Gross ReceiptsDomestic carriers by land for the transport of passengers (except owners of bancas and owners of animal-drawn two-wheeled vehicles) and keepers of garagesPT 0403% of Gross ReceiptsInternational air and shipping carriers doing business in the Philippines on their gross receipts derived from the transport of cargo from the Philippines to another countryPT 0413% of Gross ReceiptsFranchise grantees of radio and/or television broadcasting companies whose annual gross receipts for the preceding year do not exceed ₱10,000,000.00 and did not opt to register as VAT taxpayersPT 0603% of Gross ReceiptsFranchise grantees of gas and water utilitiesPT 0602% of Gross ReceiptsOverseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph, tele-writer exchange, wireless, and other communication equipment servicesPT 09010% of Gross Receipts Applicable for banks, non-bank financial intermediaries performing quasi-banking functions: CategoryAlphanumeric Tax CodeTax Basis and RateInterest, commissions, and discounts from lending activities, as well as income from financial leasingPT 105 - If the maturity period is five years or lessPT 101 - If the maturity period is more than five years5% of Interest, Commission, Discounting, or Finance Lease Income1% of Interest, Commission, Discounting, or Finance Lease IncomeDividends and equity shares and net income of subsidiariesPT 1020%Royalties, rentals of property, real or personal, profits from the exchange, and all other items treated as gross incomePT 1037% of Gross ReceiptsNet trading gains within the taxable year of foreign currency, debt securities, derivatives, and other similar financial instrumentsPT 1047% of Gains Applicable for other non-bank financial intermediaries including pawnshops1 : CategoryAlphanumeric Tax CodeTax Basis and RateInterest, commissions, discounts from lending activities, as well as income from financial leasingPT 113 - If the maturity period is more than five yearsPT 114 - If the maturity period is more than five years5% of Interest, Commission, Discounting, or other Gross Income items1% of Interest, Commission, Discounting, or other Gross Income itemsInterest, commissions, discounts, and all other items treated as gross incomePT 1155% of Interest, Commission, Discounting, or other Gross Income items Applicable for insurance companies: CategoryAlphanumeric Tax CodeTax Basis and RatePerson, company, or corporation (except purely cooperative companies or associations) doing life insurance business in the PhilippinesPT 1202% of premiums collectedFire, marine, or miscellaneous agents of foreign insurance companiesPT 130 - Authorized insurance agentsPT 132 - Owners of property obtaining insurance directly with foreign insurance companies4% of premiums collected5% of premiums collected Applicable for amusement companies: CategoryAlphanumeric Tax CodeTax Basis and RateProprietor, lessee, or operator of cockpits, cabarets, night or day clubs, videoke bars, karaoke bars, karaoke televisions, karaoke boxes, and music loungesPT 15018% of Gross ReceiptsBoxing exhibitions2 PT 16010% of Gross ReceiptsProfessional basketball gamesPT 17015% of Gross ReceiptsJai-alai and race trackPT 18030% of Gross Receipts What Is the CREATE Act and How Does It Affect Percentage Tax? Republic Act (RA) No. 11534, also known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, was created in response to the COVID-19 pandemic as a financial relief to corporations doing business in the Philippines. It amends several provisions in the old Tax Code with a central focus on lowering tax rates. For Percentage Tax, the act reduces the rate for non-VAT taxpayers subject to percentage tax from 3% to 1% for the period from July 1, 2020 until June 30, 20233 for both individual and non-individual taxpayers4 . What Are the Requirements for Filing Percentage Tax Under 2551Q? The following are the requirements for filing BIR Form 2551Q: 1. Required BIR FORM 2551Q (January 2018 version) - This will be the tax form for filing percentage tax as discussed previously. Note that upon the implementation of TRAIN Law (RA 10963), the monthly percentage tax form 2551M was no longer required to file5. This means you will only need to file every quarter instead of every month. 2. Situational RequirementYou need to submit this when:Duly issued Certificate of Creditable Tax Withheld at Source (BIR Form 2307)You want to apply for Tax Credits from BIR Form 2307 as a deduction to the Percentage Tax payable for the form being appliedDuly approved Tax Debit MemoYou want to apply for Tax Credits from a Tax Debit Memo issued by the BIR as a deduction to the Percentage Tax payable for the form being appliedProof of payment and the BIR 2551Q previously filedYou want to amend a previously-filed returnAuthorization letter/Special Power of AttorneyYou want to file the tax return through a representative or agentCopy of Certificate of Registration issued by Cooperative Development Authority (CDA) for cooperatives, and from the National Electrification Administration (NEA) for electric cooperativesYou are a member of the CDA or NEAPrinted email of the Tax Return Receipt ConfirmationYou filed through eBIRForms How To File Percentage Tax Under 2551Q There are three methods for filing for Percentage Tax under 2551Q: Manual, eFPS, and eBIRForms. 1. Manual Step 1: Get the Form Download the BIR Form 2551Q in PDF file format HERE. Three copies are required. Ensure that this is the latest version. Step 2: Fill up the details Properly fill up BIR Form 2551Q in three copies. Ensure that the basic taxpayer details and transaction details are complete. Tip: To save on time and effort on writing the details of the tax return, you may print one copy of the tax form before signing it, and then have it photocopied two times (you should now have three copies). Then you should sign the three copies. Step 3: Pay taxes (For forms with no payment, skip to STEP 4) For this option, you have three options: a. Proceed to any Authorized Agent Bank (AAB)6 under the Revenue District Office (RDO) where the taxpayer is registered and present the duly accomplished BIR Form 2551Q and other attachments. Present all requirements with a BIR-prescribed deposit slip and the cash/check payment to the respective AAB. Important! The BIR Form 2551Q shall be paid at the date the return is filed by the taxpayer. b. In places where there are no AABs, the duly accomplished BIR Form 2551Q, together with the required attachments and payment, shall be filed and paid with the Revenue Collection Officer (RCO), thru the Mobile Revenue Collection Officers System facility, or duly Authorized City or Municipal Treasurer where said business or principal place of business/where the taxpayer is registered, who will issue an Electronic Revenue Official Receipt. c. The taxpayer can pay online through GCash Mobile Payment, LandBank of the Philippines (LBP) Linkbiz Portal, or DBP Tax Online (for holders of VISA/Master Credit Card/Bancnet ATM or Debit Card). Attach the screenshot of the successful payment confirmation to the forms. Step 4: Submit the validated form Submit the BIR Form 2551Q to the RDO. If payment was made, a validated/stamp-received BIR Form 2551Q by the AAB/RCO/authorized City or Municipal Treasurer, or a screenshot of the online payment confirmation shall be attached. 2. eFPS Step 1: Online filing Go to the EFPS Dashboard, select BIR Form 2551Q, and click File Tax Return. Select applicable alphanumeric tax codes (ATCs) for your transactions. The taxable amount to be indicated in the quarterly percentage return shall be the total gross sales/receipts for the quarter. Do not forget to validate the form before submission. Step 2: Pay taxes online After filing, proceed to online payment by clicking the Proceed to Payment button and pay the quarterly percentage tax due. The link will then redirect to the linked Online Banking facility of the taxpayer to confirm the payment. 3. eBIRForms Step 1: Online filing Open the eBIRForms program (ensure that you have the latest version by checking here), and select BIR 2551Qv2018 (the latest version at the time of writing). Select applicable alphanumeric tax codes (ATCs) for your transactions. The taxable amount to be indicated in the quarterly percentage return shall be the total gross sales/receipts for the quarter. Do not forget to validate the form before submission. Step 2: Print the forms and attachments Print three copies of the BIR 2551Q along with a copy of Tax Return Receipt Confirmation sent through the taxpayer’s email. Attach any applicable attachment as well. Step 3: Pay taxes (For forms with no payment, you no longer have to do this step) For eBIRForms, you have three options: a. Proceed to any Authorized Agent Bank (AAB) under the Revenue District Office (RDO) where the taxpayer is registered and present the printed BIR Form 2551Q and other attachments. Present all requirements with a BIR-prescribed deposit slip and the cash/check payment to the respective AAB. Important! The BIR Form 2551Q shall be paid at the date the return is filed by the taxpayer. b. In places where there are no AABs, the duly accomplished BIR Form 2551Q, together with the required attachments and payment, shall be filed and paid with the Revenue Collection Officer (RCO), thru the Mobile Revenue Collection Officers System facility, or duly Authorized City or Municipal Treasurer where said business or principal place of business/where the taxpayer is registered, who will issue an Electronic Revenue Official Receipt. c. The taxpayer can pay online through GCash Mobile Payment, LandBank of the Philippines (LBP) Linkbiz Portal, or DBP Tax Online (for holders of VISA/Master Credit Card/Bancnet ATM or Debit Card). Attach the successful screenshot of the payment confirmation to the forms. What Is the Deadline for Filing for Percentage Tax Under 2551Q? The form must be filed twenty-five (25) days after the end of each taxable quarter. Refer to the following table for the schedule of all four quarters: QuarterDeadline1stApril 252ndJuly 253rdOctober 254thJanuary 25 Noncompliance with the deadlines and nonpayment are subject to the BIR’s standard penalties7. Frequently Asked Questions 1. If I file and pay percentage tax since I am registered as a taxpayer having annual gross receipts below 3 million, and I incur more than 3 million gross receipts for the current year, when should I stop filing for Percentage Tax and start filing for Value-added tax? You should file for Value-Added Tax for the year following the year you incurred 3 million pesos gross receipts. For example, if you incurred more than 3 million gross receipts in 2021, you must start filing and paying VAT starting January 2022. Furthermore, you must submit a duly-accomplished BIR Form 1905 (Information Update), BIR 1906 (Authority to Print), and BIR 2303 Certificate of Registration. Your existing invoice and receipts will be replaced as well (to reflect their change from non-VAT to VAT). 2. Is Percentage Tax a deductible expense in the Philippines? Yes, if the taxpayer is paying income tax under the Itemized Deductions option. Percentage taxes is an additional expense to the taxpayer and is not fully passed on to the customer, unlike VAT. This is not applicable, however, if the taxpayer opts for the OSD. 3. Since there is a change in percentage tax from 3% to 1% for taxpayers with gross receipts of 3 million or less due to the CREATE Act, what should I do if I already filed and paid using the 3% rate? You must amend the previously filed returns which are under the CREATE Act’s date coverage but were filed using a 3% rate. So, any BIR Form 2551Q filed using a 3% rate shall be amended to affect the 1% rate. Do not forget to include payments made for the previously filed return in item 16. Excess percentage tax payments as a result of the decrease of tax rate starting July 1, 2020, until the effectivity of the reduced rate may be carried forward to the succeeding taxable quarters. This carry-over portion is intended for the Percentage Taxpayers who are regularly filing the returns and are expected to have overpaid taxes as a result of the retroactive application of the CREATE8 . 4. Can I opt for Value-Added Tax even if my gross receipts are 3 million or less? Yes, the taxpayer can select VAT even if their gross receipts do not exceed 3 million. This is recommended for taxpayers who are expecting to scale their business immediately and expect that their gross sales will easily breach the 3 million requirement, and would like to save time in filing an amendment should they qualify for VAT. Take note that all taxpayers are mandated to be classified as VAT once they exceed 3 million. 5. In order to qualify for the carry-over of the overpaid percentage taxes, will the Annual Income Tax Return (ITR) for TY 2020 for taxpayers under the calendar year period or quarterly ITR for the Fiscal Year, together with the Audited Financial Statements (AFS), if any, also be amended if a return has been filed reflecting the 3% percentage taxes paid? Only the ITRs filed are needed to be amended without necessarily amending the corresponding AFS. However, if the AFS will not be amended, the overpaid percentage tax shall be reflected as a reconciling item in the amended ITRs (BIR, 2021). 6. Are there instances where an overpayment of percentage tax may be subject to a refund in relation to the reduction of percentage tax from 3% to 1%? If the taxpayer shifted from non-VAT to VAT-registered status or if the taxpayer has opted to avail of the eight percent (8%) income tax rate at the beginning of 2021, the overpayment as a result of the reduction of tax rates for July to December 2020 will no longer be of other use by the taxpayer since they have already opted for a different tax type by the beginning of the next year. Hence, a tax refund may be applied. References