Chapter 14 Percentage Taxes2013

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 105 SUGGESTED ANSWERS 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 1. B 2. A 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

B B C C A B D should be “NOT covered by P1,919,500 threshold.” C D C

Problem 14–4 1. A 2. A should be “is NOT exempt from OPT.” 3. C 4. A 5. D 6. B 7. A 8. B 9. D 10. 11. 12.

B A C

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 106 SUGGESTED ANSWERS 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 Add: Purchases Total Less: Ending inventory (P100,000 + P196,000) Cost of sales Add: Gross profit (P700,000 x 100%) Sales Multiplied by OPT rate Business tax

P 100,000 896,000 P 996,000 296,000 P 700,000 700,000 P1,400,000 3% P 42,000

Problem 14 – 7 D Other percentage tax (P403,200/112%) x 3% VAT (P403,200/9.333) Surcharge (P43,200 x 50%) Total amount due

P10,800 43,200 21,600 P75,600

Problem 14 – 8 C Other percentage tax (P800,000 x 3%)

P24,000

Problem 14 – 9 A Sales (P1,330,000/70%) Multiplied by OPT rate Business tax

P1,900,000 3% P 57,000

Problem 14 – 10 B Net taxable income (P180,000/30%) Add: OSD (P600,000/60%) x 40% Gross income Add: Cost of sales Gross sales Multiplied by OPT rate OPT

P 600,000 400,000 P1,000,000 800,000 P1,800,000 3% P 54,000

Problem 14 – 11 1. Letter C Sales (P35,000/25%) x 12 Multiplied by OPT rate Annual business tax

P1,680,000 3% P 50,400

2.

Letter D Sales (P35,000/20%*) x 12 Multiplied by VAT rate Annual business tax *Computation of 20%: Sales 125% Cost 100% Gross profit 25%

P2,100,000 12% P 252,000

(25%/125%) = 20%

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 107 SUGGESTED ANSWERS 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 There is no percentage tax because nonprocessed agricultural food products are business tax exempt. 2.

P - 0 -

Letter B Total sales (P5M + P20M) Less: Cost of sales (P3M + P12M) Gross income Less: OSD (P10,000,000 x 40%) Net taxable income Multiplied by corporate income tax rate Income tax due and payable (OSD provides lesser income tax)

P25,000,000 15,000,000 P10,000,000 4,000,000 P 6,000,000 30% P 1,800,000

Problem 14 – 14 C OPT withheld (P90,000 x 3%) Proof: Sales (P86,400/96%) Less: OPT withholding (P90,000 x 3%) Creditable withholding tax (P90,000 x 1%) Net sales proceeds Problem 14 – 15 B Service fee Less: OPT (P30,000 x 3%) Creditable withholding tax (P30,000 x 2%) Net check payment

P 2,700 100% (3%) (1%)

P90,000 P2,700 900

3,600 P86,400 P30,000 P900 600

1,500 P28,500

Problem 14 – 16 D Gross receipts Less: Operating expenses Net income before personal exemption Less: Personal exemption Net taxable income

P350,000 50,000 P300,000 50,000 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 taxexempt; but subject to income taxes. Problem 14 – 17 B Percentage taxes: Taxi (P1,500,000 x 3%) Bus (15 x P7,200 x 3%) VAT (P50,000 x 12%) Common carrier tax due

P45,000 3,240 6,000 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) 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.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 108 SUGGESTED ANSWERS Chapter 14: OTHER PERCENTAGE TAXES

Problem 14 – 18 D Total gross receipts (P1,000,000 + P6,000,000) Multiplied by applicable business tax rate Total business tax

P7,000,000 12% 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%) VAT (P6,000,000 + P1,000,000) x 12% Average business tax in a year Divided by number of quarter in a year Estimated average business tax per quarter Problem 14 – 20 C Percentage tax (P10,000,000 x 3%) Problem 14 – 21 1. Letter D Business tax 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%) Manila to China (P1,400,000 x 3%) Philippine business tax

Problem 14 – 22 C Percentage tax – water franchise (P1,000,000 x 2%) Problem 14 – 23 B Percentage tax – water franchise (P2,000,000 x 2%) Percentage tax – radio franchise (P10,000,000 x 3%) Total percentage tax Problem 14 – 24 NOT IN THE CHOICES OPT – Overseas call (P5,000 x 10%) VAT - Local calls (P2,000 x 12%) Total percentage tax or business tax Problem 14 – 25 Exempt

P 300,000 840,000 P1,140,000 4 P 285,000 P 300,000

P - 0 -

P30,000 42,000 P72,000 P 20,000 P 40,000 300,000 P 340,000 P500 240 P740

A

Problem 14 – 26 D Service charge (P75,000/10%) Add: Percentage tax (P750,000 x 10%) Total collection

P 750,000 75,000 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.

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 109 SUGGESTED ANSWERS Chapter 14: OTHER PERCENTAGE TAXES

Problem 14 – 28 C Life insurance (P10,000,000 x 80% x 5%) Non-life insurance (P5,000,000 x 12%) Total Less: Life insurance refund within 6 months (P2,000,000 x 30%) x 5% Total percentage tax

P400,000 60,000 P460,000 30,000 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% 2.

P300,000

Letter D Exempt

Problem 14 – 32 B Percentage tax [P1,000,000 - (P200,000/100)] x 10% Problem 14 – 33 A Percentage tax (P100,000 – P1,000) x 10% Problem 14 – 34 A Percentage tax [400,000 x P12) x 1%

P 99,800 P 9,900 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%) Total outstanding shares (500,000 x 120%) + 200,000 Percentage of IPO sales Applicable IPO tax rate Percentage tax (P1,000 x 200,000 x 4%) Problem 14 – 37 B Percentage tax [P1,000,000 x .005)

200,000 800,000 25% 4% P8,000,000 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.

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 110 SUGGESTED ANSWERS Chapter 14: OTHER PERCENTAGE TAXES

Problem 14 – 39 B Interest income with maturity more than 5 years (P400,000 x 1%) Leasehold income (P300,000 x 7%) Total gross receipt tax

P 4,000 21,000 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%) Royalty income (P300,000 x 7%) Gain from sale of derivatives (P200,000 x 7%) Total gross receipt tax

P 30,000 21,000 14,000 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%) 2.

P10,800

Total gross receipts Less: OSD (P360,000 x 40%) Net income before personal exemption Less: Personal exemption Net taxable income

P360,000 144,000 P216,000 50,000 P166,000

Tax on P140,000 Tax on excess (P26,000 x 25%) Income tax due

P22,500 6,500 P29,000

Problem 14 – 42 Gross receipts (P480,000 + P190,000 + P100,000 + P1,950,000 + P2,480,000) Multiplied by applicable business tax rate - VAT Output VAT Add: OPT on overseas calls (P100,000 x 10%) Total business tax Problem 14 – 43 Actual gross receipts (higher) – City taxi (P195,000) from April to June Multiplied by percentage tax rate Percentage tax payable – 2nd quarter (answer) Problem 14 – 44 Tax units 1 2 3 4 5 Total amount = higher amount Multiplied by percentage tax Percentage tax

Actual 15,000 9,000 12,000 8,000 20,000

P5,200,000 12% P 624,000 10,000 P 634,000 P195,000 3% P 5,850

Minimum 10,800 10,800 10,800 10,800 10,800

Higher 15,000 10,800 12,000 10,800 20,000 68,800 3% 2,058

Note: The higher of the aggregate/total amount of the actual gross receipts or minimum amount is subject to other percentage tax.

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 111 SUGGESTED ANSWERS Chapter 14: OTHER PERCENTAGE TAXES

Problem 14 – 45 Subject to VAT: Transport of goods (P2.5M x 12%) Transport of passengers (P5M x 12%) Transport of cargoes (P3M x 12%) Transport of animals (P1.5M x 12%) Total business tax

P 300,000 600,000 360,000 180,000 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) Multiplied by applicable business tax rate Business tax for the quarter Problem 14 – 47 Gross receipts Multiplied by applicable franchise tax rate – VAT Franchise tax Problem 14 – 48 Actual gross receipts from business operations First quarter (P3,000,000 + P4,000,000) Multiplied by applicable business tax rate Franchise tax due – first quarter

P 500,000 18% P 90,000 P50,000,000 12% P 6,000,000

P7,000,000 12% 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%) Gross receipts – local calls (P500,000 x 12%) Total percentage taxes

P 50,000 60,000 P110,000

Problem 14 – 50 Total gross receipts (P600,000 + P400,000) Multiplied by percentage tax for professional basketball organization Percentage tax

P1,000,000 15% P 150,000

Problem 14 – 51 Total gross receipts (P800,000 + P300,000 + P500,000 + P50,000) Multiplied by applicable business tax rate for cockpits Total business tax

P1,650,000 18% P 297,000

Problem 14 – 52 Income tax on cockfighting winnings (P500,000 x 20%) Percentage tax on horseracing winnings (P800,000 x 10%) Income tax on horseracing winnings (P800,000 x 20%) Total tax on winnings

P 100,000 80,000 160,000 P 340,000

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 112 SUGGESTED ANSWERS Chapter 14: OTHER PERCENTAGE TAXES

Problem 14 – 53 Sales proceeds (P15 x 500,000) Multiplied by applicable IPO rate Percentage tax

P7,500,000 2% 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 Divided by outstanding shares (1,000,000 + 500,000) Percent of IPO Applicable IPO tax rate

500,000 1,500,000 33% 2%

Problem 14 – 54 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: Original holding Add: Stock dividend (5,000 x 20%) Total shares available Less: First sale *Remaining shares for this sale

Shares 5,000 1,000 6,000 2,000 4,000

Unit Cost P50.00 P41.67 P41.67

Amount P250,000 . P250,000 83,320 P166,680

Problem 14 – 55 1. Percentage tax (P0.50 x 1,000,000) x 0.005 2.

P 2,500

August 20, 200A = last day of remittance without penalty.

Problem 14 – 56 Gross receipts tax on: Rent income (P30,000 x 7%) Royalty income (P20,000 x 7%) Interest income (P50,000 + P20,000 + P10,000) x 5% Total percentage tax Problem 14 – 57 1. Year Remaining maturity 2013 9 2014 8 2015 7 2016 6 2017 5 Total gross receipt tax paid 2. Year 2013

Remaining maturity 4

P 2,100 1,400 4,000 P 7,500

Amount of interest, etc. P 200,000 200,000 200,000 200,000 200,000

Applicable tax rate 1% 1% 1% 1% 5%

Amount of interest, etc. P 200,000

Applicable tax rate 5%

Gross receipt tax P 2,000 2,000 2,000 2,000 10,000 P18,000 Gross receipt tax P10,000

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 113 SUGGESTED ANSWERS Chapter 14: OTHER PERCENTAGE TAXES

2014 3 2015 2 2016 1 2017 Less than 1 year Total gross receipt tax as recomputed Less: Gross receipt tax previously paid Gross receipt tax still due

200,000 200,000 200,000 200,000

Problem 14 – 58

5% 5% 5% 5%

10,000 10,000 10,000 10,000 P50,000 18,000 P32,000

Franchise P 400,000 3,000,000 P3,400,000 100,000 P3,300,000

Non-franchise P - 0 1,800,000 P1,800,000 120,000 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 (P3,000,000 x 12%) (P1,800,000 x 12%)

P360,000

Beginning receivables Add: Revenues Total Less: Ending receivables Gross receipts

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: Revenues Accounts receivable Advances Gross receipts

Current P 500,000 300,000 200,000 P1,000,000

Previous P300,000 100,000 . P400,000

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

P

5. Life insurance

5% P 50,000

5% P 20,000

6. Agents of foreign insurance companies

10% P100,000

10% P 40,000

7. Overseas dispatch

10% P100,000

10% P 40,000

Computation of percentage taxes: 1. Common carrier of passengers (assume land transport)

2% 8,000

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 114 SUGGESTED ANSWERS 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

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