BUSINESS AND TRANSFER TAXATION 6th 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. False National Internal Revenue Taxes are collected by the BIR.
2. False professional tax is collected by the local government.
3. True
4. False Only sales within are subject to business tax in the Philippines.
5. False business tax is another Internal Revenue Tax distinct from income tax.
6. False When there is loss, business tax is paid but no income tax.
7. True
8. False it is the other way around.
9. True
10. True
11. True
12. True
13. False citizens whether resident or nonresident are subject to transfer tax within..
14. False on the 20
15. True

th

of the month following the taxable month.

Problem 1-2
1. True
2. False there is no double taxation because income tax is different from business tax.
3. True
4. True
5. False Donation is without consideration; hence, not onerous transfer.
6.
7.

False Sale of family home is not subject to business tax because a family home is
not business asset.
True one for the first quarter and the other is the annual ITR.

8.
9.
10.
11.
12.
13.
14.
15.

False
True
False
False
False
True
False
False

monthly payment is both on the 20

th

of the next month.

the requirement is P100,000 in any quarter of the preceding year.

electronic filing and payment is required only to large taxpayers.
It is the BIR Commissioner that should recommend.
only income earned within will be taxable against resident alien
should be at least P1,000,000 per year.

Problem 1-3
1. B
2. C
3. B
4. D
5. C
6. B
7. D
8. D
9. C
10. B

Problem 1-4
1. C
2. C
3. A
4. D
5. D
6. A
7. C
8. A
9. C
10. A

Problem 1-5
1. C
2. B
3. D
4. A
5. A
6. C
7. C
8. D
9. A
10. B

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 2
SUGGESTED ANSWERS
Chapter 1: INTRODUCTION TO
INTERNAL REVENUE TAXES

Problem 16
A
Income tax due
Divided by normal corporate income tax rate
Amount subject to income tax per ITR
Problem 17
B
Gross income from ordinary operation
Add: Cost of sales
Sale of scrap materials
Total amount subject to business tax

P270,000
30%
P900,000

P2,170,000
30,000

Problem 18
C
Cancellation of indebtedness from:
AbunDaboy, a friend
Grace, current girlfriend
Kristita, his sister
Hacienda Luisita
Inheritance from Coritita, his mother
Amount included for transfer tax reporting

P3,300,000
2,200,000
P5,500,000

P 50,000
10,000
5,000
100,000
1,000,000
P1,165,000

Problem 19
D
Fair market value, higher amount
Capital gains tax (P4,000,000 x 6%)
Add: Documentary stamp tax (P4,000,000 x 1.5%)
Total amount of taxes paid to the BIR
Problem 110
C
VAT (P10,000,000 x 12%)
Income tax:
Gross income (P10,000,000 P6,000,000)
Less: OSD (P4,000,000 x 40%) tax minimization
Net taxable income
Multiplied by normal corporate income tax
DST (P10,000,000 x 1.5%)
Total national tax

P240,000
60,000
P300,000
P1,200,000
P4,000,000
1,600,000
P2,400,000
30%

720,000
150,000
P2,070,000

Problem 111
1. Letter 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)
Total cost of sales (P2,000,000 + P1,500,000)
Gross taxable income

P10,000,000
( 3,500,000)
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
donors tax.
2.

Letter B
Subject to business tax is P6,000,000. Only sales within are subject to business tax.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 3
SUGGESTED ANSWERS

Chapter 1: INTRODUCTION TO
INTERNAL REVENUE TAXES

Subject to income tax:

Sales within
Cost of sales within
Gross income

P6,000,000
(2,000,000)
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
donors tax.
Problem 112
a.

The administrator of JC does not need to file and pay the Philippine estate tax because his
properties are not situated in the Philippines.

This is incorrect because the all properties of a Filipino citizen situated within and outside
the Philippines are object of Philippine estate tax.
Problem 113
1. B
2. O
3. O
4. O
5. O

6. B
7. B
8. O
9. T
10. T

Problem 114

Sales
Gross income

Within

Without

Res. Citizen

3,000,000
600,000

2,000,000
400,000

3,000,000
1,000,000

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 115
1.

P720,000 = (P600,000 x 1.2)

2.

P180,000 = (P720,000 P600,000) + (P660,000 P600,000)

Problem 116
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

Taxable Amount
Res. Alien
3,000,000
600,000

Non-Res.
Alien
3,000,000
600,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 4
SUGGESTED ANSWERS
Chapter 1: INTRODUCTION TO
INTERNAL REVENUE TAXES

2.

Dates of filing and payments:

a.

th

On or before the 20 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.

Problem 117
1. a.
Business tax (professional income-within)

P500,000

b.

Capital gains tax

c.

Regular income tax (professional income within)

P500,000

d.

Transfer tax (P500,000 + P400,000)

P900,000

e.

Documentary stamp tax

2. Sale of land (capital asset) - within

Capital gains tax (P3,000,000 x 6%)
Documentary stamp tax (P3,000,000 x 1.5%)
Donation to strangers within and without
Donors tax (P500,000 + P400,000) x 30%
Professional income within
Other percentage tax (P500,000 x 3%)
Income tax:
Professional income within
Less: OSD (P500,000 x 40%)
Net income
Less: Personal exemption
Net taxable income within
Income tax on P250,000
Total amount of NIRT due in the Philippines

P3,000,000

P3,000,000

P180,000
45,000
270,000
15,000
P500,000
200,000
P300,000
50,000
P250,000

50,000
P560,000