TAX-402 - Lecture notes 123412 PDF

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCYCPA Review Batch 41  May 2021 CPA Licensure Examination  Week No. 5TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. BuenPage 1 of 6 0915-2303213  resacpareviewTAX- 40 2: PERCENTAGE TAX (PART TWO)a. Sec. 123 – Tax on Life Insurance Premiums 1) Persons ...

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY CPA Review Batch 41  May 2021 CPA Licensure Examination  Week No. 5

TAXATION

A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-402: PERCENTAGE TAX (PART TWO) a. Sec. 123 – Tax on Life Insurance Premiums 1) Persons subject to tax Person, company or corporation (except purely cooperative companies or associations) doing life insurance business of any sort in the Philippines. 2) Tax base Total premiums collected, whether such premiums are paid in money, notes, credits or any substitute for money. 3) Tax rate 2% (per Sec. 1, R.A. No. 10001) (used to be 5%) 4) Other items subject to the premium tax (RMC No. 49-2010)

5) Items earned by life insurance company subject to VAT or percentage tax as the case may be (RMC No. 49-2010) 6) Investment income realized from the investment of premiums earned 7) Persons subject to VAT

a) Premium on Health and Accident Insurance, whether received by a life or non-life insurance company b) Re-issuance fees, reinstatement fees, renewal fees as well as penalties paid to the life insurance company which are incidental to or in connection with the insurance policy contracts issued c) Investment income realized from the investment of funds obtained from others allowed and approved by the Insurance Commission a) Insurance and reinsurance commissions, whether life or non-life b) Management fees c) Rental income d) Other income earned which can be pursued independently of the insurance business activities The interest income earned by the life insurance companies from investing the premiums received in marketable securities, bonds and other financial instruments is considered exempt from further imposition of business tax since the premiums which have been the source of the funds invested had already been subject to the premium tax (RMC No. 49-2010). 1) Non-life insurance companies (except their crop insurance) including surety, fidelity, indemnity and bonding companies; 2) Pre-need companies; 3) Health Maintenance Organizations (HMOs).

8) Determine which business taxes will the following be subject to a) Premium on Health and Accident Insurance received by a life insurance company b) Premium on Health and Accident Insurance received by a non-life insurance company c) Insurance and reinsurance commissions received by a life insurance company, not VAT registered, annual gross receipts do not exceed P3,000,000 d) Insurance and reinsurance commissions received by a non-life insurance company, VAT registered, annual gross receipts do not exceed P3,000,000 e) Insurance and reinsurance commissions received by a life insurance company, not VAT registered, annual gross receipts exceed P3,000,000 f) Interest income earned by the life insurance companies from investing the premiums received in marketable securities, bonds and other financial instruments g) Non-life insurance premiums received by a non-life insurance company, VAT-registered, gross receipts do not exceed P3,000,000 h) Non-life insurance premiums received by a non-life insurance company, not VAT-registered, gross receipts exceed P3,000,000 i) Non-life insurance premiums received by a non-life insurance company, not VAT-registered, gross receipts do not exceed P3,000,000 j) Health and accident insurance premiums received by a life insurance company, gross receipts exceed P3,000,000 k) Health and accident insurance premiums received by a non-life insurance company, gross receipts exceed P3,000,000 l)

The Nativity Insurance Co., with life and non-life insurance business, had the following data on premiums and expenses for a quarter: Life insurance business, on premiums: Cash received P520,000 Accounts receivable 365,000 315,000 Post-dated checks Non-life insurance business, on premiums: Cash received, excluding VAT of P96,000 800,000 Accounts receivable 342,000 Payments on operational expenses, including rentals, all to VAT registered persons 672,000 Question 1 – How much is the percentage tax payable? Question 2 – How much is the value-added tax payable, if VAT registered?

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY

TAX-402

Week No. 5: PERCENTAGE TAX b. Sec. 124 – Tax on Agents of Foreign Insurance Companies 1) Persons subject to tax Every fire, marine or miscellaneous insurance agent authorized under the Insurance Code to procure policies of insurance on risks located in the Philippines. 2) Tax base Total premiums collected 3) Tax rate 4% 4) Direct insurance with In all cases where owners of property obtain insurance directly with foreign insurance foreign companies, they shall pay the tax of 5% on premiums paid. companies

c. Sec. 125 – Amusement Taxes 1) Persons subject to tax Proprietor, operator or lessee of: 1) cockpits; 4) Professional basketball games; 2) cabarets, night and day clubs; 5) Jai-alai and race tracks. 3) boxing exhibitions; 2) Tax base and tax rates TAX BASE TAX RATE Jai-alai and race tracks Gross receipts 30% Cockpits Gross receipts 18% Cabarets, night and day clubs Gross receipts 18% Professional basketball Gross receipts 15% games Boxing exhibitions Gross receipts 10%

3) Payment of tax

4) Exempt boxing exhibition

5) 15% tax on professional basketball games in lieu of all other percentage taxes 6) 30% tax and other taxes imposed even if no amount is charged for admission 7) Meaning of gross receipts

Note: The term “cabarets, night and day clubs” includes videoke bars, karaoke bars, karaoke televisions, karaoke boxes and music lounge. (RMC No. 18-2010) It shall be the duty of the proprietor, lessee or operator concerned, as well as any party liable, within twenty (20) days after the end of each quarter to make a true and complete return of the amount of gross receipts derived during the preceding quarter and pay the tax due thereon. Boxing exhibitions wherein World or Oriental Championships in any division is at stake shall be exempt from amusement tax provided tha t at least one of the contenders is a citizen of Philippines, and said exhibitions are promoted by citizen/s of the Philippines or by a corporation or association at least 60% of the capital is owned by such citizens. The 15% tax on professional basketball games shall be in lieu of all other percentage taxes of whatever nature and description.

The 30% tax in the case of Jai-Alai and racetracks of their gross receipts is irrespective of whether or not any amount is charged for admission

For the purpose of 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 right, if any.

8) Exercise a. Ms. N is a caterer and a videoke bar operator. In a taxable period, she had the following data, tax not included: Sales: From operations of the Truluv Catering Service: Cash sales P400,000 250,000 Accounts receivable (catering) 243,000 Credit card sales From operations of the Dude Videoke Bar: Cash sales 1,360,000 Credit card sales 624,200 Payments for catering service, based on gross receipts (80% of which are to 60% VAT taxpayers) Question 1 – How much is the amusement tax payable? b. The following data Gross receipts, Gross receipts, Gross receipts,

are presented to you: (Answers are provided below) sale of tickets sale of food and drinks inside the amusement place sale of souvenir items inside the amusement place

P 500,000 1,000,000 300,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY

TAX-402

Week No. 5: PERCENTAGE TAX

Compute the amusement tax assuming the amusement place is a: 1) Race track. 2) Cockpit. 3) Videoke bar. 4) Venue where professional basketball games are held. 5) Venue where boxing exhibitions featuring Philippine championship. 6) Venue where world boxing championship is held involving a Filipino boxer and promoted by a domestic corporation.

d. Sec. 126 - Tax on Winnings 1) Persons subject to 1) Every person who wins in horse races; tax 2) Winning from double, forecast/quinella and trifecta bets; 3) Owners of winning race horses 2) Tax base and tax Tax base Tax rate rates Amount paid for every winning 10% (person who wins in horse ticket less cost of the tickets races) Amount paid for every winning 4% (double, forecast/quinella and ticket trifecta bets) less cost of the tickets Prize 10% (owners of winning race horses) 3) Definition of terms 1) Daily double or extra double is an event wherein the bettor selects a number in each of two consecutive races and the selection in each race must finish first. 2) Forecast is an event wherein the bettor selects two (2) numbers in a selected race, and the selection must finish first and second in the correct order. 3) Double quinella is an event wherein the bettor selects two (2) numbers in each of the two (2) selected races, and the selection in each race must finish first and second in either order. 4) Trifecta is an event wherein the bettor selects three (3) numbers in a selected race and the selection must finish first, second and third in the correct order. 4) Collection of tax 1) Tax on winnings shall be deducted from the “dividends” corresponding to each winning ticket or the “prize” of each winning racehorse. 2) Tax on winnings shall be withheld by the operator, manager or person in charge of the horse races before paying the dividends or prizes. 5) Remittance of tax The operator, manager or person in charge of horse races shall remit the taxes to BIR to the BIR within 20 days from the date the tax was deducted and withheld.

e. Sec. 127 (A) - Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded Through the Local Stock Exchange. 1) Persons subject to tax Seller or transferor of shares of stock 2) Person not subject to Dealer in securities tax 3) Tax base Gross selling price or gross value in money 4) Tax rate 6/10 of 1% (.006) effective January 1, 2018 (used to be 1/2 of 1%) 5) Collection of tax It shall be the duty of every stock broker who effected the sale to collect the tax. 6) Remittance of tax The tax collected shall be remitted within 5 banking days from the date of collected collection. 7) Not deductible for The tax on sale, etc. of shares of stock listed and traded through the local income tax purposes stock exchange shall not be deductible for income tax purposes 8) Gain derived from sale, Any gain derived from the sale, barter, exchange or other disposition of barter, exchange or shares of stock under Sec. 127 shall be exempt from capital gains tax and other disposition of from the regular individual or corporate income tax. shares stock of under Sec. 127 9) Exercise: Pink Yummy has shares of stock of Manila Trading Corp valued at P500,000 which are held as investment. She sold them for P300,000. REQ: a. How much is the percentage tax on the sale of the shares listed and traded in the local stock exchange assuming the sale is on January 5, 2018? b. How much is the capital gains tax assuming the shares are sold January 5, 2018 directly to a buyer and not through the stock exchange? c. How much is the value-added tax assuming the shares are held as inventory and Pink Yummy is a VATregistered dealer in securities?

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