INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
89
Chapter 11: Income Tax of Individuals
CHAPTER 11
INCOME TAX OF INDIVIDUALS
Problem 11 – 1 TRUE OR FALSE
1. False – interest income under expanded foreign currency deposit of a nonresident alien is
exempt from income tax in the Philippines.
2. False – taxable for income within only.
3. True
4. True
5. False – the installment payment of income tax due for individuals is allowed only when
the income tax due is more than P2,000.
6. True
7. False – the income of a senior citizen is to be tax just like a minimum wage earner.
8. True
9. False – the quarterly income tax return of a self-employed taxpayer is not subject to
personal exemption, only his adjusted annual income tax return.
10. True
11. False – No personal exemption is allowed to NRANEBT.
12. True
Problem 11 – 2 TRUE OR FALSE
1. True
2. False – a Filipino special taxpayer has the option to be taxed using final tax of 15% or
normal tax of 5% to 32%.
3. True
4. True
5. False – subject to creditable withholding income tax.
6. True.
7. False – Tax credit of income taxes paid outside the Philippines is allowed only for resident
Filipino citizen and domestic corporation.
8. False – The creditable withholding tax is 15%.
9. False – Gross income includes other income but not compensation income.
10. False – tax-exempt
11. True
12. False – Only Philippine lotto and sweepstakes are tax-exempt.
Problem 11 – 3
1. A
2. C
3. D
4. A
5. D
6. C
7. B
8. D
9. D
10. B
Problem 11 – 4
1. D
2. C
3. B
4. A
5. C
6. B
7. D
8. D
9. B
10. C
Problem 11 – 5
1. C
2. B
3. A
4. D
5. D
6. B
7. B
8. D
9. D
10. A
90
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
Problem 11 – 6
C
Basic personal exemption
Additional exemptions for:
Mentally retarded legitimate son (40 years) old
Illegitimate daughter (10 years old)
Adopted child (6 years old)
Total deductions allowed
P50,000
P25,000
25,000
25,000
75,000
P125,000
For additional exemption of the taxpayer’s dependent, the Tax Code defines a
“dependent” as a legitimate, illegitimate or legally adopted child chiefly dependent upon
and living with the taxpayer. Subject to the conditions that such dependent is not more
than twenty-one (21) years of age, unmarried and not gainfully employed or if such
dependent, regardless of age, is incapable of self-support because of mental or physical
defect. The additional exemption of P25,000 per child is granted to a maximum of 4
qualified dependent children. [Sec. 35 (B), NIRC as amended by R.A. 9504]
A taxpayer supporting a senior citizen is not allowed to claim additional exemption. The
Baybay vs. CIR, CTA Case No. 5280 dated Dec. 20, 1996 is no longer applicable because
the most recent Tax Laws R.A. 8424 of January 1, 1998 and R.A. 9504 of June 6, 2008
provides that additional exemption shall apply to qualified dependent children. When
the law does not include it excludes. The old CTA decision is superseded by the two
Special Laws – R.A. 8424 & R.A. 9504 which are superior to CTA decision. Furthermore,
Rev. Regs. No. 4 – 2006, Sec. 7 last paragraph provides that “No personal exemption is
allowed for senior citizen.”
It must be noted that the principle of “lex posteriori derogate priori” – the more
recent law governs.
Problem 11 – 7
C
Basic personal exemption
Additional exemption (a & b only) (P25,000 x 2)
Total personal and additional exemptions
Problem 11 – 8
Not in the choices = P70,000.
Basic personal exemption – reciprocity
Add: Additional exemption – reciprocity (P10,000 x 2)
Basic personal exemption – married
P50,000
50,000
P100,000
P 50,000
20,000
P 70,000
When there is reciprocity, nonresident alien engaged in business in the Philippines is allowed of
personal exemptions subject to limit. The term “personal exemption” in the Philippines includes
both the basic personal exemption (Sec. 35 (A), NIRC) and additional exemption for qualified
dependent children not exceeding four. (Sec. 35 (B), NIRC)
Problem 11 – 9
D
Zero. Maria has no income.
Problem 11 – 10
A
Income from the Philippines (P10,000 x 12)
Less: Personal exemption
Income subject to tax in the Philippines
P120,000
50,000
P 70,000
91
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
Note: Income earned by OFW outside the Philippines is not subject to tax in the Philippines. The
income from the sari-sari store in the Philippines is earned from January to December of the
taxable year.
Problem 11 – 11
Not in the choices =P487,500.
Gross compensation income – Philippines (P250,000 x 12)
Add: 13th month pay
Total taxable compensation
Multiplied by special income tax rate
Income tax payable
P3,000,000
250,000
P3,250,000
15%
P 487,500
The entire compensation income is subjected to 15% tax rate.
Problem 11 – 12
C
Gross compensation income – within (P150,000 x 6)
Add: Taxable 13th month pay [(P150,000/2)
Bonus
Total amount subject to final tax
Multiplied by special income tax rate
Income tax payable
P 900,000
75,000
50,000
P1,025,000
15%
P 153,750
If the special taxpayer is an alien and qualifies to be taxed using 15% special tax rate, all of his
gross compensation income is subject to 15% final tax. Take note that the 13 th month pay
amounting to P30,000 is included as taxable compensation because the tax rate has been
reduced to 15%.
Problem 11 – 13
B
Annual salary (P65,000 x 12 months)
Annual cost of living allowance (P5,000 x 12 months)
13th month pay (P780,000/12)
Gross compensation income
Less: Nontaxable 13th month pay
Taxable gross compensation income
Less: Personal exemption – basic
Net taxable income
P780,000
60,000
65,000
P905,000
30,000
P875,000
50,000
P825,000
Tax on P500,000
Tax on excess [(P825,000 – P500,000) x 32%]
Income tax due
P125,000
104,000
P229,000
Since the compensation income is below the threshold of P975,000 per year of a Filipino Citizen
Employed by Regional or Area Headquarters and Regional Operating Headquarters of
Multinational Companies, his compensation income shall be subject to a regular tax for
individuals. (Sec. 1, Rev. Regs. No. 11-2010)
Take note that if the special Filipino taxpayer opted to be tax using normal tax, the 13 th month
pay is deducted as nontaxable income.
92
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
Problem 11 – 14
C
Gross compensation income
Add: Net income from rent
Rent income
Less: OSD (P50,000 x 40%)
Net income before personal exemption
Less: Basic personal exemption
Premium payments on hospitalization
insurance, limit
Net taxable income
P200,000
P50,000
20,000
30,000
P230,000
P50,000
2,400
52,400
P177,600
For individual taxpayers, only gross sales or gross receipts are allowed as the basis of
OSD (Sec. 34(L), NIRC; RA 9504).
The Baybay vs. CIR, CTA Case No. 5280 dated Dec. 20, 1996 is no longer applicable
because the most recent Tax Laws R.A. 8424 of January 1, 1998 and R.A. 9504 of June
6, 2008 provides that additional exemption shall apply to qualified dependent children.
When the law does not include it excludes. The old CTA decision is superseded by the
two Special Laws –R.A. 8424 & R.A. 9504 which are superior to CTA decision.
Furthermore, Rev. Regs. No. 4 – 2006, Sec. 7 last paragraph provides that “No personal
exemption is allowed for senior citizen.”
It must be noted that the principle of “lex posteriori derogate priori” – the more
recent law governs.
Problem 11 – 15
1.
Letter B
Compensation income
Business and other income:
Professional income (P300,000 + P200,000)
Interest income – without
Dividend income – without
Total business and other income
Less: OSD (P600,000 x 40%)
Net business income
Total net income before personal exemption
Less: Basic personal exemption
Net income to ITR – tabular tax
Subject to
Tabular tax
P240,000
500,000
60,000
40,000
P600,000
( 240,000)
P360,000
P600,000
( 50,000)
P550,000
Interest income within
Dividend income within
Income subject to final tax
2.
Letter A
Compensation income
Business income:
Professional income, net of OSD (P300,000 x 60%)
Total net income before personal exemption
Less: Basic personal exemption
Net income to ITR – tabular tax
Final tax
P100,000
60,000
P160,000
P240,000
180,000
P420,000
50,000
P370,000
93
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
Interest income within
Dividend income within
Income subject to final tax
Problem 11 – 16
P100,000
60,000
P160,000
D
Net taxable income, net of withholding tax
Tax on P140,000
Tax on P250,000
Less: Withholding tax
Net tax payable
Husband
P140,000
P22,500
P50,000
45,000
P5,000
20,000
P 2,500
Problem 11 – 17
B
Compensation as researcher
Less: Personal exemption – basic
Net taxable compensation income
Tax on P500,000
Tax on excess (P50,000 x 32%)
Total income tax from compensation
Dividend income tax (P120,000 x 10%)
Interest income tax (P500,000 x 7.5%)
Total income tax due
Problem 11 – 18
D
Capital gains tax on shares of stock (P80,000 x 5%)
Capital gains tax on sale of land (P2,000,000 x 6%)
Total capital gains tax paid
Problem 11 – 19
Letter B
1.
Final tax on copyright royalty (P11,250/90%) x 10%
Final tax on mineral claim royalty (P12,000/80%) x 20%
Final tax on share from trading partnership as dividend (P270,000/90%) x 10%
Total final tax
2.
Wife
P250,000
P 600,000
50,000
P 550,000
P125,000
16,000
P141,000
12,000
37,500
P190,500
P
4,000
120,000
P124,000
P 1,250
3,000
30,000
P34,250
Letter D
None. All reported earnings are subject to final tax.
Problem 11 – 20
B
Percent of service
Add: Output VAT
Total
Less: Withholding tax
Percent of net proceeds
100%
12%
112%
20%
92%
Net proceeds
Divided by percent of net proceeds
Service fee
P 92,000
92%
P100,000
Withholding tax (P100,000 x 20%)
P 20,000
94
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
VAT (P100,000 x 12%)
P 12,000
Problem 11 – 21
1. Letter A
Salaries of assistants
Traveling expenses
Light and water, Office
Stationeries and supplies
Office rent
Total expenses before contribution
Add: Contribution subject to limit (P500,000 – P176,850) x 10%
Total allowable deductions
2.
3.
Letter C
Professional fees
Less: Allowable deductions
Net income from business
Add: Income from compensation:
Allowance as director of Corporation A
Commissions
Net income before personal and additional exemptions
Letter D
Net income before personal and additional exemptions
Less: Personal and additional exemptions:
Basic – widower
Additional exemptions (P25,000 x 3 qualified children)
Net taxable income
P 96,000
11,000
7,890
1,960
60,000
P176,850
32,315
P209,165
P500,000
209,165
P290,835
P25,000
5,000
P320,835
P 50,000
75,000
Tax on P140,000
Tax on excess (P55,835) x 30%
Income tax due
Problem 11 – 22
1. Using itemized deduction
Compensation income
Gross income from business
Less: Itemized deduction
Total income before personal exemptions
Less: Personal exemptions
Basic personal exemptions
Additional exemptions (P25,000 x 4)
Taxable income
Computation of income tax:
Tax on P70,000
Tax on excess (P50,000) x 20%
Income tax before withholding tax
Less: Withholding tax
Income tax due and payable
30,000
P320,835
125,000
P195,835
P 22,500
13,959
P 36,459
P 20,000
P 400,000
150,000
P 50,000
100,000
250,000
P270,000
150,000
P120,000
P 8,500
10,000
P 18,500
1,000
P 17,500
95
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
2. Using optional standard deduction
Compensation income
Gross income from business
Less: Optional standard deduction (40%)
Total income before personal exemptions
Less: Personal exemptions
Basic personal exemptions
Additional exemptions (P8,000 x 4)
Taxable income
P 20,000
P 400,000
160,000
P 50,000
100,000
Computation of income tax:
Tax on P70,000
Tax on excess (P40,000 x 20%)
Income tax before withholding tax
Less: Withholding Tax
Income tax due and payable
Problem 11 – 23
1. P71,200
Net worth, December 31, 200B
Less: Net worth, December 31, 200A
Unadjusted net income for year 200B
Add back: Non-deductible expenses
Contributions (P20,000 + P50,000)
Total
Less: Non-taxable income
Income before contribution
Less: Contributions:
Deductible in full
With limit
Actual, P50,000
Limit, P268,000 x 10% = P26,800
Allowed
Net income before personal exemptions
Less: Personal exemptions (P50,000 +p100,000)
Net taxable income
2.
150,000
P110,000
P 8,500
8,000
P 16,500
1,000
P 15,500
P375,000
325,000
P 50,000
150,000
70,000
P270,000
2,000
P268,000
P 20,000
26,800
P47,000
Corrected net taxable income
Less: Reported net income subject to tax
Unreported taxable income
Problem 11 – 24
200B net income from business
Capital gains transactions
Short-term capital gains (P40,000 x 100%)
Long-term capital gains (P30,000 x 50%)
Short-term capital loss (P10,000 x 100%)
Net capital gains
Less: 200A Capital loss carry over – limit
Income before personal exemptions
Basic personal exemption- married
Additional exemption (P25,000 x 3)
240,000
P260,000
46,800
P221,200
150,000
P 71,200
P 71,200
24,200
P 47,000
P 600,000
P 40,000
15,000
(10,000)
P45,000
35,000
P 50,000
75,000
10,000
P 610,000
125,000
96
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
Taxable income, 200B
P 485,000
Note: The applicable capital loss carry-over should only be limited to P35,000, because it should
not exceed the net income from operation of such year (Sec. 39D, NIRC).
Problem 11 – 25
1.
Compensation income (P240,000 + P30,000)
Less: Personal exemption (P50,000 + P25,000)
Net taxable compensation
Business income
Less: Business expenses
Net loss from business
Net taxable income
2.
P270,000
75,000
P195,000
P100,000
120,000
(P20,000)
0 P195,000
Tax on P140,000
Tax on excess (P55,000 x 25%)
Income tax due
Less: Tax credit
Income tax still due and payable
Problem 11 – 26
1.
Salary (P30,000 x 12)
Add: Taxable 13th month pay (P35,000 – P30,000)
Total
Less: SSS contribution
Medicare/Philhealth contribution
Taxable compensation income before personal exemption
Less: Personal exemption
Net taxable compensation income
P22,500
13,750
P36,250
30,000
P 6,250
P360,000
5,000
P365,000
P3,000
2,000
5,000
P360,000
50,000
P310,000
Estimated income tax due:
Tax on P250,000
Tax on excess (P60,000 x 30%)
Total income tax due per year
Divided by number of months in a year
Monthly withholding tax
2.
Quarterly business income tax
Business income per quarter
Less: Business expense per quarter
Net income per quarter
Tax on P70,000
Tax on excess (P10,000 x 20%)
Quarterly business income tax per quarter
Problem 11 – 27
1.
Entertainment fee (P1,700,000/85%)
Business income
Philippines
Japan
Total gross income
Less: OSD (P3,500,000 x 40%)
P50,000
18,000
P68,000
12
P 5,667
P200,000
120,000
P 80,000
P
8,500
2,000
P 10,500
P2,000,000
500,000
1,000,000
P3,500,000
1,400,000
97
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
Net income before personal exemption
Less: Personal exemption - basic
Additional (P25,000 x 4)
Net taxable income
2.
Tax on P500,000
Tax on excess (P1,450,000 x 32%)
Income tax due
3.
Tax credit
Creditable withholding tax on fees
(P2,000,000 x 15%)
Business income tax paid - Philippines
Japan (P589,000 x 594,000*/2,100,000))
P166,603 vs. actual P300,000, lower
4.
P2,100,000
P50,000
100,000
150,000
P1,950,000
P 125,000
464,000
P 589,000
P300,000
40,000
166,603
Income tax still due (P589,000 – P506,603)
P 506,603
P 82,397
Supporting computation of net taxable income before personal exemptions:
Gross receipts
Percent
Within
2,500,000
71%
Outside
1,000,000
29%
Total
3,500,000
100%
Allocated OSD x percent
Net income before personal exemption
994,000
1,506,000
406,000
594,000
1,400,000
2,100,000
Problem 11 – 28
Gross professional income (P100,000/90%)
Rent income (P300,000/2)
Total gross income
Less: OSD (40%)
Net income from business
Add: Gross compensation income
Total
Less: Personal exemptions
Net taxable income
Tax on P140,000/ P250,000
Tax on excess:
Mr. Bravo (P91,667 x 25%)
Mrs. Bravo (P90,000 x 30%)
Income tax due
Withholding tax on compensation
Withholding tax on professional income (P111,111 – P100,000)
Income tax still due and payable
Problem 11 – 29
1. P290,000
Compensation income
Taxable 13th month pay and bonuses (P40,000 – P30,000)
Net business income (P400,000 – P300,000)
Mr. Bravo
P111,111
150,000
P261,111
104,444
P156,667
225,000
P381,667
150,000
P231,667
Mrs. Bravo
P 22,500
P 50,000
22,917
.
45,417
25,000)
11,111)
9,306
27,000
P 77,000
( 50,000)
.
P 27,000
P
(
(
P
P150,000
P150,000
60,000
P 90,000
300,000
P390,000
50,000
P340,000
P300,000
10,000
100,000
98
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
Capital gains – long-term (P60,000 x 50%)
Total
Less: Personal exemptions (P50,000 + P100,000)
Net taxable income
2. (P8,000)
Tax on P250,000
Tax on excess (P40,000 x 30%)
Total income tax due
Less: Income tax paid on:
Compensation
Quarterly business income
Income tax refund
Problem 11 – 30
1.
13th month pay
Other benefits:
Excess of clothing allowance (P4,500 – P4,000)
Excess of rice subsidy (P1,600 – P1,500) x 12
Total (not exceeding P30,000) – nontaxable
Allowable de minimis:
Clothing allowance
Rice subsidy (P1,500 x 12)
Total 13th month pay and other benefits – nontaxable
2.
3.
Basic salary (P25,000 x 12)
Less: Personal exemptions
Net taxable compensation income
30,000
P440,000
150,000
P290,000
P
P
50,000
12,000
62,000
(P
70,000
8,000)
P 50,000
20,000
P25,000
P 500
1,200
P4,000
18,000
1,700
P26,700
22,000
P48,700
P300,000
150,000
P150,000
Tax on P140,000
Tax on excess (P10,000 x 25%)
Total income tax due
P22,500
2,500
P25,000
Withholding tax from January to November 200A
(P25,000/12) x 11
P22,917
Net taxable compensation income
P150,000
Add: Net business income:
Professional fees (P224,000/1.12)
P 200,000
Gross income from sales (P5,000,000 – P3,200,000)
1,800,000
Less: Itemized deductions:
P2,000,000
Operating expenses, net of interest expense
(P900,000 – P50,000)
P850,000
Interest expense (P50,000 – (P75,000 x 33%)
25,250
824,750
Net income before contribution
P1,175,250
Less: Contribution, actual = P100,000, lower
Contribution, limit (P1,175,250 x 10%)= P117,525
100,000
1,075,250
Net taxable income
P1,225,250
Tax on P500,000
Tax on excess (P725,250 x 32%)
Total income tax due
Less: Tax credits:
P125,000
232,080
P357,080
99
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
WTW from Jan to Nov., 200A
WT on Professional income (P224,000 – P200,000)
Income tax still due and payable on December 31, 200A
P22,917
24,000
Problem 11 – 31
Gross income from business (P1,000,000 – P700,000)
Operating expenses (P250,000 – P60,000 – P30,000)
Deductible interest expense (P30,000) – (P20,000 x 33%)
Deductible contribution (P300,000 – P160,000 – P23,400) x 10%
Net business income
Capital asset transactions:
Capital gains – short-term (P300,000 x 100%)
Capital losses – long-term (P400,000 x 50%)
Lotto winning, USA
Gambling winnings
Gambling losses (excess cannot be deducted from other income)
Gross compensation income (P180,000 + P20,000)
Taxable 13th month pay (P35,000 – P30,000)
Net taxable income before exemption
Less: Personal exemptions (P50,000 + P100,000)
Net taxable income
46,917
P310,163
P
(
(
(
P
P 300,000
200,000
300,000
160,000)
23,400)
11,660)
104,940
100,000
300,000
P 200,000
250,000
200,000
5,000
P 709,940
150,000
P 559,940
Tax on P500,000
Tax on excess (P59,940 x 32%)
Total income tax due
Less: Withholding tax on compensation
Income tax still due and payable
P 125,000
19,181
P 144,181
20,000
P 124,181
Problem 11 – 32
Note: OSD is not applicable unless the taxpayer signified in his ITR that he opted to use OSD in
lieu of itemized deductions. (Sec. 34 (L), NIRC)
Taxpayer is a resident citizen
a. Normal (tabular) tax:
Salaries:
Within (P180,000/90%)
Without ($2,250/90%) x P50
Commissions:
Within (P57,000/ 95%)
Without ($950/ 95%) x P50
Interest income-without
($1,200/80%) x P50
Dividend-without ($1,800/90%) x P50
Totals
Less: Personal exemption – basic
Taxable income
Tax on P500,000
Tax on excess (P60,000) x 32%
Total
Less: Tax credits:
Compensation (P200,000 x 10%)
Commission (P60,000 x 5%)
Philippines
P200,000
U. S. A.
Total
P125,000
P325,000
50,000
75,000
110,000
75,000
100,000
P350,000
100,000
P610,000
50,000
P560,000
60,000
.
P260,000
P125,000
19,200
P144,200
P20,000
3,000
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
100
Chapter 11: Income Tax of Individuals
Allowable tax credit - foreign*
Income tax due and payable, after tax credits
40,000
63,000
P 81,200
*Allowable tax credit paid outside the Philippines is lower than tax limit or actual tax
paid. The tax credit is computed as follows:
Limit (P350,000/P610,000) x P144,200
Actual foreign taxes paid:
Interest (P75,000 x 20%)
Compensation (P125,000 x 10%)
Dividend (P100,000 x 10%)
Commissions (P50,000 x 5%)
Total
P82,738
Allowable foreign tax credit - lower
P40,000
P15,000
12,500
10,000
2,500
P40,000
Note: The actual tax paid outside the Philippines is lower than the computed tax limit; hence,
the actual tax paid without is the allowable tax credit.
b. Passive income tax:
Interest income within (P50,000/ 80%) x 20%
Dividend income within (P9,000/ 90%) x 10%
Total passive income tax for the year
P12,500
1,000
P13,500
Note: Philippine Lotto winnings are tax-exempt.
Taxpayer is a nonresident citizen
a. Normal (tabular) tax:
Salaries - within (P180,000/90%)
Commissions- within (P57,000/95%)
Net income
Less: Personal exemption - basic
Taxable income
Tax on P140,000
Tax on excess (P70,000) x 25%
Total tax due
Less: Withholding taxes within (P20,000 + P3,000)
Income tax due and payable
P200,000
60,000
P260,000
50,000
P210,000
P22,500
17,500
P40,000
23,000
P17,000
b. Passive income tax:
Interest income within (P50,000/80%) x 20%
Dividend income within (P9,000/90%) x 10%
Total passive income tax for the year
P12,500
1,000
P13,500
Note: Nonresident citizens are taxable only on income derived within the Philippines.
Taxpayer is a resident alien. Solution is the same as nonresident citizen.
Taxpayer is a nonresident alien engaged in trade or business in the Philippines.
The taxpayer cannot be regarded as doing business in the Philippines because he has
no business income in the Philippines.
101
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 11: Income Tax of Individuals
If the taxpayer has stayed more than 180 days in the Philippines, he is regarded as
doing business. The computation of his net income tax payable in the Philippines will be
the same as in number 2 under the assumption that his country is granting the same
privilege of reciprocity to nonresident Filipino doing business in that foreign country.
Taxpayer is a nonresident alien not engaged in trade or business in the Philippines.
Nonresident aliens are subject to tax of 25% based on their gross income derived within
the Philippines. In our illustration, let us assume that the source of income has been
deducted with 25% tax on the income given to the taxpayer - that is, the amount shown
in the problem is net of 25% final tax.
The income tax of Mr. Ramsay Colorado would be:
Salaries- within (P180,000/75%)
Commissions- within (P57,000/ 75%)
Interest income within (P50,000/ 75%)
Dividend income within (P9,000/ 75%)
Gross income within
Multiplied by tax rate
Income tax for the taxable year within
P240,000
76,000
66,667
12,000
P394,667
25%
P 98,667
Note: In computing the income tax, a fractional part of a peso less than P0.50 shall be
disregarded. If the fractional part is P0.50 or more, it shall be rounded up to P1.00 (R.A. 590).
Problem 11 – 33
Gross income from business (P1,000,000 – P700,000)
Operating expenses (P250,000 – P60,000 – P30,000)
Deductible interest expense (P30,000) – (P20,000 x 33%)
Deductible contribution (P300,000 – P160,000 – P23,400) x 10%
Net business income
Capital asset transactions:
Capital gains – short-term (P300,000 x 100%)
Capital losses – long-term (P400,000 x 50%)
Lotto winning, USA
Gambling winnings
Gambling losses (excess cannot be deducted from other income)
Gross compensation income (P180,000 + P20,000)
Taxable 13th month pay (P35,000 – P30,000)
Net taxable income before exemption
Less: Personal exemptions (P50,000 + P100,000)
Net taxable income
Tax on P500,000
Tax on excess (P59,940 x 32%)
Total income tax due
Less: Withholding tax on compensation
Income tax still due and payable
P
(
(
(
P
P 300,000
200,000
300,000
160,000)
23,400)
11,660)
104,940
100,000
300,000
P 200,000
250,000
200,000
5,000
P 709,940
150,000
P 559,940
P 125,000
19,181
P 144,181
20,000
P 124,181