Chapter 1
Exercise Drills
In the space provided for, indicate whether the statement relates to a Constitutional Limitation [C] or
inherent limitation [I]. If it is not a limitation to the taxing power, indicate [N].
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Non-assignment of taxes.
Territoriality of Taxation
Taxes must be for public use
Exemption of the property of religious institutions from
income tax.
Exemption of the revenues and assets of non-profit, nonstock educational institutions
Non-delegation of the taxing power.
Non-appropriation for religious purpose.
The requirement of absolute majority in the passage of a
tax exemption law.
Non-imprisonment for non-payment of tax or debt.
Taxpayers under the same circumstance should be treated
equal both in terms of privileges and obligations.
Exemptions from property taxes of religious, educational,
and charitable entities.
Government income and properties are not objects of
taxation.
Each local government shall have the power to create its
own sources of revenue.
Imprescriptibility in taxation.
Non-impairment of obligation and contracts.
Guarantee of proportional system of taxation.
International Courtesy
Non-impairment of the jurisdiction of the Supreme Court
to review tax cases.
The government is not subject to estoppel
Imprisonment for non-payment of poll tax.
C and I (Non-delegation)
I
I
N (Real property tax, not
income tax)
C
C and I
C
C
N
C
C
I
C
N
C
C
I
C
N
N
True or False - 1
Police Power
1. Eminent domain involves confiscation of prohibited commodities to protect the
well-being of the people.
TRUE
TRUE
TRUE
The receipt of
benefit is
2.
3.
4.
5.
Horizontal equity requires consideration of the circumstance of the taxpayer.
Taxes are the lifeblood of the government.
Taxation is a mode of apportionment of government costs to the people.
There should be direct receipt of benefit one could be compelled to pay taxes.
conclusively
presumed.
Taxation power
is inherent to
the state.
TRUE
Not require
Constitutional
mandate.
TRUE
TRUE
6. The exercise of taxation power requires constitutional grant.
7. taxation is inherent in sovereignty.
8. Police power is the most superior superior power of the government. Its
exercise needs to be sanctioned by the constitution.
9. All inherent powers presuppose an equivalent form of compensation.
10. The reciprocal duty of support between the government and the people
underscores the basis of taxation
True or False - 2
Property
Tax Only
1. The constitutional exemption of religious charitable and nonprofit cemeteries
churches and mosques refers to income tax and real property tax
Same
TRUE
TRUE
2.
3.
4.
5.
TRUE
Applies
to debt
not tax
Sanctity
of
contract
Majority
False
Taxpayers under the same circumstance should be taxed differently
Taxation is subject to inherent and constitutional limitations
International committee connotes courtesy between nations
Collection of taxes in the absence of a law is violative of the constitutional
requirement for due process
6. The scope of taxation is regarded as comprehensive plenary unlimited and
supreme
7. No one shall be imprisoned for nonpayment of tax
8. The lifeblood doctrine requires the government to override its obligations and
contracts when necessary
9. 2/3 of all members of Congress is required to pass a tax exemption law
10. The government should tax itself
Multiple Choice – Theory: Part 1
1. The point at which tax is leveled is also called
a. impact of taxation
b. Situs of taxation
c. Incidence of taxation
d. Assessment
2. Which of the following and appropriately describes the nature of taxation?
a. inherent in sovereignty
c. subject to inherent and constitutional
b. essentially a legislative function
limitation
d. generally for public purpose
3. which is correct?
a. tax condonation is a general
pardon granted by the
government.
b. the BIR has five deputy
commissioners.
c. the government can still collect tax in
disregard of a constitutional limitation
because taxes are the lifeblood of the
government.
d. the president of the Philippines can
change tariff or imposts without
necessity of calling Congress to pass a
law for that purpose.
4. A. the power to tax includes the power to exempt.
B. the power to license includes the power to tax.
which is true?
a. a only
b. B only
c. A&B
d. neither a nor B
5. international double taxation can be mitigated by any of the following except
a. providing allowance for tax
c. provision of tax exemptions
credit
d. entering into treaties to form
b. provision of reciprocity
regional trade blockage against
provisions in tax laws
the rest of the world.
6. which is not an object of taxation?
a. Persons
b. Business
c. Transactions
d. public properties
7. that courts cannot issue injunction against the government's effort to collect taxes is justified by
a. The lifeblood doctrine
c. The ability to pay theory
b. Imprescriptibility of taxes
d. The doctrine of estoppel.
8. The power to enforce proportional contribution from the people for the support of the
government is
a. taxation
c. eminent domain
b. police power
d. exploitation
9. this theory underscores that taxes are indispensable be to the existence of the state.
a. doctrine of equitable
c. the benefit received theory
recoupment
d. the Holmes doctrine
b. the lifeblood doctrine
10. A. taxation is the rule, exception is the exemptions.
B. vague taxation laws are interpreted liberally in favor of the government.
which is false?
a. A only
b. B only
11.
12.
13.
14.
c. both A and B
select the incorrect statement.
a. The power to tax includes the
power to exempt.
b. exemption is construed against
the taxpayer and in favor of the
government.
Which is not a public purpose?
a. public education
b. National Defense
which does not properly describe the scope of taxation?
a. Comprehensive
b. Supreme
all of these are secondary purposes of taxation except
a. to reduce social inequality
b. to protect local industries
15. what is the theory of taxation?
a. reciprocal duties of support and
protection
b. necessity
16. A. taxes should not operate retrospectively
d. neither a nor B
c. tax statutes are construed
against the government in case
of doubt.
d. taxes should be collected only
for public improvements.
c. Transportation
d. none of these
c. Discretionary
d. Unlimited
c. To raise revenue for the
support of the government
d. to encourage growth of local
industries
c. constitutionality
d. public purpose
B. Tax is generally for public purpose.
which is true?
17.
18.
19.
20.
a. a only
c. A and B
b. B only
d. neither a nor B
which provision of the constitution is double taxation believed to violate?
a. equal protection guarantee
c. uniformity rule
b. progressive scheme of taxation
d. either A or C
which limitation of taxation is the concept of “situs of taxation” based?
a. Territoriality
c. international comity
b. public purpose
d. exemption of the government
Which tax exemption is irrevocable?
a. tax exemption based on
c. tax exemption based on law
contract
d. both A and B
b. tax exemption based on the
constitution
which statement is incorrect?
a. every person must contribute
b. The existence of a government
his share in government costs
is expected to improve the lives
of the people.
c. The government provides
protection and other benefits
while the people provide
support
d. taxes should be collected
without unnecessary delay but
its collection should not be
tainted with arbitrariness.
21. which is the most incorrect statement regarding taxes?
a. Taxes are necessary for the
c. There should be personal
continued existence of the
benefit enjoyed from the
government.
government before one is
b. the obligation to pay tax does
required to pay tax
not rest upon the privilege
d. taxes should be collected
enjoyed by or the protection
without unnecessary delay but
afforded to the citizen of the
its collection should not be
government but upon the
tainted with arbitrariness
necessity of money for the
support of the state
22. statement 1: in the selection of the objects of taxation the courts have no power to inquire into
the wisdom of objectivity motive expediency or necessity of a tax law
statement 2: an imposition can be both a tax and a regulation. access may be levied to provide
means for rehabilitation and stabilization of threatened industry.
which is correct?
a. statement one only
c. both statements
b. statement two only
d. neither statement
23. Which of the following acts in taxation is administrative by nature?
C. Levy or distraint of taxpayers property for tax delinquency
24. This refers to the privilege or immunity from a tax burden which others are subject to:
C. Tax Holiday
25. statement 1: the benefit 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.
B. Only Statement 2
26. Which is not a legislative act?
C. Assessment of the tax
27. statement 1: taxi Sean is the rule, exemption is the exception
statement 2: taxation may be used to implement the police power of the state.
C. I and II are true
28. which of the following powers of the commissioner of Internal Revenue cannot be delegated?
D. The power to reverse a ruling of time Bureau of Internal
29. when exemption from a tax imposition is silent or not clearly stated which is true?
C. Taxation applies since exemptions are construed against the taxpayer
30. what is the basis of taxation?
A. Reciprocal duties of support and protection
31. when the provisions of tax laws are silent as to the taxability of an item, which is true?
B. exemption applies since vague tax laws are construed against the government
32. which of the following statements does not support the principle that tax is not subject to
compensation or set off?
D. Both tax and debt partake the nature of an obligation
33. Which is not legally tenable in refusing to pay tax?
A. Absence of benefit from the government
34. What is the primary purpose of taxation?
B. To raise revenue
Multiple Choice-Theory: Part 2
1. the constitutional exemption of religious or charitable institutions refers only to:
A. Real Property Tax
2. The agreement among nations to lessen tax burden of the respective subjects is called
B. International Comity
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?
B. Yes, with respect to properties not actually devoted to educational purposes.
4. Which is not a constitutional limitation?
1. 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?
C. Tax laws shall be uniform and equitable
6. the following are inherent limitation to the power of taxation except one. choose the exception.
D. Non appropriation for religious purpose
7. that all taxable articles or properties of the same class shall be taxed at the same rate
underscores
C. Uniformity in taxation
8. 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 contracts
E. nondelegation of the power to tax
which of these are classified as both constitutional and inherent limitations?
C. C and E
9. the provisions in the constitution regarding taxation are
B. Limitations to the power to tax
10. the constitutional exemption of nonstock nonprofit educational institutions refers to
C. property tax and income tax
11. which of the following is violative of the principle of nondelegation?
D. allowing the secretary of finance and the BIR to issue regulation or rulings which go beyond
the scope of a tax law
12. Which of the following violates constitutional provisions?
C. Imposition of license for the sale of religious literature
13. in order to face 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?
C. No because the power of taxation is non delegated.
14. concerned 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.
D. No tax bills shall originate from the House of Representatives
15. Ram is the only practicing lung transplant specialist in Baguio city. the city government of Baguio
passed a local ordinance objecting the practice of long transplanted 2% tax based on receipts.
ram injected gleaming that other transplant specialists and other regions of the country are not
subjected to tax.
is Rams contention valid?
C. no because the ordinance would cover all transplant specialists who had practiced 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 rise farmers who produce the staple food of the Philippines. is the new law valid?
A. yes since there is a valid classification of the taxpayers who would be exempted from tax
17. Congress passed a law subjecting government owned and controlled corporations to income
tax. is the law valid?
B. yes because GOCC’s are not government agencies and are essentially commercial in nature
18. which of the following is not a constitutional limitation of the power to tax?
D. Nondelegation of police power
19. 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?
C. no as this leads to encroachment of foreign sovereignty. (Violation of Territoriality)
20. which of the following normally pays real property tax?
D. AM property holdings a registered property development
21. Tax exemption bills are approved by
A. majority of all members of Congress
22. the Japanese government invested P100 million in a Philippine local bank and earned P10
million interest, which is correct?
B. the income is exempt due to international comity
Multiple Choice – Theory: Part 3
1. 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:
B. Uniformity
2. which is not a legislative act?
A. assessment of the tax
3. The inherent powers of the state are similar in the following respect, except:
C. All are not exercised by private entities
4. which is mandatorily observed in implementing police power?
A. public interest
5. which is considered in the exercise of eminent domain?
C. both A and B
6. the general power to enact laws to protect the well being of the people is called:
A. police power
7. which of the following entities will least likely exercise the power of eminent domain?
D. transportation operator
8. In exercising taxation, the government need not consider
B. just compensation
9. licensing of business or profession is an exercise of
A. police power
10. select the correct statement.
a. eminent domain refers to the power to take public property for private use after paying
just compensation.
b. police power being the most superior power of the state is not subject to any limitation.
c. taxation power shall be exercised by congress even without an express constitutional
grant.
d. taxes may be collected even in the absence of a law since obligation arising from law is
always presumed.
11. which is principally limited by the requirement of due process?
2. Police Power
12. statement 1: Congress can exercise the power of taxation even without constitutional
delegation of the power to tax.
statement 2: only the legislature can exercise the power of taxation, eminent domain, and
police power.
which statement is correct?
C. statements One and two
13. which power of the state affects the least number of people?
B. Eminent domain
14. select the correct statement.
a. the benefit received theory explains that the government is obliged to serve the people
since it is benefiting from the tax collection from its subjects.
b. the lifeblood theory underscores that taxation is the most superior power of the state.
c. the police power of the state is superior to the non impairment clause of the
constitution.
d. the power of taxation is superior to the non impairment clause of the constitution.
15. which of the following is not exercised by the government?
D. Exploitation
16. select the incorrect statement.
a. since there is compensation, eminent domain raises money for the government.
b. once the government is established, taxation is exercisable.
c. the most important of the power is taxation
d. police power is more superior than the non impairment clause of the constitution.
17. the following statements reflect the differences among the inherent powers except:
B. Eminent domain and police power do not require constitutional grant, but taxation being a
formidable power, requires constitutional grants
18. Statement 1: the taxation power can be used to destroy if the law is valid.
statement 2: a tax law which destroys things, business, our enterprise for the purpose of raising
revenue is an invalid tax law.
which is incorrect?
D. Neither statement
19. select the correct statement.
a. the provisions on taxation in the Philippine constitution are grants of the power to tax.
b. the power to tax includes the power to destroy.
c. when taxation is used as a tool for general and economic welfare this is called fiscal
purpose
d. the sumptuary purpose of taxation is to raise funds for the government.
20. which of the following powers is inherent or coexistent with the creation of the government?
D. All of these
21. which of the following is not an inherent limitation of the power to tax.
C. tax laws shall be uniform and equitable
22. Select the incorrect statement.
a. the power to tax includes the power to exempt.
b. exemption is construed against the taxpayer in favor of the government.
c. tax statutes are construed against the government in case of doubt.
d. taxes should be collected only for public improvement.
23. which of the following is not a constitutional limitation of the power to tax?
D. Nondelegation of the taxing power
24. which of the powers of the state is the most superior? which is regarded as the most important?
B. police power; taxation
Chapter 2
Exercise Drill No. 1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Percentage Tax
Donor’s Tax
Regressive tax
indirect tax
Ad valorem tax
Fiscal/general/revenue tax
national tax
Excise tax or sin tax
Estate Tax
community tax or residency tax
Proportional tax
specific Tax
Direct tax
Regulatory tax
excise tax or privilege tax
Exercise Drill No. 2
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
revenue
Tax
special assessment or special levy
customs duties
License
Tax
Debt
Toll
Penalty
Debt
Exercise Drill No. 3
1.
2.
3.
4.
5.
6.
1.
2.
3.
As to payment
Value Added Tax
Excise Tax
Income Tax
Withholding Tax
Percentage tax
Documentary stamp tax
Criteria
P200,000/quarter
P1,000,000/year
P1,000,000/year
P1,000,000/year
P200,000/quarter
P1,000,000/year
As to conditions and operations
Gross receipts or sales
P1,000,000/year
Net Worth
P300,000,000 at year end
Gross Purchases
P800,000,000 in the preceding year
Multiple Choice -Theory: Part 1
1. When tax is collected upon someone who is effectively reimbursed by another, the tax is
regarded as
B. Indirect
2. all are ad valorem taxes, except one. select the exception.
A. poll tax
3. taxation power can be used to destroy.
C. as an implement of police power
4. which is not a characteristic of tax?
C. it is subject to assignment
5. Which of the following is a local tax?
B. real property tax
6. which is not a source of tax law?
A. Ched regulation
7. Tax as to purpose is classified as:
A. fiscal or regulatory
8. Tax as to incidents is classified as:
B. Direct or indirect tax
9. Tax as to source is classified as:
C. national or local tax
10. which is not a nature of tax?
D. generally payable in kind
11. Taxes that cannot be shifted by the statutory taxpayer are referred to us:
A. Direct taxes
12. which is a local tax?
B. Professional Tax
13. as to subject matter, taxes do not include
B. regulatory tax
14. a fact that is imposed upon the performance of an act, the enjoyment of a privilege or the
engagement in a profession is known as
C. excise tax
15. which is a national tax?
C. income tax
16. which of the following distinguishes license from tax?
D. pre-activity in application
17. which is correct?
a. taxes may be subject to compensation.
b. Toll, being a demand of ownership, is exercised only by private entities.
c. Dacion en pago and cession in payment are applicable to taxation.
d. special assessment applies only when public improvement is made.
18. Tax as to determination of amount is classified as:
D. Specific or ad valorem tax
19. Tax classifications as to object do not include:
C. Regulatory Tax
20. A. Tax must not violate constitutional and inherent limitations
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 playable in money.
which of the above is/are not an essential characteristic of a valid tax?
D. None of the above
21. 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 P100,000. which is incorrect?
D. This is a local tax
22. which is not an excise tax?
B. Community Tax
23. Which is an indirect tax?
A. Value Added Tax
24. which is not an ad valorem tax?
B. Excise tax on cigar
25. a tax that is imposed based on per unit basis is known as:
B. Specific Tax
26. Tax as to rates excludes
A. Specific Tax
27. Mr. A has a Tax obligation to the government amounting to 80,000 pesos. since he is leaving the
country he entered into a contract with Mr B wherein Mr B shall pay the 80,000 tax in his behalf.
on due date, Mr B failed to pay the tax. the BIR sent a letter of demand the Mr awich he refused
to pay.
Which of the following statements is correct?
D. The government should force Mr A to pay the because taxes are non assignable
28. Philippine tax laws are by nature.
B. Civil
29. motor vehicles tax is an example of
B. Privilege Tax
30. which of the following statements is correct?
a. the Marshall doctrine is not used in practice since it is unconstitutional
b. an ex post facto tax law violates the constitution
c. a tax bill personally drafted by the presidential become a law after approval by
Congress.
d. it is in the public interest that errors of public officials should bind the government to
limit government abuse.
31. tax rulings are issued by the
D. Commissioner of Internal Revenue
32. which of the following is limited in application?
D. BIR ruling
33. which is not a source of tax law?
C. opinions of tax experts
34. which issues revenue regulations?
A. Department of Finance
35. which is not an element of tax?
C. it must be progressive by nature
36. Tax as to purpose does not include:
D. Poll
37. when the impact and incidence of taxation are merged into the statutory tax payer, the tax is
known as
B. Direct Tax
38. Tax as to object includes
D. All of these
39. which is not an indirect tax?
D. Personal Tax
40. A tax that cannot be avoided is:
A. Direct Tax
41. statement 1: Taxes are voluntary contributions to the government
statement 2: Taxes are mandatory contributions to the government.
which is correct?
B. Only statement 2 is correct
42. which is an indirect tax?
A. other percentage tax
43. Income tax is not a/an
D. Excise tax
44. a transfer tax is not a/an
A. Regressive Tax
45. which of the following levy is fiscal or revenue by nature
A. Tax law geared to phase out a deficit balance of the government
Multiple Choice – Theory: Part 2
1. Which is not an excise tax?
C. Personal tax
2. which of the following do not relate to tax?
C. Intended to cover costs of regulations
3. A levy from a property which derives some special benefit from public improvement is
A. special assignment
4. A. government revenue may come from tax, license, toll and penalties
B. penalty may arise either from law or contract
which is false?
D. neither a nor B
5. what distinguishes tax from license?
D. Tax is a post activity impositions
6. which of the following distinguishes license from tax?
C. noncompliance to it will render business illegal
7. the amount imposed is based on the value of the property
C. Toll
8. which is intended to regulate conduct?
A. penalty
9. Toll exhibits all of the following characteristics except one. which is the exception?
D. Levied for the support of the government
10. which of the following is incorrect?
a. the collected tax is referred to as revenue
b. Tax is the sole source of government revenue
c. license is imposed before commencement of a business or profession
d. Debt can be subject to compensation or set off
11. Debt as compared to tax
C. it will not cause imprisonment when not paid
12. select the incorrect statement
a. Tax may be unlimited in amount
b. nonpayment of license renders the business illegal
c. special assessment is not a liability of the person owning the property
d. special assessment can be imposed on building another real right attaching or
pertaining to land
13. Tax as to subject matter does not include
D. Regulatory tax
14. what distinguishes debt from tax?
A. arises from contract
Multiple Choice – Theory: Part 3
1. The commissioner of Internal Revenue is not authorized to
B. promulgate revenue regulations
2. which is not a power of the commissioner of Internal Revenue?
C. to prescribed assessed value of real properties
3. the principles of a sound tax system exclude :
A. economic efficiency
4. which of the following best describes the effect of tax condonation?
A. it only covers the unpaid balance of a tax liability
5. which is not an application of a principle of a sound tax system?
D. none of these
6. by which principle of a sound tax system is the electricity in tax rates is justified
B. fiscal adequacy
7. violation of this principle will make a tax law invalid
B. theoretical justice
8. which of the following is not an application of the lifeblood doctrine?
D. none of these
9. which one of the following is the BIR not empowered to do?
C. assess and collect local taxes
10. which principle demands that tax should be just, reasonable, and fair?
A. theoretical justice
11. which among the following powers of the commissioner of Internal Revenue can be delegated?
A. the power to conduct inventory surveillance
12. the commissioner of Internal Revenue is not empowered to
D. grant amnesty for erring taxpayers
13. which is true with tax amnesty?
B. it covers both criminal and civil liability of the taxpayer
14. which of the following may tax exemption come from?
D. all of these
15. exemption based upon which of the following is repealable?
C. law
16. Select the incorrect statement regarding tax amnesty and condonation
D. 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?
C. interpretation of the provisions of the NIRC
18. the commissioner of Internal Revenue can delegate the power to
A. refund or credit Internal Revenue tax
19. the BIR is under the supervision of
C. the Department of Finance
20. who is not a large tax payer?
D. none of these
21. in terms of financial measures, which of the following threshold for qualification as large
taxpayers is incorrect?
D. gross sales exceeding P1.5 billion
22. as to tax payment measures which of the following threshold for the qualification as a large
taxpayer is incorrect?
B. annual value added tax payments of P1M
Chapter 3
Exercise Drill No. 1
Exercise Drill No. 2
Exercise Drill No. 3
Exercise Drill No. 4
Exercise Drill No. 5
Exercise Drill No. 6
Multiple Choice – Theory: Part 1
1. Which is not a requisite of gross income?
C. Exempted by law
2. Which is taxable item of income?
D. interest on moral damages
3. which is not subject to income tax?
A. Donation
4. the total consideration received from the sale of service constitute
A. return on capital
5. when paid for, which of the following items may involve a return on capital?
A. house and Lot
6. the total consideration received from the sale of goods at a gain represents
D. both A and B
7. the total consideration received from the sale of goods at a loss represents
B. return of capital
8. why is income subject to taxation?
B. income is the best measure of taxpayers ability to pay tax
9. Which is not an item of gross income because of the absence of an undertaking from the
taxpayer?
B. forgiveness of indebtedness as an act of gratuity
10. which is subject to income tax?
B. excess of proceeds over the premium paid received by the taxpayer
11. which of the following is exempted from income taxation because of the absence of ability to
pay?
B. unrealized income from investments
12. income tax may be imposed for the following purposes, except
B. to limit corruption
13. which of the following constitutes taxable income?
C. proceeds of crop insurance
14. which of the following is not a constructive receipt of income?
D. cash salary of an employee
15. transfers for insufficient consideration are subject to
D. both a or b
16. which is specifically exempted from income taxation by virtue of legal exemption?
A. minimum wage
Multiple Choice – Theory: Part 2
1. a resident alien naturalized in accordance with Philippine laws is a
A. resident citizen
2. who is not a resident alien?
B. an alien who married and stayed in the Philippines for one year
3. Which taxpayer is not a natural person?
B. Taxable estate
4. a Filipino who has been abroad for more than 183 days is classified as a
C. nonresident citizen
5. which of the following is not an income tax payer classification?
D. general professional partnership
6. 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
B. resident alien
7. a Japanese who is staying in the Philippines for 183 days is a
C. nonresident alien engaged in trade or business
8. Canadian who is staying in the Philippines for more than one year is a
A. resident alien
9. an alien who stayed less than one year in the Philippines is classified as a non resident alien not
engaged in trade or business if he stayed here in for less than
A. 180 days
10. A corporation incorporated according to philipines laws is a
A. domestic corporation
11. a foreign incorporation which is not authorized to conduct business in the Philippines is a
C. non resident corporation
12. A foreign corporation which operates a branch in the Philippines is a
B. resident corporation
13. A partnership which dominantly operates business abroad is a
A. domestic corporation
14. which is required to pay income tax?
D. business partnership
15. which is not an income tax payer?
C. joint venture engaged in energy operation pursuant to a service contract of the government
16. which of the following taxpayers is taxable only on income earned from the Philippines?
A. resident corporation
17. all of the following are taxable only on income earned from sources within the Philippines,
except:
D. domestic corporation
18. which is taxable on world income?
C. resident citizen
Multiple Choice – Theory: Part 3
1. the place of taxation is
B. Situs
2. Which is an incorrect statement regarding situs of income?
A. Service income is earned in the domicile of the taxpayer
3. which statement is correct regarding situs of income?
A. the gain on the sale of real property is earned in the location of the property
4. Pedro, a nonresident citizen, lent money to Shino, a resident Chinese. the indebtedness was
collateralized by a property located in Japan. the interest income is earned in
B. China
5. gains on the sale of goods manufactured and sold by the taxpayer within the Philippines is
subject to tax.
D. within the Philippines only
6. Yvonne, 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?
D. the gain is taxable abroad because it is sold abroad
7. Juan, a resident alien, and Pedro, a nonresident 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
D. the gain is subject to Philippine tax because the property is in the Philippines
Multiple Choices – Problems
Problem 3-1
Beth negotiated a P1,000,000 non interest bearing promissory note to Candy. Candy paid Beth
P950,000. on due date, Beth paid Candy P1,000,000. which is true?
B. Candy earned 50,000 return on capital
Problem 3-2
Andrew received a total sum of 42,000 from his employer consisting of the following:
•
•
•
P5000 reimbursements for employers expenses paid by Andrew
P15,000 payment of Andrews computer set purchased by the employer
P22,000 monthly salary
Andrew's computer set cost him 12,000. Compute the total return on capital which can be subjected to
income tax.
C. 25,000 (22 + 15 – 12)
Problem 3-3
Betty paid P20,000 annual premium on a life insurance contract which would pay her 1,000,000 in case
of her death. After paying for 4 years, Betty assigned the policy to Carlos for P120,000. compute the
return on capital.
C. 40,000 (120 – 80)
Problem 3-4
Becky purchased a 1,500,000 life insurance policy for 100,000. during the year, Becky died and her heirs
collected the entire proceeds. how much of the proceeds is exempt from income tax?
A. 1,500,000
Problem 3-5
Dan purchase the 1,000,000 life insurance policy of Ben for 120,000. Dan paid the 20,000 annual
premiums on the policy for 4 years after which Ben died. compute the total return on capital for Dan.
C. 800,000 (1M – 120K – [20k*4])
Problem 3-6
Carlos paid 20,000 annual premium for a one million life insurance policy. after seven years, Carlos
surrender the policy and was paid by the insurance company 200,000 which represents the cash
surrender value of the policy. compute the return on capital.
C. 60,000 (200-20*7)
Problem 3-7
Alexander Co insured the life of its president for 2,000,000. a total of 500,000 in premium was paid
before the president died. the company collected the total proceeds. compute the return on capital.
A. 0
Problem 3-8
Onyoc insured his newly constructed building costing 1,000,000. within a few days, the building was
totally destroyed by a fire. the insurance company reimbursed Onyoc 1,500,000 which represents the
fair value of the building. Which statement is false?
C. 1,500,000 is a return of capital
Problem 3-9
Guilbert potato plantation which is expected to yield 400,000 incomes will be totally devastated by bad
weather conditions. he obtained a 300,000 crop insurance cover for 30,000. just before harvest, a rare
frost totally destroyed guilberts plantation. the insurance company paid the policy proceeds. from get
the total recovery of loss profits to be recognized by Guilbert as income.
C. 300,000 (30K is expense)
Problem 3-10
Felix sells Hot Chili flavored pancakes using a secret formula he patented. He sued a competing pancake
house for alleged patent infringement and claimed the total indemnity of 1,200,000:
•
•
1,000,000 for loss of profits from loss of sales
200,000 as attorneys fee reimbursement
If Felix wins the case and is awarded the total indemnity, compute his total return of capital
D. 200,000
Problem 3-11
Henson was one of the passengers of a van that fell off a ravine. Henson sued the bus company and was
awarded an indemnity of 800,000 for the following:
•
•
•
500,000 for the impairment of his health resulting in the amputation of his leg
200,000 for his loss of salaries during his hospitalization
100,000 for his attorneys fees
compute Hensons return on capital
C. 200,000
Problem 3-12
Jake sued an unscrupulous person for derogatory remarks which he considered to have besmirched his
reputation. the court awarded him an indemnity of 1,000,000 inclusive of 200,000 reimbursement for
attorneys fees and 100,000 exemplary damages. compute Jakes total return on capital.
D. 0
Problem 3-13
Kendrick received the following items during the year:
•
•
•
•
•
•
200,000 donation from a girlfriend
100,000 rice fee from professional services
300,000 inheritance from his deceased father
100,000 income from illegal gambling
50,000 gain on sale of his personal car
250,000 profits from his bar restaurant
compute the total income subject to income tax
D. 500,000
Problem 3-14
Pines corporation has a branch in Manila and a 70% owned subsidiary, chocolate hills, Inc. in Davao. The
following data shows Pines Corporation’s sales transactions during the year:
•
•
•
•
Pines corporation billed the Manila branch 1,500,000 per merchandise shipped to the latter at a
markup of 50% above acquisition costs. the branch stored the merchandise and did not operate
during the year
sold merchandise to unrelated parties at a gain of 800,000
Sold merchandise the Darryl Assuncion, Pines corporations controlling stockholder at a gain of
100,000.
Sold various merchandise to chocolate hills, Inc. at a gain of 200,000
compute the total income of Pines corporation subject to income tax.
C. 1,100,000
Problem 3-15
Denver is a supervisory employee of Atlantis corporation. he had the following items of gross income
during the year:
•
•
•
•
Denver was paid 800,000 salaries
denver's 100,000 personal loan was paid by Atlantis corporation as reward for his excellent
performance
denver's 50,000 advances to the company was paid by Atlantis chief executive officer as a gift
Denver is entitled to excess representation and transportation allowances. Denver received
200,000 total allowance out of which 120,000 was disbursed by him.
compute denver's total income subject to income tax.
A. 980,000
Problem 3-16
Jen is engaged in business the following pertains to her transactions during 2014:
•
•
•
•
sold his personal car which was purchased at 200,000 to a friend who paid only half of the cars
500,000 current fair value
sales of merchandise was 800,000 and the cost of goods sold was 600,000
Jen acquired several stocks from the Philippine Stock Exchange for speculation. these stocks
have an aggregate purchase price of 400,000 but with 700,000 fair value by December 31 2014.
Jens house and lot which he acquired for 1,500,000 in 2010 now have a current fair value of
2,500,000.
compute Jen’s total income subject to income tax.
D. 250,000
Problem 3-17
A condominium home owners association collects dues from unitholders and remits the same to service
providers on their behalf. Such dues include electricity, water, security, and maintenance. The
association charges unitholders an additional 2% of their utility bills as service charge.
During the year, the association processed utility bills for unitholders totaling 5,000,000.
how much taxable income is realized by the association?
C. 100,000
Problem 3-18
Kenny used to bet in PCSO lotto. on June 3 2014, he won the 20 million jackpot prize from the 6/45
Lotto. One P20 ticket out of the 10 bets took the prize. How much is Kenny's total income subject to tax?
D. 0
Problem 3-19
an American citizen has been staying in the Philippines since August 15 2013. what would be his
taxpayer classification for the year 2013 and 2014, respectively?
D. Non-resident alien not engaged in trade or business, resident alien
Problem 3-20
A citizen who left the Philippines on March 1 2013 would be classified as
A. Non-resident for the year 2013
Problem 3-21
an alien received 200,000 compensation income in the Philippines an 300,000 rental income from
abroad. how much will be subject to Philippine income tax?
B. 200,000
Problem 3-22
a nonresident citizen is an international financier who earned 400,000 interest income from resident
debtors and P300,000 from foreign debtors. How much is subject to Philippine income tax?
C. 400,000
Problem 3-23
Sarah has the following items of income
Business income
Professional fees
Compensation income
Rent income
Interest income
Philippines
P200,000
100,000
400,000
300,000
30,000
Abroad
P100,000
50,000
200,000
40,000
1. assuming Sarah is a resident citizen, compute the total income subject to Philippine income tax.
D. 1,420,000
2. assuming Sarah is a resident alien, compute the total income subject to Philippine income tax
C. 1,030,000
3. assuming Sarah is a resident corporation, compute the total income subject to Philippine income tax
B. 1,030,000
4. assuming Sarah is a domestic corporation compute the total income subject to Philippine income tax.
D. 1,420,000
Chapter 4
True or False 1
1. Both active income and passive income but not require direct
participation on the taxpayer in earning the income.
2. there are 3 types of gross income for taxation purposes
3. the three tax schemes are mutually inclusive in coverage
4. regular income tax generally covers active income and capital gains.
5. Final tax generally covers passive income
6. capital gains arise from the sale exchange and other disposition of any
assets.
7. there are only two types of assets for purposes of taxation
8. an ordinary asset is defined to include all other assets other than capital
asset
9. technique used to measure income is referred to as an accounting
method. the length of time over which income is reported is referred to as
an accounting period.
10. Regular accounting periods are calendar and fiscal
11. individuals file their income tax returns on or before April 15th of the
following calendar year
12. all taxpayers can change their accounting. When there is a change in the
nature of their business, but the BIR must be notified in all costs
13. the first accounting period of a starting business will more likely be less
than 12 months
14. the accounting period of a deceased taxpayer shall be terminated on
December 31 in the year of death.
15. basis and cash basis are the most common accounting methods used in.
True or False 2
1. Advanced income is an item of grass incomes for accrual basis taxpayers
2. generally prepayments are nondeductible in the current accounting.
3. Prepayments are deductible but in the future period They expire or are
consumed in the business or trade of the taxpayer
4. the use of different methods for different businesses of the same
taxpayers is permitted by law
5. Initial payment includes down payment and installment in the year of sale
6. contact price is synonymous with selling price
7. the crop year method is an accounting method
8. under the percentage of completion methods, gross income is reported
based on the cash collections from the contract price.
9. the depreciated value of the property upon termination of the lease
constitutes income to the lessee.
10. The Withheld taxes on the income payments made by the taxpayers are
tax credit against their income tax due
11. There are three types of income tax return for each income tax scheme
12. all taxpayers, small or large are encouraged to file their income tax
return through the efps system of the BIR
13. large taxpayers are under the supervision of the BIR’s large taxpayer
service.
14. non filing and/or non payment of taxes subject to penalties such as
surcharges, interest, compromise, and imprisonment.
15. The interest on unpaid taxes is computed on the basic tax only excluding
the surcharge
16. only large taxpayers shall file under efps
17. both manual filing and filing through e-BIR forms makes use of manual
payment
18. efps is fully electronic tax compliance
19. e-BIR forms makes use of electronic data entry and filing
20. efps filers may file manually when there is a BIR system downtime.
Multiple Choice- Theory: General Concepts
1. Which is not a scheme in taxing income?
2. which is a correct statement regarding income taxes?
3. Which is not a feature of final tax?
4. which of the following properties when classified as capital asset is subject to capital gains
tax?
5. capital asset means
6. which is not an item of passive income?
7. which of the following accounting methods is most consistent with the lifeblood doctrine?
8. these are accounting techniques or conventions used to measure income
9. these are distinct and equal time periods over which income is measured
10. income is recognized when received rather than when earned
11. income is recognized when earned regardless of when received
12. initial payment means
13. income is reported by reference to the extent of project completion in
14. which statement is correct?
a. dealers of real properties can use the installment method without limitation
b. dealers of personal properties can use the installment method without limitation
c. non dealers of properties can use the installment method if initial payment exceeds
25% of the selling price
d. dealers of properties can use the installment method only if initial payment does
not exist 25% of the selling price
15. leasehold income is recognized over the lease term in
16. statement 1: the excess of mortgage assumed by the buyer over the basis of the property
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
Which statement is true?
17.
18.
19.
20.
Which is correct regarding the crop year method?
which is an incorrect statement regarding the use of accounting period?
Under which of the following will short accounting period Not arise?
which is not a special feature of regular income taxation?
Multiple Choice – Problem 4-1: Accounting Period
1. an individual income tax payer shall file his or her income tax return on or before the
2. Anderson died on March 31 2017. which is a correct statement?
3. Mrs Julian started business on July 15 2016. what should be the coverage of her 2016 income
tax return?
4. a corporation reporting on a fiscal year ending every March 31 shall file its 27 income tax return
not later than
5. Metersbonwe a corporation started business on April 5 2016 Ann opted to report income tax on
a fiscal year ending every October 1. Metersbonwe’s 1st income tax return shall cover
6. Benico corporation reports on a calendar year. on August 15 2016 it stopped business due to
persistent losses. benico corporations last income tax return shall cover
7. effective March 1 2017 Jonah Inc changed its calendar year to a fiscal year ending every June 30.
an adjustment return shall be filed covering the period
8. during 2017 Klein corporation changes accounting period to the calendar year. the adjustment
return shall be filed on or before
9. effective July 2 2016, Rofelson 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.
10. effective May 15 2017 Tabuk, INC. change its fiscal year ending every April 30 to the calendar
year. An adjustment return shall be filed covering the period
Multiple Choice – Problems 4-2: Tax Schemes and accounting methods
1. Astercor, Inc reported the following during the year:
• 400,000 proceeds of life insurance of an officer where under core is the beneficiary
(600,000 still uncollected)
• 800,000 interest income exclusive of 200,000 uncollected an accrued interest
• 300,000 increase in value of investment in stocks
compute the gross income under cash basis
2. compute the gross income under accrual basis
3. Berlin corporation reported the following data for 2019
• total net sales made to customers were 2,000,000 in cash
•
•
•
•
goods purchased for sale totaled 1,200,000 in cash. beginning and ending inventory of
goods for sale respectively were 200,000 and 300,000
one year advance rent of 30,000 to apply for 2020 was received from a sublease
contract
40,000 total interest income from customers promissory note earned 30,000 of this was
collected
unrealized foreign exchange gains from foreign currency receivables totaled 60,000
using cash basis, compute the total income subject to income tax
4. using accrual basis, compute the total income subject to income tax
5. Santiago Inc has the following receipts during 2018:
From Service billings from clients
400,000
Advances from clients
100,000
Total Cash Collection
500,000
the 100,000 advance is referred to services which will be rendered next year. total uncollected
billing increased from 100,000 on December 31 2017 to 150,000 on December 31 2018.
compute the gross income using cash basis
6. compute the gross income using accrual basis
7. in 2019, bright Inc sold its parking lot for 2,400,000 payable on installment. the lot was
previously acquired for 1,500,000. the buyer has an outstanding unpaid balance of 1,800,000 as
of December 31 2019, bright year end.
compute exquisite gross income in 2019 using the installment method
8. exquisite corporation sold its old warehouse with carrying amount (tax basis) of 600,000 for
1,000,000. a down payment of 15% was collected on July 1 2019. additional 150,000 installment
payments were received as of December 31 2019.
Compute the gross profit to be reported for the year 2019
9. lancelot is a dealer of household appliances. he reported the following in 2019 and 2020
Installment Sales
Cost of Installment Sales
Collections
2019
500,000
250,000
300,000
2020
800,000
440,000
600,000
Lance’s 2020 collection is inclusive of 100,000 accounts from 2019.
using the installment method, compute lancelot gross income subject to income tax in 2020
10. using the accrual basis of accounting, compute lancelot gross income subject to income tax in
2020.
11. Merville is a dealer in real properties. Merville requires 20% down payment and the balance is
payable over 36 monthly installments starting on the last day of the month following the
amount of sale Merville sold properties in 2019 and 2020 world terms as follow.
• House in lot number one was sold for 1,350,000 on November 11 2019
• housing lot #2 was sold for 1,800,000 on July 5 2020
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 2019 and 2020 respectively
12. In 2020, Mr Marangley, a dealer of car, this post a brand new sports utility vehicle SUV which
costs 800,000 for 1,200,000 inclusive of under the following terms:
July 1, 2020 – as downpayment
Monthly Installment thereafter
100,000
50,000
Mr. Marangley will choose whichever favourable permissible income reporting method for him.
How much gross income is to be reported in 2020?
13. In the immediately preceding problem, assuming Mr Marangley is not a dealer of car. how much
gross income is to be reported in 2020?
14.