EXERCISES 21-1.

DISCUSSION QUESTIONS / PROBLEMS

1. Franchise Tax
2. Carrier’s tax
3. Premium Tax
4. Tax on Banks
5. Non-VAT
6. Amusement Tax
7. Final Tax

ANSWER SOURCE:

O L I Y E V E T X E M Y
L B A O N E M M A A N H
O E M N L U G H T I A F
G D U A I R I A S T O R
A I S M N F D A R O N A
P O E T G T I G E R I N
O R M E B A T G I N O C
P B E E R V O F R E S H
T Y N V O N N E R A D I
U N T A X O N B A N K S
G O A T U N A E C I D E
I N C O M E T A X E S A

EXERCISE 21-2

1. a. Bobby is subject to a percentage of 3% on Persons Exempt from VAT because he is

not a VAT-registered taxpayer and at the same time his gross receipts during his first
year of operation does not exceed P1,500,000.
Therefore, the percentage tax due of Bobby is P15,600 (P520,000x3%)

b. If Bobby decides to voluntarily register under the VAT system, he shall be subject to
value-added tax regardless of the amount of his annual gross receipts.

2. Patricia is subject to Other Percentage Tax or Non-VAT of 3% of gross receipts.

When the annual gross receipts of a business do not exceed P1,500,000 in any 12-
month period, it shall be subject to 3% Non-VAT unless it voluntarily registers under the
VAT system.

3. The business of Ato is subject to VAT. Thus, the taxable amount is P72,000 (600,000 x
12%). This is based on the assumption that the gross receipts in any 12-month period
exceeds P1,500,000.

4. The computation of common carrier's tax is based on the actual collections of P24,000

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 during the quarter. The salaries or wages of drivers, including the cost of oil and
gasoline and the expenses for the purchase of spare parts and minor repairs of the
trimobile are not deductible. Hence, Beato should pay a common carrier's tax of P720
(24,000x 3%).
If Beato is operating a calesa instead of a trimobile, he is not liable to this tax
because he owns and operates an animal-drawn two-wheeled vehicle which is exempt
from tax.
5. If there is a change in plane belonging to the same airline at a certain point which is not
the final destination of the passenger, for any reason other than force majeure, the flight
is still "continuous and uninterrupted"; the basis of the gross receipts reportable for
percentage tax purposes will be the cost of the ticket corresponding from the point of
origin (Manila) to the final destination of the passenger (BIR Ruling 88-164).
Hence, for purposes of computing the percentage tax, the gross receipts shall be
based on the cost of the ticker for the entire journey, i.e. from Manila to United States.

6. a. Operators of gas and water utilities are subject to a Franchise Tax of 2% on the gross
receipts. Thus, if the gross receipts during the month amount to P2,000,000, Too Big
Company shall be liable to pay a tax of P40,000 (P2,000,000 x 2%).
b. Payments for services rendered, other than the business covered by the law
granting the franchise, are not subject to the tax. In other words, the franchisee is
taxable on the receipts from the sale of water only. Hence, Too Big Company's
franchise tax payable is P40,000.
c. No, generally businesses which are subject to percentage taxes are disqualified to
register under the VAT system even if they desire to be registered.
Hence, Too Big Company is strictly governed by the provision on Franchise Tax.

7. January Februar March

y
Monthly telephone bill P20,00 P14,50 P
0 0 25,700
Percent of overseas call 60 60% 60%
%
Receipts from overseas call 12,00 8,700 15,420
0
Divide by 1 11 11
1
Overseas communication tax 1,090.9 790.90 1,401.8
0 2

Note: The bills on the overseas communications include already the

10% tax.

The basic monthly bills including the long distance call charges are subject to value-
added tax, to wit:
Telephone bill during the quarter P
60,200.
00
Less: Gross receipts from overseas communication

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 January P
12,000
February
8,700
March 36,120
15,420
Amount subject to VAT 23,880
Multiply by 3/28
Input tax 2,558.57

8. Remaining Amount of
Year maturity interest, etc. Tax rate Tax
2006 9 100,000 1% 1,000
2007 8 100,000 1% 1,000
2008 7 100,000 1% 1,000
2009 6 100,000 1% 1,000
2010 5 100,000 5% 5,000
Total gross receipts tax 9,000

Upon pretermination, the loan agreement shall be reclassified and the correct gross
receipt tax, including prior years, shall be recomputed on the basis of new category as
shown hereunder:

2004 4 100,000 5% 5,000

2005 3 100,000 5% 5,000
2006 2 100,000 5% 5,000
2007 1 100,000 5% 5,000
2008 Less than 1 100,000 5% 5,000
yr
25,000

Total gross receipts tax 25,000

Less: Gross receipts tax previously 9,000
paid
Tax due 16,000

9. Total premiums collected P

3,500,000
Portion of life insurance (100%-55%) x 3,500,000 1,575,00
0
Gross receipts from life insurance 1,925,00
0
Rate of tax 5
%
Tax on life insurance premiums 96,25
0

Non-life insurance premiums are subject to VAT. Thus, the output tax is P168,750
(P1,575,000 x 3/28)

10. (a) Operation of cockpit P 340,000

Restaurant 75,000
Gross receipts 415,000
Rate of tax 18%
Amusement tax 74,700

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 (b) The defense of Mon is not tenable. Both the Bureau of Internal Revenue and the
municipal government are empowered to impose amusement tax on the operation
of the cockpit.
The authority of the BIR is based on the provisions of the National Internal
Revenue Code, while the authority of the municipal government is based on the
municipal ordinance which is also authorized under the Local Government Code.

11. Inasmuch as the establishment is serving food and drinks, furnish long playing
records and/or tapes and allow the members of the family to dance, then the business
is falling under the category of a night or day club. Accordingly, it is subject to a tax
of 18% of its gross receipts (BIR Ruling No. 88-108).

12. Bowling alleys are neither subject to percentage tax nor to value-added tax. Bowling
is classified as a sport and therefore, bowling alleys are not classified as a business
enterprise. (BIR Ruling No. 88-112).

13. Winnings in horse races (P20,000 x 10%) 2,000

Winning race horse (P10,000 x 10%) 1,000
Total amusement tax to be withheld 3,000

14. a. Gross selling price 100,000

Rate .005
Stock transaction tax 500

b. Sale of shares of stock which are not listed and traded in the Philippine Stock
Exchange are not subject to percentage tax. However, they are subject to income
tax based on the net capital gain.

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