Law Summary
Time for Payment of Fixed Taxes
- Fixed taxes due and payable on or before January 20 each year.
- For new businesses or occupations, tax must be paid before commencement.
Repeal of Section 181
- Section 181 of the original Commonwealth Act is repealed.
Fixed Taxes on Businesses and Occupations
- Persons subject to percentage tax pay a fixed annual tax of ₱20 per calendar year or fraction thereof.
- Persons not subject to percentage tax pay graduated fixed taxes based on gross annual sales, ranging from ₱10 to ₱500 depending on sales amount.
- Specific fixed taxes imposed on various business categories such as brewers (₱1,000), distillers (₱100 to ₱600), wholesale and retail peddlers of liquor and tobacco (various amounts), manufacturers/importers of playing cards (₱200), stockbrokers and brokers (₱150 up to ₱500), film distributors (₱200), lending investors (₱75 to ₱300), and others.
- Occupation taxes vary by profession with lawyers, doctors, architects, engineers, and similar professionals paying ₱75; others like surveyors, nurses, actors, etc., pay ₱50.
- Professionals are entitled to practice nationwide upon payment of the privilege tax and registration fees.
- Exemptions include persons with gross annual sales not exceeding ₱2,000, certain public market vendors, small-scale peddlers, producers working at home with small production, owners of animal-drawn vehicles and bancas, government employees dedicated to service, and those serving religious/charitable institutions.
Payment of Percentage Taxes
- Businesses on which percentage tax is imposed must file monthly returns and pay tax within 10 days after month-end.
- A 25% penalty applies for late payment; a 50% surcharge applies for willful neglect or fraudulent returns.
- For imported articles, percentage tax is paid in advance by the importer based on invoice value plus additional percentages depending on the article category.
- Purchasers of tax-free imported goods sold to non-exempt persons are considered importers and liable for tax.
Percentage Tax on Sales of Specific Goods (Section 184)
- One-time tax imposed on original sale, barter, or similar transactions of certain articles.
- Tax rates vary from 50% on jewelry, automobiles (with graduated rates based on price), toilet preparations, to 100% on automobiles over ₱10,000.
- Deduction allowed for cost of taxable materials incorporated.
- Specific exclusions for certain parts and components.
Percentage Tax on Sales of Sporting Goods, Refrigerators, etc. (Section 185)
- One-time tax at 30% on original sale, barter, or exchange of enumerated articles including luggage, watches, fishing rods, refrigerators, pianos, firearms (with exceptions), electric appliances, photographic equipment, neon signs, furniture, and textile products.
- Deduction allowed for cost of taxable materials incorporated.
Percentage Tax on Sales of Other Articles (Section 186)
- One-time tax at 7% on original sale, barter, or exchange of articles not covered in previous sections.
- Special 5% tax rate on fish and by-products sold by fishermen.
- Specific provisions for sawmill operators paying tax based on one-third of the gross cost of logs.
Exclusions from Percentage Tax
- Excluded commodities: those already taxed under Title IV, original agricultural products (excluding cultured fish and processed goods), minerals, certain exported goods.
- Exempt persons include those with gross quarterly sales below ₱500, certain market sellers, small-scale peddlers, home producers with low production value, and certain importers for exclusive military use.
Percentage Tax on Specific Manufacturers and Operators (Section 189)
- Tax of 2% on gross value of products manufactured by rope factories, sugar centrals, rice mills, coconut oil mills, corn mills, and desiccated coconut factories.
- Exported products exempted if not returned.
- Deductions allowed for cost of taxable raw materials previously subject to tax.
Compensating Tax on Imported Goods
- Residents or businesses receiving goods from abroad pay compensating tax equivalent to percentage taxes, except on specific taxed articles.
- Tax due before goods withdrawal from customs or post office.
- Merchants/manufacturers already paying percentage tax on goods used as inputs are exempted.
- Exemptions for low value shipments and goods brought by returning residents up to ₱500.
- Purchasers of tax-exempt imported goods sold to non-exempt persons considered importers liable for tax with lien on goods.
Percentage Tax on Contractors and Service Providers (Section 191)
- 3% tax on gross receipts for construction contractors, dockyard operators, installation and sales of utilities, laundries, photographic studios, communication lines, funeral parlors, repair shops, beauty parlors, hotels, and similar services.
- Food establishments pay 3% on gross receipts.
- Bars and cafes serving liquor pay 7%, with higher rates (10%-20%) if located within race tracks, jai-alai, cabaret, or nightclubs, coupled with specific invoicing requirements.
Repeal of Certain Sections
- Sections 193, 196, and 201 of the original Code repealed.
Definitions for Real Estate Brokers and Dealers
- Real estate broker defined as one engaged in various real estate transactions for compensation.
- Real estate salesman defined as a person employed by a broker to perform broker functions.
- Exclusions include those acting on own property, under court orders, or as bankruptcy trustees.
- Real estate dealer defined as a person engaged in buying/selling/leasing for income exceeding ₱3,000 annually or with income over ₱4,000.
- Owners of sugar lands subject to a different tax not considered dealers.
Continuation of Business After Death
- No additional tax needed if business continues after death of taxpayer for the remainder of paid term.
- Inventory of goods at death must be submitted within 30 days.
- Applies also to transfer of ownership or change of business name.
Revocation of Privilege for Certain Dealers
- Collector of Internal Revenue may revoke privilege of liquor and tobacco dealers abusing their privilege or conducting business disorderly.
- Revocation approved by Department Head and appealable to the President.
- Revocation leads to forfeiture of paid sums and prohibition from selling for a fixed term.
Registration Requirements
- Persons subject to privilege tax must register name, residence, business, and establishment place with provincial revenue agent or treasurer before starting business.
- Firms must register names and residences of all members.
Sales Invoices and Receipts
- Required for all taxable business transactions valued at ₱2 or more.
- Invoices must have serial numbers, show names/styles, business addresses; sales over ₱50 must also include buyer's information.
- Originals issued to buyer, duplicates kept by seller for five years.
- Those with over ₱20,000 gross sales must issue invoices for every transaction regardless of amount.
- Collector may exempt persons in meritorious cases.
Unlawful Pursuit of Business and Penalties
- Illicit distilling, rectifying, repacking, or manufacturing without privilege tax is punishable by fine of ₱2,000 to ₱10,000 and imprisonment 6 months to 6 years.
- Property and establishments used are forfeited.
- Repeat offenders face higher penalties.
- Others conducting business without fixed privilege tax face fines up to ₱1,000 or imprisonment up to 6 months.
Failure to File Returns or Pay Taxes
- Failure to file required returns or pay tax punishable by fine up to ₱5,000 and imprisonment up to 1 year.
- False or fraudulent returns punishable by fine ₱2,000 to ₱10,000 and imprisonment 6 months to 6 years, with additional surcharges.
Effectivity
- The Act took effect upon approval except Section 10.