chapter 5~ Percentage Tax qAX ON SALE, BARTER OR SALE OF SHARES OF STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING ‘Jax on sale, barter or exchange of stocks listed and traded through the philippine Stock Exchange (PSE) ‘The sale, barter or exchange, including block sale, of listed stocks through the PSE, other than by dealers in securities, is subject to a tax of % of 1% ‘based on gross selling price or gross value in money of the shares of stocks sold. This percentage tax is commonly known as “stock transaction tax’. ‘The same shall be paid by the seller or transferor and is to be collected by the stock broker who effected the sale. The stock broker shall remit the tax to the BIR within 5 banking days from the date of collection. Illustration Orion Securities effected the sale of the following stocks during a trading day: ‘Type of stocks Owner Selling price Cost ‘Through the trading facilities of the PSE: Preferred stocks Client P3,000,000 P_ 2,900,000 Common stocks Client 2,800,000 3,000,000 Stock options Client 400,000 450,000 Common stocks Orion securities 4,000,000 3,000,000 Directly to buyer: Common stocks Client P 800,000 500,000 Preferred stocks Orion securities 2,000,000 2,100,000 "The percentage tax shall be computed from the stocks sold through the PSE as follows: —Typeofstocks Owner _——_Sellingprice_ Preferred stocks client P 3,000,000 Common stocks dlient 2,800,000 ‘Stock options client —— 400.000 Total P 6,200,000 Multiply by: ex 1% Stock transaction tax P___31.000 Note: ‘The tax applies only on listed stocks (domestic or foreign) sold through the PSE. The ‘ax applies without regard to the type of stocks sold. Recall also from Income ‘Taxation that the term “stock” includes stock options and warrants. Since this is not an income tax, the tax applies without regard to the existence of any ‘2in or loss on the transaction. 159Chapter 5 ~ Percentage Tax 3. The stock transaction tax does not apply to dealers in securities on their sale, stocks inventory. The sale of security dealers from the sale of securities why! through PSE or directly to buyers and their commissions income shall be vatabye" Under RR 16-2012, only the sale of stocks which meets the 10% minimyp, public ownership (MPO) in the PSE shall be subject to the stock transac: tax, However, this rule was rendered useless when the PSE moveq suspend the trading of stocks which fall below the minimum public flo, Due to this, no listed companies which are below the MPO is traded. Tax on the Shares of Stock Sold or Exchanged through an Initial Pupjj, Offering (IPO) The sale, barter, exchange or other disposition through initial public offer, of shares of stocks in a closely held corporation is subject to the following tax rates based on the gross selling price or gross value in money ix proportion to the shares sold, bartered or exchanged or otherwise dispose Proportion of shares sold, bartered or exchanged _| Taxrate Upto 25% 4% ‘Over 25% but not over 33 1/3% 2% Over 33 1/3% 1% This percentage tax is commonly known as the PO tax. Note that the IPO tax applies only to the initial public offering of a closely held corporation. Meaning of “closely held corporation” Closely-held corporation means any corporation at least 50% in the value of the outstanding capital stock or at least 50% of all classes of stock entitled to vote is owned directly or indirectly by not more than 20 individuals. It must be noted that the IPO tax applies only to IPO of closely-held corporations as defined above. Be it noted therefore that the IPO ofa corporation which is diversely owned or those whose 50% of capital stock is owned by more than 20 people is not subject to the IPO tax. Determination of the proportion of stocks sold in an IPO The determination of the proportion of stocks sold in an IPO depends up! the type of offering: 1. Primary offering -unissued shares of the closely held corporation to sold in the IPO 2, Secondary offering - issued shares or shares of existing shareholde™ who wish to sell their shares in the IPO 160chapter 5 ~ Percentage Tax proportion of share offering Primary offering = Primary shares + outstanding shares after IPO Secondary offering = Secondary shares + outstanding shares before IPO Mustration 1 Queen Corporation is owned by the following shareholders: Mr. Almanac 25,000 shares Mr. Boar 20,000 shares Mrs. Cat 40,000 shares Ms. Donkey 10,000 shares Mr. Eagle 5,000 shares ‘Total shares 100,000 shares Queen Corporation conducted an IPO involving 40,000 unissued shares to be sold to the public at PS per share, Mr. Boar decided to sell 15,000 of his shares to the public during the IPO at PS per share. Proportion of IPO shares a) Primary offer percentage = 40,000/(100,000+40,000) = 28.57%, equivalent to 2% IPO tax b) Secondary offer percentage = 15,000/100,000 = 15%, equivalent to 4% IPO tax ‘The IPO tax shall be: Primary offering(40,000 shares xPSx2%) B__4,000 Secondary offering (15,000 shares x P5 x 4%) P___3,000 The IPO tax on the primary offering shall be paid by Queen Corporation, the issuing corporation, while the IPO tax of the secondary offering shail be paid by ‘Mr. Boar, the selling shareholder. Mlustration 2 Assuming further that after the IPO, Queen Corporation conducted another block sale of 50,000 of its shares for P5 per share. Ms. Donkey also sold her 10,000 shares after the IPO for P6 per share. The subsequent sale by Queen Corporation after the IPO is called a “follow- through offering.” This is no longer subject to the IPO tax since the tax applies only to the initial listing of closely held corporations. The sale of Ms. Donkey involving 10,000 shares after the listing of Queen Corporation in the PSE is subject to the usual ¥ of 1% stock transaction tax. Ms Donkey shall pay a percentage tax of P300 (10,000 x P6 x ¥4 x 1%). 161Chapter 5 — Percentage Tax ‘To facilitate mastery of the list of sales of services specifically subjec, percentage tax, please consult the mnemonic at Appendix 2 of the book, FREQUENCY OF PERCENTAGE TAX REPORTING Frequency Percentage taxpayer of reporti Persons whose gross annual sales or receipts do not Serer, Oe exceed P1,919,500 and who are non-VAT registered Month, Domestic carriers and keepers of garage Month Operators of international air and shipping carriers Monthly Franchise grantees of gas and water Monthly ~ Franchise grantees of radio and television below the P1OM threshold and who are non-VAT registered Monthly Banks, quasi-banks and non-bank financial intermediaries | Monthly Life insurance companies Monthly Agents of foreign insurance Monthly Franchise grantees of telephone or telegraph for messages transmitted outside the Philippines Quarterly _ Proprietors, lessees or operators of cockpits, cabarets, night or day club, boxing exhibitions, professional Quarterly basketball games, jai-alai and race track Note: 1. BIR Form 2551M - Monthly percentage tax return ~ due within 20 days from the end of the month: 2. BIR Form 25510 - Quarterly percentage tax return - due within 20 days from the end of the quarter WITHHOLDING OF PERCENTAGE TAX AT SOURCE The sale to government agencies, and instrumentalities including government-owned and controlled corporation (GOCC) is subject to @ withholding tax of 3% at source. The government agency, instrumentality or GOCC withholds the 3% percentage tax and issues to the taxpayer BIR Form 2307, The taxpaye! shall attach BIR Form 2307 in filing his monthly percentage tax return. The same procedure is employed for withholdings made by the BSP 0” gross receipts of banks and quasi-banks on their special deposit accounts liquidity reserve accounts, 162Chapter 5 ~ Percentage Tax Ilustration 1 During the month, Mr. Avila, a non-VAT taxpayer, sold various office supplies to a government agency for P100,000 and to private customers for P80,000. The government agency shall pay Mr. Avila the following proceeds net of the 3% final percentage tax. Sales P 200,000 Less: 3% final withholding percentage tax 6.000 Net proceeds to be released to Mr. Avila P_194,000 ‘The percentage tax payable for June 2015 shall be computed and presented in BIR Form 2551M as follows: Sales subjected to government withholding (P194,000/97%) P 200,000 Sales to private customers 80,000 Gross sales P 280,000 Multiply 3% Percentage tax due P8400 Less: Tax credit (BIR Form 2307) = P200,000 x 3% 6,000 Percentage tax payable P2400 Note: In effect, the sales not subject to withholding is being taxed; hence, P80,000 x 3%. Mlustration 2 Goodyear Corporation, a non-VAT taxpayer paying the 3% percentage tax had, the following receipts in a month: Taxable sales to government entities P 150,000 Taxable sales to private entities 60,000 Exempt sales ——180,000 Total sales P__390,000 ‘The total creditable percentage tax withheld at source was P4,500. ‘The percentage tax payable for the month to be presented in BIR Form 2551M shall be: Taxable sales to government entities P 150,000 Taxable sales to private en 60,000 Total taxable sales P= 210,000 Multiply by: 3% Percentage tax due P6300 Less: withheld percentage tax under BIR Form 2307 4,500 Percentage tax payable P1800 163Chapter 5 — Percentage Tax ‘TAX ON OTHER TAXABLE SALES OF NON-VAT TAXPAYERS ‘The imposable percentage tax on taxable sales or receipts, other than frop, services or transactions specifically subject to percentage tax, of non-Vqr. registered persons is 3%. Mlustration 1 | Diak Restaurant had annual receipts of P1.5M. During the month, Dia, Restaurant generated P200,000 gross receipts. Restaurant operation is not among those services or transactions specificaly subject to percentage tax. The gross receipts are vatable but since Diak is beloy the VAT threshold, Diak Restaurant shall pay the 3% general percentage tax. Mlustration 2 f Mr. Black Jack is an operator of 40 taxis and a small store. The following are the sales and receipts during the month: Receipts from taxi units P 2,000,000 Sales of fruits 100,000 Sales of other merchandise 80,000 Total revenue P_2,180,000 The receipt from taxi units is specifically subject to the 3% common carrier's tax The sale of fruits is exempt from business tax. These receipts and sales are VAT- exempt. The sale of other merchandise is vatable; however, the same shall be subject to the 3% general percentage tax since it did not exceed the VAT threshold. Businesses with vatable sales exceeding the VAT threshold shall be subject to VAT on such sales. VAT is discussed in detail in the succeeding chapters. Exemption of cooperative from percentage tax Under the Section 116 of the NIRC of 1997, cooperatives shall be exempt from the 3% percentage tax. This exemption, however, is not absolute. Sales or receipts of cooperatives outside their registered activities are still subject to business tax similar t the business tax treatment of government agencies and nonproft institutions. 164