TAXATION Macapinlac, J H.

Lecture 2- Individual Income Taxation

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Income Taxation

True or False

1. T - A nonresident citizen is taxable only for income within. Therefore, his interest income from expanded foreign currency deposit
system transacted with an OBU is taxable in the Philippines.
2. T- A foreigner who stays in the Philippines for more than 180 days during the taxable year is deemed as doing business within and
his income within and outside the Philippines is taxable in the Philippines.
3. F- Individual taxpayers are allowed to installment payment for their income taxes when the tax due is in more than P2,000.
4. T- A senior citizen’s passive income is subject to final income tax.
5. F - An individual taxpayer is exempted from filing income tax return if his sole income has been subjected to final withholding tax.
6. F - For self-employed taxpayers, his quarterly income tax return is not be reduced by personal exemption.
7. F - The personal exemption of a nonresident alien not engaged in business in the Philippines is subject to reciprocity.
8. F - A dependent senior citizen is not entitled for additional exemption of P25,000.
9. T - If the taxpayer dies during the taxable year, his estate may claim the personal exemption as if he died at the close of such year.
10. F - Tax on special aliens is 15% of their gross compensation income derived within the Philippines from special employment by
multinational corporation.
11. T - Professional or talent fees for service rendered by an individual shall be subjected to a creditable value-added tax.
12. T - When there is a tax treaty agreement, both the basic and additional exemptions can be availed by a nonresident alien engaged in
trade or business in the Philippines but subject to limit.
13. F - An alien residing and doing business in the Philippines is allowed to have a tax credit for income taxes paid in the other country.
14. F - Gross income for computation of standard deduction includes compensation and business income plus other taxable income not
subjected to final tax.
15. F - Interest income of a foreign currency deposit of a nonresident Filipino is subjected to a final withholding tax of 7.5%.
16. F - The income of a professional entertainer can be reduced by optional standard deduction.
17. F - All lotto and sweepstake winnings derived by a resident Filipino citizen within and outside the Philippines are exempt
from Philippine income tax.
18. F - Individual taxpayers under Philippine laws are classified as citizens and aliens.
19. F - If the professional fee of an entertainer exceeds P720,000 the creditable withholding tax should be 20%.
20. T - If the employee had multiple employers within the year, an income tax return must be filed at the end of the year

Multiple Choice: Choose the best possible answer.

21. A non resident alien not engaged in business in the Philippines but with income statement in the Philippines:
Statement 1: is taxed at 25% of gross income from within the Philippines
Statement 2: is not entitled to personal exemptions
a. Statements 1 and 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
22. Statement 1: Passive income is subject to a separate and final tax
Statement 2: Passive income is included in the computation of taxable income from compensation or business/professional income
a. Statements 1 and 2 are false
b.
c. Statement 1 is true but statement 2 is false
d. Statement 1 is false but statement 2 is true
e. Statements 1 and 2 are true
23. Final tax is generally withheld
On passive income From Philippines sources
a. Yes Yes
b. No No
c. Yes No
d. No Yes
24. All of the following taxes are classified as income taxes, except
a. 20% royalty tax
b. 10% dividend tax
c. ½ of 1% tax on the selling price of shares of stock traded in the local stock exchange
d. 6% capital gains tax on sale of land
25. Which of the following is a correct income tax rates?
a. 20% on dividend income earned within by non resident alien doing business in the Philippines
b. 25% on gross income earned within by non resident alien not doing business in the Philippines
c. 25% or more than P1,000,000 on business income earned within by non resident alien
d. 20% on P50,000 compensation income earned by a senior citizen
26. Binay, a Filipino overseas contract worker and his spouse, a resident of the Philippines have a joint US dollar account with PS bank.
Their gross interest earning from the bank deposit amounted to US $4,000. Which of the following statement is correct?
a. The interest income shall be treated as tax exempt because Binay is nonresident citizen
b. The interest income shall be taxable in full because Binay and his spouse are both Filipino citizens
c. Fifty percent (50%) of the interest income shall be treated as exempt while the other fifty percent 50% shall be subject to
the graduated rates.

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 d. Fifty percent 50% of the interest income shall be treated as exempt while the other fifty percent 50% shall be subject to a
final withholding tax 7.5%
27. Which of the following received by an individual taxpayer is not subject to final tax but subject to tax under section 24 A of the tax
code?
a. Cash dividend from domestic corporation
b. Property dividend from regional operating headquarters of multinationals
c. Share in the distributive net income after tax of taxable partnership in the Philippines
d. Cash dividend from a foreign corporation with Philippine branch
28. Cash and/ or property dividends shall be subject to 10% final withholding tax if actually or constructively received from
I. Domestic companies or from joint stock companies.
II. Insurance or mutual fund companies.
III. Regional operating headquarters of multinationals
IV. Philippine branch of a foreign corporation.
a. I and II only c. II and III only
b. I and III only d. I, II, and III only
29. One of the following is subject to passive income final tax rate of 20%
a. Interest from any currency bank deposits and Yield or any other monetary benefit from deposit substitutes and from trust fund
and similar arrangements derived from sources without the Philippines
b. Royalties including books, as well as other literary works and musical composition
c. Other winnings, expect Philippine Charity Sweepstakes and lotto winning
d. Interest income received from expanded foreign currency deposit system
30. Which of the following items is an income subject to a basic tax?
a. Dividends received from domestic corporation
b. Prizes from USA lotto
c. Interest income from BDO
d. Share in the net income of ordinary partnership.
31. Statement 1: There is capital gain tax on share of stock only if the shares are those of a domestic corporation held as capital asset
and not listed and traded in a location stock exchange.
Statement:2 The capital gain tax on shares of stock is paid within thirty days from the date of sale.
a. Statements 1 & 2 are false
b. Statements 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

32. Statement 1: The capital gain tax on shares of stock of a domestic corporation held as capital asset not traded in a local stock
exchange is on net capital gain.
Statement 2. Net capital gain is selling price less expenses of sale, compared with, purchase price plus expenses of acquisition.
a. Statement 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 & 2 are true

33. Statement 1: There is a capital gain tax on sale of real property (land and building) of an individual only if the real property is
located in the Philippines and held as a capital asset.
Statement 2. The capital gain tax on sale of real property in the Philippines held as a capital asset is 6% of the selling price, or the
fair market value, whichever is higher.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statement 1 and 2 are true

34. A residents citizen received a prize of 50,000. Which of the following statements is correct in connection with the imposition of final
tax on the prize?
a. The first P10,000 is subject to section 24(A), the remaining P30,000 is subject to 20% final tax.
b. The first P10,000 is exempt from tax, the remaining P30,000 is subject to 20% final tax.
c. The whole amount shall be subject to 20% final tax
d. The whole amount shall be subject to 25% final tax.
35. Which of the following passive income is exempt from tax when received by resident citizen and non-resident aliens engaged in
trade or business in the Philippines, but subject to 25% final tax when received by non-resident aliens not engaged in trade or business?
a. Prizes of more than P10,000.
b. Interest income from long-term deposit or instrument evidenced by certificates prescribed by the Bangko Sentral ng
Pilipinas.
c. Yield or any other monetary benefit from trust and similar arrangements.
d. Other winnings.
36. A resident citizen received a raffle prize of P40,000 from NBA while watching a basketball game between LA Lakers and Boston
Celtics in LA California, USA. Which of the following statement is correct?
a. The whole amount of P40,000 is part of his taxable income
b. The first P10,000 is part of his taxable income while the remaining P30,000 is subject to 20% final tax
c. The whole amount of P40,000 shall be subject to 20% final tax

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 d. The first P10,000 shall be exempt from tax while the remaining P30,000 is subject to 20% final tax.
Use the following data for the next two (2) questions
In 2017, PNOY, single and a native of Tarlac, received during the year the following:

Proceeds from copyright royalty, net of tax P11,250

Proceeds from mineral claim royalty, net of tax 12,000
Share from trading partnership, net of withholding 270,000
tax
37. How much is the total final tax on PNOY’s income?
a. P50,000 c. 31,250
b. 34,250 d. 4,250
38. How much is the income tax still due and payable of PNOY in 2017?
a. P50,000 c. 31,250
b. 34,250 d. 0
39.The taxpayer is a married non-resident alien engaged in business in the Philippines with two (2) qualified dependent children. His
country gives a non-resident Filipino with income there from a basic personal exemption of P4,000. He is entitled to total personal
exemptions of:
a. P54,000 c. P28,000
b. P32,000 d. P48,000
40. One of the following is a qualified as dependent for income tax purposes.
a. Illegitimate child, 16 years old, living in the United States due to his studies.
b. S*enior citizen, not related to the taxpayer, with a yearly income of P60,000, living with and taken care of by the taxpayer.
c. Legitimate child, 21 years old, newly hired with a monthly income of P2,000, living with the taxpayer in Manila.
d. Brother, 24 years old, incapable of self-support because of physical disability.

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