BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 105

SUGGESTED ANSWERS
Chapter 14: OTHER PERCENTAGE TAXES

CHAPTER 14
PERCENTAGE TAXES
Problem 141
1. 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 142
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 races 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 143 Problem 144

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 9. D
P1,919,500 threshold.
10. C 10. B
11. D 11. A
12. C 12. C
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 106
SUGGESTED ANSWERS
Chapter 14: OTHER PERCENTAGE TAXES

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%
Gross profit 25% (25%/125%) = 20%
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 107
SUGGESTED ANSWERS
Chapter 14: OTHER PERCENTAGE TAXES

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%
VAT. (R.A. 9337)
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 108
SUGGESTED ANSWERS
Chapter 14: OTHER PERCENTAGE TAXES

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.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 109
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Chapter 14: OTHER PERCENTAGE TAXES

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.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 110
SUGGESTED ANSWERS
Chapter 14: OTHER PERCENTAGE TAXES

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%
nd
Percentage tax payable 2 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.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 111
SUGGESTED ANSWERS
Chapter 14: OTHER PERCENTAGE TAXES

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
Total tax on winnings P 340,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 112
SUGGESTED ANSWERS
Chapter 14: OTHER PERCENTAGE TAXES

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) P100,000
Multiply by percentage tax rate 0.5%
Percentage tax P 500

2. Sales proceeds (4,000* shares x P55 per share) P220,000

Multiply by percentage tax rate 0.5%
Percentage tax P 1,100

Supporting computation:
Shares Unit Cost Amount
Original holding 5,000 P50.00 P250,000
Add: Stock dividend (5,000 x 20%) 1,000 .
Total shares available 6,000 P41.67 P250,000
Less: First sale 2,000 83,320
*Remaining shares for this sale 4,000 P41.67 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. Amount Applicable
Year Remaining maturity of interest, etc. 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. Amount Applicable
Year Remaining maturity of interest, etc. tax rate Gross receipt tax
2013 4 P 200,000 5% P10,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 113
SUGGESTED ANSWERS
Chapter 14: OTHER PERCENTAGE TAXES
2014 3 200,000 5% 10,000
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% 12%

P396,000 P201,600

2. Water franchise 2% 3%
P 66,000 P 50,400

3. Fast food (P3,000,000 x 12%) P360,000

(P1,800,000 x 12%) 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 P 500,000 P300,000
Accounts receivable 300,000 100,000
Advances 200,000 .
Gross receipts P1,000,000 P400,000

Computation of percentage taxes:

1. Common carrier of passengers (assume land transport) 3% 3%
P 30,000 P 12,000
2. Race track 30% 30%
P300,000 P120,000
3. Boxing exhibition 10% 10%
P100,000 P 40,000
4. Water utilities 2% 2%
P 20,000 P 8,000
5. Life insurance 5% 5%
P 50,000 P 20,000
6. Agents of foreign insurance companies 10% 10%
P100,000 P 40,000
7. Overseas dispatch 10% 10%
P100,000 P 40,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 114
SUGGESTED ANSWERS
Chapter 14: OTHER PERCENTAGE TAXES

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 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 % 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 sellers expense
2. True
3. False subject to 3% OPT withholding and CWT withholding.
4. False The 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