BUSINESS AND TRANSFER TAXATION 5th 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. True – as to the object of tax
2. True – as a general rule, except if the merchandise is sold outside the Philippines not subject
to business tax in the Philippines. If the resident Filipino citizen is within the subsistence
livelihood earnings, tax-exempt.
3. False – business tax is another Internal Revenue Tax distinct from income tax.
4. True
5. False – it is the other way around.
6. True
7. True
8. True
9. True
10. False – citizens, resident or nonresident are subject to transfer tax for transfers within..
11. False – on the 20th of the month following the taxable month.
12. True
13. False – only income earned within will be taxable against resident alien
14. False – should be at least P1,000,000 per year.

Problem 1-2 Problem 1-3

1. A 1. D
2. A 2. A
3. C 3. C
4. B 4. A
5. A 5. C
6. B 6. A
7. A 7. D
8. D 8. A
9. C 9. C
10. A 10. C
11. D 11. D
12. A 12. D
13. C 13. A

Problem 1–4

1. 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 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
donor’s tax.

2. B
Subject to business tax is P6,000,000. Only sales within are subject to business tax.
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 2
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
donor’s tax.

Problem 1–5
1. B 6. B
2. O 7. B
3. O 8. O
4. O 9. T
5. O 10. T

Problem 1–6
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 1–7

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

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

Problem 1–8
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

2. Dates of filing and payments:

a. On or before the 20th 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