INCOME TAXATION

1. Individual taxpayers are

I. Natural persons with income derived within the territorial jurisdiction of a taxing
authority.
II. Natural persons classified as citizens and aliens
a. I only
b. II only
c. I and II
d. None of the above
2. Rihanna, an American singer, was engaged to sing for one week at the Western Philippine Plaza
after which she returned to USA. For income tax purposes, she shall be classified as:
a. Resident alien.
b. Non-resident alien engaged in trade or business.
c. Non-resident alien not engaged in trade or business.
d. Resident citizen.
3. Individual taxpayers are subject to the following income tax:
I. Basic tax based on graduated table
II. Final withholding tax on passive income derived from sources within the Philippines
III. Capital gains tax
IV. Stock transaction tax of 6/10 of 1% of gross selling price
a. I and II only
b. I and III only
c. I, II and III only
d. All of the above
4. 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 the 8% income tax rate with the total of the 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”
5. Persons with disability (PWD) deriving returnable income during the taxable year, whether from
compensation or otherwise, are
a. Required to file their ITRs and pay the tax as they file the return.
b. Exempt from compensation income taxes.
c. Exempt from business taxes.
d. Given a special tax at 15% of gross income.
6. Which if the following royalties earned within the Philippines is not subject to 10% final
withholding tax?
a. Royalties from computer software
b. Royalties from books
c. Royalties from literary works
d. Royalties from musical compositions
7. If a non-resident citizen received his share in the income of a taxable joint venture, what type of
income tax that will apply on the said income?
a. Final withholding tax on passive income
b. Capital gains tax
c. Basic income tax
d. Fringe benefit tax
8. In general, the applicable rate in computing fringe benefit tax beginning January 1, 2018 is:
a. 32%
b. 30%
c. 25%
d. 35%
9. A domestic corporation provides fixed daily meal allowance to all its regular employees. The
meal allowance is:
a. Exempt from basic income tax
b. Subject to fringe benefit tax if the recipient is a rank and file employee
c. Subject to fringe benefit tax if the recipient is a managerial employee
d. Subject to basic income tax
10. The notarized sworn declaration that the company or corporation’s gross income is estimated
no to exceed P720,000 during the taxable year shall be executed by the:
a. Treasurer
 b. Chief Finance Officer
c. General accountant
d. President/managing partner of the corporation/company/general professional
partnerships
11. Pedro’s income tax due for the year amounted to P80,000. He may elect to pay the tax due on
instalment as follows:
a. In two equal installments
b. 1st installment is payable upon filing the annual income tax return.
c. 2nd installment is payable on or before October 15 following the close of the calendar year.
d. All of the above.
12. Income received by the estate during the period of administration or settlement of the estate,
for tax purposes is known as
a. Income of the estate
b. Income of the heirs
c. Income of the trustee
d. Income of the testator
13. Which of the following is subject to income tax?
a. SSS and GSIS
b. Philippine Health Insurance Corporation (PHIC)
c. Local Water Districts
d. Philippine Amusement and Gaming Corporation (PAGCOR)
14. Which of the following corporations shall pay a tax equal to thirty percent (30%) of the gross
income received during each taxable year from all sources within the Philippines?
a. Domestic corporation
b. Resident foreign corporation
c. Non-resident foreign corporation
d. None of the choices
15. Interest income receive from a depository bank under expanded foreign currency deposit
system beginning January 1, 2018 or upon effectivity of the TRAIN Law shall be subject to:
DC RFC NRFC
a. 20% 20% 20%
b. 7 ½% 7 ½% Exempt
 c. 15% 15% Exempt
d. 15% 7 ½% Exempt
16. Statement 1: Gain on sale of all kinds of capital assets are subject to the final tax on capital
gains.
Statement 2: Gain from sale of real property classified as capital asset and located in Miami,
Florida is not subject to the final tax on capital gain.
a. Both statements are correct
b. Both statements are not correct
c. Only the first statement is correct
d. Only the second statement is correct
17. The minimum corporate income tax is imposed on:
a. Proprietary educational institutions
b. General professional partnerships
c. Business partnerships
d. All of the above
18. Which of the following statements is incorrect?
a. Resident foreign corporations are subject to income tax based on net income from sources
within the Philippines.
b. Domestic corporations are subject to income tax based on net income from all sources.
c. Non-resident foreign corporations are subject to income tax based on gross income from
sources within the Philippines.
d. Private educational corporations are subject to income tax based on the net income from
sources within the Philippines at the tax rate of 10%.
19. Offshore Banking Units (OBUs) are tax exempt on income derived from
I. Foreign currency transactions with local commercial banks.
II. Foreign currency transactions with branches of foreign banks authorized by BSP.
III. Interest income derived from foreign currency loans granted to residents.
a. I only
b. II only
c. I and II only
d. II and III only
20. A tax imposed in the nature of a penalty to the corporation to prevent the scheme of
accumulating income rather than distribute the same to the stockholders for the purpose of
avoiding tax on dividends.
a. Minimum corporate income tax
b. Optional corporate income tax
c. Improperly accumulated earnings tax
d. Capital gains tax
21. Which of the following statements is wrong?
a. A general partnership in trade is not taxable as a corporation
b. A joint venture for undertaking construction projects is not taxable as a corporation.
c. A consortium for energy operations pursuant to an operating consortium agreement under
a service contract with the government is not taxable as a corporation.
d. A co-ownership where the activities of the co-owners are limited to the preservation of
property and collection of income from the property is not taxable as a corporation.
22. Which of the following is not an income for icome tax purposes?
a. Gain derived from labor
b. Return on capital
c. Excess of selling price over cost of assets sold.
d. Gift received
23. It is important to know the source of income for tax purposes (i.e., from within or without the
Philippines) 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
24. Which of the following compensation will be subject to graduated rates?
a. Basic salary whether or not the employee is a minimum wage earner
b. Basic salary only if the employee is not a minimum wage earner
c. 13th month pay and other benefits not exceeding P30,000
d. Fringe benefits received by supervisory or managerial employee
25. Which of the following statements is incorrect?
 a. Income from business is never subject to final withholding tax
b. Income from exercise of profession may be exempt from income tax
c. Income from business may be subject to capital gains tax
d. Income from exercise of profession may be subject to income tax
26. The following are not taxable, except
a. Refund of fringe benefits tax
b. Refund of Philippine income tax
c. Refund of estate or donor’s tax
d. Refund of special assessment
27. What is the correct treatment of advance payment made by the lessee to the lessor?
I. If the advance payment represents loan, the amount is part of the lessor’s taxable
income.
II. If the advance payment represents security deposit, the amount is part of the lessor’s
taxable income.
III. If the advance payment representing loan is applied to unpaid rent, the amount is part
of the lessor’s taxable income.
IV. Prepaid rent must be reported in full in the year of receipt.
a. All of the above
b. None of the above
c. I, II, and III only
d. III and IV only
28. If an individual performs services for a creditor who in consideration thereof cancels the debt,
the cancellation of indebtedness may amount.
a. To a gift
b. To a capital contribution
c. To a donation inter vivos
d. To a payment of income
29. Statement 1: Only business expenses may be deducted from the gross income taxpayers.
Statement 2: Itemized deductions from gross income should be duly supported by vouchers or
receipts.
a. Only statement 1 is correct
b. Only statement 2 is correct
 c. Both statements are correct
d. Both statements are incorrect
30. Optional standard deduction
a. Is equal to 40% of the gross income from business or practice of profession.
b. Cannot be used as a deduction from compensation income.
c. May be availed by all individuals
d. May be availed of by the taxpayer whether or not he signifies his desire to elect optional
standard deduction.
The next two (2) questions are based on the following data:
Carlo, married, with two dependent children, received the following income:
Business income, Philippines P1,000,000
Business income, Hongkong 200,000
Interest, peso deposit, MBTC 100,000
Interest, US$ deposit, BDO ($10,000 x P42) 420,000
Interest, deposit in Hongkong (HK$10,000 x P5) 50,000
Prize (TV) won in a local lottery 50,000
PCSO/Lotto winnings 2,000,000
Prize won in contest in U.S. 300,000
Lotto winning in U.S. 100,000
Dividend, domestic company 600,000
31. 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
32. LJ and Fermin formed a joint venture. They agreed to share profit or loss in the ratio of 70% and
30%, respectively. The results of operations for 2018 taxable year were provided below:
Joint Venture LJ Fermin
Gross Income P5,000,000 3,000,000 2,000,000
Business expenses 3,000,000 2,000,000 1,000,000
The total income tax expense of LJ in 2018 is:
 a. P0
b. P288,000
c. P367,000
d. P582,600
33. Assume the joint venture is non-taxable, the total income tax expense of LJ is
a. P0
b. P367,000
c. P618,000
d. P717,000
34. Vincent sold a residential house and lot held for P10,000,000 to his friend. Its FMV when he
inherited it from his father was P12,000,000 although its present FMV is P15,000,000.
The tax on the above transaction is:
a. P720,000 capital gains tax
b. P900,000 capital gains tax
c. 30% donor’s tax
d. Value added tax
Use the following data for the next two (2) questions:
During 2019, Alpha Corporation gave the following fringe benefits to its employees:
Salaries to rank and file employees P1,000,000
Salaries to managerial employees 1,800,000
De minimis benefits to rank and file employees 54,500
De minimis benefits to managerial employees 27,200
Fringe benefits to rank and file employees 102,000
Fringe benefits to managerial employees 170,000
35. How much is the fringe benefit tax?
a. 48,000
b. P80,000
c. P91,538
d. P166,400
36. How much is the total allowable deduction from business income of Alpha Corporation?
a. P3,153,600
b. P3,233,600
 c. P3,245,138
d. P3,271,600
Use the following data for the next four (4) questions:
The following data were taken from Juan (single), holding managerial position for 2018 taxable
year:
Gross salaries @ P50,000 per month P600,000
SSS contributions 12,000
Philhealth contributions 7,200
Pag-ibig contributions 4,800
Union dues 3,000
Withholding tax on compensation income 73,250
Allowances, not subject to liquidation 100,000
Gasoline allowances, subject to liquidation 17,000
13th month pay 50,000
De minimis benefits 12,000
37. The taxable compensation income subject to gradated rate under Section 24(A) of the tax code
is:
a. P465,000
b. P576,000
c. P573,000
d. P600,000
38. Based on the above data, the fringe benefit tax due is:
a. P0
b. P8,000
c. P53,846
d. P47,059
39. The total income tax expense of Juan is:
a. P127,096
b. P141,000
c. P170,760
d. P179,400
40. The income tax payable of Juan is:
 a. P0
b. P30,000
c. P43,250
d. P73,250
Use the following data for the next two (2) questions:
41. In 2018, East Star Inc. sold shares of stock of a domestic corporation for P250,000. The shares,
acquired in 2015 at a cost of P100,000, were held as investment, and were sold through the
local stock exchange. How much was the applicable tax due?\
a. P1,250
b. P1,500
c. P10,000
d. P15,000
42. Assume the shares sold were not held for investment purposes and the seller is a dealer in
securities, how much is the stock transaction tax (STT)?
a. P1,250
b. P1,500
c. P10,000
d. nil
43. The following information were taken from the records of ABC Inc., a domestic corporation
already in its 5th year of operations:
Gross profit from sales P3,100,000
Capital gain on sale directly to buyer of shares in a domestic corporation 100,000
Dividend from:
Domestic corporation 20,000
Resident foreign corporation 10,000
Interest on:
Bank deposit 20,000
Trade receivable 50,000
Business expenses 2,100,000
Income tax withheld 115,000
Quarterly income tax payments 160,000
Income tax payable prior year (10,000)
 The income tax payable at the end of the year:
a. 33,000
b. 43,000
c. 63,000
d. 318,000
Use the following data for the next two (2) questions:
44. Delta Corporation, an entity organized under the laws of Russia, is engaged in business in the
Philippines for 10 years already. During the year 2018, its income and expenses are shown
below:
Philippines Russia
Gross income 20,000,000 30,000,000
Business expenses 18,500,000 21,000,000
Interest income from dollar deposit 500,000
Yield on money market placement 1,000,000
How much is the income tax payable upon filing its annual income tax return?
a. 3,000,000
b. 400,000
c. 450,000
d. 300,000
45. Assume the same data in the preceding number except that the business expenses amounted to
19,000,000. How much is the income tax payable upon filing its annual income tax return?
a. 3,000,000
b. 400,000
c. 450,000
d. 300,000
Use the following data for the next two (2) questions:
46. China Airlines Inc., a resident foreign corp. has the following data for the taxable year 2018:
Passengers airfare from China to Philippines 1,800,000
Passengers airfare from Philippines to China 1,500,000
Airfare for cargoes from China to Philippines 700,000
Airfare for cargoes from Philippines to China 1,300,000
How much was the income tax payable?
 a. 39,000
b. 60,000
c. 70,000
d. 84,000
47. Based on the preceding number, how much was the common carrier’s tax for the year?
a. 39,000
b. 60,000
c. 70,000
d. 84,000
Use the following data for the next three (3) questions:
Hananiah Corporation provided the following data for calendar year ending December 31, 2018
($1 – P50):
Philippines Abroad
Gross Income 4,000,000 $40,000
Deductions 2,500,000 $15,000
Income tax paid $3,000
48. If the corporation is a domestic corporation, its income tax payable is:
a. 450,000
b. 1,280,000
c. 675,000
d. 825,000
49. If the corporation is a non-resident lessor of aircrafts, machineries and equipment, its income
tax payable is:
a. 100,000
b. 180,000
c. 300,000
d. 128,000
50. If the corporation is a regional operating headquarters, its income tax payable is:
a. 150,000
b. 450,000
c. 880,000
d. 525,000
51. A depositary bank under Foreign Currency Deposit System has the following income from
foreign currency transactions ($1 = P45):
From Nonresidents $5,000
From Residents $3,000
From Philippine National Bank $2,000
How much is the final withholding tax applicable on the above income?
a. P0
b. P9,000
c. P13,500
d. P22,500
Use the following data for the next three (3) questions:
52. TGT & Co. is a general partnership in trade and on its fifth year of operations. During the current
taxable year, it had a gross profit from sales and business expenses of P2,000,000 and
P1,000,000 respectively. T, G, and T share equally in the profits and losses of the partnership.
The income tax due of the partnership is:
a. P40,000
b. P300,000
c. P640,000
d. P0
53. The income tax payable of the partners as a consequence of being a partner in the Partnership
is:
a. P0
b. P68,000
c. P77,000
d. P70,000
54. TG Partnership reported for a year net profit from trading amounting to P800,000. The other
income included interest income of P8,000, net of 20% final withholding tax, and dividend
income from domestic corporation of P20,000. Assuming T and G share profits and losses
equally, how much is the final withholding tax on the distributive share of T in the earnings of
that partnership?
a. P28,700
b. P28,600
 c. P28,000
d. P29,400
55. A taxpayer is employed by a shipping company touching Philippine and foreign ports. In 2018,
he received a gross payment for his services rendered of P3,000,000. In that year, the vessels on
board of which he rendered services had a total stay in Philippine ports of four months. His gross
income from the Philippines was
a. P0
b. P1,000,000
c. P1,500,000
d. P3,000,000
56. JJ, an official of Excel Corporation, asked for an earlier retirement because he was immigrating
to Canada with his girlfriend. He was paid P3,000,000 as separation pay in recognition of his
valuable services to the corporation. Paul, another official of the same company was separated
for occupying a redundant position. He was given P1,000,000 separation pay. Rene who has
rendered 11 years of service and who is now 55 years old opted to retire for the first time. He
received P2,000,000 retirement pay. The total income subject to withholding tax is
a. P1,000,000
b. P2,000,000
c. P3,000,000
d. P6,000,000
57. ABC Company paid the following taxes in 2018:
Income tax 120,000
Common carrier’s tax 150,000
Local business taxes 100,000
Donor’s tax 60,000
Real estate tax 70,000
The common carrier’s tax, real estate tax and 60,000 of the income tax were refunded in 2018. If
the income of ABC in 2018 was 1,200,000, the taxable income for the year should be:
a. 1,200,000
b. 1,480,000
c. 1,420,000
d. 1,410,000
58. MM, a member of the Philippine boxing team received the following during 2018:
Prize for winning gold in the Asian games 500,000
Athlete of the year award 100,000
Winning from Philippine lotto 400,000
Prize – Mc Donald raffle promo 10,000
Cash gift from his SM Foundation 100,000
The amount not subject to income tax is
a. 700,000
b. 1,100,000
c. 1,110,000
d. 1,010,000
59. Pedro, single received the following during the taxable year:
Proceeds of his life insurance paid at an annual premium of 15,000 within 25 years 2,000,000
Proceeds of his mother’s life insurance paid at an annual premium of 10,000
within 20 year 1,000,000
House and lot inherited from his mother 4,000,000
Rent income from inherited properties 200,000
For income tax purposes, how much of the above items must be included in his gross income?
a. 7,200,000
b. 1,200,000
c. 200,000
d. 1,825,000
60. Marlon was hit by a car driven by Jaysee causing severe injuries to the former. It was found out
during trial that the driver was drunk at the time of the incident.
After trial, the court awarded the following:
● 1,500,000 actual damages for hospitalization
● 300,000 exemplary damages
● 500,000 for loss of income
● 100,000 moral damages
Marlon also received a cash gift of 100,000 from Jaysee. The taxable income received by Marlon
is:
a. 2,400,000
 b. 1,900,000
c. 1,500,000
d. 500,000
61. A leasehold is acquired for business purposes 5,000,000. The lease contract is for 10 years. How
much is the deductible amount from the gross income during the year?
a. 500,000
b. 1,000,000
c. 5,000,000
d. 0
62. RRO Corporation paid the following during 2019:
Interest paid for late payment of income tax for 2018 50,000
Surcharge and compromise penalty for late payment of 2018 income tax 72,500
Interest on bonds issued by RRO 1,000,000
Interest on money borrowed by RRO from Rey, 60% owner of RRO 500,000
Interest on preferred shares which in reality is dividend 200,000
How much is the deductible interest for 2019?
a. 1,822,500
b. 1,122,500
c. 1,000,000
d. 50,000
Use the following data for the next two (2) questions:
63. Mapanlinlang Corporation was assessed by the BIR due to underpayment of Percentage Taxes.
The Assessment Notice disclosed the following:
Basic Tax 1,000,000
Surcharge 250,000
Interest 200,000
Penalties 25,000
Total 1,475,000
It also generated interest income from bank deposits amounting to 100,000. How much is the
deductible interest?
a. 200,000
b. 162,000
 c. 167,000
d. nil
64. Based on the above problem, how much is the deductible taxes?
a. 1,275,000
b. 1,000,000
c. 1,250,000
d. nil
65. Niah Corporation is engaged in the sale of goods with net sales of 2,000,000. The actual
entertainment, amusement and recreation expenses for the taxable quarter totalled 20,000. For
income tax purposes, how much is the deductible entertainment, amusement and recreation
expenses?
a. 10,000
b. 11,000
c. 20,000
d. 0
66. X Corporation owns 100% of Y Corporation. Y Corporation owns 100% of Z Corporation that has
NOLCO. Z Corporation is merged into Y Corporation. Which of the following statements is
correct?
a. Z Corporation’s NOLCO can be used by it to the exclusion of all the other parties.
b. Z Corporation’s NOLCO is transferred to Y Corporation.
c. Z Corporation’s NOLCO is transferred to X Corporation.
d. Z Corporation’s NOLCO can no longer be used.
67. On December 1, 2018, Ana purchased 100 shares of common stock of Jessie Company for
10,000. On December 15, 2018, she purchased 100 additional shares for 9,000. On January 2,
2019, she sold the 100 shares purchased on December 1, 2018 for 9,000.
How much is the deductible loss?
a. 1,000
b. 750
c. 500
d. 0
68. Dong, a gambling addict, won 90,000 from cockfighting during the year. However, he also
suffered losses from other gambling activities amounting to 200,000. How much is the
deductible loss?
a. 200,000
b. 110,000
c. 90,000
d. nil
69. In 2017, Delta Company paid total premiums of 10,000 for the life insurance policy of the vice
president, where the beneficiary is the corporation. At the end of the year, Delta received
dividend of 100,000 because of the policy. In 2017, the corporation should indicate a claim for a
deduction for life insurance premium of
a. 100,000
b. 10,000
c. 1,000
d. nil
70. The following contributions and donations were made by a taxpayer:
To Christ the King Catholic Church 250,000
To Bukas Palad, non-profit domestic corporation 300,000
To the fire victims of Recto 200,000
To the Gospel church of Taiwan 350,000
How much is the total deductible actual charitable and other contributions subject to limit?
a. 250,000
b. 550,000
c. 750,000
d. 1,100,000
71. A domestic corporation has the following data on income and expenses
Gross business income 6,200,000
Deductions including SSS and Philhealth contributions of 150,000 2,500,000
Contributions to the Government for priority project in education 100,000
Contribution to foreign private foundation 100,000
Contribution to domestic charitable organization 190,000
How much is the deductible charitable and other contributions?
 a. 390,000
b. 290,000
c. 285,000
d. 211,000
72. Gallaxy, Incorporated has been in business for the past 10 years. For the year 2018, it decided to
establish a pension fund for its employees. The pertinent data of the fund are as follows:
Past service cost (lump sum payment) 1,000,000
Present service cost 100,000
The deductible pension contribution for the year is
a. 100,000
b. 200,000
c. 1,000,000
d. 1,100,000
73. A resident citizen has the following data on income and expenses in 2018:
Gross compensation income 200,000
Gross sales 900,000
Cost of sales 500,000
Business expenses 200,000
He avails himself of the Optional Standard Deduction. How much is his taxable net income?
a. 690,000
b. 740,000
c. 420,000
d. 290,000
74. A domestic corporation has the following data on income and expenses in 2018:
Gross sales 9,350,000
Sales returns and allowances 250,000
Sales discounts 100,000
Interest income on trade notes receivable 150,000
Other income 50,000
Cost of sales 3,000,000
Operating expenses with vouchers and receipts 4,000,000
Operating expenses without vouchers and receipts 500,000
 Interest income from savings deposit 80,000
Interest income from deposit under FCDS 125,000
Royalty income 100,000
How much is the taxable income using itemized deduction?
a. 1,675,000
b. 2,175,000
c. 1,700,000
d. 2,200,000
75. Based on the preceding number, how much is the taxable income using OSD?
a. 3,755,000
b. 5,470,000
c. 3,695,000
d. 3,720,000