General Definition of Gross Receipts and Cost of Services
- Gross receipts refer to actual or constructive receipts relevant to the service activity.
- Cost of services includes expenses incurred directly and exclusively related to generating the gross receipts.
- If a cost is partly direct and partly indirect (administrative or promotional), only the ratable portion directly related to service is allowed.
- 'Salaries, wages and other employee benefits' include bonuses, Pag-ibig, SSS, Medicare, and HDMF contributions.
Specific Industries and Their Gross Receipts and Cost of Services
1. Banks and Non-bank Financial Intermediaries Performing Quasi-Banking Activities
- Gross receipts: Interests, commissions, discounts from lending, and other gross income items not subject to final withholding tax.
- Cost of services limited to:
- Salaries and benefits of personnel directly engaged in lending/investment, obtaining deposits, and trading foreign exchange/financial instruments.
- Interest expenses (excluding those related to assigned capital funding by head office).
- PDIC premiums and BSP supervision fees.
2. Insurance and Pension Funding Companies
- Gross receipts: Net retained premiums, gross premiums or collections, membership fees (HMOs), investment income not subject to final tax, released reserves, trust fund withdrawals (pre-need).
- Cost of services limited to:
- Personnel expenses directly related to operations.
- Commissions on direct writings/agents (pre-need).
- Claims, losses, maturities, benefits net of reinsurance.
- Statutory reserve fund additions and trust fund contributions (pre-need).
3. Finance Companies and Other Financial Intermediaries Not Performing Quasi-Banking
- Gross receipts: Interests, discounts, and other gross income not subject to final withholding tax.
- Cost of services limited to salaries, wages, other employee benefits of personnel and interest expenses directly related to lending and financing.
4. Brokers of Securities (Excluding Banks)
- Gross receipts: Receipts from brokering transactions in securities for others.
- Cost of services limited to:
- Personnel expenses engaged in brokering activities.
- Terminal fees, communication charges, research fees, commissions to non-employee agents, and settlement/processing costs.
5. Customs, Insurance, Real Estate, Immigration, and Commercial Brokers
- Gross receipts: Brokerage fees, commissions, remuneration.
- Cost of services includes salaries, wages, benefits of personnel directly engaged, and commissions to non-employee agents.
6. General Engineering and/or Building Contractors
- Gross receipts: Contract price inclusive of materials supplied.
- Cost of services includes:
- Materials, laborers’ salaries and benefits.
- Site insurance, sub-contractor fees, performance bond costs.
- Depreciation, rentals, repairs of equipment.
- Moving costs, design, technical assistance, supplies, and tools.
7. Common Carriers or Transportation Contractors
- Gross receipts: Receipts for carrying passengers/goods by land, water, or air.
- Costs of services include:
- Salaries/wages of personnel operating transportation equipment.
- Toll fees, parking fees, franchise fees.
- Depreciation, rentals, repairs of transportation equipment and related properties.
- Fuel, lubricants, safety paraphernalia, passengers’ meals, registration fees.
8. Hotel, Motel, Rest/Pension/Lodging Houses and Resort Operators
- Gross receipts: Receipts from operation of facilities.
- Costs include:
- Salaries and benefits for housekeeping, concierge, attendants.
- Depreciation, rentals, maintenance of facilities used by guests (excluding administrative offices).
- Commissions paid to travel agents.
- Food service costs if applicable.
- Supplies for housekeeping, kitchen, and laundry.
9. Food Service Establishments
- Gross receipts: Receipts from restaurants, bars, cafes, caterers, and similar.
- Costs limited to:
- Cost of raw/cooked food and drinks.
- Personnel salaries and benefits.
- Depreciation, rentals, repairs of properties and equipment used.
- Costs of cooking ingredients, franchise royalties.
10. Lessors of Property
- Gross receipts: Receipts from leasing real, equipment, or movable properties.
- Costs include depreciation, rentals, real property taxes, repairs, maintenance, salaries of maintenance and collection personnel or contractors.
11. Telephone, Telegraph, Electric, Gas, and Water Utilities
- Gross receipts: Receipts from operating the respective utility systems covered by franchise.
- Costs include:
- Personnel salaries and benefits.
- Depreciation, rentals, repairs of properties/equipment directly used.
- Interconnection fees for services.
- Fuel, lubricants for vehicles/equipment.
- Franchise amortization, fees, royalties.
12. Radio and/or Television Broadcasting
- Gross receipts: Receipts from operation of broadcasting covered by franchise.
- Costs include:
- Talent fees, salaries, wages of production/broadcasting personnel.
- Production materials, satellite/wire charges, film rights, dubbing expenses.
- Set requirements, equipment/facility rentals, production locations.
- Costumes, props, prizes, depreciation on equipment.
Implementation and Enforcement
- Internal Revenue officers and employees are mandated to widely publicize and enforce the Circular.
- Official adoption date: December 31, 2002.