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CPA Review School of the Philippines

Local Taxes, Preferential Taxation Llamado/ Dela Cruz / De Vera

1. Where does the local tax authority emanate from?

a. Legislature c. Sanggunian
b. Executive d. Supreme Court

2. Which of the following is not a fundamental principle of local taxation?

a. It shall be uniform in each local sub-unit.
b. It shall evolve a progressive system of taxation.
c. The revenues collected under the Local Government Code shall inure solely to the
benefit of and subject to disposition by the LGU levying the tax or other imposition
(autonomy).
d. Collection of local taxes can be delegated to any private person.

3. When may a Local Government Unit adjust local taxes?

a. Every 5 years
b. Every 2 years
c. Every year
d. Anytime the Sanggunian deems it fit.

4. Where the National government elects to tax a particular area, it impliedly withholds from
the local government the delegated power to tax the same field. This doctrine is known as
a. Preemption
b. Separatedness of Departments of Government
c. Exclusive prerogative doctrine
d. Tax Jurisdiction

5. Zion Shoes’s head office is located in Ortigas, Pasig City. However, its manufacturing plant
is in Taytay, Rizal. As the company accountant you were asked by Zion where to pay the
2% Local Business Tax. Zion’s gross receipts is Php10 million.
a. Pay Php200,000 at Taytay, Rizal.
b. Pay Php200,000 at Ortigas, Pasig City.
c. Pay Php60,000 at Ortigas, Pasig City and Php140,000 at Taytay, Rizal.
d. Pay Php140,000 at Ortigas, Pasig City and Php60,000 at Taytay, Rizal.

6. The presentation of a community tax certificate is necessary in the following situations,

except:
A. To acknowledge execution of a document before a notary public
B. To take an oath of office in the government
C. To receive any license or permit or certificate from public authority
D. To receive private funds

7. Which is not a characteristic of the real property tax?

a. Direct tax
b. Ad Valorem
c. Progressive
d. Indivisible

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8. Which real property is subject to the real property tax?

A. Real property of religious and charitable institutions

B. Machineries actually, directly, and exclusively used by local water districts
C. Real property owned by cooperatives
D. Machineries for pollution control

9. What is considered idle land?

(i) agricultural lands more than one hectare in area, half of which remains uncultivated
except agricultural land with perennial crops with at least 50 trees and those used
for grazing;
(ii) land in the city or municipality more than one thousand square meters in area, one
half of which remains unutilized or unimproved by the owner.
a. True, True c. False, True
b. True, False d. False, False

10. For the given year 2020 the following information from business:

Gross Receipts from business P 900,000.00

Rental Income 650,000.00
Operational Expenses 400,000.00
Real Properties 17, 000,000.00

Compute Individual Community tax.

a. P1,555.00 c. P5,200.00
b. P1,155.00 d. P5,005.00

11. Compute Corporate Community Tax.

a. P7,920.00 c. P 1,120.00
b. P7,560.00 d. P10,500.00

12. Who has the authority to collect Community Tax?

a. Bureau of Internal Revenue c. Bureau of Customs
b. Cities/Municipalities d. National Treasury

13. What is the characteristic of Community Tax?

a. Tax b. Fee c. Identification Card d. License

14. Elorde, a famous boxer intends to convert his boxing gymnasium into a cockpit arena. Elorde
summons you to give him advise to go over his tax exposure. As a certified public
accountant, you will recommend to Mr. Elorde which of following reference/documents?
a. National Internal Revenue Code
b. Revenue Regulations of the NIRC
c. Local Government Code
d. Tariff and Customs Code

15. Your client, Mr. Aegis, is an importer who inquired what laws will have most relevance in
his daily transactions. Having several laws to take into consideration, which laws do you
recommend for Mr. Aegis to read?

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a. National Internal Revenue Code.

b. Implementing Rules and Regulation of NIRC.
c. Tariff and Customs Code, as amended by the CMTA
d. Local Government Code.

16. AZEP Corporation secured an income tax holiday for 4 years as a pioneer enterprise. On the
third year of the tax holiday, AZEP Corporation declared and paid cash dividends to its
stockholders, all of whom are individuals. Are the dividends taxable?

a. The dividends are taxable; the tax exemption of AZEP does not extend to its
stockholders.
b. The dividends are tax exempt because of AZEP Corporation’s income tax holiday.
c. The dividends are taxable if they exceeded 50% of AZEP Corporation’s retained
earnings.
d. The dividends are exempt if paid before the end of AZEP Corporation’s fiscal year.

17. Which of the following are incentives given to micro business enterprises?
A. Exemption from the CGT.
B. Exemption from the coverage of the Minimum Wage Law (but employees will still
receive the same social security and health care benefits as other employees);
C. Priority to a special credit window set up specifically for the financing requirements of
BMBEs; and
D. Technology transfer, production and management training, and marketing assistance
programs for BMBE beneficiaries.
E. Exemption from VAT or OPT, excise taxes, and DST.
F. Exemption from the obligation to withhold and remit taxes withholding taxes.

a. All of the above.

b. None of the above.
c. A, B, and C
d. B, C, and D
e. Answer not available.

18. Mr. Lim bought a piece of land in Manila in 2019 whereby he discovered that it has unpaid
real property taxes for years 2016 to 2018. Which of the following is correct?

A. Mr. Lim is liable to real property tax because he is the new owner.
B. Mr. Lim is liable to real property tax because he assumed responsibility carried from
previous owner.
C. Mr. Lim is not liable because realty taxes attach to the property, and are chargeable
against the person who had actual or beneficial use and possession of it regardless of
whether or not he was the owner.
D. Mr. Lim is not liable because but realty tax attaches upon the property. It is the
property itself which is liable.

19. Idle lands are exempt from real property tax under the following circumstances, except:
A. Civil disturbance
B. Natural Calamity
C. Any cause which physically or legally prevents the owner from utilizing his land
D. Declaration by the President

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20. 1st Statement: Local tax relief or exemption is granted in cases of natural calamities, civil
disturbances, general failure of crops, or adverse economic conditions which
substantially decrease prices.
nd
2 Statement: Local tax incentives are granted only to new investments in the locality.

A. True, False
B. True, true
C. False, True
D. False, false

21. Which of the following has no power to impose taxes?

a. Provinces b. Cities c. Barangays d. Barrios

22. Talong Company is a domestic corporation whose principal classification is for well drilling
work. It has no branches nor sales outlets, but maintains project offices in different
localities in the Philippines. It is also registered as a Specialty Contractor at the Philippine
Overseas Construction Board. As part of its business expansion plan, the company intends
to offer its well drilling and construction services to clients located overseas.

Are cities and municipalities authorized to impose and collect local business taxes on gross
receipts realized by a specialty contractor from its overseas construction projects?

(a) No. Gross receipts must be realized from services rendered within the jurisdiction of the
LGU imposing the tax.
(b) Yes. The local business tax depends on the previous year’s sales receipts regardless of
source.
(c) It depends.
(d) None of the above.

23. The Municipal Assessor of San Francisco, Agusan del Sur assessed the National Grid
Corporation of the Philippines (“NGCP”) for deficiency real property tax (“RPT”) for the
years 2011 and 2012. In its petition with the LBAA, NGCP assailed the RPT assessment on
the ground that it is exempt from payment of the same under Section 9 of R.A. No. 9511 and
Section 234(c) of the Local Government Code. The Municipal Assessor filed a Motion to
Dismiss citing lack of jurisdiction on the part of the LBAA to rule on the petition due to
NGCP’s failure to first pay the tax under protest.

Did the LBAA acquire jurisdiction over NGCP’s petition against the RPT assessment?
(a) Yes. Since the taxpayer is questioning the very authority of the assessor to impose the
assessment, the petition is under the jurisdiction of the LBAA even without first paying the
tax under protest.
(b) No. Under Section 252 of the LGC, payment under protest is mandatory if the taxpayer
questions the reasonableness or correctness of the RPT assessment.
(c) It depends on the amount of RPT assessed.
(d) None of the above.

24. A power generation company with principal office in Cebu City acquired and operated a power
plant in Navotas City. Due to the difficulty in hiring competent administrative personnel willing
to work in flood-prone Navotas City, the company established an administrative office in
Malabon City. This administrative office does not generate sales orders nor does it receive
collections from sales.

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Which of the 3 offices shall be liable for the local business tax (LBT”)?

(a) All 3 offices.

(b) Offices in Cebu City and in Malabon City.
(c) Offices in Cebu City and Navotas City.
(d) None of the above

Note: The Malabon office, on the other hand, shall not be subject to LBT, and no gross
receipts should be allocated to it. A mere administrative office is not a branch
which generates and records sales, and receives collections from customers. Nor is
it a project office or factory which is indispensable to the main purpose of the
business.
However, Malabon City may collect the Mayor’s permit and other regulatory fees
or service charges pursuant to Section 147 of the LGC (BLGF Opinion, October
27, 2017).

25. DEEP-FREEZE Medical Products installed refrigeration units in its Makati warehouse to store
its vaccines. The City of Makati wants to assess DEEP-FREEZE for real property tax on the
land, warehouse, and the refrigeration units.

A. DEEP-FREEZE is not taxable.

B. DEEP-FREEZE is taxable on the land and warehouse only
C. DEEP-FREEZE is taxable on land and refrigeration units only.
D. DEEP-FREEZE is taxable on land, warehouse, and refrigeration units.
E. None of the above.

26. Which of the following is FALSE?

A. Every person legally authorized to practice his profession shall pay the professional tax
anywhere in the Philippines, regardless of where he practices his profession or his principal
office location.
B. Such person who has paid the corresponding professional tax shall be entitled to practice
his profession in any part of the Philippines without being subjected to any other national
or local tax, license, or fee for the practice of such profession.
C. The province or city may levy an annual professional tax on each person engaged in the
exercise or practice of his profession requiring government examination at such amount
and reasonable classification.
D. Every person legally authorized to practice his profession shall pay the professional tax to
the province or city where he practices his profession or where he maintains his principal
office if he practices in several places.

27. James Lustre is the manager of a PEZA-registered enterprise availing of the preferential 5%
GIT in lieu of all other taxes, national or local. Besides his salary, he also receives fringe
benefits which are normally subject to the fringe benefits tax (FBT).

Statement 1: The manager’s salary is also subject to the 5% GIT.

Statement 2: The PEZA-registered enterprise is exempt from remitting the CWT on the
manager’s salary, and from payment of the FBT.

a. Both statements are true.

b. Both statements are false.
c. Only Statement 1 is true.
d. Only Statement 2 is true.

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28. Superman Corporation, a VAT-registered domestic company, sold both its Brand X goods and
Brand Y goods to Darna Corporation, a registered export enterprise (REE). Darna
Corporation used the Brand X goods directly and exclusively in its registered project or
activity, while the Brand Y goods were used for its unregistered activities.
(a) Darna, being an REE, is exempt from paying the input tax on all its purchases from
Superman.
(b) Darna, being an REE, is exempt from the paying the input tax only on its purchases of
Brand X goods from Superman.
(c) Superman prefers Wonder Woman over Darna.
(d) None of the above.

29. Which of the following sales to senior citizens are VAT-exempt?

Medicines for diabetes

Medicines for high cholesterol and hypertension
Drugs for cancer
Drugs for mental illness
Drugs for tuberculosis and kidney disease
Drugs for treatment of psoriasis
Air fare from Manila to Bohol
Air fare from Manila to Chicago, USA
Meal in 5-star hotel
Cigarettes and tobacco
Dell Computer
Play Station 5

(A) All except the drugs for psoriasis

(B) All except the air fare from Manila to Chicago, cigarettes and tobacco, Dell computer,
and PS5
(C) All except the meal in 5-star hotel, and air fares
(D) All except the drugs for proriasis, air fares from Manila to Bohol and from Manila to
Chicago, meal in 5-star hotel, cigarettes and tobacco, Dell Computer, and PS5.

Note: Senior citizen is VAT exempt from purchase of alcoholic

beverages in restaurants, hotels, etc.

But purchase of cigarettes, cigars by senior citizens are not

VAT-exempt.

30. In the beginning of the current taxable year, CALIA Corporation issued electronic tablets to
be used by a number of its employees suffering from autism. Such electronic tablets were
especially programmed to provide specific instructions to be followed by its autistic
employees in the workplace. The employer hoped that the cost of the investment
(₱1,000,000) would result in the increase in productivity of such impaired employees. The
electronic tablets have a useful life of 5 years. Total salaries paid to its autistic employees
amount to ₱600,000 for the taxable year. For the current taxable year, CALIA can have the
following deductions.

(A) Depreciation of ₱200,000, and salaries expense of ₱600,000

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(B) Depreciation of ₱200,000, and salaries expense of ₱600,000, and special deduction of
₱500,000
(C) Depreciation of ₱200,000, and salaries expense of ₱600,000, and special deduction of
₱650,000
(D) None of the above.

31. Non-resident taxpayers (non-resident aliens, or NRFCs) intending to avail of treaty benefits
must submit the following documents to the withholding agent or income payor prior to the
payment of income:

(A) BIR Form No. 0901 (Application Form for Treaty Purposes)
(B) Tax Residency Certificate (“TRC”) duly issued by a foreign tax authority
(C) Relevant provision of the applicable tax treaty.
(D) All of the above.

32. If the payor of the income withholds the regular tax under the Tax Code, what action can the
non-resident taxpayer take to avail of the lower tax under the treaty?

(A) Refile all the documents in number 31.

(B) File a Tax Treaty Relief Application (TTRA) with the International Tax Affairs Division
(ITAD) of the BIR.
(C) Do nothing.
(D) None of the above.

END

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