CHAPTER 1

I. TRUE OR FALSE 1

1. Consumption tax is a tax levied upon businesses.

2. A purchase is a form of consumption
3. A tax on consumption will effectively causes all residents of
the state to pay tax.
4. Consumption is the acquisition or utilization of goods and
services
5. 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. A tax 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 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 and services shall
be taxable in their country of origin
14. The sale by non-resident persons in the Philippines is
exempt from consumption tax
15. The sale by resident in the Philippines is subject to
consumption tax

II. TRUE OR FALSE 2

1. The consumption tax for purchases of goods and services from

foreign sources shall be payable by the buyer.
2. Business tax is a form of consumption tax
3. Consumption tax is a form of business tax
4. Business tax is imposed on the sales of sellers which is the
purchases made by buyers.
5. The VAT on importation is payable only by those regularly engaged
in trade or business.
 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 taxes 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 tax to non-resident sellers.
14. Domestic sellers pay consumption tax to the government.
15. Exporters pay consumption tax to the government.

III. MULTIPLE CHOICE – THEORY 1

1. Which type of consumption will pay consumption tax?
a. Domestic consumption
b. Foreign consumption
c. Both domestic and foreign consumption
d. Neither
2. Which is a tax upon the usage of income?
a. Savings tax
b. Investment tax
c. Consumption tax
d. Business tax
3. Which is subject to business tax
a. Foreign consumption from resident sellers
b. Foreign consumption from foreign sellers
c. Domestic consumption from resident sellers
d. Domestic consumption from foreign sellers

4. Which is subject to business tax?

a. Foreign consumption from resident sellers
b. Foreign consumption from foreign sellers
c. 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
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. It may help in the redistribution of wealth to society
b. It is entirely based upon the consumers’ ability to pay
c. It applies to both domestic and foreign consumption
d. It applies only when the seller is non-resident.

7. Domestic consumption is taxable when the seller is

a. A non-resident
b. A resident
c. Either a resident or a non-resident
d. Both a resident and a non-resident

8. Foreign consumption shall

a. Pay consumption tax if the seller is a resident
b. Pay consumption tax if the seller is non-resident
c. Not pay consumption tax if the seller is a non-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
b. Business tax
c. Either A or B
d. Neither A nor B

10. The tax on domestic consumption from resident suppliers is

a. VAT on importation
b. Business tax
c. Either A or B
d. Neither A nor B

11. The tax on domestic consumption from foreign suppliers is

a. VAT on importation
b. Business tax
c. Either A or B
d. Neither A nor B

12. What is not a business tax?

a. VAT on importation
b. VAT on sales
c. Percentage tax
d. Excise tax

13. The percentage tax is generally

a. 3% of sales or receipts
b. 3% of purchases
c. 3% of mark-up
d. 12% of mark-up

14. The VAT as a business tax is

a. 12% of sales or receipts
b. 12% of purchases
 c. 12% of mark-up
d. 3% of mark-up

15. The VAT on importation is

a. a. 12% of sales or receipts
b. 12% of purchases
c. 12% of mark-up
d. 3% of mark-up

16. Which form of consumption is tax-free?

a. Sales to a resident
b. Sales to a non-resident
c. Importation by an importer engaged in business
d. Importation by an importer not engaged in business

17. As to incidence of tax, the VAT on importation is a form of

a. Direct tax
b. Indirect tax
c. Ad valorem 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. Both A and B
d. Neither A nor 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. Both A and B
d. Neither A nor B

20. Who is the statutory taxpayer to the VAT on importation?

a. Foreign seller
b. Domestic buyer
c. Both A and B
d. None of these
IV. MULTIPLE CHOICE – THEORY 2
1. Generally, the tax basis of business tax is
a. Sales or receipt
b. Purchase cost
c. Either A and B
d. Both A and B

2. Who is the statutory taxpayer of business tax?

a. The seller who must be engaged in trade or business
b. The seller, whether or not engaged in trade or business
c. 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

4. What is the method used to determine the VAT due and payable?
a. Direct method
b. Indirect method
c. Tax credit 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
b. VAT due and payable
c. Input VAT
d. VAT on importation

8. Which is a pure form of a sales tax?

a. Percentage tax
b. Value Added tax
c. Both A and B
d. Neither A nor B

9. Statement 1: a business which pays VAT normally does pay

percentage tax.
 Statement 2: a business which pays percentage tax also pays
VAT.
a. Statement 1
b. Statement 2
c. Both
d. Neither

10. Which of the following business taxes applies only for

domestic consumption?
a. VAT on sales
b. Percentage tax
c. Excise tax
d. All of these

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
c. Exempt from excise tax
d. All of these

13. Statement 1: excise tax is always paid together with VAT or

percentage tax
Statement 2: excise tax is paid at the point of sale

a. Statement 1
b. Statement 2
c. Both
d. Neither

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 of non-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 receipt
b. Purchase of cost
c. Either A or B
d. Both A and B

17. The consumption tax on domestic purchases is imposed upon

the
a. Sales or receipt
b. Purchase of cost
c. Either A or B
d. Both A and B

18. Technically, the excise tax on the manufacture of certain

article is payable only when the article is intended for
a. Domestic consumption
b. Foreign consumption
c. Both A and B
d. Neither A nor 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
c. 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. A direct tax
b. An indirect tax
c. A regulatory tax
d. A specific tax
V. PROBLEM 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
a. Free Company – business tax
b. Mr. Erlwin – VAT on importation
c. Mr. Erlwin – Business tax
d. Free Company – VAT on importation

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
b. Baliwag Company
c. Both
d. Neither

3. Heidenberg Corporation, a resident business, purchased

P100,000 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
c. Heidenberg Company – VAT on importation
d. 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
b. Mrs. Corneto
c. A and B
d. Neither

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
b. Mrs. Tutyal
c. Both
d. Neither

6. Mr. Llama, an employee, imported a pair of shoes from

Hongkong. Which consumption tax is the liable to pay?
a. Business tax
b. VAT on importation
c. Both
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.

8. Mr. Cavite produces an excisable article for sale in the

Philippine market. Which is incorrect with respect to Mr.
Cavite’s business taxation?
a. Mr. Cavite is subject to either VAT or percentage tax
b. Mr. Cavite pays excise tax in addition to VAT or percentage
tax
c. Mr. Cavite pays excise tax in addition to VAT and percentage
tax
d. Mr. Cavite will pay excise tax without regard to whether he
is a VAT or non-VAT taxpayer.

9. A person engaged in business is subject to 3% business tax. He

has inventories of goods in his possession costing P77,600
which he intends to sell to earn a mark-up of 25% of cost net
of the 3% business tax. He shall invoice the sale of the
P77,600 goods at
a. P100,000
b. P103,000
c. P97,000
d. P110,000

10. 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 what amount shall the business invoice the
sale?
a. P41, 237
b. P41, 200
c. P40,000
d. P38,800

11. A person who imports goods or properties will more likely to

pay
a. A 3% percentage tax on the importation
b. A 12% VAT on importation
c. Either 3% or 12% tax on the importation
d. No consumption tax
12. A person who is not regularly engage in trade or business
made a casual sale of a property for P100,000. What will be
the invoice price of the sale?
a. P100,000
b. P103,000
c. P112,000
d. Either B or C

13. Alison is regularly engaged in the sales of goods. He will

pay
a. Value added tax only
b. Percentage tax only
c. Either
d. Neither

14. Mr. Ventura is subject to 3% percentage tax. He made a total

collection of P206,000 during a month and paid P103,000 in
purchases. Compute his percentage tax.
a. P0
b. P3,000
c. P6,180
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 “value added” for VAT purposes?
a. P200,000
b. P140,000
c. P80,000
d. P60,000

16. In the immediately preceding problem, what is the basis of

percentage tax?
a. P200,000
b. P140,000
c. P120,000
d. P180,000

17. Assuming the same data in the above problem, what is the
basis of the VAT on importation?
a. P200,000
b. P140,000
c. P120,000
d. P180,000

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. P0
b. P300,000
c. P1,200,000
d. P1,500,000
VI. PROBLEM 2

BASIC CASE 1

1. A business taxpayer had the following purchases and receipts:

Import of goods and services P190,000

Domestic purchase of goods and services 100,000
Domestic sales of goods and services 150,000
Export sales of goods and service 50,000

Compute the total amount subject to consumption tax to the

business.
a. P500,000
b. P400,000
c. P350,000
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
b. P390,000
c. P200,000
d. P190,000

BASIC CASE 2

3. A VAT-registered taxpayer recorded the following sales and

purchases, exclusive of VAT, during the month:

Sales P300,000
Purchases 200,000

What would be the output VAT?

a. P48,000
b. P36,000
c. P24,000
d. P12,000

4. What is the input VAT?

a. P48,000
b. P36,000
c. P24,000
d. P12,000

5. What is the VAT payable?

a. P36,000
b. P24,000
c. P12,000
d. P0
 6. Assuming the taxpayer is a non-VAT taxpayer paying 3% percentage
tax, the percentage tax shall be
a. P12,000
b. P9,000
c. P6,000
d. P3,000

BASIC CASE 3

A business taxpayer recorded the following transactions during the

month:

Philippines Abroad Total

Sales P350,000 P200,000 P550,000
Purchases 150,000 100,000 250,000
Total P500,000 P300,000 P800,000

Assuming the taxpayer is a VAT-registered taxpayer

7. Compute the output VAT

a. P0
b. P24,000
c. P36,000
d. P42,000

8. Compute the percentage tax

a. P0
b. P12,000
c. P18,000
d. P32,000

Assuming the taxpayer is a non-VAT taxpayer

9. Compute the percentage tax

a. P0
b. P6,000
c. P9,000
d. P10,500

10. Compute the VAT on importation

a. P0
b. P3,000
c. P12,000
d. P18,000
BASIC CASE 4

Sindangan Company, a VAT-registered taxpayer, purchased P400,000 worth

of goods and sold the same for P800,000.

11. Assuming that the business operation of Sindangan Company is

limited to Philippine residents, what is the total business tax
it will report on its sales?
a. P96,000
b. P48,000
c. P24,000
d. P0

12. Assuming that the purchases were imports and the sales were
exports, compute respectively the business tax and total
consumption tax.
a. P96,000;P144,000
b. P24,000;P144,000
c. P24,000;P72,000
d. P0;P48,000
 ANSWERS
TRUE OR FALSE 1

1. F
2. T
3. T
4. T
5. T
6. F
7. T
8. T
9. F
10. T
11. F
12. F
13. F
14. T
15. T

TRUE OR FALSE 2
1. T
2. T
3. F
4. T
5. F
6. T
7. T
8. T
9. T
10. T
11. T
12. VOID
13. F
14. T
15. F

MULTIPLE CHOICE 1
1. A
2. C
3. D
4. C
5. A
6. A
7. C
8. D
9. C
10. A
 11. B
12. A
13. A
14. C
15. B
16. B
17. A
18. D
19. C
20. B

MULTIPLE CHOICE 2
1. A
2. A
3. D
4. C
5. B
6. B
7. C
8. A
9. A
10. D
11. C
12. B
13. C
14. B
15. C
16. B
17. A
18. A
19. C
20. B

PROBLEM 1
1. A
2. D
3. C
4. D
5. D
6. B
7. B
8. B
9. A
10. A
11. B
12. A
13. C
14. C
15. D
16. D
 17. B
18. D

PROBLEM 2

1. D
2. D
3. B
4. C
5. C
6. B
7. D
8. B
9. D
10. C
11. A
12. D