11 problems on vat with answers and solutions PDF

Preview

Summary

Application: Value Added Tax (VAT)I. True or False (numbers 1 to 10) For a person to be subjected to any business tax, it is necessary that he is regularly engaged in the conduct or pursuit of an economic activity. (False, non-resident who rendered services in the Philippines, importers, consumers n...

Description

Application: Value Added Tax (VAT) I. True or False (numbers 1 to 10) 1. For a person to be subjected to any business tax, it is necessary that he is regularly engaged in the conduct or pursuit of an economic activity. (False, non-resident who rendered services in the Philippines, importers, consumers not engaged in business, government and cooperatives are also subject to VAT.) 2. A non-resident foreign person performing isolated transaction in the Philippines shall be liable to VAT. (True) 3. Non-stock and non-profit private organizations which sell exclusively to their members in the regular conduct or pursuit of commercial or economic activity are exempt from value-added tax. (False, they are not exempt unless otherwise provided by law.) 4. Government entities engaged in commercial or economic activity are generally exempt from value added tax. (False) 5. A tax payer whose annual gross receipts or sales exceed P 3,000,000 shall pay VAT even if not VAT registered. (True, this is mandatory VAT registration). 6. A taxpayer whose annual receipts or sales do not exceed P 3,000,000 but who is VAT registered shall pay VAT. (True, this is optional VAT registration.) 7. The non-resident lessor or foreign licensor who is not VAT-registered is subject to VAT. (True, this is an exception to “regularity principle.) 8. An individual whose gross sales or receipts do not exceed P 100,000 is exempt from VAT provided he pays the 3% other percentage tax. (False, marginal income earners are exempt from business tax, either OPT or VAT.) 9. On January 1, 2018, company A, a newly established business is expecting to generate a revenue for year 2018 amounting to P 3,500,000, thus mandatorily liable to VAT. (True) 10. On January 31, 2018, Company B, a non-VAT registered person issues a vatable invoice amounting to P 20,000, thus not liable to VAT. (False, a non-VAT registered person cannot issue VAT invoice, otherwise, he is liable to VAT.) 11. In 2018, Mr. Chris gross receipts from his practice of profession is P 1,600,000 while her wife has gross sales of P 1,200,000 derived from her trading business. Assuming that they are not VAT-registered person, will they be subject to VAT? Why? (No, because husband and wife are separate taxpayers.) 12. In 2018, the following gross receipts/ sales were recorded by Nora. Gross receipts from practice of profession P 850,000.00 Gross receipts from transport of goods and services 2,450,000.00 Gross sales from trading activities 675,000.00 Assuming Nora is a non-VAT registered, will she be liable to VAT? Why? (Yes, she is subject to mandatory VAT registration because her sales or receipts exceeds P 3M. 13. Taxpayers who are qualified to optionally register may apply for VAT registration not later than how many days before the beginning of the calendar quarter? (10 days before the beginning of the calendar quarter.) 14. If a radio or television broadcasting company who is not mandatorily required to register under the VAT system chose to be a Vat taxpayer. What is the consequence of its choice? (irrevocable lifetime) 15. CLD made the following sales during the 12-month period: Sales, VAT taxable transactions P 2,500,000.00 Sales, VAT zero-rated transactions 400,000.00 Sales, VAT exempt transactions 100,000.00 Total P 3,000,000.00 Based on the above facts, Is CLD liable to VAT? Why? (No, because the sales of CLD excluding VAT exempt transactions do not exceed P 3M.)

16. Sales during the year of 2018: Subject to: Chris Princess Nora Cora 12% VAT 900,000 1,950,000 1,200,000 2,000,000 0% VAT 1,000,000 965,000 650,000 1,000,000 Exempt 1,200,000 785,000 550,000 250,000 Who is subject to VAT? Justify. (No one is liable to VAT because sales or receipts excluding VAT do not exceed P 3M.)

Exercises (VAT Exemptions) II. Multiple Choices: 1. D’ Tiger Transport Corporation has land, sea and air transport operations. To improve its services, which of the following importation is subject to VAT? I. 20 units of air – conditioned buses II. 12 units of life-saving, safety and rescue equipment for shipping transport operation III. 12 airplanes IV. 8 ships Which of the following importation is subject to VAT? A. I only B. II only 

c. I and II only d. All of the above

See Sec. 109 (T) of the Tax Code, it provides that sale, importation or lease of passengers or cargo VESSEL and AIRCRAFT, including engine, spare parts and equipment thereof for domestic or international transport operations.

2. An importer of flowers from abroad: a. Is liable to VAT, if it registers as a VAT person b. Is exempt from VAT, because the goods are treated as agricultural products c. Is exempt from VAT, provided that his total importation of flowers does not exceed P 3,000,000. d. Is liable to VAT, despite the fact that it did not register as a VAT person and his total annual sales of flowers do not exceed P 3,000,000.   

It depends. If the flowers are not for human consumption, it is liable to VAT, however, if it is for human consumption is exempt from VAT. But for the purpose of this problem, the answer is D, though in its original state, it is not for human consumption. See Sec. 109 (A) of the Tax Code. It provides that agricultural and marine food products in their original state and for human consumption are exempt from VAT.

3. Which of the following are exempt from VAT? a. Services of banks b. Services of money changers and pawnshops c. Services of credit cooperatives d. all of the above

 

See Sec. 109 (V) and 109 (E) of the Tax Code. It provides that the service of bank, non-banks performing quasi-banking functions are exempt from VAT. They are liable under OPT. See Sec. 109 (M) of the Tax Code. It provides that gross receipts of credit cooperatives from its members and non-members are not taxable provided that the said cooperatives are registered with CDA. However, its importation is subject to VAT.

4. Which of the following transactions is exempt from VAT? a. Medical services such as dental and veterinary services rendered by professionals. b. Legal services c. Services arising from employee-employer relationship d. Services rendered by domestic air transport companies  

Medical, dental and veterinary services are exempt from VAT except those rendered by doctors (See. 109G of the Tax Code). Services rendered from employer-employee relationships are exempt from VAT (Sec. 109I of the Tax Code).

5. Farmers Products (FP) is a buyer and miller of agricultural products. During the first quarter, its transactions are recorded as follows: Purchase of Palay Purchase of Corn Milling of Palay of customers Milling corns of customers

Units 500,000 kg 200,000 kg 4,000,000 kg 3,000,000 kg

Cost/ Kg 15 8 2 2

FP milled its purchase for productions of rice and corn grits with an output of 80% and sold the products to various retailers for P 30 per kilo of palay and P 20 per kilo of corn grits. How much is the VAT payable of FP during the quarter? a. 1,680,000 c. 384,000 b. 1,440,000 d. 0  

Services by agricultural contract growers and milling for others of palay into rice, corn into grits, and sugar cane into raw sugar are exempt from VAT (Sec. 109F of the Tax Code). Likewise, purchases of agricultural products (e.g. palay and corn) in their original state and for human consumption are also exempt (Sec. 109A of the Tax Code).

6. Which of the following sale or importation of goods shall be exempt from VAT? a. Fertilizers b. seeds, seedlings, and fingerlings c. Fish, prawn, livestock, and poultry feeds, including ingredients, whether locally or imported, used in the manufacture of finished feeds d. Specialty feeds 

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 feeds for pets) are exempt from VAT (Sec. 109B of the Tax Code) 7. Which of the following transactions is exempt from value added tax? a. Sales by an art gallery of literary works, musical composition, work of art and similar creations, or devices performed for the production of such works. b. Medical, dental, hospital and veterinary professional services. c. sale of cotton and cotton seeds in their original state. d. Sales of books and any newspaper, magazine, review or bulletin, which appears at regular intervals with fixed prices for subscription and sale which is not devoted principally to the publication of paid advertisements.    

Letter (a) is not included in the list of VAT exemptions. Letter (b) pertains to the services of medical, dental, veterinary doctors, hence vatable. Letter (c) is vatable due to the presence of cotton. It is not in its original state, and it was already processed. Letter (d) is exempt. See Sec. 109 (R) of the Tax Code that provides sales, 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 advertisement;

8. Statement 1: Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. If the cooperative is not the producer (e.g. trader), then only those sales to its members shall be exempted from VAT. Statement 2: Sale or importation of agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer thereof. a. true, true c. false, false b. true, false d. false, true     

See Sec. 109 (L) of the Tax Code: The agricultural cooperative must be registered with CDA; Produce – sold to members or non-members are exempt; Not produce – sold to members is exempt; to non-members is vatable. Importation in relation to their agricultural produce is exempt, otherwise vatable. See Sec. 109 as a reference for statement 2.

9. Determine the business taxes of the following: Ans: C a. Leases of residential units with a monthly rental per unit not exceeding P 15,000 (regardless aggregate annual gross rentals) b. Leases of residential units with a monthly rental per unit exceeding P 15,000 but the aggregate of such rentals of during the year do not exceed P 3,000,000 c. Lease of commercial units regardless of monthly rental per unit, but the aggregate value of such rentals during the year exceed P 3,000,000. A B C D None None None VAT VAT OPT OPT VAT

VAT 

OPT

VAT

VAT

See Sec. 109 (P) of the Tax Code. It provides for the following rules: o Lease of residential lot not exceeding P 15,000 is not liable to VAT and OPT, regardless of the receipts for the taxable year. o Lease of residential lot exceeding P 15,000 is liable to either VAT or OPT depending on the receipts for the taxable year. o Lease of commercial unit regardless of the value of the lease is liable either VAT or OPT depending on the receipts for the taxable year.

10. In cases where a lessor has several residential units for lease, some are leased out for a monthly rental per unit not exceeding P 15,000 while others are leased out for more than P 15,000 per unit, his tax liability will be: a. The gross receipts from rentals not exceeding P 15,000 per month per unit shall be exempt from VAT regardless of the aggregate annual gross receipts. b. The gross receipts from rentals exceeding P 15,000 per month per unit shall be subject to VAT if the annual gross receipts from said units including the gross receipts from units leased out for not more than P 15,000 exceed P 3,000,000. c. Both statements are correct. d. Both statements are incorrect 

Still, under Sec. 109(P), a lessor who has several residential units for lease, some are leased out for a monthly rental per unit not exceeding P 15,000 while others are leased out for more than P 15,000 per unit, his tax liability will be: o Not exceeding P 15,000, exempt regardless of the receipts for the whole year. o Exceeding P 15,000, either VAT or OPT depending on the receipts for the whole year.

11. A real estate dealer sold 2 adjacent residential lots in the city for a price of P 1,000,000 each, or a total price of P 2,000,000 to a vendee who intends to erect his residential house thereon. The sale shall be classified as a: a. 12% VAT transactions b. 0% VAT transactions c. VAT exempt transactions d. None of the foregoing 

If two adjacent lots bought by the same buyer from the same seller, for purposes of VAT, the value of each lot shall be combined.

12. A subdivision developer sold five residential house and lots, each to different vendees, for P 3,000,000 per lot, or a total sale of P 15,000,000 for the taxable period. These sales shall be classified as: a. 12% VAT transactions b. 0% VAT transactions c. VAT exempt transactions d. None of the foregoing 

If two adjacent lots bought NOT by the same buyer from the same seller, for purposes of VAT, the value of each lot shall NOT be combined.

13. Camella Realty corporation sold the following real properties during the taxable year: 2 units of residential house and lot at P 3,000,000 each P6,000,000 4 residential lots at P 2,000,000 each 8,000,000 1 commercial lot at P 3,000,000 each 3,000,000 How much is the total transactions subject to VAT? a. P 6,000,000 c. P 11,000,000 b. P 8,000,000 d. P 17,000,000 Solution: 2 units Residential house and lot (3M each) 4 units Residential lots (2M each) 1 commercial lot (3M each) Total 

P 6,000,000 8,000,000 3,000,000 P 17,000,000

All exceeds the threshold value as provided by law for purposes of determining whether subject to VAT or not. o Residential lot – 1.5M o Residential house and lot – 2.5M

Exercises (Sales of Goods or Properties)

III. Multiple Choice 1. Which of the following transactions of a VAT – registered seller is NOT subject to VAT? a. b. c. d. 

Remaining inventory upon retirement from business Sales of company’s used car to its officers Sale of goods or services to the national government Sale of residential lot amounting to P 1,000,000

(d) VAT exempt because the value of the sale is less than P 1,500,000.

2. Gross selling price includes all of the following except one? Which one? a. Total amount which the purchaser pays to the seller b. Total amount which the purchaser is obligated to pay to the seller. c. Excise tax d. Value added tax 

VAT is an indirect tax, the one who pays it is the buyer, hence, the selling price is exclusive of VAT.

3. Which of the following is NOT deductible from Gross Selling Price for VAT purposes? a. Discounts determined and granted at the time of sale, which are expressly indicated in the invoice, the amount thereof forming part of the gross sales duly recorded in the books of accounts. b. Discounts determined and granted after the agreed sales quota is met by the buyer.

c. Sales discounts indicated in the invoice at the time of sale, the grant of which is not dependent upon the happening of a future event deductible within the same month or quarter given. d. Sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales. 

Discounts to be deducted shall not be subject to the happening of future events.

4. On January 5, 2018, Towel Co., VAT-registered person, sold on account goods for P 112,000. The term was: 2/10, n/30. Payment was made on January 10, 2018. The total amount due is: a. P 110,000 c. P 112,000 b. P 107,800 d. P 109,760 Solution: The taxpayer avails the cash discount. Discount shall be computed based on the gross selling price, that is exclusive of VAT. Thus, Sales, net of VAT (112,000/1.12) 100,000 Discount (100,000 x 2%) 2,000 Receivables 112,000 Less: Sales discount 2,000 Collection 110,000

5. Mr. Andres, VAT-registered real estate dealer, transferred a parcel of land held for sale to his son as gift on account of his graduation. For VAT purposes, the transfer is: a. Not subject to VAT because it is a gift b. Subject to VAT because it is deemed sale transaction c. Not subject to VAT because it is subject to gift tax d. Subject to VAT because it is considered as an actual sale 

See transactions deemed sales in PPT-VAT.

6. One of the following is not a transaction deemed sale: a. Transfer, use, or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business. b. Distribution or transfer to shareholders or investors of goods or properties as share in the profits of a VAT-registered person or creditors in payment of debt. c. Retirement from or cessation from business with respect to all goods on hand as of the date of such retirement or cessation. d. Consignment of goods if actual sale is made within 60 days following the date such goods were consigned. 

Consignment not sold beyond 60 days is a transaction deemed sales.

7. Genson Distribution Inc., a VAT taxpayer, had the following data in a month: Cash sales P 200,000 Open account sales 500,000 Consignment: 0 to 30 days old (on which there were remittances from consignees of P 200,000) 600,000

31 to 60 days old 61 days old and above

700,000 900,000

How much is the Output tax? a. P 348,000 b. P 216,000 Solution: Cash sales Open account sales Consignment (61 days old) Consignment (30 days) Total VAT (1,800,000 x 12%)

c. P 264,000 d. P 108,000

P 200,000 500,000 900,000 200,000 P 1,800,000 P 216,000

8. The following are the data of Davao Appliances Marketing Co., VAT registered person for the last quarter of 2018: Sales up to December 15, total invoice value P 380,800 Purchases up to December 15, net of input taxes 150,000 Additional information: On December 16, 2018, the company retired from its business and the inventory valued at P 190,000 remained unsold. There is deferred input tax from the third quarter of P 3,500 How much is the total value-added taxes payable by Davao Appliances Marketing Co.? a. P 42,100 c. P 22,800 b. P 21,500 d. P 19,300 Solution: Output tax on regular sales (380,000/1.12 x 12%) Output tax on transaction deemed sales (190,000 x 12%) Input tax on purchases (150,000 x 12%) Deferred input tax Vat payable

P 40,800 22,800 (18,000) (3,500) P 42,100

9. Evelyn, a trader of appliances, a VAT registered person made the following sales of goods during the month of March 2018, exclusive of VAT: Cash sales P 200,000 Open account sales 100,000 Installment sales 100,000 Note: Receipt from installment sales is P 20,000 Consignment made: (net of VAT) January 15, 2018 100,000 February 15, 2018 100,000 March 15, 2018 100,000 Output tax is: a. P 60,000 c. P 72,000

b. P 40,800

d. P 64,800

Solution: Output tax on cash sales (200,000 x 12%) Output tax on open account sales (100,000 x 12%) Output tax on Installment sales (100,000 x 12%) Output tax on consignment (100,000 x 12%) Total

P 24,000 12,000 12,000 12,000 P 60,000

10. Kaktus Realty Inc. developed a condominium in Manila. During the month of January 2018, it had the following data (VAT included, if applicable): Cash sale of a 3-bedroom unit P 5,040,000 Sale of parking lot 560,000 Installment sale of 2-bedroom unit (initial payment exceed 25% of the selling price) 3,920,000 The 3-bedroom unit sold for cash had a zonal value of P 5,000,000 and the 2-bedroom unit had a fair market value per tax declaration of P 3,000,000. How much is the output tax for the month? a. P 920,000 b. P 900,000 Solution: Cash sale of a 3-bedroom unit (5,000,000 x 12%) Sale of parking lot (560,000/1.12 x 12%) Installment sale (3,920,000/1.12 x 12%) Total output tax

c. P 1,020,000 d. P 1,080,000