Amendments to National Internal Revenue Code 1957

Statutory basis and covered prior laws

Republic Act No. 2025 amends the National Internal Revenue Code (as amended), including provisions identified as Sections 180, 181, 183, 186, 189, 191, 192, 194, 195, and 208.
Section 4 specifically amends Section 186 taken from Commonwealth Act No. 466.
Section 2 reenacts Section 181 after it had been repealed by Republic Act No. 1602.
Section 6 amends Section 189 as previously amended by Republic Act No. 822.
Section 8 amends Section 192 as previously amended by Republic Act No. 39.
Section 9 amends Section 194(s) as previously amended by Republic Act No. 1602.

Policy and legislative purpose

Republic Act No. 2025 provides tax timing rules, percentage tax rates, deductions/valuation rules, statutory definitions for broker and dealer classifications, and criminal and forfeiture consequences for certain unlawful tax-avoidance activities.
The Act also provides an income tax exemption rule for certain capital gains when invested under a defined condition in new productive agricultural or industrial enterprises.
The Act establishes specific tax bases and taxable events for percentage taxes covering multiple industries and service businesses.

Time for fixed taxes and business start rules

Section 180(a) provides that all fixed taxes are payable, at the taxpayer’s option, either annually on or before the twentieth of January or semi-annually on or before the twentieth of January and July.
Section 180(a) requires that a person first beginning a business or occupation must pay the fixed tax before engaging therein.
Section 181 provides that when a fixed-taxable occupation or business is newly begun during any year, the tax is reckoned from the commencement of the current semester.
Section 181 provides that when a fixed-taxable occupation or business is abandoned at any time during the year, the tax is not exacted for longer than to the end of the semester.
Section 181 bars refund for unused periods where the taxpayer elected to pay the tax in full for the year, stating the taxpayer is not entitled to a refund for the unused portion already paid.

Percentage taxes: returns, penalties, rates

Section 183(a)(a) requires every person conducting a business on which a percentage tax is imposed under the Title to file a true and complete return of the amount of monthly gross sales, receipts or earnings, or gross value of output actually removed from the factory or mill warehouse, and to pay the tax within twenty days after the end of each month.
Section 183(a)(a) requires a person retiring from a percentage-taxable business to notify the nearest internal revenue officer, file the return or declaration, and pay the tax due within twenty days after closing.
Section 183(a)(a) provides that if the percentage tax is not paid within the time specified, the tax is increased by twenty-five per centum, and the increment is treated as part of the tax.
Section 183(a)(a) provides that if a person willfully neglects to file the return within the prescribed period, or willfully makes a false or fraudulent return, a surcharge of fifty per centum of the tax (or deficiency tax) is added—measured from the amount that tax or deficiency equals.
Section 183(a)(a) directs collection rules for the added amount: the added surcharge is collected at the same time and in the same manner as part of the tax unless the tax had already been paid before discovery, in which case the surcharge is collected in the same manner as the tax.

Percentage tax: other articles; sawmills; deductions

Section 186 levies a percentage tax once only on every original sale, barter, exchange, and similar transaction intended to transfer ownership or title of articles not enumerated in Sections 184 and 185.
Section 186 sets the rate as a tax equivalent to seven per centum of the gross selling price or gross value in money of the articles sold, and requires payment by the manufacturer or producer.
Section 186 allows deduction where taxed articles are manufactured from materials likewise subject to tax under Section 186 and Section 189: the total cost of those materials, as duly established, is deductible from the gross selling price or gross value in money of the manufactured articles.
Section 186 provides a special sawmill computation: for operators or proprietors of sawmills buying logs to saw/cut into standard lumber sizes, the tax is computed on thirty-three and one-third per centum of the gross cost of logs purchased during any given month intended for manufacture.
Section 186 conditions entitlement to the thirty-three and one-third per centum computation on maintaining complete records of log purchases and corresponding vouchers (including official and auxiliary invoices or commercial invoices with specified identifying particulars), and keeping complete records of lumber purchased for resale.
Section 186-A requires that whenever a tax-free product is utilized in the manufacture or production of any article, the value of the tax-free product shall be deducted in determining the value of the finished article.

Rope, sugar, rice, coconut mills: rates and exports

Section 189 imposes a percentage tax equivalent to two per centum of the gross value in money of all rope, sugar, rice, coconut oil, ground or milled corn, and desiccated coconut manufactured or milled by rope factories, sugar centrals, rice mills, coconut oil mills, corn mills, and desiccated coconut factories.
Section 189 requires that the tax be based on the actual selling price or market value of the articles at the time they leave the factory or mill warehouse.
Section 189 provides an export-based exemption: the tax does not apply to ropes, coconut oil, and the by-products of copra from which they are produced or manufactured, and desiccated coconuts, if removed for exportation and actually exported without returning to the Philippines, whether exported in original state or as an ingredient or part of any manufactured article or product.
Section 189 provides another exemption for rice, ground or milled corn, including by-products of the raw materials, produced or manufactured by proprietors or operators of rice and corn mills of sixteen horse-power or less.
Section 189 addresses contracts where the factory/central/mill receives a share of finished products: the tax on the share pertaining to the planter or owner of the raw materials is charged to the planter or owner, withheld by the proprietor or operator of the factory/central/mill, and paid to the Collector of Internal Revenue.
Section 189 allows refined sugar deduction: a refined sugar factory proprietor or operator is subject to the section’s tax but may deduct from the actual selling price or market value of refined sugar the total cost, as duly established, of the raw sugar upon which the section’s tax has previously been paid.
Section 189 also provides a materials deduction rule for manufactured articles out of materials subject to the section: the total cost, as duly established, of those taxed materials is deductible from the gross selling price or gross value of the manufactured articles.

Construction, services, restaurants, and bars

Section 191 imposes a percentage tax equivalent to three per centum of gross receipts on enumerated businesses including road, building, irrigation, artesian well, waterworks, and other construction work contractors, filling contractors, demolition and salvage contractors, arrastre contractors, gas/electric light/heat/power installation persons, sellers of water/light/heat/power (except those paying a franchise tax), dockyards, and numerous shop and repair/service establishments.
Section 191 defines “other contractors” to include persons not enumerated whose business essentially consists of sale of service and manufacturers of embroidery and apparel for export, including their agents and contractors.
Section 191 imposes on keepers of restaurants, refreshment parlors, and other eating places, and caterers a tax of three per centum of gross receipts.
Section 191 imposes on keepers of bars and cafes where wines or liquors are served a tax of seven per centum of gross receipts.
Section 191 requires separation of sales records in bars/cafes where wine or liquor is served by issuing two sets of sales or commercial invoices or receipts serially numbered in duplicate, one for each sale of food or refreshment and the other for each sale of wine or liquor, with originals issued to the purchaser or customer.
Section 191 imposes a ten per centum tax on gross receipts when the establishment is maintained within the premises of a cabaret or night club or accessible to patrons through a connecting door or passage.
Section 191 maintains an enumerated exception for printer/publishers engaged in publication or printing and publication of a newspaper, magazine, review, or bulletin with regular intervals, fixed prices for subscription and sale, and not principally devoted to publication of advertisements—those are within the described exception for “printers and bookbinders” listing.

Carriers and garages percentage tax

Section 192 imposes a percentage tax equivalent to two per centum of monthly gross receipts on keepers of garages, transportation contractors, persons who transport passengers or freight for hire, and common carriers by land, air, or water.
Section 192 excludes owners of bancas and owners of animal-drawn two-wheeled vehicles from the coverage of the two per centum monthly gross receipts tax.

Real estate and other broker definitions; broker tax

Section 194(s) defines “Real estate broker” as any person (other than a real estate salesman) who for another and for compensation (or expectation/promise of compensation) (1) sells/offers to sell, buys/offers to buy, lists, or solicits, or negotiates purchase/sale/exchange of real estate or interests; (2) negotiates loans on real estate; (3) leases or negotiates leases, or rents/places for rent or collects rent from real estate or im