1

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

INDIVIDUAL TAXPAYER Dela Cruz / De Vera / Llamado

1. A resident citizen is taxable on all income derived from sources

a. Within the Philippines only
b. Without the Philippines only
c. Partly within and partly without
d. Within and without the Philippines

2. A non-resident citizen (NRC), resident alien (RA), and non-resident alien (NRA) are taxable on all
income derived from sources
a. Within the Philippines
b. Without the Philippines
c. Partly within and partly without
d. Within and without the Philippines

3. A citizen of the Philippines who works abroad and whose employment requires him to be physically
present abroad most of the time (≥ 183 days) during the taxable year is a
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. Non-resident alien

4. A citizen of the Philippines who works and derives income from abroad is a resident citizen if he stayed
outside the Philippines during the taxable year
a. For less than 180 days
b. For more than 180 days
c. For 183 days or more
d. For less than 183 days

5. A citizen of a foreign country is considered a non-resident alien engaged in business in the Philippines
if he stayed inside the Philippines during the taxable year
a. For 183 days or more
b. For less than 183 days
c. For more than 180 days
d. For less than 180 days

6. Which of the following is correct? A non-resident citizen means, a citizen of the Philippines
a. Who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad
with a definite intention to reside therein.
b. Who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for
employment on a permanent basis.
c. Who works and derives income from abroad and whose employment thereat requires him to be
physically present abroad most of the time (≥ 183 days) during the taxable year.
d. All of the above.

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7. A non-resident citizen who arrives in the Philippines at any time during the taxable year to reside
permanently in the Philippines shall likewise be treated as a non-resident citizen for the taxable year in
which he arrives in the Philippines with respect to his income from sources abroad until the date of his
arrival in the Philippines. This means that:

a) He/she will be taxable from January 1 of the taxable year until the date of his arrival in the
Philippines only on income sourced within the Philippines.
b) He/she will be taxable from the day after his arrival in the Philippines to December 31 of the taxable
year on income sourced within and without the Philippines.
c) All of the above.
d) None of the above.

8. Adolfo Pritzker, a German citizen permanently residing in the Philippines, received several items during
the taxable year. Which among the following is subject to Philippine income taxation?

a. Consultancy fees received for designing a computer program and installing the same in the Makati
facility of a Chinese firm.
b. Interest from his Euro deposits in a foreign bank in London.
c. Dividends received from a German corporation which derived 40% of its annual gross receipts
from the Philippine sources for the past 3 years.
d. Gains derived from the sale of his condominium unit located in Fort Worth, Texas in the United
States of America.

9. Noah Reed, a Canadian, arrived in the Philippines on January 1, 2021 and continued to live and engage
in business in the Philippines. He went on a tour of India and Pakistan from April 1 to November 5,
2021. He returned to the Philippines on November 6, 2021 and stayed until April 15, 2022 when he
returned to Quebec, Canada. From his investments in the Philippines, he earned a gross income of ₱2.5
million. For the year 2021, Noah’s taxable status is that of
a. A non-resident alien not engaged in trade or business in the Philippines.
b. A non-resident alien engaged in trade or business in the Philippines.
c. A resident alien not engaged in trade or business in the Philippines.
d. A resident alien engaged in trade or business in the Philippines.

Computation: January 2021 to March 2021 = 90 days

November 6, 2021 to December 31, 2021 = 56 days
146 days in the Phils.

10. In 2021, Nelia Gomez, an MWE, received from her employer an annual minimum wage salary of
₱99,702. Aside from this, she also received ₱8,000 for holiday pay, overtime pay, and night shift
differential pay. Furthermore, she received ₱8,303 as her 13th month pay. What amounts shall she be
taxable on?

a. ₱8,000.
b. ₱107,702.
c. ₱8,303.
d. None.

11. Nelia in the immediately preceding number was promoted in June 2021, and starting the same month
was given a raise in salary which was more than the statutory minimum wage. Will her entire
compensation during 2021 be taxable and subject to withholding tax?
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a. Yes. Her entire earnings shall be taxable.

b. No. Her entire earnings shall not be taxable.
c. Only her earnings from June 2021 to December 2021 shall be taxable and subject to withholding
tax on compensation income.
d. None of the above.

12. Virginia Pecson is an MWE working in Quezon City. As such, her employer did not withhold any tax
from her compensation. In addition to her Statutory Minimum Wage (SMW), she also earned a one-
time commission from her employer in September of taxable year 2021.

In what months of the taxable year shall her employer withhold income tax from her SMW?

(a) When she received the commission in September, she ceased to be an MWE. Her employer shall
withhold income taxes from her compensation (which includes the SMW) received in the months
of September thru December 2021.
(b) None. Her employer may not withhold income taxes from the SMW she received in all the 12
months of 2021. Her employer shall withhold the CWT only from the commission she received in
September 2021.
(c) In all the months of 2021.
(d) None of the above.

13. Mr. Gigolo (resident citizen) appoints the Trust Department of Tyra Bank to manage his money pursuant
to a trust agreement. The Trust Department proceeds to invest the money in a 5-year corporate bond.

If Mr. Gigolo withdraws his money from the trust account after 8 years, the interest income from the
corporate bond is:

a) Exempt from income tax c) All of the above

b) Subject to the 20% final tax d) None of the above

14. If instead, the bank in the immediately preceding number, in the name of Mr. Gigolo, invests the money
in a 20-year long-term investment certificate issued by Bank of Ruptcy, will the interest income
therefrom be exempt from income tax?

a) Yes, regardless of the holding periods of Mr. Gigolo and the trust.
b) Yes, provided the holding period of Mr. Gigolo and the holding period of the trust in the LT
investment certificate are both at least 5 years.
c) All of the above.
d) None of the above.

15) Upon retirement, Kaitlynn Gabriel planned to sell a parcel of idle land (capital asset) in Calamba,
Laguna which she inherited from her father 20 years ago. Before selling, she discovered that other
parcels of land of the same size and in the same area sold for ₱2.8 M. She even hired a professional
appraiser who estimated the value of her land at ₱3.0 M.

She eventually sold the parcel of idle land to her friend for ₱2.4 M. The zonal value at the time of
sale was ₱2.6 M, and the assessor’s value was ₱2.7 M.

What is the capital gains tax (“CGT”) on the sale?

a) 6% of ₱3.0 M
b) 6% of ₱2.8 M
c) 6% of ₱2.4 M
d) None of the above.
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Sale of Principal Residence, and Subsequent Purchase or Construction of New

Principal Residence within 18 months from date of sale: Computation of CGT and
Basis of New Principal Residence

SPOld = Selling price of old principal residence

CostNew = Acquisition cost or cost of construction of new principal residence
BasisOld = Basis of old residence

CGT on Sale Basis of New Principal Residence

SPOld = CostNew None BasisOld
SPOld < CostNew None BasisOld + (CostNew - SPOld)
SPOld > CostNew 6% of Taxable Portion BasisOld x (CostNew/ SPOld)

16. Kaino sold his principal residence located in Manila on January 5, 2021 for ₱8,000,000. The property
was purchased in 2005 for ₱3,000,000. The current market values of the property at the time of sale
were:

Bank’s mortgage value ₱ 12,000,000

Independent appraiser’s value 10,000,000
BIR Commissioner’s zonal valuation - 9,000,000
City Assessor’s schedule of values - 6,000,000

What is the capital gains tax on the sale?

a) ₱600,000 b) ₱720,000 c) ₱480,000 d) ₱540,000

17. If Kaino in the preceding number, within 6 months after the sale, purchases another principal residence
for ₱8,000,000, what will be the capital gains tax on the sale and what would be the cost (basis) of the
new residence for income tax purposes?

a) ₱540,000; ₱8,000,000 c) ₱540,000; ₱9,000,000

b) ₱0; ₱6,000,000 d) ₱0; ₱3,000,000

18. Suppose Kaino in number 16, within the 18-month reglementary period, instead purchases a new
principal residence at a cost of ₱10,000,000. What will be the capital gains tax on the sale and what
would be the cost (adjusted basis) of the new residence for income tax purposes?

a) ₱0; ₱3,000,000
b) ₱0; ₱10,000,000
c) ₱0; ₱9,000,000
d) ₱0; ₱5,000,000

19. Suppose Kaino in number 16, within the 18-month reglementary period instead purchases a new
principal residence at a cost of ₱5,000,000. What will be the capital gains tax on the sale?

a) ₱202,500 Computation:
b) ₱300,000 (3m/8m) x 9m = 3.375 m
c) ₱480,000 3.375 m x 6% = 202,500
d) ₱337,500

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20. In number 19, what would be the cost (adjusted basis) of the new principal residence for income tax
purposes?
Computation:
a) ₱3,000,000
b) ₱1,875,000 3.0 M x (5m/8m) = 1,875,000
c) ₱0
d) ₱5,000,000

21. The following are taxed at a final rate of 20% except:

a) Cash or property dividend payment by a domestic corporation to a NRAETB.
b) Share of a NRAETB in the distributable after-tax net income of a business partnership where he is
a partner, or share in the after-tax net income of an association or joint venture taxable as a
corporation of which he is a member.
c) Royalty payments (except royalties on books, literary works and musical compositions) to citizens,
RAs, and NRAETB, and prizes exceeding ₱10,000 paid to the same persons
d) Interest and other payments upon tax-free covenant bonds, mortgages, deeds of trust, or other similar
obligations of domestic or resident foreign corporations under Section 57(C) of the Tax Code.

22. A Corporation declared and distributed to its stockholder shares of B Corporation. One of its
stockholders, W, received 100 shares of B Corporation shares as dividends. At the date of dividend
declaration, the fair market value of B Corporation shares was P120 per share and by the time W
received the dividend, the fair market value per share was P180. Which of the following is correct?
The dividend is
a. A stock dividend, hence exempt from tax
b. A property dividend, hence part of taxable income of W in his ITR.
c. A property dividend, hence subject to final tax based on its fair market value of P120 per share at
the time of declaration.
d. A property dividend, hence subject to final tax based on its fair market value of P180 per share

23. All of the following statements are correct, except one. Which is the exception?
a. The source of interest income is the country where the debtor resides.
b. The source of dividend income is the country where the corporation was incorporated.
c. Rents are considered derived from the country where the property is located.
d. Income from personal services is considered derived from the country where the services were
rendered.

24. Statement 1 – A gain from sale of shares of a domestic corporation shall be considered derived from
the Philippines regardless of where the shares were sold.
Statement 2 – A gain from sale of shares of a foreign corporation shall be considered derived from
the country where the corporation was created or organized.

a. True, True c. False, True

b. True, False d. False, False.

25. Mel Salgado, not a dealer in securities, sold on different dates the following domestic shares of stock
in taxable year 2021:

Jan. 5 Feb. 14 Sept. 21 Dec. 25

Alpha Bravo Charlie Delta
(traded) (not traded) (traded) (not traded)
Selling price 600,000 300,000 500,000 100,000
Cost (700,000) (100,000) (200,000) (150,000)
Gain/(Loss) (100,000) 200,000 300,000 (50,000)
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Traded – sold thru the local stock exchange

Not traded – not sold thru the local stock exchange

(a) Compute the income tax (CGT) due on each sale.

(A) ₱0; ₱30,000; ₱0; ₱0

(B) ₱0; ₱22,500; ₱45,000; ₱0
(C) ₱3,600; ₱30,000; ₱3,000; ₱0
(D) None of the above.

(b) At the end of the year, how much more CGT shall Rommel be liable for?

(A) ₱7,500
(B) ₱15,000 At the end of the year, Mel shall file BIR
(C) ₱6,600 Form 1707-A in which he will compute his
(D) 0 net capital gains for 2021:

Gain 200,000
Loss (50,000)
Net capital
Gain 150,000
15%
CGT 22,500
Credit (30,000)
Refund (7,500)

26. Becca Reyes, Filipino, resident of Quezon City, vacationed in New York City. She received a cash
prize of $1,000,000 which she won in a supermarket raffle in New York. She proceeded to spend
$300,000 of the $1.0 Million on clothes and jewelry. She deposited the rest in the Bank of New York
(BONY) before coming home to the Philippines to resume her studies in CPAR. Which among the
following is subject to the 20% final tax.

a) None.
b) Only the interest income from her bank account.
c) Only the cash prize she won in the raffle.
d) Both the interest income from the bank deposit and the prize which she won.

27. Which of the following does not belong to the group?

a) 6/10 of 1% stock transaction tax on the selling price of domestic shares traded in the stock
exchange
b) 10% final tax on dividends received by citizens and resident aliens from domestic corporations
c) 25% final tax on income received by non-resident aliens not engaged in trade or business in the
Philippines
d) 6% capital gains tax on the sale of real property classified as capital assets

28-32. Alex Luto, VAT-registered, had the following data for the taxable year 2022:
Gross sales, Phils. ₱1,900,000
Cost of sales, Phils. 1,300,000

Gross sales, USA 1,000,000

Cost of sales, USA 600,000
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Operating expenses, Phils. 40,000

Operating expenses, USA 65,000
Unallocated business expenses 40,000

Non-operating income, Phils. 50,000

28. (a) If the taxpayer is a resident citizen, his tax due is:
a. ₱129,000
b. ₱132,000
c. ₱161,500
d. None of the above

Solution: Resident Citizen

Gross sales, Phils. 1,900,000

Less: Cost of sales, Phils. (1,300,000) 600,000
Gross sales, USA 1,000,000
Less: Cost of sales, USA (600,000) 400,000
Total Gross Income from operations 1,000,000
Less: Deductions
Operating expenses, Phils. 40,000
Operating expenses, USA 65,000
Unallocated expenses 40,000 (145,000)
Net income from operations 855,000
Add: Non-operating income 50,000
Share in GPP net income -
Net taxable income 905,000
Tax due (table) 161,500

Tax on 800,000 = 130,000

Tax on 105,000 x 30% = 31,500
905,000 161,500

(b) Can the taxpayer in 28(a) avail of the 8% income tax rate on gross sales plus non-operating income?

NO, because he is VAT-registered.

29. If the taxpayer is a non-resident citizen, VAT-registered, his tax due is:
a. ₱41,250
b. ₱76,500
c. ₱112,000
d. None of the above.

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Solution: Non-resident citizen

Gross sales, Phils. 1,900,000

Less: Cost of sales, Phils. (1,300,000)
Gross income from operations 600,000
Less: Itemized deductions:
Operating expenses, Phils. (40,000)
Ratable portion of unallocated expense
(₱40,000 x (₱600,000/₱1,000,000) (24,000)
Net income from operations 536,000
Add: Non-operating income 50,000
Share in GPP net income -
Net taxable income 586,000

Tax on 400,000 = 30,000

Tax on 186,000 x 25% = 46,500
586,000 76,500

30. If the taxpayer is a resident alien, VAT-registered, his tax due is:
a. P41,250
b. P75,400
c. P76,500 Same as Number 29
d. None of the above.

31. (a) If the taxpayer is a non-resident alien engaged in business in the Philippines, married, VAT-registered
and his country allows reciprocity of ₱30,000 as personal exemption for married individuals, his tax due
is:
a. P41,250
b. P76,500 Same as Number 29
c. P83,000
d. None of the above.

(b) If the taxpayer is a NRC, RA, or NRAETB, and not VAT-registered, can he avail of the 8% income
tax rate option?

Answer: Yes. The gross sales + non-operating income within the

Philippines of ₱1,950,000 does not exceed ₱3.0 M. The income
tax shall be 8% of (₱1,950,000 less ₱250,000) = ₱136,000.

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Gross sales 1,900,000

Plus: Non-operating income 50,000
Total 1,950,000
Less: ₱250,000 deduction (250,000)
Net taxable amount 1,700,000
Taxable rate 8%
Income tax 136,000

32. If the taxpayer is a non-resident alien not engaged in business in the Philippines, married, and his country
grants P35,000 as personal exemption for married individuals, the total final tax is:
a. P150,000
b. P162,500 Gross income, Philippines 600,000
c. P200,000
d. None of the above. Non-operating income, Phils. 50,000
Total taxable income 650,000
FT rate x 25%
Final tax 162,500

33-36) Taxpayer earning income purely from self-employment/practice of profession.

33. Elena Puto, a part-time exercise trainer, also operates a shoe store while offering her services to clients
living in Metro Manila. In 2022, the gross sales of her shoe store amounted to ₱1,100,000 while her
receipts from her training services amounted to ₱392,000, net of 2% CWT. Her total cost of sales and
operating expenses amounted to ₱150,000 and ₱35,000, respectively. On December 2022, she sold a
very expensive handbag which she previously bought on June 3, 2022, resulting in a capital gain
amounting to ₱300,000.

She signified in her 1st Quarterly ITR her intention to be taxed at the 8% income tax rate.

Compute her income tax due and income tax payable for 2022.

a) ₱124,000; ₱124,000 Solution:

b) ₱124,000; ₱116,000
c) ₱116,000; ₱ 68,000 Gross sales, shoe store
d) None of the above. Gross receipts, services, gross of CWT
Add: Non-operating income
Total income
Less: ₱250,000 (0 if MIE)
Taxable income
Tax rate x 8%
Income tax due
Less: Credits: CWT (400,000 x 2%)
Income tax still due/payable

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34. If Elena Puto, in number 33, failed to signify her intention to be taxed at the 8% income tax rate, what
will be her income tax due and income tax payable in 2022?
a. ₱374,500; ₱366,500
b. ₱369,800; ₱369,590
c. ₱284,500; ₱276,500
d. None of the above.

Solution:

Gross receipts (shoe store and services), gross of CWT

Less: Cost of sales
Gross income
Less: Operating expenses
Net income from operations
Add: Non-operating income
Share in GPP net income
Taxable net income
Tax (table)
Less: Credits: CWT (2% x 400,000)
Income tax payable

Quarterly and Annual Computation of Income Tax:

Rules for Filing the 3 Quarterly ITRs and Annual ITR of Individual Taxpayers:

1) Cumulative Filing.

2) Compensation (employment) income is included only in the Annual ITR.

35. Julia Tan owns a store specializing in low-end vacuum cleaners which is her only source of income.
She signified her intention to be taxed at 8% of gross sales in her 1st Quarterly ITR of the taxable year
2022. Her sales, cost of sales, operating expenses, and non-operating income for the 4 quarters are as
follows:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Sales, gross of 1% CWT 400,000 600,000 2,100,000 3,400,000
Cost of sales (100,000) (200,000) (600,000) (800,000)
Gross income 300,000 400,000 1,500,000 2,600,000
Operating expenses:
Salary expense (120,000) (130,000) (430,000) (740,000)
Rental expense (50,000) (60,000) (70,000) (80,000)
Income from operations 130,000 210,000 1,000,000 1,780,000
Non-operating income 35,000 65,000 50,000 75,000
Net income 165,000 275,000 1,050,000 1,855,000

CWT withheld on sales 4,000 6,000 21,000 34,000

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The salary expense is inclusive of the CWT on compensation income and of the other deductions, and
the rental expense is gross of the 5% CWT.

She registered under the VAT system in September because her cumulative sales exceeded ₱3,000,000
in August. She was required to pay the 1% OPT on the cumulative sales from January to August or
₱30,920, in September. She became liable for the VAT beginning September.

Compute her income tax payable in her 1st, 2nd, 3rd Quarterly ITRs and in her Annual ITR.

1st Quarterly ITR 2nd Quarterly ITR 3rd Quarterly ITR Annual ITR
a) ₱10,800 ₱47,200 ₱238,724 ₱548,782
b) 14,800 48,000 150,000 638,400
c) 14,800 53,200 78,000 638,560
d) None of the above.

1st Q 2nd Q 3rd Q

Sales in quarter, gross of CWT 400,000 600,000 2,100,000
Add: Non-operating income 35,000 65,000 50,000
Total income for the quarter 435,000 665,000 2,150,000
Add: Total income from previous quarter - 435,000 1,100,000
Cumulative taxable income as of this quarter 435,000 1,100,000 3,250,000
Less: Amount allowed as deduction (250,000) (250,000)
Taxable Income 185,000 850,000
Tax rate (8%) 8% 8%
Tax due 14,800 68,000
Less tax credits:
(1) CWT (4,000) (10,000)
(2) Taxes paid in prior quarter(s) - (10,800)
Tax still due or tax payable 10,800 47,200

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3rd Quarter
Gross sales
Less: Cost of sales
Gross income
Less: Operating expenses
(a) Salary expense
(b) Rent expense
(c) OPT
Net income from operations
Add: Non-operating income
Share in GPP net income
Taxable net income
Tax (table) 327,724
Credits:
(a) CWT (₱3.1 M x 1%) 31,000
(b) Taxes paid in previous quarters
1st Quarter 10,800
2nd Quarter 47,200 (89,000)
Income tax payable 238,724

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Annual
Gross sales
Less: Cost of sales
Gross income
Less: Operating expenses
(a) Salary expense
(b) Rent expense
(c) OPT
Net income from operations
Add: Non-operating income
Share in GPP net income
Taxable net income
Tax (table) 910,506

Credits:
(a) CWT (₱6.5 M x 1%) 65,000
(b) Taxes paid in previous quarters
1st Quarter 10,800
2nd Quarter 47,200
3rd Quarter 238,724 (361,724)
Annual Income Tax Payable 548,782

36. (a) Atty. Rolly Gomez operates a small night club in which he employs dancers to dance with the
patrons of his night club. In 2022, his gross receipts, cost of services, and operating expenses (inclusive
of the OPT) amounted ₱2,800,000, ₱100,000, and ₱600,000, respectively. In 2022, he sold his
diamond-studded watch (which he bought in 1987 for ₱1.7 Million in 1991) for ₱2,000,000, recognizing
a gain of ₱150,000 for income tax purposes.

Can he avail of the 8% income tax rate option? What is his income tax due for 2022?

a) Yes, because his gross receipts plus non-operating income do not exceed ₱3,000,000; Tax due is
₱236,000 under the 8% tax regime.
b) No, because his business is subject to the 18% OPT under Section 125 and not to the 3% OPT under
Section 116. Tax due is ₱570,000 under the graduated rates.
c) Yes and No. He can avail of the 8% income tax rate option if he chooses this option in his 1st
Quarterly ITR. Otherwise, he will be taxed under the graduated rates.
d) None of the above.

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Solution:

Gross receipts 2,800,000

Less: Cost of sales (100,000)
Gross income 2,700,000
Less: Operating expenses (600,000)
Net income from operations 2,100,000
Add: Non-operating income 150,000
Share in GPP net income -
Taxable net income 2,250,000

Tax on 2,000,000 = 490,000

Tax on 250,000 x 32% = 80,000
2,250,000 570,000

(b) Atty. Rolly Gomez had a religious awakening and decided to close his night club. In 2023, he opened
a small grocery store. In the same year, his gross receipts, cost of services, and operating expenses
(inclusive of the OPT) amounted ₱2,800,000, ₱100,000, and ₱90,000, respectively. In the same year, he
also earned ₱150,000 as his share in the net income of a general professional partnership (GPP) providing
legal services.

Can he avail of the 8% income tax rate option? What is his income tax due for 2023?

a. Yes, because his gross receipts plus non-operating income do not exceed ₱3,000,000; Tax due is
₱224,000 under the 8% tax regime.
b. No, because he has to account for his share in the net income of a GPP under the graduated income
tax rates. Tax due is ₱630,500 under the graduated rates.
c. Yes and No. He can avail of the 8% income tax rate option if he chooses this option in his 1 st
Quarterly ITR. Otherwise, he will be taxed under the graduated rates.
d. None of the above.

Solution:

Gross receipts 2,800,000

Less: Cost of sales (100,000)
Gross income 2,700,000
Less: Operating expenses (90,000)
Net income from operations 2,610,000
Add: Non-operating income
Share in GPP net income 150,000
Taxable net income 2,760,000

Tax on 2,000,000 = 402,500

Tax on 760,000 x 30% = 228,000
2,760,000 630,500

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37-40. Taxpayer earning income from Employment and from Self-Employment (business or practice of
profession) – Mixed Income Earners

37) In 2022, Maginoo M. Henyo, the CEO of the Philippine Nuclear Fusion Corporation, received
compensation income of ₱2,899,140, net of CWT in the amount of ₱1,101,360. Such compensation
income was also inclusive of his 13th month pay and other benefits of ₱250,000, but net of the mandatory
contributions to SSS and Philhealth.

Aside from his employment, he also owns a cafeteria. In 2022, the cafeteria had gross sales of
₱1,500,000, cost of sales of ₱500,000, and operating expenses of ₱300,000. Mr. Henyo also had non-
operating income of ₱700,000.

Compute his income tax payable in his 2022 AITR if he avails of the 8% income tax rate option on his
gross sales plus non-operating income arising from his cafeteria business. Total taxes paid in the first 3
quarters totalled ₱76,000.

(a) ₱1,277,360
(b) ₱ 100,000
(c) ₱ 257,360
(d) None of the above.
Solution:

Income Tax on Compensation:

Compensation income, net of
mandatory contributions and CWT 2,899,140
Add: CWT on compensation 1,101,360
Less: Exclusionary amount of the
13th month pay and other benefits (90,000)
Taxable compensation income 3,910,500
Tax due (table) 1,101,360

Income Tax on Business Income:

Gross Sales
Add: Non-operating income
Taxable business income
Tax rate

Total income tax due

Less: Credits
a) CWT on compensation
b) Taxes paid in previous
quarters
Income tax payable

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 16

38. In the previous number, Solution:

what would be
Maginoo’s total income
tax payable if he did not
avail of the 8% income
tax rate on gross sales
plus non-operating
income arising from his
business, and if total
taxes paid in the
previous quarterly
returns totalled
₱110,000?
(a) ₱696,969
(b) ₱650,920
(c) ₱338,000
(d) None of the above.
Income Tax on Compensation:
Compensation income, net of
mandatory contributions 2,899,140
Add: CWT on compensation 1,101,360
Less: Exclusionary amount of the
13th month pay and other benefits (90,000)
Taxable compensation income 3,910,500
Add: Taxable income from business:
Gross Sales
Less: Cost of sales
Gross income
Less: Operating expenses
Net income from operations
Add: Non-operating income
Share in GPP net income
Total taxable income
Tax due (table)
Less: Credits
a) CWT on compensation
b) Taxes paid in previous Qs
Income tax payable

39. Maginoo in number 37 resigned from Philippine Nuclear Fusion in the first week of January 2023 to
concentrate on his cafeteria business. His total compensation income in 2023 amounted to ₱180,000
inclusive of other benefits (productivity bonus) of ₱30,000.

In 2023, the cafeteria had gross sales of ₱2,300,000, cost of sales of ₱750,000, and operating expenses
of ₱450,000. It also had non-operating income of ₱235,000.

What is his income tax due for 2023 if he avails of the 8% income tax rate option on his gross sales plus
non-operating income arising from his business?
(a) ₱ 202,800
(b) ₱194,800 Solution:
(c) ₱182,800
(d) None of the above. Income Tax on Compensation:
Total compensation income 180,000
Less: Exclusionary amount of the
13th month pay and other benefits (30,000)
Taxable compensation income 150,000
Tax (table) 0 -

Income Tax on Business Income:

Gross Sales 2,300,000
Add: Non-operating income 235,000
Taxable business income 2,535,000
Tax rate 8% 202,800
Total income tax due 202,800

Tax 94-02
 17

40. Sally, an MWE, also has a small business with the following data in 2023: sales of ₱500,000, cost of
goods sold of ₱100,000, operating expenses of ₱60,000, and non-operating income of ₱10,000. What
would be the income tax due under the graduated rates, and under the 8% income tax rate option?

a. P20,000; P54,564
b. P18,000; P42,350
c. P15,000; P40,800
d. None of the above.

Under graduated rates:

Gross sales 500,000

Less: Cost of sales (100,000)
Gross income 400,000
Less: Operating expenses (60,000)
Net income from operations 340,000
Add: Non-operating income 10,000
Share in GPP net income -
Taxable net income 350,000

Tax on 250,000 = -
Tax on 100,000 x 15% = 15,000
350,000 15,000

Under 8% tax rate option:

Gross Sales 500,000

Add: Non-operating income 10,000
Taxable business income 510,000
Tax rate x 8%
Tax due 40,800

Note: According to Section 6 of Rev. Reg. No.

11-2018, a Minimum Wage Earner (“MWE”) who
also earns income from trade or business, and who
qualifies and chooses the 8% income tax rate
option shall be considered a mixed income
earner. Therefore, such MWE shall also not be
allowed the ₱250,000 deduction in computing the
income tax under the 8% income tax regime.

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 18

41. Chris Guanzon, resident citizen, is an individual earning purely compensation income. However, in
2022, he earned additional income when he sold his only car for ₱2,500,000 and recognized a capital gain
therefrom of ₱300,000.
May Chris avail of the option to be taxed at 8% on the sale of his car?
a. Yes, and the tax base shall be ₱2.5 Million less ₱250,000.
b. Yes, but the proper tax base shall only be ₱2.5 Million.
c. No. Chris is still considered an individual earning purely compensation income. Such an individual
is not allowed to avail of the 8% income tax option.
d. None of the above.

Chris Guanzon will be using BIR Form 1700 (January 2018 ENCS) – Annual ITR:
Individuals Earning Purely Compensation Income (Including Non-Business/Non-
Profession Income)

In such ITR, the non-business or non-profession income shall be added to the taxable
compensation income of the taxpayer. The sum shall constitute the total taxable
income. The income tax shall be computed using the graduated rate table. The 8%
option is not available in BIR Form 1700.

Withholding

42. First Statement: All income payments which are required to be subjected to withholding tax shall be
subject to the corresponding withholding tax rate to be withheld by the person having control over the
payment and who, at the same time claims the expenses.

Second Statement: The obligation to withhold is imposed upon the buyer-payor of income although
the burden of tax is really upon the seller-income earner. Hence, unjustifiable refusal of the latter to be
subjected to withholding shall be a ground for the mandatory audit of all internal revenue tax liabilities,
as well as the imposition of penalties under the Tax Code, upon verified complaint of the buyer-payor.

a. True, True c. False, True

b. True, False d. False, False

43. Statement1: All income payments received by a Minimum Wage Earner (MWE) are exempt from
withholding.

Statement 2: If the tax has actually been withheld at source, a credit or a refund shall be made to the
recipient of the income (e.g., the employee) even though such withheld tax has not been paid to the
government by the employer.

Statement 3: Any income subject to income tax may be subject to withholding tax. However, income
exempt from income tax is consequently exempt from withholding tax. Further, income not subject to
withholding tax does not necessarily mean that it is not subject to income tax.

a. True, True True b. False, True, True

c. True, False, False d. False, False, True

Tax 94-02
 19

Filing

44. Mr. Al Dabog elected the 8% income tax rate option in his First Quarterly ITR for taxable year 2019.
Later, a month before the due date for filing his Annual ITR for taxable year 2019, he decided that it
would be better for him to be taxed at the graduated rates.
Can he signify his decision to be taxed under the graduated rates in his Annual ITR for 2019?
(a) Yes, that is his right under the Tax Code.
(b) No. The election made in the First Quarterly ITR is irrevocable. No amendment of the option
shall be made for taxable year 2019. Beginning 2020, he shall be automatically subjected to the
graduated rates unless he opts to avail the 8% income tax rate by signifying his intention in his 1st
Quarter Income Tax Return, or in his 1st Quarter Percentage Tax Return.
(c) It depends if the first Form No. 1905 has already been processed by the BIR.
(d) None of the above.

45. Generally, the following individuals are required to file an income tax return. Who is the exception?
a. Every Filipino citizen residing in the Philippines.
b. Every Filipino citizen residing outside the Philippines, earning income solely from sources outside
the Philippines.
c. Every alien residing in the Philippines on income derived from sources within the Philippines.
d. Every non-resident alien engaged in trade or business in the Philippines.

46. Which of the following statements is correct?

a. Individuals deriving compensation income are exempt from filing ITR.
b. GPPs are exempt from filing ITR.
c. Domestic corporations cannot avail of the OSD.
d. Resident aliens engaged in business in the Philippines are required to file quarterly ITRs and the
annual ITR.

47. The following are not required to file ITRs, except:

a. Individual whose sole income has been subjected to final withholding tax.
b. Individual whose compensation income does not exceed the statutory minimum wage.
c. Individual whose gross income from business does not exceed his allowable deductions.
d. Individual with respect to pure compensation income derived from one employer in the
Philippines and qualified under the substituted filing of income tax return.

48. Individual self-employed taxpayers are required to file their Income Tax Returns:
a. On a yearly basis, once a year
b. On a quarterly basis, non-cumulative system
c. On a quarterly basis, cumulative system
d. On a quarterly basis, cumulative system, and on a yearly basis once a year

49. The individual income tax return of a fixed earner (employee) is filed on or before
a. April 15 of the current taxable year. c. May 15 of the current taxable year
b. April 15 of the following taxable year. d. May 15 of the following taxable year

50. An individual taxpayer is allowed to pay his income tax due on the installment basis if:
a. Basic income tax is P2,000 or below c. Basic income tax is over P5,000
b. Basic income tax is over P2,000 d. Basic income tax is over P1,000

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 20

51. B was employed by A Corp. on the first working day of January 2020 on a part-time basis with a salary
of P10,000 a month. He then received his 13th month pay. In September 2020, he accepted another
part-time job from B Corp. from which he received a total compensation of P408,000 for the year 2020.
The correct total taxes were withheld from both earnings. With regard to the filing of the income tax
return (ITR) for the year 2020, which of the following is true?

a. B is exempt from filing his ITR because the correct total taxes have been withheld.
b. B is not exempt from filing his ITR because his total compensation income for 2020 came from
more than one employer.
c. B is exempt from filing his ITR because his total income for 2020 came from an employer-employee
relationship.
d. None of the above.

52. Mr. A filed his income tax return for 2021 on April 15, 2022. The return shows the following: Income
tax due, P80,000; Income tax withheld, P60,000; and Income tax payable, P20,000. A will pay his tax
liability in installment.
a. How much is the tax still due for the first installment?
b. How much is the tax due for the second installment?
c. What is the last day for payment of the second installment?

The End

Tax 94-02