Amendment to National Internal Revenue Code Taxes

Issuing authority and prior law amended

Republic Act No. 1612 amends Title V of Commonwealth Act No. 466 (the National Internal Revenue Code), as amended.
Section 1 amends Section 178 of Commonwealth Act No. 466.
Sections 2, 4, 5, 6, 7, 8, 9, 10, 11, 14, 15, 16, 17, 18, 19, 20 amend designated sections of Commonwealth Act No. 466.
Section 3 repeals Section 181 of Commonwealth Act No. 466.
Section 13 repeals Sections 193, 196, and 201 of Commonwealth Act No. 466.

Policy on payment before operation

Section 178(a) provides that a privilege tax must be paid before any business or occupation covered by that section can be lawfully begun or pursued.
Section 178(a) provides that the tax on business is payable for every separate or distinct establishment or place where a taxable business is conducted, and one line of business does not exempt another line merely because privilege tax was already paid for it.
Section 178(a) provides that the tax on business is paid by the person, firm, or company conducting the business.
Section 178(a) provides that the occupation tax is paid by each individual engaged in a calling subject to the tax.

Fixed taxes: timing and amounts

Section 180(a) provides that all fixed taxes are due and payable on or before the twentieth of January of each year.
Section 180(a) provides that a person first beginning a business or occupation must pay the tax before engaging therein.
Section 182(A)(1) provides that persons subject to percentage tax pay a fixed annual tax of twenty pesos (PHP 20) for each calendar year or fraction thereof.
Section 182(A)(2) provides that persons not required to pay the percentage tax under Sections 184, 185, and 186 must pay, for each calendar year or fraction thereof, a graduated fixed annual tax based on gross annual sales during the preceding calendar year:
- PHP 10 if gross annual sales exceed PHP 2,000 but do not exceed PHP 10,000
- PHP 20 if gross annual sales exceed PHP 10,000 but do not exceed PHP 30,000
- PHP 30 if gross annual sales exceed PHP 30,000 but do not exceed PHP 50,000
- PHP 50 if gross annual sales exceed PHP 50,000 but do not exceed PHP 75,000
- PHP 75 if gross annual sales exceed PHP 75,000 but do not exceed PHP 100,000
- PHP 100 if gross annual sales exceed PHP 100,000 but do not exceed PHP 150,000
- PHP 150 if gross annual sales exceed PHP 150,000 but do not exceed PHP 300,000
- PHP 300 if gross annual sales exceed PHP 300,000 but do not exceed PHP 500,000
- PHP 500 if gross annual sales exceed PHP 500,000
Section 182(A)(2) provides rules for mixed businesses and initial engagement:
- If a merchant engages in two or more businesses, one or more subject to percentage tax and others exempt, the graduated fixed annual tax is based on the individual sales of the business(es) not subject to percentage tax.
- The initial graduated fixed annual tax payable by the person first engaging in business subject to said tax is PHP 10.
Section 182(A)(2) provides payment timing:
- The tax is payable before engaging in the business, and thereafter within the month of January during which other fixed privilege taxes may be paid without penalty.

Fixed taxes: enumerated businesses

Section 182(A)(3) provides fixed taxes collected for specified occupations and businesses, with the amount stated being for the whole year unless otherwise specified.
The fixed annual taxes include the following amounts:
- Brewers: PHP 1,000
- Distillers of spirits: PHP 100 (if annual production does not exceed 50,000 gauge liters); PHP 200 (if exceeds 50,000 but does not exceed 100,000); PHP 400 (if exceeds 100,000 but does not exceed 250,000); PHP 600 (if exceeds 250,000)
- Rectifiers of distilled spirit, compounders, and re-packers of wines or distilled spirits: PHP 450
- Wholesale peddlers of distilled, manufactured, or fermented liquor: PHP 100
- Wholesale peddlers of manufactured tobacco: PHP 50
- Retail peddlers of distilled, manufactured, or fermented liquor: PHP 150
- Retail peddlers of manufactured tobacco: PHP 16
- Wholesale liquor dealers:
  - In the City of Manila: PHP 600
  - In chartered cities other than Manila: PHP 400
  - In any other place: PHP 150
- Wholesale dealers in fermented liquors, except basi, tuba and tapuy: PHP 150
- Retail liquor dealers: PHP 100
- Retail vino dealers: PHP 20
- Retail dealers in fermented liquors: PHP 50
- Wholesale leaf tobacco dealers: PHP 100
- Retail leaf tobacco dealers: PHP 30
- Manufacturers of tobacco and manufacturers of cigars and cigarettes:
  - In the City of Manila: PHP 400
  - In any other place: PHP 100
- Wholesale tobacco dealers: PHP 60; retail tobacco dealers: PHP 16
- Manufacturers or importers of playing cards: PHP 200
- Manufacturers, producers, or importers of soft drinks or mineral waters: PHP 100
- Stockbrokers, dealers in securities, real estate brokers, real estate dealers, commercial brokers, customs brokers and immigration brokers: PHP 150
- Owners of race tracks: PHP 500 for each day on which races are run on any track
- Lending investors:
  - In chartered cities and first-class municipalities: PHP 300
  - In second and third-class municipalities: PHP 150
  - In fourth and fifth-class municipalities and municipal districts: PHP 75
  - If lending investors do business in more than one province, they pay PHP 300
- Cinematographic film owners, lessors or distributors: PHP 200
Section 182(A)(3) provides special graduated fixed tax for real estate dealers based on annual income:
- PHP 150 if annual income is PHP 3,000 or more but not exceeding PHP 10,000
- PHP 300 if annual income is exceeding PHP 10,000 but not exceeding PHP 30,000
- PHP 500 if annual income is exceeding PHP 30,000

Occupation taxes: professional rates

Section 182(B)(1) provides that occupation taxes are collected as the sum due for the whole year.
Section 182(B)(1) provides PHP 75 for:
- Lawyers; medical practitioners; architects; interior decorators; certified public accountants
- Civil, electrical, chemical, mechanical or mining engineers; insurance agents and subagents; veterinarians; dental surgeons; opticians
- Commercial aviators; professional appraisers or connoisseurs of tobacco and other domestic or foreign products
- Licensed ship masters and marine chief engineers
Section 182(B)(1) defines “mechanical engineers” to mean professional mechanical engineers as defined in Commonwealth Act No. 294.
Section 182(B)(2) provides PHP 50 for:
- Land surveyors; chief mates; marine second engineers; pharmacists; registered nurses; chiropodists; tattooers; masseurs; pelotaris; jockeys
- Professional actors or actresses; stage performers; hostesses
Section 182(B)(2) provides that a professional legally authorized to practice and who has paid the corresponding annual privilege tax is entitled to practice anywhere in the Philippines without being subject to any other tax, charge, license, or fee for the practice of the profession.
Section 182(B)(2) requires payment of registration fees to the concerned office for the professional to be entitled to practice.

Fixed-tax exemptions

Section 182(C) exempts the following from the tax imposed in Section 182:
- Persons whose gross annual sales do not exceed PHP 2,000
- Persons engaged in public market places exclusively selling at retail domestic meat, fruits, vegetables, game, poultry, fish, and other similar domestic food products
- Peddlers and sellers at fixed stands exclusively selling at retail those same domestic food products where total stock in trade on any one day does not reach a retail value of PHP 100
- Producers working in their own homes as parents and children living as one family, where the value of each day’s production by each person capable of working does not exceed PHP 5
- Owners of animal drawn two-wheeled vehicles
- Owners of bancas
- Persons employed in any branch of the Government of the Philippines whose entire professional services are devoted exclusively thereto, or applied under its direction; or persons devoting entire professional services to religious, educational, or charitable institutions, or hospital, sanitarium, or similar establishments not conducted for private gain, in respect of the tax imposed by Section 182(B)

Percentage tax returns and surcharges

Section 183(a) imposes on every person conducting a business subject to percentage tax the duty to make a true and complete return of the gross monthly sales, receipts, or earnings, or the gross value of output actually removed from the factory or mill warehouse.
Section 183(a) requires the return and payment of the percentage tax within ten days after the end of each month.
Section 183(a) requires persons retiring from a percentage-tax business to notify the nearest internal revenue officer, file the return or declaration, and pay the tax due within ten days after closing.
Section 183(a) provides that if percentage tax is not paid within the prescribed time, the tax is increased by 25%, and the increment forms part of the tax.
Section 183(a) provides that willful neglect to file the return, or a willful false or fraudulent return, results in a surcharge of 50% of the amount added to the tax (or deficiency tax) in the case where any payment was made based on such return before discovery of falsity or fraud; the surcharge is collected with the tax unless already paid before discovery.
Section 183(b) requires that when articles are imported, percentage taxes under Sections 184, 185, and 186 are paid in advance by the importer prior to release from customs custody, based on the import invoice value certified as correct by the Philippine Consul at the port of origin if any.
Section 183(b) imposes additional base-value premiums for advance payment:
- 100% for articles enumerated in Section 184
- 50% for articles enumerated in Section 185
- 25% for articles enumerated in Section 186
Section 183(b) exempts from the advance import payment rule articles to be used by the importer himself in manufacture or preparation of articles subject to specific tax or for consignment abroad and to form part thereof.
Section 183(b) treats purchasers of tax-free imported articles later sold/transferred/exchanged to non-exempt private persons or entities as the importers, and makes the tax due a lien on the article itself superior to other charges or liens, irrespective of possessor.

Percentage tax rates by product

Section 184 imposes a percentage tax once only on every original sale, barter, exchange, or similar transaction intended to transfer ownership or title of enumerated articles, with the tax equivalent to 50% of the gross value in money of the articles, payable by the manufacturer or producer.
Section 184 allows deduction where taxed articles are manufactured out of materials subject to tax under Section 184: the total cost of taxed materials deductible from the gross selling price or gross value.
Section 184(a) provides graduated rates for automobiles based on selling price:
- Selling price not exceeding PHP 7,000: taxed at 50%
- Selling price exceeding PHP 7,000 but not exceeding PHP 10,000: taxed at 75% of selling price
- Selling price exceeding PHP 10,000: taxed at 100% of selling price
Section 184(a) treats an automobile sale as a sale of the chassis and body together with usually equipped parts/accessories, but provides replacement CKD parts imported as replacements or completely knocked down parts for assembly are subject to tax under Section 186.
Section 184(a) provides that the total cost of materials/parts on which tax has already been paid under Section 186 is deductible from the gross selling price or gross value of assembled/manufactured articles.
Section 184(b)-(f) lists enumerated taxed articles at the Section 184 rate and provides that any part or accessory of the enumerated articles is taxed at the same rate as finished articles.
Section 185 imposes a percentage tax once only on original transfers of enumerated sporting goods and other listed articles at a tax equivalent to 30% of the gross selling price or gross value, payable by the manufacturer or producer.
Section 185 allows deduction of the total cost of materials subject to tax under Section 185.
Section 185(h) provides firearms exception: no tax is collected on .22 caliber firearms and cartridges and other ammunition sold and delivered directly to the Armed Forces of the Philippines, any government instrumentality or agency, or organizations and persons engaged in maintaining peace and order for actual use or issue.
Section 186 imposes a percentage tax once only on original transfers of articles not enumerated in Sections 184 and 185 at a tax equivalent to 7% of the gross selling price or gross value, payable by the manufacturer or producer.
Section 186 allows deduction where articles are manufactured out of materials likewise subject to tax under Section 186 and Section 189: the total cost of those materials deductible.
Section 186 provides a special fish-by-products rule: for fish and its by-products when sold/bartered/exchanged by the fisherman or fishing operator, the tax equivalent is 5% only of the selling price or gross value.
Section 186 provides a sawmill computation rule:
- For sawmills purchasing logs for sawing/cutting into standard lumber, compute the Section 186 tax on 33 1/3% of the gross cost of logs purchased during any given quarter intended for manufacture.
Section 186 requires sawmill operators to keep complete records of log purchases and related vouchers (official and auxiliary invoices or commercial invoices showing assessment numbers and vendor names/addresses), and complete records of lumber purchased for resale.

Percentage tax exclusions and exemptions

Section 188 excludes from computing percentage tax under Sections 184, 185, and 186 transactions involving:
- Articles subject to tax under Title IV of the Code
- Agricultural products and ordinary salt in their original form when sold/bartered/exchanged by the producer or owner of the land where produced (with “agricultural products” excluding cultured fish and fishpond products and excluding items that have undergone manufacturing as defined in Section 194(x))
- Minerals and mineral products when sold/bartered/exchanged by the lessee, concessionaire, or owner of the mineral land from which removed
- Articles subject to tax under Section 189
- Articles shipped or exported abroad by the manufacturer or producer, irrespective of shipping arrangements affecting transfer of ownership
Section 188 exempts from the percentage taxes imposed in Sections 184, 185, and 186:
- Persons whose gross quarterly sales or receipts do not exceed PHP 500
- Persons engaged in public market places exclusively selling at retail domestic meat, fruits, vegetables, game, poultry, fish and similar domestic food products
- Peddlers/sellers at fixed stands and similar selling places exclusively selling at retail the same domestic food products where total stock in trade on any one day does not reach a retail value of PHP 100
- Producers working in their own homes as parents and children living as one family where each day’s production value by each capable person does not exceed PHP 5
- Persons importing articles under the contract for the exclusive use of the Armed Forces of the Philippines

Special percentage tax for mills

Section 189 imposes a percentage tax of 2% on proprietors/operators of rope factories, sugar centrals, rice mills, coconut oil mills, corn mills, and desiccated coconut factories on the gross value in money of all rope, sugar, rice, coconut oil, ground/milled corn, and desiccated coconut manufactured/milled, including by-products of the raw materials, based on actual selling price or market value at the time the articles leave the factory or mill warehouse.
Section 189 provides that the tax does not apply to:
- coconut oil, and by-products of copra from which it is produced
- desiccated coconuts
- if removed for exportation and actually exported without returning to the Philippines, whether in original state or as ingredient/part of any manufactured article/product.
Section 189 subjects proprietors/operators of refined sugar or refined coconut oil factories to the Section 189 tax but allows deduction from actual selling price or market value the total cost of raw sugar/crude oil upon which the Section 189 tax has been previously paid.
Section 189 allows deduction of total cost of materials subject to tax under the same section when manufacturing occurs from such materials.

Compensating tax on imports

Section 190 requires all persons residing or doing business in the Philippines who purchase or receive from without the Philippines commodities/goods/wares/merchandise (except those subject to specific taxes under Title IV) to pay a compensating tax on the total value at the time received.
Section 190 sets the compensating tax at the percentage taxes imposed under this Title on original transactions effected by merchants/importers/manufacturers.
Section 190 requires the compensating tax to be paid before withdrawal or removal from the customhouse or post office.
Section 190 exempts merchants/importers/manufacturers subject to tax under Sections 184, 185, 186, or 189 from paying the compensating tax when the imported goods are for sale/resale/barter/exchange, or for use in manufacture/preparation of articles for sale/barter/exchange and form part thereof.
Section 190 further exempts from the compensating tax articles to be used by the importer himself in manufacture/preparation of articles subject to specific tax or for consignment abroad and to form part thereof.
Section 190 requires remedial action if an imported article was withdrawn without paying: entry in books or written notice to the Collector and payment of corresponding compensating tax within ten days from entry/notice; if not paid within that period, the amount increases by 25%.
Section 190 provides a shipment de minimis exemption: no assessment/collection on any single shipment consigned to any single person when total value does not exceed PHP 100.
Section 190 exempts goods brought by residents returning from abroad when value does not exceed PHP 500.
Section 190 treats purchasers/recipients of tax-free articles later sold/transferred/exchanged to non-exempt private persons/entities as considered importers, and makes the tax due a lien on the article itself superior to other charges or liens regardless of possessor.

Percentage tax on contractors and services

Section 191(a) imposes a percentage tax of 3% of gross receipts on specified contractors, proprietors/operators, and service establishments, including road/building/irrigation/artesian well/waterworks and other construction work contractors; filling contractors; demolition and salvage work contractors; arrastre contractors; gas/electric installations; and specified industrial establishments.
Section 191(a) imposes 3% on keepers of restaurants, refreshment parlors and other eating places, and caterers.
Section 191(a) imposes 7% on keepers of bars and cafes where wines or liquors are served, subject to special invoice rules and location-based rates.
Section 191(a) requires that for bars/cafes where wines or liquors are served, two sets of serially numbered duplicate sales or commercial invoices/receipts must be issued: one for each sale of food/refreshement and another for each sale of wine/liquor, with originals issued to the purchaser/customer.
Section 191(a) provides higher rates based on premises access:
- Where establishments are maintained within a race track or jai-alai premises or accessible by connecting door/passage, the tax is 20% of gross receipts.
- Where maintained within cabaret or night club premises or accessible by connecting door/passage, the tax is 10% of gross receipts.

Repealed provisions and defined terms

Section 3 repeals Section 181 of Commonwealth Act No. 466.
Section 13 repeals Sections 193, 196, and 201 of Commonwealth Act No. 466.
Section 14 amends Section 194(s) by defining:
- “Real estate broker” and “real estate salesman”, including detailed coverage of selling/negotiating/buying/leasing/renting/collecting rent/soliciting/negotiating loans on real estate for compensation or expectation of compensation, and the effect of one act constituting the person as broker.
- Exclusions from broker/salesman coverage for actions relating to own property in regular course/incident to management, powers of attorney for final consummation, receivers/trustees/assignees in bankruptcy or insolvency, court order actions, and trustees selling under a deed of trust.
- “Real estate dealer” coverage for persons buying/selling/exchanging/leasing/renting as principal and holding out as dealer, including income-based threshold rules and a specific exclusion for owners of sugar lands subject to tax under Commonwealth Act No. 567.

Administration: continuation, revocation, registration, invoices

Section 198 (as amended by Section 15) provides that when an individual paying a business tax dies and the same business continues by persons interested in the estate, no additional payment is required for the residue of the term for which the tax was paid.
Section 198 requires, within 30 days from death of the decedent, submission of inventories of goods or stocks at death time to the Bureau of Internal Revenue or the regional or provincial revenue office.
Section 198 applies the same rule where there is transfer of ownership or change of name of the business establishment.
Section 200 (as amended by Section 16) authorizes the Collector of Internal Revenue, after due investigation and with approval of the Department Head, to revoke the privilege of certain liquor/tobacco businesses and prohibit sales for a term fixed in the order.
Section 200 provides revocation grounds when a wholesale/retail liquor dealer, retail vino dealer, wholesale/retail fermented liquors dealer, or peddler of tobacco or liquor abuses privilege to injury of public morals or peace, or when the place is conducted disorderly/unlawful, is a nuisance, or is used as a resort for disorderly characters, criminals, or women of ill repute.
Section 200 states revocation forfeits all sums paid with respect to the privilege and prohibits sale of liquor or tobacco for the term fixed.
Section 200 provides an appeal to the President of the Philippines, whose action is final.
Section 203 (as amended by Section 17) requires every person engaged in any privilege-taxable business/occupation to register with the provincial revenue agent or provincial treasurer (if no provincial revenue agent is assigned) on or before commencement, or within ten days after securing the privilege tax receipt, by filing specified registration information including name/style, residence, business/occupation, and place where carried on.
Section 203 requires firms to register the names and residences of the various persons constituting the firm.
Section 204 (as amended by Section 18) requires all persons subject to an internal revenue tax to issue sales/commercial invoices or receipts in duplicate, serially numbered, for each sale/transfer of merchandise or services valued at PHP 2 or more, showing required details of seller and, for transactions of PHP 50 or more, also the purchaser/customer/client.
Section 204 requires originals to be given to purchasers/customers/clients and imposes a record-keeping obligation for five years for both original holder and duplicate holder.
Section 204 requires persons whose gross sales/earnings/receipts during the last preceding year exceed PHP 20,000 to issue invoices/receipts for each sale/transaction irrespective of value.
Section 204 authorizes the Collector of Internal Revenue, in meritorious cases, to exempt any person subject to an internal revenue tax from compliance with the invoicing/receipting requirements.

Criminal penalties for unlawful conduct

Section 208 (as amended by Section 19) punishes distilling/rectifying/repacking/compounding/manufacturing articles subject to a specific tax without paying the privilege tax required by law.
Section 208 imposes a fine of not less than PHP 2,000 nor more than PHP 10,000 and imprisonment of not less than 6 months nor more than 6 years