Chapter 14 Percentage Taxes

Problem 14-1. True or False

Write True if the statement is correct, or False if it is incorrect.

1. Generally, percentage tax is 3% of net income.

2. Percentage tax is a transfer tax.
3. Percentage tax is a specific tax.
4. All business with gross sales or gross receipts of P1,919,500 and below is subject to 3% OPT.
5. A non- VAT business paying Output VAT is allowed to claim Input VAT.
6. The sales of a small sari-sari store are subject to business tax.
7. Owners of animal-drawn, two-wheeled vehicles are subject to a percentage tax of 3%.
8. The gross receipts of common carriers from transport of passengers by land and water are taxed at
3%.
9. International carriers of foreign registry are subject to 3% tax on its gross receipts within the
Philippines.
10. The gross receipts of water utilities franchise holder is subject to 3% business tax.
11. When radio/ television broadcasting companies opted to register as VAT, such VAT status is
irrevocable.
12. The 10% tax on overseas dispatch is a tax expense of the client communication user.
13. All collections of life insurance premium by a domestic insurance company are subject to 5% OPT.
14. Gross receipts from cabaret and nightclubs are subject to 18% gross receipts tax.
15. Boxing exhibition for world championship held within and outside the Philippines is subject to
Philippines business tax of 15%.

Problem 14-2. True or False

Write True if the statement is correct or False if it is incorrect.

1. A business is required to register under OPT if it is sales are P1,919,500 and below per year.
2. In the IPO of shares of stock, the primary and secondary offering is subject to IPO tax rate.
3. The most applicable method of determining the percentage tax of taxis and jeepneys would be the
actual gross receipts.
4. Follow through offering of shares of stock is subject to 3% stock transaction tax.
5. A VAT-registered radio/ television broadcasting company is required to pay percentage tax if its
annual total gross receipts do not exceed P10,000,000.
6. CNN is required to pay 10% percentage tax from messages originating from the Philippines by
telephone or telegraph.
7. The sale or barter of shares of stock through the local stock exchange is subject to a final tax if ½ of
1% based on the gross selling price or gross money value.
8. A life insurance premium refunded within 6 months is not subject to 5% percentage tax.
9. Gross receipts by all amusement places are subject to 10% percentage tax.
10. A professional basketball game is subject to a percentage tax of 15% on gross receipts within.
11. Cost of winning tickets is not deductible from horse race winnings.
12. The trading loss on trading securities in the previous year is deductible from the trading gains of the
current year.
13. The collections of bank receivables are subject to gross receipts tax of 5% if the maturity is within 5
years.
14. The OPT on amusement activities is a local tax.
15. Dividends from horse race winnings are subject to 10% OPT.

Problem 14-3. Multiple Choice

Encircle the letter that corresponds to the best answer.

1. The OPT on amusement activities is a

a. Local tax
b. National tax
c. Specific tax
d. Transfer tax

2. The gross receipts of a nonVAT service business is subject to OPT if the amount
a. Is P1,919,500 and below per year
b. Exceeds P1,919,500 per year
c. Is derived from contract grower’s services
d. Is derived from ecozone customers

3. Which of the following statement is not true about other percentage tax?
a. It is a business tax
b. It is a transfer tax
c. It is an advalorem tax
d. It is not a progressive tax

4. Which of the following is not subject to other percentage tax?

a. Gross sales of subsistence livelihood business
b. Transport of passengers through airplane
c. Gross receipts of amusement activities
d. Franchise of gas and water

5. A sale of goods to the government is subject to 3% OPT withholding and creditable withholding
income taxes of
a. 4% of goods sold
b. 3% of goods sold
c. 2% of goods sold
d. 1% of goods sold

6. Which of the following business is not subject to other percentage tax?

a. Carriers of passengers
b. Life insurance
c. Carriers of cargoes
d. Sale of shares of stock in the local stock exchange

7. The minimum quarterly gross receipts in computing the percentage tax of a domestic carriers and
keepers of garages engaged in taxi operation in a city is
 a. P3,600
b. P2,400
c. P1,800
d. P2,800

8. Which of the following overseas call is subject to percentage tax?

a. Transmitted by the A City Government of Baguio
b. Transmitted by Health Center Massage Clinic of Baguio
c. Transmitted by US embassy in the Philippines
d. Transmitted for dissemination of news item through public press

9. Which of the following franchise gross receipts is covered by the threshold amount of P1,919,500
per year?
a. Gas
b. Water
c. Radio and television broadcasting companies
d. All of the above

10. Which of the following is subject to 10% percentage tax?

a. Life insurance policy premiums collected by a resident foreign insurance company
b. Life insurance policy premiums collected by agent of resident foreign insurance company
c. Life insurance policy premiums collected by agent of nonresident foreign insurance company
d. Premium on insurance policy taken directly by the owner of the property insured

11. Which of the following statement is correct?

a. The “Gross Philippine Billing” includes total amount of gross revenue including non-continuous
and interrupted flight.
b. A VAT-registered radio and TV broadcasting company is subject to a percentage tax of 3% if its
total gross receipts during the year is P1,500,000 and below.
c. The gross receipts of the gas and water franchise are subject to a 3% percentage tax.
d. Overseas dispatch, message or conversation is subject to a percentage tax of 10%

12. Which of the following is not correct?

a. The percentage tax on stock transaction inside stock exchange is to be remitted within 5 banking
days from the date withheld by the broker
b. The percentage tax on winnings is to be remitted within 20 days from the date withheld
c. The percentage tax on overseas dispatch is to be remitted within 20 days from the date withheld
d. The percentage tax on IPO is to be remitted within 30 days from the date of listing in local stock
exchange

Problem 14-4. Multiple Choice (Theory)

Encircle the letter that corresponds to the best answer.

1. One of the following entities is subject to 10% OPT on long distance

a. National Power Corporation
b. Philippine Government
c. Consular offices of foreign government
 d. ABS-CBN news services

2. Which of the following items is exempt from percentage tax?

a. Businesses with annual gross sales of P100,000 and below
b. Overseas call made by the Philippine government
c. Overseas messages transmitted by any embassy and consular offices of the government
d. All of the above

3. Statement 1: An IPO sale of 33% of outstanding shares is subject to 2% OPT

Statement 2: In case of financial leasing, the taxable gross receipts exclude recovery of principal
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

4. The percentage tax rate on shares of stock traded in the stock exchange is
a. ½ of 1% of sales
b. 1 ½ % of capital gain from the transaction
c. 1% of sales which is more than 25% of the outstanding stocks issued
d. 2% of sales which is more than 25% but not more than 33 ⅓ % of the outstanding stocks issued

5. Which of the following gross receipts is not subject to business tax?

a. Transport of passengers by land using animal-drawn, two- wheeled vehicles
b. Transport of passengers by water using bancas
c. Compensation income of an individual taxpayer
d. All of the above

6. Admission fees to cockpits and race tracks are subject to tax on

a. Paid admission
b. Gross receipts
c. Winnings
d. Dividend

7. Which of the following OPT of amusements is correct?

Amusement activities OPT
a. Cabaret, night or day clubs 18%
b. Cockpits 15%
c. Boxing exhibition 12%
d. Professional basketball games 10%

8. One of the following franchises is not subject to other percentage tax?

a. Gas
b. Electricity utilities
c. Water
d. Radio and television broadcasting companies

9. Which of the following OPT on horse winning is not correct?

a. 10% on winnings after deducting the cost of winning ticket
 b. 4% on winning from double
c. 4% on winning from forcastiquinella
d. 2% on winning trifecta

10. Manglapus invested P500,000 in the shares of stock of Cayoto Company. Cayoto’s shares of stocks
are listed and traded in the local stock exchange. Manglapus sold the share for P600,000 through
the local stock exchange. How much is the amount of percentage tax?
a. None, because the sale was traded in the local stock exchange
b. ½ of 1% multiplied by the selling price of P600,000
c. ½ of 1% multiplied by the gain of P100,000
d. 5% multiplied by the gain of P100,000

11. Which of the following statement is not correct?

a. A follow through offering is conducted during the IPO
b. The primary offering of corporate own share is subject to IPO tax rate
c. The secondary offering of the investment shares of the existing shareholder during the IPO
d. IPO is the first-time public offering of the corporate own shares of stock

12. The percentage tax return is to be filed and paid within

a. 25 days from the date of transactions
b. 30 days from the date of transactions
c. 20 days after the end of each taxable month
d. 30 days after the close of each taxable quarter

Problem 14-5. Business Tax

Noba Dormitory has a total annual gross receipts of P2,000,000 from rent of rooms for residential
purposes. Its operating expenses during the year amounted to P500,000. If the rent payment per room
is P10,000, how much is the amount of business tax?
a. P240,000 b. P60,000 c. P45,000 d. P-0-

Problem 14-6. Business Tax

A non-VAT sole proprietorship variety store reported the following during the 1 st quarter of 200A:
beginning inventory- 100,000; purchases per VAT invoice- 896,000; increase in inventory- 196,000. If the
gross profit is 100% of cots, how much is the amount of business tax?
a. P59,760 b. P48,000 c. P42,000 d. P35,760

Problem 14-7. Total Amount Due

A percentage tax-registered business issued a sales invoice amounting to P403,200 inclusive of 12% VAT.
How much is the total amount due of business tax pertaining to this transaction?
a. P32,400 b. P54,000 c. P64,800 d. P75,600

Problem 14-8. Mini- Mart Business 2

Fiona Shrekm a mini-mart owner and a non-VAT person, provides the following data for the year 200A:
gross sales- 800,000; cost of sales- 600,000; merchandise inventory, end- 100,000; operating expenses-
100,000. The amount of other percentage tax payable is
a. P96,000 b. P64,000 c. P24,000 d. P6,000

Problem 14-9. Non-VAT Person

Tulo Laway Litson, a non-VAT person, shows the following during the taxable year: cost of sales-
1,330,000; net taxable income- 500,000. If the gross profit rate is 30%, how much is the amount of
business tax?
a. P57,000 b. P54,900 c. P46,900 d. P39,900

Problem 14-10. Other Percentage Tax

Baby and Lakay Partnership, a non-VAT business shows the following during the taxable year: Income
tax due- 180,000; Cost of sales- 800,000. How much is the amount of OPT if the partnership uses OSD?
a. P117,600 b. P54,000 c. P30,000 d. P29,400

Problem 14-11. OPT and VAT Threshold

Dok Ling sells “pasalubong” products along Banawa, Cebu City. His average monthly gross profit is
P35,000.

1. How much is his annual business tax if the gross profit is 25% of sales?
a. P4,800 b. P6,000 c. P50,400 d. P252,000

2. How much is his annual business tax if the gross profit is 25% of cost?
a. P4,800 b. P6,000 c. P50,400 d. P252,000

Problem 14-12. Cooperatives

Askal Cooperative is engaged in the buying and selling of fresh fruits, vegetables, eggs and dressed
chicken. Its total sales during the first quarter of 200A are provided as follows:

Sales of: Fruits- 1M; Vegetables- 1M; Eggs (fresh and salted)- 1M; Dressed chicken- 2M

The OPT of Askal in the first quarte of 200A is

a. P-0- b. P60,000 c. P90,000 d. P240,000

Problem 14-13. Farm Products

Uma Farms, a domestic corporation engaged in poultry farm activities, reported the following sales and
expenses during the year:
Sales Cost of Sales
Eggs P5,000,000 P3,000,000
Chickens 20,000,000 12,000,000

Operating expenses amounted to P2,000,000.

1. How much is the amount of business tax?
a. P3,000,000 b. P2,550,000 c. P300,000 d. P-0-
2. How much is the amount of lesser income tax due and payable allowed by law?
a. P2,400,000 b. P1,800,000 c. P1,500,000 d. P200,000

Problem 14-14 Sales to the Government

Marites Gentil is a non-VAT-registered person. She supplied the City of Tacurong with office equipments
on a cash basis. She was issued an P86,400 check as net proceeds of her delivery.

How much is the percentage tax withheld by the City Government of Tacurong?

a. P -0- c. P2,700
b. P 900 d. P3,600

Problem 14-15 Service income from the Government

Mang Panday repaired the government vehicle of Sarangani Province. How much would be the net
check amount to Mang Panday if his service fee amounts to P30,000?
a. P 28,200 c. P28,800
b. P 28,500 d. P29,100

Problem 14-16 Animal Drawn Vehicles

Mang Kepweng shows his transport transactions using primitive vehicles to transport people and
cargoes during the quarter:

Gross receipts:
5 Kalesa (horse drawn) P 150,000
6 Cariton (carabao drawn) 120,000
8 Bancas (man drawn) 80,000
Operating Expenses 50,000

How much is the total amount of national internal revenue tax that can be collected from Mang
Kepweng?
a. P -0- c. P42,000
b. P 10,500 d. P50,000

Problem 14-17 Domestic Carrier’s Tax

X operates a domestic carrier in Baguio City. His gross receipts from transport of passengers for the 1 st
quarter of 200A are as follows:
100 taxi units P 1,500,000
15 bus units with 60-seater capacity 100,000
Excess baggage gross receipts 50,000

The amount of business tax due is

a. P 198,000 c. P54,000
 b. P 54,240 d. P49,500

Problem 14-18 Common Carrier’s Tax

Lulubong-Lilitaw is a common carrier by sea. During the 1 st quarter its gross receipts consist of the
following:

Transport of passenger P1,000,000

Transport of goods and cargo 6,000,000

How much is the amount of total business tax?

a. P210,000 c. P750,000
b. P300,000 d. P840,000

Problem 14-19 Common Carrier’s Tax

Lerap Carrier, a common carrier by land, provides the following average gross annual receipts:

Transport of passengers P10,000,000

Transport of cargoes 6,000,000
Sale of goods during travels 1,000,000

How much is the estimated average business tax per quarter?

a. P285,000 c. P200,000
b. P250,000 d. P150,000

Problem 14-20 International Carrier

British Airways, an international airline company with foreign registry, reported a monthly gross receipts
of P10,000,000 from the Philippines to a Great Britain operation. Its average monthly operating
expenses amounts to P6,000,000. How much is the monthly percentage tax payable of British Airways?
a. P 1,000,000 c. P300,000
b. P 400,000 d. P 12,000

Problem 14-21 International Carrier

PAL reported its gross receipts from tickets sold during the taxable quarter. Its international flights’
points of origin and destination are

Manila to USA P 1,000,000

USA to Manila 1,200,000
Manila to China 1,400,000
China to USA 1,600,000

1. If PAL is an international carrier of Philippine registry, how much is the Philippin business tax?
a. P 288,000 c. P72,000
b. P 108,000 d. P -0-

2. If PAL is an international carrier of foreign registry, how much is the Philippine business tax?
a. P 156,000 c. P72,000
b. P 108,000 d. P -0-

Problem 14-55. Sale of Shares of Stock

Gigi Naven sold her P1,000,000 shares of holdings in the Minex Corporation on August 15, 200A. She
received P497,000 from Caltas, a stock broker, as proceeds of sale at P0.50 per share, net of withholding
tax on corresponding percentage tax.

Required:

1. Compute for the amount of percentage tax to be remitted by Caltas stock broker.
2. When should be the last day of remittance without penalty?

Problem 14-56. Gross Receipts Tax

BA Baguio bank has the following income for the first quarter:

Rent income P30,000

Royalty income 20,000
Dividend income from a domestic corporation 80,000
Interest income:
From 5 years loan 50,000
From 2 years loan 20,000
From 1 year loan 10,000

Required: Compute for the total percentage tax for the quarter.

Problem 14-57. Gross Receipts Tax

Achay executed a long- term loan on January 5, 2013 from Bank Co in the amount of P10,000,000
payable within ten (10) years with the first installment due on or before January 5, 2013
Assume that on January 5, 2018, the loan was pre- terminated and that the interest paid and other fees
received from year 2013 up to year 2018 amounting to P200,000 annually were received and declared
by Bank Co correctly and the applicable gross receipts taxes were adjusted and paid accordingly.

Required: Compute for the following:

1. Gross receipts tax paid

2. Gross receipts tax still due and payable

Problem 14-58. Comprehensive Problem

Robin More-arte had the following data on revenues and receivables:

Receivables
Operations: Revenues Beginning Ending
Franchise operation P3,000,000 P400,000 P100,000
Non-franchise operation 1,800,000 120,000

Required: Compute the total business taxes assuming that More-arte is engaged in:

1. Local telephone services

2. Water distribution services
3. Producing and selling fast-food products

Problem 14-59. Comprehensive Problem

The following data are shown in the books of account of Dimalugi Service Enterprises:

Collections Current Previous

Revenues P 500,000 P300,000
Accounts receivable 300,000 100,000
Advances 200,000
Bad debts recovery (previously
written-off) 10,000 20,000
Claims from insurance 20,000 5,000
Proceeds of life insurance 1,000,000
The accounts receivable collected during the current period represents the revenue of the previous
period.

Required: Compute the total business taxes for the current and the previous period assuming that
Dimalugi is engaged in:

1. Common carrier of passengers

2. Race track
3. Boxing exhibitions
4. Water utilities
5. Life insurance
6. Life insurance as agent of foreign insurance companies
7. Overseas communication dispatch from the Philippines