Incometax 09a Solution

FS2122-INCOMETAX-09A-SOLUTION
INCOME TAXATION
TAXATION OF INDIVIDUALS
EXERCISES
I. Type of taxpayer
1. Vina Valera, a Filipino, is the sole proprietor of VIVA Travel and Tours, a travel agency
based in Malate, Manila, with a branch in New York City in the United States which is
managed by Hazel Herrera, a Filipino appointed by Vina Valera. The bulk of Vina Valera’s
income comes from the profit earned by the Malate main office and that of the New York
branch. Hazel Herrera receives a salary as manager of the branch. She also maintains a
savings account at the Malate Branch of Banco De Oro to which she regularly remits part of
her salary and from which she earns interest income.
In 2019, Vina Valera visited the New York City branch in March and November
spending a month during each visit. Hazel Herrera came to Manila in July of the same year
to attend to the sale of her vacant lot from which she realized a gain from the sale amounting
to P500,000.00. In 2019, what type of taxpayer was: (a) Vina Valera? (b) Hazel Herrera?
Answers: (a) Vina Valera – Resident citizen. She was in the Philippines most of
time during the taxable year 2019 as her presence was required being the sole proprietor of
the travel agency. (b) Hazel Herrera – Non-resident citizen. She is employed abroad on a
permanent basis, aside from the fact that she was physically present abroad most of the time
in 2019.
2. Gerardo Ganzon is an overseas Filipino worker who has been employed as an electrical
engineer in Maqdira Power Corporation in Saudi Arabia since 2015. In 2019, he came home
to the Philippines in September for his one-month annual vacation. Aside from his salary
from the company, he also earns from his hardware business located in Balayan, Batangas
which is managed by Arnulfo, his brother. What type of taxpayer was Gerardo Ganzon in
2019?
Answer: Non-resident citizen. His employment as an overseas contract worker
required him to be physically abroad most of the time during the taxable year 2019.
3. In February 2019, Elmer Engracio, a Filipino, resigned from his employment in Manila. The
following March, he went to the United States as a tourist on a six-month visa ending in
August 31, 2019. He was able to extend his visa for another two months before its
expiration and stayed in the US up to October 31, 2019. During his stay in the US, he was an
occasional baby-sitter for his cousin who would give him US$50.00 each time that he took
the job. He arrived in the Philippines on November 2, 2019. What type of taxpayer was
Elmer Engracio in 2019?
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Answer: Resident citizen. Although he was physically abroad most of the time
during the taxable year (not less than 183 days), this was not because it was required by any
employment.
4. Damaso Divina is Filipino employed as a seaman on board the vessel MV Onassis which is
registered in Greece. The vessel is engaged exclusively in international trade. Aside from his
salary as seaman, Damaso Divina also earns rent income from his beach house located in
Dingalan, Aurora, which is managed by his wife Nonita. In August 2019, he came home to
the Philippines for his one-month annual vacation. What type of taxpayer was Damaso
Divina in 2019?
Answer: Non-resident citizen. His employment as seaman required him to physically
abroad during the taxable year 2019.
5. On October 1, 2018, Shigeaki Hatori, a Japanese, came to the Philippines to work as a

consultant of Compumatrix Corporation, a domestic corporation engaged in the business of
offering online computer games. He left for Japan on July 1, 2019 for a one-week vacation
and returned to the Philippines on July 8, 2019. He left the Philippines for good on March
31, 2020 when his contract was completed. What type of taxpayer was Shigeaki Hatori in
2019?
Answer: Resident alien. His purpose in coming to the Philippines required an
extended stay. Besides, by the end of 2019, he had been in the Philippines for more than a
year.
6. On April 1, 2019, Kuo Min Tang, a citizen of China residing in Beijing, arrived in the
Philippines as a tourist. He brought with him 10 cartons of a Chinese herbal medicine which
he sold to various local herbal medicine stores over a period of two months. When he ran out
of stock on May 31, 2019, he went to China to get additional stock. He came back to the
Philippines on June 15, 2019 with an additional stock of 10 cartons which he was able to sell
over a period of one month. His sales generated for him a profit of P300,000.00. Thereafter,
he went sight-seeing in various tourist spots in the Philippines including Boracay where he
met Ton Shing Wa, a fellow Chinese tourist, who had been in the Philippines since January
15, 2019. Together they visited other places in the country. Before they left for Beijing on
August 15, 2019, Ton Shing Wa sold his camera where he realized a gain of P15,000.00. He
had no other transaction during the year. In 2019, what type of taxpayer was (a) Kuo Min
Tang? (b) Ton Shing Wa?
Answers: (a) Kuo Min Tang – Non-resident alien not engaged in trade or business in
the Philippines since his aggregate stay in the Philippines was only for around 120 days (180
days or less is provided by law), notwithstanding that he had entered into several transactions
during the taxable year 2019. (b) Ton Shing Wa – Non-resident alien engaged in trade or
business in the Philippines since his stay in the Philippines was more than 180 days (212 days
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to be exact) notwithstanding that he entered into an isolated transaction, i.e., the sale of his
camera.
II. Type of Income
NRA NRA
No. Particulars RC NRC RA ETB NETB
1 Interest income on peso deposit at P P P P P
PNB-Manila 20% 20% 20% 20% 25%
2 Interest income on dollar deposit at P P
PNB-Manila under the foreign 15% E 15% E E
currency deposit system
3 Interest on dollar at Mellon Bank, N
California, USA GR/ E E E E
8%
4 Sale at a loss of lot located in Manila P P P P P
held as capital asset 6% 6% 6% 6% 6%
5 Sale at a gain of lot located in Manila P P P P P
held as capital asset 6% 6% 6% 6% 6%
6 Royalties on books in Manila P P P P P
10% 10% 10% 10% 25%
7 Royalties on product sales in Manila P P P P P
20% 20% 20% 20% 25%
8 Royalties on product sales in USA N
GR/ E E E E
8%
9 Prize in Manila amounting to P P P P P
P50,000.00 20% 20% 20% 20% 25%
10 Prize in Quezon City amounting to N N N N P
P9,000.00 GR/ GR/ GR/ GR/ 25%
8% 8% 8% 8%
11 PCSO lotto winnings amounting to P
P10,000.00 or less E E E E 25%
12 PCSO lotto winnings amounting to P P P P P
more than P10,000.00 20% 20% 20% 20% 25%
13 Dividend income in cash from P P P P P
domestic corporation 10% 10% 10% 20% 25%
14 Raffle winnings in a mall in Manila P P P P P
amounting to P50,000.00 20% 20% 20% 20% 25%
15 Dividend income in cash from a N
corporation based in USA GR/ E E E E
8%
16 Interest income on long term deposit E E E E P
at BDO Manila with maturity of 7 25%
years
17 Interest income on long-term
investment at BDO Manila pre- P P P P P
terminated with 3 ½ years remaining 12% 12% 12% 12% 25%
until maturity
18 Gain on sale of painting in Manila, N N N N P
held as capital asset for 8 months GR/ GR/ GR/ GR/ 25%
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8% 8% 8% 8%
19 Gain on sale of shares of a domestic P P P P P
corporation held as capital asset not 15% 15% 15% 15% 15%
thru a local stock exchange
20 Gain on sale of a lot located in N
California, USA GR/ E E E E
8%
21 Salary of P600,000.00 in Manila C C C C P
GR GR GR GR 25%
22 Sales from business in Manila B B B B P
GR/ GR/ GR/ GR/ 25%
8% 8% 8% 8%
23 Sales from business in California, B
USA GR/ E E E E
8%
24 Sale at a loss of shares of a domestic
corporation held as capital asset not E E E E E
thru a local stock exchange
25 Sale at a gain of shares of stock of N
Black Gold Corp., a corporation based GR/
in the US 8% E E E E
Required: Indicate the type of income, and the applicable tax rate, by using the following letters:
C – Compensation
P – Passive Income
B – Business/professional income – GR (Graduated Rates)/8% on gross sales/gross receipts
N – Non-operating income – GR (Graduated Rates)/8% on gross sales/gross receipts
f
E – Exempt from tax
III. Computation of income tax
Using the tax table (Tax Table 1), compute the income tax assuming the taxable income is:
1. P20,000.00. – 0
2. P100,000.00. – 0
3. P250,000.00. – 0
4. P350,000.00. – P20,000.00 [(P350,000 – 200,0000) x 20%]
5. P400,000.00. – P30,000.00 (given in Table)
6. P700,000.00. – P105,000.00 [P30,000 + 25%(P700,000 – 400,000)]

7. P800,000.00. – P130,000.00 (given in Table)
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8. P1,000,000.00. – P190,000.00 [P130,000 + 30%(P1,000,000 – 800,000)]
9. P2,000,000.00. – P490,000.00 (given in Table)
10. P3,000,000.00. – P810,000.00 [P490,000 + 32%(3,000,000 – 2,000,0000)]
11. P6,000,000.00. – P1,770,000.00 [P490,000 + 32%(P6,000,000 – 2,000,000)]
12. P8,000,000.00. – P2,410,000.00 (given in Table)
13. P12,000,000.00. – P3,810,000.00 [P2,410,000 + 35%(P12,000,000 – 8,000,000)]
14. P15,000,000.00. – P4,860,000.00 [P2,410,000 +35%(P15,000,000 – 8,000,000)]
15. P20,000,000.00 – P6,610,000.00 [P2,410,000 + 35%(P20,000,000 – 8,000,000)]
IV. Computation of income subject to tax/taxable income and income tax

The following data pertain to an individual taxpayer during the taxable year:
Philippines Abroad
Compensation income P 800,000
Sales from business 5,000,000 P 4,000,000
Cost of sales 1,000,000 1,500,000
Operating expenses 1,200,000 1,800,000
Interest income on bank deposit in Makati 5,000
Interest income on Dollar deposit under the foreign
currency deposit system 8,000
Cash dividend from domestic corporation 10,000
Cash dividend from foreign corporation 400,000
Royalty on product sales 500,000 300,000
Required: Compute the taxable income/gross income subject to tax, as the case may be, and the tax
thereon using the graduated rates, and all the final taxes, if any, under the following assumptions
1. Resident citizen
2. Non-resident citizen
3. Resident alien
4. Non-resident alien engaged in business in the Philippines
5. Non-resident alien not engaged in trade or business in the Philippines.
Solution:
1. Resident citizen
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Interest income on bank deposit in Makati
(P5,000 x 20%) P 1,000
Interest income on Dollar deposit under the foreign currency

deposit system (P8,000 x 15%) P 1,200
Cash dividend from domestic corporation

(P10,000 x 10%) P 1,000
Royalty on product sales (P500,000 x 20%) P 100,000

Sales – Philippines P 5,000,000
Less: Cost of sales 1,000,000
Gross income 4,000,000
Less: Operating expenses 1,200,000 P 2,800,000
Sales – Abroad 4,000,000

Less: Operating expenses 1,800,000 700,000
Net income from operations 3,500,000
Add: Non-operating income
Dividend from
foreign corp. 400,000
Royalty on product
sales 300,000 700,000
Net income from business and other non-operating income 4,200,000
Taxable income P 5,000,000
Income tax on P5,000,000 [(P490,000 + (P3,000,000 x 32%)] P 1,450,000
2. Non-resident citizen

(P5,000 x 20%) P 1,000

deposit system Exempt

(P10,000 x 10%) P 1,000
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Less: Operating expenses 1,200,000 2,800,000
Income tax on P3,600,000 [P490,000 + (P1,600,000 x 32%)] P 1,002,000
3. Resident alien

(P5,000 x 20%) P 1,000

deposit system (P8,000 x 15%) P 1,200

(P10,000 x 10%) P 1,000

4. Non-resident alien engaged in trade or business in the Philippines (NRAETB)

(P5,000 x 20%) P 1,000


(P10,000 x 20%) P 2,000
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5. Non-resident alien not engaged in trade or business in the Philippines (NRNETB)


Gross income from business 4,000,000
Interest income on bank deposit in Makati 5,000
Dividend from domestic corporation 10,000
Royalty on product sales 500,000
Gross income P 5,315,000
Final income tax (P5,315,000 x 25%) P 1,328,750
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FS2122-INCOMETAX-09A-SOLUTION

5. On October 1, 2018, Shigeaki Hatori, a Japanese, came to the Philippines to work as a

E – Exempt from tax

III. Computation of income tax

4. P350,000.00. – P20,000.00 [(P350,000 – 200,0000) x 20%]

5. P400,000.00. – P30,000.00 (given in Table)

6. P700,000.00. – P105,000.00 [P30,000 + 25%(P700,000 – 400,000)]

9. P2,000,000.00. – P490,000.00 (given in Table)

10. P3,000,000.00. – P810,000.00 [P490,000 + 32%(3,000,000 – 2,000,0000)]

11. P6,000,000.00. – P1,770,000.00 [P490,000 + 32%(P6,000,000 – 2,000,000)]

12. P8,000,000.00. – P2,410,000.00 (given in Table)

13. P12,000,000.00. – P3,810,000.00 [P2,410,000 + 35%(P12,000,000 – 8,000,000)]

14. P15,000,000.00. – P4,860,000.00 [P2,410,000 +35%(P15,000,000 – 8,000,000)]

15. P20,000,000.00 – P6,610,000.00 [P2,410,000 + 35%(P20,000,000 – 8,000,000)]

IV. Computation of income subject to tax/taxable income and income tax

4. Non-resident alien engaged in business in the Philippines

5. Non-resident alien not engaged in trade or business in the Philippines.

Interest income on Dollar deposit under the foreign currency

Cash dividend from domestic corporation

Royalty on product sales (P500,000 x 20%) P 100,000

Compensation income P 800,000

Sales – Abroad 4,000,000

Income tax on P5,000,000 [(P490,000 + (P3,000,000 x 32%)] P 1,450,000

Interest income on bank deposit in Makati

Interest income on Dollar deposit under the foreign currency

Cash dividend from domestic corporation

Royalty on product sales (P500,000 x 20%) P 100,000

Compensation income P 800,000

Income tax on P3,600,000 [P490,000 + (P1,600,000 x 32%)] P 1,002,000

Interest income on bank deposit in Makati

Interest income on Dollar deposit under the foreign currency

Cash dividend from domestic corporation

Royalty on product sales (P500,000 x 20%) P 100,000

Compensation income P 800,000

Income tax on P3,600,000 [P490,000 + (P1,600,000 x 32%)] P 1,002,000

4. Non-resident alien engaged in trade or business in the Philippines (NRAETB)

Interest income on bank deposit in Makati

Interest income on Dollar deposit under the foreign currency

Cash dividend from domestic corporation

Royalty on product sales (P500,000 x 20%) P 100,000

Compensation income P 800,000

Income tax on P3,600,000 [P490,000 + (P1,600,000 x 32%)] P 1,002,000

5. Non-resident alien not engaged in trade or business in the Philippines (NRNETB)

Interest income on Dollar deposit under the foreign currency

Compensation income P 800,000

Final income tax (P5,315,000 x 25%) P 1,328,750

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