Income Taxation

Name: _________________________Yr&Sec: ___________Date: ____________Score______

Choose the correct answer.

1. Which of the following statements is not correct?
a. Taxes may be imposed to raise revenues or to provide disincentives to certain
activities within the state.
b. The state can have the power of taxation even if the Constitution does not expressly
give it the power to tax
c. For the exercises of the power of taxation, the state can tax anything at any time.
d. The provisions of taxation in the Philippine Constitution are grants of power and
not limitations on taxing powers.

2. The following are the similarities of the inherent power of taxation, eminent domain
and police power, except one:
a. Are necessary attributes of sovereignty
b. Interfere with private rights and property
c. Affect all persons or the public
d. Are legislative in implementation

3. Which of the following statement is not correct?

a. An inherent limitation of taxation may be disregarded by the application of a
constitutional limitation.
b. The property of an educational institution operated by a religious order is exempt
from property tax, but its income is subject to income tax.
c. The prohibition of delegation by the state of the power of taxation will still allow
the BIR to modify the rules on time of filings of returns and payment of taxes.
d. The power of taxation is shared by legislative and executive departments of
government.

4. Budots enterprises are exempt from certain taxes for a certain period of time, that are
otherwise applicable to other enterprises. Which of the following statements is wrong?
a. This violates the constitutional requirement of rule of uniformity in taxation.
b. This is a sound tax incentive for development of the national economy.
c. This will provide employment opportunities
d. This will not involve unconstitutional delegation of the power of taxation even as
certain government agencies, other than Congress of the Philippines will determine
who qualify as pioneer enterprises.
5. Which statement below expresses the lifeblood theory?
a. The assessed taxes must be enforced by the government.
b. The underlying basis of taxation is government necessity, for without taxation, a
government can neither exist nor endure;
c. Taxation is an arbitrary method of exaction by those who are in the seat of power;
d. The power of taxation is an inherent power of the sovereign to impose burdens
upon subjects and objects within its jurisdiction for the purpose of raising revenues.

6. The following are the general principles of income taxation:

 A citizen of the Philippines residing therein is taxable on all income derived from
sources within and without the Philippines
 A nonresident citizen is taxable on income derived from sources within the
Philippines.
 An individual citizen of the Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable only on income from sources
within the Philippines.
 An alien individual, whether a resident or not of the Philippines, is taxable only
on income derived from sources within the Philippines.
 A domestic corporation is taxable on all income derived from sources within and
outside the Philippines.
 A foreign corporation, whether engaged or not in business in the Philippines, is
taxable only on income derived from sources within Philippines.

a. All the statements are true.

b. All the statements are false.
c. One of the statements is false.
d. Some of the statements are false.

7. A citizen of the Philippines was a non-resident citizen in 2003. On May 15, 2004, he
arrived in the Philippines to reside permanently in the Philippines. His income for the
year was:
A – From January 1, 2004 to May 14, 2004.
B – From May 15, 2004 to December 31, 2004.

Which of the following is wrong?

a. He is considered a resident citizen on his “B” income
b. He is considered a non-resident citizen on his “A” income.
c. He is considered a resident citizen on his “A” and “B” income.
d. He is not taxable on his “A” income.
8. Ching Ah Chung, accomplished singer from Hongkong, is included in one of the local films
produced by Bebecu Productions. Ching Ah Chung stays in the Philippines for five (5)
months and makes the Philippines his temporary home as required in the contract. How
will you classify Ching Ah Chung for Philippine income tax purposes?

a. Resident citizen c. Non-resident alien engaged in trade or business

b. Resident alien d. Non-resident alien not engaged in trade or
business

9. Jay Corporation is registered under the laws of the Virgin Islands. It has extensive
operations in Southeast Asia. In the Philippines, its products are imported and sold at a
mark-up by its exclusive distributor, Roxy’s Trading, Inc. The BIR compiled a record of all
the imports of Roxy from Jay and imposed a tax on Jay’s net income derived from its
exports to Roxy. Is the BIR correct?
a. Yes. Jay is a non-resident foreign corporation engaged in trade or business in the
Philippines.
b. No. The tax should have been computed based on gross revenues and not net
income.
c. No. Jay is a non-resident foreign corporation not engaged in trade or business in
the Philippines.
d. Yes. Jay is doing business in the Philippines through its exclusive distributor Roxy’s
Trading, Inc.

10. Compania Italliani is a corporation in Italy. During the tax year, it distributed dividends
to its stockholders Filipinas, Inc., a Philippine company which has investments in stocks
in Italliani, received said dividends.
a. Dividends are not taxable
b. Dividends are taxable at 30% or at 15% if the corporation is subject to a tax sparing
credit.
c. Dividends are taxable at 30%.
d. Dividends are taxable at 25%.

11. Which of the following is taxable?

a. Prize won in as essay contest. c. The Nobel prize
b. Award for being a model employee. d. Prize won as member mythical team in
the PBA.

12. Which of the following is not treated as a corporation?

a. General partnership in trade.
b. General professional partnership.
 c. Mutual fund company.
d. Regional operating headquarters of multi-national company.

13. Who among the following is a non-resident alien?

a. An alien who comes to the Philippines for a definite purpose which in its nature
may be promptly accomplished.
b. An alien who comes to the Philippines for a definite purpose which in its nature
would require an extended stay.
c. An alien who has acquired residence in the Philippines.
d. An alien who lives in the Philippines with no definite intention as to his stay.

14. It is important to know the source of income for tax purposes because:
a. Some individual and corporate taxpayers are taxed on their worldwide income while
others are taxable only upon 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.

15. In cases of deduction and exemption on income tax return doubts shall be resolved:
a. Strictly against the taxpayer.
b. Strictly against the government.
c. Liberally in favor of the taxpayer.
d. Liberally in favor of the employer.

16. Which statement is WRONG?

a. The power of taxation may be exercised by the government, its political
subdivisions, and public utilities.
b. Generally, there is no limit on the amount of tax that may be imposed;
c. The money contributed as tax becomes part of the public funds
d. The power of tax is subject to certain constitutional limitations.

17. Tax avoidance -

a. is a scheme used outside of those lawful means and, when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities.
b. is a tax saving device within the means sanctioned by law.
c. is employed by a corporation, the organization of which is prompted more on the
mitigation of tax liabilities than for legitimate business purpose.
d. is any form of tax deduction scheme, regardless if the same is legal or not.

18. Double taxation -

 a. is one of direct duplicate taxations wherein two (2) taxes must be imposed on the
same subject matter, by the same taxing authority, within the same jurisdiction,
during the same period, with the same kind or character of tax, even if the
purposes of imposing the same are different.
b. is one of direct duplicate taxations wherein two (2) or more taxes must be imposed
on the same subject matter, by the same taxing authority, during the same period,
with the same kind or character of tax, even if the purposes of imposing the same
are different.
c. is one of direct duplicate taxations wherein two (2) taxes must be imposed on the
same subject matter, within the same jurisdiction, during the same period, with the
same kind or character of tax, even if the purposes of imposing the same are
different.
d. is one of direct duplicate taxations wherein two (2) or more taxes must be imposed
on the same subject matter, by the same taxing authority, within the same
jurisdiction, during the same period, with the same kind or character of tax, even if
the purposes of imposing the same are different.

19. Although the power of taxation is basically legislative in character, it is NOT the function
of Congress to:
a. identify who should collect the tax.
b. fix with certainty the amount of taxes.
c. collect the tax levied under the law.
d. determine who should be subject to the tax.
20. On capital gain tax on real property, which of the following statements is not true?
a. The tax should be paid, if in one lump sum, within 30 days from the date of sale.
b. The term “initial payment” is synonymous to “down payment”.
c. The installment payment of the tax should be made within 30 days from receipt of
each installment payment on the selling price.
d. The tax may be paid in installment if the initial payments do not exceed 25% of the
selling price.

21. Statement 1 – The point on which tax is originally imposed is impact of taxation.
Statement 2 – Eminent domain is inferior to non-impairment clause of the constitution.
Statement 3 – As a rule, taxes are subject to set-off or compensation.
Statement 4 – As a rule, provisions on the validity of tax exemptions are resolved liberally
in favor of the taxpayer
Statement 1 Statement 2 Statement 3 Statement 4
a. True False False True
b. False True True False
c. True True False False
d. False False True True
22. Which of the following is not a constitutional limitation on the Power of Taxation?
a. No person shall be deprived of life, liberty or property without due process of law
b. No person shall be denied the equal protection of the law.
c. No person shall be imprisoned for debt or non-payment of tax.
d. No law granting any tax exemption shall be passed without the concurrence of a
majority of all the members of Congress.

23. I. Tax avoidance is the use by the taxpayer of legal or fraudulent means to avoid or defeat
taxes.
II. Tax evasion is the use by the taxpayer of illegal or fraudulent means to avoid or defeat
taxes.
a. True; True
b. True; False
c. False; True
d. False; False

24. Which of the following statements is not correct?

a. An individual citizen of the Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable on income from sources within and
without the Philippines.
b. A seaman who is a citizen of the Philippines and who receives compensation for
services rendered abroad as a member of the complement of vessel engaged
exclusively in international trade shall be treated as a resident citizen.
c. A non- resident citizen who is not engaged in business in the Philippines is treated as
non-resident alien who is not engaged in business in the Philippines.
d. An alien individual, whether a resident or not of the Philippines, is taxable only on
income derived from sources in the Philippines.

25. A citizen of the Philippines who works and derives income from abroad is a resident if he
stayed outside the Philippines
a. For less than 180 days
b. For more than 180 days
c. For 183 days or more
d. For less 183 days

26. Dividends paid by a domestic corporation maybe taxable but subject to final tax, except;
a. if received by a resident citizen
b. if received by a resident alien
c. if received by a non-resident corporation
d. if received by another domestic corporation
27. Which of the following statements regarding dividends is wrong?
a. Exempt from income tax if received by a domestic corporation from another
domestic corporation
b. Exempt from income tax if received by a resident corporation from a domestic
corporation
c. Taxable subject to year-end tax if received by a resident citizen from a non-resident
corporation
d. Taxable subject to final tax if received by a non-resident citizen from a non-
resident corporation

28. Which of the following is taxable?

a. P100,000 interest on long-term deposit or investment
b. P200,000 gain on sale of 10-year bonds
c. P12,000 prize in a supermarket raffle
d. P1 M winnings from Phil. Lotto

29. Which of the following real properties is classified as a “capital asset”?

a. REAL PROPERTY INITIALLY ACQUIRED BY A TAXPAYER ENGAGED IN REAL ESTATE
BUSINESS BUT SUBSEQUENTLY ABANDONED OR BECOME IDLE
b. REAL PROPERTY TRANSFERRED THROUGH SUCCESSION OR DONATION TO THE
HEIR OR DONEE WHO IS NOT ENGAGED IN THE REAL ESTATE BUSINESS WITH
RESPECT TO THE REAL PROPERTY INHERITED OR DONATED, AND WHO DOES NOT
SUBSEQUENTLY USE SUCH PROPERTY IN TRADE OR BUSINESS
c. REAL PROPERTIES OF THE REAL ESTATE LESSOR, WHETHER LAND AND/OR
IMPROVEMENTS, WHICH ARE FOR LEASE OR BEING OFFERED FOR LEASE, OR
OTHERWISE FOR USE OR BEING USED IN THE TRADE OR BUSINESS Real time
d. REAL PROPERTIES ACQUIRED IN THE COURSE OF TRADE OR BUSINESS BY A TAXPAYER
HABITUALLY ENGAGED IN THE SALE OF REAL ESTATE

30. The power of the Commissioner of Internal Revenue includes the following, except
a. Abate a tax liability of a taxpayer.
b. Compromise the payment of any internal revenue tax.
c. Credit or refund a tax that has been erroneously paid by the taxpayer.
d. Inquire into bank deposits of a taxpayer.

31. Which statements is correct?

a. Incomes from illegal activities are taxable.
b. Tax refunds constitute taxable income to the taxpayer.
 c. Recovery of bad debts previously written off is part of taxable income
d. As a rule, contest awards and prizes are subject to 20% final tax if they amount to
P10,00 or more, otherwise they will be exempt from income tax.

32. The reciprocal duties of support and protection between the people and the
government.
a. Basis of taxation
b. Situs of taxation
c. Scope of taxation
d. Theory of taxation

33. The existence of the government is a necessity and that the state has the right to
compel all individuals and property within its limits to contribute
a. Basis of taxation
b. Situs of taxation
c. Scope of taxation
d. Theory of taxation

34. Subject to inherent and constitutional limitations, the power of taxation is regarded as
supreme, plenary, unlimited and comprehensive.
a. Basis of taxation
b. Situs of taxation
c. Scope of taxation
d. Theory of taxation

35. Which of the following statements is not correct?

a. Tax burdens shall neither be imposed nor presumed to be imposed beyond what the
statute expressly and clearly states because tax statutes should be construed strictly
against the government.
b. Tax exemptions, tax amnesty tax condonations and their equivalent provisions are
not presumed and, when granted are strictly construed against the taxpayer
because such provisions are highly disfavored by the government.
c. Exemptions from taxation are highly disfavored in law and he who claims tax
exemption must be able to justify his claim or right.
d. The House of Representatives has the duty and the exclusive power of
constructing and interpreting tax laws.
36. The distinction of a tax from permit or license fee is that a tax is:
a. Imposed for regulation.
b. One which involves an exercise of police power.
c. One in which there is generally no limit on the amount that maybe imposed.
d. Limited to the cost of regulation.
37. The Department of Finance thru its officers entered into a contract with foreign
investors granting them exemption from all forms of taxes to encourage investments in
the Philippines. The contract is
a. Void, unless the President ratifies
b. Void, because the power to grant tax exemption is vested in Congress.
c. Valid, if the President has authorized the officers to enter into such contract.
d. Valid, because the purpose is to promote public welfare.

38. The three fundamental powers of the state are

I. Methods by which the state interfere with private rights.
II. Exercised primarily by the legislature.

a. True; True
b. True; False
c. False; True
d. False; False

39. The three fundamental powers of the state are

I. The property taken in police power is destroyed while the property taken
under the power of eminent domain and power of taxation are not
destroyed.
II. In power of taxation, the compensation received is the protection afforded
to the
citizens; in police power the compensation received is the altruistic feeling
that somehow you contributed to the promotion of the general welfare; in
power of eminent domain, the compensation received is the just
compensation paid for the property taken.

a. True; True
b. True; False
c. False; True
d. False; False

40. I. Police power is superior to the non-impairment clause of the constitution.

II. Power of taxation is superior to the non-impairment clause of the constitution.

a. True; True
b. True; False
c. False; True
d. False; False
41. I. No person shall be imprisoned for debt or non-payment of tax.
II. Tax laws are civil and penal in nature because there are penalties provided in case of
violation.
a. True; True
b. True; False
c. False; True
d. False; False

42. I. Tax is a demand of sovereignty.

II. Toll is also a demand of sovereignty.
a. True; True
b. True; False
c. False; True
d. False; False

43. I. Collection of tax is a legislative act.

II. Imposition of tax is an administrative act.
a. True; True
b. True; False
c. False; True
d. False; False

44. I. A state has the power to tax even if not granted by the constitution.
II. A state cannot exercise police power if not granted by the constitution.
a. True; True
b. True; False
c. False; True
d. False; False

45. I. In the Philippines, there may be double taxation.

II. Tax avoidance is the use by the taxpayer of legal or fraudulent means to avoid or
defeat
taxes.

a. True; True
b. True; False
c. False; True
d. False; False
46. ROCKY SOLD 1,500 SHARES OF STOCKS OF ACHIEVERS CORPORATION. THE PAR VALUE
PER SHARE WAS P85 BUT WERE ACQUIRED BY HIM AT P90. ON THE DATE OF SALE, THE
SHARES HAD A SELLING PRICE OF P120 PER SHARE. THE CAPITAL GAINS TAX ON THE SALE
IF THE SHARES ARE NOT LISTED AND TRADED IN THE PHILIPPINES STOCK EXCHANGE IS

a. P 7875
b. P 6750
c. P0
d. NO ANSWER

47. ATTY. RAYMOND LANGITNGIT SOLD TO KENBERT ABULUYAN NOT TRADED SHARES OF
STOCKS FOR A CONSIDERATION OF P200,000. AT THE TIME OF SALE, ITS FAIR MARKET
VALUE IS P500,000. ATTY. PADILLA SHOULD PAY-
a. CAPITAL GAINS TAX
b. DONOR’S TAX
c. DOCUMENTARY STAMP TAX
d. ALL OF THE ABOVE

48. IN THE PRECEDING PROBLEM, IF LATER ON KENBERT ABULUYAN SELLS THE SAME SHARES
OF STOCKS TO MARICON LUYA FOR P400,000, THE GAIN SUBJECT TO TAX SHALL BE
DETERMINED BY DEDUCTING THE-
a. P200,000 FROM THE P500,000
b. 200,000 FROM THE 400,000
c. 400,000 FROM THE 500,000
d. 400,000 FROM THE 200,000

49. TTQ CORPORATION, A DOMESTIC CORPORATION HAS THE FOLLOWING RECORDS OF

INCOME AND EXPENSES IN 2019:
 GROSS INCOME, net of 1% WHT – P 1,345,000
 EXPENSES – P 756,000
 RENT INCOME – net of 5% WHT – P 136,800
 DIVIDEND FROM DOMESTIC CORPORATION - P 25,000
 ROYALTY RECEIVED FROM A DOMESTIC CORPORATION – P 80,000
 INTEREST FROM BANK DEPOSIT WITH PNB, GROSS OF TAX – P 15,000
WHAT IS THE TOTAL FINAL TAXES of TTQ CORPORATION?
a. P 16,000
b. P 19,000
c. P 24,000
d. P 21,000
50. Hungry Shark corporation, in its third year of operations, had the following data:
 Gross income, Philippines – P 2,000,000
 Gross income, Foreign – P 1,000,000
 Expenses, Philippines – P 1,000,000
 Expenses, Foreign – P 500, 000

If the corporation is a domestic corporation, the taxable income is:

a. P 2,000,000
b. P 3,000,000
c. P 1,000,000
d. P 1,500,000

51. An individual receives the following incomes. Compute for the total passive income
subject to final tax.
 Yield from deposit substitute P 10,000
 Interest income from bonds of a domestic corporation 23,000
 Property dividend declared by a foreign corporation 40,000
 Stock dividend declared by a domestic corporation 50,000
 Compensation income, net of P10,000 withholding tax 80,000
 Prize on “Search for Mr. Sexy Body” 15,000
 Royalties from books 24,000
 Interest income on personal loans granted to a friend 8,000
 Salaries from a general professional partnership 30,000
 Salaries from a business partnership 20,000

a. P 89,000
b. P 49,000
c. P 39,000
d. Answer not given

52. In the preceding problem, compute for the final tax of individual taxpayer.

a. P 13,800
b. P 7,800
c. P 9,800
d. Answer not given
53. Still related to no.51, what if the taxpayer is a domestic corporation, compute for the final
tax.

a. P 9,800
b. P 13,800
c. P 6,800
d. Answer not given

54. Still related to No. 51, what if the taxpayer is a non-resident foreign corporation,
compute for the final tax.

a. P 10,200
b. P 3,000
c. P 17,100
d. Answer not given

55. Still related to No. 51, what if the taxpayer is a non-resident alien not engaged in trade
or business, compute for the final income.

a. P 12,250
b. P 34,000
c. P 49,000
d. Answer not given

56. Hayden Co, a resident citizen, earned the following interest income gross of applicable
taxes:
Interest income from PNB, a domestic bank P 40,000
Interest income from SVB, a domestic bank 30,000
Interest income from THE, a non-resident foreign bank 20,000
Interest income from XHE, a resident foreign bank 10,000
Compute the amount of final tax.
a. P 8,000
b. P 14,000
c. P 16,000
d. Answer not given
57. If Hayden is an OFW, what compute the amount subject to regular tax.
a. P 30,000
b. P 20,000
c. P 0
d. Answer not given

58. Mr. Koronadal made the trade sales transactions during the year in the common stocks
of Ipus-ti-Baka Corporation, a domestic listed company:
Date Transaction Gain(Loss)
5/8/2015 Sale P120,000
8/5/2015 Sale (20,000)
9/8/2015 Sale 240,000

Compute the final capital gains tax on April 15, 2016.

a. P 3,000
b. P 54,000
c. P0
d. Answer not given

59. Pepay Inc. a domestic corporation was credited P 51,000 interest income on its
depositary account in FDCU Bank. How much is the final tax?
a. P 7,650
b. P 9,000
c. P 0
d. Answer not given

60. Mr. Akin Kanalang published his book entitled “Kung Ako Na Lang Sana” for the
international market. During the first quarter, he earned a gross royalty of P 1,000,000.
How much final tax will be withheld by the foreign publisher?
a. P 200,000
b. P 15,0000
c. P 0
d. Answer not given
61. Pekebakuna Inc. won an P 800,000 prize in national dancing competition. The organizer
of the event declared that the P 800,000 grand prize is “tax free”. How much final tax
must be remitted by the organizer to the BIR?
a. P 200,000
b. P 160,000
c. P 0
d. Answer not given

62. A non-security dealer sold domestic stocks directly to a buyer on October 1, 2019 under
the following agreement details:
 Selling Price – P 500,000
 Cost - P 200,000
 Down Payment – 10% of selling price
 Installments paid in 2019 – P 50,000
Compute the total capital gains tax in 2019.
a. P 45,000
b. P 9,000
c. P 4,500
d. Answer not given

63. Sogie Bill has the following transaction on the sale of shares of Vakler Hamburger Inc., a
domestic corporation:
Transaction Quantity Price
PURCHASE 20000 P 40,000
PURCHASE 30000 63,000
SALE 40000 92,000

Assuming to use FIFO method, how much will be the tax basis of shares sold?
a. P 73,000
b. P 82,000
c. P 42,000
d. Answer not given
 64. In the preceding number, what will be the capital gain tax?
a. P 1,500
b. P 1,350
c. P 1,400
d. P 0

65. In the preceding number, assuming we use moving average method,

what will be the capital gain tax?
a. P 1,500
b. P 1,440
c. P 1,350
d. P 0

-Just because the past didn’t turn out