TAXATION MASTERY

INCOME TAX

PROBLEM I

X is a resident citizen who had the following information for the first
quarter of taxable year 2018:

Gross Sales P1,400,000

Cost of Sales 500,000
Other non-operating income 200,000
Itemized Deductions 300,000
Creditable Taxes Withheld 15,000

1. Can X opt to be taxed at 8% flat rate of income tax?

2. If X availed of the 8% flat rate of income tax, how much is his income
tax due and payable for the year?
3. In relation to the preceding number, how much is his business tax
due?
4. If X also earned P250,000 as compensation, how much is his income tax
due if he avails of the 8% flat rate of income tax?
5. In relation to the preceding number, if X’s compensation income is
P200,000, how much is his income tax due?
6. If in the next three quarters, X had the following information:

Sales Other Cost of Itemized CWTs

non- Sales Deductions
operating
income
2nd quarter 1,000,000 350,000 210,000 10,000
3rd quarter 300,000 175,000 140,000 5,000
October 200,000 50,000 45,000 2,500
November 800,000 150,000 230,000 205,000 8,000
December 150,000 45,000 40,000 1,500

how much is his income tax due and payable for the year?

7. In relation to the preceding number, how much would be the 3% OPT

due? 12% Output VAT?

PROBLEM II

Mia dela Torre, an OFW working in Barcelona, is married to Ely Antonio,

who used to work in Barcelona but returned to the Philippines after
finishing his master’s degree in 2015. For the year 2018, Ely had the
following information:

Gross Compensation Income 3,500,000

SSS, PAGIBIG, Philhealth 82,000
Employer’s share in SSS, PAGIBIG, Philhealth 150,000
Union Dues 60,000
Rice Allowance 24,000
Laundry Allowance 3,600
Employee Cash Achievement Award 10,000
Christmas Bonus 80,000
Productivity Bonus 80,000
Medical Cash Allowance to Dependents 3,000
Monetized SL credits (rate of P1,000 per day) 10,000
Monetized VL credits (same rate) 15,000
Uniform Allowance given in cash 6,000
13th and 14th month pay 80,000
Actual medical assistance 10,000

The SSS, PAGIBIG, Philhealth contributions and union dues were included
in the gross compensation income.

8. How much is total exempt income of Ely (Exempt, De Minimis and Other
 Benefits)?
9. How much is Ely’s taxable income?
10. In relation to the above, if Ely sold the family car for a gain of
P50,000 and incurred P400,000 in the tuition fees of their 2 children.
Likewise, the spouses earned P1,000,000 in rental income for a
conjugal property leased to a friend in Barcelona. How much would be
the additional taxable income of Ely?
11. If Ely received a housing benefit as a manager of the Company, where
the latter purchased a house and lot with a fair market value of
P1,000,000 and Ely paid P600,000, which represents 50% of the selling
price, how much is the FBT due on such benefit?

PROBLEM III

Mimiyuuuh, single, had the following data for the taxable year 2018 (all
in pesos):

Compensation Income 1,200,000

Business Income, Philippines 2,000,000
Business Income, abroad 500,000
Business Expenses, Philippines 1,300,000
Business Expenses, abroad 350,000
Dividend income, domestic corporation 40,000
Dividend income, non-resident foreign corporation (a) 30,000
Interest income, BPI Manila branch 20,000
Interest income, BPI New York branch 10,000
Interest income, BPI Manila branch, FCDU 10,000
Creditable Taxes Withheld 200,000
Taxes withheld from compensation 220,000
Household expenses 1,800,000
Gain on sale of house and lot inherited from parents (b) 250,000
Gain on sale of 10,000 shares of stock of a domestic
corporation not listed or traded in a local stock
100,000
exchange (the shares were originally bought for
P40,000)(c)

Additional Information:
a. The non-resident foreign corporation from which dividends were
earned did not earn any income from the Philippines in the last
three years prior to declaration of dividends
b. Fair Market Value at the time of inheritance was P1,500,000; Zonal
Value is P1,000,000 and Fair Market Value of the house as per local
assessor is P600,000, while the land had a fair market value of
P800,000.
c. The domestic corporation had net assets amounting to P15,000,000,
with 1,000,000 outstanding shares of stock; among its assets is
land with a book value of P3,000,000 but the Fair Market Value is
P3,500,000.

12. How much is Mimiyuuuh’s income tax still payable if she is a non-
resident citizen for the year 2018?
13. If the year was 2017, how much is taxable income of Mimiyuuuh?
14. How much is Mimiyuuuh’s total capital gains tax due?
15. Assuming the house and lot sold was the principal residence and
Mimiyuuuh was able to use P1,487,500 of the proceeds to acquire a new
principal residence within 18 months from disposal, how much is CGT
due?
16. Assuming the shares of stock were purchased 18 months ago, how much
is the CGT due?

PROBLEM IV

Gwiyomi, a writer of KathNiel series in twitter, earned the following

passive income for the taxable year 2018:

Royalty income from copyright P1,200,000

Royalty income from trademarks 350,000
Raffle draw winnings 10,000
Philippine lottery winnings 150,000
 Dividend income from domestic corporation 10,000
Dividend income from foreign corporation* 15,000
Interest income from FCDU of PNB 20,000
Interest income on peso deposits in Maybank 10,000

*the foreign corporation earned 60% of its income from within the
Philippines in the last three years prior to declaration of dividends.

17. How much is the final tax due if Gwiyomi is a/an:

a. Resident Citizen
b. Resident Alien
c. Non-Resident Citizen
d. Non-Resident Alien Engaged in Trade or Business
e. Non-Resident Alien Not Engaged in Trade or Business

PROBLEM V

The following data were taken from the accounting books of XYZ
Corporation for the year 2018:

Gross Sales P 18,000,000

Cost of Sales (4,000,000)
Gross Income from sales 14,000,000
Other non-operating income
Interest from receivables 400,000
Interest from peso deposits 200,000
Interest income on US dollar deposits 500,000
(400,000 from FCDU; 100,000 from BPI US
Branch)
Gain on sale of land (cost P2,500,000; FMV 500,000
2,800,000)
Gain on sale of shares of stock (cost 400,000
P2,300,000)
Dividend income (100,000 from domestic 300,000
corporation; 200,000 from resident foreign
corporation)
Rental Income (gross of 5% withholding 700,000 3,000,000
tax)
Total Gross Income P 17,000,000
Expenses
Operating Expenses
Depreciation Expense (2,216,000)
Loss on sale of building held as capital (200,000)
asset (cost is P1,200,000; FMV 1,100,000)
Provision for bad debts (net of P500,000 (3,000,000)
written-off)
Taxes and Licenses (4,000,000)
Interest Expense (300,000)
Contributions to Retirement Fund (3,500,000)
Senior Citizen Discounts (250,000)
Impairment Loss (300,000)
Loss from fire (carrying amount of the (400,000)
machinery)
Selling and Admin Expenses (6,100,000) (20,266,000)
Net Loss (P 3,266,000)

Note:
a. Taxes and Licenses consists of the following:

Mayor’s Permit and Registration Costs 100,000

Local Business Tax 1,200,000
Real Property Tax 1,000,000
Capital Gains Tax 280,000
Output Value-Added Tax 1,420,000

b. Per actuarial report, the current service cost for the pension fund
of the employees is P2,500,000.
c. Machinery lost in the fire had a carrying amount of P400,000 and was
insured. Amount recovered from the insurance company is P200,000.
d. The shares of stock sold were those of ABC Corporation which is an
unlisted company and sold to DEF Corporation, a company listed in the
PSE.

18. How much is the income tax due and payable of the Company?
19. How much is the total CGT due?
20. How much is the total FWT due?
21. If the Company’s RCIT the following year was P250,000 while the MCIT
is P200,000, how much would be the tax payable?

PROBLEM VI

A business partnership organized by partners Will and Grace, partners

sharing 3:1, respectively, has the following data for the calendar year
ended 2016:

Gross income P1,000,000

Deductible expenses 300,000
Yield from deposit substitutes, net of 62,500
withholding tax
Withdrawals on the share in the net income
of the partners, net of withholding tax 150,000
Rent income, net of withholding tax of 5% 437,000
Quarterly payments of income tax 120,000

Will has two dependent minor brothers. He also has a trading business
of his own. The following are data pertaining to taxable year 2016:

Gross Income, trading business P800,000

Expenses, trading business 100,000
Interest Income from checking account 20,000
Salaries as part-time teacher, gross of 100,000
withholding tax of P10,000

22. How much is the income tax due and payable of the partnership, if
any?
23. How much is the distributable income of the partnership, if any?
24. How much is the final tax on income received by Will?
25. How much is the taxable income of Will, if any?
26. If the partnership is a general professional partnership (assuming
rent is P460,000 and there are no quarterly tax payments), how much
is the distributable income?
27. How much is the taxable income of Will, if any?

PROBLEM VII

G irrevocably transferred his properties totaling P100,000,000 to F, in

trust, for the benefit of B. Under the terms of the transfer, F should
accumulate the income for the benefit of B until the latter reaches the
age of majority. During 2016, the property earned P490,000 and incurred
expenses of P350,000. P50,000 of the income was given to B.

28. How much is the Taxable Income of the trust and its income tax due?
29. Assuming that G was actually dead, and F is the executor of his estate
with a total of P100,000,000, B is one of the heirs and the same
information is given, how much is the income tax payable of the
estate?
30. Assuming a house worth P500,000 is given to B during 2016, and B
earned P1,000,000 from his business, how much is the tax due of B?

TRANSFER TAXES

PROBLEM VIII

Boruto, a resident of the Philippines but a citizen of Japan, died on

November 20, 2017, with the following data pertaining to his estate:

• A parcel of land was acquired for P1,200,000 from his father,

 Naruto, for P1,100,000 at the time when the fair market value
thereof was P1,500,000. At the time of Boruto’s death, the property
had a fair market value of P2,000,000.
• The same land is where the family home was constructed for a total
cost of P1,500,000. At the time of death, the house had a fair
market value of only P200,000.
• Boruto transferred a car with a fair market value at the time of
transfer of P300,000, but was sold to his illegitimate son for
P200,000, 2 years prior to his death. At the time of death, the
car had a fair market value of P180,000.
• Bank deposit in the Philippine Branch of a US Bank amounting to
P300,000.
• House and lot located in Japan with a fair market value of
P2,000,000. This was inherited by Boruto 2 years ago from his
parents. At the time of inheritance, the house and lot had a fair
market value of P1,500,000. Estate tax in Japan amounting to
P50,000 was paid for said property.
• Also inherited from his parents was land located in the Philippines
which had a fair market value of P1,200,000 at the time of
inheritance but was subjected to a mortgage to secure a loan with
an outstanding balance of P500,000. At the time of Boruto’s death,
the remaining balance of the loan is P200,000; and an independent
assessor determined the fair market value of the land to be at
P2,000,000, as per zonal valuation of the BIR, it was valued at
P1,500,000, and per local city assessor it was valued at
P1,300,000.
• At the time of Boruto’s death, life insurance proceeds taken by
him on his life amounted to P1,000,000. Boruto’s illegitimate
daughter was the beneficiary thereof.
• Boruto owned 1,000 shares in each of the following corporations:
▪ ABC Corporation, a listed domestic corporation, had Retained
Earnings of P1,000,000 and Common Stocks amounting to
P2,000,000; outstanding shares were 100,000 shares. At the time
of death, the shares were trading at P40 per share.
▪ XYC Corporation, an unlisted domestic corporation with Total
Assets amounting to P5,000,000, part of which is real property
with a book value of P3,000,000, but the fair market value is
P3,500,000; and Total Liabilities amounting to P3,000,000. The
total outstanding shares of the corporation was 100,000.
• A building and lot worth P5,000,000 was willed to be transferred
to the local government of Batangas where Boruto was a resident
before his death.
• Boruto had unpaid income tax of P150,000 and real property tax of
P20,000, all incurred after his death.
• Funeral Expense amounting to P220,000 comprised of mourning
clothing P15,000; telecommunications expense P5,000 (P3,000 of
which were incurred after interment to thank those who attended
the funeral; P2,000 to notify friends and family of Boruto’s
death); Cost of burial plot P150,000; upkeep of the mausoleum where
the deceased was buried P10,000, interment fees and the coffin
P40,000. 40% of the of the burial plot remain unpaid.
• Judicial expenses to settle the estate P307,500, inclusive of
attorney’s fees P150,000; court filing fees P15,000; attorney’s
fees of heirs fighting over some of the properties P100,000;
administrator’s fees P40,000; premium for the bond filed by the
administrator P2,500.
• Boruto also had a receivable from Sarada worth P400,000. Sarada
was declared insolvent by the court and unsecured creditors can
only recover 40%.
• Medical expenses incurred prior to the death of Boruto amounted to
P450,000, 50% of which is still unpaid and not evidenced by any
notarized deed or promissory note.

1. How much is the gross estate of Boruto?

2. How much is total ordinary deductions?
3. How much is total special deductions?
4. How much is the estate tax due and payable?
5. If Boruto was a non-resident alien and there is reciprocity, how much
is his estate tax due?
6. How much are the following if Mr. Balboa is a resident citizen who
died in 2018, assuming the building and lot given to the local
government of Batangas was instead given to the local diocese?
a. Gross estate
b. Total Ordinary Deductions
c. Total Special Deductions
d. Taxable Estate
e. Estate tax due and payable

PROBLEM IX

Mr. X died in 2018 and left Mrs. X, his wife of 40 years. Mr. X had the
following data as of the date of his death:

Real property brought into the marriage P 2,000,000

Income earned from said real property 580,000
Personal property inherited from his father
1,500,000
during the marriage
House acquired during the marriage 1,850,000
Property for personal and exclusive use of
Mrs. X brought into the marriage, including 754,000
jewelry worth P54,000
Jewelry inherited by Mr. X after marriage 38,000

7. How much is the net share of the surviving spouse

8. Assuming they were married in 1998, how much is the net share of the
surviving spouse?

PROBLEM X

On January 15, 2016, Ms. Alpha-Beth Castillo (ABC), donated real property
worth P1,000,000 to Twinkle Star, Inc., a corporation organized to manage
resorts which are fully covered from the sun. At the time of donation,
the property was subject to a mortgage to secure a loan with a remaining
balance of P200,000, to be shouldered by the donee.

On January 30, 2017, ABC got married to Mr. Wong. On February 12, 2017,
she donated her exclusive property to Mr. Wong’s mother, worth P400,000.

On March 15, 2017, Mr. and Mrs. Wong donated P300,000 to Alpha-Beth’s
friend, Thea Gerona, on account of the latter’s marriage scheduled on
July 30, 2017.

On March 30, 2017, Mr. Wong donated his car considered his exclusive
property with fair market value of P250,000 to his brother.

On April 15, 2017, Mr. and
P3,850,000. But on July 31,
parents on account of their
The fair market value of the
P4,000,000.
Mrs. Wong acquired a house and lot for
2017, the same was donated to Mr. Wong’s
25-year marriage anniversary celebration.
house and lot at the time of donation was

On January 5, 2018, Mrs. Wong donated personal cash to a fans club

P300,000.

On February 10, 2018, Mr and Mrs. Wong made a donation to the latter’s
mother a lot with a fair market value of P2,000,000.

1. Compute the Donor’s Tax Due on each of the donations

2. How much is the DST due on the donations made?

BUSINESS TAXES

PROBLEM XI

The CFO of Juicy Fruity Corporation asked you to prepare their VAT return
and provided you with the following information pertaining to its 2nd
quarter operation, (the amounts are VAT exclusive, unless otherwise
provided):

Sale of canned fruits, VAT inclusive P5,824,000

Sales Returns 100,000
Sales Discounts 200,000
Export sale of canned fruits 1,200,000
Sale of raw fruits 600,000
Sale of canned fruits to the government 200,000
Purchases of raw fruits 1,200,000
Packaging materials 300,000
Importation of capital equipment in the month of May 3,000,000
Sugar and other agricultural food products 400,000
Annual rental paid at the beginning of the year 1,200,000
Salaries of factory workers 900,000

• 50% of the sales discount pertains to discounts granted to

customers who paid within 10 days following the 2/10, n/30 credit
terms of the Company; the other 50% pertains to trade discounts
granted at the time of sale.
• All sales returns and discounts pertain to the sale of canned
fruits (not including sales to government)
• The equipment has a useful life of 6 years

1. How much is the VAT payable?

2. How much is deferred input VAT?
3. How much is the net amount of VAT closed to income/expense?
4. How much of the input VAT can be the subject of a claim for refund?

PROBLEM XII

Sam Soon Corporation had the following information for the first quarter
of 2018:

Gross Sales, exclusive of VAT P3,000,000

Sales Returns, Allowances and Discounts 300,000
Cost of goods consumed for the Company party 50,000
Cost of goods given by way of dation in payment 65,000
to creditors
Purchases, exclusive of VAT 1,800,000

Additional information:
• Cash discounts amounted to P25,000 for the prompt payment of
customers
• The selling price is normally 20% higher than cost

5. How much is the VAT payable?

PROBLEM XIII

Indicate if the sale is VATable (V); Zero-rated (Z); or VAT-exempt (X)

Sale of smoked salmon

Importation of dried fruits
Sale of copra
Sale of roast rabbit
Importation of processed malt by-product to be used as raw
materials for poultry feeds
Sale of fertilizers
Importation of household effects of a returning OFW who stayed
abroad for more than 10 years amounting to P300,000
Importation of clothing by foreigner who will be retiring in
the Philippines
Restaurant sales of an owner of a cockpit
Laboratory fees charged by a hospital
Sale of medicine to an out-patient of a hospital
Gross receipts of a review center
Receipts of a Regional Headquarter
Sale by an agricultural cooperative of its produce to members
Sale by an agricultural cooperative of processed fruits to
non-members
Sale by an agricultural trading cooperative to non-members of
agricultural food products in their original state
Receipts of a lending cooperative from loans to non-members
Rental income of a lending cooperative from members
Sale by a non-agricultural, non-electric and non-electric
cooperative to non-members (the contribution per member is
more than P15,000 each)
Sales of goods to a PEZA-registered entity
Hotel services rendered by a domestic supplier to a PEZA-
registered entity
Sale by a realtor of commercial lot valued at P1,000,000
Sale of a residential lot by a realty development company
worth P2,000,000
Sale of a realtor of a condominium unit worth P3,199,200
Lease of commercial unit at P10,000 per month; gross receipts
amounted to P3,199,200
Lease of residential units at P15,000 a month, the gross
receipts for the year is P3,500,000
Lease of residential unit at P15,000 per month, the gross
receipts is P2,000,000
Lease of residential unit at P16,000 per month, the gross
receipts is P2,000,000
Sale of books principally devoted for advertisement
Receipt of airfare by an international carrier for carriage
of passengers
Receipts of international carriers for transport of cargo
Sale of tickets by a domestic carrier for flights from Manila
to HK
Sale of tickets by a domestic carrier for flights from Manila
to Davao
Importation of engine for transport operations
Importation of fuel of Cebu Pacific for international air
transport operations
Service fees of a Bank for fund transfers
Sale of goods by a domestic supplier to an export-oriented
enterprise
Sale of goods to PAGCOR

PROBLEM XIV

Determine the business tax due for each transaction:

Sale of electronic products – P3,000,000; Purchases –

P2,000,000
Sale of paper – P3,200,000; Purchases – P2,000,000;
Company is not VAT-registered
Receipts of a bus company – P5,000,000
Receipts of an international shipping company:
P5,000,000 from passengers; P4,000,000 from cargo
Receipts of Cebu Pacific Air for domestic flights
P10,000,000; for international flights – P5,000,000
Receipts from international flights of a domestic
airline who is not VAT-registered – P5,000,000
Receipts of ABS CBN – P12,000,000
Receipts of 99.5 Play FM – P4,000,000
Receipts of PAGCOR from casino related operations –
P100,000,000
Gas Utility Company receipts – P1,950,000; Rental Income
– P300,000
The following details pertaining to a Bank

Interest income from loans with P200,000

remaining maturity of 4 years
 Interest income from loans with 1,000,000
remaining maturity of 5 years
Interest income from loans with 300,000
remaining maturity of 8 years
Rental income 100,000
Selling price of assets sold (carrying 1,000,000
amount was P600,000)
Dividend income 400,000
Trading gains 300,000
Trading losses 200,000
Service fees 50,000

What if the above income items are earned by a Quasi-

Bank?
Premiums amounting to P3,000,000, if earned by:
a. Domestic Life Insurance Company
b. Foreign Non-life Insurance Company
c. Domestic Non-life Insurance Company
d. Foreign Non-life Insurance Company through an agent

Entrance fees collected by racetracks – P1,995,000

Entrance fees collected by night clubs – P2,000,000
Restaurant income of cockpit owner – P1,500,000
Income from boxing event organized by Bob Arum for the
World Championship where Manny Pacquiao was a contender
– P10,000,000
Income from boxing event organized by Manny Pangilinan
for the Oriental Championship where Manny Pacquiao was
a contender – P10,000,000
Winnings from a horse race bet amounting to P200,000,
the ticket costs P200.
What if the bet was a trifecta/quinella or double?
The Owner of the horse won P250,000; it cost him P1,000
to enter the race.

PROBLEM XV

BBT Corporation, a closely-held corporation with 10 stockholders, had

outstanding shares of 100,000 on the day prior to its Initial Public
Offering scheduled on June 29, 2019. Some of its stockholders are the
following with their respective shareholdings:

Sheldon Cooper 20,000

Leonard Hofstadter 10,000
Penny Hofstadter 5,000
Amy Farrah Fowler 15,000

1. If during the IPO, BBT was able to sell 60,000 shares for P20/share,
how much is the tax on IPO?
2. If Sheldon Cooper originally acquired his shares for P10/share, but
was able to sell the same for P22/share during the IPO, how much is
the applicable tax?
3. If Leonard Hofstadter originally acquired his shares for P12/share,
but was able to sell the same for P20/share before the IPO, how much
is the applicable tax?
4. If Amy Farrah Fowler originally acquired her shares for P13/share,
and was able to sell the same for P25/share after the IPO, how much
is the applicable tax?

DOCUMENTARY STAMP TAX AND EXCISE TAX

PROBLEM XVI

BB Bank extended the following loans:

1. To Mr. X, P200,000, 90 days, 12% interest, evidenced by a promissory
note, for medical expenses
2. To Mr. Y, P250,000, 180 days, 15% interest, evidenced by a promissory
 note for purchase of raw materials for his business
3. To ABC Corporation, P2,000,000, 3 years, 15%, evidenced by a
promissory note, and secured by a pledge of securities also indicated
in the same note.
4. To XYZ Corporation, P2,500,000, 3 years, 15% evidenced by a document
containing both a promissory note and secured by XYZ Corporation
executing a separate mortgage document.

How much is the DST due on each transaction, if any?

Debt instruments DST = P1.50/P200

Mortgage DST = P40.00 if the amount secured does not exceed P5,000;
Additional P20.00 on each P5,000 in excess of the first P5,000, or a
fractional part thereof.

PROBLEM XVII

On June 30, 2017, WASALAK Corporation had the following removals of its
excisable articles:

Whiskey 20 crates
Brandy 60 crates
Beer 90 crates

Each crate contains 100 cases. For the whiskey and brandy, each case
contains 24 bottles of 750ml volume each. For the beer, each case
contains 24 bottles of 330ml volume each.

Each bottle of whiskey is sold for P800; the brandy is sold for P120 per
bottle; the beer is sold for P28 per bottle.

If fermented liquors are subject to 20% ad valorem and P22.50/liter

specific excise tax and fermented liquors are subject to P23.50/liter
excise tax, how much is the total excise tax due on the removal?

PREFERRENTIAL TAXATION

PROBLEM XVIII

Boar Hut Corporation has five restaurants all over Metro Manila where
it employs 100 rank and file employees, each receiving P12,000 monthly
and providing them a 1-month 13th month pay and a Christmas Bonus
equivalent to one-month salary. It currently has 5 PWDs and 3 senior
citizen employees who work as cashiers.

During the year its gross revenues, exclusive of VAT, amounted to

P7,500,000, where 5% were sales to senior citizens, and 8% were sales
to PWDs. Purchases, inclusive of VAT, were P4,032,000.

1. How much is total deductible expense that can be claimed in relation

to senior citizen employees?
2. How much is additional deductible expense that can be claimed in
relation to PWD employees?
3. How much is total deductible expense for income tax that can be
claimed in relation to sales made to senior citizens and PWDs?

PROBLEM XIX

Steel Semi-Conductors Corporation (SSCC) is a 60% Filipino-owned

corporation, where 5 out of its 7 Board of Directors are also Filipinos.
It applied for BOI-registration and was granted a pioneer status for its
system of production which is new and untried in the Philippines and was
granted an Income Tax Holiday upto taxable year 2017. It had the
following information regarding its operations:

Registered Activities

2014 2015 2016 2017 2018

Sales P20,000,000 P18,000,000 P15,000,000 P12,000,000 P50,000,000
Cost of Sales 10,000,000 9,500,000 8,000,000 10,000,000 30,000,000
Operating Expenses 3,500,000 9,000,000 5,000,000 1,000,000 1,200,000

Unregistered Activities
2014 2015 2016 2017 2018
Sales 1,000,000 1,200,000 1,150,000 1,300,000 4,000,000
Cost of Sales 300,000 400,000 650,000 800,000 2,500,000
Operating Expenses 500,000 1,000,000 300,000 200,000 300,000

During 2018, SSCC completed its expansion project for which a 3-year ITH
was granted.

How much is the income tax liability of SSCC for the years (disregard
MCIT):
1. 2014
2. 2015
3. 2016
4. 2017
5. 2018
6. If in 2016, the labor expense relative to its registered activities,
related to skilled and unskilled workers in the labor force,
amounted to P3,000,000 how much is the additional deductible expense
for income tax purposes?
7. If SSCC was instead PEZA-registered, how much would be its income
tax liability for 2014, 2015, 2016, 2017?
8. If SSCC was PEZA-registered, and did not apply for ITH on its
expansion project, how much would be its income tax payable to BIR
for 2018?

PROBLEM XX

The Glass Manufacturing Company had a building with an original

acquisition cost of P3,000,000, with a 10 year useful life, acquired 5
years ago. It’s carrying amount in the PPE account is P1,500,000 as of
2017. The city assessor determined the fair market value of the building
to be at P1,700,000. If the assessment level is at 50%, how much is the
total RPT due on the building (including the 1% SEF)?

PROBLEM XXI

ALL BUTTER manufacturing company manufactures cookies, all of which are

for export to London. For the year 2018, its sales amounted to
P11,500,000, exclusive of VAT and discounts totaling P2,500,000, all of
which were recorded in the Head Office located in Quezon City. Its
manufacturing plant is located in the City of Cabuyao while it sources
all its grains and other raw materials from its plantation in the
Municipality of Danglas, Abra.

How much LBT shall be paid in 2019 if the rate for a manufacturer is 3%
for cities?

PROBLEM XXII

Mr. CPA is a Certified Public Accountant whose principal place of

practice is in the City of Baguio. For the year ended 2017, his practice
earned receipts amounting to P1,300,000, 30% of which were earned from
clients in the City of Dagupan. The City of Baguio imposes a 1% local
business tax and the City of Dagupan imposes a 1.5% local business tax.
How much is the tax due from Mr. CPA?

TAX RATES

INDIVIDUAL INCOME TAX:

But Not Of
Over Over Tax Plus Excess
Over
- 10,000 5%
 10,000 30,000 500 10% 10,000
30,000 70,000 2,500 15% 30,000
70,000 140,000 8,500 20% 70,000
140,000 250,000 22,500 25% 140,000
250,000 500,000 50,000 30% 250,000
500,000 - 125,000 32% 500,000

January 1, 2018 to December 31, 2022:

But Not Of Excess

Over Over Tax Plus Over
- 250,000 -
250,000 400,000 - 20% 250,000
400,000 800,000 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 - 2,410,000 35% 8,000,000

ESTATE TAX:

OVER BUT NOT OVER THE TAX PLUS OF THE

SHALL BE EXCESS OVER
P 200,000 Exempt
P 200,000 550,000 0 5% P 200,000
500,000 2,000,000 P 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And Over 1,215,000 20% 10,000,000

DONOR’S TAX:

OVER BUT NOT OVER THE TAX PLUS OF THE

SHALL BE EXCESS OVER
P 100,000 Exempt
P 100,000 200,000 0 2% P100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 1,004,000 15% 10,000,000