SOLUTIONS MANUAL
INCOME TAXATION, 2016 Edition
By: TABAG & GARCIA
CHAPTER 1 – PRINCIPLES OF TAXATION
TRUE OR FALSE-SET A
1. FALSE
2. TRUE
3. TRUE
4. TRUE
5. TRUE
6. FALSE
7. TRUE
8. FALSE
MULTIPLE CHOICE
1. A
2. C
3. B**
4. D
5. C
6. B
7. C
8. C
9. D
10. D***
11. A
12. D
13. D
14. C
15. C
16. D
17. A
18. A
19. C
20. B
9.
10.
11.
12.
13.
14.
15.
16.
TRUE
TRUE
TRUE
TRUE
FALSE
FALSE
FALSE
FALSE
17.
18.
19.
20.
21.
22.
23.
24.
FALSE
FALSE
FALSE
TRUE
TRUE
TRUE
TRUE
FALSE
25.
26.
27.
28.
29.
30.
FALSE
TRUE
FALSE
TRUE
TRUE
FALSE
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
D
D
D
D
B
A
A
D
C
C
A
C
D
C
A
C
D
C
D
A
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
D
A
A
B
C
C
B
A
C
D
D
C
B
D
A
A
A
D
C
A
61.
62.
63.
64.
65.
C
C
C
C
A
**Statement 1 – False; similarity of tax from license fee, not a distinction.
***Statement 1 – False; should be “jurisdiction” instead of “symbiotic relation”.
Statement 2 – False; should be “symbiotic relation” instead of “jurisdiction”
CHAPTER 2 - INDIVIDUAL TAXPAYERS
PROBLEMS
2-1
1.
2.
3.
RC
RC
RC
4.
5.
6.
NRA-NETB
NRC
RA
2-2
1.
P125,000 = BPE + APE for Ana and PWD. The brother shall likewise qualify as PWD within 4th degree
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Solutions Manual- I n c o m e Tax a t i o n ( 2 0 1 6 E d i t i o n ) by Tabag & Garcia
2.
3.
4.
5.
P150,000 = BPE + APE for four dependents. Note: Not entitled for APE for his 20 years old recognized natural child for being
gainfully employed. Assume further that all the requirements to qualify for additional exemption under the “Foster Child Act”
were complied with.
P0 or none; Reciprocity clause applies to a nonresident alien engaged in trade or business. The taxpayer in the problem is a
nonresident alien not engage in trade or business. Dividend income from a domestic corporation is not considered as income
derived from trade or business.
P90,000 = BPE of P40,000 (lower than P50,000 allowed in the Philippines) + APE of P25,000 per dependent (lower than the
P30,000 allowed in U.S.A. as provided in the problem).
Total personal exemption = P50,000 BPE + P25,000 x 2 additional personal exemption = P90,000
P100,000 = BPE + APE for his 2 minor children.
2-3
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
TAX TYPE
FWTx
FWTx
BTx
FWTx
Exempt
BTx
BTx
BTx
BTx
BTx
FWTx
FWTx
FWTx
BTx
BTx
FWTx
FWTx
BTx
Tax RATE
20%
7.5%
Tax Table
20%
Tax Table
Tax Table
Tax Table
Tax Table
Tax Table
20%
10%
20%
Tax Table
Tax Table
20%
20%
Tax Table
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
TAX TYPE
Exempt
Exempt
FWTx
BTx
Exempt
FWTx
FWTx
FWTx
BTx
BTx
FWTx
FWTx
FWTx
BTx
Exempt
BTx
BTx
Tax RATE
25%
Tax Table
20%
20%
10%
Tax Table
Tax Table
20%
25%
10%
Tax Table
Sub.to OPT
Tax Table
Tax Table
* Prizes received from
Philippine
sources
exceeding P10,000
are subject to 20%
final tax rate. On the
other hand,
Other
WINNINGS
(regardless
of
amount) are subject
to 20% final tax rate.
2-4
1.
Taxpayer
1.1
1.2
1.3
1.4
is a resident citizen
Taxable income = P1,000,000
Income tax payable = P160,000
Final tax on passive income = P14,500
Total income tax expense = P299,500
2.
Taxpayer is a nonresident citizen
2.1 Taxable income = P860,000
2.2 Income tax payable = P115,200
2.3 Final tax on passive income = P11,500
2.4 Total income tax expense = P251,700
3.
Taxpayer is a resident alien
3.1 Taxable income = P860,000 (same answer with #2.1; nonresident citizen)
3.2 Income tax payable = P115,200 (same answer with #2.2; nonresident citizen)
3.3 Final tax on passive income = P14,500 (same answer with #1.3; resident citizen)
3.4 Total income tax expense = P254,700 computed as follows:
4.
Taxpayer is a nonresident alien engaged in trade or business
4.1 Taxable income = P910,000
4.2 Income tax payable = P131,200
4.3 Final tax on passive income = P16,500
4.3 Total income tax expense = P267,700
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Solutions Manual- I n c o m e Tax a t i o n ( 2 0 1 6 E d i t i o n ) by Tabag & Garcia
 Dividend income from foreign corporationAssume situs is without the Phls.; refer to page 300 for the determination of
situs of dividend income
5.
Taxpayer is a nonresident alien not-engaged in trade or business
Compensation income, Philippines
P600,000
Dividend income - DC
50,000
Dividend income from foreign corp.
Interest income bank deposit, Phls.
20,000
Interest income on FCDS deposit
Exempt
Royalty income from composition
25,000
Raffle draw winnings
10,000
PCSO winnings
200,000
Total GROSS Income
P905,000
x
25%
Income Tax Expense
P226,250
Assume situs is without
Not exempt under the tax code if the
taxpayer is NRA-NETB.
2-5
1.
Taxpayer is a resident citizen
a. Taxable net income = P1,026,100
b. Income tax payable = P293,352
c. Final tax on passive income = P38,030
d. Capital gains tax = P120,600
2.
Taxpayer is a non-resident citizen
a. Taxable income = P388,400
b. Income tax payable = P91,520
c. Final tax on passive income = P38,030
d. Capital gains tax = P120,600
 As long as there is no interest income from foreign currency bank deposit under FCDS/FCDU, the final tax on passive
income of a nonresident citizen is the same with that of a resident citizen.
3.
Taxpayer is a
a.
b.
c.
d.
nonresident alien engaged in trade
Taxable income = P388,400 (same with a non-resident citizen taxpayer)
Income tax payable = P91,520 (same with a non-resident citizen taxpayer)
Final tax on passive income = P38,600 ** same with 2.C except that the DI from DC shall be @ 20%
Capital gains tax = P120,600 (all individual taxpayers are subject to the same types of CGTs)
2-6
a.
b.
c.
Taxable income of the husband = P1,115,000
Taxable income of the wife = P840,000
Consolidated tax due of the husband and the wife = P555,600
2-7
a.
Total capital gains taxes
Total capital gains tax
Note: Sale of shares in the local stock exchange is subject to transaction tax of ½ of 1% of GSP
P310,000
b.
Total Final tax on passive income of Daniel and Kat
P13,550
c.
Taxable net income of Daniel
P547,000
Taxable net income of Kat
P515,000
d.
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Solutions Manual- I n c o m e Tax a t i o n ( 2 0 1 6 E d i t i o n ) by Tabag & Garcia
2-8
a.
b.
c.
d.
e.
f.
Income tax payable, first quarter = P32,500
Income tax payable, second quarter = P14,500
Income tax payable, third quarter = P19,233
Income tax payable, fourth quarter = P59,823
Final tax on passive income = P15,800
Capital gains tax = P600,000 x 6% = P36,000
2-9
Taxable income
P167,600
2-10
Taxable income
P291,000
2-11
a. Special Alien employed by ROHQ = P170,000 computed as follows:

Being a nonresident alien-not engaged in trade or business for income taxation purposes, a Special
Alien is not entitled to personal exemptions and all income other than “compensation income”, unless
exempt under the law, shall be subject to 25% final tax on other income including PCSO winnings.
b. Filipino Citizen employed by ROHQ = P218,500 computed as follows:

**Filipinos employed by ROHQs/RHQs holding managerial or technical position shall have the option to
be taxed either at 15% on their gross compensation income or based on Section 24(A) of the tax code.
However, Filipinos exercising the option to be taxed at 15% preferential rate must meet all the three (3)
requirements as discussed in page 98. In the problem provided, the Filipino counterpart failed to meet
the “compensation threshold test” of at least P975,000. Consequently, the taxpayer shall be subject to
basic income tax on its “compensation income” under Section 24(A) of the tax code. The applicable
personal exemptions shall be deducted in computing the taxable income subject to basic tax
c. Filipino Citizen employed by an OBU = P141,000 computed as follows:


***Filipinos employed by OBUs as well as Petroleum Contractors/Subcontractors shall be subject to 15%
Final Tax on their “compensation income”.
The 15% tax rate is a final tax on “gross compensation” income. Hence, personal exemptions shall not
be deducted from such income.
d. Filipino Citizen employed by a Petroleum Contractor = P141,000
(refer to computations in assumption “c”)
e. Filipino Citizen employed by ROHQ with gross compensation income of P1,250,000 = P346,500 OR
P201,000 computed as follows:

****Filipinos employed by ROHQs/RHQs holding managerial or technical position shall have the option
to be taxed either at 15% on their gross compensation income or based on Section 24(A) of the tax
code, provided, however, that Filipinos exercising the option to be taxed at 15% preferential rate must
meet all the three (3) requirements as discussed in page 98.
2-12
1.
2.
3.
4.
P6M x 6% = P360,000
ZV P2.2M vs. SP of P2.5M**; CGT = P2.5M x 6% = P150,000; **SP = Cost + Gain
Unutilized Proceeds = none; the proceeds were fully utilized; CGT = P0
Unutilized Proceeds = P5M x 20% = P1M; CGT = 1/5 x 6M x 6% = P72,000
2-13
a.
P15M x 6% = P900,000
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Solutions Manual- I n c o m e Tax a t i o n ( 2 0 1 6 E d i t i o n ) by Tabag & Garcia
2-14
2-15
2-16
2-17
b. P20M x 6% = P1,200,000
c. P0
C.G. Tax = none; the transaction resulted to a loss
C.G. Tax = P100,000 x 5% = P5,000
C.G. Tax = (P100,000 x 5%) + (P50,000 x 10%) = P10,000
C.G. Tax = none
TRUE OR FALSE
1. TRUE
2. TRUE
3. TRUE
4. TRUE
5. TRUE
6. FALSE
7. TRUE
8. TRUE
9. FALSE
10. FALSE
MULTIPLE CHOICE
1. D
2. C
3. D
4. D
5. B
6. A
7. B
8. B
9. D
10. B
11. B
12. B
13. A
14. C
15. D
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
TRUE
TRUE
FALSE
TRUE
FALSE
FALSE
TRUE
TRUE
FALSE
TRUE
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
FALSE
TRUE
TRUE
FALSE
TRUE
TRUE
FALSE
FALSE
TRUE
FALSE
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
B
D
B
C
D
D
B
D
B
A
D
D
C
B
A
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
A
B
D
D
B
D
A
D
A
B
D
B
D
D
D
46.
47.
48.
49.
50.
51.
52.
53.
A
B
B
D
B
A
B
C
#49
 ***The SFE is not qualified for the 15% preferential tax rate. However, the fringe benefits received shall still be
subject to 15% FBT because under RR 11-2010, the option to be subject to 15% preferential tax rate and the
coverage of fringe benefit tax are independent to each other. Thus, as provided in the aforementioned RR, there
would be instances where a Filipino employee shall enjoy 15% preferential tax rate but may not be covered by
fringe benefit tax for not being a supervisory/managerial employee. Likewise, there would be instances where such
SFE may not be subject to 15% preferential tax rate due to failure to meet any of the three (3) tests discussed
earlier but may be subject to 15% FBT for being a “managerial” employee. The taxpayer in this particular case is
occupying a managerial position.
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Solutions Manual- I n c o m e Tax a t i o n ( 2 0 1 6 E d i t i o n ) by Tabag & Garcia