INCTAX REVIEWER

1. Which is not an object of taxation?

a. Persons
b. Business
c. Transactions
d. Public properties

2. The power to enforce proportional contribution from the people for the support of the government is
a. Taxation
b. Police power
c. Eminent domain
d. Exploitation

3. Which does not properly describe the scope of taxation?

a. Comprehensive
b. Supreme
c. Discretionary
d. Unlimited

4. Which limitation of taxation is the concept of “situs of taxation” based?

a. Territoriality
b. Public purpose
c. International comity
d. Exemption of the government

5. What is the basis of taxation?

a. Constitutionality
b. Public purpose
c. Necessity
d. Reciprocal duties of support and protection

6. Which is not a legislative act?

a. Assessment of the tax
b. Setting the amount of the tax
c. Determination of the subject of the tax
d. Determining the purpose of the tax

7. In exercising taxation, the government need not consider

a. Inherent limitations
b. Just compensation
c. Due process of law
d. Constitutional limitation

8. Which power of the State affects the least number of people?

a. Police power
b. Eminent domain
c. Taxation
d. Taxation and police power

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9. Which of the following powers is inherent or co-existent with the creation of the government?
a. Police power
b. Eminent domain
c. Taxation
d. All of these

10. Which is not a source of tax law?

a. CHED regulations
b. BIR Rulings
c. Judicial decisions
d. Constitution

11. Tax as to purpose is classified as

a. Fiscal or regulatory
b. Direct or indirect tax
c. National or local tax
d. Specific of ad valorem tax

12. Tax as to source is classified as

a. Fiscal or regulatory
b. Direct or indirect tax
c. National or local tax
d. Specific of ad valorem tax

13. A tax that is imposed upon the performance of an act, the enjoyment of a privilege or the engagement in a
profession is known as
a. Income tax
b. License
c. Excise tax
d. Transfer tax

14. Which is a national tax?

a. Real property tax
b. Community tax
c. Income tax
d. Professional tax

15. Which is not an excise tax?

a. Income tax
b. Community tax
c. Estate tax
d. Occupation tax

16. Which is an indirect tax?

a. Value added tax
b. Donor’s tax
c. Income tax
d. Real property tax

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17. Which/who issues revenue regulations?
a. Department of finance
b. Congress
c. Commissioner of internal revenue
d. Commissioner of customs

18. Which is intended to regulate conduct?

a. Penalty
b. License
c. Police power
d. Toll

19. By which principle of a sound tax system is the elasticity in tax rates is justified?
a. Theoretical justice
b. Fiscal adequacy
c. Administrative feasibility
d. All of these

20. Which is not a requisite of gross income?

a. Return on capital
b. Realized benefit
c. Exempted by law
d. Not exempted by law

21. Transfers for insufficient consideration are subject to

a. Income tax
b. Transfer tax
c. Either a or b
d. Both a or b

22. Which is not an item of passive income

a. Royalties
b. Prizes
c. Deposit interest income
d. Professional income

23. These are accounting techniques or conventions used to measure income

a. Accounting methods
b. Accounting periods
c. Accrual basis
d. Cash basis

24. Which of the following properties when sold may be subject to capital gains tax.
a. Domestic stock
b. Foreign stock
c. Patent
d. Office buildings

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25. When the annualized capital gains tax exceeds the transactional capital gains tax, the excess is a
a. Tax credit
b. Tax payable
c. Tax refundable
d. a or b

26. A Filipino citizen is a natural person who is/has

I. Born by birth with father and/or mother as Filipino citizens.
II. Born before January 17, 1973 of Filipino mother who elects Philippine citizenship upon reaching the
age of majority.
III. Acquired Philippine citizenship after birth (naturalized in accordance with Philippine laws.
a. I only
b. I and II only
c. I and III only
d. I, II and III

27. Statement 1: The intention with regard to the length and nature of stay of an alien determines whether he is
a resident or nonresident.
Statement 2: A foreigner who has acquired residency in the Philippines shall only become a nonresident
when he actually departs with the intention of abandoning his residency in the Philippines.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

28. 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 Mongolia. Bu-
dhoy derived income during his stay here in the Philippines. For 2018 taxable year, Bu-dhoy shall be classified
as a
a. Resident Alien
b. Non-resident alien engaged in trade or business in the Philippines
c. Non-resident alien not engaged in trade or business in the Philippines
d. Special alien employee

29. 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
a. Resident citizen
b. Non-resident citizen
c. Special Filipino employee
d. None of the above

30. It is important to know the source of income for income tax purposes (i.e. from within and without the
Philippines) because
a. Some individuals and corporate taxpayers are taxable based on their worldwide income while others
are taxable only on their income from sources within the Philippines.
b. The Philippines imposes income tax only on income from sources within.
c. Some individual taxpayers are citizens while others are aliens.
d. Export sales are not subject to income tax.

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31. Individual taxpayers are subject to the following income tax:
I. Basic tax based on graduated tax table
II. Final withholding tax on passive income derived from sources within the Philippines
III. Capital gains tax
IV. Stock transaction tax of 6/10 of 1% of gross selling price
a. I and II only
b. I and III only
c. I, II and III only
d. All of the above

32. The following are taxable only on income from sources within the Philippines, except
a. Resident citizen
b. Nonresident citizen
c. Resident alien
d. Nonresident alien

33. Tax as to purpose is classified as

a. Fiscal or regulatory
b. Direct or indirect tax
c. National or local tax
d. Specific of ad valorem tax

34. Tax as to source is classified as

a. Fiscal or regulatory
b. Direct or indirect tax
c. National or local tax
d. Specific of ad valorem tax

35. A tax that is imposed upon the performance of an act, the enjoyment of a privilege or the engagement in a
profession is known as
a. Income tax
b. License
c. Excise tax
d. Transfer tax

36. Which is a national tax?

a. Real property tax
b. Community tax
c. Income tax
d. Professional tax

37. Which is not an excise tax?

a. Income tax
b. Community tax
c. Estate tax
d. Occupation tax

38. Which is an indirect tax?

a. Value added tax

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 b. Donor’s tax
c. Income tax
d. Real property tax

39. Which/who issues revenue regulations?

a. Department of finance
b. Congress
c. Commissioner of internal revenue
d. Commissioner of customs

40. Which is intended to regulate conduct?

a. Penalty
b. License
c. Police power
d. Toll

41. By which principle of a sound tax system is the elasticity in tax rates is justified?
a. Theoretical justice
b. Fiscal adequacy
c. Administrative feasibility
d. All of these

42. Which is not a requisite of gross income?

a. Return on capital
b. Realized benefit
c. Exempted by law
d. Not exempted by law

43. Transfers for insufficient consideration are subject to

a. Income tax
b. Transfer tax
c. Either a or b
d. Both a or b

44. Which is not an item of passive income?

a. Royalties
b. Prizes
c. Deposit interest income
d. Professional income

45. These are accounting techniques or conventions used to measure income

a. Accounting methods
b. Accounting periods
c. Accrual basis
d. Cash basis

46. Which of the following properties when sold may be subject to capital gains tax.
a. Domestic stock
b. Foreign stock

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 c. Patent
d. Office buildings

47. When the annualized capital gains tax exceeds the transactional capital gains tax, the excess is a
a. Tax credit
b. Tax payable
c. Tax refundable
d. a or b

Use the following information to answer the next eight questions.

Carlo, married, with two dependent children, received the following income:
Rent, Philippines ₱ 1,000,000
Rent, Hongkong 200,000
Interest, peso deposit, Metrobank 100,000
Interest, USD deposit, BDO ($10,000 * ₱42) 420,000
Interest, deposit in Hongkong (HKD 10,000 * ₱5) 50,000
Prize (cash) won in a local contest 8,000
Prize (TV) won a local lottery 50,000
PCSO Lotto winnings 2,000,000
Prize won in contest in U.S. 300,000
Lotto winning in U.S. 100,000
Dividend, domestic 600,000

Assuming the taxable year is 2018, determine the taxable net income assuming he is a;
48. Resident citizen
a. 80,000
b. 180,000
c. 1,658,000
d. 1,558,000

49. Non-resident citizen

a. 80,000
b. 180,000
c. 908,000
d. 1,008,000

50. Resident Alien

a. 830,000
b. 1,008,000
c. 1,000,000
d. 908,000

51. Non-resident alien engaged in trade or business in the Philippines

a. 180,000
b. 1,000,000
c. 908,000
d. 1,008,000

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 Assuming the taxable year is 2018, determine the total final tax assuming he is a;
52. Resident citizen
a. 490,000
b. 121,500
c. 131,000
d. 553,000

53. Non-resident citizen

a. 490,000
b. 90,000
c. 131,000
d. 553,000

54. Non-resident alien engaged in trade or business in the Philippines

a. 150,000
b. 121,500
c. 90,000
d. 550,000

55. Non-resident alien not engaged in trade or business in the Philippines

a. 550,000
b. 150,000
c. 90,000
d. 687,500

56. Rycardo, a Filipino citizen, who’s earning partly from compensation from his domestic-corporation employer
and partly from his practice of profession (with his total combined income not exceeding ₱3,000,000) has, for
income tax purposes, the following taxation;
a. Only the revised graduated income tax rate table under Sec. 24(A)(2)(a) of the tax code
b. Only the 8% income tax rate on gross sales or receipts and other non-operating income in excess of
₱250,000 in lieu of the graduated income tax rate under Sec. 24(A)(2)(a) and percentage tax under Sec.
116 all under the tax code, as amended.
c. A combination of “a” and “b” should he choose the 8% option on his income.
d. Either “a” or “b” depending on what option would he choose.

57. When can an individual taxpayer signify his intention to elect 8% income tax rate?
a. In his 1st quarter income tax return.
b. On the initial quarter return of the taxable year after the commencement of a new business or practice of
profession.
c. Either “a” or “b”
d. Neither “a” nor “b”

58. This refers to a worker in the private sector who is paid with statutory minimum wage rates, or to an
employee in the public sector with compensation income of not more than the statutory minimum wage rates
in the non- agricultural sector where the worker/employee is assigned.
a. Employee
b. Compensation income earner
c. Mixed income earner
d. Minimum wage earner

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59. Rihanna, an American singer, was engaged to sing for one week at the Western Philippine Plaza after which
she returned to USA. For income tax purposes, she shall be classified as:
a. Resident alien
b. Nonresident alien engaged in trade or business
c. Nonresident alien not engaged in trade or business
d. Nonresident citizen

60. Which of the following shall not be subject to the 20% final tax beginning January 1, 2018?
a. Amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements
b. Winnings other than Philippine Charity Sweepstakes and Lotto winnings, regardless of amount
c. Philippine Charity Sweepstakes and Lotto winnings exceeding 10,000
d. Prizes amounting to ten thousand or less

61. Which of the following income of an individual taxpayer is subject to final tax?
a. ₱10,000 prize in Manila won by a resident citizen
b. Dividend received by a resident citizen from a resident foreign corporation
c. Share in the net income of a general professional partnership received by a resident citizen
d. Dividend received by a non-resident alien from Domestic Corporation

62. Which of the following interest income derived within the Philippines is subject to basic income tax?
a. Interest income from bank deposits
b. Interest income from loans
c. Interest income from deposit substitutes
d. Interest income from trust funds

63. Which of the following interest income by a resident taxpayer is subject to 15%?
a. Interest income trust funds
b. Interest income on dollar deposits
c. Interest income from peso bank deposits
d. Interest income from deposit substitutes

64. Which of the following sale transactions will be subject to capital gains tax?
a. Sale of shares of stock by a dealer in securities
b. Sale of shares of stock during an Initial Public Offering
c. Sale of shares of stock not through the local stock exchange by a person who is not a dealer in securities
d. Sale of shares of stock through the local stock exchange by a person who is not a dealer in securities.

65. Which of the following transactions is subject to 6% capital gains tax?

a. Sale of condominium units by a real state dealer
b. Sale of real property utilized for office space
c. Sale of apartment houses
d. Sale of vacant lot by an employee

66. Premium payment on health and/or hospitalization insurance may be deducted from
I. Gross compensation income only
II. Gross compensation income and business/professional income
a. I only

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 b. II only
c. Both I and II
d. Neither I nor II

67. Fringe benefit tax is computed based on

a. Grossed-up monetary value
b. Monetary value
c. Gross compensation
d. Net compensation
68. Which of the following is subject to income tax?
a. SSS and GSIS
b. Philippine Health Insurance Corporation (PHIC)
c. Local Water Districts
d. Philippine Amusement and Gaming Corporation (PAGCOR)

69. Which one of the following is exempt from income tax?

a. Mutual savings bank
b. Private cemeteries
c. Proprietary educational institutions
d. Government educational institutions

70. Which of the following is taxable based on income from all sources, within and without?
a. Domestic Corporations
b. Resident Foreign Corporations
c. Non-resident Foreign corporations
d. All of the choices

71. The term applies to a foreign corporation engaged in trade or business in the Philippines.
a. Resident foreign corporation
b. Nonresident foreign corporation
c. Multinational corporation
d. Petroleum contractor

72. Which of the following does not have the benefit of claiming deductions in computing income tax?
a. Domestic corporations
b. Resident foreign corporations
c. Nonresident foreign corporations
d. All of the above

73. As a rule, there is no income tax if there is no income. Which of the following is the exception?
a. Capital gains tax on sale of land and/or building
b. Capital gains tax on sale of share of stock outside the local stock exchange
c. Tax on passive income
d. Regular corporate income tax

74. In 2018, East Star Inc. sold shares of stock for ₱250,000. The shares, acquired in 2015 at a cost of ₱100,000,
were held as investment and were sold directly to the buyer. How much was the capital gains tax due?
a. ₱10,000
b. ₱15,000

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 c. ₱22,500
d. ₱45,000

75. A domestic corporation had the following data on income and expenses during the year 2018:
Gross income, Philippines ₱10,000,000
Business expenses, Philippines 2,000,000
Gross income, China 5,000,000
Business expenses, China 1,500,000
Interest income, Metrobank Philippines 300,000
Interest income, Shanghai Banking Corporation, China 100,000
Rent income, net of 5% withholding tax 190,000

How much was taxable net income?

a. ₱11,800,000
b. ₱11,790,000
c. ₱12,090,000
d. ₱12,100,000

76. Refer to the immediately preceding item, how much is the income tax payable?
a. ₱3,540,000
b. ₱3,530,000
c. ₱3,440,000
d. ₱2,480,000

77. The minimum corporate income tax (MCIT) does not apply to a corporation, if
a. Imposition was suspended by the secretary of finance due to a corporation’s heavy losses arising from
prolonged labor dispute
b. Corporation is in its initial year of operation
c. Corporation is exempt from income tax by virtue of tax holidays granted to it by the board of investment
d. All of the above

78. One of the following is not accepted basic relief from the MCIT:
a. Prolonged labor dispute
b. Force majeure problems
c. Legitimate business reverses
d. Law suits filed by the company

79. If the taxpayer is a seller of services, which of the following shall not form part of its cost of services?
a. Salaries and supplies
b. Employee benefits
c. Depreciation and rental expenses
d. Interest expense

80. Gross income taxation results to

a. Less discretion on the part of the tax examiners
b. Lower income tax revenues
c. More graft and corruption

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 d. More complicated tax computations

81. The Royale Air Corporation is an international carrier doing business in the Philippines. Its taxable base for
income tax purposes is
a. Gross Philippine Billings
b. Gross Philippine Billings minus deductible expenses
c. Regular rate of 30% of its net taxable income
d. Allocation of income from sources within and without the Philippines, as well as expenses

82. A cinematographic film owner, lessor or distributor shall pay a tax, based on its gross income from all sources
within the Philippines, of
a. 25%
b. 7.5%
c. 4.5%
d. 2.5%

83. Which of the following is a deductible expense for income tax purposes?
a. Salaries of domestic servants
b. Ordinary repair of the personal car
c. Provision for doubtful accounts
d. None of the above

84. This is not a requisite for business expense to be deductible.

a. It must be reasonable
b. It must be paid during the taxable year
c. The withholding tax otherwise required have been deducted and remitted to the BIR
d. It must be ordinary and necessary

85. One of the requirements in order for expenses to be claimed as deduction for income tax purposes is that, it
should be subject to withholding tax if applicable. What is the withholding tax rate applicable to rental
payments?
a. 1%
b. 5%
c. 2%
d. 10%

86. Statement 1: Governmental units performing purely governmental functions are exempt from the income tax
Statement 2: Government agencies and GOCCs performing proprietary functions are taxable unless exempt
by the law
a. Both statements are true
b. Both statements are false
c. Only the Statement 1 is true
d. Only the Statement 2 is true

87. Which of the following statements is true?

a. Without an express grant from Constitution, the National Government will not have the power to tax.
b. Without an express grant from Constitution, local government units will not have the power to tax.
c. National taxes and custom duties are administered by the BIR while local taxes are administered by
LGUs.

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 d. None of the choices

88. Fixing the rate of tax is an aspect of:

a. Tax administration
b. Tax legislation
c. Tax collection
d. None of the choices

89. Which of the following is not a Constitutional limitation of taxation?

a. Due process of the law
b. International comity
c. Non-impairment of contracts
d. Uniformity and equity in taxation

90. Which of the following is not considered in situs of income taxation?

a. Citizenship
b. Residence
c. Amount of income
d. Source of income

91. Which of the following is not an exception to the general rule of non-delegability of taxing power?
a. The President’s authority to fix tariff rates, import and export quotas, tonnage and wharfage dues
b. Local government unit’s to create its own source of revenues by levying taxes
c. Revenue bills originating from the Senate
d. Delegation to administrative agencies for implementation of tax law

92. Which of the following is not a requisite for an income to be taxable?

a. There must be a gain or profit whether in cash or its equivalent
b. The gain must be realized or received
c. The gain must be duly reported in the tax returns as prescribed by rules and regulations
d. The gain must not be excluded by law or international treaty from taxation

93. Which of the following statements is true?

a. A contractor who undertakes a job contract for the government is justified to claim that it should be
exempt from the payment of tax, since it would shift such tax to the government
b. If the local government enacts an ordinance taxing sugar refineries in the municipality where there is only
one company engaged in such business, the ordinance is deemed discriminatory
c. A church earning rentals from its vacant adjacent lot from commercial leases shall be exempt from
income tax
d. None of the choices

94. One of the characteristics of internal revenue taxes is that they are:
a. Criminal in nature
b. Peal in nature
c. Political in nature
d. Generally prospective in application

95. In case of conflict between tax laws and generally accepted accounting principles (GAAP)

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 a. Both tax laws and GAAP shall be enforced
b. GAAP shall prevail over tax laws
c. Tax laws shall prevail over GAAP
d. The issue shall be resolved by the court

96. The following are basic principles of a sound tax system, except:
a. It should be capable of being effectively enforced.
b. It must be progressive.
c. Sources of revenue must be sufficient to meet government expenditures and other public needs.
d. It should be exercised to promote public welfare.

97. The City Council passed an ordinance imposing an occupation tax on air conditioning technician. Conde is the
only person with such in the city. He challenged the validity of the ordinance as being discriminatory since he
is the only one adversely affected.
a. The contention of Conde is tenable.
b. The ordinance is unconstitutional because Conde is denied of his right to equal protection of the law.
c. The contention of Conde is not justified because the rule on uniformity is not violated considering
that the ordinance would also be imposed on all air conditioning technicians who may come within
the jurisdiction of the city.
d. The issue on validity or invalidity of the ordinance should be set aside.

98. Those who have more income should pay more income tax, while minimum wage earners should be exempt.
This is
a. Uniformity of taxation
b. Equality of taxation
c. Due process of law
d. Non-delegation of legislative power

99. A tax law is not violative of the due process clause when it is
a. Arbitrary
b. Discriminatory
c. Excessive
d. Proportionate

100. Statement 1: The constitutional exemption on income taxes, property taxes, and customs duties is
allowed on non-stock, non-profit educational institutions only.
Statement 2: A building being leased by its owner to a private educational institution for used as classrooms
is not exempt from property tax.
Statement 3: Income of a non-stock, non-profit educational institution run by the Archdiocese is exempt from
tax provided that the income actually, directly and exclusively used for educational purposes.

Which of the statements are correct?

a. Statement 1 only
b. Statements 1 & 2 only
c. Statements 1 & 3 only
d. All of the statements are correct

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