Proper Tax Treatment of Passed-on Gross Receipts Tax

Revenue Memorandum Circular (RMC) No. 62-2016 has issued by the Bureau to clarify the Proper Tax Treatment of Passed-on Gross Receipts Tax under Sections 121 and 122 of the National Internal Revenue Code, as amended (Tax Code).

It was mentioned in the memorandum that all banks, non-bank financial intermediaries performing quasi-banking functions, financing companies and other financial intermediaries not performing quasi-banking functions doing business in the Philippines are directly liable for GRT pursuant to Sections 121 and 122 of the Tax Code.

"SEC. 121. Tax on Banks and Non-Bank Financial Intermediaries Performing Quasi-Banking Functions. - There ,shall be collected a tax on gross receipts derive from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule: xxx" 

"SEC. 122. Tax on Other Non-Bank Financial Intermediaries. - There shall be collected a tax of five percent (5%) on the gross receipts derived by other non-honk financial intermediaries doing business in the Philippines, from interest, commissions, discounts and all other items treated as gross income under this Code: xxx" 

The "passed-on" GRT should form part of the tax base upon which the GRT is based for gross receipts tax purposes, based on the definition of "gross receipts", that is based on "actual or constructive receipt" of income. Since banks, non-bank financial intermediaries, financing companies and other financial intermediaries not performing quasi-banking functions doing business in the Philippines are directly liable for GRT on gross receipts derived by them from business operations, the "passed-on" GRT shall be considered as receipt of gross income specified under Section 32(A) of the Tax Code.

Banks and non-bank financial intermediaries can claim the GRT paid as a deductible expense for income tax purposes pursuant to Section 34 (C) of the Tax Code subject to the actual remittance of the GRT as provided under Section 128 of the Tax Code. The "passed-on" GRT shall be considered as receipt of income as specified under Section 32 of the Tax Code.

Please refer http://www.bir.gov.ph/images/bir_files/internal_communications_2/RMCs/RMC%20No%2062-2016.pdf of other concerns, illustration and full text of RMC No. 62-2016