CHAPTER I

INTRODUCTION
Taxation

is

one

of

the

primary

sources

of

the

governments revenue, as it is an inherent power of the

state. Sources of internal revenue tax as stated in the R.
A. 8424 (NIRC) includes: Income tax, Business tax, Transfer
Taxes, and Documentary Stamp Tax. These revenues were used
to

defray

economic

its

administrative

growth.

Income

expenses

taxation

and

provides

to
the

sustain
greatest

portion of the national internal revenue. However, in order

to realize its goal toward fiscal adequacy, the government
should

also

be

salient

in

regulating

and

implementing

Business and Transfer taxes. In this regard, taxes should

not discourage affluence or discourage business activities.
Stated simply, let those who are affluent contribute their
just share, and let businesses pay what they can afford. For
that

matter,

the

students

on

rules

struggle

to

become

conceptual
and

knowledge

regulations

accountants,

of

of

the

taxation

bookkeepers,

college
in

and

their
office

administrators must be tested through the conduct of this

study.

BACKGROUND OF THE STUDY

Unlike

financial

accounting,

Tax

law

does

not

distinguish a person and an unincorporated business. In this

study we have exerted efforts to distill information into
more

meaningful

illustrations

of

and

practical

different

presentations.

individual

tax

Numerous

payers

are

reflected and analyzed to enhance and apply understanding of

tax laws. Applying this tax rules to real-life situations is
essential- not just possessing the knowledge to recite such
rules by rote.
In this connection, through our humble contributions to
the realization of this study, five (5) classifications of
taxpayers are presented if the correct application of law
to a given set of data that we have gathered from them were
applied.
First, we will evaluate the tax payment of Mrs. Lorna
S. Exclamador, a resident citizen and a sole proprietor
operating

VAT

registered

Fastfood/Autoparts

Supply

business at Sayre Highway, Valencia City. The business earns

a monthly sales of P482,638.55 which is also the total VATable sales for the month of August for the year 2011.
Second, is a Dry Goods Store operated by Mr. Jhonny G.
Co, a resident citizen. The business is located at Fortich
Street, Malaybalay City. The business is registered as a
2

non-VAT business which earns a total sales of not more than

P1,500,000. Precisely, the business is earning P12, 450 a
month from its sales of dry goods.
Third,
resident

the

taxpayer

citizen,

engages

is
in

Mr.

Jonathan

extracting

A.

and

Gasper,
selling

a
of

quarry resources specifically sand and gravel. This business

is

located

at

Kahaponan,

Valencia

City.

The

business

extracts 2, 991 cubic meter of sand and gravel for December

2011
Fourth, the estate of the spouses Flaviano and Teresita
Eco, previously residing at Tongantongan, Valencia City.
Died on March 28, 1998 and July 3, 2002, which is a resident
citizen leaving the estate under the administration of Norma
Eco Palange.
Lastly, JCTSP Realty Corporation, engage in real estate
business registered in the Philippines. During 2008, the
company issued its original shares of stocks and accordingly
paid the documentary stamp tax for the said transactions.

STATEMENT OF THE PROBLEM

Full understanding of the tax rules and regulations is

necessary to be able to compute the right amount of tax due
for

given

entity

at

specified

period.

Any

misunderstanding and malpractices in the provisions of the

Tax Code may create serious problems like excessive payments
and fraudulent reporting or miscalculations of tax bases and
tax dues respectively.
In these considerations, this study seeks to answer the
following:
1. Are the theories in taxation discussed at the class
were applied at the actual practice?
2. Are the provisions of the Tax Code were followed?
3. Is the amount paid as taxes were the actual tax due for
the period of a given taxpayer?

ASSUMPTIONS OF THE STUDY

A. General Assumptions
1. All taxpayers are resident citizen
2. Each business operates within the Philippines.
B. Specific Assumptions Of The Study
a. TAXPAYER 1- Operates a VAT-registered business
1. Purchases and Sales are uniform each month of the
year
2. Sales exceeds P1,500,000 annually.
b. TAXPAYER 2- Operates a non-VAT registered business
1. Purchases and Sales are uniform each month of the
year
2. Sales do not exceeds P1,500,000 annually.
c. TAXPAYER 3- Engage in extracting and selling
Quarry Resources specifically sand and gravel
4

of

1. In total, 2,991 cubic meter has been extracted and

sold of sand and gravel.
2. Sand and gravel are sold jointly.
3. Market value of sand and gravel
meter.
d. TAXPAYER 4-

An

estate

of

the

Sps.

is

P30/cubic

Flaviano

and

Teresita Eco
1. Both the spouses died. The male decedent died on
August 8, 1998 and the female decedent died on
July 3, 2002.
2. There is only one estate and all the properties
are exclusive. Computation of estate tax will be
viewed

as if there is only one decedent died and

no surviving spouse.
3. Unpaid mortgage of P 50, 000 was not yet included
in the gross estate.
4. Family home will be deducted in full as special
deductions.
5. Funeral expenses

of

5%

of

the

including the unpaid mortgage.

e. TAXPAYER 5- Business is engaged

in

gross

estate

Real

Estate

industry.
1. Taxable base for the transaction is P2,500,000 is
the total consideration received.
2. Tax rate used (P1/200) is erroneous and should be
subject to the correct tax rate of (P2/200).
3. Taxpayer should paid corresponding interest and
surcharge.

SIGNIFICANCE OF THE STUDY

5

This study can maximize knowledge and comprehension of

the

course

at

the

least

possible

effort.

As

business

students who will be the foundation of the industry tomorrow

need to master the implications of a sound tax system. As a
discernable matter, there are a lot of tax disagreements
which

arises

over

difference

in

opinion

regarding

the

application of the tax law to particular scenarios.

Expressions of the students opinion of what we have
learned

in

the

significantly

four

corners

different

of

of
some

the

classroom

accounting,

might

be

economics,

social and moral theory, the law will still prevail.

We will gain a lot of experience as we interview and
gather facts about the three classifications of taxpayers we
will

be

dealing

application

of

with.
the

Upon

scrutinizing

theories

weve

all

the

data,

learned

and

interpretations followed to make a formal recommendation.

This Study aims to:
1. Exercise and help

the

students

confirm

their

understanding of the subject matter.

2. Maximize the learning and comprehension of the
students

through

the

application

of

the

hierarchical and codal concepts of taxation in

analyzing and discerning Business and Tax Returns
3. Address the specific needs of students, that is to
acquire

technical

knowledge,

awareness

and

expertise

in

handling

Business

and

Transfer

related taxation.
4. Similarly, this addresses the perceived needs of
the interested taxpayers and other professionals
from various fields who wish to understand the
basic concept of transfer and business taxes.

CHAPTER II
REVIEW OF RELATED LITERATURE
Smaller

enterprises

may

thus

find

paying

taxes

especially burdensome, while the tax authorities are likely

to find it especially unrewarding to collect it from them.
All this points to relatively low levels of both compliance
and enforcement for smaller enterprises consistent indeed
with the focus on larger taxpayers that, as noted above, has
been so marked in recent years(Taxation Of Small And Medium
Enterprises, October 2007). In real sense, what are stated
in the Tax Code may not be strictly implemented in all
taxpayers, especially those who belong to smaller entities.
In many developing and transition countries, micro and
small

enterprises

(MSEs)

are

the

most

rapidly

growing

business segment. Their characteristics and also their tax

compliance attitude vary significantly. On the one hand, a
large

number

of

MSEs

register

with

the

tax

authority

voluntarily or as a result of enforcement actions. On the

other hand, high costs, difficult formalization procedures,
or the expectation of gaining a comparative advantage from
not

complying

with

tax

obligations

drive

many

small

businesses into operating in the informal economy.

Smaller businesses are more likely to engage in tax
evasion practices and either operate completely outside the
8

tax

net

or

hide

transactions

from

a
the

certain
tax

part

inspection

of

their

(World

business

Bank

Group,

December 2007). Unintentional noncompliance, for example, is

commonly linked to limited understanding of the laws, poor
recordkeeping, and the lack of professional tax adviceand
is

reflected

in

non-filing

and

mistaken

underreporting.

Intentional noncompliance stems from businesses operating in

the

informal

transactions

economy
which

with

mask

hard-to-trace

evasion

cash

(Taxation

Of

and

barter

Small

And

Medium Enterprises, October 2007).

Modern tax administration depends upon taxpayer self
assessment,

which

in

turn

depends

on

effective

taxpayer

service approaches. Collectively, a risk-based and balanced

service and enforcement strategy in the context of a selfassessment environment aims to maximize voluntary compliance
and revenue mobilization within the law. Streamlining the
compliance burden and reducing the time needed by business
is important for the efficient working of taxation systems
(Price, Waterhouse, and Coopers, September 2010).

CHAPTER III
METHODOLOGY
To come up with the final output of the study, a
series

of

steps

were

taken

in

order

to

arrive

at

its

successful presentation. Planning of the entire project was

done

by

thorough

brainstorming

among

the

members

and

organizing the ideas from each of us to formulate the steps

to

be

taken

up

for

the

study.

The

following

are

the

procedures undergone for the realization of the endeavor:

1. Since

we

wanted

to

deal

with

different

types

of

taxpayers paying business or transfer taxes, selecting

the five taxpayers and identifying sources of their tax
bases were done first.
2. Data gathering followed through personal interviews
about the facts affecting computation of their business
or transfer taxes. (See Appendix I.)
3. Analyzing the data given and out of it, we computed
their

gross

sales

for

VAT-able

and

Non

VAT-able

businesses, gross estate for the estate and the tax

bases

for

the

excise

and

documentary

stamp

tax.

Deductions are identified to arrive at the net taxable

amount to be multiplied with applicable tax rate to
ultimately arrive at their tax due.
4. Comparing our computations to the amounts that these
taxpayers paid to the BIR (Bureau of Internal Revenue).
10

The discrepancies between our computations and their

actual
stating

payments
it

and

where
its

then

causes

identified
in

the

and

clearly

presentation

and

analysis of each taxpayers.

5. Conclusions were drawn out and recommendations were
cited as the topmost goal we wanted to magnify in this
study.

Advices

and

supervision

consultations were taken.

11

of

experts

through

CHAPTER IV
PRESENTATION AND ANALYSIS OF DATA
TAXPAYER

1-

VAT

registered

business

by

Mrs.

Lorna

S.

Exclamador
- Fastfood/Autoparts Supply business Operated
by

sole

proprietor

who

is

resident

citizen
- Located at Sayre Highway, Valencia City.
- Earns a monthly sales of P482,638.55.
(See appendix II)
VAT-able
year

Sales

per
P5,791,662
.60
X
12%

(P482,638.55 X 12)

P694,999.
51

VAT Output Tax

VAT-able Purchases per
year
P5,511,495
.60
X
12%

(P459,291.30 X 12)

P661,379.
47
P33,620.4
7

Creditable Input Tax

VAT Payable per year

Analysis
The annual VAT-able sales is P5,791,662.60 which is
higher than P1,500,000, this shows that it qualifies as a
VAT registered business. Therefore, Output Tax is 694,999.51
12

and

is

allowed

P661,379.47,

and

to

deduct

derived

Creditable

to

the

Annual

Input
VAT

Tax

payable

of
of

P33,620.47. VAT rate is 12% of tax base.

TAXPAYER 2- Non-VAT registered business by Mr. Jhonny G. Co

- Dry

goods

Supply

business

Operated

by

sole proprietor who is a resident citizen

- Located at Fortich Street, Malaybalay City
- Earns monthly sales of 12,450.
(See appendix III)
Yearly Sales (P12,450
X 12)

P149,4
00
X
3%

Annual percentage tax

payable

P4,482

Analysis
As Non-VAT registered enterprise and with sales less
that

P1,500,000

annually,

it

is

subject

to

General

Consumption Tax which is 3% of tax base which is the gross

sales/receipts. Furthermore, this tax is not allowed for
tax credit in oppose to VAT.

13

TAXPAYER 3- Operated by Mr. Jonathan A. Gaspar, a resident

citizen.
- Involve

in

selling

of

quarry

resources

particularly sand and gravel.

- Located at Kahaponan, Valencia City
- Gross output of 2,991 cubic meters of sand
and gravel.
(See appendix IV)
Output in cu. m. (2,991 cu. m.)
Market value (P30)
Market Value of Gross Output
Excise rate
excise tax payable

2,991
X
30
P89,730
X
2%
P1,794.6

Analysis:
We have in the above computation the correct excise tax
payable of Mr. Jonathan A. Gaspar for extracting quarry
resources

specifically

sand

and

gravel.

The

excise

tax

payable should only be P1,794.60 in contrast of P3,589.20

reflected in the tax return. We have such conclusion because
the total extracted output is 2,991 cu. m. which comprises
both sand and gravel and not sand and gravel individually.
Also, to get the excise tax corresponding to sand and also
gravel, the P1,794.60 should only be prorated for both.
TAXPAYER 4 - The estate of Sps. Flaviano and Teresita Eco
-Previously residing at Tongantongan, Valencia
14

City.
-Died on March 28, 1998 and July 3, 2002, which is
a resident citizen leaving the estate under the
administration of Norma Eco Palange.
-Filed its estate tax return on July 3, 2002
with

its

estate

tax

payable

of

P3,

200.

Properties were valued for tax purposes on July

29, 2002. Its estate tax of P 3, 200 was paid
through

the

Development

(DBP) on July 31, 2002.

Bank

of

Philippines

(See appendix V)

Real properties

900,805.0
0
23,520.00
50,000.00
974,325.0
0

Residential house and lot

Unpaid mortgage
Gross estate

Less: Ordinary deductions

Funeral expenses
Unpaid mortgage
Estate before Special deductions

Less: Special deductions

Standard deductions

48,716.25
50,000.00

1,000,000
.00
23,520.00

Family home
Net Estate

15

98,716.25
925,608.7
5

1,023,520.
00
(97,911.2
5)

Analysis
This estate tax return with two decedents makes the
computation

of

the

estate

tax

complicated.

However,

the

estate of the two decedents are exempted of the estate tax

with

gross

estate

P974,325.00,

ordinary

deductions

of

P98,716.25 and special deductions of P1,023,520.00 which

resulted to a net estate

of (97,911.25) that did not exceed

P200,000. The possible reason for the imposition of the

compromise tax is that they did not file the estate tax
return on time on the decedent who died in 1998 although the
declaration is within the time frame for the decedent who
died in 2002.

16

TAXPAYER 5- Original issuance of stocks by

JCTSP Realty Corporation
-

A business primarily engage on buy and

selling real estate

Original issuance of stocks happen on
December 2008
(See Appendix VI)

Subscribed capital stocks

Tax rate

2,500,000
P 2/P
200
P
25,000

Tax due

Analysis
The transaction of issuing original stocks requires
payment of documentary stamp tax for P 2 for every P 200
amount

of

capital.

This

in

accordance

to

the

rule

of

effecting excise taxes on transactions consummated in the

Philippines.

17

Tax due
Tax paid
Tax still due
Surcharge (25%)
Interest (20% x 3 yr. x 2/12)

P 25,000
12,500
12,500
3,125
7,916.7

Total Tax still due

P23,541.
67

From the subscribed capital of P 2,500,000, the tax due

is P 25,000. Since what the corporation has paid is only
half of the right amount, it has a surcharge of P3, 125 and
of interest of P 1, 979. 17 for a total tax payable of P 17,
604.17.

18

CHAPTER V
CONCLUSION AND RECOMMENDATION

At the end of the study, taxpayers complied with the

rules and regulations of the Tax Code but still there are
errors and miscalculations detected in their tax returns and
other

supporting

documents.

VAT

and

Non-VAT

registered

businesses may be viewed that they presented tax returns

free from visible errors. Excise taxpayer over calculated
its excise tax which resulted to paying double than the
amount it is supposed to pay. Estate tax were not properly
computed and presented for the reason that two decedents
with different time of death were presented in a single
estate tax return. This clearly violates the Tax Code. Tax
rate

used

in

computing

the

documentary

stamp

tax

was

inappropriate because instead of using P2 per P200 amount of

shares issued, the estate tax reflected only P1 per P200.
There is a need to present, used and compute the right
amount of tax base, tax rate and tax due respectively. For
the individual taxpayers especially to those engaged in VAT
and

Non-VAT

businesses,

they

must

maintain

an

accurate

record and before they may be allowed to engage in their

corresponding businesses and be given a permit to do so,
they must be taught and exposed to proper filling out and
documentation of evidences that must be presented to BIR. In
19

the computation of excise taxes, estate tax and documentary

stamp

tax,

obtaining

aid
a

from

the

accountant

certificate

that

must

after

be

secured

their

by

review,

documentations are properly made. The reason of this is that

CPAs

are

expert

in

that

field.

Also,

for

the

district

revenue officers, they must be strict but willing to teach

what is right in the implementation of the rules of the Tax
Code. Although compromise is the last resort to collect, it
cannot

be

made

directly

without

available.

20

exhausting

every

option

References
Ballada, Win and Ballada, Susan. (2011). In Income
Taxation. DomDane Publishers.
Co, J. G. (2012, January). (R. M. Abapo, Interviewer)
Corporation, J. R. (2012, February). (R. M. Abapo,
Interviewer)
Exclamador, L. S. (2012, January). (R. M. Abapo,
Interviewer)
Gasper, J. A. (2012, January). (R. M. Abapo, Interviewer)
Group, W. B. (2007). Designing a Tax System for Micro and
Small Business .
LLP, P. (2010). The Impact of VAT Compliance on Business.
Palange, N. E. (2012, February). (R. M. Abapo, Interviewer)
Taxation of Small and Medium Enterprises. (2007).
Background paper for the International Tax Dialogue
Conference .
Valencia, Edwin and Roxas, Gregorio. (2009-2010). In
Transfer and Business Taxation. Valencia Educational Supply.

21

APPENDICES

22