CHAPTER 14
PERCENTAGE TAXES
Problem 14–11. 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
P1,919,500 threshold.” 9. D
10. C 10. B
11. D 11. A
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%
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%
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
Problem 14 – 21 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 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.
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
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) 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 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.
Year Remaining maturity of interest, etc. Amount 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 of interest, etc. Amount Applicable tax rate Gross receipt tax
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%
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 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 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 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%
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%.
