INTRO. TO INTERNAL REVENUE TAXES - 1 File Download

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 1 SUGGESTED ANSWERS

Chapter 1: INTRODUCTION TO INTERNAL REVENUE TAXES

CHAPTER 1

INTRO. TO INTERNAL REVENUE TAXES Problem 1-1 1. False – National Internal Revenue Taxes are collected by the BIR. 2. False – professional tax is collected by the local government. 3. True 4. False – Only sales within are subject to business tax in the Philippines. 5. False – business tax is another Internal Revenue Tax distinct from income tax. 6. False – When there is loss, business tax is paid but no income tax. 7. True 8. False – it is the other way around. 9. True 10. True 11. True 12. True 13. False – citizens whether resident or nonresident are subject to transfer tax within..

14. False – on the 20th of the month following the taxable month. 15. True

Problem 1-2 1. True 2. False – there is no double taxation because income tax is different from business tax. 3. True 4. True 5. False – Donation is without consideration; hence, not onerous transfer. 6. False – Sale of family home is not subject to business tax because a family home is not

business asset. 7. True – one for the first quarter and the other is the annual ITR.

8. False – monthly payment is both on the 20th of the next month. 9. True 10. False – the requirement is P100,000 in any quarter of the preceding year. 11. False – electronic filing and payment is required only to large taxpayers. 12. False – It is the BIR Commissioner that should recommend. 13. True 14. False – only income earned within will be taxable against resident alien 15. False – should be at least P1,000,000 per year.

Problem 1-3 Problem 1-4 Problem 1-5 1. B 1. C 1. C 2. C 2. C 2. B 3. B 3. A 3. D 4. D 4. D 4. A 5. C 5. D 5. A 6. B 6. A 6. C 7. D 7. C 7. C 8. D 8. A 8. D 9. C 9. C 9. A 10. B 10. A 10. B



Problem 1–6 A Income tax due P270,000 Divided by normal corporate income tax rate 30% Amount subject to income tax per ITR P900,000

Problem 1–7 B Gross income from ordinary operation P3,300,000 Add: Cost of sales P2,170,000

Sale of scrap materials 30,000 2,200,000 Total amount subject to business tax P5,500,000

Problem 1–8 C Cancellation of indebtedness from:

Abun Daboy, a friend P 50,000 Grace, current girlfriend 10,000 Kristita, his sister 5,000

Hacienda Luisita 100,000 Inheritance from Coritita, his mother 1,000,000 Amount included for transfer tax reporting P1,165,000

Problem 1–9 D Fair market value, higher amount

Capital gains tax (P4,000,000 x 6%) P240,000 Add: Documentary stamp tax (P4,000,000 x 1.5%) 60,000 Total amount of taxes paid to the BIR P300,000

Problem 1–10 C VAT (P10,000,000 x 12%) P1,200,000 Income tax:

Gross income (P10,000,000 – P6,000,000) P4,000,000

Less: OSD (P4,000,000 x 40%) – tax minimization 1,600,000

Net taxable income P2,400,000 Multiplied by normal corporate income tax 30% 720,000

DST (P10,000,000 x 1.5%) 150,000 Total national tax P2,070,000

Problem 1–11 1. Letter A

Subject to business tax is P6,000,000. Only sales within are subject to business tax.

Subject to income tax:

Total sales (P6,000,000 + P4,000,000) P10,000,000 Total cost of sales (P2,000,000 + P1,500,000) ( 3,500,000) Gross taxable income P 6,500,000

Subject to transfer tax (P3,000,000 + P2,000,000) P 5,000,000

Since the donor is a citizen, all of his properties donated within and without is subject to donor’s tax.

2. Letter B

Subject to business tax is P6,000,000. Only sales within are subject to business tax.



Subject to income tax:

Sales – within P6,000,000 Cost of sales – within (2,000,000)

Gross income P4,000,000

Subject to transfer tax (P3,000,000 + P2,000,000) P5,000,000

Since the donor is a citizen, all of his properties donated within and without is subject to donor’s tax.

Problem 1–12 A a. The administrator of JC does not need to file and pay the Philippine estate tax because his

properties are not situated in the Philippines.

This is incorrect because the all properties of a Filipino citizen situated within and outside the Philippines are object of Philippine estate tax.

Problem 1–13

1. B 6. B 2. O 7. B 3. O 8. O 4. O 9. T 5. O 10. T

Problem 1–14 Taxable Amount

Within Without Res. Citizen Res. Alien Non-Res. Alien Sales 3,000,000 2,000,000 3,000,000 3,000,000 3,000,000 Gross income 600,000 400,000 1,000,000 600,000 600,000

1. Taxpayer is a resident citizen

a. P1,000,000 = [P5,000,000 – (P5,000,000/1.25)] b. P3,000,000

2. Taxpayer is a resident alien

a. P600,000 = [P3,000,000 – (P3,000,000/1.25)] b. P3,000,000

3. Taxpayer is nonresident alien

a. P600,000 = [P3,000,000 – (P3,000,000/1.25)] b. P3,000,000

Problem 1–15

1. P720,000 = (P600,000 x 1.2)

2. P180,000 = (P720,000 – P600,000) + (P660,000 – P600,000)

Problem 1–16 1. Tax returns:

a. BIR Form 2551 – for business tax b. BIR Form 1701Q – for quarterly income tax return c. BIR Form 1701 – for annual income tax return



2. Dates of filing and payments:

a. On or before the 20th of each month (BIR Form 2551) b. April 15, August 15, and November 15 for the first 3 quarters and April 15 of the

following year for the annual tax return. Problem 1–17

1. a. Business tax (professional income-within) P500,000

b. Capital gains tax P3,000,000

c. Regular income tax (professional income – within) P500,000

d. Transfer tax (P500,000 + P400,000) P900,000

e. Documentary stamp tax P3,000,000

2. Sale of land (capital asset) - within Capital gains tax (P3,000,000 x 6%) P180,000 Documentary stamp tax (P3,000,000 x 1.5%) 45,000

Donation to strangers – within and without

Donor’s tax (P500,000 + P400,000) x 30% 270,000 Professional income – within

Other percentage tax (P500,000 x 3%) 15,000 Income tax:

Professional income within P500,000 Less: OSD (P500,000 x 40%) 200,000

Net income P300,000 Less: Personal exemption 50,000

Net taxable income – within P250,000 Income tax on P250,000 50,000

Total amount of NIRT due in the Philippines P560,000


Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

CHAPTER 2

TRANSFER TAXES AND BASIC SUCCESSION Problem 2-1 1. False - gratuitous

2. False – donation mortis-causa is subject to estate tax. 3. False – Not all gratuitous transfer is subject to transfer tax. Example, the first P100,000 of

net gift is exempt. Also, gratuitous transfer to the government is not subject to business tax. 4. True 5. False – subject to business tax 6. True 7. False – the legitime is based on value of the estate, not on the form of the estate. 8. False – they are voluntary heirs. 9. True 10. False – fixed by law 11. False – executor 12. True 13. False – an income earned; therefore, onerous transfer (consideration for service rendered). 14. False – upon right to transfer 15. True 16. False – upon death of the decedent.

Problem 2-2 1. True 2. False – no oral will is valid. Will must be in writing to be valid. 3. False – legitimate parents succeed the rank, in the absence of the legitimate child.

4. False – relatives up to the 5th degree 5. True 6. True 7. True 8. False – equal rights 9. True

10. True 11. True

12. False – the 5th degree collateral line relative is the legitimate heir 13. False – If the surviving spouse is alone, his/her share is 100%. If no children, but

with parents of the decedents, he/she will receive ¼ only if there is will. 14. False – if the transfer is testamentary, the free portion can be given to legitimate parent

as provided in the will. 15. False – one for the legitimate child and half for the illegitimate child



Problem 2-3 Problem 2-4 Problem 2-5 1. A 1. A 1. D 2. B 2. D 2. C 3. B 3. C 3. B 4. C 4. D 4. D 5. D 5. C 5. D 6. C 6. C 6. C 7. D 7. D 7. A 8. A 8. B 8. B 9. C 9. C 9. A 10. B 10. B 10. A 11. A 11. A 11. B & D 12. B 12. D 12. A 13. D 13. B 13. D 14. C 14. A

Problem 2-6 A Zero. Except for the prize for winning the tournament which is subject to final income tax of 20%, all properties received are subject to transfer tax which will be paid by the donor or the estate of the decedent. Problem 2-7

1. Letter D

Business liabilities P 500,000 Car – first prize 1,000,000 Amount of mortgage assumed 1,500,000 Salary 300,000 Amount of onerous transfer P3,300,000

2. Letter B

Business, net of liabilities (P2,000,000 – P500,000) P1,500,000 House and lot as donation, net of mortgage (P2,000,000 – P1,500,000) 500,000 Farm as inheritance 500,000 Amount of gratuitous transfer P2,500,000

Problem 2-8 1. Letter A

Car (P800,000 – P300,000) P 500,000

2. Letter D House and lot – mortis causa P1,000,000 Every donation between the spouses during the marriage shall be void. This prohibition does not apply when the donation takes effect after the death of the donor. Neither does this prohibition apply to moderate gifts which the spouses may give each other on the occasion of any family rejoicing. (Art. 133, Civil Code) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthrophic organization or research institution or organization are tax-exempt. (Sec. 101, NIRC)

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Problem 2-9 A Property left by the decedent P 5,000,000 Less: Charges against the estate 1,000,000 Hereditary estate P 4,000,000

Problem 2-10 D Distributable estate P12,000,000 Less: Share of 3 children (P12,000,000 x 50%) P6,000,000

Share of surviving spouse (P6,000,000/3) 2,000,000 8,000,000 Free portion P4,000,000 Less: Share of illegitimate child per Will 3,000,000 Free portion for the church P1,000,000

The share of the illegitimate child must be taken from the free portion. The Will is valid because the 50% of the hereditary estate intended to legitimate children is not impaired.

Problem 2-11 B

Increase in the share of C (P1,500,000 x 3/5) P900,000

Problem 2-12 C Net hereditary estate P5,000,000 Legitime of children (P5,000,000 x ½) ( 2,500,000) Portion for the surviving spouse (P5,000,000 x ¼) ( 1,250,000) Free portion – may be distributed to strangers P1,250,000

Problem 2-13 B Inheritance of the spouse (P5,000,000/5) P1,000,000

Problem 2-14 A Share of Abu = share of Surot (P12,000,000/3) P4,000,000 Add: Share inheritance repudiated by Cuto (P4,000,000/2) 2,000,000 Share of Surot P6,000,000

Problem 2-15 A Hereditary estate P3,000,000 Legitime of children (P3,000,000 x ½) ( 1,500,000) Portion for the spouse (P1,500,000/4) ( 375,000) Free portion P1,125,000 Multiplied by 20% Legacy to the sister-in-law P 225,000

Problem 2-16 NOT IN THE CHOICES Hereditary estate P3,000,000 Less: Share of parents (P3,000,000 x1/2) P1,500,000

Share of illegitimate child (P3,000,000 x 1/4) 750,000 Share of surviving spouse (P3,000,000 x 1/8) 375,000 2,625,000

Free portion P 375,000

Share of the surviving spouse P375,000 Add: Share from free portion (P375,000/3) 125,000 Total share of the surviving spouse P500,000



Problem 2-17 D Share of Anac (P12,000,000/3) P4,000,000 Divided by number of children of Anac 2 Share of Cute P2,000,000

Problem 2-18 A Zero, because Lolo and Lola are excluded by Tatay and Nanay who are nearer to the testator. The nearer excludes the farther.

Problem 2-19 D

Hereditary estate, net of charges (P7,000,000 – P1,000,000) P 6,000,000 Legitime of legitimate children (P6,000,000 x ½) ( 3,000,000) Portion for the acknowledge natural child (P3,000,000/3) x 50% ( 500,000) Portion for the surviving spouse (P3,000,000/3) ( 1,000,000) Free portion – could be disposed of as legacy to the nanny P 1,500,000

Note: The testator is still intending to give 1/4 of the free portion to the nanny, but he can give the entire amount of free portion to the nanny.

Problem 2-20 C

Inheritance of each child (P5,000,000/6) P 833,333

Problem 2-21 Gross taxable value for:

1. Capital gain tax P 300,000

2. Donor’s tax P 500,000

3. Business tax P - 0 -

4. Estate tax (P1,500,000 + P300,000) P1,800,000

Problem 2-22 Cash in bank P 100,000 House and lot 5,000,000 Investments in securities 400,000 Total gross estate P5,500,000 Less: Unpaid mortgage P 200,000

Existing loan 100,000

Funeral expense 100,000 Estate tax 100,000 500,000

Hereditary estate P5,000,000

Problem 2-23 Legitimate child – Mario (P1,200,000 x ½) P 600,000 Illegitimate child – Maria (P600,000 x ½) 300,000 Surviving spouse (P600,000 x ½) 300,000 P1,200,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 9 SUGGESTED ANSWERS Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Problem 2-24 With respect to legitime: Son Wife Legitimate child (P4,200,000 – P200,000) x 50% P2,000,000

Surviving spouse (P2,000,000 x ½) P1,000,000

Remaining balance (divide based on the intention of the will) Legitimate child (P1,000,000 x ½) 500,000 Surviving spouse (P1,000,000 x ½) . 500,000 P2,500,000 P1,500,000 Problem 2-25 Gross estate P2,000,000 Less: Deduction 1,000,000 Net estate before share of the surviving spouse P1,000,000 Less: Share of the surviving spouse (P1,000,000 x 50%) 500,000 Net estate before estate tax P 500,000 Less: Estate tax 15,000 Net distributable estate P 485,000

Estate Distribution – death of Sabel Dorado (child) Maya (child) Jess (husband) Total

Fraction of share - intestate 1/3 1/3 1/3 1

Distribution of inheritance P161,667 P161,667 P161,667 P485,000

Death of Jess Exclusive share when Sabel died P 500,000 Add: Share from distributable share 161,667 Distributable estate P 661,667 Dorado (child) Maya (child) Free Portion Total Fraction of share - testate ¼ ¼ ½ 1

Distribution of inheritance P165,417 P165,417 P333,883 P 661,667

Problem 2-26 Legitimate child 1 Legitimate child 2 Surviving spouse Illegitimate child Total

Fraction of share 1 1 1 ½ 3.5

Amount of inheritance P2,857,143 P2,857,143 P2,857,143 P1,428,571 P10,000,000

Note: The last will and testament is void because the presence of legitimate child eliminates the parents from the inheritance. In all cases, the legitime must not be impaired by the disposition through will.

Problem 2-27

1. Computation of net distributable share

Total gross estate (P10,000,000 + P20,000,000 + P30,000,000) P60,000,000 Less: Ordinary deductions 2,500,000 Net estate before share of surviving spouse P57,500,000 Less: Share of surviving spouse (P57,500,000 x 50%) 28,750,000 Net estate before standard deduction P28,750,000 Less: Standard deduction 1,000,000 Net taxable estate P27,750,000 Multiplied by assumed estate tax rate 15% Estate tax P 4,162,500

Net estate before standard deduction P28,750,000 Less: Estate tax 4,162,500

Net distributable estate P24,587,500



2. Computation of the shares of the heirs

Share of legitimate son (P24,587,500 x ½) P12,293,750 Share of surviving spouse (P24,587,500 x ½) P12,293,750

Note: His mother and brother, as secondary heirs, are disqualified to share from the portion of the legitime due to the presence of a legitimate child. Hence, the will becomes void. Problem 2-28 1. Computation of net distributable estate:

Gross estate (P4,000,000 + P1,000,000 + P200,000 + P5,000,000 + P3,000,000) P13,200,000 Less: Ordinary deductions:

Funeral expense P 100,000 Unpaid mortgage 200,000 P 300,000

Allowable deduction - Standard deduction 1,000,000 1,300,000 Net taxable estate P11,900,000 Less: Estate tax (P11,900,000 x 15%) 1,785,000 Net estate after tax P10,115,000 Add: Standard deduction 1,000,000 Net distributable estate P11,115,000

2. Distribution of net distributable estate:

Christopher Cristeta Crisistomo (son) (daughter) (driver) Total

Testate succession P4,000,000 P1,000,000 P 200,000 P 5,200,000 Intestate succession 2,957,500 2,957,500 . 5,915,000 Mixed succession P6,957,500 P3,957,500 P 200,000 P 11,115,000

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Chapter 3: GROSS ESTATE CHAPTER 3

GROSS ESTATE Problem 3-1 1. True 2. False – include all properties within and outside the Philippines. 3. True 4. False – intangible personal properties 5. False – properties of nonresident aliens. The properties within and outside the Philippines

of a resident alien is subject to Philippine estate tax. 6. True 7. False – common stock only; preferred stock is measured at its par value. 8. True 9. True 10. False – This is a donation mortis causa which is subject to estate tax. 11. True 12. False – only proceeds of life insurance with revocable beneficiary is included for estate

tax purposes. Problem 3-2 1. True 2. False – amount receivable under R.A. 4917 shall be included as part of the gross

estate subject to deduction of its entire amount reported. 3. False – only intangible properties are exempted from estate tax. 4. True 5. False – the reciprocity exemption is granted only to nonresident alien. 6. True 7. True 8. True 9. False – exclusive property. 10. True 11. True 12. True

Problem 3-3 Problem 3-4 1. D 1. B 2. C 2. C 3. B 3. A 4. D 4. A 5. A 5. B 6. C 6. C 7. D 7. A 8. B 8. B 9. A 9. A 10. C 10. D 11. D 11. C 12. A 12. A


Chapter 3: GROSS ESTATE Problem 3-5 1. The reportable gross estate is P3,000,000 or (P2,500,000 + P500,000)

2. P25,000,000. The properties left by a resident alien which are located within and outside

the Philippines are required to be reported for Philippine estate tax purposes.

3. A has 20% in the book value of U Corporation. The book value of U Corp. is P2,000,000.

Therefore, the reportable gross estate of A would be P400,000 or (P2,000,000 x 20%).

4. Zero. The beneficiary is irrevocable. Therefore, the P5,000,000 proceeds of life insurance should be excluded from the gross estate.

5. Since M is a resident alien, all of his properties within and outside the Philippines should

be reported as part of the gross estate for Philippine estate tax purposes. The reportable gross estate should be P11,000,000.

6. Zero. No amount is allowed as exemption because the rule of reciprocity is applied only

on the intangibles of nonresident alien.

7. P10,000,000. Since Mr. T is a nonresident alien in this case, the gross estate is zero because

the rule of reciprocity can now be applied.

8. None. The rule is to report the market value of the property at the time of the decedent’s death. The compensatory damages of P900,000 are excluded since the accrued is made to the decedent’s heirs after death. Payments for medical and funeral expenses are nontaxable because they are considered contributions from symphatizers.

9. Excluded from the gross estate is P3,000,000 or (P5,000,000 x 60%). As a rule, property

donated by the decedent to a nonprofit and nonstock educational institution is excluded from the gross estate. Donations to the Philippine government is included as part of the gross estate, but deductible in its full amount.

Problem 3 – 6 B At market value of P750,000. The law provides that the valuation should be at the market value of the property at the time of the owner’s death. The book value is irrelevant because the properties left by the decedent are considered under liquidating concern. Problem 3 – 7 C

Business, Daly City P30,000,000 Cars, Philippines 1,000,000 Condominium, Philippines 3,000,000 Mansion, Boracay, Philippines 20,000,000 Shares of stock, Hongkong 4,000,000 Accounts receivable 2,000,000 Gross estate of Molina P60,000,000 Problem 3-8 B

Real property in the Philippines P1,600,000 Personal properties in foreign country 600,000 Personal properties in foreign country 800,000 Amount to be included in the gross estate P3,000,000


Chapter 3: GROSS ESTATE Problem 3-9 A P500,000. Since the alien is nonresident all of his properties outside the Philippines are reportable for Philippine estate tax purposes. The investment in shares of stock of a resident foreign corporation with 85% business situs in the Philippines is a property within the Philippines. Problem 3-10

1. Letter A

Real properties – Philippines P1,000,000 Car – Philippines 800,000 Collectibles – Philippines 500,000 Franchise – Taiwan 200,000 Taxable gross estate P2,500,000

2. Letter C

Real properties – Philippines P1,000,000 Car – Philippines 800,000 Taxable gross estate P1,800,000

Problem 3-11 A P500,000. The gross estate shall be valued at its fair market value at the time of death.

Problem 3-12 C Amount to be included in the gross estate [(P120+P150)/2] x 1,000 P135,000

Problem 3-13 D Equity in SMC book value (P100,000,000 x 40%) P40,000,000 Investment income (P20,000,000 x 40%) 8,000,000 Amount to be included in the gross estate P48,000,000

Note: Investment income is considered because there is significant controlling interest.

Problem 3-14 B Business establishments P10,000,000 Accrued income (P200,000 x 5 months) 1,000,000 Time deposit for 10 years 30,000,000 Accrued interest (P30,000,000 x 12% x 10/12) 3,000,000 5% equity in Jollibee Corporation 5,000,000 Car and mansion donated mortis causa to his son 20,000,000 Gross estate P69,000,000 The dividend is excluded because the declaration was made after death. Problem 3-15 A

Commercial building P10,000,000 Rental income earned (P200,000 x 5 months) 1,000,000 Common shares (P120 + P130)/2 = P125 x 200,000 shares 25,000,000 Cash dividend (P20,000,000/200,000) = P100 x 10% x 200,000 2,000,000 Reportable gross estate P38,000,000 Problem 3-16 B

Revocable donation to the Ramon Magsaysay Foundation P1,000,000 Family home 1,000,000 Nontaxable benefits under R.A. 4917 500,000 Transfers in contemplation of death 2,000,000


Chapter 3: GROSS ESTATE Donation to the government 1,000,000 Total reportable gross estate P5,500,000

Problem 3-17 D Zero, because the proceeds of life insurance is designated to an irrevocable beneficiary. The P200,000 is also excluded because such amount in on account of physical injury and accrued after death.

Problem 3-18 A P500,000. The proceeds of life insurance are reportable because the beneficiary is revocable.

Problem 3-19 D There is no inadequate consideration because the sale of real property classified as capital asset is subject to a final capital gains tax of 6% based on the selling price or fair market value, whichever is higher.

Note: If the cash P100,000 cash payment made by the son is available at the time of death; then the amount should be included as part of the gross estate.

Problem 3-20 C

Fair market value – date of death P2,000,000 Less: Selling price received by Singsong 1,300,000 Amount included in the gross estate P 700,000

Problem 3-21 C P160,000. The entire amount of receivable, irrespective whether collectible or not, shall be included as part of the gross estate.

Problem 3-22 B Family home to Cell, his daughter

(Cancer used the house until his death) P 4,000,000 Commercial building to Cyst, his son

(Cancer received the rental income) 6,000,000 Shares of stock to Aids, his wife

(Evidenced by oral donation) 3,000,000

Amount reportable for estate tax purposes P13,000,000

Problem 3-23 D The reportable estate of A in the Philippines is P10,000,000. Even if A is a nonresident Filipino, his properties located outside the Philippines are reportable in the Philippines because he is a Filipino citizen.

Problem 3-24 B

Condominium in Makati as a fiduciary heir P5,000,000 Cash as bequest to the University of the Philippines 2,000,000 Amount to be excluded from reportable gross estate P7,000,000

Problem 3-25 A Zero. Only nonresident alien shall be subject to reciprocity.

Problem 3-26 B P4,000,000 value of condominium located in the Philippines. Intangible properties are not subject to estate tax in the Philippines when there is reciprocity and the decedent who owns them is a nonresident alien.


Chapter 3: GROSS ESTATE Problem 3-27 D P2,000,000. Properties acquired and brought into marriage on or after August 3, 1988 are governed by absolute community property relation; hence, to be included as part of the gross estate. Problem 3-28 1. Letter C

Property brought into marriage before August 3, 1988 shall be classified as an exclusive property but its fruits shall be classified as part of the conjugal property. The exclusive gross estate is P12,000,000.

2. Letter A

Marriage on or after August 3, 1988 shall be governed by the absolute community regime of property relation. Therefore, the exclusive gross estate of Mr. X is zero because his property brought into marriage including its fruits shall be classified as part of the absolute community property.

Problem 3-29 1. Conjugal partnership of gains = A

Conjugal properties:

Accum. income from boarding house P3,000,000

Personal properties acquired during marriage 5,000,000 P 8,000,000 Exclusive property – boarding house inherited from his parents during marriage 4,000,000 Total gross estate P12,000,000

2. Absolute community of property = C

Absolute community properties:

Personal properties acquired during marriage P5,000,000

Farm land brought into marriage by his wife 6,000,000 P11,000,000 Exclusive properties

Boarding house inherited from his parents during marriage P4,000,000 Accum. income from boarding house 3,000,000 7,000,000

Total gross estate P18,000,000 Problem 3-30 Case 1 – Include. The donation is conditional. The donor reserved the power to own the car until the latter passes the CPA exam. Case 2 – Include. The donation is revocable because the donor controls and enjoys the property for himself until his death. Case 3 – Exclude. The donation is complete because control over the property by the donor ended after 3 years. Case 4 - Include. The donor predeceased the donee. Absolute control is transferred to the donee upon the death of the donor. Case 5 – Exclude. The P60,000 (P80,000 – P20,000) is subject to donor’s tax at the time of sale. Case 6 – Include. The sale is in contemplation of death. The P900,000 is subject to income tax. Case 7 – Exclude. The sale of real property is subject to a final tax of 6% based on the selling price or fair market value, whichever is higher. Case 8 – Include. The transfer is an inheritance to be received at the time of death as evidenced by a Will. \


Chapter 3: GROSS ESTATE Case 9 – Exclude. No transfer tax is to be paid because the property was transferred at the desire of the predecessor, H. S has no power or control to appoint other successor. Case 10 – Include. The transfer is a general power of appointment. Case 11 – Exclude. Subject to donor’s tax because the actual transfer is inter vivos. The transfer of proceeds of life insurance is deemed complete at during the life-time of the donor. Case 12 – Incude. Include as part of the gross estate if the beneficiary is revocable or the decedent’s estate, his administrator or his executor. Problem 3-31

Real properties in the Philippines P2,000,000 Car in the Philippines 800,000 Accounts receivable 500,000 Time deposit 300,000 Accrued interest on time deposit (P300,000 x 12% x 5/12) 15,000 Claims against insolvent person 35,000 Gross estate P3,650,000

Problem 3-32 Shares of stock – Japanese Corporation – 85% of business in the Philippines P120,000,000 Time deposit in Equitable-PCI Bank 500,000,000 Investments in bonds in Jollibee Corporation 4,000,000 Gross estate P624,000,000

Problem 3-33 House and lot P6,000,000 Investment in property 2,000,000 Car 600,000 Furniture 300,000 Gross estate P8,900,000

Problem 3-34 1. Listed in the local exchange

Common (P190/2) x 10,000 shares P 950,000

2. Not listed in the local exchange Total stockholders’ equity P15,000,000 Less: Liquidating value of preferred stock

(P110 x 60,000 shares) 6,600,000 Revaluation surplus 200,000

Total book value to common shares P 8,200,000 Divided by outstanding common shares 100,000 Book value per share P 82 Multiplied by number of Mr. Tulog’s

investment in common shares 10,000 Value of securities as part of gross estate P 820,000

Problem 3-35 Real estate properties P 3,000,000 Time deposit – principal amount 2,000,000 Accrued interest on time deposit (P2,000,000 x 12% x 8/12) 160,000 Tangible personal properties 1,000,000 Other intangible properties 500,000 Gross estate P 6,660,000 \


Chapter 3: GROSS ESTATE

Problem 3-36 1. Accrued interest (P1,000,000 x 6% x 9/12) P 45,000

Transfers in contemplation of death – car 1,500,000 Additions to the reportable gross estate P1,545,000

2. Family home P2,000,000 Time deposit 1,000,000 Proceeds of life insurance received by his wife 500,000 Claims against insolvent person 200,000 Additions to the reportable gross estate (see 1) 1,545,000 Total gross estate P5,245,000

Problem 3-37 Conjugal Absolute Partnership Community Properties:

Acquired by decedent prior to marriage P600,000 P600,000 Acquired by surviving spouse prior to marriage 700,000 Inherited by decedent during the marriage 800,000 800,000 Acquired during the marriage 1,000,000 1,000,000 Income derived from property inherited by surviving

spouse during the marriage 450,000

Time deposit 850,000 850,000 Accrued interest 90,000 90,000

Total gross estate of the decedent P3,790,000 P4,040,000

Problem 3-38 1. Filipino or resident alien

Within Outside Total

Condominium P5,000,000 P5,000,000 Commercial building P10,000,000 10,000,000 Shares of stock – nonresident foreign corp. 3,000,000 3,000,000 Business transferred to his son, the decedent

enjoys the income until his death 8,000,000 8,000,000 Investments in lands:

Fair market value at time of death 5,000,000 2,000,000 7,000,000 Proceeds of life insurance, estate irrevocable beneficiary 2,000,000 2,000,000 Proceeds of property insurance 3,000,000 7,000,000 10,000,000 Cash in bank 2,500,000 4,000,000 6,500,000 Franchises 1,500,000 2,000,000 3,500,000 Total gross estate P27,000,000 P28,000,000 P55,000,000

2. Nonresident alien without reciprocity Within Condominium P5,000,000 Business transferred to his son, the decedent

enjoys the income until his death 8,000,000 Investments in lands:

Fair market value at time of death 5,000,000 Proceeds of life insurance, estate irrevocable beneficiary 2,000,000 Proceeds of property insurance 3,000,000 Cash in bank 2,500,000 Franchises 1,500,000 Total gross estate P27,000,000

‘


Chapter 3: GROSS ESTATE 3. Nonresident alien with reciprocity Within Condominium P5,000,000 Business transferred to his son, the decedent

enjoys the income until his death 8,000,000 Investments in lands:

Fair market value at time of death 5,000,000 Total gross estate P18,000,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 4: DEDUCTIONS FROM GROSS ESTATE

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

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CHAPTER 4

DEDUCTIONS FROM GROSS ESTATE Problem 4–1 1. False – could not be claimed as claim against the estate.

2. True 3. False – indebtedness is not transferrable to the heirs. 4. True 5. False – bank loan is the exception for notarization requirement. 6. True 7. True

8. False – unpaid taxes accrued before death only. 9. False – not deductible because the loss has been claimed by gross income. No double

deduction is allowed. 10. False – not deductible. Donation is deductible if given for Philippine Government and

exclusively for public purposes. 11. True 12. False – special deductions are not allowed to nonresident alien decedent. 13. True

Problem 4–2 1. False – value of deduction at the time of death. 2. False – not terminated upon the decedent’s death but shall be paid by the remaining estate. 3. True 4. False – judicial expense incurred after death but before the estate tax settlement date is still

deductible from gross estate. 5. False – losses that are deductible must have been sustained after death but before the

settlement date of estate tax. 6. True 7. True 8. False – not deductible. Only those expenses actually taken from the gross estate are

deductible. 9. False – actual or 5% of the gross not exceeding P200,000 10. False – this threshold is applicable to funeral expense. 11. False – Only those expenses actually taken from the gross estate. 12. True 13. True

Problem 4–3 1. False – special deduction. 2. False – neither special nor ordinary deduction. 3. True 4. True 5. True

6. False – deductible only if included in the gross estate. The amount deductible from the gross estate is limited to the amount that cannot be recovered.

7. False – either against the gross estate or against gross income. There is no double deduction. 8. False – Estate tax is not deductible from gross estate. (Sec. 86, NIRC) 9. True 10. False – not deductible because not yet accrued expense. 11. True 12. False – Nondeductible because only those related to gathering, preservation and settlement of

the estate is allowed as deductible judicial expense from the gross estate. 13. True





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Problem 4–4 1. False – ordinary deduction. 2. True 3. False – ½ of net conjugal estate, after ordinary deductions 4. False – no funeral deduction expense is allowed. 5. False – funeral expense is deducted first from common property 6. True 7. True 8. True 9. False – deductible whether paid or unpaid, the maximum deductible medical expense is

P500,000. 10. False – not allowed as deduction is in excess of P500,000

11. False – this is in addition to other allowable deductions. Standard deduction is not in lieu of ordinary deduction.

12. False – no receipt is necessary for standard deduction. 13. True

Problem 4–5 Problem 4–6 Problem 4–7 Problem 4–8 1. C 1. D 1. C 1. D 2. B 2. C 2. A 2. B 3. C 3. D 3. B 3. C 4. D 4. A 4. D 4. A 5. A 5. B 5. D 5. A 6. D 6. A 6. C 6. B 7. C 7. C 7. A 7. A 8. A 8. B 8. B 8. D

9. B 9. A 9. D 9. D 10. A 10. D 10. C 10. C

Problem 4–9 1. P – 0 -. The funeral expenses should first be substantiated with documentary evidences that

they actually incurred before the 5% of the gross estate or the P200,000 whichever is the lowest of the three is made. If the funeral expenses are not substantiated, such become the lowest among the three choices.

2. P375,000. D’s administrator could still collect 25% or (P600,000/P2,400,000) of B’s asset. The remaining uncollectible would be 75% of P500,000 = P375,000.

3. P - 0 -. No vanishing deduction is allowed when the property subjected to previous transfer

taxes is located outside the Philippines.

4. P - 0 -. No deduction is allowed if the estate tax return of a nonresident alien does not contain properties located outside the Philippines.

5. P - 0 -. Special deductions are not allowed to nonresident alien.

6. P100,000. The excess of unpaid funeral expense shall not be deducted as claimed against the estate.

7. P1,840,000. The special deduction within is computed as follows:

Family home P1,000,000 Standard deduction (P1,000,000 x 3/5) 600,000 Medical expense (P400,000 x 3/5) 240,000

Total special deduction within P1,840,000





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8. P1,000,000. Only donation to the Philippine Government and nay of its political subdivisions are allowed to be deducted from the decedent’s gross estate for Philippine estate tax purposes.

9. P - 0 -. Losses could only be claimed within 6 months from the date of death.

Problem 4–10 C Proportionate ELIT (P500,000 x 3/5) P 300,000 Add: Donation to Philippine government 100,000 Allowable deduction within P400,000

Problem 4–11 C Funeral expense (P3,500,000 x 5%) P175,000

Whether paid or unpaid, actual funeral expense is deductible subject to limit.

Problem 4–12 B Gross estate (P3,150,000 + P175,000) P3,325,000 Multiplied by funeral rate 5% Deductible funeral expense P 166,250

Problem 4–13 A Gross estate (P2,000,000 + P1,000,000) P3,000,000 Multiplied by funeral rate 5% Deductible funeral expense P 150,000

Problem 4–14 NOT IN THE CHOICES Real property P1,560,000

Cash paid for medical expense from decedent’s estate 45,000 Cash used for wake expenses from decedent’s estate 85,000 Memorial plan already paid 40,000 Claims against insolvent person 100,000 Total gross estate P1,830,000 Multiplied by percent of funeral expense 5% Funeral expense allowed P 91,500

The actual funeral expense is P125,000; the total of P85,000 wake expenses, and P40,000 memorial plan already paid.

Problem 4–15 D Funeral expense, lowest amount P130,000 Claims against the estate P - 0 - The entire amount of P90,000 in excess of P130,000 limit can no longer be deducted as funeral expense not it can be deducted as judicial expense.

Problem 4–16 D Capital gains tax (P1,780,000/89%) x 6% P120,000 Judicial expense (P1,900,000/95%) – P1,900,000 100,000 Total judicial expense P220,000 The capital gains tax is considered judicial expense because it is a legitimate and necessary charge in disposing the property for the settlement of estate.





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Problem 4–17 C Agreed contract price (P10M x 10%) P1,000,000 Extra-judicial settlement of the estate 500,000 Total deductible judicial expenses P1,500,000

Problem 4–18 C Deductible loss (P48,000/40%) P120,000

Problem 4–19 A There is no deductible loss from the gross estate because the car is not anymore available at the time of death. To be deductible, the loss must be sustained after death but before the filing and payment of the estate tax.

Problem 4–20 D Value of apartment raged by fire P3,000,000 Less: Insurance recovery (P3,000,000 x 60%) P1,800,000 Scrap value 100,000 1,900,000 Deductible loss P1,100,000

Problem 4–21 A Unpaid mortgage on the real property included in the gross estate P500,000

Problem 4–22 D Loans from Metro Bank (not notarized per bank’s policy) P500,000 Interest on loans payable in the bank 30,000 Loans from Metro Bank (not notarized per bank’s policy) P530,000

Problem 4–23 D Accounts receivable P500,000 Multiplied by percent of uncollectible (100% - 66.67%) 33.33% Bad debts deductible P166,667 Percent of collectible is computed as follows: Assets, net of unpaid taxes (P1,500,000 – P500,000) P1,000,000 Divided by liabilities, net of taxes payable (P2,000,000 – P500,000) P1,500,000 66.67%

Problem 4–24 B Uncollectible amount (P160,000 x 87.50%) P140,000

Percent of the entire amount 100.00% Less: percent of collectible amount (P50,000/P400,000) 12.50% Percent of uncollectible 87.50%

Problem 4–25 B Exclusive Conjugal Properties P2,800,000 P3,500,000

Ordinary deductions: Transfer for public use (400,000) Unpaid mortgage loan used to finance family business ( 800,000) Funeral expense . ( 180,000) Properties after ordinary deductions P2,400,000 P2,520,000

Problem 4–26 D Unpaid real property tax incurred prior to date of death P100,000 Donor’s tax prior to date of death 80,000 Deductible unpaid taxes from gross estate P180,000





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Problem 4–27 A Zero. No vanishing deduction is allowed for properties located outside the Philippines.

Problem 4–28 A Value taken (lower) P1,000,000 Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000 50,000 Final basis P 950,000 Multiplied by percent of vanishing deduction 60% Amount of vanishing deduction P 570,000

Problem 4–29 D Value taken (lower) P2,100,000 Less: Mortgage paid 400,000

Initial basis P1,700,000 Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000 136,000 Final basis P1,564,000 Multiplied by percent of vanishing deduction 40% Amount of vanishing deduction P 625,600 Computation of ELIT:

Funeral expense, limit P200,000 Judicial expense 100,000 Unpaid mortgage 100,000 Total ELIT P400,000

Problem 4–30 B Unpaid mortgage (P300,000 – P200,000) P100,000

Funeral expense (P3,000,000 x 5%) 150,000 Ordinary deduction subject to proportionate computation P250,000

Problem 4–31 D Deductible transfer for public use (P2,000,000/1,000) x 200 P400,000

Problem 4–32 C Donation to the City of Manila P200,000 Transfer for public use (Philippine Government) is the only donation allowed deductible from gross estate.

Problem 4–33 C Funeral expense (P3,000,000 x 5%) P150,000 Judicial expense (P250,000 x 60%) 150,000 Bad debts (P150,000/3) 50,000 Ordinary deductions P350,000

Problem 4–34 B Funeral expenses P200,000 Add: Medical expenses 650,000 Total P850,000 Less: Limit amounts: Funeral (P3,000,000 x 5%) P150,000 Medical expenses 500,000 650,000

Nondeductible amount of expenses P200,000





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Problem 4–35 C Standard deduction to Filipino and resident alien P1,000,000

Problem 4–36 D Nonresident alien does not have standard deduction

Problem 4–37 D Maximum amount of family home deductible P1,000,000 The family home is an exclusive property of the decedent.

Problem 4–38 C Building – conjugal (P1,000,000/2) P500,000

Land – exclusive 400,000 Family home - deductible P900,000

Problem 4–39 D Exclusive portion of family home P 800,000 Add: Share in the conjugal home (P2,000,000-P800,000)/2 600,000 Total P1,400,000 Less: Maximum family home 1,000,000 Family home subject to tax P 400,000

Problem 4–40 C Deductible medical expense (paid or unpaid) within one year prior to death P300,000

Problem 4–41 A The unpaid medical expense in excess of the maximum P500,000 is nondeductible as claims against the estate.

Problem 4–42 D Medical expenses incurred from October 2013 to December 2013 P100,000

Problem 4–43 A Exclusive Conjugal Properties P1,000,000 P2,000,000 Transfer for public use ( 500,000)

Share of surviving spouse (P2,000,000 x 50%) . (1,000,000) Net estate P 500,000 P1,000,000

Problem 4–44 B Conjugal estate P5,000,000 Deductible funeral expense ( 200,000) Net estate before share of surviving spouse P4,800,000 Multiplied by share of surviving spouse 50%

Share of surviving spouse P2,400,000

Problem 4–45 D Standard deduction P1,000,000 Family home (P1,000,000/2) 500,000 Amount received under R.A. 4917 500,000 Special deductions P2,000,000





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Problem 4–46 1. Letter C

Donation to the government P1,000,000 Funeral expense 100,000 Total ordinary deductions P1,100,000

2. Letter D Standard deduction P1,000,000 Family home 1,000,000

Amount receivable R.A. 4917 500,000 Medical expense 400,000 Total special deductions P2,900,000

Problem 4–47 1. Letter D Claims against the estate (P3M + P1M) P4,000,000 Transfer for public use (P500k + P200k) 700,000 Medical expenses 500,000 Family home 1,000,000 Standard deduction 1,000,000 Total deductions from gross estate P7,200,000 2. Letter C Claims against the estate (P4,000,000 x 5/8) P2,500,000 Transfer for public use (P500k + P200k) 700,000 Total deductions allowed from gross estate P3,200,000

Problem 4–48 B Japan Philippines Ordinary deductions: Funeral: (P200,000 x 2/5) & (3/5) P 80,000 P 120,000

Unpaid loans 300,000 700,000 Donations to government – Philippines 400,000 Judicial expenses (P600,000 x 2/10) & (8/10) 120,000 480,000 Total ordinary deductions P500,000 P1,700,000 Special deductions: Standard (P1,000,000 x 2/10) & (8/10) P 200,000 P 800,000 Family home 1,000,000 Medical (P500,000 x 5/8) & (3/8) 312,500 187,500 Total special deduction P 512,500 P1,987,500 Total deductions P1,012,500 P3,687,500

Problem 4–49 A P5,000,000. No deduction shall be allowed in the case of a nonresident decedent alien if his

properties outside the Philippines are not reported in the Philippine estate tax return. [Sec. 86 (D), NIRC]

Problem 4–50 NOT IN THE CHOICES Net taxable estate P3,000,000 Add: Standard deduction P1,000,000 Family home 1,000,000 Medical expenses 500,000 Ordinary deductions 1,500,000 4,000,000 Gross estate P7,000,000





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Problem 4–51 C Net taxable estate P4,000,000 Add: Share of surviving spouse 2,000,000 Net estate after special deductions P6,000,000 Add: Special deductions Standard deduction P1,000,000 Family home 1,000,000 Medical expenses 500,000 Amount received under R.A. 4917 250,000 2,750,000 Total net estate before ordinary deductions P8,750,000 Less: Net exclusive estate

Family home P1,500,000 Amount received under R.A. 4917 250,000

Gross exclusive estate P1,750,000 Less: Exclusive ordinary deduction 750,000 1,000,000

Net conjugal estate P7,750,000

Problem 4–52 Burial lot (P50,000 x 80%) P40,000 Expenses for wake before burial 20,000 Telegrams and cable to relatives 1,000

Mourning apparel of the surviving spouse and children 3,000 Entertainment expenses during the rites and burial ceremonies 2,500 Allowable funeral expenses P66,500

Problem 4–53 1.

Ordinary deductions:

January until October 200A

November until December 200A

Total

Unpaid taxes: Income tax P200,000 P200,000 Donor’s tax 100,000 100,000

Funeral expenses: Memorial plan 50,000 50,000 Wake expenses 100,000 100,000

Accrued expenses 80,000 80,000

Total ordinary deductions allowed P530,000

2. Special deductions: Standard deduction P1,000,000 Family home 1,000,000 Medical expenses: Hospital bills 400,000 400,000 Total special deduction P2,400,000

Problem 4–54 Exclusive Conjugal Real estate property P700,000 P2,200,000 Personal property . 400,000 Total P700,000 P2,600,000 Funeral expense (P700,000 + P2,600,000) x 5% ( 165,000) Judicial expenses ( 50,000) Mortgage payable to the bank ( 400,000) Net estate before share of surviving spouse P1,985,000 Multiplied by percent share of surviving spouse 50% Share of surviving spouse P 992,500





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Problem 4–55 October 1 to 20, 2014 from Saint Luke’s Hospital: Diagnostic fee P 60,000 Doctors’ fee 120,000 Hospital rooms 80,000 Operating costs 50,000 Medicines 90,000 Total medical expense deductible P400,000

Problem 4–56 Funeral expense, actual Judicial expense Medical expense, maximum allowed

Standard deductions Total deductions

P 150,000 50,000

500,000

1,000,000 P1,700,000

Problem 4–57 1. Gross estate P3,000,000 2. Actual deductions (P200,000 + 500,000) P700,000

3. Deductible allowance – standard deduction P1,000,000 4. Net taxable estate (P3,000,000 – P700,000 – P1,000,000) P1,300,000 Note: Since the funeral and judicial expense are combined, it is assumed that the limit for funeral expense amounting to P150,000 or 5% of gross estate is complied and the remaining balance of P50,000 is for the judicial expense.


Chapter 5: ESTATE TAX CHAPTER 5

ESTATE TAX Problem 5–1 1. True 2. False – 20% of the net taxable estate 3. False – intangible property of nonresident alien decedent. 4. False – Not any claims, but legal claims substantiated with supporting documents 5. False – Not allowed to nonresident alien decedent because they are taxed only on properties

situated within. 6. False – the first P200,000 is estate tax-exempt. 7. True 8. True 9. True 10. False – If the value of the gross estate exceeds P2,000,000. 11. True 12. True

Problem 5–2 1. False – This is also allowed to nonresident alien decedent for their ELITE. 2. True 3. True 4. True 5. False – deductible in full 6. False – standard deduction will not reduce the inheritance. 7. False – only 30 days. 8. True 9. True 10. True 11. True 12. True

Problem 5-3 Problem 5-4 Problem 5-5 1. A 1. C 1. C 2. C 2. B 2. A 3. D 3. B 3. D 4. A 4. D 4. A 5. C 5. A 5. B 6. A 6. D 6. D 7. D 7. D 7. A 8. B 8. C 8. C 9. A 9. A 9. A 10. C 10. D 10. D 11. D 11. D 11. D 12. D


Chapter 5: ESTATE TAX Problem 5–6 B

Conjugal gross estate (P3,120,000 + P180,000) P3,300,000 Funeral expense allowed (P3,300,000 x 5%) ( 165,000) Share of surviving spouse (P3,300,000 – P165,000) x 50% ( 1,567,500) Standard deduction ( 1,000,000) Net estate P 567,500 Problem 5–7 D

Gross estate P3,000,000 Funeral expense allowed (P3,000,000 x 5%) ( 150,000) Net conjugal/community estate P2,850,000 Standard deduction (1,000,000) Net estate P1,850,000 Share of surviving spouse (P2,850,000 x 50%) 1,425,000 Net taxable estate P 425,000 Problem 5–8 A

Estate after actual deductions P1,200,000 Add: Actual deductions (P150,000 + P50,000) 200,000 Gross estate P1,400,000 Less: Funeral expense allowed (P1,400,000 x 5%) P 70,000

Other deduction 50,000

Standard deduction 1,000,000 (1,120,000) Net taxable estate P 280,000 Problem 5–9 D

Exclusive Conjugal Property – cash P1,000,000 P4,000,000 Family home 800,000 Transfer for public use (1,000,000)

Funeral expense allowed ( 200,000) Net conjugal estate P4,600,000 Family home (P800,000/2) (400,000) Standard deduction (1,000,000) Net estate P3,200,000 Share of surviving spouse (P4,600,000 x 50%) (2,300,000) Net taxable estate P 900,000 Problem 5–10 A

Gross estate P4,500,000 Charges against the estate ( 200,000) Net conjugal estate P4,300,000 Standard deduction (1,000,000) Family home (1,000,000) Net estate P2,300,000 Share of surviving spouse (P4,300,000 x 50%) (2,150,000) Net estate taxable in the Philippines P 150,000 Problem 5–11 B Conjugal Properties P3,400,000 Funeral expense, limit ( 200,000) Judicial expenses ( 250,000)


Chapter 5: ESTATE TAX Claims against properties ( 550,000) Net conjugal estate P2,400,000

Problem 5–12 C Net estate of P500,000 has a estate tax amounting to P15,000

Problem 5–13 A Estate tax of P5,000,000 P465,000

Problem 5–14 D Net estate Estate tax Amounts P2,000,000 P135,000

Nonresident alien decedent is not allowed to have standard deduction. The funeral expense is not deductible because no part of gross estate located outside the Philippines is reported. (Sec. 86 (B), NIRC)

Problem 5–15 A

Net taxable estate P10,000,000 Add: Family home P1,000,000

Standard deduction 1,000,000 2,000,000 Distributable estate before estate tax P12,000,000 Less: Estate tax of P10,000,000 1,215,000 Net distributable estate P10,785,000

Problem 5–16 1. Letter B Exclusive Conjugal

Real estate P2,800,000 P1,600,000

Personal property 800,000

Funeral expense, limit ( 200,000)

Judicial expenses ( 100,000) Unpaid mortgage loan . ( 300,000)

Net exclusive/conjugal state P2,800,000 P1,800,000 P4,600,000 Standard deduction (1,000,000) Family home (P1,600,000/2) ( 800,000) Net estate P2,800,000 Share of surviving spouse (P1,800,000 x 50%) ( 900,000) Net taxable estate P2,100,000

2. Letter D Estate tax on P500,000 P 15,000 Estate tax on excess (P1,600,000 x 8%) 128,000 Estate tax P143,000

3. Letter B Exclusive Conjugal

Real estate P2,800,000 P1,600,000

Personal property 800,000

Funeral expense, actual ( 245,000)

Judicial expenses ( 100,000) Unpaid mortgage loan . ( 300,000)

Net exclusive/conjugal estate P2,800,000 P1,755,000 P4,555,000 Share of surviving spouse (P1,755,000 x 50%) ( 877,500) Estate tax ( 143,000) Net distributable estate P3,534,500


Chapter 5: ESTATE TAX Problem 5–17 C

Tax credit P100,000 x 2M/5M) P40,000

Problem 5–18 A Total gross estate (P1,700,000 + P800,000) P2,500,000 Less: Deductions 1,500,000 Net taxable estate P1,000,000

Estate tax on P500,000 P15,000 Excess P500,000 x 8% 40,000 Total estate tax in the Philippines P55,000

Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs. P20,000 P17,600

Problem 5–19 Conjugal Exclusive Total Real property P1,500,000

Inherited property P700,000 Other properties 500,000 .

Gross estate P2,000,000 P700,000 P2,700,000 Less: Deductions:

ELITE:

Funeral expenses P 100,000

Judicial expenses 80,000

Claims against the estate 300,000 Transfer for public use 20,000

Total deductions P 500,000 500,000 Net conjugal/exclusive estate P1,500,000 P700,000 P2,200,000 Less: Special deductions:

Standard deduction 1,000,000 Medical expense 200,000

Net estate before share of surviving spouse P1,000,000 Less: Share of surviving spouse (P1,500,000 x 50%) 750,000 Net taxable estate P 250,000

Estate tax: Tax on P200,000 P - 0 - Tax on excess (P50,000 x 5%) 2,500 Estate tax due P 2,500

Problem 5–20 Conjugal Exclusive Total Family home – Philippines P2,000,000

Family business – Philippines 2,000,000 Properties – USA . P1,000,000

Gross estate P4,000,000 P1,000,000 P5,000,000 Deductions: ELITE – Funeral expense 200,000 . . Net conjugal/exclusive P3,800,000 P1,000,000 P4,800,000 Less: Special deduction

Std. deduction 1,000,000 Family home 1,000,000

Net estate before share of surviving spouse P2,800,000 Less: Share of surviving spouse (P3,800,000 x 50%) 1,900,000 Net taxable estate P 900,000 Estate tax:


Chapter 5: ESTATE TAX Tax on P500,000 P15,000 Tax on excess (P400,000 x 8%) 32,000 Estate tax due P47,000 Less: Estate tax credit allowed (P47,000 x 8/28) – lower 13,429 Estate tax still due and payable P33,571

Supporting computation: The computation of net estate per country is as follows:

Philippines U. S. A

Conjugal Exclusive Total Gross estate P4,000,000 P1,000,000 P5,000,000 Funeral expense (200,000) (200,000)

Family home (1,000,000) (1,000,000)

Allocation of std deduction

(P1,000,000 x 4/5): (1/4) (800,000) ( 200,000) (1,000,000)

Net estate P2,000,000 P 800,000 P2,800,000 Problem 5–21 Conjugal Exclusive Total Gross estate* P5,800,000 P4,200,000 P10,000,000 Less Deductions:

Ordinary deductions:

Funeral expenses (actual, P350,000;

5% limit, P500,000; statutory

Maximum allowed, P200,000) - lowest (200,000)

Judicial expenses (500,000)

Other deductions (100,000) Vanishing deductions (note 1) . ( 92,000)

Net conjugal/exclusive estate P5,000,000 P4,108,000 9,108,000 Special deductions:

Standard deduction (1,000,000) Family home (50% is P1,500,000) max. allowed (1,000,000) Medical expenses (actual, P600,000) max. allowed (500,000) Amount receivable under R.A. 4917 (200,000)

Net estate P6,408,000 Less: Share of the surviving spouse (P5,000,000 x 50%) 2,500,000 Net taxable estate P3,908,000

*Note: The amount receivable under R.A. 4917 must be reclassified as exclusive property in order not to increase the deduction by 50%.

Vanishing deduction:

Cash, initial value allowed to take P500,000 Less: Proportionate deductions:

Funeral expense P200,000 Judicial expense 500,000

Other obligations 100,000

Total P800,000 (P800,000 x P500,000/P10,000,000) 40,000

Final basis P460,000 Multiplied by vanishing deduction rate 20% Vanishing deduction P 92,000


Chapter 5: ESTATE TAX Problem 5–22

Gross estate (P2,000,000 + P180,000) P2,180,000 Less: Deductions:

Unpaid mortgage P 480,000

Funeral expense 60,000

Judicial expense 20,000

Standard 1,000,000 1,560,000 Net estate P 620,000

Tax on P500,000 P15,000 Tax on excess P120,000 x 8% 9,600 Total estate tax P24,600

Gross estate P2,180,000 Less: Ordinary deductions (P480,000 + P80,000) P560,000

Estate tax 24,600 584,600 Net distributable estate P1,595,400

Problem 5–23 Cash P 400,000 Property 1,500,000 Gross estate P1,900,000 Deductions:

Promissory note ( 500,000) Funeral expense ( 70,000)

Net conjugal estate P1,330,000 Less: Standard deduction 1,000,000 Net estate P 330,000 Less: Share of surviving spouse (P1,330,000 x 50%) 665,000 Net taxable estate (P335,000)

Gross estate P1,900,000 Less: Promissory note P500,000

Funeral expense 70,000 570,000 Net estate before share of surviving spouse P1,330,000 Less: Share of surviving spouse (P1,330,000 x 50%) 665,000 Net distributable estate P 665,000

Problem 5–24 Conjugal Exclusive Total Gross estate (P1,000,000 + P9,000,000) P1,000,000 P9,000,000 P10,000,000 Ordinary deductions:

Funeral expense (limit) ( 200,000) ( 200,000) Judicial expense ( 200,000) ( 200,000) Claims against the estate ( 500,000) ( 500,000)

P 100,000

Net conjugal estate P9,100,000 Special deductions:

Standard deduction (1,000,000)


Chapter 5: ESTATE TAX Medical expense ( 500,000)

Net estate P7,600,000 Less: Share of surviving spouse (P100,000 x 50%) 50,000

Net taxable estate P7,550,000 Tax on P5,000,000 P465,000 Tax on excess P2,550,000 x 15% 382,500 Estate tax P847,500

Conjugal estate P1,000,000 Less: Ordinary deductions (actual):

Funeral expense P210,000

Judicial expense 200,000 Claims against the estate 500,000 910,000

Net conjugal estate before share of surviving spouse P 90,000 Less: Share of surviving spouse (P90,000 x 50%) 45,000 Net share of the decedent P 45,000 Add: Exclusive property of the decedent 9,000,000 Net distributable estate before estate tax P9,045,000 Less: Estate tax 847,500 Net distributable estate P8,197,500 Divide by number of heirs (12 + 1) 13

Share of each heir P 603,576.92

Note: The medical expense is assumed to have been paid.

Problem 5–25 Taxable Distributable

Conjugal property - real estate P2,000,000 P2,000,000 Ordinary deductions:

Funeral expenses, limit (P2M + P300,000) x 5% ( 115,000) ( 150,000) Judicial expenses ( 5,000) ( 5,000) Unpaid mortgage ( 500,000) ( 500,000) Vanishing deduction* ( 175,304) .

Net conjugal estate P1,204,696 P1,345,000 Add: Exclusive property – personal property inherited 300,000 300,000

Net estate before special deduction P1,504,696 P1,645,000 Less: Standard deduction 1,000,000 . Net estate before share of surviving spouse P 504,696 P1,645,000 Less: Share of surviving spouse (P1,204,696 x 50%) 602,348

(P1,345,000 x 50%) 672,500 Net taxable/distributable estate (P 97,652) P 972,500 Divide by number of compulsory heirs 3 Inheritance of each heir P 324,167

Vanishing deduction: *Value taken P300,000 Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000) 80,870 Final basis P219,130 Multiply by percentage of vanishing deduction – one year ago 80% Vanishing deductions P175,304


Chapter 5: ESTATE TAX

Problem 5–26 The property relationship of Don and Dona Dinero shall be governed by the regime of absolute community property ownership because they got married after August 3, 1988. Hence, the computation would be: 1. Computation of net estate:

Communal Exclusive Total Residential house and lot P 3,500,000

Building apartment 10,000,000

Income of apartment 3,000,000

Deposit in Equitable Bank 5,000,000

Agricultural land P 800,000

Family car 550,000

Other personal properties 1,000,000 Claim against insolvent person 100,000 .

Total gross estate P23,150,000 P 800,000 P23,950,000 Less: Ordinary deductions:

ELIT:

Funeral expenses – maximum 200,000


Claims against the estate 600,000

Claims against insolvent person 100,000

Unpaid mortgage 300,000 Transfer for public use . 200,000 2,000,000

Net estate before special deductions P21,650,000 P 300,000 P21,950,000 Less: Special deductions:

Standard deduction 1,000,000 Family home – maximum 1,000,000 Medical expenses – maximum 500,000

Net estate P19,450,000 Less: Share of surviving spouse (P21,650,000 x 50%) 10,825,000 Net taxable estate P 8,625,000

2. Computation of estate tax: For the first P5,000,000 P 465,000 Excess (P3,625,000 x 15%) 543,750 Estate tax due P1,008,750

3. Computation of net distributable estate:

Communal Exclusive Total Residential house and lot P 3,500,000

Building apartment 10,000,000

Income of apartment 3,000,000

Deposit in equitable bank 5,000,000

Agricultural land P 800,000

Family car 550,000

Other personal properties 1,000,000 Claims against insolvent person 100,000 .


Chapter 5: ESTATE TAX Total gross estate P23,150,000 P 800,000 P23,950,000

Less: Actual deductions:

Funeral expense – actual 350,000


Claims against the estate – actual 800,000

Claims against insolvent person 100,000

Unpaid mortgage 300,000 Transfer for public use . 200,000 2,350,000

Net estate before share of surviving spouse P21,300,000 P300,000 P21,600,000 Share of surviving spouse (P21,300,000 x 50%) 10,650,000

Net estate before estate tax P10,950,000 Less: Estate tax 1,008,750

Net distributable estate P 9,941,250 4. Distribution of the net distributable estate:

Following the assumptions given above, the computation of the share from the net distributable estate of each heir would be:

Legitime:

To two legitimate children (P9,941,250 x 50%) P 4,970,625 To legally surviving spouse (P4,970,625/2) 2,485,313 To illegitimate child (P2,485,313 x 50%) 1,242,656

Free portion: To church – based on Will 1,242,656

Total P 9,941,250

Problem 5-27 Estate tax:

Gross estate

House and lot, Baguio City P1,000,000

House and lot, Quezon City – family home* 1,500,000

Grocery store, Baclaran 300,000

Inventory (P700,000 – P300,000) x 450/300 600,000

Cash sales 450,000 Claims against insolvent persons 50,000 P3,900,000 Ordinary deductions:

Funeral (P3,900,000 x 5%) P 195,000

Claims against insolvent persons 50,000 Unpaid income taxes 20,000 ( 265,000)

Net estate before special deductions P3,635,000 Special deductions:

Family home (P1,500,000/2) P 750,000

Medical expenses 500,000

Standard deductions 1,000,000 (2,250,000) Net estate P1,385,000 Less: Share of surviving spouse (P3,635,000 x 50%) 1,817,500 Net taxable estate (P 432,500)

Estate tax due P - 0 - Note: The house and lot in New York, Quezon City is assumed family home because Don and Dona Posamin reside in that place.

Net distributable estate:


Chapter 5: ESTATE TAX Gross estate P3,900,000

Actual deductions:

Funeral P250,000

Claims against insolvent persons 50,000

Unpaid income taxes 20,000 Medical expense 550,000 870,000

Net estate before share of spouse P3,030,000

Share of surviving spouse (P3,030,000 x 50%) 1,515,000

Net distributable estate P1,515,000

Problem 5–28 1. Estate tax

House and lot (family home) P3,000,000 Time deposit – principal amount 2,000,000 Accrued interest 2004: (P2,000,000 x 12% x 12/12) 240,000 2005: (P2,000,000 x 12% x 10/12) 200,000 Car 1,000,000 Claims against insolvent person 100,000 Gross estate P6,540,000 Ordinary deductions:

Funeral expense, limit P 200,000

Judicial 50,000

Claims against insolvent person 100,000 ( 350,000) Net estate before special deductions P6,190,000 Special deductions:

Standard deductions P1,000,000

Medical expense, limit 500,000

Family home, limit 1,000,000 (2,500,000) Net estate P3,690,000 Less: Share of surviving spouse (P6,190,000 x 50%) 3,095,000 Net taxable estate P 595,000

Tax on P500,000 P 15,000 Tax on excess (P95,000 x 8%) 7,600 Estate tax P 22,600

2. Net distributable estate Gross estate P6,540,000 Actual deductions:

Funeral expense P250,000

Judicial expense 50,000

Claims against insolvent person 100,000 ( 400,000) Net distributable estate before share of surviving spouse P6,140,000 Less: Share of surviving spouse (P6,140,000 x 50%) 3,070,000 Net actual estate P3,070,000 Less: Estate tax 22,600 Net distributable estate P3,047,400

3. Distribution of inheritance Net distributable estate P3,047,400 Divided by number of heirs (intestate succession) 4 Share of each heir P 761,850


Chapter 5: ESTATE TAX

Problem 5–29 1. Estate tax credit = P215,000 2. Estate tax payable = P222,500 Supporting computations:

a. Estate tax payable to the Philippines : Country A Country B Philippines Entire

Gross estate P1,200,000 P2,500,000 P5,000,000 P8,700,000 Unpaid mortgages (200,000) (200,000) Unpaid taxes (500,000) (500,000) Transfer for public use . . (2,000,000) (2,000,000) Net of identifiable deductions P1,000,000 P2,000,000 P3,000,000 P6,000,000 Allocated deductions** (172,500) (358,750) (718,750) (1,250,000)

Net estate P 827,500 P1,641,250 P2,281,250 P4,750,000

** Computation of allocated deductions: Country A Country B Philippines Entire Funeral expenses P 27,600 P 57,400 P115,000 P 200,000 Judicial expenses 6,900 14,350 28,750 50,000 Standard deduction allocated 138,000 287,000 575,000 1,000,000 Total allocated deductions P172,500 P358,750 P718,750 P1,250,000

Note: The above deductions are allocated because they are not specifically identified as deductions from a specific country. The fraction per country is computed as follows: Country A Country B Philippines Entire Gross state per country P1,200,000 P2,500,000 P5,000,000 P8,700,000 Divide by entire gross estate P8,700,000 P8,700,000 P8,700,000 P8,700,000 Fraction 13.80% 28.70% 57.50% 100%

b. Computation of Philippines estate tax: Tax on P2,000,000 P135,000 Tax on excess (P2,750,000 x 11%) 302,500 Total P437,500 Less: Tax credit allowed* 215,000 Estate tax payable to the Philippine Government P222,500

c. Computation of tax credit:

Limit A: Country A: [P437,500 x (P827,500/P4,750,000)] P 76,217

Actual payment to country A – lower P 75,000 P 75,000

Country B: (P437,500 x P1,641,250/P4,750,000) P151,167


Chapter 5: ESTATE TAX Actual payment to country B – lower P140,000 140,000

Tax credit – Limit A P215,000

Limit B: Total net estate – foreign

[(P2,468,750)/P4,750,000] x P437,500 P227,385

Total actual estate tax payments – foreign

(P75,000 + P140,000) – lower P215,000

Tax credit – Limit B P215,000

*Tax credit allowed (the lower of limit A or B) P215,000

Problem 5–30 Conjugal Exclusive Total Cash P2,000,000

Shares of stock (P100 x 100,000 shares) P10,000,000

Insurance proceeds 1,000,000 Transfer in contemplation of death . 3,000,000

Total gross estate P2,000,000 P14,000,000 P16,000,000 Less: Ordinary deduction – Transfer for public use . 10,000,000 10,000,000 Net estate before special deduction P2,000,000 P 4,000,000 P 6,000,000 Less: Standard deduction 1,000,000 Net estate P 5,000,000 Less: Share of surviving spouse (P2,000,000 x 50%) 1,000,000 Net taxable estate P 4,000,000

Estate tax on P2,000,000 P135,000 Tax on excess (P2,000,000 x 11%) 220,000 Total estate tax P355,000 Less: Tax credits on tax previously paid (P34,840 + P204,000) 238,840 Transfer tax still due P116,160

Problem 5–31 Estate tax on P5,000,000 P 135,000 Estate tax on excess (P3,000,000 x 15%) 450,000 Estate tax P 585,000 Add: Surcharges – willful neglect (P585,000 x 50%) P292,500

Interest for 4 years (P585,000 x 20% x 4) 468,000 760,500 Total amount to be paid P1,345,500


Chapter 6: DONOR’S TAX

CHAPTER 6

DONOR’S TAX Problem 6-1 1. False – during the lifetime of the donor. 2. True 3. True 4. False – there is no consideration in donation. 5. True 6. False – It is enough that the duly representative of the incapacitated donee to receive

the donation. 7. True 8. False – Real property donation must be put in writing regardless of value. 9. True 10. False – The value of donated personal property must exceed P5,000. 11. True 12. True 13. False – not gifts. 14. False – constitutes dividend income. 15. True

Problem 6-2 1. False – dowry is not allowed to nonresident alien donor. 2. False – the donee’s identity is not material to make the donation valid. The donor can

make donation to an unborn child. 3. True 4. True 5. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his

properties within and outside the Philippines 6. True 7. True 8. True 9. False – only one-half of the share is donated. 10. False – only if the gift is on account of marriage. 11. False – only the first P100,000 is exempt. 12. False – may be subject to business tax such as VAT, custom duties, or excise tax. 13. False - When the donee is a stranger, the tax rate is 30%. 14. True 15. False - excise tax – the tax is imposed on the act to transfer property by way of gift inter vivos.

Problem 6-3 Problem 6-4 Problem 6-5

1. B 1. A 1. C 2. D 2. C 2. D 3. A 3. D 3. A 4. D 4. C & A 4. B 5. A 5. A 5. A 6. A 6. C 6. D 7. C 7. D 7. A 8. B 8. A 8. A 9. B 9. A 9. C

10. A 10. D 10. A 11. C 11. C 11. C 12. A 12. D 12. D



Problem 6-6 D Donation to his unborn grandchild P200,000

Problem 6-7 A Zero, because the renunciation is a general renunciation.

Problem 6-8 C Father Mother

Gross estate P5,500,000 P5,500,000 Less: Standard deduction 1,000,000 1,000,000 Net estate P4,500,000 P4,500,000

Estate tax on P2,000,000 P 135,000 P 135,000 Excess (P2,500,000 x 11%) 275,000 275,000 Estate tax P 410,000 P 410,000

Distributable estate (P11,000,000 – P820,000) P10,180,000 Divided by number of heirs 4 Share of each heir P 2,545,000

Donor’s tax on P1,000,000 P 44,000 Donor’s tax on excess (P1,545,000 x 8%) 123,600 Donor’s tax P167,600

Note: There is donor’s tax on the renunciation of inheritance because the renunciation is not a general renunciation.

Problem 6-9 B Husband Wife Gross gifts (P3,500,000/2) P1,750,000 P1,750,000 Less: Mortgage assumed by done (P1,000,000/2) (500,000) (500,000)

Dowry ( 10,000) ( 10,000)

Net gifts P1,240,000 P1,240,000 Problem 6–10 A

Wedding gift (P500,000 – P10,000) P490,000 Casual gift – car 500,000 Total gift subject to tax P990,000

Donor’s tax on P500,000 P14,000 Excess (P490,000 x 6%) 29,400 Total donor’s tax in the Philippines P43,400

Problem 6–11 A Donations: Mr. Salonga Mrs. Salonga Vacation house – conjugal (P500,000/2) P250,000 P250,000 Car – conjugal (P240,000/2) 120,000 120,000 Jewelry – exclusive of Mrs. Salonga 20,000 Dowry ( 10,000) ( 10,000) Net gift P360,000 P380,000

Donor’s tax on P200,000 P2,000 P2,000 Excess (P160,000 x 4%) 6,400

(P180,000 x 4%) 7,200 Total donor’s taxes, respectively P8,400 P9,200


Chapter 6: DONOR’S TAX Problem 6–12 D Donation to girlfriend is a donation to non-relative; hence subject to donor’s tax – the entire amount of P250,000. Problem 6–13 A Donations made between a man and a woman living together as husband and wife are void, and therefore, not subject to donor’s tax. Problem 6–14 D

Donation between spouses during marriage time is void; hence, not subject to donor’s tax.

Problem 6–15 D Wedding gift P110,000 Less: Dowry 10,000 Net gift – first P100,000 donor’s tax exempt P100,000

Net gift taxable is P - 0 - Problem 6–16 D

2005 gift – house and lot P300,000 Less: Dowry (P10,000 – P6,000) 4,000 Net gift P296,000

Donor’s tax on P200,000 P2,000 Excess (P96,000 x 4%) 3,840 Donors tax – 2005 P5,840 Problem 6–17 C

Donor’s tax (P50,000 x 2%) P1,000

Problem 6–18 D P60,000 or 30% of P200,000. A 2nd cousin is a stranger for donor’s tax purposes. It is the 6th degree of the collateral line. Problem 6–19

1. Letter C

Gross gifts, as of August 15, 200A (P150,000 x 2 lots) P300,000 Less: Deductions 0 Net gifts, August 15, 200A P300,000

Donor’s tax on P200,000 P 2,000 Tax on excess (P300,000 – P200,000) x 4% 4,000 Total donor’s tax P 6,000

2. Letter D Wedding gifts, as of November 15, 200A P150,000 Less: Deductions - dowry 10,000 Net gifts, November 15, 200A P140,000 Add: Previous, net gifts 300,000 Total net gifts P440,000

Donor’s tax on P200,000 P 2,000 Tax on excess (P440,000 – P200,000) x 4% 9,600 Total donor’s tax P 11,600 Less: Donor’s tax – August 15, 200A 6,000 Donor’s tax payable – November 15, 200A P 5,600


Chapter 6: DONOR’S TAX Problem 6–20 C P30,000 or P100,000 x 30%. Daughter-in-law is not a relative by blood within the 4th collateral line for donor’s tax purposes. Problem 6–21 D

Donor’s tax (P8,000,000 x 30%) P2,400,000

Problem 6-22 D Value of

First donation: Donation Donor’s tax Donated value of P200,000 P200,000 P 2,000 Excess donation (4% x P290,000) 290,000 11,600 Dowry deducted 10,000 .

Total value of first donation P500,000 P13,600

Second donation: First donation – total value P500,000 P14,000 Excess donation (6% x 400,000) 400,000 24,000 Total after dowry deducted P900,000 P38,000 Add: Dowry deducted in two donations (P10,000 x 2) 20,000

Total P920,000

Less: First donation 500,000

Value of second donation P420,000

Problem 6–23 D No deduction is allowed for donations on account of birthday.

Problem 6–24 B Gross gift (FMV at time of donation) P200,000

Problem 6–25 B Donor’s tax (P200,000 x 30%) P60,000

Problem 6–26 A Donor’s tax (P10,000,000 x 30%) P3,000,000 The donation is taxable because more than 30% of it shall be used for administration purposes. Problem 6–27 A

Donor’s tax P100,000 Surcharge (P100,000 x 25%) 25,000 Interest (P100,000 x 20% x 6/12) 10,000 Total amount due P135,000 Problem 6–28 D

No reciprocity With reciprocity Taxable gift in the Philippines P3,000,000 P - 0 -

Donor’s tax on P3,000,000 P 204,000 P - 0 -

No dowry deduction is allowed for nonresident alien donor.


Chapter 6: DONOR’S TAX Problem 6–28

1. Letter C

Philippine donor’s tax P404,000

Actual donor’s tax - foreign P120,000

Tax credit, limit (P404,000 x 500,000/5,000,000) - lower P40,400 P40,400

2. Letter B Philippine donor’s tax:

Relative (P500,000) P 14,000

Stranger (P5,000,000 – P500,000) x 30% 1,350,000 P1,364,000 Less: Tax credit Actual donor’s tax – foreign (lower) P120,000 120,000

Tax credit, limit (P1,364,000 x 500,000/5,000,000) 136,400

Donor’s tax still due and payable P1,244,000

Problem 6–30 D Estate tax Donor’s tax Gross amount of asset P5,000,000 P5,000,000 Less: Standard deduction 1,000,000 . Net amount subject to tax P4,000,000 P5,000,000

Estate tax on P2,000,000 P135,000 Excess (P2,000,000 x 11%) 220,000 Donor’s tax on P5,000,000 . P404,000 Total P355,000 P404,000

Tax savings if estate tax is paid (P404,000 – P355,000) P 49,000

Problem 6–31 Gross gifts made:

To L, on account of marriage P500,000 To M, on account of marriage 200,000

Total gross gifts P700,000 Less: Deductions:

Dowry for L, on account of marriage P10,000

Dowry for M, on account of marriage 10,000

Mortgage assumed by L on property donated 100,000 120,000 Net gifts P580,000

Problem 6–32 1. Donors tax for relatives:

Mar. 1 - To his son on account of marriage P 600,000 Oct. 1 - To his daughter on account of graduation 500,000 Total P1,100,000 Less: Dowry 10,000 Net taxable gifts P1,090,000

Donor’s tax on P1,000,000 P 44,000 Excess (P90,000 x 8%) 7,200 Total donor’s tax for donations to relatives P 51,200



2. Donors tax for strangers: Dec. 25- To his god-children P400,000 Dec. 31- To his neighbor 100,000 Total P500,000 Multiplied by donor’s tax rate 30%

Donor’s tax for donations to strangers P150,000

Problem 6–33 Mr. Dinero Mrs. Dinero March 30, 200B (P500,000/2) P250,000 P250,000 June 28, 200B (P2,000,000/2) – P10,000 990,000 990,000

Net taxable gifts P1,240,000 P1,240,000

Donor’s tax on P1,000,000 P44,000 P44,000 Excess (P240,000 x 8%) 19,200 19,200 Total P63,200 P63,200 Donor’s tax paid on March 30, 200B

Donor’s tax on P200,000 ( 2,000) ( 2,000) Excess (P50,000 x 4%) ( 2,000) ( 2,000)

Donor’s tax for donation on June 28, 200B P59,200 P59,200

Problem 6–34 Cash his son for wedding held during the year P 200,000

Problem 6–35 To his son on account of marriage during the year P 500,000 To his daughter on account of her birthday 500,000 To Garci, his brother, as renunciation of inheritance 400,000 Net gift subject to donor’s tax P1,400,000

Note: No dowry is allowed for nonresident alien.

Problem 6–36 Taxable inadequate consideration - Personal properties (P500,000 – P50,000) P 450,000

Donor’s tax on P200,000 P 2,000 Excess (P250,000 x 4%) 10,000 Donor’s tax for inadequate consideration P 12,000

The inadequate consideration in the sale of real property will not be subject to donor’s tax because the sale is subject to 6% final tax based on the selling price or fair market value, whichever is higher.

Problem 6–37 1. December 25, 200A:

Average value per share (P500 + P450)/ 2 P 475 Multiply by number of shares 1,000 Taxable base of the gift P475,000

2. The same answer with number 1.


Chapter 6: DONOR’S TAX Problem 6–38 There is no donor’s tax because the donations are donation mortis causa, void donation and tax-exempt donation. Specific principles: a. House and lot Subject to estate tax because the transfer shall take effect upon death of the donor (included in the last will and testament).

b. Parejo car The value of property donated is P200,000 and it was made orally. The donation is null and void because personal property donated with value exceeding P5,000 should be put in writing to become a valid donation.

c. Business Revocable donation is a revocable transfer, hence, subject to estate tax.

d. Furniture and fixtures Donation mortis causa is subject to estate tax.

e. Time deposit The amount is P100,000 given to his illegitimate daughter. This donation is tax exempt because the first P100,000 of donation to relatives shall not be subjected to donor’s tax. Problem 6–39

Car consequently destroyed after delivery to his son P 500,000

Donor’s tax P14,000

Problem 6–40 Donations to relatives:

200B:

January 31 Car to Uncle P300,000 Less: Encumbrances assumed by the donee 50,000 Net taxable gift – January 31, 2002 P250,000

Donor’s tax on P200,000 P 2,000 Tax on excess (P250,000 – P200,000) x 4% 2,000 Donor’s tax for January 31 donation P 4,000

November 30 House and lot to his son on account of marriage P600,000 Less: Dowry exemption (weeding was held beyond one year) - 0 - Net gifts P600,000 Add: Previous net gifts during the year 250,000 Aggregate taxable gift P850,000

Donor’s tax on P500,000 P 14,000 Tax on excess (P840,000 – P500,000) x 6% 21,000 Total P 35,000 Less: Donor’s tax for previous gifts during the year 4,000 Donor’s tax for November 30 donation P 31,000

Donations to strangers: 200B:

June 30 Cash to Miss Rosal, a radio manager P100,000 Less: Diminution of gift (P100,000 x 60%) 60,000 Net taxable gift P 40,000

Donor’s tax for June 30 donation (P40,000 x 30%) P 12,000



August 31 Land to National Government P500,000 Less: Deduction (total amount) 500,000 Net taxable gift P - 0 -

Donor’s tax for August 31 donation None

October 31 Cash to non-profit organization – 40% Administrative P400,000 Less: Deduction - 0 -

Net taxable gift P400,000

Donor’s tax for October 31 donation (P400,000 x 30%) P120,000

Total donor’s tax during 200B:

Total donor’s tax to relatives (P30,400 + P4,000) P 35,000 Total donor’s tax to stranger (P12,000 + P120,000) 132,000 Total donor’s tax for the year 200B P167,000

Problem 6–41 Donor’s tax on gift to stranger (P10,000 x 30%) P 3,000

Net gift to daughter on account of marriage (P50,000 – P10,000) P 40,000 Add: Previous net gifts:

April 1 – Gift to mother P50,000 June 10 – Wedding gift to son (P50,000 – P10,000) 40,000 90,000

Total net gift during the year P130,000

Donor’s tax on P100,000 Tax exempt Donor’s tax on excess P30,000 x 2% = donor’s tax payable

Oct. 31, 200A P 600

Problem 6–42 1. January 29, 200B

2. June 1, 200A gift Nilo Co Nila Co Gift on account of their daughter’s marriage P250,000 P250,000 Less: Dowry 10,000 10,000

Net gift P240,000 P240,000

Tax on P200,000 P 2,000 P 2,000 Tax on excess P40,000 x 4% 1,600 1,600

Total P 3,600 P 3,600 P 7,200 Surcharges (P7,200 x 50%) 3,600 Interest (P7,200 x 20% x 11/12) 1,320

P12,120

December 30, 200A gift Nilo Co Nila Co Christmas gift to son P100,000 P100,000

Previous gift – June 1, 200A 240,000 240,000

Total net gift during 200A P340,000 P340,000

Tax on P200,000 P 2,000 P 2,000 Tax on excess P140,000 x 4% 5,600 5,600

Total P 7,600 P 7,600 Less: Tax on previous gift 3,600 3,600


Chapter 6: DONOR’S TAX Donor’s tax on current gift P 4,000 P 4,000 P 8,000 Surcharge (P8,000 x 50%) 4,000 Interest (P8,000 x 20% x 4/12) 533

P12,533 Total amount to be paid on June 1, 200B P24,120

Note: The surcharge is willful neglect (50%) because Mr and Mrs. Co donated twice already in 200A, yet they did not pay the donor’s tax within 30 days from the date of donation in both occasion, hence, habitual and intentional neglect.

Problem 6–43 Relative Stranger Total Donor’s tax on property located in Japan, P1,000,000 P44,000 P 44,000 Donor’s tax on property located in the Philippines

(P2,000,000 x 30%) P600,000 600,000 Total donor’s tax in the Philippines P644,000

Computation of donor’s tax still due and payable: Total donor’s tax in the Philippines P644,000 Less: Allowable tax credit: - Actual lower than limit 70,000

Limit (P1,000,000/ P3,000,000) x P644,000 P214,667

Donor’s tax still due and payable P574,000 Problems 6–44 Gift to Property donated: Relatives Strangers Total

To son - House and lot ($500,000 x P50) – P10,000 P24,990,000

Carabaw FX – to brother-in-law P 500,000 . .

Taxable base P24,990,000 P 500,000

Philippine donor’s tax: First P10,000,000 P 1,004,000 Tax on excess (P14,990,000,000 x 15%) 2,248,500

Total P 3,252,500

Less: Tax credit allowed ($20,000 x P50/$1) 1,000,000 Donors tax rate for donation made to strangers . 30% . Net donor's tax P 2,252,500 P 150,000 P 2,402,500

Note: Donation to common-law-wife is void. Hence, no donor’s tax.

Computation of tax credit allowed: Limit 1: (P24.990M/ P25.490M) x P2,402,500 P2,335,373

Allowed: Actual, lower amount ($20,000 x P50/$1) P1,000,000



Problems 6–45 Assume donations are made to strangers:

Total net gifts P10,000,000

Philippine donor’s tax (P10,000,000 x 30%) P3,000,000 Tax credit:

Limit (P3,000,000 x 5/10) P1,500,000

Actual – lower ( 400,000) Donor’s tax payable P2,600,000

Assume donations are made to relatives: Philippine donor’s tax P1,004,000 Tax credit:

Limit (P1,004,000 x 5/10) P502,000 Actual – lower ( 400,000)

Donor’s tax payable P 604,000

Problems 6–46 1. Gross gifts subject to donor’s tax Don Dona

a. No donation

b. Donation to stranger – daughter-in-law (P2,000,000/2) P1,000,000 P1,000,000

c. Donation to son on account of marriage – relative (P5,000,000/2) 2,500,000 2,500,000

d. Donation to Philippine government – not subject to Donor’s tax

e. Donation to religious group – considered stranger (P1,000,000/2) 500,000 500,000

f. Donation mortis causa – not subject to donor’s tax

g. Donation to NGOs – generally not subject to donor’s tax

h. Donation to political party – not subject to donor’s tax

Exclusive donations by Don:

a. Donation to secretary – stranger 100,000

b. Donation to wife – null and void c. Donation to relative – father 200,000 .

Total amount of gross gifts subject to donor’s tax P4,300,000 P4,000,000

2. Donor’s tax Donation to relatives:

Donation to son on account of marriage – relative

(P5,000,000/2) – P10,000 P2,490,000 P2,490,000 Donation to relative – father 200,000

Total net gifts P2,690,000

Tax on P1,000,000 P 44,000 P 44,000 Tax on excess (P1,690,000 x 8%): (P1,490,000 x 8%) 135,200 119,200 Total donor’s tax due – donation to relatives P179,200 P163,200


Chapter 6: DONOR’S TAX Donation to strangers:

Donation to stranger – daughter-in-law (P2,000,000/2) P1,000,000 P1,000,000 Donation to religious group – considered stranger

(P1,000,000/2) 500,000 500,000 Donation to secretary – stranger 100,000 . Total amount – donation to strangers P1,600,000 P1,500,000 Multiplied by donor’s tax rate to strangers 30% 30% Total donor’s tax due – donation to strangers P 480,000 P 450,000 Total amount of donor’s tax P 659,200 P 613,200

Problems 6–47 Donor’s tax Don Dona 1. Dec. 30, 200A:

Relative - on account of son’s marriage

(P300,000/2) – P10,000) P140,000 P140,000 Tax on P100,000 Exempt Exempt Tax on excess (P40,000 x 2%) – donor’s tax due P800 P800

Stranger – daughter-in-law (P100,000/2) P50,000 P50,000 Multiplied by applicable donor’s tax rate 30% 30% Donor’s tax due P15,000 P15,000

2. Jan. 1, 200B: Stranger – Chinese government (P200,000/2) P100,000 P100,000 Multiplied by applicable donor’s tax rate 30% 30% Donor’s tax due P 30,000 P 30,000

3. March 31, 200B: Relatives – nephew (P50,000/2) P25,000 P25,000 Donor’s tax Exempt Exempt

Stranger – god son (P100,000/2) P 50,000 P 50,000 Church (P200,000/2) 100,000 100,000 Total P150,000 P150,000 Multiplied by applicable donor’s tax rate 30% 30% Donor’s tax due P 45,000 P 45,000 4. June 30, 200B:

Relative – son on account of marriage (dowry already taken) (P2,000,000 – P400,000)/2 P800,000 P800,000 Add: Previous net gifts to relatives – Mar. 31, 200B 25,000 25,000 Total net gifts P825,000 P825,000

Tax on P500,000 P14,000 P14,000 Tax on excess (P325,000 x 6%) 19,500 19,500 Total donor’s tax payable – June 30, 200B P33,500 P33,500

5. Oct. 30, 200B: Void donation – husband and wife

6. Dec. 30, 200B: Relatives:

Son (P500,000/2) P250,000 P250,000 Daughter (P500,000/2) 250,000 250,000 Total net gifts to relatives – Dec. 30, 200B P500,000 P500,000 Add: Previous net gifts to relatives during 200B:


Chapter 6: DONOR’S TAX March 31, 200B: Relatives – nephew (P50,000/2) 25,000 25,000 June 30, 200B:

Relative – son on account of marriage (dowry already taken) (P2,000,000 – P400,000)/2 800,000 800,000

Total net gifts to relatives as of Dec. 30, 200B P1,325,000 P1,325,000

Tax on P1,000,000 P44,000 P44,000 Tax on excess (P325,000 x 8%) 26,000 26,000 Total P70,000 P70,000 Less: Donor’s tax previously paid 200B (Relatives)-June 30, 200B P33,500 P33,500 Donor’s tax payable as of Dec. 30, 200B – relatives P36,500 P36,500

Stranger – daughter-in-law (P100,000/2) P50,000 P50,000 Multiplied by applicable donor’s tax rate 30% 30% Donor’s tax due P 15,000 P 15,000


Chapter 7: BUSINESS TAXES CHAPTER 7

BUSINESS TAXES Problem 7-1 1. True 2. False – this is a casual sale not a business. 3. True 4. True 5. False – not business because contrary to law. 6. False – employment is not business. 7. False – importation for personal use is subject to VAT, which is a business tax. 8. True 9. False – NonVAT business is subject to VAT if its annual gross sales or receipts

exceeds P1,919,500. 10. False – Only one TIN is issued to every taxpayer regardless of the number of his business. 11. True 12. False – the registration is after the end of the year on or before January 31.

Problem 7-2 1. False – the surcharge is 50%. 2. True 3. True 4. False – irrevocable for a period of 3 years. 5. True 6. True 7. False – Input VAT is charged as cost of purchases which is a product cost. 8. True 9. False – treated as tax credit as Input VAT. 10. True 11. False – This is a description of official receipt. 12. True

Problem 7-3 1. False – shown as a separate item, not time. 2. False – Still need to acquire approval from BIR to become non-VAT. 3. True 4. False – Commercial activity is business. 5. False – Nonresident alien/foreign person is not subject to the rule of regularity, hence,

considered engaged in business. 6. False – liable to VAT without the benefit of creditable input VAT. 7. False – Compensation from employment is not subject to VAT. 8. False – now more than P1,919,500 per year. 9. False – Not in the case of VAT person. VAT paid on purchases can be claimed as

creditable input VAT. 10. False – employees are also required to register to BIR by obtaining their TIN. 11. True 12. False – only one TIN per person.


Chapter 7: BUSINESS TAXES Problem 7-4 1. True 2. False – P500 for each establishment 3. False – Cooperatives are also exempt from P500 registration fee 4. True 5. True 6. False – Required to become VAT if total gross sales/receipts exceed P1,919,500 a year. 7. True 8. True 9. False – should issue official receipt for the amount received. Commercial invoice is

sales invoice. 10. False – the 3 year period is applicable only to those who registered first as VAT. A non-VAT

person can shift anytime to VAT system. 11. True 12. True Problem 7-5 Problem 7-6 Problem 7-7 1. D 1. B 1. A 2. C 2. D 2. D 3. B 3. C 3. A 4. A 4. A 4. D 5. C 5. B 5. C 6. A 6. D 6. D 7. A,B,C & D 7. A 7. D 8. B 8. A 8. A 9. C 9. B 9. D 10. C 10. D 10. B Problem 7-8 C

Annual registration fee = P500

Problem 7-9 B Registration fee of:

Au Chemical Supplies P 500 Gusto Eatery 500 Total annual registration fee P1,000

Problem 7-10 A Nonresident foreign persons are not required to register to the BIR. It is the obligation of the entity obtaining their services to pay the VAT and withhold the related income tax.

Problem 7-11 A Cooperatives are exempt from registration fee.

Problem 7-12 C Total amount in the invoice [P50,000 + (P12% of P50,000)] P56,000

Problem 7-13 B Cost (P84,000/1.12) P 75,000 Add: Profit margin (P75,000 x 20%) 15,000 Sales price (120% of cost) P 90,000 Add: VAT (P90,000 x 12%) 10,800 Total VAT sales invoice amount P100,800


Chapter 7: BUSINESS TAXES

Problem 7-14 A Business tax payable (P2,000,000 x 12%) P240,000

Problem 7-15 D Business tax payable (P200,000 x 3%) P6,000

Problem 7-16 A Output VAT (P300,000 x 12%) P36,000 Less: Input VAT (P200,000 + P100,000) x 12% 36,000 VAT payable P - 0 -

Problem 7 – 17 D Zero. M is merely a collecting agent of the BIR, not a direct payee of the VAT. VAT is an indirect tax.

Problem 7 – 18 D

Business tax (P1,500,000 x 3%) P45,000

Problem 7-19 C Equity shares (P100,000 x 0.005) P 500 Long distance (P10,000 x 10%) 1,000 Total business tax P1,500

Problem 7-20 C Output VAT (P1,000,000 x 12%) P120,000 Less: Input VAT – purchases from VAT supplier (P800,000 x 12%) 96,000 Net business tax payable or net VAT payable P 24,000

Problem 7-21 B Output VAT (P300,000 x 12%) P 36,000 Less: Input VAT (P268,800/9.3333) 28,800 Net business tax payable or net VAT payable P 7,200

Problem 7-22 B b. Purchases 150,000

Input VAT 18,000

Cash 168,000

Problem 7-23 A a. Purchases 112,000

Cash 112,000

Problem 7-24 D Surcharge (P120,000 x 50%) P60,000

Problem 7-25 A Sales invoice 0024:

OPT (P100,000 x 3%) P 3,000

Sales invoice 0025: OPT (P200,000 x 3%) P 6,000

Add: VAT P24,000

Surcharge (P24,000 x 50%) 12,000 36,000 42,000 Total amount to be paid to the BIR P45,000


Chapter 7: BUSINESS TAXES Problem 7-26 C

Output VAT (P2,500,000 x 12%) P300,000 Less: Input VAT on purchases from:

VAT supplier inclusive of VAT (P1,120,000/9.333) P120,000 Non-VAT supplier inclusive of VAT (P560,000/9.333) 60,000 180,000 Net VAT payable P120,000

Problem 7-27 1. Letter C

Purchases, excluding VAT [P1,680,000 - (P1,680,000/9.333)] P1,500,000 Add: Beginning inventory 200,000 Total P1,700,000 Less: Ending inventory, excluding VAT

Beginning inventory P200,000 Increase in inventory, excluding VAT [P112,000 – (P112,000/9.333)] 100,000 300,000 Cost of sales P1,400,000

2. Letter A Sales P2,000,000 Less: Cost of sales 1,400,000 Gross income P 600,000 Less: Operating expenses (P268,000 – P18,000) 250,000 Net taxable income P 350,000 Multiplied by normal corporate income tax rate 30%

Income tax due P 105,000

3. Letter D Output VAT (P2,000,000 x 12%) P240,000 Less: Input VAT on purchases (P1,680,000/9.333) P180,000 Input VAT on expenses 18,000 198,000 Net VAT payable P 42,000

Note: The input VAT on the increase in inventory is already included in the total input VAT per purchases. Hence, not to be used again as input tax credit.

Problem 7-28

1. Letter A

Purchases from nonVAT supplier P600,000 Add: Purchases from VAT supplier, including VAT P224,000

Decrease in inventory 150,000 374,000 Cost of sales P974,000

2. Letter B

Sales, excluding VAT [P1,344,000 – (P1,344,000/9.333) P1,200,000 Less: Cost of sales 974,000 Gross income P 226,000 Less: Operating expenses 76,000 Net income P 150,000 Less: Basic personal exemption 50,000 Net taxable income P 100,000

3. Letter D

OPT (P1,200,000 x 3%) P 36,000 Add: VAT collected (P1,344,000 – P1,200,000) P144,000

Surcharge (P144,000 x 50%) 72,000 216,000 Total amount of business taxes including surcharges P252,000


Chapter 7: BUSINESS TAXES Problem 7-29

1. Annual registration fee for main store (P500) + (P500) for sales outlet P 1,000 2. No, because the total sales during the year do not exceed P1,919,500.

Problem 7-30 Yes, the cooperative is required to register to the BIR. No registration fee or annual registration fee shall be collected from cooperatives. Problem 7-31

Annual registration fee (1 + 50 + 10) x P500 P 30,500 Add: Interest (P30,500 x 20% x 8/12) P4,067

Surcharge (P30,500 x 25%) 7,625 11,692 Total amount to be paid to the BIR P 42,192 Note: Registration shall be made on or before the last day of January of the following year Problem 7-32 1. The business should be registered as nonVAT because the sales do not exceed P1,919,500

in a year. 2. Sales invoice because official receipts are issued only when there are collections. 3. Official receipts.

Problem 7-33

Net VAT payable P 180,000 Add: Input VAT (P5,040,000 x 12%) 604,800

Output VAT P 784,800 (1) Divide by 12%

Sales P6,540,000 (2) Problem 7-34 1. Satur Nino is not subject to VAT because the sale is a casual sale of personal property. 2. Assuming that the FMV remains the same, the VAT of ROX Realty would be twelve

percent (12%) of the FMV (higher value), hence, P4,200,000 or (P35,000,000 x 12%). Problem 7-35

1. Percentage tax (P1,680,000/1.12) x 3% P 45,000 Add: VAT (P1,680,000/9.333) P180,000

Surcharge (P180,000 x 50%) 90,000 270,000 Total business tax and surcharges P315,000

2. Percentage tax (P2,800,000/1.12) x 3% P 75,000 Add: VAT (P2,800,000/9.333) P300,000

Surcharge (P300,000 x 50%) 150,000 450,000 Total business tax and surcharges P525,000

Problem 7-36 Input VAT from VAT supplier (P280,000/9.333) P30,000 Input VAT from non-VAT supplier (P56,000/9.333) 6,000 Creditable input VAT P36,000 Note: A VAT-registered buyer is allowed to report input VAT on purchases from a non-VAT supplier collecting VAT.


Chapter 7: BUSINESS TAXES Problem 7-37

1. As depreciable capital goods.

Capital gain (P4,424,000 – P2,700,000) P1,724,000 Multiplied by corporate tax rate 30% Income tax due P 517,200 Add: Other taxes paid:

Custom duties (P1,500,000 x 50%) P 750,000

Excise tax (P2,250,000 x 20%) 450,000 Input VAT (P2,700,000 x 12%) 324,000 1,524,000

Total revenue contributed to government P2,041,200

Supporting Computation:

Purchase value P1,500,000 Add: Custom duties (P1,500,000 x 50%) P 750,000

Excise tax (P2,250,000 x 20%) 450,000 1,200,000 Total landed cost – if capital asset P2,700,000

Note: The input VAT of depreciable capital goods used in business (not as inventory) shall be amortized within 60 months or the estimated useful life of the asset, whichever is lower. 2. As ordinary asset

Gross income (P4,424,000 – P2,700,000) P1,724,,000 Less: OSD (P1,724,000 x 40%) 689,600 Net income P1,034,400 Multiplied by corporate tax rate 30% Normal tax P 310,320 Add: Other taxes paid

Custom duties (P1,500,000 x 50%) P 750,000

Excise tax (P2,250,000 x 20%) 450,000 Input VAT (P2,700,000 x 12%) 324,000 1,524,000

Total revenue contributed to government P1,834,320

Supporting Computation: Purchase value P1,500,000

Add: Custom duties (P1,500,000 x 50%) P 750,000 Excise tax (P2,250,000 x 20%) 450,000 1,200,000

Total landed cost – if ordinary asset P2,700,000

Note: The input VAT of ordinary asset (inventory) shall be allowed as input tax credit against the output VAT during the taxable quarter. Problem 7-38

1. VAT-registered business

a. Inventory, beginning 300,000 Input VAT 36,000

Cash 336,000

Inventory, beginning 200,000 Cash 200,000


Chapter 7: BUSINESS TAXES

b. Purchases 500,000 Input VAT 60,000

Cash 560,000

Purchases 300,000 Cash 300,000

c. Cash 56,000 Purchase returns 50,000 Input VAT 6,000

Cash 20,000 Purchase returns 20,000

d. Cash 1,680,000 Sales 1,500,000 Output VAT 180,000

e. Sales returns 150,000 Output VAT 18,000

Cash 168,000

f. Output VAT 162,000 Input VAT 90,000 VAT payable/cash 72,000 2. Non-VAT business

a. Inventory, beginning 336,000 Cash 336,000

Inventory, beginning 200,000 Cash 200,000

b. Purchases 560,000 Cash 560,000

Purchases 300,000 Cash 300,000

c. Cash 56,000 Purchase returns 56,000

Cash 20,000 Purchase returns 20,000

d. Cash 1,500,000 Sales 1,500,000

e. Sales returns 150,000 Cash 150,000

f. Business tax expense (P1,350,000 x 3%) 40,500 Business tax payable/cash 40,500


Chapter 8: BUSINESS TRANSACTIONS

CHAPTER 8

BUSINESS TRANSACTIONS Problem 8–1 1. False – Vatable transactions of non-VAT business is not allowed to deduct input VAT. 2. True 3. False – Some business transactions are VAT-exempt. 4. True 5. False – subject to OPT.

6. True 7. True 8. False – not allowed for TCC and tax refund, but allowed only for tax credit. 9. True 10. False – Zero rated sales are applicable only to VAT-registered business/person. This is a VAT-

exempt and OPT-exempt transactions. 11. True 12. False – It can be claimed as a deduction from sale as part of cost of product sold. 13. True 14. False – Sales of non-VAT person, exceeding P1,919,500 per year is also subject to VAT. 15. False – Only those agricultural and marine food products.

Problem 8–2 1. False – Publication of newspaper is VAT-exempt and also OPT-exempt. 2. True 3. False – The exemption pertains only to Output VAT. 4. True 5. False – Zero VAT transactions are applicable only to VAT-registered persons. 6. False – Some VAT taxable transactions have not allowed to have Input VAT particularly if the

business is a non-VAT. 7. False – Exempt from business tax because it is considered as a subsistence livelihood. 8. True 9. False – Exempt from VAT. 10. False – zero VAT. 11. False – VAT-exempt. 12. True 13. False – VAT-exempt and OPT-exempt. 14. False – more than P3,199,200. 15. True

Problem 8 – 3 Problem 8 – 4 Problem 8 – 5 1. B 1. A 1. D 2. B 2. C 2. B 3. C 3. D 3. A 4. D 4. B 4. C 5. B 5. A 5. C 6. C 6. B 6. B 7. D 7. A 7. A 8. B 8. D 8. A 9. C 9. C 9. C 10. A 10. D 10. C


Chapter 8: BUSINESS TRANSACTIONS Problem 8 – 6

1. A 11. C

2. D 12. E

3. D 13. D

4. A 14. C

5. A 15. C

6. D 16. A

7. A 17. C

8. C 18. D

9. A 19. D

10. C 20. E

Problem 8 – 7 A Business tax payable (P2,500,000 x 12%) P300,000 Note: The gross sales exceeds P1,919,500; hence, subject to 12% even if the taxpayer is non-VAT. Problem 8 – 8 C

Domestic sales P1,000,000 Importation of goods 500,000 Transaction deemed sales 100,000 Total amount subject to VAT P1,600,000 In general, importations are subject to 12% VAT regardless of the business tax registration of the taxpayer. The VAT on importation, however, is an input tax. Problem 8 – 9 D

Output VAT from collections (P4,480,000/9.3333) P480.000 Less: Input VAT from supplies used (P560,000/9.3333) P60,000

Input VAT from importation (P112,000/9.3333) 12,000 72,000 VAT payable P408,000 Problem 8 – 10 B

Export sales (P2,000,000 + P1,000,000) P3,000,000

Problem 8 – 11 B Business tax payable (P2,000,000 + P7,000,000) x 3% P270,000 The annual gross receipts from business does not exceed P10,000,000; hence, subject to 3% OPT. Problem 8 – 12 C P600,000, only input VAT due or paid from purchases is allowed to apply for TCC. Transitional input VAT and presumptive Input VAT are not allowed. Problem 8 – 13 D Zero-rated VAT. Sale of power or fuel generated through renewable sources of energy such as biomass, solar, wind, hydropower, geothermal ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels Problem 8 – 14 D Multi-purpose cooperative registered with CDA are exempt from business tax.


Chapter 8: BUSINESS TRANSACTIONS

Problem 8 – 15 A Passenger by sea 1,500,000 Cargo by land 500,000 Cargo by sea 500,000 Total VAT taxable transactions P2,500,000

Problem 8 – 16 B Export sales P10,000,000 Sales of agricultural food products – original state 6,000,000 Gross receipts derived from millings of palay 2,000,000 VAT-exempt transactions P18,000,000

Problem 8 – 17 D 5 commercial lots at P1,000,000 each P5,000,000

The sales of residential house and lots or residential lots are all VAT-exempt and OPT-exempt.

Problem 8 – 18 C

4 residential lots at P2,000,000 each P 8,000,000 1 commercial lots at P3,000,000 each 3,000,000 Amount subject to business tax P11,000,000

The sale of residential house and lot at P3,000,000 each is exempt from business tax.

Problem 8 – 19 B

Gross receipts exempt from business tax (P2,000 x 50) P100,000

Problem 8 – 20 1. Output VAT (P134,400/9.3333) P14,400

Input VAT (P112,000/9.3333) (12,000) Business tax liability of X P 2,400

2. Percentage tax (P112,000/1.12) x 3% P 3,000 Output VAT (P112,000/9.333) 12,000 Surcharge (P12,000 x 50%) 6,000 Business tax liability of Y P21,000

Problem 8 – 21 1. Sales from: Local government units (P940,000/1.06) P886,792 University of the Philippines (P564,000/1.06) 532,075 Department of Tourism (P282,000/1.06) 266,038 Total sales P1,684,905

Note: The total withholding per sales was 6% comprising 5% final withholding VAT and 1% creditable withholding income tax.

2. Total income tax withheld (P1,684,905 x 1%) P16,849

3. Total final VAT withheld (P1,684,905 x 5%) P84,245


Chapter 8: BUSINESS TRANSACTIONS Problem 8 – 22

1. VAT-registered

Transport of passengers by sea P2,000,000 Transport of cargoes by:

Land 500,000 Sea 1,000,000

VAT taxable transactions P3,500,000

2. Non-VAT registered Transport of passengers by sea P2,000,000 Transport of cargoes by:

Land 500,000 Sea 1,000,000

VAT taxable transactions P3,500,000 Note: The said non-VAT registered business shall now be subject to VAT because its total gross receipts exceed P1,500,000. The gross receipts from transport of passengers, however, shall remain subject to percentage tax. Problem 8 – 23

1. VAT-registered

From radio ads P5,000,000 From TV ads 4,000,000 VAT taxable transactions P9,000,000 Multiplied by VAT rate 12% Value-added tax P1,080,000

2. Non-VAT registered From radio ads P5,000,000 From TV ads 4,000,000 Amount subject to OPT P9,000,000 Multiplied by applicable OPT rate 3% Other percentage tax P 270,000

Note: A non-VAT registered franchise grantees of radio and television broadcasting with annual gross receipts of P10,000,000 or less is not subject to VAT, unless VAT-registered. Problem 8 – 24

Output VAT – Zero rated because foreign denominated sales P - 0 - Input VAT (P336,000/9.3333) ( 36,000) VAT refund (P 36,000)

Problem 8 – 25 On purchases:

Local purchases from VAT-registered person P600,000

On sales: Domestic sales to various VAT person P 800,000 Domestic sales to various non-VAT person 600,000

VAT taxable transactions against X P1,400,000


Chapter 8: BUSINESS TRANSACTIONS Problem 8 – 26 1. P - 0 -

The business is non-VAT and total sales do not exceed P1,500,000/year 2. P - 0 -

No zero-VAT sale is allowed for a non-VAT business.

3. Domestic sales to various VAT persons P 50,000 Domestic sales to various non-VAT persons 100,000 Export sales denominated in foreign currency 200,000 Total VAT-exempt sales P350,000

Problem 8 – 27 1. VAT-registered

Domestic sales P 2,000,000 Export sales 3,000,000 Total value of sales allowed with creditable Input VAT P 5,000,000

2. Non-VAT registered a. Domestic sales – VAT taxable sales P 2,000,000

b. Zero-rated sales P - 0 -

c. Export sales – VAT-exempt sales of a non-VAT business P 3,000,000


Chapter 9: VALUE-ADDED TAX

CHAPTER 9

VALUE-ADDED TAX Problem 9–1 1. True 2. False – the buyer is legally liable for the payment of VAT on importation of goods or services. 3. True 4. True 5. False – Some sales are VAT-exempt. 6. False – Goods and services sold outside the Philippines are either zero-rated or VAT-exempt. 7. False – VAT is not a specific tax, but an ad valorem tax because its computation is based

on the value of goods or services sold. 8. True 9. False – zero-rated VAT transaction is subject to a 0% VAT rate. 10. False – 4%. 11. True 12. True 13. False – includes the excise tax. 14. True 15. False – Performance sales discount is based on the happening of future event; hence,

not allowed as deductible item from sales. Problem 9–2 1. True 2. False – More than P1,919,500. 3. False – If VAT-registered, subject to VAT regardless of amount of sales. 4. False – All non-VAT registered persons are not allowed to deduct input VAT. 5. False – Annual gross receipts exceed P10,000,000. 6. False – Subject to VAT whether for business or not. 7. False – To be treated separately. 8. True 9. False – Liable to pay VAT on their purchases from VAT-registered suppliers. 10. True 11. False – inventors are VAT-exempt. 12. False – subject to VAT on purchases from VAT-registered person. 13. True 14. True 15. False – only those exempted by law.

Problem 9–3 Problem 9–4 1. A 1. C 2. B 2. B 3. C 3. D 4. C 4. A 5. A 5. C 6. C 6. D 7. A 7. A 8. B 8. D 9. D 9. B 10. B 10. C



Problem 9 – 5 C Sales to: Within

Regular customers P2,000,000 Government 500,000 Employees 300,000

Total amount of sale subject to VAT P2,800,000

Problem 9 – 6 D The ultimate consumer is not VAT-registered and does not sale the products. Therefore, no output VAT. If the consumer is VAT-registred still there is no output VAT, but instead input VAT.

Problem 9 – 7 A

Output VAT (P5,000,000 + P5,000,000) x 12% P1,200,000 Less: Input VAT (P6,720,000/9.333) 720,000 Net VAT payable P 480,000

Problem 9 – 8 C

Sales per VAT invoice, no output VAT is shown (P224,000/9.333) P24,000 Sales per VAT invoice, output VAT shown separately

amounted to P30,000 inclusive in the invoice (P330,000/9.333) 35,358 Sales per purchase order – delivered (P100,000 x 12%) 12,000 Amount of output VAT P71,358

Problem 9 – 9 D

Total manufacturing costs P1,000,000 Delivery and insurance 200,000 Excise tax (P1,000,000 x 10%) 100,000 Gross margin (P1,000,000 x 70%) 700,000 Total sales price P2,000,000 Multiplied by VAT rate 12% Output VAT P 240,000

Problem 9 – 10 B

Fair market value of machine P1,500,000 Freight charges 100,000 Insurance charges 50,000 Duty tax 150,000 Excise tax 75,000 Total Vatable amount P1,875,000 Multiplied by VAT rate 12% VAT on importation P 225,000

Problem 9 – 11 C

Cash sales P1,000,000 Credit sales 2,000,000 Sales returns – defective products ( 200,000) Net sales subject to VAT P2,800,000 Multiplied by VAT rate 12% Output VAT for the quarter P 336,000

Problem 9 – 12 B

Sales P500,000 Less: Trade discounts per invoice 100,000 Net sales subject to VAT P400,000 Multiplied by VAT rate 12%


Chapter 9: VALUE-ADDED TAX Output VAT P 48,000 Less: Creditable input VAT P 32,000

VAT payment 10,000 42,000 Remaining unpaid VAT P 6,000

Note: The sales commission is an operating expense and should not be an item to compute for the net sales subject to VAT.

Problem 9 – 13 D The sale of Y is not subject to VAT because its registration is nonVAT and its sales do not exceed P1,919,500.

Problem 9 – 14 B

Correction: Income tax due during the quarter is P1,800,000.

Output VAT [(P1,800,000/30%)/40%] x 12% P1,800,000 Less: Input VAT (P8,960,000/9.333 960,000 Net VAT payable P 840,000

Problem 9 – 15 D Total sales (P2,000,000 + P800,000) P2,800,000 Multiplied by VAT rate 12% VAT payable P 336,000

Problem 9 – 16 D Cash sales to non-VAT customers P600,000 Credit sales to VAT-registered customers 200,000 Sales of obsolete merchandise (at 75% discount) 100,000 Taxable sales not subject to standard input VAT P900,000 Multiplied by VAT rate 12% Output VAT P108,000 Less: Allocated input VAT (P48,000 x 9/10) 43,200 Net VAT payable P 64,800

Note: Although subject to regular VAT, the sale to the government does not result to VAT payable due to the application of final VAT and standard input VAT. Hence,

Output VAT - Sales to government (P100,000 x 12%) P12,000 Less: Input VAT

Actual input VAT (P48,000 x 1/10) P 4,800 Less: Standard input VAT (P100,000 x 7%) 7,000 7,000 Other income (P2,200)

VAT payable P 5,000

Less: Final VAT (P100,000 x 5%) 5,000 Net VAT payable P - 0 -

Problem 9 – 17 A NonVAT-registered:

Output VAT (P20,000,000 + P5,000,000) x 12% P3,000,000 VAT-registered:

Output VAT (P20,000,000 + P5,000,000) x 12% P3,000,000 Less: Input VAT (P7,840,000/9.333) 840,000 2,160,000

Business tax advantage P 840,000


Chapter 9: VALUE-ADDED TAX Problem 9 – 18 B

Output VAT (P40M x 4 x 12%) P19,200,000 Less: Ouput VAT (P180M /5) x 4 x 12%) 17,280,000 Net VAT payable P 1,920,000

Supporting computations: Purchase price P100,000,000 Excise taxes 40,000,000 Duty taxes 30,000,000 Insurance 5,000,000 Freight 5,000,000 Total landed cost P180,000,000

Problem 9 – 19 NOT IN THE CHOICES Total business taxes (P264,000 + P27,000) P291,000

Mr. Educado Mrs. Educado Professional income P1,200,000

Gross sales/receipts 1,000,000 P 900,000 Taxable amount P2,200,000 P 900,000 Multiplied by applicable business tax rate 12% 3%

Individual business tax P 264,000 P 27,000

Problem 9 – 20 D Gross receipts – sale of electricity P 5,000,000 Sale of assets:

Power general assets 30,000,000 Other real properties 20,000,000

Total P55,000,000 Multiplied by VAT rate 12% Output VAT P 6,600,000

Problem 9 – 21 D Total sales (P2,000 x 365 x 3) P2,190,000 Multiplied by VAT rate 12% Business tax = Output VAT P 262,800

Problem 9 – 22 A Inventors are exempt from all kinds of taxes in the first ten (10) years from the date of the first sale subject to the rules and regulations of the Department of Finance. (R.A. 7459; Rev. Reg. 19-93) Problem 9 – 23 D

Gross selling price (P9,520/1.12) P8,500 Less: Senior citizen’s discount (P8,500 x 20%) 1,700 Net amount P6,800 Problem 9 – 24 C

Exclusive consumption of Lolo Sot

[(P1,120/1.12)/5] x 80% P 160 Consumption of non-eligible companions

(P1,120/5) x 4 896 Amount to be paid by Lolo Sot P1,056



Problem 9 – 25 D Nonstock and nonprofit organizations are not taxable.

Problem 9 – 26 1. Total Output VAT (P1,344,000/9.333) P 144,000

2. Total Output VAT P144,000 Less: Input VAT VAT purchase invoice amount (P840,000/9.333) 90,000 Net VAT payable P 54,000

Problem 9 – 27 1. Output VAT (P880,000 + P720,000) x 12% P 192,000

2. Output VAT P 192,000 Less: Input VAT (P1,200,000 x 12%) 144,000 Net VAT payable P 48,000

Problem 9 – 28 1. Output VAT (P125,000 x 12%) P 15,000

2. Input VAT (P84,000/9.3333) P 9,000 Note: The sales is multiplied by 12% because the term used is not per VAT invoice while the purchase is divided by 9.333 because the purchase is inclusive of VAT.

Problem 9 – 29

Total sales price (P20 x 10) P 200 Add: VAT (P200 x 12%) 24 Total sales invoice amount P 224

Problem 9 – 30 1. No, because the purchases for sari-sari store is not for her personal consumption.

2. P21,900. Percentage tax (P2,000 x 365) x 3% P21,900

3. P96,000 Gross profit (P2,000 x 365) x 20% P146,000 Less: Business tax expense 21,900 Net income P124,100 Less: Personal exemption – basic 50,000 Net taxable income P 74,100

Problem 9 – 31 1. None, because PEZA-registered entities are VAT-exempt.

2. Gross income tax (P50M – P30M) x 5% P1,000,000

In general, ECONZON Enterprises (PEZA-registered enterprises) pay 5% tax on gross income which is in lieu of all national and local taxes.



Problem 9 – 32 1. Net income (P570,000/30%) P1,900,000

Less: Gain on sale of capital asset 50,000 Net operating income P1,850,000 Add: Cost of sales (P120,000/12%) P1,000,000

Sales discounts due to prompt payments 150,000

Operating expense before taxes 990,000 Community tax 10,000 2,150,000 Vatable base – Sales subject to VAT P4,000,000

2. Output VAT (P4,000,000 x 12%) P 480,000

3. Output VAT P 480,000 Less: Input VAT 120,000 VAT payable P 360,000

Problem 9 – 33 1. Net income (P600,000/30%) P2,000,000

Less: Gain on sale of capital asset 150,000 Net operating income P1,850,000 Add: Cost of sales (P240,000/12%) – P400,000 P1,600,000

Sales discounts due to prompt payments 45,000

Operating expenses before taxes 1,000,000 Community tax 5,000 2,650,000 Sales subject to VAT P4,500,000

Output VAT (P4,500,000 x 12%) P540,000 Less: Input VAT from purchases P240,000 Presumptive input VAT 60,000 300,000 Net VAT payable P240,000 Add: Surcharge (P240,000 x 25%) P60,000

Interest from Jan. 25 to Mar. 25 (P240,000 x 20% x 2/12) 8,000 Compromise for late payment 1,000 69,000 Total amount payable P309,000 2. None, because the payment of income tax is made on time – April 15, of

the succeeding year.


Chapter 10: VAT ON GOODS OR PROPERTIES

CHAPTER 10

VALUE-ADDED TAX Problem 10–1 1. False – subject to VAT. This is considered as transaction deemed sale. 2. True 3. False – sale of real property classified as capital asset is not subject to VAT. 4. False – sale of real property classified as ordinary asset is exempt from VAT if the amount of

lot is P1,919,500 and below or house and lot if the price is P3,199,200 and below. 5. True

6. False – acquisition cost or current market price of goods whichever is lower. 7. True 8. False – the basis is the amount of debt cancelled. 9. True 10. False – subject to VAT. 11. True 12. True 13. True 14. False – not subject to output VAT. This is to be treated as operating expense. 15. False – not transactions deemed sale. Problem 10–2 1. False – subject to VAT. 2. True 3. True 4. True 5. False – the exemption is applicable only to residential lot and the amount of selling price

should not exceed P1,919,500 per residential lot. 6. True 7. False – this would refer to gross selling price. 8. False – deemed inclusive of VAT. 9. True 10. True 11. False – disregarded as part of the initial payment. 12. True 13. True 14. True 15. False – original estate and not subject to VAT.

Problem 10–3 Problem 10–4 1. D 1. C 2. A 2. D 3. B 3. A 4. C 4. C 5. C 5. D 6. D 6. B 7. B 7. A & B 8. A 8. D 9. A 9. B 10. A 10. B



Problem 10 – 5 A Warehouse P4,000,000 Business delivery trucks 500,000 Amount subject to VAT P4,500,000

Problem 10 – 6 B Sale of furniture – within P1,800,000 Furniture taken from inventory for personal use 200,000 Amount subject to 12% VAT P2,000,000

Problem 10 – 7 D Zero. The person responsible to pay the VAT is the buyer. Therefore, Kamukamo is not liable to pay VAT to the Philippine Government. Corona Enterprise is responsible to remit to the BIR the related VAT on the purchase transaction.

Problem 10 – 8 A

Raw materials used P400,000 Direct labor 200,000 Factory overhead 100,000 Excise tax 70,000 Mark-up 430,000 Total amount subject to VAT P1,200,000

Output VAT (P1,200,000 x 12%) P144,000 Less: Input VAT from purchases (P896,000/9.333) P96,000

Input VAT from factory overhead 4,000 100,000 Net VAT payable P 44,000

Problem 10 – 9 B Cash sales of goods to regular customers P1,500,000 Credit sales of goods to regular customers 500,000 Merchandise use by the owner for personal consumption (P200,000 x 70%) 140,000 Reasonable taxable base of sales for VAT purposes P2,140,000

Problem 10 – 10 D Gross sales:

Cash sales P 500,000 Credit sales 800,000

Sales returns ( 100,000) Sale of obsolete inventories 60,000 Consigned goods (unsold after 90 days) 100,000 Total P1,360,000 Multiplied by VAT rate 12% Output VAT P 163,200

Problem 10 – 11 C Consumption of inventory by the manager at cost P 100,000 Merchandise used to pay dividends at cost 600,000 Payment to creditors at the amount of debt cancelled 800,000 Sale of scrap materials at market price 40,000 Total unreported additional sales P1,740,000 Multiplied by VAT rate 12% Output VAT P 208,800


Chapter 10: VAT ON GOODS OR PROPERTIES Problem 10 – 12 A

Output VAT – January 1 to Sept. 30, 201A P144,000 Output VAT – October 1 to Dec. 31, 201A (P700,000/9.333) 75,000 Total output VAT P219,000 Less: Input VAT from:

Purchases (P1,120,000/9.333) P120,000 Operating expenses (P4,200 + P1,800) 6,000 126,000

Net VAT payable P 93,000 Problem 10 – 13 C

Merchandise inventory P 80,000 Equipment 160,000 Furniture and fixtures 60,000 Total assets P300,000 Multiplied by VAT rate 12% Output VAT P 36,000 Less: Input VAT 16,000 Net VAT payable P 20,000

Problem 10 – 14 A Zero. Transfers of assets as a result of merger or consolidation are not considered transactions deemed sales. These are just transfers in form, not in substance. (RMC No. 47-99) Problem 10 – 15 NOT IN THE CHOICES

Sales (P1,500,000/60%) P2,500,000 Obsolete inventory sold at 80% discount, at cost (P100,000 x 20%) 20,000 Consigned goods beyond 60 days at cost 400,000 Total taxable base P2,920,000 Multiplied by VAT rate 12% Output VAT P 350,200 Problem 10 – 16 C

Cash sales P135,000 Add: Net credit sales:

Gross amount, net of trade discount

(P365,000 x 90%) P328,500 Less: Sales return (P65,000 x 90%) 58,500 270,000

Taxable base P405,000 Multiplied by VAT rate 12% Output VAT P 48,600 Problem 10 – 17 1. Letter D

Sale of residential lot not exceeding P1,919,500 is VAT-exepmt.

2. Letter A VAT (P2,000,000 x 12%) P240,000

Problem 10 – 18 D 1 lot – class A (P3,200,000 x 12%) P384,000 2 Commercial lots (P4,480,000/9.333) 480,000 Total output VAT P864,000 Note: The basis of VAT for l lot – class A is the fair market value, which is higher than the selling price. If the FMV is higher than the selling price, the FMV is VAT exclusive. (Rev. Regs. No. 4-2007)


Chapter 10: VAT ON GOODS OR PROPERTIES Problem 10 – 19 1. Letter D

Zero, because the sale is not subject to VAT. Aside from the property is a capital asset, it is a residential house and lot with a selling price not exceeding P3,199,200.

2. Letter A

Output VAT (P3,500,000 x 12%) P420,000

Problem 5 – 20 C VAT on down payment – November 200A (P600,000 x 4M/3M) x 12% P96,000 Add: December 200A VAT on monthly collection (P20,000 x 4M/3M) x 12% 3,200 Output VAT on the year of sale P99,200

Problem 5 – 21 B Second installment P3,750,000 Add: Surcharge (P3,750,000 x 5%) P187,500

Interest (P3,750,000 x 12% x 3/12) 112,500 300,000 Taxable base P4,050,000 Multiplied by VAT rate 12%

Output VAT P 486,000

Problem 10 – 22 A Output VAT – year 3 (P2,940,000/9.333) P315,000 Less: Creditable input VAT – year 3 P200,000

Excess creditable input VAT – year 2 (P315,000 – P350,000) 35,000 235,000 Net VAT payable P 80,000

Problem 10 – 23 A Output VAT (P7,500,000 x 12%), higher amount P900,000 Less: Creditable input VAT – year 1 300,000 Net VAT payable (initial payment exceeds 25% = considered cash sales) P600,000

Problem 10 – 24 C Output VAT – higher (P5,000,000 x 12%) P600,000 Less: Output VAT already paid (P3,360,000/4) x 3 270,000 Output VAT still to be paid P330,000

Problem 10 – 25 B 2,000 Sacks of cotton and cotton seedlings at P900 each P1,800,000 Sale of woods and charcoal 400,000 Total P2,200,000 Multiplied by VAT rate 12%

VAT payable P 264,000

Problem 10 – 26 Cost of goods manufactured (P200,000 + P100,000 + P100,000) P400,000 Less: Unsold goods manufactured 15,000 Total cost of goods sold P385,000 Add: Excise tax (P385,000 x 20%) P 77,000

Mark-up (P385,000 x 50%) 192,500 269,500 Total sales P654,500 Multiplied by VAT rate 12% Output VAT P 78,540 Less: Input VAT from:

Raw materials purchase per invoice (P336,000/9.333) P 36,000

Repair of store office 450 Supplies purchase per invoice (P28,000/9.333) 3,000 39,450



Chapter 10: VAT ON GOODS OR PROPERTIES Problem 10 – 27

Cash sales P 800,000 Add: Credit sales P200,000

Installment sales collected 100,000 Deemed sales (P20,000 + P180,000) x 60% 120,000 420,000 Total sales including deemed sales P1,220,000 Multiplied by VAT rate 12% Output VAT P 146,400 Less: Input VAT:

Purchases including VAT (P448,000/9.333) P 48,000 Input VAT credit from previous month 36,400 84,400 Net VAT payable P 62,000

Problem 10 – 28 Total domestic sales P1,000,000 Inventory consumed for personal use 100,000 Total sales subject to 12% VAT P1,100,000 Multiplied by VAT rate 12% Output VAT P 132,000

Problem 10 – 29 Output VAT (P500,000 – P100,000) x 12% P48,000 Less: Input VAT per record P25,000 Business tax paid 10,000 35,000 Remaining unpaid VAT P13,000

Problem 10 – 30 1. Sales P5,000,000 Less: Sales returns 100,000 Vatable sales P4,900,000

Output VAT (P4,900,000 x 12%) P 588,000 Less: Input VAT from:

Purchases/services (P1,120,000/9.333) P120,000

Importation (P600,000 x 12%) 72,000 Capital goods (P1,344,000/9.333)/ 5 years 28,800 220,800 Net VAT payable P367,200

2. Sales P5,000,000 Less: Sales returns P100,000 Sales discounts 200,000 300,000 Net sales P4,700,000 Less: Cost of sales (P1,000,000 + P600,000) 1,600,000 Gross income P3,100,000 Less: OSD (P3,100,000 x 40%) 1,240,000 Net taxable income P1,860,000 Multiplied by corporate income tax rate 30% Net taxable income P 558,000



Problem 10 – 31 1. Sales P5,000,000

Consigned goods to Victoria’s (65 days) 500,000 Vatable sales P5,500,000

Note: The accounts receivable is assumed to have been included as part of sales.

Raw materials used (P1,880,000 x 60%) P1,128,000 Increase in inventory – raw materials 360,000 Total purchases P1,488,000

Output VAT (P5,500,000 x 12%) P660,000 Less: Input VAT from expenses P36,000 Presumptive input VAT (P1,488,000 x 4%) 59,520 95,520 Net VAT payable P564,480

2. Actual sales P5,000,000 Less: Cost of sales 1,880,000 Gross income P3,120,000 Less: OSD (P3,120,000 x 40%) – higher – better 1,248,000 Net taxable income P1,872,000 Multiplied by corporate income tax rate 30% Income tax due P 561,600

Note: It is assumed that Sardines Manufacturing is a corporation.

Problem 10 – 32 1. Output VAT from deemed sales (P100,000 + P400,000) x 12% P60,000

2. Output VAT P60,000 Less: Input VAT 20,000 VAT payable P40,000

Problem 10 – 33 Output VAT (P11,200,000/1.12) x 12% P1,200,000 Less: Input VAT from:

Purchases (P7,840,000/1.12) x 12% P840,000

Unutilized input VAT of M Corporation 300,000 1,140,000 Net VAT payable P 60,000

Problem 10 – 34 1. Total Output VAT

First year: (P2,500,000 x 20%) = P500,000 x 12% P 60,000

Second year: (P2,000,000 x ½ ) x 12% 120,000 (P2,000,000 x 6% x 12%) 14,400

Third year: (P1,000,000 x 12%) 120,000 (P1,000,000 x 6% x 12%) 7,200 Total Output VAT P321,600

2. Additional Output VAT Required VAT (P3,000,000 x 12%) P360,000 Less: Previously paid VAT from first to third year 321,600 Additional Output VAT P 38,400


Chapter 10: VAT ON GOODS OR PROPERTIES Problem 10 – 35

1. Year of sale

Output VAT (P100,000 x 12%) P 12,000

2. Second year Output VAT (P200,000 x 12%) P 24,000 (P400,000 x 6% x 12%) 2,880

Total Output VAT – 2nd year P 26,880 3. Third year Output VAT (P200,000 x 12%) P 24,000 (P200,000 x 6% x 12%) 1,440

Total Output VAT – 3rd year P 25,440

Problem 10 – 36 1. VAT (P10M x 12%) P1,200,000 Real property sales subject to 25% rule.

Sales of house and lot of P2,500,000 & below is

exempt from business taxes.

2. Cash sales (P10,000,000 + P400,000) P10,000,000 Installment sales 400,000

Total sales P10,400,000 Less: Cost of sales of:

Cash sales P6,000,000 Installment sales (P1,500,000 x 4/20) 300,000 6,300,000 Gross income P4,100,000 Less: Operating expenses 2,000,000 Net income P2,100,000 Multiplied by corporate normal income tax rate 30% Income tax due P 630,000

Problem 10 – 37 1. Net income (P570,000/30%) P1,900,000 Less: Gain on sale of capital asset 50,000 Net operating income P1,850,000 Add: Cost of sales (P120,000/12%) P1,000,000

Sales discounts 150,000

Operating expense before taxes 990,000 Community tax 10,000 2,150,000 Amount subject to VAT P4,000,000

2. Output VAT (P4,000,000 x 12%) P 480,000

3. Output VAT P 480,000 Less: Input VAT 120,000 VAT payable P 360,000

Problem 10 – 38 1. Gross income P12,300,000 Add: Cost of sales (P10,000,000 + P150,000 – P850,000) 9,300,000 Net sales (P12,300,000 + P9,000,000) P21,600,000 Add: Sales discounts – due to prompt payments 200,000 Vatable base P21,800,000 Multiplied by VAT rate 12%


Chapter 10: VAT ON GOODS OR PROPERTIES Output VAT Less: Input VAT Net VAT payable

2. Gross income

Less: OSD (P12,300,000 x 40%) higher deduction allowed Net taxable income Multiplied by normal tax rate Income tax due

Problem 10 – 39

Cash sales

Sales on account

Installment sales – collection (P500,000 x 20%)

Transactions deemed sale:

Owner’s personal use (P50,000 x 70%)

Consigned goods (P100,000 x 70%)

Total sales

Multiplied by VAT rate

Output VAT

Less: Input VAT from purchases P48,000 Input VAT credit from previous month 36,000 Input VAT from imported machines used in business

(P200,000 x 150%) x 12% 36,000 Net VAT payable

Note: The transactions deemed sale may be reduced by 30%. (R.A. 9337) Problem 10 – 40

1. Sales

Transactions deemed sale:

Consigned goods (P560,000 x 70%) P392,000 Inventory used to pay dividends (P400,000 x 70%) 280,000 Total

Less: Sales returns and allowances

Amount subject to VAT

Multiplied by VAT rate

Output VAT

2. Actual net sales Less: Cost of sales

Gross profit

Less: OSD (P4,000,000 x 40%) – higher – better*

Net taxable income

Multiplied by corporate income tax rate Income tax due

P 2,616,000 1,200,000

P1,416,,000 P12,300,000 4,920,000 P

7,380,000 30%

P2,214,000

P1,000,000 300,000 100,000

35,000 70,000

P1,505,000 12%

P 180,600

120,000 P 60,600

P10,000,000

672,000 P10,672,000

300,000 P10,372,000

12% P 1,244,640

P9,500,000 5,500,000

P4,000,000 1,600,000

P2,400,000 30%

P 720,000 *Note: The actual operating expense is lower than OSD because the bad debts is based on percent of receivable which is not allowed as deduction. Also, the interest expense deductible would only be P34,800.


Chapter 10: CONCEPTS OF VAT



72

CHAPTER 10

CONCEPTS OF VAT

Problem 10–1 1. True 2. False – Some sales are VAT-exempt. 3. False – the buyer is legally liable for the payment of VAT on importation of goods or services. 4. True 5. True 6. False – Goods and services sold outside the Philippines are either zero-rated or VAT-exempt. 7. False – VAT is not a specific tax, but an ad valorem tax because its computation is based on

the value of goods or services sold. 8. True

9. False – 4%. 10. True 11. True 12. False – regardless of the amount of sales, a VAT-registered person is subject to VAT. 13. False – the privilege of input VAT is granted only to VAT-registered taxpayer. 14. False – Subject to VAT whether for business or not. 15. False – To be treated separately.

Problem 10–2 1. True 2. False – should not be subjected to the same tax. 3. False – VAT sales invoice or VAT official receipt. 4. True 5. True – for as long as the buyer is VAT-registered. 6. False – VAT refund. 7. False – excess of input VAT over output VAT. 8. False – importation is subject to VAT whether for business or personal use. 9. True 10. True 11. False – goods for sale is not covered by the P1,000,000 threshold. The goods must

depreciated/amortized as a result of use in business. 12. False – only zero-rated/ effectively zero-rated sales and cancellation of VAT registration can

apply for TCC issuance. 13. True 14. False – the resident lessee or licensee must file the VAT return in the name of nonresident

foreign entity. 15. True

Problem 10–3 1. True

2. False – deductible from the VAT-registered buyer’s output VAT. 3. True 4. True 5. False – the transitional input VAT is allowed only once upon shifting from non-VAT to VAT. 6. False – presumptive input VAT is allowed only to raw materials used in the production of few

products such as milk, sardines, mackerel, refined sugar, cooking oil, and instant noodles. 7. True 8. True 9. False – input VAT is recognized in effectively zero-rated sales. 10. False – within 2 years.





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11. True

12. True 13. False – more than P1,000,000. 14. True 15. True

Problem 10–4 Problem 10–5 1. B 1. C 2. A 2. D 3. B 3. A 4. D 4. B 5. C 5. C 6. D 6. D 7. C 7. C

8. C 8. D 9. A 9. B 10. C 10. D 11. A 11. A 12. B 12. C 13. A

Problem 10–6 D The sale of Y is not subject to VAT because its registration is nonVAT and its sales do not exceed P1,919,500.

Problem 10–7 A

Mar Roxas – non-VAT P300,000 Baguio City Government 200,000

SSS Baguio 100,000 San Marino 400,000 Total amount subject to VAT P 1,000,000

Problem 10–8 C

Sales to: Within Regular customers P2,000,000 Government 500,000 Employees 300,000 Total amount of sale subject to VAT P2,800,000

Problem 10–9 D

The ultimate consumer is not VAT-registered and does not sale the products. Therefore, no output VAT. If the consumer is VAT-registered still there is no output VAT, but instead input VAT.

Problem 10–10 A

Output VAT (P5,000,000 + P5,000,000) x 12% P1,200,000

Less: Input VAT (P6,720,000/9.333) 720,000 Net VAT payable P 480,000

Problem 10–11 C

Sales per VAT invoice, no output VAT is shown (P224,000/9.333) P24,000 Sales per VAT invoice, output VAT shown separately amounted to P30,000 inclusive in the invoice (P330,000/9.333) 35,358 Sales per purchase order – delivered (P100,000 x 12%) 12,000 Amount of output VAT P71,358





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Problem 10–12 D Total manufacturing costs P1,000,000 Delivery and insurance 200,000 Excise tax (P1,000,000 x 10%) 100,000 Gross margin (P1,000,000 x 70%) 700,000 Total sales price P2,000,000 Multiplied by VAT rate 12% Output VAT P 240,000

Problem 10–13 B

Fair market value of machine P1,500,000 Freight charges 100,000 Insurance charges 50,000 Duty tax 150,000

Excise tax 75,000 Total Vatable amount P1,875,000 Multiplied by VAT rate 12% VAT on importation P 225,000

Problem 10-14 B Output VAT [(P1,800,000/30%)/40%] x 12% P1,800,000 Less: Input VAT (P8,960,000/9.333 960,000 Net VAT payable P 840,000

Problem 10 – 15 D Total sales (P2,000,000 + P800,000) P2,800,000 Multiplied by VAT rate 12% VAT payable P 336,000

Problem 10 – 16 B Output VAT (P40M x 4 x 12%) P19,200,000 Less: Ouput VAT (P180M /5) x 4 x 12%) 17,280,000 Net VAT payable P 1,920,000 Supporting computations:

Purchase price P100,000,000 Excise taxes 40,000,000 Duty taxes 30,000,000 Insurance 5,000,000 Freight 5,000,000 Total landed cost P180,000,000

Problem 10 – 17 D Gross receipts – sale of electricity P 5,000,000 Sale of assets: Power general assets 30,000,000

Other real properties 20,000,000 Total P55,000,000 Multiplied by VAT rate 12% Output VAT P 6,600,000

Problem 10 – 18 A Zero. The business is non-VAT; hence, no input VAT is allowed.





75

Problem 10 – 19 A Output VAT (P425,600/9.3333) P45,600 Less: Input VAT (P448,000/9.3333) 48,000 Input VAT carry-over P 2,400 VAT-registered buyers of non-VAT business that collects VAT is allowed to deduct input VAT.

Problem 10 – 20 D Input VAT from: VAT invoice in the name of Capoy Enterprises (P224,000/9.333) P 24,000 NonVAT invoice with VAT charges (P168,000/9.333) 18,000 Total creditable input VAT P42,000 The VAT invoice in the name of Capuypoy Trading is not allowed because it does not bear the

name of Capoy Enterprises.

Problem 10 – 21 B Input VAT from VAT purchased invoice (P1,792,000/9.333) P192,000 Non-VAT purchase invoice (P313,600/9.333) 33,600 Transitional input VAT 5,800 Total input VAT from purchases P231,400 Less: Proportionate input VAT for sales to the government (P192,000 + P33,600) x 500/2,000 56,400 Input VAT balance P175,000 Add: Standard input VAT on sales to government (P560,000/9.333) x 7% 35,000 Total creditable input VAT P210,000

Problem 10 – 22 A Purchases per VAT invoice amount (P140,000/9.3333) P 15,000 Payments for VAT person’s services inclusive of VAT (P1,232/9.3333) 132 Payment for services of VAT person, net of VAT (P917 x 12%) 110 Total available input VAT P 15,242

Problem 10 – 23 C Input VAT from: Machine 1 – inventory (P1,680,000/9.333) P180,000 Amortization of input VAT from: Machines 2 and 3 [(P672,000 + P560,000)/9.333]/60 months 2,200 Creditable input VAT – January P182,200

Note: Machines 2 and 3 are depreciable capital goods with aggregate costs of P1,100,000 excluding VAT; hence, their input VAT is subject to amortization of 60 months or estimated useful life, whichever is shorter.

Problem 10 – 24 D January February March Output VAT P120,000 P156,000 P180,000

Input VAT from purchases of: Goods (72,000) (84,000) (96,000) Capital goods – March acquisition (60,000) Capital goods – February acquisition . ( 3,000) ( 3,000) Net VAT payable (refundable) P 48,000 P 69,000 P21,000

Problem 10 – 25 1. Letter B Total costs incurred to date





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Year 1 P4,000,000

Year 2 8,000,000 P12,000,000 Multiplied by percent of construction costs subject to VAT 60% Construction costs subject to VAT P 7,200,000 Multiplied by VAT rate 12% Creditable input VAT in year 2 P 864,000

2. Letter C Output VAT P3,600,000 Less: Input VAT from purchases P1,200,000 Input VAT from construction in progress Year 3 (P3,000,000 x 60% x 12%) 216,000 1,416,000 Net VAT payable P2,184,000

Problem 10 – 26 A

Output VAT P6,000,000

Less: Input VAT from purchases P2,000,000 Input VAT from CIP: Materials (P3,600,000 x 30%) 1,080,000 Labor (P2,400,000 x 20%) 480,000 Overhead (P1,200,000 x 20%) 240,000 3,800,000 Net VAT payable P2,200,000

Problem 10 – 27 1. Letter D Purchases from VAT person (P644,000/9.333) P69,000

Purchases from Non-VAT person in VAT invoice (P61,600/9.333) 6,600 Payments to VAT services (P56,000/9.333) 6,000 Total creditable input VAT P81,600

2. Letter A Output VAT (P784,000/9.333) P 84,000

Less: Creditable input VAT 81,600 Net VAT payable (refundable) P 2,400

Problem 10 – 28 B Equipment (P2,500,000 x 12%) = P300,000/60 P 5,000 Supplies (P10,000 x 12%) 1,200 Goods (P800,000 x 12%) 96,000 Creditable input VAT P102,200

Problem 10 – 29 C Siopao machine (P300,000 x 1) P300,000 Siomai machines (P250,000 x 2) 500,000 Pizza machines (P200,000 x 3) 600,000 Oven (P150,000 x 4) 600,000 Total amount P2,000,000

Add: Custom duty (P2,000,000 x 10%) P200,000 Excise tax (P2,000,000 x 5%) 100,000 Storage fee (P2,000,000 x 2%) 40,000 340,000

Total landed costs P2,340,000 Multiplied by VAT rate 12% Input VAT P 280,800

Problem 10 – 30 1. Letter A

Total machines – imported (P100,000 + P200,000 + P300,000) P 600,000





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Add: Excise tax (P600,000 x 50%) 300,000

Total P 900,000 Multiplied by VAT rate 12% VAT paid on importation P 108,000

2. Letter D

Output VAT (P1,000,000 x 12%) P 120,000 Less: Creditable input VAT: Machine 2 (P200,000 + P100,000) x 12% P36,000 Machine 3 (P300,000 + P150,000) x 12% 54,000 90,000 VAT payable P 30,000

Problem 10 – 31 D Actual input VAT (P896,000 x 20%)/9.333, higher P19,200

Transitional input VAT (P1,500,000 x 50%) x 2% 15,000 Total transitional input VAT allowed, the higher amount P34,200

Problem 10 – 32 A Output VAT (P1,600,000 + P2,000,000) x 12% P432,000 Less: Other percentage tax paid 48,000 Output VAT balance P384,000 Less: Input VAT from purchases – August to December P240,000 Transitional input VAT, (P100,000 x 2%) = P2,000; higher - actual 34,000 274,000 Net VAT payable P110,000

Problem 10 – 33 B Prime raw materials – coconut for cooking oil (P1,000,000 x 3/5) P600,000 Multiplied by presumptive VAT rate 4%

Presumptive input VAT P 24,000

Problem 10 – 34 C Output VAT (P2,800,000/9.333) P300,000 Less: Input VAT from Presumptive input VAT – sardines (P800,000 x 4%) P32,000

Supplies (P50,400/9.333) 5,400 Amortization of capital goods [(P1,232,000/9.333)/60] x 3 months 6,600 44,000 Net VAT payable P256,000

Problem 10 – 35 B Output VAT (P600,000 + P1,500,000) x 12% P252,000

Less: OPT (P600,000 x 3%) 18,000 Output VAT balance P234,000 Less: Transitional input VAT (P100,000 x 2%) P 2,000 Presumptive input VAT (P800,000 – P200,000) x 4% 24,000 26,000 Net VAT payable P208,000

Note: The basis of presumptive input VAT is the gross value of the purchased raw materials used in the production.

Problem 10 –36 C Input VAT from purchases – second quarter (P5,040,000/9.333) P540,000 Input VAT carry-over from first quarter 57,000 Input VAT - Purchases returns (P50,000 x 12%) ( 6,000) Input VAT amortized on capital goods (P180,000/60) x 3 9,000 Creditable input VAT – second quarter P600,000





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Problem 10 –37 B

Amount of input VAT allowed for VAT refund or Issuance of TCC (P600,000 x 20/50) – export sales or zero-rated VAT related P240,000

Problem 10 –38 C

Input VAT from importation (P1,120,000/9.333) P120,000 Input VAT per VAT invoice issued by nonVAT person (P896,000/9.333)

96,000

Total input VAT refund P216,000

Problem 10 – 39 A Output VAT on actual sales [P400,000 + (P560,000/1.12)] x 12% P108,000 Add: Output VAT on deemed sales (P30,000 + P20,000) x 12% 6,000 Total output VAT P114,000

Less: Other percentage tax paid (P400,000 x 3%) 48,000 Output VAT balance P 66,000 Less: Input VAT from: Purchases (P672,000/9.333) P72,000 Input VAT previous quarter 42,000 Transitional input VAT 2,000 116,000 Input VAT carry-over (P50,000)

D Problem 10 – 40 Contract price P6,720,000 Less: VAT withholding (P6,720,000/9.333) P 720,000 Final withholding income tax (P6,000,000 x 7.5%) 450,000 1,170,000 Net remittance to Japan Inc. P5,550,000

Problem 10 – 41 1. Total Output VAT (P1,344,000/9.333) P 144,000 2. Total Output VAT P144,000 Less: Input VAT VAT purchase invoice amount (P840,000/9.333) 90,000 Net VAT payable P 54,000

Problem 10 – 42 1. Output VAT (P880,000 + P720,000) x 12% P 192,000 2. Output VAT P 192,000 Less: Input VAT (P1,200,000 x 12%) 144,000 Net VAT payable P 48,000

Problem 10 – 43 1. Output VAT (P125,000 x 12%) P 15,000

2. Input VAT (P84,000/9.3333) P 9,000

Note: The sales is multiplied by 12% because the term used is not per VAT invoice while the purchase is divided by 9.333 because the purchase is inclusive of VAT.

Problem 10 – 44 Total sales price (P20 x 10) P 200 Add: VAT (P200 x 12%) 24

Total sales invoice amount P 224





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Problem 10 – 45 1. Net income (P570,000/30%) P1,900,000 Less: Gain on sale of capital asset 50,000 Net operating income P1,850,000 Add: Cost of sales (P120,000/12%) P1,000,000 Sales discounts due to prompt payments 150,000 Operating expense before taxes 990,000 Community tax 10,000 2,150,000 Vatable base – Sales subject to VAT P4,000,000 2. Output VAT (P4,000,000 x 12%) P 480,000 3. Output VAT P 480,000

Less: Input VAT 120,000 VAT payable P 360,000

Problem 10 – 46

1. Net income (P600,000/30%) P2,000,000 Less: Gain on sale of capital asset 150,000 Net operating income P1,850,000 Add: Cost of sales (P240,000/12%) – P400,000 P1,600,000 Sales discounts due to prompt payments 45,000 Operating expenses before taxes 1,000,000 Community tax 5,000 2,650,000

Sales subject to VAT P4,500,000 Output VAT (P4,500,000 x 12%) P540,000 Less: Input VAT from purchases P240,000 Presumptive input VAT 60,000 300,000 Net VAT payable P240,000 Add: Surcharge (P240,000 x 25%) P60,000 Interest from Jan. 25 to Mar. 25 (P240,000 x 20% x 2/12) 8,000 Compromise for late payment 1,000 69,000 Total amount payable P309,000 2. None, because the payment of income tax is made on time – April 15, of

the succeeding year.

Problem 10 – 47 Importation for business use P1,000,000 Add: Customs duties (P1,000,000 x 50%) 500,000 Total P1,500,000 Add: Excise tax (P1,500,000 x 10%) 150,000 Total P1,650,000 Multiplied by VAT rate 12%

Creditable Input VAT P 198,000

Problem 10 – 48 1. Output VAT (P1,456,000/9.3333) 2. Input VAT (P1,120,000/9.3333)

P156,000

P120,000

3. Net VAT payable (P156,000 – P120,000) P 36,000





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Problem 10 – 49 1. Net income (P1,200,000/30%) P4,000,000 Add: Operating expenses (P2,540,000- P240,000) 2,300,000 Gross income P6,300,000 Add: Cost of sales (P3,360,000/1.12) P3,000,000 Less: Increase in inventory 300,000 2,700,000 Sales P9,000,000 2. Output VAT (P9,000,000 x 12%) P1,080,000 Less: Input VAT from purchases (P3,360,000/9.333) P360,000 Input VAT from operating expenses 240,000 Input VAT from CIP:

Materials (P560,000 + P448,000 + P672,000)/9.333 180,000 Labor (P1,500,000 x 40%) x 12% 72,000

Overhead (P1,500,000 x 20%) x 12% 36,000 888,000 Net VAT payable P 192,000

Problem 10 – 50 Non-VAT Total sales as of November 1, 201B P1,900,000 Add: Sales on November to December 201B (P672,000/1.12) + P100,000 = P700,000/70% 1,000,000

Total sales P2,900,000 Multiplied by VAT rate 12% Output VAT P 348,000 Less: Other percentage tax paid 57,000 Output VAT balance P 291,000 VAT-registered Output VAT P 348,000 Less: Other percentage tax paid 57,000 Output VAT balance P 291,000 Less: Transitional input VAT (P672,000/1.12) + (P100,000) = P700,000 x 2% = P14,000 (P672,000/9.333) = P72,000, higher + (P100,000 x 2%) 74,000 217,000 VAT advantage to register under VAT system P 74,000 Alah Nganin should register under VAT system.

Problem 10 – 51 Output VAT (P5,000,000 x 12%) P600,000 Less: Input VAT from: Supplies (P784,000/9.333) P84,000 Rent (P214,000/107%) x 12% 24,000 Creditable input VAT from previous period 112,000 Presumptive input VAT

(P2,200,000 – P200,000) x 2% 40,000 260,000 Net VAT payable P340,000

Problem 10 – 52 Output VAT (P3,000,000 x 12%) P360,000 Less: Transitional input VAT (P100,000 x 2%) P 2,000 Presumptive input VAT (P1,620,000 x 4%) 64,800 Input VAT from operating expenses 3,600 70,400 Net VAT payable P289,600





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The presumptive input VAT is based on primary raw materials used. The primary raw materials

used during the period are computed as follows: Copra raw materials, beginning P 100,000 Add: Purchases of copra from farmers 1,900,000 Total P2,000,000 Less: Copra raw materials, ending 380,000 Copra raw materials used P1,620,000

Problem 10 – 53 Output VAT P200,000 Less: Input VAT from: Purchases P240,000 Carry-over from last quarter 30,000

Capital goods (P180,000/60) 3,000 273,000 Creditable input VAT for next quarter (P 73,000)

Problem 10 – 54 1. Input VAT from purchases for business (P112,000/9.333) P 12,000 Input VAT from importation (P79,520/9.333) 8,520 Creditable input VAT for the period P20,520 Less: Output VAT 20,000 Input VAT carry-over P 520 2. Input VAT carry-over (P20,520 – P20,520) P - 0 -

Problem 10 – 55 Input VAT on Depreciable Capital Goods from purchase of

Truck (P1,120,000/9.333) P120,000 Processing machine (P1,568,000/9.333)/60 x 1 2,800 Total Input VAT for the last quarter P122,800 Note: The Input VAT from the purchase of truck should not be amortized because its cost does not exceed P1,000,000.

Problem 10 – 56 Transitional input VAT P 40,000 Presumptive input VAT 50,000 Input VAT on purchases of depreciable capital goods (P180,000 x 10/15) 120,000 Input VAT on operating expenses (P96,000 x 10/15) 64,000 Input VAT not allowed for TCC issuance P274,000 Only input VAT that can be traced or allocated to zero-rated or effectively zero-rated is allowed for issuance of TCC. Transitional and presumptive input VATs are not allowed for TCC issuance.

Problem 10 – 57 VAT invoice in the name of Busal Enterprises (P448,000/9.333) P 48,000 NonVAT invoice charged with VAT (P313,600/9.333) 33,600 Total input VAT P 81,600 Multiplied by percent of VAT for regular sales (P1M/P1.5M) = 2/3 2/3 Creditable input VAT from regular VAT sales P 54,400 The input VAT on sales to government is subject to SIV and is deductible only from the Output VAT on sales to the government. Its actual input VAT of P18,000 is not allowed to be deducted

from output VAT. (R.A. 9337)





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Problem 10 – 58 Input VAT carry-over P 24,000 Input VAT from purchases 60,000 Input VAT capital goods 240,000 Total P324,000 Less: Adjustments: Input VAT on purchase returns (P100,000 x 12%) P 12,000 Input VAT on VAT-exempt sales (P60,000 x 5/20) 15,000 Unamortized portion of input VAT on capital goods (P240,000 – (P240,000/60) 236,000 263,000

Adjusted creditable input VAT P 61,000


Chapter 11: VAT ON SALE OF SERVICES

CHAPTER 11

VALUE-ADDED TAX Problem 11–1 1. False – Not all because there are services that are rendered in the Philippines yet subject to

zero-rated or VAT-exempt. 2. True 3. False – services performed outside the Philippines even if undertaken in the course

of business are beyond the scope of 12% VAT. 4. False – in service, receivable is not subject to VAT.

5. True 6. True 7. False – the consent of the depositor-buyer restricts the withdrawal; therefore there is no

constructive receipt. 8. True 9. True 10. True 11. False – only those with gross receipts of more than P1,919,500 or those VAT-registered

professionals are subject to VAT. 12. True 13. True 14. False – the registration is non-VAT subject to OPT, except if the gross receipts

exceeds P1,919,500 during the taxable year. 15. True Problem 11–2 1. True

2. False – receivables are not part of gross receipts. 3. True 4. False – transport of passengers by land is subject to 3% OPT. 5. True 6. True 7. False – provisional receipt does not constitute a VAT-invoice or receipt. 8. True 9. False – amount of insurance premium paid. 10. False – it is the obligation of the payor to pay and withhold the VAT. 11. False – Subject to VAT only if VAT-registered or if non-VAT, the total gross receipts should

exceed P1,919,500. 12. False – In addition, the total aggregate collection during the year must exceed P1,919,500. 13. True 14. False – publications devoted primarily for advertisements are subject to VAT. 15. True Problem 11–3 1. False – subject to effectively zero-rated VAT. 2. True 3. False – VAT-exempt. 4. True 5. True – because the review classes are duly accredited with CHED. 6. True 7. False – not subject to VAT, except when confiscated. 8. True 9. True 10. True


Chapter 11: VAT ON SALE OF SERVICES 11. False – granted only to persons or entities as provided by special laws and international

agreements. 12. True 13. False – the performance of service must be within the PEZA boundaries to be entitled to

a zero-rated VAT. 14. False – zero-rated VAT. 15. True Problem 11–4 1. False – subject to VAT only if the professional is VAT-registered or the annual professional

fees received exceeded P1919,500. 2. False – subject to final tax of 20%. 3. True

4. True 5. True 6. True 7. True 8. False – a tip is a compensation income; hence not subject to VAT. 9. False – subject to 5% OPT. 10. True 11. True 12. True 13. True 14. True 15. False – still in original state. Problem 11–5 Problem 11–6 1. D 1. A 2. C 2. D 3. B 3. A 4. A 4. C 5. A 5. B 6. D 6. C 7. A 7. C 8. C 8. D 9. D 9. B 10. B 10. C

Problem 11 – 7 A Zero. All items of income are not subject to 12% VAT. Problem 11 – 8

1. Letter C

Gross receipts outside the Philippines – zero-rated VAT P800,000

2. Letter A Output VAT (P1,000,000 x 12%) P120,000 Less: Input VAT to service costs (P40,000 + P30,000) P 70,000 Input VAT from supplies (P22,400 + P30,800)/9.333 5,700 75,700 Net VAT payable P 44,300

Problem 11 – 9 B Collections from contracts with:

Government (P50,000,000 x 20%) P10,000,000 Goshen Land (P30,000,000 x 40%) 12,000,000 Advance collections from various clients 20,000,000 Amount subject to 12% VAT P42,000,000


Chapter 11: VAT ON SALE OF SERVICES Problem 11 – 10 A

Various cash collections:

From receivables of past services P 350,000 From current services 900,000 For future trucking services 250,000

Deposits to Moon Trucking ‘s savings deposits

by clients located in the provinces 300,000 Legal compensation agreement with his creditor 200,000 Total gross receipts subject to VAT P2,000,000 Multiplied by the VAT rate 12% Output VAT P 240,000 Problem 11 – 11 D

Remaining contract price (P10,000,000 – P3,500,000) P6,500,000 Less: Retained amount before verification (P10,000,000 x 10%) 1,000,000

Amount in the 2nd VAT official receipts P5,500,000 The contract price includes the 12% VAT because the agreement is total amount. Problem 11 – 12 C

Total amount collected (P70,000 x 30) P2,100,000 Less: Total advance expenses in the name of clients (P50,000 x 30) 1,500,000 Gross receipts subject to VAT P 600,000 Problem 11 – 13 C

Gross receipts – professional fees P1,000,000 Add: Value-added tax (P1,000,000 x 12%) 120,000 Total P1,120,000 Less: Withholding income tax (P1,000,000 x 15%) 150,000 Actual cash received P 970,000 Problem 11 – 14 C

Professional fee (P510,000/102%) P500,000

Proof: Professional fee 100% P500,000 Add: VAT (P500,000 x 12%) 12% 60,000 Total 112% P560,000 Less: Creditable withholding income tax (P500,000 x 10%) 10% 50,000 Net amount received 102% P510,000

Problem 11 – 15 1. Letter D

Boxing professional fee (P714,000/102%) P 700,000 Endorsement fee (P776,000/97%) 800,000 Actor’s talent fee (P970,000/97%) 1,000,000 Total professional fee P2,500,000 Multiplied by VAT rate 12% Total output VAT P 300,000

2. Letter B Professional fee (P700,000 x 10%) P 70,000 Endorsement fee (P800,000 x 15%) 120,000 Actor’s fee (P1,000,000 x 15%) 150,000 Total creditable withholding tax P 340,000


Chapter 11: VAT ON SALE OF SERVICES Problem 11 – 16

1. Letter B

Service income (P735,000/105%) P700,000

Proof: Service income 100% P700,000 Add: Output VAT (P700,000 x 12%) 12% 84,000 Total 112% P784,000 Less: Final VAT (P700,000 x 5%) (5%) P35,000

Creditable withholding income tax (P700,000 x 2%) (2%) 14,000 49,000 Net cash received 105% P735,000

2. Letter D Output VAT (P700,000 x 12%) P84,000 Less: Standard Input VAT (P700,000 x 7%) 49,000 VAT payable P35,000 Less: Final withholding VAT (P700,000 x 5%) 35,000 Net VAT payable P - 0 -

Problem 11 – 17 A Output VAT (P336,000/9.333) x 3 months – Oct. to Dec. 200A P108,000 Less: Input VAT (P616,000/1.12) x 12% 66,000 Net VAT payable P 42,000

Problem 11 – 18 1. Letter C

Security agency fee (P3,000/2%) P150,000 Multiplied by VAT rate 12% Output VAT P 18,000

2. Letter A Total amount received P615,000 Add: Creditable withholding income tax 3,000 Total P618,000 Less: Security agency fee P150,000 Amount of VAT 18,000 168,000 Security guards’ salaries P450,000

Proof: Salaries of security guards P450,000 Security agency fee inclusive of VAT (P150,000 x 1.12) 168,000 Total P618,000 Less: Creditable withholding income tax (P400,000 x 2%) 3,000 Net amount received P615,000

Problem 11 – 19 C Output VAT (P7,840,000/9.333) P840,000 Less: Input VAT from:

Listing broker (P7,840,000 x 10%)/9.333 P 84,000

Selling broker (P7,840,000 x 20%)/9.333 168,000

Office rent (P128,400/107%) x 12% 14,400 Office supply (P11,200/9.333) 1,200 267,600 Net VAT payable P572,400


Chapter 11: VAT ON SALE OF SERVICES Problem 11 – 20 B

Sales of securities P20,000,000 Less: Cost of securities 18,000,000 Gross receipts on sales of securities P 2,000,000 Add: Broker’s commission 400,000 Total amount subject to VAT P 2,400,000

Output VAT (P2,400,000 x 12%) P288,000 Less: Input VAT - Office rent (P160,500/107%) x 12% 18,000 Net VAT payable P270,000

Problem 11 – 21 C Percentage tax - passengers (P3,000,000 x 3%) P 90,000 Vatable transactions - cargoes (P2,200,000 x 12%) 264,000 Total business tax P354,000

Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers’ excess baggage is subject to VAT. (BIR Ruling 094-99)

Although there is actual Input VAT paid, this could not be claimed as tax credit because the business is non-VAT registered.

Problem 11 – 22 A

Output VAT (P1,400,000 + P600,000) x 12% P240,000 Less: Creditable input VAT (P560,000/9.333) 60,000 Net business tax payable P180,000

Problem 11 – 23 B

Output VAT (P8,000,000 + P2,000,000) x 12% P1,200,000 Less: Creditable input VAT 960,000 Net business tax payable P 240,000

Problem 11 – 24 1. Letter A P1,000,000 Gross receipts P1,000,000 Currency adjustment factor P30,000

Documentation charges 25,000

Processing charges 20,000

Third party service provider:

Freight charges 450,000

Carrier security charges 90,000

Trucking fee 100,000 Advance manifest surcharge 35,000 750,000 Actual commission income P250,000

2. Letter B Outbound movement

Local origin charges:

Currency adjustment factor P30,000 Documentation charges 25,000 Processing charges 20,000 Actual commission income 250,000

Inbound movement Local destination charges:


Chapter 11: VAT ON SALE OF SERVICES Trucking fee 100,000

Advance manifest surcharge 35,000

Total taxable based P460,000 Multiplied by VAT rate 12%

Output VAT P 55,200 Less: Input VAT 10,200

Net VAT payable P 45,000

Problem 11 – 25 A Package price per person P100,000 Less: Allowed deductible costs:

Hotel room charges P25,000 Passport and visa fees 13,000 38,000

Gross receipts subject to VAT P 62,000 Multiplied by VAT rate 12%

Output VAT per person P 7,440 Multiplied by number of delegates 30

Total output VAT P223,200 Less: Input VAT (P85,600/107%) x 12% 9,600

Net VAT payable P213,600 Note: The sale of tickets is considered taxable on the gross selling price because the margin exceeds 9%.

Problem 11 – 26 C

Gross receipts P30,000,000 Add: Commission on sales of tickets (P5,000,000 x 5%) 250,000 Total revenue P30,250,000 Less: Total cost of service from third party (P16,500,000 – P250,000) 16,250,000 VAT Taxable base P14,000,000 Multiplied by VAT rate 12% Output VAT P 1,680,000

Problem 11 – 27 B

Hotel accommodation (P2,500 x 100) P250,000 Food and beverages consumptions 650,000 Handling charges for cable and internet 50,000 VAT taxable amount P950,000 Multiplied by VAT rate 12% Output VAT P114,000

Problem 11 – 28 D

Output VAT (P300,000/9.333) P32,144 Less: Input VAT (P224,000/9.333) 24,000 Net VAT payable P 8,144

Problem 11 – 29 B

Output VAT: (P10,000 x 12%)

On smoke belching test (P500 x 12%) P 60

On nonlife insurance premiums (P10,000 x 12%) 1,200 P1,260 Less: Input VAT (P10,000 x 30% x 12%) 360 Net VAT payable P 900

Problem 11 – 30 1. Letter B

Output VAT (P100,000 x 12%) P12,000


Chapter 11: VAT ON SALE OF SERVICES 2. Letter C

OPT (P100,000 x 10%) P10,000

Problem 11 – 31 1. NOT IN THE CHOICES

Output VAT (P20,000,000 x 12%) P2,400,000

2. Letter A Final withholding income tax (P14,000,000/70%) x 30% P6,000,000 Add: Withholding VAT (P14,000,000/70%) x 12%) 2,400,000 Total amount of national taxes P8,400,000 The final withholding income tax from the gross income of a nonresident foreign corporation is 30%. The 12% withholding VAT is to be paid by the buyer of service not by the nonresident foreign corporation. Problem 11 – 32 C

Net VAT payable = final VAT (P1,000,000 x 12%) P120,000

Problem 11 – 33 D Output VAT (P32,100/107%) x 12% P3,600 Less: Input VAT 1,200 Net VAT payable P2,000

Problem 11 – 34 B Output VAT – printing of office forms (P600,000 x 12%) P72,000 Less: Input VAT (P280,000/9.333) 30,000 Input VAT P42,000

Problem 11 – 35 A Property Ads P2,000,000 Bindery services 1,500,000 Passbook and calling cards 500,000 Total production costs 100% P4,000,000 Add: Gross profit (P4,000,000 x 30%) 30% 1,200,000 Sales price before VAT 130% P5,200,000

Output VAT (P5,200,000 x 12%) P624,000 Less: Input VAT 124,000 Net VAT payable P500,000

Problem 11 – 36 B Sales of canteen (P50,000 x 30 days x 3 months) P4,500,000 Multiplied by VAT rate 12% Output VAT P 540,000

Problem 11 – 37 D Zero, Farmers’ Products is purely engaged in buy and sell of agricultural products in their original state. Likewise, it is engaged in the milling service of agricultural products. Problem 11 – 38 D

Output VAT (P900,000 + P1,500,000) x 12% P288,000

Problem 11 – 39 A Output VAT (P672,000/9.333) P72,000


Chapter 11: VAT ON SALE OF SERVICES Problem 11 – 40 D Zero. Accredited educational institutions are VAT-exempt. The amount of input VAT they paid on purchases of goods or services are not creditable. Problem 11 – 41 C

Output VAT (P5,556,000 + P144,000) x 12% P684,000 Less: Input VAT from:

Rent (P1,284,000/107%) x 12% P144,000

Electricity (P392,000/9.333) 42,000 Supplies (P728,000/9.333) 78,000 264,000

Net VAT payable P420,000 Problem 11 – 42 B

Output VAT from:

Professional fee (P1,455,000/97%) x 12% P180,000 Sale of musical compositions (P2,000,000 x 12%) 240,000 Sale of drama manuscript (P1,000,000 x 12%) 120,000 Sale of paintings (P500,000 x 12%) 60,000

Total output VAT P600,000 Less: Input VAT (P1,940,000/97%) x 12% 240,000 Net VAT payable P360,000

Problem 11 – 43 A Zero. Compensation income is not subject to business tax. The sales of banana cue is classified as subsistence livelihood because the sales amount does not exceed P100,000 in a year; hence, business tax exempt. Problem 11 – 44 B

Manpower’s gross salary (P12,000 x 100) P1,200,000 Add: Sales of cleaning materials (P952,000/1.12) x 130% 1,105,000 Gross receipts subject to VAT P2,305,000 Multiplied by VAT rate 12% Output VAT P 276,600 Problem 11 – 45 C

Local telephone calls (P6,000,000 x 12%) P 720,000 Overseas conversation (P3,000,000 x 10%) 300,000 Forfeited telephone instruments deposit (P500,000 x 12%) 60,000 Total business taxes P1,080,000 Problem 11 – 46 D

Output VAT – within (P20M + P10M) x 12% P3,600,000 Less: Total input VAT 2,400,000 Net VAT payable P1,200,000

Problem 11 – 47 1. Withholding VAT (P50,000,000 x 40%) x 12% P2,400,000

2. Final withholding tax (P50,000,000 x 40%) x 25% P5,000,000

3. Share of Dragon Films (P50,000,000 x 40%) P20,000,000 Add: VAT 2,400,000 Total P22,400,000 Less: Withholding VAT P2,400,000 Final withholding income tax 5,000,000 7,400,000 Net remittance to Japan Inc. P15,000,000



Problem 11 – 48 Class A – rent per unit more than P12,800 per month P1,680,000 Class B – rent per unit more than P12,800 per month 1,440,000 Total aggregate gross receipts P3,120,000 Multiplied by VAT rate 12% VAT payable P 374,400

(VAT Review Committee Ruling No. 010-07 dated July 18, 2007; BIR Rulings No. 144-2006 dated March 17, 2006; Rev. Regs. No. 16-2005)

Problem 11 – 49

Gross receipts from passengers P19,800,000 Add: Advances from passengers 500,000 Total P20,300,000 Less: Refunds made for passengers 300,000 Gross receipts subject to OPT P20,000,000

1. OPT on passengers (P20,000,000 x 3%) P 600,000 Add: VAT on cargoes (P10,000,000 x 12%) 1,200,000 Total business tax P1,800,000

2. Gross receipts (P20M + P10M) P30,000,000 Less: Operating expenses, before business taxes P24,400,000 Other percentage tax expense 600,000 25,000,000 Net income P 5,000,000 Multiplied by corporate normal tax rate 30% Income tax due P 1,500,000

Problem 11 – 50 1. Hospital services P6,000,000

2. Health maintenance services P3,000,000 Medical and drugs distributions 4,900,000 Sales of scrap materials 100,000 Total gross receipts subject to VAT P8,000,000 Multiplied by VAT rate 12% Output VAT P 960,000 Less: Input VAT 860,000 Net VAT payable P 100,000

Problem 11 – 51 1. Gross receipts P400,000 Currency adjustment factor P 6,000



Third party service provider:

Freight charges 250,000

Carrier security charges 50,000

Trucking fee 30,000 Advance manifest surcharge 16,000 370,000 Actual commission income P 30,000

2. Outbound movement Local origin charges:

Currency adjustment factor P 6,000





Actual commission income 30,000

Inbound movement

Local destination charges:

Trucking fee 30,000

Advance manifest surcharge 16,000

Total taxable based P100,000

Multiplied by VAT rate 12%

Output VAT P 12,000

Problem 11 – 52

1. Output VAT on Construction of roads

c/o National Government (P20,000,000 x 12%) P2,400,000

Less: Input VAT:

Applicable actual input VAT (P16,800,000/9.333) x 20/50 P 720,000

Less: Standard input VAT (P20,000,000 x 7%) 1,400,000 1,400,000

Other income P 680,000

VAT payable P1,000,000

Less: Final withholding VAT (P20,000,000 x 5%) 1,000,000

Net VAT payable P - 0 -

Output VAT on accounting information system installation for

San Beda College, a CHED accredited institution

(P10,000,000 x 12%) P1,200,000

Less: Input VAT [(P16,800,000/9.333) – P720,000] 1,080,000


2. Total revenues:

Repair services for international shipping P 8,000,000

Repair of Asian Development Bank’s building 7,000,000

Repair services for Moog, a PEZA-registered entity 5,000,000

Construction of roads (c/o National Government) 20,000,000

Accounting information system installation for

San Beda College, a CHED accredited institution 10,000,000 P50,000,000

Less: Costs of services (P16,800,000/1.12) 15,000,000

Gross income P35,000,000

Add: Other income 680,000

Total gross income P35,680,000

Less: Operating expenses 25,680,000

Net income P10,000,000

Multiplied normal corporate income tax rate 30%

Income tax due P 3,000,000


Chapter 12: Input VAT Credits and Refunds

CHAPTER 12

INPUT VAT CREDITS AND REFUNDS Problem 12–1 1. True 2. False – should not be subjected to the same tax. 3. False – VAT refund. 4. False – excess of input VAT over output VAT. 5. False – VAT sales invoice or VAT official receipt. 6. True

7. True – for as long as the buyer is VAT-registered. 8. False – importation is subject to VAT whether for business or personal use. 9. True 10. True 11. False – goods for sale is not covered by the P1,000,000 threshold. The goods

must depreciated/amortized as a result of use in business. 12. False – only zero-rated/ effectively zero-rated sales and cancellation of VAT registration can

apply for TCC issuance. 13. True 14. False – the resident lessee or licensee must file the VAT return in the name of

nonresident foreign entity. 15. True

Problem 12–2 1. True 2. False – not creditable. 3. True 4. False – TIV is granted only once when a non-VAT taxpayer shifts to VAT. 5. False – PIV is intended only the primary raw materials used in the processing of sardines,

mackerel, milk, refined sugar, cooking oil, packed noodles based instant meals. 6. True 7. True 8. True 9. False – within 2 years. 10. True 11. True 12. True 13. True 14. False – input VAT related to zero-rated or effectively zero-rated sales and input VAT of VAT-

registered person cancelling to non-VAT. 15. True

Problem 12–3 1. B 2. C 3. D 4. C 5. D 6. B – sugar only 7. D 8. A 9. C 10. A



Problem 12 – 4 A Zero. The business is non-VAT; hence, no input VAT is allowed.

Problem 12 – 5 A Output VAT (P425,600/9.3333) P45,600 Less: Input VAT (P448,000/9.3333) 48,000 Input VAT carry-over P 2,400

VAT-registered buyers of non-VAT business that collects VAT is allowed to deduct input VAT.

Problem 12 – 6 D

Input VAT from:

VAT invoice in the name of Capoy Enterprises (P224,000/9.333) P 24,000 NonVAT invoice with VAT charges (P168,000/9.333) 18,000

Total creditable input VAT P42,000 The VAT invoice in the name of Capuypoy Trading is not allowed because it does not bear the name of Capoy Enterprises.

Problem 12 – 7 B

Input VAT from VAT purchased invoice (P1,792,000/9.333) P192,000 Non-VAT purchase invoice (P313,600/9.333) 33,600 Transitional input VAT 5,800 Total input VAT from purchases P231,400 Less: Proportionate input VAT for sales to the government

(P192,000 + P33,600) x 500/2,000 56,400 Input VAT balance P175,000 Add: Standard input VAT on sales to government (P560,000/9.333) x 7% 35,000 Total creditable input VAT P210,000

Problem 12 – 8 A

Purchases per VAT invoice amount (P140,000/9.3333) P 15,000 Payments for VAT person’s services inclusive of VAT (P1,232/9.3333) 132 Payment for services of VAT person, net of VAT (P917 x 12%) 110 Total available input VAT P 15,242

Problem 12 – 9 C

Input VAT from:

Machine 1 – inventory (P1,680,000/9.333) P180,000 Amortization of input VAT from:

Machines 2 and 3 [(P672,000 + P560,000)/9.333]/60 months 2,200 Creditable input VAT – January P182,200

Note: Machines 2 and 3 are depreciable capital goods with aggregate costs of P1,100,000 excluding VAT; hence, their input VAT is subject to amortization of 60 months or estimated useful life, whichever is shorter.

Problem 12 – 10 D January February March Output VAT P120,000 P156,000 P180,000 Input VAT from purchases of:

Goods (72,000) (84,000) (96,000) Capital goods – March acquisition (60,000) Capital goods – February acquisition . ( 3,000) ( 3,000)

Net VAT payable (refundable) P 48,000 P 69,000 P21,000


Chapter 12: Input VAT Credits and Refunds Problem 12 – 11

1. Letter B

Total costs incurred to date

Year 1 P4,000,000

Year 2 8,000,000 P12,000,000 Multiplied by percent of construction costs subject to VAT 60% Construction costs subject to VAT P 7,200,000 Multiplied by VAT rate 12% Creditable input VAT in year 2 P 864,000

2. Letter C Output VAT P3,600,000 Less: Input VAT from purchases P1,200,000

Input VAT from construction in progress Year 3 (P3,000,000 x 60% x 12%) 216,000 1,416,000 Net VAT payable P2,184,000

Problem 12 – 12 A Output VAT P6,000,000 Less: Input VAT from purchases P2,000,000

Input VAT from CIP:

Materials (P3,600,000 x 30%) 1,080,000

Labor (P2,400,000 x 20%) 480,000 Overhead (P1,200,000 x 20%) 240,000 3,800,000 Net VAT payable P2,200,000


Purchases from VAT person (P644,000/9.333) P69,000 Purchases from Non-VAT person in VAT invoice (P61,600/9.333) 6,600 Payments to VAT services (P56,000/9.333) 6,000 Total creditable input VAT P81,600

2. Letter A Output VAT (P784,000/9.333) P 84,000 Less: Creditable input VAT 81,600 Net VAT payable (refundable) P 2,400

Problem 12 – 14 B Equipment (P2,500,000 x 12%) = P300,000/60 P 5,000 Supplies (P10,000 x 12%) = P1,200 1,200 Goods (P800,000 x 12%) = P96,000 96,000 Creditable input VAT P102,200

Problem 12 – 15 C Siopao machine (P300,000 x 1) P300,000 Siomai machines (P250,000 x 2) 500,000 Pizza machines (P200,000 x 3) 600,000 Oven (P150,000 x 4) 600,000 Total amount P2,000,000 Add: Custom duty (P2,000,000 x 10%) P200,000

Excise tax (P2,000,000 x 5%) 100,000 Storage fee (P2,000,000 x 2%) 40,000 340,000 Total landed costs P2,340,000 Multiplied by VAT rate 12% Input VAT P 280,800



1. Letter A

Total machines – imported (P100,000 + P200,000 + P300,000) P 600,000 Add: Excise tax (P600,000 x 50%) 300,000 Total P 900,000 Multiplied by VAT rate 12% VAT paid on importation P 108,000

2. Letter D

Output VAT (P1,000,000 x 12%) P 120,000 Less: Creditable input VAT:

Machine 2 (P200,000 + P100,000) x 12% P36,000 Machine 3 (P300,000 + P150,000) x 12% 54,000 90,000


Problem 12 – 17 D Actual input VAT (P896,000 x 20%)/9.333, higher P19,200 Transitional input VAT (P1,500,000 x 50%) x 2% 15,000 Total transitional input VAT allowed, the higher amount P34,200

Problem 12 – 18 A Output VAT (P1,600,000 + P2,000,000) x 12% P432,000 Less: Other percentage tax paid 48,000 Output VAT balance P384,000 Less: Input VAT from purchases – August to December P240,000

Transitional input VAT, (P100,000 x 2%) = P2,000; higher - actual 34,000 274,000 Net VAT payable P110,000

Problem 12 – 19 B Prime raw materials – coconut for cooking oil (P1,000,000 x 3/5) P600,000 Multiplied by presumptive VAT rate 2% Presumptive input VAT P 12,000

Problem 12 – 20 C Output VAT (P2,800,000/9.333) P300,000 Less: Input VAT from

Presumptive input VAT – sardines (P800,000 x 4%) P32,000

Supplies (P50,400/9.333) 5,400 Amortization of capital goods [(P1,232,000/9.333)/60] x 3 months 6,600 44,000

Net VAT payable P256,000

Problem 12 –21 B Output VAT (P600,000 + P1,500,000) x 12% P252,000 Less: OPT (P600,000 x 3%) 18,000 Output VAT balance P234,000 Less: Transitional input VAT (P100,000 x 2%) P 2,000

Presumptive input VAT (P800,000 – P200,000) x 4% 24,000 26,000 Net VAT payable P208,000 Note: The basis of presumptive input VAT is the gross value of the purchased raw materials used in the production. Problem 12 –22 C

Input VAT from purchases – second quarter (P5,040,000/9.333) P540,000 Input VAT carry-over from first quarter 57,000


Chapter 12: Input VAT Credits and Refunds Input VAT - Purchases returns (P50,000 x 12%) Input VAT amortized on capital goods (P180,000/60) x 3 Creditable input VAT – second quarter Problem 12 –23 D

Texas Instruments, Inc. (ECOZONE) P10M 10%

San Miguel Corporation 15M 15%

Department of Tourism 25M 25% Low cost housing (P1,000,000 per house and lot) 50M 50%

P100M 100%

Input VAT on purchases

Less: Input VAT allowed:

Zero-VAT sales – Texas Instruments (P3.6M x 10%) P 360,000 Reg. VAT sales – San Miguel Corporation (P3.6M x 15%) 540,000 Std input VAT – Department of Tourism (P25,000,000 x 7%) 1,750,000

Input VAT not allowed

Problem 12 –24 B Amount of input VAT allowed for VAT refund or

Issuance of TCC (P600,000 x 20/50) – export sales or zero-rated VAT related

Problem 12 –25 D Input VAT from importation (P1,120,000/9.333)

Input VAT per VAT invoice issued

by nonVAT person (P896,000/9.333)

Total input VAT refund

Problem 7 – 26 A Output VAT on actual sales [P400,000 + (P560,000/1.12)] x 12%

Add: Output VAT on deemed sales (P30,000 + P20,000) x 12%

Total output VAT

Less: Other percentage tax paid (P400,000 x 3%)

Output VAT balance

Less: Input VAT from:

Purchases (P672,000/9.333) P72,000 Input VAT previous quarter 42,000 Transitional input VAT 2,000

Input VAT carry-over

Problem 12 – 27 Contract price

Less: VAT withholding (P6,720,000/9.333) P 720,000 Final withholding income tax (P6,000,000 x 7.5%) 450,000

Net remittance to Japan Inc.

Problem 12 – 28 Importation for business use Add: Customs duties (P1,000,000 x 50%) Total Add: Excise tax (P1,500,000 x 10%) Total Multiplied by VAT rate Creditable Input VAT

( 6,000)

9,000 P600,000

P3,600,000 2,650,000

P 950,000

P240,000

P120,000

96,000 P216,000

P108,000 6,000

P114,000 48,000

P 66,000

116,000 (P50,000)

P6,720,000 1,170,000

P5,550,000 P1,000,000

500,000 P1,500,000

150,000 P1,650,000

12% P 198,000



Problem 12 – 29 1. Output VAT (P1,456,000/9.3333) P156,000

2. Input VAT (P1,120,000/9.3333) P120,000

3. Net VAT payable (P156,000 – P120,000) P 36,000

Problem 12 – 30 1. Net income (P1,200,000/30%) P4,000,000

Add: Operating expenses (P2,540,000- P240,000) 2,300,000 Gross income P6,300,000 Add: Cost of sales (P3,360,000/1.12) P3,000,000 Less: Increase in inventory 300,000 2,700,000 Sales P9,000,000

2. Output VAT (P9,000,000 x 12%) P1,080,000 Less: Input VAT from purchases (P3,360,000/9.333) P360,000

Input VAT from operating expenses 240,000

Input VAT from CIP:

Materials (P560,000 + P448,000 + P672,000)/9.333 180,000

Labor (P1,500,000 x 40%) x 12% 72,000 Overhead (P1,500,000 x 20%) x 12% 36,000 888,000 Net VAT payable P 192,000

Problem 12 – 31 Non-VAT

Total sales as of November 1, 201B P1,900,000 Add: Sales on November to December 201B

(P672,000/1.12) + P100,000 = P700,000/70% 1,000,000 Total sales P2,900,000 Multiplied by VAT rate 12% Output VAT P 348,000 Less: Other percentage tax paid 57,000 Output VAT balance P 291,000 VAT-registered

Output VAT P 348,000 Less: Other percentage tax paid 57,000

Output VAT balance P 291,000

Less: Transitional input VAT

(P672,000/1.12) + (P100,000) = P700,000 x 2% = P14,000 (P672,000/9.333) = P72,000, higher + (P100,000 x 2%) 74,000 217,000 VAT advantage to register under VAT system P 74,000

Alah Nganin should register under VAT system.

Problem 12 – 32 Output VAT (P5,000,000 x 12%) P600,000 Less: Input VAT from:

Supplies (P784,000/9.333) P84,000

Rent (P214,000/107%) x 12% 24,000

Creditable input VAT

from previous period 112,000

Presumptive input VAT (P2,200,000 – P200,000) x 2% 40,000 260,000




Output VAT (P3,000,000 x 12%) P360,000 Less: Transitional input VAT (P100,000 x 2%) P 2,000

Presumptive input VAT (P1,620,000 x 4%) 64,800 Input VAT from operating expenses 3,600 70,400

Net VAT payable P289,600 The presumptive input VAT is based on primary raw materials used. The primary raw materials used during the period are computed as follows: Copra raw materials, beginning P 100,000 Add: Purchases of copra from farmers 1,900,000 Total P2,000,000 Less: Copra raw materials, ending 380,000 Copra raw materials used P1,620,000

Problem 12 – 34 Output VAT P200,000 Less: Input VAT from:

Purchases P240,000

Carry-over from last quarter 30,000 Capital goods (P180,000/60) 3,000 273,000 Creditable input VAT for next quarter (P 73,000)

Problem 12 – 35 1. Input VAT from purchases for business (P112,000/9.333) P 12,000 Input VAT from importation (P79,520/9.333) 8,520 Creditable input VAT for the period P20,520 Less: Output VAT 20,000 Input VAT carry-over P 520

2. Input VAT carry-over (P20,520 – P20,520) P - 0 -

Problem 12 – 36 Input VAT on Depreciable Capital Goods from purchase of

Truck (P1,120,000/9.333) P120,000 Processing machine (P1,568,000/9.333)/60 x 1 2,800 Total Input VAT for the last quarter P122,800 Note: The Input VAT from the purchase of truck should not be amortized because its cost does not exceed P1,000,000. Problem 12 – 37

Transitional input VAT P 40,000 Presumptive input VAT 50,000 Input VAT on purchases of depreciable capital goods (P180,000 x 10/15) 120,000 Input VAT on operating expenses (P96,000 x 10/15) 64,000 Input VAT not allowed for TCC issuance P274,000 Only input VAT that can be traced or allocated to zero-rated or effectively zero-rated is allowed for issuance of TCC. Transitional and presumptive input VATs are not allowed for TCC issuance.



VAT invoice in the name of Busal Enterprises (P448,000/9.333) P 48,000 NonVAT invoice charged with VAT (P313,600/9.333) 33,600 Total input VAT P 81,600 Multiplied by percent of VAT for regular sales (P1M/P1.5M) = 2/3 2/3 Creditable input VAT from regular VAT sales P 54,400 The input VAT on sales to government is subject to SIV and is deductible only from the Output VAT on sales to the government. Its actual input VAT of P18,000 is not allowed to be deducted from output VAT. (R.A. 9337) Problem 12 – 39

Input VAT carry-over P 24,000 Input VAT from purchases 60,000 Input VAT capital goods 240,000 Total P324,000 Less: Adjustments:

Input VAT on purchase returns

(P100,000 x 12%) P 12,000

Input VAT on VAT-exempt sales

(P60,000 x 5/20) 15,000

Unamortized portion of input VAT

on capital goods

(P240,000 – (P240,000/60) 236,000 263,000 Adjusted creditable input VAT P 61,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 97SUGGESTED ANSWERS

Chapter 13: MIXED BUSINESS TRANSACTIONS

CHAPTER 13

MIXED BUSINESS TRANSACTIONS

Problem 13–1 True or False1. True 2. True 3. False – only those supported with VAT invoice or VAT receipts are allowed to claim input VAT

credit. 4. True 5. False – zero-rated transaction refers to output VAT and not input VAT. Zero-rated VAT

transactions have input VAT. 6. False – for the input VAT of zero-rated transaction, the treatment is either VAT credit, refund

or TCC issuance. 7. True 8. False – the basis of allocation is sales volume. 9. True 10. True 11. False – costs of sales or operating expense. 12. False – zero-rated VAT transaction. 13. True 14. False – transport of passengers by land is subject to 3% OPT regardless of amount.

Problem 13–21. False – zero-rated transactions. 2. True 3. False – 12% VAT. 4. True 5. False – subject to OPT regardless of amount. 6. False – life insurance premium is subject to 5% VAT. 7. False – not anymore subject to OPT tax because such amount is deducted from the gross

receipts. 8. True 9. True 10. False – if the monthly rent income is P12,800 and below, not subject to business tax

regardless of amount. 11. True 12. False – subject to income tax but not subject to VAT. 13. False – some are subject to OPT. Only those specified by law such as sale of food agricultural

products in their original state are exempt both from VAT and OPT. 14. False – only the allocated amount of input VAT related to VAT transactions and zero-rated

VAT transactions is allowed as deduction from output VAT.

Problem 13–31. B 2. C 3. A 4. C & D 5. C 6. D 7. B 8. C 9. A

10. B



Problem 13 – 4 AOutput VAT on taxable transaction P14,400Less: Creditable input VAT (P8,640 + P2,880 ) 11,520Net VAT payable P 2,880

Subject Zero- VAT-to 12% Rated Exempt

Output VAT (P120,000 x 12%) P14,400 P 0 P 0Input VAT – Credited 8,640 2,880 NoneAmount to be remitted (refunded or credited) P 5,760 (P 2,880) None

Allocation of Input VATRegular sales (P14,400 x 60%) P 8,640Zero-VAT rate (P14,400 x 20%) 2,880VAT-exempt (P14,400 x 20) 2,880Input VAT (P134,400/9.333) P14,400

Notes:1. The amount of Input VAT allocated to regular sales and zero-VAT sales are creditable VAT,

while the Input VAT allocated to the VAT-exempt sales are not creditable VAT which shouldbecome part of the cost of sales.

2. Computation of percent of sales: Percent Amount

Regular VAT sales 60% P120,000Zero-rated sales ($800 x P50) 20% 40,000VAT-exempt 20% 40,000Total sales 100% P200,000

Problem 13 – 5 BStandard input VAT (P15,000 x 7%) P1,050Add: Final withholding VAT (P15,000 x 5%) 750Amount of VAT deductible from sales to government P1,800

Problem 13 – 6 CTotal domestic cash sales (P110,000 + P55,000) P165,000Sales to government 15,000Total sales subject to VAT P180,000Multiplied by VAT rate 12%Total Output VAT P 21,600

Problem 13 – 7 DInput VAT – export sales (zero-rated) P 60,000Add: Allocated input VAT – export sales (P250,000 x 8/20) 100,000Tax refund or tax credit certificate – applicable to zero-rated VAT only P160,000

Problem 13 – 8 AZero, the business is nonVAT; hence, no input VAT is allowed.

Problem 13 – 9 COutput VAT (P2,000,000 x 12%) P240,000Less: Input VAT 60,000Net VAT payable P180,000



Problem 13 – 10 BIncrease in cost of service is the input VAT (P1,120,000/9.333) P120,000

Problem 13 – 11 CPercentage tax - passengers (P2,000,000 x 3%) P 60,000VAT taxable transactions - cargoes (P2,000,000 x 12%) 240,000Total business tax P300,0000

Notes:Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers’ excess baggage is subject to VAT. (BIR Ruling 094-99)

Although there is actual Input VAT paid, this could not be claimed as tax credit because the business is non-VAT registered.

Problem 13 – 12 BCommon carrier’s tax (P1,400,000 x 3%) P 42,000Output VAT (P1,792,000/9.333) 192,000Total business tax P234,000Less: Creditable Input VAT (P560,000/9.333) x P1,600,000/P3,000,000 32,000Net business tax payable P202,000

Notes:Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers’ excess baggage is subject to VAT. (BIR Ruling 094-99)

The creditable Input VAT is prorated between the Vatable and VAT-exempt gross receipts.

Problem 13 – 13 DOutput VAT [(P30,000/3%) + P3,000,000] x 12% P480,000Less: OPT paid 30,000Output VAT balance P450,000Less: Input VAT

Transitional input VAT (P500,000 x 2%) P 10,000Actual input VAT (P2,240,000/9.333) 240,000 250,000


Problem 13–141. Letter A

Input tax on regular VAT taxable sales P10,000Input tax on zero-rated sales 4,000Input tax allocated to regular and zero-rated VAT sales (P60,000 x 3/5) 36,000Creditable input tax against regular sales output VAT P50,000

2. Letter DInput tax on sales to government P 3,000Input tax allocated to sales to government (P60,000 x 1/5) 12,000Actual input VAT of sales to government P15,000

3. Letter CInput VAT on VAT-exempt sales P 4,000Excess of actual input VAT over standard input VAT of sales to gov’t.

Actual input VAT P15,000Less: Std. input VAT (P100,000 x 7%) 7,000 8,000

Input VAT to cost of sales or operating expense P12,000



4. Letter BGross income (P500,000 x 40%) P200,000Less: OSD (P200,000 x 40%) 80,000Net taxable income P120,000Multiplied by corporate tax rate 30%Income tax due – operating expense approached P 36,000Total sales P500,000Less: Cost of sales (P500,000 x 60%) P300,000

Input VAT of VAT-exempt sales 12,000 312,000Gross income P188,000Less: OSD (P188,000 x 40%) 75,200Net taxable income P112,800Multiplied by corporate tax rate 30%Income tax due – cost of sale approach 33,840Tax advantage P 2,160

Problem 13–151. Letter B

Output VAT from:Regular VAT sales (P1,120,000/9.333) P120,000Sale of defective products (P168,000/9.333) 18,000 P138,000

Less: Allocation of input VAT from:Packaging materials (P60,000 x 85%) P 51,000Presumptive input VAT [(P800,000 – P100,000) x 4%] x 85% 23,800 74,800


Note: The presumptive input VAT is based on the primary raw materialsused in the production.

2. Letter ATotal sales, net of VAT (P1,000,000 + P1,400,000 + P450,000 + P150,000) P3,000,000Less: Cost of sales P1,786,800

Input VAT traced to VAT–exempt sales (P60,000 x 15%) 9,000Presumptive input VAT to VAT-exempt (P700k x 4%) x 15% 4,200 1,800,000

Gross income P1,200,000Less: Itemized deductions 700,000Net taxable income P 500,000Multiplied by corporate tax rate 30%Income tax due P 150,000

Problem 13–161. Letter D

Other percentage tax – land passengers, within(P20,000,000 x 3%) P 600,000

Add: Net VAT payableOutput VAT - transport within from:

Air (P40,000,000 x 12%) P4,800,000Sea (P20,000,000 x 12%) 2,400,000Land – cargoes (P10,000,000 x 12%) 1,200,000

Total output VAT P8,400,000Less: Actual input VAT air and sea - within P775,000

Input VAT [(P6,000,000 x 75%)/60 months] x 3 225,000 1,000,000 7,400,000Total business taxes due P8,000,000



Computation of percent of allocation:Allowed with input VAT P 90M 75%VAT-exempt – land passengers 30M 25%Total gross receipts P120M 100%

Input VAT on Jet purchased (P50,000,000 x 12%) P6,000,000

2. Letter ATotal gross receipts P120,000,000Less: Cost of service (P120,000,000 x 40%) P47,925,000

Applicable input VAT for VAT-exempt[(P6M x 25%)/60 months] x 3 75,000 48,000,000

Gross income P 72,000,000Less: OSD (P72,000,000 x 40%) 28,800,000Net taxable income – OSD P43,200,000Less: Net taxable income – itemized

Gross income P72,000,000Less: Itemized deductions (P5M + P3.8M) 8,800,000 63,200,000

Difference P20,000,000Multiplied by corporate income tax rate 30%Tax advantage using OSD P 6,000,000

Problem 13–171. NOT IN THE CHOICES

Other percentage tax – life insurance premium (P76,000,000 x 5%) P3,800,000Add: Net VAT payable

Output VAT – nonlife insurance premium(P24,000,000 x 12%) P2,880,000

Less: Input VAT (P300,000 x 24%) 72,000 2,808,000Total business taxes due P6,608,000

Percent of gross receipts:Nonlife (P26,000,000 – P2,000,000) 24% P 24,000,000Life (P82,000,000 – P6,000,000) 76% 76,000,000

100% P100,000,0002. Letter B

Total gross receipts (P24M + P76M) P100,000,000Less: Cost of service

Life (P76,000,000 x 40%) 30,400,000Nonlife (P24,000,000 x 30%) 7,200,000Amount of input VAT – life (P300,000 x 76%) 228,000 37,828,000

Gross income P 62,172,000Add: Rent income 828,000Total gross income P 63,000,000Less: OSD (P63,000,000 x 40%) 25,200,000Net taxable income P 37,800,000Multiplied by corporate tax rate 30%Income tax due P 11,340,000

Problem 13–181. Letter B

Output VAT (P2,000,000 + P1,500,000) x 12% P420,000Less: Amortization of input VAT

[(P33,600,000/9.333)/60] x 10 months x 3.5/6 350,000Total business tax payable P 70,000



2. NOT IN THE CHOICESTotal gross receipts P6,000,000Less: Costs of service:

Depreciation – direct cost [(P33,600,000/1.12)/30] P1,000,000Input VAT traced to VAT-exempt transactions

Class C (P3,600,000/60) x 10 mos. x 2.5/6 250,000 1,250,000Gross income P4,750,000Less: OSD (P4,750,000 x 40%) 1,900,000Net taxable income P2,850,000Multiplied by corporate tax rate 30%Income tax due P 855,000

Problem 13–191. Output VAT – vacation house (P9M x 12%) P1,080,000

Less: Input VAT (P360,000) + (P240,000 x 75%) 540,000Net VAT payable P 540,000

The installment sale of real property is subject to 25% rule of initial payment. If the initial payment exceeds 25% of the selling price, the saleis considered as cash sales.

The sale of house and lot with a selling price of P3,199,200 and below isexempt from VAT.

2. Cash sales – vacation house P9,000,000Installment sales 600,000Total sales P9,600,000Less: Cost of sales of:

Cash sales – vacation house P6,000,000Installment sales – bungalow (P2,100,000 x 6/30) 420,000Input VAT traced to VAT-exempt sales related to:

Cost of sale (P120,000 x 6/30%) 24,000Operating expense (P240,000 x 3/12) 60,000 6,504,000

Gross income P3,096,000Less: Operating expenses 2,000,000Net income P1,096,000Multiplied by corporate normal income tax rate 30%Income tax due P 328,800

Problem 13 – 20Output VAT from:

Cash sales to VAT persons (P300,000 x 12%) P 36,000Cash sales to Non-VAT persons (P100,000 x 12%) 12,000Cash sales to government units (P200,000 x 12%) 24,000Credit sales to VAT persons (P400,000 x 12%) 48,000Sales return (P10,000 x 12%) ( 1,200) P118,800

Less: Input VAT from:Purchases from VAT person per invoice (P324,800/9.333) P 34,800Payment of services for business purposes, gross of VAT

(P72,800/9.333) 7,800Standard input VAT – government (P200,000 x 7%) 14,000 56,600

VAT payable P 62,200Less: Final withholding VAT – government (P200,000 x 5%) 10,000Net VAT payable P 52,200



Notes:1. The sales discount is generally a cash discount that depends on the happening of future

events which is the prompt payment of customers. This sales discount is not allowed tobe deducted for VAT purposes. (Sec. 4.106-9, R.R. 14-2005)

2. The 5% final withholding VAT is deductible from output VAT on sales to the government.

Problem 13 – 211. Input tax on taxable goods P 5,000

Input tax on zero-rated sales 3,000Standard input tax – government sales (P100,000 x 7%) 7,000Input tax on depreciable capital goods

not attributable to any specific activity(monthly amortization for 60 months) = (P20,000 x P200,000/P400,000) 10,000

Creditable input tax for the month P25,000

2. Input tax on sale to the government P4,000Input tax on depreciable goods allocated to sales to the government

(P20,000 x 100,000/400,000) 5,000Input tax attributable to sales to government for the month P9,000

Note: This actual input tax is deductible only to the extent of standard inputVAT amounting to P7,000. The excess of actual input VAT over standardinput VAT is to be treated as additional cost of sales or operating expense.

3. Input tax on sale of exempt goods P2,000Input tax attributable to VAT-exempt goods (P20,000 x 1/4) 5,000Input tax attributable to VAT-exempt goods P7,000

Note: This input VAT is not deductible from output VAT. Its entireamount is to be treated as additional cost of sales or operatingexpense.

Problem 13 – 22Gross sales/receipts for the month (VAT taxable) P750,000Multiplied by VAT rate 12%Output VAT P 90,000Less: Input taxes:

Goods (P392,000/9.333) x 675/750 P37,800Service (P84,000/9.333) x 675/750 8,100Std input VAT on sales to government (P75,000 x 7%) 5,250 51,150

VAT Payable before final VAT P 38,850Less: Final withholding VAT (P75,000 x 5%) 3,750Net VAT payable P 35,100

Notes:1. Composition of sales:

Cash sales to VAT persons P450,000Cash sales to Non-VAT persons 50,000Credit sales to VAT persons 200,000Gross sales P700,000Less: Sales returns P20,000

Sales discounts 5,000 25,000VAT taxable sales – subject to VAT P675,000Add: Sales to the government-subject to final VAT 75,000Total sales P750,000



2. All sales, whether sold to VAT or non-VAT person, cash and on credit are included.

3. Sales return and discounts were deducted to arrive at the amount of net sales. In thisparticular case, the sales discounts is deductible to determine the taxable based because theit does not depend on the happening of future event and its related total sales are recorded.

4. VAT on expenses that are not related in the conduct of business is not allowed as creditableInput VAT.

5. Sale to government unit is subject to final VAT withholding tax. (Sec. 4.114-2, R.R. 14-2005)

Problem 13 – 23Output VAT from:

Regular sales (P216,000 + P576,000) x 12% P95,040Deemed sales (P90,000 + P180,000) x 12% 32,400Government sales (P160,000 x 12%) 19,200 P146,640

Less: Input VAT allocation to:Regular VAT transactions P88,888Zero-VAT transactions 27,123Standard VAT from sales to government

(P160,000 x 7%) 11,200 127,211VAT payable before final VAT P 19,429Less: Creditable withholding final VAT from sales

to government (P160,000 x 5%) 8,000Net VAT payable 11,429

Supporting computations:Regular VAT

Sales: Taxable Zero-VAT With Gov’t. TotalTo VAT P576,000 P576,000To non-VAT 216,000 216,000To government (P169,600/106%) P160,000 160,000Export P324,000 324,000Personal use, at cost 90,000 90,000Consignment (P241,920/9.333) x 83.33%* 180,000 . . 180,000

Totals P1,062,000 P324,000 P160,000 P1,546,000

Percentage 68.69% 20.96% 10.35% 100%

Input VAT from:Creditable input VAT balance P 20,000VAT business (P571,760/9.333) 61,260Office supplies (P28,000/9.333) 3,000Payments VAT persons

(P110,000 x 12%) 13,200Importation (P298,144/9.333) 31,945

Input VAT allocations P88,888 P27,123 P13,394 P129,405

Notes:1. The goods consumed for personal use can be price at cost being transaction deemed sale.2. The deemed sale consigned goods is also price at cost, computed as follows:

Consignment price excluding VAT (P241,920/1.12) P216,000Multiplied by percent of cost based on the goods consumed forpersonal use (P90,000/P108,000) 83.33%*Cost of consigned goods P180,000


Chapter 14: OTHER PERCENTAGE TAXES CHAPTER 14

PERCENTAGE TAXES

Problem 14–1 1. False – 3% of gross sales or gross receipts. 2. False – business tax. 3. False – advalorem tax. 4. False – if the business is VAT-registered or engaged in business tax-exempt transactions, it

shall not be subject to 3% OPT. Also not all OPT rate is 3%. 5. False – Non-VAT business is not allowed to have Input VAT.

6. True 7. False – expressly exempted from business tax by law. (R.A. 8424) 8. False – the 3% is applicable only to transport by land. Transport by water and air is subject

to 12% VAT. 9. True 10. False – 2% percentage tax. 11. True 12. True 13. False – Premium collections outside the Philippines from nonresident person is exempt. 14. True 15. False – only gross receipts within.

Problem 14–2 1. False – Option to register not required under OPT. The business can also register as VAT. 2. True 3. False – minimum quarterly receipts or actual quarterly gross receipts, whichever is higher. 4. True 5. False – Subject to VAT for being registered as VAT 6. False – CNN is exempt from OPT because the communication is for news services. 7. True 8. True 9. False – amusement taxes ranging from 10% to 30% 10. True 11. False – Horse race’s cost of winning ticket is deductible. 12. False – not deductible. 13. False – only interest is subject to GRT 14. False – national tax 15. True

Problem 14–3 Problem 14–4 1. B 1. A 2. A 2. A should be “is NOT exempt from OPT.” 3. B 3. C 4. B 4. A 5. C 5. D 6. C 6. B 7. A 7. A 8. B 8. B 9. D should be “NOT covered by 9. D P1,919,500 threshold.”

10. C 10. B 11. D 11. A 12. C 12. C


Chapter 14: OTHER PERCENTAGE TAXES Problem 14 – 5 D Zero. Monthly rental income of P12,800 or less per unit of residential property is exempt from business tax regardless of the aggregate amount per year. Problem 14 – 6 C

Beginning inventory P 100,000 Add: Purchases 896,000 Total P 996,000 Less: Ending inventory (P100,000 + P196,000) 296,000 Cost of sales P 700,000 Add: Gross profit (P700,000 x 100%) 700,000 Sales P1,400,000 Multiplied by OPT rate 3% Business tax P 42,000 Problem 14 – 7 D

Other percentage tax (P403,200/112%) x 3% P10,800 VAT (P403,200/9.333) 43,200 Surcharge (P43,200 x 50%) 21,600 Total amount due P75,600 Problem 14 – 8 C

Other percentage tax (P800,000 x 3%) P24,000

Problem 14 – 9 A Sales (P1,330,000/70%) P1,900,000 Multiplied by OPT rate 3% Business tax P 57,000

Problem 14 – 10 B Net taxable income (P180,000/30%) P 600,000 Add: OSD (P600,000/60%) x 40% 400,000 Gross income P1,000,000 Add: Cost of sales 800,000 Gross sales P1,800,000 Multiplied by OPT rate 3% OPT P 54,000

Problem 14 – 11 1. Letter C

Sales (P35,000/25%) x 12 P1,680,000 Multiplied by OPT rate 3% Annual business tax P 50,400

2. Letter D Sales (P35,000/20%*) x 12 P2,100,000 Multiplied by VAT rate 12% Annual business tax P 252,000

*Computation of 20%: Sales 125%

Cost 100%

Gross profit 25% (25%/125%) = 20%


Chapter 14: OTHER PERCENTAGE TAXES Problem 14 – 12 A Cooperatives are exempt from income and business tax on their sales. Furthermore all of the sales reported are VAT and OPT exempt products. Problem 14 – 13

1. Letter D

Percentage tax P - 0 - There is no percentage tax because nonprocessed agricultural

food products are business tax exempt.

2. Letter B

Total sales (P5M + P20M) P25,000,000 Less: Cost of sales (P3M + P12M) 15,000,000 Gross income P10,000,000 Less: OSD (P10,000,000 x 40%) 4,000,000 Net taxable income P 6,000,000 Multiplied by corporate income tax rate 30% Income tax due and payable (OSD provides lesser income tax) P 1,800,000

Problem 14 – 14 C OPT withheld (P90,000 x 3%) P 2,700

Proof: Sales (P86,400/96%) 100% P90,000

Less: OPT withholding (P90,000 x 3%) (3%) P2,700 Creditable withholding tax (P90,000 x 1%) (1%) 900 3,600

Net sales proceeds P86,400

Problem 14 – 15 B Service fee P30,000 Less: OPT (P30,000 x 3%) P900

Creditable withholding tax (P30,000 x 2%) 600 1,500 Net check payment P28,500

Problem 14 – 16 D Gross receipts P350,000 Less: Operating expenses 50,000 Net income before personal exemption P300,000 Less: Personal exemption 50,000 Net taxable income P250,000

Income tax due of P250,000 (Sec. 24A,NIRC) P 50,000 Note: Owners of bancas and owners of animal-drawn two-wheeled vehicles are business tax-exempt; but subject to income taxes. Problem 14 – 17 B

Percentage taxes:

Taxi (P1,500,000 x 3%) P45,000 Bus (15 x P7,200 x 3%) 3,240

VAT (P50,000 x 12%) 6,000 Common carrier tax due P54,240 Note: The gross receipts from the transport of cargoes by domestic carriers by land shall still subject to 12% VAT. (R.A. 9337)


Chapter 14: OTHER PERCENTAGE TAXES

Problem 14 – 18 D Total gross receipts (P1,000,000 + P6,000,000) P7,000,000 Multiplied by applicable business tax rate 12% Total business tax P 840,000

Note: Common carrier by sea is subject to VAT of 12%.

Problem 14 – 19 A

Percentage tax (P10,000,000 x 3%) P 300,000 VAT (P6,000,000 + P1,000,000) x 12% 840,000 Average business tax in a year P1,140,000 Divided by number of quarter in a year 4 Estimated average business tax per quarter P 285,000

Problem 14 – 20 C

Percentage tax (P10,000,000 x 3%) P 300,000


Business tax P - 0 - If Philippine registry, zero-rated on their transport of passengers and

cargo from the Philippine port to a foreign port (vice versa).

2. Letter C Manila to USA (P1,000,000 x 3%) P30,000 Manila to China (P1,400,000 x 3%) 42,000 Philippine business tax P72,000

Problem 14 – 22 C Percentage tax – water franchise (P1,000,000 x 2%) P 20,000

Problem 14 – 23 B Percentage tax – water franchise (P2,000,000 x 2%) P 40,000 Percentage tax – radio franchise (P10,000,000 x 3%) 300,000 Total percentage tax P 340,000

Problem 14 – 24 NOT IN THE CHOICES OPT – Overseas call (P5,000 x 10%) P500 VAT - Local calls (P2,000 x 12%) 240 Total percentage tax or business tax P740

Problem 14 – 25 A Exempt

Problem 14 – 26 D Service charge (P75,000/10%) P 750,000 Add: Percentage tax (P750,000 x 10%) 75,000 Total collection P 825,000

Problem 14 – 27 D P - 0 -. Premium on life insurance from a nonresident alien is not covered of business tax in the Philippines.



Problem 14 – 28 C Life insurance (P10,000,000 x 80% x 5%) P400,000 Non-life insurance (P5,000,000 x 12%) 60,000

Total P460,000 Less: Life insurance refund within 6 months

(P2,000,000 x 30%) x 5% 30,000

Total percentage tax P430,000

Problem 14 – 29 NOT IN THE CHOICES Amusement tax (P3,500,000 x 18%) P630,000

Problem 14 – 30 D Amusement tax (P500,000 + P200,000 + P100,000) x 18% P 144,000

Problem 14 – 31 1. Letter A

Percentage tax (P2,000,000 + P1,000,000) x 10% P300,000

2. Letter D Exempt

Problem 14 – 32 B

Percentage tax [P1,000,000 - (P200,000/100)] x 10% P 99,800

Problem 14 – 33 A Percentage tax (P100,000 – P1,000) x 10% P 9,900

Problem 14 – 34 A Percentage tax [400,000 x P12) x 1% P 48,000

IPO tax rate (400,000/1,150,000) = 34.5% more than 33 1/3% = 1% percentage tax.

Problem 14 – 35 D Percentage tax [P600,000 x 4%) P 24,000

IPO tax rate (600,000/20)/ (2,600,000/20) = 23% = 4% percentage tax.

Problem 14 – 36 A Number of shares sold during the IPO (400,000 x 50%) 200,000 Total outstanding shares (500,000 x 120%) + 200,000 800,000 Percentage of IPO sales 25%

Applicable IPO tax rate 4%

Percentage tax (P1,000 x 200,000 x 4%) P8,000,000

Problem 14 – 37 B Percentage tax [P1,000,000 x .005) P 5,000

Problem 14 – 38 D P - 0 -. The sale is subject to capital gains tax because the shares of stock were sold directly to the buyer.


Chapter 14: OTHER PERCENTAGE TAXES Problem 14 – 39 B

Interest income with maturity more than 5 years (P400,000 x 1%) P 4,000 Leasehold income (P300,000 x 7%) 21,000 Total gross receipt tax P25,000 Note: The net trading loss is deductible only from trading gain of the same taxable year. Problem 14 – 40 D

Interest income with maturity less than 5 years (P600,000 x 5%) P 30,000 Royalty income (P300,000 x 7%) 21,000 Gain from sale of derivatives (P200,000 x 7%) 14,000 Total gross receipt tax P 65,000 Note: The net trading loss for 200A is not deductible from trading gain of 200B. Problem 14 – 41 D

1. Total gross receipts during the year (P360,000 x 3%) P10,800

2. Total gross receipts P360,000 Less: OSD (P360,000 x 40%) 144,000 Net income before personal exemption P216,000 Less: Personal exemption 50,000 Net taxable income P166,000

Tax on P140,000 P22,500 Tax on excess (P26,000 x 25%) 6,500 Income tax due P29,000

Problem 14 – 42 Gross receipts (P480,000 + P190,000 + P100,000 + P1,950,000 + P2,480,000) P5,200,000 Multiplied by applicable business tax rate - VAT 12% Output VAT P 624,000 Add: OPT on overseas calls (P100,000 x 10%) 10,000 Total business tax P 634,000

Problem 14 – 43 Actual gross receipts (higher) – City taxi (P195,000) from April to June P195,000 Multiplied by percentage tax rate 3%

Percentage tax payable – 2nd quarter (answer) P 5,850

Problem 14 – 44 Tax units Actual Minimum Higher

1 15,000 10,800 15,000 2 9,000 10,800 10,800 3 12,000 10,800 12,000 4 8,000 10,800 10,800 5 20,000 10,800 20,000

Total amount = higher amount 68,800 Multiplied by percentage tax 3% Percentage tax 2,058 Note: The higher of the aggregate/total amount of the actual gross receipts or minimum amount is subject to other percentage tax.



Problem 14 – 45 Subject to VAT:

Transport of goods (P2.5M x 12%) P 300,000 Transport of passengers (P5M x 12%) 600,000 Transport of cargoes (P3M x 12%) 360,000 Transport of animals (P1.5M x 12%) 180,000

Total business tax P1,440,000 Notes: 1. Common carriers by air and water relative to the transport of passengers within the

Philippines is subject to 12% VAT. Transport of passengers by land however is subject to 3% percentage tax.

2. International air carriers and international shipping carriers with foreign registry doing

business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross receipts.

Problem 14 – 46

Gross receipts (P100,000 + P50,000 + P150,000 + P200,000) P 500,000 Multiplied by applicable business tax rate 18% Business tax for the quarter P 90,000

Problem 14 – 47 Gross receipts P50,000,000 Multiplied by applicable franchise tax rate – VAT 12% Franchise tax P 6,000,000

Problem 14 – 48 Actual gross receipts from business operations

First quarter (P3,000,000 + P4,000,000) P7,000,000 Multiplied by applicable business tax rate 12% Franchise tax due – first quarter P 840,000

Note: During the taxable year, its business gross receipts must exceed P10,000,000; hence, subject to VAT.

Problem 14 – 49

Gross receipts – overseas calls (P500,000 x 10%) P 50,000 Gross receipts – local calls (P500,000 x 12%) 60,000 Total percentage taxes P110,000

Problem 14 – 50 Total gross receipts (P600,000 + P400,000) P1,000,000 Multiplied by percentage tax for professional basketball organization 15% Percentage tax P 150,000

Problem 14 – 51 Total gross receipts (P800,000 + P300,000 + P500,000 + P50,000) P1,650,000 Multiplied by applicable business tax rate for cockpits 18% Total business tax P 297,000

Problem 14 – 52 Income tax on cockfighting winnings (P500,000 x 20%) P 100,000 Percentage tax on horseracing winnings (P800,000 x 10%) 80,000 Income tax on horseracing winnings (P800,000 x 20%) 160,000 Total tax on winnings P 340,000



Problem 14 – 53 Sales proceeds (P15 x 500,000) P7,500,000 Multiplied by applicable IPO rate 2% Percentage tax P 150,000

The percentage tax rate is 2% because the initial public offering is 33%, computed as follows:

Number of shares sold through IPO 500,000

Divided by outstanding shares (1,000,000 + 500,000) 1,500,000

Percent of IPO 33%

Applicable IPO tax rate 2%

Problem 14 – 54

1. Sales proceeds (P50 x 2,000 shares) P100,000

Multiply by percentage tax rate 0.5%

Percentage tax P 500

2. Sales proceeds (4,000* shares x P55 per share) P220,000

Multiply by percentage tax rate 0.5%

Percentage tax P 1,100

Supporting computation:

Shares Unit Cost Amount Original holding 5,000 P50.00 P250,000 Add: Stock dividend (5,000 x 20%) 1,000 . Total shares available 6,000 P41.67 P250,000 Less: First sale 2,000 83,320

*Remaining shares for this sale 4,000 P41.67 P166,680

Problem 14 – 55 1. Percentage tax (P0.50 x 1,000,000) x 0.005 P 2,500

2. August 20, 200A = last day of remittance without penalty.

Problem 14 – 56

Gross receipts tax on:

Rent income (P30,000 x 7%) P 2,100 Royalty income (P20,000 x 7%) 1,400 Interest income (P50,000 + P20,000 + P10,000) x 5% 4,000

Total percentage tax P 7,500

Problem 14 – 57 1. Amount Applicable

Year Remaining maturity of interest, etc. tax rate Gross receipt tax 2013 9 P 200,000 1% P 2,000 2014 8 200,000 1% 2,000 2015 7 200,000 1% 2,000 2016 6 200,000 1% 2,000 2017 5 200,000 5% 10,000 Total gross receipt tax paid P18,000

2. Amount Applicable Year Remaining maturity of interest, etc. tax rate Gross receipt tax 2013 4 P 200,000 5% P10,000


Chapter 14: OTHER PERCENTAGE TAXES 2014 3 200,000 5% 10,000 2015 2 200,000 5% 10,000 2016 1 200,000 5% 10,000 2017 Less than 1 year 200,000 5% 10,000 Total gross receipt tax as recomputed P50,000 Less: Gross receipt tax previously paid 18,000 Gross receipt tax still due P32,000

Problem 14 – 58 Franchise Non-franchise Beginning receivables P 400,000 P - 0 - Add: Revenues 3,000,000 1,800,000 Total P3,400,000 P1,800,000 Less: Ending receivables 100,000 120,000 Gross receipts P3,300,000 P1,680,000

1. Local telephone services 12% 12%

P396,000 P201,600

2. Water franchise 2% 3% P 66,000 P 50,400

3. Fast food (P3,000,000 x 12%) P360,000 (P1,800,000 x 12%) P216,000 Note: The business tax on fast food is based on the revenue because the business is a combination of sales of goods and service. Moreover, the fast food business is subject to12% VAT because the total revenue exceeded the P1,919,500 threshold amount.

Problem 14 – 59 Collections: Current Previous Revenues P 500,000 P300,000 Accounts receivable 300,000 100,000 Advances 200,000 . Gross receipts P1,000,000 P400,000

Computation of percentage taxes: 1. Common carrier of passengers (assume land transport) 3% 3% P 30,000 P 12,000

2. Race track 30% 30%

P300,000 P120,000

3. Boxing exhibition 10% 10%

P100,000 P 40,000

4. Water utilities 2% 2% P 20,000 P 8,000

5. Life insurance 5% 5% P 50,000 P 20,000

6. Agents of foreign insurance companies 10% 10%

P100,000 P 40,000

7. Overseas dispatch 10% 10%

P100,000 P 40,000


Chapter 14: OTHER PERCENTAGE TAXES Extra problems Write True if the statement is correct, or False if it is incorrect.

1. Buyers from non-VAT business are required to withhold the percentage tax on their purchases from such business.

2. Generally, the withholding tax on the payments by the government to persons who are

exempt from payment of VAT and who are not a VAT-registered person is 3%.

3. The sale to the government is not subject to withholding tax if the seller is a non-VAT

person.

4. The percentage tax on sale of shares of stocks outside stock exchange is ½ of 1%.

5. The tax on winning is required to be remitted to BIR within 20 days from the date

withhold.

6. Boxing exhibitions for World and Oriental Championships are exempted from amusement

tax if one of the contenders is a Filipino and a Filipino Citizen promotes such exhibitions.

7. Net trading gains obtained by banks and non-bank financial intermediaries are subject to

5% percentage tax.

8. The gross receipt tax of financial institutions is to be paid to the BIR within 10 days

following the end of the taxable month.

9. The pre-terminated loan agreement within 5 years shall be subject to a gross receipts tax

of 1%.

10. The payment of ½% of 1% tax on sale of securities will exempt the gain from such

transaction from capital gain tax.

Answer to Extra problems 1. False – the percentage tax forms part of seller’s expense 2. True 3. False – subject to 3% OPT withholding and CWT withholding. 4. False – The ½ of 1% is applicable for sale of shares of stock in the stock exchange. 5. True 6. True 7. False – 7% percentage tax 8. False – within 20 days 9. False – 5%. 10. True





109

CHAPTER 15

PERCENTAGE TAXES Problem 15–1 1. D 11. A

2. A 12. C 3. C 13. D 4. A 14. D 5. C 15. E 6. A 16. C 7. D 17. E

8. D 18. D 9. A 19. C 10. A 20. C

Problem 15–2

1. True

2. True

3. False – deduct as cost of sales from sales.

4. True

5. False – exempt from VAT and OPT.

6. True

7. False – 3% of gross sales or gross receipts.

8. False – business tax.

9. False – advalorem tax.

10. False – if the business is VAT-registered or engaged in business tax-exempt transactions, it

shall not be subject to 3% OPT. Also not all OPT rate is 3%.

11. False – Non-VAT business is not allowed to have Input VAT.

12. True

13. False – expressly exempted from business tax by law. (R.A. 8424)

14. False – the 3% is applicable only to transport by land. Transport by water and air is subject

to 12% VAT.

15. False – OPT-exempt.

Problem 15–3 1. False – 2% percentage tax. 2. True 3. True 4. False – Premium collections outside the Philippines from nonresident person is exempt. 5. True 6. False – only gross receipts within.

7. False – Option to register not required under OPT. The business can also register as VAT.

8. True 9. False – minimum quarterly receipts or actual quarterly gross receipts, whichever is higher. 10. True 11. False – Subject to VAT for being registered as VAT 12. False – CNN is exempt from OPT because the communication is for news services. 13. True

Problem 15–4 1. False – subject to 3% OPT withholding. The 1% is a creditable withholding income tax, not a

percentage tax withholding.





110

2. True

3. False – subject to 12% VAT. 4. True 5. False – overseas calls are subject to 10% OPT. 6. True 7. True 8. False – amusement taxes ranging from 10% to 30% 9. True 10. False – Horse race’s cost of winning ticket is deductible. 11. False – not deductible. 12. False – only interest is subject to GRT, not the collections. 13. False – national tax 14. True

Problem 15–5 1. False – Overseas calls may be personal or for business but both are subject to OPT. 2. True 3. True 4. False – deductible only in the year when the loss was incurred. 5. False – 1% is applicable to leasing period beyond 5 years. 6. False – 2%. 7. False – exempt from business tax. 8. False – national tax. 9. True 10. False – 1% OPT rate. 11. True 12. False – buys and sells securities

Problem 15–6 Problem 15–7 Problem 15–8 1. A & C 1. B 1. A 2. B 2. D 2. D 3. A 3. A 3. A 4. B 4. D 4. A 5. D 5. C 5. C 6. B 6. C 6. A 7. C 7. C 7. D 8. C 8. B 8. B 9. D 9. A 9. A 10. A 10. D 10. B 11. C

Problem 15 – 9 1. Letter B P200,000 Sales of computers P200,000 Gross receipts – computer repairs 100,000

Sales returns and allowances (20,000) Taxable amount P280,000 Multiplied by VAT rate 12% Output VAT P 33,600 Less: Input VAT 13,600 Business tax payable P 20,000 2. Letter D Taxable amount P280,000

Multiplied by OPT rate 3%





111

Business tax payable P 8,400

Problem 15 – 10 A Withholding taxes; OPT (P2,100,000 x 3%) P 63,000 CWIT (P2,100,000 x 2%) 42,000 Total amount of withholding taxes P105,000

Problem 15 – 11 B Business tax (P1,500,000 x 3%) P45,000

Problem 15 – 12 C Beginning inventory P 100,000

Add: Purchases 896,000 Total P 996,000 Less: Ending inventory (P100,000 + P196,000) 296,000 Cost of sales P 700,000 Add: Gross profit (P700,000 x 100%) 700,000 Sales P1,400,000 Multiplied by OPT rate 3% Business tax P 42,000

Problem 15 – 13 D Other percentage tax (P403,200/112%) x 3% P10,800 VAT (P403,200/9.333) 43,200 Surcharge (P43,200 x 50%) 21,600 Total amount due P75,600

Problem 15 – 14 C Other percentage tax (P800,000 x 3%) P24,000

Problem 15 – 15 A Sales (P1,330,000/70%) P1,900,000 Multiplied by OPT rate 3%

Business tax P 57,000

Problem 15 – 16 B Net taxable income (P180,000/30%) P 600,000 Add: OSD (P600,000/60%) x 40% 400,000 Gross income P1,000,000 Add: Cost of sales 800,000 Gross sales P1,800,000 Multiplied by OPT rate 3% OPT P 54,000

Problem 15 – 17 1. Letter C Sales (P35,000/25%) x 12 P1,680,000 Multiplied by OPT rate 3% Annual business tax P 50,400 2. Letter D Sales (P35,000/20%*) x 12 P2,100,000 Multiplied by VAT rate 12% Annual business tax P 252,000





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*Computation of 20%:

Sales 125% Cost 100% Gross profit 25% (25%/125%) = 20%

Problem 15 – 18 A Cooperatives are exempt from income and business tax on their sales. Furthermore all of the sales reported are VAT and OPT exempt products.

Problem 15 – 19 1. Letter D Percentage tax P - 0 - There is no percentage tax because nonprocessed agricultural food products are business tax exempt.

2. Letter B Total sales (P5M + P20M) P25,000,000 Less: Cost of sales (P3M + P12M) 15,000,000 Gross income P10,000,000 Less: OSD (P10,000,000 x 40%) 4,000,000 Net taxable income P 6,000,000 Multiplied by corporate income tax rate 30% Income tax due and payable (OSD provides lesser income tax) P 1,800,000

Problem 15 – 20 C OPT withheld (P90,000 x 3%) P 2,700

Proof: Sales (P86,400/96%) 100% P90,000 Less: OPT withholding (P90,000 x 3%) (3%) P2,700 Creditable withholding tax (P90,000 x 1%) (1%) 900 3,600 Net sales proceeds P86,400

Problem 15 – 21 B Service fee P30,000 Less: OPT (P30,000 x 3%) P900 Creditable withholding tax (P30,000 x 2%) 600 1,500 Net check payment P28,500

Problem 15 – 22 D Gross receipts P350,000 Less: Operating expenses 50,000 Net income before personal exemption P300,000 Less: Personal exemption 50,000 Net taxable income P250,000

Income tax due of P250,000 (Sec. 24A,NIRC) P 50,000 Note: Owners of bancas and owners of animal-drawn two-wheeled vehicles are business tax-exempt; but subject to income taxes.

Problem 15 – 23 B Percentage taxes:

Taxi (P1,500,000 x 3%) P45,000 Bus (15 x P7,200 x 3%) 3,240

VAT (P50,000 x 12%) 6,000





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Common carrier tax due P54,240

Note: The gross receipts from the transport of cargoes by domestic carriers by land shall still subject to 12% VAT. (R.A. 9337)

Problem 15 – 24 D Total gross receipts (P1,000,000 + P6,000,000) P7,000,000 Multiplied by applicable business tax rate 12% Total business tax P 840,000

Note: Common carrier by sea is subject to VAT of 12%.

Problem 15 – 25 A Percentage tax (P10,000,000 x 3%) P 300,000

VAT (P6,000,000 + P1,000,000) x 12% 840,000 Average business tax in a year P1,140,000

Divided by number of quarter in a year 4 Estimated average business tax per quarter P 285,000

Problem 15 – 26 A Output VAT (P1,400,000 + P600,000) x 12% P240,000 Less: Creditable input VAT (P560,000/9.333) 60,000 Net business tax payable P180,000

Problem 15 – 27 D Percentage tax (P10,000,000 20% x 3%) P 60,000

Problem 15 – 28 1. Letter D Business tax P - 0 - If Philippine registry, zero-rated on their transport of passengers and

cargo from the Philippine port to a foreign port (vice versa).

2. Letter C Manila to USA (P1,000,000 x 3%) P30,000 Manila to China (P1,400,000 x 3%) 42,000 Philippine business tax P72,000

Problem 15 – 29 C Percentage tax – water franchise (P1,000,000 x 2%) P 20,000

Problem 15 – 30 B Percentage tax – water franchise (P2,000,000 x 2%) P 40,000 Percentage tax – radio franchise (P10,000,000 x 3%) 300,000 Total percentage tax P 340,000

Problem 15 – 31 C Local telephone calls (P6,000,000 x 12%) P 720,000 Overseas conversation (P3,000,000 x 10%) 300,000 Forfeited telephone instruments deposit (P500,000 x 12%) 60,000 Total business taxes P1,080,000

Problem 15 – 32 B OPT – Overseas call (P5,000 x 10%) P500 VAT - Local calls (P2,000 x 12%) 240 Total percentage tax or business tax P740





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Problem 15 – 33 A Exempt

Problem 15 – 34 D Service charge (P75,000/10%) P 750,000 Add: Percentage tax (P750,000 x 10%) 75,000 Total collection P 825,000

Problem 15 – 35 D P - 0 -. Premium on life insurance from a nonresident alien is not covered of business tax in the Philippines.

Problem 15 – 36 A Life insurance (P10,000,000 x 80% x 2%) P160,000 Non-life insurance (P5,000,000 x 12%) 60,000 Total P220,000 Less: Life insurance refund within 6 months (P2,000,000 x 30%) x 2% 12,000 Total percentage tax P208,000

Problem 15 – 37 B Premiums collected – life insurance (P20M x 2%) P 400,000 Premiums collected – non-life insurance (P15M x 12%) 1,800,000 Investment income (P10M x 60% x 7%) 420,000 Rent income (P5M x 12%) 600,000 Management fees (P3M x 12%) 360,000 Total business tax due P3,580,000

Problem 15 – 38 1. Letter B Output VAT (P100,000 x 12%) P12,000 2. Letter C OPT (P100,000 x 4%) P4,000 3. Letter D OPT (P100,000 x 2%) P2,000

Problem 15 – 39 A Amusement tax (P3,500,000 x 18%) P630,000

Problem 15 – 40 D Amusement tax (P500,000 + P200,000 + P100,000) x 18% P 144,000

Problem 15 – 41 1. Letter A Percentage tax (P2,000,000 + P1,000,000) x 10% P300,000 2. Letter D Exempt

Problem 15 – 42 B Percentage tax [P1,000,000 - (P200,000/100)] x 10% P 99,800





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Problem 15 – 43 A Percentage tax (P100,000 – P1,000) x 10% P 9,900

Problem 15 – 44 A Percentage tax [400,000 x P12) x 1% P 48,000 IPO tax rate (400,000/1,150,000) = 34.5% more than 33 1/3% = 1% percentage tax.

Problem 15 – 45 D Percentage tax [P600,000 x 4%) P 24,000 IPO tax rate (600,000/20)/ (2,600,000/20) = 23% = 4% percentage tax.

Problem 15 – 46 A Number of shares sold during the IPO (400,000 x 50%) 200,000 Total outstanding shares (500,000 x 120%) + 200,000 800,000 Percentage of IPO sales 25% Applicable IPO tax rate 4% Percentage tax (P1,000 x 200,000 x 4%) P8,000,000

Problem 15 – 47 B Percentage tax [P1,000,000 x .005) P 5,000

Problem 15 – 48 D P - 0 -. The sale is subject to capital gains tax because the shares of stock were sold directly to

the buyer.

Problem 15 – 49 B Interest income with maturity more than 5 years (P400,000 x 1%) P 4,000 Leasehold income (P300,000 x 7%) 21,000 Total gross receipt tax P25,000

Note: The net trading loss is deductible only from trading gain of the same taxable year.

Problem 15 – 50 D Interest income with maturity less than 5 years (P600,000 x 5%) P 30,000 Royalty income (P300,000 x 7%) 21,000 Gain from sale of derivatives (P200,000 x 7%) 14,000 Total gross receipt tax P 65,000 Note: The net trading loss for 200A is not deductible from trading gain of 200B.

Problem 15 – 51 D 1. Total gross receipts during the year (P360,000 x 3%) P10,800

2. Total gross receipts P360,000 Less: OSD (P360,000 x 40%) 144,000 Net income before personal exemption P216,000 Less: Personal exemption 50,000

Net taxable income P166,000 Tax on P140,000 P22,500 Tax on excess (P26,000 x 25%) 6,500 Income tax due P29,000





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Problem 15 – 52 Gross receipts (P480,000 + P190,000 + P100,000 + P1,950,000 + P2,480,000) P5,200,000 Multiplied by applicable business tax rate - VAT 12% Output VAT P 624,000 Add: OPT on overseas calls (P100,000 x 10%) 10,000 Total business tax P 634,000

Problem 15 – 53 Actual gross receipts (higher) – City taxi (P195,000) from April to June P195,000 Multiplied by percentage tax rate 3% Percentage tax payable – 2nd quarter (answer) P 5,850

Problem 15 – 54 Tax units Actual Minimum Higher

1 15,000 10,800 15,000 2 9,000 10,800 10,800 3 12,000 10,800 12,000 4 8,000 10,800 10,800 5 20,000 10,800 20,000

Total amount = higher amount 68,800 Multiplied by percentage tax 3% Percentage tax 2,058 Note: The higher of the aggregate/total amount of the actual gross receipts or minimum amount is subject to other percentage tax.

Problem 15 – 55 Subject to VAT:

Transport of goods (P2.5M x 12%) P 300,000 Transport of passengers (P5M x 12%) 600,000 Transport of cargoes (P3M x 12%) 360,000 Transport of animals (P1.5M x 12%) 180,000 Total business tax P1,440,000

Notes: 1. Common carriers by air and water relative to the transport of passengers within the

Philippines is subject to 12% VAT. Transport of passengers by land however is subject to 3%

percentage tax.

2. International air carriers and international shipping carriers with foreign registry doing business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross

receipts.

Problem 15 – 56 Gross receipts (P100,000 + P50,000 + P150,000 + P200,000) P 500,000 Multiplied by applicable business tax rate 18% Business tax for the quarter P 90,000

Problem 15 – 57 Gross receipts P50,000,000 Multiplied by applicable franchise tax rate – VAT 12% Franchise tax P 6,000,000

Problem 15 – 58 Actual gross receipts from business operations First quarter (P3,000,000 + P4,000,000) P7,000,000 Multiplied by applicable business tax rate 12%





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Franchise tax due – first quarter P 840,000

Note: During the taxable year, its business gross receipts must exceed P10,000,000; hence, subject to VAT.

Problem 15 – 59 Gross receipts – overseas calls (P500,000 x 10%) P 50,000 Gross receipts – local calls (P500,000 x 12%) 60,000 Total percentage taxes P110,000

Problem 15 – 60 Total gross receipts (P600,000 + P400,000) P1,000,000 Multiplied by percentage tax for professional basketball organization 15% Percentage tax P 150,000

Problem 15 – 61 Total gross receipts (P800,000 + P300,000 + P500,000 + P50,000) P1,650,000 Multiplied by applicable business tax rate for cockpits 18% Total business tax P 297,000

Problem 15 – 62 Income tax on cockfighting winnings (P500,000 x 20%) P 100,000 Percentage tax on horseracing winnings (P800,000 x 10%) 80,000 Income tax on horseracing winnings (P800,000 x 20%) 160,000 Total tax on winnings P 340,000

Problem 15 – 63 Sales proceeds (P15 x 500,000) P7,500,000

Multiplied by applicable IPO rate 2% Percentage tax P 150,000

The percentage tax rate is 2% because the initial public offering is 33%, computed as follows:

Number of shares sold through IPO 500,000 Divided by outstanding shares (1,000,000 + 500,000) 1,500,000 Percent of IPO 33% Applicable IPO tax rate 2%

Problem 15 – 64 1. Sales proceeds (P50 x 2,000 shares)

Multiply by percentage tax rate Percentage tax

P100,000 0.5% P 500

2. Sales proceeds (4,000* shares x P55 per share)

Multiply by percentage tax rate Percentage tax

P220,000 0.5% P 1,100

Supporting computation: Shares Unit Cost Amount Original holding Add: Stock dividend (5,000 x 20%) Total shares available Less: First sale *Remaining shares for this sale

5,000 1,000 6,000 2,000 4,000

P50.00

P41.67

P41.67

P250,000 . P250,000 83,320 P166,680





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Problem 15 – 65 1. Percentage tax (P0.50 x 1,000,000) x 0.005 P 2,500 2. August 20, 200A = last day of remittance without penalty.

Problem 15 – 66 Gross receipts tax on: Rent income (P30,000 x 7%) P 2,100 Royalty income (P20,000 x 7%) 1,400 Interest income (P50,000 + P20,000 + P10,000) x 5% 4,000 Total percentage tax P 7,500

Problem 15 – 67 1.

Year

Remaining maturity

Amount

of interest, etc.

Applicable

tax rate

Gross receipt tax 2013 9 P 200,000 1% P 2,000 2014 8 200,000 1% 2,000 2015 7 200,000 1% 2,000 2016 6 200,000 1% 2,000 2017 5 200,000 5% 10,000 Total gross receipt tax paid P18,000 2.

Year

Remaining maturity Amount

of interest, etc. Applicable

tax rate

Gross receipt tax 2013 4 P 200,000 5% P10,000 2014 3 200,000 5% 10,000 2015 2 200,000 5% 10,000 2016 1 200,000 5% 10,000

2017 Less than 1 year 200,000 5% 10,000 Total gross receipt tax as recomputed P50,000 Less: Gross receipt tax previously paid 18,000 Gross receipt tax still due P32,000

Problem 15 – 68 Franchise Non-franchise Beginning receivables P 400,000 P - 0 - Add: Revenues 3,000,000 1,800,000 Total P3,400,000 P1,800,000 Less: Ending receivables 100,000 120,000 Gross receipts P3,300,000 P1,680,000 1. Local telephone services 12%

P396,000 12% P201,600

2. Water franchise 2%

P 66,000 3% P 50,400

3. Fast food (P3,400,000 x 12%) (P1,800,000 x 12%)

P408,000 P216,000

Note: The business tax on fast food is based on the revenue because the business is a combination of sales of goods and service. Moreover, the fast food business is subject to12% VAT because the total revenue exceeded the P1,919,500 threshold amount.





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Problem 15 – 69 Collections from: Current Previous

Current business transactions Accounts receivable Advances Gross receipts

P 500,000 300,000

200,000 P1,000,000

P300,000 100,000

. P400,000

Computation of percentage taxes: 1. Common carrier of passengers (assume land transport) 3%

P 30,000 3% P 12,000

2. Race track 30% P300,000

30% P120,000

3. Boxing exhibition 10% P100,000

10% P 40,000

4. Water utilities 2% P 20,000

2% P 8,000

5. Life insurance 2% P 20,000

2% P 8,000

6. Agents of foreign insurance companies 4% P 40,000

4% P 16,000

7. Overseas dispatch 10% P100,000

10% P 40,000

Extra problems Write True if the statement is correct, or False if it is incorrect.

1. Buyers from non-VAT business are required to withhold the percentage tax on their purchases from such business.

2. Generally, the withholding tax on the payments by the government to persons who are

exempt from payment of VAT and who are not a VAT-registered person is 3%.

3. The sale to the government is not subject to withholding tax if the seller is a non-VAT person.

4. The percentage tax on sale of shares of stocks outside stock exchange is ½ of 1%.

5. The tax on winning is required to be remitted to BIR within 20 days from the date withhold.

6. Boxing exhibitions for World and Oriental Championships are exempted from amusement

tax if one of the contenders is a Filipino and a Filipino Citizen promotes such exhibitions.

7. Net trading gains obtained by banks and non-bank financial intermediaries are subject to

5% percentage tax.

8. The gross receipt tax of financial institutions is to be paid to the BIR within 10 days following the end of the taxable month.

9. The pre-terminated loan agreement within 5 years shall be subject to a gross receipts tax

of 1%.





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10. The payment of ½% of 1% tax on sale of securities will exempt the gain from such

transaction from capital gain tax.

Answer to Extra problems 1. False – the percentage tax forms part of seller’s expense 2. True 3. False – subject to 3% OPT withholding and CWT withholding.

4. False – The ½ of 1% is applicable for sale of shares of stock in the stock exchange. 5. True 6. True 7. False – 7% percentage tax 8. False – within 20 days 9. False – 5%.

10. True


Chapter 16: DOCUMENTARY STAMP TAXES

CHAPTER 16

DOCUMENTARY STAMP TAXES Problem 16 – 1 1. True

2. True 3. False – the transaction. 4. False – to be taxed against the party who is not exempt. 5. True 6. False – 10 days from the close of the month 7. True 8. True 9. True 10. True

Problem 16 – 2 B Documentary stamp tax to be paid (P1,000/P200) x P10 x P2 P 100

Problem 16 – 3 A Documentary stamp tax to be paid ($5,000 x P40/P200) x P0.30 P 300

Problem 16 – 4 B DST on first P5,000 DST on excess of the first P5,000 = (P395,000/P5,000) x P10 Total documentary stamp tax

P 20 790 P810

Problem 16 – 5 C Documentary stamp tax (P800,000/P1,000) x P15 P12,000

Problem 16 – 6 D DST on first P2,000 DST on excess of the first P2,000 = (P142,000/P1,000) x P1 Total

Multiply by Total documentary stamp tax

P 3 142 P145

2 P290

Problem 16 – 7 Face value of the bonds Divide by Multiply by documentary stamp tax Documentary stamp tax

P50,000 200

250 P 1.50 P 375

Problem 16 – 8 Par value of the stock (P100 x 1,000 shares) Divide by Multiply by documentary stamp tax Documentary stamp tax

P100,000 200

500 P 2.00 P 1,000

Problem 16 – 9 Par value (P100 x 100 shares) Divide by value

Multiply by documentary stamp tax Documentary stamp tax

P10,000 200

50

P 1.50 P 75

Problem 16 – 10 Face value of document Divide by Multiply by documentary stamp tax rate Documentary stamp tax

P100,000 200

500 P 0.30 P 150

Problem 16 – 11 Face value of document (P50 x $5,000) Divide by

Multiply by documentary stamp tax rate Documentary stamp tax

P250,000 200

1,250

P 0.30 P 375

Problem 16 – 12 Insurance policy Divide by Multiply by documentary stamp tax rate

Documentary stamp tax

P1,000,000 200

5,000 P 0.50

P 2,500

Problem 16 – 13 Annual insurance premium Divide by Multiply by documentary stamp tax rate Documentary stamp tax

P 5,000 4

1,250 P 0.50 P 625

Problem 16 – 14 The documentary stamp tax on the affidavit of loss is P15.00.

Problem 16 – 15

The documentary stamp tax would be P10.00.

Problem 16 – 16 Sales price Less: Unpaid mortgage balance

Balance Less: Amount not subject to DST Balance Divide by Multiply by Documentary stamp tax

Add: DST for the first P1,000 Total documentary stamp tax

P1,000,000 200,000

P 800,000 1,000 P 799,000 P 1,000

799 P 15 P 11,985

15 P 12,000

Problem 16 – 17 Documentary stamp (P1,000,000/ P1,000) x 15 Surcharge (P15,000 x 25%) Interest (from June 25 to July 25) (P15,000 x 20%) Total payable

P15,000 3,750

250 P19,000

Problem 16 – 18 a. P – 0 – b. P – 0 – See page 503 of the textbook. Deeds of property donated to the government are exempt from documentary stamp tax.


Chapter 15: LOCAL TAXES

CHAPTER 17

LOCAL TAXES

Problem 17–11. True2. True3. False – Subject to final approval of the executive.4. False – cities 5. True6. True7. False – Only if employed, doing business or owner of real properties8. True9. False – Additional should be based on gross receipts.10. False – P10,000.

Problem 17–21. True2. True3. True4. True5. True6. True7. True8. False – Assessed value.9. True10. True

Problem 17–31. A 5. D2. D 6. D3. D 7. D4. A 8. D

Problem 17–4Case 1:

The administrative order is not enforceable because such is not covered by any city taxordinance.

Case 2:The tax ordinance is still unenforceable because of the lack of required public hearing.

Case 3:No, because the issue does not involve the tax liability of the taxpayer, but the authority ofthe enforcing government unit. The ambiguity of power to tax is to be resolved liberally infavor of the taxing authority.

Case 4:No, because with regards to exemption, the burden of proof must be on the part of thetaxpayer.

Case 5:No. Although appropriately exercised by the Sanggunian (legislative branch), it will still needthe approval of the mayor or provincial governor (executive branch)


Taxable base, (higher value)Multiply by tax rateTax on transfer - amount payable by Mon Ting

P 600,000 0.5%P 3,000

Case 2: There is no transfer or ownership tax because the land is intended as a site for personalresidence. Real property for the purpose of this tax refers only to land, building andmachineries intended by the owner for an industry or which tend directly to meet the needs ofthe said industry or work. (Sec. 135, LGC)

Problem 17–6Taxable baseMultiply by tax ratePrinting and Publication tax

P 200,000 0.5%P 1,000

Problem 17–71. Total collections P4,000,000

Less: Receipts from the government (P1,000,000 x 50%) 500,000Balance P3,500,000Multiplied by 0.005Local tax payable P 17,500

2. Basic P 5Additional community tax: Gross receipts (P4,000,000/P1,000) x P1 4,000Total community tax P4,005

Problem 17–8

1. Total market value P6,000,000Multiplied by provincial tax rate 10%Provincial tax P 600,000

2. Basic P 500Additional community tax: Gross receipts (P9,000,000/P5,000) x P2 P3,600 Market value of real property (assumed as the assessed value) (P20,000,000/P5,000) x P2 8,000 10,000Total community tax P10,500

Problem 17–91. P50 annually.

2. Basic P 5.00Additional [ (P150 x 365) /1,000] x P1.00 54.75Total community tax P59.75

Problem 17–10Local tax per unitMultiply by number of vans maintainedTotal local tax for the delivery van

P 500 5P 2,500


1. Taxable base P1,500,000Multiplied by tax rate bracket 0.25%Municipal business tax P 3,750

2. Taxable base P 600,000Multiplied by tax rate bracket 0.5%Municipal business tax P 3,000

Case 2:None, because his business tax is payable to the barangay in as much as his sales is lesserthan P30,000. In that case, the barangay has the exclusive power to levy the local businesstax. (Sec. 152, LGC)


No, because the imposition is not in excess of what is provided in the Code. What is allowedin the province is ½ of 1% of the total consideration for the transfer of Real Property.

The maximum that is allowed for the city is an increase of not more than 50% of what isallowed for the province or municipalities, thus the maximum could be tabulated as:

Provincial rateMaximum percent increaseEffective % increaseAdd: the basic rate for the provinceMaximum rate that a city could impose*

0.50% 50%0.25%0.50%0.75%

*0.75% is the same as ¾ of 1%.

Case 2:No, because the imposition is not in excess of what is provided in the Code. The allowedminimum tax per year in municipalities is P165 of which a maximum of 50% increase isallowed to compute the tax for the cities. Thus, the computation would be:

Minimum tax in municipalities per yearAdd: Maximum increase allowed (P165 x 50%)Maximum allowed for the cities

P165.00 82.50P247.50

Case 3:Yes. The city is only allowed of 30% maximum of what is allowed to the province. Amusementand professional taxes are not included in the allowed 50% increase a city could make abovethe province and the municipality could legally impose.

Case 4:The retailer should be paying only his business tax to barangay, computed as follows:

Gross receiptsMultiply by rate of taxBusiness tax to the barangay

P40,000 2%P 800

The retailer is no longer required to pay to the city because its gross receipts is not exceedingP50,000 per year.


The community tax of AWAN Corporation should be paid on or before February 28, 2005. Theamount of community tax to be paid is P500.

Case 2:Basic Additional community tax (P200,000/1,000) x P1TotalAdd: Surcharge P205 x 25%) Interest (P205 x 2% x 2 mos.)Total community tax

P 5.00 200.00P205.00

51.25 8.20P264.45


Yes. Engr. Kitik is required to pay a professional tax because any professional, signing a document in the exercise of his profession is required to indicate the PTR (professional tax receipt) number on the document he is signing or certifying.

Case 2:Mr. Max Cuenta need not obtain a PTR in Makati because a person who has paid thecorresponding professional tax shall be entitled to practice his profession in any part of thePhilippines.

Case 3:Mr. Ado will have to pay P150 for his profession as CPA and another P150 for his professionas a Lawyer.

Problem 17–15Assume that the fair value is equal to assessed value.Basic (P600,000 x 1%) P 6,000Additional tax on idle lands (P600,000 x 5%) 30,000Total amount P36,000

Problem 17–16

X’s total fees and taxes in order to obtain a business permit would be P2,000, computed asfollows:

Mayor’s permit P 500Local business tax (P150,000 x 1%) 1,500Total fees and taxes P2,000

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