NCR FRONTLINERS 2019

TAXATION – ANSWER KEY

1. B
Reference:
• The ORs are not compliant with the invoicing requirements under Section 113 of the NIRC, as
amended. To be considered sufficient, the amount of tax should be shown as a separate item on
the invoice or receipt.
• It held that since only the total amount is indicated on the OR, the buyer cannot ascertain
whether the transaction is subject to 12% VAT, exempt, or zero-rated as the transactions are not
properly segregated.
2. B

3. C

TRAIN Law
Estate tax on world net estate (P1,500,000 at 6%) P90,000
Tax credit for foreign estate tax paid:
Columbia. Actually paid to Columbia 1,500
P100,000/P1,500,000 x P90,000 6,000
Allowed (lower amount) 1,500
Indonesia. Actually paid to Indonesia 1,800
P200,000/P1,500,000 x P90,000 12,000
Allowed (lower amount) 1,800
Total P3,300

4. D.
Reference/Solution:

No. of Bottles Unit Price (net) VAT

40,000 90.00 432,000.00

• Section 4.106-7 (a) (3) of RR No. 16-05, as amended, provides that consignment of goods if
actual sale is not made within 60 days following the date such goods were consigned, excluding
those that are returned by the consignee, shall be considered as transaction deemed sold and
consequently, shall be subject to VAT
.
5. B.
References:

• BIR Ruling No. 2013-19 dated March 6, 2019

• BIR Ruling No. 1308-18, 1386-18, 110-19
• CTA Case No. 9349 promulgated January 18, 2019
• CTA EB Case No. 1638 dated March 30, 2017
6. A.
Reference/Solution:
• Under Sec. 4. 109-1 of Revenue Regulations (RR) No. 13-2018, the following are exempt from
VAT:
(q) Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand
Pesos (P15,000.00).
The foregoing notwithstanding, lease of residential units where the monthly rental per unit
exceeds Fifteen Thousand Pesos (P15,000.00), but the aggregate of such rentals of the
lessor during the year do not exceed Three Million Pesos (P3,000,000.00) shall likewise be
exempt from VAT; however, the same shall be subject to three percent (3%) percentage tax
under Section 116 of the Tax Code.
In cases where a lessor has several residential units for lease, some are leased out for a
monthly rental per unit of not exceeding P15,000.00 while others are leased out for more
than P15,000.00 per unit, his tax liability will be as follows:
a. The gross receipts from rentals not exceeding P15,000.00 per month per unit shall be
exempt from VAT regardless of the aggregate annual gross receipts. It is also exempt
from the 3% percentage tax.
b. The gross receipts from rentals exceeding P15,000.00 per month per unit shall be
subject to VAT if the aggregate annual gross receipts from said units only exceeds
P3,000,000.00. Otherwise, the gross receipts will be subject to the 3% tax imposed
under Section 116 of the Tax Code.

7. D
Double taxation means two (or more) taxes on the same subject matter in the same year, by the
same taxing authority. There will be a violation of the rule prohibiting “direct double taxation” if
there are two taxes on the same subject matter (assumed in the problem as same year by the
same taxing authority). There is a violation of the equal protection clause in the law.

8. A

Value of properties of Mr. Novak P220,000

Obligations of Mr. Novak 320,000
Less: Obligations to preferred creditors 80,000 240,000
Obligations of Mr. Novak that will not be
paid – Claim against insolvent (P20,000)

9. B
The property in B is not intangible personal property in the Philippines. It is intangible property in
the United States. The reciprocity clause does not apply.

10. A
References:
• RR No. 09-2009
• RR No. 17-2013
• RR No. 05-2014

Notes:
• The Statement A is not absolute. In cases wherein the taxpayer files beyond the deadline, the
taxpayer is required to preserve books of accounts, including subsidiary books and other
accounting records, for a period of ten (10) years reckoned from the day following the date of
the filing of the return, for the taxable year when the last entry was made in the books of
accounts, provided that, within the first five (5) years, the taxpayer shall retain hard-copies of
the books of accounts, including subsidiary books and other accounting records.

11. D
The premium on the life insurance where the corporation is the beneficiary cannot be deducted
from the gross income of the corporation. The premium on the life insurance where Mr. X’s wife
is the beneficiary can be deducted from the gross income of the corporation. The proceeds of life
insurance received by the beneficiary (corporation or Mrs. X) upon the death of the insured is an
exclusion from gross income.

12. A

The CTA shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue (CIR) in cases involving assessments,

refunds or internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue Code (NIRC) or other laws administered
by the Bureau of Internal Revenue (BIR);
2. Inaction by the CIR in cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other matters arising under the NIRC
or other laws administered by the BIR, where the NIRC provides a specific period for action,
in which chase the inaction shall be deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdictions;
4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees
or other money charges, seizure, detention or release of property affected, fines, forfeitures,
or other penalties in relation thereto, or other matters arising under the Customs law or other
laws administered by the Bureau of Customs
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation real property originally decided
by the provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for
review for decisions of the Commissioner of Customs which are adverse to the Government
under Sec. 2315 of the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product,
commodity or article, and the Secretary of Agriculture in the case of agricultural product,
commodity or article, involving dumping and countervailing duties under Sec. 301 and 301,
respectively of the Tariff Customs Code, and safeguard measures under RA 8800, where either
party may appeal the decision to impose or not to impose said duties (RA 9282)

13. D
A documentary stamp tax on the certificate and the prescribed certification fee shall be
collected for each CAR to be issued. These tax and fees collected are over and above the taxes
due on the transactions.
14. C

List price P22,400

Less: Value-added tax (22,400/3/28) 2,400
Net of VAT 20,000
Less: Discount (20,000 x 20%) 4,000
Amount payable 16,000

15. A

Market value (2,000 x P1,100) 2,420,000

x Assessment level 50%
Assessed value 1,210,000
x Tax Rate 2%
Basic real property tax 24,200
Add: Special education fund (1,210,000 x 1%) 12,100
Aggregate real property tax 36,300

16. A
Gross profit from sales P3,000,000
Expenses of operations 1,000,000
Taxable income P2,000,000
Minimum corporate income tax
P3,000,000 x 2% P 60,000
Normal income tax
P2,000,000 x 30% P 600,000
Whichever is higher P 600,000
Less: Quarterly income taxes paid 500,000
Income tax still due P 100,000

17. C
Income from rent P40,000.00
Income from leasehold improvement
Cost P400,000
Less:
Depreciation during the remaining
term of the lease –
P400,000/20 years x 15 years 300,000
Estimated book value of leasehold improvements
when the lease expires P100,000
Annual income (P100,000/15 years) 6,666.66
Annual income P46,666.66

Note: The problem failed to give the remaining term of the lease from the date the improvements
were completed. The solution assumed a remaining term of the lease equal to (?) the term of the
lease of 15 years.
 Fair market value of the improvements
when the lessor took possession P400,000
Cost
Less: Depreciation of the improvements
at the end of the 10th year –
P400,000/20 years x 10 years 200,000 P200,000.00
Less: Income from the improvements
already reported from Year 1 to Year 10
(P6,666.66 x 10 years) 66,666.66
Income in the eleventh (11th) year P133,333.34

18. A

Minimum wage earners shall be exempt from the payment of income tax based on their statutory
minimum wage rates. The holiday pay, overtime pay, night shift differential pay, and hazard pay
are likewise exempt.

Total compensation income P135,000

Add: Overtime, night shift differential, hazard 140,000
and holiday pay
Total income 275,000
Less: Mandatory contributions 5,000
Non-taxable benefits 11,000 16,000
Net taxable income P259,000
Exempt

19. A

This is not gain derived from labor, but a gain derived from an outstanding achievement. So it is
not income. Something received for an outstanding achievement is a gift. A gift received is not an
income.

20. B

Because Eunice did not receive cash, she did not recognize an income from receivable. If she did
not recognize income from receivable, she is not to recognize a deduction from the uncollectibility
of the receivable.

21. A.

Reference:

Revenue Regulations (RR) No. 02-2001

CTA Special 2nd Division Case No. 9106 promulgated September 27, 2018
 22. A

Reference:

• Revenue Memorandum Order (RMO) No. 23-18

23. B

Reference:

• Section 4.113-2, Revenue Regulations (RR) No. 16-05, as amended

✓ In the case of transfer, use or consumption not in the course of business of goods or
properties originally intended for sale or for use in the course of business, a
memorandum entry in the subsidiary sales journal to record withdrawal of goods for
personal use is required.
✓ In the case of distribution or transfer to shareholders or investors as share in the profits
of VAT-registered person and creditors in payment of debt or obligation and
consignment of goods if actual sale is not made within 60 days following the date such
goods were consigned, an invoice shall be prepared at the time of the occurrence of
the transaction, which should include, all the information prescribed in RR No. 16-05.
The data appearing in the invoice shall be duly recorded in the subsidiary sales journal.
The total amount of “deemed sale” shall be included in the return to be filed for the
month or quarter.
In the case of retirement from or cessation of business with respect to all goods on hand,
whether capital goods, stock-in-trade, supplies or materials as of the date of such
retirement or cessation, an inventory shall be prepared and submitted to the Revenue
District Office (RDO) who has jurisdiction over the taxpayer’s principal place of

24. A.
Solution/Reference:

• Revenue Regulations (RR) No. 02-2019

Original Price (inclusive of VAT) PhP

291,984.00

Gross Receipts (291,984/112%) PhP

260,700.00
Add: 5% Excise Tax (260,700 x 5%) 13,035.00
12% VAT [(260,700+13,035) x 12%] 32,848.20
Total Amount to be Collected from Princess Sarah PhP
306,583.20

25. C.
 Solution:
Tax Computation
Particulars Registered Activities Unregistered
Activities
Gross Income PhP PhP
18,300,000 3,678,000
Allowable Deductions (PhP 9,890,100 * 35% for unregistered - 3,461,535
activity)
Taxable Income PhP PhP
18,300,000 216,465
Applicable Tax Rate 5% 30%

RCIT PhP
64,940
MCIT (PhP 3,678,000 * 2%) 73,560

Tax Payable PhP PhP 73,560

915,000

Combined Tax Payable PhP 988,560

Valid CWT credits (50k-10k+16.6k-5k) (51,600)
Remittance due to the local government (2% of 5% GIT) (366,000)
Income tax due to the BIR PhP
570,960

26. C

Reference/Solution:

• Only the depreciation expense for Montero Sports GLS is deductible for tax purposes computed
as follows:

Acquisition cost, net of 12% VAT 1,056,000

Divided by: Useful life 4
Deductible depreciation expense in 2014 264,000

• RR No. 12-12

▪ No deduction from gross income for depreciation shall be allowed unless the taxpayer
substantiates the purchase with sufficient evidence, such as official receipts or other
adequate records;
▪ Only one vehicle for land transport is allowed for the use of an official or employee, the value
of which should not exceed Two Million Four Hundred Thousand Pesos (Php2,400,000);
▪ No depreciation shall be allowed for yachts, helicopters, airplanes and/or aircrafts, and land
vehicles which exceed the above threshold amount; unless the taxpayer's main line of
 business is transport operations or lease of transportation equipment and the vehicles
purchased are used in said operations.

27. D.

Reference:
• Section 4.114-2 (a), Revenue Regulations (RR) No. 16-05

28. C.

Reference:
▪ Section 109 (T) of the tax code, sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof for domestic or international
transport operations is exempt from VAT

29. A.

Reference:
• Section 106(A)(2)(a)(1) of the tax code
• The sale and actual shipment of goods from the Philippines to a foreign country, irrespective
of any shipping arrangement that may be agreed upon which may influence or determine
the transfer of ownership of the goods so exported and paid for in acceptable foreign
currency or its equivalent in goods or services, and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP)

30. C.

Reference:

• Section 2 of RR No. 10-02 provides that the term “Entertainment, Amusement and
Recreation Expenses" includes representation expenses and/or depreciation or rental
expense relating to entertainment facilities.

• The term "Representation Expenses" shall refer to expenses incurred by a taxpayer in

connection with the conduct of his trade, business or exercise of profession, in entertaining,
providing amusement and recreation to, or meeting with, a guest or guests at a dining
place, place of amusement, country club, theater, concert, play, sporting event, and similar
events or places.

• Moreover, in the same Regulations, “Guests” shall mean persons or entities with which the
taxpayer has direct business relations, such as but not limited to, clients/customers or
prospective clients/customers. The term shall not include employees, officers, partners,
directors, stockholders, or trustees of the taxpayer. Furthermore, Section 3 of the same
Regulations enumerated the following expenses not considered as EAR expenses:
 ► Expenses which are treated as compensation or fringe benefits for services rendered
under an employer-employee relationship;
► Expenses for charitable or fund-raising events;
► Expenses for bonafide business meeting of stockholders, partners or directors;
► Expenses for attending or sponsoring an employee to a business league or professional
organization meeting;
► Expenses for events organized for promotion, marketing and advertising including
concerts, conferences, seminars, workshops, conventions, and other similar events; and
► Other expenses of a similar nature

31. A
Gross sales – convenience store P 800,000
Gross receipts – bookkeeping 300,000
Total sales and receipts P1,100,000
Less: Allowable deduction under Section 24 250,000
Taxable income P 850,000
% of P850,000 P 68,000
32. A

Gross sales – convenience store P 800,000

Gross receipts – bookkeeping 300,000
Total sales and receipts P1,100,000
Less: Cost of sales 600,000
Gross income 500,000
Less: Operating expenses 200,000
Taxable income 300,000

Tax due on excess (P300,000 – P250,000 x 20%) P10,000

33. A

Total compensation income P1,200,000

Less: Non-taxable 13th month pay and other benefits 90,000
Taxable compensation income P1,110,000

Add: Taxable income from business P3,500,000

Gross sales 1,000,000
Less: Cost of sales P2,500,000
Gross income 600,000
Less: Operating expenses 1,900,000
Net income from operation 100,000
Add: Non-operating income P2,000,000
Taxable business income

Total taxable income (P1,110,000 + P2,000,000) P3,100,000

Tax Due
On P2,000,000 P490,000
On excess (P3,100,000 – P2,000,000) x 32% 355,000
Total income tax due (Compensation and business) P845,200

34. C

Rental actually received (P100,000 x 4) P400,000

Accrued rent income, November & December
(P100,000 + P100,000) 200,000
Income under the accrual method P600,000

35. B

The receiving corporation, Filipinas Incorporated, is a domestic corporation. It received dividends,

assumed cash dividend, from a foreign corporation. This is a case of a domestic corporation receiving
dividend from a foreign corporation. Dividend received by a domestic corporation from a resident
corporation is income tax from outside the Philippines. The tax on this is 30%. (The 10% final tax does not
apply because the paying corporation is not a domestic corporation).

This rule applies under the old law and under the TRAIN Law.

36. B

A sale of shares from unissued stock over its par or stated value is accepted in law and in accounting as
part of, and shown, as Stockholders Equity in the corporation. It is not income.

37. D

Gross income P1,000,000

Less: Business expense 400,000
Net income P 600,000
Dividend from:
Foreign corporation with 90% Philippine gross income 100,000
Foreign corporation with 60% Philippine gross income 80,000
Foreign corporation with 30% Philippine gross income 40,000
Total P 820,000

38. B

A taxable stock dividend gives the stockholder income equivalent to its fair market value at the time of
declaration. It can be looked upon as a transaction where the corporation distributed cash and the
stockholder used to cash to buy the shares of stock. What was the cash distributed? Equivalent to the fair
market value of the stock dividend at the time of declaration.

39. B
On the tax exemption, the law provides that only the property used for religious purposes shall be exempt
from the tax.

40. A

There is, as if, a sale of real property held as capital asset. There is a capital gain tax at 6%, based on the
fair market value of the property. (The P50,000, which, if to be considered as “selling price” is lower than
the fair market value of the property, so it cannot be the basis of the capital gain tax.)

41. B

TRAIN Law: A sale of real property (house and lot) is subject to the capital gain tax of 6% of the selling
price.
42. A

Resident individuals and domestic corporations are taxed on income from within and outside the
Philippines.

43. C

Selling price P270,000

Less: Mortgage assumed by the buyer 160,000
Balance P110,000
Add: Excess of mortgage over cost 10,000
Contract price P120,000

44. B

The cost of the new principal residence is:

(Proceeds of the sales invested/Entire proceeds of the sale)/Basis of the old residence)
12/16 x P4,000,000 is P3,000,000

45. A

P5,000,000 x 6% or P300,000. The rule on adjusted amount of capital gain tax will not apply, because that
will apply only if a new principal residence is BUILT by the taxpayer out of the proceeds of the sale. There
are two unrelated transactions here – a sale and a purchase.

46. D

The sale is at a loss.

Selling price (P67,500 + P67,500 + P45,000) P180,000

Less: Cost 225,000
Income 0

47. B
 The income tax rule to apply on interest expense on a loan towards the acquisition of fixed asset is either
to treat the expense as a deduction, or to capitalize it as cost of the asset and the cost of the asset may
then be depreciated.

48. C

Fiduciary of a trust and beneficiary of the trust are independent taxpayers. The loss on sales between
them is deductible.

49. B

The land is considered as capital asset since it was never used in business. The sale is a sale of capital asset
and will be subject to the capital gain tax of 6% of its selling price.

50. D

(a), (b) and (c) are from activities related to the trade, business or activity of the domestic proprietary
educational institution. But rental income from office spaces is not anymore related to the purposes for
which the corporation was organized.

51. C Reference:
• Revenue Memorandum Order (RMO) No. 20-13, as amended by RMO No. 28-13
• Section 30 of the 1997 Tax Code, as amended
• Revenue Memorandum Circular (RMC) No. 51-14

52. C.
Reference:
• CTA En Banc, CTA EB Nos. 1763, promulgated on 7 June 2019 (Deutsche Knowledge Services Pte.
Ltd. vs. Commissioner of Internal Revenue)

53. A
References:
• Tax Reform for Acceleration and Inclusion (TRAIn) Law – at least more than PhP 3,000,000

54. D.
Solution:

Compensation
Basic Salary PhP 276,000
Overtime Pay 193,000
Total Compensation PhP 469,000
 Other De minimis Taxable
Benefits limit
Other Benefits
13th Month Pay PhP 23,000 PhP - PhP 23,000
14th Month Pay 23,000 - 23,000
15th Month Pay 18,400 - 18,400
Christmas Bonus 15,000 - 15,000
Rice Allowance1 31,800 24,000 5,850
Laundry Allowance2 7,560 3,600 5,670
Uniform and clothing allowance3 7,500 6,000 1,500
Bereavement Assistance 15,000 - 15,000
Employee achievement award (in cash)4 15,000 - 15,000
Medical cash allowance to employee’s 5,000 3,000 500
dependents
Total PhP 124,660
Less: 13th month pay and other benefits limit (90,000)
Total Taxable Other benefits 34,660
Total Taxable Compensation and Other Benefits PhP 503,660
Total Tax Due per Tax Table PhP 55,915
Total Remittance to the BIR (27,075)
Remaining tax to be remitted to the BIR PhP 28,840

Notes:
1
De minimis limit for rice allowance is increased to PhP 2,000 per month, which is equivalent to PhP
24,000 per annum
2
De minimis limit for laundry allowance is PhP 300 per month, which is equivalent to PhP 3,600 per
annum
3
De minimis limit for uniform and clothing allowance is increased to PhP 6,000 per annum
4
The requirement for employee achievement awards for it to be part of the “de minimis” benefits is
that it should be provided in kind (i.e., tangible asset) and not in cash or gift certificate.

55. D
Solution:

Training Expense PhP 22,670,031

Research and Development Expense 78,145,123
Total Expenses qualified for special deduction PhP 100,815,154
Rate of Special Deduction 50%
Special Deduction – RA No. 10771 PhP 50,407,577

56. B

Solution:

Output Tax [300,500 + (217,500 * 2)] x 12/112] PhP 78,803.57

 Less: Input VAT from services by non-residents (22,500 x 12%) 2,700.00
Amount due as of October 15, 2018 PhP 76,103.57

• Collection from StopUsingPlasticStraws Corp. is subject to 0% VAT. However, the related input
tax related to such sale is not available, hence, there can be no attributed input taxes on the VAT
zero-rated sale transaction based on the above.

• Receipts from ReduceUrWaste Co. is subject to 12% VAT.

• As a Company not registered under PEZA, the default assumption on the sale to PEZA-registered
customers is to impose VAT on the services provided, unless the PEZA customer explicitly
expresses to elect a different treatment by providing documentary requirements (e.g., certificate
of VAT zero-rating, certificate of registration with PEZA).

In addition, in CTA EB Case No. 504 dated June 16, 2010 (CIR vs. Tea Sual Corp.), the Court ruled
that the VAT-registered person must not only issue an invoice or receipt for every sale but more
importantly, the creditable input tax may be evidenced by either a VAT invoice or OR. The use of
the disjunctive term "or" connote that either act qualifies as two different evidences of input
VAT. Hence, it is indicative of the intention of the BIR and the lawmakers to use the same
interchangeably in the sale of goods or services. The taxpayer may therefore present either an
invoice or a receipt and it should not have any negative repercussion on its claim. Both are
evidence of receipt of income by the issuer.

Based on the above, it can be considered that either invoice or receipt evidences receipt of
income. Following the same line of reasoning, issuance of both SI and OR may be construed as
acknowledgement by the taxpayer of having two separate sources of income, although
pertaining to the same transaction, notwithstanding the fact that the related VAT SI only serves
as an issuance of billing.

• Remittance of WVAT for payment of royalty to NRFC, claimable as input tax credit on the month
of remittance only.

57. C.
Reference/Solution:

Monthly Input VAT

Unamortizabl
Useful Acquisition Input amortizatio should be
Capital Goods e portion of
Life Cost VAT n per claimed for
Input VAT
Company Q4
October*
Improvement -
48 400,000 48,000 1,000 48,000
Deluxe Queen
Improvement -
Standard 24 200,000 24,000 1,000 24,000
Room
Improvement -
21 350,000 42,000 2,000 42,000
Deluxe King
 Master Suite
14 50,000 6,000 600 6,000
Chandelier
1,000,000 120,000 120,000 PhP 0
November**
Studio Room
Expansion 80 1,000,000 120,000 1,500 4,000
Junior Suite
Renovation 90 1,500,000 180,000 2,000 6,000
2,500,000 300,000 10,000 290,000
December**
Cabana
Bathroom 75 1,050,000 126,000 1,680 2,100 123,900
Installation
PhP
Grand Total – Input VAT to be carried over on the next quarter
413,900

Notes:

*The aggregate cost of the capital goods purchased during October only amounts to PhP 1,000,000
(i.e., not exceeding PhP 1M). Thus, the input VAT should have been claimed outright and not
amortized.
**The input VAT should be spread over 60 months or useful life, whichever is lower.

References:

• Section 4.110-3 of RR No.16-05, as amended, provides that a VAT-registered person who

purchases or imports capital goods, which are depreciable assets for income tax purposes, the
aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceeds PhP
1,000,000, regardless of the acquisition cost of each capital good, shall be claimed as credit
against output tax in the following manner:

o If the estimated useful life of a capital good is five (5) years or more — The input tax
shall be spread evenly over a period of sixty (60) months and the claim for input tax
credit will commence in the calendar month when the capital good is acquired. The total
input taxes on purchases or importations of this type of capital goods shall be divided by
60 and the quotient will be the amount to be claimed monthly.
o If the estimated useful life of a capital good is less than five (5) years — The input tax
shall be spread evenly on a monthly basis by dividing the input tax by the actual number
of months comprising the estimated useful life of the capital good. The claim for input
tax credit shall commence in the calendar month that the capital goods were acquired.

• Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable
capital goods purchased or imported during any calendar month does not exceed one million
pesos (PhP 1,000,000), the total input taxes will be allowable as credit against output tax in the
month of acquisition.
 58. A
Reference:
• RR No. 24-2018 dated November 24, 2018
• RMC No. 105-2018 dated December 17, 2018
• RR No. 2-2019

59. C.
Reference:
• Republic Act (RA) 10963, or the “Tax Reform for Acceleration and Inclusion” (TRAIn) Law
• Section 123 of the 1997 Tax Code, as amended
• Section 108 (B) (3) of the 1997 Tax Code, as amended

60. A
Solution:

Income Tax – only interest is deductible PhP 537,875

EWT – only interest is deductible 116,540
VAT – only interest is deductible 215,150
DST – only the basic tax and interest are deducible 235,391
(PhP 212,000 + PhP 23,391)
LBT – the entire amount is deductible 430,900
Total deductible expense arising from deficiency tax
PhP 1,535,856
payments

Notes:

• Section 34 (C) of the 1997 Tax Code, as amended, provides that taxes paid or incurred within
the taxable year in connection with the taxpayer's profession, trade or business, shall be
allowed as deduction, except:

a. Income tax;
b. Income taxes imposed by the authority of any foreign country;
c. Estate and donor’s taxes; and
d. Taxes assessed against local benefits of a kind tending to increase value of the
property assessed.

Moreover, Section 80 of RR No. 2 provides as follows:

“As a general rule, taxes are deductible with the exception of those with respect to
which the law does not permit deduction.

xxx xxx xxx

Import duties paid to the proper customs officers, and business, occupation, license,
privilege, excise and stamp taxes and any other taxes of every name or nature paid
directly to the Government of the Philippines or to any political subdivision thereof,
are deductible. The word “taxes” means taxes, proper and no deduction should be
 allowed for amounts representing interest, surcharge or penalties incident to
delinquency. Xxx”

In Court of Tax Appeals En Banc (CTA EB) decision in General Registry (GR) No. L-13912 dated
September 30, 1960 [Consuelo L. Vda. De Prieto v. Commissioner of Internal Revenue (CIR)],
the Court held that although interest payment for delinquent taxes is not deductible as tax
under Section 34 (C) of the Tax Code, as amended, and Section 80 of RR No. 2, the taxpayer is
not precluded from claiming said interest payment as deduction under Section 34 (B) of the
same Code.

• Since DST is not among the exceptions noted in the Tax Code, the same can be claimed as
deduction.
• Surcharge and compromise penalties imposed for non-payment or late payment of taxes are
not deductible for tax purposes since these payments arise from a violation of the Tax Code.
• However, LBT is not among the taxes remitted to the BIR, hence shall not be bound by the
rules of nondeductibility of taxes.