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CHAPTER 1 (SELF-TEST EXERCISES)

EXERCISE DRILLS
Constitutional constitution C, Inherent limitation I, If it is not a limitation to the taxing power
indicate N

1. Non-assignment of taxes C and I (This is

non-delegation)

2. Territoriality of taxation I

3. Taxes must be for public use I

4. Exemption of the property of religious institutions from income tax N (Real property tax
not income tax)

5. Exemption of the revenues and assets of non-profit, non-stock educational C

institutions

6. Non-delegations of the taxing power C and I

7. Non-appropriation for religious purpose C

8. The requirement of absolute majority in the passage of a tax exemption C

law.

9. Non-imprisonment for non-payment of tax or debt N (Non-payment of

tax = imprisonment)

10. Taxpayers under the same circumstances should be treated equal both in C
terms of privileges and obligations.

11. Exemption from property taxes of religious, educational and charitable C

entities.

12. Government income and properties are not objects of taxation. I (“Properties”
excludes it from
being a
constitutional limit)

13. Each local government shall have the power to create its own sources of C
revenue.

14. Imprescriptibility in taxation N (A principle but

not a limitation)

15. Non-impairment of obligation and contracts C

16. Guarantee of proportional system of taxation C

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17. International courtesy I

18. Non-impairment of jurisdiction of the supreme court to review tax cases. C

19 The government is not subject to estoppel N (A principle but

not a limitation)

20. Imprisonment for non-payment of poll tax. N (Should be

non-imprisonment)

TRUE OR FALSE 1

1. Eminent domain involves confiscation of prohibited commodities to protect the well-being

of the people. FALSE (THIS IS A POLICE POWER.)
2. Horizontal equity requires consideration of the circumstances of the taxpayer. TRUE
3. Taxes are the lifeblood of the government. TRUE
4. Taxation is a mood of apportionment of government costs to people. TRUE
5. There should be direct receipt of benefit before one could be compelled to pay taxes.
FALSE (The receipt of benefit is conclusively presumed.)
6. The exercise of taxation power requires constitutional grant. FALSE (Taxation power is
inherent to the state)
7. Taxation is inherent in sovereignty. TRUE
8. Police power is the most superior of the government. Its exercise needs to be sanctioned
by the constitution. FALSE (It is an inherent power not requiring a constitutional
mandate.)
9. All inherent powers presuppose an equivalent form of compensation. TRUE
10. The reciprocal duty of support between the government and the people underscores the
basis of taxation. TRUE

TRUE OR FALSE 2

1. The constitutional exemption of religious, charitable, and non-profit cemeteries, churches

and mosques refers to income tax and real property tax. FALSE (Property tax only)
2. Taxpayers under the same circumstances should be taxed differently. FALSE (Different
taxpayers warrants different tax treatments.)
3. Taxation is subject to inherent and constitutional limitations. TRUE
4. International comity connotes courtesy between nations. TRUE
5. Collection of taxes in the absence of law is violative of the constitutional requirement for
due process. TRUE (It will result to violation of substantive due process.)
6. The scope of taxation is regarded as comprehensive, plenary, unlimited, and supreme.
TRUE
7. No one shall be imprisoned for non-payment of tax. FALSE (The constitutional
guarantee for non-imprisonment applies to debt not tax.)
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8. The lifeblood doctrine requires the government to override its obligations and contracts
when necessary. FALSE (The constitution guarantees the sanctity of contract by its
non-impairment clause.)
9. ⅔ of all members of congress is required to pass a tax exemption law. FALSE (The
constitution requires the majority of all members of congress to pass a tax
exemption law.)
10. The government should tax itself. FALSE (It will not produce additional benefit if the
government taxes itself.)

MULTIPLE CHOICE - THEORY PART 1

1. The point at which tax is levied is also called A. Impact of taxation

2. Which of the following inappropriately describes the nature of taxation? D. Generally for
public purpose
3. Which is correct? 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
5. International double taxation can be mitigated by any of the following except D. Entering
into treaties to form regional trade blockage against the rest of the world.
6. Which is not an object of taxation? D. Public properties
7. That courts cannot issue injunction against the government effort to collect taxes is
justified by A. The lifeblood doctrine
8. The power to enforce proportional contribution from the people for the of the government
is A. Taxation
9. This theory underscores that taxes are indispensable to the existence of the B. The
lifeblood doctrine
10. A. Taxation is the rule, exception is the exemption.
B. Vague taxation laws are interpreted liberally in favor of the government.
Which is false? C. Both A and B
11. Select the incorrect statement. D. Taxes should be collected only for public
improvements.
12. Which is not a public purpose? D. None of these
13. Which does not properly describe the scope of taxation? C. Discretionary
14. All of these are secondary purposes of taxation except C. To raise revenue for the
support of the government
15. What is the theory of taxation B. Necessity
16. A. Taxes should not operate retrospectively.
B. Tax is generally for public purposes.
Which is true? A. A only (Absolutely)
17. Which provision of the constitution is double taxation believed to violate? D. Either A or
C
18. Which limitation of taxation is the concept of “situs of taxation” based? A. Territoriality
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19. Which tax exemption is irrevocable? D. Both A and B
20. Which statement is incorrect? D. Only those who are able to pay tax can enjoy the
privileges and protection of the government.
21. Which is the most incorrect statement regarding taxes? C. There should be personal
benefit enjoyed from the government before one is required to pay.
22. Statement 1: In the selection of the objects of taxation, the courts have no power to
inquire into the wisdom, objectivity, motive, expediency, or necessity of a tax law.
Statement 2: An imposition can be both a tax and a regulation. Taxes may be levied to
provide means for rehabilitation and stabilization of threatened industry.
Which is correct? C. Both statements.
23. Which of the following acts in taxation is administrative by nature? C. Levy or distraint
of taxpayer’s property for tax delinquency
24. This refers to the privilege or immunity from a tax burden which others any 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.
Which statement is true? B. Only statement 2
26. Which is not a legislative act? C. Assessment of the tax
27. Statement 1: Taxation is the rule; exemption is the exception.
Statement 2: Taxation may be used to implement the police power of the state.
C. 1 and 2 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 the Bureau of Internal Revenue
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 their respective subjects is called
B. international comity
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3. An educational institution operated by a religious organization was being required by a
local government to pay real property tax. Is the statement valid? B. Yes, with respect
to properties not actually devoted to educational purposes
4. Which is not a constitutional limitation? A. 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 limitations to the power of taxation except one. Choose the
exception. D (B (legislative in character) is non-delegation) - Non-appropriation for
religious purpose
7. That all taxable articles or properties of the same class shall be taxed at the rate
underscores? C (There is taxpayer class) - Uniformity of taxation
8. The following are limitations of taxation:
A. Territoriality of taxation
B. Exemption of the government
C. Taxation is for the public purpose
D. Non-impairment of contracts
E. Non-delegation of the power to tax
Which of these are classified as both constitutional and inherent limitations? C. C and E
9. The provision in constitutions regarding taxation are B. Limitations to the power to tax
10. The constitutional exemption of non-stock, non-profit educational institutions refers to C.
Property tax and income tax
11. Which of the following is violative of the principle of non-delegation? 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 phase-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 it to congress for approval.
Is this a valid exercise of taxation power? 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 subjecting the practice of lung transplant to 2% tax based on
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receipts. Ram objected, claiming that other transplant specialists in other regions of the country
are not subjected to tax.
Is ram’s contention valid? C. No, because the ordinance would cover all transplant
specialist who would practice 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 rice farmers who produce the staple food of the Philippines. Is the new law valid?
A (Different taxpayer warrants different treatment) - 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 (GOCCs)
to income tax. I sthe law valid? B. Yes, because GOCCs 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.
Non-delegation 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 (Violation of territoriality) - No, as this leads to
encroachment of foreign sovereignty.
20. Which of the following normally pay real property tax? D. AM Property holdings, a
registered property development company
21. Tax exemption bills are approved by A. Majority of all members of congress
22. The japanese government invested P100,000,000 in a Philippine local bank and earned
P10,000,000 interest. Which is correct? B. The income 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 (a. Public use
and b. Just compensation)
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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 operators
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. C. Taxation power shall be exercised by congress even
without an express constitutional grant.
11. Which is principally limited by the requirement of due process? B. 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 1 and 2
13. Which power of the state affects the least number of people? B. Eminent domain
14. Select the correct statement. C. The police power of the state is superior to than
non-impairment clause of the constitution
15. Which of the following is not exercised by the government? C. Eminent domain
16. Select the incorrect statement. A. Since there is compensation, eminent domain
raises money for the government.
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 grant.
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, or enterprises for a purpose of
raising revenue is invalid tax law.
Which is incorrect? D. Neither statement
19. Select the correct statement. B. The power to tax includes the power to destroy.
20. Which of the following powers is inherent or co-existent with the creation of the
government? D. All of these (A. Police power, B. Eminent domain, C. Taxation)
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. D. Taxes should be collected only for public
improvement
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23. Which of the following is not a constitutional limitation of the power of tax? D (Best
being also inherent) - Non-delegation 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: SELF-TEST EXERCISES

Exercise Drill No.1

1. A consumption tax collected by non-VAT businesses - PERCENTAGE TAX

2. Tax on gratuitous transfer of property by living donor - DONOR’S TAX
3. Tax that decreases in rates as the amount or value of the tax object increases -
REGRESSIVE TAX
4. Tax collected upon persons who are not the statutory taxpayers - INDIRECT TAX
5. Tax that is imposed based on the value of the tax object - AD VALOREM TAX
6. Tax for general purpose - FISCAL/GENERAL/REVENUE TAX
7. Tax imposed by the national government - NATIONAL TAX
8. A tax on sin products or non-essential commodities - EXCISE TAX OR SIN TAX
9. Imposed on the gratuitous transfer of property upon death - ESTATE TAX
10. Tax on residents of a country - COMMUNITY TAX OR RESIDENCY TAX
11. Tax that remains at flag rate regardless of the value of the tax object - PROPORTIONAL
TAX
12. Tax which is collected on a per unit basis - SPECIFIC TAX
13. Tax is collected upon the statutory taxpayer - DIRECT TAX
14. Tax imposed to regulate businesses or professions - REGULATORY TAX
15. Tax upon performance of an act or enjoyment of a privilege - EXCISE TAX PRIVILEGE
TAX

Exercise Drill No.2

1. It refers to all income collections of the government - REVENUE

2. It is an imposition for the support of the government - TAX
3. It is imposed upon land adjacent to public improvements - SPECIAL ASSESSMENT OR
SPECIAL LEVY
4. It is imposed on imported and exported commodities - CUSTOMS DUTIES
5. It is a charge imposed prior to the commencement of business or exercise of a
profession - LICENSE
6. It is a post-activity rather that a pre-activity imposition - TAX
7. It is subject to compensation or set-off - DEBT
8. It is a charge for the use of other’s property - TOLL
9. It is an imposition intended to discourage an act - PENALTY
10. It arises from contracts rather than from law - DEBT
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Exercise Drill No.3

As to payment
1. Value Added Tax - ≥ P200,000/QUARTER
2. Excise Tax - ≥ P1,000,000/YEAR
3. Income Tax - ≥ P1,000,000/YEAR
4. Withholding Tax - ≥ P1,000,000/YEAR
5. Percentage Tax - ≥ P200,000/QUARTER
6. Documentary Stamp Tax - ≥ P1,000,000/YEAR
As to conditions and operations
1. Gross receipts or sales - ≥ P1,000,000,000 IN A YEAR
2. Net worth - ≥ P300,000,000 AT YEAR END
3. Gross purchases - ≥ P800,000,000 IN THE PRECEDING YEAR

MULTIPLE CHOICE - THEORY 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 REGULATIONS
7. Tax as to purpose is classified as A. FISCAL OR REGULATORY
8. Tax as to incidence is classified as B. DIRECT OR INDIRECT TAX
9. Tax as to sources 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 taxpayers are referred to as 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 tax that is imposed upon the performance of ana act, the enjoyment of privilege or the
engagement in 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? D. SPECIAL ASSESSMENT APPLIES ONLY WHEN PUBLIC
IMPROVEMENT IS MADE
18. Tax as to 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. Which of the above is/are not an essential characteristic of a valid tax? C. NONE,
EXCEPT F
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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 or per head 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 P80,000. Since he is leaving
the country, he entered into a contract with Mr. B wherein Mr. B shall pay the P80,000
tax in his behalf. On due date, Mr. B failed to pay the tax. The BIR sent a letter of
demand to Mr, A which he refused to pay. Which of the following statements is correct?
D. THE GOVERNMENT SHOULD FORCE MR. A TO PAY BECAUSE TAXES ARE
NON-ASSIGNABLE
28. Philippine tax laws are by nature, B. CIVIL
29. Motor vehicles tax as an example of B. PRIVILEGE TAX
30. Which of the following statements is correct? C. A TAX BILL PERSONALLY DRAFTED
BY THE PRESIDENT SHALL BECOME LAW AFTER APPROVAL BY CONGRESS
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 taxpayer, the
tax is shown as B. DIRECT TAX
38. Tax is 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
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. PROPERTY 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
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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 COST OF
REGULATIONS
3. A levy from a property which derives some special benefit from public improvement is A.
SPECIAL ASSESSMENT
4. A. Government revenue may come from tax, license, toll and penalties
B. Penalty may arise either from law or contracts.
Which is false? D. NEITHER A NOR B
5. What distinguishes tax from license? D. TAX IS A POST-ACTIVITY IMPOSITION
6. Which of the following distinguishes license from tax? C. NON-COMPLIANCE TO IT
WILL RENDER BUSINESSES 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? B. TAX IS THE SOLE SOURCE OF GOVERNMENT
REVENUE
11. Debt as compared to tax C. IT WILL NOT CAUSE IMPRISONMENT WHEN NOT PAID
12. Select the incorrect statement D. SPECIAL ASSESSMENT CAN BE IMPOSED ON
BUILDING AND OTHER 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 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 PRESCRIBE
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 TAX LIABILITY
5. Which is not an application of principle of a sound tax system? D. NONE OF THESE
6. By which principle of a sound tax system is the elasticity in tax rates justified? B.
FISCAL ADEQUACY
7. Violation of this principle will make a tax law valid B. THEORETICAL JUSTICE
8. Which of the following is not an application of the lifeblood doctrine? D. NONE OF THIS
9. Which one of the following is the BIR not empowered to do? C. ASSETS AND
COLLECT LOCAL TAXES
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10. Which principle demands that as should be just, reasonable, and fair? C.
ADMINISTRATIVE FEASIBILITY
11. Which of 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 FROM 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 taxpayer? 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 P1.5B
22. As to tax payments measures, which of the following thresholds for the qualification as
large taxpayer is incorrect? B. ANNUAL VALUE ADDED TAX PAYMENTS OF P1M

Chapter 3
EXERCISE DRILL NO.1: Return of capital and return on capital
Indicate the amount representing return of capital or return on capital

consideration For the loss of Return of Capital Return on

Capital

1. P1,000,000 Health 1,000,000 0

2. 500,000 P400,000 car 400,000 100,000

3. 300,000 P350,000 300,000 0

building

4. 600,000 income 0 600,000

5. 1,200,000 life 1,200,000 0

EXERCISE DRILL NO.2: income tax and transfer tax

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Check the box where each of the following items is taxable

Transaction Income Tax Transfer Tax

1. Barter of Properties /

2. Sale of Goods /

3. Rendering of services /

4. Donation of properties /

5. Transfer of properties from a decedent /

to the heirs upon death

6. Transfer for less than full and adequate / /

consideration

EXERCISE DRILL NO.3: the tax concept of income

Check the appropriate box whether the following are exempt or taxable

ITEM TAXABLE EXEMPT

1 Winning from gambling /

2 Income for swindling /

3 Indemnity for moral damages /

4 Harvested fruits from an orchard /

5 Compensation income /

6 Interest income /

7 Amount received by the insured in /

excess of insurance premiums paid

8 Proceeds of life insurance received by /

their heirs of the insured

9 Gain on sale of goods by the home /

office to its branch

10 Gain on sale of goods and services /

between relatives

11 Gain on sale of goods by a parent /

corporation to a subsidiary corp.
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12 Appreciation in the value of land /

13 Birth of animal offspring /

14 Income of a registered barangay /

micro-business enterprise

15 Cancellation of debt out of gratuity of the /

creditor

16 Cancellation of debt by the creditor in /

exchange of services rendered by the
debtor

17 Matured interest from coupon bonds /

18 Receipt of bank loans /

19 Salaries of a minimum wage earner /

20 PCSO OR LOTTO WINNINGS /

21 Benefits from GSIS, SSS, PAG-IBIG or /

PhilHealth

22 Discovery of hidden treasure /

EXERCISE DRILL NO.4: Income tax payer classification

Indicate the appropriate classification for each of the taxpayer:

DC-Domestic corporations RC- resident citizen

RFC-Resident foreign corporation NRC- non resident citizen
NFRC-Non resident foreign corporation RA-resident alien
NRA-ETB- Non resident alien engaged in
trade or business
NRA-NETB- non resident alien not engaged
in trade or business
NT-not a taxpayer

Person or entity classification

1 A fat mexican tourist NRA-NETB

2 A hardworking overseas Filipino worker NRC

3 An expatriate employee NRC

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4 A filipino who is privately employed in the philippines RC

5 An unemployed filipino residing in the philippines RC

6 A chinese businesswoman who has hid domicile in the NRA-NETB

philippines for 6 months

7 A japanese who married a beautiful filipina and has RA

been residing in the philippines for 2 years

8 A 2nd year korean college student studying in the RA

philippines

9 A corporation incorporated under Philippine law DC

10 A foreign corporation doing business in the philippines RFC

11 Trust designated by the donor as irrevocable RC

12 Trust designated by the donor as revocable NT

13 A business partnership DC

14 A joint venture organized under a foreign law and its not NRFC
operating in the philippines

15 An estate of a filipino citizen judicially administered in NRC

Japan

16 An estate of a filipino citizen extra-judicially NT

administered in the philippines

17 A taxable joint venture organized in the philippines DC

18 A non-profit corporation organized in the philippines DC

EXERCISE DRILL NO.5: General income tax rule

Check the box that properly corresponds to the taxability of the following taxpayers

taxpayer World of income Philippine income

1 Non-resident not engaged in business /

2 Non resident citizen /

3 Resident alien /

4 Non-resident alien engaged in trade or /

business
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5 Resident foreign corporation /

6 Resident citizen /

7 Non-resident foreign corporation /

8 Domestic corporation /

9 Taxable trusts established by a filipino /

citizen in the philippines

10 Taxable estate of non -resident citizen /

judicially administered abroad

EXERCISE DRILL NO.6: Location and situs if income

Compute how much is earned within and earned outside the Philippines for each of the
following independent cases:

INCOME DESCRIPTION WITHIN WITHOUT

1 Rey earned P100,000 interest income; 40% of these 60,000 40,00

were from non-resident debtors

2 A finance company earned P1,000,000 royalties from a 600,000 400,000

franchise; 40% of these were derived abroad

3 Raymond earned P100,000 resent from ofws from his 40,000 100,000
apartment in the US. He also earned P40,000 rent from
his Philippine condo unit

4 Chester, a resident citizen, works home online and 120,000 0

submits his outputs to clients. He collected P100,000 (SITUS IS
service fee from foreign clients and P20,000 from WHERE
resident clients RENDERED)

5 Mark rendered audit services to client in Afghanistan for 0 500,000

P500,000. The services were paid in Afghanistan

6 Jun has a store in a tourist park in baguio city 40,000 (situs 0

Philippines. He earned a total of P40,000 gain from is place of
selling souvenir items. 40% were from foreign tourists. sale)

7 Don mariano sold at a gain of P2,000,000 to a client 2M (situs is 0

abroad a commercial building location in Quezon city, location)
Philippines.

8 John sold his stocks in a domestic corporation to a 50,000 0

foreign investor at a gain of P50,000

9 Manso, received P20,000 dividends from a domestic 20,000 30,000

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corporation; and P30,000 dividend income from a

non-resident foreign corporations

10 Andrew received P40,000 dividends from resident 24,000 (60% 16,000 (40%
foreign corporations; 60% of its historical income in the x P40,000) x 40,000)
philippines

11 CDO,INC manufactures in the Philippines and sells to 100,000 0

unaffiliated export clients. A total of P100,000 gross
income was earned during the period

12 ABC Manufactures abroad and sells to its Philippine 150,000 100,000

branch at market prices. Production cost abroad were
P200,000. Billings to branch totaled P300,000 while
branch sales totaled P450,000

13 James received P100,000 dividends from a resident 0 100,000

foreign corporation which realized 40% of its income in
the Philippines

14 Ellis received P200,000 dividend from a non-resident 0 20,000

foreign corporation.

15 Davao plant manufactures tables and sells to resident 400,000 0

clients. A total of P400,000 gross income was realized
during the period.

Multiple choice- Theory Part 1

1. Which is not a requisite of gross income
a. Return on capital
b. Realized benefit
c. Exempted by law
d. Not exempted by law
2. Which is a taxable item of income?
a. Increase in numbers if a herd of animals
b. Compensation for personal injuries
c. Moral damages
d. Interest on moral damages
3. Which is not a subject to income tax?
a. Donation
b. Sale of service
c. Sales of goods
d. Barter of goods
4. The total consideration received from the sale of service constitute
a. Return on capital
b. Return of capital
c. Either a and b
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d. Both a and b
5. When paid for, which of the following items may involve a return on capital
a. House and lot
b. Life
c. Dignity
d. health
6. The total consideration received from the sale of goods at a loss represents
a. Return on capital
b. Return of capital
c. Either a and b
d. Both a and b
7. The total consideration received from the sale of goods at a loss represents
a. Return on capital
b. Return of capital
c. Either a and b
d. Both a and b
8. Why is income subject to taxation
a. Income is the most prevalent source of a taxpayer’s wealth.
b. Income is the best measure of taxpayers’ ability to pay tax
c. Rich people tend to have more income than the poor
d. Any of these
9. Which is not an item of gross income because if the absence of an undertaking from the
taxpayer?
a. Proceeds of a life insurance policy
b. Forgiveness of indebtedness as an act of gratuity
c. Revaluation surplus on properties
d. Service fees
10. Which subject to income tax?
A. Proceeds of a life insurance policy received by the family of the insured
B. Excess of proceeds over the premiums paid received by the taxpayer
C. Life insurance proceeds received by the corporation from the insurance
deceased officer
D. None of these
11. Which of the following is exempted from income taxation because of the absence of
ability to pay?
a. Damages received from patent infringement suit
b. Unrealized income from investments
c. Gain on sale of goods
d. inheritance
12. Income tax maybe imposed for the following purposes, except
a. To provide large amounts of revenues
b. To limit corruption
c. To offset regressive sales and consumption taxes
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d. To mitigate the evils arising from the inequalities in the distribution of income and
wealth
13. Which of the following constitutes taxable income?
a. Return of premium on life insurance received by the insured
b. Moral damages received from slander
c. Proceeds of crop insurance
d. Compensation for personal injury
14. Which of the following is not a constructive receipt of income?
a. Forgiveness of indebtedness in consideration of service
b. Matured detachable interet coupons
c. Deposit of income to taxpayer’s bank accounts
d. Cash salary of an employee
15. Transfers for insufficient consideration are subject to
a. Income tax
b. Transfer tax
c. Either a and b
d. Both a and b
16. Which is specifically exempted from income taxation by virtue of legal exemption
a. Minimum wage
b. Gain on sale of prohibited drugs
c. Unrealized gain
d. All of these
MULTIPLE CHOICE- THEORY: PART 2
1. A resident alien naturalized in accordance with Philippine laws is a
a. Resident citizen
b. Resident alien
c. Non resident alien engaged in trade or business
d. Non resident alien not engaged in trade or business
2. Who is not a resident alien
a. An alien who stayed engaged in the philippines for more than two years
b. An Alien who married and stayed in the philippines for one year
c. An alien who stayed in the philippines for more than one year
d. An alien who established his intention before the CIR to stay in the philippines
for an extended period of time
3. Which is not a natural person
a. Resident citizen
b. Taxable estate
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade of business
4. A filipino has been abroad for more than 183 daisies classified as
a. Resident alien
b. Non resident alien
c. Non resident citizen
d. Non resident citizen not engaged in trade or business
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5. Which of the following is not an income taxpayer classification?
a. A resident citizen
b. Non resident alien
c. Resident foreign corporation
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 classified as a
a. resident citizen
b. Non resident alien
c. NRA-ETB
d. BRA-NETB
7. A japanese who is staying in the philippine for 183 days is a
a. resident citizen
b. Non resident alien
c. Non resident alien engaged in trade and business
d. Non resident alien not engaged in trade or business
8. A Canadian who is staying in the Philippines for more than one year is a
a. resident citizen
b. Non resident alien
c. Non resident alien engaged in trade and business
d. Non resident alien not engaged in trade or business
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 herein for less
than
a. 180 days
b. 1 year
c. 183 days
d. 2 years

10. A corporation incorporated according to philippine laws is a

a. Domestic corporation
b. Resident corporation
c. Non- resident corporation
d. De jure corporation
11. A foreign corporation which is not authorized to conduct business in the philippines is a
a. Domestic corporation
b. Resident corporation
c. Non- resident corporation
d. De jure corporation
12. A foreign which operates a branch in the philippines is a
a. Domestic corporation
b. Resident corporation
c. Non- resident corporation
d. De jure corporation
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13. A partnership which dominantly operates business abroad is a
a. Domestic corporation
b. Resident corporation
c. Non- resident corporation
d. De jure corporation
14. Which is required to pay income tax?
a. Revocable trusts
b. Estates under extrajudicial settlement
c. Co-ownership
d. Business partnership
15. Which is not an income taxpayer
a. Non-resident foreign corporation
b. Non-resident alien not engaged in trade or business
c. Join venture engaged in energy operation pursuant to a service contract
with the government
d. Irrevocable trusts
16. Which of the following taxpayers is taxable only o income earned from the Philippines?
a. Resident corporation
b. Domestic corporation
c. Resident citizen
d. All of these
17. All of the following are taxable only on income from sources within the philippines,
except
a. Resident alien
b. Non-resident citizen
c. Non-resident corporation
d. Domestic corporation
18. Which is taxable on world income?
a. Resident corporation
b. Non resident citizen
c. Resident citizen
d. Resident alien
MULTIPLE CHOICE- THEORY: PART 3
1. The place of taxation is
a. Situs rule
b. Situs
c. Territoriality
d. Gross income
2. Which is an incorrect statement regarding situs income?
a. Service income is earned in the domicile of the taxpayer
b. Interest income is earned in the residence of the debtor
c. Royalty is earned where the intangible is employed
d. Rent earned in the location of the party
3. Which statement is correct regarding situs of income?
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a. The gain of the sale of real property is earned in the location of the
property
b. The gain on sale of any property is earned in the place of the sale
c. Merchandising income is earned in the residence of the proprietor
d. Manufacturing income is earned in the place of sale
4. Pedro, a non resident citizen, lent money to shino, a resident chinese. The indebtedness
was collateralized by a property located in japan. The interest income is earned in
a. The philippines
b. China
c. Japan
d. Japan, china and the philippines
5. Gains on the sale of goods manufactured and sold by the taxpayer within the philippines
is subject to tax
a. Wherever sold
b. If sold abroad only
c. Without the Philippines only
d. Within the philippines only
6. yvonne , a resident alien brought a car manufactured in the Philippines and exported the
same at a gain to carla, a non resident citizen, which is correct?
a. The gain is subject to tax in the philippines since the commodity involved is
manufactured in the Philippines
b. The gain is subject to tax in the philippines since the buyer is a citizen of the
Philippines
c. The gain is both subject to tax in the philippines and abroad since the commodity
involved is manufactured in the philippines
d. The gain is taxable abroad because it is sold abroad
7. Juan, a resident alien, and pedro, a non-resident 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. Which is true?
a. The gain is exempt since the gain is derived outside the philippines
b. The gain is not subject to philippine tax since juan is a resident is a resident alien.
c. The gain is subject to philippine tax because juan isa resident alien
d. The gain is subject to philippine tax because the property is in the
philippines

MULTIPLE CHOICE- PROBLEMS

Problem 3-1
Beth negotiated a P1,000,000 non interest bearing promissory note to candy. Candy paid beth
P950. On the due date, Beth paid Candy P1,000,000. Which is true?
a. Beth earned P50,000 return on capital
b. Candy earned P50,000 return on capital
c. Candy received P50,000 donation
d. Candy received P1,000,000 return of capital
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Problem 3-2
Andrew received a total sum of P42,000 from his employer consisting of the following:
● P5,000 reimbursements for employer’s expenses paid by andrew
● P15,000 payment of andrew’s 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.
a. P42,000
b. P37,000
c. P25,000 (22+15-12)
d. P22,000

Problem 3-3
Betty paid P20,000 annual premium on a life insurance contract which would pay her
P1,000,000 in case of her death. After paying 4 years, Betty assigned the policy to Carlos for
P120,000. Compute the return on capital.
a. P120,000
b. P80,000
c. P40,000 (120 – P80)
d. P0

Problem 3-4
Becky purchased a P1,500,000 life insurance policy for P100,000. During the year, Becky died
and her heirs collected the entire proceeds. How much of the proceeds is exempt from income
tax?
a. P1,500,000
b. P1,400,000
c. P100,000
d. P0

Problem 3-5
Dan purchased the P1,000,000 life insurance policy of Ben for P120,000. Dan paid the P20,000
annual premiums on the policy for 4 years after which Ben died.

Compute the total return on capital for Dan

a. P1,000,000
b. P880,000
c. P800,000
d. P0

Problem 3-6
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Carlos paid P20,000 annual premium for a P1,000,000 life insurance policy. After years, Carlos
surrendered the policy and was paid by the insurance company P200,000 which represents the
cash surrender value of the policy.

Compute the return on capital

a. P1,000,000
b. P860,000
c. P60,000
d. P0

Problem 3-7
Alexander company insured the life of its president for P2,000,000. A total of P500,000 in
premiums was paid before the president died. The company collected the total proceeds

Compute the return in capital.

a. P0
b. P1,500,000
c. P500,000
d. P2,000,000

Problem 3-8
Onyoc insured his newly constructed building costing P1,000,000. Within a few days the
building was totally destroyed by a fire. The insurance company reimbursement. Onyoc
P1,500,000, which represents the fair value of the building.

Which statement is false?

a. P1,000,000 of the proceeds is a return on capital
b. P500,000 of the proceeds is a return on capital
c. P1,500,000 isa return of capital
d. Only A and B

Problem 3-9
Guildbert is worried that his entire potato plantation which is expected to yield P400,000 income
will be totally devastated by bad weather conditions. He obtained P300,000 crop insurance
cover for P30,000. Just before harvest, a rare frost totally destroyed guilbert’s plantation. The
insurance company paid the policy proceeds.

Compute the total recovery of loss profits to be recognized by guilbert as income

a. P0
b. P100,000
c. P300,000
d. P370,000
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Problem3-10 feliz sells hot chilli-flavoured pancakes using a secret formula he patented. He
sued a competing pancake house for alleged patent infringement and claimed a total indemnity
of P1,200,000:
● P1,000,000 for loss of profits from loss of sales
● P200,000 as attorney’s fee reimbursement

If Felix wins the case and is awarded the total indemnity, compute his total return of capital.
a. P1,000,000
b. P800,000
c. P0
d. P200,000

Problem 3-11
Henson was one of the passengers of a van that fell of a ravine, henson sued the bus company
and was awarded an indemnity P800,000 for the following:
● P500,000 for the impairment of his health resulting to the amputation of his legs
● P200,000 for his loss of salaries during his hospitalization
● P100,000 for his attorney’s fees

Compute henson’s return on capital

a. P800.000
b. P300,000
c. P200,000
d. P0

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 P1,000,000 inclusive of
P200,000 reimbursement for attorney’s fees and P100,000 exemplary damages. Compute
henson’s total return on capital.
a. P1,000,000
b. P800,000
c. P700,000
d. P0

Problem 3-13
Kendrick received the following items during the year:
● P200,000 donation from a girlfriend
● P100,000 services fee from professional services
● P300,000 inheritance from his deceased father
● P100,000 income from illegal gambling
● P50,000 gain on sales of his personal car
● P250,000 profits from his bar restaurant
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Compute the total income subject to income tax
a. P1,050,000
b. P750,000
c. P550,000
d. P500,000

Problem 3-14
Pines corporation has a branch in Manila and a 705 - owned subsidiary, choco hills, Inc. in
Davao. The following data shows Pines corporations’s sales transactions during the year:
● Pines corporation billed the Manila branch P1,500,000 for merchandise shipped to the
latter at a marked up of 50% above acquisition cost. The branch stored the merchandise
and did not operate during the year
● Sold merchandise to unrelated parties at a gain of P800,000
● Sold merchandise to Darrel Asuncion, Pines corporation’s corporation’s controlling
stockholders at a gain of P100,000
● Sold various merchandise to Choco hills, Inc. at a gain of P200,000

Compute the total income of Pines,corporation subject to income tax.

a. P1,700,000
b. P1,200,000
c. P1,100,000
d. P900,000

Problem 3-15
Denver is a supervisory employee of Atlantis corporation. He had the following item of gross
income during the year:
● Denver was paid P800,000 salaries
● Denver’s P100,000 personal loan was paid by atlantis corporation as reward for his
excellent performance
● Denver’s P50,000 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 P200,000 total allowance out of which P120,000 was disbursed by him.

Compute denver’s total income subject to income tax

a. P980,000
b. P900,000
c. P880,000
d. P800,000

Problem 3-16
Jen is engaged in business. The following pertains to her transactions during 2014:
● Sold his personal car which was purchased at P200,000 to a friend who paid only half of
the car’s P500,00 current fair value
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● Sales of merchandise was P800,000 and the cos of goods sold was P600,000
● Jen acquired several stocks from the Philippine stock exchange for speculation. These
stocks have aggregate purchase price of P400,00 but with P700,000 fair value by
December 31, 2014
● Jen’s house and lot which he acquired for P1,500,000 in 2010 now have a current fair
value of P2,500,00.
Compute Jen’s total income subject to income tax.
a. P1,800,000
b. P1,550,00
c. P200,000
d. P250,000

Problem 3-17
A condominium home owner;s 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 unit holders an additional 2% of their utility bills as
service charge.

During the year, the association processed utility bills for unit holders totaling P5,000,000

How much taxable income is realized by the association?

a. P5,000,000
b. P4,900,000
c. P100,000
d. P0

Problem 3-18
Kenny used to bet in PCSO Lotto. On june 3,2014, he won the P209,000,000 jackpot prize from
the 6/45 lotto. One P20 - ticket out of the bet took the prize. How much is Kenny's total income
subject to tax?
a. P20,000,000
b. P19,999,990
c. P19,999,900
d. P0

Problem 3-19
An American citizen has been staying in the Philippines since August 12, 2013. What would be
his taxpayer classification for the year 2013 and 2014, respectively?
a. Non resident alien engaged in trade or business; resident alien
b. Non resident alien not engaged in trade or business; resident citizen
c. Non resident alien engaged in trade or business; resident citizen
d. Non resident alien not engaged in trade or business; resident alien

Problem 3-20
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A citizen who left the Philippines on March 1, 2013 would be classified as
a. Non resident for the year 2013
b. Resident citizen for the year 2013
c. Non resident for the year 2014
d. Resident citizen for the year 2014

Problem 3-21
An alien received a P200,000 compensation income in the Philippines and P300,000 rental
income from abroad, how much will be subject to Philippine tax?
a. None
b. P200,000
c. P300,000
d. P500,000

Problem 3-22
A non-resident citizen is an international financier who earned P400,000 interest income from
resident debtors and AP300,000 from foreign debtors. How much is subject to Philippine income
tax?
a. None
b. P300,000
c. P400,000
d. P700,000

Problem 3-23
Sarah has the following income:
PHILIPPINES ABROAD
Business Income P200,000 P100,000
Professional fees 100,000 50,000
Compensation income 400,000 -
Rent income 300,000 200,000
Interest Income 30,000 40,000

1. Assuming sarah is a resident citizen, compute the total income subject to philippine
income tax.
a. P390,000
b. P1,180,000
c. P1,030,000
d. P1,420,000
2. Assuming sarah is a resident alien, compute the total income subject to philippine
income tax
a. P1,420,000
b. P1,180,000
c. P1,030,000
d. P390,000
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3. Assuming sarah is a resident corporation, compute the total income subject to philippine
income tax.
a. P1,420,000
b. P1,180,000
c. P1,030,000
d. P390,000
4. Assuming sarah is a domestic corporation, compute the total income subject to
philippine income tax.
a. P390,000
b. P1,030,000
c. P1,180,000
d. P1,420,000

CASE PROBLEMS
Case problem number 1
Jaypee has the following income in 2017:
● P10,000 interest income from a non-resident japanese friend
● P40,000 interest income from a commercial complex located in the USA which leased to
resident filipinos
● P200,000 rent income from a boarding house in baguio city, Philippines
● P200,000 professional fees rendered to chinese clients in Hong kong
● P300,000 salary from a resident employer
● P100,000 gain from sale of merchandise imported and sold to filipino residents
● P50,000 gain on sale of merchandise purchased locally and sold during her business
travel in hong kong
● P400,000 gain on sale of the boarding house located in Baguio city to a non-resident
buyer.

Required:
Compute the total income earned from sources
1. Within the Philippines
2. Outside the Philippines
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Case problem number 2

Joy earns franchise fees from his hot burger franchise. He also deals in various properties.
Johnny realized the following gains in 2017.
● P500,000 royalty fees from local hot burgher outlets
● P200,000 royalty fees from foreign hot burger outlets
● P100,000 gain from sales of equipment to foreign franchises
● P200,000 gain from sales of equipment in domestic stocks to foreign investors
● P50,000 gains from sale of investment in domestic stocks to foreign investors
● P40,000 gains from sale of investments in foreign stocks to Filipino investors

Required:
Compute the total income earned from sources
a. Within the Philippines
b. Without the Philippines
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Case problem number 3
TC company manufactures wooden furnitures for the local and export market. It has a
distribution outlet abroad which handles foreign sales. It bills all customers, including the foreign
outlet, 70% above manufacturing costs. The foreign outlet bills its customers 100% above TC
company’s billing price. TC company reports P3,400,000 in total sales, exclusive of sales to the
foreign outlet. The foreign outlet reports P2,720,000 total customers.

Compute the manufacturing income respectively earned within and earned without the
philippines.
a. P1,960,000; P1,360,000
b. P1,400,000; P1,360,000
c. P840,000; P1,920,000
d. P840,000; P1,360,000

CHAPTER 4
TRUE OR FALSE 1

1. Both active income and passive income do not require direct participation of the taxpayer
in earning the income. FALSE (Only passive income)
2. There are three types of gross income for taxation purposes. TRUE
3. The three tax schemes are mutually inclusive in coverage. FALSE (They are mutually
exclusive. One excludes the others.)
4. Regular income tax generally covers active income and capital gains. TRUE (Active
income is subject to regular tax. Capital gains are generally subject to regular tax.
There are only two types of capital gains that are exceptionally subject to capital
gains tax.)
5. Final tax generally covers passive income. TRUE (Most types of passive income are
subject to final tax with exception of rent.)
6. Capital gains arise from the sale, exchange, and other disposition of any assets. FALSE
(From capital assets, not any assets)
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7. There are only two types of assets for purposes of taxation. CORRECT (Two types:
ordinary asset and capital asset)
8. An ordinary asset is defined to include all other assets other than capital assets. FALSE
(The definition of capital assets is a residual definition.)
9. The 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. TRUE
11. Individuals file their income tax returns on or before April 15 of the following calendar
year. TRUE
12. All taxpayers can change their accounting period when there is a change in the nature of
their business, but the BIR must be notified in all cases. FALSE (Only corporations
(and partnerships) can change accounting periods.)
13. The first accounting period of a starting business will more likely be less than 12 months.
TRUE
14. The accounting period of a deceased taxpayer shall be terminated on December 31 in
the year of death. FALSE (The accounting period shall be terminated at the point of
death.)
15. Accrual basis and cash basis are the most common accounting methods used in
practice. TRUE

TRUE OR FALSE 2

1. Advanced income is an item of gross income for accrual basis taxpayers. TRUE
(Advanced income is taxable upon receipt)
2. Generally, prepayments are non-deductible in the current accounting period. TRUE
(Deductible as they are used up or are expired in the business of the taxpayer.)
3. Prepayments are deductible but in the future period they expire or are consumer in the
business or trade of the taxpayer. TRUE
4. The use of different methods for different businesses of the same taxpayer is permitted
by law. TRUE (The mix of the different methods is referred to as a hybrid method.)
5. Initial payment includes downpayment and installments in the year of sale.TRUE
6. Contract price is synonymous with selling price. FALSE (Contract price is the total
amount receivable in money or property from the buyer. This amount is usually
the selling price but will differ when there is an encumbrance on the property to be
assumed by the buyer.)
7. The crop year method is an accounting method. TRUE (Crop year method is not an
accounting period.)
8. Under the percentage of completion method, gross income is reported based on the
cash collections from the contract price.FALSE (Based on percentage of progress of
the construction project.)
9. The depreciated value of the property upon termination of the lease constitutes income
to the lessee. TRUE
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10. The withheld taxes on the income payments made by the taxpayers are tax credit
against their income tax due.FALSE (These are tax credits of the recipient of the
income.)
11. There are three types of income tax return for each income tax scheme.FALSE (Only
capital gains tax and regular income tax has tax returns. Note that final income tax
are withheld at source.)
12. All taxpayers, small or large, are encouraged to file their income tax return through the
EFPS of the BIR.FALSE (Only large taxpayers that meet certain criteria are required
to file through the EFPS. Small taxpayers shall file their returns in their respective
Revenue District Office.)
13. Large taxpayers are under the supervision of the BIR Large taxpayer service. TRUE
14. Non-filing and/or non-payment of tax is subject to penalties such as surcharges, interest,
compromise, and imprisonment. FALSE (The compromise is in lieu of criminal
prosecution over a tax violation. It does not apply hand in hand with
imprisonment.)
15. The interest on unpaid taxes is computed on the basis tax only excluding the surcharge.
TRUE (The imposition of a penalty upon another penalty is illegal. Hence, the BIR
cannot impose the interest to the amount of the surcharge.)
16. Only large taxpayers shall file under EFPS.FALSE
17. Both manual filing and filing through e-BIR forms makes use of manual payment. TRUE
18. eFPS is fully electronic tax compliance.TRUE
19. e-BIR forms makes use of electronic data entry and filing. TRUE
20. eFPS filers may file manually when there is a BIR system downtime. TRUE

MULTIPLE CHOICE - THEORY: GENERAL CONCEPTS

1. Which is not a scheme in taxing income? A ordinary gain taxation

2. Which is a correct statement regarding income taxes? D an item of income exempted
from tax is likewise exempt from capital gains tax and regular income tax
3. Which is not a feature of final tax? B covers all capital gains
4. Which of the following properties when classified as capital asset is subject to capital
gains tax? C both a (domestic stocks sold directly to buyer) or b (real property)
5. Capital asset means D any property, real or personal not used in business
6. Which is not an item of passive income? D professional income
7. Which of the following accounting methods is most consistent with the lifeblood doctrine?
D accrual method
8. These are accounting techniques or conventions used to measure income A
accounting methods
9. These are distinct and equal time periods over which income is measured B accounting
periods
10. Income is recognized when received rather than when earned A cash basis
11. Income is recognized when earned regardless of when received B accrual basis
12. Initial payments means B total collection within the year the installment sale was
made
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13. Income is reported by reference to the extent of project completion in C percentage of
completion method
14. Which statement is correct? B dealers of personal properties can use the installment
method without limitation
15. Leasehold income is recognized over the lease term in C spread out method
16. Statement 1: The excess of mortgage assumed by the buyer over the basis of the
properties 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? B statement 2 only
17. Which is correct regarding the crop year method? C crop year method matches
cropping expenses with the income upon harvest
18. Which is an incorrect statement regarding the use of accounting period? A individuals
can either choose the calendar year or fiscal year accounting period
19. Under which of the following will short accounting period not arise?B change of
accounting period by corporate taxpayer
20. Which is not a special feature of regular income taxation? D final withholding tax at
source

MULTIPLE CHOICE - PROBLEM 4-1: ACCOUNTING PERIOD

1. An individual income taxpayer shall file his or her income return on or before the B 15th
day of the fourth month of the following calendar year
2. Anderson died on March 31, 2017. Which is a correct statement? C anderson’s 2017
income tax return shall cover January 1, 2017 to March 31, 2017
3. Mrs. Julian started business on July 15, 2016. What should be the coverage of her 2016
income tax return? B july 15, 2016 to december 31, 2016
4. A corporation reporting on a fiscal year ending every march 31 shall file its 2017 income
tax return not later than C july 15, 2017
5. Metersbonwe corporation started business on april 5, 2016 and opted to report income
tax on a fiscal year ending every october 31. Metersbonwe’s first income tax return shall
cover B april 5, 2016 to october 31, 2016
6. Beneco corporation reports on a calendar year. On august 15, 2016, it stopped business
due to persistent losses. Beneco corporation last income tax return shall cover B
january 1 to august 15, 2016
7. Effective march 1, 2017, Jonah, Inc. changed its calendar year to fiscal year ending
every june 30. An adjustment return shall be filed covering the period B january 1 to
june 30, 2017
8. During 2017, Klein corporation changed its accounting period to the calendar year. The
adjustments return shall be filled on or before. C april 15, 2018
9. Effective JULY 2, 2016, Rofelson company changed its fiscal year ending every march
31 to another fiscal year ending august 31. An adjustment return shall be filed covering
the period C april 1 to august 31, 2016
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10. Effective may 15, 2017, Tabuk, Inc. changed its fiscal year ending every april 30 to the
calendar year. An adjustment return shall be filled covering the period A may 1 to
december 31 2017
MULTIPLE CHOICE - PROBLEMS 4-2: TAX SCHEMES AND ACCOUNTING METHODS

1. Astercor, Inc. reported the following during the year:

P400,000 proceeds of life insurance of an officer where Antercor is the beneficiary
(P600,000 still uncollected)
P800,000 interest income, exclusive of 200,000 uncollected and accrued interest
P300,000 increase in value of investment in stocks
Compute the gross income under cash basis A 800,000
2. Compute the gross income under accrual basis. B 1,000,000
3. Berlin Corp. reported the following data for 2019:
- Total net sales made to customers were P2,000,000 in cash.
- Goods purchased for sale totaled P1,200,000 cash. Beginning and ending
inventory of goods for sale, respectively, were P200,000 and P300,000.
- 1-year advanced rent of P30,000 to apply for 2020 was received from sublease
contract.
- P40,000 total interest income from customers promissory note earned P30,000 of
this was collected
- Unrealized foreign exchange gains from foreign currency receivables totaled
P60,000
Using cash basis, compute the total income subject to income tax. B 960,000 (P2M –
P1.1M COGS + P30K + P30K).
4. Using accrual basis, compute the total income subject to income tax. D 970,000 (P2M –
P1.1M COGS + P30K + P40K)
5. Santiago, Inc. has the following receipts during 2018:
From service billings to clients P400,000
Advances from clients 100,000
Total cash collection P 500,000

The P100,000 avances refer to services which will be rendered next year. Total uncollected
billing increased from P100,000 on december 31, 2017 to P150,000 on december 31 2018.
Compute the gross income using cash basis. C 500,000
6. Compute the gross income using accrual basis. D 550,000
[(400K+P150KP100K)+P100K]
7. In 2019, Bright Inc.sold its parking lot for P2,400,000 payable on installment. The lot was
previously acquired for P1,500,000. The buyer has an outstanding unpaid balance of
P1,800,000 million as of december 31, 2019, Bright’s year end. Compute exquisite’s
gross income in 2019 using the installment method. C 225,000 [P900K GP x
(P600K/P2.4M)]
8. Exquisite corporation sold its old warehouse with carrying amount (tax basis) of
P600,000 and P1,000,000. A downpayment of 15% is collected on july 1, 2019.
Additional P150,000 installment payments were received as of december 31, 2019.
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Compute the gross profit to be reported for the year 2019. C 400,000 (P 1M-P600K)
9. Lancelot is a dealer of household appliances. He reported the following in 2019 and
2020:
2019 2020
Installment sales P500,000 P800,000
Cost of installment sales 250,000 440,000
Collection 300,000 600,000

Lance’s 2020 collection is inclusive of P100,000 accounts from 2019.

Using the installment method, compute lancelot’s gross income subject to income tax in
2020. D 275,000 [(P250K 2015GP x20%) + (P360K 2016GP x62.5%)]
10. Using the accrual basis of accounting, compute lancelot’s gross income subject to
income tax in 2020. A 360,000
11. Merville is a dealer in real properties. Merville requires 20% downpayment, and the
balance is payable over 36 monthly installments starting on the last day of the month
following the month of sale. Merville sold properties in 2019 and 2020 with terms as
follows:

- House and lot no. 1 was sold for P1,350,000 on november 11, 2019
- House and lot no. 2 was sold for P1,800,000 on july 5, 2020.
Both properties were sold at a gross profit rate of 40% based on the selling price. B
120,000;864,000 [P540K 2015GP x (P300K/P1.35M)];[(P540 K 2015GP x
P360K/P1.35M)+P720K 2016GP]
Compute merville’s gross income subject to income tax in 2019 and 2020, respectively.
12. In 2020, Mr. Marangley, a dealer of car, disposed a brand new sports utility vehicle
(SUV) which costs P800,000 for P1,200,000 or under the following terms:

July 1, 2020 - as downpayment P100,000

Monthly installment thereafter 50,000
Mr. Marangley will choose whichever favourable permissible income reporting method
for him.
How much gross income is to be reported in 2020? C 116,667 (350K/1.2M x 400K)
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? A 400,000
14. Luccio accepted a P1,000,000 construction contract in early 2020. As of december 31,
Luccio incurred total construction costs P600,000 and estimates additional P200,000 to
bring the project to completion. Compute Luccio’s 2020 construction income using the
percentage of completion method.B 200,000 (80% x P1M – P600K)
15. Crevar constructs residential properties clients and reports income by the percentage of
completion method. In 2019, Crevar started a P2,000,000 construction contract. Details
of 2019 and 2020 construction follow:
2019 2020
Annual construction costs P200,000 P800,000
Estimated cost to finish construction 800,000 250,000
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Extent of completion 20% 80%

Compute the construction income in 2019 and 2020. B 200,000 ; 400,000

16. Oliver entered into a 40-year lease contract with Berna. Per agreement, oliver construct
a building on berna’s lot and operate the same for 40 years. Ownership of the building
will transfer to berna upon the termination of the lease. The lease will not commence
until the building is completed. Oliver completed the building at a total cost of
P40,000,000 on january 1, 2020. The building is expected to be used over 50 years.
Compute Berna’s income from the leasehold improvement to be reported in 2020 using
the spread-out method. A 200,000 [(P40M x 10/50)/40]
17. In the immediately preceding, assume that the building was completed on july 1, 2020,
what is the income using outright method. B 8,000,000 (Lease will not commence until
building completed)
18. Tomas leases an office space from Rafi, Inc. in a non-renewable 10-year lease contract.
Just after the second year of the lease, Tomas renovated the premises and made
improvements at a cost P1,200,000. These improvements are expected to last for 12
years. Compute Rafi’s annual income from the leasehold improvements using the
spread-out method. A 50,000 [(P1.2M x4/12)/8]
19. Hassan started raising swine for sale by purchasing 5 gilts and a boar at a total purchase
price of P50,000 on january 2020. As of december 31, 2020 Hassan herd grew to 15
guilts, 2 boars, and 20 piglets. The total herd has a fair value of P196,000 when sold as
is. During the year Hassan earned P180,000 from selling piglets. How much should
hassan report as farming income in 2020? B 180,000
20. Pedro, a farmer, uses the crop-year method in reporting his income from long-term
crops. The following data are relevant to his farming operations in 2020:
- Sales of crops harvested, P900,000
- Expenses on harvested crops, P400,000
- Expenses on maturing crops, P200,000
- Expenses on newly planted crops, P100,000
- Sales of tree branches for firewood, P50,000
Pedro uses the crop-year method in reporting crop income. Compute Pedro’s total income
subject to tax. D 550,000 (P900K SALES-P400K EXP +P50K)

MULTIPLE CHOICE - PROBLEM 4-3 (TAX COMPLIANCE)

1. A taxpayer filed his income tax return in october 28, 2018. The deadline for the return
was april 15, 2018. If he has P40,000 net tax due, compute the penalties in the form of
interest. A 2,578 (196/365) x 12% x P40,000 = P2,278
2. What is the total surcharge penalty? C 10,000 (P40,000 x 25%)
3. A taxpayer received a notice from the BIR to file his 2016 income tax return no later than
january 15, 2018. The tax due per his return is P100,000. What is the total surcharge
penalty? D 50,000 (50% surcharge apply. There is a BIR prior notice.)
4. What is his total interest penalty? C 14,740
Since this is an assessment after Dec. 31, 2017, TRAIN law counting rule applies:
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April 16, 2017 to December 31, 2017 is 260 days.
P100,000 x 20% x 260/365 P 14,246.57
P100,000 x 12% x 15/365 493.15
Total P 14,740
5. Compute the compromise penalty B 15,000 (For unpaid tax amounting P50,000 but
not exceeding P100,000, the compromise penalty is P15,000)
6. Mani pakyaw failed to pay file his income tax return for the year 2019 which should have
been filed on or before april 15, 2020. The BIR sent him a notice to file his return and
pay his tax on or before july 18, 2020. Mani pakyaw filed a return showing a basic tax
due of P1,000,000. Compute the total interest penalty. NO ANSWER (BULALA JUD
NING ACCOUNTING JK XD). April 16, 2020 to July 18, 2020 is 94 days. P1M x 12%
x 94/365) = P30,904. You may consider rewarding students who objectively
answered P30,904. Good student should have identified the lack of answer and
objectively indicated their correct answer.
7. Mr. Pakyaw must pay a surcharge of? C 500,000 (50% apply since he received a
notice from the BIR before filing)
8. Rich goma corporation failed to file its tax return for the fiscal year ending august 31,
2019. On june 6, 2020 it filed an income tax return with a basic tax still due and payable
for the fiscal year amounting to P500,000. Compute the interest penalty to be imposed
by the BIR. A 28,603 (The return deadline is December 15, 2019. December 16, 2019
to June 6, 2020 is 174 days. Note that February 2020 is 29 days since 2020 is a
leap year. Hence, P500,00 x 12% x 174/365 = P28,603.
9. Compute the total tax assessment to be paid, excluding compromise penalty. A 653,603
(interest penalty + 500K + 25%xP500K)

Chapter 5
True or False 1
1. Generally, interest income from non-bank sources is subject to regular income tax. True
2. Foreign income is subjected to final tax if the taxpayer is taxable on global income. False
3. Items of passive income from abroad are subject to final tax. False
4. Interest income on government securities are subject to final tax. True
5. All items of passive income are generally subject to final tax. False
6. Final tax is collected at source; hence, there is no need to file an income tax return. True
7. Corporations are tax-exempt on inter-corporate dividends from any corporation. False
8. Individuals and corporations are tax-exempt on interest income on long-term deposits. False
9. Dividends from resident corporations are subject to regular tax. True
10. Dividends from Real Estate Investment Trusts are exempt from final tax. False
11. Stock dividends are always exempt from final tax. False
12. Corporations are subject to final tax on prizes. False
13. The share in the net income of a business partnership is subject to a creditable withholding
tax, not to final tax. False
14. General professional partnerships are subject to final tax but not to regular tax. False
15. All non-residents are exempt from final tax on foreign currency deposits. True
16. Royalties, active or passive, are subject to regular income tax. False
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17. The tax sparing rule is applicable to resident and non-resident foreign corporations. False
True or False 2
1. A government employee may claim the tax informer's reward. False
2. The final tax on winnings applies to corporations. False
3. Individuals, except corporations, are subject to final tax on winnings abroad. False
4. Winnings which are not more than P10,000 in amount are subject to the regular income tax.
False
5. PCSO or lotto winnings are exempt from all types of income tax. False
6. Special aliens do not file a regular income tax return on their compensation income. True
7. The final tax on interest on tax-free corporate covenant bonds applies only to resident
individual or corporate taxpayers.False
8. NRA-NETB and NRFC are subject to final tax only to passive income from sources in the
Philippines. False
9. NRA-NETB and NRFCs are not required to file the regular income tax return. True
10. Residents shall withhold 10% final tax upon interest on foreign currency loans of FCDU
banks and OBUs under the expanded foreign currency deposit system. True
11. A qualified employee trust fund is not subject to final tax. True
12. The income of FCDU banks from fellow depositary banks under the expanded foreign
currency deposit system is subject to 10% final tax. False
13. Petroleum service subcontractors are subject to 8% final tax on their income from petroleum
service contractors. True
14. The final withholding tax return shall be filed by the withholding agent on or
before the 15th day of the month the final taxes were withheld. False
15. Foreign governments and foreign government-owned and controlled corporations are
exempt from final tax. True
Multiple Choices - Theory 1
1. Which is correct with regard to the final income taxation?
a. Taxpayers need not file an income tax return.
b. It covers all items of passive income from whatever sources.
c. It applies to all items of gross income of any non-resident earned from sources within the
Philippines.
d. It applies to passive income earned abroad.
2. Which statement is correct regarding final income tax?
a. Items of income subjected to final tax can still be subjected to regular tax.
b. Final tax applies only on certain passive income earned within Philippines.
c. Items of income exempt under final tax are subject to regular tax.
d. Final income tax applies to all passive income from Philippines sources.
3. Interest income from which of the following sources is subject to final income tax?
a. Lending c. Bond Investment
b. Mortgage Loan d. Money market placements
4. The final tax does not apply to interest on (select the best answer)
a. Long-term deposit c. Deposit substitute
b. Trust funds d. Promissory notes
5. The exemption on final tax on interest from long-term deposit is not applicable to
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a. Citizens individuals c. Resident corporation or individuals
b. Corporations d. All of these
6. Which interest income is not subject to any income tax?
a. Interest income from discount notes
b. Interest income from bonds issued by a bank
c. Imputed interest
d. Interest income from deposit substitute
7. The final tax rates on pre-termination of long-term deposits is not relevant to
a. any corporations. c. resident aliens.
b. resident citizens. d. non-resident citizens.
8. Which of the following is subject to 15% final tax on interest from foreign currency deposits
made with Philippine banks?
a. Non-resident corporation
b. Non-resident alien engaged in trade or business 2010
c. Non-resident alien not engaged in trade or business
d. Resident alien
9. The following are subject to final tax on all income from sources within the Philippines. Which
is the exception?
a. Non-resident foreign corporation
b. Non-resident alien not engaged in trade or business
c. Non-resident alien engaged in trade or business
d. None of these.
10. The interest income from long-term peso deposits made with foreign banks is
a. subject to 20% final tax. c. subject to regular tax.
b exempt from any tax. d. None of these.
11. What is the final tax on interest income on 6-year deposit pre-terminated less than 2 years
before maturity?
a. 20% c.5%
b. 12% d. 0%
12. Which of the following recipients is exempt from final tax on dividends?
a. Resident citizen c. Resident corporation
b. Non-resident alien d. Resident alien
13. A dividend declaration in 2019 is subject to a final tax of
a. 6%. c. 10%.
b. 8%. d. 20%.
14. Dividends declared by a resident corporation is
a. exempt from any tax. c. subject to regular income tax.
b. subject to 10% final tax. d. subject to 20% final tax.
15. Between the date of declaration and the date of record, BCD, Inc. sold an investment
representing stock of ABC, Inc., a domestic corporation. Which statement is correct?
a. ABC, Inc. shall withhold 10% dividend tax if the buyer of the sale is an individual.
b. ABC, Inc. shall withhold 10% dividend tax if the buyer of the sale is a corporation.
c. ABC, Inc. shall withhold 10% dividend tax if the seller of the sale is an individual.
d. ABC, Inc. shall withhold 10% dividend tax if the seller of the sale is a corporation.
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Multiple Choices - Theory 2
1. Which is covered by final tax?
a. Interest income from foreign banks
b. Share in the net income of a joint venture
c. P10,000 taxable prizes from the Philippines
d. Share in the net income of a general professional partnership
2. Which is not subject to 20% final tax?
a. Interest income from trust fund
b. Royalties from musical compositions
c. P11,000 worth of prizes
d. Winnings
3. Which is not subject to 10% final tax?
a. Royalties from literary works
b. Dividends from a domestic corporation
c. Share in the net income of a business partnership
d. Royalties from a business trademark
4. Which of the following is taxable?
a. Prize on sports competitions sanctioned by the national sports organization
b. Prize from dance competition abroad
c. Nobel prize
d. Any prize received without effort
5. Which winning is taxable to a final tax?
a. Winnings exceeding P10,000
b. Winnings not exceeding P10,000
c. Winnings from PCSO or lotto
d. All of these
6. Prizes from sources abroad is subject to final tax
a. if the amount of prizes exceeds P10,000.
b. if the amount of prizes does not exceed P10,000.
c. if it is given to the taxpayer without effort.
d. under no circumstance.
7. The following winnings are exempt from tax, except one. Which is the exception?
a. Jueteng winnings c. PCSO winnings not exceeding P10K
b. Lotto winnings exceeding P10K d. All of these
8. Which of the following is exempt from final tax?
a. Interest income earned by a bank from deposits in another bank
b. Royalties from books
c. Interest income earned by a bank from lending activities
d. All of these
9. Dividend income from domestic corporations is subject to final tax effective
a. 2000 c. 1998
b. 1999 d. 1997
10. Prizes arising from sources within the Philippines may be
a. subject to final tax.
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b. subject to regular tax.
c. exempt from tax.
d exempt or subject to final tax or regular tax.
11. Any royalties earned abroad by a non-resident corporation is
a. not subject to Philippine income tax.
b. always subject to final tax.
c subject to either final tax or regular tax.
d. always subject to regular tax.
12. The winnings of a resident alien from abroad is
a. subject to regular tax.
b. subject to final tax.
c. subject to either final or regular tax.
d. not subject to Philippine income tax.
13. Royalty income of a domestic corporation from abroad is
a. subject to regular tax.
b. subject to final tax.
c. subject to either final tax or regular tax.
d. not subject to Philippine income tax.
14. Winnings from PCSO are generally
a. exempt from any tax.
b. subject to regular tax.
c. subject to 20% final tax.
d. subject to both final and regular tax.
15. The final tax rates on passive income are generally similar to the following taxpayers, except
one. Select the exception.
a. Domestic corporation c. Non-resident citizen
b. Resident alien d. Non-resident corporation
16 The tax informer's reward may be granted to
a. Officials of the BIR
b. Public officials or employees
c. Close relatives of public government employees
d. Relatives of government employees beyond the 6th degree of consanguinity.
17. Which is not subject to final tax?
a. Compensation to non-resident aliens not-engaged in trade or business
b. Fringe benefits of supervisory and managerial employees
c. Income of non-resident foreign corporations
d. Fringe benefits of rank and file employees
18. Which of the following is exempt from final tax?
a. Winnings in competitions sponsored by a local trading company
b. Prizes in a body building competition
c. Dividends from a foreign corporation
d. Winnings from a casino
Multiple Choice - Problems 1
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1. Winnie, a resident citizen, deposited P2,000,000 in the 180-day time deposit of Banco de
Oro. The deposit pays 8% interest. Compute the final tax on maturity of the deposit
a. P6,000 c. P20,000
b. P8,000 d. P16,000
2. Assume that Winnie is a non-resident alien not engaged in trade or business compute the
final tax on maturity of the deposit.
a. P6,000 c. P20,000
b. P8,000 d. P16,000
3. Renz received P42,000 interest from short-term deposits. Compute the withheld on the
interest.
a. P10,500 c. P5,000
b. P9,000 d. P4,500
4. On January 1, 2014, Mr. Albuera invested P2,000,000 in the six-year time deposit of Sulu
Unibank which pays 10% annual interest. Compute the final tax to be withheld by Sulu Unibank
on December 31, 2014.
a. P0 c. P200,000
b. P100,000 d. P250,000
5. Assume Mr. Albuera pre-terminated the time deposit on July 1, 2018; compute the final tax to
be withheld on pre-termination.
a. P5,000 c. P45,000
b. 12,000 d. P108,000
6. Boy, a resident citizen, received the following interest income:
P80,000 from short-term Peso time deposit
P16,000 from a five-year bonds issued by a commercial bank
P24,000 from 5/6 lending to market vendors
How much final tax must have been withheld from Boy's interest income?
a. 0 c. P20,000
b. 16,000 d. P24,000
7. Jake Corporation, a domestic corporation, deposited P1,000,000 in the five-year time deposit
of Banco Pilipino which pays 10% annual interest. Compute Jake Corporation's net interest
income in the first year of the deposit.
a. P100,000 c. P80,000
b. P90,000 d. P70,000
8. Assume Jake Corporation is a non-resident corporation; compute the final tax on interest
income.
a. P0 c. P20,000
b. P10,000 d. P30,000
9. On January 2, 2011, Quezon, Inc. placed P1,000,000 in the 5-year time deposit of
Bank of Laguna. The placement earns 10% annual interest. Quezon, Inc. pre terminated the
deposit on June 30, 2014. Compute the final tax to be withheld on pre-termination. a. PO
c. P17,500 b. P10,000
d. P42,000
busines
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10. Francis, a resident citizen, invested P1,000,000 in a debt instruments (deposit substitute)
issued by UniBank. The debt instruments pay 10% annual interest payable every quarter. How
much final tax should UniBank withhold in the first quarter of the issue?
a. P0 c. P6,250
b. P5,000 d. P20,000
11. Cyndrell, a resident citizen, deposited P5,000,000 in a non-resident foreign depositary bank
which pays 12% annual interest. How much final tax shall be withheld in the first year?
a. P0 c. P120,000
b. P45,000 d. P150,000
12. Rodrigo, a non-resident citizen, deposited his $2,000,000 savings in a two-year time deposit
in Blue Bank, a depositary bank under the expanded foreign currency deposit system. The
deposit pays 8% annual interest. Compute the withheld in dollars in the first year.
a. $0 c. $64,000
b. $24,000 d. $80,000
13. Vernon is a non-resident citizen working abroad. He invested 1,000,000 personal savings in
a FCDU bank under a joint account with his resident wife. The bank pays 8% annual interest.
Compute the final tax to be withheld in one year.
a. $0 c. $12,000
b. $6,000 d. $ 16,000
14. Yvonne, a non-resident alien not engaged in trade or business, made a $5,000,000 deposit
to an FCDU Bank. The deposit pays 8% annual interest. Compute Yvonne’s final tax in the first
year.
a. $0 c. $ 160,000
b. $60,000 d. $ 200,000
15. Gerry, a resident alien, deposited $1,000,000 in a depositary bank under the expanded
foreign currency deposit system. The five-year savings deposit 10% annual interest. Assuming
a P45:$1 exchange rate, how much final tax on interest would be withheld in the first year?
a. P0 c. P 40,000
b. P 15,000 d. P 675,000
Multiple Choice - Problems 2
1. Kendrick Inc., a domestic corporation, was credited $46,250 interest income on its depositary
account in an FCDU Bank. How much final tax was withheld?
a. $0 c. $6,937.50
b. $7,500 d. $ 23,125.00
2. Assuming Kendrick Inc. is a resident foreign corporation, how much final tax was withheld?
a. $ 23,125.00 c. $ 7,500
b. $6,937.50 d. $0
3. Tuzan Corporation declared P1,000,000 dividends in 2014. 40% of its outstanding shares is
held by its only corporate investor, Abdul, Inc. Compute the amount of dividends tax to be
withheld on declaration.
a. P0 c. P 60,000
b. P 40,000 d. P100,000
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4. Mr. Neis, a resident alien, owns 40% of the shares of Coco Corporation, a resident
corporation. Coco declared P200,000 dividends in 2014. How much final tax should be withheld
from Mr. Neis' dividend income?
a. P40,000 c. P8,000
b. P20,000 d.P0
5. Carrots, Inc. owns 20% of the stocks of Cabbage Corporation. Carrots and Cabbage th
domestic corporations. Cabbage declared P120,000 dividends in 2014.
How much dividend income after any applicable tax will Carrots receive?
a. P24,000 b. P20,000
c. P19,000 d. P18,000
6. Mr. Siegfried, a resident citizen, received P100,000 dividend income from Vodka, Inc., a
domestic corporation. How much final tax must have been withheld by Vodka, Inc.?
a P0 c. P20,000
b. P11,111 d. P25,000
7. Ms Gina owns 40% of the capital and profits of Cebu Ventures, a business partnership
engaged in the trade of tourist souvenirs. Cebu Ventures reported P200.000 net income in
2014. Compute the total final tax to be withheld by the partnership on Gina's profit sharing.
a. P0 c. P10,000
b. P8,000 d. P20,000
8. Raymond owns 20% of the capital and profits of a general professional partnership. The
partnership reported P500,000 profits in 2014. How much final tax will be withheld from
Raymond?
a. P100,000 c. P10,000
b. P 50,000 d. 0
9. Teddy is a venturer sharing 50% in the profits of Wise Ventures, an unincorporated joint
venture, engaged in the trading of home appliances. Wise Ventures reported P200,000 profits
for 2014. How much final tax will be withheld by Wise Ventures?
a. P0 c. P20,000
b. P10,000 d. P40,000
10. Zamboanga Corporation, a resident corporation, is a venturer in Southern Filippine Ventures
(SPV), an incorporated joint venture formed under Philippine laws. Zamboanga owns 30%
interest in SPV. During 2014, SPV reported P3,000,000 profit and declared P1,000,000 in
dividends. How much final tax will be withheld from the dividend distribution to Zamboanga
Corporation?
a. P100,000 c. P90,000
b. P30,000 d.P0
11. Petrodrill Ventures is a joint venture which operates under a service contract with the
government. Petrodrill is 30% owned by individual investors. The rest is owned by corporate oil
exploration companies. Petrodrill reported P2,000,000 profit which was to be distributed.
How much final tax will Petrodrill withhold?
a. P200,000 b. P60,000
c. P140,000 d.P0
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12. Mr. Bayugan published his book abroad for the international market. During the first quarter,
he earned a gross royalty of P1,000,000. How much final tax will be withheld by the foreign
publisher?
a. P250,000 c. P100,000
b. P200,000 d.P0
13. Sison Inc. is the only corporate shareholder of Surigao Inc.owning 60% of outstanding
voting shares. During the year, Surigao Inc. declared a P1,000,000 dividend. Compute the final
income tax to be withheld by Surigao.
a. P100,000 c. P40,000
b. P60,000 d. P0
14. Mr. Tuao won an P800,000 prize in a national dancing competition. The organization of the
event declared that the P800,000 grand prize was "tax free." How much final tax must be
remitted by the organizer to the BIR?
a. P200,000 c. P88,889
b. P 160,000 d.P0
15. Mr. Crocodile owns a mining property in Prosperidad. He allowed a mining company to
operate under a condition that he will be paid 10% royalty on the gold production. The mining
company produced P8,000,000 worth of gold durit the year. How much net royalties will be paid
to Mr. Crocodile?
a. P800,000 c. P720,000
b. P640,000 d. P160,000
Multiple Choice - Problems 3
1. Mr. Aguak earned the following prizes from two different competitions:
Date Event Gross Prize
January 4, 2017 Singing competition P 12,000
February 14, 2017 Painting competition 10,100
Compute the total final tax that should have been withheld from the above prizes.
a. P5,500 c. P3,000
b. P4,420 d. P2,400
2. Mr. Rems Orayt participated in two different events on January 4, 2020:
Date Organizer Competition Gross Prize
January 4, 2020 Ang Mahiwagang Boses Singing P10,000
January 4, 2020 Sexy Body Foundation Dancing 11,000
Compute the total final tax that should have been withheld from the above prizes.
a. P0 c. P3,000
b. P4,420 d. P2,000
3. Mr. Conra
3. Mr. Conrado won the P50,000,000 6/49 Superlotto Jackpot of the Philippine Charity
Sweepstakes Office. How much final tax will be withheld?
a. P500,000 c. P100,000
b. P 200,000 d. P0
4. Ms. Matti won a gold medal and P50,000 cash prize for chess competition in the Palarong
Pambansa. How much final tax should be withheld from the prize
a. P20,000 c. P5,000
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b. P10,000 d. P0
5. Tiong Sang Department Store conducted a sales promotion where customer purchases
exceeding P1,000 in one transaction shall be entitled to a ticket for a chance to win P500,000
raffle prize. Mr. Shing won the prize.
How much shall Tiong Sang withhold from the grand prize?
a. P200,000 c. P 50,000
b. P100,000 d.P0
6. Tacurong, a resident citizen, won $1,000,000 from the US lottery. The lottery winning is
a. exempt from tax c. subject to 10% final tax
b. subject to 20% final tax d. subject to regular tax
7. Mr. Curandang submitted a sworn statement regarding the alleged tax evasion practices of
Chitie Corporation. This led the BIR to recover P20,000,000 unpaid taxes. How much net tax
informer's reward shall be paid to Mr. Curandang?
a. P1,800,000 c. P1,000,000
b. P1,600,000 d. P900,000
8. A concerned government employee furnished the BIR a statement detailing the improper tax
practices of a corporate taxpayer. The information was instrumental to the collection of
P500,000 tax. How much informer's tax reward after tax shall be released to the informant?
a. P0 c. P45,000
b. P40,000 d. P50,000
9. Roy invested P1,000,000 in the "tax-free" corporate bonds of RBC Corporation. The bond
pays 8.75% interest annually net of any taxes. How much final tax must RBC Corporation
withhold from the annual interest payment to Roy?
a. P36,000 c. P37,500
b. P16,800 d.P0
10. A taxpayer wants to manually file his Monthly Remittance Return of Financial Income Tax
Withheld for the month of February 2017. What is the deadline for the return?
a. February 14, 2017 c. March 10, 2017
b. February 28, 2017 d. April 15, 2017
11. In reviewing its tax compliance, Rang-ay Banco noted that it failed to remit the P90,000 final
taxes it withheld for the month of February 2017. Compute the total amount of taxes due
including the penalties if Rang-ay Banco settles the obligation on March 20, 2017.
a. P 90,000 c. P 113,000
b. P 112,500 d. P 128,000
12. Bangko Illustrado failed to withhold the final tax on the P1,200,000 interest expense which
was credited to various accounts of individual depositors in the month of April 2016. It wants to
settle the unpaid final withholding tax on June 10, 2017. Compute the surcharge and interest
penalty due.
a. P 450,000 c. P 64,000
b. P 320,000 d. P 58,000

Chapter 6
True or False
1. A vacant and unused lot is an ordinary asset to a real estate dealer T
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2. For taxpayers not engaged in business, assets shall cease to be ordinary assets when
they are discontinued from active use for more than two years. T
3. Real and other properties acquired are ordinary assets to banks even if they are not
engaged in the realty business T
4. Capital assets will not become Ordinary assets when used in business. F
5. An ordinary asset becomes automatically become a capital asset when it is withdrawn
from active use. F
6. the sale of real property capital assets will never be subject to regular income tax. False
(See sales of RFC and the RIT option on individual sale to government)
7. donated assets become ordinary assets even if the done do not employ the same in
business F
8. an ordinary asset continues to be an ordinary asset even if idled for more than 2 years
if the taxpayer is engaged in realty business T
9. The real properties used by exempt corporations in their exempt upper a shins are
capital assets T
10. dealers in realties are subject to the regular tax on the sale of properties T
11. Capital gains from assets other than domestic stocks and real properties are subject to
regular income tax T
12. dealers in securities are not subject to the stock transaction tax but are subject to the
regular income tax on the sale of stocks through the philippine stock exchange T
13. Unit of participations in golf polo and similar clubs are considered domestic stocks T
14. the excess premium on the re-issuance of treasury stocks is subject to capital gains tax
F
15. The issuance of shares of stock for property is subject to capital gains tax F
16. the sale of foreign stocks directly to a buyer is subject to capital gains tax F (only
domestic stocks)
17. the two third final tax cannot apply unless and until there is a gain on the sale,
exchange, and other disposition of stocks directly to a buyer T
18. the stock transaction tax on the sale of stocks through the PSE cannot apply unless
there is a gain on the transaction F (tax is based on selling price)
19. the 6% capital gains tax cannot apply unless there is a gain on the sale of real property
F (tax is based on SP or FMV)
20. the sale of real properties located abroad is subject to the 6% capital gains tax F (only
real property capital assets within)

True or False 2
1. The ano capital gains tax return is simultaneously Do with an irregular income tax return
T
2. the basis of properties received by way of inheritance is the basis in the hands of the
last owner who did not acquire the same by donation False (or the fair value
whichever is lower)
3. When when specific Identification is impossible, the cause of the stock sold is
determined by the weighted average method False (by moving average method)
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4. the basis of the stocks receive in tax free exchanges is the basis of the shares given
False (adjusted basis of the shares received)
5. the transactional capital gains tax return is required to be filed within 30 days from the
date of sale T
6. the gain on the sale of stocks for stocks pursuant to a plan of merger and consolidation
is exempt if it resulted in the transferor acquiring corporate control over the absorbed
corporation T
7. installment payment of capital gains tax is allowed if the ratio of down payment over the
selling price of the sale does not exceed 25% False (not downpayment but initial
payment)
8. the selling price is used to determine the property of using the installment method but
the contract price is used to determine the capital gains tax payable in installments T
9. The excess of mortgage over the basis assumed by the buyer constitutes an indirect
receipt which is part of the initial payment and the selling price False (not selling price
but contract price)
10. wash sales occur when there is a report chase of shares within 30 days before and 30
days after the date of disposal of securities at a loss T
11. control means more than 50% ownership in the voting power of a corporation T
12. the sale of delisted stocks is subject to stock transaction tax and not to capital gains tax
F
13. gain and loss in a share for share swap pursuant to a plan of merger or consolidation
shall be recognized up to the extent of the cash and the other properties received T
14. the silver the national housing authority of commercial lots is subject to capital gains tax
T
15. if the assessor’s fair value is lower than the selling price then the fair value of the
property is the zonal value False (Assessed Value and Zonal value are independent
valuations)
16. title of a property shall not be registered by the registry of deeds unless the
commissioner or his representative has certify that the tax on the transfer has been paid
T
17. Domestic corporations are exempt from capital gains tax on the sale, exchange, and
other disposition of real properties False (foreign corporations are exempt)
18. The sale of land pursuant to the Agrarian Reform Program is exempt from capital gains
tax T
19. Foreign corporations are required to pay capital gains tax on the sale of domestic stocks
and on the sale of real property capital assets False (Only on domestic stocks.)
20. The alternative taxation on an expropriation sale is not applicable to corporate taxpayers
T

Multiple Choice - Theory: Part 1

1. Which is an ordinary asset C Principal residence of the taxpayer
2. Which is not an ordinary asset A personal laptop of the taxpayer
3. Which is a capital asset to a realty developer C vacant lot held for future development
4. Which is an ordinary asset D office supplies
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5. Which of the following assets, if not used in business, is subject to regular tax? D
Taxpayer’s personal car
6. Which is a capital asset for a security dealer? C real property held for speculation
7. Which is subject to the 5%-10% capital gains tax A sale of domestic stocks directly to
a buyer within or outside the Philippines (NIRC question)
8. Who is not subject to capital gains tax on the sale of domestic stocks directly to a buyer?
C dealers of cars
9. Which of the following, when sold, is not subject to capital gains tax? D a(boarding
house) and b (warehouse)
10. Which is not subject to the 6% capital gains tax? A donation of property
11. Statement 1: capital gains may arise from sale, exchange and other disposition of
movable properties used in business? C both statements are false
Statement 2: ordinary gains may arise from sale, exchange and other disposition of real
properties not used in business
12. Statement 1: the gain on sale of domestic stocks directly to a buyer is presumed.
Statement 2: ordinary gains may arise from sale, exchange, and other disposition of real
properties not used in business D only statement 2 is true
13. Which of the following properties when sold may be subject to capital gains tax? A
domestic stock
14. Statement 1: only depreciable assets of business qualifies as ordinary assets
Statement 2: land used in business is a capital asset since it is not subject to
depreciation D A,B and C (statement 1 is false, Statement 2 is false, Both
statements are false)
15. Statement 1: ordinary gains may arise from sale, exchange, and other dispositions of
real properties used in business
Statement 2: capital gain may arise from sale, exchange and other dispositions of real
properties not used in business.
Which is false C both statement are correct

Multiple Choice - Theory: Part 2

1. Which of the following properties, when sold, may be covered by regular income tax? D
promissory notes
2. Which of the following assets may be subject to capital gains tax upon disposal? C farm
lot
3. The sale of an office building will be subject to D regular tax
4. The term “other disposition” covers D any of these
5. Which of the following sales of domestic stocks is subject to capital gains tax? C sale of
domestic stocks directly to a buyer
6. The sale of listed shares will never be subjected to A 6% capital gains tax
7. The sale of non-listed shares may be subjected to C 15% capital gains tax
8. Which of the following when sold may be exempted from the 6% capital gains tax D
principal residence
9. Statement 1: the sale or exchange must result in an actual gain before the 15% capital
gains tax is imposed.
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Statement 2: the sale or exchange must result to an actual gain before the 6% capital
gains tax is imposed C only statement 1 is correct
10. When the annualized capital gains tax exceeds the transactional capital gains tax. The
excess is a B tax payable
11. 1st statement: properties acquired by real estate dealers are ordinary assets.
2nd statement: properties of real estate dealers continue to be classified as ordinary
assets even if they change the nature of their business D both statements are correct
12. 1st statement: when realty businesses discontinue use of assets for more than two
years, the same shall be reclassified as capital assets
2nd statement: properties of real estate dealers continue to be classifies as ordinary
assets even if they change the nature of their business D both statements are correct
13. Which is an incorrect statement? A the capital gains tax on the disposition of capital
stock presumes the existence of gain on the sales transaction
14. Which of these shall pay the two-tiered capital gains tax? D a (real property developer)
or b (dealer in stocks)
15. The sale of real properties which would otherwise be subject to the 6% capital gains tax
may nevertheless be subject to regular income tax if all of the following conditions are
met, except one. Which is the exception? B the sale involves the principal residence
of the taxpayer
16. Which of these pay the 6% capital gains tax? A security dealer
17. The sale of a principal residence is exempt from the capital gains tax if all of the
following conditions are met, except B the reacquisition must be by purchase

Multiple Choice - Theory: Part 3

1. The transactional 15% capital gains tax is to be paid A within 30 days from the date
gains tax is to paid
2. The annual 15% capital gains tax return is due C on or before the 15th day of the
fourth month following the taxpayer’s year-end
3. Capital gains tax that is not payable on installment basis is due A within 30 days from
the date of sale or exchange
4. Installment payments of the 6% capital gains tax is due B within 30 days from the date
of each installment payment
5. The installment payment of capital gains tax is applicable to the C both a (15% capital
gains tax only) and b (6% capital gains tax only)
6. The installment payment of capital gains tax is applicable to D a (individual taxpayers
only) or b (corporate taxpayers only)
7. Which of these capital gains is subject to capital gains tax A gain on the sale of stocks
rights
8. Paulo indicated in his return his intent to avail of the exemption from the 6% capital gains
tax. Under what condition will he be exempted? D when the acquisition price of the
new property exceeds the proceeds of the old property sold
9. Partial taxation under the 6% capital gains tax will result when C the proceeds of the
old property exceeds the acquisition price of the new property regardless of the
tax basis, zonal value and Assessor's fair value of the old property
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10. The transactional capital gains tax on domestic stocks is D creditable to the annual
capital gains tax due
11. The 15% capital gains tax does not apply to A resident citizen of stocks
12. The documentary stamp tax on the sale of domestic stocks directly to a buyer is based
on B par value
13. The documentary stamp tax on the sale of real property is based on D a (selling price)
or b (fair value) whichever is higher
14. The 6% capital gains tax does not apply to D foreign corporations
15. Who shall file the capital gains tax return for the sale, exchange, and other disposition of
real property? A seller

Multiple Choices - Problems Part 1

1. Mr. Dionisio sold domestic stocks directly to a buyer at a mark-up on cost of P200,000.
He paid P5,000 broker’s commission and P8,000 documentary stamp tax on the sale.
Compute the capital gains tax. A 28,050 [The net gain is (P200K – P5K – P8K) x 15%]
2. Ms. Abdul a non-resident alien, sold domestic stocks directly to a buyer at a net gain of
P70,000. Compute the capital gains tax. A 10,500
3. Mr. Panay, a non-resident citizen, sold domestic stock rights directly to a buyer. The net
gain of P320,000. Compute the capital gains tax D 48,000
4. Mr. Digos sold shares of a resident foreign corporation directly to a buyer. The shares
were purchased for P100,000 and were sold at a net selling price of P210,000. Compute
the capital gains tax. D 0
5. Grace sold domestic shares directly to buyer. The following relates to the sale:
Fair market value of shares P400,000
Selling price 300,000
Cost 150,000 D 22,500
6. Texas Inc. exchanged its investments representing domestic shares for a piece of land
owned by Eagle, Inc.
Fair market value of shares P400,000
Fair market value of land 500,000
Par value of shares 300,000
Cost of shares 350,000 A 22,163 (DST=P300K x 1.5/200=P2,250).
[(P500k-P350k-P2, 250 dst-P100k) x 15%]
7. Digong Inc. exchanged its share investment from Bee Inc., as payment of its P350,000
long outstanding loan from the latter. Digong acquired the shares for P300,000. Ignoring
documentary stamp tax, compute the capital gains tax on the transaction. B 7,500
[(P350K-300K) X 15%]
8. On January 5, 2020. Mercy a stock dealer disposed the following shares directly to a
buyer:
Shares Selling price Cost
Stock rights P200,000 P170,000
Common Stocks 100,000 110,000
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Ignoring the documentary stamp tax, the capital gains tax payable on the sale is A 0
(Stocks is an ordinary asset to a dealer in stocks)

9. Kidapawan, Imc. a domestic service company, has the following transactions on the sale
of another domestic corporation:
Transaction Quantity Net price
Purchase 20,000 40,000
Purchase 30,000 63,000
Sale 40,000 92,000

Assuming the first-in, first-out method, compute the capital gains tax on the sale. A 0
This is NIRC. [P92K- (P20K X 2 per share of the 1st purchase) -(P20K X 2.1 per
share of the 2nd purchase)] X 5%

10. Assuming the moving average method, compute the capital gains tax on the sale B 400
This is NIRC. [P92K- (P40K X 2.06 WA per share)]x 5%
11. Koron CompanyA trading company made the following transactions during the year
involving the stocks of Xurpas, a domestic corporation:
Date Transaction Shares Net price
6/15/2020 purchase 10,000 P30
9/30/2020 sale 8,000 28
10/3/2020 purchase 15,000 25
12/7/2020 sale 10,000 32

Koron uses the FIFO Method in costing the Xurpas stocks.

Compute the deductible loss on september 30 sale D 0
12. compute the taxable gain on the december 7 sale B 60,000 [ P320K-(2K x 30)- (8K x
25)]
13. mr trinidad has the following transactions during the year on the common stocks of
philippines pines a domestic non-listed company:
Date Transaction Gain(Loss)
5/8/2020 sale P120,000
8/5/2020 sale (10,000)
9/8/2020 sale 250,000

Compute the annual capital gains tax due for 2020 C 22,000 [(120K-10K+250K) x 15%
14. Mr. Kalibo shows the following transactions in the shares of Aklan Corporation, a closely
held corporation:
Date Transaction Quantity Price
2/8/2020 buy 10,000 P120,000
4/5/2020 sell 10,000 100,000
5/1/2020 buy 20,000 240,000
What is the tax basis of the shares acquired on May 1,2020? B 260,000
[(P120K-P100K) + P240K]
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15. Mrs. Aurora, a resident citizen, purchased 100,000 shares of shares of PhilHotdogs A
domestic listed company the shares were acquired at 200,000. She disposed the shares
through the Philippine stock exchange at the fair value of 250,000. A 0 (through PSE)
16. Mr. Bosun Disposed various stocks at the total consideration of 400,000 and paid
thereon stock transactions tax of P2,000. Aggregate gains realized totaled P98,000 after
the stock transaction tax. what is the capital gains tax? A 0 (through PSE)

Multiple Choice - Problem Part 2

1. A certain taxpayer shows the following over-the-counter transactions in the shares of a
domestic corporation:
Date Transaction Quantity Net price
2/8/2020 purchase 10,000 P112,000
4/5/2020 sale 10,000 100,000
5/1/2020 purchase 8,000 80,000
6/7/2020 sale 5,000 60,000

Compute the capital gain on On june 7 2020 that is subject to capital gains tax A 4,000
The cost per share as of 5/1/2020 is 11.2 per share computed as (P112K-P100K) X
8/10] +P80k) = P89,600/8,000 shares as of 5/1/2020. The CGT on 6/7/2020 is
computed as [P60K-(5K x 11.2)]

2. An investor sold domestic stocks directly to a buyer on October 1 2019 under the
following terms:
Selling price P500,000
Cost 200,000
Downpayment 10%
Installment in 2019 50,000
Compute the total capital gains tax in 2019. C 9,000 [(P50k Dp. + P50K inst.)/P500K] x
P45K Total CGT

3. ABC Realize the following gains or losses in selling various securities:

Gain on sale of domestic stocks P300,000
Par value of domestic stocks sold 200,000
Gain on the sale of interest in a partnership 200,000
Gain on the sale of stocks of freign corporations 150,000

Compute the capital gains tax B 44,775 [(P300K - P1.5K dst) x 15%]

4. Compute the documentary stamp tax in the preceding problem. A 1,500 (P1.5/200 x
P200K)
5. A wash sale of domestic shares were in 20,000 shares were disposed at a loss of
P40,000 we're subsequently covered up within the 30-day period by a purchase of
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15,000 shares for 12/share. The deductible capital loss against capital gain on the wash
sale is C 10,000 (P40K x 5K/20K). Note 5K shares were not covered-up
6. What is the cause of the 15,000 shares acquired in the preceding problem? D 190,000
[(P40K x 15K/20K) + P160K]
7. Isidro sold 1,500 shares of stocks of achievers corporation directly to a buyer. The
shares par value per share was P85. Isidro purchased the shares for P90 each. On the
date of sale, the shares had a selling price of P120 per share.C 6,607 [(1,500 x
(P120-P90)] – 1,500 x 85 x 1.5/200) x 15%
8. Mr Palangdan purchased domestic stocks which were priced at 150% above their par
values. After two years, he sold the stocks when their fair value doubled. He paid P7,500
documentary stamp and P10,000 in commission expenses on the sale. compute the
selling price of the stocks. A 3,000,000. The documentary stamp tax is P1.5/P200 of
par value. It is 0.0075 of the par. Hence, the par value must have been
P7,500.00/.0075 = P1,000,000, the cost would have been P1,500,000 (P1M x 150%).
At the date of sale, the value of the stocks doubled to P3,000,000 (P1.5M value at
purchase x 2).
9. Compute the capital gains tax. D 222,375 The net gain is P3M-P1.5M = (P1.5M –
P7,500 – P10,000) x 15%.
10. On june 20 2019. Mr.Lito filed the capital gains tax return involving the sale of domestic
stocks on february 20 2019. The net gain was P140,000. Compute the total amount due
including penalties except compromise penalty. A 26,880 (nearest answer)

Basic tax due (140K x 15%) P 21,000

Surcharge (21K x 25%) 5,250
Interest (21K x 90/365 x 12%) 621
The exact answer P 26,871

Deadline is March 22 since February 2019 is a 28-day period. March 22 to July 20, 2019 is
90 days. 360 days was inadvertently used in the interest computation resulting into 630
interest. This would yield P26,880, the question answer. Consider rewarding students
who indicated the exact answer.

Multiple Choice - Problems: Part 3

1. A taxpayer purchased a building to be used as a future plant site. The building remained
unused for 3 years due to a significant decline in customers' demand in product of the
taxpayer. The taxpayer eventually disposed the property. What is the classification of
the property? A ordinary asset
2. Assuming the same data in the preceding number except that the property was not
disposed of but the same was used as a sales outlet after which it became vacant for
more than 2 years. What is the classification of the property? D capital asset, if the
taxpayer is not engaged in real estate business
3. Anderson this poses a vacant lot for P3,000,000. The lot has an Assessor’s fair value of
P2,800,000, a zonal value of P3,200,000, and an appraisal value of 3,500,000. what is
the capital gains tax? C 192,000 (P3.2M x 6%)
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4. Puerto princesa company sold its parking lot for for P2,000,000. The lot has a zonal
value of 2,500,000 and appraisal value of 1,800,000. The capital gains tax on the sale
of the lot is A 0 (Parking lot is an ordinary asset.)
5. Mr. Antonio disposed his principal residence for P2,000,000 and immediately acquired a
new one for P1,800,000. The old residence cost Mr. Antonio P1,000,000 and had a fair
market value of P2,500,000 on the date of sale. Compute the capital gains tax to be
deposited in escrow. D 150,000 (P2.5M x 6%)
6. What would be the tax basis of Mr. Antonio’s new residence? C 900,000 (P1M x
P1.8M/P2M)
7. How much of the capital gains tax will be released to the taxpayer? B 135,000 (P150K x
P1.5M/P2M)
8. On August 15, 2020, Ms. Mones sold a 500-square meter residential house and lot for
P3,000,000. The house was acquired in 2005 at P2,000,000. The Assessor’s fair market
values of the house and lot, respectively, were P1,500,000 and P1,000,000. The zonal
value of the lot was P5,000 per square meter. What is the capital gains tax? D 240,000
(P5K x 500 +1.5M) x 6%
9. Manny a resident Filipino citizen, sold his principal residence (house and lot) at its
original purchase price of P11,000,000. The property has a P13,000,000 fair value at
that time. If the proceeds of the sale were not invested in the new principal residence
but, instead new funds of P15,000,000 were used to construct it, the capital gains is D
780,000 (13M x 6%)

Number 10 through 12 are based on the following information:

Mr. Pepito sold his residential land in Manila with fair market value of P12,000,000 for
P10,000,000.

10. If mr.pepito utilized all of the P10,000,000 in buying a house and lot to be used as his
new principal residence, the final tax due from him is: A 720,000 (P12M x 6%)
11. If Mr. Pepito utilized only P7,000,000 from the proceeds of the sale in acquiring a new
residence, the final tax due from him is A 720,000
12. The documentary stamp tax due on the sale is B 180,000 (P12M/1K x 15)

Multiple Choice - Problems: Part 4

1. Mr. Quirino exchanged his stock investment in Carmen Corporation for the shares of
stock of Dingalan Corporation. The stocks acquired by Mr. Quirino represent 60% of the
stocks of Dingalan Corporation.
Basis of the stocks given P3,000,000
Fair market value of stocks given 5,000,000
Fair market value of stocks received 4,500,000

What is the capital gains tax? A 0 (Initial acquisition of control is a tax-exempt

transaction.)
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2. In the immediately preceding problem, what is the basis of the stocks received by Mr.
Quirino? B 3,000,000
3. Mr. Eller exchanged his DEF shares for the shares of EFG pursuant to a plan of merger.
Mr. Eller bought his shares for P1,000,000. The shares had a fair value of P1,500,000 on
the date of exchange. Mr. Eller received EFG shares with a fair value of P1,300,000 plus
cash of P200,000. Compute the capital gains tax. C 30,000 [(P 200K-P100K) x 10%] +
P5K
4. What is the basis of the shares received by Mr. Eller? B 1,000,000
5. What is the basis of the DEF shares received by EFG Company? C 1,200,000
6. Raymund exchanged his A Company shares pursuant to a plan of consolidation where A
Company will be integrated with B Company. The following relates to the exchange:
Basis of A Company shares give P1,200,000
Fair value of A company shares given 1,300,000
Fair value of B company shares received 1,100,000
Fair value of other properties received 250,000
Compute the capital gains tax. D 22,500 [(P250K-P100K) x 15%
7. What is the tax basis of the B Company received by Raymund? B 1,100,000
8. What is the basis of the “boot” or the other properties received by Raymund? C 250,000
9. What is the basis of the A Company shares received by B Company? D 1,350,000
10. Mrs. Joson sold a residential lot on June 1, 2019 for P2,000,000. The property had a
zonal value of P2,500,000 and an Assessor’s market value of P1,000,000. On July 1,
2020, Mrs. Joson was compelled to pay the capital gains upon the request of the buyer.
The compromise penalty was determined to be P20,000. Compute the total tax due E
(NO ANSWER)
Basic tax due (P2.5M x 6%) P 150,000
Surcharge (P150,000 x 25%) 37,500
Interest (P150,000 x 12% x 366/365) 18,049
Exact answer P 205,549
11. Basic company paid P9,000 documentary stamp tax on the sale of a real property capital
asset. Compute the capital gains tax on the sale C 36,000

Higher of selling price or fair value (P9,000 /1.5%) P 600,000

Multiply by: Tax rate 6%
Capital gains tax P 36,000

12. Mr. Bassit Unay sold a residential land for P4,000,000. The land has a fair value of
P3,500,000 and an Assessor’s fair value of P2,000,000. What is the total income tax and
documentary stamp tax due? B 300,000 (P4M x 7.5%)

Chapter 7
True or False 1
1. There are two types of regular income tax: proportional income tax for corporations and
progressive income tax for individuals T
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2. NRA-NETBs and NRFCs are also subject to regular income tax F (NRA-NETB and
NRFC are subject to FIT)
3. All taxpayers are subject to final tax F
4. Taxable income is synonymous to net income F
5. For all taxpayers, taxable income means the pertinent items of gross income not subject
to capital gains tax and final tax less allowable deductions. T
6. All taxpayers are subject to regular income tax T
7. Employed taxpayers can claim expenses from their employment as deductions against
their compensation income F
8. Items of gross income subject to final tax and capital gains tax are excluded in gross
income subject to regular income tax T
9. The P250,000 income tax exemption for individuals is designated to be in lieu of their
personal and business expenses F (T daw ana si maam)
10. Non-taxable compensation are items of compensation that are excluded against gross
income T

True or False 2
1. The taxable compensation income is computed as gross compensation less the
non-taxable compensation income T
2. The deadline of filing the corporate quarterly income tax return is the same with the
deadline of the quarterly income tax return of individuals F
3. Business expenses can be deducted against all types of gross income subject to regular
tax F
4. No deduction shall be allowed against taxable income T
5. Only corporations may incur deductions against gross income F
6. The gross income from business is measured as sales or gross receipts less cost of
sales or cost of services T
7. The tax due of individuals is determined by means of a schedules of tax rates T
8. The tax due of corporations is determined by multiplying their gross income by 30%. T
9. The deadline of the annual income tax return of corporations using the calendar year is
similar to the deadline fixed for individual taxpayers T
10. Every individual taxpayer is exempt from income tax on compensation up to P250,000
annually but the same exemption does not apply to business income T
Multiple Choice - Theory Part 1 (CHECK PG19)
1. The general rule in income taxation is C
2. Active income is subject to
3. Question 3 and 4 are based on the following
Which of the foregoing are passive incomes are subject to?
4. Which of the foregoing are capital gains subject to?
5. The net amount of regular income subject to regular tax is called
6. Which is not generally subject to regular income tax?
7. What are allowable deductions against gross income
8. Deductions are allowed to
9. Personal exemptions are allowed to
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10. Which is not a feature of the regular income tax?
11. Which is true with the final withholding tax?
12. Which is not true with the creditable withholding tax?
13. Progressive income tax is applicable to
14. Proportional regular income tax is applicable to
15. Which of the following individual taxpayers is not subject to tax on taxable income?
16. Which of the following corporate taxpayers is not subject to tax on taxable income?
17. Which is a source of income subject to regular income tax?
18. Which interest income will not be included in the income tax return?
19. Which is not subject to final tax?
20. Which of the following is a passive income but is nevertheless subject to regular tax by
virtue of exclusion under final income taxation?

Multiple Choice - Theory Part 2

1. The following may be relevant in the determination of taxable income
Which is not considered in the determination of taxable income?
2. Which is a correct statement regarding exclusion in gross income?
3. Which of these types of employees may be subject to final fringe benefit tax?
4. Which is not considered an operating income?
5. Which is non-operating income?
6. Which is an incorrect statement?
7. Which of the following will least likely to be considered an operating income of a security
dealer?
8. The distinction between operating and non-operating income is not required in the
income tax return of
9. The reporting classification of gross income into operating and non=operating is
unnecessary for
10. Which is not part of compensation income?
11. Who cannot claim deductions?
12. Who are required to file quarterly declaration of income?
13. Mr. Jones wishes to file his 2019 income tax return. To avoid penalty, he must file his
return on or before
14. An individual taxpayer must file his income tax return for the third quarter of 2019 on or
before
15. Avida Corporation is filing its income tax return for the quarter ending February 28, 2019.
The return must be filed on or before
16. Which of these taxpayers is required to file an income tax return?
17. The taxable income of corporate taxpayers is the
18. The taxable income of a pure compensation income earner is the
19. The taxable income of a mixed income earner is the
20. The taxable income of a pure professional income earner is the
21. Which of the following statements is incorrect with respect to the determination of the
taxable income of individual taxpayers with other income?
22. Statement 1: Individuals with higher income are subject to higher tax rates
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Statement 2: Corporations with higher income are subject to high tax rates
Which is the correct regarding the regular income tax?
23. Which is incorrect in the determination of the taxable income of individual taxpayers?
24. Statement 1: Corporations with the same net income may not have the same tax due.
Statement 2: individuals with the same net income may not have the same tax due.
Which statement is incorrect regarding the regular income tax?
25. A purely engaged in business individual taxpayer shall use
26. BIR Form 1701 is not intended for
27. BIR Form 1700 is intended for
28. A corporation subject to different tax rates shall use
29. A non-profit corporation with a taxable income shall use
30. A school which is subject to a preferential or special tax rate shall use
31. A corporation that is subject only to a 30% income tax rate shall use

Multiple Choice - Problems 1

1. Mrs. Sanchez Mira had a gross taxable compensation income of P400,000. She also
earned an additional P2,000 by investing her money in time deposits plus P3,000
interest income from lending money to a friend. Compute her taxable income.
2. Ms. Claveria had a business net income of P300,000. She also earned P5,000
commission from selling cellular cards and P12,000 dividends from a domestic
corporation. Compute her taxable income.
3. Mr. Pamplona earned total gross receipts of P800,000 and paid P300,000 in expenses in
his accounting practice. During the same year, he also earned a total of P60,000 net
gain from the sale of domestic stocks directly to a buyer. He also disposed a vacant lot at
a net gain of P140,000. What is the taxable income of Mr. Pamplona?
4. Mr. Monreal earned a gross compensation income of P200,000, exclusive of P20,000
non taxable compensation income, and gross business income of P500,000 before
expenses of P200,000. He also earned book royalties of P10,000 and P8,000 interest
income from clients’ promissory notes Mr. Monreal has personal expenses of P170,000
during the year. What is Mr. Monreal’s taxable compensation income?
5. What is Mr. Monreal’s net income from business? A 300,000 (P500K-P200K+P8K)
6. What is Mr. Monreal’s the taxable income?
7. Mr. Bangul earned a compensation income of P120,000 and net income from business
of P300,000. He also earned P8,000 prizes from a dancing competition and P45,000
royalties from his musical composition. Mr. Bangul has P150,000 personal expenses.
Compute the taxable income B 465,000 [(P120K CI-P150K PE)+
P300K BI + P8K OI]
8. In 2015, Ms. Balayan earned P450,000 compensation income but incurred P120,000 net
loss in her business. What is her taxable income assuming she incurred personal
expenses of P100,000? A 450,000 (P450K- P100K)
9. MR Gudani, with a P75,000 personal exemption had the following data in 2019:
Philippines Abroad
Gross income from sales P4,000,000 P6,000,000
Interest income on deposits 40,000 80,000
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Less: Deductions 2,000,000 3,600,000

Compute the taxable income if Mr. Gudani is a resident citizen

10. In the immediately preceding problem, compute the taxable income if Mr. Gudani is a
non-resident citizen

Multiple Choices - Problems 2

1. Lesde, Inc. had the following income in 2019:
Philippines Abroad
Rent Income P10,000,000 P12,000,000
Dividend - domestic 50,000 -
Royalties 80,000 200,000
Business expenses 8,700,000 9,800,000

Compute the taxable income if Lesde, Inc. was a domestic corporation B 3,700,000
[(P10M-P8.7M)+(P12M-P9.8M+P200K)]

2. Compute the income tax due in the immediately preceding problem C 1,110,000 (P3.7M
X 30%)
3. Compute the taxable income assuming Lesde Corporation was a resident foreign
corporation D 1,300,000 (P10M-P8.7M)
4. Compute the income tax due in the immediately preceding problem A 390,000 (P1.3M X
30%)
5. Compute the tax due if Lesde, Inc. was a non resident foreign corporation. Assume that
the tax sparing is not applicable to Cavite B 3,039,000 (P10M+50K+80K) x 30%
6. Mr allan derived the following income in 2019:
Business income P200,000
Compensation income 300,000
Interest income from ⅚ lending to clients 100,000
Interest income from bank deposits 20,000
Royalty income 100,000
Capital gain on sale of personal car 20,000
Capital gain on the sale of stocks directly to a buyer 40,000
Ordinary gain on sale of old office furniture 10,000
Dividend income 50,000

Compute the total passive income subject to final tax A 170,000 (P20K Deposit+P100K
Royalty+P50K
Dividend)
7. Compute the total income subject to regular tax B 630,000 (P200K BI+ P300K CI+
P100K Lending+P20K Car+ P10K Furniture)
8. Compute the capital gain subject to capital gains tax B 40,000 ( The P40K sale directly
to buyer)
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Chapter 8
True or False
1. The proceeds of life insurance received by the heirs of the insured upon his death is
excluded in gross income T
2. The amount received in excess of the premium paid in an insurance contract constitutes
an item of gross income T
3. Donated income is included in the gross income of the donee F
4. Compensation for injuries and sickness constitutes profit; hence, an inclusion in gross
income F
5. It is must that the employer maintains a reasonable pension benefit plan for the
retirement benefit to be exempt F
6. An employee can secure retirement benefit exemption only once in a lifetime T
7. It is a must that the employer maintains a reasonable pension benefit plan for the
retirement benefit to be exempt. T
8. An employee must have rendered more than 10 years of service before claiming
exemption for his termination benefits F
9. The income of the Philippine government from essential public functions is exempt from
any income tax T
10. Prizes paid to corporations are an inclusion in gross income subject to final tax T
11. Only the mandatory portion of GSIS, SSS, Philhealth and union dues can be excluded in
gross compensation income. T
12. Social security benefits, retirement gratuities, and other benefits from foreign
governments are excluded in gross income T
13. Social security benefits, retirement gratuities and other benefits from foreign private
entities are included in gross income F
14. The gain from redemption of shares in mutual fund is an exclusion in gross income
subject to regular tax because it is an inclusion in gross income subject to capital gains
tax F
15. 13th month pay and other benefits are taxable only up to P90,000 F

True or False 2
1. GSIS and SSS benefits are included in gross income to the extent they exceed P90,000
F
2. Prizes awarded upon the condition that the recipient shall render specified future
services is an item of gross income T
3. Prizes from contests are included in gross income subject to regular income tax F
4. The income of government-owned and controlled corporations is an item of gross
income T
5. Benefits of veterans of war or retired US army personnel are excluded in gross income T
6. The employer’s share to SSS, Philhealth and Pag-ibig contributions are an exclusion in
gross income F
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7. Compared to exclusion, deduction is included in the amount of gross income but both
exclusion and deductions are not reflected in the amount of taxable income T
8. The interest income from any bond or debentures, short-term or long-term is an item of
gross income T
9. Cooperatives that transact business only with members will, in no case, be subject to
income tax F
10. Cooperatives, regardless of their classification, are taxable on income from their
unrelated activities T
11. The gain on the sale of long-term bonds with a maturity of five years is an exclusion in
gross income F
12. A non-stock, non-profit entity is subject to tax on income from unrelated activities T
13. A general professional partnership can be registered as a BMBE F
14. Items of income subject to final tax or capital gains tax are exclusions in gross income
subject to regular income tax T
15. A BMBE must have a net asset not exceeding P3,000,000 to be exempt F

Multiple Choice - Theory 1

1. Statement 1: items of passive income from abroad are subject to regular income tax
Statement 2: items of passive income from the Philippines are generally subject to final
income tax
Which statement is generally correct? C both statements
2. Which is true with the regular income tax B tax is payable at regular intervals
3. Which is not a feature of regular income tax? C gross income tax
4. Statement 1: capital gains are generally subject to capital gains tax
Statement 2: items are passive income in the Philippines are generally subject to regular
income tax D neither statement 1 nor 2 is true
5. Deductions from gross income are B business expenses
6. Which of the following statements best distinguishes deductions from exclusions from
gross income? B deductions are outflows from gross incomes while exclusions are
not outflows from gross income
7. Progressive income tax does not apply to a A non-resident alien
8. Which is not included under the term “corporation” D general professional partnership
9. The highest marginal tax rate for individual income taxpayers is B co-ownership
10. Which corporate taxpayer is not subject to regular income tax C 35%
11. Which corporate taxpayer is not subject to regular tax A non resident foreign
corporation
12. Which individual income taxpayer is not subject to regular tax D non-resident alien not
engaged in trade or business
13. Which is correct with respect to exclusions from gross income C they are not
considered in the computation of taxable income
14. Which is correct with respect to deductions from gross income A they pertain to
expenses of generating items of business or professional gross income
15. Which constitute a taxable item of gross income C gain from sale of government
bonds
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Multiple Choice - Theory 2
1. The proceeds of an insurance policy received by the corporations as beneficiary on the
life insurance of its officer is D exempt from income tax
2. Mr bugney was insured in a life insurance with his daughter, Ybon, as the irrevocable
beneficiary. Ybon was paid the entire proceeds when Mr. Buguey died. The proceeds
constitute D an exclusion from gross income
3. A policyholder who outlived the policy and received a cash surrender value in excess of
premiums paid is exempt upon A the amount representing a return of premiums
4. The assignment of an insurance policy at an amount in excess of the premiums paid on
the policy is subject to B income tax
5. A widow who collected the life insurance proceeds of her decease husband is A exempt
to the entire amount of the proceeds
6. The policyholder of a life insurance contract outlived his insurance policy. Je was paid
P300,000 upon maturity of the policy. He paid P250,000 total premium. What is the
inclusion is gross income P50,000
7. Which of the following is subject to tax? D All of these
8. Which is not a requisite of exemptions of a retirement benefit plan? C the retiree must
be a senior citizen
9. Termination benefits are exempt from income tax provided that the reason for
termination is A beyond the employee’s control
10. Which is not an item of exclusion from gross income C income of government-owned
and controlled corporations
11. Which of the following government-owned and controlled corporations is subject to
income tax? B National Development Corporation
12. Which is not an acceptable ground for exemption of termination pay? C Grave
misconduct and neglect of study
13. Which is not an item of gross income for taxation purposes A unrealized income
14. Which is subject to income tax C interest income on long-term bonds with a maturity
period exceeding five years
15. Which of the following is not an exclusion from gross income A income of government
properties

Chapter 9
True or False 1
1. Items of gross income subject to regular income tax and capital gains tax are reportable
to the government T
2. Rent is passive income, but is not subject to final tax T
3. The interest income from bonds issued by banks is subject to final tax F
4. Gains from dealings in capital assets are generally subject to the regular income tax T
5. The gross income from operations enjoying a tax holiday are included in gross income
subject to regular tax, but are presented as deductions in the income tax return F
6. The share in a business partnership is subject to final tax, but the share in a general
professional partnership is subject to regular income tax T
7. Gains from dealings in ordinary assets are subject to regular income tax T
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8. Items of passive royalty income are subject to final income tax while items of active
royalty income are subject to regular income tax T
9. Compensation income is an inclusion in gross income subject to regular tax except
compensation income of special aliens T
10. The reportable gross income from business or the exercise of a profession is net of the
cost of goods sold or cost of service T
11. Items of income which are included in gross income subject to final tax and excluded in
gross income subject to regular income tax T
12. Imputed interest income is an item of gross income subject to regular income tax F
13. Advanced rentals are income in the year received T
14. Real property tax and insurance on the property if assumed by the lessee constitute
income to the lessor T
15. Corporate winnings are exclusion in gross income; hence, they are exempt from income
tax F
16. Stock dividends are never subject to income tax F
17. Pensions or retirement benefits are inclusions in gross income subject to regular income
tax if the employee is terminated due to any cause within his control T
18. Prizes in athletic competitions sanctioned by the Philippine government are exclusions in
gross income subject to final tax but are inclusions in gross income subject to regular
income tax F
19. Corporate prizes are exclusions in gross income subject to final tax but are inclusions in
gross income subject to regular income tax T
20. Stock splits are never subject to income tax T

True or False 2
1. The distributable net income of a general professional partnership is subject to creditable
withholding tax T
2. Exempt joint ventures and co-ownership are treated as pass-through entities and are
subject to income tax F
3. The distribution by the GPP of items of passive income is an inclusion in gross income of
the partner subject to regular income tax T
4. General professional partnerships are exempt from tax and hence, exempt from
withholding T
5. The share from the net income of a joint venture organized abroad is subject to 10% final
withholding tax F
6. Income distribution from taxable estates and trusts is an inclusion in gross income
subject to regular tax by the heir or beneficiary T
7. The recovery of past deduction must be reverted back to gross income of taxpayers
using the accrual basis T
8. The recovery of bad debts need not to be reverted back to gross income of taxpayers
using the cash basis F
9. The recovery of deduction from an exempt year is subject to tax F
10. General professional partnerships are not exempt from regular tax but are subject to final
tax and capital gains tax F
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11. An indebtedness cancelled by the creditor out of mercy is an income to the debtor F
12. When there is a net loss in the period the deduction is taken, the subsequent recovery of
the deduction will not have any tax benefit F
13. The refund or recovery of non-deductible taxes shall not be reverted back to gross
income T
14. The loss of the partnership can be claimed by the partners as deduction in their income
tax returns F
15. The accounting period of the taxpayer has a direct impact upon the amount of gross
income to be reported F
16. The power of the CIR to redistribute income and expense includes the power to impute
income between affiliated enterprises F
17. The situs of taxation has an impact on the extent of the reportable gross income T
18. Creditable withholding taxes are added back to the amount of reportable gross income T
19. The output VAT must be included as part of gross income of VAT taxpayers F
20. The requirement to revert back to gross income the amount of withheld taxes applies
only to VAT taxpayers F
21. Generally, all the items of income of NRA-NETB and NRFCs from the Philippines are
inclusions in gross income subject to final tax T
22. The taxpayer must enter into an advanced pricing agreement with the BIR for its
cross-border transfer pricing with associated enterprises F
23. Transfer pricing between associated enterprises must be made at arm’s length T
24. The transfer pricing regulations apply only to cross-border transfers of goods and
services between associated enterprises F
25. Corporations under the direct and indirect control of the same controlling individual or
corporation are associated enterprises T
26. Under the accrual basis of accounting items of gross income are reported in the period
they are received F
27. Basically, transfer pricing adjustment is needed when the income reported for Philippine
taxation is understated T

Multiple Choice - Theory Part 1

1. Which is not subject to income tax All of these
2. Which is an item of gross income subject to regular tax gain on sale of lot by a realty
dealer
3. Which is not an item of gross income subject to final tax share in the income
4. Which of these employee benefits is subject to final tax fringe benefits to spervisory
and managerial employees
5. All of these are items of gross income subject to regular tax except one. Select the
exception interest income from long-term bank deposits
6. Which is an income exempt from income tax taxes collected by the government
7. All of these are subject to regular income tax except capital gain from the sale of real
property located in the Philippines
8. Which is exempt from regular tax? Income of qualified pension plans
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9. Which item of gross income is not subject to regular tax capital gain on the sale of
bonds with more than 5 years maturity
10. Which is not part of compensation income subject to regular tax? Portion of salary
contributed to SSS
11. Which is included in the gross income subject to regular tax of a resident alien? Interest
income from promissory notes of resident clients
12. Which of the following deductions from gross compensation income is included as part of
gross income subject to regular tax? Dues withholding tax
13. Which interest income is subject to regular tax? All of these
14. Dividends subject to regular tax includes doreign dividends
15. Statement 1: all prizes earned abroad are subject to regular tax
Statement 2: all prizes in the Philippines are subject to final tax statement 1
16. Which is an item of gross income subject to regular tax? Lottery winnings from abroad
17. Which of the following is not subject to regular tax of a domestic corporation or resident
citizen income from abroad exempt under treaty
18. Which is subject to regular tax to non-resident foreign corporation or non-resident alien
not engaged in trade or business? None of these
19. Which is subject to regular tax to a resident foreign corporation? Gain from sale of real
property capital assets in the Philippines
20. The proceeds of life insurance received by the wife of the insured is exempt from
income tax

Multiple Choice - Theory Part 2

1. Which of the following will not be reported in gross income? Receipt of inheritance
2. Which is not a reportable type of a gross income capital gains from the sale of
domestic stocks through the PSE
3. Which of the following is included in gross income subject to regular tax farming income
4. All income earned abroad that would otherwise be subject to final taxes if earned within
the Philippines shall be subject to progressive tax of a resident citizen
5. All items of passive income earned abroad are subject to regular tax to a resident
citizens and domestic corporations
6. Which individual taxpayer is not subject to progressive tax special aliens
7. Which corporate taxpayer is not subject to progressive tax non-resident foreign
corporation
8. Individual taxpayers shall report their income on a calendar year
9. Corporations are allowed to report their income on either a fiscal year or calendar year
10. Which is subject to progressive tax to an individual taxpayer amounts received by the
insured in excess of premiums paid
11. Which of these subject to philippine regular income tax to a foreigner interest income
from domestic bonds
12. If not covered by the substituted filing system, employed individual taxpayer shall report
their regular income annually
13. Corporations and individuals engaged in business or in the exercise of a profession are
required to report their regular income quarterly and annually
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14. Which is incorrect concerning transactions between associated enterprises? Pricing
should be motivated by the need to save from total income tax
15. Which is not an associated enterprise to the controlling individual of a holding company?
An associate of a subsidiary in the group

Multiple Choice - Problems : Part 1

1. Mr. lolong, a supervisory employee, received the following income in 2015:
Gross compensation income, before contributions
to SSS, PhilHealth and HDMF totaling P124,000 P800,000
Fringe benefits 200,000
Gain from redemption of shares in a mutual fund 100,000
Commission income 150,000
Gain on sale of stocks through the PSE 400,000

Determine the total income to be reported by Mr. Lolong in gross income 826,000
(P800K-P124K+P150K)
2. Calixto employed, derived the following income during the year:
Gross salaries P400,000
13th month pay and
Other benefits 40,000
SSS, Philhealth, and Pag-
Ibig contributions 20,000
Deductions for loans
Repayments 50,000
Deductions for withholding
Tax 60,000

Compute the compensation income to be reported in the annual income tax return
380,000 (P400K-P20K). 13th month pay is below P90K
3. Corazon resigned in 2015 after 12 years of service. She had the following income during
the year:
Salary, net of P80,000 withholding tax, P20,000 SSS,
P18,000 Philhealth and P40,000 13th month pay P480,000
Separation pay 1,000,000

Compute the gross income subject to progressive (regular) tax 1,560,000

(P480K+P80K+P1M)
4. Iriga corporation is engaged in the sales of goods. It reported the following summarized
financial statements during the year:
Sales P3,500,000
Less:cost of sales 2,000,000
Gross profit 1,500,000
Commission income on
Consignment 200,000
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Interest income from customers 20,000
Interest income, net of final tax 10,000
Dividend income 50,000
Total income 1,780,000
Less: admin & selling expenses 1,000,000
Net income 780,000

Compute the total gross income subject to regular tax 1,720,000 (P1.5M GP +P200K
Commission income + P20K Interest income from customers)
5. Precy, Inc., a domestic corporation reported the following income in 2014:
PH Abroad
Service fees 400,000 300,000
Interest income-bank 40,000 70,000
Royalties - franchise 80,000 30,000

Compute the total gross income subject to regular income tax 800,000
[(P400K+P300K)+P70K+P30K]

6. If Precy inc. is a resident foreign corporation, compute the gross income subject to
regular tax 400,000
7. Andres leases a building to a client/ during the year, he received the following remittance
from the lessee:
Rental, net of 5% creditable withholding tax P1,900,000
Real property tax of the leased building 50,000
Reimbursement for utilities used by the
Lessee paid by Andres 200,000

How much will be included in gross income subject to regular tax? 2,050,000
[(P1.9M/95%)+P50K]

8. Mr. croki, a professional practitioner, received the following from his clients
Advances for future services to be rendered P30,000
Collections for past services rendered 70,000
Reimbursements for client expenses 40,000
Reimbursement for out of pocket expenses 10,000
How much will be included in the Croki’s gross income for regular income tax purposes?
110,000 (P30K+P70K+P10K)

9. The Big Bird Security Agency (BBSA) received P3,000,000 from its client P2,400,000 of
this was designated for salaries of guards assigned to various client establishments.
How much will be included in the gross income of BBSA? 600,000 (P3M-P2.4M)
10. Farmers, Inc. purchased on agricultural lot for P1,000,000. It was later discovered that
the lot had gold deposits. Thus its fair value increased to P4,000,000. This increase in
fair value is exempt from income tax
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11. Northern Cattle Company produces beef meat. In 2015, it reported the following:
Sales of live cattle P600,000
Sale of young feeders 200,000
Increase in value of
Cattle inventory 300,000
Compute the income subject to regular tax 800,000 (P600K+P200K)

12. Don Juanito has the following income in 2015:

Sales from vegetables P400,000
Sales from fruits 200,000
Sales of carabao (acquired for
P30,000 in 2015) 35,000
Interest income from tenants on
The sale of agricultural land pursuant to
The Agrarian Reform Program 12,000
The gross income subject to progressive tax is 605,000 [400K+P200K+(P35KP30K)]

13. Mr. conner purchased a life annuity for P1,000,000 which will pay him P100,000 a year.
What will Mr. Conner include in his gross income on the 11th year of the policy? 100,000
14. Edwin purchased the life insurance policy of Paulo for P50,000. He continued the policy
by paying P20,000 premium after which Paulo died. Edwin collected the P500,000
proceeds of the policy. How much will Edwin exclude from his gross income? 70,000
15. Mr. Benson insured his life with his children as beneficiaries. He died after paying
P200,000 premiums. His children collected the P1,000,000 life insurance proceeds. How
much will be excluded from Mr. Benson’s gross income? 1,000,000
16. Perdro’s crop was destroyed by incessant rains. He received P200,000 from an insurer
that insured his crop. The proceeds of the insurance is an item of gross income
subject to regular tax
17. In 2016, NNorthern Crest Corporation (NCC) reported a P40,000 recovery from bad
debts that was claimed as deduction against gross income in 2012. In 2012, the write-off
increased the operating loss of NCC to P50,000. NCC was very profitable from 2013 to
the present. How much of the P40,000 recovery is subject to tax? 40,000
18. West oil abandoned an oil facility in 2012 and expensed the P300,000 unrecovered
investment in the facility as abandonment loss. The 2012 taxable income before
provision for the loss was P100,000. West posted continuous losses until 2015. With
increasing prices of crude oil in 2016. West re-commissioned the facility for use. How
much will be included in its gross income in 2016? 100,000
19. Sarah Baby International graduated from its income tax holiday incentive and is
effectively subject to tax beginning 2015. In 2016, it collected a P4M from a P6M
receivable which was written off as bad debt expense in 2013. Before the write-off,
Sarah International had P1M profit. Sarah posted profits in 2014 and 2015 its excess of
its operating loss in 2013. Compute the amount of recovery subject to regular income tax
0
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20. In 2015, an accrual basis taxpayer received a cash refund for an income tax assessment
which he paid in 2011 consisting of the following:
Basic tax P40,000
Surcharge 10,000
Interest 4,000
Total taxes paid 54,000
How much must be reverted back to gross income in 2015? 4,000 (Only interest is
deductible and hence have tax benefits.)
21. In the immediately preceding problem, compute the tax benefit if the refund was of local
tax instead of income tax 44,000 (P40K + P4K), Note that basic local tax and interest
are deductible.)
22. An accrual basis taxpayer recovered a P20,000 local tax expense which was refunded
by the local government in 2015. The local tax expense was paid in 2013 when the
taxpayer sustained a P5,000 net operating loss. How much shall be reverted to income?
5,000
23. A taxpayer under the case basis wrote-off P50,000 receivables in 2010. In 2015,
P30,000 of the receivables was recovered. Determine the amount to be included in
gross income in 2015 assuming that the taxpayer incurred a net operating loss of
P40,000 in 2010. 30,000

Multiple Choice - Problems: Part 2

1. Mr. Cordillera owns 20% interest in a joint venture engaged in construction projects. In
2015, the joint venture reported profits of P500,000, inclusive of P20,000 from time
deposits. Compute the total income to be reported in gross income of Mr. Cordillera?
100,000 (P500K x 20% (Exempt JV similar to GPPs are not subject to FIT, their
passive income is part of the distributable income taxable to their venturers.)
2. Mr. Buaya, with 14 dependent children, had the following data for his income tax return
in 2018:
Sales P490,000
Gross compensation income 120,000
Cost of sales 200,000
Non-taxable compensation 30,000
Ad,omostratove and selling
Expenses 120,000
Personal expenses 70,000
What is the net income? 170,000
3. Compute the taxable compensation income 90,000 (P120K – P30K)
4. Compute the taxable income 260,000 (P90K + P170K)
5. Raymund and Zeus practice their accounting profession through a general professional
partnership. They contributed equal capital and agreed to share in profits equally. The
following relates to their gross receipts and expenses:
Gross receipts P4,000,000
Less: Cost of services 1,800,000
Gross income from operations P2,200,000
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Add: Other non-operating income
Gain on sale of equipment P100,000
Interest on time deposits 40,000 140,000
Total gross income P2,340,000
Less: allowable deductions 1,200,000
Net profits P1,140,000
What is the reportable income in the tax return of Raymund? 570,000 (P1,140K)/2
6. In the immediately preceding problem, determine the amount of income to be reported
by Zeus assuming that their partnership is a beauty parlor 0
7. An alien employee in an RHQ had the following in 2015:
Gross compensation income P1,500,000
Contribution to SSS, Philhealth and HDMF 150,000
Creditable withholding tax 202,500
What is the total amount to include in gross income subject to regular income tax? 0
8. In the immediately preceding problem, what is the amount to include in gross income
assuming the employee is a Filipino rank and file employee?
9. A corporation had the following gains from dealings in properties:
Sale of delivery truck P150,000
Sale of domestic stocks 50,000
Sale of 3-year corporate bonds 12,500
Sale of 6-year corporate bonds 7,500
What is the total amount of gain to be included in gross income? 212,500
10. Shown below is a compilation of the gain on the sale of real properties:
Real properties classified as Philippines Abroad
Ordinary assets P300,000 800,000
Capital assets 400,000 200,000
What is the amount of income to be included in gross income subject to regular income
tax assuming the taxpayer is a domestic corporation? 1,300,000
(P300K+P800K+P200K)
11. What is the gain to be included in gross income subject to regular income tax if the
taxpayer is a resident foreign corporation? 700,000
12. What is the gain to be included in gross income if the taxpayer is a resident alien?
300,000

13. A taxpayer collected the following passive income during the year:
Passive income Philippines Abroad
Interest income from banks P300,000 P800,000
Royalties from books 200,000 100,000
Rent of properties 400,000 200,000
What is the amount to be reported in gross income if the taxpayer is a resident citizen?
1,500,000 (P800K+P100K+P400K+P200K)
14. In the immediately preceding problem, what is the reportable gross income assuming the
taxpayer is a resident alien? 400,000
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15. In 2020,the taxpayer received the following prizes and winnings:
Passive income Philippines Abroad
Prizes P10,000 P400,000
Winning 400,000 100,000
What is the reportable item of gross income if the taxpayer respectively is a resident
citizen and a non-resident citizen? 510,000;10,000 (P10K +P400K prizes
abroad+P100K winning abroad)
16. What is the reportable item of gross income if the taxpayer is a domestic corporation and
a resident foreign corporation, respectively? 910,000 ; 410,000
17. Mang Sipalay registered his business as a BMBE. he made a total sales of P500,000
and concurred cost of sales of P400,000. He also earned P10,000 interest income from
time deposits. What is the total reportable gross income? 0
18. Boracay Company is registered as a TIEZA locator subject to 50% grossi income tax.
During the year, it made a total P400,000 gross receipts from various tourist assistance
services. It also incurred P210,000 in direct services. What is the amount to be included
in gross income subject to regular income tax? 0
19. Mr. Siayan is a 5-6 lender. During the year, he granted loans totaling P2,000,000 and
collected P400,000 in interest. He also earned P8,000 in temporary investments in
domestic bonds plus additional P6,000 from bank deposit substitutes. Direct cost of
lending was P100,000. What is the total amount to be reported in gross income subject
to regular tax? 308,000 (P400K-100K cost of services + P8K)
20. Mr. Asuncion received the following royalties from the following sources:
Mining claims P150,000
Novel, “Alicia in Wonderland” 250,000
Basic accounting textbook 80,000
Musical composition “dayang-dayang” 40,000
What is the total amount to be reported in gross income 0

Multiple Choice - Problems: Part 3

1. Mrs. Kapalong has several interests in various businesses and partnerships. He
received the following income during the year:
Dividends from a domestic corporation . P. 120.000
Dividends from a resident foreign corporation 80,000
Share in net income of a business partnership 200,000
Share in the net income of a professional
partnership 100,000
What is the total income to be reported in gross income? 180,000 (308,000
(P400K-100K cost of services + P8K)
2. Ms. Panabo received a total P200,000 from her father for her support. During the
year, she also received a P150,000 total distribution from the trust irrevocably
designated by her grandfather in her favor. She also received P120,000 income
distribution from the estate of her grandmother undergoing judicial settlement. What is
the total amount to be included in her gross income? 270,000 (P150K+P120K)
3. A non-VAT taxpayer collected P45,000 net of P5,000 withholding tax. Compute the
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gross income subject to regular tax 50,000 (P150K+P120K)
4. A VAT taxpayer collected P66,600, inclusive of P7,200 VAT and net of P600
withholding tax. Compute the gross income subject regular income tax 60,000 (P66,600
+ P600 – P7,200)
5. A non-VAT taxpayer collected P79,200, net of 1% withholding tax. What is the
amount subject to regular income tax? 80,000 (P79,200/99%). There is no VAT
because the taxpayer is non-VAT
6. A VAT taxpayer received P45.900 inclusive of VAT and net of 10% creditable withholding
tax. Compute the gross income subject to regular tax 45,000 (P45,900 is inclusive of
12% VAT but net of 10% CWT. It is 102% (100%+12%-10%) of the gross income).
Hence, P45,900/102% = P45,000.
7. A non-VAT taxpayer received P8,000 interest income, net of 20% final withholding tax.
Compute the amount subject to regular income tax. 0
8. A VAT-registered taxpayer received P18,000 dividend, net of 10% final withholding tax.
Compute the amount subject to regular income tax. 0
9. A resident foreign corporate taxpayer entered into an advanced pricing agreement (APA)
with the BIR with respect to the pricing of its export sales to a foreign country. A mark-up
ratio of 50% of the cost is set in the APA. During the year, the corporation manufactured
goods costing P12,000,000 and exported 80% of the production to its foreign affiliate at
a price of P12,000,000. What is the amount of gross income subject to Philippine tax?
4,800,000 (P12M x 80% = P9.6M goods transferred x 50% markup = P4,800,000.
This should be the gross profit of the resident foreign corporation subject to
Philippine income tax
10. Ms. Nene Gosio registered a manufacturing business as a BMBE exempt from tax.
She also owns another taxable business which is engaged in the trading of goods. Ms.
Gosio ordered her BMBE business to sell its production to her trading business at
ultimate sales prices.
You were tasked by your audit supervisor to conduct a transfer pricing evaluation of Ms.
Gosio's businesses. Based on your study, you determined that the retail profit rate (on
sales) of trading businesses with similar operations involving similar goods is 40%.
During the year, the trading business made a total purchases of P400,000 from the
BMBE and sold 75% of these for P500,000.
What is the gross income of the trading business to be subjected to regular income tax
following the arms' length principle? 200,000 (P500,000 sales x 40% = P200,000)