General Principles of Taxation and Tax Remedies
Question 1
The Sangguniang Bayan of Cainta enacted an
ordinance that imposes an occupation tax upon
owners of poultries. The validity of the ordinance
is being challenged on the ground that it
constitutes direct double taxation because the
poultry is already subjected to a land tax. Is the
ordinance VALID?
Response: Yes. There is no direct double taxation
because the taxes covered different subject
matters and for different purposes.
Feedback: Correct! The taxes imposed cover
different subject matter and for different purposes.
For the occupation tax, the subject matter is the
owner and to regulate the occupation, while for
the land tax, it is the poultry and to maintain the
property.
Question 2
What will be your possible action when the Court
of Tax Appeal (CTA) denies your appeal for protest?
Response: File for a motion for reconsideration to
the CTA division within 15 days from the receipt
of the decision
Feedback: Correct! After you file for a protest and
the CTA denies it, your possible action will be
filing for a motion for reconsideration. You cannot
just go directly to the CTA en banc, the SC, and
SC en banc.
Question 3
This basic principles of a Sound Tax System can
be described in the statement, “The more income
earned by the taxpayer, the more tax he has to
pay.”
Response: Equitability
Feedback: Correct! It states that tax burden must
be proportionate to the taxpayers’ ability to pay.
Question 4
Analyze the following statements:
Statement I: In case of doubt, tax laws are
construed against the taxpayers and tax
exemptions are construed against the government.
Statement II: In case of doubt, tax laws are
construed liberally in favor of the taxpayers and
tax exemptions are construed liberally in favor of
the government.
Response: Statement I is wrong, while Statement
II is correct.
Feedback: Correct! In case of doubt, tax laws are
construed against the government and liberally in
favor of the taxpayers, and tax exemptions are
construed against the taxpayer and liberally in
favor of the government.
Question 5
It is the initial package of the Comprehensive Tax
Reform Program signed into law by President
Rodrigo Duterte on December 19, 2017.
Response: RA 10963 Tax Reform for Acceleration
and Inclusion
Feedback: Correct! Section 1 of RA 10963 states
that the act shall be known as the Tax Reform for
Acceleration and Inclusion.
Question 6
This theory in taxation states that without taxes,
a government would be paralyzed for lack of power
to activate and operate it, resulting in its
destruction.
Response: Life-blood theory
Feedback: Correct! Without taxes, no government
can function.
Question 7
All of the following cases may subject a taxpayer
to constructive distraint, EXCEPT:
Response: If the taxpayer fails to file an
administrative protest with the Commissioner of
Internal Revenue (CIR) within 30 days from
receipt and the tax involved is less than 100 pesos
Feedback: Correct! The taxpayer, in this case, is
not subject to constructive disdain. Instead, a civil
action may be taken by the government against
the taxpayer.
Question 8
This is a remedy of the government where it seizes
the real properties of the delinquent taxpayers to
carry out the payment of taxes.
Response: Levy
Feedback: Correct! It shall be effected in writing
upon the certificate detailing a description of the
property.
Question 9
What percentage of interest will run per year for
any unpaid tax liability from the date of the
prescription until the amount is fully paid?
Response: 20%
Feedback: Correct! This will be in addition to the
surcharges that will be paid by the taxpayer.
Question 10
This inherent limitation states that, generally, the
power of taxation could be exercised only within
the territorial boundaries of the taxing authority.
Response: Territoriality
Feedback: Correct! The power of taxation is only
limited to person and property within and subject
to its jurisdiction.
 Individual Income Taxation
Dealings in Property, Taxpayers, and Tax Bases
Then, compute for the tax due using the income tax
Question 1 table:
This refers to the total sales transactions net of Tax on the First P2,000,000 P490,000
value added tax (VAT), if applicable, reported during Tax on the Excess
the period, without any other deductions. P1,059,360
(P5,310,500 – P2,000,000) x 32%
Response: Gross Sales Total Income Tax Due P1,549,360

Feedback: Correct! Per Section 2 of RR No. 8-2018,

Question 4
gross sales subject to the 8% income tax rate option
shall be net of sales return and allowances and Antoine Lavoisier, a French citizen permanently
discounts. residing in the Philippines, received several items
during the taxable year. Which among the following
Question 2 items is NOT subject to Philippine taxation?
Limuel Villanueva is a minimum wage earner Response: Service fees received for designing a
(MWE) working in Sta. Mesa, Manila. As such, his computer program and installing the same in the
employer did not withhold any tax from his salary. Pakistan facility of an Arabian firm
Starting February 2020, he was given a raise in
salary, which was more than the statutory Feedback: Correct! A resident alien is taxable only
minimum wage. Will his entire compensation for on income within. In the situation, the situs of the
2020 be taxable and subject to withholding tax? service fee is in Pakistan, hence without, and is
therefore exempt.
Response: Only his earnings from February 2020 to
December 2020 shall be taxable and subject to Question 5
withholding tax. Mr. and Ms. Garcia filed their ITR for 2019. The
following are the identified income for both
Feedback: Correct! Only those portions of Limuel’s
husband and wife:
compensation income will be taxable and subject to
withholding tax, which is by the time his salary How did Mr. and Ms. Garcia divide the income that
exceeded the minimum wage rate.
Annual Income Husband Wife Total
Question 3 Compensation P500,000 P900,000 P1,500,000
In 2020, Aldrin Bonior, the Assistant Business 60% 40% P2,000,000
Vice President (AVP) of Macquarie Group, Cannot be
P1,000,000
attributed
earned compensation income of
P4,000,500. This amount is inclusive of his 13th- cannot be attributed or identified as income
month pay and other benefits of P250,000, but net exclusively earned by either of them?
of mandatory contributions to SSS and PhilHealth. Response: Based on equal ratio: 50% for Mr. Garcia
and 50% for Mrs. Garcia
Aside from his employment, he also operates a shoe
store. In 2020, the shoe store has a gross sale of P Feedback: Correct! Under the guidelines issued by
1,500,000, cost of sales of P500,000, and operating the BIR on the filing of BIR Form 1701, any income
expenses of P300,000. It also had non-operating cannot be definitely attributed to or identified as
income of P700,000. income exclusively earned or realized by either of
the spouses. The same shall be divided equally
What would be Aldrin’s total income tax due if he is
between the spouses to determine their respective
a resident citizen, and he did not avail the 8%
taxable income.
optional income tax rate?
Response: P1,549,360 Question 6

Feedback: Lee Kwang-Soo, a South Korean national, arrived

in the Philippines on January 1, 2020, to visit his
Correct! If a mixed earner failed to signify his Filipina girlfriend. He planned to stay in the
intention to be taxed at the 8% optional income tax country until January 31, 2021, by which time he
rate, he would be taxed at graduated rates plus a would go back to his family in South Korea. Kwang-
3% percentage tax. Soo derived income during his stay here in the
First, get the total income: Philippines. What will be his classification for the
taxable year 2020?
Income from Compensation
P3,910,500 Response: Resident Alien
(P4,000,500 – P90,00)
Gross Receipts P1,500,000
Feedback: Correct! He is a resident alien since he
Add: Other Income P700,000 will stay in the country beyond one (1) year.
Total Income P2,200,000
Less: Cost of Sales P500,000 Question 7
Operating Expenses P300,000 Which of the following is CORRECT regarding the
Net Income from Business P1,400,000 de minimis benefits or benefits not subject to
Income from Compensation P1,500,000 income tax?
Income from Business P700,000 Response: P250/month medical cash allowance to
Total Income P5,310,500 dependents of employees
Feedback: Correct! Medical cash allowance to
dependents of employees is P250/month or P1,500
per semester (P250 x 6 months).

Question 8
A citizen is deemed non-resident if he:
Response: Is a citizen who establishes the fact of
his physical presence abroad with a definite
intention to reside therein
Feedback: Correct! This is per Section 22(E) of the
National Internal Revenue Code (NIRC).

Question 9
It is an individual who comes to the Philippines
and stays therein for an aggregate period of more
than 180 days
Response: Non-resident alien engaged in trade or
business
Feedback: Correct! If an individual whose residence
is not within the Philippines and is not a citizen
thereof stays therein for an aggregate period of
more than 180 days but not exceeding one (1) year,
he is a non-resident alien engaged in trade or
business.

Question 10
In 2020, Jon Dimakulangan, CFO of Power Source,
Inc., earned compensation income of P2,001,000 in
the Philippines. This amount is inclusive of his
13th-month pay and other benefits of P800,000,
but net of mandatory contributions to SSS and
PhilHealth.
He also owns a restaurant in Metro Manila. In
2020, the restaurant has gross receipts of
P2,000,000, cost of sales of P500,000, and
operating expenses of P600,000. It also had a non-
operating income of P235,000.
What would be Jon’s total income tax due if he is a
non-resident citizen and avails of the 8% optional
income tax rate?
Response: P642, 100
Feedback:
Correct! If a mixed earner signifies his intention to
be taxed at 8% optional income tax rate, his income
from compensation will be subjected to graduated
rates, while his income on self-employment or
practice of profession will be subjected to the 8%
optional income tax rate.
Thus, the tax for his compensation income:

Total Compensation Income, Net of 13th-

P1,911,000
month benefits (P2,001,000 – P90,000)
Tax on the First P800,000 P130,000
Tax on the Excess
P333,300
(P 1,911,000 – P800,000) x 30%
Tax Due on Compensation P463,300
The 8% on total gross receipts:

Gross Receipts P2,000,000

Add: Other Income P235,000
Total Income Subject to 8% P2,235,000
Multiply by: 8%
Tax Due on Business P178,800
Getting the total of the two (2) tax-dues:

Tax Due on Compensation P463,300

Tax Due on Business P178,800
Total Income Tax Due P642, 100
 Final Withholding Taxes on Passive Income and Fringe Benefits Tax
Question 1
What is the annual value of benefit for the
assignment of residential property for the use of
employees?
Response: Fair market value (FMV) or zonal value
(ZV), whichever is higher
Feedback: Correct! To get the monetary value of the
said benefit, multiply the higher between the FMV
and ZV by 5%.
Question 2
Jerone Gatdula is the Associate Vice President of
Pricewaterhouse Coopers. The company offered him
a scholarship to pursue his master’s degree at New
York University for P1,200,000 per semester. In
return, he is required to render another four (4)
years in the company. If Jerone accepts the
program, will the benefit be subjected to fringe-
benefit tax?
Response: No. Because it is for the benefit of the
company.
Feedback: Correct! A scholarship grant to the
employee by the employer shall not be treated as a
taxable fringe benefit if the education or study
involved is directly connected with the employer’s
trade, business, or profession.
Question 3
Analyze the following statements:
Statement I: Dividend received by a resident citizen
from a foreign corporation is included in the Income
Tax Return whether within or without.
Statement II: When a dividend sourced partly
within and without is received by a non-resident
not engaged in a trade or business from a foreign
corporation, the part within will be subjected
Response: Both statements are correct.
Feedback: Correct! Dividend income from a foreign
corporation that is received by a resident citizen is
subject to regular income tax. Therefore, it is
included in the Income Tax Return (ITR), whether
without or partly within or without.
Question 4
Cristian Punzalan is the Finance Manager of BDO
Roxas Tagle. If allowed by BDO, which of the
following expenses of Cristian WILL NOT be
subjected to fringe-benefit tax?
Response: Transportation expenses going to Baguio
in order to meet the company clients, in which he
took as an opportunity to explore the city
Feedback: Correct! This is directly connected with
the employer’s trade, business, or profession since
his main purpose in Baguio is to meet the clients.
Question 5
This is the tax on the income from registered
activities of PEZA-registered individuals availing of
the Gross Income Tax (GIT) incentive.
Response: 5%
Feedback: Correct! The 5% GIT is in lieu of all other
taxes, whether national or local, except for real
property taxes on land owned by an ECOZONE
developer or operator.
Question 6
What is the annual value of the benefit on the
purchased of a motor vehicle in an installment
basis by the employer in the name of the employee?
Response: Acquisition cost
Feedback: Correct! Its monetary value will be
computed by dividing the monetary.
Question 7
Effective on January 1, 2018, and onwards, what is
the final tax that will be imposed by the employer
on the grossed-up monetary value of fringe benefit
granted to their managerial and supervisory citizen,
resident alien, and non-resident alien engaged in
business employees?
Response: 35%
Feedback: Correct! Starting January 1, 2018, under
the TRAIN Law, the grossed-up monetary value will
now be computed by dividing the actual monetary
value of the fringe benefit by 65%.
Question 8
Interest earned by citizens, resident aliens, and
non-resident aliens not engaged in trade or
business (NRAETB) from any currency bank deposit
and yield or any other monetary benefit from
deposit substitutes and from trust funds and
similar arrangements is subject to what percentage
of final tax?
Response: 20%
Feedback: Correct! Note that the 20% final
withholding tax (FWT) for the interest from currency
bank and other monetary deposit is for the citizen,
resident alien, and NRAETB only.
Question 9
Unique Salonga, a resident citizen, won the
following prizes during the year:
First Singing contest he voluntarily
P10,000
Prize joined
First
Prize
PCSO winnings P1,000,000
Third
Prize
Raffle ticket winnings P6,000
Which of the following is TRUE under TRAIN?
Response: The winnings from the raffle ticket are
subject to a 20% final tax.
Feedback: Correct! The winnings from the raffle
ticket were earned by chance, hence subject to a
20% final tax.
Question 10
On January 1, 2020, Mr. Tulang invested
P1,000,000 in a 12% long-term deposit certificate
(BSP-prescribed form) with a five-year maturity. He
plans to pre-terminate the said investment on
December 31, 2023. What is the final tax that will
be imposed on the entire income on the said pre-
termination plan?
Response: 20%
Feedback: Correct! This final tax will be imposed if
the remaining maturity from the time of pre-
termination thereof is less than three (3) years.
 Gross Income and Deductions
Question 1
Upon the retirement of Mr. Tulang, an employee
from a private company, he received his lump-sum
pension computed as 1.5 months for every year of
service from SSS. He was employed in the company
for 20 years, and his last pay was P15,000 a month.
From the given data, his total lump sum pension is
P450,000 (1.5 months x 20 x P15,000 ). Is the lump
sum pension taxable?
Response: No, since this is a Social Security
retirement benefit.
Feedback: Correct! Social security benefits,
retirement gratuities, pensions, and other similar
benefits received by citizens or aliens are non-
taxable.
Question 2
These items or amounts are allowed by the law to
be deducted from the gross income of a taxpayer to
arrive at taxable income and thereby determine the
amount of the tax which is due.
Response: Deductions
Feedback: Correct! Deductions are something spent
or paid on earning the gross income. These
expenses must be ordinary and necessary
Question 3
Mr. Harold Alas, a manager of Mahalimuyak
Corporation with total net receipts of services
amounting to P9,000,000 in 2020, incurred a total
entertainment and recreation expenses amounting
to P80,000. Which of the following is TRUE?
Response: The net sales receipts will be multiplied
by 1% in order to get the ceiling of deductible
representation expenses.
Feedback: Correct! The amount to be deducted is
the lower between the actual and ceiling
representation expense.
Question 4
The optional standard deduction for an individual is:
Response: 40% of the gross receipts
Feedback: Correct! The gross receipts
include the value-added tax.
Question 5
Maria, a resident citizen, reported the following
items for the year 2020:
What is the total gross income subject to regular
income taxation that Maria should report for 2020?
Response: P824,000
Feedback:Correct! Royalty income from mining is
subject to a 20% final withholding tax.
Gross Income from Business (P240,000 + P300,000)
Dividend received from a foreign corporation
Winnings from American Charity Sweepstakes Office
Cost of living allowances
13th-month pay and other benefits
(P105,000 – P90,000)
Salaries
Total Gross Income
Question 6
Which of the following is taxable only when
voluntary?
Response: Separation Pay
Feedback: Correct! It is taxable if voluntarily availed.
Separation pay is not taxable if it is caused by
death, sickness, and disability.
Question 7
Which of the following statements is INCORRECT?
Response: The optional standard deduction (OSD)
is an amount equal to 40% of the gross income
from business or practice of the profession of the
taxpayer.
Feedback: Correct! For individuals, the OSD must
be 40% of the gross receipts or sales, not gross
income.
Question 8
It refers to items or receipts not included in the
determination of the taxable income because the
law or treaty provides that they are exempt from
income tax
Response: Exclusion
Feedback: Correct! These items will not be
considered as part of the gross income.
Question 9
Mr. Chester Alvin Acob took a life insurance policy
amounting to P800,000, which is to be received
after 30 years with an annual premium of P5,000.
Moreover, he also irrevocably designates his wife as
the beneficiary. Which of the following is TRUE?
Response: If Mr. Acob died on the 25th year of the
insurance policy, the P800,000 to be received by his
wife would be exempt from income and estate tax.
Feedback: Correct! If the insured person died before
the maturity of insurance policy, the whole
proceeds of P800,000 would be exempt from income
tax.
should Question 10
Analyze the following statements:
Statement I: An expense that is necessary but not
ordinary, or ordinary but not necessary, is
deductible from gross income.
Statement II: The taxpayer must signify his
intention to elect itemized deduction; otherwise, he
is deemed to have chosen the optional standard
deduction.
Response: Both statements are incorrect.
Feedback: Correct! For the Statement I, an expense
P540,000 must be both necessary and ordinary to be allowed
30, 000
as deductible. For Statement II, it is incorrect
because the taxpayer must signify his intention to
20, 000
be taxed at the optional standard deduction (OSD),
9, 000 not itemized deduction.
15,000
210, 000
P824,000
 Income Tax on Corporations and Filing of Returns

Question 1 Question 6
If a person has no legal residence or place of The following are income to be added to the taxable
business in the Philippines, where should he file his income in order to arrive at the improperly
return? accumulated taxable income, EXCEPT:
Response: Office of the Commissioner Response: Dividends paid
Feedback: Correct! The office of the Commissioner Feedback: Correct! This will be subtracted since
is located at RDO No. 39, South Quezon City. this is really an outflow from the accumulated
earnings.
Question 2
Question 7
All of the following are required to file an income
Gross Income P1,300,000
tax return, EXCEPT:
Business Expenses 600,00
Response: An individual whose sole income has Gain on sale of business asset 60,000
been subjected to final withholding tax Interest on deposits with Metrobank, net of
5,000
tax
Feedback: Correct! Income of an individual that are Dividends from Alpas, a domestic corporation 35,000
subject to final tax need not be included in an
Dividend paid during the year 130,000
income tax return.
Reserved for plant acquisition 400, 000
Question 3 The record of Maduya Corp., a closely-held
corporation, shows the following data for 2020:
This is a non-resident foreign corporation subject to
4½ % tax on its gross rentals, lease, or charter fees. In 2019, the corporation suffered an operating loss
of P120,000. This amount was carried forward and
Response: Non-resident owner or lessor of vessels claimed as deduction from gross income in 2020.
chartered by Philippine nationals
What is the improperly accumulated earnings (IAE)
Feedback: Correct! This must be duly approved by of Maduya Corp. for 2020?
the Maritime Industry Authority (MARINA).
Response: P78,000
Question 4 Feedback: Correct! Solve for the income tax payable
Analyze the following statements: first:
Statement I: A non-eFPS tax filer may opt to use the Then, compute for the improperly accumulated
electronic format under “eBIRForms” for the
Gross Income: P1,300,000
preparation, generation, and submission and/or
Add: Other Income 60,000
payment of this return with greater ease and
Total Income P1,360,000
accuracy. Less:
Statement II: Individuals engaged in Business Expenses 600,000
business/practice of a profession, regardless of the NOLCO 120,000
amount of sales/receipts, are required to file the Taxable Net Income P640,000
quarterly income tax return on or before April 15, Multiply: Tax Rate 30%
August 15, and November 15 of the current taxable Income Tax Due 192,000
year, and an annual return on April 15 of the earnings.
following taxable year.
Taxable Net Income P 640,000
Response: Statement I is correct, while Statement II Add:
is incorrect. NOLCO 120,000
Dividend from Alpas Company 35,000
Feedback: Correct! The first statement is correct
because, under the guidelines issued by the BIR, Interest on deposits with Metrobank (P5,000
6,250
/ .80)
they allow non-eFPS payers to use the eBIR Forms Total P 801,250
in preparing returns. The second statement is Less:
wrong because, under the TRAIN Law, the first- Income Tax Due 192,000
quarter return should be filed on or before May 15, Final Tax on Interest 1,250
not April 15. Dividend Paid 130,000
Reserved for Plant Acquisition 400,000
Question 5
Total Improperly Accumulated Earnings P 78,000
The Minimum Corporate Income Tax (MCIT) shall
not apply to the following resident foreign
corporations, EXCEPT: Question 8

Response: A resident foreign corporation engaged in
business as a regional operating headquarters
Feedback: Correct! A resident foreign engaged in
business as a regional operating headquarters is
subject to 30% corporate income tax, hence can be
subjected to MCIT.
Which of the following DOES NOT fall under the
definition of a “corporation” for income tax
purposes according to Section 22(B) of the NIRC.
Response: Sole proprietorship
Feedback: Correct! This does not fall under the
definition of a corporation and will be subject to
individual taxation.
Question 9
A branch profit remittance is subject to what
percentage of tax?
Response: 15%
Feedback: Correct! This is a tax to be paid aside
from the income tax of 30%.

Question 10
A domestic corporation has the following data for
2020:
Excess MCIT 2019 P10,000
st
Quarter 1 2nd
Income per quarter P500,000 P800,000
Deductions 480, 000 700, 000
How much is the income tax payable in the second
quarterly return?
Response: P16,000
Feedback: Correct! Determine the tax due to the
company under the 30% Regular Income Tax (RIT)
first:

Quarter 1st 2nd

Cumulative Gross Income P500,000 P1,300,00

Less; Cumulative Deductions P480,000 P1,180,00

Taxable Net Income P20,000 P120,000

Multiply by: 30% 30%

Income Tax Due P6,000 P36,000
Then, determine the tax due under 2% Minimum
Corporate Income Tax (MCIT):
2nd
Quarter 1st

Cumulative Gross Income P500,000 P1,300,00

Multiply by: 2% 2%
Income Tax Due P10,000 P26,000
By comparing the tax due under each tax, it is
determined that in the 1st quarter, the company
will pay the tax due under MCIT. Thus, the prior
year’s MCIT cannot be credited:

Quarter 1st 2nd

Income Tax Due P10,000 P36,000
Less: MCIT from Prior
P10,000
Year
Income Tax Paid P10,000
Income Tax Payable P10,000 P16,000