BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 1SUGGESTED ANSWERS Chapter 1: INTRODUCTION TO INTERNAL REVENUE TAXES CHAPTER 1 INTRO. TO INTERNAL REVENUE TAXES Problem 1-1 1. False – National Internal Revenue Taxes are collected by the BIR. 2. False – professional tax is collected by the local government. 3. True 4. False – Only sales within are subject to business tax in the Philippines. 5. False – business tax is another Internal Revenue Tax distinct from income tax. 6. False – When there is loss, business tax is paid but no income tax. 7. True 8. False – it is the other way around. 9. True 10. True 11. True 12. True 13. False – citizens whether resident or nonresident are subject to transfer tax within.. 14. False – on the 20 th of the month following the taxable month. 15. True Problem 1-2 1. True 2. False – there is no double taxation because income tax is different from business tax. 3. True 4. True 5. False – Donation is without consideration; hence, not onerous transfer. 6. False – Sale of family home is not subject to business tax because a family home is not business asset. 7. True – one for the first quarter and the other is the annual ITR. 8. False – monthly payment is both on the 20 th of the next month. 9. True 10. False – the requirement is P100,000 in any quarter of the preceding year. 11. False – electronic filing and payment is required only to large taxpayers. 12. False – It is the BIR Commissioner that should recommend. 13. True 14. False – only income earned within will be taxable against resident alien 15. False – should be at least P1,000,000 per year. Problem 1-3 Problem 1-4 Problem 1-5 1. B 1. C 1. C 2. C 2. C 2. B 3. B 3. A 3. D 4. D 4. D 4. A 5. C 5. D 5. A 6. B 6. A 6. C 7. D 7. C 7. C 8. D 8. A 8. D 9. C 9. C 9. A 10. B 10. A 10. B BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 2 SUGGESTED ANSWERS Chapter 1: INTRODUCTION TO INTERNAL REVENUE TAXES Problem 1–6 A Income tax due P270,000 Divided by normal corporate income tax rate 30% Amount subject to income tax per ITR P900,000 Problem 1–7 B Gross income from ordinary operation P3,300,000 Add: Cost of sales P2,170,000 Sale of scrap materials 30,000 2,200,000 Total amount subject to business tax P5,500,000 Problem 1–8 C Cancellation of indebtedness from: Abun Daboy, a friend P 50,000 Grace, current girlfriend 10,000 Kristita, his sister 5,000 Hacienda Luisita 100,000 Inheritance from Coritita, his mother 1,000,000 Amount included for transfer tax reporting P1,165,000 Problem 1–9 D Fair market value, higher amount Capital gains tax (P4,000,000 x 6%) P240,000 Add: Documentary stamp tax (P4,000,000 x 1.5%) 60,000 Total amount of taxes paid to the BIR P300,000 Problem 1–10 C VAT (P10,000,000 x 12%) P1,200,000 Income tax: Gross income (P10,000,000 – P6,000,000) P4,000,000 Less: OSD (P4,000,000 x 40%) – tax minimization 1,600,000 Net taxable income P2,400,000 Multiplied by normal corporate income tax 30% 720,000 DST (P10,000,000 x 1.5%) 150,000 Total national tax P2,070,000 Problem 1–11 1. Letter A Subject to business tax is P6,000,000. Only sales within are subject to business tax. Subject to income tax: Total sales (P6,000,000 + P4,000,000) P10,000,000 Total cost of sales (P2,000,000 + P1,500,000) ( 3,500,000) Gross taxable income P 6,500,000 Subject to transfer tax (P3,000,000 + P2,000,000) P 5,000,000 Since the donor is a citizen, all of his properties donated within and without is subject to donor’s tax. 2. Letter B Subject to business tax is P6,000,000. Only sales within are subject to business tax. BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 3 SUGGESTED ANSWERS Chapter 1: INTRODUCTION TO INTERNAL REVENUE TAXES Subject to income tax: Sales – within P6,000,000 Cost of sales – within (2,000,000) Gross income P4,000,000 Subject to transfer tax (P3,000,000 + P2,000,000) P5,000,000 Since the donor is a citizen, all of his properties donated within and without is subject to donor’s tax. Problem 1–12 A a. The administrator of JC does not need to file and pay the Philippine estate tax because his properties are not situated in the Philippines. This is incorrect because the all properties of a Filipino citizen situated within and outside the Philippines are object of Philippine estate tax. Problem 1–13 1. B 6. B 2. O 7. B 3. O 8. O 4. O 9. T 5. O 10. T Problem 1–14 Taxable Amount Within Without Res. Citizen Res. Alien Non-Res. Alien Sales 3,000,000 2,000,000 3,000,000 3,000,000 3,000,000 Gross income 600,000 400,000 1,000,000 600,000 600,000 1. Taxpayer is a resident citizen a. P1,000,000 = [P5,000,000 – (P5,000,000/1.25)] b. P3,000,000 2. Taxpayer is a resident alien a. P600,000 = [P3,000,000 – (P3,000,000/1.25)] b. P3,000,000 3. Taxpayer is nonresident alien a. P600,000 = [P3,000,000 – (P3,000,000/1.25)] b. P3,000,000 Problem 1–15 1. P720,000 = (P600,000 x 1.2) 2. P180,000 = (P720,000 – P600,000) + (P660,000 – P600,000) Problem 1–16 1. Tax returns: a. BIR Form 2551 – for business tax b. BIR Form 1701Q – for quarterly income tax return c. BIR Form 1701 – for annual income tax return BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 4 SUGGESTED ANSWERS Chapter 1: INTRODUCTION TO INTERNAL REVENUE TAXES 2. Dates of filing and payments: a. On or before the 20 th of each month (BIR Form 2551) b. April 15, August 15, and November 15 for the first 3 quarters and April 15 of the following year for the annual tax return. Problem 1–17 1. a. Business tax (professional income-within) P500,000 b. Capital gains tax P3,000,000 c. Regular income tax (professional income – within) P500,000 d. Transfer tax (P500,000 + P400,000) P900,000 e. Documentary stamp tax P3,000,000 2. Sale of land (capital asset) - within Capital gains tax (P3,000,000 x 6%) P180,000 Documentary stamp tax (P3,000,000 x 1.5%) 45,000 Donation to strangers – within and without Donor’s tax (P500,000 + P400,000) x 30% 270,000 Professional income – within Other percentage tax (P500,000 x 3%) 15,000 Income tax: Professional income within P500,000 Less: OSD (P500,000 x 40%) 200,000 Net income P300,000 Less: Personal exemption 50,000 Net taxable income – within P250,000 Income tax on P250,000 50,000 Total amount of NIRT due in the Philippines P560,000
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