EXERCISES 18–1

1. No. To be subject to VAT, it is a requirement that the services must be rendered in the
Philippines. Since, the services were rendered in the United States, Nora is not subject
to VAT on the said transactions (BIR Ruling 110-97).
2. Yes. Domestic common carriers by water are levied, assessed and collected a value-
added tax equivalent to twelve percent (12%) of gross receipts derived from the sale or
exchange or services, including the use or lease of properties.
The term “gross receipts” is defined as the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the services and deposits and
advanced payment actually or constructively received during the taxable quarter for
the services performed or to be performed for another person, excluding VAT.
Such being the case, WG & A being a domestic corporation engaged in the
transport of cargoes are well within this coverage. Its previous practice of reporting VAT
on accrual basis is wrong and will cause confusion. Thus, it can book the said
P84,000,000 output VAT as deferred output VAT; apply the same upon payment of the
output VAT on services actually collected from the customers.
It can validly amend all VAT returns which incorrectly recognized the transaction on
accrual basis so as to reflect the deferred output VAT as advance payment; and file the
same in the RDO where the principal place of business is situated.

3. Rising Sun Travel Agency is subject to value-added tax on its gross receipts. However,
the sales of tickets to any person which are paid for in an acceptable foreign currency
and surrendered to the Bangko Sentral thru the banking system in the Philippines are
considered as zero rated transactions.
In the case of services to domestic tourists, it shall be required to pay 12% VAT on
its gross receipts which shall not include the price of airline or ship tickets or the
reimbursement of expenses which shall be limited to passport fees, hotel room charges,
bus and/or car tour charges, guide fees, resort fees and meal charges for tourists
provided that all the said expenses are properly supported by receipts issued by the
supplying company or establishment.

4. Monthly salary P 6,000.00

13th month pay 6,000.00
Agency fee 1,800.00
SSS and Philhealth 300.00
Leave with pay 450.00
Gross receipts 14,550.00
Multiply by 3/28
Output tax 1,558.93

5. Entries in the books of the security

agency.
a. To record receipt of cash:
Cash 17,931.
77
Prepaid income tax 68.23
Service income (agency fee) 3,411.54
Output tax (on agency fee) 409.38
Due to security guards 14,179.0

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b. To record payment to security guards.
Due to security guards 14,179.
08
Cash 12,637.1
1
Withholding tax payable 1,541.97

II. Entries on the books of the client.

Security services – agency fee 3,411.5
4
Security services – security guards 14,179.
salaries 08
Input tax (only on agency fee) 409.38
Cash 17,931.7
7
Withholding tax payable (2% EWT on agency 68.23
fee)

6. Amount of sale (without the VAT) 1,000.00

Less: 20% discount (no double discount) 200.00
Vatable sale 800.00
Plus: 12% VAT (based on P800) 96.00
Total amount to be paid by Biadde Oldy 896.00

Cash 896
Sales discount on PWD 200
Sales 1,000
Output tax 96

7. The fish brokers are properly classified as commercial brokers. They are subject to VAT
based on gross receipts. However, since the products they sell are marine food
products in their original state, such sales are exempt from VAT.

8. Room charges 392,000

Laundry services 7,392
Food and beverages 806,400
Corkage 9,632
Handling charges 2,464
Cake shop sales 9,184
Gross receipts 1,227,072
Output tax (1,227,072 x 3/28) 131,472

9. a. Output tax (220,000 x 3/28) 23,571.4

3
Less: Input tax (220,000 x 85%) x 3/28 20,035.
71
VAT payable 3,535.72

b. Output tax (220,000 x 85%) x 3/28 20,035.7

1
Less: Input tax 8,000.0
0
VAT payable 12,035.7

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1 Any person, who, in the course of trade or business renders services is subject to the
0 value-added tax unless exempt. The 12% value-added tax is levied on any person
engaged in the sale of services. The phrase "sale of services" means performance of
all kinds of services for others for a fee regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. Undoubtedly,
by performing professional and management services to the managed companies,
Crisanto Castro is engaged in the sale of services.

1 a. No
1
b. No
c. No
d. No
e. No

12. Yes. Leasing by film owners of their films on a flat rental or percentage of gross sales
or receipts sharing basis are subject to VAT. The lease of motion picture films, films,
tapes and discs are included in the term “sale or exchange of services.”

PROBLEM 18 – 2
NO. Mirant Pagbilao’s claim for refund or tax credit was filed beyond the period provided
by law for such claim.
Refund must be claimed within 2 YEARS reckoned from the close of the taxable
quarter when the relevant sales were made pertaining to the input VAT regardless of
whether said tax was paid or not (not from the time the input VAT was paid nor from the
time the official receipt was issued. Thus, applying the provisions of Section 112 (A) and
not Section 204 (c) and 229 of the NIRC.
The claim for refund for the last creditable input VAT had prescribed two years after
September 30, 1996, or on September 30, 1998. Consequently, Mirant’s claim for refund or
tax credit filed on December 20, 1999 had already prescribed.

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