9.

In the year 2000, X worked part time as a waitress in a restaurant in Mega Mall from
8:00 am to $:00 pm and then as a cashier in a 24-hour convenience store in her
neighbourhood. The total income of X for the year from the two employers does not
exceed her total personal and additional exemptions for the year 2000. Was she
required to file an income tax return last April? Explain your answer.

Answer: Yes. An individual deriving compensation concurrently from two or more

employers at any time during the taxable year shall file an income tax return.

10. Is a non-resident alien who is not engaged in trade or business or in the exercise of
profession in the Philippines but who derived rental income from the Philippines
required to file an income tax return on April of the year following his receipt of said
income? If not, why not? Explain your answer.

Answer: No. The income tax on all income derived from Philippine sources by a non-
resident alien who is not engaged in trade or business in the Philippines is withheld by
the lessee as a Final Withholding Tax. The government cannot require persons outside
of its territorial jurisdiction to file a return. For this reason, the income tax on income
derived from within must be collected through the withholding tax system and thus
relieve the recipient of the income the duty to file income tax returns.

11. What do you think is the reason why cash dividends, when received by a resident or
alien from a domestic corporation, are taxed only at the final tax of 10% and not at the
progressive tax rate schedule under Section 24(A) of the Tax Code? Explain your
answer.

Answer: The reason for imposing final withholding tax rather than the progressive tax
schedule on cash dividends received by a resident citizen or alien from a domestic
corporation is to ensure the collection of income tax on said income. If we subject the
dividend to the progressive tax rate, which can only be done through the filing of income
tax returns, there is no assurance that the taxpayer will declare the income, especially
when there are other items of gross income earned during the year. It would be
extremely difficult for the BIR to monitor compliance considering the huge number of
stockholders. By shifting the responsibility to remit the tax to the corporation, it is very
easy to check compliance because there are fewer withholding agents compared to the
number of income recipients.

12. What is meant by income subject to “final tax”? Give at least two examples of
income of resident individuals that is subject to the final tax.

Answer: Income subject to final tax refers to an income wherein the tax due is fully
collected through the withholding tax system. Under this procedure, the payor of the
income withholds the tax and remits it to the government as a final settlement of the
income tax due on said income. The recipient is no longer required to include the item
of income subjected to “final tax” as part of his gross income in his income tax returns.
Examples of income subject to final tax are dividend income, interest from bank
deposits, royalties, etc.

13. In order to facilitate the processing of its application for a license from a government
office, Corporation A found it necessary to pay the amount of Php 100,000 as a bribe to
the approving official. Is the Php 100,000 deductible from the gross income of
Corporation A? On the other hand, is the Php 100,000 taxable income of the approving
official? Explain your answers.

Answer: Since the amount of Php 100,000 constitutes a bribe, it is not allowed as a
deduction from gross income of Corporation A. However, to the recipient government
official, the same constitutes as taxable income. All income from legal or illegal sources
is taxable absent any clear provision of law exempting the same. This is the reason why
gross income had been defined to include income from whatever source derived.
Illegally acquired income constitutes realized income under the claim of right doctrine.

14. Taxpayers whose only income consist of salaries and wages from their employers
have long been complaining that they are not allowed to deduct any item from their
gross income for purposes of computing their net taxable income. With the passage of
the Comprehensive Tax Reform Act of 1997, is this complaint still valid? Explain your
answer.
Answer: No more. Gross compensation income earners are now allowed at least an
item of deduction in the form of premium payments on health and/or hospitalization
insurance in an amount not exceeding P 2,400 per annum. This deduction is allowed if
the aggregate family income does not exceed P 250,000 and by the spouse, in case of
married individual, who claims additional personal exemption for dependents.

15. Distinguish “Exclusion from Gross Income” from “Deductions From Gross Income”.
Give an example of each.

Answer: Exclusions from gross income refer to a flow of wealth to the taxpayer which
are not treated as part of gross income, for purposes of computing the taxpayer’s
taxable income, due to the following reasons: (1) It is exempted by the fundamental law;
(2) It is exempted by statute; and (3) It does not come within the definition of income.
Deductions from gross income, on the other hand, are the amounts, which the law
allows to be deducted from gross income in order to arrive at net income.

Exclusions pertain to the computation of gross income, while deductions pertain

to the computation of net income. Exclusions are something received or earned by the
taxpayer which do not form part of gross income while deductions are something spent
or paid in earing gross income.

Example of an exclusion from gross income is proceeds of life insurance

received by the beneficiary upon the death of the insured which is not an income or 13th
month pay of an employee not exceeding P 30,000 which is an income not recognized
for tax purposes. Example of a deduction is business rental.

16. A, a doctor by profession, sold in the year 2000 a parcel of land which he bought as
a form of investment in 1990 for Php 1 million. The land was sold to B, his colleague, at
a time when the real estate prices had gone down and so the land was sold only for Php
800,000 which was then the fair market value of the land. He used the proceeds to
finance his trip to the United States. He claims that he should not be made to pay the
6% final tax because he did not have any actual gain on the sale. Is his contention
correct? Why?
Answer: No. The 6% capital gains tax on sale of a real property held as capital asset is
imposed on the income presumed to have been realized from the sale which is the fair
market value or selling price thereof, whichever is higher. Actual gain is not required for
the imposition of the tax but it is the gain by fiction of law which is taxable.