TAX ON INDIVIDUALS

Part 1

1. 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

2. Bu-dhoy, a Mongolian national, arrived in the Philippines on January 1, 2018 to

visit his Filipina girlfriend. He planned to stay in the country until December 31,
2020, by which time he would go back to his legal wife and family in Mongolia.
Bu-dhoy derived income during his stay here in the Philippines. For 2018 taxable
year, Bu-dhoy shall be classified as a:
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

3. On October 2018, Mr. Bald Nha, an American basketball coach was hired as a
team consultant by one of the teams in the Philippine Basketball Association
(PBA) for one conference which will last for a period of not more than three (3)
months from October to December 2018. His coming to the Philippines was for a
definite purpose. However, he was subsequently chosen to coach the Philippine
men’s basketball team for a period of two (2) years. The American mentor
intends to leave the Philippines as soon as his job is finished. For 2018 taxable
year, the American coach 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. Resident citizen
4. Which of the following is correct?
I. A citizen of the Philippines residing therein is taxable on all income derived
from sources within and without the Philippines.
II. A nonresident citizen is taxable on income derived from sources within the
Philippines only
III. An alien individual, whether a resident or not of the Philippines, is taxable on
income derived from sources within the Philippines only.
IV. A seaman who is a citizen of the Philippines and who receives compensation
for services rendered abroad as member of the complement of a vessel
engage in international trade shall be treated as an overseas contract worker
a. I, II and III only
b. I, III and IV only
c. I, II and IV only
d. I, II, III and IV

5. Pedro Dela Cruz, nonresident citizen, arrived in the Philippines on July 1, 2020 to
reside here permanently after working as a nurse in the United States for many
years. Which of the following statements is correct with respect to his
classification for income tax purposes?
a. He shall be classified as nonresident citizen for the year 2020 with respect to
his income derived from sources abroad from January 1, 2020 until the date
of his arrival in the Philippines
b. He shall be classified as nonresident citizen for the whole year of 2020.
c. He shall be classified as resident citizen for the whole year of 2020.
d. He shall be classified as neither resident nor nonresident citizen for the year
2020.

6. LJ, married, left the Philippines in the middle of the year on July 1, 2020 to go
abroad and work there for five (5) years. The following data were provided as of
December 31, 2020:
Gross Business Income Business Expenses
Period Philippines Abroad Philippines Abroad
Jan. 1 to June 30 P300,000 P200,000 P100,000 P50,000
July 1 to Dec. 31 600,000 400,000 150,000 50,000

His taxable income is:

a. P800,000
b. P950,000
c. P1,100,000
 d. P600,000

7. Floyd, an American citizen who is married to a beautiful Filipina owns a building

in the United States and leases the same to businesses owned by Filipino
residents. Floyd has his residence in the in the Philippines and all his children are
studying in top Philippine universities. Which of the following statements is true
regarding the rental income?
a. Taxable in the Philippines because he had his residence in the Philippines
b. Taxable in the Philippines because his wife is a resident citizen and they are
all residents of the Philippines
c. Taxable in the Philippines because he derives his income from Filipino
resident lessees
d. Exempt in the Philippines because Floyd is resident alien. As such, he is
taxable only on income derived from sources within the Philippines

The next two (2) items are based on the following data:
Carlo, married, with two dependent children, received the following income for 2020:
Business income, Philippines P1,000,000
Business income, Hongkong 200,000
Interest, peso deposit, Metrobank 100,000
Interest, US dollar deposit, BDO ($10,000 x P42) 420,000
Interest, deposit in Hongkong (HK$10,000 P5) 50,000
Prize (TV) won in local lottery 50,000
PCSO/ Lotto winnings 2,000,000
Prize won in contest in US 300,000
Lotto winning US 100,000
Dividend, domestic company 600,000

8. Determine the taxable net income assuming he is:

RC NRC RA NRA-ETB
A P80,000 P180,000 P830,000 P180,000
B 180,000 80,000 1,000,000 1,000,000
C 1,558,000 908,000 908,000 908,000
D 1,650,000 1,000,000 1,000,000 1,000,000

9. Determine the total final tax assuming he is:

RC NRC NRA-ETB NRA-ETB
A P553,000 P490,000 P150,000 P687,500
B 121,500 90,000 121,500 150,000
C 131,000 90,000 90,000 90,000
 D 553,000 490,000 550,000 687,500

Use the following data for the next three (3) questions:
Ana, a resident citizen, provided the following data for year current taxable year:
Gross income from business (gross of P12,000 withholding tax) P700,000
Business expenses 300,000
Royalty from books 40,000
Gain on direct sale to buyer of shares of stock of a domestic 70,000
corporation
Loss on sale of land in the Philippines held as capital asset with 500,000
cost of P1,500,000 when the zonal value is P1,200,000

10. How much is the income tax payable of Ana?

a. P12,000
b. P18,000
c. P30,000
d. Nil

11. How much is the total capital gains tax?

a. P3,500
b. P10,500
c. P72,000
d. P82,500

12. How much is the total income tax expense of Ana?

a. P116,500
b. P207,500
c. P159,500
d. P156,000
Use the following data for the next three (3) questions:
Ana operates a pet shop and at the same time, offers interior design services to her
clients. The following data were provided by Ana for 2018 taxable year:
Pet shop:
Gross sales P1,800,000
Cost of sales 600,000
Operating expenses 200,000
Interior design services:
Gross receipts P1,150,000
Cost of direct services 120,000
Operating expenses 80,000

13. How much is her income tax liability for the year?
a. P216,000
b. P345,000
c. P475,000
d. P540,000

14. Assuming Ana signified her intention to be taxed at 8% income tax rate on her
initial quarterly income tax return, how much is her income tax liability for the
year?
a. P216,000
b. P300,000
c. P430,000
d. P540,000

15. Assume Ana is vat registered taxpayer, how much is her income tax liability for
the year under her intention to be taxed at 8% income tax regime?
a. P216,000
b. P345,000
c. P475,000
d. P540,000
Use the following data for the next three (3) questions:
Ador, an executive of Ang Probinsyano Promotions, earned in 2020 P1,200,000
compensation income, inclusive of 13th month pay and other benefits amounting to
P120,000. Aside from employment, he owns a farm, with gross sales of P5 million from
agricultural food products. His cost of sales and operating expenses are P2,000,000
and P600,000 respectively, and with non-operating income of P100,000.

16. Which of the following statements is incorrect?

a. Ador has no option to avail 8% income tax rate
b. Ador’s income tax shall be computed using the graduated tax rate.
c. Aside from income tax computed using the graduated income tax rate, Ador is
liable to prescribed business tax, which, under this case, is value added tax,
since his gross sales/receipts and other non-operating income exceed the vat
threshold of 3 million.
d. All of the above

17. Ador’s income tax due for the year shall be:
a. P490,000
b. P515,200
c. P1,005,200
d. P1,200,000

18. Ador’s business tax due for the year shall be:
a. P150,000
b. P153,000
c. P612,000
d. Nil
Use the following data for the next two (2) questions:
Juan is a mixed income earner. He is a self-employed resident citizen and currently the
Finance manager of Omega Corporation. The following data were provided for 2020
taxable year:
Compensation income P1,800,000
13th month pay and other benefits 150,000
Sales 2,800,000
Cost of sales 1,125,000
Business expenses 650,000
Interest income from peso bank deposit 80,000
Interest income under FCDS 120,000
Gain on sale of land in the Philippines held as capital 500,000
asset with cost of P1,500,000 when the zonal value is
P1,200,000
Creditable withholding tax on compensation income 448,000
Creditable withholding tax on sale of goods 28,000

19. How much is the total income tax expense assuming he opted to be taxed at
8%?
a. P321,500
b. P788,500
c. P826,000
d. P358,000

20. How much is the income tax payable of Juan for the year?
a. P28,000
b. P196,000
c. P448,000
d. P672,000
Use the following data for the next (2) questions:
In 2018, Pedro signified his intention to be taxed at 8% income tax rate on gross sales
in his 1st quarter income tax return. His gross sales during the year exceeded the vat
threshold of P3M as follows:
Q1 Q2 Q3 Q4 /Annual
(8% tax) (8% tax) (8% tax) Graduated
Sales P500,000 P500,000 P2,000,000 P3,500,000
Cost of sales (300,000) (300,000) (1,200,000) (1,200,000)
Gross income 200,000 200,000 800,000 2,300,000
Operating expenses (120,000) (120,000) (480,000) (720,000)
Net taxable income P80,000 P80,000 P320,000 P1,580,000

21. How much is Pedro’s annual income tax payable?

a. P220,000
b. P289,200
c. P509,200
d. P2,060,000

22. How much is Pedro’s total business tax due for the year?
a. P90,000
b. P195,000
c. P510,000
d. Nil

Use the following data for the next three (3) questions:
Pedro, single, is a minimum wage earner. In addition to his basic minimum wage of
P180,000 for the year 2020, he also received the following benefits:
 De minimis, P140,000 excluding productivity incentive pay (P80,000 over the
ceiling)
 Productivity incentive pay as provided in the Collective bargaining agreement
(CBA), P28,000
 13th month pay and other benefits, P112,000

23. How much is the taxable income of Pedro?

a. P80,000
 b. P102,000
c. P192,000
d. P130,000

24. How much is the income tax due of Pedro in 2020 assuming he also earned
P450,000 derived from his business of buying and selling various consumer
products?
a. P30,000
b. P38,000
c. P68,000
d. P75,000

25. Using the immediately preceding number, and the productivity incentive pay
amounted to P10,000 only, how much is the correct income tax due?
a. P30,000
b. P38,000
c. P68,000
d. P75,000

26. Which of the following statements is correct?

a. Beginning January 1, 2018, PCSO/ lotto winnings of not more than P10,000
received by citizens, residents and non-resident aliens engaged in trade or
business are exempt from income tax
b. Beginning January 1, 2018, PCSO/ lotto winnings of more than P10,000
received by citizens, residents and non-resident aliens engaged in trade or
business are subject to 20% final withholding tax
c. Beginning January 1, 2018, PCSO/ lotto winnings of not more than P10,000
received by non-resident aliens not engaged in trade or business are exempt
from income tax
d. Beginning January 1, 2018, PCSO/ lotto winnings of more than P10,000
received by non-resident aliens not engaged in trade or business are exempt
from income tax

27. Which of the following interest income derived within the Philippines is subject to
basic income tax?
a. Interest income from bank loans
b. Interest income from loans
c. Interest income from deposit substitutes
d. Interest income from trust funds
 28. Which of the following statements is correct?
a. Interest income on bank deposit or investment with maturity period of at least
five (5) years is exempt from income tax
b. Interest income on treasury-bond with maturity period of at least five (5) years
is exempt from income tax
c. The tax exemption on long-term bank deposit or investment banks extends to
all types of taxpayers
d. All of the above

29. A non-resident alien not engaged in trade or business derived P50,000 income
from his long-term bank deposit here in the Philippines. How much is the income
tax due of the said alien?
a. P10,000
b. P12,500
c. P5,000
d. Nil

30. A taxpayer received during the taxable year the following passive income derived
from within the Philippines:
Interest on bank deposit under FCDU (net) P231,250
Royalty on a software application (gross) 95,000
Dividend received from resident foreign corporation 150,000

If taxpayer is a non-resident alien engaged in business, the final tax on the above
passive income would amount to:
a. P52,750
b. P19,000
c. P28,250
d. P37,750

The next four (3) questions pertain to final tax on long-term investment issued by a
bank.
31. An instrument with a maturity period of ten (10) years was held by Juan (resident
citizen) for two (2) years and was transferred to Smith (resident alien), who, in
turn held it for eight (8) years. The final withholding tax should be as follows:
I. Juan – 20% final tax
II. Smith – exempt
 a. True, true
b. False, false
c. True, false
d. False, true

32. An instrument with a maturity of ten (10) years was held by Juan (nonresident
citizen) for three (3) years and transferred it to Smith, a resident alien. Smith held
it for two (2) years before subsequently transferring it to Pedro (resident citizen)
who held it until the day of maturity or for a period of five (5) years. The final
withholding tax should be as follows:
I. Juan – 12% final tax
II. Smith – 20% final tax
III. Pedro – exempt
a. True; true; true
b. True; true; false
c. True; false; false
d. True; false; true

33. An instrument with a maturity period of ten (10) years was held by Smith (NRA-
ETB) for three (3) years and transferred it to Juan, a resident citizen. Juan held it
for two (2) years before subsequently transferring it to James (resident alien) who
pre-terminated it after four (4) years. The final withholding tax are as follows:
I. Smith – 12% final tax
II. Juan – 20% final tax
III. James – exempt
a. True; true; true
b. True; true; false
c. True; false; false
d. True; false; true

34. On January 1, 2017, Lorna invested P1,000,000 to BDO’s 5-year, tax-free time
deposit. The long-term deposit pays 10% annual interest every January 1. In
need of cash, Lorna pre-terminated her investment on July 1, 2020. How much is
the final tax due?
a. P6,000
b. P12,000
c. P17,500
d. P42,000
 35. Lebron James received royalty fee from Viva Records Corporation, a domestic
corporation, for his musical composition under the album, “Whatever it takes”.
James is an American composer and has never set foot in the Philippines. The
royalty fee shall be subject to:
a. 15% FWT
b. 20% FWT
c. 25% FWT
d. 5%-32% graduated tax rate

36. If the amount of PCSO/ Philippine lotto winnings received by a non-resident alien
not engaged in trade or business did not exceed P10,000, what type of income
tax will apply?
a. 25% final withholding tax
b. 20% final withholding tax
c. Subject to graduated income tax
d. Exempt

37. The following taxpayers who received a dividend income from a domestic
corporation will receive a net of 10% final withholding tax, except:
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. Non-resident alien engaged in trade or business

38. Which of the following cash and/or property dividends actually or constructively
received by an individual shall not be subject to final tax but to regular income tax
for individuals?
a. Cash and/or property dividends from a domestic corporation or from a joint
stock company
b. Cash and/or property dividends from insurance or mutual fund companies
c. Cash and/or property dividends from regional operating headquarters of
multinational companies
d. Cash and/or property dividends from a nonresident foreign corporation

Use the following data for the next three (3) questions:
Sandara, a nonresident Korean stockholder, received a dividend income of P300,000 in
2020 from Super bowl corporation. A foreign corporation doing business in the
Philippines. The Gross income from the foreign corporation from its sources within and
without the Philippines for the past three years preceding 2020 are provided as follows:
Source 2017 2018 2019
Philippines P16,000,000 P15,000,000 P17,000,000
Abroad 8,000,0000 11,000,000 13,000,000

39. Sandara is subject to:

a. Basic income tax on P180,000
b. Basic income tax on gross income of P300,000
c. Final withholding tax of 25% on P180,000
d. Final withholding tax of 25% on gross income of P300,000

40. Assuming Super Bowl is a domestic corporation, the amount of income subject to
tax should be:
a. P0
b. P120,000
c. P180,000
d. P300,000

Regular Income Tax for Individuals

Year 2018 to 2022
Taxable income Tax due
P250,000 and below None
Above P250,000 to P400,000 20% of excess above P250,000
Above P400,000 to P800,000 P30,000 +25% of excess over P400,000
Above P800,000 to P2,000,000 P130,000 +30% of excess over P800,000
Above P2,000,000 to P8,000,000 P490,000 + 32% of excess over P2,000,000
Above P8,000,000 P2,410,000 +35% of excess over P8,000,000
Year 2023 onwards
Taxable income Tax due
P250,000 and below None
Above P250,000 to P400,000 15% of excess above P250,000
Above P400,000 to P800,000 P22,500 +20% of excess over P400,000
Above P800,000 to P2,000,000 P102,500 +25% of excess over P800,000
Above P2,000,000 to P8,000,000 P402,500 + 30% of excess over P2,000,000
Above P8,000,000 P2,205,500 +35% of excess over P8,000,000