Preferential Taxation

Page 1 of 7 | TAX Handouts No.
18
PREFERENTIAL TAXATION
REX B. BANGGAWAN, CPA, MBA
REX B. BANGGAWAN, CPA MBA
SENIOR CITIZEN’S ACT

1. A senior citizen accompanied by two minors ordered food with total invoice price of P1,008 from a VAT-registered
restaurant. Compute the senior citizen discount and amount to be billed.
a. P 60; P 948 c. P 180; P 720
b. P 180; P 828 d. P 60; P 912
2. A senior citizen ordered to purchase a cellphone with invoice price of P33,600. Compute the senior citizen discount
and the amount to be billed?
a. P 0; P 33,600 c. P 6,000; P 24,000
b. P 0; P 30,000 d. P 6,720; P 26,880
3. Juan Cruz, a non-VAT registered senior citizen and owner of St. Peter Drugstore, had the following sales during the
first quarter of 2019:
Sales P 500,000
Cost of sales 140,000
Gross income P 360,000
Interest income from deposit 2,000
Salaries of senior citizen employee 20,000
Salaries of PWD employees 20,000
Taxes and other expenses 50,000
Net income P 302,000
Compute the percentage tax.

a. P 0 c. P 15,000
b. P 60 d. P 15,060
4. Compute the income subject to regular income tax.

a. P 0 c. P 270,000
b. P 262,000 d. P 272,000
BMBE LAW
1. Mr. Juan established a meat shop business in Batac City by infusing his P2,000,000 land value to the business. He
borrowed additional P2,000,000 from the bank for a P1,500,000 for equipment and working capital. Mr. Juan reported
total sales of P 500,000 out of which it collected P480,000. Juan reported a net income of P 280,000 inclusive of P
5,000 dividend income.
Which is correct?
a. The business is a BMBE exempt from final tax.
b. The business is a BMBE exempt only from regular income tax.
c. The business is not a BMBE subject to income tax and business tax.
d. The business is not a BMBE subject to business tax only.
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2. Assuming Juan registered as a BMBE, compute the percentage tax in the foregoing problem.
a. P 0 c. P 15,000
b. P 14,400 d. P 15,150
3. Assuming Batac City did not impose a lower rate for BMBEs, compute the local business tax.
a. P 0 c. P 8,800
b. P 4,400 d. P 8,850
4. Assuming Juan registered as a BMBE, compute the annual real property tax.
a. P 0 c. P 35,000
b. P 20,000 d. P 40,000
Query: What is the community tax of Mr. Juan? What if Mr. Juan is a corporation?
5. A BMBE-registered enterprise had the following in the second quarter:

Registered activities Unregistered activities
Sales P 400,000 P 200,000
Cost of sales 150,000 80,000
Gross income P 250,000 P 120,000
Expenses 50,000 20,000
Net income P 200,000 P 100,000
Compute the taxable income of the BMBE.

a. P 300,000 c. P 100,000
b. P 200,000 d. P 0
6. Compute the percentage tax.

a. P 0 c. P 12,000
b. P 6,000 d. P 18,000
OMNIBUS INVESTMENT CODE
Summary of BOI Tax Incentives
MULTIPLE CHOICE QUESTIONS

1. A newly registered BOI corporate enterprise had the following data during the year:
Registered Unregistered Total

activities activities
Gross income P 40,000,000 P 10,000,000 P 50,000,000
Deductions 30,000,000 6,000,000 36,000,000
Net income P 10,000,000 P 4,000,000 P 14,000,000


Required: Compute the following

1. Income tax holiday
2. Income tax still due
2. Robotech, Inc. is a BOI-registered pioneer enterprise whose registered activity is the manufacturing of flying robot
spare parts. In 2016, ABC Company registered its manufacturing business with a P100M projected annual revenue
to the BOI. In 2017, Robotech Industries posted a P105M revenue and P30M profits.
Required: Compute the income tax still due.

1. Using the data provided above
2. Assume Robotech, Inc. earned P150M in 2017 with P45M net income.
a. No request for adjustment in projected revenue was made
b. Prior request for adjustment of projected revenue up to P140M was made
3. If P42M sales were made to Robotech’s sister company Chorvatech, Inc.
4. If Robotech, Inc. also accepted an offer from a client seeking consultancy services where it earned P30M
revenue and P18M in profits.
3. Haiku Manufacturing is registered with the BOI as an expansion enterprise. Haiku posted P10M in profits and P50M in
total sales. Haiku’s expansion ITH base figure is P20M. Haiku is subject to 30% corporate income tax rate.

1. Rate of exemption
3. Income tax still due
4. In 2017, Excelsior Manufacturing, a manufacturer of i-Jeep, an innovative air-conditioned jeepney with mobile wifi and
a comfort room, registered as an expansion enterprise with the BOI.
Sales figures of i-Jeep in the last 5 years were as follows:
2012 2013 2014 2015 2016
Sales P 400M P 650M P 550M P 580M P 620M
Units produced 200 330 305 315 310
Units sold 190 340 280 290 305
Excelsior produced and sold a total of 420 and 430 units, respectively, in 2017 and reported total sales of P800M and
a profit of P200M, respectively.
Required: Determine the following:

1. Base figure
3. Income tax due and the tax still due.
4. Base figure if products are heterogenous
5. Which of the following is qualified for bonus year incentive?

a. Ratio of capital to labor of $100,000
b. Indigenous raw material inclusion rate of 45%
c. Net foreign exchange outflows exceeding $500,000 annually
d. A labor intensive registrant


6. Which is qualified for a bonus year incentive?

Capital investment # of Employees
a. $10,000,000 400
b. $24,000,000 2,000
c. $ 12,000,000 1,400
d. $1,500,000 80

Domestic raw materials Imported materials
a. $1,000,000 $1,200,000
b. $ 500,000 $400,000
c. $ 12,000,000 $13,000,000
d. $1,500,000 $1,800,000

Annual $ Earnings Annual $ Savings
a. $200,000 $250,000
b. $600,000 ($300,000)
c. $ 0 $600,000
d. $490,000 $ 0
9. A non-pioneer BOI-registered enterprise which started commercial operations on June 30, 2015, has the following
quarterly data in 2019.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Domestic sales P 2,000,000 P 2,500,000 P 2,000,000 P 2,400,000
Export sales 2,000,000 3,000,000 2,500,000 2,400,000
Cost of sales 2,200,000 2,500,000 2,300,000 2,300,000
Gross profit P 1,800,000 P 3,000,000 P 2,200,000 P 2,500,000
Expenses 1,500,000 1,200,000 1,400,000 1,200,000
Net income P 300,000 P 1,800,000 P 1,200,000 P 1,300,000
VAT on purchases P 180,000 P 160,000 P 140,000 P 160,000
Required: Check the box if the taxpayer is subject to the tax.

1st Qtr. 2019 2nd Qtr. 2019 3rd Qtr. 2019 4th Qtr. 2019 1st Qtr. 2020
VAT due
Income tax due
Local business
tax
Real property tax


PHILIPPINE ECONOMIC ZONE AUTHORITY
Summary of PEZA Tax Incentives:
Questions:
1. Mr. Pacalab is employed with Loogy Instruments, Inc., an ecozone locator. Mr. Pacalab is
a. Subject to regular income tax under the NIRC
b. Exempt from community tax under the LGC
c. Subject to 5% income tax on compensation
d. All of these
2. Ms. Maine Mendo owns a Jolibee food franchise outlet inside an economic zone. She is
a. Subject to regular income tax under the NIRC
b. Subject to local business tax under the LGC
c. Subject to value added tax under the NIRC
d. All of these
3. A PEZA-registered corporate taxpayer had the following data during ITH period:
Registered Unregistered Total
activities activities
Gross income P 40,000,000 P 10,000,000 P 50,000,000
Deductions 30,000,000 6,000,000 36,000,000
Net income P 10,000,000 P 4,000,000 P 14,000,000
1. Gross income tax
2. Regular corporate tax still due
4. The following relates to the income and expense of ABC Corporation, a PEZA registered manufacturing enterprise:
Direct export sales P 5,000,000
Sales to export traders 2,000,000
Domestic sales 3,000,000
Sale of scrap 400,000
Total income P 10,400,000
Less: Expenses
Cost of export sales (Purchases of P2.5M) P 2,000,000
Cost of domestic sales (Purchases of P2M) 1,400,000
Administrative expenses 2,000,000
Expenses of scrap recovery and sale 100,000
Total expenses P 5,500,000
Net income P 4,900,000


Required:
1. Compute the following during ITH period:
a. Gross income tax : _____________
b. VAT due during the year : _____________
c. Regular income tax : _____________
2. Compute the following during GIT Period:
a. Gross income tax : _____________
b. VAT due during the year : _____________
c. Regular income tax : _____________
5. A non-pioneer PEZA-registered enterprise which started commercial operations on June 30, 2013, has the following
quarterly data in 2017.

Sales P 4,000,000 P 5,500,000 P 4,500,000 P 4,800,000
Cost of sales 2,200,000 2,500,000 2,300,000 2,300,000
Gross profit P 1,800,000 P 3,000,000 P 2,200,000 P 2,500,000
Expenses 1,500,000 1,200,000 1,400,000 1,200,000
Net income P 300,000 P 1,800,000 P 1,200,000 P 1,300,000
VAT on purchases of supplies P 18,000 P 16,000 P 14,000 P 15,000
Compute the following assuming it opted to the gross income tax option:
VAT due
Income tax due
Real property tax
Local business tax
DOUBLE TAXATION AGREEMENTS (DTA)

International double taxation – overlaps in situs of two or more taxing states
Approaches to minimize international double taxation:
u Tax exemption
u Tax credit
u Reciprocity provision
u Tax treaty
Claim of Tax Treaty Relief under DTA

u For passive income including dividend, royalty and interest to non-residents –
u No more tax treaty relief application
u Required form to be filed: Certificate of Residence for Tax Treaty Relief (CORTT) Form
u Preferential rate shall be used upon submission of the CORTT form
u For other income such as business profits, income from services, etc.
u Tax treaty relief application(TTRA) is still required
Questions:
1. A Vietnamese citizen who is residing in the USA made an investment in the stocks of a domestic corporation in the
Philippines. The USA and Vietnam are both treaty partners of the Philippines. The US-RP treaty provides for cross-
border tax of 5% to be imposed by the host country while the RP-Vietnam treaty provides of exemption of dividends.
The domestic corporation shall withhold what final tax rate from the dividend income?
a. 0% c. 10%
b. 5% d. 25%


2. A corporation incorporated according to the laws of Taiwan entered into a financing agreement with a domestic
corporation where the corporation shall be paid 12% in annual interest. Under the NIRC, interest on these loans are
subject to 20% final tax. The RP-Taiwan treaty provides for a 10% preferential rate. Which of the following is a
required to claim tax treaty relief?
a. Tax treaty relief application c. Tax Residency Certificate
b. A TTRA ruling from the BIR ITAD d. All of these
3. An American citizen residing in Afghanistan contracted a domestic enterprise for the latter’s use of the former’s
intellectual property. The arrangement calls for the payment of royalty. The US-RP treaty provides for exemption of
royalty by non-residents. Afghanistan is not a treaty partner of the Philippines.
The royalty income shall be subject to tax at

a. 0% c. 20%
b. 10% d. 25%
--- END OF HANDOUTS ---


Preferential Taxation

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Preferential Taxation

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Page 1 of 7 | TAX Handouts No.

SENIOR CITIZEN’S ACT

Compute the percentage tax.

4. Compute the income subject to regular income tax.

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA MBA

5. A BMBE-registered enterprise had the following in the second quarter:

Compute the taxable income of the BMBE.

6. Compute the percentage tax.

OMNIBUS INVESTMENT CODE

Summary of BOI Tax Incentives

MULTIPLE CHOICE QUESTIONS

Registered Unregistered Total

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA MBA

Required: Compute the following

Required: Compute the income tax still due.

Required: Compute the following

Required: Determine the following:

5. Which of the following is qualified for bonus year incentive?

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA MBA

6. Which is qualified for a bonus year incentive?

7. Which is qualified for a bonus year incentive?

8. Which is qualified for a bonus year incentive?

VAT on purchases P 180,000 P 160,000 P 140,000 P 160,000

Required: Check the box if the taxpayer is subject to the tax.

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA MBA

PHILIPPINE ECONOMIC ZONE AUTHORITY

Summary of PEZA Tax Incentives:

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA MBA

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

VAT on purchases of supplies P 18,000 P 16,000 P 14,000 P 15,000

DOUBLE TAXATION AGREEMENTS (DTA)

Claim of Tax Treaty Relief under DTA

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REX B. BANGGAWAN, CPA MBA

The royalty income shall be subject to tax at

--- END OF HANDOUTS ---

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

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