Chapter 15 Business Tax and Transfer Valencia 7th Ed

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA VALENCIA & ROXAS) 109 SUGGESTED ANSWERS Chapter 15: OTHER PERCENTAGE TAXES

CHAPTER 15

PERCENTAGE TAXES Problem 15 – 1 1. D 2. A 3. C 4. A 5. C 6. A 7. D 8. D 9. A 10. A

11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

A C D D E C E D C C

Problem 15 – 2 1.  True 2.  True  deduct as cost of sales from sales. 3. False –  deduct 4.  True 5. False –  exempt  exempt from VAT and OPT. 6.  True  3% of gross sales or gross receipts. 7. False –  3%  business tax. 8. False –  business  advalorem tax. 9. False –  advalorem  if the business is VAT-registered or engaged in business tax-exempt transactions, it 10. False –  if shall not be subject to 3% OPT. Also not all OPT rate is 3%.  Non-VAT business is not allowed to have Input VAT. 11. False –  Non-VAT 12. True  expressly exempted from business tax by law. (R.A. 8424) 13. False –  expressly  the 3% is applicable only to transport b y land. Transport by water and air is subject 14. False –  the to 12% VAT.  OPT-exempt. 15. False –  OPT-exempt.

Problem 15 – 3 1. False –  2%  2% percentage tax. 2.  True 3.  True 4. False –  Premium  Premium collections outside the Philippines from nonresident person is exempt. 5.  True 6. False –  only  only gross receipts within. 7. False –  Option  Option to register not required under OPT. The business can also register as VAT. 8.  True 9. False –  minimum  minimum quarterly receipts or actual quarterly gross receipts, whichever is higher. 10.  True 11. False –  Subject  Subject to VAT for being registered as VAT 12. False –  CNN  CNN is exempt from OPT because the communication is for news services. 13.  True Problem 15 – 4 1. False  –  subject   subject to 3% OPT withholding. The 1% is a creditable withholding income tax, not a percentage tax withholding. 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 7th Edition (BY: VALENCIA & ROXAS) 110 SUGGESTED ANSWERS Chapter 15: OTHER PERCENTAGE TAXES

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

Problem 15 – 7 1. B 2. D 3. A 4. D 5. C 6. C 7. C 8. B 9. A 10. D

Problem 15  –  9 1. Letter B Sales of computers Gross receipts  – computer repairs Sales returns and allowances  Taxable amount Multiplied by VAT rate Output VAT Less: Input VAT Business tax payable 2.

Letter D  Taxable amount Multiplied by OPT rate

Problem 15 – 8 1. A 2. D 3. A 4. A 5. C 6. A 7. D 8. B 9. A 10. B 11. C

P200,000 P200,000 100,000 (20,000) P280,000 12% P 33,600 13,600 P 20,000

P280,000 3%

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BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 111 SUGGESTED ANSWERS Chapter 15: OTHER PERCENTAGE TAXES

Business tax payable

P

Problem 15  –  10 A Withholding taxes; OPT (P2,100,000 x 3%) CWIT (P2,100,000 x 2%)  Total amount of withholding taxes

P 63,000 42,000 P105,000

Problem 15  –  11 B Business tax (P1,500,000 x 3%) Problem 15  –  12 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

P45,000

P

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

Problem 15  –  13 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 15  –  14 C Other percentage tax (P800,000 x 3%) Problem 15  –  15 A Sales (P1,330,000/70%) Multiplied by OPT rate Business tax

8,400

P24,000

P1,900,000 3% P 57,000

Problem 15  –  16 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

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

Problem 15  –  17 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

P

P2,100,000 12% 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  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 15  –  20 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 15  –  21 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 15  –  22 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 15  –  23 B Percentage taxes:  Taxi (P1,500,000 x 3%) Bus (15 x P7,200 x 3%) VAT (P50,000 x 12%)

P45,000 3,240 6,000

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BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 113 SUGGESTED ANSWERS Chapter 15: OTHER PERCENTAGE TAXES

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) 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 15  –  25 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

P

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

Problem 15  –  26 A Output VAT (P1,400,000 + P600,000) x 12% Less: Creditable input VAT (P560,000/9.333) Net business tax payable

P240,000 60,000 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 If Philippine registry, zero-rated on their transport of passengers and cargo from the Philippine port to a foreign port (vice versa). 2.

P - 0 -

Letter C Manila to USA (P1,000,000 x 3%) Manila to China (P1,400,000 x 3%) Philippine business tax

P30,000 42,000 P72,000

Problem 15  –  29 C Percentage tax  – water franchise (P1,000,000 x 2%) Problem 15  –  30 B Percentage tax  – water franchise (P2,000,000 x 2%) Percentage tax  – radio franchise (P10,000,000 x 3%)  Total percentage tax Problem 15  –  31 C Local telephone calls (P6,000,000 x 12%) Overseas conversation (P3,000,000 x 10%) Forfeited telephone instruments deposit (P500,000 x 12%)  Total business taxes Problem 15  –  32 B OPT – Overseas call (P5,000 x 10%) VAT - Local calls (P2,000 x 12%)  Total percentage tax or business tax

P 20,000

P

40,000 300,000 P 340,000

P

720,000 300,000 60,000 P1,080,000

P500 240 P740

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Problem 15  –  33 Exempt

A

Problem 15  –  34 D Service charge (P75,000/10%) Add: Percentage tax (P750,000 x 10%)  Total collection

P 750,000 75,000 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%) Non-life insurance (P5,000,000 x 12%)  Total Less: Life insurance refund within 6 months (P2,000,000 x 30%) x 2%  Total percentage tax Problem 15  –  37 B Premiums collected  – life insurance (P20M x 2%) Premiums collected  – non-life insurance (P15M x 12%) Investment income (P10M x 60% x 7%) Rent income (P5M x 12%) Management fees (P3M x 12%)  Total business tax due Problem 15  –  38 1. Letter B Output VAT (P100,000 x 12%)

2.

3.

P160,000 60,000 P220,000 12,000 P208,000

P

400,000 1,800,000 420,000 600,000 360,000 P3,580,000

P12,000

Letter C OPT (P100,000 x 4%)

P4,000

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% 2.

P300,000

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%)  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%)

200,000 800,000 25% 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%) 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 fro m trading gain of the same taxable year. Problem 15  –  50 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 200 A is not deductible from trading gain of 200B. Problem 15  –  51 D 1. Total gross receipts during the year (P360,000 x 3%) 2.

Total gross receipts Less: OSD (P360,000 x 40%) Net income before personal exemption Less: Personal exemption Net taxable income  Tax on P140,000  Tax on excess (P26,000 x 25%) Income tax due

P10,800 P360,000 144,000 P216,000 50,000 P166,000 P22,500 6,500 P29,000

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Problem 15  –  52 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 15  –  53 Actual gross receipts (higher)  – City taxi (P195,000) from April to June Multiplied by percentage tax rate Percentage tax payable  –  2nd quarter (answer) Problem 15  –  54  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. Problem 15  –  55 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 15  –  56 Gross receipts (P100,000 + P50,000 + P150,000 + P200,000) Multiplied by applicable business tax rate Business tax for the quarter Problem 15  –  57 Gross receipts Multiplied by applicable franchise tax rate  – VAT Franchise tax Problem 15  –  58 Actual gross receipts from business op erations First quarter (P3,000,000 + P4,000,000) Multiplied by applicable business tax rate

P 500,000 18% P 90,000

P50,000,000 12% P 6,000,000

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

P 50,000 60,000 P110,000

Problem 15  –  60  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 15  –  61  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 15  –  62 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

Problem 15  –  63 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 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: 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

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Problem 15  –  65 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 15  –  66 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 15  –  67 1. Year Remaining maturity 2013 9 2014 8 2015 7 2016 6 2017 5  Total gross receipt tax paid 2.

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 Year Remaining maturity of interest, etc. 2013 4 P 200,000 2014 3 200,000 2015 2 200,000 2016 1 200,000 2017 Less than 1 year 200,000  Total gross receipt tax as recomputed Less: Gross receipt tax previously paid Gross receipt tax still due

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

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

Gross receipt tax P10,000 10,000 10,000 10,000 10,000 P50,000 18,000 P32,000

Problem 15  –  68 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 (P3,400,000 x 12%) (P1,800,000 x 12%)

P408,000

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.

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Problem 15  –  69 Collections from: Current business transactions Accounts receivable Advances Gross receipts

Current 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

2% 8,000

2% P 20,000

P

2% 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

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

5. Life insurance

P

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%. 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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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 o f 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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