Keisha Pauleen S. Bayaua
BSBA FM 3-A
TAX 202A - Business and Transfer Taxation
ACTIVITY 1
Chapter Test Part 1.
Pages 9-11:
1. D.
2. A
3. B
4. B
5. C
6. C
7. C
8. B
9. A
10. D
Pages 20-22:
1. A
2. B
3. D
4. B
5. A
6. B
7. C
8. B
9. A
10. B
Essay (Page 23).
1. What are the two thresholds for VAT? Distinguish.
The two VAT thresholds in the Philippines are General VAT Threshold and the
Special VAT Threshold. The General VAT applies to most businesses and
individuals engaged in trade, commerce, or services where The threshold is PHP
3,000,000 in gross annual sales or receipts. Meanwhile, under the Special VAT,
franchise grantees of radio and television broadcasting are mandated to register
as VAT taxpayers if the threshold is PHP 10,000,000 in gross annual sales or
receipts.
2. Who are the persons required to register for VAT?
Persons or entities engaged in trade or business selling, bartering,
exchanging goods or properties, or rendering services, with gross sales or
receipts exceeding PHP 3,000,000 within a 12-month period. Those who import
goods regardless of the amount are also mandated for VAT registration.
3. Distinguish mandatory registration from optional registration.
Registration for VAT is mandatory for businesses with gross sales or receipts
exceeding PHP 3,000,000 in any 12-month period, while optional registration are
for businesses with gross sales or receipts below the PHP 3M threshold, although
they can choose to register for VAT voluntarily.
4. Discuss the requirements for cancellation of VAT registration.
VAT registration can be canceled if the VAT-registered person’s gross sales or
receipts in the preceding year did not exceed the PHP 3M threshold. Dissolution
of businesses where they stop making VAT-taxable transactions, or if there are
changes in the nature of the business are considerable to apply VAT cancellation
as well.
5. What is the aggregation rule and how does it apply to spouses who are
both VAT taxpayers?
The aggregation rule requires that the gross sales or receipts of related
persons– in this case spouses, be combined to determine VAT liability. For the
PHP 3M VAT threshold, the husband and wife shall be considered as separate
taxpayers.If the husband and wife each own a business, then they are separately
subject to business tax. So, if one of them have gross receipts or sales that
exceeded the general VAT threshold, that individual is mandated to register for
VAT. On the contrary, if the business is co-owned by the spouses and the taxable
annual gross receipts and sales of the business exceeded the general VAT
threshold, then there is a need for the couple to register as a VAT taxpayer as a
single unit.
6. Differentiate input tax from output tax.
Input Tax implies that VAT a taxpayer pays on purchases or imports of goods
and services used in their business. It is creditable against the output tax. On the
other hand, Output Tax is the VAT a taxpayer collects on taxable sales of goods or
services. It represents the tax due to the government on these sales.
7. How do you compute the VAT for VAT taxpayers with mixed
transactions?
To compute the VAT for taxpayers with mixed transactions (both Vatable and
VAT-exempt sales), we should first calculate Output VAT by multiplying the
vatable sales by 12%. Exempt sales are not included because they are not
subject to VAT. Then, compute Input VAT by identifying the directly attributable
input VAT, which is the VAT on purchases used exclusively for either vatable or
exempt sales. After that, allocate the common Input VAT. If a purchase is used for
both vatable and exempt sales, apply the apportionment ratio (vatable sales/total
sales), then multiply this ratio by the common input VAT to determine the
allowable input VAT. Finally subtract the allowable input VAT from the output VAT
to determine the VAT payable. If the result is positive, the taxpayer must pay this
amount to the BIR. If negative, the excess input VAT can be carried forward to
future periods.
8. What are the two types of output VAT? Explain.
The first type is the Standard Rated Sales which are domestic sales of goods
or services subject to the regular VAT rate (e.g., 12%). The second type is the
Zero-Rated Sales, or the sales of goods or services subject to a 0% VAT rate,
often applicable to export sales or specific transactions. While no VAT is charged
on zero-rated sales, the seller can still claim input tax credits.
9. Illustrate the reporting of VAT each taxable quarter.
VAT-registered taxpayers should first calculate the VAT payable, If positive,
then they are required to file quarterly VAT returns using BIR Form No. 2550Q.
The return summarizes total sales, purchases, output tax, and input tax for the
quarter. Any VAT payable is remitted personally to the Bureau of Internal Revenue
(BIR) office or through eFPS by the due date.
10. Explain the invoicing requirement under the Tax Code.
Under Section 113 of the NIRC, VAT-registered taxpayers must issue duly
registered sales invoices or official receipts for every sale, barter, or exchange of
goods or services. These documents must include the taxpayer's TIN, business
name, address, date of transaction, description of goods or services, amount, and
VAT amount. Proper invoicing ensures compliance and supports claims for input
tax credits.