Income Taxation Solution Manual 2019 ED
Dear Tax Professors,
Greetings in God’s grace!
Our taxation system in the Philippines is besmirched by reported abuses in tax administration and
pervasive corruption. These disheartened many taxpayers not to properly reflect their taxes rationalizing
on corrupt government practices.
Our solemn duty as academician is to lay the foundation for the future correction of this defect in our
society by providing the best tax education our students deserve. Tax malpractices and corruption can be
limited by adequate public tax education.
Most schools fail on their duty in transforming their graduates as agents of change in society because
teaching tends to be too basic or too theoretical to be applied. As our mission, let us give our students more
practical knowledge by giving them the totality of taxation. Even if they are not tax majors, they should be
given the option and the chance to attain high level proficiency in taxation. This could transcend to career
opportunity for them.
Teach well and you will live forever! Your influence will forever stay in the minds and hearts of your
students. That excellence will multiply. Let us give our students a legacy of true competence. Let us give
them the best tax education we can give. Let us give them the type of excellence which is not feigned, not
masked, but real. Always remember that your service to fellow man is a service to God.
Let us join hand to promote a better tax education. Contact me whenever you need assistance. I will assist
in the best way I could. God bless you!
MY HUMBLE REQUEST TO MY BELOVED FELLOW PROFESSORS
Being a teacher myself, I strongly admit that books are excellent partners in classroom teaching. Creating
high quality books requires enormous time investments and efforts. I wrote this book over years of
continuous technical research, tax practice and conceptual refinement through my actual teaching in the
undergrad and in the review.
I am not an entrepreneur. Like you, I am a full-blooded teacher. I teach and write books to empower and
transform people. I hope and pray that you respect the dignity of my work in the same way you value
yours. I am praying that you will NEITHER give the students or reviewees copies of the solution
manual NOR tolerate the photocopying of my book in your classes. As accountants, we must collectively
act under our conscience to be true guardians of integrity. Please help stop book piracy. Please report
suspected counterfeit books to . God bless you!
REX B. BANGGAWAN, CPA, MBA
, INCOME TAXATION: LAWS, PRINCIPLES AND APPLICATIONS
TAX TEACHER’S MANUAL
Rex B. Banggawan, CPA, MBA
ABOUT TEACHING METHODOLOGY OF THE BOOK
Please be advised that the book is not written to impress tax experts. The book is intended as a guide to
students for them to understand and master the totality of the income taxation. Because of this, the book is
prepared in a sequential organization of topics. To optimize understanding and concept recall, some topics
may be briefly re-opened for discussion in future chapters of the book. This is not repetition. This is
deliberately intended for students to connect and interrelate new concepts with previous ones.
The book devised a vertical presentation of income taxation and diverted from the usual horizontal or NIRC
approach followed by most tax books. Under the horizontal approach, the tax schemes are discussed
separately for individuals and corporations. It is repetitive, time consuming and results to less accurate
understanding because students do not see the comparison of the two tax schemes for each class of
taxpayers. The vertical approach discusses the tax schemes for both individuals and corporations
simultaneously resulting in efficiency and better accuracy.
To maximize the effectiveness of your lecture, please follow the concept organization of the book. Do not
devise other concept arrangements based on other books. Doing otherwise will only confuse your
students. Other authors have their own methods. We have ours. The income tax teaching methodology of
the book is long proven in the undergrad and in the professional review to optimize understanding and
instill mastery.
Here is a list of some of the numerous student testimonials regarding our book:
1. “I am thanking you because without your books, siguradong nahirapan po ako sa taxation… I know you
are God’s blessing to me, to us. I hope na marami pa po kayong matulungan na students especially sa taxation.”
- May Anne Reyes from UST Manila (Top 7 in the October 2015 CPA Board Exam)
2. “Aminado pu ako wala akong natutunan sa undergrad sa tax kaya binasa ko po ng mabuti yung book nyo
during review. Ang galing po ng pagkakaorganize ng topics at yung presentation madaling
maintindihan. Salamat po!” - Ednel Tanhueco Datu, Pampanga
3. “I am a working student, so pagdating ko sa school di na ako masyado nakikinig sa school sa sobrang pagod.
Weekend lang po ang time ko mag-aral. Pero sa tuwing binabasa ko ang book niyo, para na rin may nag-
eexplain na teacher sa akin… Salamat po! Pinadali ninyo buhay ko.” Francis Reyes Remegio – Holy Angel
University, Angeles City
4. “Very helpful po ng book niyo sa tax Sir. I’m not a student of yours Sir nor have met you in person but one
thing is for sure, many students like me owe so much from you for introducing to us your taxation book.
God bless po.” Angelica Balubal, Tuguegarao City
5. Replying to a social media user inquiry of which tax book is best, Paulo Relucio Dula replied, “Tax – Rex
Banggawan. Bago lang pero sobrang personal teacherna yung book kapag binabasa”
6. “Good day Sir! Just drop by to say thanks for your wonderful masterpiece, Income Taxation. Truly
simplified, principle-based approach.” – Jhoven Mabaquiao from Divine World College of Legaspi
7. “…. We are using your textbooks both Income and Business and Transfer Taxation. I am very happy with the
way the topics are presented and the books help me a lot in understanding our lessons very well….” –
Joshtien Adorable, BSA student FEU Makati
8. “Good evening Sir. I am an accountancy student from Pampanga. Your book for taxation is amazing. I was
able to appreciate tax even more…” – Mark Angelo Mallari
9. “...Dumali ang taxation dahil sa book mo… Yung dating minememorize lang namin, ngayon naisapuso
na namin even without memorizing kasi the way you illustrate the topic eh naiintindihan agad.” -
Kusela Mae Uganiza from University of St. Louis Tuguegarao
10. “We find your book comprehensive, simple and direct to the point.” Alberto Calubaquib, Jr. – University of
Saint Louis – Tuguegarao City
The book is your teaching partner. You can capitalize on its teaching capability to lessen extensive lectures.
By following and reinforcing the concept arrangement as the lecture progresses, it will save you more time
and effort; thus, giving you more time in monitoring and assessing student understanding and skills in
applying the tax concepts and procedures.
,In teaching, focus on the basics and main points. Let students take care of the details. Do not consume your
time discussing the details. The book is designed to be self-teaching. It can teach students even with
minimal teacher supervision. Students also need some extent of self-learning to develop their self-esteem.
This is particularly vital to their future professional development.
CHANGES IN THE 2019 EDITION
This edition packages all changes introduced by the TRAIN law.
CONCEPTS TO FOCUS
A. Fundamental principles of taxation
1. Theories of cost allocation
2. Tax as a lifeblood to the government (Lifeblood doctrine)
3. Limitations of the taxation power
4. The concept of situs
5. The concept of double taxation and the remedies to double taxation
B. The concept of income – discuss what income is taxable under the NIRC
1. The concept of gross income
a. The different concepts of capital (with finite and infinite values)
b. The meaning of realized benefit – connect this to the ability to pay theory
2. The classification of income taxpayers
a. Individuals (RC, NRC, RA, NRA-ETB, NRA-NETB)
b. Corporations (DC, RFC, NRFC)
3. The situs of income – students need to know the place of taxation of each type of income
4. The difference between active and passive income
C. The taxation schemes
Emphasize how income is taxed under the NIRC.
Important: Make sure students well comprehend and mastered the tax schemes.
D. Concepts of accounting periods and accounting methods
1. Accounting period
a. Who uses calendar
b. Who uses fiscal year
c. When to file income tax return in either type of accounting period
2. Accounting methods
a. Accrual basis
b. Cash basis
c. Installment method
E. Exceptional taxation scheme
1. Final income taxation –
Important: Emphasize the importance of mastery of final income tax
a. The list of passive income subject to final tax and their final tax rates
b. Taxpayers subject to final taxation and their final tax rates
Please refer the students to Appendix 1 for the comprehensive list of final taxes.
2. Capital gains taxation –
a. The distinction between ordinary assets and capital assets
b. The particular types of capital assets subject to capital gains tax
c. Computational procedures of the capital gains tax on domestic stocks
1. Transactional and annual compliance
2. Installment payment of capital gains tax on domestic stocks
d. Tax bases and computational procedures to the capital gains tax on real properties
1. Exemption rule and alternative taxation rule
, Notes for non-accountancy classes
The following specialized and complex and concepts may be dispensed with because they are
time consuming not to mention their circumstantial relevance in practice:
Wash sales rule
Tax free exchanges
F. Regular income tax
1. Introduction
Important concepts to emphasize:
a. Regular tax gross income includes all income that qualifies the gross income test in Chapter 3
but is not subject to tax under Chapter 5 and Chapter 6
b. Deductions are deductible from gross income from business only
c. Personal exemptions are deductible from compensation income but a negative compensation
income is deductible to other income
d. Tax reporting of compensation income (highlight the exceptional treatment on fringe benefits –
this serves as a preliminary introduction to Chapter 11)
e. Tax reporting of business or professional income
f. Determination of taxable income
2. Exclusions – discusses income not subject to any income tax schemes
3. Inclusions – discusses income that are subject to regular income tax
a. Compensation income
b. Fringe benefits
c. Dealings in properties
4. Compensation income vs. Fringe benefits
a. Items of non-taxable compensation
b. Components of compensation income
c. Treatment of fringe benefits (those subject to regular tax vs. those subject to final tax)
5. Deductions – discusses expenses of business that are deductible from gross income
a. Itemized deductions
1. Cost of sales or cost of services
2. Regular allowable itemized deductions
3. Special allowable itemized deductions
4. Net operating loss carry-over
b. Optional standard deduction – in lieu of itemized deductions
6. Determination of taxable income
a. Individual income taxpayers
b. Corporate income taxpayers
G. Taxation of individual taxpayers
1. Personal exemption
2. Determination of tax due and tax payable
a. Revisit the computation of individual income tax due in Chapter 7
b. Review the computation of foreign tax credits in Chapter 13-A, foreign tax credit
H. Taxation of corporate taxpayers
1. Special corporations
2. Regular corporations
a. Gross income tax
b. Regular corporate income tax
c. Minimum corporate income tax
3. Improperly accumulated earnings tax
4. Branch profit remittance tax
Dear Tax Professors,
Greetings in God’s grace!
Our taxation system in the Philippines is besmirched by reported abuses in tax administration and
pervasive corruption. These disheartened many taxpayers not to properly reflect their taxes rationalizing
on corrupt government practices.
Our solemn duty as academician is to lay the foundation for the future correction of this defect in our
society by providing the best tax education our students deserve. Tax malpractices and corruption can be
limited by adequate public tax education.
Most schools fail on their duty in transforming their graduates as agents of change in society because
teaching tends to be too basic or too theoretical to be applied. As our mission, let us give our students more
practical knowledge by giving them the totality of taxation. Even if they are not tax majors, they should be
given the option and the chance to attain high level proficiency in taxation. This could transcend to career
opportunity for them.
Teach well and you will live forever! Your influence will forever stay in the minds and hearts of your
students. That excellence will multiply. Let us give our students a legacy of true competence. Let us give
them the best tax education we can give. Let us give them the type of excellence which is not feigned, not
masked, but real. Always remember that your service to fellow man is a service to God.
Let us join hand to promote a better tax education. Contact me whenever you need assistance. I will assist
in the best way I could. God bless you!
MY HUMBLE REQUEST TO MY BELOVED FELLOW PROFESSORS
Being a teacher myself, I strongly admit that books are excellent partners in classroom teaching. Creating
high quality books requires enormous time investments and efforts. I wrote this book over years of
continuous technical research, tax practice and conceptual refinement through my actual teaching in the
undergrad and in the review.
I am not an entrepreneur. Like you, I am a full-blooded teacher. I teach and write books to empower and
transform people. I hope and pray that you respect the dignity of my work in the same way you value
yours. I am praying that you will NEITHER give the students or reviewees copies of the solution
manual NOR tolerate the photocopying of my book in your classes. As accountants, we must collectively
act under our conscience to be true guardians of integrity. Please help stop book piracy. Please report
suspected counterfeit books to . God bless you!
REX B. BANGGAWAN, CPA, MBA
, INCOME TAXATION: LAWS, PRINCIPLES AND APPLICATIONS
TAX TEACHER’S MANUAL
Rex B. Banggawan, CPA, MBA
ABOUT TEACHING METHODOLOGY OF THE BOOK
Please be advised that the book is not written to impress tax experts. The book is intended as a guide to
students for them to understand and master the totality of the income taxation. Because of this, the book is
prepared in a sequential organization of topics. To optimize understanding and concept recall, some topics
may be briefly re-opened for discussion in future chapters of the book. This is not repetition. This is
deliberately intended for students to connect and interrelate new concepts with previous ones.
The book devised a vertical presentation of income taxation and diverted from the usual horizontal or NIRC
approach followed by most tax books. Under the horizontal approach, the tax schemes are discussed
separately for individuals and corporations. It is repetitive, time consuming and results to less accurate
understanding because students do not see the comparison of the two tax schemes for each class of
taxpayers. The vertical approach discusses the tax schemes for both individuals and corporations
simultaneously resulting in efficiency and better accuracy.
To maximize the effectiveness of your lecture, please follow the concept organization of the book. Do not
devise other concept arrangements based on other books. Doing otherwise will only confuse your
students. Other authors have their own methods. We have ours. The income tax teaching methodology of
the book is long proven in the undergrad and in the professional review to optimize understanding and
instill mastery.
Here is a list of some of the numerous student testimonials regarding our book:
1. “I am thanking you because without your books, siguradong nahirapan po ako sa taxation… I know you
are God’s blessing to me, to us. I hope na marami pa po kayong matulungan na students especially sa taxation.”
- May Anne Reyes from UST Manila (Top 7 in the October 2015 CPA Board Exam)
2. “Aminado pu ako wala akong natutunan sa undergrad sa tax kaya binasa ko po ng mabuti yung book nyo
during review. Ang galing po ng pagkakaorganize ng topics at yung presentation madaling
maintindihan. Salamat po!” - Ednel Tanhueco Datu, Pampanga
3. “I am a working student, so pagdating ko sa school di na ako masyado nakikinig sa school sa sobrang pagod.
Weekend lang po ang time ko mag-aral. Pero sa tuwing binabasa ko ang book niyo, para na rin may nag-
eexplain na teacher sa akin… Salamat po! Pinadali ninyo buhay ko.” Francis Reyes Remegio – Holy Angel
University, Angeles City
4. “Very helpful po ng book niyo sa tax Sir. I’m not a student of yours Sir nor have met you in person but one
thing is for sure, many students like me owe so much from you for introducing to us your taxation book.
God bless po.” Angelica Balubal, Tuguegarao City
5. Replying to a social media user inquiry of which tax book is best, Paulo Relucio Dula replied, “Tax – Rex
Banggawan. Bago lang pero sobrang personal teacherna yung book kapag binabasa”
6. “Good day Sir! Just drop by to say thanks for your wonderful masterpiece, Income Taxation. Truly
simplified, principle-based approach.” – Jhoven Mabaquiao from Divine World College of Legaspi
7. “…. We are using your textbooks both Income and Business and Transfer Taxation. I am very happy with the
way the topics are presented and the books help me a lot in understanding our lessons very well….” –
Joshtien Adorable, BSA student FEU Makati
8. “Good evening Sir. I am an accountancy student from Pampanga. Your book for taxation is amazing. I was
able to appreciate tax even more…” – Mark Angelo Mallari
9. “...Dumali ang taxation dahil sa book mo… Yung dating minememorize lang namin, ngayon naisapuso
na namin even without memorizing kasi the way you illustrate the topic eh naiintindihan agad.” -
Kusela Mae Uganiza from University of St. Louis Tuguegarao
10. “We find your book comprehensive, simple and direct to the point.” Alberto Calubaquib, Jr. – University of
Saint Louis – Tuguegarao City
The book is your teaching partner. You can capitalize on its teaching capability to lessen extensive lectures.
By following and reinforcing the concept arrangement as the lecture progresses, it will save you more time
and effort; thus, giving you more time in monitoring and assessing student understanding and skills in
applying the tax concepts and procedures.
,In teaching, focus on the basics and main points. Let students take care of the details. Do not consume your
time discussing the details. The book is designed to be self-teaching. It can teach students even with
minimal teacher supervision. Students also need some extent of self-learning to develop their self-esteem.
This is particularly vital to their future professional development.
CHANGES IN THE 2019 EDITION
This edition packages all changes introduced by the TRAIN law.
CONCEPTS TO FOCUS
A. Fundamental principles of taxation
1. Theories of cost allocation
2. Tax as a lifeblood to the government (Lifeblood doctrine)
3. Limitations of the taxation power
4. The concept of situs
5. The concept of double taxation and the remedies to double taxation
B. The concept of income – discuss what income is taxable under the NIRC
1. The concept of gross income
a. The different concepts of capital (with finite and infinite values)
b. The meaning of realized benefit – connect this to the ability to pay theory
2. The classification of income taxpayers
a. Individuals (RC, NRC, RA, NRA-ETB, NRA-NETB)
b. Corporations (DC, RFC, NRFC)
3. The situs of income – students need to know the place of taxation of each type of income
4. The difference between active and passive income
C. The taxation schemes
Emphasize how income is taxed under the NIRC.
Important: Make sure students well comprehend and mastered the tax schemes.
D. Concepts of accounting periods and accounting methods
1. Accounting period
a. Who uses calendar
b. Who uses fiscal year
c. When to file income tax return in either type of accounting period
2. Accounting methods
a. Accrual basis
b. Cash basis
c. Installment method
E. Exceptional taxation scheme
1. Final income taxation –
Important: Emphasize the importance of mastery of final income tax
a. The list of passive income subject to final tax and their final tax rates
b. Taxpayers subject to final taxation and their final tax rates
Please refer the students to Appendix 1 for the comprehensive list of final taxes.
2. Capital gains taxation –
a. The distinction between ordinary assets and capital assets
b. The particular types of capital assets subject to capital gains tax
c. Computational procedures of the capital gains tax on domestic stocks
1. Transactional and annual compliance
2. Installment payment of capital gains tax on domestic stocks
d. Tax bases and computational procedures to the capital gains tax on real properties
1. Exemption rule and alternative taxation rule
, Notes for non-accountancy classes
The following specialized and complex and concepts may be dispensed with because they are
time consuming not to mention their circumstantial relevance in practice:
Wash sales rule
Tax free exchanges
F. Regular income tax
1. Introduction
Important concepts to emphasize:
a. Regular tax gross income includes all income that qualifies the gross income test in Chapter 3
but is not subject to tax under Chapter 5 and Chapter 6
b. Deductions are deductible from gross income from business only
c. Personal exemptions are deductible from compensation income but a negative compensation
income is deductible to other income
d. Tax reporting of compensation income (highlight the exceptional treatment on fringe benefits –
this serves as a preliminary introduction to Chapter 11)
e. Tax reporting of business or professional income
f. Determination of taxable income
2. Exclusions – discusses income not subject to any income tax schemes
3. Inclusions – discusses income that are subject to regular income tax
a. Compensation income
b. Fringe benefits
c. Dealings in properties
4. Compensation income vs. Fringe benefits
a. Items of non-taxable compensation
b. Components of compensation income
c. Treatment of fringe benefits (those subject to regular tax vs. those subject to final tax)
5. Deductions – discusses expenses of business that are deductible from gross income
a. Itemized deductions
1. Cost of sales or cost of services
2. Regular allowable itemized deductions
3. Special allowable itemized deductions
4. Net operating loss carry-over
b. Optional standard deduction – in lieu of itemized deductions
6. Determination of taxable income
a. Individual income taxpayers
b. Corporate income taxpayers
G. Taxation of individual taxpayers
1. Personal exemption
2. Determination of tax due and tax payable
a. Revisit the computation of individual income tax due in Chapter 7
b. Review the computation of foreign tax credits in Chapter 13-A, foreign tax credit
H. Taxation of corporate taxpayers
1. Special corporations
2. Regular corporations
a. Gross income tax
b. Regular corporate income tax
c. Minimum corporate income tax
3. Improperly accumulated earnings tax
4. Branch profit remittance tax
