BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
78SUGGESTED ANSWERS
Chapter 11: VAT ON SALE OF SERVICES
CHAPTER 11
VALUE-ADDED TAX
Problem 11–11. 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
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
79SUGGESTED ANSWERS
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
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
80SUGGESTED ANSWERS
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
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
81SUGGESTED ANSWERS
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
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
82SUGGESTED ANSWERS
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
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
83SUGGESTED ANSWERS
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
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
84SUGGESTED ANSWERS
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
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
85SUGGESTED ANSWERS
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
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
86SUGGESTED ANSWERS
Chapter 11: VAT ON SALE OF SERVICES
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
Documentation charges 10,000
Processing charges 8,000
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:
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
87SUGGESTED ANSWERS
Chapter 11: VAT ON SALE OF SERVICES
Documentation charges 10,000
Processing charges 8,000
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
Net VAT payable P 120,000
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%
