Chapter 11 - Percentage Taxes (Valencia)

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS

Chapter 11: PERCENTAGE TAXES

CHAPTER 11

PERCENTAGE TAXES

Problem 11–1 1. False – Non-VAT business is not allowed to have Input VAT.2. False – expressly exempted from business tax.3. True4. True5. False – 3% tax on gross receipts within. Gross receipts outside the Philippines is not subject

to business tax in the Philippines.6. False – 2% percentage tax.7. False – the VAT rate should be 12%.8. False – expense of the service consumer9. False – 10% on foreign insurance company10. False – Gross receipts on cabaret and nightclubs are now included in 12% VAT taxable

transactions.11. False – only gross receipts within.12. True

Problem 11–2 1. False – minimum quarterly receipts or actual quarterly gross receipts whichever is higher.2. True 3. False – grants from the government 4. False – Subject to VAT for being registered as VAT 5. False – exempt 6. True 7. False – amusement taxes ranging from 10% to 30% 8. True 9. False – Horse race’s cost of winning ticket is deductible 10. True

Problem 11 – 31. False – business tax. 2. True 3. False – 3% percentage tax. 4. True 5. False – the percentage tax forms part of seller’s expense 6. True 7. False – The ½ of 1% is applicable for sale of shares of stock in the stock exchange. 8. True9. True 10. False – 7% percentage tax11. False – within 20 days

Problem 11 – 41. B 8. A2. C 9. D3. B 10. D4. C 11. D5. B 12. C6. D 13. B7. C 14. C

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Problem 11 – 5 CPercentage tax (P40,000 x 3%) x 12 P14,400

Problem 11 – 6 AExempt

Problem 11 – 7 CBusiness tax (P540,000 x 3%) P16,200

Note: The actual sale has not yet reached the VAT threshold exceeding P1,500,000 in a year.

Problem 11 – 8 APercentage tax (P28,000/112%) x 3% P 750VAT (P28,000/9.3333) 3,000Surcharge (P3,000 x 50%) 1,500 Business tax P 5,250

Problem 11 – 9 CPercentage tax payable (P500,000 x 3%) P 15,000

Problem 11 – 10 CPercentage tax due (P54,000 + P18,000 + P36,000) x 3% P 3,240

Problem 11 – 11 DPercentage tax (P65,700 x 3%) x 5 P9,855

Should be P9,855 instead of P9,859.

Problem 11 – 12 DTaxi (P98,600 x 3%) x 10 P29,580Bus (P1,000,000 x 3%) 30,000 Common carrier tax due P59,580

Problem 11 – 13 DTotal gross receipts (P1,000,000 + P6,000,000) P7,000,000Multiplied by applicable business tax rate 12% Total business tax P 840,000

Note: Common carrier by sea is subject to VAT of 12%.

Problem 11 – 14 A Percentage tax (P10,000,000 x 3%) P 300,000VAT (P6,000,000 + P1,000,000) x 12% 840,000 Average business tax in a year P1,140,000Divided by number of quarter in a year 4 Estimated average business tax per quarter P 285,000

Problem 11 – 15 CPercentage tax (P10,000,000 x 3%) P 300,000

Problem 11 – 16 AOutside for trip - Manila to USA (P1,000,000 x 3%) P 30,000In the Philippines for trip – Manila to USA (P1,100,000 x 3%) 33,000 Philippine business tax P 63,000

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Problem 11 – 17 CPercentage tax – water franchise (P1,000,000 x 2%) P 20,000

Problem 11 – 18 BPercentage tax – water franchise (P2,000,000 x 2%) P 40,000Percentage tax – radio franchise (P10,000,000 x 3%) 300,000 Total percentage tax P 340,000

Problem 11 – 19 BPercentage tax (P5,000 + P2,000) x 10% P 700

Problem 11 – 20 AExempt

Problem 11 – 21 DService charge (P75,000/10%) P 750,000Percentage tax (P750,000 x 10%) 75,000 Total collection P 825,000

Problem 11 – 22 D P - 0 -

Problem 11 – 23 DPercentage tax (P200,000 x 10%) P 20,000

Problem 11 – 24 DAmusement tax (P500,000 + P200,000 + P100,000) x 18% P 144,000

Problem 11 – 251. A

Percentage tax (P2,000,000 + P1,000,000) x 10% P300,000

2. DExempt

Problem 11 – 26 BPercentage tax [P1,000,000 - (P200,000/100)] x 10% P 99,800

Problem 11 – 27 A Percentage tax (P100,000 – P1,000) x 10% P 9,900

Problem 11 – 28 BPercentage tax [P1,000,000 x .005) P 5,000

Problem 11 – 29 DP - 0 -. The sale is subject to capital gains tax because the shares of stock were sold directly to the buyer.

Problem 11 – 30 CPercentage tax [400,000 x P12) x 1% P 48,000

400,000/1,150,000 = 34.5% more than 33 1/3% = 1% percentage tax.

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Problem 11 – 31 D Percentage tax [P600,000 x 4%) P 24,000

(600,000/20)/ (2,600,000/20) = 23% = 4% percentage tax.

Problem 11 – 32 BInterest income with maturity more than 5 years (P400,000 x 1%) P 4,000Leasehold 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 11 – 33 D Interest income with maturity less than 5 years (P600,000 x 5%) P 30,000Royalty income (P300,000 x 7%) 21,000Gain from sale of derivatives (P200,000 x 7%) 14,000 Total gross receipt tax P 65,000

Note: The net trading loss for 2005 is not deductible from trading gain of 2006.

Problem 11 – 34 APercentage tax [P62,400/(100%-1%-3%) x 3% P 1,950

Problem 11 – 35 CNet payment (P200,000 x (100% - 1% - 2%) P 194,000

Problem 11 – 36 Gross receipts (P480,000 + P190,000 + P100,000 + P2,000,000 + P2,500,000) P5,270,000Multiplied by applicable business tax rate - VAT 12% Business tax liability P 632,400

Note: Sale of service should be based on gross receipts (collections) while sale of foods and beverages should be based on gross sales (revenues).

Problem 11 – 37Minimum quarterly amount – City taxi (P98,600 x 2) P197,200Multiplied by percentage tax rate 3% Percentage tax payable – 2nd quarter (answer) P 5,916

The total actual gross receipts and related percentage taxes from April to June (2nd quarter) were lower than the minimum, hence not applicable.

Problem 11 – 38Tax units Actual Minimum

1 100,000 98,6002 80,000 98,6003 95,000 98,6004 90,000 98,6005 105,000 98,600

Total amount = higher amount 470,000 493,000Multiplied by percentage tax 3% Percentage tax 14,790

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

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Problem 11 – 39Gross receipts (P2,500,000 + P5,000,000 + P3,000,000 + P1,500,000) P12,000,00

0Multiplied by common carrier’s (by air /sea) VAT rate 12% Business tax P

1,440,000

Notes:1. Common carriers by air and sea 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 doing business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross receipts.

Problem 11 – 40Gross receipts (P100,000 + P50,000 + P150,000 + P200,000) P 500,000Multiplied by applicable business tax rate 12% Business tax for the quarter P 60,000

Note: R.A. 9337 changed the business tax rate of day and night club from 18% to 12% VAT.

Problem 11 – 41 Gross receipts P50,000,00

0Multiplied by applicable franchise tax rate – VAT 12% Franchise tax P

6,000,000

Problem 11 – 42 Actual gross receipts from business operations First quarter (P3,000,000 + P4,000,000) P7,000,000Multiplied by applicable business tax rate 12% Franchise tax due – first quarter P 840,000

Note: During the taxable year, its gross receipts exceeded P10,000,000.

Problem 11 – 43Gross receipts P 500,000Multiplied by percentage tax rate collected 10% Percentage tax to be remitted P 50,000

Problem 11 – 44Total gross receipts (P600,000 + P400,000) P1,000,000Multiplied by percentage tax for professional basketball organization 15% Percentage tax P 150,000

Problem 11 – 45 Total gross receipts (P800,000 + P300,000 + P500,000 + P50,000) P1,650,000Multiplied by applicable business tax rate for cockpits 18% Total business tax P 297,000

Problem 11 – 46 Income tax on cockfighting winnings (P500,000 x 20%) P 100,000Percentage tax on horseracing winnings (P800,000 x 10%) 80,000

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Chapter 11: PERCENTAGE TAXESIncome tax on horseracing winnings (P800,000 x 20%) 160,000 Total tax on winnings P 340,000

Problem 11 – 471. Percentage tax (P0.50 x 1,000,000) x 0.005 P 2,500

2. August 20, 2005 = last day of remittance without penalty.

Problem 11 – 48 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 11 – 491.

Year Remaining maturityAmount

of interest, etc.Applicabletax rate Gross receipt tax

2005 9 P 200,000 1% P 2,0002006 8 200,000 1% 2,0002007 7 200,000 1% 2,0002008 6 200,000 1% 2,0002009 5 200,000 5% 10,000 Total gross receipt tax paid P18,000

2.Year Remaining maturity

Amount of interest, etc.

Applicabletax rate Gross receipt tax

2005 4 P 200,000 5% P10,0002006 3 200,000 5% 10,0002007 2 200,000 5% 10,0002008 1 200,000 5% 10,0002009 Less than 1 year 200,000 5% 10,000 Total gross receipt tax as recomputed P50,000Less: Gross receipt tax previously paid 18,000 Gross receipt tax still due P32,000

Problem 11 – 50 Franchise Non-franchise

Beginning receivables P 400,000 P - 0 -Add: Revenues 3,000,000 1,800,000 Total P3,400,000 P1,800,000Less: Ending receivables 100,000 120,000 Gross receipts P3,300,000 P1,680,000

1. Telephone services 10% P330,000

10% P168,000

2. Water franchise 2% P 66,000

3% P 50,400

3. Fast food (P3,000,000 x 12%) (P1,800,000 x 12%)

P360,000P216,000

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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 P1,500,000 threshold.

Problem 11 – 51 Comprehensive ProblemCollections: Current Previous

RevenuesAccounts receivableAdvancesGross receipts

P 500,000300,000

200,000 P1,000,000

P300,000100,000

. 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% P100,000

10% P 40,000

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Chapter 11 - Percentage Taxes (Valencia)

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