Final Tax vs.

Regular tax

1. Carlo. Married, with two dependent children, received the following income:

Business income, Philippines 1,000,000

Business income, Hongkong 200,000
Interest peso deposit, MBTC 100,000
Interest, US$ deposit, BDO ($10,000 x P 42) 420,000
Interest deposit in Hongkong (HK$10,000 x P 5) 50,000
Prize (TV) won in local lottery 50,000
PCSO/ lotto winnings 2,000,000
Prize won in contest in US 300,000
Lotto winning in US 100,000
Dividend, domestic company 600,000

1. 1 Determine the taxable net income assuming he is

RC NRC NRA-ETB NRA – NETB

1.2 Compute the income tax due for regular income.

1.3 Determine the final tax assuming he is

RC NRC NRA-ETB NRA – NETB

1.1 and 1.2 Solution: (RC) – within and without the Philippines
Business income, Hongkong 200,000
Interest deposit in Hongkong (HK$10,000 x P 5) 50,000
Prize won in contest in US 300,000
Lotto winning in US 100,000
Taxable regular income 1,650,000

1st 800,000 P 130,000

Excess (1,650,000 – 800,000) x 30% 255,000
Tax due P 385,000

(NRC and RA and NRA - ETB) – within the Philippines

Business income, Philippines 1,000,000

1st 800,000 P 130,000

Excess (1,000,000 – 800,000) x 30% 60,000
Tax due P 190,000

(NRA-NETB) – within the Philippines – Gross Income Tax

Business income, Philippines 1,000,000
Tax due: 1,000,000 x 25% = 250,000

1.4 Solution: (Final Tax, RC and RA)

 Interest peso deposit, MBTC (100,000 x 20%) 20,000
Interest, US$ deposit, BDO ($10,000 x P 42 = 420,000 x 15%) 63,000
Prize (TV) won in local lottery (50,000 x 20%) 10,000
PCSO/ lotto winnings (2,000,000 x 20%) 400,000
Dividend, domestic company (600,000 x 10%) 60,000
Total final tax 553,000

NRC (exclude FCDS), so 553,000 – 63,000 = 490,000.

NRAETB (exclude FCDS and FT on dividend income is 20%)

Interest peso deposit, MBTC (100,000 x 20%) 20,000
Prize (TV) won in local lottery (50,000 x 20%) 10,000
PCSO/ lotto winnings (2,000,000 x 20%) 400,000
Dividend, domestic company (600,000 x 20%) 120,000
Total final tax 550,000

NRANETB (based on gross income and other income)

Interest peso deposit, MBTC 100,000
Prize (TV) won in local lottery 50,000
PCSO/ lotto winnings 2,000,000
Dividend, domestic company 600,000
Total income 2,750,000
Final tax (2,750,000 x 25%) 687,500

Regular tax, final tax and CGT

2. Ana, a resident citizen provided the following data for the current taxable year:
Gross income from business (gross of P 12,000 CWT) P 700,000
Business expenses 300,000
Royalty from books 40,000
Gain on sale to buyer of shares of stock of domestic
Corporation held as capital asset 70,000
Loss on sale of land in the Philippines held as capital asset
With cost of P 1,500,000 when the zonal value is P 1,200,000 500,000

How much is the income tax payable of Ana?

Solution:
Gross income from business 700,000
Business expenses (300,000)
Taxable net income 400,000

1st 250,000 exempt

Excess (400T-250T) x 20% 30,000
Tax due 30,000
CWT (12,000)
 Tax payable (still due) 18,000

How much is the total income tax expense of Ana?

Regular tax: 30,000

Final tax: Royalty from books (40,000 x 10%) 4,000

Gain on sale to buyer of shares of stock of domestic corporation

held as capital asset (70,000 x 15%) 10,500
Loss on sale of land in the Philippines held as capital asset
with cost of P 1,500,000 when
the zonal value is P 1,200,000 (1,200,000 x 6%) 72,000
CGT 82,500

Total income tax expense 116,500

 For CGT, even the disposal resulted to a loss, it is subject to tax because the tax basis is
the higher amount between the selling price of FMV. To get the selling price,

Loss (500,000)
Cost 1,500,000
SP 1,000,000 (lower than the zonal value, hence the zonal value
prevails.

 CWT is an advance payment of income tax. It must be deducted from the tax due.

Regular Tax, Married Taxpayers, Mixed Income

3. Juan, married, supporting his three (3) minor children had the following data for the current
taxable year (exchange rate $1 = P 50):

Philippines Abroad
Business income P 1,000,000 $ 20,000
Professional income 400,000 10,000
Salaries 200,000
Business and professional expenses 250,000 8,000
Income tax paid 4,000

If Juan is a resident citizen and taxable year is 2018, his income tax payable is?

Solution:
Business income 2,000,000

Professional income 900,000

Salaries 200,000
 Business and professional expenses (650,000)
Taxable income 2,450,000

1st 2,000,000 490,000

Excess 144,000
Tax due 634,000
Tax credit (200,000)
Tax still due 434,000

If Juan is a nonresident citizen and the taxable year is 2018, his income tax payable is:

Solution:
Business income 1,000,000
Professional income 400,000
Salaries 200,000
Business and professional expenses (250,000)
Taxable income 1,350,000

1st 800,000 130,000

Excess 165,000
Tax due 295,000

If he is a non – resident alien not engaged in business, disregarding professional and

business data, the total income tax that should be withheld from his income is:

Solution:
Salaries 200,000 x 25% = 50,000

If he is a special alien employee, disregarding professional and business data, the total
income tax that should be withheld from his income assuming the taxable year is 2018
should be?

Solution: Exempt (below P 250,000)

Self – employed (Sec. 24A vs. 8% rule)

4. Lorna, a self – employed resident citizen provided the following data for year 2018:
Sales P 2,800,000
Cost of sales 1,125,000
Business expenses 650,000
Gain in sale of shares of foreign corporation 50,000
Interest income from peso bank deposit 80,000
Interest income from bank deposit under FCDS 120,000
Gain on sale of shares of DC (non – listed) 150,000
Gain on sale of shares of DC (listed in the local stock exchange) 200,000
Gain on sale of land in the Philippines held as
Capital asset with cost of P 1.5M when the zonal value is P 1.2M 500,000
 How much is the total income tax expense of Lorna for the year?

Solution:
Sales 2,800,000
Cost of sales (1,125,000)
Business expenses (650,000)
Gain in sale of shares of foreign corporation 50,000
Taxable net income 1,075,000
Tax due:
1st 800,000 130,000
Excess 82,500
Tax due 212,500

Interest income from peso bank deposit (80,000 x 20%) 16,000

Interest income from bank deposit under FCDS (120,000 x 15%) 18,000
Gain on sale of shares of DC (non – listed) (150,000 x 15%) 22,500
Total final tax 56,500

Gain on sale of land in the Philippines held as

Capital asset with cost of P 1.5M when the zonal value is P 1.2M
(500,000 + 1,500,000) x 6% 120,000

Total income tax expense (212,500 + 56,500 + 120,000) 389,000

Excluded: STT: Gain on sale of shares of DC (listed in the local stock exchange)
200,000

How much is the total income tax of Lorna assuming she opted to be taxed at 8%?

Solution:
Sales and other income (2,800,000 + 50,000) 2,850,000
Exemptions (250,000)
Net 2,600,000 x 8%

Tax due 208,000

FT 56,500
CGT 120,000
Total 384,500

Assuming Lorna is a VAT – registered, how much is her total income tax expense
assuming she opted to be taxed at 8% income tax rate?
a. P 321,500 c. P 384,500
c. P 351,500 d. P 389,000

He cannot avail the 8%.

 Using the same data except her gross sales for the year was P 3.8M, how much is the total
income tax expense assuming she opted to be taxed at 8% income tax rate?
a. P 321,500 c. P 352,500
b. P 351,500 d. P 690,500

Sales 3,800,000
Cost of sales (1,125,000)
Business expenses (650,000)
Gain in sale of shares of foreign corporation 50,000
Taxable net income 2,075,000
Tax due:
1st 2,000,000 490,000
Excess 24,000
Tax due 514,000
FT 56,500
CGT 120,000
Total 690,500

Minimum Wage Earner

7. Pedro, single, a minimum wage earner of Makibaka Corporation. In addition to his basic
minimum wage of P 180,000 for the year, he also received the following benefits:
 Holiday pay, P 32,000; OT P 25,000; NSD, P 18,000

The income subject to tax should be:

Answer: NIL

 MWE is exempt from tax including his holiday pay, over time, night shift differential,
and hazard pay.
 Benefits of MWE in excess of the exemptions are taxable.
 If MWE is a mixed income earner, his compensation is exempt while his other income is
taxable.

RCIT vs. MCIT

Jimenez Corporation, a domestic corporation has the following records of computation of its
income tax during the three (3) consecutive taxable years:

2018 2017 2016

Sales P 3,000,000 P 3,400,000 P 4,300,000
Less: Cost of sales 1,800,000 2,450,000 2,250,000
Add: net capital gain 80,000
Gross income P 1,280,000 P 950,000 P 2,060,000
Less: deductions 800,000 925,000 1,945,000
Taxable income P 480,000 P 25,000 P 115,000
How much is the tax payable in 2016, 2017 and 2018?

Solution:
2018 2017 2016
Sales P 3,000,000 P 3,400,000 P 4,300,000
Less: Cost of sales 1,800,000 2,450,000 2,250,000
Add: net capital gain 80,000
Gross income P 1,280,000 P 950,000 P 2,060,000
Less: deductions 800,000 925,000 1,945,000
Taxable income P 480,000 P 25,000 P 115,000
Rate of tax 30% 30% 30%
Normal income tax P 144,000 P 7,500 P 34,500
MCIT: 2018 (1,280,000 x 2%)P 25,600
MCIT: 2017 (950,000 x 2%) P 19,000
MCIT: 2016 (2,060,000 x 2%) P 41,200
Income tax due P 144,000 P 19,000 P 41,200
Less: Excess of MCIT last year 18,200
Income tax payable P 125,800 P 19,000 P 41,200

IAET

Manunuba Corporation, a domestic corporation has the following data in 2018:

Gross income (gross of WT of 1%) P 1,500,000

Business expenses 600,000
Gain on sale of business asset 60,000
Interest on deposit with MBTC, net of tax 5,000
Sale of shares of stocks, not listed and traded:
Selling price P 150,000
Cost 115,000
Dividends from Castor Oil Corporation, domestic 35,000
Dividends paid during the year 120,000
Reserved for building construction 300,000

In 2018, the corporation suffered an operating loss of P 130,000. This amount was carried
forward and claimed as deduction from gross income in 2018:

The IAET is –

Solution:
Income from sales P 1,500,000
Gain on sale of business assets 60,000
Total gross income P 1,560,000
Less: Expenses 600,000
NOLCO 130,000
Taxable net income P 830,000
Tax due (830,000 x 30%) 249,000
Less: Withholding tax (1.5M x 1%) 15,000
Tax payable P 234,000

Taxable income P 830,000

Add: Interest on deposit (5,000/80%) 6,250
Shares of stock (150,000 -115,000) 35,000
Dividends from domestic 35,000
NOLCO 130,000 206,250
Total P 1,036,250
Less: Final tax on interest (6,250 x 20%) 1,250
Tax on domestic shares (35,000 x 15%) 5,250
Dividends paid during the year 120,000
Reservation 300,000
Income tax paid 249,000 675,500
IAE P 360,750
Tax P 36,075