Other Percentage Taxes (OPT)

Other Percentage Taxes (OPT)

• VAT is generally imposed on every sale, barter, exchange of goods/services, and importations.
• There are instances of transactions subject to OPT under Sections 116 to 127 of the Tax Code, as amended, instead of VAT.
• A transaction subject to VAT is no longer subject to percentage tax and vice versa.
• Other percentage taxes and VAT may be imposed together with excise tax.
• Percentage tax is on the sale, barter, or exchange of goods or services, based upon gross sales, value in money of receipts.
• Measured by a certain percentage of the gross selling price or receipts.
• Percentage taxes are in the Tax Code under Sections 116 to 127, as amended.

Kinds of Percentage Taxes

• Tax on persons exempt from VAT (Sec. 116).
• Percentage tax on domestic carriers and keepers of garages (Sec. 117).
• Percentage tax on international carriers (Sec. 118).
• Tax on franchises (Sec. 119).
• Tax on overseas dispatch, message, or conversation originating from the Philippines (Sec. 120).
• Tax on banks and non-bank financial intermediaries (Sec. 121).
• Tax on other non-bank financial intermediaries (Sec. 122).
• Tax on life insurance premiums (Sec. 123).
• Tax on agents of foreign insurance companies (Sec. 124).
• Amusement taxes (Sec. 125).
• Percentage Tax on POGOs under Sec. 125-A (new provision).
• Tax on winnings (Sec. 126).
• Tax on sale, barter, or exchange of shares of stock listed and traded through the local stock exchange (Sec. 127).

Section 116 - Tax on Persons Exempt from Value-Added Tax

• Section 116 of the Tax Code, as amended by CREATE Law states; Any person whose sales or receipts 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.
• Cooperatives are exempt from the 3% gross receipts tax.
• Effective July 1, 2020, until June 30, 2023, the rate shall be 1%.

Persons Liable

• Persons not VAT-registered, selling goods, properties, or services, with annual gross sales/receipts not exceeding P3,000,000.00 and exempt from VAT under Section 109(1)(CC) of the National Internal Revenue Code, as amended by Republic Act (RA) No. 11534 (CREATE Law).
• Persons leasing residential units where the monthly rental per unit exceeds P15,000.00, but the aggregate of such rentals of the lessor during the year does not exceed P3,000,000.00.

Exempt Person

• Cooperatives.
• Self-employed individuals and professionals availing the 8% tax on gross sales and/or receipts and other non-operating income.

Requisites

• To be subjected to percentage tax under Section 116 of the Tax Code as amended under RA 11534 (CREATE Act) requires: 1) Being not VAT registered person, 2) Annual gross sales or receipts should not exceed P3,000,000, and 3) Not exempt from VAT under Section 109(1)(A) to 109(1)(BB) of the Tax Code, as amended.
• A taxpayer with annual gross sales and/or receipts not exceeding the VAT threshold is not automatically subject to Percentage Tax under this Section of the Tax Code.
• Taxpayers engaged in activities/transactions exempt from VAT under Sections 109(1)(A) to 109(1)(BB), as amended by the CREATE Law, are not subject to percentage tax under this Section, regardless of the amount of gross sales/receipts.
• To be subject to percentage tax under Section 116, taxpayers must not be subject to other percentage taxes under Sections 117 to 127 , such as a domestic common carrier engaged in the transport of passengers by land.

Tax Base

• Sale of goods: Gross sales.
• Sale of services: Gross receipts.

Formula

• Tax base (gross sales or receipts) x Tax rate = Percentage tax due.
• Tax rate: Prior to July 1, 2020 - 3%, From July 1, 2020, to June 30, 2023 (CREATE law) - 1%, Beginning July 1, 2023 (CREATE law) - 3%.
• Persons subject to the tax have the option to apply for VAT registration not later than ten (10) days before the beginning of the taxable quarter
• Any person electing to register under the VAT system shall not be allowed to cancel registration for three (3) years.

Summary of Rules

• Annual Gross Sales/Receipts: More than P3M implies Business Tax of VAT (generally, unless exempt). Under P3M implies Business Tax is generally subject to OPT under Sec 116, although if the taxpayer opted to register under the VAT system, it shall be irrevocable for 3 consecutive years.
• Husband and wife are considered separate taxpayers for purposes of the P3M threshold.
• The aggregation rule for each taxpayer applies.
• VAT-exempt sales are not included in determining the threshold.

Illustration 1 - Determine the Correct Business Tax:

• Meat dealer (annual gross sales of P2,000,000): Exempt from business tax under Sec. 109(1)(A), regardless of the amount of gross sales.
• Dealer of poultry feeds (annual gross sales of P8,000,000): Exempt from business tax under Sec. 109(1)(B), regardless of the amount of gross sales.
• Dealer of specialty feeds with annual gross sales of: (a) P2.5M = Percentage tax under Sec. 116, (b) P2.5M and VAT registered = VAT (because the taxpayer is VAT registered, and the item sold is not VAT exempt under the Tax Code), and (c) P5M = VAT (because taxpayer's annual gross sales exceeded the VAT threshold, and the item sold is not VAT exempt under the Tax Code).
• Restaurant operator with annual gross sales of (a) P2.5M, (b) P2.5M and VAT registered and (c) P5M has the same answers as the previous case of the dealer of specialty feeds.
• Taxi operator: Percentage tax under Sec. 117 (common carrier's tax on domestic common carrier) regardless of the amount of gross receipts.
• For the taxi operator, the transaction shall not be subject to percentage tax under Sec. 117 to 127, and shall not be exempt from vat under Sec. 109(A) to 109(AA).
• CPA practitioner whose annual gross receipts amounted to: (a) P2.5M = Percentage tax under Sec. 116, (b) P2.5M and vat registered = VAT (because the taxpayer is VAT registered), (c) P5M = VAT (because taxpayer's annual gross receipts exceeded the VAT threshold, and the transaction is not VAT exempt under the Tax Code.

Illustration 2 (Corporate Taxpayers)

• ABC Trading Corporation (non-vat registered) data for the year 2024: Gross receipts P1,800,000, Purchases on account from vat suppliers (net) P1,200,000, Payments made to vat suppliers P800,000, Purchases on account from non-vat suppliers P200,000, Payments made to non-vat suppliers P80,000, and Operating expenses 400,000.
• The applicable is 3% OPT on VAT exempt sales under Section 116 because: (a) the taxpayer is not VAT registered, (b) the transaction is not a VAT-exempt transaction, (c) the amount of sales is ≤ P3M, and (d) the transaction is not subject to OPT under Sections 117 to 127.
• The amount of business tax due is P54,000, computed as P1.8M x 3%.
• If the taxable year is 2023 (Transition year), and gross receipts for first and second half of year were P800,000 and P1,000,000, the applicable business tax is 1% OPT for January to June 2023 and 3% OPT beginning July 1, 2023.
• Amount of business tax due: P38,000 computed as January to June (P800,000 x 1%) = P8,000 and Input vat (P1M x 3%) = 30,000. Thus, the total Percentage Tax for 2023 is P38,000. Illustration 2 (Corporate Taxpayers) continued
• Assuming ABC opted to register under the vat system, what is the applicable business tax and the amount due for the year? Answer: P72,000
  • Applicable business tax: 12% VAT (optional vat registration)
• CASE B Omega Corporation (non-vat registered entity) is engaged in trading consumer products.
  • It generated total sales of P3,200,000 for the taxable year.
  • Question: What is the applicable business tax and the amount due for the year?
  • applicable business tax: 12% VAT; (gross sales > P3,000,000)
  • amount of business tax due: P384,000 computed as P3.2M x 12% NOTE: Although Omega is a novat registered entity, it is still liable to 12% vat because the sales exceeded the vat threshold of P3M However, as a consequence of its failure to register under the vat system, it cannot pass to customers the applicable output vat and is not entitled to input vat credit

Self Employed/ Professional(SEP) under Train Law

• The applicable taxes Self-employed is defined under RA10963 (TRAIN Law) as a sole proprietor or an independent contractor who reports income earned from self-employment. He/she controls who he/she works for, how the work is done and when it is done. It includes professionals whose income is derived purely from the practice of profession and not under an employer-employee relationship

• Professional is defined under RA10963 (TRAIN Law) as Person formally certified by a professional body belonging to a specific profession by virtue of having completed a required course of studies and/or practice, whose competence can usually be measured against an established set of standards. It also refers to a person who engages in some art or sport for money, a means of livelihood, rather than as a hobby. It includes but is not limited to professional entertainers, professional athletes, directors, producers, insurance agents, insurance adjusters, management and technical consultants, bookkeeping agents, and other recipients of professional, promotional and talent fees".

• SEP is subject both to income tax and business tax as follows: [See Below]

  • Graduated Rate for Income Tax
  • SEPS 8Tax (if applicable)
  • VAT/Percentage Tax for Business Tax 8*% Preferential Tax Rate for SEP.

• Beginning 2018 or upon the effectivity of RA 10963 Reform for Acceleration and Inclusion Law (TRAIN Law), regular income of SEP amounting to more than P250,000 in a taxable year but with a gross sales/receipts and other non-operating income not exceeding the revised vat threshold of P3,000,000 shall have the option to avail of 8% tax on gross sales/receipts and other non operating income in excess of P250,000 in LIEU of the graduated income tax rate

• ** REQUIREMENTS TO AVAIL THE 8% TAX:**

• The option to be taxed at 8% is available only to SEPs who are:

  • (1) Non-vat registered,
  • (2) Not engaged in vat exempt-sales/transaction(s):
  • (3) Not subject to other Percentage Taxes other than Section 116 of the Tax Code, as amended; and (4) The SEP signified in his/her 1st Quarterly Return of hisher intention to elect the 8% income tax.

• Unless the SEP signified his/her intention to avail the B% tax. s/he shall be considered as having availed of the graduated rates under Section 24(A) of Tax Code, as amended, and such clection shall be irrevocable

- Summary of Taxes applicable to SEP:

• The gross sales and/or receipts is NOT more than P3M and the SEP is NOT vat In General Income Tax: Graduated rate, Business Tax: Percentage Tax under Sec. 116 of the Tax 8% Tax registered:
  • Option to choose 8% Tat (qualified and availed) Code
  • The 8% tax is 2n LIEU of the graduated income tax rate and Percentage Tar under Sec 116 of the Tax Code
• The gross sales and/or receipts is MORE than P3M and/or the SEP is VAT registered In General
  • Income Tax Graduated rate
  • Business Tax 12% value added tax (vat)
  • NOTE The option to taxed at 8% Preferential tax is NOT APPLICABLE if Gross Sales and/or receipts of the SEP is more than 83,000,000 or is vat registered

Illustration 3 Individual Taxpayers; Purely SEP:

• CASE A: Pedro is engaged in the following during 2024 taxable year, Truckang business (Gross receipts P1,600,000) Lease of apartments (monthly rental is 914,500 per unit, annual gross receipts 1,300,000), Practice of accountancy gross receipts 900,000

  • Applicable business tax, 3% OPT under Section 116 of the Tax Code, as amended. NOTE: If a professional, aside from the practice of his profession, derwes revenue from offer tines of business which e otherwise object to VAT tucking business and practice aggregate amount of P2.5M), the same shall be combined purposes of determining has been exceeded The case of partment is business tax the previous Chapter hence, will be included le threshold (Sec. 3, RR 16-2011)

• CASE Pedro a by time fish dealer H gross receipts during 224 table 95,000,000 Question What is the applicable business tax and the du Pay for the w

  • Applicable business tax, Mote, ed engaged sale" NOTE Vader Beden of the Sales the agricultural marine the producte orginal state Exempt from VAT

• Section 116 of the tax code is applicable my taxpayers were wat because g sales for de 8 The faction la 108201

• Although exempt fom tax, althject income graduated as cate

• QUESTION 2: Ascume Pedro asengaged in asing out delivery trucks to ofer fish dealers.

  • Assume further that his lotal grose pece for such action amount to P1.500.000 applicable year 202
  • Anwer Applicable Section 116 of Code de sales a fish dealo remain to be biness NOTE- (a) income from property for perso) the vol exempt (6) the hot regatered person (©) Pedro (d) for in a subject other than Section 116.

• -- QUESTION 3 Ass the same data in Question 2 and is being taxed as 8 -Answer None

• -- The B income-busines in follows Les 130010

SECTION 117 - Percentage Tax on Domestic Common Carriers and Keepers of Garages

-Cars for rent or hire driven by the lessee; transportation contractors, including persons who transport passengers for hire, and other domestic carriers by land for transport, owners of animal-drawn two wheeled vehicles, and keepers of garages, shall pay a tax equal to % of their quarterly gross receipts

• The gross receipts of common carriers derived from their incoming and outgoing shall not be subjected to the local taxes imposed under Republic Act No. 7160 otherwise Local Government Code of 1991
• Percentage Tax under this Section of the Tax Code is a 3% common carriers tax (CCT), quarterly gross receipts of operators of
• Cars for Rent (Rent-a-Car business)
• Cars for Hire driven by the lessee
• Transportation contractors including those who transport passengers such as Tourist buses for hire.
• Other domestic carriers by land for transport of passenger:
• Keppers of Garages TAX RATE BASIS: % Of Gross Receipts common carrier tax (CCT) under this provision pertains to percentage taxes of domestic common carriers be land for the transport of passengers only. However, CCT shall not apply to a. Owners of Bancas 8 Two Animal Down Weeled Venicls
• Liko Republic Act No. 7160 (Local Government Code of 1991 provide at the gross recepte of common carrier derived from incoming and outgoing hall et be subject le local taxes
• Domestic common Carriers Sea are subject transport of passengers goods from one pace to other ice in the Phippines or International shipment for domestice either be rate zero-ated depends of VAT red shall apply only to vad while registered are exempt Chapter TRANSPORTATION NETWORK COMPANIES (TNCH 79-2015 TNC Network system pool transportation access

This note discusses Other Percentage Taxes (OPT) under Sections 116 to 127 of the Tax Code. It covers transactions subject to OPT instead of VAT. It also includes kinds of percentage taxes.