Chapter 3 - Lecture notes 3 PDF

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CHAPTER True or False – Part 1 False 1. Once employed, one cannot be considered engaged in business. False 2. All sales by a businessman are considered made in the course of business. True 3. A business involves habitual engagement in a commercial activity. True 4. “Commercial activity” means provis...

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CHAPTER 3

True or False – Part 1 False 1. Once employed, one cannot be considered engaged in business. False 2. All sales by a businessman are considered made in the course of business. True 3. A business involves habitual engagement in a commercial activity. True 4. “Commercial activity” means provision of goods or services to the public for a profit. False 5. To be construed as being engaged in business, one must be employed. True 6. A self-employed individual is engaged in business. True 7. An employee is not engaged in business. False 8. All casual sales of properties are considered not made in the course of the business. True 9. The sale of ordinary assets by a business is considered made in the course of business. False 10. The sale of capital assets by a business is also considered made in the course of business being incidental to business operations. False 11. A business which is not registered is exempt from business taxes. True 12. Government agencies and instrumentalities and non-profit organizations or associations may be considered as businesses on their unrelated operations; hence, these are subject to business tax. False 13. The absence of profit motive may preclude an activity from being considered as business. False 14. Government agencies and instrumentalities and non-profit organizations or associations are generally considered as businesses. False 15. A company director is considered to be engaged in business. True or False – Part 2 False False True False

1. 2. 3. 4.

True False True True False

5. 6. 7. 8. 9.

True

10.

False

11.

False False

12. 13.

True

14.

True True

15. 16.

False

17.

Marginal income earners are exempt from both business tax and income tax. An employed professional is engaged in business. Self-employed professionals rendering services to clients are engaged in business. Agents and brokers are considered as employees; hence, they are not considered engaged in business. Consultants and movie artists are considered engaged in business. Businesses for mere subsistence are not considered business because they are non-profit. Businesses for mere subsistence have gross receipts not exceeding P100,000 per year. The owner of a business for mere subsistence is called a marginal income earner. A professional, consultant, or artist can qualify as a marginal income earner as long as his receipts do not exceed P100,000 in any 12-month period. A sale made by a non-resident is presumed to be made in the course of business despite irregularity of sales transactions. A non-profit organization is subject to business tax on all of its receipts if it engages in activities subject to business tax. Exemption from income tax means exemption from business tax. A non-profit organization will be exempt from business tax if it uses the income generated from activities subject to business tax for non-profit purposes. An individual, trust, estate, partnership, corporation, joint venture, cooperative or association will pay business tax. Only sales outlets are required to pay the annual registration fee. The Certificate of Registration shall be exhibited in a conspicuous place in the principal place of business. The husband and the wife are taxable as a single person; hence, they pay under a

True False False

consolidated business tax return. Note: Spouses are separate business taxpayers. 18. Businesses are required to register in the revenue district office (RDO) which has jurisdiction over their principal place of business. 19. Businesses pay an annual registration fees of P1,000. 20. Every distinct establishment with or without sales operation shall pay the annual registration fee.

True or False – Part 3 True 1. The term “goods or properties” includes real properties held primarily for sale, lease or use in the ordinary course of business. True 2. The term “goods or properties” includes the right or privilege to use patent, copyright, design, secret formula, trademark and other property or right. True 3. Businesses are classified as sellers of goods or sellers of services or purposes of business taxes. False 4. Sellers of goods are taxable on gross receipts while sellers of services are taxable on gross selling price. False 5. The sale of radio, television, satellite transmission and cable television time is a sale of service not a sale of goods or properties. False 6. Real estate brokerage is considered a sale of goods or properties rather than sale of services. Note: Brokers are sellers of services. False 7. A contractor is a seller of goods or property not a seller of services. True 8. Leasing or distribution of cinematographic films is a sale of service. False 9. Dealers in securities and lending investors are sellers of goods rather than sellers of services. False 10. The sale of electricity by generation, transmission and distribution companies is considered sale of goods or properties. Note: Sales of service. True 11. The term gross selling price excludes taxes on the sale. True 12. Excise tax is part of the gross selling price. True 13. Sales returns and allowances are deductible against gross selling price. True 14. Gross selling price includes cash, accounts and installment sales. True 15. Constructive receipts are part of gross receipts. True 16. Constructive receipts are monies which are placed in the control of the seller of services without restrictions. True 17. Only discounts determinable at the point of sale are deductible against gross selling price. True 18. The term “gross receipts” includes client or customer advances for unperformed jobs. True 19. Gross receipts include only cash received and excludes uncollected income. False 20. Promissory notes and other evidences of indebtedness submitted by clients or customers are part of gross receipts. Note: As a rule, except to life insurers.

True or False – Part 4 False 1. Non-VAT taxpayers pay their quarterly tax in three monthly payments.

False True True True True True False True True True False

False True True

2. Loans or agency monies received by the business are part of gross receipts. 3. Receipts that do not redound to the benefit of the taxpayer are not included in gross receipts. 4. There are three types of business taxes: VAT, percentage tax and excise tax. 5. There two types of business taxpayers: VAT and non-VAT taxpayers. 6. Normally, VAT and percentage tax are mutually exclusive. 7. Excise tax is an addition to either VAT or percentage tax for businesses manufacturing or importing excisable articles. 8. The accounting period for business tax is called the taxable year. Note: Taxable quarter. 9. VAT taxpayers pay their quarterly tax in two monthly and one quarterly payment. 10. The taxable quarters of an individual are patterned after that of the calendar quarter. 11. The taxable quarters of a corporation adopting a fiscal year for income tax purposes shall be synchronized with its fiscal year. 12. Corporations pay quarterly VAT while individuals pay VAT annually. Note: All VAT taxpayers whether individuals or corporations files monthly and quarterly VAT returns. 13. VAT taxpayers use BIR Form 2551 while non-VAT taxpayers use BIR Form 2550. Note: It is the other way around. 14. A few percentage taxpayers are required to pay their tax quarterly while most pay their taxes monthly. 15. Exempt sales will not be subject to VAT or percentage tax.

True or False – Part 5 False 1. Services specifically subject to percentage tax are subject to VAT if not subjected to percentage tax. Note: Always subject to percentage tax. True 2. Sales from goods or services, other than exempt sales and services subject to percentage tax, are vatable. False 3. The term “vatable sales” means sales automatically subject to VAT. False 4. All services specifically subject to percentage tax are taxed at a rate of 3%. Note: Rates vary from ½ of 1% to 30%. False 5. All taxpayers with vatable sales or receipts in the past 12-mpnths aggregating P1,919,500 from whatever type of sales are subject to VAT. Note: Not all, except those who derives only exempt sales or receipts from services specifically subject to percentage tax. False 6. A person who wishes to register as a VAT taxpayer despite not meeting the VAT threshold is called a “registrable person.” False 7. The VAT payable is computed as output VAT less 3% percentage tax. False 8. If the aggregate sales or receipts from all sources (exempt, specifically subject to percentage tax, and others) exceed P3,000,000, the person is subject to VAT. False 9. Franchise grantees of radio or television broadcasting companies which exceeded P1,000,000 in annual sales must register as VAT taxpayer. False 10. Persons who optionally register as VAT taxpayers can cancel their VAT registration within three years. True 11. Franchise grantees of television or radio broadcasting companies cannot cancel their VAT

False

registration. 12. Registrable persons shall be subject to VAT. They shall pay VAT with the benefit of an input VAT credit plus the percentage tax.

Multiple Choice – Theory: Part 1 1. Which of the following entities below is not considered as a business? a. A sari-sari store with P500,000 annual sales b. A news stand with sales exceeding P100,000 c. A cigarette vendor with sales not exceeding P100,000 d. An employed professional earning part-time self-employment income not exceeding P100,000 2. Which of the following is not considered as engaged in business? a. A purely self-employed individual b. A self-employed and employed individual c. A purely employed individual d. A and B 3. Which of the following is not subject to business tax even if made by a registered business? a. Sale of goods b. Sale of services c. Sale of properties considered as ordinary assets d. Sale of properties considered as capital assets 4. Which is not engaged in business? a. A corporate director b. A broker c. An agent d. A security dealer 5. Which of these is least likely to be subjected to business tax? a. Sale of stocks held as inventory b. Sale of bonds held as inventory c. Sale of stocks held as investment d. None of these

6. Which is considered engaged in business even if not regularly engaged in trade? a. A non-resident seller who exports to the Philippines b. An importer who imports goods into the Philippines c. A seller who makes a one-time sale of real property d. Any seller who sells goods or services at a price above P100,000 during the year 7. Which of the following are considered engaged in business? A. Government agencies B. Non-profit organization C. Sales agents D. Consultants

a. b. c. d.

A and B C and D B and C None of these

8. Which of these is always presumed to be made in the course of business; hence, it is subject to business tax under the regulations? a. Export sales b. Importation c. Domestic sales d. All of these 9. The business tax on exempt sales is a. VAT b. Percentage tax c. A or B d. None of these 10. The consumption tax on importation is a. VAT b. Percentage tax c. A or B d. None of these 11. The consumption tax on domestic sales is a. VAT b. Percentage tax c. A or B d. None of these

12. The business tax on services specifically subject to percentage tax is a. VAT b. Percentage tax c. A or B d. None of these 13. Which is more likely to qualify as a marginal income earner? a. Artist b. Consultant c. Sales agent d. Operator of a single unit tricycle 14. Statement 1: Sellers of goods are subject to percentage tax. Statement 2: Sellers of services are subjected to VAT. Which statement is correct? a. Statement 1 b. Statement 2 c. Both statements d. Neither statement 15. Statement 1: Both the husband and the wife are subject to either VAT or percentage tax. Statement 2: The husband may pay VAT while the wife may pay percentage tax. Which statement is false? a. Both statements b. Neither statement c. Statement 1 only d. Statement 2 only 16. Statement 1: An employed taxpayer will pay an annual registration fee. Statement 2: A self-employed taxpayer will pay an annual registration fee. Which statement is correct? a. Statement 1 b. Statement 2 c. Both statements d. Neither statement 17. The term “gross selling price” excludes a. The contract price of the goods sold b. Discounts which are contingent upon future events c. Delivery charges d. Sales returns and allowances

18. The term “gross receipts” excludes a. Reimbursements for customer expenses paid by the service provider b. Reimbursements for out-of-pocket expenses incurred by the service provider c. Advances made by the client for services yet to be rendered d. Cash collections for services rendered 19. Which is not a constructive receipt? a. Bank deposits made available to the service provider without restriction b. Transfer of amounts retained by the payor to the account of the contractor-service provider c. Judicial consignation by the payor of the contract price which the service provider wishes to donate to the payor d. Collection of revenue for past services rendered 20. Which is part of gross receipts? a. Amounts received which will be remitted to other persons b. Receipt of notice from a debtor to offset the consideration of the service for the debt of the service provider c. Receipt from bank loans d. Receipt from issuance of stocks or issuance of certificates of indebtedness

Multiple Choice – Theory: Part 2 1. A non-VAT registered service provider shall pay a. 3% percentage tax on its gross receipts b. 12% VAT on its value added c. 12% VAT on its export sales or receipts d. 3% percentage tax on its export sales 2. Which must be present to construe the existence of a business? a. Regularity of transaction b. Offering of services or goods to the public for a profit c. Actual presence of profit during the period d. Both A and B 3. A person who made a one-time or casual sale of properties is a. Exempt from business tax. b. Subject to percentage tax. c. Subject to value added tax. d. Subject to either percentage tax or value added tax.

4. A VAT-registered persons hall pay a. 3% percentage tax and VAT b. 12% VAT on its sales or receipts c. 12% VAT on its value added d. 12% VAT on its export sales 5. Who are subject to VAT? a. Those who optionally register as VAT taxpayers. b. Those who are mandatorily required to register as VAT taxpayers. c. Those who are registrable to VAT. d. Any of these. 6. Who are not required to register to the VAT system? a. Those who are below the VAT threshold b. Those whose only sales are exempt sales c. Those who only derive receipts from services specifically subject to percentage tax d. Any of these 7. A non-VAT registered seller of goods shall pay a. 3% percentage tax on its gross receipts b. 12% percentage tax on its value added c. 3% percentage tax on its sales d. 3% percentage tax on gross receipts 8. A VAT-registered seller of goods shall be subject to a. 12% output VAT on sales b. 12% output VAT on gross receipts c. 3% percentage tax on sales d. 3% percentage tax on gross receipts 9. Who is entitled to claim (deduct) input VAT against output VAT? a. VAT registered persons only b. VAT registrable persons only c. Non-VAT registered persons d. All of these 10. Who pays percentage tax? a. Those who exceed the VAT threshold and opt to be register as non-VAT b. Those who did not exceed the VAT threshold but are registered as VAT taxpayers c. Only those service providers specifically subject to percentage tax d. Those providers of services specifically subject to percentage tax and those whose sales or receipts in any 12-month period are below the VAT threshold.

11. When the receipts from services specifically subject to percentage tax exceeds the VAT threshold, future receipts from these services are a. exempt from percentage tax. b. still subject to the same percentage tax. c. subject to VAT. d. subject to 3% percentage tax. 12. A VAT-registered person who did not exceed the VAT threshold will pay a. VAT b. Percentage tax c. Both A and B d. Either A or B at his discretion 13. Once the vatable sales or receipts exceed the VAT threshold, future monthly sales from vatable sales or receipts shall be subject to a. 3% percentage tax. b. Percentage taxes of various rates. c. 12% VAT d. 0% VAT. 14. A marginal income earner shall pay a. 3% percentage tax. b. 12% VAT. c. Either A or B d. Neither A or B 15. The export sales of VAT-registered taxpayers are a. Subject to zero-rated VAT. b. Exempt from business tax. c. Subject to 12% VAT. d. Subject to 3% percentage tax. 16. The export sale of non-VAT registered taxpayers are a. Subject to zero-rated VAT. b. Exempt from business tax. c. Subject to 12% VAT. d. Subject to 3% percentage tax.

17. A non-VAT person with exempt sales exceeding the VAT threshold is still a. Exempt from business tax on exempt sales b. Exempt from VAT on all its sales c. Exempt from percentage tax on all sales d. A and B 18. A VAT-registered person who exceeded the VAT threshold will pay a. VAT b. Percentage tax c. Both A and B d. Either A or B at his discretion 19. A non-VAT registered person who exceeds the VAT threshold shall pay a. VAT b. Percentage tax c. Both A and B d. Either A or B at his discretion 20. A non-VAT registered person who did not exceed the VAT threshold shall pay a. VAT b. 3% percentage tax c. Percentage tax at various rates d. Either A or B at his discretion 21. What is the general VAT threshold? a. P1,919,800 b. P1,919,500 c. P3,000,000 d. P10,000,000 22. Which is a special VAT threshold? a. P1,919,800 b. P1,919,500 c. P3,000,000 d. P10,000,000 23. The mandatory or voluntary registration as VAT taxpayers under the special threshold is a. revocable anytime. b. revocable after the lapse of three years. c. revocable within a year. d. perpetually irrevocable.

24. Mandatory or voluntary registration as a VAT taxpayer under the general threshold is a. revocable anytime. b. revocable after the lapse of three years. c. revocable within a year. d. perpetually irrevocable. 25. The VAT registration upon commencement of operation based upon expectation of exceeding the VAT threshold shall be a. revocable anytime. b. revocable after the lapse of three years. c. revocable within a year if sales do not actually exceed the VAT threshold. d. perpetually irrevocable.

Multiple Choice – Problems 1 1. Mrs. Belle, self-employed, generated the following receipts during the year: Proceeds of health insurance 300,000 Receipts from business advisory services 250,000 Receipts of rentals from boarding house 100,000 What is the total amount subject to business tax? a. P150,000 b. P250,000 c. P350,000 d. P650,000 2. A person engaged in business sold the following properties: Sales of goods held for sale Sale of personal residence Sale of personal car

200,000 2,000,000 500,000

Compute the sales in the course of business subject to business tax. a. P0 b. P200,000 c. P2,200,000 d. P2,700,000

3. Mr. Julio, employed, received the following from his employer: Proceeds of property insurance Proceeds of bank loan Compensation income

200,000 300,000 500,000

What is the amount subject to business tax? a. P0 b. P200,000 c. P300,000 d. P500,000 4. Mr. Jun Kim, a security broker, effected the sales of several securities of Kim Jong-un. The following relates to the sale: Sales Commission Sale of stocks 120,000 1,200 Sale of bonds 280,000 2,800 Total 400,000 4,000 Compute the amount of receipts or sales of Mr. Jun Kim subject to business tax. a. P0 b. P4,000 c. P400,000 d. P404,000 Note: The sale do not pertain to the broker because the securities sold are not his inventories 5. Assuming Kim Jong-un is an investor in stocks, what is the amount subject to business tax? a. P0 b. P4,000 c. P400,000 d. P404,000 Note: An investor is not subject to a business tax. Only dealer of securities (those engaged in buyand-sell of securities) are subject to business tax.

6. Mr. Masipag had annual gross receipts not exceeding P100,...