ILLUSTRATION

1. Given below are the incomes earned by James, married for taxable yer 2018
Sales in the Philippines 1,550,000.00
Sales in USA 1,650,000.00
Interest income from bank deposit (local currency) in
BPI, Bacolod Branch 10,000.00 fwt 20% NOT taxable under the regular income tax
Cash dividend from domestic corporation 5,000.00 fwt 10% NOT taxable under the regular income tax

Additional Information:
A. Cost of Sales in the Philippines 450,000.00
B. Cost of Sales in USA 520,000.00
C. Business expenses (itemized deduction) in the Phils. 45,500.00
D. Business expenses (itemized deduction) in USA 80,000.00

Compute for the income tax due of James assuming he is

1. Resident Citizen 3. Resident Alien
2. Non resident citizen 4. Non-resident alien engaged in business in the Philippines

2. The following information were taken from the books of Josephine, single with no
qualified dependent for taxable year 2018:

1st Quarter 2nd quarter 3rd Quarter 4thQuarter

Sales 290,000.00 350,000.00 400,000.00 450,000.00 ### Note: 1. For quarterly income t
Cost of Sales 150,000.00 120,000.00 150,000.00 30,000.00 ### Sales
Interest income from A/R 3,000.00 5,000.00 10,000.00 8,000.00 ### Cost of Sales/Services
Interest income from Business Expenses
local currency deposit 6,000.00 - - - FWT 20%
Business expenses 25,000.00 20,000.00 35,000.00 5,000.00 ### 2. Taxable income is accu
Taxable gross compensation
income 30,000.00 30,000.00 30,000.00 30,000.00 ###
Creditable Withholding Tax -230 5,800.00 7,000.00 8,000.00 9,000.00
Creditable Withholding Tax - 2316 15,000.00
 Required: Compute for the following: A. Income tax payable (overpayment) for the
first 3 quarters, and B.) Annual income tax payable (overpayment)

3. Given below are the income earned by James, married and a resident citizen of the Philippines
for taxable year 2018:
Sales in the Philippines 1,550,000.00
Interest income from bank deposit (local currency) in
BPI, Bacolod Branch 10,000.00 fwt
Cash dividend from domestic corporation 5,000.00 fwt

Additional Information:
A. Cost of Sales in the Philippines 450,000.00
B. Business expenses (itemized deduction) in the Phils. 45,500.00

Compute for the income tax payable of James assuming he opted to be taxed at 8% of gross sales

4. Given below are the income earned by James, married and a resident citizen of the Philippines
for taxable year 2018:
Sales in the Philippines 4,550,000.00
Rent Income 500,000.00
Interest income from bank deposit (local currency) in
BPI, Bacolod Branch 10,000.00 fwt
Cash dividend from domestic corporation 5,000.00 fwt

Additional Information:
A. Cost of Sales in the Philippines 1,450,000.00
B. Business expenses (itemized deduction) in the Phils. 545,500.00
C. Creditable Withholding Tax per form 2307 25,000.00
Compute for the income tax payable of James.
5. Given below are the income earned by James, married and a resident citizen of the Philippines
for taxable year 2018:
Sales in the Philippines 1,550,000.00
Interest income from bank deposit (local currency) in
BPI, Bacolod Branch 10,000.00 fwt
Taxable Gross Compensation Income 350,000.00

Additional Information:
A. Cost of Sales in the Philippines 450,000.00
B. Business expenses (itemized deduction) in the Phils. 45,500.00

Compute for the income tax payable assuming that James opted to use 8% income tax option

ACTIVITY 2
1. The following information were taken from the books of Edelyn for 2018:

1st Quarter 2nd quarter 3rd Quarter 4thQuarter

Sales 600,000.00 700,000.00 800,000.00 900,000.00
Cost of Sales 150,000.00 120,000.00 150,000.00 30,000.00
Rent Income 50,000.00 75,000.00 100,000.00 120,000.00
Interest income from
local currency deposit 6,000.00 - - -
Business expenses 210,000.00 25,000.00 25,000.00 5,000.00
CWT -2307 2,500.00 3,750.00 5,000.00 6,000.00

Required: A. Compute for the quarterly income tax payable

B. Compute for the annual income tax payable
2. Given below are the income earned by James, married and a resident citizen of the Philippines
for taxable year 2018:
Sales in the Philippines 8,000,000.00
Sales in USA 3,000,000.00
Interest income from bank deposit (local currency) in
BPI, Bacolod Branch 10,000.00
Cash dividend from domestic corporation 5,000.00
Royalty income from books published in the Philippines 2,000,000.00

Additional Information:
A. Cost of Sales in the Philippines 450,000.00
B. Cost of Sales in USA 520,000.00
C. Business expenses (itemized deduction) in the Phils. 45,500.00
D. Business expenses (itemized deduction) in USA 80,000.00

Compute for the income tax due of James assuming he is

1. Resident Citizen 3. Resident Alien
2. Non resident citizen 4. Non-resident alien engaged in business in the Philippines

3. Given below are the income earned by James, married and a resident citizen of the Philippines
for taxable year 2018:
Sales in the Philippines 950,000.00
Interest income from bank deposit (local currency) in
BPI, Bacolod Branch 10,000.00
Cash dividend from domestic corporation 5,000.00

Additional Information:
A. Cost of Sales in the Philippines 450,000.00
B. Business expenses (itemized deduction) in the Phils. 45,500.00

Compute for the income tax payable of James assuming he opted to be taxed at 8% of gross sales
PART II:
TEST VII: COMPUTE FOR THE FINAL WITHHOLDING TAX OF THE CORPORATION
1. Interest income on bank deposit earned by a resident foreign corporation, P20,000.
2. Intterest income earned from a bank deposit under expanded foreign currency deposit
system earned by a domestic corporation, P35,000.
3. Cash dividend received by a domestic corporation from a domestic corporation, P15,000.
4. Prize from raffle won by a domestic corporation, P50,000.
5. Interest income earned by foreign currency deposit unit and a non-resident foreign corporation,
P150,000.

TEST VIII: TRUE OR FALSE.

1. Corporations subject to a rate below 30% are referred to as special corporations.
2. The income of OBU from foreign sources is exempt from income tax.
3. International air carriers are subject to 30% tax on Philippine taxable income.
4. Local Water District is subject to 30% income tax rate based on its taxable income
5. A regional area headquarter is exempt from income tax because it does not derive income.
6. A non-cinematographic film owner, lessor or distributor is subject to 25% tax on taxable
income.
7. A government schools is exempt from income tax.
8. When the income from unrelated activities exceeds 50% of total income, only income from
unrelated activities of private schools and non-profit hospital is subject to 30% tax.
9. A farmers' or fruit growers association is exempt from income tax.
10. The gross Philippine billings of international air carriers include receipts from outgoing voyage
or flights which must be billed in the Philippines.
11. Gross Philippine Billings refers to the amount of gross revenue derived from carriage of persons
excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted
flight, irrespective of the place of sale or issue and the place of payment of the ticket or
passage document.
12. Certificate of tax exemption availed of exempt corporations is valid for 2 years.
13. The income of non-profit corporations is exempt from income tax if the same is diverted to
its non-profit purpose.
14. Non-resident foreign corporations are subject to MCIT.
15. MCIT is 2% of the gross income from operations.
16. IAET is a penalty tax; hence, earnings subjected to IAET will still be subject to a dividend
tax when subsequently declared.
17. Proprietary non-profit educational institutions are subject to MCIT.
18. Insurance companies are subject to IAET.
19. MCIT excess can be deducted only against the excess of RCIT/NIT over the MCIT in any
of the succeeding three years.
20. As a rule, corporations always pay tax even if there is a loss effective from the fourth year
of their operations.

TEST IX: MULTIPLE CHOICE

1. The minimum corporate income tax is
A. 15% of gross income C. 2% of gross income
B. 2% of taxable income D. 15% of taxable income

2. The optional gross income tax is

A. 2% of gross income C. 30% of gross income
B. 15% of gross income D. 10% of gross income

3. The maximum cost ration for corporations to avail of the gross income tax is
A. 60% C. 55%
B. 40% D. 45%

4. Which of the following is subject to MCIT?

A. Private schools taxed at 10% of taxable income C. OBUs
B. GOCCs D. International carriers

5. Which is not exempt from IAET

A. Publicly held corporations C. Banks
B. Insurance companies D. Dealers in securities

6. The quarterly income tax return is due on or before

 A. 60 days following the end of the quarter D. 15th day of the 4th month following the
B. 30 days following the end of the quarter end of the quarter
C. 45 days following the end of the quarter

7. The branch profit remittance tax is 15% of the total profits

A. of the current year
B. of the current year earmarked for remittance, including investment income
C. earmarked for remittance without deducting the tax
D. actually remitted to the home office abroad, net of the tax

8. Which of the following is not a deduction in the computation of the income tax payable or
overpayment?
A. Creditable withholding tax on gross income
B. Excess MCIT prior years
C. Final witthholding tax on passive income
D. Estimated quarterly income tax payment

9. In the quarterly income tax return, excess MCIT prior year is deductible only when
A. the MCIT exceeds the RCIT for that quarter
B. the RCIT exceeds the MCIT for that quarter
C. the cumulative MCIT exceeds the cumulative RCIT as of the end of that quarter
D. the cumulative RCIT exceeds the cumulative MCIT as of the end of that quarter

10. Excess MCIT is valid as a tax credit over

A. 5 years B. 4 years C. 3 years D. 2 years

11. The BBB Corporation started its operation on Jan. 1, 2004. The following historical MCIT
and RCIT data:
2011 2012 2013 2014
MCIT 120,000.00 200,000.00 190,000.00 170,000.00
RCIT 110,000.00 220,000.00 - 180,000.00
Basing solely on the information provided, what is the tax due and payable in 2011 and 2012,
 respectively?
A. P120,000; P220,000 C. P120,000: P210,000
B. P120,000; P100,000 D. P110,000;P220,000

12. In the immediately preceding problem, what is the income tax payable in 2013 and 2014?
A. P190,000; 0 C. P0; P0
B. P190,000; P180,000 D. P170,000; P0

13. The following are the composition of the total gross income fo a domestic corporation which
is on its 8th year of operation:
Sales, net of discounts 4,000,000.00
Cost of Sales 2,400,000.00
Dividend Income 100,000.00
Royalty Income 250,000.00
What is the minimum corporate income tax?
A. P42,000 B. P40,000 C. P35,000 D, 32,000

14. In the immediately preceding problem, what is the regular corporate income tax if the corporation
has a total allowable deductions of P1,700,000
A. P0 B. P15,000 C. P90,000 D. P120,000

15. In connection with #13 and #14, what is the income tax payable if the corporation has deferred
charges - MCIT of 3,000 paid 1 year prior to the current taxable year and that during the taxable
year the corporation has paid quarterly income tax of P5,500.
A. P32,000 C. P0
 B. P26,500 D. None of the above

16. The quarterly MCIT and RCIT and creditable withholding tax of Taraka Corporation is shown
below:
MCIT RCIT CWT
First Quarter 800,000.00 700,000.00 250,000.00
Second Quarter 600,000.00 900,000.00 220,000.00
Third Quarter 1,000,000.00 600,000.00 340,000.00
Fourth Quarter 500,000.00 800,000.00 260,000.00
Taraka Corporation also had P120,000 excess creditable withholding tax and P180,000 excess
MCIT still outstanding from the prior year.
What is the income tax payable in the second quarter?
A. P400,000 C. P470,000 E. None of the above
B. P430,000 D. P520,000

17. In connection with #17, what is the income tax payable in the fourth quarter?
A. P140,000 C. P180,000 E. None of the above
B. P160,000 D. P210,000

18. A regional operating headquarter of a multinational company reported a net operating loss on its fifth
year of operations:
Gross receipts 4,000,000.00
Cost of service 2,800,000.00
Business expenses 1,500,000.00
What is the tax due?
A. P0 B. P24,000 C. P100,000 D. P120,000
ble under the regular income tax rate
ble under the regular income tax rate

Note: 1. For quarterly income tax return, the following shall be included

Cost of Sales/Services
Business Expenses

2. Taxable income is accumulated

 Resident Non-resident Resident Non-resident
Citizen Citizen Alien Alien Engaged in Bus. in the Phils.

Sales in the Philippines 1,550,000.00 1,550,000.00 1,550,000.00 1,550,000.00 Sales

Sales in USA 1,650,000.00 - - - Less; Cost of Sales/Service
Total 3,200,000.00 1,550,000.00 1,550,000.00 1,550,000.00 Gross Profit from Operation
Less: Cost of Sales Phils. 450,000.00 450,000.00 450,000.00 450,000.00 Add: Other Income NOT SUBJ
Cost of Sales USA 520,000.00 - - - Gross Business Income
Gross Business Income 2,230,000.00 1,100,000.00 1,100,000.00 1,100,000.00 Less: Business Expenses
Less: Itemized Deductions TAXABLE INCOME
Bus. Expenses (Phils.) 45,500.00 45,500.00 45,500.00 45,500.00
Bus. Expenses (USA) 80,000.00 - - -
Taxable Income 2,104,500.00 1,054,500.00 1,054,500.00 1,054,500.00

Use the tax table

2,000,000 490,000.00
104,500x32% 33,440.00
Income Tax Due 523,440.00
Less: CWT per 2307 -
Income Tax Payable 523,440.00

Income Tax Due/Payable

800,000.00 130,000.00 130,000.00 130,000.00
254,500x30% 76,350.00 76,350.00 76,350.00
Income Tax Due 206,350.00 206,350.00 206,350.00
Less: CWT per 2307 - - -
Income Tax Payable 206,350.00 206,350.00 206,350.00

2. 1st Quarter 2nd Quarter 3rd Quarter Requirement A. - Quarterly Income Tax Payable (Overpaym
Sales 290,000.00 350,000.00 400,000.00
Less: Cost of Sales 150,000.00 120,000.00 150,000.00
Gross Income from Operation 140,000.00 230,000.00 250,000.00
Add: Other Income Not Subject to FWT
Interest income on A/R 3,000.00 5,000.00 10,000.00
Gross Business Income 143,000.00 235,000.00 260,000.00
Less: Bus. Expenses 25,000.00 20,000.00 35,000.00
Taxable Income (this quarter) 118,000.00 215,000.00 225,000.00
Add: Taxable income previous quarter - 118,000.00 333,000.00
Taxable income to date 118,000.00 333,000.00 558,000.00

250,000.00 0
83,000x20% 16,600.00
Income Tax Due - 16,600.00
Less: CWT 2307 (this quarter) 5,800.00 7,000.00
CWT 2307 (previous quarter) - 5,800.00
Quarterly income tax paid - -
Income tax Payable (overpayment) (5800.00) 3,800.00
Deadlines 5/15 8/15
400,000.00 30,000.00
158,000*25% 39,500.00
Income Tax Due 69,500.00
Less: CWT 2307 (this quarter) 8,000.00
CWT 2307 (previous quarters) 12,800.00 (5,800+7,000)
Quarterly income tax paid 3,800.00 (0 + 3,800)
Income tax Payable (overpayment) 44,900.00
Deadline 11/15
Annual B. Annual Income Tax Payable (Overpayment)
Sales 1,490,000.00 (290,000+350,000+400,000+450,000)
Less: Cost of Sales 450,000.00 (150,000+120,000+150,000+30,000)
Gross income from Operation 1,040,000.00
Add: Other Income Not Subject to FWT
Interest income on A/R 26,000.00 (3,000+5,000+10,000+8,000)
Gross Business Income 1,066,000.00
Add: Taxable Compensation Income 120,000.00 (30,000+30,000+30,000+30,000)
Total Gross Income 1,186,000.00
Less: Business Expenses 85,000.00 (25,000+20,000+35,000+5,000)
Taxable Income 1,101,000.00

800,000.00 130,000.00
301,000x30% 90,300.00
Income Tax Due 220,300.00
Less: CWT 2307 (4th qtr.) 9,000.00
CWT 2307 (previous qtr.) 20,800.00 (5,800+7,000+8,000)
CWT 2316 15,000.00
Quarterly Income Tax Paid 48,700.00 (0 + 3,800 +44,900)
Income Tax Payable 126,800.00
Deadline Apr. 15 of the following year
3.
Sales 1,550,000.00
Less: Exemption 250,000.00
Taxable Income 1,300,000.00
Multiply: Tax Rate 8%
Income Tax Due 104,000.00
Less: CWT per 2307 -
Income Tax Payable 104,000.00

4.
Sales in the Philippines 4,550,000.00
Less: Cost of Sales 1,450,000.00
Gross Income from Operation 3,100,000.00
Rent Income 500,000.00
Gross Business Income 3,600,000.00
Less: Business Expenses 545,500.00
Taxable Income 3,054,500.00

2,000,000.00 490,000.00
1,054,500*32% 337,440.00
Income Tax Due 827,440.00
Less: CWT 2307 25,000.00
CWT 2316 -
Quarterly Income Tax Paid -
Income Tax Payable 802,440.00

5.
Sales 1,550,000.00
Multiply: Tax Rate 8%
Income Tax Due 124,000.00

250,000.00 -
100,000x20% 20,000.00
Inocme Tax Due (compensation income) 20,000.00

Total Income Tax Due

From Business 124,000.00
From Compensation Income 20,000.00
Total Income Tax Due 144,000.00
Less: CWT 2307 -
CWT 2316 -
Quarterly Income Tax Paid -
Income Tax Payable 144,000.00
 XXX
ess; Cost of Sales/Service XXX
Gross Profit from Operations
dd: Other Income NOT SUBJECT FWT XXX
oss Business Income XXX
ss: Business Expenses XXX
AXABLE INCOME XXX

e Tax Payable (Overpayment)

ACTIVITY 2
1. The following information were taken from the books of Edelyn for 2018:

1st Quarter 2nd quarter 3rd Quarter 4thQuarter

Sales 600,000.00 700,000.00 800,000.00 900,000.00
Cost of Sales 150,000.00 120,000.00 150,000.00 30,000.00
Rent Income 50,000.00 75,000.00 100,000.00 120,000.00
Interest income from
local currency depos 6,000.00 - - -
Business expenses 210,000.00 25,000.00 25,000.00 5,000.00
CWT -2307 2,500.00 3,750.00 5,000.00 6,000.00

Required:A. Compute for the quarterly income tax payable

B. Compute for the annual income tax payable

2. Given below are the income earned by James, married and a resident citizen of the Philippines
for taxable year 2018:
Sales in the Philippines 8,000,000.00
Sales in USA 3,000,000.00
Interest income from bank deposit (local currency) in
BPI, Bacolod Branch 10,000.00
Cash dividend from domestic corporation 5,000.00
Royalty income from books published in the Philippines 2,000,000.00

Additional Information:
A. Cost of Sales in the Philippines 450,000.00
B. Cost of Sales in USA 520,000.00
C. Business expenses (itemized deduction) in the Phils. 45,500.00
D. Business expenses (itemized deduction) in USA 80,000.00

Compute for the income tax due of James assuming he is

1. Resident Citizen 3. Resident Alien
 2. Non resident citi4. Non-resident alien engaged in business in the Philippines

3. Given below are the income earned by James, married and a resident citizen of the Philippines
for taxable year 2018:
Sales in the Philippines 950,000.00
Interest income from bank deposit (local currency) in
BPI, Bacolod Branch 10,000.00
Cash dividend from domestic corporation 5,000.00

Additional Information:
A. Cost of Sales in the Philippines 450,000.00
B. Business expenses (itemized deduction) in the Phils. 45,500.00

Compute for the income tax payable of James assuming he opted to be taxed at 8% of gross sales

4. Given below are the income earned by James, married and a resident citizen of the Philippines
for taxable year 2018:
Sales in the Philippines 4,000,000.00
Interest income from bank deposit (local currency) in
BPI, Bacolod Branch 10,000.00
Rent Income 500,000.00

Additional Information:
A. Cost of Sales in the Philippines 3,000,000.00
B. Business expenses (itemized deduction) in the Phils. 350,000.00
C. Creditable Withholding Tax 2307 25,000.00

5. Given below are the income earned by James, married and a resident citizen of the Philippines
for taxable year 2018:
Sales in the Philippines 1,950,000.00
Interest income from bank deposit (local currency) in
BPI, Bacolod Branch 10,000.00
Taxable Compensation Income 500,000.00

Additional Information:
A. Cost of Sales in the Philippines 1,000,000.00
B. Business expenses (itemized deduction) in the Phils. 350,000.00
C. Creditable Withholding Tax 2307 25,000.00
D. Creditable Withholding Tax 2316 35,000.00
E. Quarterly Income Tax Paid 35,000.00

Required:A. Can James avail of 8% income tax option?

B. How much is the annual income tax payable (overpayment)
General Types of Individual Taxpayer
1. Resident Citizen Income
2. Non-resident Citizen Business Expenses
3. Resident Alien
4. Non-resident Alien Engaged in Business in the Philippines
5. Non-resident Alien Not Engaged in Business in the Philippines

Types of Individual Taxpayer as to Sources of Income Income

1. Purely Business Income Earner - one who derives income from the conduct of Business Expenses
business or practice of a profession only.
2. Purely Compensation Income Earner - one who derives income from employer- Withholding Tax
employee relationship only. 3 types of withholding tax
3. Mixed Income Earner - one who derives income from the conduct of business 1. Final withholding tax - passive income subject to final
or practice of a profession and from employment. 2. Creditable withholding tax - income subject to credita

Annual Income Tax Forms to be Used: A. Withholding tax on compensation

1. For Purely Compensation Income Earner - Form 1700 B. Expanded withholding tax
2. For Purely Business Income Earner and Mixed Income Earner - Form 1701 3. Government money payments - withholding tax mad

Note: Purely Business Income Earner and Mixed Income Earner shall file quarterly
income tax return (Form 1701Q) for the first three quarters of the taxable year.

Deadlines;
Form 1700 Apr. 15 of the following year
Form 1701 Apr. 15 of the following year

Form 1701Q (1st Qtrending Mar. 31 May 15 of the current year

Form 1701Q (2nd Qtending June 30 August 15 of the current year
Form 1701Q (3rd Qtrending Sept. 30 November 15 of the current year
Note: No 1701Q shall be filed for the 4th quarter of the taxable year as there is a
consolidated return (Form 1701) to be filed on or before Apr. 15 of the following year.
Who can avail of 8% Income Tax Option
Those individual taxpayers whose gross sales do not exceed P3,000,000 annually and not subject to other
percentage taxes.
Note: Compensation Income Earners cannot avail of 8% income tax option.
 RC NRC, RA, NRAETBP
income earned WITHIN and OUTSIDE of the Phils. is taxable income earned within the Phils is taxable
business expenses incurred WITHIN AND OUTSIDE of the business expenses incurred within the
Phils. are deductible Phils. are deductible

NRANETBP
income earned within the Phils. is taxable
no deduction from gross income is allowed (the alien is not engaged in business)

withholding tax
ithholding tax - passive income subject to final withholding tax is not taxable under the regular income tax rate (tax table)
able withholding tax - income subject to creditable withholding tax is subject to regular income tax rate (tax table) and the
creditable withholding tax is deducted from the income tax due.
hholding tax on compensation
anded withholding tax
nment money payments - withholding tax made by government agencies, LGUs, Government Financial Institutions and Government
Owned and Controlled Corporations.