VAT and Taxation Rules for Services

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 78
SUGGESTED ANSWERS
Chapter 11: VAT ON SALE OF SERVICES

CHAPTER 11
VALUE-ADDED TAX

Problem 111
1. False Not all because there are services that are rendered in the Philippines yet subject to
zero-rated or VAT-exempt.
2. True
3. False services performed outside the Philippines even if undertaken in the course
of business are beyond the scope of 12% VAT.
4. False in service, receivable is not subject to VAT.
5. True
6. True
7. False the consent of the depositor-buyer restricts the withdrawal; therefore there is no
constructive receipt.
8. True
9. True
10. True
11. False only those with gross receipts of more than P1,919,500 or those VAT-registered
professionals are subject to VAT.
12. True
13. True
14. False the registration is non-VAT subject to OPT, except if the gross receipts
exceeds P1,919,500 during the taxable year.
15. True

Problem 112
1. True
2. False receivables are not part of gross receipts.
3. True
4. False transport of passengers by land is subject to 3% OPT.
5. True
6. True
7. False provisional receipt does not constitute a VAT-invoice or receipt.
8. True
9. False amount of insurance premium paid.
10. False it is the obligation of the payor to pay and withhold the VAT.
11. False Subject to VAT only if VAT-registered or if non-VAT, the total gross receipts should
exceed P1,919,500.
12. False In addition, the total aggregate collection during the year must exceed P1,919,500.
13. True
14. False publications devoted primarily for advertisements are subject to VAT.
15. True

Problem 113
1. False subject to effectively zero-rated VAT.
2. True
3. False VAT-exempt.
4. True
5. True because the review classes are duly accredited with CHED.
6. True
7. False not subject to VAT, except when confiscated.
8. True
9. True
10. True

SUGGESTED ANSWERS
11. False granted only to persons or entities as provided by special laws and international
agreements.
12. True
13. False the performance of service must be within the PEZA boundaries to be entitled to
a zero-rated VAT.
14. False zero-rated VAT.
15. True

Problem 114
1. False subject to VAT only if the professional is VAT-registered or the annual professional
fees received exceeded P1919,500.
2. False subject to final tax of 20%.
3. True
4. True
5. True
6. True
7. True
8. False a tip is a compensation income; hence not subject to VAT.
9. False subject to 5% OPT.
10. True
11. True
12. True
13. True
14. True
15. False still in original state.

Problem 115 Problem 116
1. D 1. A
2. C 2. D
3. B 3. A
4. A 4. C
5. A 5. B
6. D 6. C
7. A 7. C
8. C 8. D
9. D 9. B
10. B 10. C
Problem 11 7 A
Zero. All items of income are not subject to 12% VAT.

Problem 11 8
1. Letter C
Gross receipts outside the Philippines zero-rated VAT P800,000
2. Letter A
Output VAT (P1,000,000 x 12%) P120,000
Less: Input VAT to service costs (P40,000 + P30,000) P 70,000
Input VAT from supplies (P22,400 + P30,800)/9.333 5,700 75,700
Net VAT payable P 44,300
Problem 11 9 B
Collections from contracts with:
Government (P50,000,000 x 20%) P10,000,000
Goshen Land (P30,000,000 x 40%) 12,000,000
Advance collections from various clients 20,000,000
Amount subject to 12% VAT P42,000,000

SUGGESTED ANSWERS

Problem 11 10 A
Various cash collections:
From receivables of past services P 350,000
From current services 900,000
For future trucking services 250,000
Deposits to Moon Trucking s savings deposits
by clients located in the provinces 300,000
Legal compensation agreement with his creditor 200,000
Total gross receipts subject to VAT P2,000,000
Multiplied by the VAT rate 12%
Output VAT P 240,000

Problem 11 11 D
Remaining contract price (P10,000,000 P3,500,000) P6,500,000
Less: Retained amount before verification (P10,000,000 x 10%) 1,000,000
Amount in the 2
nd
VAT official receipts P5,500,000
The contract price includes the 12% VAT because the agreement is total amount.

Problem 11 12 C
Total amount collected (P70,000 x 30) P2,100,000
Less: Total advance expenses in the name of clients (P50,000 x 30) 1,500,000
Gross receipts subject to VAT P 600,000

Problem 11 13 C
Gross receipts professional fees P1,000,000
Add: Value-added tax (P1,000,000 x 12%) 120,000
Total P1,120,000
Less: Withholding income tax (P1,000,000 x 15%) 150,000
Actual cash received P 970,000

Problem 11 14 C
Professional fee (P510,000/102%) P500,000
Proof:
Professional fee 100% P500,000
Add: VAT (P500,000 x 12%) 12% 60,000
Total 112% P560,000
Less: Creditable withholding income tax (P500,000 x 10%) 10% 50,000
Net amount received 102% P510,000
Problem 11 15
1. Letter D
Boxing professional fee (P714,000/102%) P 700,000
Endorsement fee (P776,000/97%) 800,000
Actors talent fee (P970,000/97%) 1,000,000
Total professional fee P2,500,000
Multiplied by VAT rate 12%
Total output VAT P 300,000
2. Letter B
Professional fee (P700,000 x 10%) P 70,000
Endorsement fee (P800,000 x 15%) 120,000
Actors fee (P1,000,000 x 15%) 150,000
Total creditable withholding tax P 340,000

SUGGESTED ANSWERS

Problem 11 16
1. Letter B
Service income (P735,000/105%) P700,000
Proof:
Service income 100% P700,000
Add: Output VAT (P700,000 x 12%) 12% 84,000
Total 112% P784,000
Less: Final VAT (P700,000 x 5%) (5%) P35,000
Creditable withholding income tax (P700,000 x 2%) (2%) 14,000 49,000
Net cash received 105% P735,000

2. Letter D
Output VAT (P700,000 x 12%) P84,000
Less: Standard Input VAT (P700,000 x 7%) 49,000
VAT payable P35,000
Less: Final withholding VAT (P700,000 x 5%) 35,000
Net VAT payable P - 0 -
Problem 11 17 A
Output VAT (P336,000/9.333) x 3 months Oct. to Dec. 200A P108,000
Less: Input VAT (P616,000/1.12) x 12% 66,000
Problem 11 18
1. Letter C
Security agency fee (P3,000/2%) P150,000
Output VAT P 18,000
2. Letter A
Total amount received P615,000
Add: Creditable withholding income tax 3,000
Total P618,000
Less: Security agency fee P150,000
Amount of VAT 18,000 168,000
Security guards salaries P450,000
Proof:
Salaries of security guards P450,000
Security agency fee inclusive of VAT (P150,000 x 1.12) 168,000
Total P618,000
Less: Creditable withholding income tax (P400,000 x 2%) 3,000
Net amount received P615,000
Problem 11 19 C
Output VAT (P7,840,000/9.333) P840,000
Less: Input VAT from:
Listing broker (P7,840,000 x 10%)/9.333 P 84,000
Selling broker (P7,840,000 x 20%)/9.333 168,000
Office rent (P128,400/107%) x 12% 14,400
Office supply (P11,200/9.333) 1,200 267,600
Net VAT payable P572,400

SUGGESTED ANSWERS

Problem 11 20 B
Sales of securities P20,000,000
Less: Cost of securities 18,000,000
Gross receipts on sales of securities P 2,000,000
Add: Brokers commission 400,000
Total amount subject to VAT P 2,400,000
Output VAT (P2,400,000 x 12%) P288,000
Less: Input VAT - Office rent (P160,500/107%) x 12% 18,000
Problem 11 21 C
Percentage tax - passengers (P3,000,000 x 3%) P 90,000
Vatable transactions - cargoes (P2,200,000 x 12%) 264,000
Total business tax P354,000

Additional amount charged in ordinary bus fare tickets issued by common carrier for
passengers excess baggage is subject to VAT. (BIR Ruling 094-99)

Although there is actual Input VAT paid, this could not be claimed as tax credit because the
business is non-VAT registered.

Problem 11 22 A
Output VAT (P1,400,000 + P600,000) x 12% P240,000
Less: Creditable input VAT (P560,000/9.333) 60,000
Net business tax payable P180,000

Problem 11 23 B
Output VAT (P8,000,000 + P2,000,000) x 12% P1,200,000
Less: Creditable input VAT 960,000
Net business tax payable P 240,000
Problem 11 24
1. Letter A P1,000,000
Gross receipts P1,000,000
Currency adjustment factor P30,000
Documentation charges 25,000
Processing charges 20,000
Third party service provider:
Freight charges 450,000
Carrier security charges 90,000
Trucking fee 100,000
Advance manifest surcharge 35,000 750,000
Actual commission income P250,000
2. Letter B
Outbound movement
Local origin charges:
Currency adjustment factor P30,000
Actual commission income 250,000

Inbound movement
Local destination charges:

SUGGESTED ANSWERS
Trucking fee 100,000
Advance manifest surcharge 35,000
Total taxable based P460,000
Output VAT P 55,200
Less: Input VAT 10,200
Problem 11 25 A
Package price per person P100,000
Less: Allowed deductible costs:
Hotel room charges P25,000
Passport and visa fees 13,000 38,000
Gross receipts subject to VAT P 62,000
Output VAT per person P 7,440
Multiplied by number of delegates 30

Total output VAT P223,200
Less: Input VAT (P85,600/107%) x 12% 9,600


Note: The sale of tickets is considered taxable on the gross selling price because the margin
exceeds 9%.

Problem 11 26 C
Gross receipts P30,000,000
Add: Commission on sales of tickets (P5,000,000 x 5%) 250,000
Total revenue P30,250,000
Less: Total cost of service from third party (P16,500,000 P250,000) 16,250,000
VAT Taxable base P14,000,000
Output VAT P 1,680,000

Problem 11 27 B
Hotel accommodation (P2,500 x 100) P250,000
Food and beverages consumptions 650,000
Handling charges for cable and internet 50,000
VAT taxable amount P950,000
Output VAT P114,000

Problem 11 28 D
Output VAT (P300,000/9.333) P32,144
Less: Input VAT (P224,000/9.333) 24,000

Problem 11 29 B
Output VAT: (P10,000 x 12%)
On smoke belching test (P500 x 12%) P 60
On nonlife insurance premiums (P10,000 x 12%) 1,200 P1,260
Less: Input VAT (P10,000 x 30% x 12%) 360
Net VAT payable P 900
Problem 11 30
1. Letter B
Output VAT (P100,000 x 12%) P12,000

SUGGESTED ANSWERS

2. Letter C
OPT (P100,000 x 10%) P10,000
Problem 11 31
1. NOT IN THE CHOICES
Output VAT (P20,000,000 x 12%) P2,400,000
2. Letter A
Final withholding income tax (P14,000,000/70%) x 30% P6,000,000
Add: Withholding VAT (P14,000,000/70%) x 12%) 2,400,000
Total amount of national taxes P8,400,000

The final withholding income tax from the gross income of a nonresident foreign corporation is 30%. The 12%
withholding VAT is to be paid by the buyer of service not by the nonresident foreign corporation.

Problem 11 32 C
Net VAT payable = final VAT (P1,000,000 x 12%) P120,000
Problem 11 33 D
Output VAT (P32,100/107%) x 12% P3,600
Problem 11 34 B
Output VAT printing of office forms (P600,000 x 12%) P72,000
Less: Input VAT (P280,000/9.333) 30,000
Input VAT P42,000
Problem 11 35 A
Property Ads P2,000,000
Bindery services 1,500,000
Passbook and calling cards 500,000
Total production costs 100% P4,000,000
Add: Gross profit (P4,000,000 x 30%) 30% 1,200,000
Sales price before VAT 130% P5,200,000
Output VAT (P5,200,000 x 12%) P624,000
Problem 11 36 B
Sales of canteen (P50,000 x 30 days x 3 months) P4,500,000
Problem 11 37 D
Zero, Farmers Products is purely engaged in buy and sell of agricultural products in their
original state. Likewise, it is engaged in the milling service of agricultural products.

Problem 11 38 D
Output VAT (P900,000 + P1,500,000) x 12% P288,000
Problem 11 39 A
Output VAT (P672,000/9.333) P72,000

SUGGESTED ANSWERS

Problem 11 40 D
Zero. Accredited educational institutions are VAT-exempt. The amount of input VAT they paid on
purchases of goods or services are not creditable.

Problem 11 41 C
Output VAT (P5,556,000 + P144,000) x 12% P684,000
Less: Input VAT from:
Rent (P1,284,000/107%) x 12% P144,000
Electricity (P392,000/9.333) 42,000
Supplies (P728,000/9.333) 78,000 264,000

Problem 11 42 B
Output VAT from:
Professional fee (P1,455,000/97%) x 12% P180,000
Sale of musical compositions (P2,000,000 x 12%) 240,000
Sale of drama manuscript (P1,000,000 x 12%) 120,000
Sale of paintings (P500,000 x 12%) 60,000
Total output VAT P600,000
Less: Input VAT (P1,940,000/97%) x 12% 240,000
Problem 11 43 A
Zero. Compensation income is not subject to business tax. The sales of banana cue is classified
as subsistence livelihood because the sales amount does not exceed P100,000 in a year; hence,
business tax exempt.

Problem 11 44 B
Manpowers gross salary (P12,000 x 100) P1,200,000
Add: Sales of cleaning materials (P952,000/1.12) x 130% 1,105,000
Gross receipts subject to VAT P2,305,000

Problem 11 45 C
Local telephone calls (P6,000,000 x 12%) P 720,000
Overseas conversation (P3,000,000 x 10%) 300,000
Forfeited telephone instruments deposit (P500,000 x 12%) 60,000
Total business taxes P1,080,000

Problem 11 46 D
Output VAT within (P20M + P10M) x 12% P3,600,000
Less: Total input VAT 2,400,000
Net VAT payable P1,200,000
Problem 11 47
1. Withholding VAT (P50,000,000 x 40%) x 12% P2,400,000
2. Final withholding tax (P50,000,000 x 40%) x 25% P5,000,000
3. Share of Dragon Films (P50,000,000 x 40%) P20,000,000
Add: VAT 2,400,000
Total P22,400,000
Less: Withholding VAT P2,400,000
Final withholding income tax 5,000,000 7,400,000
Net remittance to Japan Inc. P15,000,000

SUGGESTED ANSWERS
Problem 11 48
Class A rent per unit more than P12,800 per month P1,680,000
Class B rent per unit more than P12,800 per month 1,440,000
Total aggregate gross receipts P3,120,000
VAT payable P 374,400

(VAT Review Committee Ruling No. 010-07 dated July 18, 2007; BIR Rulings No. 144-2006 dated
March 17, 2006; Rev. Regs. No. 16-2005)

Problem 11 49
Gross receipts from passengers P19,800,000
Add: Advances from passengers 500,000
Total P20,300,000
Less: Refunds made for passengers 300,000
Gross receipts subject to OPT P20,000,000
1. OPT on passengers (P20,000,000 x 3%) P 600,000
Add: VAT on cargoes (P10,000,000 x 12%) 1,200,000
Total business tax P1,800,000
2. Gross receipts (P20M + P10M) P30,000,000
Less: Operating expenses, before business taxes P24,400,000
Other percentage tax expense 600,000 25,000,000
Net income P 5,000,000
Multiplied by corporate normal tax rate 30%
Income tax due P 1,500,000
Problem 11 50
1. Hospital services P6,000,000
2. Health maintenance services P3,000,000
Medical and drugs distributions 4,900,000
Sales of scrap materials 100,000
Total gross receipts subject to VAT P8,000,000
Problem 11 51
1. Gross receipts P400,000
Currency adjustment factor P 6,000
Third party service provider:
Freight charges 250,000
Carrier security charges 50,000
Trucking fee 30,000
Advance manifest surcharge 16,000 370,000
Actual commission income P 30,000
2. Outbound movement
Local origin charges:
Currency adjustment factor P 6,000

SUGGESTED ANSWERS


Actual commission income 30,000

Inbound movement

Local destination charges:

Trucking fee 30,000

Advance manifest surcharge 16,000

Total taxable based P100,000


Output VAT P 12,000

Problem 11 52

1. Output VAT on Construction of roads

c/o National Government (P20,000,000 x 12%) P2,400,000

Less: Input VAT:

Applicable actual input VAT (P16,800,000/9.333) x 20/50 P 720,000

Less: Standard input VAT (P20,000,000 x 7%) 1,400,000 1,400,000

Other income P 680,000

VAT payable P1,000,000

Less: Final withholding VAT (P20,000,000 x 5%) 1,000,000

Net VAT payable P - 0 -

Output VAT on accounting information system installation for

San Beda College, a CHED accredited institution

(P10,000,000 x 12%) P1,200,000

Less: Input VAT [(P16,800,000/9.333) P720,000] 1,080,000


2. Total revenues:

Repair services for international shipping P 8,000,000

Repair of Asian Development Banks building 7,000,000

Repair services for Moog, a PEZA-registered entity 5,000,000

Construction of roads (c/o National Government) 20,000,000

Accounting information system installation for

San Beda College, a CHED accredited institution 10,000,000 P50,000,000

Less: Costs of services (P16,800,000/1.12) 15,000,000

Gross income P35,000,000

Add: Other income 680,000

Total gross income P35,680,000

Less: Operating expenses 25,680,000

Net income P10,000,000

Multiplied normal corporate income tax rate 30%

Income tax due P 3,000,000

VAT and Taxation Rules for Services

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 78

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