PERCENTAGE TAXES

Percentage Taxes

QUIZZER
Choose the letter of the correct answer.

Principles
1. Statement 1: Other percentage taxes are indirect taxes that can be passed on by person required to
pay to another person who shall bear the burden of paying the tax.
Statement 2: Transactions that are subject to the other percentage taxes are no longer subject to the
value-added tax but may be subject to excise tax.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

Answer: C
 Statement 1: Business taxes are indirect taxes
 Statement 2:
Sale or Transaction (transaction level only) = may be subject to either vat OR percentage tax only
+ excise tax, if applicable.
Taxpayer (entity level: individuals, corporations, etc.) = may be subject both to vat and
percentage tax + excise tax, if applicable, provided the taxpayer is engaged in mixed transactions
(vatable business and non-vatable business).

2. Statement 1: All VAT-exempt taxpayers shall be subject to other percentage taxes.

Statement 2: A taxpayer who is subject percentage tax on his gross receipt will also be subject to
income tax on his net income.
a. Only statement 1 is correct
b. Only statement 2 is correct.
c. Both statements are correct
d. Both statements are incorrect

Answer: B
 Statement 1:
Sale or Transaction = if in the list of vat exempt (therefore, non-vatable) and at the same time
not in the list of transactions subject to percentage tax (Sections 116 to 127 of the Tax Code) the
transaction is exempt from business tax (both vat and percentage tax; i.e. sale of agricultural
food product original state is not subject to vat and percentage tax).

Taxpayer = A vat-exempt taxpayer (i.e., individual and corporation) MAY BE subject to OPT if it is
involved in a transaction subject to OPT under Sections 116 to 127 of the Tax Code, as amended.
However, if such vat-exempt supplier is engaged in a transaction which is not also included in the
list of transactions subject to OPT, such taxpayer is exempt both from VAT and OPT.

 Statement 2: Income tax is in addition to business tax.

3. Which of the following is not correct? The percentage tax:

a. Is a tax on sale of services.
b. May be imposed on sale of goods.
c. May be imposed together with the value added tax.
d. May be imposed together with the excise tax.

Answer: C
 The applicable business tax to a particular "transaction" may be
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o VAT (in general) or

o Percentage tax (if in the list of OPT), or
o Exempt from business tax = if in the list of vat exempt and not included in the list of
transactions subject to OPT
o However, VAT and OPT is not allowed to be imposed at the same time to a particular
"transaction",

4. Which of the following statements is not correct about percentage tax?

a. It is a business tax.
b. It is a transfer tax.
c. It is an ad valorem tax.
d. It is not a progressive tax.

Answer: B
 Transfer tax is applicable to gratuitous transfers (donation or inheritance) while percentage tax
and vat are applicable to onerous taxes.

5. Which statement is wrong?

a. Percentage taxes are basically on sales of services.
b. Percentage taxes are not allowed by law to be shifted to the customers or clients.
c. An isolated transaction not in the course of business will not result in a liability for a percentage
tax
d. None of the above

Answer: B
"C" is correct because it is not pertaining to a "business" transaction. It may only be subjected to
income tax.

Section 116 - OPT on vat exempt sales and transactions

6. A seller of agricultural food products is vat-exempt. His annual gross sales in 2020 amounted to
P3,000,000. To what business tax is he liable?
a. 3% tax on vat-exempt persons under Section 116 of the Tax Code
b. 12% value-added tax
c. 3% common carrier's tax under Section 117 of the Tax Code
d. none of the above

Answer: D
 Refer to the explanation in Quizzer #2, Statement 1.
 Prior to the effectivity of the CREATE law, the tax rate under Section 116 was 3% Beginning July 1,
2020 up to June 30, 2023, the tax rate shall be reduced to 1%,

7. Which of the following is subject to Percentage Tax under Section 116 of the Tax Code?
a. Fruit dealer whose gross receipts for the year amounted to P2,800,000 only.
b. An individual taxpayer whose gross sales for the year amounted to P100,000.
c. School bus operator whose gross receipts for the year amounted to P2,500,000
d. None of the above

Answer: D
 Section 116 shall apply if:
1) The transaction is vat exempt and the reason for vat-exemption is simply because
the taxpayer's gross sales or receipts did not exceed the vat threshold of P3M, and
2) The taxpayer is not vat registered.
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 If the reason for vat exemption is not because of #s 1 and 2 above, the transaction is not subject
to Section 116.

 The taxpayer in item "B" is known as Marginal Income Earner (MIE), an individual whose gross
sales or receipts during the year is not more than P100,000. MIE is not subject to business tax
(Vat and OPT)."

8. The taxpayer is a trader of poultry feeds. Determine his applicable business tax.
a. Subject to 12% vat
b. Vat exempt but subject to Percentage Tax under Section 116
c. 12% vat or OPT under Section 116, at his option
d. Exempt from 12% vat and OPT

Answer: D
Refer to Quizzer #2, Statement 1.
 Sale of Poultry Feeds is vat exempt, but the reason for vat exemption is not simply because the
seller's gross sales did not exceed the vat threshold of P3,000,000 but because poultry feeds are
intended for poultry animals.

9. One of the following is subject to Percentage Tax under Section 116 of the Tax Code:
a. Establishments whose annual gross sales or receipts exceed P3,000,000 and who are VAT
registered.
b. Businesses whose annual gross sales or receipts exceed P3,000,000 and who are not VAT
registered
c. VAT registered establishments whose annual gross sales or receipts do not exceed P3,000,000
d. Establishments whose annual gross sales or receipts do not exceed P3,000,000 and who are not
VAT registered.

Answer: D

10. Ana has the following data for 2019 the taxable year:
Gross sales P2,850,000
collections 1,420,000

If Ms. Ana is a seller of goods, her business tax for the year should be
a. P42,600 OPT
b. P85,500 OPT
c. P170,400 vat
d. P342,000 vat

Answer: B
 OPT = P2,850,000 x 3% = P85,500
 The basis of business tax for sale of goods is gross sales,

11. If Ms. Ana is a seller of service, her business tax for the year should be
a. P42,600 OPT
b. P85,500 OPT
c. P170,400 vạt
d. P342,000 vat

Answer: A
 OPT = P1,420,000 x 3% = P42,600
 The basis of business tax for sale of service is gross receipts or collection.

12. If Ana is vat registered

a. She is subject to 12% vat
b. She is subject to OPT under Section 116
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c. She is subject to 12% vat or 3% OPT, at her option

d. She is exempt from OPT under Section 116 if she opted to be taxed at 8%

Answer: A
 The 8% optional tax is not applicable to vat registered taxpayers.

13. Using the data in the first question and assuming further that the taxable year is 2020, the
correct amount of Percentage Tax should be:
a. P0
b. P14,000
c. P28,500
d. P57,000

Answer: D
January to June = P2,850,000 x 6/12 x 3% P42,750
January to June = P2,850,000 x 6/12 x 1% 14,250
Total P57,000

OR: P2,850,000 x 2%* = P57,000

*transitory rate = (3% + 1%)/2 = 2%

14. Using the same data in the first question and assuming further that the taxable year is 2021,
the correct amount of Percentage Tax should be:
a. P0
b. P14,000
c. P28,500
d. P57,000

Answer: C ; OPT = P2,850,000 x 1% = P28,500

TRANSITORY PERIOD FOR THE REDUCED TAX RATE FROM 3% TO 1%

15. ABC Corporation, a non-vat registered seller of goods provided the following data:
2020 Taxable year:
 Gross sales, 4th quarter, P200,000. The applicable percentage tax was paid on January 25, 2021.

2021 Taxable year:

 Gross sales, 1st quarter, P600,000.
 President Duterte signed CREATE bill into law on March 26, 2021.
 Under the CREATE law, the Percentage Tax rate under Section 116 of the Tax Code was reduced
to 1% from July 1, 2020 to June 30, 2023.

How much is the Percentage Tax Payable for the 1st quarter of 2021?
a. P0
b. P2,000
c. P4,000
d. P6,000

Answer: B
Percentage Tax, 1st quarter of 2021 (P600,000 x 1%) P6,000
Excess porcentage tax paid for the 4th quarter of 2020 (P200,000 x 2%) (4,000)
Percentage Tax Payable P2,000

EXCESS PERCENTAGE TAX PAYMENTS

Excess percentage tax payments as a result of the decrease of tax rate from 3% to 1% beginning July
1, 2020 may be carried forward to the succeeding quarter/s by reflecting the excess percentage tax
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payment under Line 17 of the Percentage Tax Return (BIR Form 2551Q), "Other Tax Credit/Payment",
specifying therein as "Carry-over excess percentage tax paid from previous quarter/s" (RR 4-2021).

TRANSITORY PERIOD: UNUTILIZED INPUT VAT

16. (Based on illustration provided in RR 4-2021). Omega Pharmaceutical Corp. incurred P20,000,000 of
input tax for the period from purchases of medicines other than those prescribed for cancer and no
additional purchases of prescription drugs for cancer was purchased during the period. There was an
unutilized input tax of P10,000,000 coming from inventory of cancer drugs from previous period that
was carried over to the succeeding quarter and 50% of the inventory of cancer drugs was sold during
the period. Sales subject to vat during the current period amounted to P300,000,000. How much is
the vat payable?
a. P5,000,000
b. P11,000,000
c. P25,000,000
d. P36,000,000

Answer: B
Sale subject to vat P300,000,000
Vat rate 12%
Output Vat P36,000,000
Less: INPUT VAT for the period
Input Vat carried over from previous period (cancer drugs) P10,000,000
Input vat from current purchases (non-cancer drugs) 20,000,000
Total input taxes P30,000,000
Less: input tax identifiable to exempt sales (50% of inventory) (5,000,000) (P25,000,000)
VAT Payable P11,000,000

GUIDE: As a result of the additional vat exempt provisions introduced by the CREATE law, the
taxpaver shall treat the resulting excess taxes paid due to the inclusion in the items exempt from vat
or in percentage tax rates, as the case may be, in the following manner:
1) Unutilized vat on local purchase or importation may be carried over to the succeeding
taxable quarter/s or be charged as part of cost.
2) Input vat which are directly attributable to goods now classified as vat exempt may be allowed as
part of cost.
3) For input vat that cannot be attributed to goods now classified as vat exempt, only a ratable
portion thereof shall be charged to cost.

17. Alpha Pharmaceutical sold drugs for cancer which were part of the company's current and previous
purchases. Total sales for the period is P500,000,000, 50% of which is vat exempt. The company also
incurred P20,000,000 input vat for the period from purchases of medicines including those
prescribed for cancer. There was an unutilized input vat of P10,000,000 coming from the previous
period but cannot be attributed to the inventory of drugs for cancer. The vat payable should be
a. P0
b. P10,000,000
c. P15,000,000
d. P30,000,000

Answer C
Sale subject to vat (500,000,000 x 50%) P250,000,000
Vat rate 12%
Output Vat P30,000,000
Less: INPUT VAT for the period
Input Vat carried over from previous period P10,000,000
Input vat from current purchases 20,000,000
Total input taxes P30,000,000
Less: input tax identifiable to exempt sales (50% of sales) (15,000,000) (P15,000,000)
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VAT Payable P15,000,000

 The P15M allocated to exempt sales shall be charged to cost.

18. Ana in number 10 is a taxi operator,

a. She is subject to 12% vat
b. She is subject to common carrier's tax under Section 117
c. She is subject to 12% vat or 3% common carrier's tax, at her option
d. She is exempt from OPT if is she opted to be taxed at 8%

Answer: B
 The 8% optional tax is not applicable to taxpayers who are subject to OPT other than Section 116
of the Tax Code, as amended.

19. Floyd (self-employed) is a non-vat registered taxpayer who operates a convenience store
The following were provided for 2020:
Sales of processed food items P280,000
Sales of non-food items 220,000
Purchases of processed food items 100,000
Purchases of non-food items 80,000
Salaries of helpers 48,000

Compute the correct percentage tax due and prepare the percentage tax return?
a. P15,000
b. P32,000
c. P50,000
d. P27,200

Answer: A
 The taxpayer is non-vat registered + his gross sales did not exceed the vat threshold + the
transactions are not exempt from vat. Consequently, he is subject to 3% OPT under Section 116
of the Tax Code, as amended.
 OPT = (P280,000 + 220,000) x 3% = P15,000

20. Assume Floyd opted to be taxed at 8% on his gross sales and receipts, his applicable business tax is
a. Subject to 12% vat
b. Vat exempt but subject to 3% OPT under Section 116
c. 12% vat or 3% OPT, at his option
d. None of the above

Answer: D
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Section 117 - Common Carriers Tax on Domestic Common

Carriers
21. This refers to persons, corporations, firms or associations engaged in the business of carrying of
transporting passengers or goods or both, by land, water, and air, for compensation, offering their
services to the public and shall include transportation contractors.
a. Common carriers
b. Dealers in securities
c. Lending investors
d. Franchise grantees.

Answer: A

22. A person whose business is to keep automobiles for hire or keep them stored for use or order
a. Keepers of garage
b. Common carrier
c. Taxicab operator
d. Tourist bus operator

Answer: A

23. A keeper of garage whose gross receipts for 2020 exceed P3,000,000 is subject to:
a. Value-added tax
b. Garage sales tax
c. Common carriers tax
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d. Franchise tax.

Answer: C
A keeper of garage is subject to common carrier's tax regardless of the amount of its gross receipts.

24. Which of the following is subject to the 3% common carrier's tax?

a. Transportation contractors on their transport of goods or cargoes.
b. Common carriers by air and sea relative to their transport of passengers
c. Owners of animal-drawn two-wheeled vehicle.
d. Domestic carriers by land for the transport of passengers.

Answer: D
 "A": transport of goods - subject to vat.
 “B”: transport of passengers or goods “via air or sea”- subject to vat.
 "C" - exempt

25. Statement 1: The gross receipts of common carriers derived from their incoming and outgoing
freight shall not be subject to the local taxes imposed under RA 7160, otherwise known as the Local
Government Code of 1991.
Statement 2: The 3% common carrier's tax is based on the actual quarterly gross receipts or
minimum quarterly receipt whichever is lower.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

Answer: A; Statement 2- shall be whichever is higher

26. A non-vat registered transportation contractor is engaged in the transport of passengers, goods and
cargoes. What business taxes is he liable?
a. 12% value-added tax;
b. 3% common carrier's tax;
c. Percentage tax under Section 116 on gross receipts from transport of goods and cargoes and 3%
common carrier's tax on gross receipts from transport of passengers.
d. 12% VAT on gross receipts from transport of goods and cargoes and 3% common carrier's tax on
gross receipts from transport of passengers.

Answer: C; (subject to Section 116 and Section 117)

27. Using the same information in the preceding number, except that he is a vat-registered. What
business taxes is he liable to?
a. 12% value-added tax;
b. 3% common carrier's tax;
c. Percentage tax under Sec. 116 of the Tax Code on gross receipts from transport of goods and
cargoes and 3% common carrier's tax on gross receipts from transport of passengers.
d. 12% VAT on gross receipts from transport of goods and cargoes and 3% common carrier's tax on
gross receipt from transport of passengers.

Answer: D

28. One of the following statements is incorrect: Operators of transport facilities are
a. Subject to the value-added tax on gross receipts from transporting passengers.
b. Subject to the value-added tax on gross receipts from transporting goods and cargoes.
c. Subject to percentage tax on gross receipts from transporting passengers.
d. Subject to the value-added tax on gross receipts from renting out its transportation facilities.

Answer: A; (subject to Section 117)

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29. A domestic carrier by land is engaged in the transport of goods. It is not VAT-registered and its
annual gross receipts do not exceed P3,000,000 during 2020. To what business taxes is it liable?
a. 12% value-added tax
b. Percentage Tax under Section 116
c. 3% common carrier's tax under Section 117
d. Not subject to business tax.

Answer: B

30. Assume the annual gross receipts in the preceding number exceeded the revised vat threshold of
P3,000,000 during 2020. To what business taxes is it liable?
a. 12% value-added tax
b. 3% or 1% OPT under Section 116
c. 3% common carrier's tax under Section 117
d. Not subject to business tax.

Answer: A

31. A domestic carrier by sea is engaged in the transport of passengers, goods and cargoes. It is not VAT-
registered and its annual gross receipts do not exceed P3,000,000 during 2020. To what business
taxes is it liable?
a. 12% value-added tax
b. Percentage tax under Section 116
c. 3% common carrier's tax under Section 117
d. Not subject to business tax.

Answer: B

32. Assume the annual gross receipts in the preceding number exceeded the revised vat threshold of
P3,000,000 during 2020. To what business taxes is it liable?
a. 12% value-added tax
b. 3% or 1% OPT under Section 116
c. 3% common carrier's tax under Section 117
d. Not subject to business tax.

Answer: A

33. A domestic carrier by land is engaged in the transport of passengers. It is not VAT-registered and its
annual gross receipts do not exceed P3,000,000 during 2020. To what business taxes is it liable?
a. 12% value-added tax
b. Percentage tax under Section 116
c. 3% common carrier's tax under Section 117
d. Not subject to business tax.

Answer: C
 If it involves transport of passengers by land by domestic carriers, it is subject to Common
Carrier's Tax under Section 117 of the Tax Code, regardless of the amount of annual gross
receipts.

34. Assume the annual gross receipts in the preceding number exceeded the revised vat threshold of
P3,000,000 during 2020. To what business taxes is it liable?
a. 12% value-added tax
b. Percentage tax under Section 116
c. 3% common carrier's tax under Section 117
d. Not subject to business tax.
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Answer: C

35. Maharlika Airlines, a domestic corporation plying domestic routes, had the following gross receipts
for the month ended April 2020: carriage of passenger, P4,500,000; carriage of cargo, P7,000,000.
The correct amount of business tax for the month ended April 2017 is:
a. P0
b. P135,000
c. P345,000
d. P1,380,000

Answer: D
 Business Tax (vat) = (P4.5M + P7M) x 12% = P1,380,000
 Domestic airline companies are not subject to Section 117.

Use the following data for the next (2) two questions:
Arianne is an operator of ten (10) buses with routes from Manila to Subic and is likewise a transportation
contractor with three (3) freight trucks. For the taxable year 2021, she reported gross receipts from her
bus operations of P36,000,000. Her gross receipts, however, from her freight of goods or cargoes
amounted only to P800,000 for the year.

36. Assuming Arianne is non-vat registered, how much is her total business tax due?
a. P1,088,000
b. P1,104,000
c. P1,176,000
d. P4,416,000

Answer: A
Common carrier's tax = P36M x 3% P1,080,000
Section 116 = P800,000 x 1% 8,000
Total business taxes 1,088,000

37. Assuming Arianne is vat registered, how much is her total business tax due?
a. P1,080,000
b. P1,104,000
c. P1,176,000
d. P4,416,000

Answer: B
Common carrier's tax = P36M x 3% P1,080,000
VAT – P800,000 x 12% 96,000
Total business taxes P1,176,000

38. Pedro is a jeepney operator. He is also engaged in the business of leasing residential units. His gross
receipts from his jeepney operation amounted to P5,000,000 for the year. The monthly rental of the
residential units is P14,000 with a total annual gross receipts of P3,500,000 for 2021. Which of the
following is correct?
a. Pedro is required to register under the vat system
b. Pedro may apply for optional vat registration
c. Pedro is exempt from business and income tax
d. None of the above

Answer: D
 He is not required to register under the vat system nor apply for optional vat
registration because his business activities are not subject to vat.
 He is not exempt from business tax. He is subject to common carrier's tax under Section 117 of
the Tax Code.
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39. All of the following, except one, are not subject to common carrier's tax
a. owner of a parking lot/building
b. rent-a-car companies
c. common carriers engaged in carriage of goods or cargo
d. domestic airline companies

Answer: B; Choices “a, "c" and d" are subject to vat.

40. Isarog is a vat registered common carrier with passenger buses and cargo trucks. For the month of
June 2021, it had the following data on revenues and receipts, taxes not included:
 For transporting passengers, gross revenues and receipts of P330,000
 For transporting cargoes, gross revenues of P220,000, of which P200,000 was received
 For renting out to the MMDA its towing trucks, gross receipts of P50,000, representing P10,000
from gross revenue of the quarter ending March 31 and P40,000 for the month of June.
The percentage tax is:
a. P1,500
b. P9,900
c. P15,900
d. P17,400

Answer: B
 Common Carrier's Tax under Section 117 = P330,000 x 3% = P9,900
 The basis of business tax if from sale or service is collections or receipts, regardless of when it
was earned.

41. The value added tax is:

a. P24,000
b. P30,000
c. P28,800
d. P25,000

Answer: B
12% Vat = (P200,000 + 50,000) x 12% = P30,000

42. Milagros Lines, a VAT-registered person, has the following gross receipts in February:
Bus 1 (carriage of goods, P18,000) 100,000
Bus 2 (carriage of goods, P13,500) 165,000
Taxi 90,000
Jeepney 35,500
Cargo truck 45,000
Sea vessel 250,000

Additional Information:
✓ Salaries of drivers and conductor - 125,000
✓ Cost of oil and gasoline - 175,000
During the month, Bus 1 was bumped by another bus owned by Mandaon Lines and paid Milagros
Lines P120,000 for the damage.

The percentage tax due on Milagros Line in February is:

a. P10,770
b. P14,370
c. P11,715
d. nil

Answer: A
Bus 1 = P100,000 – 18,000 P82,000
Bus 2 = P165,000 - 13,500 151,500
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Taxi 90,000
Jeepney 35,500
Total P359,000
x CCT rate 3%
OPT; CCT P10,770

 Ignore income and expenses for business taxation purposes.

43. The total business taxes in the preceding number should be:
a. P10,770
b. P39,180
c. P49,950
d. Nil

Answer: C
OPT (refer to the preceding number) P10,770
VAT:
Carriage of goods (P18,000 + 13,500) 31,500
Cargo trucks 45,000
Sea vessel 250,000
Total P326,500
x vat rate 12% 31,180
Total business taxes P49,950

44. ___________ is a pool of land transportation vehicles whose accessibility to the riding public is
facilitated through the use of common point of contact which may be in the form of text, telephone
and/or cellular calls, email, mobile applications or by other means.
a. Domestic common carriers
b. International carriers
c. Transportation network vehicle services (TNVS)
d. Partners

Answer: C

45. The owner(s) of the vehicles, other than the TNVS, used in transporting passengers and/or goods in
TNVS, shall be referred herein as ___________.
a. Domestic common carriers
b. International carriers
c. Transportation network vehicle services (TNVS)
d. Partners

Answer: D
4
46. Statement 1: Under RMC 70-2015, transport network vehicle services, such as but not limited to the
likes of UBER, GRAB TAXI, their Partners/suppliers and similar arrangements, which are holders of a
valid and current Certificate of Public Convenience for the transport of passengers by land, shall be
subject to 3% common carriers tax under Sec. 117.
Statement 2: Transport network vehicle services, such as but not limited to the likes of UBER, GRAB
TAXI, their Partners/suppliers and similar arrangements, which are not holders of a valid and current
Certificate of Public Convenience for the transport of passengers by land, shall also be subject to 3%
common carriers tax under Sec. 117.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

Answer: A. ; Statement 2 - shall be subject to 12% vat.

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Section 118 - Common Carrier's Tax on International

Carriers
47. The 3% percentage tax on international carrier is imposed upon:
International air carrier doing International shipping doing
business in the Philippines business in the Philippines
a. Yes Yes
b. No No
c. Yes No
d. No Yes

Answer: A

48. Statement 1: Domestic common carriers are subject to 0% on its flight originating from abroad to the
Philippine
Statement 2: Resident international carriers are subject to the 0% VAT on its gross Philippine billings
on flight originating from the Philippines to a foreign destination.
Statement 1 Statement 2
a. True True
b. True False
c. False False
d. False True

Answer: C
GUIDE:
Domestic Common Carriers (local carriers)
 On their transport of passengers by land = Sec. 117
 On their transport of goods or cargoes including mails, by land = 12% vat
 On their domestic transport from and to the Philippines of passengers, goods/cargoes, and mails
by air or by sea = 12% vat.
 On their international flights and shipments originating from the Philippines to a foreign
country = 0% vat
 On their international flights and shipments originating from abroad to the Philippines = exempt
from business tax.

International Carriers (Resident Foreign Carriers)

 On their transport of passengers on their international flights and shipments originating from
the Philippines to a foreign country = exempt from business tax
 On their transport of goods/cargoes and mails on their international flights and shipments
originating from the Philippines to a foreign country = Section 118; Common Carriers tax on
International Carriers.
 On their international flights and shipments originating from abroad to the Philippines = exempt
from business tax.

49. Determine the carrier that is subject to the Percentage Tax:

a. Resident foreign corporation operating as an international shipping carrier.
b. Non-resident foreign corporation operating as an international air carrier
c. Domestic corporation with international flights
d. Domestic corporation with international voyages

Answer: A
 Nonresident foreign corporations operating as international carriers are not subject to CCT under
Section 118 of the Tax Code because they are not operating in the Philippines.
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 Domestic carriers on their international flights and shipments originating in in the Philippines are
subject to 0% vat, not CCT.

50. Statement 1: International air carriers and international shipping carriers shall not be subject to 12%
value added tax but to 3% common carrier's tax based on gross receipts derived from their transport
of passengers and goods from Philippines to other countries.
Statement 2: In cases when the Gross Philippines Billings Tax of 2.5% for international carriers is not
applicable (i.e., tax exempt based on reciprocity or treaty), the common carrier's tax under Section
118 of the NIRC, as amended, shall still apply.
A. B. C. D.
Statement 1 True True False False
Statement 2 True False True False

Answer: C
(S1: Gross receipts from transport operations shall be excluded)

51. Statement 1: Banks are subject to the VAT on its interest income.
Statement 2: Resident international carriers are subject to the 0% VAT on its gross Philippine billings
on flight originating from the Philippines to a foreign destination.
Statement 1 Statement 2
a. True True
b. True False
c. False False
d. False True

Answer: C

52. The Republic of Korea, as an act of goodwill, does not impose business taxes to Philippine carriers.
Korean Air is operating in the Philippines having two flights a week. If you were engaged by Korean
air as its tax consultant and asked you whether it is liable to percentage tax, which of the following
will be your advice?
a. Korean Air is liable to percentage tax based on gross receipts from passengers, goods, cargoes
and mails.
b. Korean Air is liable to percentage tax based on gross receipts from passengers only.
c. Korean Air is liable to percentage tax based on gross receipts from goods, cargoes and mails only.
d. Korean air is not liable to percentage based on the principle of reciprocity.

Answer: C
Unlike in income taxation for International carriers, reciprocity is not applicable to Section 118
(common carrier's tax on international carriers) of the Tax Code.

Section 119 – Franchise Tax

53. A right or privilege granted by the State to a person, individual or corporation, to operate a public
utility such as radio broadcasting, television station, electric light system, telephone company, gas,
and water utilities.
a. Franchise
b. Common carriers
c. Dealers in securities
d. Lending investors

Answer: A

54. Statement 1: A franchise is a privilege to serve the public acquired by special grants from private
organizations,
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Statement 2: There are franchise holders whose gross receipts are subject to 12% vat even if not vat
registered.
a. Both statements are correct.
b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second statement is correct.

Answer: D

55. Which of the following franchise grantees is subject to the franchise tax?
a. Franchise on radio and/or television broadcasting companies the annual gross receipts in the
preceding year exceed P10,000,000.
b. Franchise on gas and water utilities.
c. Franchise on toll road operations.
d. PAGCOR and its licensees and franchisees.

Answer: B
 Radio and/or television broadcasting whose gross receipts in the preceding year
exceed P10,000,000 shall be subject to value added tax.
 Although there are other franchises granted by the government such as but not limited to
electric companies, cable companies and telecom companies, the term "Franchise Tax” shall
pertain only to franchise tax levied under Section 119 of the Tax Code, as amended.

56. Statement 1: Radio and/or television broadcasting whose gross receipts in the preceding year did
not exceed P10,000,000 shall have an option to be registered as value-added taxpayer.
Statement 2: Once a radio and/or television broadcasting franchise grantees registered as value-
added taxpayer, the registration shall not be revoked.
a. Both statements are correct.
b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second statement is correct.

Answer: A.

57. A franchisee, had the following data on revenues and receivables in 2020:
Quarter ended, March 31, 2020 Revenues AR Beg. AR, end
Covered by the franchise P4,000,000 P600,000 P800,000
Not covered by the franchise 1,200,000 160,000

If the franchisee is generating and selling electricity, the correct amount of business tax is:
a. P200,800
b. P456,000
c. P580,800
d. P238,800

Answer: C
Covered by the franchise
Revenues P4,000,000
Add: AR, beg. 600,000
Less: AR, end (800,000)
= collections P3,800,000
Not covered by the franchise:
Revenues P1,200,000
Add: AR, beg.
Less: AR, end (160,000)
= Collections P1,040,000
Total collections P4,840,000
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x VAT rate 12%

Value Added Tax P580,800

58. If the franchisee is a gas and water utilities, the correct amount of business tax is:
a. P200,800
b. P456,000
c. P580,800
d. P238,800

Answer: A
Covered by the franchise
Revenues P4,000,000
Add: AR, beg. 600,000
Less: AR, end (800,000)
= collections P3,800,000
x Franchise Tax Rate 2% P76,000

Not covered by the franchise

Revenues P1,200,000
Add: AR Beg
Less: AR, end (160,000)
= Collections P1,040,000
x VAT Rate 12% 124,800
Total Business Taxes P200,800

 The gross receipts from those covered by the franchise is subject to the applicable franchise tax
rate, regardless of the amount of the gross receipts.
 The gross receipts not covered by the franchise is subject to vat because the gross receipts for
the taxable year will obviously exceed the vat threshold.

59. if the franchisee is a radio television broadcasting company, the correct amount of business tax is:
a. P200,800
b. P456,000
c. P580,800
d. P238,800

Answer: D
Covered by the franchise
Revenues P4,000,000
Add: AR, beg. 600,000
Less: AR, end (800,000)
= collections P3,800,000
x Franchise Tax Rate 3% P114,000

Not covered by the franchise

Revenues P1,200,000
Add: AR Beg
Less: AR, end (160,000)
= Collections P1,040,000
x VAT Rate 12% 124,800
Total Business Taxes P238,800

60. Bulwagan ng Katotohan Broadcasting Company, a non-vat holder of a franchise to operate a radio
and/or television network provided the following data (net of any tax):
Year Gross Receipts
2020 P9,000,000
2021 12,000,000
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2022 10,000,000

The business tax liability should be:

2022 2021 2022
a. P270,000 P360,000 P1,200,000
b. 1,080,000 1,440,000 1,440,000
c. 270,000 360,000 300,000
d. 1,080,000 360,000 360,000

Answer: A
 2020 = P9,000,000 x 3% =P270,000
 2021 = P12M x 3% = P360,000;
o Gross receipts preceding year ≤ P10M; apply 3% Franchise Tax
 2022 = P10,000,000 x 12% = P1,200,000
o Gross receipts preceding year > P10M; subject to vat

61. Gallaxy Transport Corporation is a holder of franchise from the government to offer passenger and
cargo transport operations by land. Its gross receipts from passenger operations amounted to
P10,000,000 while its gross receipts from cargo operations amounted to P2,000,000. How much is
the franchise tax due for the month?
a. P300,000
b. P540,000
c. P1,440,000
d. P0

Answer: D
 The gross receipts from passenger operations by land is subject to CCT under Section 117, not
Franchise Tax under Section 119 of the Tax Code.
 The gross receipts from cargo transit operations is subject to vat, instead of Franchise Tax under
Section 119 of the Tax Code.

62. Using the same data in the preceding paragraph, how much is the total business taxes due for the
month?
a. P300,000
b. P540,000
c. P1,440,000
d. P0

Answer: B
Passenger operations (CCT) = P10M X 3% P300,000
Cargo operations (Vat) = P2M x 12% 240,000
Total Business Taxes P540,000

63. Which of the following is subject to percentage tax under Section 119 of the Tax Code:
a. PAGCOR
b. Tollway operators
c. Telecomumication companies
d. None of the above

Answer: D
 PAGCOR is subject to franchise tax of five percent (5%) of its gross revenues or earnings from its
casino operations, dollar pit operations, regular bingo operations, and income from mobile bingo
operations operated by it, with agents on commission basis (RMC 33-2013, April 17, 2013). This
franchise tax, however, is different from the franchise tax imposed under Sec. 119 of the Tax
Code.
 Tollway operators and Telecommunication companies are subject to vat.
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Section 120 - Overseas Communications Tax

64. A telephone company, VAT-registered, provides services for domestic and overseas calls. What
business taxes are due from the services offered?
I. Value-added tax for domestic calls.
II. Overseas communications tax for overseas calls.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

Answer: C
GUIDE:
 Local communications = 12% vat
 Overseas originating in the Philippines = 10% OCT under Section 120
 Overseas originating abroad = not subject to business tax

65. One of the following is subject to overseas communications tax:

a. Long distance call by a son from Manila to his father in lloilo City.
b. Monthly telephone bill from PLDT.
c. Telephone bill on a call by a mother in the Philippines to her son in London.
d. Telephone call by Magda in Hongkong to her friend in Manila.

Answer: C
 "a" and "b", subject to vat
 "d" not subject to business tax

66. Smart-Globe Telecommunications has the following data for a particular month
Gross receipts, domestic calls P5,000,000
Gross receipts, overseas calls (originating in the Philippines) 3,000,000
Purchase of supplies used in connection with domestic calls net of VAT 300,000
Purchase of equip, used in connection with both domestic calls and overseas
calls, net of VAT 800,000
Business expense 1,000,000

How much is the overseas communications tax collected from persons who used me
communications facilities?
a. P300,000
b. P500,000
c. P800,000
d. nil

Answer: A
OCT = P3,000,000 x 10% = P300,000

67. Using the same data in the preceding number, how much is the vat payable?
a. P420,000
b. P470,000
c. P504,000
d. nil

Output vat (P5M x 12%) P600,000

Input vat:
Directly attributable = P300,000 x 12% (36,000)
Allocated = P800,000 x 12% x 5/8 Vat Payable (60,000)
VAT Payable P504,000
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68. Which of the following statements is false?

a. BBC, an international news agency, is required to pay 10% percentage tax from messages
originating from the Philippines by telephone or telegraph.
b. Amounts paid for messages transmitted by an embassy and consular offices of a foreign
government is not subject to 10% overseas communications tax.
c. Overseas communications initiated by a resident citizen not engaged in trade or business is
subject to overseas communication tax.
d. None of the above

Answer: A
EXEMPT from OCT:
 Diplomatic Services
 International Organizations/ as provided under international agreements/treaties
 News Agencies or Services
 Government

69. One of the following statements is incorrect.

a. Overseas communications tax is imposed on overseas communications originating from the
Philippines.
b. The person liable to overseas communications tax may or may not be engaged in any trade or
business.
c. The overseas communications tax is imposed whether the overseas communications are made in
the course of trade or business or not.
d. The overseas communications tax is imposed on the owner of the communication facilities used
to make overseas communications.

Answer: D
"D" is wrong. It is imposed on the user of the facility

70. Moon Telecom Inc. has the following collections for the month of April 2021:
Overseas call originating abroad P1,120,000
Overseas call originating in the Philippines 880,000
Local calls 2,240,000

How much is the overseas communications tax to be remitted by Moon for the month?
a. P220,000
b. P88,000
c. P200,000
d. P80,000

Answer: D
Collections P880,000
x 100/110
Revenues exclusive of OCT P800,000
x OCT % 10%
OCT P80,000

Journal Entry:

Cash P880,000
OCT Expense 80,000
Revenues P880,000
OCT Payable 80,000

 NOTE: Percentage Taxes, except Stock Transaction Taxes under Sections 127(A) and (B) of the Tax
Code are classified as operating expenses for income taxation purposes.
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