Practice question
A taxpayer has a stipulated fully allowable P50,000 income deduction and a separate stipulated fully allowable P50,000 tax credit. Its accountant subtracts both directly from computed tax, saying equal amounts must have equal functions. Without calculating any statutory rate, assess the method.
- Incorrect; the deduction reduces the income base and the credit offsets computed tax.
- Correct; equal amounts always have identical legal treatment.
- Correct; every deduction is a peso-for-peso tax credit.
- Incorrect; credits can only reduce income and deductions can only reduce tax.
- Correct; the accountant may interchange the two at will.
Legal references
- NIRC Section 31, as amended by RA 10963 Section 8; https://lawphil.net/statutes/repacts/ra2017/ra_10963_2017.html
- NIRC Section 34(C), distinction between deduction and credit for qualifying foreign taxes; https://lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html
Answer this question in flashcards to review your response and continue practicing.