INTERNATIONAL SCHOOL OF ASIA AND THE PACIFIC

Alimannao Hills, Penablanca, Cagayan HQ # 3

INTRODUCTION TO BUSINESS TAXATION, EXCLUSIONS AND

OTHER PERCENTAGE TAX

BUSINESS TAXES

Business – a habitual engagement in commercial activity involving the sale of goods or services

Registration of Business:
- Register with the appropriate Revenue District Officer and pay annual registration fee of
500 for every separate or distinct establishment where sales occur. A Certificate of
Registration shall be issued to the applicant upon compliance on the requirements for
registration.

Exemption to Business Tax: Business for subsistence or livelihood

Nature of Business Tax: Consumption Tax, Indirect Tax, Privilege Tax

Types of Business Taxes:

1. Percentage Tax
2. Value Added Tax
3. Excise Tax

Tax Base for Business Taxes:

➢ Goods or Properties – taxable on gross selling price
➢ Service or Lessor of Properties – taxable on gross receipts

EXCLUSIONS FROM BUSINESS TAX

This means the sale of goods, properties or services and the use or lease of properties
are not subject to VAT (Output Tax) and the seller or lessor is not allowed to any tax
credit on VAT (Input Tax) on purchases.
The following are VAT exempt transactions as amended under TRAIN Law:
A. Sale or importation of:
1. agricultural and marine food product in their original state;
2. livestock and poultry used as, or producing foods for human consumption;
3. breeding stock and genetic materials.

Products that will be considered in their original state:

i. products which undergone simple processes of preparation or preservation for
the market (freezing, drying, salting, broiling, roasting, smoking or stripping)
ii. polished or husked rice
iii. corn grits
iv. raw cane sugar and molasses
v. ordinary salt
vi. copra

NOTE: Livestock or poultry does not include fighting cocks, race horses, zoo animals
and other animals generally considered as pets.

B. Sale or importation of:

1. Fertilizers
2. Seeds, seedlings and fingerlings
3. Fish, prawn, livestock and poultry feeds
4. Ingredients used in the manufacture of finished feeds (except specialty feeds
for race horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets).

C. Importation of personal and household effects belonging to the:

1. residents of the Philippines returning from abroad; and

2. Non-resident citizens coming to resettle in the Philippines.

NOTE: Such goods must be exempt from customs duties.

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D. Importation of professional instruments and implements, tools of trade,

occupation or employment, wearing apparel, domestic animals, and personal
household effects, provided:
a It belongs to persons coming to settle in the Philippines, or Filipinos or their families and
descendants who are now residents or citizens of other countries such parties herein
referred to as overseas Filipinos;
b In quantities and of the class suitable to the profession, rank or position of the persons
importing said items;
c For their own use and not for sale, barter or exchange;
d Accompanying such persons, or arriving within a reasonable time.

Provided, that the Bureau of Customs may, upon the production of satisfactory evidence
that such persons are actually coming to settle in the Philippines and that the goods are
brought from their former place of abode, exempt such goods from payment of duties and
taxes: Provided, further, vehicles, vessels, aircrafts and machineries and other similar
goods for use in manufacture, shall not fall within this classification and shall therefore be
subject to duties, taxes and other charges.

E. Services subject to percentage tax

F. Services by agricultural contract growers and milling for others of palay into rice,
corn into grits and sugar cane into raw sugar;

G. Medical, dental, hospital and veterinary services except those rendered by

professionals;

NOTE:
1. Laboratory services are exempted. If the hospital or clinic operates a pharmacy or
drugstore, the sale of drugs and medicines are subject to VAT.
2. Hospital bills constitute medical services. The sales made by the drugstore to the in-
patients which are included in the hospital bills are part of medical bills (not subject to
vat).
3. The sales of the drug store to the out-patients are taxable because they are NOT PART
of medical services of the hospital.

H. Educational services rendered by:

e private educational institutions, duly accredited by:
Department of Education (DepEd)
Commission on Higher Education (CHED)
TechnicalEducation and Skills Development Authority (TESDA)
Government Educational Institutions

I. Services rendered by individuals pursuant to an employer-employee

relationship

J. Services rendered by regional or area headquarters

K. Transactions which are exempt under international agreements to

which the Philippines is a signatory or under special laws

L. For agricultural cooperatives:

i. Sales to their members

ii. Sales to non-members if the cooperative is the producer (if not, subject to
VAT)
iii. Importation of:
A. Direct farm inputs, machineries and equipment, including spare parts thereof
B. To be used directly and exclusively in the production and/or
processing of their produce.

TYPE OF PRODUCT SALE TO MEMBERS SALE TO NON-MEMBERS

Sale of coop’s own produce exempt exempt
Other than the coop’s produce, exempt vatable
i.e., form traders

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M. Gross receipts from lending activities by credit or multi-purpose

cooperatives

NOTE: Exemption is not only limited to the gross receipts on loans extended to its
members but also to other persons who are not members.

N. Sales by non-agricultural, non-electric and non-credit cooperatives,

provided, that the share capital contribution of each member does not
exceed P15,000

NOTE: Importation by non-agricultural, non-electric and noncredit cooperatives of

machineries and equipment including spare parts thereof, to be used by them are
subject to VAT.

O. Export sales by persons who are not VAT-registered

P. Sale of:
a) Real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business. However, even if the real property is not
primarily held for sale to customers or held for lease in the ordinary course of
trade or business but the same is used in trade or business of the seller, the
sale thereof shall be subject to vat being a transaction incidental to the
taxpayer’s main business.
b) Real property utilized for low-cost housing as defined under RA No. 7279,
otherwise known as the “Urban Development and Housing Act of 1992” and
other related laws.
“Low-cost housing ” refers to housing projects intended for homeless low-
income family beneficiaries, undertaken by the Government or private
developers, which may either be a subdivision or a condominium, registered
and licensed by the Housing and Land Use Regulatory Board/Housing (HLURB)
under BP Blg. 220, PD 957, or any other similar law, wherein the unit selling
price is within the selling price per unit as set by the Housing and Urban
Development Coordinating Council (HUDCC) pursuant to RA 7279, otherwise
known as the “Urban Development and Housing Act of 1992” and other laws.

c) Real property utilized for “socialized housing” as defined by Republic Act No.
7279, and other related laws such as RA No. 7835 and RA No. 8763, wherein
the price ceiling per unit is P 450,000 or as may from time to time be
determined by HUDCC and the NEDA and other related laws.

“Socialized housing” refers to housing programs and projects covering houses and lots or home
lots only that are undertaken by the government or the private sector for the underprivileged and
homeless citizens, which shall include sites and services development, long-tem financing,
liberalized terms on interest payments, and as such other benefits in accordance with the
provisions of Republic Act 7279, otherwise known as the “Urban Development and Housing Act
of 1992” and RA No. 7835 and RA No. 8763. “Socialized Housing” shall also refer to projects
intended for the underprivileged and homeless wherein the housing package selling price is within
the lowest interest rates under the Unified Home Lending Program (UHLP) or any equivalent
housing program of the Government, the private sector or non-government organizations.

d. Real properties primarily held for sale to customers or held for lease in the
ordinary course of trade or business, if:
1. Residential lot valued at P1,500,000;
2. House and lot, and other residential dwellings valued at P2,500,000

NOTE:If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the
purpose of utilizing the lots as one residential lot, the sale shall be exempt from vat only if the
aggregate value do not exceed P1,500,000 (as amended). Adjacent residential lots, although
covered by separate titles and/or separate tax declarations, when sold to one and the same buyer,
whether covered by one separate Deed of Conveyance, shall be presumed as sale of one
residential lot.

Provided, that beginning January 1, 2021, the vat exemption shall only apply to sale of real
properties not primarily held for sale to customers or held for lease in the ordinary course of
trade or business, sale of real property utilized for socialized housing as defined under RA No.

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7279, sale of house and lot and other residential dwellings with selling price of not more than
two million pesos (P2,000,000); Provided, further, that every three (3) years thereafter, the
amounts stated herein shall be adjusted to its present value using the Consumer Price Index,
as published by the Philippine Statistics Authority (PSA).

Q. Lease of a residential unit with a monthly rental not exceeding P15,000,

regardless of the amount of aggregated rentals received by the lessor during the
year.

NOTES:
❖ LEASE of RESIDENTIAL UNITS where the monthly rental per unit exceeds P15,000 but
the aggregate of such rentals of the lessor during the year do not exceed P3,000,000
shall likewise be exempt from VAT, however, the same shall be subjected to three (3%)
percentage tax (RR 16-2011; RR 13-2018).

❖ In cases where a lessor has SEVERAL RESIDENTIAL UNITS for LEASE, some are leased
out for a monthly rental per unit of not exceeding P15,000 while others are leased out
for more than P15,000 per unit, his tax liability will be:

- The gross receipts from rentals not exceeding P15,000 per month per unit shall be
exempt from VAT regardless of the aggregate annual gross receipts.

- The gross receipts from rentals exceeding P15,000 per month per unit shall be
subject to VAT if the annual gross receipts (from said units only – not including
the gross receipts from units leased out for not more than P15,000 exceed
P3,000,000. Otherwise, the gross receipts shall be subject to three percent (3%)
percentage tax under section 116 of the tax code (RR 16-2011; RR 13-2018).

R. Sale, importation, printing or publication of books and any newspaper,

magazine, review or bulletin which:
1) Appears at regular intervals;
2) With fixed prices for subscription and sale;
3) Not devoted principally to the publication of paid advertisements.

S. Transport of passengers by international carriers doing business in the

Philippines. The same shall not be subject to Other Percentage Taxes as
amended under RA10378 and Transport of cargo by international carriers doing
business in the Philippines, as the same is subject to 3% common carrier’s tax
(Other Percentage Taxes) as amended under RA10378.

T. "Sale, importation or lease of passenger or cargo vessels and aircraft, including

engine, equipment and spare parts thereof for domestic or international
transport operations

OTHER PERCENTAGE TAXES (BICAPFLOW)

✓ BANKS AND NON-BANKS

Tax on banks and non-bank financial Tax Base: Monthly gross
intermediaries performing quasi-banking receipts
functions:
a. On interests, commissions and discounts from lending activities as well as
income from financial leasing, based on remaining maturities of the
instruments, as follows:
Maturity period of more than 5 years 1%
Maturity period of 5 years or less 5%
Note: In case of pretermination, the maturity period shall be reckoned to end
as of the date of pretermination for purposes of classifying the transaction
and applying the correct rate of tax.
b. On royalties, rental of property (real or personal), profit from exchange and
all other items treated as gross income under Section 32 of the tax code. 7%
c. On trading gains within a taxable month on foreign currency, debt securities,
derivations and other similar financial instruments. 7%
d. On dividends and equity shares in the net income of subsidiaries. 0%

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Tax on other non-bank financial Monthly gross receipts

intermediaries,
including finance companies, money changers
and pawnshops:
a. On interests, commissions and discounts from lending activities as well as
income from financial leasing, based on remaining maturities of the
instruments, as follows:
Maturity period of more than 5 years 1%
Maturity period of 5 years or less 5%
Note: In case of pretermination, the maturity period shall be reckoned to end
as of the date of pretermination for purposes of classifying the transaction
and applying the correct rate of tax.
b. On royalties, rental of property (real or personal), profit from exchange and
all other items treated as gross income under Section 32 of the tax code. 5%
c. On dividends and equity shares in the net income of subsidiaries. -

✓ INTERNATONAL CARRIERS
OPT on international carriers (air & shipping) Monthly gross receipts 3%
for the transport of both passengers & cargoes

✓ COMMON CARRIERS

Percentage tax on domestic common carriers Monthly gross receipts 3%

by land for the transport of passengers and
keepers of garages, except owners of bancas
and animal-drawn two-wheeled vehicles.

The following shall be considered per unit minimum quarterly gross receipts (for Sec. 117 only):

Manila and other Provincial

Cities
⚫ Jeepney for hire P2,400 P1,200
⚫ Public utility bus:

Not exceeding 30 passengers 3,600 3,600

Exceeding 30 but not exceeding 50 6,000 6,000
Exceeding 50 7,200 7,200
⚫ Taxis 3,600 2,400
⚫ Car for hire (with chauffeur) 3,000 3,000
⚫ Car for hire (w/o chauffeur) 1,800 1,800

✓ AMUSEMENT
Amusement taxes from operators of:
Quarterly gross receipts 10%
1. Boxing exhibitions
(Exempt, if a World or Oriental championship in any division is at stake, promoted
by a Filipino citizen or Corporation, at least 60% Filipino owned, and one of the
contenders is a Filipino citizen)
2. Professional basketball games Quarterly gross receipts 15%
3. Cockpits Quarterly gross receipts 18%
4. Cabarets, night or day clubs Quarterly gross receipts 18%
5. Jai-alai and race tracks Quarterly gross receipts 30%

For the purpose of the amusement tax, the term “gross receipts” embraces all the receipts of
the proprietor, lessee or operator of the amusement place. Said gross receipts also include
income from television, radio, and motion picture rights, if any.

✓ PSE SALES
Tax on sale, barter or exchange of shares of stock listed and traded through the local stock
exchange (LSE), other than sale by a dealer in securities – 6/10 of 1% of gross selling price or
gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed
of.

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Tax on shares of stock sold or exchanged through the LSE in an initial public offering of shares
of stock of a closely held corporation in accordance with the proportion of shares of stock sold,
bartered or exchanged or disposed of to the total outstanding shares of stock after the listing
in the LSE*(IPO):
Up to 25% 4% of GSP
Over 25% to 33 1/3% 2% of GSP
Over 33 1/3% 1% of GSP

*Repealed under R.A. 11494 (Bayanihan To Recover As One Act) which took effect on September
15, 2020.

✓ FRANCHISES
Tax on franchises:
1. On gas and water utilities Monthly gross receipts 2%

2. On radio and/or television broadcasting Monthly gross receipts or pay 3%

companies with annual GR of not more VAT at their option. Once
than P10,000,000 exercised, it becomes
irrevocable.
✓ LIFE INSURANCE
Tax on life insurance premium, except purely Insurance premiums collected 5%
cooperative companies or associations

⚫ Owners of property who obtain insurance On premiums paid 5%

directly with foreign companies
⚫ Agents of foreign insurance companies Insurance premiums collected 10%
(fire, marine or miscellaneous insurance
agents)

✓ OVERSEAS DISPATCH
Tax on overseas dispatch, message or Quarterly gross receipts from
conversation originating from the Philippines such services 10%

Exempted from Sec. 120 are: (DING)

⚫ Diplomatic services
⚫ International organizations
⚫ News services
⚫ Government

✓ WINNINGS
Tax on winnings ⚫ Winner of the prizes in double 4% of the net
forecast/quinella & trifecta prize
bets
⚫ Person winning not in double 10% of the net
forecast/quinella & trifecta prize
bets
⚫ Owners of winning race horses 10% of the prize

Return and payment of other percentage taxes

a. General rule: Every person liable to pay percentage taxes shall file a monthly return of the
amount of his gross sales, receipts or earnings and pay the tax thereon within twenty (20)
days after the end of each taxable month. The taxpayer may file a separate return for each
branch or place of business, or a consolidated return for all branches or places of business
with the authorized agent bank, Revenue District Officer, Collection Agent or duly authorized
Treasurer of the City or Municipality where said business or principal place of business is
located, as the case maybe.

b. Exceptions:

⚫ The tax on overseas dispatch, message or conversation originating from the Philippines
shall be paid by the person rendering the service within twenty (20) days after the end of
each quarter.

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⚫ Amusement taxes shall be paid by the proprietor, lessee, operator or any party liable within
twenty (20) days after the end of each quarter.
⚫ The tax on winnings shall be deducted and withheld by the operator, manager or person in
charge of the horse races and remitted to the Bureau of Internal Revenue within twenty
(20) days from the date the tax was deducted and withheld.
⚫ The stock transaction tax of 1/2 of 1%, shall be collected by the stock broker and remitted
to the Bureau of Internal Revenue within five (5) banking days from the date of collection.
⚫ The stock transaction tax of 4%, 2% and 1%, in case of primary offering, shall be paid by
the corporation within thirty (30) days from the date of listing of the shares of stock in the
local stock exchange. In case of secondary offering, the tax shall be collected by the
stockbroker and remitted to the Bureau of Internal Revenue within five (5) banking days
from the date of collection.
⚫ Any person retiring from a business subject to percentage tax shall notify the nearest
internal revenue officer, file his return and pay the tax due thereon within twenty (20) days
after closing his business.

COMMON PROVISIONS
Any gain derived from the sale, barter, exchange or other disposition of shares of stock under
this Section shall be exempt from income tax.

RETURN AND PAYMENTS OF PERCENTAGE TAX

IN GENERAL – 25 days from the end of the quarter.

EXCEPTIONS
i Tax on winnings - 20 days from the date withheld.
ii Stock transaction tax of 6/10 of 1% and Secondary Offering-5 banking days from the date
withheld by the broker.
iii Primary Offering - 30 days from the date of listing in the local stock exchange.

RR NO. 6-2015
In general, the business tax (VAT or Percentage Tax) on the sale of raw sugar and refined
sugar, shall be paid in advance by the owner/seller before any warehouse receipt or
quedans are issued, or before the sugar is withdrawn from any sugar refinery/mill.
For taxpayers who are non-vat registered and exempt from vat under the Tax Code, the
amount of advance percentage tax shall be determined by applying the percentage tax rate
of three percent (3%) of the gross sales or receipts, provided, that cooperatives shall be
exempt from the 3% gross sales or receipts.

Exempt from Advance Payment:

❖ Withdrawal of raw cane sugar;
❖ Withdrawal of sugar by duly accredited and registered agricultural cooperative of good
standing;
❖ Withdrawal of sugar by duly accredited and registered agricultural cooperative which is
sold to another agricultural cooperative.

WITHHOLDING PERCENTAGE TAX

❖ Bureaus, offices and instrumentalities of the government, including government owned
and controlled corporations as well as their subsidiaries, provinces, cities and
municipalities making any money payment to private individuals, corporations,
partnerships and or associations are required to deduct and withhold the three (3%) taxes
due from the payees on account of such money payments

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POINTS TO REMEMBER ON CONSUMPTION TAX

1. There are two types of consumption
a) Domestic consumption and
b) Foreign consumption

NOTE:
1. Only Domestic consumption is subject to tax
2. If goods entered the Philippines, it will be taxed to consumption tax at the point of entry
3. If goods are exported, it is effectively not subjected to consumption tax at the point of
entry. It is subject to 0% VAT for VAT taxpayers and is exempt from percentage tax for Non-
VAT taxpayers. It is also exempt from excise tax.

2. There are two types of consumption tax on domestic consumption:

a) VAT on importation and
b) Business Tax

NOTE:
1. The VAT on importation applies uniformly to all taxpayers
2. The business tax applies only if the seller is engaged in business

3. There are three types of business tax:

a) VAT on sales
b) Percentage Tax
c) Excise Tax

NOTE:
1. Taxpayers either pay VAT on sales or percentage tax with excise tax as an additional tax
if it produces excisable products/articles.
2. The VAT on sales and percentage tax accrues at the point of sales or collection while excise
tax accrues at the point of production
3. VAT is based on the Value Added. It is 12% of sales or receipt less VAT paid on purchase.
Percentage tax is directly computed on the sales or receipts.

MNEMONICS for EXCLUSIONS TO BUSINESS TAX (AmHERERICQT)

1. Agri-Marine Food Products in their Original State
➢ Sale or importation of agricultural and marine food products in their original state,
livestock and poultry of a kind generally used as, or yielding or producing foods for human
consumption; and breeding stock and genetic materials therefor.
➢ Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock
and poultry feeds, including ingredients, whether locally produced or imported, used in
the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally considered as pets);
➢ Services by agricultural contract growers and milling for others of palay into rice, corn into
grits and sugar cane into raw sugar;

2. Health
➢ Medical, dental, hospital and veterinary services

3. Education
➢ Educational services rendered by private educational institutions, duly accredited by the
Department of Education, Culture and Sports (DECS) and the Commission on Higher
Education (CHED), and those rendered by government educational institutions;
➢ Sale, importation, printing or publication of books and any newspaper, magazine, review
or bulletin which appears at regular intervals with fixed prices for subscription and sale
and which is not devoted principally to the publication of paid advertisements;

4. Regional or Area Headquarter

➢ Services rendered by regional or area headquarters established in the Philippines by
multinational corporations which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not
earn or derive income from the Philippines;

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5. Employment
➢ Services rendered by individuals pursuant to an employer-employee relationship

6. Real Properties
➢ Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business or real property utilized for low-cost and socialized
housing as defined by Republic Act No. 7279, otherwise known as the Urban Development
and Housing Act of 1992, and other related laws
➢ Lease of a residential unit with a monthly rental not exceeding Eight thousand pesos
(P8,000): Provided, That not later than January 31st of the calendar year subsequent to
the effectivity of Republic Act No. 8241 and each calendar year thereafter, the amount of
Eight thousand pesos (P8,000) shall be adjusted to its present value using the Consumer
Price Index as published by the National Statistics Office (NSO) (Now 10,000)

7. International / Domestic Air Carrier

➢ The sale, importation or lease of passenger or cargo vessels and aircraft, including engine,
equipment and spare parts, for domestic and international transport operations

8. Cooperatives
➢ Sales by agricultural cooperatives duly registered with the Cooperative Development
Authority to their members as well as sale of their produce, whether in its original state
or processed form, to non-members; their importation of direct farm inputs, machineries
and equipment, including spare parts thereof, to be used directly and exclusively in the
production and/or processing of their produce
➢ Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority whose lending operation is limited
to their members

9. Quasi-Importation
➢ Importation of professional instruments and implements, wearing apparel, domestic
animals, and personal household effects (except any vehicle, vessel, aircraft, machinery,
other goods for use in the manufacture and merchandise of any kind in commercial
quantity) belonging to persons coming to settle in the Philippines, for their own use and
not for sale, barter or exchange, accompanying such persons, or arriving within ninety
(90) days before or after their arrival, upon the production of evidence satisfactory to the
Commissioner, that such persons are actually coming to settle in the Philippines and that
the change of residence is bona fide;
➢ Importation of personal and household effects belonging to the residents of the Philippines
returning from abroad and nonresident citizens coming to resettle in the Philippines:
Provided, That such goods are exempt from customs duties under the Tariff and Customs
Code of the Philippines

10. Treaty
➢ Transactions which are exempt under international agreements to which the Philippines
is a signatory or under special laws

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MULTIPLE CHOICE QUESTIONS

Tax on Persons Exempt from VAT
1. Which of the following is not a requisite in order for a taxpayer be subject to percentage
tax under Section 116 of the Tax Code?
a. The taxpayer must not be a VAT-registered person;
b. The annual gross sales/receipts during the year does not exceed Php3,000,000;
c. The taxpayer did not opt to pay 8% income tax regime.
d. None of the choices

2. The following persons are exempt from percentage tax under Section 116 of the Tax
Code, except:
a. Persons subject to VAT
b. Persons exempt from VAT but NOT due to threshold
c. Cooperatives
d. All of the choices

3. One of the following is subject to three percent (3%) percentage tax

a. Establishments whose annual gross sales or receipts exceed Php3,000,000 and who
are VAT registered.
b. Businesses whose annual gross sales or receipts exceed Php3,000,000 and who are not
VAT registered.
c. VAT registered establishments whose annual gross sales or receipts do not exceed
Php3,000,000.
d. Establishments whose annual gross sales or receipts do not exceed Php3,000,000 and
who are not VAT registered.

4. Mr. Pancho, not a VAT-registered person, has the following data for the year 2019:
Sale of fresh fruits Php800,000
Sale of refined sugar 1,000,000
Sale of cooking oil 1,500,000
Compensation 700,000

Only 50% of the above sales were collected. Compensation income was collected in full
from his employer.

How much is the VAT or percentage tax for the year 2019?
a. P70,500 c. P120,000
b. P75,000 d. P480,000

5. Based on the preceding number, assuming the taxable year

is 2020, how much is the VAT or percentage tax for the year?
a. P50,000 c. P75,000
b. P70,500 d. P120,000

Use the following data for the next three (3) questions:

LJ, non-vat registered, has the following data for her first year of operations:
Merchandise purchased Php1,450,000
Merchandise inventory, Dec. 31,
2019 450,000
Collections 800,000

All sales are on account and goods sell at 30% above cost.

6. How much is the business tax for the year?

a. P24,000 c. P39,000
b. P30,000 d. nil

7. If LJ is a service provider, how much is the business tax for the year?

a. P24,000 c. P39,000
b. P30,000 d. nil

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8. If LJ is self-employed and she opted to be taxed at 8%

income tax rate, how much is her percentage tax during the year?
a. P24,000 c. P39,000
b. P30,000 d. nil

9. Pedro is a CPA practitioner. His gross receipts, expenses and other data for 2019 taxable
year are provided below:
Gross receipts Php2,800,000
Cost of services 1,200,000
Operating expenses 900,000
Rental income 575,000

10. Which of the following statements is correct?

a. Pedro is subject to 3% OPT under Section 116 of the Tax Code, as amended.
b. Pedro may choose to be taxed at 8% income tax rate in lieu of the graduated income tax
table and Section 116 of the Tax Code, as amended.
c. Pedro is subject to value added tax
d. None of the above

Percentage Tax on Domestic Carriers and Keepers of Garages

11. Which of the following is subject to the 3% common carrier’s tax?
Transportation contractors on their transport of goods or cargoes.
Common carriers by air and sea relative to their transport of passengers.
Owners of animal-drawn two-wheeled vehicle.
Domestic carriers by land for the transport of passengers.

12. All of the following, except one, are not subject to common carrier's tax
owner of a parking lot/building
rent-a-car companies
common carriers engaged in carriage of goods or cargo
domestic airline companies

13. Masbate Liner Co. is a common carrier with passenger buses and cargo trucks. For the
4TH quarter of 2019, it had the following data on receipts, taxes not included:

From transport of passengers Php800,000

From transport of cargoes 200,000
From bus rentals for school fieldtrips 400,000

Common carrier tax is:

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

14. Milagros Lines, a VAT-registered person, has the following gross receipts for the 1st
Quarter of 2019:

Bus 1 (carriage of goods, P18,000) P100,000

Bus 2 (carriage of goods, P13,500) 165,000
Taxi 90,000
Jeepney 35,500
Cargo truck 45,000

Sea vessel 250,000

Additional Information:
Salaries of drivers and conductor 125,000
Cost of oil and gasoline 175,000

During the quarter, Bus 1 was bumped by another bus owned by Mandaon Lines and
paid Milagros Lines Php120,000 for the damage.

The percentage tax due on Milagros Line is:

c.
a. P10,770 P11,715
b. P14,370 d. nil

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15. Which of the following is not subject to common carrier tax under Section 117 of the
NIRC, as amended?
a. A Transfer Network Company (TNC) who is a holder of a valid and current CPC
b. A TNC Partner who is a holder of a valid and current CPC
c. A TNC Partner who is accredited by LTFRB
d. None of the choices

16. Feona paid P500 to a GRAB driver who is a holder of a CPC. Twenty five percent (25%)
of said amount was later remitted by the driver to GRAB as the latter’s share. GRAB is
also a holder of a CPC. How much is the business tax applicable to the GRAB driver?
a. P60 c. P15
b. P53.57 d. nil

17. Based on the preceding number, how much is the business tax applicable to GRAB?
a. P15 c. P3.75
b. P13.39 d. nil

Percentage Tax on Domestic Carriers and Keepers of Garages

18. Which of the following is not a requisite in order for percentage tax on
international carrier to apply?
a. The flight or voyage must originate in the Philippines
b. The flight or voyage must be continuous and uninterrupted
c. The gross receipts must pertain to cargoes and/or mail
d. None of the choices

19. Which of the following maybe subject to Common Carrier’s Tax?

a. Online flights or voyages
b. Offline flights or voyages
c. Both “a” and “b”
d. Neither “a” nor “b”

20. Which of the following is considered to have originated in the Philippines?

a. Chartered flights or voyages originally commencing their flights or voyages from any
foreign port and whose stay in the Philippines is for more than forty-eight (48) hours
prior to embarkation wherein the reason for failure to depart within forty-eight (48) hours
is due to typhoon Ulyses.
b. Where a passenger, his excess baggage, cargo and/or mail originally commencing his
flight or voyage from a foreign port alights or is discharged in any Philippine port and
thereafter boards or is loaded on another airplane owned by the same airline company
or vessel owned by the same international sea carrier where the time intervening
between arrival and departure exceeds forty-eight (48) hours by reason of COVID-19
pandemic restrictions.
c. Where a passenger, his excess baggage, cargo and/or mail originally commencing his
flight or voyage from a foreign port alights or is discharged in any Philippine port and
thereafter boards or is loaded on another airplane owned by another airline company or
vessel where the time intervening between arrival and departure exceeds forty-eight (48)
hours by reason of magnitude 10 earthquake.
d. None of the choices

21. Emirates Airlines boarded passengers in NAIA Terminal 1 bound for New York, USA. The
plane will make a 5 hour stopover in Dubai for maintenance check and refueling, then
proceed to its final destination. Based on the facts presented, which of the following is
true?
a. The flight is continuous and uninterrupted from the Philippines to Dubai leg only.
b. The flight is continuous and uninterrupted from the Philippines to New York, USA.
c. The flight is continuous and uninterrupted from Dubai to New York, USA leg only.
d. None of the choices

22. China Northern Airlines Inc., a resident foreign corp. has the following Collections for the
quarter:

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Passengers airfare from China to Philippines 1,800,000

Passengers airfare from Philippines to China 1,500,000
Airfare for cargoes from China to Philippines 700,000
Airfare for cargoes from Philippines to China 1,300,000

How much is the common carrier’s tax payable for the quarter?
a. P60,000 c. P84,000
b. P39,000 d. P159,000

23. Which of the following business taxes will never apply to an off-line international carrier?
a. Tax on Persons Exempt from VAT (Section 116 of the NIRC)
b. VAT
c. Common Carrier’s Tax (Section 118 of the NIRC)
d. None of the choices

Tax on Franchises
24. Which of the following franchises will never be subject to Franchise Tax (OPT)?
a. Gas & water utilities
b. Radio and/or Television
c. Tollways
d. None of the choices

25. Which of the following franchises is subject to Franchise Tax regardless of annual gross
receipts?
a. Gas & water utilities
b. Radio and/or Television
c. Telecommunication
d. Mining

26. MATI Gas Company operates a gas and radio/television broadcasting franchise. It has the
following data for the year
2019:
Gross Receipts - Gas franchise P2,000,000
Gross Receipts - Radio franchise 10,000,000
(5,000,000)
Operating expenses
P7,000,000
Net Income

The total franchise tax is:

a. P340,000 c. P40,000
b. P300,000 d. P190,000

Tax on Overseas Dispatch, Message or Conversation Originating from the Philippines

(Sec. 120)

27. One of the following is subject to overseas communications tax:

a. Long distance call by a son from Manila to his father in Iloilo City.
b. Monthly telephone bill from PLDT for the landline connection.
c. Telephone bill on a call by a mother in the Philippines to her son in London.
d. Telephone call by Magda in Hongkong to her friend in Manila.

28. One of the following statements is incorrect.

a. Overseas communications tax is imposed on overseas communications originating from
the Philippines.
b. The person liable to overseas communications tax may or may not be engaged in any
trade or business.
c. The overseas communications tax is imposed on the owner of the communication facilities
used to make overseas communications.
d. None of the choices

29. Which of the following statements is false?

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a. BBC, an international news agency, is required to pay 10% percentage tax from messages
originating from the Philippines by telephone or telegraph.
b. Amounts paid for messages transmitted by an embassy and consular offices of a foreign
government is not subject to 10% overseas communications tax.
c. Overseas communications initiated by a resident citizen not engaged in trade or business
is subject to overseas communication tax.
d. None of the above

30. Moon Telecom Inc. has the following collections for the quarter:

Overseas call originating abroad P1,120,000

Overseas call originating in the Philippines 880,000
Local calls 2,240,000

How much is the overseas communication tax to be remitted by Moon for the quarter?
a. P220,000 c. P200,000
b. P88,000 d. P80,000
31. Based on the preceding number, how much is the output tax?
a. P240,000 c. P360,000
b. P454,286 d. P268,800

Tax on banks and non-bank financial intermediaries Performing Quasi-Banking

Functions

32. Which of the following is subject to Gross Receipts Tax?

a. Bank of the Philippine Islands
b. Pawnshops
c. Money changers
d. Bangko Sentral ng Pilipinas

30. Which of the following income items is not subject to Gross Receipts Tax?
a. Interest income from bank deposit in the Philippines
b. Interest income from loans granted to debtors in the Philippines
c. Gain on sale of ROPOA in the Philippines
d. Royalty income from abroad

31. The following expense items are not deductible in determining Gross Receipts Tax, except:
a. Interest expense
b. Rent expense
c. Losses on sale of ROPOA
d. Trading loss

32. Piggy Bank has the following data for the 1st Quarter of 2019:
Interest income, the remaining maturity
of the instrument is 5 years P100,000
Rentals (net of 5% expanded
withholding tax) 47,500
Net trading loss (10,000)

How much is the gross receipts tax?

a. P5,000 c. P7,800
b. P3,500 d. P8,500

33. In addition to the information in the preceding number, Piggy Bank has the following
information for the 2nd Quarter of 2019:
Interest income, the remaining maturity
of P100,000
the instrument is 6
years
Rentals (net of 5% expanded
withholding 47,500
tax)
Net trading gain 20,000
How much is the gross receipts tax for the 2nd
Quarter?

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a. P5,200 c. P9,200
b. P5,900 d. P9,900

34. Bobadila Leasing Corporation, a non-bank financial intermediary performing quasi-banking

functions, has the following summary of its trading transactions related to foreign currency,
debt securities and derivatives:
1st Quarter P3,000,000
2nd Quarter (5,000,000)
3rd Quarter 6,000,000
How much is the Gross Receipts Tax for the 3rd
Quarter?
a. P420,000 c. P280,000
b. P70,0000 d. P630,000

35. Mr. D executed on January 1, 2019, a long-term loan from Bank C in the amount of
P6,000,000 payable within ten (10) years, with an annual interest of 2%. However, on
December 31, 2022, the loan was pre-terminated. Assuming Bank C declared correctly the
interest from 2019 to 3rd quarter of 2022 and the applicable gross receipts taxes were paid,
how much gross receipts tax should be paid for the 4th Quarter of 2022?
a. P19,200 c. P19,700
b. P24,500 d. P19,500
Tax on Other Non-Bank Financial Intermediaries

36. Which of the following statements is not true?

a. The generally accepted accounting principles as may be prescribed by the Bangko Sentral
ng Pilipinas shall likewise be the basis for calculation of gross receipts for banks.
b. The generally accepted accounting principles as may be prescribed by the Securities and
Exchange Commission shall likewise be the basis for calculation of gross receipts of non-
bank financial intermediaries performing quasi banking functions.
c. The generally accepted accounting principles as may be prescribed by the Securities and
Exchange Commission shall likewise be the basis for calculation of gross receipts of non-
bank financial intermediaries not performing quasi banking functions.
d. None of the choices

37. A pawnshop, classified as not-performing quasi-banking functions, has the following

information for the 2nd Quarter of 2019:
Interest income, the remaining maturity
of P200,000
the instrument is 1 year
Gain on sale of jewelries 800,000
Trading gain on derivatives 400,000
Trading loss on derivatives 250,000

How much is the gross receipts tax for the 2nd Quarter of 2019?
a. P57,500 c. P50,000
b. P70,000 d. P98,000

Tax on Life Insurance Premiums

38. The following persons doing insurance business in the Philippines is/are subject to 2%
premiums tax:
a. Purely cooperative companies or associations engaged in selling life insurance.
b. Insurance company selling non-life insurance.
c. Insurance company selling life insurance.
d. All of the choices

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39. Which of the following is subject to premiums tax?

a. Premiums refund within twelve (12) months after payment on account of rejection of risk
or returned for other reason to a person insured;
b. Reinsurance by a company that has already paid the tax;
c. Premiums collected or received by any branch of a domestic corporation, firm, or
association doing business outside the Philippines on account of any life insurance of the
insured who is a non-resident, if any tax on such premium is imposed by the foreign country
where the branch is established;
d. Premiums collected or received on account of any reinsurance, if the insured, in case of
personal insurance, resides outside the Philippines, if any tax on such premiums is imposed
by the foreign country where the original insurance has been issued or perfected;

40. Sigurista Insurance Co. collected premiums on variable contracts (as defined in Sec. 232(2)
of Presidential Decree No. 612) in excess of the amounts necessary to insure the lives of the
variable contract workers. Which of the following statements is correct?

a. To the extent necessary to insure the lives of the variable contract workers, it is subject
to 2% premiums tax.
b. Premiums collected in excess of the amount necessary to insure the lives of the variable
contract workers is either subject to VAT or section 116.
c. Both “a” and “b”
d. Neither “a” nor “b”

41. Which of the following is not subject to 2% Premiums Tax?

I. Premium on Health and Accident Insurance
II. Income earned by the life insurance company from services which can be pursued
independently of the insurance business activity
III. Investment income earned by the life insurance companies from investing the premiums
received
IV. Investment income realized from the investment of funds obtained from others, if these
investment activities have been allowed and approved by the Insurance Commission
a. II only
b. II, III and IV
c. II and IV
d. I, II and IV

42. Rose Insurance Co. furnished us its data shown below:

Insurance Premiums collectible is P3,750,000
The breakdown of the above premiums is as follows:
Life Insurance Premiums 75%
Non-life insurance premiums 25%
During the quarter, life insurance premium collected
represents 70%.

The Premiums Tax payable is:

a. P94,437.50 c. P78,750.00
b. P39,375.00 d.P196,875.00

Tax on Agents of Foreign Insurance Companies

43. Paelo wants to procure fire insurance for his Mansion in Dasmarinas Village from ABC
Insurance Co., a non-resident foreign corporation, through its agent in the Philippines Mr.
Webner. He paid premiums in 2019 amounting to P5 million. How much is the premiums tax
payable on the transaction?
a. P500,000 c. P100,000
b. P250,000 d. P200,000

44. Using the same information above, assuming Paelo directly obtained the insurance policy from
ABC Insurance Co., how much is the premiums tax payable on the transaction?
a. P500,000 c. P100,000
b. P250,000 d. P200,000

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Amusement Tax

45. Sinner Corp., a cabaret, had the following data during the 2nd Quarter of 2019:
Revenue P1,500,000
Collections during the quarter 1,000,000
Gross income 800,000
Net income during the quarter 500,000

How much is the amusement tax for the Quarter?

a. P180,000 c. P270,000
b. P144,000 d. P90,000

46. Based on the preceding number, if it is a racetrack, how much is the amusement tax
payable?

a. P450,000 c. P240,000
b. P300,000 d. P150,000

47. Romar operates a cockpit in Bacolod City. Inside the cockpit is a restaurant which he also
operates. The data during the quarter are presented below:

Receipts from Entrance Fee P1,780,000

Gross Receipts from Restaurant:
Sale of food and beverages 342,000
Sale of wines &
liquor 266,000
Expenses 844,000
How much is the amusement
tax?
a. P320,400 c. P429,840
b. P381,960 d. P277,920

51. Based on the preceding number, suppose the restaurant is owned and operated by Ryan, a
non-VAT registered person, the percentage tax payable by Ryan is –
a. P18,240 c. P60,800
b. P109,440 d. nil

52. Continuing number 51, the percentage tax due on Romar is

a. P320,400 c. P178,000
b. P53,400 d. nil

53. Golden Boy is the operator of Golden Coliseum. During the quarter it had the following gross
receipts from various activities:

Concert by Pedro P1,170,000

Professional basketball game 1,240,000
Boxing Exhibition 1,780,000

NOTE: The boxing exhibition is a world championship fight between Marchweather and
Chavez, American and Mexican. The fight is promoted by Mr. Bobadilla, a Filipino Citizen.

How much is the amusement tax payable?

a. P186,000 c. P178,000
b. P364,000 d. nil

54. Based on the preceding number, if Chavez is a Filipino, how much is the amusement tax
payable?
c.
a. P186,000 P178,000
b. P364,000 d. nil

Tax on Winnings

55. The Percentage Tax on Winnings is imposed on the winnings of bettors in:
a. Cockfighting
b. Horse racing

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c. Jai-alai
d. Boxing

56. Which of the following may not be subject to 10% Tax on Winnings?
a. Winnings from horse races by a bettor
b. Winnings from horse races by a horse owner
c. Both “a” and “b”
d. Neither “a” nor “b”

57. A race track bettor won the following bets:

On double, a bet of P200 and dividend of P200 per P20 ticket.
On winner take all, a bet of P500 and a dividend of P1,000 per P50 ticket
On forecast, a bet of P1,000 and dividend of P100 per P20 ticket

The total percentage tax due from the winnings is:

a. P682 c. P1,280
b. P1,182 d. P1,530

58. Mang Jose had the following records of his horse races in the 3rd Quarter of 2019:

Type of Gross Cost of

Horse Winnings Winnings Winnings

Super Vice Trifecta P90,000 P40,000

Anne Kurot Ordinary 250,000 50,000
John Mongoloyd Double 60,000 10,000
Cruz
Angelica Sinaniban Ordinary 175,000 25,000

How much is the business tax on winnings?

a. P45,000 c. P39,000
b. P48,500 d. P57,500

59. Using the same information above, assuming that Mang Jose is a bettor, how much
percentage tax was withheld from him?
a. P45,000 c. P39,000
b. P48,500 d. P57,500

Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded Through the
Local Stock Exchange or Through Initial Public Offering

Questions 60 to 65 are the based on the following data:

Bato Realty Corp., a closely-held corporation, has an authorized capital stock of 100,000,000
shares with par value of P1.00/share.

Of the 100,000,000 authorized shares, 25,000,000 thereof is subscribed and fully paid up by the
following stockholders:

Mr. Trillanes 5,000,000

Mrs. Villar 5,000,000
Mr. Angara 5,000,000
Mr. Tolentino 5,000,000
Mr. Go 5,000,000
Total Shares Outstanding 25,000,000

On March 2019, Bato Realty Corp. finally decides to conduct an IPO and initially offers 25,000,000
of its unissued shares to the investing public for P1.50/share.

During IPO period, one of its existing stockholders, Mrs. Villar, has likewise decided to sell her
entire 5,000,000 shares to the public for P1.50/share.

60. How much is the percentage tax due on the primary offering?
a. P375,000 c. P750,000
b. P1,500,000 d. nil

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61. Based on the preceding number, assuming the transaction happened after the effectivity of
BARO Act?
a. P375,000 c. P750,000
b. P1,500,000 d. nil
62. How much is the percentage tax due on the secondary offering?
a. P75,000 c. P150,000
b. P300,000 d. nil

63. Based on the preceding number, assuming the transaction happened after the effectivity of
BARO Act?
a. P75,000 c. P150,000
b. P300,000 d. nil

64. If in June 2019, Bato Realty Corp. again decides to increase capitalization by offering another
30,000,000 of unissued
shares to the public at P2.00/share, how much is the percentage tax due?
a. P600,000 c. P2,400,000
b. P1,200,000 d. nil

65. If in July 2019, Mr. Trillanes decides to sell his entire stock ownership to the public at
P2.00/share, how much is the percentage tax due?
a. P60,000 c. P400,000
b. P200,000 d. nil

66. A domestic corporation paid P80,000 stock transaction tax on Initial Public Offering (IPO) of
500,000 shares. After the
IPO, there were 800,000 shares outstanding. The selling price of IPO per share was?
a. P20 c. P8
b. P16 d. P6

67. 1st Statement: Sale by a dealer in securities of shares of stock through the local stock
exchange is subject to the stock transactions tax.
2nd Statement: Sale by a dealer in securities of shares of stock direct to a buyer is subject
to the Value Added Tax
a. Both statements are correct.
b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second statement is correct.

68. Which of the following transactions will not result to payment of stock transaction tax?
a. Sale of unissued shares during an Initial Public Offering by a closely-held corporation.
b. Sale of outstanding shares during an Initial Public Offering by a shareholder.
c. Sale of unissued shares subsequent to Initial Public Offering by a closely-held
corporation.
d. Sale of outstanding shares subsequent to Initial Public Offering by a shareholder.

Return and Payments of Percentage Tax

69. Statement 1: Payment of stock transaction tax of 6/10 of 1% is within five (5) banking days
from the date withheld by the broker.
Statement 2: Payment of stock transaction tax of 4%, 2% and 1% on primary offering should
be within thirty (30) days from the date of listing in the local stock exchange.
a. Both statements are correct.
b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second state statement is correct.

70. Which of the following percentage taxes is not required to be filed within 25 days from the
end of the quarter?
a. Gross receipts tax
b. Premiums Tax
c. Common Carriers Tax

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d. Percentage Tax on Winnings

71. Which of the following is subject to advance payment of percentage tax?

a. Withdrawal of raw cane sugar;
b. Withdrawal of sugar by duly accredited and registered agricultural cooperative of good
standing;

c. Withdrawal of sugar by duly accredited and registered agricultural cooperative which is

sold to another agricultural cooperative.
d. Withdrawal of raw sugar.

72. Withholding percentage tax is applicable to:

a. Sale of goods to the government
b. Sale of service to the government
c. Both “a” and “b”
d. Neither “a” nor “b”

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