TAXATION

LEGEND: YELLOW: QUESTION NUMBER NA TAMA
MAGENTA : ANSWERS NA TAMA

RED: MALING ANSWER
YUNG “CORRECTED” NA WORD IBIG SABIHIN NAGKAROON NG CHANGES
OR CORRECTION SA SAGOT KASI MALI TAPOS PINALITAN NG TAMANG SAGOT HIHIHI
INCOME TAXATION - 1ST QUIZ
Question 1
Statement 1: The Constitution cannot take away the inherent powers of the State but may only
prescribe its limitations.
Statement 2: No laws are necessary to confer the inherent powers of the State upon any
government exercising sovereignty.
Response: Both statements are correct
Score: 1 out of 1 Yes
Question 2
The principal (primary) purpose of taxation is to raise revenue for governmental needs.
Response: Revenue purpose
Score: Corrected
Question 3
The process or means by which the sovereign, through its lawmaking body, raises income to
defray the necessary expenses of government
Response: Power of taxation
Question 4
Which of the following requires public improvement?

I. Taxation
II. Police Power
III. Eminent domain
Response: Ill only
Question 5
It means courteous and friendly agreement and interaction between nations, hence, the
property of a foreign state or government may not be taxed by another.
Response: International comity
Question 6
Which of the following statements is correct?
I. A tax cannot be imposed without clear and express words for that purpose.
II. The provisions of a taxing act are not to be extended by implication.
III. If the law is repealed, taxes assessed before repeal of the law may no longer be collected
Response: I and II only
Question 7
Statement 1: People pay taxes which their government uses to expand its powers and territorial
domination.
Statement 2: People demand from their government certain responsibilities and then provide the
government with the means to carry them out.
Response: Only statement 2 is correct
Question 8
Which of the following is not an element of double taxation?
Response: Same amount
Score: Corrected
Question 9
Which of the following may not raise money for the government?
Response: Power of eminent domain
Question 10
The place or authority that has the right to impose and collect taxes.
Response: Situs of taxation
Score: Corrected
Question 11
Which of the following is not a characteristic of the State’s power to tax?
Response: It is based on the ability to pay.
Question 12
Government agencies performing governmental functions are exempt from tax unless expressly
taxed while those performing proprietary functions are subject to tax unless expressly
exempted.
Response: Exemption from taxation of government entities
Question 13
Statement 1: Taxation and Police Power may be exercised simultaneously
Statement 2: In the exercise of taxation, the State can tax anything at anytime and at any
amount
Question 14
The power of the State to enact such laws in relation to persons and property as may promote
public health, public morals, public safety and general welfare of the people
Response: Police power
Question 15
The strongest of all inherent powers of the government is
Question 16
Which of the following is NOT a remedy against multiplicity of situs?
Response: None of the choices.
Question 17
As distinguished from the other inherent powers, what is the purpose of taxation?
Response: Support of the government
Question 18
Which of the following statements is true?
Response: The exercise of the power of eminent domain and police power can be
expressly delegated to the local government units by the law making body
Question 19
I. Taxes are pecuniary in nature
II. It co-exist with the existence of the State
III. Imposed on persons and property beyond the territorial jurisdiction of the State
Question 20
Statement 1: The constitution is the source of the State's taxing power.
Statement 2: The police power of the government may be exercised through taxation.
Response: Only statement 2 is correct
Question 21
This concept requires that apportionment of the tax burden be more or less just in the light of
the taxpayer’s ability to shoulder the tax burden and , if warranted, on the basis of the benefits
he receives from the government.
Response: rule of equity in taxation
Question 22
That taxation is based on the principle of reciprocal duties of protection and support between
the State and its inhabitants.
Response: Benefits received theory
Question 23
That there should be no improper delegation of the legislative authority to tax is:
Response: Both a constitution and inherent on the power of taxation
Score: Corrected
Question 24
A process where tax is imposed through legislative act.
Response: Levying
Question 25
The actual effort exerted by the government to effect the exaction of what is due from the
taxpayer is known as:
Response: collection

Question 26
These are part and parcel of the power of taxation and originate from the very nature of
Taxation.
Response: Inherent limitation
Score: Corrected
Question 27
Statement 1: The power of taxation must first be expressly granted, either by law or by the
Constitution, before the State may validly exercise it.
Statement 2: The Philippine government may subject the land where embassies of foreign
governments are located to real property taxes.
Response: Both statements are incorrect
Question 28
The following are the similarities among the Fundamental Powers of the State, except:
Response: They can be abolished by the Constitution.
Question 29
One of the following is not a manifestation of lifeblood theory.
Response: Equal protection of law

Question 30
The imposition of amount under this inherent power has no limit.
Response: Taxation
Question 31
The power to demand proportionate contribution from persons and property to defray the
necessary expenses of the government
Question 32
The following statement correctly states the differences among the inherent powers of the state,
except?
Response: Eminent domain does not require constitutional grant but taxation being
formidable, does in order to limit its exercise by the legislature.
Question 33
Although the power of taxation is basically legislative in character, it is NOT the function of
Congress to:
Response: collect the tax levied under the law.
Question 34
The power to acquire private property upon payment of just compensation for public purpose

Question 35
Statement 1: The amount of money raised for the government in the exercise of its power to tax
is and police power is based on the needs of the government.
Statement 2: The amount of money raised for the government in the exercise of its power of
eminent domain is based on the cost of processing the transfer of property from private entities
and/or individuals to the government.
Question 36
Statement 1: The power to tax is supreme, plenary, comprehensive and without any limit
because the existence of the government is a necessity.
Statement 2: The discretion of Congress in imposing taxes extends to the mode, method and
kind of tax, even if the constitution provides otherwise.
Question 37
The power of taxation proceeds upon what theory
Response: Government is a necessity theory
Question 38
Which of the following statements is not correct?
Response: The power of taxation in the Philippine Constitution are grants of power and
not limitations on taxing powers.
Question 39
How broad is the power of the legislature to impose taxes?
Answer 1:
The legislature has limited discretion as to the persons, property or occupations to be taxed,
where there are no constitutional restrictions, provided the property is within the territorial
jurisdiction of the state.
Answer 2
The legislature has the right to finally determine the amount or rate of tax, in the absence of any
constitutional prohibitions and it may levy a tax of any amount as it sees fit.
Response: Answers 1 and 2 are true
Question 40
A tax does not meet the public purpose limitation if it:
Response: is for the benefit principally of limited subjects or objects.
Question 41
Response: The government can enforce contribution upon its citizens only when the
Constitution grants it
Question 42
One of the following is not a compensatory purpose of taxation.
Response: To implement the police power of the State to promote the general welfare
Question 43
This is an inherent limitation on the power of taxation that affect the inhabitants of the State as a
community and not merely as individuals.
Response: Public purpose
Score: corrected
Correct Answer: Public purpose
Question 44
They exist independent of the constitution being fundamental power of the state, except
Response: Power of recall
Question 45
One of the following is not a public purpose.
Response: Building churches common to all religions

Question 46
The following are common to the inherent power of taxation, power of eminent domain and
police power, except for which of the following?
Response: They affect all persons or the public
Score:corrected
Question 47
Statement 1: The power of taxation must first be expressly granted, either by law or by the
Constitution, before the State may validly exercise it.
Statement 2: The Philippine government may subject the land where embassies of foreign
governments are located to real property taxes.
Question 48
The power to regulate liberty and property to promote the general welfare
Question 49
A system of taxation that places emphasis on direct rather than indirect taxation, with ability to
pay as the principal criterion.
Response: Progressive tax system
Question 50
The government’s ability to serve the people depends on taxation. Since taxes are collected, for
their benefit, taxes may be imposed even in the absence of constitutional grants and collection
of taxes cannot be stopped.
Response: Lifeblood theory
Question 51
The power of the State or those to whom the power has been delegated to take private property
for public use upon paying the owners a just compensation to be ascertained according to law.
Question 52
Which of the following is not one of the canons of a sound tax system?
Response: Quantifiability
Score: 1 out of 1
CHAPTER 1
Theory: Part 1
1. That courts cannot issue injunction against the government’s effort to collect taxes is
justified by
Answer: the lifeblood doctrine
2. The point at which tax is levied is also called
Answer: Impact of taxation
3. Which of the following inappropriately describes the nature of taxation?
Answer: Generally for public purpose
4. Which is correct?
Answer: The President of the Philippines can change tariff or imposts without necessity
of calling Congress to pass a law for that purpose.
5. A. The power to tax includes the power to exempt.
B. The power to license includes the power to tax.
Answer: A only
6. International double taxation can be mitigated by any of the following except
Answer: Entering into treaties to form regional trade blockage against the rest of the
world.
7. Which is not an object of taxation

Answer: Public properties
8. The power to enforce proportional contribution from the people for the support of the
government is
Answer: Taxation
9. This theory underscores that taxes are indispensable to the existence of the state.
Answer: The Lifeblood Doctrine
10. A. Taxation is the rule, exception is the exemption.
B. Vague taxation laws are interpreted liberally in favor of the government.
Answer: Both A and B
11. Statement 1: The benefits received theory presupposes that some taxpayers within the
territorial jurisdiction of the Philippines will be exempted from paying tax so long as they
do not receive benefits from the government.
Statement 2:The ability to pay theory suggests that some taxpayers may be exempted
from tax provided they do not have the ability to pay the same.
Answer: Only Statement 2
12. Select the incorrect statement.
Answer: Taxes should be collected only for public improvements.
13. Which is not a public purpose?
Answer: None of these
14. Which does not properly describe the scope of taxation?
Answer: Discretionary
15. All of these are secondary purposes of taxation except
Answer: To raise revenue for the support of the government.
16. What is the theory of taxation?
Answer: Necessity
17. A. taxes should not operate retrospectively.
B. Tax is generally for public purpose.
Answer: Neither A nor B
18. Which provision of the constitution is double taxation believed to violate?
Answer: Either A or C
19. Which limitation of taxation is the concept of “situs of taxation” based?
Answer: Territoriality
20. Which tax exemption is irrevocable?

21. Which statement is incorrect?
Answer: Only those who are able to pay tax can enjoy the privileges and protection of the
government.
22. Which is the most incorrect statement regarding taxes?
Answer: There should be personal benefit enjoyed from the government before one is
required to pay tax.
23. Statement 1: In the selection of the object of taxation, the courts have no power to
inquire into the wisdom, objectively, motive, expediency, or necessity of a tax law.
Statement 2: An imposition can be both a tax and a regulation. TAxes may be levied to
provide means for rehabilitation and stabilization of threatened industry.
Answer: Both statements
24. Which of the following acts in taxation is administrative by nature?
Answer: Levy or distraint of taxpayers’ property for tax delinquency.
25. This refers to the privilege or immunity from a tax burden which others are subject to:
Answer: Tax holiday
26. Which is not a legislative act?
Answer: Assessment of the tax
27. Which of the following statements does not support the principle that tax is not subject to
compensation or set-off?
Answer:
28. Statement 1: Taxation is the rule, exemption is the exception.
Statement 2: Taxation may be used to implement the police power of the state.
Answer: I and II are true
29. Which of the following powers of the Commissioner of Internal Revenue cannot be
delegated?
Answer: The power to reverse a ruling of the Bureau of Internal Revenue.
30. When exemption from a tax imposition is silent or not clearly stated, which is true?
Answer: Taxation applies since exemptions are construed against the taxpayer.
31. What is the basis of taxation?
Answer: Reciprocal duties of support and protection.
32. When the provisions of tax laws are silent as to the taxability of an item, which is true?
Answer: Taxation applies due to the Lifeblood doctrine.
33. Which is not legally tenable in refusing to pay tax?
Answer: Absence of benefit from the government.
34. What is the primary purpose of taxation?
Answer: To raise revenue.
Theory: Part 2
1. That all taxable articles or properties of the same class shall be taxed at the same rate
underscores
Answer: Uniformity in taxation
2. The Constitutional exemption of religious or charitable institutions refers only to
Answer: Real property tax
3. An educational institution operated by a religious organization was being required by a
local government to pay real property tax. Is the assessment valid?
Answer: Yes, with respect to properties not actually devoted to educational purposes.
4. Which is not a Constitutional limitation?
Answer: No tax law shall be passed without the concurrence of a majority of all members
of Congress.
5. Which of the following is not an inherent limitation of the power to tax?
Answer: Tax laws shall be uniform and equitable
6. The following are inherent limitations to the power of taxation except one.choose the
exception.
Answer: Non- appropriation for religious purpose.
7. The following are limitations of taxation:
A. Territoriality of taxation
B. Exemption of the government
C. Taxation is for public purpose
D. Non-impairment of contacts
E. Non-delegation of the power to tax
Answer: A and B
8. The provisions in the Constitution regarding taxation are
Answer: Limitations to the power to tax
9. The agreement among nations to lessen the burden of their respective subjects is called
Answer: International comity
10. The Constitutional exemption of non-stock educational institutions refers to?
Answer: Income tax
11. Which of the following is violative of the principle of non-delegation?
Answer: Allowing the Secretary of Finance and the BIR to issue regulation or rulings
which go beyond the scope of tax law.
12. Which of the following violates Constitutional provisions?
Answer: Imposition of license for the sale of religious literature.
13. In order to phase-out a huge deficit, the President of the Philippines passed a law
offering all taxpayers with previous tax delinquency to pay a minimum tax in exchange
for relief from tax assessment in the period of delinquency. Is this a valid exercise of
taxation power?
Answer: No, because the power of taxation is non-delegated.
14. Concern with increasing unemployment rates in the country, the President of the
Philippines encouraged the Philippine Senate to pass a law granting special tax
privileges to foreign investors who will establish businesses in the country. The Senate
accordingly drafted the bill and passed to Congress for approval. Is this valid exercise of
taxation power?
Answer: No, Tax bills shall originate from the House of Representatives.
15. Ram is the only practicing lung transplant specialist in Baguio City. The CityGovernment
of Baguio passed a local ordinance subjecting the practice of lung transplant to 2% tax
based on receipts. Ram objected claiming that other transplant specialists in other
regions of the country are not subjected to tax. Is Ram’s convention valid?
Answer: No, because the ordinance would cover all transplant specialist who would
practice in Baguio City. The uniformity rule would not be violated.
16. With the country under incessant shortage of sugar, the Philippine Congress enacted a
law providing tax exemptions and incentives to cane farmers without at the same time
granting tax exemptions to rice farmers who produce the staple food of the Philippines.
Is the new law valid?
Answer: Yes, since there is a valid classification of the taxpayers who would exempted
from tax.
17. Congress passed a law subjecting government-owned and controlled corporations
(GOCCs) to income tax, Is the law valid?
Answer: Yes, because GOCCs are not government agencies and are essentially
commercial in nature.
18. The Philippine Congress enacted a law requiring foreign banks to withhold taxes earned
by Filipino residents in their country and to remit the same to the Philippine government.
Is this a valid exercise of taxation power?
Answer: No, as this leads to encroachment of foreign sovereignty.
19. Which of the following normally pays real property tax?
Answer: AM Property Buildings, a registered property development company.
20. Tax exemption bills are approved by
Answer: Majority of all members of Congress.
21. Which of the following is not a constitutional limitation of the power to tax?
Answer: Non- delegation of police power.
22. The Japanese government invested P100,000,000 in the Philippine local bank and
earned P10,000,000 interest. Which is correct?
Answer: The income is exempt due to international comity.
Theory: Part 3
1. Select the correct statement.
Answer: The police power of the State is superior to the non-impairment clause of the
Constitution.
2. When a legislative body taxes persons and property, rights and privileges under the
same taxable category at the same rate, this is referred to as compliance with the
constitutional limitation of:
Answer: Uniformity
3. Which is not a legislative act?
Answer: Assessment of the tax
4. The inherent powers of the State are similar in the following respect, except:
Answer: All are not exercised by private entities.
5. Which is mandatorily observed in implementing police power?
Answer: Public interest
6. Which is considered in the exercise of eminent domain?
Answer: Both a and b
7. The general power to enact laws to protect the well-being of the people is called
Answer: Police power
8. Which of the following entities will least likely exercise the power of eminent domain?
Answer: Transportation operators
9. In exercising taxation, the government need not consider
Answer: Just compensation
10. Licensing of business or profession is an exercise of
Answer: Taxation power shall be exercised by Congress even without an express
Constitutional grant.
12. Which is principally limited by the requirement of the due process?
13. Statement 1: Congress can exercise the power of taxation even without Constitutional
delegation of the power to tax.
Statement 2: ONly he legislature can exercise the power of taxation, eminent domain,
and police power.
Answer: Statements 1 and 2
14. Which of the following powers is inherent or co-existent with the creation of the
government?
Answer: All of these
15. Which power of the State affects the least number of people?
Answer: Eminent domain
16. Which of the following is not exercised by the government?
Answer: Exploitation
17. Select the incorrect statement
Answer: Since there is compensation, eminent domain raises money for the government.
18. The following statements reflect the differences among the inherent powers except:
Answer: Eminent domain and police power do not require Constitutional grant, but
taxation, being a formidable power, requires Constitutional grant.
19. Statement 1: The Taxation power can be used to destroy if the law is valid?
Statement 2: A tax which destroys things, business, or enterprises for the purpose of
raising revenue is an invalid tax law.
Answer: Neither statement
Answer: The power to tax includes the power to destroy.
21. Which of the following is not an inherent limitation of the power to tax?
Answer: Tax laws shall be uniform and equitable.
22. Select the incorrect statement.
Answer: Taxes should be collected only for public improvement.
23. Which of the following is not a constitutional limitation of the power to tax?
Answer: Non- delegation of the taxing power.
24. Which of the powers of the state is the most superior? Which is regarded as the most
important?
Answer: Police power, Taxation
CHAPTER 2
Theory: Part 1
1. Which is not a source of tax law?

Answer: CHED regulations
2. When tax is collected upon someone who is effectively reimbursed by another, the tax is
regarded as
Answer: indirect
3. All are ad valorem taxes , except one. Select the exception.
Answer: Poll tax
4. Taxation power can be used to destroy
Answer: as an implement of police power.
5. Which is not a characteristic of tax?
Answer: It is subject to assignment.
6. Tax as to source is classified as
Answer: National or local tax
7. Which of the following is a local tax?
Answer: Real property tax
8. Tax as to purpose is classified as
Answer: Fiscal or regulatory
9. Tax as to incidence is classified as
Answer: Direct or indirect tax
10. Which is not a nature of tax?
Answer: Generally payable in kind
11. Taxes that cannot be shifted by the statutory taxpayer are referred to as
Answer: direct taxes
12. Tax classifications as to object do not include
Answer: Regulatory tax
13. Which is a local tax?
Answer: Professional tax
14. As to subject matter, taxes do not include
15. A tax that is exempted upon the performance of an act, the enjoyment of a privilege of
the engagement in a profession is known as
Answer: excise tax
16. Which is a national tax?
Answer: Income tax
17. Which of the following distinguishes income from tax?
Answer: Pre-activity an application
18. Which is correct?
Answer: Special assessment applies only when public improvement is made.
19. Tax as to determination of amount s classified as
Answer: Specific or ad valorem tax
20. A. Tax must not violate Constitutional and inherent limitation.
B. Tax must be uniform and equitable.
C. Tax must be for public purpose.
D. Tax must be levied by the lawmaking body.
E. Tax must be proportionate in character.
F. Tax is generally payable in money.
Which of the above is/are not an essential characteristic of a valid tax?
Answer: None of the above
21. Tax as to rates excludes
Answer: Specific tax
22. To limit the production of an environmentally harmful commodity, Congress passed a law
subjecting the sales of an environmentally unfriendly commodity to a P10/ kilo tax but a
5% tax is imposed on sales exceeding P 100,000. Which is incorrect?
Answer: This is a local tax.
23. Which is not an excise tax?
Answer: Community tax
24. Which is an indirect tax?
Answer: Value added tax
25. Which is not an ad valorem tax?
Answer: Excise tax on cigar
26. A tax that is imposed based on per unit or per head basis is known as
Answer: Specific tax
27. Mr. dela Cruz has a tax obligation to the government amounting to P80,000. Since he is
leaving the country, he entered into a contract with Mr. Garcia wherein Mr. B shall pay
the P80,000 tax in his behalf. On due date, Mr. Garcia failed to pay the tax. The BIR sent
a letter of demand to Mr. dela Cruz which he refused to pay.
Answer: The government should force Mr. A to pay because taxes are non-assignable.
28. Philippine tax laws are, by nature,
Answer: civil
29. Motor vehicles tax is an example of
Answer: Privilege tax
30. Which of the following statements is correct?
Answer: An ex post facto tax law violates the constitution.
31. Who issues revenue regulations?
Answer: Department of Finance
32. Tax rulings are issued by the
Answer: Commissioner of Internal Revenue
33. Which of the following is limited in application?
Answer: BIR Ruling
34. Which is not a source of tax law?
Answer: Opinions of tax experts
35. Which is not an element of tax?
Answer: It must be progressive by nature.
36. Tax as to purpose does not include
Answer: Poll
37. When the impact and incidence of taxation are merged into the statutory taxpayer, the
tax is known as
Answer: Direct tax
38. Which of the following levy is fiscal or revenue by nature?
Answer: Tax law intended to protect local industries.
39. Tax as to object includes
40. Which is not an indirect tax?
Answer: Personal tax
41. A tax that cannot be avoided is
Answer: Direct tax
42. Statement 1: Taxes are voluntary contributions to the government .
Statement 2: Taxes are mandatory contributions to the government.
Which is correct?
Answer: Only statement 2 is correct.
43. Which is an indirect tax?
Answer: Other percentage tax
44. Income tax is not a/an
Answer: Property tax
45. A transfer tax is not a/an
Answer: Regressive tax
Theory: Part 2
1. Which is intended to regulate conduct?

Answer: Penalty
2. Which is not an excise tax?
Answer: Income tax
3. Which of the following do not relate to tax?
Answer: Intended to cover cost of regulations.
4. A levy from a property which derives some special benefit from public improvement is
Answer: Special assessment
5. A. Government revenue may come from tax, license, toll and penalties.
B. Penalty may arise either from law or contracts.
Which is false?
6. What distinguishes tax from license?
Answer: Tax is a post- activity imposition.
7. Which of the following distinguishes license from tax?
Answer: It is a charge for other’s property.
8. The amount imposed is based on the value of the property
Answer: Toll
9. Toll exhibits all of the following characteristics except one. Which is the exception?
Answer: Levied for the support of the government.
10. Which of the following is incorrect?
Answer: Tax is the sole source of government revenue.
11. What distinguishes debt from tax?
Answer: Generally payable in money.
12. Debt as compared to tax
Answer: It will not cause imprisonment when not paid.
13. Select the incorrect statement
Answer: Special assessment can be imposed on building and other real right attaching
or pertaining to land.
14. Tax as to subject matter does not include
Theory: Part 3
1. Which is not an application of a principle of a sound tax system?

2. The Commissioner of Internal Revenue is not authorized to
Answer: promulgate Revenue Regulations.
3. Which is not a power of the Commissioner of Internal Revenue?
Answer: To prescribe assessed value of real properties.
4. The principles of a sound tax system exclude
Answer: Economic efficiency
5. Which of the following best describes the effect of tax condonation?
Answer: It only covers the unpaid balance of a tax liability.
6. By which principle of a sound tax system is the elasticity in tax rates is justified?
Answer: Fiscal adequacy
7. Violation of this principle will make a tax law invalid
Answer: Theoretical justice
8. Which of the following is not an application of the lifeblood doctrine?
9. Which is true with tax amnesty?
Answer: It covers both criminal and civil liability of the taxpayer.
10. Which one of the following is the BIR not empowered to do?
Answer: Assess and collect local taxes
11. Which principle demands that as should be just, reasonable, and fair?
Answer: Theoretical justice
12. Which among the following powers of the Commissioner of Internal Revenue can be
delegated?
Answer: The power to conduct inventory surveillance.
13. The Commissioner of Internal Revenue is not empowered to
Answer: Grant amnesty for erring taxpayers.
14. Which of the following may tax exemption come from?
15. Exemption based upon which of the following is repealable?
Answer: Law
16. Select the incorrect statement regarding tax amnesty and condonation.
Answer: Tax condonation operates on the whole balance of the assessed tax, hence, the
taxpayer can ask for refund for the paid portion of the tax.
17. Which of the following is a power of the Commissioner of Internal Revenue?
Answer: Interpretation of the provision of the NIRC.
18. The Commissioner of Internal Revenue can delegate the power to
Answer: refund or credit internal revenue tax.
19. The BIR is under the supervision of
Answer: the Department of Finance
20. As to tax payments measures, which of the following threshold for the qualification as
large taxpayer is incorrect?
Answer: Annual value added tax payments of P1M
21. Who is not a large taxpayer?
22. In terms of financial measures, which of the following threshold for qualification as large
taxpayers is incorrect?
Answer: Gross sales exceeding P1.5B
CHAPTER 3
Theory: Part 1
1. When paid for, which of the following items may involve a return on capital?
Answer: House and lot
2. Which is not a requisite of gross income?
Answer: Exempted by law
3. Which is taxable item of income?
Answer: Interest on moral damages
4. Which is not subject to income tax/
Answer; Donation
5. The total consideration received from the sale of service constitute
Answer: Return on capital
6. The total consideration received from the sale of goods at a gain represents
7. The total consideration received from the sale of goods at a loss represents
Answer: Return of capital
8. Why is income subject to taxation?
Answer: Income is the best measure of taxpayers’ ability to pay tax.
9. Income tax may be imposed for the following purposes, except
Answer: To limit corruption or To provide large amounts of revenues (not sure)
10. Which is not an item of gross income because of the absence of an undertaking from the
taxpayer?
Answer: Forgiveness of indebtedness as an act of gratuity.
11. Which is subject to income tax?
Answer: Excess of proceeds over the premium paid received by the taxpayer.
12. Which of the following is exempted from income taxation because of the absence of
ability to pay?
Answer: Unrealized income from investments
13. Which of the following constitutes taxable income?
Answer: Proceeds of crop insurance
14. Which is specifically exempted from income taxation by virtue of legal exemption?
15. Which of the following is not a constructive receipt of income?
Answer: Cash salary of an employee
16. Transfers for insufficient consideration are subject to
Theory: Part 2
1. Which of the following is not an income taxpayer classification?

Answer: General professional partnership
2. A resident alien naturalized in accordance with Philippine laws is a
Answer: Resident citizen
3. Who is not a resident alien?
Answer: An alien who married and stayed in the Philippines for one year.
4. Which taxpayer is not a natural person?
Answer: Taxable estate
5. A Filipino who has been abroad for more than 183 days is classified as a
Answer: Non-resident alien
6. An alien who stayed less than one year in the Philippines is classified as a non-resident
alien not engaged in business if he stayed herein for less than
Answer: 180 days
7. An American who showed proof to the satisfaction of the Commissioner of Internal
Revenue of his intention to stay in the Philippines as an immigrant is classified as a
Answer: Resident alien
8. A Japanese who is staying in the Philippines for 183 days is a
Answer: Non-resident alien engaged in trade or business
9. A Canadian who is staying in the Philippines for more than one year is a
10. A corporation incorporated according to Philippines laws is a
Answer: Domestic corporation
11. A foreign corporation which is not authorized to conduct business in the Philippines is a
Answer: Non-resident corporation
12. Which is taxable on world income?
Answer: Resident citizen
13. A foreign corporation which operates a branch in the Philippines is a
Answer: Resident corporation
14. A partnership which dominantly operates business abroad is a
15. Which is required to pay income tax?
Answer: Business partnership
16. Which is not an income taxpayer?
Answer: Joint venture engaged in energy operation pursuant to a service contract with
the government.
17. Which of the following taxpayers is taxable only on income earned from the Philippines?
18. All of the following are taxable only on income earned from sources within the
Philippines, except
Theory: Part 3
1. The place of taxation is

Answer: Situs
2. Genesis, a non-resident alien citizen, lent money to Shino, a resident Chinese. The
indebtedness was collateralized by a property located in Japan. The interest income is
earned to
Answer: China
3. Which is an incorrect statement regarding situs of income?
Answer: Service income is earned in the domicile of the taxpayer.
4. Which statement is correct regarding situs of income?
Answer: The gain on the sale of real property is earned in the location of the property.
5. Gains on the sale of goods manufactured and sold by the taxpayer within the Philippines
is subject to tax
Answer: within the Philippines only.
6. Jan, a resident alien, bought a car manufactured in the Philippines and exported the
same at a gain to Carla, a non-resident citizen. Which is correct?
Answer: The gain is taxable in the Philippines since it is sold in the Philippines.
7. Juan, a resident alien, and Pedro, a non- resident alien, executed a contract of sale in
Japan whereby Pedro shall purchase the lot owned by Juan in the Philippines. Juan
gains P1,000,000 in the exchange.
Which is true?
Answer: The gain is subject to Philippine tax because the property is in the Philippines.
Multiple Choice- Problems

● Problem 3 -1
Rico is paid P20,000 annual premium on a life insurance contract which would pay her
P1,000,000 in case of her death. After paying for 4 years, Rica assigned the policy to Carlos for
P120,000. Compute the return on capital.
Answer:P40,000
● Problem 3 -2
Sophia purchased a P1,500,000 life insurance policy for P100,000. During the year, Sophia died
and her heirs collected the entire proceeds. How much of the proceeds is exempt from income
tax?
Answer: P1,500,000
● Problem 3 - 3
Sean negotiated a P1,000,000 non-interest bearing promissory note to Candy. Candy paid Sean
P950,000. On due date, Sean paid Candy P1,000,000. Which is true?
Answer: Candy earned P50,000 return on capital.
● Problem 3 - 4
Andrew received a total sum of P42,000 from his employer consisting of the following:
● P5,000 reimbursements for employer’s expenses paid by Andrew
● P15,000 payment id Andrew’s computer set purchased by the employer.
● P22,000 monthly salary
Andrew’s computer set cost him P12,000. Compute the total return on capital which can be
subjected to income tax.
Answer: P25,000
● Problem 3 - 5
Lake Sebu Company insured the life of its president for P2,000,000. A total of P500,000 in
premiums was paid before the president died. The company collected the total proceeds.
Compute the return on capital.
Answer: P0
● Problem 3 -6
Melvin purchased the P1,000,000 life insurance policy of Ben for P120,000. Dan paid the
P20,000 annual premiums on the policy for 4 years after which Ben died.
Compute the total return on capital for Melvin.
Answer: P800,000
● Problem 3 -7
Carlos paid P20,000 annual premiums for a P1,000,000 life insurance policy. After 7 years,
Carlos surrendered the policy and was paid by the insurance company P200,000 which
represents the cash surrender value of the policy.
Compute the return on capital.
Answer: P60,000
● Problem 3 - 8
Onyoc insured his newly constructed building costing P1,000,000. Within a few days, the
building was totally destroyed by a fire. The insurance company reimbursed Onyoc P1,500,000
which represents the fair value of the building.
Which statement is false?
Answer: P1,500,000 is a return on capital.
● Problem 3 - 9
Teodoro is worried that his entire potato plantation which is expected to yield P400,000 income
will be totally devastated by bad weather conditions. He obtained a P300,000 crop insurance
cover for P30,000. Just before harvest, a rare frost totally destroyed Teodoro’s plantation. The
insurance company paid the policy proceeds.
Compute the total recovery of loss profits to be recognized by Teodoro as income.
Answer: P300,000
● Problem 3 - 10
Carl sued an unscrupulous person for derogatory remarks which he considered to have
besmirched his reputation. The court awarded him an indemnity of P1,000,000 inclusive of
P200,000 reimbursement for Attorney’s fees and P100,000 exemplary damages. Compute
Carl’s total return of capital.
Answer: P0
● Problem 3 -11
Nathan sells hot chili- flavored pancakes using a secret formula he patented, He sued a
competing pancake house for alleged patent infringement and claimed a total indemnity of
P1,200,000:
● P1,000,000 for loss of profits from loss of sales
● P200,000 as Attorney’s fee reimbursement
If Nathan wins the case and is awarded the total indemnity, compute his total return of capital.
Answer: P200,000
● Problem 3 -12
Johnson was one of the passengers of a van that fell off a ravine, Henson sued the bus
company and was awarded an indemnity of P800,000 for the following:
● P500,000 for the impairment of his health resulting to the amputation of his legs
● P200,000 for his loss of salaries during his hospitalization
● P100,000 for his Attorney’s fees
Compute Johnson’s return on capital.
Answer: P200,000
● Problem 3 -13
Clyde received the following items during the year:
● P200,000 donation from a girlfriend
● P100,000 service fee from professional services
● P300,000 inheritance from his deceased father
● P100,000 income from illegal gambling
● P50,000 gain on sale of his personal car
● P250,000 profits from his bar restaurant
Compute the total income subject to income tax.
Answer: P500,000
● Problem 3 -14
Pines Corporation has a branch in Manila and a 70% - owned subsidiary, Choco Hills, Inc. in
Davao. The following data shows Pines Corporation’s sales transactions during the year:
● Pines Corporation hilled the Manila branch P1,500,000 for merchandise shipped to the
latter and a mark-up at 50% above acquisition cost. The branch stored the merchandise
and did not operate during the year.
● Sold merchandise to unrelated parties at a gain of P800,000
● Sold merchandise to Darrel Asuncion. Pines Corporation’s controlling stockholder at a
gain of P100,000
● Sold various merchandise to Choco Hills, Inc. at a gain of P200,000
Compute the total income of Pines Corporation subject to income tax.
Answer: P1,100,000
● Problem 3 -15
Jonathan is a supervisory employee of Koronadal Corporation. He had the following items of
gross income during the year:
● Jonathan was paid P800,000 salaries.
● Jonathan’s P100,000 personal loan was paid by Koronadal Corporation as reward for his
excellent performance.
● Jonathan’s P50,000 advances to the company was paid by Koronadal’ chief executive
officer as a gift.
● Jonathan is entitled to excess representation and transportation allowances. Jonathan
received P200,000 total allowance out of which P120,000 was disbursed by him.
Compute Jonathan’s total income subject to income tax.
Answer: P980,000
● Problem 3 - 16
Jen is engaged in business. The following pertains to her transactions during 2021:
● Sold his personal car which was purchased at P200,000 to a friend who paid only half of
the car’s P500,000 current fair value.
● Sales of merchandise was P800,000 and the cost of goods sold was P600,000.
● Jen acquired several stocks from the Philippine Stock Exchange for speculation. These
stocks have an aggregate purchase price of P400,000, but with P700,000 fair value by
December 31, 2021.
● Jen’s house and lot which he acquired for P1,500,000 in 2010 now have a current fair
value of P2,500,000.
Compute Jen’s total income subject to income tax.
Answer: P250,000
● Problem 3 -17
A condominium home owner’s association collects dues from unit holders and remits the same
to service providers on their behalf. Such dues include electricity, water, security, and
maintenance. The association charges unit holders an additional 2% of their utility bills as
service charge.
During the year, the association processed utility bills for unit holders totalling P5,000,000.
How much taxable income is realized by the association?
Answer: P100,000
● Problem 3 - 18
Kenjy used to bet to PCSO lotto. On June 3, 2014, he won the P20,000,000 jackpot prize from
the 6/45 lotto. One P20 ticket out of 10 bets took the prize. How much is Kenjy’s total income
subject to tax?
Answer: P0
● Problem 3 - 19
An American citizen has been staying in the Philippines since August 15, 2021. What would be
his taxpayer classification for the year 2021 and 2022, respectively?
Answer: Non- resident alien not engaged in trade or business , resident alien.
● Problem 3 - 20
A citizen who left the Philippines on March 1,2021 would be classified as
Answer: Non-resident for the year 2021
● Problem 3 - 21
An alien received P200,000 compensation income in the Philippines and P300,000 rental
income from abroad. How much will be subject to Philippine income tax?
Answer: P200,000
● Problem 3 - 22
A non- resident citizen is an international financier who earned P400,000 interest income from
resident debtors and P300,000 from foreign debtors. How much is subject to Philippine income
tax?
Answer: P400,000
● Problem 3 - 23
Sarah has the following items of income:
Philippines Abroad
Business income P200,000 P100,000
Professional fees 100,000 50,000
Compensation income 400,000 -
Rent income 300,000 200,000
Interest income 30,000 40,000
1. Assuming Sarah is a resident citizen, compute the total income subject to Philippine
income tax.
Answer: P1,420,000
2. Assuming Sarah is a resident alien, compute the total income subject to Philippine
income tax.
Answer: P1,030,000
3. Assuming Sarah is a resident corporation, compute the total income subject to Philippine
income tax.
Answer: P1,030,000
4. Assuming Sarah is a domestic corporation, compute the total income subject to
Philippine income tax.
Answer: P1,420,000
CHAPTER 4
Theory: General Concepts
1. Which of the following accounting methods is most consistent with the lifeblood
doctrine?
Answer: Accrual method
2. Which is not a scheme in taxing income?
Answer: Ordinary gain taxation
3. Which is a correct statement regarding income taxes?
Answer: An item of income exempted from tax is likewise exempt from capital gains tax
and regular income tax
4. Which is not a feature of final tax?
Answer: Covers all capital gains
5. Which of the following properties when classified as capital asset is subject to capital
gains tax?
Answer: Both a or b
6. Capital asset means
Answer: any property, real or personal, not used in business
7. Which is not an item of passive income?
Answer: Professional income
8. These are accounting techniques or conventions used to measure income
Answer: Accounting methods
9. These are distinct and equal time periods over which income is measured
Answer: Accounting periods
10. Income is recognized when received rather than when earned
Answer: Cash basis
11. Income is recognized when earned regardless of when received
Answer: Accrual basis
12. Which statement is correct?
Answer: Dealers of personal properties can use installment method without limitation.
13. Initial payment means
Answer: Total collection within the year the installment sale was made
14. Income is reported by reference to the extent of project completion in
Answer: Percentage of completion method
15. Leasehold income is recognized over the lease term in
Answer: Cash basis
16. Statement 1: the excess of mortgage assumed by the buyer over the basis of the
properties sold is the amount of the gain on the sale.
Statement 2: Any collection from an installment contract where the mortgage exceeds
the tax basis of the properties received constitutes collection of income.
Answer: Statement 2 only
17. Which is correct regarding the crop year method?
Answer; Crop year method matches cropping expenses with the income upon harvest.
18. Which is not a special feature of regular income taxation?
Answer: Final withholding tax at source
19. Which is an incorrect statement regarding the use of accounting period?
Answer: Individuals can either choose the calendar year or fiscal year accounting period.
20. Under which of the following will short accounting period not arise?
Answer: Change if accounting period by an individual taxpayer
Problem 4-1 Accounting Period

1. A corporation reporting on a fiscal year ending every March 31 shall file its 2021 income
tax return not later than
Answer: July 15, 2021
2. An individual income taxpayer shall file his or her tax return on or before the
Answer: 15th day of the fourth month of the following calendar year
3. Anderson died on March 31, 2021. Which is a correct statement?
Answer: Anderson’s 2021 income tax return shall cover January 1, 2021 to March 31,
2021
4. Mrs. Julian started business on July 15, 2021. What should be the coverage of her 2021
income tax return?
Answer: July 15, 2021 to December 31, 2021
5. Metersbonwe Corporation started business on April 5, 2021 and opted to report income
tax on a fiscal year ending every October 31. Metersbonwe’s first income tax return shall
cover
Answer: April 5, 2021 to October 31, 2021
6. Maitum Corporation reports on a calendar year. On August 15, 2021, it stopped business
due to persistent losses. Maitum Corporation’s last income tax return shall cover
Answer: January 1 to August 15, 2021
7. Effective May 15, 2021, Tabuk, Inc. changed its fiscal year ending every April 30 to the
calendar year. An adjustment return shall be filed covering the period
Answer: May 1 to December 31, 2022
8. Effective March 1, 2021, Caraga, Inc. changed its calendar year to fiscal year ending
every June 30. An adjustment return shall be filed covering the period
Answer: January 1 to June 30, 2021
9. During 2021, Ozamis Corporation changed its accounting period to the calendar year.
The adjustment return shall be filed on or before.
Answer: April 15, 2022
10. Effective July 2, 2022, Parang Company changed its fiscal year ending every March 31
to another fiscal year ending every August 31. An adjustment return shall be filed
covering the period
Answer: April 1 to August 31, 2022
Problems 4-2: Tax schemes and accounting methods

1. Berlin Corp. reported the following data for 2021:
a. Total net sales made to customers were P2,000,000 in cash.
b. Goods purchased for sale totaled P1,200,000 in cash. Beginning and ending
inventory of goods for sale, respectively, were P200,000 and P300,000.
c. 1-year advanced rent of P30,000 to apply for 2022 was received from a sublease
contract
d. P40,000 total interest income from customers promissory note earned. P30,0000
of this was collected.
e. Unrealized foreign exchange gains from foreign currency receivables totaled
P60,000
Using cash basis, compute the total income subject to income tax.
Answer: P960,000
2. Using accrual basis, compute the total income subject to income tax.
Answer: P970,000
3. Pagadian, Inc. reported the following during the year:
a. P400,000 proceeds of life insurance of an officer where Pagadian is the
beneficiary (P600,000 still uncollected.)
b. P800,000 interest income, exclusive of P200,000 uncollected and accrued
interest
c. P300,000 increase in value of investment in stocks
Compute the gross income under cash basis
Answer: P800,000
4. Compute the gross income under accrual basis.
Answer: P1,000,000
5. Dapitan Inc. has the following receipts during 2021:
From service billings to clients P 400,000
Advances from clients 100,000
Total cash collection P 500,000
The P100,000 advances refer to services which will be rendered next year total
uncollected billing increased from P100,000 on December 31, 2021 to P150,000 on
December 31, 2021.
Compute the gross income using cash basis
Answer: P500,000
6. Compute the gross income using accrual basis.
Answer: P550,000
7. In 2021, Malita Inc. sold its parking lot for P2,400,000 payable on installment. The lot
was previously acquired for P1,500,000. The buyer has an outstanding unpaid balance
of P1,800,000 as of December 31, 2021. Malita’s year end.
Compute Malita’s gross income in 2021 using the installment method.
Answer: P225,000
8. Exquisite Corporation sold its old warehouse with carrying amount (tax basis) of
P600,000 for P1,000,000. A downpayment of 15% was collected on July 1, 2021.
Additional P150,000 installment payments were received as of December 31, 2021.
Compute the gross profit to be reported for the year 2021.
Answer: P400,000
9. Carl Gabriel is a dealer of household appliances. He reported the following in 2021 and
2022:
Installment sales P 500,000 P800,000
Cost of installment sales 250,000 440,000
Collections 300,000 600,000
Carl Gabriel’s 2022 collection is inclusive of P100,000 accounts from 2021
Using installment method, compute Carl Gabriel’s gross income subject to income tax in
2022.
Answer: P275,000
10. Using the accrual basis of accounting, compute Lancelot’s gross income subject to
income tax in 2022.
Answer: P360,000
11. Merville is a dealer in real properties. Merville requires 20% downpayment, and the
balance is payable over 36 monthly installments starting on the last day of the month
following the month of sale. Merville sold properties in 2021 and 2022 with terms as
follows:
a. House and Lot No. 1 was sold for P1,350,000 on November 11, 2021.
b. House and Lot No. 2 was sold for P1,800,000 on July 5, 2022.
Both properties were sold at a gross profit rate of 40% based on the selling price.
Compute Merville’s gross income subject to income tax in 2021 and 2022, respectively.
Answer: P120,000; P864,000
12. In 2022, Mr. Francis, a dealer of car, disposed a brand new sports utility vehicle (SUV)
which costs P800,000 for P1,200,000 under the following terms:
July 1, 2022 - as down payment P100,000
Monthly installment thereafter 50,000
Mr. Francis will choose whichever favorable permissible income reporting method for
him.
How much gross income is to be reported in 2022?
Answer: P116,667
13. In the immediately preceding problem, assuming Mr. Francis is not a dealer of car, how
much gross income is to be reported in 2022?
How much gross income is to be reported on 2022?
Answer: P400,000
14. Luccio Karl accepted a P1,000,000 construction contract in early 2021. As of December
31, Luccio Karl incurred total construction costs of P600,000 and estimates additional
P200,000 to bring the project completion. Per independent appraisal, the building is at its
80% stage of completion. Compute Luccio Karl’s 2021 construction income using the
percentage of completion method.
Answer: P200,000
15. Talomo, Inc. constructs residential properties for clients and reports income by the
percentage of completion method. In 2021, Talomo, Inc. started a P2,000,000
construction contract. Details of his 2021 and 2022 construction follow:
2021 2022
Annual construction costs P 200,000 P 800,000
Estimated cost to finish 800,000 250,000
Extent of completion 20% 80%
Compute the construction income in 2021 and 2022
Answer: P200,000; P400,000
16. Oliver entered into a 40-year lease contract with Bernas. Per agreement, Oliver will
construct a building on Bernas lot and operate the same for 40 years. Ownership of the
building will transfer to Bernas upon the termination of the lease. The lease will not
commence until the building is completed. Oliver completed the building at a total cost of
P40,000,000 on January 1, 2022. The building is expected to be used over 50 years.
Compute Bernas income from the leasehold improvement to be reported in 2022 using
The spread-out method.
Answer: P200,000
17. In the immediately preceding problem, assume that the building was completed in July 1,
2022, what is the income using outright method.
Answer: P8,000,000
18. Len leases an office space form Rafi Inc. in a non-renewable 10-year lease contract.
Just after the second year of the lease, Tomas renovated the premises and made
improvements at a cost of P1,200,000. These improvements are expected to last for 12
years. Compute Rafi’s annual income from the leasehold improvement using the spread-
out method.
Answer: P50,000
19. Jamie started raising swine for sale by purchasing 5 gilts and a boar at a total purchase
price of P50,000 on January 2020. As of December 31, 2022, Hassan herd grew to 15
guilts, 2 boars, and 20 piglets. The total herd has a fair value of P196,000 when sold as
is. During the year, Hassan earned P180,000 from selling piglets. How much should
Hassan report as farming income in 2022?
Answer: P180,000
20. Peter, a farmer, uses the crop-year method in reporting his income from long-term corps.
The following data are relevant to his farming operations in 2021:
a. Sales of crops harvested, P900,000
b. Expenses on harvested crops, P400,000
c. P200,000
d. P100,000
e. 150,000
Peter uses the crop year method in reporting crop income. Compute Peter’s total income
subject to tax.
Answer: P550,000
Problem 4-3: Tax compliance

1. A taxpayer filed his income tax return in October 28, 2022. The deadline for the return
was April 15, 2022. If he has P40,000 net tax due, compute the penalties in the form of
interest.
Answer: P 2,578
2. What is the total surcharge penalty?
Answer: P10,000
3. A taxpayer received a notice from BIR to file his 2020 income tax return not later than
January 15, 2022. The tax due per his return is P100,000. What is the total surcharge
penalty?
Answer: P 50,000
4. What is his total interest penalty?
Answer: P14,740 (quizlet)
5. Compute the compromise penalty
Answer: P20,000
6. Mani Pokyaw failed to pay file his income tax return for the year 2021 which should have
been filed on or before April 15, 2022. The BIR sent him a notice to file his return and
pay his tax on or before July 18, 2022. Mani Pokyaw filed a return showing a basic tax
due of P1,000,000. Compute the total interest penalty.
Answer: P30,904
7. Mr. Pokyaw must pay surcharge of
Answer: P500,000
8. Maco Corporation failed to file its income tax return for the fiscal year ending August 31,
2021. On June 6, 2022, it filed an income tax return with a basic tax still due and payable
for the fiscal year amounting to P500,000. Compute the interest penalty to be imposed
by the BIR.
Answer: P28,603
9. Compute the total tax assessment to be paid, excluding compromise penalty.
Answer: P653,603
CHAPTER 5
Theory: Part 1
1. The final tax rates on pre-termination of long-term deposits are not relevant to
Answer: any corporations
2. Which is correct with regard to the final income taxation?
Answer: Taxpayers need not to file an income tax return
3. Which statement is correct regarding final income tax?
Answer: Final tax applies only on certain passive income earned within the Philippines
4. Interest income from which of the following sources is subject to final income tax?
Answer: Money market placements
5. The final tax does not apply to interest on (select the best answer)
Answer: Promissory notes
6. The exemption on final tax on interest from long-term deposit is not applicable to
Answer: Corporations
7. Which interest income is not subject to any income tax?
Answer: Imputed interest
8. Which of the following is subject to 15% final tax on interest from foreign currency
deposits made with Philippine banks?
9. The following are subject to final tax on all income from sources within the Philippines.
Which is the exception?
Answer: Non-resident alien engaged in trade or business
10. The interest income from long-term peso deposits made with foreign banks is
Answer: Subject to regular tax
11. What is the final tax on interest income 6-years deposit pre-terminated less than 2years
before maturity?
Answer: 20%
12. Which of the following recipients is exempt from final tax on dividends?
13. A dividend declaration in 1019 is subject to a final tax of
Answer: 10%
14. Dividends declared by a resident corporation is
Answer: subject to regular income tax
15. Between the date of declaration and the date of record, BCD, Inc. sold an investment
representing stock of ABC, INc., a domestic corporation. Which statement is correct?
Answer: ABC, Inc. shall withhold 10% dividend tax if the buyer of the sale is an
individual.
Theory: Part 2
1. Prizes from sources abroad is subject to final tax
Answer: under no circumstance
2. Which is covered by final tax?
Answer: Share in the net income of a joint venture
3. Which is not subject to 20% final tax?
Answer: Royalties from musical compositions
4. Which is not subject to 10% final tax?
Answer: Royalties from a business trademark
5. Which of the following is taxable?
Answer: Prize from dance competition abroad
6. Which winning is taxable to a final tax?
7. The following are subject to final tax, except one. Which is the exception?
Answer: Jueteng winnings
8. Which of the following is exempt from final tax?
Answer: Interest income earned by a bank from lending activities
9. Dividend income from domestic corporations is subject to final tax effective
Answer: 1998
10. Prizes arising from sources within Philippines may be
Answer; exempt or subject to final atx or regular tax
11. Any royalties earned abroad by a non-resident corporation is
Answer: not subject to Philippine income tax
12. The winning of a resident alien from abroad is
Answer: not subject to Philippine income tax
13. Royalty income of a domestic corporation from abroad is
Answer: subject to regular tax
14. Winning from PCSO are generally
Answer: subject to 20% final tax
15. The final tax rates on passive income are generally similar to the following taxpayers,
except one. Select the exception.
Answer: Non-resident corporation
16. The tax informer’s reward may be granted to
Answer: Relatives of government employees beyond the 6th degree of consanguinity
17. Which is not subject to final tax?
Answer: Fringe benefits of rank and file employees
18. Which of the following is exempt from final tax?
Answer: Dividends from foreign corporation
Problems 1
1. Certain debt instruments were issued at the following scenario:
Instrument Lenders at origination
I. Treasury notes 14
II. Investment certificates 20
III. Certificate of deposit 30
IV. Investment certificate 18
Answer: NOT SURE

2. Winnie, a resident citizen, deposited P2,000,000 in the 180-day time deposit of BAnco
de Oro. The deposit pays 8% interest. Compute the final tax on maturity of the deposit.
Answer: P16,000
3. Assume that Winnie is a non-resident alien not engaged in trade or business; compute
the final tax on maturity of the deposit.
Answer: P20,000
4. Renz received P42,000 interest from short-term deposits. Compute the final tax withheld
on the interest.
Answer: P10,500
5. On January 1, 2021, Mr. Albuera invested P2,000,000 in the six-year time deposit of
Sulu Unibank which pays 10% annual interest. Compute the final tax to be withheld by
Sulu Unibank on December 31, 2021.
Answer: P0
6. Assume Mr. Albuera pre-terminated the time deposit on July 1, 2025; compute the final
tax to be withheld on pre-termination.
Answer: P45,000
7. Boy , a resident citizen, received the following interest income:
● P80,000 from short-term Peso time deposit
● P16,000 from a five-year bonds issued by a commercial bank
● P24,000 from ⅚ lending to market vendors
How much final tax must have been withheld from Boy’s interest income?
Answer: P20,000
8. Jack Corporation, a domestic corporation, deposited P1,000,000 in the five-year time
deposit of Banco Pilipino which pays 10% annual interest. Compute Jact Corporation’s
net interest in the first year of the deposit.
Answer: P80,000
9. Assume Jack Corporation is a non-resident corporation; compute the final tax interest
income.
Answer: P30,000
10. On January 2, 2021, Quezon, Inc. placed P1,000,000 in the 5-year time deposit of Bank
of Laguna. The placement earns 10% annual interest. quezon , In. pre-terminated the
deposit on June 30, 2024. Compute the final tax to be withheld on pre-termination.
Answer: P10,000
11. Francis, a resident citizen, invested P1,000,000 in a debt instruments (deposit

substitute) issued by UniBank. The debt instruments pay 10% annual interest payable
every quarter. How much final tax should UniBank withhold in the first quarter of the
issue?
Answer: P5,000
12. Charles, a resident citizen, deposited P5,000,000 in a non-resident foreign depositary
bank which pays 12% annual interest. How much final tax shall be withheld in the first
year?
Answer: P0
13. Rodrigo, a non-resident citizen, deposited his $2,000,000 savings in a two-year time
deposit in Blue Bank, a depositary bank under the expanded foreign currency deposit
system. The deposit pays 8% annual interest. Compute the final tax to be withheld in
dollars in the first year.
Answer: $0
14. Gabriel is a non-resident citizen working abroad. He invested his $1,000,000 personal
savings in a FCDU banker under a joint account with his resident wife. The bank pays
8% annual interest. Compute the final tax to be withheld in one year.
Answer: $6,000
15. Yvonne, a non-resident alien not engaged in trade or business, made a %5,000,000
deposit to an FCDU Bank. The deposit pays 8% annual interest. Compute Yvonne’s final
tax in the first year.
Answer: $0
16. David, a resident alien, deposited $1,000,000 in a depositary bank under the expanded
foreign currency deposit system. The five-year savings deposit pays 10% annual
interest. Assuming a P45:$1 exchange rate, how much final tax on interest would be
withheld in the first year?
Answer: P675,000
Problems 2
1. Mr. Siegmond, a resident citizen, received P100,000 dividend income from Vodka, Inc., a
domestic corporation. How much final tax must have been withheld by Vodka Inc.?
Answer: P11,111
2. Kenneth Inc., a domestic corporation, was credited $46,250 interest income on its
depositary account in an FCDU bank. How much final tax was withheld?
Answer: $6,937.50
3. Assuming Kenneth Inc. is a resident foreign corporation, how much final tax was
withheld?
Answer: $6,937.50
4. Tuazon Corporation declared P1,000,000 dividends in 2021. 40% of its outstanding
shares is held by its only corporate investor, abdul, Inc. Compute the amount of
dividends tax to be withheld on declaration.
Answer: P60,000
5. Mr. Nice, a resident alien, owns 40% of the shares of Coco Corporation, a resident
corporation.Coco declared P200,000 dividends in 2021. How much final tax should be
withheld from Mr. Nice’s dividend income?
Answer: P0
6. Jericho Inc., owns 20% of the stocks of Kidapawan Corporation. Jericho and Kidapawan
are both domestic corporations. Kidapawan declared P120,000 dividends in 2021.
How much dividend income after any applicable tax will Jericho receive?
Answer; P24,000
7. Mr. Suzuki owns 40% of the capital and profits of Cebu Ventures, a business partnership
engaged in the trade of tourist souvenirs. Cebu Ventures reported P200,000 net income
in 2021. Compute the final tax to be withheld by the partnership on Gina’s profit sharing.
Answer: P8,000
8. Jose Mari owns 20% of the capital and profits of a general professional partnership. The
partnership reported P500,000 profits in 2021. How much final tax will be withheld from
Jose Mari?
Answer: P0
9. Aris is a venturer sharing 50% in the profits of Wise Ventures, an unincorporated joint
venture, engaged in the trading of home appliances. Wise Ventures reported P200,000
profits for 2021.
How much final tax will be withheld by Wise Ventures?
Answer: P20,000
10. Zamboanga Corporation, a resident corporation, is a venturer in Southern Philippine

Ventures (SPV), an incorporated joint venture formed under Philippine laws. Zamboanga
owns 30% interest in SPV. During 2021, SPV reported P3,000,000 profit and declared
P1,000,000 in dividends. How much final tax will be withheld from the dividend
distribution to Zamboanga Corporation?
Answer: P0
11. Peter Wow Ventures is a joint venture which operates under a service contract with the
government. Peter Wow is 30% owned by individual investors. The rest is owned by
corporate oil exploration companies. Peter Wow reported P2,000,000 profit which was to
be distributed.
How much final tax will Peter Wow withhold?
Answer: P0
12. Mr. Badugan published his book abroad for the international market. During the first
quarter, he earned a gross royalty of P1,000,000. How much final tax will be withheld by
the foreign publisher?
Answer: P0
13. Midsayap Inc. is the only corporate shareholder of Midsayap Inc. owning 60% of its
outstanding voting shares. During the year, Midsayap Inc. declared a P1,000,000
dividend. Compute the final income tax to be withheld by Surigao.
Answer: P40,000
14. Mr. Taiwan won an P800,000 prize in a national dancing competition. The organizer of
the event declared that the P800,000 grand prize was “tax free”. How much final tax
must be remitted by the organizer to the BIR?
Answer: P200,000
15. Mr. Crocodile Park owns a mining property in Prosperidad. He allowed a mining
company to operate under a condition that he will be paid 10% royalty on the gold
production. The mining company produced P8,000,000 worth of gold during the year.
How much net royalties will be paid to Mr. Crocodile?
Answer: P640,000
Problems 3
1. Tiong Go Department Store conducted a sales promotion where customer purchases
exceeding P1,000 in one transaction shall be entitled to a ticket for a chance to win
P500,000 raffle prize, Mr. Shing won the prize.
How much shall Tiong Go withhold from the grand prize?
Answer: P100,000
2. Mr. Sheriff Aguak earned the following prizes from two different competitions:
Datte Event Gross Prize
January 4, 2017 Singing competition P12,000
February 14,2017 Painting competition 10,100
Compute the total final tax that should have been withheld from the above prizes.
Answer: P4,420
3. Mr. Remington Orayt participated in two different events on January 4, 2021:
Date Organizer Competition Gross Prize
January 4, 2021 Ang Maligayang Boses Singing P10,000
January 4, 2021 Sexy Body Foundation Dancing 11,000
Compute the total final tax that should have been withheld from the above prizes.
Answer: P0
4. Mr. Conrad won the P50,000,000 6/49
INCOME TAXATION - PRELIM EXAM
Question 1
Statement 1: The Constitution is the source of the State’s taxing power.
Statement 2: The police power of the government may be exercised through taxation.
Response: Only statement 2 is correct.
Question 2
This is an inherent limitation on the power of taxation that affect the inhabitants of the State as a
community and not merely as individuals.
Response: Public purpose
Corrected
Question 3
The following are the similarities of the inherent power of taxation, eminent domain and police
power, except one.
Response: They affect all persons or the public.
Question 4
Statement 1: People pay taxes which their government uses to expand its powers and territorial
domination.
Statement 2: People demand from their government certain responsibilities and then provide the
government with the means to carry them out.
Question 5
Under the Creditable Withholding Tax system, which of the following statements is incorrect?
Response: The recipient of the income is no longer required to file an income tax return
as prescribed under the Tax Code.
Score: Corrected
Question 6
Statement 1: Any income of nonresident individual taxpayers from transactions with depository
banks under the expanded foreign currency deposit system shall be exempt from income tax
Statement 2: Any income of nonresident individual taxpayers from transactions with offshore
banking units shall be exempt from income tax.
Question 7
Tax as distinguished from license fees:
Response: Non-payment does not necessarily render the business illegal
Question 8
As distinguished from the other inherent powers, what is the purpose of taxation?
Response: Support of the government
Question 9
A tax on business is:
Response: indirect tax
Question 10
Although the power of taxation is basically legislative in character, it is NOT the function of
Congress to:
Response: collect the tax levied under the law.
Question 11
Which of the following interest income derived within the Philippines is subject to basic income
tax?
Response: Interest income from deposit substitutes
Score: 0 out of 1 No
Question 12
Which of the following is not a remedy against multiplicity of situs?
Response: Non-declaration of income from foreign countries
Question 13
Statement 1: The power of taxation is inherent in sovereignty being essential to the existence of
every government. Hence, even if not mentioned in the Constitution, the State can still exercise
the power.
Statement 2: Taxation is essentially a legislative function. Even in the absence of any

constitutional provision, taxation power falls to Congress as part of the general power of law-
making.
Response: True, True
Question 14
Which of the following is NOT a remedy against multiplicity of situs?
Response: None of the choices.
Question 15
A fundamental rule in taxation is that, the property of one country may not be taxed by another
country. This is known as:
Response: international comity
Question 16
Statement 1: The amount of money raised for the government in the exercise of its power to tax
is and police power is based on the needs of the government.
Statement 2: The amount of money raised for the government in the exercise of its power of
eminent domain is based on the cost of processing the transfer of property from private entities
and/or individuals to the government.
Response: Both statements are incorrect.
Question 17
Which of the following interest income by a resident taxpayer is subject to 15%?
Response: Interest income from deposit substitutes
Question 18
A non-resident alien not engaged in trade or business derived P50,000 interest income from his
long-term bank deposit here in the Philippines. How much is the income tax due of the said
alien?
Response: P12,500
Score: corrected
Question 19
The power of taxation proceeds upon what theory
Question 20
The following taxpayers who received a dividend income from a domestic corporation will
received net 10% final withholding tax, except:
Response: Non-resident alien engaged in trade or business
Question 21
If the PCSO Lotto winnings in the preceding number was received by a non-resident alien
engaged in trade or business, what type of income tax liability will apply?
Response: Exempt
Score: corrected
Question 22
What is the tax situs of intangible personal property?
Response: Domicile of the owner
Question 23
"Schedular system of income taxation" means
Response: Separate graduated rates are imposed on different types of income.
Question 24
Which of the following is not a characteristic of the State’s power to tax?
Response: It is based on the ability to pay.
Question 25
A resident alien is taxable on all income derived from sources
Response: Within the Philippines
Question 26
Government agencies performing governmental functions are exempt from tax unless expressly
taxed while those performing proprietary functions are subject to tax unless expressly
exempted.
Response: Exemption from taxation of government entities
Question 27
Response: All of the above
Question 28
A system of taxation that places emphasis on direct rather than indirect taxation, with ability to
pay as the principal criterion.
Response: Progressive tax system
Question 29
Which of the following income of a non-resident citizen will be taxed differently if the taxpayer is
non-resident alien engage in trade or business?
Response: Dividends
Question 30
Which of the following income of an individual taxpayer is subject to final tax?
Response: Dividend received by a non-resident alien from a domestic corporation.
Score: Corrected
Question 31
Score: Corrected
Question 32
Which is the best answer? A tax reform at any given time underscores the fact that:
Response: taxation is a power that is very broad.
Question 33
Sandara, a nonresident Korean stockholder, received a dividend income of P300,000 in 2018

from Super Bowl Corporation, a foreign corporation doing business in the Philippines. The gross
income of the foreign corporation from sources within and without the Philippines for the past
three years preceding 2018 is provided as follows:
Source 2015 2016 2017
Philippines 16,000,000 15,000,000 17,000,000
Abroad 8,000,000 11,000,000 13,000,000
The amount of income subject to tax should be:
Response: 180,000
Score: corrected
Question 34
Which of the following income will be taxed in the same manner regardless of the classification
of the taxpayer?
Response: Capital gain on sale of shares of stock of a domestic corporation
Score: corrected
Question 35
Which is not an essential characteristics of tax?
Response: Unlimited as to amount
Question 36
Statement 1: The general rule is that the situs of intangible personal property such as shares of
stock is at the domicile of the owner.
Statement 2: Gain from sale of shares of stock of a domestic corporation of a non-resident

foreigner is taxable in the Philippines.
Question 37
Which of the following may not raise money for the government?
Question 38
Transfer of the tax burden by one whom the tax is assessed to another
Response: Shifting
Question 39
That taxation is based on the principle of reciprocal duties of protection and support between
the State and its inhabitants.
Response: Benefits received theory
Question 40
I. Prizes of not more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are exempt from income tax.
II. Prizes of more than P10,000 received by citizens, residents and non-resident aliens engaged
in trade or business are subject to 20% final withholding tax.
III. Prizes of not more than P10,000 received by non-resident aliens not engaged in trade or
business are exempt from income tax.
Response: I, II and III
Question 41
Response: The government can enforce contribution upon its citizens only when the
Constitution grants it
Question 42
In case of deductions and exemptions on income tax returns, doubts shall be resolved:
Response: strictly against the taxpayer

Question 43
_________________is finding out means of improvement in production so as savings would

compensate for taxes paid by manufacturers or producers.
Response: transformation
Question 44
Debt as distinguished from tax.
Response: May be paid in kind.
Question 45
One of the following is not a manifestation of lifeblood theory.
Response: Equal protection of law
Question 46
The reciprocal duties of support and protection between the people and the government
Response: Basis of taxation
Question 47
Which of the following is not a scheme of shifting the incidence of taxation?
Response: Changing the terms of the sale like FOB shipping point in the Phils. to FOB
destination abroad, so that the title passes abroad instead in the Phils.

Question 48
Which of the following statements regarding "Taxpayer's Suit" is incorrect?
Response: A taxpayer is relieved from the obligation of paying a tax because of his belief
that it is being misappropriated by certain officials.
Question 49
A non-resident alien is taxable on all income derived from sources
Question 50
Statement 1: All royalty income derived from sources within the Philippines are subject to final
withholding tax.
Statement 2: All royalty income derived from sources outside of the Philippines received by
resident citizens are subject to basic income tax.
Response:Both statements are correct
Score: corrected
Question 51
These are part and parcel of the power of taxation and originate from the very nature of
Taxation.
Response: Inherent limitations
Question 52
A process where tax is imposed through legislative act.
Response: Levying
Question 53
First statement:: In the exercise of the power of taxation, the State can tax anything, at any time,
and at any amount.
Second statement:: Taxes may be imposed not only to raise revenue, but also to provide
incentives and disincentives to certain activities within the State.
Question 54
The process or means by which the sovereign, through its lawmaking body, raises income to
defray the necessary expenses of government
Question 55
Upon taxation depends the government’s ability to serve the people for whose benefit taxes are
collected, hence, taxes may be imposed even in the absence of constitutional grants and
collection of taxes cannot be stopped.
Question 56
No person shall be imprisoned for debt or non-payment of poll tax. This is a (an)
Response: Constitutional limitation
Question 57
A tax does not meet the public purpose limitation if it:
Response: is for the benefit principally of limited subjects or objects.
Question 58
Under this basic principle of sound tax system, the government should not incur a deficit.
Response: Fiscal adequacy
Question 59
One of the following is not a compensatory purpose of taxation.
Response: To implement the police power of the State to promote the general welfare
Question 60
One of the following is not a public purpose.
Response: Building churches common to all religions
Question 61
It means courteous and friendly agreement and interaction between nations, hence, the
property of a foreign state or government may not be taxed by another.
Response: International comity
Question 62
The Philippine income tax system has the following features, except
Response: Indirect rather than direct system.
Question 63
One of the following is not a public purpose:
Response: Building of churches common to all religions
Question 64
The government’s ability to serve the people depends on taxation. Since taxes are collected, for
their benefit, taxes may be imposed even in the absence of constitutional grants and collection
of taxes cannot be stopped.
Question 65
First statement: The value-added tax is a property tax.
Second statement: The estate tax is a direct tax.
Response: False, True

Question 66
Response: All of the above
Question 67
The power of taxation proceed upon what theory?
Question 68
The following are common to the inherent power of taxation, power of eminent domain and
police power, except for which of the following?
Response: They affect all persons or the public.
Question 69
Question 70
Which of the following is not an example of excise tax?
Response: Real property tax
Score: Corrected
Question 71
Which of the following has no power of taxation?
Response: Barrios
Question 72
Question 73
That there should be no improper delegation of the legislative authority to tax is:
Response: both a constitutional and inherent limitation on the power of taxation.
Question 74
Statement 1: Tax avoidance is a scheme used outside of those lawful means to escape tax
liability
Statement 2: Tax avoidance is a tax saving device within the means sanctioned by law, and,
when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.

Question 75
If an account in a depository bank under the foreign currency deposit system is jointly in the
name of a nonresident citizen such as an overseas contract worker, or a Filipino seaman, and
his spouse or dependent who is a resident of the Philippines, the interest on such deposit shall
be:
Response: Exempted in its entirety.
Question 76
This concept requires that apportionment of the tax burden be more or less just in the light of
the taxpayer’s ability to shoulder the tax burden and , if warranted, on the basis of the benefits
he receives from the government.
Response: rule of equity in taxation
Question 77
The principal (primary) purpose of taxation is to raise revenue for governmental needs.
Response: Revenue purpose
Question 78
Statement 1: Passive incomes are subject to separate and final tax rates.
Statement 2: Passive incomes are included in the computation of taxable income from
compensation or business/professional income.
Response: True, False

Question 79
What basic principle of a sound tax system is met when Congress evolves a progressive system
of taxation as mandated in the Constitution?
Response: Theoretical justice
Question 80
One of the characteristics of tax is that:
Response: It is generally payable in money.
Question 81
Which of the following cash and/or property dividends actually or constructively received by an
individual shall not be subject to final tax but to regular income tax for individuals?
Response: Cash and/or property dividends from a nonresident foreign corporation
Question 82
One is not a characteristic or an element of tax?
Response: It is payable in money or kind
Score: corrected
Question 83
As a basic principle of taxation, “Taxes must be based on the taxpayer’s ability to pay” is called:
Response: theoretical justice
Score: Corrected
Question 84
Which of the following entities, in some circumstances, may exercise the power of eminent
domain?
I. Electric cooperatives
II. Lending cooperatives
III. Water cooperatives
IV. Telecommunication companies
Response: I, III, and IV only
Question 85
Question 86
One of the characteristics of internal revenue laws is that they are:
Response: Generally prospective in application
Question 87
The power of the State or those to whom the power has been delegated to take private property
for public use upon paying the owners a just compensation to be ascertained according to law.
Question 88
Statement 1: "Deposit Substitutes", as defined in Section 22(Y) of the NIRC of 1997 as

amended, means an alternative form of obtaining funds from the public other than deposits,
through the issuance, endorsement, or acceptance of debt instruments for the borrower's own
account, for the purpose of re-lending or purchasing of receivables and other obligations, or
financing their own needs or the needs of their agent or dealer.
Statement 2: "Public", is defined as borrowing from twenty (20) or more individual or corporate
lenders at any one time.
Question 89
I. Taxes are pecuniary in nature
II. It co-exist with the existence of the State
III. Imposed on persons and property beyond the territorial jurisdiction of the State.
Question 90
I. Shifting will result in increase prices
II. Tax evasion is also known as tax dodging
Response: I and II
Question 91
The power to demand proportionate contribution from persons and property to defray the
necessary expenses of the government.
Question 92
The power to impose taxes is exercised by
Response: Congress
Question 93
The power of the State to enact such laws in relation to persons and property as may promote
public health, public morals, public safety and general welfare of the people
Question 94
Which of the following is not one of the canons of a sound tax system?
Response: Quantifiability
Question 95
The place or authority that has the right to impose and collect taxes.
Response: Situs of taxation
Question 96
A non-resident citizen is taxable on all income derived from sources
Question 97
The actual effort exerted by the government to effect the exaction of what is due from the
taxpayer is known as:
Response: collection
Question 98
The imposition of amount under this inherent power has no limit.
Response: Taxation
Score: 1 out of
INCOME TAX - 1ST QUIZ MIDTERM

Question 1
Statement 1: Passive incomes are subject to separate and final tax rates.
Statement 2: Passive incomes are included in the computation of taxable income from
compensation or business/professional income.
Response: True, false
Score: Corrected
Question 2
A taxpayer received during the taxable year the following passive income derived from within
the Philippines
Interest on bank deposit under FCDU (net) P231,250
Royalty on a software application (gross) 95,000
Dividend income RFC (gross) 150,000
If taxpayer is a non-resident alien engaged in business, the final tax on the above passive
income would amount to
Response: P19,000
Question 3
Statement 1: The intention with regard to the length and nature of stay of an alien determines
whether he is a resident or non-resident.
Statement 2: A foreigner who has acquired residency in the Philippines shall only become a
non-resident when he actually departs with the intentions of abandoning his residency in the
Philippines.

Question 4
Alex, a resident citizen, disposed the following shares of stock of a domestic corporation whose
shares are not listed and traded in the local stock exchange:
Date of Sale Cost Selling Price
Jan. 15, 2019 P80,000 135,000
Feb. 14, 2019 175,000 150,000
March 30, 2019 256,000 360,000
The capital gains tax on the March 30, 2019 sale is
Response: P15,600
Question 5
Which of the following income will be taxed in the same manner regardless of the classification
of the taxpayer?
Response: Capital gain on sale of shares of stock of a domestic corporation
Question 6
Which of the following statements about interest income from long-term deposit is false?
Response: If a long-term deposit is pre-terminated, the applicable tax rate on the interest
income is 0% if the holding period is 4 years to less than 5 years.
Question 7
Which of the following income of a non-resident citizen will be taxed differently if the taxpayer is
non-resident alien engage in trade or business?
Response: Dividends
Question 8
Which statement is false? The following income payments to a resident or citizen individual is
subject to a final tax rate of
Response: 20% - winnings in lotto amounting to P10,000
Score:Corrected
Question 9
Which of the following is a requisite for an income to be taxable?
Response: All of the above.
Score: Corrected
Question 10
Mr. X, a resident citizen, appoints Bank A-Trust Department to manage his money created
through a trust agreement. Bank A-Trust Department then invests said money in a long term
investment (10-year corporate bond) of XYZ Corporation under the account name "Bank A-Trust
Department". Mr. X did not withdraw his money from such trust agreement for at least five (5)
years. The interest of Mr. X from the corresponding trust agreement is:
Response: Subject to 20% final tax
Score: Corrected
Question 11
Due to his expertise, Engr. Pedro D. Magiba (a freelancer) was hired by a foreign petroleum
contractor in Thailand to provide technical assistance for two months from February to March.
He was hired again for the months of June-July and October-December of the same taxable
year. Engr. Pedro D. Magiba is a:
Response: Non-resident citizen
Question 12
Individual taxpayers are
I. Natural persons with income derived within the territorial jurisdiction of a taxing authority.
II. Natural persons classified as citizens and aliens
Response: I and II
Question 13
Which is not a valid definition of income?
Response: Income is a fund at one distinct point of time.
Question 14
A PWD/SC who is self-employed and/or professional may qualify for the 8% income tax rate:
PWD SC
a. Yes Yes
b. No Yes
c. Yes No
d. No No
Response: A
Question 15
The following taxpayers who received a dividend income from a domestic corporation will
received net 10% final withholding tax, except:
Response: Non-resident alien engaged in trade or business
Question 16
Which final tax rate is false?
Response: Philippine Charity Sweepstakes and lotto winnings amounting to P 10.000 or

less) - 20%
Score: Corrected
Question 17
Bryan sold the following shares of stock of domestic corporations which he bought for
investment purposes:
Listed and Traded Not Listed and Traded
Selling price 250,000 143,680
Selling expense 12,000 3,680
Cost 118,000 80,000
Determine the capital gains tax assuming the sale was made in 2017 (before effectivity of
TRAIN Law) and 2018 (upon effectivity of TRAIN Law)
2017 2018
a. P3,000 P9,000
b. 3,184 9,552
c. 3,184 9,000
d. 3,000 9,552
Response: A
Question 18
Statement 1: Any income of nonresident individual taxpayers from transactions with depository
banks under the expanded foreign currency deposit system shall be exempt from income tax.
Statement 2: Any income of nonresident individual taxpayers from transactions with offshore
banking units shall be exempt from income tax.
Question 19
On January 1, 2016, Pedro purchased at face value 1,000 P1,000 face value bonds of San
Miguel Corporation, a domestic corporation. The bonds were dated January 1, 2016 and mature
on January 1, 2028. The bonds pay 10% annual interest every December 31. Pedro sold the
investment directly to Juan on December 31, 2018 at 102. Which of the following statements is
true?
Response: The gain on sale is subject to basic income tax.
Question 20
An individual taxpayer can opt for the 8% income tax in lieu of the graduated tax rates if the
following conditions are complied, except
Response: His income is derived from business or occupation and/or practice of

profession
Question 21
Which of the following statements is false? Based on the above data
Response: Percentage tax due on the P3,000,000 shall be collected without penalty if
timely paid on the due date immediately following the month the threshold was breached.
Question 22
Capital gains realized during the taxable year from the sale, barter, exchange or other
disposition of shares of stock are subject to 15% final tax if the stocks are issued by a
Response: domestic corporation
Score: Corrected
Question 23
Statement 1: Proceeds of sale of real property classified as capital asset may be exempt from
the 6% capital gains tax.
Statement 2: Gain from sale of real property classified as capital asset to the Government may
be taxed under Section 24 (A) at the option of the individual taxpayer.
Question 24
If the amount of PCSO/Philippine lotto winnings received by a nonresident alien not engaged in
trade or business did not exceed P10,000, what type of income tax will apply?
Response: Final withholding tax on passive income
Question 25
If an account in a depository bank under the foreign currency deposit system is jointly in the
name of a nonresident citizen such as an overseas contract worker, or a Filipino seaman, and
his spouse or dependent who is a resident of the Philippines, the interest on such deposit shall
be:
Response: 50% exempt and 50% subject to final withholding tax of 15%.
Question 26
If the amount of PCSO/Philippine lotto winnings received by a resident citizen and resident alien
in 2018 is more than P10,000, what type of income tax will apply?
Response: Final withholding tax on passive income
Question 27
Which of the following cash and/or property dividends actually or constructively received by an
individual shall not be subject to final tax but to regular income tax for individuals?
Response: Cash and/or property dividends from a nonresident foreign corporation
Question 28
Response: Interest income from a foreign currency depository unit in the Philippines of a
non- resident alien is not subject to final tax
Question 29
Which of the following interest income derived within the Philippines is subject to basic income
tax?
Response: Interest income from loans
Question 30
Which of the following passive income is exempt from tax when received by resident or citizen
and nonresident aliens engaged in trade or business in the Philippines but subject to 25% final
tax when received by nonresident aliens not engaged in trade or business?
Response: Interest income from long-term deposit or instrument evidenced by

certificates prescribed by Bangko Sentral ng Pilipinas
Question 31
Statement 1: All royalty income derived from sources within the Philippines are subject to final
withholding tax.
Statement 2: All royalty income derived from sources outside of the Philippines received by
resident citizens are subject to basic income tax.
Question 32
Source 2015 2016 2017
Philippines P16,000,000 P15,000,000 P17,000,000
Abroad 8,000,000 11,000,000 13,000,000
Sandara is subject to:
Response: Final withholding tax of 25% on 180,000
Question 33
Which of the following is a characteristics of income?
A. B. C. D.
Increase in taxpayer’s wealth TRUE TRUE TRUE FALSE
Realization of gain TRUE FALSE FALSE FALSE
Return of taxpayer’s wealth TRUE TRUE FALSE FALSE
Response: A
Question 34
Statement 1: "Deposit Substitutes", as defined in Section 22(Y) of the NIRC of 1997 as
amended, means an alternative form of obtaining funds from the public other than deposits,
through the issuance, endorsement, or acceptance of debt instruments for the borrower's own
account, for the purpose of re-lending or purchasing of receivables and other obligations, or
financing their own needs or the needs of their agent or dealer.
Statement 2: "Public", is defined as borrowing from twenty (20) or more individual or corporate
lenders at any one time.
Response: True, true
Question 35
Bu-dhoy, a Mongolian national, arrived in the Philippines on January 1, 2018 to visit his Filipina
girlfriend. He planned to stay in the country until December 31, 2020, by which time he would go
back to his legal wife and family in Mongolia. Bu-dhoy derived income during his stay here in the
Philippines. For 2018 taxable year, Bu-dhoy shall be classified as a:
Response: Resident alien
Question 36
Response: Interest income on bank deposit or investment with maturity period of at least
five (5) years is exempt from income tax.
Score: Corrected
Question 37
If the amount of prize in the preceding number was received by a non-resident alien not
engaged in trade or business, what type of income tax will apply?
Response: Final withholding tax
Score: Corrected
Question 38
Statement 1: Deductions from gross income are not presumed.
Statement 2: As a rule, deductions means itemized deductions.
Response: Both statements are correct.
Question 39
Which of the following interest income by a resident taxpayer is subject to 15%?
Response: Interest income on dollar deposits
Question 40
Bryan sold the following shares of stock of domestic corporations which he bought for
investment purposes:
Listed and Traded Not Listed and Traded
Selling price 250,000 143,680
Selling expense 12,000 3,680
Cost 118,000 80,000
Assume Bryan is a dealer in securities, the capital gains tax in 2017 and 2018 is
2017 2018
a. P3,000 P9,000
b. 9,000 3,000
c. 0 9,000
d. 0 0
Response: D
Question 41
Jan. 15, 2019 P80,000 135,000
Feb. 14, 2019 175,000 150,000
March 30, 2019 256,000 360,000
The capital gains tax on the Feb. 14, 2019 sale is –
Response: P 0
Question 42
I. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10,000 received by
citizens, residents and non-resident aliens engaged in trade or business are exempt from
income tax.
II. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 received by citizens,
residents and non-resident aliens engaged in trade or business are subject to 20% final
withholding tax.
III. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10,000 received by
non-resident aliens not engaged in trade or business are exempt from income tax.
IV. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 received by non-
resident aliens not engaged in trade or business are exempt from income tax.
Response: I only
Question 43
Which of the following is not included in the term "gross receipts"?
Response:Returnable security deposit
Score: Corrected
Question 44
An instrument with a maturity period of ten (10) years was held by Smith (nonresident alien
engage in trade or business) for three (3) years and transferred it to Juan, a resident citizen.
Juan held it for two (2) years before subsequently transferring it to James (resident alien) who
pre-terminated it after four (4) years. The final withholding tax are as follows:
A. B. C. D.
Smith - 12% final tax True True True True
Juan -20% final tax True True False False
James – exempt True False False True
Response: B
Question 45
A non-resident alien not engaged in trade or business derived P50,000 interest income from his
long-term bank deposit here in the Philippines. How much is the income tax due of the said
alien?
Response: 12,500
Question 46
Statement 1: A taxpayer can only deduct an item or amount from gross income only if there is a
law authorizing such a deduction.
Statement 2: For income tax purposes, a taxpayer is free to deduct from the gross income the
full amount of the deduction allowed, or a lesser amount or not to claim any deduction at all.
Question 47
A minimum wage earner is not exempt from
Response: commission
Question 48
If the amount of PCSO/Philippine lotto winnings received by a resident citizen in 2018 did not
exceed P10,000, what type of income tax will apply?
Response: Exempt
Question 49
Which of the following sale transactions will be subject to capital gains tax?
Response: Sale of shares of stock not through the local stock exchange by a person who
is not a dealer in securities
Question 50
Which of the following royalties earned within the Philippines is not subject to 10% final
withholding tax?
Response: Royalties from computer software
Question 51
Mike, a resident citizen taxpayer owns a property converted into apartment units with a monthly
rental of P10,000 per unit. He subsequently sold the property to Leomar, a resident alien
taxpayer. The sale shall be subject to:
Response: Basic income tax
Question 52
Which of the following shall not be subject to the 20% final tax beginning January 1, 2018?
Response: Prizes amounting to ten thousand pesos (P10,000) or less
Question 53
Gain from sale of real property classified as capital asset located abroad by a resident citizen is
subject to
A. B. C. D.
6% capital gains tax True False True False
Sec. 24A of the tax code True False False True
Response: D
Question 54
On January 1, 2014, Lorna invested P1,000,000 to BDO's 5-year, tax-free time deposit. The
long-term deposit pays 10% annual interest every January 1. In need of cash, Lorna pre-
terminated her investment on July 1, 2017. How much is the final tax due?
Response: P42,000
Question 55
Statement 1: The determination of 6% capital gains tax on sale of real property is based on net
capital gains realized by the seller of real property.
Statement 2: Except for certain passive income, a nonresident alien not engaged in trade or
business shall be taxed at 25% of his gross income derived from sources within the Philippines
Question 56
Lebron James received royalty fee from Viva Records Corporation, a domestic corporation, for
his musical compositions under the album "Whatever it Takes". James is an American composer
and has never set foot in the Philippines. The royalty fee shall be subject to:
Response: 25% FWT

Question 57
Jan. 15, 2019 P80,000 135,000
Feb. 14, 2019 175,000 150,000
March 30, 2019 256,000 360,000
The capital gains tax on the Jan 15, 2019 sale is –
Response: P8,250
Question 58
Vincent sold a residential house and lot held for P10,000,000 to his friend. Its FMV when he
inherited it from his father was P12,000,000 although its present FMV is P15,000,000.
Assuming the residential house is located abroad, the capital gains tax is:
Response: P 0
Question 59
Who of the following individual taxpayers may avail of substituted filing of Income Tax Return
(ITR)?
Rianne:
o Deriving compensation income from ABC Company, his only employer for the taxable year.
o The correct amount of tax was withheld by ABC Company.

o He also derived interest income from his peso bank deposit in BPI and the sale of his shares
in DEF Corporation (a closely-held domestic corporation) to Brian resulted to a gain of Php
100,000.
Leomar:
o Deriving purely compensation income from XYZ Corporation, his only employer for the taxable
year.
o The correct amount of tax was withheld by XYZ
o Leomar’s spouse is engaged in business
Response: Yes, No
Question 60
Determine the correct classification of the following:
I. Manny, a Filipino businessman, went on a business trip abroad and stayed there most of the
time during the year.
II. Kyla, a Filipino professional singer, held a series of concerts in various countries around the
world during the current taxable year. She stayed abroad most of the time during the year.
III. Efren, a Filipino “cue” artist went to Canada during the taxable year to train and participate in
the world cup of pool. He stayed there most of the time during the year.
A. B. C. D.
I NRC RC RC RC
II NRC NRC RC RC
III NRC NRC NRC RC
Response: D
Question 61
If the amount of PCSO/Philippine lotto winnings received by a non-resident alien
Response: Exempt
Score: Corrected
Question 62
If the amount of prize received did not exceed P10,000, what type of income tax will apply?
Response: Basic income tax
Question 63
inherited it from his father was P12,000,000 although its present FMV is P15,000,000. (Note:
Assuming the house and lot was Vincent's principal residence and he used 1/2 of the proceeds
to buy a new principal residence within eighteen (18) months after the above sale.) Assume
further that Vincent properly informed the BIR about the sale. It shall be:
Response: Subject to P450,000 capital gains tax
Question 64
Which of the following transactions is subject to 6% capital gains tax:
Response: Sale of vacant lot by an employee
Question 65
Which of the following income of an individual taxpayer is subject to final tax?
Response: Dividend received by a non-resident alien from a domestic corporation
Score:Corrected
Question 66
Ana has the following data on his passive income earned during 2018:
Philippines Abroad
Interest income from long term peso bank deposits 45,000 25,000
Interest income from long term FCDU deposits 50,000 60,000
Royalties from books 20,000 30,000
Royalties from computer programs 20,000 40,000
Winning from an electronic raffle during Smart Communication’s
50th anniversary 10,000
Dividend income from a domestic corporation 27,000 13,000
Dividend income from a foreign corporation 33,000 22,000
How much is the final withholding tax if the taxpayer is a resident citizen?
Response: 18,200
Score: Corrected
Question 67
In 2018, Aching sold shares of stocks of a domestic corporation. The selling price is P80,000
while the cost is P65,000. The final tax on the sale is
Response: P 2,250
Score: Corrected
Question 68

Source 2015 2016 2017
Philippines P16,000,000 P15,000,000 P17,000,000
Abroad 8,000,000 11,000,000 13,000,000
The amount of income subject to tax should be:
Response: P180,000
Question 69
Taxable income for compensation earners is the gross compensation income less non-taxable
income/benefits such as the following, except
Response: personal and additional exemption
Question 70
I. Prizes of not more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are exempt from income tax.
II. Prizes of more than P10,000 received by citizens, residents and non-resident aliens engaged
in trade or business are subject to 20% final withholding tax.
III. Prizes of not more than P10,000 received by non-resident aliens not engaged in trade or
business are exempt from income tax.
Response: II only
Question 71
Response: A prize of P 10,000 is subject to 20% final tax.
Question 72
The following winnings are exempt from income tax prior to the effectivity of RA No. 10963
(TRAIN Law), except?
Response: Winnings from raffle of a private company
Question 73
inherited it from his father was P12,000,000 although its present FMV is P15,000,000. The tax
on the above transaction is:
Response: P900,000 capital gains tax
Score: 1 out of 1
INCOME TAX - MIDTERM QUIZ

Question 1
The term "de minimis benefits" does not include
Response: Christmas bonus
Question 2
The following relates to an annual payroll of the employee:
Gross compensation income, before P44,000 contributions to SSS, PHIC and HDMF
P1,068,000
Additional compensation 45,000 13th month pay and other benefits 89,000
Compute the taxable compensation income.
Response: P 1,069,000
Question 3
Statement 1: All prizes earned abroad are subject to regular tax.
Statement 2: All prizes in the Philippines are subject to final tax.
Which statement is generally correct?
Response: Statement 1
Question 4
Which is exempt from regular tax?
Response: Income of qualified pension plans

Question 5
Fringe benefits includes
Response: De minimis benefits
Score: Corrected
Question 6
Which is subject to regular tax to a non-resident foreign corporation or non- resident alien not
engaged in trade or business?
Response: None of these
Question 7
For purposes of the fringe benefit tax, fringe benefits pertain to
Response: other fringe benefits not specifically included as compensation income of

managerial or supervisory employees.
Question 8
Which of the following is not subject to regular tax of a domestic corporation or resident citizen?
Response: Income from abroad exempt under treaty
Question 9
Which is a correct statement?

Response: The compensation income of rank and file employees is subject to regular
tax.
Question 10
Which is subject to regular tax to a resident foreign corporation?
Response: Gain from sale of real property capital assets in the Philippines
Question 11
Which is correct when a minimum wage earner derives other income outside his employment?
Response: He is exempt from withholding tax, but subject to income tax.
Question 12
Which is usually an employee?
Response: A director who is at the same time the Chief Executive Officer
Question 13
Which is not a reportable type of gross income?
Response: Capital gains from the sale of domestic stocks through the PSE
Question 14
Edwin purchased the life insurance policy of Paulo for P50,000. He continued the policy by
paying P20,000 premium after which Paulo died. Edwin collected the P500,000 proceeds of the
policy. How much will Edwin exclude from his gross income?
Response: P70,000
Question 15
Night differential pay is exempt from taxation when received by a
Response: minimum wage earner
Question 16
De minimis benetls are generally
Response: exempt from tax
Question 17
Which is not included in the gross taxable compensation income of an employee?
Response: 13th month pay and other benefits not in excess of P90,000
Question 18
Which of the following will not be reported in gross income?
Response: Receipt of inheritance
Question 19
All items of passive income earned abroad are subject to regular tax to
Response: a resident citizens and domestic corporations
Question 20
Dividends subject to regular tax includes
Response: Foreign dividends
Question 21
Sarah Baby International graduated from its income tax holiday incentive and is effectively
subject to tax beginning 2015. In 2016, it collected a P4M from a P6M receivable which was
written off as bad debt expense in 2013. Before the write- off, Sarah International had P1M
profit. Sarah posted profits in 2014 and 2015 in excess of its operating loss in 2013. Compute
the amount of recovery subject to regular income tax.
Response: P0
Question 22
Which is an item of gross income subject to regular tax?
Response: Lottery winnings from abroad
Question 23
Mr. Kennedy insured his life with his children as beneficiaries. He died after paying P200,000
premiums. His children collected the P1,000,000 life insurance proceeds. How much will be
excluded from Mr. Kennedy’s gross income?
Response: P1,000,000
Question 24
Which is taxable as compensation?
Response: Termination benefits from resignation
Question 25
Select the most accurate statement.
Response: The benefits of rank and file employees are not subject to fringe benefit tax
Question 26
Which is included in the gross income subject to regular tax of a resident alien?
Response: Interest income from promissory notes of resident clients
Score: 1 out of 1 Ye
Question 27
The Paceer Security Agency (PSA) received P3,000,000 from its clients. P2,400,000 of this was
designated for salaries of guards assigned to various client establishments. How much will be
included in the gross income of (PSA)?
Response: P 600,000

Question 28
Which is subject to regular tax to a non-resident foreign corporation or non- resident alien not
engaged in trade or business?
Response: None of these
Question 29
Which is not an item of gross income subject to final tax?
Response: Share in the income of a general professional partnership
Question 30
Which is not part of compensation income subject to regular tax?
Response: Portion of salary contributed to SSS
Question 31
Which is not subject to the P90,000 exemption threshold for a private employee?
Response: Profit sharing bonus
Question 32
Which is an item of gross income subject to regular tax?
Response: Gain on sale of lot by a realty dealer
Question 33
All of these are subject to regular income tax, except
Response: Capital gain from the sale of real property located in the Philippines
Question 34
Which is not subject to income tax?
Response: All of these
Question 35
Mr. Harry, a professional practitioner, received the following from his clients:
Advances for future services to be rendered P 30,000
Collections for past services rendered 70,000
Reimbursements for client expenses 40,000
Reimbursement for out-of-pocket expenses 10,000
How much will be included in Harry’s gross income for regular income tax purposes?
Response: P110,000
Question 36
Which of the following is included in gross income subject to regular tax?
Response: Farming income
Question 37
Which of the following is subject to income tax?
Response: Voluntary contribution to SSS, PHIC and HDMF
Question 38
Farmers, Inc. purchased an agricultural lot for P1,000,000. It was later discovered that the lot
had gold deposits. Thus its fair value increased to P4,000,000. This increase in fair value is
Response: exempt from income tax.
Question 39
Which of these employee benefits is subject to final tax?
Response: Fringe benefits to supervisory and managerial employees
Question 40
Trina resigned in 2015 after 12 years of service. She had the following income during the year:
Salary, net of P80,000 withholding tax, P20,000 SSS,
P18,000 Philhealth and P40,000 13th month Php 480,000
Separation pay 1,000,000

Compute the gross income subject to progressive (regular) tax.
Response: P1,560,00
Question 41
Mr. Smith purchased a life annuity for P1,000,000 which will pay him P100,000 a year. What will
Mr. Smith include in his gross income on the 11th year of the policy?
Response: P100,000
Question 42
The excess of "13th month pay and other benefits" is
Response: subject to regular tax.
Question 43
Which interest i Interest income from notesncome is subject to regular tax?
Response: All of these
Question 44
Mr. Juanito had the following income in 2019:
Compensation income, net of P77,000 SSS,PhilHealth, HDMF and union dues P 300,000
Supplemental compensation income 30,000
13th month pay and other benefits 25,000

What is the taxable compensation income?
Response: P330,000
Question 45
Individual taxpayers shall report their income on
Response: a calendar year.
Question 46
Which is an exempt de minimis benefit?
Response: Rice subsidy of half sack a month valued at P1,000
Question 47
Which item of gross income is not subject to regular tax?
Response: Capital gain on the sale of bonds with more than 5 years maturity
Question 48
Statement 1: Excess de minimis is considered compensation income as "other benefits" for rank
and file employees and managerial or supervisory employees.
Statement 2: Excess de minimis is a fringe benefit subject to the fringe benefit tax.
Response: Both statements are incorrect.

Question 49
Corporations are allowed to report their income on
Response: either a fiscal or calendar year
Question 50
Meal allowance is taxable when given
Response: as incentive to all employees
Question 51
Rice allowance is taxable when
Response: given more than P1,500
Question 52
Benito has the following income in 2015:
Sales from vegetables P 400,000
Sales from fruits 200,000
Sales of carabao (acquired for P30,000 in 2015) 35,000
Interest income from tenants on the sale of agricultural land pursuant to the Agrarian Reform
Program 12,000
The gross income subject to progressive tax is
Response: P605,000
Question 53
All of these are items of gross income subject to regular tax except one. Select the exception
Response: Interest income from long-term bank deposits
Question 54
Corporations and individuals engaged in business or in the exercise of profession are required
to report their regular income
Response: quarterly and annually.
Question 55
Which is considered compensation?
Response: Cost-of-living allowance
Question 56
The statutory minimum wage is
Response: The higher between P5,000 a month or P60,000 annually or the rate fixed by
the Regional Tripartite Wage and Productivity Board
Question 57
In 2016, Western Heights Corporation (WHC) reported a P40,000 recovery from bad debts that
was claimed as deduction against gross income in 2012. In 2012, the write-off increased the
operating loss of WHC to P50,000. NCC was very profitable from 2013 to the present. How
much of the P40,000 recovery is subject to tax?
Response: P40,000
Score: Corrected
Question 58
Which is not an exclusion criterion on employee benefits?
Response: Necessity of the employee rules
Question 59
Mr. Roque, a supervisory employee, received the following income in 2015:
Gross compensation income, before contributions to SSS, PhilHealth, and HDMF totaling
P124,000 Php 800,000
Fringe benefits 200,000
Gain from redemption of shares in a mutual fund 100,000
Commission income 150,000
Gain on sale of stocks through the PSE 400,000
Determine the total income to be reported by Mr. Roque in gross income.
Response: P 826,000
Question 60
Which of the following remuneration is an item of compensation income?
Response: Commissions to a minimum wage earner

Question 61
Which individual taxpayer is not subject to progressive tax?
Response: Special aliens
Question 62
All income earned abroad that would otherwise be subject to final taxes it earned within the
Philippines shall be subject to progressive tax of a
Response: resident citizen.
Question 63
Angus Company produces beef meat. In 2015, it reported the following:
Sales of live cattle P 600,000
Sale of young feeders 200,000
Increase in value of cattle inventory 300,000
Compute the income subject to regular tax.
Response: P800,000
Question 64
Which is a correct de minimis limit?
Response: Laundry allowance of P3,600 per year

Question 65
Which of the following deductions from gross compensation income is included as part of gross
income subject to regular tax?
Response: dues Withholding tax
Score: Corrected
Question 66
Losses on capital assets
Response: deductible against gross income to the extent not compensated by insurance.
Question 67
Which is not a supplemental compensation income?
Response: De minimis benefits
Score: Corrected
Question 68
Which is subject to the withholding tax on compensation?
Response: Salary of minimum wage earners receiving fixed allowances
Question 69
Which is incorrect concerning transactions between associated enterprises?

Response: Pricing should be motivated by the need to save from total income tax.
Score: Corrected
Question 70
The proceeds of life insurance received by the wife of the insured is
Response: exempt from income tax
Score: Corrected
Question 71
JB EQUIPMENT AND MACHINERY INC., domestic corporation, reported the following income
in 2014
Philippines Abroad
Service fees P 400,000 P 300,000
Interest income-bank 40,000 70,000
Royalties – franchise 80,000 30,000
Compute the total gross income subject to regular income tax.
Response: P800,000
Question 72
Which is not an associated enterprise to the controlling individual of a holding company?
Response: A subsidiary of a subsidiary in the group
Question 73
Which corporate taxpayer is not subject to regular tax?
Response: Non-resident foreign corporation
Question 74
The P90,000 exemption threshold is applicable to
Response: all employees.
Score: Corrected
Question 75
Eugenio, employed, derived the following income during the year:
Gross salaries Php 400,000
13th month pay and other benefits 40,000
SSS, PhilHealth, and Pag-Ibig contributions 20,000
Deductions for loans repayments 50,000
Deductions for withholding tax 60,000
Compute the compensation income to be reported in the annual income tax return?
Response: P380,000
Question 76
All of these are exempt benefits of a minimum wage earner except
Response: vacation pay

Question 77
Which is an income exempt from income tax?
Response: Taxes collected by the government
Score: Corrected
Question 78
MACTAN Corporation is engaged in the sales of goods. It reported the following summarized
financial statements during the year:
Sales P3,500,000
Less: cost of sales 2,000,000
Gross profit P1,500,000
Commission income on consignment 200,000
Interest income from customers 20,000
Interest income, net of final tax 10,000
Dividend income 50,000
Total Income 1,780,000
Less: Admin & Selling Expenses 1,000,000
Net income 780,000
Compute the total gross income subject to regular tax.
Response: P1,720.000
Question 79
Which of these is subject to Philippine regular income tax to a foreigner?
Response: Rent income on properties located abroad
Question 80
Which is subject to progressive tax to an individual taxpayer?
Response: Amounts received by the insured in excess of premiums paid
Score: Corrected
Chapter 6
Theory 1
1. Which is subject to the 15% capital gains tax?
Answer: Sale of domestic stocks directly to a buyer within or outside the Philippines
2. Which is an ordinary asset?
Answer: Principal residence of the taxpayer
3. Which is not an ordinary asset
Answer: Personal laptop of the taxpayer
4. Which is a capital asset to a realty developer?
Answer: Vacant lot held for future development
5. Which is an ordinary asset
Answer: Office supplies
6. Which of the following assets, if not used in business, is subject to regular tax?
Answer: Taxpayer’s personal car

7. Which is a capital asset for a security dealer?
Answer: Real property held for speculation
8. Who is not subject to capital gains tax on the sale of domestic stocks directly to a buyer?
Answer: Dealer of securities
9. Which of the following, when sold, is not subject to capital gain tax?
Answer: A and B
10. Which is not subject to the 6% capital gains tax?
Answer: Donation of property
11. Statement 1: Capital gains may arise from sale, exchange, and other disposition of
movable properties in business
Statement 2: Ordinary gains may arise from sale, exchange, and other disposition of real
properties not used in business
Answer: Both statements are false
12. Statement 1: The capital gain on sale of domestic stocks directly to a buyer is presumed
Statement 2: The gain on sale of real property is presumed
Answer: Only statement 2 is true
13. Which of the following properties when sold may be subject to a capital gains tax?
Answer: Domestic stock
14. Statement 1: Only depreciable assets of business qualifies as ordinary assets
Statement 2: Land used in business is a capital asset since it is not subject to

depreciation
Answer: A,B and C

15. Statement 1: Ordinary gains may arise from sale, exchange, and other disposition of real
properties used in business
Statement 2: Capital gain may arise from sale, exchange, and other disposition of real
properties not used in business
Answer: Both statement are false
Theory Part 2
1. Which of the following sales of domestic stocks is subject to capital gains tax?
Answer: Sale of domestic stocks directly to a buyer
2. Which of the following properties, when sold, may be covered by regular income tax?
Answer: Promissory notes
3. Which of the following assets may be subject to capital gains tax upon disposal?
Answer: Farm lot
4. The sale of an office building will be subject to
Answer: regular tax
5. The term “other disposition” covers
Answer: Any of these
6. The sale of listed shares will never be subjected to
Answer: 6% capital gains tax
7. The sale on non-listed shares may be subjected to
Answer: 15% capital gains tax only
8. Which of the following when sold may be exempted from the 6% capital gains tax?
Answer: Principal residence

9. Statement 1: the sale or exchange must result to a actual gain before the 15% capital
gains tax is imposed
Statement 2: the sale or exchange must result to an actual gain before the 6% capital
gains tax is imposed
Answer: Only statement 1 is correct
10. When the annualized capital gains exceeds the transactional capital gains tax the
excess is a
Answer: Tax payable
11. 1st statement: Properties acquired by real estate dealers are ordinary assets
2nd statement: Properties of real estate dealers continue to be classified as ordinary
assets even if the change the nature of their business
Answer: Both statements are correct
12. 1st statement: when realty businesses discontinue use of assets for more than two
years, the same shall be reclassified as capital assets
2nd statement: when realty businesses discontinue use of assets for more than two
years, the same shall be reclassified as capital assets
Answer: Both statements are correct
13. Which is an incorrect statement?
Answer: The capital gains tax on the disposition of capital stock presumes the existence
of gain on the sales transaction.
14. Which of these shall pay the two-tiered capital gains tax?
Answer: A or B
15. The sale of real properties which would otherwise be subject to the 6% capital gains tax
may nevertheless be subject to regular income tax if all of the following conditions are
met except one. Which is the exception?
Answer: the sale involves the principle residence of the taxpayer
16. Which of these pay the 6% capital gains tax?
Answer: Security dealer
17. The sale of a principal residence is exempt from the capital gains tax if all of the
following conditions are met, except
Answer: The reacquisition must be by purchase
Theory Part 3
1. The installment payment of capital gains tax is applicable to the
2. The transactional 15% capital gains tax is to be paid
Answer: Within 30 days from the date of sale or exchange
3. The annual 15% capital gains tax return is due
Answer: on or before the 15th day of the fourth month following the taxpayer’s year-end
4. Capital gains tax that is not payable on installment basis is due
Answer: within 30 days from the date of sale or exchange
5. Installment payments of the 6% capital gains tax is due
Answer: Within 30 days from the date of each installment payment
6. The installment payment of capital gains tax is applicable to
Answer: A or B
7. Which of these capital gains is subject to capital gains tax?
Answer: Gain on the sale of stock rights

8. Paulo indicated in his return his intent to avail of the exemption from the 6% capital gains
tax. Under what condition will he be exempted?
Answer: When the acquisition prize of the new property exceeds the proceeds of the old
property sold.
9. Partial taxation under the 6% capital gains tax will result when
Answer: The proceeds of the old property exceeds the acquisition price of the new
property regardless of the tax basis, zonal value and Assessor’s fair value of the old
property.
10. The transactional capital gains tax on domestic stocks is
Answer: creditable to the annual capital gains tax due
11. The 15% capital gains tax does not apply to
Answer: Resident citizen dealers of stocks
12. The documentary stamp tax n the sale of domestic stocks directly to a buyer is based on
Answer: Par value
13. The documentary on the sale of real property is based on
Answer: A or B, whichever is higher
14. The 6% capita; gainstax does not apply to
Answer: Foreign corporations
15. Who shall file the capital against return for the sale, exchange, and other disposition of
real property?
Answer: Seller
Problem Part 1
1. Poe sold domestic shares directly to buyer. The following relates to the sale:
Fair market value of shares P 400,000
Selling price 300,000
Cost 150,000
Compute the capital gains tax
Answer: P22,500
2. Mr. Dondi sold domestic stocks directly to a buyer at a mark-up on cost of P200,000. He
paid P5,000 broker’s commission and P8,00 documentary stamp tax on the sale.
Compute the capital gains tax
Answer: P28,050
3. Mr. Abdul, a non-resident alien, sold domestic stocks directly to a buyer at a net gain of
P 70,000. Compute the capital gains tax
Answer: P10,500
4. Mr. Panay Cabig, a non-resident citizen, sold domestic stock rights directly to a buyer at
a net gain of P 320,000. Compute the capital gains tax
Answer: P48,000
5. Mr. Bigps sold shares of a resident foreign corporation directly to a buyer. The shares
were purchased for P100,000 and were sold at a net selling price of P210,000. Compute
the capital gains tax
Answer: P0
6. Bayawan Inc. exchanged its investments representing domestic shares for a piece of
land owned by Eagle, Inc.
Fair market value of shares P 400,000
Fair market value of land 500,000
Par value of shares 300,000
COst of shares 350,000
Answer; P22,163
7. Digong Inc. exchanged its share investment from Bee inc., as payment of its P350,000
long outstanding loan from the latter. Digong acquired the shears for P300,000. Ignoring
documentary stamp tax, compute the capital gains tax on the transaction
Answer: P7,500
8. On January 5, 2021, Terisita, a stock dealer, disposed the following shares directly to a
buyer
Shares Selling Price Cost
Stock rights P200,000 P170,000
Common stocks 100,000 110,000
Ignoring the documentary stamp tax, the capital gain tax payable on the sale is
Answer: P0
9. Kidapawan, Inc., a domestic service company, has the following transactions on the sale
of another domestic corporation:
Transaction Quantity Net Price
Purchase P20,000 P40,000
Common stocks 30,000 63,000
Sale 40,000 92,000
Answer: P0
10. Assuming the moving average method, compute the capital gains tax on the sale
Answer: P400
11. Argan Company, a trading company, made the following transactions during the year
involving the stocks of Xurpas, a domestic corporation:
Date Transaction Shares Net price
6/15/2021 Purchase 10,000 P30
9/30/2021 Sale 8,000 28

10/3/2021 Purchase 15,000 25
12/7/2021 Sale 10,000 32
Argan uses the FIFO method in costing the Xurpas stocks.
Compute the deductible loss on the September 30 sale.
Answer: P0
12. Compute the taxable gain on the December 7 sale.
Answer: P60,000
13. Mr. Gary has the following transactions during the year on the common stocks of
Philippine Pines, a domestic non-listed company:
Date Transaction Gain(Loss)
5/8/2021 Sale P120,000
8/5/2021 Sale (10,000)
9/8/2021 Sale 250,000
Compute the annual capital gains tax due for 2020..
Answer: P22,000
14. Mr. Cabilao shows the following transactions in the shares of Aklan Corporation, a
closely held corporation:
Date Transaction Quantity Price
2/8/2021 Buy 10,000 P120,000
4/5/2021 Sell 10,000 100,000
5/1/2021 Buy 20,000 240,000

What is the tax basis of the shares acquired on May 1,2020?
Answer: P260,000
15. Mrs. San Marcelino, a resident citizen, purchased 100,000 shares of PhilHotdogs, a
domestic listed company. The shares were acquired at P200,000. She disposed the
shares through the Philippine Stock Exchange at a fair value of P250,000.
Compute the capital gains tax.
Answer: P 0
16. Mr. Candelaria disposed various stocks at a total consideration of P400,000 and paid
thereon stock transactions tax of P2,000. Aggregate gains realized totaled P98,000 after
the stock transaction tax. What is the capital gains tax?
Answer: P0
Problem Part 2
1. Bogo sold 1,500 shares of stocks of Bantayan Corporation directly to a buyer. The
share’s par value per shares was P85. Isidro purchased the shares for P90 each. On the
date of sale, the shares had a selling price of P120 per share. What is the capital gains
tax on the sale?
Answer: P6,607
2. A certain taxpayer shows the following over-the-counter transactions in the shares of a

domestic corporation:
Date Transaction Quantity Net Price
2/8/2021 Purchase 10,000 P112,000
4/5/2021 Sale 10,000 100,000
5/1/2021 Purchase 8,000 80,000
6/7/2021 Sale 5,000 60,000

Compute the capital gain on June 7, 2021 that is subject to capital gains tax.
Answer: P4,000
3. An investor sold domestic stocks directly to a buyer on October 1, 2020 under the
following terms:
Selling price P500,000
Cost 200,000
Downpayment 10%
Installments in 2019 50,000
Compute the total capital gains tax in 2021.
Answer: P9,000
4. Pampanga Inc. realized the following gains or losses in selling various securities:
Gain on sale of domestic stocks P300,000
Par value of domestic stocks sold 200,000
Gain on the sale of interest in a partnership 200,000
Gain on the sale of stocks of foreign corporation 150,000
Compute the capital gains tax.
Answer: P44,775
5. Compute the documentary stamp tax in the preceding problem
Answer: P1,500
6. A wash sale of domestic shares wherein 20,000 shares were disposed at a loss of
P40,000 were subsequently covered up within the 30-day period by a purchase of
15,000 shares for P12/share.
The deductible capital loss against capital gain on the wash sale is.
Answer: P10,000
7. What is the cost of the 15,000 shares acquired in the preceding problem?
Answer: P190,000
8. Mr. Homonhon purchased domestic stocks which were priced at 150% above their par
values. After two years, he sold the stocks when their fair value doubled. He paid
P7,500.00 documentary stamp and P10,000 to commission expenses on the sale.
Compute the selling price of the stocks.
Answer: P3,000,000
9. Compute the capital gains tax.
Answer: P222,375
10. On June 20,2021, Mr. Limon filed the capital gains tax return involving the sale of
domestic stocks on February 20,2021. The net gain was P140,000. Compute the total
amount due including penalties except compromise penalty.
Answer: P26,880
Problems Part 3
1. On august 15, 2021, <s. Mones sold 500-square meter residential
Chapter 7
Theory 1:
1. Which is not generally subject to regular income tax?
Answer: Passive income
2. The general rule in income taxation is

Answer: regular income taxation
3. Active income is subject to
Answer: regular tax
4. Question 3 and 4 are based on the following:

Which of the foregoing are passive incomes subject to?
Answer: Either A or B
5. Which of the foregoing are capital gains subject to?
Answer: Either A or C
6. The net amount of regular income subject to regular tax is called
Answer: taxable income
7. What are allowable deductions against gross income?
Answer: Business expenses
8. Deductions are allowed to
Answer: taxpayers engaged in business
9. Personal expenses are
Answer: Non-deductible by any taxpayer.
10. Which is not a feature of the regular income tax?
Answer: FInal withholding tax
11. Which is true with the final withholding tax?
Answer: It applies to certain passive income
12. Which is not true with the creditable withholding tax?

Answer: No need to pay further taxes
13. Progressive income tax is applicable to
Answer: individual taxpayers
14. Proportional regular income tax is applicable to
Answer: corporations only
15. Which of the following individual taxpayers is not subject to tax on taxable income?
Answer: NRA-NETB
16. Which of the following corporate taxpayers is not subject to tax on taxable income?
Answer: Resident foreign corporation
17. Which is a source of income will not be included in the income tax return?
Answer: Trade or business or exercise of a profession
18. Which interest income will not be included in the income tax return?
Answer: Interest income from employees
19. Which is not subject to final tax?
Answer: Prizes amounting to P11,000
20. Which of the following is a passive income but is nevertheless subject to regular tax by
virtue of exclusion under final income taxation?
Answer: Prizes amounting to P10,000
Theory 2:
1. Which is an incorrect statement?
Answer: Business expenses are deductible by individuals and corporations.

2. The following may be relevant in the determination of taxable income:
A. Gross income subject to regular tax
B. Gross income subject to final tax
C. Deductions from gross income
D. Exclusion in gross income
Which is not considered in the determination of taxable income?
Answer: B and D only
3. Which is a correct statement regarding exclusion in gross income?
Answer: They are subject to final tax.
4. Which of these types of employees may be subject to final fringe benefit tax?
Answer: Rank and file employees
5. Which is not considered an operating income?
Answer: Sale of scrap
6. Which is a non-operating income?
Answer: Gain on sale of office building
7. Which of the following will least likely to be considered an operating income of a security
dealer?
Answer: Gain on sale of bonds
8. The distinction between operating and non-operating income is not required in the
income tax return of
Answer: Self - employed individuals in business
9. The reporting classification of gross income into operating and non-operating is

unnecessary for

10. Which is not part of compensation income?
Answer: Basic pay of rank and file employees.
11. Who cannot claim deductions?
Answer: Self-employed taxpayers in business.
12. Who are required to file quarterly declaration of income?
Answer: Individuals engaged in business
13. Mr. Peralta wishes to file his 2021 income tax return. To avoid penalty, he must file his
return on or before
Answer: April 15, 2022
14. An individual taxpayer must file his income tax return for the third quarter of 2021 on or
before
Answer: August 15, 2021
15. Talisay corporation is filing its income tax return for the quarter ending February 28,
2021. The return must be filed on or before
Answer: March 29, 2021
16. Which of these taxpayers is required to file an income tax return?
Answer: Aliens classified as NRA-NETBs.
17. The taxable income of corporate taxpayers is the
Answer: taxable compensation income plus net income from business.
18. The taxable income of a pure compensation income earner is the
Answer: net income from business less personal exemption
19. The taxable income of a mixed income earner is the

Answer: taxable compensation income
20. The taxable income of a pure professional income earner is the
Answer: net income from profession less personal exemption
21. Which of the following statements is incorrect with respect to the determination of the
taxable income of individual taxpayers with other income?
Answer: The other income is simply ignored in the computation of taxable income.
22. Statement 1: Individuals with higher income are subject to higher tax rates.
Statement 2: Corporations with higher income are subject to higher tax rates.
Answer: Neither statement 1 nor 2
23. Which is incorrect on the determination of the taxable income of individual taxpayers?
Answer: Under the TRAIN law, there is no instance where the compensation income of
taxpayers could become zero.
24. Statement 1: Corporations with the same net income may not have the same tax due.
Statement 2: Individuals with the same net income may not have the same tax due.
Answer: Statement 2
25. A purely engaged in business individual taxpayer using itemized shall use
Answer: BIR from 1701A
26. BIR Form 1701 is not intended for
Answer: Pure professional income earner under OSD
27. BIR Form 1700 is intended for
Answer: Pure business or professional income earner
28. A corporation subject to different tax rates shall use
Answer: Form 1702 - RT

29. A non-profit corporation with a taxable income shall use
Answer: Form 1702 - EX
30. A school which is subject to a preferential or special tax rate shall use
Answer: Form 1702 - MX
31. A corporation that is subject only to a 25% or 20% income tax rate shall use
Answer: Form 1701A
Problems 1:
1. In 2015, Ms. Maya earned P450,000 compensation income but incurred P120,000 net
loss in her business. What is her taxable income assuming she incurred personal
expenses of P100,000?
Answer: P330,000
2. Mrs. Sipalay had a gross taxable compensation income of P400,000. She also earned
an additional P2,000 by investing her money in time deposits plus P3,000 interest
income from lending money to a friend. Compute her taxable income.
Answer: P303,000
3. Ms. Santander had a business net income of P300,000. She also earned P5,000
commission from selling cellular cards and P12,000 dividends from a domestic
corporation. Compute her taxable income.
Answer: P305,000
4. Mr. Cabilao earned total gross receipts of P800,000 and paid P300,000 in expenses in
his accounting practice. During the same year, he also earned a total of P60,000 net
gain from the sale of domestic stocks directly to a buyer. He also disposed a vacant lot
at a net gain of P140,000. What is the taxable income of Mr. Cabilao?
Answer: P400,000
5. Mr. Jagna earned a gross compensation income of P200,000 exclusive of P20,000 non-
taxable compensation income, and gross business income of P500,000 before expenses
of P200,000. He also earned book royalties of P10,000 and P8,000 interest income from
clients’ promissory notes. Mr. Jagna has personal expenses of P170,000 during the year.
What is Mr. Jagna’s taxable compensation income?
Answer: P220,000
6. What is Mr. Jagna’s net income from business?
Answer: P300,000
7. What is Mr. Jagna’s the taxable income?
Answer: P558,000
8. Mr. Bangal earned a compensation income of P120,000 and net income from business
of P300,000. He also earned P8,000 prizes from a dancing competition amd P45,000
royalties from his musical composition. Mr. Bangal has P150,000 personal expenses.
Compute the taxable income.
Answer: P465,000
9. Mr. Jordan with a P75,000 personal exemption, had the following data in 2021:
Philippines Abroad
Gross income from sales P4,000,000 P6,000,000
Interest income on deposits 40,000 80,000
Less: Deductions 2,000,000 3,600,000
Compute the taxable income if Mr. Jordan is a resident citizen.
Answer: P2,040,000
10. In the immediate preceding problem, compute the taxable income if Mr. Jordan is a non-
resident citizen.
Answer: P4,520,000
Problems 2:
1. Mr. Santos derived the following income in 2021:

Business income P200,000
Compensation income 300,000
Interest income 100,000
Compute the total passive income subject to final tax
Answer: P170,000
2. Compute the total income subject to regular tax.
Answer: P630,000
3. Compute the total income subject to gains tax.
Answer: P40,000
4. Panay, Inc., a large corporation, had the following income in 2021:

Philippines Abroad
Rent income P10,000,000 P12,000,000
Dividend - domestic 50,000 -
Royalties 80,000 200,000
Business expenses 8,700,000 9,800,000
Compute the taxable income if Panay, Inc. was a domestic corporation.
Answer: P3,700,000
5. Compute the income tax due in the immediately preceding problem.
Answer: P1,110,000
6. Compute the taxable income assuming Panay Corporation was a resident foreign
corporation.
Answer: P1,300,000
7. Compute the income tax due in the immediately preceding problem.
Answer: P325,000
8. Compute the total tax if Panay, Inc. was a non-resident foreign corporation. Assume that
the tax sparing is not applicable to Cavite.
Answer: P3,039,000
Chapter 8
Multiple choice- Theory 1
1. Proportional income tax does not apply to a
Answer: General professional partnership
2. Statement 1: Items of passive income from abroad are subject to regular income tax.
Statement 2: Items of passive income from the Philippines are generally subject to final
income tax.
Answer: Both statements
3. Which is true with the regular income tax?
Answer: Tax is payable at regular intervals.
4. Which is not a feature of regular income tax?
Answer: Gross income tax
5. Statement 1: Capital gains are generally subject to capital gains tax.

Statement 2: Items of passive income in the philippines are generally subject to regular
income tax
Answer: Neither statement 1 nor 2 is true
6. Deductions from gross income are
Answer: Business expenses
7. Which of the following statements best distinguishes deductions from exclusions from
gross income?
Answer: Deductions are outflows from gross incomes while exclusions are not outflows
from gross income.
8. Progressive income tax does not apply to a
Answer: Non-resident alien
9. Which is not included under the term “corporation”?
Answer: Co-ownership
10. The highest marginal tax rate for individual income taxpayers is
Answer; 30%
11. Which corporate taxpayer is not subject to regular income tax?
Answer: Non-resident foreign corporation
12. Which individual income taxpayer is not subject to regular tax?
Answer: Non-resident alien not engaged in trade or business.
13. Which is correct with respect to exclusions from gross income?
Answer: They are not considered in the computation of taxable income.
14. Which is correct with respect to deductions from gross income?
Answer: They pertain to expenses of generating items of business or professional gross

income.
15. Which constitutes a taxable item of gross income?
Answer: Gain from sale of government bonds
Multiple choice- Theory 2
1. Which of the following is subject to tax?

2. The proceeds of an insurance policy received by the corporation as beneficiary on the

life insurance of its officer is
Answer: exempt from income tax
3. Mr. Buguey was insured in a life insurance with his daughter, Ybon, as the irrevocable
beneficiary. Ybon was paid the entire proceeds when Mr. Buguey died. The proceeds
constitute
Answer: an exclusion from gross income
4. A pol;icy holder who outlived the policy and received a cash surrender value in excess
of premiums paid is exempt upon
Answer: the amount representing a return of premiums
5. The assignment of an insurance policy at an amount in excess of the premiums paid on

the policy is subject to
Answer: income tax
6. A window who collected the life insurance p[roceeds of her deceased husband is
Answer: exempt to the entire amount of the proceeds
7. The policyholder of a life insurance contract outlived his insurance policy. He was paid
P300,000 upon maturity of the policy. He paid P250,000 total premiums. What is the
inclusion in gross income?
Answer: P50,000
8. Which is not a requisite of exemption of a retirement benefit plan?
Answer: The retiree must be a senior citizen
9. Termination benefits are exempt from income tax provided that the reason for
termination is
Answer: beyond the employee’s control
10. Which is not an item of exclusion from gross income?
Answer: Income of government -owned and controlled corporations
11. Which of the following government-owned and controlled corporations is subject to

income tax?
Answer: National Development Corporation
12. Which is not an acceptable ground for exemption of termination pay?
Answer: Grave misconduct and neglect of duty
13. Which is not an item of gross income for taxation purposes?
Answer: Unrealized income
14. Which is subject to income tax?
Answer: Interest income on long-term bonds with a maturity period exceeding five years
15. Which of the following is not an exclusion from gross income?
Answer: Income of government properties
Multiple choice- Problem: Part 1
1. Mr. Anthony was hurt in a bus accident. He received a total indemnity of P800,000 from
the insurer of the bus. Mr. Anthony paid P250,000 in hospital bills due to the accident.
Compute the total amount to be excluded in gross income.
Answer: P800,000
2. Mr. Philip collected the P1,000,000 insurance proceeds of Mr. Gerald which he bought
from the latter for P400,000. Before the death of Mr. Gerald, Mr. Philip paid total
premiums of P200,000. Determine respectively the exclusion in gross income and the
inclusion in gross income.
Answer: P600,000; P400,000
3. Mr. Zero surrendered his life insurance policy and received a cash surrender value of
P800,000 after contributing P700,000 in annual premiums. Determine respectively the
total exclusion in gross income and the inclusion in gross income.
Answer: P700,000; P100,000
4. Mr. Johnkaiser died. His heirs collected the P2,000,000 proceeds of his life insurance
policy. Mr. Johnkaiser previously paid a total payment of P50,000 in premiums.
Determine respectively the exclusion in gross income and the inclusion in gross income.
Answer: P2,000,000;P0
5. Mr. Franklin collected the P5,000,000 fire insurance proceeds of his building which was
destroyed by fire. The building had a tax basis of P4,500,000 at the occurrence of the
fire. Determine respectively the exclusion in gross income and the inclusion in gross
income.
Answer: P4,500,000;P500,000
6. Mr. Adrian insured his crops for a P1,000,000 insurance cover against calamities. He
paid and expensed P100,000 insurance premiums. How much will be included in gross
income?
Answer: P1,000,000
7. Ms. Ace received a condominium including its accrued income as inheritance from her
deceased grandfather on April 1, 2021. The following data relates to the property:
Fair value of property ` ` ` P125,000,000

Rent income earned before death of decedent 4,000,000
Rent income earned after death of decedent 6,000,000
Interest on deposits of rentals to the banks
(40% accruing after death) 100,000
How much of the above income will be included in the gross income of Mr. Ace
and in the gross income of the decedent?
Answer: P6,000,000;P4,000,000
8. At the age of 54, Mrs. Rio was awarded a retirement gratuity of P2,000,000 for her 30
years of service in the Sirawai Company. The employer’s retirement benefit plan was
with an employee participation feature where Mrs. Rio contributed a total premium of
P800,000 in the fund. Mrs. Rio also received P500,000 benefit from the SSS. compute
the total exclusion in gross income.
Answer: P1,700,000
9. Mrs. Moses retired from the government after 30 years of service at the age of 55. He
received a total retirement pay of P1,800,000 plus P400,000 GSIS benefits. How much
will be excluded in gross income?
Answer: P2,200,000
10. The Professional Regulation Commission collected a total sum of P100,000,000 from
professional license fees. It also collected P5,000,000 from rentals of government
properties. What is the total exclusion in gross income?
Answer: P100,000,000
11. Mr. Alvarez had the following income during the year:
Gross compensation income
Including P25,000 13th month pay P 325,000
Less: Tardiness or absences (10,000)
Net compensation income P 315,000
SSS deductions 12,000
Philhealth deductions 9,000
Pag-ibig deductions 10,000
Union dues 5,000
Withholding tax 40,000
Netpay P 239,000
Answer: P61,000
12. Mr. Yap received the following during the year:

Donated properties P 200,000
Income of donated property before donation 50,000
Income of donated property after donation 30,000
Inherited properties 100,000
How much is taxable to Mr. Yap?
Answer: P30,000
13. Mr. Gallardo has the following data during the year:
Basic salary
Income tax withheld
13th month pay
SSS
Philhealth
Pag-ibig
Union dues
Capital build up contribution in a social fund
Compute the total exemptions and exclusions from gross income:
Answer: P96,000
14. Mang Custodio collected P2,000,000 from the fire insurance company that insured his
building which had a tax basis of P1,800,000 when the fire occurred. During the same
period, he also collected P300,000 crop insurance proceeds pertaining to his crops
destroyed by frost. The total item of gross income is
Answer: P500,000
Multiple choice- Problem: Part 2
1. Mr. Ali discovered teleport technology where people can be transported over thousand
miles in seconds. Due to this, he was awarded by the scientific community the most
coveted Nobel Prize award in 2010. The total award was $150,000,000. What is the
most correct statement regarding the taxation of the award?
Answer: The award is an exclusion in gross income.

2. Wary of his deteriorating health conditions, Mr. Sidney, resigned from his job at age 40
after working as supervisor for 12 years. He was paid of P2,000,000 as separation pay.
Is the P2,000,000 separation pay subject to income tax?
Answer: Yes, because Mr. Sidney resigned.
3. On December 25, 2021, Mr. Kevin Edward was terminated by his employee at age of 60
due to his failing eyesight. He joined the company in February 2013 and has since then
worked as treasurer of the company. Is Mr. Kevin Edward’s retirement pay exempt from
income tax?
Answer: Yes, because his termination was beyond his control.
4. Ms. Paula retired from her job after 25 years of service. She joined the company at the
age of 23 and was promoted from an accounting clerk to VP Finance. She was paid
P2,000,000 total retirement pay from the employer’s contributory pension plan which
was duly registered with the BIR. Out of the total proceeds, MS. Paula contributed
P600,000. This was Ms. Paula’s first retirement from employment. How much is
excluded from the gross income?
Answer: P600,000
5. Assuming Ms. Paula transferred to another company and was retired after 15 years of
service. The second employer paid P1,500,000 out of its non-contribution pension fund
as retirement pay to Ms. Paula. The pension fund was also duty registered with the BIR.
is the second retirement pay exempt from income tax?
Answer: Yes, because this is the first time Ms. Paula qualifies for retirement exemption.
6. Me. Eman won P500,000 in a local chess competition that was sanctioned by a sports
organization that is currently applying for accreditation from the national sports
association. Is the P500,000 prize considered an item of gross income?
Answer: Yes, because the organizer is not an accredited sports of organization.
7. The following relates to the compensation income of Ms. Jilliane in 2021:

Compensation P2,400,000
Contribution to SSS, Philheath, and HDMF:
-Mandatory contributions 125,000
-Voluntary contributions 150,000
Contribution to PERA 120,000
Creditable withholding taxes 190,000
Employer’s share in SSS, Philhealth and HDMF 105,000
What is the total exclusion in gross income?
8. In 2020, MS. Rose invested P8,000,000 in the 10-year bonds of Compostela Mining
Corporation. She disposed of the investment in 2016 for a total consideration of
P8,500,000 inclusive of the P400,000 accrued interest. What are respectively the
inclusion in gross income and the exclusion in gross income?
Answer: P400,000; P100,000
9 Ms. Mary invested in the mutual fund and savings deposit of BCBC Bank. She acquired a
100,000 participation shares when the net asset value per unit of the fund was P98.00. She
pulled out her investment when the net asset value per unit was P101.00. Ms. Mary also had
P100,000 accrued interest in her savings deposit.
Which statement is incorrect?
Answer: The P300,000 is an inclusion in gross income subject to regular tax, but the
P100,000 is an exclusion in gross income subject to final tax.
10. The following income relates to a proprietorship registered as a BMBE:
Gross income from sales P 400,000
Dividend income-domestic 9,000
Interest on deposits 6,800
Compute the total exclusion in gross income subject to regular tax.
Answer: P415,800
11. In the immediately preceding problem, compute the total inclusions in gross
income subject to final tax.
Answer: P15,800
12. Gamitan sa Bayan, a multi-purpose credit cooperative, had the following income in 2015:
Income from related activities P 400,000
Income from unrelated activities:
Dividends from stocks 20,000
Income from time deposits 18,000
Rent income 60,000
Compute the total exclusion from gross income subject to regular tax cooperative.
Answer: P438,000
13. In the immediately preceding problem, compute the total inclusion in gross income subject
to regular tax.
Answer: P60,000
14. A non-stock, non-profit charitable entity received the following during 2021:
Contributions from the public P 1,400,000

Income from the sale of merchandise 500,000
Gain on the sale of properties 300,000
What is the total exclusion from gross income subject to regular tax?
Answer: P1,400,000
15. Mr. Lozada purchased a life annuity for P100,000 which will pay him P10,000 a year. The
life expectancy of Mr. Lozada is 12 years. Which of the following can Mr. Lozada exclude from
his gross income?
Answer: P100,000

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LEGEND: YELLOW: QUESTION NUMBER NA TAMA

MAGENTA : ANSWERS NA TAMA

Response: Both statements are correct

Score: 1 out of 1 Yes

Response: Revenue purpose

Response: Power of taxation

Score: 1 out of 1 Yes

Which of the following requires public improvement?

II. Police Power

III. Eminent domain

Response: Ill only

Score: 1 out of 1 Yes

Response: International comity

Score: 1 out of 1 Yes

Which of the following statements is correct?

II. The provisions of a taxing act are not to be extended by implication.

Response: I and II only

Score: 1 out of 1 Yes

Score: 1 out of 1 Yes

Which of the following is not an element of double taxation?

Response: Same amount

Response: Power of eminent domain

Score: 1 out of 1 Yes

Response: Situs of taxation

Which of the following is not a characteristic of the State’s power to tax?

Response: It is based on the ability to pay.

Score: 1 out of 1 Yes

Score: 1 out of 1 Yes

Statement 1: Taxation and Police Power may be exercised simultaneously

Response: Both statements are correct

Score: 1 out of 1 Yes

Response: Police power

Score: 1 out of 1 Yes

The strongest of all inherent powers of the government is

Response: Power of taxation

Score: 1 out of 1 Yes

Which of the following is NOT a remedy against multiplicity of situs?

Response: None of the choices.

Score: 1 out of 1 Yes

Response: Support of the government

Score: 1 out of 1 Yes

Which of the following statements is true?

Score: 1 out of 1 Yes

Which of the following statements is correct?

I. Taxes are pecuniary in nature

II. It co-exist with the existence of the State

Response: I and II only

Score: 1 out of 1 Yes

Statement 1: The constitution is the source of the State's taxing power.

Response: Only statement 2 is correct

Score: 1 out of 1 Yes

Response: rule of equity in taxation

Score: 1 out of 1 Yes

Response: Benefits received theory

Score: 1 out of 1 Yes

Response: Both a constitution and inherent on the power of taxation

A process where tax is imposed through legislative act.