I.

DISCUSSION
1. Define “Power of taxation”.
2. Discuss briefly the “Lifeblood Theory”.

II. MULTIPLE CHOICE

Indicate before each item number the “letter” of the best answer.

1. A mango plantation owner harvested fully-ripened mangoes and sold them in their original state. His gross
annual sales exceeded the VAT threshold amount. He sought your advice whether or not he is liable to VAT.
What will be your advice? (RFP31-23) - B
a. He is liable to VAT because his annual gross sales exceeded the VAT threshold amount.
b. He is not liable to VAT because the sale of agricultural food products in their original state is not subject
to VAT regardless of the gross annual sales
c. He is liable to VAT only when he is a VAT-registered
d. He is not liable to VAT because there is no showing that he is a VAT-registered

2 to 5 are based on the following: (RFP31-24 to 27) – A,B,C,C

One of your friends approached you to consult you regarding his business. He showed you the following data:
Gross Sales - Ducks, geese and turkey P3,500,000
Gross Sales - Fighting cocks 1,500,000
Gross Sales - Specialty feeds for fighting cocks 800,000

He asked you if the sale of ducks, geese and turkey, and sale of fighting cocks and specialty feeds are subject to
VAT. What will be your answer?

2. Answer to sale of ducks, geese and turkey:

a. The sale of ducks, geese and turkey is not subject to VAT because the sale of poultry is exempted from
VAT regardless of the gross annual sales
b. The sale of ducks, geese and turkey is subject to VAT. The annual gross sales exceeded the VAT
threshold amount
c. The sale of ducks, geese and turkey is not subject to VAT. The sale is not made by a VAT-registered
taxpayer
d. The sale of ducks, geese and turkey is subject to VAT provided the seller is VAT-registered

3. Answer to sale of fighting cocks and specialty feeds

a. The sale of fighting cocks and specialty feeds is subject to VAT regardless of the gross sales
b. The sale of fighting cocks and specialty feeds is subject to VAT if the gross annual sales exceed the VAT
threshold amount
c. The sale of fighting cocks and specialty feeds is not subject to VAT because fighting cocks are considered
poultry for VAT purposes
d. The sale of fighting cocks and specialty feeds is not subject to VAT as long as the BIR allows the
exemption

4. How much is the total VATable sales?

a. P5,800,000 c. P2,300,000
b. P4,300,000 d. None of the choices

5. How much is the Value-Added Tax, if any?

a. P696,000 c. P276,000
b. P516,000 d. None of the choices

6. Mr. Andres, VAT-registered real estate dealer, transferred a parcel of land held for sale to the son of his first
cousin as gift on account of his graduation. The parcel of land had a selling price of P2,500,000 and fair market
value of P3,000,000. Its cost was P2,000,000. How much is the Value-added Tax, if any? (RFP31-24) - A
a. P360,000 c. P240,000
b. P300,000 d. None of the choices

SUBJECT: Business Transfer Tax DATE OF EXAMINATION:________________________

TIME:___________________DAY:__________ TIME OF EXAMINATION: ________________________

PREPARED BY: Ralph Henry Magdalita, CPA NOTED BY: Ms. Mary Jane R. Bautista, CPA, MBA Page 1
7. A sales agent of an international carrier having no flight operations to and from the Philippines asked you what
percentage tax will he be liable to on sale of tickets in the Philippines to passengers and passage documents for
cargo or mail. What will be your answer? RFP31-36 - D
a. He is liable to the 3% common carrier’s tax on international carrier on his total gross receipts
b. He is liable to the 3% common carrier’s tax on international carrier on his gross receipts from sale of
passage documents for cargo and mail only
c. He is liable to VAT on his total gross receipts
d. He is not liable to the 3% common carrier’s tax on international carrier on total gross receipts

8. A franchise grantee of radio and television broadcasting has a gross receipts of P15,000,000 from sale of airtime
in the preceding year. It is not VAT-registered. The owner asks you what business tax will it be liable to. What
will your answer be? RFP31-40- A
a. It is liable to VAT because its gross receipts exceeded P10,000,000 even if it is not VAT registered
b. It is liable to 3% franchise tax because it is not VAT-registered
c. It is not liable to VAT nor the 3% franchise tax because franchise grantees are exempt from business
taxes
d. It is liable to either VAT or 3% franchise tax depending on its choice

9. A Pawnshop shall now be treated, for business tax purposes (CFP916-2) -B

a. As a lending investor liable to 12% VAT on its gross receipts from interest income and from gross selling
price from sale of unclaimed properties
b. Not as lending investor, but liable to the 5% gross receipts tax imposed on a non-bank financial
intermediary under Title VI (Other Percentage Taxes)
c. As exempt from 12% VAT and 5% gross receipts tax
d. As liable to the 12% VAT and 5% gross receipts tax

10. Under the VAT system, there is no cascading because the tax itself is not again being taxed. However, in
determining the tax base on sale of taxable goods under the VAT system (CFP916-3) -C
a. The professional tax paid by professional is included in gross receipts
b. The other percentage tax paid by the taxpayer is included in gross selling price
c. The excise tax paid by the taxpayer before withdrawal of the goods from the place of production or from
customs custody is included in the gross selling price
d. The documentary stamp tax paid by the taxpayer is included in the gross selling price or gross receipts

11. Except for one transaction, the rest are exempt from value added tax, which one is subject to value added tax?
(CFP916-4) -C
a. Sales of chicken by a restaurant owner who did not register as a value added tax person and whose
gross annual sales is P1.2M
b. Sales of copra by a copra dealer to a coconut oil manufacturer who did not register as a value added tax
person and whose gross annual sales is P5M
c. Gross receipts of a CPA during the year amounted to P1M, the CPA registered as a value added tax
person in January 2016, before practicing his profession
d. Sales of a book store during the year amounted to P10M, it did not register as a value added tax person
with the BIR

12. IBP Bank extended loans to debtors during the year, with real properties of the debtors being used as collateral
to secure the loans. When the debtors failed to pay the unpaid principal and interest after several demand
letters, the bank foreclosed the same and entered into contracts of lease with tenants. The bank is subject to
the tax as follows: (CFP916-5) -B
a. 12% VAT on the rental income, but exempt from the 7% gross receipts tax
b. 7% gross receipts tax on the rental income, but exempt from VAT
c. Liable to both the 12% VAT and 7% gross receipts tax
d. Exempt to both the 12% VAT and 7% gross receipts tax

13. Which statement is false under the VAT law (CFP916-8) -D

a. A VAT registered person will be subject to VAT for his taxable transactions, regardless of his gross sales
or receipts
b. A person engaged in trade or business selling taxable goods or services must register as a VAT person,
when his gross sales or receipts for the year 2018 exceed P3,000,000
c. A person who issued a VAT registered invoice or receipt for a VAT exempt transaction is liable to the
12% VAT as a penalty for the wrong issuance thereof
d. Once a doctor of medicine exercises his profession during the year, he needs to register as a VAT person
and to issue VAT receipts for professional fees received
14. Which of the following statements is not correct? (CFP916-24) -D
a. An article subject to excise tax may be exempt from VAT
b. An article subject to excise tax may be subject to VAT
c. A taxpayer may have to businesses where on is subject to VAT and the other is subject to percentage tax
d. Manufacturers and importers of goods are subject to excise tax

15. For VAT purposes, the following transactions shall be “deemed sale”, except (CFP916-32) -A
a. Transfer, use or consumption in the course of business of goods or properties originally intended for sale
or for use in the course of business
b. Property dividends which constitute stocks in trade or properties primarily held for sale or lease
declared out of retained earnings
c. Distribution or transfer of goods to creditors in payment of debt or obligation
d. Consignment of goods if actual sale is not made within 60 days following the date such goods were
consigned.

16. Which of the following taxes had been replaced by the VAT? (CFP916-44) -C
a. Percentage tax on international air and shipping carriers doing business in the Philippines
b. Tax on life insurance premiums
c. Caterer’s tax on operators of restaurant and eating places
d. Tax on agents of foreign insurance companies

17. A common carrier by land is engaged in the transport of passengers, goods and cargoes. Gross receipts
amounted to P3M, 50% of which came from transport of passengers. He is not VAT-registered. What business
taxes will he pay? (CFP916-47) -C
a. 12% Value Added Tax
b. 3% common carrier’s tax
c. 3% tax on VAT-exempt persons 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

18. A keepr of garage whose gross receipts for the year exceeded P3,000,000 is subject to: (CFP916-48) -B
a. Value Added Tax
b. Common Carrier’s Tax
c. Excise Tax
d. Franchise Tax

19. Which of the following is not subject to VAT? (CFP916-51) -B

a. Non-life insurance premiums
b. Non-life reinsurance premiums
c. Non-life insurance commissions
d. Non-life reinsurance commissions

20. Which of the following is subject to VAT? (CFP916-60) -A

a. Importation of personal or household effects belonging to the residents of the Philippines returning
from abroad and non-resident citizen coming to resettle in the Philippines where such goods were
subjected to custom duties
b. Importation of passenger or cargo vessel including engine, equipment and spare parts thereof for
domestic or international transport operation
c. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport
operations; provided that the fuel, goods and supplies shall be used for international shipping or air
transport operations
d. Sale of real property not primarily held for sale to customers or held for lease in the ordinary course of
business

21. Business taxes are (TT2 7MC1) - A

a. Imposed upon onerous transfers such as sale, barter, exchange or importation
b. Imposed upon gratuitous transfers such as donation inter-vivos and donation mortis causa
c. Imposed upon gratuitous and onerous transfers
d. None of the above

22. Under the tax code, the following are major internal revenue business taxes, except: (TT2 7MC2) - D
a. Value added tax
 b. Percentage tax
c. Excise tax
d. Income tax

23. A domestic carrier by water 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. To what business taxes is it liable? (TT2
7MC26) - C
a. 12% value added tax
b. 3% common carrier’s tax
c. 3% tax on vat-exempt persons
d. Not subject to business tax

24. Subsistence livelihood is exempted from VAT and Percentage Tax. Which of the following is considered
principally for subsistence? (TT2 7MC28) - A
a. Gross Sales or receipt not exceeding P100,000 during the any twelve month period
b. Gross sales or receipts not exceeding P3,000,000 per year
c. Cooperative sales to its members
d. Rental receipts of P600,000 per year

25. Which of the following is subject to VAT? (TT2 8MC4) - D

a. Sale of vegetables in its original state
b. Sale of fruits in its original state
c. Sale of copra
d. Sale of olive oil

26. Which of the following statements is correct? (TT2 8MC22) - A

a. Export sale by a VAT registered person is subject to 0% VAT
b. Export sale by a non-VAT registered person is subject to 3% percentage tax
c. Both A and B
d. Neither A nor B

27. Which is true? On sale of service, the tax base in computing for the VAT is (TT2 8MC34) - B
a. Gross Selling Price
b. Gross Receipts
c. Amount per Invoice
d. Amount shown in the official receipt

28. Which statement is correct? The output value added tax on goods or properties sold: (TT2 8MC43) - D
a. Is based on gross sales and not on net sales
b. Is not imposed on goods exported
c. Is imposed on actual sale only
d. May be due even in the absence of actual sale

29. “Deemed sale” for VAT purposes includes inventories of taxable goods existing at the time of:
a. Change of control of a corporation thru the acquisition of the controlling interest
b. Change in the trade name or corporate name of the business
c. Merger or consolidation
d. Dissolution of a partnership and the creation of a new partnership
30. Which of the following importation is subject to value added tax? (TT2 8MC50) - D
a. Importation for personal use of the importer
b. Importation intended for resale
c. Importation of machinery for the importers factory
d. All of the above

III. PROBLEM SOLVING

Provide the correct answer for the following questions.

1. Aling Dionisia was ecstatic after watching Pacquiao-Mayweather bout. Due to this, symptoms for high blood and
fatigue were evident. Taking the advice of her affectionate partner, she consulted a doctor upon arrival in
Manila. For a better assessment of Aling Dionisia’s condition, she was advised to undergo some laboratory
tests/procedures in any hospital or clinic. The following were incurred by Aling Dionisia: TILL9-5
Doctor’s Consultation Fee P20,000
Various laboratory fees in a hospital 50,000
 Medicines purchased from the hospital’s pharmacy 100,000

Determine the total amount paid by Aling Dionisia.__________

2. Kuryente Natin, an electric cooperative provided the following data for the taxable year (net of applicable taxes):
TILL9-8
Sales P3,000,000
Purchases 1,000,000
What is the correct amount of VAT payable, if any? ______________

3. James Corporation provided the following data for the taxable year: TILL9-9
Export Sale (net) P3,000,000
Purchases (net) 1,000,000
If James is a vat registered, how much is the vat payable/refundable? ________
If James is non-vat registered, how much is the vat payable/refundable? ________

4. “Nirvana” cigar, classified as non-essential article was imported for sale. The particulars of which are as follos
(Exchange Rate is US$1 : P40) (TILL9-18)
Value of importation as determined by the BOC $15,000
Freight and insurance P20,000
Customs duties 20,000
Other expenses prior to the release of goods from customs custody 10,000
Facilitation expenses 5,000
Transfer costs from customs to the importer’s warehouse 25,000
Selling price of the goods imported 1,500,000
*assume excise tax rate of 20%

How much is the applicable excise tax? _________

How much is the VAT on importation? __________
How much is the total creditable input VAT? _________
How much is the VAT payable on sale? ___________

5. Charlie Company, a VAT registered trader has the following transactions: (TILL9-21)
Sale of goods to private entities (net) P2,500,000
Purchases of goods sold to private entities (gross) 896,000
Sales to a government owned and controlled corporation (GOCC)(net) 1,000,000
Purchases of goods sold to GOCC (net) 700,000

Standard Input tax is __________

VAT to be withheld by the GOCC is _________
Net proceeds from the GOCC (disregard other types of withholdings) ________
Total Amount of output VAT is ________
Total amount of creditable input VAT is ____________
VAT payable by Charlie is __________
Amount of Input Tax closed to income or expense is _________

6. Delta is a real estate dealer, sold three (3) lots on November 2015 with the following terms (net of VAT):
Lot A Lot B Lot C
Selling Price P250,000 P200,000 P300,000
Cost 150,000 130,000 175,000
Terms:
Downpayment, Nov 5 25,000 50,000 40,000
Due:
Dec 5 2015 25,000 20,000 20,000
Jan to Dec 2016 200,000 130,000 240,000

VAT payable in Nov 2015 is______

VAT payable in Dec 2015 is _______ (T P8-17)

7. Victory Express is a domestic common carrier by land engaged mainly in the transport of passengers in Luzon
areas. Due to the increasing demand to transport goods or cargoes, the company decided to acquire additional
bus units for this purpose. The company is non-vat registered. The results of operations for the calendar year
2017 are as follows:
Gross receipts – transport of passengers P 50,000,000
 Gross receipts – transport of goods 15,000,000
Purchases – supplies and services 12,000,000
Other operating expenses 3,000,000

What amount should be recognized as common carrier’s tax? _________

What amount should be recognized as output vat? ___________
Assume that gross receipts from transport of goods amounted to P1,500,000 only. What amount should
be recognized as business tax? _______

8. Philippine Air, a VAT registered domestic air carrier provided the following data for the current taxable year:
Gross Receipts – transport of passengers P50,000,000
Gross Receipts – transport of goods 10,000,000
Purchases (supplies net of vat) 20,000,000
Other operating expenses 10,000,000

How much is the applicable business tax due? ______

How much is the business tax due (refundable) assuming that all revenues were derived from
international flights? ______
Same assumption in the preceding item, except that the company is a non-VAT registered entity. How
much is the business tax due? ________

9. K.R. TV is franchise grantee and the leading television broadcasting company in the country. The gross receipts
for the preceding and current years amounted to P12,000,000 and P11,000,000, respectively.
How much is the business tax due for the current year? _____
How much is the business tax due for the current year assuming the revenues for the preceding year
amounted to P9,000,000 only. _______

10. NoyPi Bank has the following data for January 2017:
Interest Income, the remaining maturity of the instrument is 5 years
(net of 20% Final withholding tax) P96,000
Rentals (gross of 5% expanded withholding tax) 80,000
Net trading loss (30,000)

The gross receipts tax for the month of January is ___________

Assume NoyPi Bank has the following data for the month of February:
Interest Income, the remaining maturity of the instrument is 5 years
(net of 20% Final withholding tax) P120,000
Rentals (gross of 5% expanded withholding tax) 95,000
Net trading gain 50,000
Determine the gross receipts tax for the month of February _________

11. Mr. Talion operates a cockpit. Results of operations for 2014 were provided as follows:
Gross Receipts:
Cockpit operations P4,000,000
Restaurant Operations 1,850,000
Purchases:
Supplies for cockpit operations (net of vat) 750,000
Supplies for restaurant operations (invoice amount) 224,000

Determine the following:

The amusement tax due ______
Total business tax due______
Amusement tax due assuming the restaurant is operated by GJ Company, a non-vat registered
entity whose annual gross receipts never exceeded P3,000,000. _____
Using the assumption in the preceding item, how much is the business tax due of GJ
Company?_____
Assuming GJ Company is a vat registered entity, how much is its vat payable for the
year?_______