Exam - Taxation MSA 206

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Professional School

PS Building, Matina Campus, Davao City


Phone No.: (082) 305-0645

COMPREHENSIVE EXAM

Problem 1 (25 pts)

Ms. Uy operates a restaurant while she offers catering services to her clients. In 2018, her gross sales
from restaurant amounted to P1,600,000, in addition to her gross receipts from catering services of
P600,000. Her recorded cost of sales and operating expenses were P1,200,000 and P400,000,
respectively.
a. Calculate the net taxable income if Ms. Uy opted to avail of the optional standard deduction.
b. Based on the assumption on letter “a” above, how much is the total income tax due if she
decided to avail the 8% optional tax rate upon filing the annual income tax return?
c. Is she required to submit her financial statements with her tax return?
d. Is she liable for business tax, in addition to income tax?
e. Suppose she signifies in her 1 st quarter income tax return her intention to be taxed at 8%
optional tax rate, how much is her income tax liability?

Answers:
a. Gross sales – restaurant P1,600,000
Gross sales – catering 600,000
Total P2,200,000
Less: OSD (2,200,000 x 40%) ( 880,000)
Net taxable income P1,320,000

b. Tax due: On P800,000 P 130,000


On excess (1,320,000 – 800,000) x 30% 156,000
P 286,000

The taxpayer initially elected OSD in the computation of her taxable income, thus the graduated
income tax rate shall be applied. The election of OSD is irrevocable for the taxable year for
which the return is made.

c. No, for individuals who opted to use the 8% flat income tax rate or the graduated income tax
rates with OSD as the mode of deduction. (RMC 17-2019)

d. No, the taxpayer is not liable for business tax since the 8% optional tax rate is also in lieu of the
percentage tax.

e. Gross sales – restaurant P1,600,000


Gross sales – catering 600,000
Total P2,200,000
Less: Amount allowed as deduction under Sec.24(A)(2) (b) ( 250,000)
Net taxable income P1,950,000
Income tax due (1,950,000 x 8%) P 156,000

Problem 2 (20 pts)


A corporation has the following sales during the month:
Sale to private entities (net of VAT) – taxable P100,000
Sale to private entities (net of VAT) – zero rated 100,000
Sale of exempt goods 100,000
Sale to government (net of VAT & subjected to final VAT withholding 100,000

The following input taxes were passed on by its suppliers:


Input tax on taxable goods 5,000
Input tax on zero-rated sales 3,000
Input tax on sale of exempt goods 2,000
Input tax on government sales 4,000
Input tax amortization on depreciable capital goods not directly
attributable to any specific activity 20,000
a. How much is the VAT payable/ creditable or refundable on taxable sales?
b. How much is the VAT payable/ creditable or refundable on zero-rated sales?
c. How much is the VAT payable/ creditable or refundable on exempt sales?
d. How much is the VAT payable/ creditable or refundable on government sales?

BONUS

Problem 3 (20 pts)


As to withholding taxes under the TRAIN law, answer the following questions:
a. What is the nature and purpose of withholding taxes?
b. What are the duties and obligations of a withholding agent?
c. Identify the names of these forms:
BIR Form 1601EQ______________________________________
BIR Form 1604E _______________________________________
BIR Form 1601C ______________________________________
BIR Form 1604CF______________________________________
BIR Form 0619E_______________________________________
BIR Form 0619F_______________________________________
BIR Form 2316 ________________________________________
BIR Form 2307 ________________________________________

Answers:
a. The withholding tax system is that part of the tax system which collects through withholding
agents (payor) or employers the appropriate income taxes due as they are earned before
earnings are paid to the payees or employees. The primary purpose of this is to ensure accurate
payment of taxes and to be able use taxes collected at an earlier time to finance the operations
and projects of the government.
b. Duties and obligations of a withholding agent:
- To register
- To deduct and withhold tax
- To pay tax withheld
- To issue certificates
- To file annual tax return
c. BIR Form 1601EQ Quarterly remittance return of creditable income taxes withheld
(expanded)
BIR Form 1604E Annual information return of creditable income taxes withheld
(expanded)
BIR Form 1601C Monthly remittance return of income taxes withheld on
compensation
BIR Form 1604CF Annual information return of income taxes withheld on
compensation and final withholding taxes
BIR Form 0619E Monthly remittance form for creditable income taxes withheld
(Expanded)
BIR Form 0619F Monthly remittance form for final income taxes withheld
BIR Form 2316 Certificate of compensation payment/ tax withheld
BIR Form 2307 Certificate of creditable tax withheld at source

Problem 4 (30 pts)


Mr. X presents the following properties and expenses to the BIR in relation to the death of his wife:
Residential house and lot P7,000,000
Proceeds of life insurance from SSS – revocable 5,000,000
Family home (exclusive property of Mrs. X) 1,000,000
SSS death benefits 500,000
Benefits received under RA 4917 500,000
Transfers in contemplation of death 2,000,000
Donation to the government 1,000,000
Medical expense (40% unpaid, 100% incurred within 1 year) 400,000
Funeral expense 100,000
a. Under the TRAIN law, determine the:
Gross estate _______________
Ordinary deductions _______________
Special deductions _______________
Net taxable estate _______________
Estate tax _______________
b. What are the items comprising special deductions? Briefly explain.

Answers:
Exclusive Conjugal Total
Conjugal properties:
Residential house and lot 7,000,000 7,000,000
Family home 1,000,000 1,000,000
Transfer in contemplation 2,000,000 2,000,000
Amount received by heirs _ 500,000 500,000
Gross estate 1,000,000 9,500,000 10,500,000
Less: Ordinary deductions:
Transfer for public use 1,000,000 1,000,000
Net conjugal estate 8,500,000
Special deductions:
Family home 1,000,000
Standard deduction 5,000,000
Total deductions 7,000,000
Net estate 3,500,000
Less: ½ share of surviving spouse (8,500,000/ 2) 4,250,000
Net taxable estate ( 750,000)
Estate tax due None

Items comprising special deductions:


1. Standard deduction – a deduction of P5,000,000 shall be allowed without the need of
substantiation.
2. Family home – an amount equivalent to current fair market value of the decedent’s family
home provided that the said current fair market value exceeds P10,000,000, the excess shall
be subject to estate tax.

Problem 5 (15 pts)


As to donation under TRAIN law, answer the following questions:
a. What are the essential elements of a valid donation? Which one of these is the most important?
b. Why is donation between husband and wife void?
c. What is the limitation on donation to NGO to be exempted from donor’s tax?

Answers:
a. Capacity of the donor, donative intent, delivery, acceptance; all elements are important.
b. Every donation or grant of gratuitous advantage, direct or indirect, between the spouses during
the marriage shall be void, except moderate gifts, which the spouses may give to each other on
the occasion of any family rejoicing. The prohibition shall also apply to persons living together as
husband and wife without a valid marriage. (Art. 87 of Family Code of the Philippines)
c. Donations made to non-accredited organizations shall be subjected to limited deductibility in an
amount not in excess of ten percent (10%) for an individual donor, and five percent (5%) for a
corporate donor, of the donor's income derived from trade, business or profession as computed
without the benefit of this deduction.
Problem 6 (10 pts)
Mr. X, inherited from his father, who died on July 11, 2012, several pieces of real property in Davao City.
The estate tax return was filed and the estate tax due in the amount of P300,000 was paid on December
13, 2012. The Tax Fraud Division of the BIR investigated the case on the basis of confidential information
given by Mr. Y on January 4, 2016 that the return filed by Mr. X was fraudulent and that he failed to
declare all properties left by his father with the intent to evade payment of the correct tax. As a result, a
deficiency estate tax assessment for P1,400,000, inclusive of 50% surcharge for fraud, interest and
penalty, was issued against him on January 5, 2019. Mr. X protested the assessment on the ground of
prescription.
a. What is the prescriptive period for a fraud case.
b. Decide on the protest of Mr. X.

Answers:
a. 10 years
b. Denied. The return was filed on December 13, 2012 which was false and fraudulent. Since the
fraud was discovered only on January 4, 2016, the BIR has a period of 10 years from said
discovery until January 7, 2026 within which to assess. Thus, the assessment notice that was
issued on January 5, 2019 was issued with prescriptive period.

---End of the Examination---

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