CHAPTER 5

Exercise Drills
1. Common carried by land – transport of passengers 3% percentage tax
2. Common carrier by land – transport of cargoes VAT or 3% percentage tax
3. Common carried by sea VAT
4. Common carrier by air VAT
5. International carrier – passengers Exempt
6. International carrier – cargoes, baggage or mails 3% percentage tax
7. Non-life insurance VAT
8. Life insurance 2% percentage tax
9. Bank – short-term loans 5% percentage tax
10. Bank – long-term loans 1% percentage tax
11. Franchise grantees of electricity VAT
12. Franchise grantees of water 2% percentage tax
13. Franchise grantees of gas 2% percentage tax
14. Franchise grantees of telephone – inbound calls Exempt
15. Franchise grantees of telephone – outbound calls 10% percentage tax
16. Operators of cinemas VAT
17. Operations of cockpits 18% percentage tax
18. Operator of jai-alai 30% percentage tax
19. Places of exhibitions of professional basketballs 15% percentage tax
20. Places of exhibitions of professional boxing 10% percentage tax
21. Bowling alleys VAT or percentage tax
22. Night or day clubs and cabarets 18% percentage tax

True or False 1
F 1. To be subject to VAT, one has to be registered under the VAT system.
Note: Even registrable taxpayers are vatable.
F 2. VAT-exempt sales are subject to percentage tax.
F 3. A seller is subject to percentage tax if he is non-VAT registered even if his sales or receipt exceed
the VAT threshold.
T 4. The 3% general percentage tax applies to non-VAT registered taxpayers.
F 5. A seller of service which is specifically subject to percentage tax is subject to VAT if its 12-month
sales or receipts exceeded the VAT-threshold.
F 6. A seller is subject to percentage tax even if he registered as VAT taxpayer if his annual sales do
not exceed the VAT threshold.
T 7. Common carriers are vatable on their transport of cargoes or baggage.
T 8. Domestic sea or air carriers are vatable on their transport of passengers or cargoes.
F 9. International carriers are vatable on their transport of cargoes or baggage.
T 10. Franchise grantees of private franchises are vatable.
True or False 2
1. Franchise grantees of transport operations are subject to percentage tax.
Note: 3% percentage tax
F 2. Winnings from cockpits are subject to percentage tax.
F 3. Franchise grantees of the government on utilities are subject to percentage tax.
Note: It depends upon the type of utilities; Note electricity and telecommunication franchisees
are subject to VAT.
F 4. The percentage tax of banks is called “premiums tax.”
Note: The term “premiums tax” pertains to insurance companies.
F 5. The overseas communication tax applies to both incoming and outgoing dispatch of messages or
communication.
Note: only on outgoing calls
F 6. The sale of water by water utility franchise grantees is subject to VAT.
T 7. The sale of electricity by electric utility franchise grantees is subject to VAT.
T 8. The sale of stocks directly to buyers is subject to percentage tax.
F 9. The sale of stocks by a dealer through the PSE is subject to percentage tax.
T 10. The follow-through offering of listed enterprises is exempt from percentage tax.

Multiple Choice – Theory: Part 1

1. The percentage tax rates on services specifically subject to percentage tax ranges from:
a. ½ of 1% to 3%
b. ½ of 1% to 30%
c. 1% to 3%
d. 1% to 30%

2. To be subject to the general percentage tax, a taxable person must not be

a. VAT-registered.
b. Non-VAT-registered.
c. Operating below the VAT threshold.
d. All of these

3. Which domestic common carrier is specifically subject to percentage tax?

a. Common carrier by land
b. Common carrier by air
c. Common carrier by sea
d. All of these

4. From which of the following sources does the 3% common carriers tax specifically apply?
a. Transport of passengers
b. Transport of goods
c. Both A and B
d. Neither A nor B
5. The percentage tax specifically imposed on certain domestic transporters is called
a. Common carrier’s tax
b. Skipper’s tax
c. Transporter’s tax
d. Gross receipt tax

6. Which is not specifically subject to a percentage tax?

a. International sea or air carrier
b. Domestic common carrier by land
c. Domestic common carrier by sea
d. A and B

7. From which of the following sources is the gross receipt of an international carrier subject to
percentage tax?
a. Outgoing transport of passengers
b. Outgoing transport of cargoes
c. Incoming transport of passengers or cargoes
d. None of these

8. A domestic carrier which is also engaged in international transport operation is subject to

a. VAT
b. Percentage tax
c. Excise Tax
d. VAT and Percentage tax

9. On transport of excess baggage, cargoes or mails, an international carrier shall pay

a. Percentage tax if it is below the VAT threshold.
b. Percentage tax even if it is above the VAT threshold.
c. VAT regardless of whether it is below or above the VAT threshold.
d. No business tax.

10. Which is a VAT-exempt receipt to a bus operator?

a. Receipts from passengers
b. Receipt from cargoes
c. Receipt from baggage
d. None of these

11. To an operator of a domestic sea transport vessel, which of the following is vatable?
a. Fares from passengers
b. Fares from baggage
c. Fares from cargoes and mails
 d. All of these

12. To an international carrier, which is subject to percentage tax?

a. Transport of passengers
b. Transport of cargoes, mails or baggage
c. A and B
d. Neither A nor B

13. Which is not specifically subject to common carrier’s tax?

a. Bus
b. Taxi
c. Jeepney
d. Truck

14. Which is more likely exempt from business tax?

a. Tricycle
b. Jeepney
c. Car for hire without chauffeur
d. Pedicab

15. To an operator of a domestic aircraft, which is vatable?

a. Fares from passengers
b. Fares from baggage
c. Fares from cargoes and mails
d. All of these

Multiple Choice – Theory: Part 2

1. Which of these is vatable?
a. City taxis
b. Sea vessels
c. Provincial buses
d. City buses

2. Which is subject to 3% percentage tax?

a. Kalesa
b. Bangka
c. Bulldozer
d. Car for hire

3. A jeepney operator with gross receipts from passenger fares exceeding P3,000,000 in any 12-month
period is subject to
 a. 3% percentage tax.
b. 8% percentage tax.
c. 12% VAT.
d. 0% VAT.

4. Franchise grantees of telephone, telegraph, and other communication equipment are subject to
percentage tax on
a. Overseas dispatch of message
b. Domestic dispatch of message
c. Both A and B
d. Neither A nor B

5. Which is not exempt from the overseas communication tax?

a. PEZA locators
b. Government
c. Diplomatic services
d. News services

6. The overseas communication tax is

a. 10% of revenue.
b. 10% of gross receipts.
c. 3% of revenue.
d. 3% of gross receipts.

7. Which is a vatable receipt to a franchise telephone franchise grantee?

a. Receipt from domestic dispatch of message
b. Receipt from incoming calls
c. Receipt from outgoing calls
d. Both A and B

8. Which of the following franchisees is subject to the franchise tax?

a. Electricity
b. Transportation
c. Water utility
d. Telephone

9. The franchise tax on radio or television franchises is

a. 2% of gross receipt.
b. 3% of revenue.
c. 2% of revenue.
d. 3% of gross receipt.
10. A radio or television broadcasting company with annual gross receipt not exceeding P9,000,000 shall
pay
a. VAT
b. 3% percentage tax
c. 2% percentage tax
d. No business tax

11. What is the business tax liability of gas and water utilities with gross receipts not exceeding
P10,000,000?
a. VAT
b. 3% percentage tax
c. 2% percentage tax
d. Exempt

12. What is the business tax liability of gas and water utilities with gross receipt exceeding P10,000,000?
a. VAT
b. 3% percentage tax
c. 2% percentage tax
d. Exempt

13. A radio or television broadcasting company with annual gross receipts of P12,000,000 shall pay
a. VAT
b. 3% percentage tax
c. 2% percentage tax
d. No business tax

14. The gross receipt tax on long-term interest income is

a. 7%
b. 5%
c. 3%
d. 1%

15. Which is subject to the gross receipt tax?

a. Banks
b. Quasi-banks
c. Pawnshops
d. All of these

Multiple Choice – Theory: Part 3

1. The gross receipts of banks pertain to
a. Principal collection
 b. Interest collection
c. Principal and interest collection
d. None of these

2. Which is subject to percentage tax?

a. Life insurance
b. Hull insurance
c. Fire insurance
d. All of these

3. The premiums tax on life insurance applies to

a. Direct premium
b. Re-insurance premium
c. Refunded premium
d. All of these

4. Which is part of gross receipts for purposes of the premiums tax on life insurance?
a. Check
b. Bills and coins
c. Promissory notes
d. All of these

5. The gross receipt tax on banks from other items of gross income added from interest income is
a. 7%
b. 5%
c. 3%
d. 1%

6. Statement 1: Reinsurance premium is exempt from the percentage tax.

Statement 2: Reinsurance premium is exempt from VAT.
Which statement is correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement

7. Agents of foreign insurance are subject to

a. 2% premiums tax
b. 5% premiums tax
c. 4% premiums tax
d. 10% premiums tax
8. Which is not subject to amusement tax?
a. Places of boxing exhibitions
b. Places of professional basketball games
c. Cockpits
d. Golf course

9. The premiums tax on insurance premium is

a. 2%
b. 3%
c. 5%
d. 7%

10. The percentage tax for operators of race tracks is

a. 10%
b. 15%
c. 18%
d. 30%

11. Operators of discos or cabarets are subject to an amusement tax of

a. 10%
b. 15%
c. 18%
d. 30%

12. The general percentage tax on winnings from a horse race is

a. 3%
b. 4%
c. 5%
d. 10%

13. Which winning is subject to percentage tax?

a. Winnings from lotto
b. Winnings from derby
c. Winnings from horse race
d. Winnings from gambling

14. Which of the following events is not exempt from amusement tax?
a. World championship
b. Oriental championship
c. National championship
d. None of these

15. Which is incorrect with respect to the requisites of exemption of receipts from professional boxing?
a. Both contenders must be Filipinos
b. The promoter must be a Filipino or corporation with at least 60% Filipino ownership
c. The competition must be a world or oriental championship
d. All of these
Multiple Choice – Theory: Part 4
1. Which of the following sales is subject to stock transaction tax?
a. The sale by an investor of a listed stock directly to buyer
b. The sale by a listed corporation of shares through the PSE
c. The sale by an investor of a listed stock through the PSE
d. The sale by a listed corporation of shares directly to buyer

2. The IPO tax is payable by

a. The buyers of IPO shares
b. The issuing corporation
c. Both the buyer and issuing corporation
d. The Philippine Stock Exchange

3. The stock transaction tax is withheld and remitted by

a. The Philippine Stock Exchange
b. The stock broker
c. The owner of stocks
d. The buyer of the stocks

4. Statement 1: All initial public offerings are subject to IPO tax.

Statement 2: A follow-through offering is exempt from IPO tax.
Which is correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement

5. Statement 1: The percentage of block sale in primary offering is determined using the outstanding
shares after the IPO.
Statement 2: The percentage of stock sale in secondary offering is determined using the outstanding
shares before the IPO.
Which is correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement

6. A public corporation is a corporation at least 50% in the value of its outstanding capital stock is
owned by
a. less than 20 shareholders.
b. more than 20 shareholders.
c. 20 or more shareholders.
d. at least 20 shareholders.

7. If the block sale of primary shares exceeds 1/3 of the outstanding shares after the IPO, the IPO tax is
a. 4%
b. 2%
 c. 1%
d. ½ of 1%

8. What is the tax rate on the sale of stocks through the facilities of the PSE?
a. 4%
b. 2%
c. 1%
d. ½ of 1%

9. The percentage tax on double forecast, quinella, or trifecta bets on horse race is
a. 3%
b. 4%
c. 5%
d. 10%

10. Which is subject to premiums tax?

a. Health insurance premiums
b. Reinsurance premiums
c. Property insurance premiums
d. Fire insurance premiums

11. All of the following pays monthly percentage tax, except?

a. Franchise grantees of gas and water
b. Domestic carriers and keepers of garage
c. Proprietors of cockpits
d. Life insurance companies

12. Which is specifically subject to percentage tax?

a. Credit cooperatives
b. Property insurance companies
c. International carriers
d. Domestic shipping companies

13. Which is the correct percentage tax on the following service providers?
a. Operators of jai-alai – 30%
b. Keepers of garage – 5%
c. Franchisees of water utility – 3%
d. Life insurance companies – 5%

14. Interest income on loans is specifically subject to percentage tax if earned by a

a. Lending investor
b. Dealer in security
c. Quasi-banking institution
d. All of these

15. The gross receipt tax does not apply to

a. Bangko Sentral ng Pilipinas.
b. rural banks.
 c. urban banks.
d. industrial banks.

Multiple Choice – Problems: Part 1

1. Grace is a proprietor of a mini-store with sales in any 12-month period not exceeding P1,900,000.
She shall pay
a. Percentage tax
b. VAT
c. Excise tax
d. Percentage tax and Excise tax.

2. Tony, a VAT-registered taxpayer, reported P200,000 sales in the month of May. Tony’s annual sales
never exceeded P1,800,000. Compute Tony’s percentage tax.
a. P0
b. P6,000
c. P24,000
d. P54,000

3. Donnel, a non-VAT-registered operator of jeepney, reported a total receipt of P200,000 during a

month, including P20,000 rentals for cargo transport. Compute the percentage tax.
a. P0
b. P5,400
c. P6,000
d. P6,600

4. Mr. Ngina owns and operates a taxi unit. He also teaches as an accounting professor the University of
Baguio and renders taxation advisory services to various clients. Mr. Ngina is registered as a VAT-
taxpayer. In March 2020, he had the following receipts:
Compensation income – teaching 200,000
Receipts from taxi 50,000
Receipts from professional practice 350,000
Total 600,000

Compute the percentage tax payable of Mr. Ngina for March 2020.
a. P0
b. P1,500
c. P12,000
d. P18,000

5. In the immediately preceding problem, compute the total receipts of Mr. Ngina subject to the VAT.
a. P0
b. P350,000
c. P400,000
d. P550,000
6. Michael Jackson is an operator of a fleet of 10 taxis operated under the “boundary system.” A total
of P150,000 “boundary” payments from chauffeurs was received in July 2015. A total of P20,000 is
still receivable from chauffeurs for family advances. The percentage tax for the month is
a. P360
b. P600
c. P4,500
d. P5,100

7. Mr. Pogi-it practices his profession as a medical practitioner. He registered as a VAT taxpayer. Mrs.
Pogi-it is a nurse employed by a public hospital.
Which statement is correct?
a. Mr. Pogi-it shall pay percentage tax.
b. Mrs. Pogi-it shall pay percentage tax.
c. Mrs. Pogi-it is exempt from business tax.
d. Mr. Pogi-it is exempt from business tax.

8. There are two competing keepers of garage with the following receipts:
Parcorito 1,200,000
Parkodun 2,500,000
Which will pay 3% percentage tax?
a. Parcorito
b. Parkodun
c. Both
d. None of them

9. Mr. Conner has two taxis which were both grounded during the month of February 2020 because of
technical problems. The applicable presumptive quarterly gross receipt for each taxi was P3,600.
Compute the percentage tax due for February 2020.
a. P0
b. P72
c. P108
d. P216

10. Mr. Frank Sinatra owns a cargo truck for rent. During the month, it generated total receipts of
P40,000 from various clients. The percentage tax is
a. P0
b. P1,200
c. P2,000
d. P4,800

11. Mr. Jackson Michael, a non-VAT taxpayer, is an operator of four buses plying the route Baguio-
Manila. In November 2020, the buses remitted a total of P320,000 including P30,000 freight and
charges for passenger baggage and mails. Compute Michael’s common carrier’s tax.
a. P0
b. P8,700
c. P9,600
d. P10,500
12. In the immediately preceding problem, compute the percentage tax if Mr. Michael is a VAT-registered
taxpayer.
a. P0
b. P8,700
c. P9,600
d. P10,500

13. Cagayan Ferry Boats transport passengers and cargoes between the islands of Palaui and Sta. Ana. It
earned a total of P120,000 in March 2020 excluding P10,000 freight for cargoes.
What is the percentage tax if Cagayan Ferry Boats registered respectively as a non-VAT taxpayer and
as a VAT-taxpayer?
a. P0; P0
b. P3,600; P0
c. P3,900; P3,600
d. P3,900; P0

14. Lavezares Ferries transports passengers and land vehicles between Samar and Sorsogon. Lavezares
usually had an average annual receipts of P5,000,000. During the month, it earned a total of
P400,000 from customers. The percentage tax is
a. P0
b. P12,000
c. P138,000
d. P150,000

15. An operator of car with chauffeurs for hire had the following financial results of operators during a
month:
Total collections 240,000
Less:
Fuel 100,000
Other car supplies 24,000
Driver’s salaries 20,000 144,000
Net income 96,000

What is the percentage tax?

a. P2,880
b. P4,200
c. P4,320
d. P7,200

16. DANUMI is a local water district with annual sales exceeding P10 a year. During the month, it
collected P4,000,000 from sales of water. Compute the percentage tax.
a. P0
b. P80,000
c. P120,00
d. P200,000

17. Radyo Bolero had annual sales not exceeding P10 a year. During the month, it posted a revenue of
P2,000,000 out of which P1,800,000 was collected. Compute the percentage tax.
 a. P0
b. P36,000
c. P54,000
d. P60,000

Multiple Choice – Problems: Part 2

1. Regga Transporters, a transportation contractor, transports employees of Euro Textiles Industries to
and from Cagayan de Oro City to a distant factory plant in Impasug-ong, Bukidnon. In March, Regga
Transportation was paid P300,000 by Euro Textile Industries. The percentage tax is
a. P0
b. P9,000
c. P15,000
d. P36,000

2. Napartas Company is a transportation contractor of Haring Padala, a mail courier company. Napartas
Company delivers the mails to addresses location specified in the mail. During the month, Napartas
Company was paid P400,000 by Haring Padala. The percentage tax is
a. P0
b. P12,000
c. P24,000
d. P48,000

3. Malaysian Birdie, an international air carrier, collected a total of P30,000,000 from transport of
passengers during the month. It also collected a total of P5,000,000 from transport of mails and
baggage. Compute for the percentage tax.
a. P0
b. P150,000
c. P900,000
d. P1,050,000

4. Puro-Air is a domestic airliner with annual receipts exceeding P50,000,000. During a month, it
generated the following receipts:
Passengers 5,000,000
Cargoes and baggage 1,500,000
Total 6,500,000
The percentage tax is
a. P0
b. P45,000
c. P150,000
d. P195,000

5. European Seagull, an international shipping carrier, had the following receipts on its Philippine
operations:
Gross receipts from: Passengers Baggage Total
Incoming voyages 2,000,000 1,500,000 3,500,000
Outgoing voyages 3,000,000 1,800,000 4,800,000
Total 5,000,000 3,300,000 8,300,000
 How much is the percentage tax?
a. P0
b. P54,000
c. P99,000
d. P144,000

6. American Hawk, an international air carrier, recorded the following taxable receipts during a month
for outgoing flights:
From booking agencies in
Philippines Abroad Total
Passengers 2,000,000 3,000,000 5,000,000
Mails and baggage 500,000 1,200,000 1,700,000
Total 2,500,000 4,700,000 6,700,000

Compute for the percentage tax.

a. P15,000
b. P51,000
c. P60,000
d. P75,000

7. DEF Insurance Corporation has the following receipts and receivables from its insurance products:
Life Property Total
Cash and check collections 1,000,000 500,000 1,500,000
Promissory notes 200,000 100,000 300,000
Total 1,200,000 600,000 1,800,000

Compute for the premiums tax.

a. P20,000
b. P24,000
c. P30,000
d. P36,000

8. Bullion Bank reported the following receipts during the month:

Interest income:
- 1 to 3 year loan 1,200,000
- 3 to 5 year loan 800,000
- 6 to 8 year loan 600,000
- 8 to 10 year loans 400,000
Total 3,000,000

Compute for the gross receipts tax.

a. P100,000
b. P110,000
c. P80,000
d. P70,000
9. Venture Bank had the following summary of receipts:
Interest income on short term loans 2,000,000
Interest income on long-term basis 1,000,000
Rent income on ROPOA 800,000
Services fees and gains 200,000
Total 4,000,000
How much is the gross receipts tax?
a. P220,000
b. P200,000
c. P180,000
d. P160,000

10. A quasi-bank receives the following from its short-term placement of excess funds:
Dividend income 500,000
Bank interest income, net of final tax 800,000
Total 1,300,000

Compute for the gross receipts tax.

a. P0
b. P40,000
c. P50,000
d. P91,000

11. A cellular company had the following receipts:

P2,000,000 – From domestic calls
P3,000,000 – Incoming calls to the Philippines
P2,500,000 – Outgoing calls abroad

What is the percentage tax?

a. P0
b. P75,000
c. P165,000
d. P250,000

12. Boy Manok is an operator of a cockpit. During the quarter, it collected P200,00 from gate receipts,
P240,000 from “tongs” and P300,000 from totaled P2,400,000. What is the amusement tax?
a. P0
b. P74,000
c. P111,000
d. P133,200

13. Borneo Corporation, a publicly listed company, is planning to increase its public ownership by issuing
additional 1,000,000 share for P10 per share. 2,500,000. Compute for the IPO tax.
a. P0
b. P100,000
c. P200,000
d. P400,000
14. In a recently completed race, Sta. Ana Hippodrome noted the following winning tickets:
Straight bets – P40,000, 20 tickets at P100 per ticket
Combination bets – P20,000, 2 tickets at P200 per ticket

Compute the percentage tax to be withheld on the winnings.

a. P0
b. P3,800
c. P4,584
d. P5,760

15. Mr. Magno owns 1,000,000 shares representing 40% of the outstanding stocks of Calatna
Corporation, a closely-held corporation, which is conducting an initial public offering. Mr. Magno sold
700,000 shares during the initial public offering for P100 per share.

Compute the IPO tax due from Mr. Magno.

a. P350,000
b. P700,000
c. P1,400,000
d. P2,800,000

Note: The outstanding shares is 1,000,000/40% = 2,500,000. The IPO % is 700,000/2,500,000 = 28% -
equivalent to 2% tax. Hence, the tax is 700,000 x P100 x 2% = P1,400,000.

16. Assuming further that Mr. Magno sold his remaining 300,000 shareholdings after the IPO for P90 per
share, compute the IPO tax.
a. P161,000
b. P270,000
c. P540,000
d. P1,080,000

Note: 300,000 x P90 x ½ x 1% = P161,000

17. Helix Company is conducting an initial public offering of 2,000,000 shares. Helix Company already
had 4,000,000 issued and outstanding shares. The new IPO shares shall be sold at P3 per share.
What is the tax on the initial public offering?
a. P0
b. P60,000
c. P120,000
d. P240,000

18. Geneva Corporation, a non-VAT taxpayer, leases commercial spaces to various businesses. During a
month, it received P142,500 rentals, net of 5% creditable withholding tax. Compute the percentage
tax.
a. P0
b. P4,061
c. P4,275
d. P4,500
 Note: (142,500/95%) x 3% = 4,500

19. Almendras Corporation sells bread to various stores and makes P150,000 monthly sales on the
average. During the month, it made total sales of P200,000 out of which only P160,000 was
collected. Compute the percentage tax.
a. P0
b. P4,500
c. P4,800
d. P6,000

Note: P200,000 x 3% = P6,000