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Tax 301 – Income Taxation

Quiz 1

General Directions: Carefully read each item. Never cheat.

Part I. Multiple Choice. Write your answer before the number.

1. They exist independent of the constitution being fundamental power of the state, except
a. Power of taxation
b. Police power
c. Power of eminent domain
d. Power of recall

2. 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 public funds.
d. The power to tax is subject to inherent and constitutional limitations.

3. How will the local government units be able to exercise their taxing powers?
a. By local legislation
b. By authority conferred by Congress
c. By the issuance of the Department of Finance
d. By the help of the BIR

4. Which of the following is correct?

Legislat Administrat
ive ive
A Fixing of tax rates Yes Yes
B Valuation of object of tax Yes No
C Collection of tax Yes No
D Assessment of tax liability No Yes

5. Karim, a resident citizen, received PCSO winnings amounting to P10,000. What type of income tax will apply?
a. Final withholding tax on passive income
b. Capital gains tax
c. Basic income tax
d. Exempt

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

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

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

9. The gross income of foreign nationals or non-Filipino citizens employed by POGO Entities regardless of residency and
who are employed and assigned in the Philippines, regardless of term and class of working or employment permit or visa
shall be subject to:
a. Graduated tax rate under Section 24(A) of the Tax Code, as amended.
b. Final withholding tax of 20%
c. Final withholding tax of 25%
d. Capital gains tax

10. The following are the requirement for substituted filing of income tax return, except
a. He had one employer only.
 b. His income was purely compensation income.
c. Income tax withheld by the employer is correct.
d. He had consecutively filed his income tax return for the past five years.

11. Lorna is a newly registered non-vat taxpayer engaged in trading of cellphone accessories on February 1, 2023. In
September 2023, her cumulative gross sales reached P3,500,000. Assume further that she availed 8% income tax rate
upon her registration with the BIR on February 1, 2023 or upon filing of her first quarterly income tax return.
Statement 1: Lorna shall be automatically subjected to graduated income tax rates from the time the gross sales/receipts
and other non-operating income exceeded the vat threshold.
Statement 2: The 8% income tax rate paid by Lorna shall be credited/deducted from her annual income tax due using the
graduated income tax regime.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

12. The income tax due of a mixed income earner who opted to be taxed at 8% income tax rate shall be:
a. The tax due from compensation, computed using the graduated tax rate.
b. The tax due from self-employment and/or practice of profession, resulting from the multiplication of 8% income
tax rate with the total gross sales/receipts and other non-operating income
c. Either “a” or “b” at the option of the self-employed and/or professional
d. The sum of “a” and “b”

13. Bongbing is a Filipino immigrant living in the United States for more than 15 years. He is retired and he came back to the
Philippines as a balikbayan. Every time he comes to the Philippines, he stays here about a month. He regularly receives a
pension from his former employer in the United States, amounting to US$2,000 a month. While in the Philippines, with
his pension pay from his former employer, he purchased three condominium units in Makati which he is renting out for
P25,000 a month each. Does the US$2,000 pension become taxable because he is now in the Philippines?
a. Yes, income received in the Philippines by the non-resident citizens is taxable
b. Yes, income received in the Philippines or abroad by non-resident citizen is taxable.
c. No, income earned abroad by non-resident citizens are not taxable in the Philippines.
d. No, the pension is exempt from taxation being one of the exclusions from gross income.

14. Donald, 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. Donald has his residence 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 Donald is resident alien. As such, he is taxable only on income derived from
sources within the Philippines.

15. Pedro's income from leasing his property reaches the maximum rate of tax under the law. He donated one-half of his said
property to a non-stock, non-profit educational institution whose income and assets are actually, directly and exclusively
used for educational purposes, and therefore qualified for tax exemption under Article XIV, Section 4 (3) of the
Constitution and Section 30 (h) of the Tax Code. Having thus transferred a portion of his said asset, Pedro succeeded in
paying a lesser tax on the rental income derived from his property under the lower tax bracket. Marco’s action is
considered/also known as:
a. Tax evasion
b. Tax avoidance
c. Shifting
d. None of the above

16. Which of the following is incorrect?

a. Where doubts exist in determining the intent of legislature, the doubt must be resolved strictly against the
taxpayer and liberally in favor of the taxing authority.
b. The exemption contained in the tax statutes must be strictly construed against the one claiming the exemption.
c. Tax cannot be imposed without clear and express words for that purpose.
d. All of the above.

17. Under the Creditable Withholding Tax system, which of the following statements is incorrect?
a. Taxes withheld on certain income payments are intended to equal or at least approximate the tax due of
the payee on said income.
b. The recipient of the income is no longer required to file an income tax return as prescribed under the Tax Code.
c. The payee is required to report the income and pay the difference between the tax withheld and the tax due
thereon.
d. Taxes withheld under this system are creditable in nature.

18. A fundamental rule in taxation is that "the property of one country may not be taxed by another country". This is known
as
 a. International law
b. Reciprocity
c. International comity
d. International inhibition

19. Which statements 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't either exist
nor endure
c. Taxation is an arbitrary method of exaction by those who are in 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.

20. The Congress enacted a new law, known as Expanded Value Added Tax Law. An association of taxpayers questions the
constitutionality of this law on the ground that it did not originate exclusively in the House of Representatives as
required by the Constitution, because it is in fact the result of the consolidation of two distinct bills, one from the House
of Representatives and the other from the Senate. Is the vat law unconstitutional?
a. Yes, because all appropriation, revenue or tariff bills, bills authorizing increase of public debt, bills of
local application, and private bills, shall originate exclusively in the House of Representatives.
b. Yes, because the Senate has no authority to propose or concur any amendments with the revenue or tax bill
proposed by House of Representatives.
c. No, because all appropriation, revenue or tariff bills, bills authorizing increase of public debt, bills of local
application, and private bills, shall be initiated by the Senate.
d. No, because it is not the law but the revenue bill which is required by the constitution to originate exclusively
in the House of Representatives and insisting otherwise would violate the coequality of legislative power of the
two houses of Congress and in fact would make the House superior to the Senate.

21. The basic principle of a sound taxation system, where, "Taxes must be based on the taxpayer's ability to pay" is called:
a. Equality in taxation
b. Ability to pay theory
c. Theoretical justice
d. Equity in taxation

22. The tax law must be capable of convenient, just and effective administration
a. Theoretical justice
b. Fiscal adequacy
c. Administrative feasibility
d. Rule of apportionment

23. Juan received a prize amounting to P8,000 from their barangay, what type of income tax will apply?
a. Final withholding tax on passive income
b. Capital gains tax
c. Basic income tax
d. Fringe benefit tax

24. Taylor Swift received royalty fee from Oasis Production, a domestic corporation, for her various musical compositions.
Taylor Swift is an American singer-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% to 32% graduated tax rate

25. Upon the effectivity of RA 11976 or the EOPTA, the filing of income tax return and payment of the tax due may be done
a. Electronically
b. Manually
c. Either electronically or manually
d. None of the above

26. A foreign national or non-Filipino citizen employed by POGO Entities sold shares of stock of a domestic corporation
directly to a buyer for P300,000. The shares sold were previously acquired for P200,000. The gain on sale shall be subject
to:
a. Graduated tax rate under Section 24(A) of the Tax Code, as amended.
b. Final withholding tax of 20%
c. Final withholding tax of 25%
d. Capital gains tax of 15%

27. Tax as distinguished from license fee

a. Non-payment does not necessarily render the business illegal.
b. A regulatory measure.
c. Imposed in the exercise of police power.
d. Limited to cover cost of regulation.
 28. Toll as distinguished from tax.
a. Demand of sovereignty
b. Imposed by government only
c. Amount is based on the cost of construction of public improvement used
d. Paid for the support of the government

29. A tax classified as a regressive tax.

a. excise tax
b. real estate tax
c. value added tax
d. none of the choices

30. Which of the following individual taxpayers is not covered by progressive tax?
a. resident citizen
b. nonresident alien engaged in trade
c. resident alien
d. nonresident alien not engaged in trade

Part II. Problem Solving. Use the back of the paper for your solutions. ENCIRCLE your final answer.

31. Lavender is an employee of Fields Corp and earned P200,000 for the taxable year 2021. If for the same year, she
earned P450,000 in commission income and opted to avail of the 8% flat rate, how much is her total income tax due?

32. Paandar Industries, a non-VAT registered sole proprietorship engaged in the transport of passengers, operates two
liners: Madali Bus Lines is engaged in the domestic transport of passengers by land while Matulin Ferries is engaged in
the domestic transport of passengers by sea. During the taxable year 2022, the following revenues and expenses were
presented to you:
Madali Matulin
Gross receipts 4,000,000 2,000,000
Less: Cost of services (3,200,000) (1,400,000)
Gross income 800,000 600,000
Less: Allowable Deductions (500,000) (400,000)
Taxable income 300,000 200,000

How much is income tax due?

33. Mr. Cooper was injured in a vehicular accident in 2020. He incurred and paid medical expenses of P20,000 and legal fees
of P10,000 during the year. In 2021, he received P70,000 as settlement from the insurance company which insured the car
owned by the other party involved in the accident. From the above payments and transactions, the amount of taxable
income to Mr. Cooper in 2021 is

34. Leonard is engaged in the sale of packed lunch and other food products. For the first quarter of 2023, his Gross sales
amounted to P1,580,000, Cost of Sales – P825,000, and Operating Expenses (all deductible) – P140,000. Assuming
Leonard availed of the 8% Flat rate, how much is his tax due for the quarter?

35. In 2023, Inday sold her rest house in Davao for Php 8,000,000. The fair market value of the rest house at the time of sale
is Php 10,000,000. Inday utilized Php 6,000,000 of the proceeds of the sale in acquiring a new principal residence, the
capital gains tax due is?
36. Industrious as she is known, Cassandra, a non-VAT registered resident citizen, works as a government employee at
daytime and accepts clients for accounting work after office hours. At the same time, Cassandra maintains a t-shirt
printing shop to earn more. For the taxable year ending December 31, 2023, Cassandra earned the following amounts:
Taxable compensation income 850,000
Gross receipts from accounting work 1,500,000
T-shirt printing shop
Gross sales 1,400,000
Cost of sales (800,000)
Gross income 600,000
Operating expenses (400,000)
Net income (t-shirt printing shop) 200,000

Upon filing his first quarter income tax return, Cassandra availed of the 8% income tax option. Assuming that the
availment of the 8% income tax option is proper, how much is Cassandra’s income tax due?

37. Mike received the following income during the 2023 taxable year:
Gross income, Philippines 3,850,000
Gross income, Canada 1,650,000
Business expenses, Philippines 2,000,000
Business expenses, Canada 725,000
Interest on bank deposit, Metrobank Batangas City 50,000
Capital loss on sale of shares of closely held domestic 180,000
corporation

How much is the income tax due of Mike assuming he is a non-resident alien not engaged in trade or business?

38. A taxpayer received during the taxable year the following passive income derived from within the Philippines:
If taxpayer is a non-resident alien engaged in business, the final tax on the above passive income would amount to

39. On January 1, 2020, Nova invested P1,000,000 to Landbank’s 5-year tax free time deposit. The long-term deposit pays
10% annual interest every January 1. In need of cash, Nova pre-terminated her investment on July 1, 2023. How much is
the final tax due in 2023?

40. Who is the Bureau of Internal Revenue Commissioner?

Romeo D. Lumagui Jr.

**end of quiz**