Chapter 1 — Introduction to Consumption Taxes CHAPTER 1 INTRODUCTION TO CONSUMPTION TAXES Chapter Overview and Objectives Business tax is a farm of consumption tax. An understanding of consumption tax is essential to your understanding and appreciation of business taxes. This chapter provides an overview of consumption tax, After this chapter, readers are expected to comprehend: The concept of a consumption tax ‘Types of consumption and consumption taxes The destination principle The nature of the VAT on importation ‘The nature and types of business tax The characteristics of the VAT on sales The characteristics of percentage tax —_——$—————————————— Nog een ‘THE CONCEPT OF CONSUMPTION AND CONSUMPTION TAX _7 Consumption refers to the acquisition or utilization of goods or services by any person. The utilization of goods or services may be through purchase, exchange or other means. This utilization 1s subject to a tax called consumption tax. Consumption is levied without regard to the purpose of the purchaser or consumer whether it is for business, personal or charity use. Rationale of Consumption Tax 1. Savings formation 2. Rationalization of the Benefit Received Theory 3. Wealth redistribution to society Consumption tax promotes savings formation. Income is normally destined toward consumption. Income less consumption is savings. Savings is a capital that is useful in funding projects crucial to economic activities that could spur further economic development. A tax on consumption promotes savings formation by limiting the level of consumption. Consumption tax rationalizes the Benefit Received Theory. The Benefit Received Theory proposes that those who receive more benefit from the government should pay more taxes. It is undeniable that, in one way or another, every resident or citizen, whether rich or poor, benefits 1 Scanned by TapScannerChapter 1 — Introduction to Consumption Taxes from the government's public services. Thus, the legal truism in taxation that receipt of benefit from the government Is conclusively presumed. So how could the government tax everybody? Every person, rich or poor, consumes goods and services as normal part of life. This is true even if they do not earn income. A tax on consumption will effectively render everybody taxable. Therefore, consumption tax is a practical rationalization of the Benefit Received Theory in taxation Consumption tax helps redistribute wealth to societ , It is a basic state policy to redistribute wealth to society so everyone in the State could enjoy the same. On the individual level, there's no question that rich_people buy or spend more than poor people. With bigger income and wealth, the rich can afford expensive lifestyles. A tax on consumption will effectively make the rich pay more taxes for the government. In effect, consumption tax supports the redistribution of wealth from the rich people to the less privileged members of our society. Acaveat to consumption tax There is one important caveat to consumption tax however. It should not be levied upon basic necessities such as food, education, health, and shelter or housing. Doing so would be tantamount to killing the goose that lays the golden egg. Our current tax system observes this with qualifications. Income tax vs. consumption tax Income tax Consumption tax ‘Nature Tax upon receiptof | Tax upon usage of income income or capital | Scope/coverage A tax to the capable Atax toall Theoretical basis Ability to pay theory Benefit received theory | Note to readers: Your keen appreciation of the following section is highly critical to your understanding of rules on consumption taxes in future chapters, Reetuech oie auinChapter 1 - Introduction to Consumption Taxes TYPES OF CONSUMPTION Foreign consumption Domestic consumption Buyer = Non-resident (Buyer = Resident) Seller ~ Resident sellers SELLER Sales or®. receipts. ~ Purchase *) Buyer ~ Non-resident ==. 1 erect sellers IMPORTER | Import sealer L Philippines Abroad Types ofconsumption | Purchaser Status 7. Domestic consumption | Resident | Taxable 2. Foreign consumption | Non-resident | Exempt/Ejfectively non-taxable Because taxation is inherently territorial, our government can only impose tax upon domestic consumption. In observing this, our tax laws adhere to the “Destination principle.” Only goods and services destined for consumption in the Philippines are subject to. consumption tax while those destined for consumption abroad are not subject to consumption tax. Following the cross-border doctrine, goods that cross the border destined for foreign countries are not charged consumption taxes, Due to this, the government do not impose taxes on exports. The NIRC either exempts exports or subject them to a 0% tax rate. TYPES OF DOMESTIC CONSUMPTION AS TO SOURCE 4. Domestic sales - purchases from resident sellers 2. Importation - purchases from abroad by non-residents CONSUMPTION TAX ON DOMESTIC SALES aN The domestic consumption of resident buyers from resident sellers commonly known as purchase is subject to a consumption tax called a business tax. It is called business tax because the consumption tax is indirectly imposed upon sellers which are businesses. This does not mean, however, that the sellers are the ones being subjected ~ to the tax burden. The object of taxation is the purchase of buyers but owing to the inherent difficulty of collecting tax from numerous buyers compared 3 Scanned by TapScanneree Chapter 1 — Introduction to Consumption Taxes to fewer sellers, the law imposed the obligation to pay the tax eer Anyway, the sales of sellers are just the same purchases of buyers which are the real object of taxation. This is an application of the principle of administrative fest in taxation. Due to this reverse imposition, business tax 1s well-known as an indirect tax. CONSUMPTION TAX ON IMPORTATION feats The domestic consumption of goods or services fr commonly known as importation is subject to a consumption tax called the VAT on importation.” The VAT is directly levied upon the buyer - importer. The principle of administrative feasibility cannot be apphed in this case because seller is non-resident and is out of reach of Philippine's taxing power. It must be recalled that taxation is territorial; hence, tax obligations can only be enforced and demanded upon residents — in this case, the buyer. BUSINESS TAX VS. VAT ON IMPORTATION: A DIFFERENTIATION _| VATonImportation | Business Tax Scope oftax Imports from business | Purchases from _____ornon-business __| _ businesses only Type of consumption tax Pure form | __Relative form Statutory taxpayer | Buyer | Seller The economic taxpayer Buyer | Buyer Nature ofimposition | __—_—iDirect__ Indirect Basis of tax Total purchase cost__|_ Sales or receipts ‘The business tax is imposed only if the seller is a business and is based upon the sales of goods or receipts from rendering of services of the seller. That's why this consumption tax came to be known as a “business” tax but it is not actually a tax upon the business because the tax burden is shifted by the business to the buyer who will actually shoulder the tax burden. Business refers to habitual engagement in a commercial activity. It connotes regularity of transaction involving sale of goods or services for a profit The VAT on importation is imposed upon the total cost of importation regardless of whether or not the non-resident seller is a business. It is therefore a pure form of consumption tax as it does not relatively apply the tax. eee me uuChapter 1 — Introduction to Consumption Taxes Is the VAT on importation an impasse to administrative feasibility? The answer is no. The government has an in-placed border control. Border control on goods is managed by the Bureau of Customs (BOC). Goods have to be cleared through the BOC first before they are allowed to enter the Philippines. With this in-placed control mechanism, the VAT on importation is conveniently collectible through the BOC. Thus, the law tasked the BOC to collect the tax in behalf of the BIR. Business tax rules on domestic sales The selleris | The buyer is Subject to business tax? Business, | Business __YES _ Business Not business YES Not business Business NO [Not business | Not business _NO Value Added Tax rules on importation (— Theselleris | The buyeris | Subject to VAT on importation? | Business | Business yes Business Not business __y [Not business | Business YES [Not business | Not business YES It must be noted that being in business is very essential to business taxation while it Is not the case with importation. So long as there is importation of goods or services, the VAT generally applies. TYPES OF CONSUMPTION TAXES 1. Percentage Tax - tax of various rates from 0.60% to 30% 2. Value Added Tax - a consumption tax of 12% 3. Excise Tax - an ad valorem or specific tax, which is imposed in addition to VAT or percentage tax, only on certain goods or services ‘TYPES OF DOMESTIC CONSUMPTION AS TO TAXABILITY 1. Exempt consumption - These are consumption of goods or services that are not subject to consumption taxes 2. Consumptions specifically subject to percentage tax - This includes consumption of services that are not subject to VAT but are imposed with a specific percentage tax. 3. Vatable consumption - This includes all other consumption that are neither exempted nor subject to percentage tax. 5 Reena| Chapter 1 ~ Introduction to Consumption Taxes Types of Consumption Per Type of Domestic Consumption rs es ae DOMESTIC > IMPORTATION SALES/RECEIPTS Exempt importation Exempt sales/receipt | | Exempt consumption po | Services subject toa) Service specifically rvices specifically | %tax | _ subject toa % tax subject toa Ytax Vatable consumption | Vatable importation | Vatable sales or receipt | 1 EXEMPT CONSUMPTION _ Exempt consumptions are neither subject to percentage tax nor value added tax. If they are sourced from abroad, they are exempt from VAT on importation. If sourced from within, they are exempt from business tax. Basis of exemption from consumption tax Basis ofexemption | VAT on Importation Business Tax |The goods imported isa | The goods, services or Human necessity human necessity. property soldisa human necessity. = ‘The importation does The seller is not Out of scope of tax not constitute a engaged in business. domestic consumption. a | The importation is The sales or receipt is Tax incentive exemptedas a tax exempted as a tax incentive to certain incentive to certain importers sellers. International comity The importation is The sales or receiptis exempted by treaty. exempted by treaty. Certain basic necessities such as natural agricultural or marine food products, agricultural inputs, books, newspapers and magazines, residential Properties; and essential services such as residential rentals, educational services of schools; and medical services of hospitals are exempt. Taxation shall not result in killing the goose that lays the golden egg. In principle, these consumables are not taxable. Note the scope of the following consumption taxes: Ee aL SeungChapter 1— Introduction to Consumption Taxes _ ~ VAT on importation Business tax __ | ‘The bringing of goods to the Domestic consumption from Philippines which represents businesses only (i-¢ sales or des |__ current domestic consumption. of persons engaged in business only). Scope of VAT on importation The VAT on importation app! or services by a resident person from nm which do not reflect current acquisition of goods or service! exempt lies to current purchase or acquisition of goods on-resident persons. Importation 5 are therefore ‘An example is when a non-resident person imports to the Philippines his personal, household and professional instruments or effects. This is not a _ domestic consumption because he is not acquiring these goods. They are already his even before he brought (imported) the goods into the Philippines. It is therefore exempt from VAT on importation. Scope of Business Taxes Only sales or receipts of persons eng: tax. Hence, if the seller of goods or s business tax. aged in business is subject to business ervices is not a business, there is no bjected to the VAT on importation for some on on the importation of vessels or aircraft air or sea Certain importations are not su! reasons. Example is the exempti in an effort of the government to assist or improve domestic transport or assist tourism in the Philippines. rtain institutions are not subjected to business taxes for some reasons. f cooperatives in a bid for the government to instrumental in economic Cel Example is the exemption of promote cooperative undertaking as it is developments benefiting most rural poor. Importation or sales of goods or services that are agreed to be exempted in an international agreement to which the Philippine government is a signatory are exempt from the VAT on importation and business tax, respectively. SERVICES SPECIFICALLY SUBJECT TO PERCENTAGE TAX Services specifically subject to percentage tax are taxable consumption of services but subject only to a specific percentage tax rate set by the NIRC, Consumption of these services are not subject to VAT. 7 eee sunChapter 1 - Introduction to Consumption Taxes VATABLE IMPORTATION OR SALES . All other importation or sales of either goods or ae that ate no; exempted or specifically imposed a percentage tax is vatable. Readers are highly advised to carefully understand the following strictures of consumption tax The Structure of the VAT on Importation } VAT on Importation Importofservice | _Importofgoods [Exempt Exempt empt _% tax Percentage tax so L VAT Final withholding VAT VAT on importation Import of services The import of service is either: a. Exempt b. Subject to percentage tax © Subject to final withholding VAT The import of services by certain VAT-exempt person is exempt from VAT Currently, there is only one import of service that is subject to a Percentage tax. The import of other services is subject to VAT called. the “final \ withholding VAT.” The VAT 1s computed as 12% of the contract price of the services and is paid to the BIR, - Import of goods The import of goods is either: a Exempt b. Subject to VAT on importation If the import of goods is not exempted, the importation is subject to VAT on importation. The VAT on Importation is com uted as 12% of a of the goods and is paid to the BOC. P % of the landed cost Beg —_____ Business Tax | [Sates of services _| Sates of goods | | Exempt receipt _ a Exempt sales Receipts specifically [ts ——__| _ subject to a% tax War | vatable receipts ~ ences mee uneChapter 1 - Introduction to Consumption Taxes Sales of services The receipt from the sale of services is either: a. Exempt b. Specifically subject to a percentage tax c. Vatable Sales of goods ‘The sales from the sale of goods is either: a. Exempt b. Vatable Vatable sales or receipts are subject to 12% VAT if the taxpayer is a VAT taxpayer and to a 3% general percentage tax if the taxpayer IS @ non-VAT taxpayer. To sum up, readers must note the following: a._ Exempt sales or receipts _| Exempt to VAT and percentage tax b. Services specifically Subject to a particular percentage tax and subject to % tax is exempt from VAT ©. Vatable sales or receipts | Subject to either VAT or 3% percentage tax. VAT on Importation vs. VAT on Sales in Business Tax The VAT on importation is directly computed on the landed costs or total purchase costs of importation without any deduction or tax credit. The VAT imposed on sales or receipt in business taxation is unique as itis theoretically imposed on the value added - the amount of mark-up imposed by sellers on their purchase costs. The VAT on sales or receipt follows a tax credit method wherein a VAT of 12% is imposed on sales and is reduced by VAT paid by the business on its purchases. The tax due is computed as: Output VAT (12% of sales or receipts) Po eK xxx, Less: Input VAT (12% VAT paid on purchases) _xX.xxx VAT due P__xx.xxx Input VAT is claimed as tax credit against output VAT when due or paid not when goods are sold. The VAT does not require a perfect matching approach; hence, it is not imposed on the gross profit. This feature of the VAT on sales or receipts is unique compared to percentage taxes which is merely computed as a fixed percentage of sales or receipts. 9 - AS rerelalatereo NET SLLChapter 1 - Introduction to Consumption Taxes The Excise Tax Excise tax is imposed on the consumption of commodities such as: a. sin products such as alcohol and cigarettes b. non-essential commodities, such as automobiles and jewelry ¢. non-essential services, such as cosmetic surgery a. products which are environmentally degrading in their production o; consumption, such petroleum and minerals Excise tax is an additional imposition to VAT or percentage tax. Unlike business taxes such as percentage taxes and VAT on sales or receipts which are levied at the point of sales, excise tax levied at the point of production or importation. ‘The excise tax on excisable goods is normally imposed before the goods are sold by domestic producers or upon their importation by importers 10 Bee mccceuacdChapter 1 - Introduction to Consumption Taxes CHAPT! SELF-TEST EXERCIS! eee Discussion Questions What is consumption? Compare consumption tax to income tax. What are the types of consumption? Which type pays tax? Discuss the nature of business tax. Enumerate and describe the nature of each type of business tax. Compare the VAT on importation to the business tax. Discuss the characteristics of the VAT on sales Compare the direct method to the tax credit method in VAT computation. Discuss the characteristics of the percentage tax. 10. Discuss the nature of excise tax. 11. Compare VAT on sales, percentage tax, and excise tax. WEVANseNne True or False 1 1. Consumption 2. Apurchase isa form of consumption. t] 3. Atax on consumption will effectively causes all residents of the state to pay ax isa tax levied upon businesses. tan. 4. Consumption is the acquisition or utilization of goods and services. 5 Income tax is based on the taxpayers’ capacity to sacrifice for the support of the government 6. Consumption tax is more consistent with the “ability to pay” theory rather than the “benefit received” theory. 7. Atax on consumption would support savings initiative. 8. Consumption taxes should not apply to basic necessities. 9. Both domestic consumption and foreign consumption are subject to consumption tax 10. Non-resident sellers are exemp! sales. 11. Resident sellers shall pay consumption tax on foreign consumption, 12. The sale by non-resident persons abroad is subject to Philippine t from consumption taxes on their domestic consumption tax 13. The utilization or con: country of origin 14. The sale by non-resid consumption tax 15. The sale by resident in t sumption of goods or services shall be taxable in their lent persons in the Philippines is exempt from he Philippines is subject to consumption tax. ‘True or False 2 1, The consumption tax sources shall be payable by the buyer. 2. Business tax isa form of consumption tax 3. Consumption tax is a form of business tax. for purchases of goods or services from foreign 11 Remo| Chapter 1 - Introduction to Consumption Taxes 1e sales of sellers which is the purchases made 4. Business tax is imposed on th by buyers 5. The VAT on importation is payable only by those regularly engaged in trade or busine: : 7 6. Business taxes are paid by sellers while the VAT on importation is paid by 7. The wcieory taxpayer and the economic taxpayer are the same With the 8. Pe eeeearen alll included in the price of goods and services of the seller but are remitted by the seller ta the government 9. In business taxes, the statutory taxpayer is not the economic taxpayer, 10. The sales or importation of goods 1s not subject to specific percentage tax, 11. When the impact and incidence of taxation rests upon different persons, the tay is an indirect tax 12. Domestic pay consumption tax to domestic sellers. 13. Importers pay consumption tax to non-resident sellers. 14. Domestic sellers pay consumption tax to the government. 15. Exporters pay consumption tax to the government. Multiple Choice - Theory: Part 1 1. Which type of consumption will pay consumption tax? a. Domestic consumption b. Foreign consumption Both domestic and foreign consumption 4. Neither domestic nor foreign consumption 2. Which isa tax upon the usage of income? a Savings tax cc. Consumption tax b. Investment tax d. Business tax 3. Which is subject to the VAT on importation? Foreign consumption from resident sellers a b. Foreign consumption from foreign sellers ¢. Domestic consumption from resident sellers d. Domestic consumption from foreign sellers 4. Which is subject to business tax? a. Foreign consumption from resident sellers b. Foreign consumption from foreign sellers © Domestic consumption from resident sellers d. Domestic consumption from foreign sellers 5. Which is an incorrect statement regarding consumption taxes? a. They are always indirect in nature. b. They effectively tax everyone in the state, 12 efemense aneChapter 1 — Introduction to Consumption Taxes.) ¢. They apply only when the goods or services are destined for consumption within the Philippines. d. Consumption taxes may encourage savings formation. 6. Which is correct regarding consumption tax? a. Itmay help in the redistribution of wealth to society. b. Its entirely based upon the consumers’ ability to pay. © Itapplies to both domestic and foreign consumption: 4. Itapplies only when the seller is non-resident. 7. Domestic consumption is taxable when the seller is a anon-resident. b. aresident. ¢. either a resident or a non-resident. d. both a resident and a non-resident. 8. Foreign consumption shall a. pay consumption tax if the seller is a resident. b. pay consumption tax if the seller is a non-resident. ¢. not pay consumption tax if the seller is a non-resident. d, not pay consumption tax regardless of the residency of the seller. 9. The tax on domestic consumption is referred to as a. VATonimportation. — c. Either A or B b. Business tax. d. Neither A nor B 10. The tax on domestic consumption from foreign suppliers is a. VAT on importation. c. Either A or B b. Business tax. d.Neither A nor B 11, The tax on domestic consumption from resident suppliers is a. VATonimportation. Either A or B b. Business tax. d, Neither A nor B 12. Which is nota business tax? a. VAT onimportation _ c. Percentage tax b. VATonsales d, Excise tax 13. The percentage tax is generally a. 3%ofsalesorreceipts _c.3% of mark-up b. 3% of purchases d. 12% of mark-up 14. The VAT as a business tax is a, 12% ofsales or receipts c. 12% of mark-up b. 12% of purchases . 3% of mark-up 13Chapter 1 —Introduction to Consumption Taxes 15, The VAT on importation ts a. 12% eels ¢ 12% of mark-up b. 12% of purchases 4.3% of mark-up 16. Which form of consumption is tax-free? a. Salestoa ed b, Sales toa non-resident . c. Importation byan importer engaged in business d. Importation by an importer not} engaged in business 17. Asto incidence of tax, the VAT on importation is a form of c. Ad valorem tax a. Direct tax b. Indirect tax d. Specific tax ptions is tax-free? ot engaged in trade or business in trade or business 18. Which of these import consum a. Importation from a seller n b, Importation from a seller engaged i c BothAandB d. Neither Anor B 19. Which importation is subject to the VAT on importation? a. Importation by a person engaged in business b. Importation by a person not engaged in business ¢ BothAorB d. Neither Anor B 20. Who is the statutory taxpayer to the VAT on importation? a. Foreign seller Both A and B b. Domestic buyer d. None of these Multiple Choice - Theory: Part 2 1. Generally, the tax basis of business tax is a. salesor receipts c. Either A or B b. purchase cost d.Both A and B 2. Whois the statutory taxpayer of business taxes? ‘a. The seller who must be engaged in trade or business b. The seller, whether or not engaged in trade or business c. The buyer who must be engaged in trade or business d. The buyer, whether or not engaged in trade or business 3, The economic taxpayers of consumption taxes are a. Sellers who are engaged in trade or business b, Sellers, whether or not engaged in trade or business c. Buyers who are engaged in trade or business d. Buyers, whether or not engaged in trade or business 14 Scanned by TapScannerChapter 1 — introduction to Consumption Taxes 4. What is the method used to determine the VAT due and payable? a. Direct method c. Tax credit method b. Indirect method d. Withholding method 5. Which statement is conceptually incorrect? a. The buyer pays the consumption tax on his/her purchase to the seller b. The buyer pays the consumption tax to the government c. The seller pays the consumption tax to the government d, The seller collects consumption tax for the government 6. Which is correct? a. The sales to foreigners must include a business tax. b. The sales to residents must include a business tax. ¢. The purchase from abroad must include a business tax. d. Allofthese 7. The deduction from Output VAT is called a. Percentage tax c. Input VAT b. VAT dueand payable d. VAT on importation 8. Which isa pure form ofa sales tax? a. Percentage tax c Both A and B b. Value Added Tax d.Neither A nor B Statement 1: A business which pays VAT normally does not pay percentage 9. tax. Statement 2: A business which pays percentage tax also pays VAT. Which statement is correct? a. Statement 1 c. Both statements b. Statement2 d. Neither statement 10, Which of the following business taxes applies only for domestic consumption? a. VATonsales cc. Excise tax d. All of these b. Percentage tax 11. Excise tax is paid by a. Sellers b. Buyers ¢, Importers or manufacturers d. Seller or buyer depending on who agreed to pay the excise tax 12, Export sale is (select the incorrect one) a. Exempt from percentage tax b. Exempt from VAT 15 Scanned by TapScannerChapter 1 — Introduction to Consumption Taxes c. Exempt from excise tax d. Allofthese 13, Statement 1: Excise tax is always paid together with VAT or percentage, Statement 2: Excise tax is paid at the point of sale. Which statement is false? a. Statement 1 c. Both statements b. Statement 2 d. Neither statement 14. Which is imposed with a tax of zero percent (0%)? a. All export sales b. Export sales of VAT-registered taxpayers c Importsales of VAT-registered taxpayers d. Export sales ofnon-VAT registered taxpayers only 15. Which is not subject to excise tax? a. Sin products b. Non-essential commodities c. Food products d. Mineral products 16, The tax basis of consumption tax on foreign purchase is a sales orreceipts c.Either A or B b. purchase costs d. Both Aand B 17. The consumption tax on domestic purchases is imposed upon the a. sales or receipts c Either A or B b. purchase cost d. Both A and B 18. Technically, the excise tax on the manufacture of certain articles is payable only when the article is intended for a. Domestic consumption c. Both Aand B b, Foreignconsumption d. Neither A nor B 19. Which is correct with the VAT on importation? a. Payable only when the importer is engaged in business b. Payable only when the foreign seller is engaged in business © Payable regardless of the purpose of the importation d. Payable only when the resident seller is not engaged in business 20. The VAT on domestic sales is an example of a. adirect tax. © a regulatory ta: b. an indirect tax. da eocin oe i 16 SeemsC0 SSLEEE' 'CS#S“ Chapter 1 ~ Introduction to Consumption Taxes Multiple Choice -Problem Part 1 1. Free Company, a resident business, renders services to Mr. Erlwin, a resident person who is not engaged in business. Identify the statutory taxpayer and the type of consumption tax. a. Free Company - Business tax b. Mr. Erlwin - VAT on importation ¢. Mr, Erlwin - Business tax d. Free Company - VAT on importation 2. Baliwag Company, a non-resident business, purchased P200,000 from Cauayan Company, a resident business. Which will pay the consumption tax on this transaction? a. Cauayan Company ©. Both A and B b. Baliwag Company d. Neither A nor B 3. Heidenberg Corporation, a resident business, purchased P 100,000 goods from Kiwi Company, a non-resident business. Identify the statutory taxpayer and the type of consumption tax. a. Heidenberg Company - Business tax b. Kiwi Company - business tax ¢. Heidenberg Company - VAT on importation d. Kiwi Company - VAT on importation 4. Mr. Cedric, an employee, sold his residential lot to Mrs. Corneto, a real property dealer. Who is subject to consumption tax with respect to this transaction? a. Mr.Cedric c AandB b. Mrs. Corneto d. Neither Anor B 5. Mr. Porma made a casual sale involving a car to Mrs. Tutyal, a resident buyer. Mr. Porma is not a car dealer. Who is subject to consumption tax? a. Mr. Porma c. Both Mr. Porma and Mrs. Tutyal b. Mrs. Tutyal d. Neither Mr. Porma nor Mrs. Tutyal 6. Mr. Llama, an employee, imported a pair of shoes from Hongkong. Which consumption tax is he liable to pay? a. Business tax cc. Both b. VATonimportation — d. None 7. Kapederasyon, a charitable non-profit corporation, imports various office supplies from XG Manufacturing Industries in China. Which is correct? a, Kapederasyon is exempt from VAT on importation. b. Kapederasyon is subject to VAT on importation. © XG Manufacturing Industries is subject to business tax. d. XG Manufacturing Industries shall pay the VAT on the importation. Pry Slee MME este ateChapter 1 - Introduction to Consumption Taxes 8. Mr. Cavite produces an excisable article for sale in the Philippine marke Which is incorrect with respect to Mr. Cavite's business taxation? a. Mr. Cavite is subject to either VAT or percentage tax b. Mr. Cavite pays excise tax in addition to VAT or percentage tax Mr. Cavite pays excise tax in addition to VAT and percentage tax d. Mr. Cavite will pay excise tax without regard to whether he is a VAT o, non-VAT taxpayer. ct to 3% business tax. He hay ting P77,600 which he intends ty f the 3% business tax. He shal 9, A person engaged in business is subje' inventories of goods in his possession cost sell to earn a mark-up of 25% of cost net o! invoice the sale of the P77,600 goods at a P100,000 c.P97,000 b. P103,000 .P 110,000 10. A business wants to make a P10,000 profit from the sale of an inventory costing P30,000. The business is subject to 3% percentage tax. At whar amount shall the business invoice the sale? a P 41,237 c.P40,000 bP 41,200 d.P 38,800 11, A person who imports goods or properties will more likely pay ‘a. 3% percentage tax on the importation b, a 12% VAT on the importation ¢ _elther 3% or 12% tax on the importation d. no consumption tax 12. A person who 1s not regularly engaged in trade or business made a casual sale of a property for P100,000. What will be the invoice price of the sale” a. 100,000 c.P112,000 b. 103,000 d. Either B or C 13. Alison is regularly engaged in the sales of goods. He will pay a. Walueaddedtax only. —c, Either Aor B b. Percentage tax only. d. Neither A nor B 14, Mr, Ventura is subject to 3% percentage tax. He made a total collection v 206,000 during a month and paid P103,000 in purchases. Compute his Percentage tax. a PO ¢, P6,180 b. P3000 d.P12,000 15. A business taxpayer purchased goods worth P120,000 from non-resic! and sold goods worth P140,000 for P180,000, What is the concept of "v: added” for VAT purposes? a. P200,000 c. P80,000 b, P140,000 d P.60,000 18 pte Toa eeeChapter 1 — Introduction to Consumption Taxes, 16. In the immediately preceding problem, what is the basis of percentage tax? a P200,000 . P120,000 b. P140,000 d. P180,000 17. Assuming the same data in the above problem, what is the basis of the VAT on importation? a. P200,000 ¢.P120,000 b. P140,000 . P 80,000 18. Mr. Coroneti imported P300,000 equipment for business use and a 1,200,000 car for personal use. What is the amount subject to the VAT on importation? a PO ¢.P 1,200,000 b. P300,000 .P 1,500,000 Multiple Choice - Problem Part 2 Basic Case 1 1. A business taxpayer had the following purchases and receipts: Import of goods or services P 190,000 Domestic purchase of goods or services 100,000 Domestic sales of goods and services 150,000 Export sales of goods or services 50,000 Compute the total amount subject to consumption tax to the business. a. 500,000 ¢. P350,000 b. P400,000 d.P340,000 2. In the immediately preceding problem, determine the amount subject to ‘consumption tax if the taxpayer is not engaged in business a. P490,000 c. P200,000 b. P390,000 d.P190,000 Basic case 2 3. A VAT-registered taxpayer recorded the following sales and purchases, exclusive of VAT, during the month: Sales P 300,000 Purchases 200,000 What would be the output VAT? a. P 48,000 c.P24,000 b. P36,000 d.P12,000 4. Whatis the input VAT? a. P48,000 .P24,000 b. P36,000 d.P12,000 19 eel meceuaeChapter 1 - introduction to Consumption Taxes 5. Whatisthe VAT payable? a. P36,000 c. P12,000 b. P24,000 d.P0 6. Assuming the taxpayer is a non-VAT taxpayer paying 3% percentage ta, the percentage tax shall be a P12,000 c. P6,000 b. P9,000 d. P-3,000 Basic Case 3 A business taxpayer recorded the following transactions during the month: Philippines Abroad Total Sales P350,000 P200,000 P550,000 Purchases 150,000 _100,000 250,000 Total 500,000 P300,000 800,000 Assuming the taxpayer is a VAT-registered taxpayer 7. Compute the output VAT. a PO cP 36,000 b. P24,000 dP 42,000 8. Compute the VAT on importation. a PO ©. P18,000 b, P12,000 d, P32,000 ‘Assuming the taxpayer is a non-VAT taxpayer 9. Compute the percentage tax. a PO ¢P9,000 b. P6,000 d.P 10,500 10. Compute the VAT on importation. a PO ¢, P12,000 b. P3,000 d. P18,000 Basic Case 4 Sindangan Company, a VAT-registered taxpayer, purchased P400,000 worth o! goods and sold the same for P800,000. 11, Assuming that the business operation of Sindany imi t gan Company is limited t® Philippine residents, what is the total business tax it will tarot on its sales? a P96,000 .P24,000 b. P48,000 d.PO 12, Assuming that the purchases were imports and the sal rts, compute respectively the business tax aaa total comsurigdiol ee, expal a. P96,000;P144,000 c. P 24,000; P72, b. P24000;P144000 dPo;Peaone’ 20 orem ttre