1.

Business Taxes are P950,000) are not considered "in the course of trade
or business" and are exempt from VAT. These are
Answer: A not regular business activities and are typically one-
Business taxes are levied on transactions where time or occasional transactions.
something of value is exchanged for something else
of value, such as sales, barter, exchange, or 5. VAT law applicability
importation. These are known as onerous transfers.
In contrast, gratuitous transfers (like donations) are Answer: B
subject to different taxes, such as donor's tax or Services by non-resident foreign persons are
estate tax. Business taxes are designed to capture considered as being in the course of trade or
the economic activity of businesses and are business, even if irregular. This means these
typically based on the value of transactions rather services are subject to VAT, ensuring that foreign
than income. entities providing services in the Philippines are
taxed similarly to local businesses.
2. Major internal revenue business taxes, except
6. Statements about business taxes
Answer: D
Income tax is not considered a business tax; it's a Answer: B
tax on the income earned by individuals or entities.  Statement 1 is incorrect: Business taxes are
Major business taxes include: based on gross sales or receipts, not gross
 Value Added Tax (VAT): Applied to the income. This distinction is important
value added at each stage of production and because business taxes are designed to
distribution. It's a consumption tax that aims capture the value of transactions rather than
to tax the value added to goods and services the profitability of a business.
at each stage.  Statement 2 is correct: Business taxes are
 Excise Tax: Levied on specific goods like in addition to income tax. Businesses pay
tobacco and alcohol. This tax is often used taxes on their transactions (like VAT or
to discourage consumption of certain excise tax) and also on their net income
products or to raise revenue from specific (income tax).
industries.
 Percentage Tax: Applied to gross receipts 7. Gross selling price and excise tax
for certain businesses not registered for
VAT. This is typically used for smaller Answer: C
businesses or those in specific sectors. Both statements are correct:
 Gross selling price excludes VAT: When
3. Correct statement about VAT calculating VAT, the VAT itself is not
included in the gross selling price. This
Answer: D prevents double taxation on the same
All statements are correct: transaction.
 VAT applies to business activities in the  Excise tax is included in the gross selling
Philippines: Except for importation, VAT price: Any applicable excise tax is part of
requires a business presence in the country. the base for VAT calculation. This ensures
This means that businesses must have that excise taxes are factored into the overall
operations or activities within the tax liability.
Philippines to be subject to VAT.
 "In the course of trade or business" 8. Sale of real property subject to VAT
includes regular activities: This
encompasses commercial activities and Answer: D
incidental transactions. It ensures that VAT All statements are correct regarding determining the
applies to all aspects of business operations. gross selling price for VAT:
 Non-resident foreign services are taxable:  Consideration or fair market value:
Even if not regular, services by non- Whichever is higher is used to ensure that
residents are subject to VAT. This ensures the tax base is maximized.
that foreign entities providing services in the  Fair market value determination: Can be
Philippines contribute to the tax base. by BIR Commissioner or Provincial/City
Assessors. This provides a standardized
4. False statement about transactions in method for determining fair market value.
trade/business  Absence of zonal value: Uses market value
from real property tax declaration or
Answer: D consideration, whichever is higher. This
Isolated sales below the VAT threshold (e.g.,
 ensures that there is always a basis for 15. Excise and percentage taxes types
calculating VAT.
Answer: D
9. VAT with other taxes All statements are correct:
 Specific tax: Based on weight or volume
Answer: C (e.g., excise tax on tobacco). This type of tax
VAT can be imposed with excise tax and income is used to discourage consumption or raise
tax. However, VAT and percentage tax are mutually revenue from specific products.
exclusive; a business is subject to one or the other,  Ad valorem tax: Based on selling price
depending on its registration status and type of (e.g., some excise taxes). This type of tax is
transactions. proportional to the value of the goods.
 Transaction tax: Applies regardless of
10. Type of tax for VAT rate profit or loss (e.g., percentage tax). This
ensures that businesses pay tax on their
Answer: D transactions, regardless of their profitability.
VAT is a proportional tax because it applies a fixed
rate (12%) to all taxable sales or receipts, regardless 16. Additional business tax for imported
of the amount. This means that the tax rate does not cigarettes sold locally
change based on the size of the transaction,
providing simplicity and predictability. Answer: C
Excise tax applies to cigarettes because they are
11. Liability and burden of VAT classified as excisable goods. This is in addition to
VAT on both importation and sale, ensuring that
Answer: C these products are heavily taxed due to their nature.
Both statements are correct:
 Sellers are liable for VAT: They must file 17. Who is NOT subject to VAT?
VAT returns and are responsible for paying
VAT to the government. Answer: D
 Burden is on consumers: Businesses None are inherently exempt. However, certain
typically pass VAT costs to consumers conditions apply:
through higher prices, making consumers  VAT registration threshold: Below P3M,
bear the economic burden of VAT. registration is optional, but businesses may
choose to register voluntarily.
12. VAT-exempt taxpayers and percentage taxes  Non-resident lessors/licensors: May be
subject to VAT if engaged in taxable
Answer: B activities within the Philippines.
A taxpayer subject to percentage tax also pays  Failure to register: Does not exempt from
income tax on net income. VAT-exempt taxpayers VAT liability if criteria are met; businesses
might pay percentage tax instead, depending on must comply with tax laws regardless of
their business activities and registration status. registration status.

13. Gross selling price components for cigarettes 18. Non-VAT registered taxpayer exceeding P3M
sales threshold
Answer: C
Excise tax is included in the gross selling price for Answer: D
VAT purposes. This means excise tax on cigarettes A non-VAT registered taxpayer exceeding P3M in
is part of the base for VAT calculation, ensuring sales becomes subject to 12% VAT and should
that both taxes are accounted for in the final price. register for VAT to comply with tax laws.

14. Taxes on cigarette importation and sale 19. Voluntary or cancellation of VAT
registration based on sales threshold
Answer: A
Both answers are correct: Answer: A
 VAT on importation: Paid when cigarettes Only statement I is correct: Those below P3M can
are imported into the country. voluntarily register for VAT. Once registered, they
 VAT on sale: Paid when cigarettes are sold cannot automatically revert without meeting
locally. specific conditions, such as maintaining sales below
 Excise tax on importation: Also paid on the threshold for consecutive years.
imported cigarettes, which is a specific tax
on these goods. 20. Incorrect statement about transactions
exceeding P3M threshold
Answer: D
All statements are correct:
 VAT applies above P3M: Mandatory for
those exceeding this threshold.
 VAT registration below P3M: Optional but
requires maintaining registration if chosen.
 Simultaneous income and VAT: Possible
for the same transaction, as these are
different types of taxes applied to different
aspects of business activity.