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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 1

SUGGESTED ANSWERS
Chapter 1: INTRODUCTION TO
INTERNAL REVENUE TAXES


CHAPTER 1
INTRO. TO INTERNAL REVENUE TAXES

Problem 1-1
1. False National Internal Revenue Taxes are collected by the BIR.
2. False professional tax is collected by the local government.
3. True
4. False Only sales within are subject to business tax in the Philippines.
5. False business tax is another Internal Revenue Tax distinct from income tax.
6. False When there is loss, business tax is paid but no income tax.
7. True
8. False it is the other way around.
9. True
10. True
11. True
12. True
13. False citizens whether resident or nonresident are subject to transfer tax within..
14. False on the 20
th
of the month following the taxable month.
15. True

Problem 1-2
1. True
2. False there is no double taxation because income tax is different from business tax.
3. True
4. True
5. False Donation is without consideration; hence, not onerous transfer.
6. False Sale of family home is not subject to business tax because a family home is not
business asset.
7. True one for the first quarter and the other is the annual ITR.
8. False monthly payment is both on the 20
th
of the next month.
9. True
10. False the requirement is P100,000 in any quarter of the preceding year.
11. False electronic filing and payment is required only to large taxpayers.
12. False It is the BIR Commissioner that should recommend.
13. True
14. False only income earned within will be taxable against resident alien
15. False should be at least P1,000,000 per year.

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



BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 2
SUGGESTED ANSWERS
Chapter 1: INTRODUCTION TO
INTERNAL REVENUE TAXES
Problem 16 A
Income tax due P270,000
Divided by normal corporate income tax rate 30%
Amount subject to income tax per ITR P900,000
Problem 17 B
Gross income from ordinary operation P3,300,000
Add: Cost of sales P2,170,000
Sale of scrap materials 30,000 2,200,000
Total amount subject to business tax P5,500,000
Problem 18 C
Cancellation of indebtedness from:
Abun Daboy, a friend P 50,000
Grace, current girlfriend 10,000
Kristita, his sister 5,000
Hacienda Luisita 100,000
Inheritance from Coritita, his mother 1,000,000
Amount included for transfer tax reporting P1,165,000
Problem 19 D
Fair market value, higher amount
Capital gains tax (P4,000,000 x 6%) P240,000
Add: Documentary stamp tax (P4,000,000 x 1.5%) 60,000
Total amount of taxes paid to the BIR P300,000
Problem 110 C
VAT (P10,000,000 x 12%) P1,200,000
Income tax:
Gross income (P10,000,000 P6,000,000) P4,000,000
Less: OSD (P4,000,000 x 40%) tax minimization 1,600,000
Net taxable income P2,400,000
Multiplied by normal corporate income tax 30% 720,000
DST (P10,000,000 x 1.5%) 150,000
Total national tax P2,070,000

Problem 111
1. Letter A
Subject to business tax is P6,000,000. Only sales within are subject to business tax.

Subject to income tax:
Total sales (P6,000,000 + P4,000,000) P10,000,000
Total cost of sales (P2,000,000 + P1,500,000) ( 3,500,000)
Gross taxable income P 6,500,000
Subject to transfer tax (P3,000,000 + P2,000,000) P 5,000,000

Since the donor is a citizen, all of his properties donated within and without is subject to
donors tax.

2. Letter B
Subject to business tax is P6,000,000. Only sales within are subject to business tax.


BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 3
SUGGESTED ANSWERS
Chapter 1: INTRODUCTION TO
INTERNAL REVENUE TAXES
Subject to income tax:
Sales within P6,000,000
Cost of sales within (2,000,000)
Gross income P4,000,000
Subject to transfer tax (P3,000,000 + P2,000,000) P5,000,000

Since the donor is a citizen, all of his properties donated within and without is subject to
donors tax.

Problem 112 A
a. The administrator of JC does not need to file and pay the Philippine estate tax because his
properties are not situated in the Philippines.

This is incorrect because the all properties of a Filipino citizen situated within and outside
the Philippines are object of Philippine estate tax.

Problem 113
1. B 6. B
2. O 7. B
3. O 8. O
4. O 9. T
5. O 10. T
Problem 114
Taxable Amount
Within Without Res. Citizen Res. Alien Non-Res.
Alien
Sales 3,000,000 2,000,000 3,000,000 3,000,000 3,000,000
Gross income 600,000 400,000 1,000,000 600,000 600,000

1. Taxpayer is a resident citizen
a. P1,000,000 = [P5,000,000 (P5,000,000/1.25)]
b. P3,000,000

2. Taxpayer is a resident alien
a. P600,000 = [P3,000,000 (P3,000,000/1.25)]
b. P3,000,000

3. Taxpayer is nonresident alien
a. P600,000 = [P3,000,000 (P3,000,000/1.25)]
b. P3,000,000

Problem 115

1. P720,000 = (P600,000 x 1.2)

2. P180,000 = (P720,000 P600,000) + (P660,000 P600,000)

Problem 116
1. Tax returns:
a. BIR Form 2551 for business tax
b. BIR Form 1701Q for quarterly income tax return
c. BIR Form 1701 for annual income tax return



BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 4
SUGGESTED ANSWERS
Chapter 1: INTRODUCTION TO
INTERNAL REVENUE TAXES

2. Dates of filing and payments:
a. On or before the 20
th
of each month (BIR Form 2551)
b. April 15, August 15, and November 15 for the first 3 quarters and April 15 of the
following year for the annual tax return.


Problem 117
1. a. Business tax (professional income-within) P500,000
b. Capital gains tax P3,000,000
c. Regular income tax (professional income within) P500,000
d. Transfer tax (P500,000 + P400,000) P900,000
e. Documentary stamp tax P3,000,000
2. Sale of land (capital asset) - within
Capital gains tax (P3,000,000 x 6%) P180,000
Documentary stamp tax (P3,000,000 x 1.5%) 45,000
Donation to strangers within and without
Donors tax (P500,000 + P400,000) x 30% 270,000
Professional income within
Other percentage tax (P500,000 x 3%) 15,000
Income tax:
Professional income within P500,000
Less: OSD (P500,000 x 40%) 200,000
Net income P300,000
Less: Personal exemption 50,000
Net taxable income within P250,000
Income tax on P250,000 50,000
Total amount of NIRT due in the Philippines P560,000