‘Chapter 1 - Introduction to Consumption Taxes ’ CHAPTER 1 INTRODUCTION TO CONSUMPTION TAXES Chapter Overview and Objectives Business tax is a form of consumption tax. An understanding of consumption tax is essential to your understanding and appreciation of 4 i § 4 t business taxes. This chapter provides an overview of consumption tax. After this chapter, readers are expected to comprehend: 1. 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 eee Nowawn 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 Lonsumption 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. £onsumption tax helps redistribute wealth to society. 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. A caveat 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 A tax to all 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, Scanned by TapScannerChapter 1— Introduction to Consumption Taxes TYPES OF CONSUMPTION Foreign consumption (Buyer = Non-resident, ean >| Buyer Lew" Domestic consumption (Buyer = Resident) [am po Salesor®. Purchase receipts ~~——___] qiceocedie- ne IMPORTER - Resident sellers - Non-resident sellers Abroad Types ofconsumption | Purchaser Status _ d._Domestic consumption | Resident Taxable 2.__Foreign consumption Non-resident | Exempt/Effectively 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 toa 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 . 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. J 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 canned by TapScannere Chapter 1 — Introduction to Consumption Taxes to fewer sellers, the law imposed the obligation to pay fhe ae i 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 feastitty in taxation. Due to this reverse imposition, business tax Is well- an indirect tax. CONSUMPTION TAX ON IMPORTATION | ons The domestic consumption of goods or services fr i 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 applied 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 VAT on Importation | Business Tax_ ‘Scope of tax —_ Imports from business | Purchases from or non-business businesses only Type of consumption tax Pure form | Relative form Statutory taxpayer | Buyer | Seller The economic taxpayer Buyer Buyer Nature ofimposition | Direct __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 im regardless of whether or not t] therefore a pure form of consui tax. posed upon the total cost of importation he non-resident seller is a business. It is mption tax as it does not relatively apply the ined by TapScanner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 [Business | Business Business Not business Not business | Business Notbusiness __| Not business Value Added Tax rules on importation [__Theselleris | Thebuyeris | Subject to VAT on importation? [Business | Business YES Business _ _| Not business | Not business Not business Business jot business 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. S Scanned by TapScanner“ Chapter 1- Introduction to Consumption Taxes Types of Consumption Per Type of Domestic Consumption ~ SS "DOMESTIC > | 4 |___IMPORTATION SALES/RECEIPTS | Exempt importation Exempt sales/receipt | Services subject to a Service specifically | Services special | % tax subjecttoa%tax__| __subject toa Yotax_ Vatabre consumption | Vatable importation Vatable sales or receipt zl Exempt consumption EXEMPT CONSUMPTION 1 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 Basisofexemption | VATonImportation | Business Tax The goods imported isa | The goods, services or Human necessity | humannecessity. | — property soldisa human necessity. | The importation does The seller is not Out of scope of tax not constitute a engaged in business. domestic consumption. ee | The importation is The sales or receiptis Tax incentive exempted as 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: Scanned by TapScannerChapter 1- Introduction to Consumption Taxes [VAT on impor ~~ pusiness tax VAT on importation Business tax__ Fetsnaneeh St Domestic consumption from [The bringing of goods to the es which (ie. sales or receipts businesses only Philippines which represents . i et |__current domestic consumption. of persons engaged in business Scope of VAT on importation The VAT on importation app! or services by a resident person fr which do not reflect current acquisit exempt lies to current purchase or acquisition of goods ‘om non-resident persons. Importation tion of goods or services are therefore An example is when a non-resident person imports to the Philippines his personal, household and professional instruments or effects. This is nota 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 0 tax. Hence, if the seller of goo! business tax. f persons engaged in business is subject to business ds or services is not a business, there is no s are not subjected to the VAT on importation for some ion on the importation of vessels or aircraft to assist or improve domestic air or sea Certain importation reasons. Example is the exempti in an effort of the government transport or assist tourism in the Philippines. Certain institutions are not subjected to business taxes for some reasons. Example is the exemption of cooperatives in a bid for the government to promote cooperative undertaking as it is instrumental in economic developments benefiting most rural poor. International comity 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 crea o Remit eteChapter 1 - Introduction to Consumption Taxes VATABLE IMPORTATION OR SALES. All other importation or sales of either goods or services that ate no, exempted or specifically imposed a percentage tax is vatable. Readers are highly advised to carefully understand the following structures of consumption tax. / / ‘The Structure of the VAT on Importation | L VATonImportation |__| [Import ofservice | _ Import of goods (Exempt | Exempt | _Exempt % tax Percentage tax ae bear _| Final withholding VAT_| VAT on impo 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 computed as 12% of the landed cost of the goods and is paid to the BOC. — [sae Business Tax ee Sales ofservices | Sales of aoc —f os sf foods Exempt | Exempt receipt Re % tax Receipts specifically | —— ] hr —_ Subject toa % tax (var —|__Vatable receipts | 8 Scanned by TapScanner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 a non-VAT taxpayer. To sum up, readers must note the following: Terminology _ - 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 c. 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 it is 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 XxXxxx Less: Input VAT (12% VAT paid on purchases) _____XX.Xxx VAT due Pp 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. Scanned by TapScannerNS 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 c. non-essential services, such as cosmetic surgery d. 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 Seeee lm seeuntedChapter 1 — Introduction to Consumption Taxes CHAPTER 1: SELF-TEST EXERCISES 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. wENaneene True or False 1 1. Consumption tax is a tax levied upon businesses. 2. Apurchase is a form of consumption. 3. Atax on consumption will effectively causes all residents of the state to pay tax. Consumption is the acquisition or utilization of goods and services. 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 n> consumption tax. 10. Non-resident sellers are exempt from consumption taxes on their domestic sales. 11. Resident sellers shall pay consumption tax on foreign consumption. 12, The sale by non-resident persons abroad is subject to Philippine consumption tax. 13. The utilization or consumption of goods or services shall be taxable in their country of origin 14. The sale by non-resident perso! consumption tax. 15. The sale by resident in the Philip} ns in the Philippines is exempt from pines is subject to consumption tax. True or False 2 1. The consumption tax sources shall be payable by the buyer Business tax is a form of consumption tax. 3. Consumption tax isa form of business tax. for purchases of goods or services from foreign Pp 11 ae "a ral ae aaa na ‘ Scanned by TapScannerChapter 1 - Introduction to Consumption Taxes 4. Business tax is imposed on the sales of sellers which is the purchases mar b 5 The VAT on importation is payable only by those regularly engaged in trade or business. i jon 6. Business taxes are paid by sellers while the VAT on importation is paid by the buyers 7. The statutory taxpayer and the economic taxpayer are the same with the VAT on importation | 8. Business taues are usually included in the price of goods and services of the seller but are remitted by the seller to the government. 9. In business taxes, the statutory taxpayer is not the economic taxpayer. 10. The sales or importation of goods is not subject to specific percentage tax. 11, When the impact and incidence of taxation rests upon different persons, the tax 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 Which type of consumption will pay consumption tax? a. Domestic consumption b. Foreign consumption Both domestic and foreign consumption d._ Neither domestic nor foreign consumption 1. 2. Which is a tax upon the usage of income? a Savings tax ¢ Consumption tax b, Investment tax d. Business tax 3. Which is subject to the VAT on importation? a. Foreign consumption from resident sellers b, Foreign consumption from foreign sellers ¢. Domestic consumption from resident sellers 4. 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 Tee eT regChapter 1 — Introduction to Consumption Taxes » she c 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. Itis entirely based upon the consumers’ ability to pay. ¢. Itapplies to both domestic and foreign consumption, d. 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 anon-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 anon-resident. d. not pay consumption tax regardless of the residency of the seller: 9. The tax on domestic consumption is referred to as a. VAT on importation. 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 onimportation. 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. _ c.Bither Aor B b. Business tax. d, Neither A nor B 12. Which is not a business tax? a. VATonimportation _ c. Percentage tax b, VAT on sales d, Excise tax. 13. The percentage tax is generally a. 3%ofsalesorreceipts 0.3% of mark-up b. 3% of purchases d. 12% of mark-up 14, The VAT asa business tax is a. 12% ofsales or receipts ¢. 12% of mark-up b. 12% of purchases d. 3% of mark-up 13 Scanned by TapScannerChapter 1— Introduction to Consumption Taxes importation is 15. The VAT onimportation Sup f sales i panne d. 3% of mark-up 16. Which form of consumption is tax-free? a. Sales toaresident b. Sales toanon-resident . in business cc. Importation by an importer’ da seperation’ by an importer not ‘engaged in business 17. As to incidence of tax, the VAT on importation is a form of a. Direct tax c. Ad valorem tax b. Indirect tax d. Specific tax 18. Which of these import consumptions is tax-free? a. Importation from a seller not engaged in trade or business b. Importation from a seller engaged in trade or business 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 c 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. sales or 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 ¢. 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. c. The purchase from abroad must include a business tax. d, All of these 7. The deduction from Output VAT is called a. Percentage tax ¢. Input VAT b. VATdueand 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, Statement 2 d. Neither statement 10. Which of the following business taxes applies only for domestic consumption? a. VAT onsales c. Excise tax d. All of these b. Percentage tax 11. Excise tax is paid by a. Sellers b. Buyers c. 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 t,, 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. Import sales 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 or receipts c. Either A or B b. purchase costs d.Both A andB 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. Domesticconsumption c. Both Aand B b. Foreignconsumption d. Neither Anor 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. Ghispeciactsca 16 Scanned by TapScanner aCC LEEEOOSSS''=S'S~«~C“~“ 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. Free Company - Business tax Mr. Erlwin - VAT on importation Mr. Erlwin - Business tax Free Company - VAT on importation aoe 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 c, 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 4. 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 A nor 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 ¢. 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 c. Both b. VAT on importation 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. c XG Manufacturing Industries is subject to business tax. d. XG Manufacturing Industries shall Pay the VAT on the importation, 17 Scanned by TapScanner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? Mr. Cavite is subject to either VAT or percentage tax Mr. Cavite pays excise tax in addition to VAT or percentage tax Mr. Cavite pays excise tax in addition to VAT and percentage tax Mr. Cavite will pay excise tax without regard to whether he is a VAT o, non-VAT taxpayer. 9. A person engaged in business is subject to 3% business tax. He has fuventodlse atooeds in his possession costing P77,600 which he intends +, sell to earn a mark-up of 25% of cost net of the 3% business tax. He shal invoice the sale of the P77,600 goods at a P100,000 .P.-97,000 b. P103,000 d.P 110,000 140. 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 wha amount shall the business invoice the sale? a P 41,237 ¢.P40,000 b P 41,200 d. P 38,800 peo 11. A person who imports goods or properties will more likely pay a. 3% percentage tax on the importation b. a 12% VAT onthe importation ¢._ either 3% or 12% tax on the importation d.noconsumption tax 12, A person who is not regularly engaged in trade or business made a casuc! sale of a property for P100,000. What will be the invoice price of the sale a. P100,000 c. P112,000 b. P103,000 d. Either Bor C 13. Alison is regularly engaged in the sales of goods. He will pay a. Valueaddedtaxonly. c. Either Aor B b. Percentage tax only, 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 tis percentage tax. a PO ©. P6,180 b. P3,000 d.P12,000 15. A business taxpayer purchased goods worth P120,000 from non-residents and sold goods worth P140,000 for P180,000. What is the concept of “vali? added" for VAT purposes? a P200,000 ¢. P-80,000 b. P140,000 d.P60,000 18 Seeco mo eaeChapter 1 — Introduction to Consumption Taxes 16. In the immediately preceding problem, what is the basis of percentage tax? a. P200,000 c. 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 c. P120,000 b. P140,000 d. P- 80,000 | 18. Mr. Coroneti imported P300,000 equipment for business use and a P1,200,000 car for personal use. What is the amount subject to the VAT on importation? a PO c. P- 1,200,000 b. P 300,000 d. P 1,500,000 Multiple Choice - Problem Part 2 a Case1 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. P500,000 c. 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 cc. P24,000 b. P36,000 d.P12,000 19 Scanned by TapScannerChapter 1— Introduction to Consumption Taxes 5. Whatis the VAT payable? a. P36,000 ¢. P12,000 b. P24,000 d.PO 6. Assuming the taxpayer is a non-VAT taxpayer paying 3% percentage 2, the percentage tax shall be a, P12,000 c. P 6,000 b. P9,000 d. P 3,000 Basic Case 3 5 fd A business taxpayer recorded the following transactions during the month: i Abroad Total Sales P 350,000 P200,000 P550,000 Purchases 150,000 _ 100,000 _250,000 Total p500,000 P300,000 2800,000 Assuming the taxpayer is a VAT-registered taxpayer 7. Compute the output VAT. a PO c. P 36,000 b. P24,000 d.P 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. P6000 d.P 10,500 10. Compute the VAT on importation. a PO c. 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 Sindangan Company is limited t° Philippine residents, what is the total business tax it will report on its sales? a. P96,000 .P-24,000 b. P 48,000 d.PO 12. Assuming that the purchases were imports and the sales were exports compute respectively the business tax and total consumption tax. a. P 96,000; P144,000 ©. P.24,000; P72,000 b. P24,000; P144,000 d. P 0; P48,000 e 20 Scannec by TapScanner