QuestionsQuestions (BIR REVENUE MEMORANDUM CIRCULAR NO. 18-2010)
It clarifies the coverage and taxability of amusement places under Section 125(B) of the National Internal Revenue Code (Tax Code) of 1997, as amended—specifically whether certain modern entertainment venues are subject to the 18% amusement tax rather than the 12% VAT on gross receipts.
An 18% amusement tax is imposed on such proprietors, lessees, or operators.
A night club is described as a drinking, dancing, and entertainment venue that oftentimes also serves food and provides entertainment.
A day club is described similarly to a night club: it is a drinking, dancing, and entertainment venue that oftentimes also serves food and provides entertainment.
A cabaret is described as a restaurant or club where liquor and food are served, with a stage for performances by musicians, dancers, or comedians, including a venue for dancing by patrons/customers, similar to that of nightclubs.
They provide facilities for patrons to sing (often via microphone and public address system) and expect sufficient revenue from selling food and drinks.
Videoke bars, karaoke bars, karaoke television, karaoke boxes, and music lounges are specifically mentioned as examples of the amusement places now including these forms of interactive entertainment.
They are deemed subject to the 18% amusement tax under Section 125(B) and not to the 12% VAT on gross receipts.
For the covered amusement places (including karaoke-related lounges), the correct tax is the 18% amusement tax under Section 125(B); the establishments should not be assessed under the 12% VAT on gross receipts.
It means that traditional classifications must now be interpreted to include modern entertainment formats (like karaoke lounges) that perform similar functions and are operated to earn revenue from entertainment plus sale of food and drinks.
Provision for patrons to sing/entertain using recorded music (often with microphone/PA), and the expectation that revenue will be generated primarily through selling food and drinks to customers, akin to the hospitality/entertainment model of cabarets and night/day clubs.
The proprietors, lessees, or operators of cabarets, night or day clubs (and, per the RMC, similar establishments like videoke/karaoke bars and music lounges) are the liable parties.
It indicates that Section 125(B)’s provisions (including the amusement tax rate and coverage) should be applied according to the amended text referred to by the BIR.
It enjoins all concerned to be guided accordingly and to give the Circular as wide a publicity as possible.
Based on the RMC rationale, it would likely be classified as an amusement place covered by Section 125(B), hence subject to the 18% amusement tax rather than VAT on gross receipts.
The RMC reflects a functional/coverage-based interpretation: where modern venues provide substantially similar entertainment diversion and business structure to cabarets/night/day clubs, they are treated as within the same tax provision.
It was adopted on 01 March 2010 and signed by (SGD.) Joel L. Tan-Torres, Commissioner of Internal Revenue.