Tax 1101 – Income Taxation

Far Eastern University Manila

Quiz No. 2

PART I

Determine whether the income described below is subject to final withholding tax, regular income tax or
capital gains tax.

Write the following in the Tax Type column:

FWT = Final withholding tax
RIT = Regular income tax
CGT = Capital Gains Tax

Tax Type

___________ 1. Interest from a foreign currency deposit in Japan. RIT

___________ 2. Compensation Income, Philippines. RIT
___________ 3. Interest from Euro bank deposit, BPI-Morayta. FWT 15%
___________ 4. Royalties, in general, New York Cubao. FWT
___________ 5. P 1,000,000 ,Lotto Winnings, Mexico Pampanga. FWT
___________ 6. Gain on sale of car classified as Capital Asset. RIT
___________ 7. Gain on sale of shares of stock of a domestic to Mr. Chinaman (buyer). CGT
___________ 8. Gain on sale of shares of stock of a domestic to Mr. Trumph in USA. CGT
___________ 9. P 9,999.99 Lotto Winnings, San Francisco Cebu. EXEMPT (BONUS for afternoon class)
___________ 10. Dividends from Azure Hotel, Alabang. FWT

PART II

A. Determine the Tax due/ Payable

1. John is a resident citizen, earning purely business income for 2019 taxable year
Gross sale P 2,800,000
Cost of sale 1,200,000
Operating expenses 850,000
Creditable withholding taxes 80,000

ANS:____________________________
1. Income Tax Payable = P37,500
computed as follows:
Gross sales P2,800,000
Cost of sales (1,200,000)
Operating expenses (650,000)
Taxable net income P750,000
Tax Due:
Tax Due P117,300
Less: CWT (80,000)
Income Tax Payable P37,500
2. Using the same facts in No. 1 except that John opted to elect 8% income tax regime.

ANS___________________________

2. Income Tax Payable = P124,000

computed as follows:
Gross sales P2,800,000
Less (250,000)
Balance subject to 8% tax P2,550,000
x 8%
Tax Due P204,000
Less: CWT (80,000)
Income Tax Payable P124,000

B. Mr. Gudani, single and ready to mingle had the following data in 2019:

Philippines Abroad
Gross income from sales P 4,000,000 P 6,000,000
Interest income on deposit 40,000 80,000
Less: deductions 2,000,000 3,600,000

__________3. Compute the taxable income if Mr. Gudani is a resident citizen.

ANS: P 4,480,000 ( within and without plus interest deposit from without)
__________4. In the immediate preceding problem, compute the taxable income if Mr. Gudani is a non-
resident citizen
ANS: P 2,000,000 ( within only)

C. A resident citizen taxpayer sold a vacant lot ( Held as Inventory) in the Philippines. Other data
regarding the sale are as follows:
Selling Price P 5,500,000
FMV 6,000,000
Zonal Value 5,850,000
Expenses of the sale 275,000
5. Required: Compute the Capital Gains tax
ANS________________________ ZERO or 0. Why? Because it is held as inventory. Hence, ordinary
asset

D. A resident citizen taxpayer sold a vacant lot ( Personal Asset) in the Philippines. Other data regarding
the sale are as follows:
Gain on sale P 500,000
Zonal Value 2,200,000
Cost 2,000,000
Expenses of the sale 150,000
6. Required: Compute the Capital Gains tax
ANS_________________________________

ZV P2.2M vs. SP of P2.5M**; CGT = P2.5M x 6% = P150,000; **SP = Cost + Gain