ARC 414 – TAXATION REVIEW

PERCENTAGE TAX

Problem 1
The following data are shown in the books of account of Dimalugi Service Enterprises:
Collections: Current Previous
Revenues 500,000 300,000
Accounts receivable 300,000 100,000
Advances 200,000
Bad debts recovery
(previously written-off) 10,000 20,000
Claims from insurance 20,000 5,000
Proceeds of life insurance 1,000,000

The accounts receivable collected during the current period represents the revenue of the previous period.

Required: Compute the total business taxes for the current and the previous period assuming that Dimalugi is engaged in:
1. Common carrier of passengers
2. Race track
3. Boxing exhibitions
4. Water utilities
5. Life insurance
6. Life insurance as agent of foreign insurance companies
7. Overseas communications dispatch from the Philippines

Problem 2
Pichon is a holder of 5,000 shares of Andoc Corporation. He acquired these at P50 per share through the local stock exchange.
Three months later, he received 20% stock dividend from Andoc.

After receiving the stock certificate of the stock dividend, he sold 2,000 shares of his holdings through local stock exchange at
P50 per share.

Required: Compute the following:

1. Amount of percentage tax
2. Supposing that all of his remaining stocks are sold at the local stock market for P55 per share, determine the amount of the
percentage tax

Multiple choice questions:

1. Which statement is wrong?

a. The percentage taxes are basically on sales of services

b. The percentage taxes are paid monthly
c. The percentage taxes are not allowed by law to be shifted to the customers or clients
d. An isolated transaction not in the course of business will not result in a liability for a percentage tax.

2. Which of the following is not true? The percentage tax:

a. Is a tax on a sale of services;

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

3. Mr. A is a hotel operator. Purchases of goods and services form VAT-registered taxpayers amounted to total invoice costs of
P336, 000. The data that follow do not include taxes:
 Revenues Collections
From room occupancy P400,000 P350,000
For use of hotel gym 30,000 28,000
For rent of garden for a garden party 20,000 20,000
From the dining hall:
Sale of food 500,000 480,000
Sale of alcoholic beverages 200,000 195,000
From the disco:
For admission to the disco 250,000 250,000
From the concessionaire who furnishes food
and alcoholic beverages at the disco (whose
gross receipts from sales is P800, 000) 500,000 480,000

Total percentage tax/es of Mr. A:

a. P345,540 b. P190,000 c. P208,200 d. P131,400

4. Statement 1: Banks are subject to the value-added tax

Statement 2: Banks are subject to the gross receipts tax, which is a percentage tax.

a. The first statement is correct while the second statement is wrong

b. The first statement is wrong while the second statement is correct
c. Both statements are correct
d. Both statements are wrong

5. X Bank, Inc, is a domestic bank operating in the City of Manila. From the following data in a month:

Rentals from safety deposits boxes and real property acquired

through foreclosure proceedings for bad loans P880,000
Net foreign exchange gains (difference between the value
of foreign currencies sold and purchased) 220,000
Net trading gains from trading of securities, commercial
papers and other financial instruments (difference between
the yield or selling price and the cost of obtaining the same) 660,000
Trust fees 110,000
Dividends from domestic corporations 30,000
Other service fees 220,000
Interest income from lending activities from instruments
with remaining terms of:
Five years and less 700,000
More than five years 800,000

The percentage tax (gross receipts tax) for the month is:

a. P0 b. P189,300 c. P43,000 d. P104,500

6. Revenues of the current period P400,000

Collections during the period:
Of revenues of prior periods 50,000
Of revenues of the current period 300,000
Of revenues of the succeeding period (advances) 10,000

Business tax if a domestic common carrier of passengers:

a. P12,000 b. P22,800 c. P10,800 d. P21,000

7. Revenues of the current period P600,000

Collections during the period:
 Of revenues of prior periods 80,000
Of revenues of the current period 400,000
Of revenues of the succeeding period (advances) 20,000

Business tax if a night club:

a. P12,000 b. P22,800 c. P90,000 d. P21,000

8. Revenues of the current period P8,000,000

Collections during the period:
Of revenues of prior periods 1,000,000
Of revenues of the current period 4,000,000
Of revenues of the succeeding period (advances) 120,000

Business tax if a race track:

a. P2,856,000 b. P1,500,000 c. P1,536,000 d. P1,200,000

9. One of the following statements is wrong: 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 the percentage tax on gross receipts from transporting passengers
d. Subject to the value-added tax on gross receipts from renting out its transportation facilities

10. Mr. I is an operator of a fleet of taxi sin Metro Manila. Since he operates under the “boundary system”, the actual payment
to him by the taxi drivers of the “boundary” was P150, 000. No official receipts are issued by the taxi drivers. Drivers causing
damage to the taxi units paid Mr. I P10, 000 for the month:

The value-added tax or percentage tax due from Mr. I is:

a. P 4,800 percentage tax c. P15,000 value-added tax

b. P 4,500 percentage tax d. P13,636.36 value-added tax

11. Which of the following is wrong? Where a common carrier’s gross receipts in a twelve-month period does not exceed P100,
000:

a. He is not required to register his business name with the Bureau of internal Revenue
b. He is not subject to the value-added tax
c. He is not subject to the percentage tax
d. He is not subject to any internal revenue business tax

12. D Co. is a common carrier with passenger buses and cargo trucks. For the month of June, 2006, it had the data on revenues
and receipts, taxes not included:

For transporting passengers, gross revenue 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 revenues of the
quarter ending March 31 and P40, 000 for the month of June.

Percentage tax:

a. P17,400 b. P9,900 c. P16,500 d. P15,900

13. The Sports Promotions, Inc. is a sports promoter which leases the Manila Coliseum at a monthly rental of P800, 000. It
conducts boxing exhibitions and professional basketball games in the coliseum. In a month, it had the following gross receipts
from professional basketball games: Gate receipts- P5, 000,000; Sales of food at stands maintained by it in the coliseum- P900,
000; Sales of television rights- P1, 000,000. The rent expense is P2, 400,000.
The percentage tax is:

a. P1,035,000 b. P936,000 c. P750,000 d. none of the above

14. As franchisee, Mr. Gaudencio Tomacruz had the following data on revenues and receivables, taxes not included:

Receivables
Revenues Beginnings End
From operations:
Covered by the franchise P2,000,000 P300,000 P400,000
Not covered by the franchise 600,000 80,000

The percentage tax, if operating a water system:

a. P52,000 b. P38,000 c. P90,000 d. P190,000

15. One of the following statements is wrong: Books of accounts are required to be kept, as follows:

a. Where the quarterly gross sales, earnings, receipts or output do not exceed P50, 000, a simplified set of bookkeeping records
b. Where the quarterly gross sales, earnings, receipts or output exceed P50, 000 journal and ledger, or their equivalent
c. Where the gross quarterly sales, earnings or output exceed P150, 000, the books shall be examined and audited by independent
Certified Public Accountants
d. May be in a language other than native, English or Spanish, as long as it is in the language of the taxpayer

16. Statement1: Books of accounts shall be preserved for a period beginning from the last entry in such books until the expiration
of the period for an assessment (on transactions recorded there) that may be made by the Bureau of Internal Revenue
Statement 2: In the case of taxpayers whose gross sales, earnings or receipts in any quarter exceed P150, 000, the books of
accounts should be audited and examined by the independent Certified Public Accountants and their income tax returns
accompanied with certified financial statements

a. Both statements are correct

b. Both statements are wrong
c. First statement is correct but the second statement is wrong
d. First statement is wrong but second statement is correct

17. Statement1: Books of accounts should be registered with the Bureau of Internal Revenue before they can be used
Statement 2: Official invoices and receipts that a taxpayer may use should be printed only in such form and with such contents
as are previously approved by the Bureau of Internal Revenue

a. Both statements are correct

b. Both statements are wrong
c. First statement is correct but the second statement is wrong
d. First statement is wrong but second statement is correct

18. Which statement is correct? Receipts or invoices should be issued by a taxpayer:

a. In all cases where the safe of merchandise or services is valued at twenty-five pesos or more
b. Where the sale is made by a VAT taxpayer to a VAT taxpayer, regardless of amount
c. Kept by the taxpayer who issued the invoice or receipt for a period of three years from the close of the taxable year in which
the invoice or receipt is issued
d. All the above statements are correct

19. Statement 1:
The Commissioner of Internal Revenue may, at any time, order inventory taking of goods of any taxpayer in order to
determine his internal revenue tax liability
 The Commissioner of Internal Revenue may place the business operations of a taxpayer under surveillance if there is
reason to believe that the taxpayer is not declaring his correct income, sales or receipts
Statement 2:
The Commissioner of Internal Revenue, after comparison with other taxpayers in similar businesses, may prescribe a
minimum amount of gross receipts, sales and taxable base of a taxpayer under investigation
The Commissioner of Internal Revenue may examine the books of accounts of other tax payers in the exercise of his
power to determine the correct income, sales or receipts of a taxpayer under investigation

a. Both statements are correct

b. Both statements are wrong
c. First statement is correct but the second statement is wrong
d. First statement is wrong but second statement is correct

20. Statement 1: A trader or manufacturer must submit an inventory list to the Bureau of Internal Revenue within thirty days
after the close of his accounting period
Statement 2: The Commissioner of internal Revenue may prescribe the method of inventory valuation of a taxpayer, but he can
do this once only every three years

a. Both statements are correct

b. Both statements are wrong
c. First statement is correct but the second statement is wrong
d. First statement is wrong but second statement is correct

end