GENERAL PRINCIPLES OF TAXATION

Inherent Powers of the State

1. The state, having sovereignty can enforce contributions (tax) upon its citizens even without a specific provision
in the Constitution authorizing it. Which of the following will justify the foregoing statement?
Statement 1: It is so because the State has the supreme power to command and enforce obedience to its will
from the people within its jurisdiction.

Statement 2: Any provision in the Constitution regarding taxation does not create rights for the sovereignty to
have the power to tax but it merely constitutes limitations upon the supremacy of tax power.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

2. The following statements correctly described the power of the State to tax, except
A. It is a power inherent in every sovereign state to imposed a charge or burden upon persons, properties or
rights to raise revenues for the use and support of the government and to enable it to discharge its functions.
B. The State can exercise the power of taxation only if it is expressly mentioned in the Constitution.
C. It passes a legislative undertaking through the enactment of laws by the Congress which will be implemented
by the Executive Branch of the government through its Bureau of Internal Revenue to raise revenue for the
inhabitants in order to pay the necessary expenses of the government.
D. It is a way of collecting and apportioning the cost of government among those who are privileged to enjoy
its benefits.

3. Which statement is wrong?

A. The power of taxation may be exercised by the government, its political subdivisions, and public utilities.
B. Generally, there is no limit on the amount of tax that may be imposed.
C. The money contributed as tax becomes part of public funds.
D. The power to tax is subject to inherent and constitutional limitations.

4. They exist independent of the constitution being fundamental power of the state, except
A. Power of taxation
B. Police power
C. Power of eminent domain
D. Power of recall

5. Statement 1: The constitution is the source of the State’s taxing power.

Statement 2: The police power of the government may be exercised through taxation.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

6. Statement 1: The Constitution cannot take away the inherent powers of the State but may only prescribe its
limitations.
Statement 2: No laws are necessary to confer the inherent powers of the State upon any government exercising
sovereignty.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

7. The power to demand proportionate contribution from persons and property to defray the necessary expenses
of the government
A. Power of taxation
B. Police power
C. Power of eminent domain
D. Power of recall

8. The power to regulate liberty and property to promote the general welfare
A. Power of taxation
B. Police power
C. Power of eminent domain
D. Power of recall
9. The power to acquire private property upon payment of just compensation for public purpose
A. Power of taxation
B. Police power
C. Power of eminent domain
D. Power of recall

10. Which of the following requires public improvement?

I. Taxation
II. Police Power
III. Eminent domain

A. I only
B. I and III only
C. III only
D. II and III only

11. The strongest of all inherent powers of the government is

A. Power of taxation
B. Police power
C. Power of eminent domain
D. Power of recall

12. The following are the similarities among the Fundamental Powers of the State, except:
A. They can be abolished by the Constitution.
B. They constitute the three methods by which the State interferes with private property rights.
C. Each presupposes an equivalent compensation to the inhabitants.
D. The emergence of the State carries with it these fundamental powers.

13. The following statement correctly states the differences among the inherent powers of the state, except?
A. The property taken under eminent domain and taxation are preserved but that of police power is destroyed.
B. Eminent domain does not require constitutional grant but taxation being formidable, does in order to limit
its exercise by the legislature.
C. Police power and taxation is exercised only by the government but eminent domain may be exercised by
private entities.
D. Police power regulates both property and liberty while eminent domain and taxation affects only property
rights.

14. Which of the following statements is not correct?

A. Taxes may be imposed to raise revenue or to provide disincentives to certain activities within the State.
B. The State can have the power of taxation even if the Constitution does not expressly give it the power to
tax.
C. In the exercise of the power of taxation, the State can tax anything at any time.
D. The power of taxation in the Philippine Constitution are grants of power and not limitations on taxing powers.

15. The following are the differences between the Power of Taxation and the Power of Eminent Domain, except
Power of Taxation Power of Eminent Domain
A. Enforced proportionate contribution Property to be taken is for public use
B. Government has no obligation to pay Government is a debtor of the property taken
C. It operates in a community It operates on an individual
D. Attribute of sovereignty Fundamental power

16. Which of the following statements is not correct?

A. The government automatically possesses the power to collect taxes from the inhabitants.
B. The government can enforce contribution upon its citizen only when the Constitution grants it.
C. Taxation power exist inseparably with the State.
D. The State has the supreme power to command and enforce contribution from the people within its
jurisdiction.

17. Statement 1: The power to tax is supreme, plenary, comprehensive and without any limit because the existence
of the government is a necessity.
Statement 2: The discretion of Congress in imposing taxes extends to the mode, method and kind of tax, even
if the constitution provides otherwise.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect
18. How broad is the power of the legislature to impose taxes?
Answer 1: The legislature has limited discretion as to the persons, property or occupations to be taxes, where
there are no constitutional restrictions, provided the property is within the territorial jurisdiction of the state.

Answer 2: The legislature has the right to finally determine the amount or rate of tax, in the absence of any
constitutional prohibitions and it may levy a tax of any amount as it sees fit.
A. Answers 1 and 2 are false
B. Answer 1 is true but answer 2 is false
C. Answer 1 is false but answer 2 is true
D. Answers 1 and 2 are true

19. Which of the following statements is correct?

I. Taxes are pecuniary in nature
II. It co-exist with the existence of the State
III. Imposed on persons and property beyond the territorial jurisdiction of the State

A. I only
B. II only
C. I and II only
D. I, II and III

20. Which of the following statements is correct?

I. A tax cannot be imposed without clear and express words for that purpose.
II. The provisions of a taxing act are not to be extended by implication.
III. If the law is repealed, taxes assessed before repeal of the law may no longer be collected.

A. I and II only
B. II and III only
C. All of the above
D. None of the above

21. Statement 1: The amount of money raised for the government in the exercise of its power to tax is and police
power is based on the need of the government.

Statement 2: The amount of money raised for the government in the exercise of its power of eminent domain is
based on the cost of processing the transfer of property from private entities and/or individuals to the
government.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

22. Who of the following statements is true?

A. The power of taxation and eminent are both exercisable only by the government and its political subdivision.
B. In police power, the property taken is preserved for public use.
C. The power of eminent domain is created by the constitution.
D. The exercise of the power of eminent domain and police power can be expressly delegated to the local
government units by the law-making body.

23. Statement 1: People pay taxes which their government uses to expand its powers and territorial jurisdiction.

Statement 2: People demand from their government certain responsibilities and then provide the government
with the means to carry them out.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

24. Statement 1: Taxation and Police Power may be exercised simultaneously.

Statement 2: In the exercise of taxation, the State can tax anything at anytime and at any amount.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect
25. Statement 1: The power of taxation must first be expressly granted, either by law or by the Constitution, before
the State may validly exercise it.

Statement 2: The Philippine government may subject the land where embassies of foreign governments are
located to real property taxes.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

26. Statement 1: Since taxation presupposes an equivalent form of compensation, there should be a direct and
proximate advantage received by any taxpayer before he could be required to pay tax.

Statement 2: Compensation under police power is the intangible feeling of contribution to the general welfare of
the people.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

27. Which of the inherent powers maybe exercised even by public utility companies?
A. Taxation
B. Police Power
C. Eminent Domain
D. A and C

28. Which of the following may not raise money for the government?
A. Power of taxation
B. Police power
C. Power of eminent domain
D. Privatization of government’s capital assets

29. Which of the following entities, in some circumstances, may exercise the power of eminent domain?
I. Electric cooperatives
II. Lending cooperatives
III. Water cooperatives
IV. Telecommunication companies

A. I and III only

B. I, II and III only
C. I, III and IV only
D. All of the above

30. Statement 1: Police power and the power of taxation are exercised primarily by the legislature but not eminent
domain.

Statement 2: Taxation and eminent domain interferes with private right and property but not with police power.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

Theory and Basis of Taxation

31. The existence of the government is a necessity and that the state has the right to compel all individuals and
property within its limits to contribute
A. Basis of taxation
B. Situs of taxation
C. Scope of taxation
D. Theory of taxation

32. The reciprocal duties of support and protection between the people and the government
A. Basis of taxation
B. Situs of taxation
C. Scope of taxation
 D. Theory of taxation

33. Which statements below expresses the lifeblood theory?

A. The assessed taxes must be enforced by the government
B. The underlying basis of taxation is government necessity, for without taxation, a government can’t either
exists nor endure
C. Taxation is an arbitrary method of exaction by those who are in seat of power
D. The power of taxation is an inherent power of the sovereign to impose burdens upon subjects and objects
within its jurisdiction for the purpose of raising revenues

Purpose of Taxation

34. The principal purpose of taxation is

A. To encourage the growth of home industries through the proper use of tax incentives.
B. To implement the police power of the State.
C. To reduce excessive inequalities of wealth.
D. To raise revenue for governmental needs.

35. After having been informed that most of the massage parlors in the city are being used as fronts for prostitution,
the Sanguniang Panlungsod of Manila passed a tax ordinance subjecting massage parlors within its jurisdiction
to such “onerous taxes” that leave them no other alternative but to stop operating. The passage of the ordinance
is a valid exercise of
A. Taxation
B. Police power
C. Eminent domain
D. Police power and power of taxation

36. Statement 1: A provision on taxation in the Philippine Constitution is a grant of power.

Statement 2: The power to tax includes the power to destroy.
Statement 3: Sumptuary purpose of taxation is to raise funds for the government.

A. True; True; True

B. True; True; False
C. False; True; True
D. False; True; False

37. Statement 1: Income tax collected from the taxpayers is the main source of revenue of the local government.
Statement 2: Taxes collected are the main source of revenue of the government.

A. True; True
B. True; False
C. False; True
D. False; False

38. A tax must be imposed for a public purpose. Which of the following is not a public purpose?
A. National defense
B. Public education
C. Improvement of sugar industry
D. None of the choices

Aspect of Taxation

39. The levying and imposition of tax and the collection of tax are processes which constitute the taxation system
A. Basis of taxation
B. Aspect of taxation
C. Nature of taxation
D. Theory of taxation

40. The following are the aspect of taxation

 I. Levying or imposition of the tax on persons, property or exercises
II. Collection of taxes already levied
III. Sufficiency of government sources to satisfy its expenditure

A. I, II and III
B. I and II only
C. I and III only
D. II and III only

41. The official action of an officer authorized by law in ascertaining the amount of tax due under the law from a
taxpayer is
A. Assessment
B. Delinquency
C. Deficiency
D. Distrain

42. Taxation is exercised both by the legislative and executive branch of the government. Which of the following is
not the function of the Congress?
A. Selecting the kind of tax
B. Fixing amount of tax
C. Prescribing rules of taxation
D. Assessment of tax liability

43. Fixing the tax rate to be imposed is best described as a (an):

A. Tax administration aspect
B. Tax legislative function
C. Aspect of taxation which could be delegated
D. Function that could be exercised by the executive branch

44. All of the following are legislative aspect of taxation except

A. Selection of the object or subject of tax
B. Valuation of property for taxation
C. Fixing of tax rates
D. Prescribing the general rules of taxation

45. All of the following are administrative functions of taxation except

A. Selection of object of tax
B. Equalization of assessment
C. Valuation of property for taxation
D. Collection of taxes

46. Which of the following is correct?

Legislative Administrative
A. Fixing of tax rates Yes Yes
B. Valuation of object of tax Yes No
C. Collection of tax Yes No
D. Assessment of tax liability No Yes

47. The Commissioner of Internal Revenue is granted certain powers under the Tax Code. Which of the following is
not a power granted to the Commissioner under the Code?
A. Interpret tax laws and decide tax cases
B. Issue summons and subpoena
C. Enact tax law and make amendments
D. Make assessment and prescribe additional requirements

48. Which of the following statement is correct?

A. The BIR Commissioner has the power to interpret the provision of the Tax Code without a need of review
by the DOF Secretary.
B. The BIR has the authority to prescribe additional procedural/documentary requirements for taxpayers.
C. The BIR shall have commissioners and a deputy commissioner.
D. The BIR Commissioner can delegate the power to abate tax liabilities.

LGU’s Power to Tax

49. Where does taxing power of the provinces, municipalities and cities precede from?
A. Constitutional grant
 B. Legislative enactment
C. Presidential decree or Executive act
D. Local legislation

50. How will the local government units be able to exercise their taxing powers?
A. By local legislation
B. By authority conferred by Congress
C. By the issuance of the Department of Finance
D. By the help of the Bureau of Internal Revenue

51. When the power to tax is delegated to the local government?

A. Only the local executive can exercise the power.
B. Only the legislative branch of the local government can exercise the power.
C. The local executive and the legislative branch of the local government can exercise the power.
D. Neither the local executive not the legislative branch of the local government can exercise the power.

52. Levying of local government taxes may be exercised by:

A. The local executive only
B. The legislative branch of the local government only
C. The local executive and the legislative branch of the local government unit
D. Neither the local executive nor the legislative branch of the local government can exercise the power

53. Which of the following statements is not correct?

A. Only the national government exercises the inherent power of taxation.
B. Local government units could exercise the power of taxation through legislated delegation.
C. National legislation is exercised by Congress.
D. Interpretation of Tax Laws is done by the Legislative branch of government.

Enactment of Tax Laws

54. The legislative body enact laws to raise revenues in the absence of a constitutional provision granting said body
the power to tax. Which of the following statements will justify the enactment of such law?
I. The legislative body may enact tax laws even in the absence of a constitutional provision because the power
to tax is inherent in the government and not merely a constitutional grant.
II. The power of taxation is an essential and inherent attribute of sovereignty belonging as a matter of right to
every independent government without being expressly granted by the people.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

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

Use the following data for the next two questions:

The Constitution requires that all revenue bills shall originate “exclusively” from the House of Representatives.
Assume that in 2018, Congressman Pedro Dela Cruz proposed an expansion of the coverage of the value added
tax to be now as e-vat law. The proposed bill was approved by the House of Representatives later that year.
However, the EVAT version of the Senate became the EVAT law.

56. Which of the following statements will justify the enacted EVAT law?
 I. The Constitution simply means that the initiative for filing revenue, tariff or tax bills must come from the
House of Representatives on the theory that, elected as they are from the districts, the Members of the
House can be expected to be more sensitive to the local needs and problems.
II. It is not the law but the revenue bill which is required by the Constitution to “originate exclusively” in the
House of Representative because a bill originating in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole, and a distinct bill may be produced.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

57. Assuming Senator Maharlika filed in the Senate a substitute e-vat bill “in anticipation” of its receipt of the bill
form the House. The proposal is totally different from the version of the lower house. Which of the following
statements will justify the filing of substitute bill by Honorable Senator Maharlika?
I. To insist that a revenue state not only the bill which initiated the legislative process culminating in the
enactment of the law – must substantially be the same as the house bill would be to deny the Senate’s
power not only to “concur with amendments” but also to “propose amendment.”
II. It would be to violate the coequally of legislative power of the two houses of Congress and in fact make the
House superior to the Senate. Given the power of the Senate to propose amendments, it can propose its
own version even with respect to bills which are required by the Constitution to originate in the House.
III. Filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House is not prohibited
under the Constitution, so long as the action by the Senate as a body is withheld pending receipt of the
House bill.

A. I only
B. II only
C. I, II and III
D. None of the above

58. The Congress, after much public hearing and consultations with various sectors of society, came to the conclusion
that it will be good for the country to have only one system of taxation by centralizing the imposition and
collection of all taxes in the national government. Accordingly, passed law that would abolish the taxing power
of all local government units. Would such a law be valid under the present Constitution?
I. Yes, the law centralizing the imposition and collection of all taxes in the national government would not
contravene the Constitution as long as a new law is enacted for the common good of the people.
II. No, because under the present Constitution, each local government unit shall have the power to create their
own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as
Congress may provide consistent with the basic policy of local autonomy.
III. No, it is clear that Congress can only give the guidelines and limitations on the exercise by the local
governments of the power to tax but what was granted by the fundamental law cannot be withdrawn by
Congress.

A. I only
B. II and III only
C. I, II and III
D. None of the above

59. The city council passed a tax ordinance imposing an occupation tax or profession or occupation of an “industrial
engineer”. GJ is the only person with such an occupation in the city. Which of the following is correct?
A. GJ can successfully challenge the validity of the ordinance being discriminatory since he is the only one
adversely affected.
B. The ordinance violates the constitutional rule of equality in taxation.
C. The ordinance is a “class legislation” since it does not subject to occupation tax the other industrial
engineers.
D. The ordinance is valid exercise of the council’s power to enact tax ordinance to raise revenue under the
Local Government Code.

60. Which of the following is incorrect?

A. Taxes may be imposed retroactively by law but, unless so expressed by such law, these taxes must only be
imposed prospectively.
B. Tax laws are neither political nor penal in nature.
C. The “ex post facto” rule is not applicable in taxation.
D. None of the above
61. On January 1, 2017, the Congress enacted a law increasing the corporate income tax from 30% to 40%. The
law provides retroactive effect starting January 1, 2010. The Philippine Chamber of Commerce questions the
validity of the law. Is the law constitutional?
A. No, because the retroactive effect of the law constitutes deprivation of right to property of corporation
without due process of law.
B. No, because the 40% interest rate is violation of due process of law for being excessive and unreasonable.
C. Yes, because the power of taxation is an inherent power of a sovereign State and it is based on the lifeblood
doctrine and necessity theory.
D. Yes, because the power of taxation is an essentially legislative power within the exclusive prerogative of the
Congress that is wisdom is beyond the reach of the Supreme Court.

62. The 30% corporate income tax is increased to 35% by the Congress for the purpose of raising revenue to be
used for national road expansion project near Bonifacio Global City, a private corporation. Is the exercised of
the taxing power unconstitutional?
A. Yes, because taxing power must be exercised exclusively for public purpose without any incidental benefit
to any private entity.
B. No, because it is exercised directly for public purpose and the benefit to a private entity is only incidental.
C. Yes, because the increase in tax rate constitutes deprivation of right to property of corporation without due
process of law for being excessive and unreasonable.
D. No, because the constitution does not expressly state that the power of taxation must be used only for
public purpose, thus, it may be used to benefit a private entity.

Characteristics/Elements of Tax

63. One of the following is not a characteristic or an element of tax.

A. It is levied by the legislature
B. It is payable in money or in kind
C. It is proportionate in character
D. It is an enforced contribution

64. Being legislature in nature, the power to tax may not be delegated, except:
A. To local governments or political subdivisions
B. When allowed by the Constitution
C. When delegation relates merely to administrative implementation that may call for some degree of
discretionary powers under a set of sufficient standards expressed by law or implied from the policy and
purpose of the Act.
D. All of the choices.

Sound Tax System

65. All of the following, except one, are basic principles of a sound taxation system:
A. Fiscal adequacy
B. Administrative feasibility
C. Theoretical justice
D. Inherent in sovereignty

66. Under the basic principle of a sound taxation system, the government should not incur a deficit:
A. Theoretical justice
B. Administrative feasibility
C. Fiscal adequacy
D. None of the above
67. The basic principle of a sound taxation system, where, “Taxes must be based on the taxpayer’s ability to pay” is
called:
A. Equality in taxation
B. Ability to pay theory
C. Theoretical justice
D. Equity in taxation

68. The tax law must be capable of convenient, just and effective administration?
A. Theoretical justice
B. Fiscal adequacy
C. Administrative feasibility
D. Rule of apportionment

Double Taxation
69. The following constitute double taxation, except one
A. Both taxes are imposed in the same amount
B. Both taxes are levied for the same purpose
C. Both taxes are imposed by the same taxing authority
D. Both taxes are imposed upon the same person

70. Which is not a double taxation?

A. A lessor of property pays a real estate tax and income tax on the same property.
B. Imposition of tax on the finished products and the raw materials used in the production of the same finished
products.
C. Imposition of tax on corporate income and shareholder’s dividends from the same corporation.
D. All of the above.

71. One of the following is a false statement about double taxation. Which is it?
A. There is no constitutional prohibition on double taxation.
B. Direct duplicate taxation is a valid defense against a tax measure if it is violative of the equal protection
clause.
C. Absence of any of the elements of direct double taxation makes it indirect duplicate taxation.
D. A 20% final withholding tax on interest income on bank deposits and a 5% gross receipts tax on banks is a
direct duplicate taxation.

72. Which of the following statements is correct?

A. Indirect double taxation violates the Constitutional provision of uniformity and equal protection.
B. There is direct double taxation in taxing the income of the corporation and again subject the portion of that
income declared as dividend to final tax.
C. Indirect double taxation is legal as long as there is no violation of equal protection and uniformity clauses
of the Constitution.
D. All of the above.

73. The usual mode(s) of avoiding occurrence of double taxation is/are:

A. Reciprocal exemption, either by law or treaty
B. Tax credit of foreign taxes paid
C. Deduction for foreign taxes paid
D. All of the above

Inherent and Constitutional Limitations

74. Statement 1: Inherent limitations are the natural restrictions to safeguard and ensure that the power of taxation
shall be exercised by the government only for the betterment of the people whose interest should be served,
enhanced and protected.

Statement 2: Constitutional limitations are provisions of the fundamental law of the land that restrict the
supreme, plenary, unlimited and comprehensive exercised by the State of its inherent power to tax.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

75. Which of the following is incorrect description of taxation?

A. Legislative and inherent for the existence of the government.
B. Necessary and for public purpose.
C. Supreme and absolute power of the State.
D. The strongest of all inherent powers of the State.

76. Which limitation on the power of taxation inherently implied that the State’s primary concern is for the common
good of the people?
A. Equality in taxation
B. Equal protection of law
C. Due process of law
D. For public purposes

77. These are restrictions imposed by the Constitution?

A. Inherent limitations
 B. Constitutional limitations
C. Basic principles of sound tax system
D. None of the choices

78. Which of the following is a constitutional limitation on the power of taxation?

I. Territoriality of taxes
II. Public purpose
III. Legislative in character
IV. Non-appropriation for religious purpose

A. II only
B. IV only
C. II and IV only
D. III and IV only

79. “Equality in Taxation” means

I. Progressive system of taxation shall be applied.
II. The tax laws and their application must be fair, just, reasonable and proportionate to one’s ability to pay.
III. The tax laws shall give emphasis on direct rather than indirect taxes or on the ability-to-pay principle of
taxation.

A. I only
B. II only
C. III only
D. I, II and III

80. Statement 1: Uniformity in the imposition and/or collection of taxes means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. This requirement is complied with when the tax
operates with the same force and effect in every place where the subject of it is found.

Statement 2: Uniformity rule is not violated when different articles are taxed at different amounts provided that
the rate is uniform on the same class everywhere with all people at all times.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

81. Statement 1: A tax is deemed to have satisfied the uniformity rule when it operates with the same force and
effect in every place where the subject may be found.

Statement 2: The equal protection clause of the Constitution forbid classification based on real and substantial
differences having a reasonable relation to the subject of the particular legislation.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

82. Which of the following statements correctly described “Equal Protection” clause of the Constitution regarding the
government’s power to tax?
I. All persons subject to legislation shall be treated alike under similar circumstances and conditions, both in
the privileges conferred and liabilities imposed.
II. The purpose is to protect persons belonging to the same class against intentional and arbitrary
discrimination.
III. There is denial of equal protection of laws if there is discrimination in the implementation of tax laws.

A. I and II only
B. I and III only
C. II and III only
D. I, II and III

83. A fundamental rule in taxation is that “the properly of one country may not be taxed by another country”. This
is known as
A. International law
 B. Reciprocity
C. International comity
D. International inhibition

84. May the Philippine government require tax withholding on the salaries of Filipino employees working in the
American Embassy in the Philippines?
A. No, because this will violate the rule on international comity.
B. No, because if the Philippine government would impose the requirement of tax withholding on the salaries
of Filipino employees working in the Philippine Embassy in the Philippines, this would in effect require that
the American government be constituted as the withholding agent of the Philippine government insofar as
the taxes on the salaries of the Filipino employees are concerned.
C. Both A and B
D. None of the above

85. One of the following is not a Constitutional limitation on the power of Taxation?
A. Exemption from taxes of revenues and assets of educational institutions, including grants, endowments,
donations and contributions.
B. Non-impairment of the jurisdiction of Supreme Court in tax cases.
C. Exemption of the government from taxes.
D. Non-infringement of religious freedom and worship.

86. This stems from the principle that we pay taxes for the protection and services provided by the taxing authority
which could not be provided outside the territorial boundaries of the taxing state.
A. The tax imposed should be for public purpose.
B. There should be no improper delegation of the taxing power.
C. The power to tax is limited to the territorial jurisdiction of the taxing government.
D. Exemption of government entities from taxation.

87. Compliance with procedural requirements must be followed strictly to avoid collision between the State’s power
to tax and the individual’s recognized rights.
A. Due process of law
B. Equality in taxation
C. Non-infringement of religious freedom
D. Non-impairment of obligations and contracts

88. No person shall be imprisoned for non-payment of this.

A. Property tax
B. Excise tax
C. Poll tax
D. Income tax

89. This requires that all subjects or objects of taxation, similarly situated are to be treated alike or put on equal
footing both in privileges and liabilities.
A. Due process
B. Uniformity
C. Progressive taxation
D. None of the choices

90. The following are the constitutional limitations on the power of taxation, except
A. Only Congress can exercise the power of taxation.
B. Non-impairment of the obligation of contracts.
C. Taxes are not subject to set-off or compensation.
D. The rule of taxation shall be uniform.

Exemption from Taxation

91. No law granting any tax exemption shall be passed without the concurrence of –
A. Majority of all members of Congress
B. 2/3 vote of all members of Congress
C. ¾ vote of all members of Congress
D. Unanimous vote of all members of Congress
92. Mapagbigay School, a non-stock non-profit educational institution, bought from Pedro, a resident citizen, his
residential house and lot. Pedro would be using the proceeds of the sale to buy his new residential house and
lot. On the other hand, the school will use the parcel of land to construct a new building for its dormitory for its
medical students. Which of the following statements regarding liability for the payment of capital gains tax is
correct?
I. Pedro is liable to capital gains tax. However, if what was sold was his principal residence, he may apply for
tax exemption, provided that he complies with the requirements laid down in the Tax Code.
II. Pedro is not liable to capital gains tax because the sale was made in favor of a non-stock, non-profit
educational institution and that the property will be used for educationally-related functions.
III. Pedro is liable to capital gains tax because the tax is imposed on the seller, thus, notwithstanding any
exemption enjoyed by the buyer, the tax shall still be imposed.
A. I only
B. II only
C. I and II only
D. I and III only

93. As an incentive for investors, a law was passed giving newly established companies in certain economic zone
exemption from all taxes, duties, fees, imposts and other charges for a period of three years. ABC Corporation
was organized and was granted such incentive. In the course of business, ABC purchased mechanical equipment
from XYZ incorporated. The latter, in its ordinary business dealings, is subject to VAT. XYZ Inc. claims, however,
that since it sold the equipment to ABC Corp. which is tax exempt, it should not be liable to pay the VAT. Is this
claim tenable?
A. No. Exemption from taxes is personal in nature and covers only taxes for which the taxpayer-grantee is
directly liable. VAT is a tax on the seller who is not exempt from taxes. Since XYZ Inc. is directly liable for
the VAT and no tax exemption privilege is ever given to him, its claim that the sale is tax exempt is not
tenable.
B. Yes. Exemption from tax should not be discriminatory in nature. A seller of goods or service to tax exempt
individuals or entities shall be accorded the same exemption provided by law to a buyer.
C. Yes, applying uniformity rule.
D. None of the above.

94. Juan Dela Cruz Memorial is a 100-bed domestic hospital organized for charitable purposes. However, out of
100-bed capacity, 40-beds are allotted for paying patients, while the rest are intended for charity patients. The
revenues generated from these paying patients, however, are being used to improve the facilities of the hospital.
Can said hospital claim exemption from income tax as well as real property tax?

Answer 1: Yes, the hospital can claim exemption from real property tax. As a general principle, a charitable
institution does not lose its character as such and its exemption from taxes simply because it derives income
from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or sued altogether to the charitable object which it is
intended to achieve and no money inures to the private benefit of the persons managing or operating the
institution.

Answer 2: The hospital is subject to 10% tax on its net income, subject to compliance with the “predominance
test”.
A. Only the first answer is correct
B. Only the second answer is correct
C. Both answers are correct
D. Both answers are incorrect

95. Saint Mary’s University (SMU) is a non-profit educational institution registered with Securities and Exchange
Commission (SEC) as a corporation. For the year ended December 31, 2018, it reported rental income
amounting to P150M from various tenants leasing portions of the said corporation. The Bureau of Internal
Revenue (BIR) assessed SMU P45M deficiency income tax for rental income earned. Is the action of the BIR
proper?
A. No, because a proprietary educational institution shall be subject only to 10% preferential corporate income
tax.
B. No, because all revenues of non-stock, non-profit educational institution shall be exempt from taxes and
duties as long as they are used actually, directly and exclusively for educational purposes.
C. Yes, because leasing of property is not actually, directly and exclusively related to educational purposes.
D. Yes, because taxes are the lifeblood of the government and tax exemptions are construed strictly against
the taxpayer and liberally in favor of the government.

96. Mike is the owner of a 5,000 sq.m. parcel of land located in New Manila, Quezon City. He leased the property
for P500,000 a year to a religious congregation for a period of ten (10) years. The religious congregation built
 on a 1,000 sq.m. portion a seminary and a chapel which it used in connection with its religious activities. It also
constructed a ten (10) story building on the remaining 4,000 sq. m. which it rented out to various commercial
establishments, the proceeds of which go to the support of its various seminaries located throughout the
Philippines. These seminaries are organized as non-profit and non-stock educational institutions.

Which of the following is the correct tax implication of the foregoing data with respect to payment of income
tax?
A. The religious congregation is exempt from payment of income taxes on rental receipts because the
collections were used to support its various seminaries located throughout the Philippines.
B. The religious congregation is exempt from payment of income taxes on rental receipts provided not more
than 30% of its receipts were used for administrative purposes.
C. The religious congregation is subject to income taxation. The constitutional tax exemptions refer only to
real property that are actually, directly and exclusively used for religious, charitable or educational
purposes, and that the only constitutionally recognized exemption from taxation of revenues are those
earned by non-profit, non-stock educational institution which are actually, directly and exclusively used for
educational purposes.
D. None of the above.

97. The basis or text of exemption of real properties owned by religious, or charitable entities from real property
taxes is
A. Use of the real property
B. Ownership of the real property
C. Location of the real property
D. Ownership or location real property at the option of the government

98. “Government agencies performing governmental functions are exempt from tax unless expressly taxed while
those performing proprietary functions are subject to tax unless expressly exempted” refers to:
A. The tax imposed should be for public purpose.
B. There should be no improper delegation of the taxing power.
C. The power to tax is limited to the territorial jurisdiction of the taxing government.
D. Exemption of government entities from taxation.

99. A taxpayer gives the following reasons for refusing to pay a tax. Which of his reasons is not acceptable for
legally refusing to pay the tax?
A. That he has been deprived of due process of law.
B. That there is lack of territorial jurisdiction.
C. That the prescriptive period for the tax has lapsed.
D. That he will derive no benefit from the tax.

Situs Taxation

100. It literally means “ place of taxation” the country that has the power and jurisdiction to levy and collect the tax
A. Basis of taxation
B. Situs of taxation
C. Scope of taxation
D. Theory of taxation

101. Which among the following concepts of taxation is the basis for the situs of income taxation?
A. Lifeblood doctrine of taxation
B. Symbiotic relation in taxation
C. Compensatory purpose of taxation
D. Sumptuary purpose of taxation

102. The least source of tax laws:

A. Statues
B. Presidential decrees
C. Revenue regulations
D. Tax treaties or conventions

103. Statement 1: A revenue regulation must not be contrary to the provision of the law that it implement.
Statement 2: A revenue regulation cannot expand the provision of the law that it implement by imposing a
penalty when the law that authorizes the revenue regulation does not impose a penalty.
A. Only statement 1 is correct
B. Only statement 2 is correct
 C. Both statements are correct
D. Both statements are incorrect

104. Which of the following is not a source of our tax laws?

I. Supreme Court Judicial Decisions
II. SEC Regulations and Rulings
III. Bureau of Customs Memorandum Orders
IV. Administrative rules and regulations
V. Legislations, tax treaties and tax ordinances

A. II, III and VI only

B. II, III and IV only
C. II and VI only
D. None of the above

105. Which of the following statements is correct?

A. Revenue regulations have the force and effect of law and a memorandum order of the Commissioner of
Internal Revenue, approved by the Secretary of Finance, has the same force and effect as revenue
regulations.
B. The revenue regulations which are in conflict with law(s) are null and void.
C. The interpretation of the former Secretary of Finance do not necessarily bind their successors.
D. All of the above.

Type of Taxes

106. The Philippine income tax system has the following features, except
A. Comprehensive tax situs by using the nationality, residence, and source rules.
B. The individual income tax system is mainly progressive in nature.
C. Indirect rather than direct system.
D. Semi-global and semi-schedular system.

107. Tax of a fix amount imposed among all persons residing within a specified territory without regard to their
property or occupation they may be engage
A. Personal, poll or capitation tax
B. Property
C. Excise tax
D. Regressive

108. Tax imposed on personal or real property in proportion to its value or some other reasonable method of
apportionment
A. Personal, poll or capitation tax
B. Property
C. Excise tax
D. Regressive

109. Which of the following is not an example of excise tax?

A. Transfer tax
B. Sales tax
C. Real property tax
D. Income tax

110. Tax which is demanded from the persons whom the law intends or desires to pay it
A. Direct
B. Indirect
C. Excise
D. Income

111. Tax which is demanded from one person in the expectation and intention that he shall indemnify himself at the
expense of another
A. Direct
B. Indirect
C. Excise
D. Income
112. One is not a direct tax
A. Immigration tax
B. Transfer tax
C. Income tax
D. Value-added tax

113. A tax on business is

A. Direct tax
B. Indirect tax
C. Property tax
D. None of the choices

114. Tax which imposes a specific sum by the head or number or by some standards of weight or measurement and
which requires no assessment other than a listing or classification of the objects to be taxed
A. Ad-valorem
B. Specific
C. Excise
D. Revenue

115. Tax which is a fixed proportion of the amount or value of the property with respect to which the tax is assessed
A. Ad-valorem
B. Specific
C. Excise
D. Revenue

116. This type of tax requires an assessment of the value of the subject of tax
A B C D
Ad valorem tax True True False False
Specific tax True False True False

117. JJ is a mining operator. The tax he has to pay is based on the actual value of the gross output or mineral
products extracted is
A. Mining tax
B. Royalties
C. Rental
D. Ad valorem tax

118. Tax levied for particular or specific purpose irrespective of whether revenue is actually raised or not
A. Revenue tax
B. Regulatory tax
C. Specific tax
D. Ad valorem tax

119. Tax based on a fix percentage of the amount of property, income or other basis to be taxed
A. Progressive
B. Proportional
C. Regressive
D. Indirect

120. Tax where the rate decreases as the tax base increases
A. Progressive
B. Proportional
C. Regressive
D. Indirect

121. Tax where the rate increases as the tax base increase
A. Progressive
B. Proportional
C. Regressive
D. Indirect
122. A tax classified as a regressive tax
A. Excise tax
B. Real estate tax
C. Value added tax
D. None of the choices

123. Which of the following taxes is always proportional?

A. Value added tax
B. Income tax
C. Estate tax
D. Donor’s tax

124. Which of the following individual taxpayers is not covered by progressive tax?
A. Resident citizen
B. Resident alien
C. Nonresident alien engaged in trade
D. Nonresident alien not engaged in trade

Tax vs. Other Impositions

125. Tax as distinguished from license fee

A. Non-payment does not necessarily render the business illegal.
B. A regulatory measure
C. Imposed in the exercise of police power.
D. Limited to cover cost of regulation

126. The distinction of a tax from permit or license fee is that a tax is
A. Imposed for regulation.
B. One which involves exercise of police power.
C. One in which there is generally no limit on the amount that may be imposed.
D. Answer not given.

127. Which of the following terms describes this statement “that the State has complete discretion on the amount to
be imposed after distinguishing between a useful or non-useful activity?
A. Tax
B. License fee
C. Toll
D. Customs duty

128. Toll as distinguished from tax.

A. Demand of sovereignty
B. Imposed by government only
C. Amount is based on the cost of construction of public improvement used
D. Paid for the support of the government

129. Which statement is wrong?

A. A tax is a demand of sovereignty.
B. A toll is a demand of ownership.
C. A special assessment is a tax.
D. Customs duty is a tax.

130. Which of the following is not a characteristic of debt?

A. Generally arises from contract.
B. Payable only in money.
C. Assignable.
D. Imprisonment is not a sanction for non-payment.

131. Debt as distinguish from tax.

A. Based on law
 B. May be paid in kind
C. Does not draw interest except when delinquent
D. Generally not subject to set-off or compensation

132. Schedular system of income taxation means

A. All types of income are added together to arrive at gross income.
B. Separate graduated rates are imposed on different types of income.
C. Capital gains are excluded in determining gross income.
D. Compensation income and business/professional income are added together in arriving at gross income.

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

134. Which of the following statements is correct?

A. Withholding tax liability may arise only when the agent has possession, custody or control of the funds
withheld.
B. The withholding tax system was devised to provide the taxpayer a convenient manner to meet his probable
income tax liability and to ensure collection of the income tax which could otherwise be lost or substantially
reduced through failure to file the corresponding returns.
C. Withholding tax system is designed to improve the government’s cash flow.
D. All of the above.

135. Under the Final Withholding Tax System, which of the following statements is not correct?
A. Income tax withheld by the withholding agent is constituted as a full and final.
B. The liability for payment of the tax rests primarily on the payee as a recipient of income.
C. In case of failure to withhold the tax, the deficiency tax shall be collected from the withholding agent.
D. The payee is no longer required to file an income tax return for the particular income.

136. When the refund of a tax supposedly due to the taxpayer has already been barred by prescription, and the said
taxpayer is assessed with a tax at present, the two taxes may be set-off with each other. This doctrine is called
A. Set-off doctrine
B. Doctrine of reciprocity
C. Tax sparing doctrine
D. Equitable recoupment

137. Rule of “No estoppel against the government means:

A. Rule of law that in the performance of its governmental functions, the state cannot be estopped by the
neglect of its agents and officers.
B. The government is not estopped by the mistakes or errors of its agents; erroneous application and
enforcement of law by public officers do not block the subsequent correct application of statutes.
C. Both A and B
D. Neither A nor B

Interpretation of Ambiguities in Taxation

138. In case of ambiguity, tax laws imposing a tax shall be interpreted

A. Strictly against the taxpayer
B. Liberally in favor of the taxpayer
C. Liberally in favor of the government
D. None of the choices

139. Which of the following propositions may be untenable?

A. The court should construe a law granting tax exemption strictly against the taxpayer.
B. The court should construe a law granting a municipal corporation the power to tax most strictly.
C. The Supreme Court has jurisdiction to review decisions of the Court of Tax Appeals.
D. None of the above.
140. Which of the following is incorrect?
A. Where doubts exist in determining the intent of legislature, the doubt must be resolved strictly against the
taxpayer and liberally in favor of the taxing authority.
B. The exemption contained in the tax statutes must be strictly construed against the one claiming the
exemption.
C. Tax cannot be imposed without clear and express words for that purposes.
D. All of the above.

141. In cases of deductions and exemption, doubts shall be resolved

A. Strictly against the taxpayer
B. Strictly against the government
C. Liberally in favor of the taxpayer
D. None of the choices

142. Statement 1: In case of conflict between a revenue regulation and the provision of the National Internal Revenue
Code, the latter shall prevail.

Statement 2: The revocation of a revenue regulation cannot be made retroactive even if the reason for its
revocation is that it is erroneous or contrary to law.
A. Statement 1 is correct; Statement 2 is wrong
B. Both statements are correct
C. Statement 1 is wrong; Statement 2 is correct
D. Both statements are wrong

143. Which of the following is correct regarding the purpose(s) of revenue regulations issued by the Department of
Finance through the Bureau of Internal Revenue?
A. To properly enforce and execute the laws
B. To clarify and explain the law
C. To carry into effect the law’s general provisions by providing details of administration and procedure
D. All of the above

144. The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, issued a Revenue
Regulation using gross income as the tax base for corporation doing business in the Philippines. The revenue
regulation is:
A. Valid. Corporations are already taxable under our existing tax laws. Hence, the action of the Secretary
constitutes administrative action only which is within his powers.
B. Valid. If the tax is limited to gross income without deductions. Such action is not tantamount to changing
the amount of the tax as said amount ultimately depends on the taxable base.
C. Not Valid. Because the action of the Secretary constitutes legislation which is exclusively within the powers
of the legislative branch of the government.
D. None of the above.

145. Which of the following is required for validity of rules and regulations?
I. They must not be contrary to law and the Constitution.
II. They must be published in the Official Gazette or a newspaper of general circulation.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

Tax Avoidance vs. Tax Evasion

Escape from taxation and other topics

146. The use of illegal or fraudulent means to avoid or defeat the payment of tax
A. Exemption
B. Shifting
C. Avoidance
D. Evasion
147. The exploitation by the taxpayer or legally permissible alternative tax rates or methods of assessing taxable
property or income, in order to reduce tax liability. It is otherwise known as tax minimization
A. Tax exemption
B. Tax evasion
C. Tax avoidance
D. Transformation

148. Statement 1: Tax avoidance is a scheme used outside of those lawful means to escape tax liability.

Statement 2: Tax avoidance is a tax saving device within the means sanctioned by law and, when availed of,
it usually subjects the taxpayer to further or additional civil or criminal liabilities.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

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

150. Transfer of the tax burden by one whom the tax is assessed to another
A. Shifting
B. Capitalization
C. Transformation
D. Tax exemption

151. Pedro sold a parcel of land classified as capital asset to Juan. The parties agreed that the capital gains tax shall
be shouldered by Juan. Is this a form of Shifting? Is the Stipulation valid?
Shifting Stipulation
A. Yes Yes
B. No No
C. Yes No
D. No Yes

152. Which of the following statements is correct?

I. Shifting will result in increases prices
II. Tax evasion is also known as tax dodging

A. I only
B. II only
C. I and II
D. Neither I nor II

153. _____is finding out means of improvement in production so as savings would compensate for taxes paid by
manufacturers or producers.
A. Shifting
B. Capitalization
C. Transformation
D. Tax Dodging

154. Which of the following statements regarding “Taxpayer’s Suit” is incorrect?

A. It is one brought or filed by a taxpayer arguing the validity of a tax statue and its enactment or the
constitutionally of its alleged public purpose.
B. It is a case where the act complained of directly involves the illegal disbursement of public funds derived
from taxation.
 C. Taxpayers have “locus standi” to question the validity of tax measures or illegal expenditures of public
money.
D. A taxpayer is relieved from the obligation of paying a tax because of his belief that it is being misappropriated
by certain officials.

155. The Philippine income tax system has the following features, except
A. Comprehensive tax situs by using the nationality, residence, and source rules.
B. The individual income tax system is mainly progressive in nature.
C. Indirect rather than direct system.
D. Semi-global and semi-schedular system.
 SITUS OF DIVIDEND INCOME

OLD LAW CREATE LAW

DI from FC, resident and nonresident (no distinction DI from FC, resident and nonresident (no distinction
provided in the provision) provided in the provision)

If the RATIO of Gross Income derived from Philippines If the RATIO of Gross Income derived from Philippines
over gross income from all sources for the past 3 years over gross income from all sources for the past 3 years
(or for such part of such period as the corporation has (or for such part of such period as the corporation has
been in existence) is: been in existence) is:
 Less than 50% = considered as purely  Less than 50% = purely abroad.
derived from abroad.  At least 50% = purely derived from the
 At least 50% = considered as partly derived Philippines
from Philippines and abroad

1. A cash dividend of P100,000 received by a taxpayer in 2021 from a foreign corporation whose income from
Philippine source is 40% of its total income is
Statement 1: Partly taxable if he is a resident citizen.
Statement 2: Partly taxable if he is a non-resident alien.

A. Statements 1 and 2 are false

B. Statement 1 is true but statement 2 is false
C. Statement 1 if false but statement 2 is true
D. Statements 1 and 2 are true

2. Using the above data, which of the following is correct? The cash dividend is
A. Exempt from income tax if he is a resident citizen.
B. Partly taxable if he is a resident alien.
C. Taxable in full if he is a non-resident citizen.
D. Exempt from income tax if he is a nonresident alien.

Use the following data for the next five (5) questions

Sandara, a nonresident Korean stockholder, received dividend income of P300,000 in 2021 from Super Bowl
Corporation, a foreign corporation doing business in the Philippines. The gross income of the foreign corporation
from sources within and without the Philippines for the past three years preceding 2021 were provided as follows:
Source 2018 2019 2020
Philippines P16,000,000 P15,000,000 P17,000,000
Abroad 8,000,000 11,000,000 13,000,000

3. The amount of dividend income subject to tax in 2021 should be:

A. P0
B. P120,000
C. P180,000
D. P300,000

Ratio of GI Phils./GI world = 48,000,000/80,000,000 = 60%

4. Sandara is subject to:

A. Basic income tax on P180,000
B. Basic income tax on gross income of P300,000
C. Final withholding tax of 25% on gross income of P180,000
D. Final withholding tax of 25% on gross income of P300,000.

5. Assuming Sandara is a Domestic Corporation received dividend from RFC, what is the tax consequences?

Tax Exempt – Intercorporate Dividend

6. Assuming Sandara is a Domestic Corporation received dividend from RFC. If the ratio of GI Phils. / GI world
is 49%. What is the tax consequences?

Note: Dividend from RFC – may be considered income which is entirely received from Philippines sources OR
Foreign-sourced.

Foreign-sourced dividends are exempt from income tax provided that:

Page |1
 1. Reinvestment of the dividend received in the domestic corporation within the next taxable year;
2. 20% or more ownership of the NRFC (The domestic corporation hold directly at least twenty percent (20%)
in value of the outstanding shares of the foreign corporation); and
3. 2 years or more holding period.

Absent any one of the above conditions, the foreign-sourced dividends shall be considered as taxable income of the
domestic corporation in the year of actual receipt or remittance, subject to surcharges, interest, and penalties, as
applicable.

7. Assuming Sandara is a Domestic Corporation received dividend from NRFC. What is the tax consequences?

Note: Dividend from NRFC – considered as entirely foreign source dividend.

Foreign-sourced dividends are exempt from income tax provided that:

1. Reinvestment of the dividend received in the domestic corporation within the next taxable year;
2. 20% or more ownership of the NRFC (The domestic corporation hold directly at least twenty percent (20%)
in value of the outstanding shares of the foreign corporation); and
3. 2 years or more holding period.

Absent any one of the above conditions, the foreign-sourced dividends shall be considered as taxable income of the
domestic corporation in the year of actual receipt or remittance, subject to surcharges, interest, and penalties, as
applicable.

Use the following data for the next two (2) questions

Alma, a non-resident citizen, received a dividend income of P300,000 in 2021 from Super Bowl Corporation, a
foreign corporation doing business in the Philippines. The gross income of the foreign corporation from sources
within and without the Philippines for the past three years preceding 2021 were provided as follows:
Source 2018 2019 2020
Philippines P14,000,000 P10,000,000 P12,000,000
Abroad 10,000,000 16,000,000 18,000,000

8. The amount of dividend income subject to tax in 2021 should be:

A. P0
B. P135,000
C. P165,000
D. P300,000

(36M/80M) = 45%

9. Assuming Super Bowl is a domestic corporation, the amount of income subject to tax should be:
A. P0
B. P120,000
C. P180,000
D. P300,000

10. Assuming Super Bowl is a domestic corporation and the complied with the requirements of foreign-source
dividends, the amount of income subject to tax should be:
A. P0
B. P120,000
C. P180,000
D. P300,000

Page |2
Final Tax on Passive Income

1. Statement 1: Passive incomes are subject to separate and final tax rates.

Statement 2: Passive income are included in the computation of taxable income from compensation or
business/professional income.

A B C D
Statement 1 True False True False
Statement 2 True False False True

2. Statement 1: Tax on certain passive income is a capital gains tax.

Statement 2: Other income, for income tax purposes, is excluded in the determination of an individual taxpayer’s
returnable income.

A B C D
Statement 1 True False True False
Statement 2 True False False True

3. Which of the following statements is incorrect?

A. To be subject to final tax, passive income must be from Philippine sources.
B. An income which is subject to final tax is excluded from the computation of income subject to Section 24(A)
of the tax code.
C. Lotto winnings is foreign countries are exempt from income tax in the Philippines.
D. None of the above.

4. Which of the following incomes derived from within the Philippines are classified under the Tax Code as passive
incomes subject to final withholding tax if received by individual taxpayers?
I. Interest income from any currency bank deposit and yield or any other monetary benefit received from
deposit substitutes, trust funds, mutual funds and other similar arrangements.
II. Dividend income from domestic corporation.
III. Royalty income
IV. Prizes exceeding P10,000
V. Other winnings.

A. I only
B. I and II only
C. I, II and III only
D. All of the above

Interest Income

5. Which of the following interest income derived within the Philippines is subject to basic income tax?
A. Interest income from bank deposits
B. Interest income from loans
C. Interest income from deposit substitutes
D. Interest income from trust funds

6. Statement 1: “Deposit Substitutes”, as defined in Section 22 of the Tax Code, as amended, means an alternative
form of obtaining funds from the public other than deposits, through the issuance, endorsement, or acceptance
of debt instruments for the borrower’s own account, for the purpose of re-lending or purchasing of receivables
and other obligations, or financing their own needs or the needs of their agents or dealer.

Statement 2: “Public” is defined as borrowing from twenty (20) or more individual or corporate lenders at any
one time.
A B C D
Statement 1 True False True False
Statement 2 True True False False

7. Statement 1: Any income of nonresident individual taxpayers from transactions with depository banks under the
expanded foreign currency deposit system shall be exempt from income tax.

Statement 2: Any income of nonresident individual taxpayers from transactions with offshore banking units shall
be exempt from income tax.
 A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

8. Which of the following interest income by a resident taxpayer is subject to 15%?

A. Interest income from peso bank deposits
B. Interest income from deposit substitutes
C. Interest income trust funds
D. Interest income on dollar deposits

9. Which of the following statements is correct?

A. Interest income on bank deposits or investment with maturity period of at least five (5) years is exempt
from income tax.
B. Interest income on treasury-bond with maturity period of at least five (5) years is exempt from income tax.
C. The tax exemption on long term bank deposit or investment extends to all types of taxpayers.
D. All of the above.

10. A non-resident alien not engaged in trade or business derived P50,000 interest income from his long-term bank
deposit here in the Philippines. How much is the income tax due of the said alien?
A. P10,000
B. P12,500
C. P5,000
D. Nil

11. Which of the following statements is true?

A. Interest income from a foreign currency depository unit in the Philippines of a non-resident alien is not
subject to final tax.
B. Prizes exceeding P10,000 derived by non-resident alien not engaged in trade or business here in the
Philippines is subject to a final tax of 20%.
C. Share in earnings received by non-resident alien from a domestic partnership is subject to basic tax.
D. All of the above.

12. If an account in a depository bank under the foreign currency deposit system is jointly in the name of a non-
resident citizen such as an overseas contract worker, or a Filipino seaman, and his spouse or dependent who is
a resident of the Philippines, the interest on such deposit shall be:
A. Exempted in its entirely
B. Subject to final withholding tax of 15% in its entirety.
C. 50% exempt and 50% subject to final withholding tax of 15%.
D. Subject regular income tax rates for individuals.

13. A non-resident alien derived interest income only in his bank deposit here in the Philippines under the FCDU
system of a domestic bank. The interest amounted to $500. How much is the income tax due of the said alien?
($1=P50)
A. P0
B. P3,000
C. P8,000
D. P10,000

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

If taxpayer is a non-resident alien engaged in business, the final tax on the above passive income would amout
to
A. P52,750
B. P19,000
C. P28,250
D. P37,750

15. Which of the following passive income is exempt from tax when received by resident or citizen and nonresident
aliens engaged in trade or business in the Philippines but subject to 25% final tax when received by nonresident
aliens not engaged in trade or business?
A. Prizes of more than P10,000
 B. Interest income from long-term deposit or instrument evidenced by certificates prescribed by the Bangko
Sentral ng Pillipinas
C. Yield or any other monetary benefit from trust funds and similar arrangements.
D. Other winnings.

16. Which of the following statements about interest income from long-term deposit is false?
A. Interest income from long-term deposit or investment is exempt from income tax.
B. If a long-term deposit or investment is pre-terminated, the applicable tax rate on the interest income is 0%
if the holding period is 5 years or more.
C. If a long-term deposit is preterminated, the applicable tax rate on the interest income is 0% if the holding
period is 4 years to less than 5 years.
D. If a long-term deposit is pre-terminated, the applicable tax rate on the interest income is 12% if the holding
period is 3 years to less than 4 years.

The next four (4) questions are based on illustrations provided in RR 14-2012.

Assume further that the “instrument” is pertaining to a long-term investment issued by a bank.

17. An instrument with a maturity period of ten (10) years was held by Juan (resident citizen) for two (2) years and
was transferred to Smith (resident alien), who, in turn, held it for eight (8) years. The final withholding tax
should be as follows:

A B C D
Juan – 20% final tax True False True False
Smith - exempt True False False True

18. An instrument with a maturity period of ten (10) years was held by Juan (nonresident citizen) for three (3) years
and transferred it to Smith, a resident alien, Smith held it for two (2) years before subsequently transferring it
to Pedro (resident citizen) who held it until the day of maturity or for a period of five (5) years. The final
withholding tax should be as follows:

A B C D
Juan – 12% final tax True True True True
Smith – 20% final tax True True False False
Pedro - exempt True False False True

19. An instrument with a maturity period of ten (10) years was held by Smith (nonresident alien engage in trade or
business) for three (3) years and transferred it to Juan, a resident citizen. Juan held it for two (2) years before
subsequently transferring it to James (resident alien) who pre-terminated it after four (4) years. The final
withholding tax are as follows:
A B C D
Smith – 12% final tax True True True True
Juan – 20% final tax True True False False
James - exempt True False False True

20. Mr. X, a resident citizen, appoints Bank A – Trust Department to manage his money created through a trust
agreement. Bank A – Trust Department then invests said money in a long term investment (10-year corporate
bond) of XYZ Corporation under the account name “Bank A – Trust Department”. Mr. X did not withdrawn his
money from such trust agreement for at least five (5) years. The interest of Mr. X from the corresponding trust
agreement is:
A. Exempt from income tax
B. Subject to 15% preferential tax rate
C. Subject to 20% final tax
D. Subject to basic income tax

21. On January 1, 2021, Pedro purchased at face value 1,000 P1,000 face value of bonds of San Miguel Corporation,
a domestic corporation. The bonds were dated January 1, 2020 and mature on January 1, 2031. The bond pay
10% annual interest every December 31. Pedro sold the investment directly to Juan on December 31, 2021 at
102. Which of the following statements is true?
A. The interest income from the investment is subject to a final withholding tax of 5%.
B. The interest income from the investment is subject to a final withholding tax of 12%.
C. The gain on sale is subject to a final withholding tax rate of 20%.
D. The gain on sale is subject to basic income tax.
22. On January 1, 2018, Lorna invested P1,000,000 to BDO’s 5-year, tax-free time deposit. The long-term deposit
pays 10% annual interest every January 1. In need of cash, Lorna pre-terminated her investment on July 1,
2021. How much is the final tax due in 2021?
A. P6,000
B. P12,000
C. P17,500
D. P42,000

23. Assuming the same information in the problem above, except that the investment was made by a domestic
corporation, how much final tax is withheld in the year of pre-termination?
A. P2,500
B. P6,000
C. P10,000
D. P12,000

PCSO Winnings/ Prizes and Other Winnings

24. Which of the following statements is correct?

I. Beginning January 1, 2018 but prior to the effectivity of the CREATE Law, PCSO winnings of not more than
P10,000 received by citizens, residents and non-resident aliens engaged in trade or business are exempt
from income tax.
II. Beginning January 1, 2018 but prior to the effectivity of CREATE Law, PCSO winnings of more than P10,000
received by citizens, residents and non-resident aliens engaged in trade or business are subject to 20% final
withholding tax.
III. PCSO winnings of not more than P10,000 received by non-resident aliens not engaged in trade or business
are exempt from income tax.
IV. PCSO winnings of more than P10,000 received by non-resident aliens not engaged in trade or business are
exempt from income tax.

A. I only
B. I and II only
C. I and IV only
D. All of the above

25. Paul, a nonresident alien engaged in business in the Philippines, received PCSO winnings amounted to P50 million
on May 8, 2021. The PCSO winnings shall be:
A. Exempt from income tax
B. Subject to basic income tax
C. Subject to final withholding tax of 20%
D. None of the above

26. Which of the following statements is correct?

I. Prizes of not more than P10,000 received by citizens, residents and non-resident aliens engaged in trade or
business are exempt from income tax.
II. Prizes of more than P10,000 received by citizens, residents and non-resident aliens engaged in trade or
business are subject to 20% final withholding tax.
III. Prizes of not more than P10,000 received by non-resident aliens not engaged in trade or business are
exempt from income tax.

A. II only
B. I and II only
C. II and III only
D. I, II and III

27. Which of the following income of an individual taxpayer is subject to final tax?
A. P10,000 prize in Manila won by a resident citizen.
B. Dividend received by a resident citizen from a resident foreign corporation.
C. Share in the net income of a general professional partnership received by a resident citizen.
D. Dividend received by a non-resident alien from a domestic corporation.

The next two (2) questions are based on the following data:

Carlo received the following passive income in 2019:

Interest, peso deposit, MBTC P100,000

Interest, $ deposit, BDO ($10,000 x P42) 420,000
 Interest, deposit in Hongkong (HK$10,00 x P5) 50,000
Prize (TV) won in a local lottery 50,000
PCSO winnings 2,000,000
Prize won in contest in U.S. 300,000
Lotto winnings in U.S. 100,000
Dividend, domestic company 600,000

28. Determine the total final tax in 2019 assuming he is:

RC NRC NRAET NRANET

A P553,000 P490,000 P150,000 P687,500
B 553,000 490,000 550,000 687,500
C 131,000 90,000 90,000 90,000
D 553,000 490,000 550,000 687,500

29. Assuming the incomes were earned during the effectivity of the CREATE law, how much is the correct final
withholding tax on passive income assuming further that Carlo is

RC NRC NRAET NRANET

A P553,000 P490,000 P150,000 P687,500
B 553,000 490,000 550,000 687,500
C 131,000 90,000 90,000 90,000
D 553,000 490,000 550,000 687,500

30. Which of the following statements is not correct?

A. Interest income received by individual taxpayers from long term bank deposit is exempt from income tax.
B. PCSO winnings not exceeding P10,000 received by a resident alien is exempt from income tax.
C. Royalties on books, literary works and musical compositions are subject to 10% non-creditable withholding
tax.
D. A prize of P10,000 is subject to 20% final tax.

31. Vincent received a prize amounting to P8,000 from their barangay, what type of income tax will apply?
A. Final withholding tax on passive income
B. Capital gains tax
C. Basic income tax
D. Fringe benefit tax

32. If the amount of prize in the preceding number was received by a non-resident alien not engaged in trade or
business, what type of income tax will apply?
A. Final withholding tax
B. Capital gains tax
C. Basic income tax
D. Fringe benefit tax

33. Paul, a resident citizen, received PCSO winnings in 2021 amounting to P10,000. What type of income tax will
apply?
A. Final withholding tax on passive income
B. Capital gains tax
C. Basic income tax
D. Exempt

34. If the amount of PCSO winnings in the preceding number was received by a nonresident alien not engaged in
trade or business, what type of income tax will apply?
A. Final withholding tax on passive income
B. Capital gains tax
C. Basic income tax
D. Exempt

35. Jam, a resident citizen, received PCSO winnings in 2020 amounting to P100,000. What type of income tax will
apply?
A. Final withholding tax on passive income
B. Capital gains tax
C. Basic income tax
D. Exempt
36. If Jam in the preceding number is a nonresident alien engaged in trade or business, what type of income tax
liability will apply?
A. Final withholding tax on passive income
B. Capital gains tax
C. Basic income tax
D. Exempt

37. Assuming Jam in the preceding number is a nonresident alien engaged in trade or business and the winnings
was received during the effectivity of the CREATE law, what type of income tax liability will apply?
A. Final withholding tax on passive income
B. Capital gains tax
C. Basic income tax
D. Exempt

Royalty

38. Statement 1: All royalty income derived from sources within the Philippines are subject to final withholding tax.
Statement 2: All royalty income derived from sources outside of the Philippines received by resident citizens are
subject to basic income tax.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

39. Which of the following royalties earned within the Philippines is not subject to 10% final withholding tax?
A. Royalties from computer software
B. Royalties from books
C. Royalties from literary works
D. Royalties from musical compositions

40. Lebron James received royalty fee from Viva Records Corporation, a domestic corporation, for his musical
composition under the album “Whatever it Takes”. James is an American composer and has never set foot in
the Philippines. The royalty fee shall be subject to:
A. 15% FWT
B. 20% FWT
C. 25% FWT
D. 5%-32% graduated tax rate

Dividend Income

41. The following taxpayers who received dividend income from a domestic corporation will received net of 10% final
withholding tax, except:
A. Resident citizen
B. Non-resident citizen
C. Resident alien
D. Non-resident alien engaged in trade or business

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

43. Which of the following income of a non-resident citizen will be taxed differently if the taxpayer is non-resident
alien engaged in trade or business?
A. Interest income
B. Royalties
C. Dividends
D. Prizes

44. Which of the following income will be taxed in the same manner regardless of the classification of the taxpayer?
A. Capital gain on sale of land and/or building
B. Capital gain on sale of shares of stock of a domestic corporation
C. Ordinary gain on sale of land and/or building
D. Ordinary gain on sale of shares of stock of a domestic corporation
Share in the Net Income of a Partnership and Joint Venture

45. Share in the net distributable income of a general co-partnership by a resident citizen is subject to:
A. 10% final withholding tax
B. 20% final withholding tax
C. 6% capital gains tax
D. Basic income tax

46. Share in the net distributable income of a general professional partnership by a resident citizen is subject to:
A. 10% final withholding tax
B. 20% final withholding tax
C. 6% capital gains tax
D. Basic income tax

47. If a non-resident citizen received his share in the income of a taxable joint venture, what type of income tax
that will apply on the said income?
A. Final withholding tax on passive income
B. Capital gains tax
C. Basic income tax
D. Fringe benefit tax

48. Based on the preceding number, except that the joint venture is exempt from income tax, what type of income
tax will apply on the said income?
A. Final withholding tax on passive income
B. Capital gains tax
C. Basic income tax
D. Fringe benefit tax

Use the following data for the next two (2) questions:

Ana has the following data on his passive income earned during the year:

Philippines Abroad
Interest income from long term peso bank deposits P45,000 P25,000
Interest income from long term FCDU deposits 50,000 60,000
Royalties from books 20,000 30,000
Royalties from computer programs 20,000 40,000
Winnings from an electronic draw during Smart Communication’s 50th 30,000 -
anniversary (chosen randomly by the network using smart subscribers’
sim card numbers)
Dividend income from a domestic corporation 27,000 13,000
Dividend income from a foreign corporation 33,000 22,000

49. How much is the final withholding tax if Ana is a resident citizen?
A. P13,450
B. P12,450
C. P14,450
D. P22,200

50. How much is the final withholding tax if Ana is a resident alien?
A. P13,450
B. P9,700
C. P12,450
D. P22,200

51. How much is the final withholding tax if Ana is a non-resident citizen?
A. P13,450
B. P8,700
C. P9,700
D. P14,700

52. How much is the final withholding tax if Ana is a non-resident alien engaged in trade or business?
A. P13,450
 B. P17,400
C. P9,700
D. P13,750

53. How much is the final withholding tax if Ana is a non-resident alien not engaged in trade or business?
A. P19,250
B. P35,500
C. P43,000
D. P29,000

Capital Gains Tax – Shares of Stock

54. Which of the following sale transactions will be subject to capital gains tax?
A. Sale of shares of stock by a dealer in securities
B. Sale of shares of stock during an Initial Public Offering
C. Sale of shares of stock not through the local stock exchange by a person who is not a dealer in securities
D. Sale of shares of stock through the local stock exchange by a person who is not a dealer in securities

Use the following data for the next four (4) questions:

On March 2021, Johnson sold the following shares of stock of domestic corporations which he bought for
investment purposes:
Listed and Traded Not Listed and Traded
Selling price P250,000 P140,000
Cost 118,000 80,000

55. How much is the capital gains tax?

A. P3,000
B. P6,000
C. P9,000
D. P12,000

56. Assume that Johnson is a dealer in securities, the capital gains tax should be:
A. P0
B. P3,000
C. P6,000
D. P12,000

57. Assume the shares sold were issued by foreign corporations, the capital gains tax should be:
A. P0
B. P3,000
C. P6,000
D. P12,000

58. Assume the shares not listed and traded in the local stock exchange were only sold for P60,000, the capital gains
tax should be:
A. P0
B. P6,000
C. P9,000
D. P12,000

59. Drei sold 10,000 shares in Alpha Corporation, a closely-held domestic corporation, on June 30, 2021 for
P1,250,000. The shares were acquired by Drei a year ago for P1,000,000. The book value per share based on
the 2020 audited financial statements of the company was P200. How much is the capital gains tax?
A. P0
B. P20,000
C. P30,000
D. P37,500

60. Based on the preceding number, how much is the donor’s tax, if any?
A. P0
B. P20,000
C. P30,000
D. P37,500

Use the following data for the next two (2) questions:
(Based on illustration from RR 20-2020). Anton sold 10,000 shares in X Corporation on June 30, 2021. The
corporation’s accounting period is a calendar year basis.

61. How to determine the fair market value of the stock in X Corporation?
A. Based on financial statements ending December 31, 2020
B. Based on financial statements ending June 30, 2031
C. Based on financial statements ending December 31, 2021
D. None of the above

62. Assume that based on the audited financial statements of X Corporation on December 31, 2020, the following
additional data were provided:
Assets P50,000,000
Liabilities 20,000,000
Outstanding shares 200,000

The book value (fair market value) of each share upon sale shall be:
A. P50
B. P100
C. P150
D. P200

Capital Gains Tax – Real Property

63. Which of the following transactions is subject to 6% capital gains tax:

A. Sale of condominium units by a real estate dealer
B. Sale of real property utilized for office use
C. Sale of apartment houses
D. Sale of vacant lot by an employee

64. Statement 1: The determination of 6% capital gains tax on sale of real property is based on net capital gains
realized by the seller of real property.

Statement 2: Except for certain passive income, a nonresident alien not engaged in trade or business shall be
taxed at 25% of his gross income derived from sources within the Philippines.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

65. Mike, a resident citizen taxpayer owns a property converted into apartment units with a monthly rental of
P10,000 per unit. He subsequently sold the property to Leomar, a resident alien taxpayer. The sale shall be
subject to:
A. 6% capital gains tax
B. Basic income tax
C. 6% capital gains tax or basic income tax at the option of Mike
D. 6% capital gains tax or basic income tax at the option of Leormar

66. Statement 1: Proceeds of sale of real property classified as capital asset may be exempt from the 6% capital
gains tax.

Statement 2: Gain from sale of real property classified as capital asset to the Government may be taxed under
Section 24 (A) at the option of the individual taxpayer.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

Use the following data for the next three (3) questions:

67. Vincent sold a residential house and lot held for P10,000,000 to his friend. Its FMV when he inherited it form
his father was P12,000,000 although it present FMV is P15,000,000. The tax on the above transaction is:
A. P720,000 capital gains tax
B. P900,000 capital gains tax
C. 30% donor’s tax
 D. Value added tax

68. Assuming the house and lot was Vincent’s principal residence and he used ½ of the proceeds to buy a new
principal residence within eighteen (18) months after the above sale. Assume further that Vincent properly
informed the BIR about the sale. It shall be:
A. Exempt from capital gains tax
B. Subject to P300,000 capital gains tax
C. Subject to P450,000 capital gains tax
D. Subject to P600,000 capital gains tax

69. Based on the above problem, but assuming the residential house is located abroad, the capital gains tax is:
A. P0
B. P300,000
C. P450,000
D. P480,000

70. Gain from sale of real property classified as capital asset located abroad by a resident citizen is subject to
A B C D
6% capital gains tax True False True False
Section 24A of the Tax Code True False False True

Use the following data for the next three (3) questions:

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

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

A. P12,000
B. P18,000
C. P30,000
D. Nil

72. How much is the total capital gains tax?

A. P3,500
B. P10,500
C. P72,000
D. P82,500

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

A. P116,500
B. P207,500
C. P159,500
D. P156,000

Use the following data for the next three (3) questions:

Juan, married, supporting his three (3) minor children had the following data for the current taxable year (Exchange
Rate $1 = P50):
Philippines Abroad
Business income P1,000,000 $20,000
Professional income 400,000 10,000
 Salaries 200,000 -
Business and professional expenses 250,000 8,000
Income tax paid - 4,000

101. If Juan is a resident citizen, his income tax payable should be:
A. P434,000
B. P570,500
C. P589,000
D. P509,000

102. If Juan is a non-resident citizen, his income tax payable should be:
A. P295,000
B. P358,020
C. P384,380
D. P357,000

103. If Juan is a non-resident alien not engaged in trade or business, disregarding professional and business data,
the total income tax that should be withheld from his income is:
A. P50,000
B. P18,500
C. P31,500
D. P338,500

104. Mr. and Mrs. Dela Cruz, both CPAs and residents of the Philippines, had the following data for 2021 taxable year:
Salaries, wife P1,200,000
13th month pay and other bonuses, wife 140,000
Professional fees, (net of 10% CWT) 1,620,000
Expenses – practice of profession (15% nondeductible) 800,000
Rental income (net of 5% withholding tax) 190,000
Rental expenses 80,000
Other income, husband (20% non-taxable) 80,000

The taxable income of Mr. Dela Cruz is:

A. P48,400
B. P684,000
C. P1,870,000
D. P2,554,000

105. The taxable income of Mrs. Dela Cruz is:

A. P371,000
B. P359,000
C. P1,870,000
D. P410,000

Creditable Withholding Tax Rate

106. Professional fees, promotional and talent fees, or any other form of remuneration for the services rendered by
an individual payee shall be subject to creditable withholding tax rate of:
A. 5% if the individual payee’s gross income for the current year did not exceed P3,000,000.
B. 5% if the individual payee’s gross income for the current year is more than P3,000,000.
C. 5% if the individual payee’s gross income for the current year did not exceed P720,000.
D. 10% if the individual payee’s gross income for the current year di not exceed P720,000.

107. Professional fees, promotional and talent fees, or any other form of remuneration for the services rendered by
an non-individual payee shall be subject to creditable withholding tax rate of:
A. 5% if the individual payee’s gross income for the current year did not exceed P3,000,000.
 B. 5% if the individual payee’s gross income for the current year is more than P3,000,000.
C. 5% if the individual payee’s gross income for the current year did not exceed P720,000.
D. 10% if the individual payee’s gross income for the current year di not exceed P720,000.

108. The 15% creditable withholding tax rate of professional fees in the case of non-individual payees shall be applied
in the following cases:
I. The payee failed to provide the income payor/withholding agent with a notarized sworn
statement/declaration that the company or corporation’s gross income is estimated not to exceed P720,000.
II. The income payment exceeds P720,000, despite receiving the sworn declaration from the income payee.

A. I only
B. II only
C. I or II
D. Neither I nor II

109. The notarized sworn declaration that the company or corporation’s gross income is estimated not to exceed
P720,000 during the taxable year shall be executed by the:
A. Treasurer
B. Chief Finance Officer
C. General Accountant
D. President/managing partner of the corporation/company/general professional partnerships.

110. Statement 1: Under RR 11-2018, the withholding tax rate of individual payees for “professional fees” shall be
either 5% or 10%.

Statement 2: If the individual’s service is not covered by the definition of a “Professional “ under RR -2018 and
does not fall under Section 2.57(A) of RR 2-98 as amended by RR 11-2018, the same shall be subjected to 2%
creditable withholding tax rate.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

111. Statement 1: Partners of GPP’s are required to register as Professionals.

Statement 2: Partners of GPP’s can opt to choose the 8% preferential income tax rate.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

112. Income payments made periodically or at the end of the taxable year by a general professional partnership to
the partners, such as drawings, advances, sharings, allowances, stipends, etc, shall be subject to:
A. 10% final withholding tax if the gross income for the current year do not exceed P720,000.
B. 15% final withholding tax if the gross income for the current year exceeds P720,000.
C. 15% creditable withholding tax if the gross income for the current year do not exceed P720,000.
D. 15% creditable withholding tax if the gross income for the current year exceeds P720,000.

113. What is the creditable withholding tax rate for doctors/consultants who submitted Sworn Declaration under RR
11-2018 (gross receipts and other non-operating income is not more than P3,000,000)?
A. 2%
B. 5%
C. 10%
D. NIL

114. Income payments to certain contractors, whether individual or corporate, such as general engineering
contractors, general building contractors, specially contractors, and other contractors are subject to creditable
withholding tax rate of:
A. 2%
B. 5%
C. 10%
D. NIL

115. Income payment made by top withholding agents, either private corporations or individuals, to their
local/resident supplier of goods and local/resident supplier of services other than those covered by other rates
of withholding tax?
 Supplier of goods Supplier of service
A. 1% 1%
B. 2% 2%
C. 1% 2%
D. 2% 1%

116. What is the creditable withholding tax rate on income distributed to the beneficiaries of estates and trust as
determined under Section 60 of the tax code, except such income subject to final withholding tax and tax-exempt
income?
A. 2%
B. 5%
C. 10%
D. 15%

117. Statement 1: An individual taxpayer under a contract of service or job order arrangement is considered self-
employed.

Statement 2: If the individual taxpayer in Statement 1 was hired by Public or Government sector, the income-
payor shall withheld both the income tax and applicable business tax.

Statement 3: If the individual taxpayer in Statement 1 was hired by a Private sector, the income-payor shall
withheld the income tax only.
A. Only statement 1 is correct
B. Only statements 1 and 2 are correct
C. Only statements 2 and 3 are correct
D. All statements are correct

118. What is the applicable withholding tax rate for director fees?
A. If the director receiving the director’s fees is also an employee of the same entity, the fees shall form part
of the compensation income subject to withholding tax on compensation income.
B. If the director not an employee of the income-payor, the subject is considered a professional subject to the
creditable expanded withholding tax prescribed for a professional and subject also to applicable business
tax.
C. In the case of a government employee who seats a board member of other Government Owned and
Controlled Corporations (GOCCs), and is receiving withholding tax at the higher rate for Professional of 10%.
D. All of the above

119. What is the applicable withholding tax applicable to diplomat’s wife who is locally employed?
A. 2% creditable withholding tax rate.
B. 5% creditable withholding tax rate.
C. 10% creditable withholding tax rate.
D. Withholding tax using the withholding tax table for compensation income.

Filing of Income Tax Returns

120. Statement 1: Where an income tax return is required (e.g., in loan applications), and the individual did not file
an income tax return because of the rules on “substituted filing of income tax return” the certificate of withholding
income tax signed by the employer and the employee will be the document to use.

Statement 2: The rules on substituted filing of income tax return cannot apply if one of the spouses has business
or mixed income.
A. The first statement is true while the second statement is false
B. The first statement is false while the second statement is true
C. Both statements are true
D. Both statements are false

121. The following are the requirement for substituted filing of income tax return, except
A. He had one employer only
B. His income was purely compensation income
C. Both statements are true
D. Both statements are false

122. Statement 1: If an employee had multiple employers within the year, an income tax return must be filed at the
end of the year.
 Statement 2: If an employee had three employers, on succession, for each of the past three years, substituted
filing of tax return is not allowed.
A. Statements 1 and 2 are false
B. Statement 1 is true but statement 2 is false
C. Statement 1 is false but statement 2 is true
D. Statements 1 and 2 are true

123. 1st statement: Taxable income from self-employment (business and profession) is reported on a quarterly and
annual basis.

2nd statement: The quarterly income tax return shall be filed and the tax paid as follows: 1st Q – not later than
May 15, 2nd Q – not later than August 15, 3rd Q – not later than November 15.
A. Statements 1 and 2 are false
B. Statement 1 is true but statement 2 is false
C. Statement 1 is false but statement 2 is true
D. Statements 1 and 2 are true

124. Pedro’s income tax due for the year amounted to P80,000. He may elect to pay the tax due on installment as
follows:
A. In two equal installments
B. 1st installment is payable upon filing the annual income tax return.
C. 2nd installment is payable on or before October 15 following the close of the calendar year.
D. All of the above

125. 1st statement: If any installment payment of income tax is not paid on or before the date fixed for its payment,
the whole amount of the unpaid tax becomes due and payable, together with the delinquency penalties to be
reckoned from on the original date when the tax is required to be paid.

2nd statement: Installment payment of income is not allowed to self-employed and/or professional who are
availing the 8% income tax rate.
A. Statements 1 and 2 are false
B. Statement 1 is true but statement 2 is false
C. Statement 1 is false but statement 2 is true
D. Statements 1 and 2 are true
 A. MULTIPLE CHOICE EXERCISES (Answers – See BELOW)

1. Which of the following is a characteristic of income?

A. B. C. D.
Increase in True True True False
taxpayer’s wealth
Realization of gain True False False False
Return on True True False False
taxpayer’s wealth

2. For income tax purposes, gains derived from the following transactions shall be recognized:
a. Transactions between related taxpayers
b. Illegal transactions
c. Both “a” and “b”
d. Neither “a” nor “b”

3. Which of the following compensation will be subject to graduated rates?

a. Basic salary whether or not the employee is a minimum wage earner
b. Basic salary only if the employee is not a minimum wage earner
c. 13th month pay and other benefits not exceeding P82,000
d. Fringe benefits received by supervisory or managerial employee

4. Which of the following items that reduces salaries of employees is not an exclusion from gross income?
a. GSIS or SSS Contributions
b. Pag-ibig Contributions
c. Labor Union Dues
d. None of the choices

5. One of the following compensation income of an individual taxpayer is not an exclusion from gross income:
a. Monetized vacation leaves not exceeding 10 days a year.
b. Separation pay of an employee who resigned from his employment.
c. Retirement benefits of an employee who has worked for an employer for at least 10 years, who at the time of
retirement is not less than 50 years of age, and who avails of the retirement for the first time.
d. All of these.

6. Which of the following statements is incorrect?

a. Income from business is never subject to final withholding tax
b. Income from exercise of profession may be exempt from income tax
c. Income from business may be subject to capital gains tax
d. Income from exercise of profession may be subject to income tax

7. Which of the following dealings in property is subject to normal income tax?

a. Sale of ordinary assets
b. Sale of real property, located in the Philippines, classified as capital asset
c. Sale of shares in a domestic corporation sold outside the local stock exchange
d. All of the choices

8. Donald Trump received royalty fees from Viva Records Corporation, a domestic corporation, for his musical
compositions under the album “There’s no Other Way”. Donald is an American composer and has never set foot in the
Philippines. The royalty fee shall be subject to:
a. 15% final withholding tax
b. 20% final withholding tax
c. 25% final withholding tax
d. 5-32% graduated tax rate

9. Clifford Rama received P100,000 winnings from horseracing. Determine his tax liability.
I. Subject to basic income tax
II. Subject to 20% final tax on passive income
III. Subject to 10% OPT
a. I only c. III only
b. II only d. I and III

10. JJ, a member of the Philippine boxing team received the following during the taxable year:
Prize for winning gold in the Asian P500,000
games
Athlete of the year award 100,000
Winnings from Philippine lotto 400,00
Prize – Mc Donald raffle promo 10,000
Cash gift from SM Foundation 100,000

The amount not subject to income tax is

a. P600,000 c. P1,000,000
b. P700,000 d. P1,100,000
11. Prizes and awards received shall be exempt from income tax when the following conditions are met, except
a. It is given in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement.
b. The recipient of the award or prize is not required to render substantial future services as a condition in receiving
the prize or award.
c. The recipient of the award was selected without any action on his part to enter the contest or proceeding.
d. None of the above

12. Statement 1: Representation and transportation allowance given regularly on a monthly basis are not taxable fringe
benefits but taxable as compensation income subject to basic tax under Sec. 24(A) of the Tax Code.
Statement 2: Expenses in connection with attending business meeting or convention in the Philippines such as food,
beverages and transportation are nontaxable benefits of the employee
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

13. Pedro is a regular college professor of Mapagpala University. All tenured instructors and professors of the university
regularly receive a fixed daily meal allowance of P250 per day for a total of twenty six (26) working days per month.
The meal allowance is:
a. Exempt from basic income tax
b. Subject to fringe benefit tax if the recipient is a rank and file employee
c. Subject to fringe benefit tax if the recipient is a managerial employee
d. Subject to basic income tax

14. Which of the following statements regarding thirteenth (13th) month pay is correct?
a. Thirteenth (13th) month pay and other benefits received by officials and employees of public and private entities
are exempt from income tax and creditable withholding tax on compensation, provided that the total exclusion
shall not exceed P90,000.
b. The excess of de minimis benefits over the ceiling would form part of an individual's gross income only if the total
excess benefits including bonuses exceeds P90,000 and would be subject to income tax and applicable final
withholding taxes.
c. Statements “a” and “b” are correct
d. Neither statement “a” nor “b” is correct

15. Proceeds of insurance taken by a corporation on the life of an executive to indemnify the latter’s beneficiaries against
loss in case of his death is:
a. Exempt from income tax
b. Part of taxable income
c. Subject to final tax
d. Partly exempt, partly taxable

16. The premiums paid by the corporation in the preceding number is a:

a. Taxable income of the executive
b. Deductible expense of the corporation
c. Both “a” and “b”
d. Neither “a” nor “b”

17. Under the global system of income taxation:

a. There is no need for classification of income as all taxpayers are subject to a single rate.
b. There are different categories of taxable income.
c. There are different tax rates.
d. Individuals are subject to different tax treatments.

18. One of the following income shall be returned in the year received.
a. Interest earned on bank deposit.
b. Share in the net income of a general partnership.
c. Stock dividend.
d. Rentals for 2015, 2016 and 2017 received in 2015 by a lessor under accrual method.

19. On July 1, 2014, Mr. V leased his vacant lot for a period of 12 years to Mr. J at an annual rate of P2,400,000. It was
also agreed that Mr. J will pay the following:
▪ P4,800,000 representing rental payment for two (2) years. Subsequent rental payments will be made every
July 1 of the applicable year.
▪ Security deposit of P2,400,000.
▪ Annual real property tax of P30,000.

The lease contract provides, among others that the lessee will construct a 5-storey building for parking purposes at a
cost of P36,000,000. Ownership of the building shall belong to the lessor upon the expiration or termination of the
lease contract.

The building was completed on July 1, 2016 with an estimated useful life of 15 years. Mr. V shall report total income
from the lease for 2014 at
a. P2,430,000 c. P4,830,000
b. P2,400,000 d. P2,640,000
20. Assuming Mr. V will use outright method in recognizing income from leasehold improvements, how much is the total
income from lease for year 2016?
a. P3,030,000 c. P38,430,000
b. P3,630,000 d. P2,400,000

21. Assuming Mr. V will use spread-out method in recognizing income from leasehold improvements, how much is the total
income from lease for year 2016?
a. P3,030,000 c. P14,430,000
b. P3,630,000 d. P2,400,000

22. Assuming that due to the fault of the lessee, the lease contract was terminated on January 1, 2018, how much income
is to be reported by the lessor in 2018?
a. P32,400,000 c. P34,830,000
b. P30,600,000 d. P33,030,000

23. (Phil. CPA) If a corporation distributes its assets to its stockholders upon dissolution, this kind of corporate distribution
will result in:
a. stock dividend c. cash dividend
b. property dividend d. liquidating dividend

24. Which among the following dividend income is tax exempt? Dividend income received from
I. A domestic corporation by a domestic corporation.
II. A domestic corporation by a resident foreign corporation.
III. A domestic corporation by a nonresident foreign corporation.
IV. A resident foreign corporation by a domestic corporation.
a. All of the above c. I and II only
b. None of the above d. I, II and III only

25. Which among the following dividend income is tax exempt?

I. Pure stock dividend
II. Pure liquidating dividend

a. I only c. I and II only

b. II only d. None of the choices

26. A cash dividend of P100,000 received by a taxpayer in 2017 from a foreign corporation whose income from Philippine
sources is 40% of its total income is
Statement 1: partly taxable if he is a resident citizen.
Statement 2: Partly taxable if he is a non-resident alien
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

27. Annuity payments received by a taxpayer represent a part which is taxable and not taxable. Which of the following
statement is correct?
a. If annuity received represents interest, it is a taxable income.
b. If annuity received represents return of premium, it is not a taxable income.
c. Both statements are correct
d. Both statements are not correct

28. Mr. Santiago purchased a life annuity for P100,000 which will pay him P10,000 a year. The life expectancy of Mr.
Santiago is 12 years. Which of the following will Mr. Santiago be able to exclude from his gross income?
a. P100,000 c. P20,000
b. P10,000 d. P120,000

29. The following data on net income, bad debt, write-off and recovery show:
2019: Case A Case B Case C
Net income (loss) P120,000 P60,000 (P40,000)
before write-off
Less: Bad debt 40,000 40,000 50,000
written-off claimed as
deduction
Net income (loss) after P80,000
write-off P20,000 (P90,000)

2020:
Subsequent P40,000 P10,000 P50,000
recovery

The taxable recovery in 2018 is:

Case A Case B Case C
a. P40,000 P20,000 P50,000
b. P40,000 P20,000 P 0
 c. P40,000 P10,000 P 0
d. P40,000 P 0 P 0

30. Which of the following is not a taxable income?

a. Bad debts previously written off and recovered subsequently.
b. Tax expense previously disallowed as deduction from taxable income, fully refunded subsequently.
c. Income from gambling.
d. Income from usurious financing.

31. The following are not taxable, except

a. Refund of fringe benefits tax
b. Refund of Philippine income tax
c. Refund of estate or donor’s tax
d. Refund of special assessment

32. Which of the following tax refunds is taxable?

a. Percentage tax on person’s exempt from VAT
b. Estate or donor’s tax
c. Stock transaction tax
d. Income tax paid to a foreign country if claimed as tax credit during the year.

33. If an individual performs services for a creditor who in consideration thereof cancels the debt, the cancellation of
indebtedness may amount:
a. To a gift
b. To a capital contribution
c. To a donation inter vivos
d. To a payment of income

34. An operator of an illegal horse betting business, single, has the following data:
Receipt from illegal bets P600,000
Rent of space where bets are received, gross of 5% 120,000
withholding tax
Salaries of assistants, gross of creditable withholding tax 100,000
Bribe money to obtain protection from arrest and 50,000
prosecution

How much is the taxable income

a. P380,000 c. P180,000
b. P330,000 d. P150,000

35. Pedro, single received the following during the taxable year:
Proceeds of his life insurance paid at an annual premium of P15,000 within 25 P2,000,000
years
Proceeds of his mother’s life insurance paid at an annual premium of P10,000 1,000,0000
within 20 years
House and lot inherited from his mother 4,000,000
Rent income from inherited properties 200,000

For income tax purposes, how much of the above items must be included in his gross income?
a. P7,200,000 c. P200,000
b. P1,200,000 d. P1,825,000

36. Corazon insured her life with Malayan Insurance company. Under the contract, she will pay a monthly premium of
P2,000 for 10 years. In case of death before the 10th year, her beneficiary will receive an indemnification in the amount
of P150,000. If she is still living on the 10th year, she will receive P500,000. If Corazon dies on the 5th year, her
beneficiary will report an income of:
a. P500,000 c. P260,000
b. P150,000 d. nil

37. Suppose Corazon dies on the 5th year and her beneficiary was offered to receive the P150,000 in cash or to receive it
in installment of P20,000 for ten (10) monthly installment payments and the beneficiary chose the 2nd option, she will
report an income of:
a. P500,000 c. P50,000
b. P150,000 d. nil

38. If Corazon survives the policy and is able to receive the P500,000, she will report an income of:
a. P500,000 c. P150,000
b. P260,000 d. nil

39. Which of the following is taxable?

a. Property acquired through donation
b. Inherited properties
c. Income from letter “a” and “b”
d. None of the choices
40. The following are examples of nontaxable compensation for injuries, except.
a. Actual damages for injuries suffered.
b. Compensatory damages for unrealized profits.
c. Moral damages for grief, anxiety and physical sufferings
d. Exemplary damages.

41. Which of the following is taxable?

a. Income derived by a political subdivision of the government performing essential function of the government.
b. Income derived by foreign government in the Philippines.
c. Both “a” and “b”.
d. Neither “a” nor “b”

42. Marlon was hit by a car driven by Jaysee causing severe injuries to the former. It was found out during trial that the
driver was drunk at the time of the incident.
After trial, the court awarded the following:
• P1,500,000 actual damages for hospitalization
• P300,000 exemplary damages
• P500,000 for loss of income,; and
• P100,000 moral damages.

Marlon also received a cash gift of P100,000 from Jaysee. The taxable income received by Marlon is:
a. P2,400,000 c. P1,500,000
b. P1,900,000 d. P500,000

43. In order for gains realized from the sale or exchange or retirement of bonds, debentures or other certificate of
indebtedness be exempt from income taxation, what is the prescribed length of its maturity?
a. 5 years or more
b. 5 years or less
c. More than 5 years
d. Exactly 5 years

44. Gains realized by the investor upon redemption of shares of stock in a mutual fund company is:
a. Exempt
b. Subject to final withholding tax
c. Subject to basic tax
d. Any of the choices

45. Sandara, a nonresident Korean stockholder, received a dividend income of P300,000 in 2017 from Super Bowl
Corporation, a foreign corporation doing business in the Philippines. The gross income of the foreign corporation from
within and without the Philippines for the past three years preceding 2015 were as follows:
Source 2014 2015 2016
Philippines P16,000,000 P12,000,000 P14,000,000
Abroad 8,000,000 14,000,000 16,000,000

The amount of income subject to tax should be:

a. P0 c. P157,500
b. P90,000 d. P300,000

46. Assuming Super Bowl is a domestic corporation, the amount of income subject to tax of Sandara should be:
a. P0 c. P157,500
b. P90,000 d. P300,000

Use the following data for the next two (2) questions:
A resident alien had the following data in 2017:
Gross income, Philippines P2,000,000
Business expenses 1,200,000

Dividends received:
From domestic corporation (net)
60% of its income came from the Philippines 90,000
40% of its income came from the Philippines 72,000
From resident foreign corporation (gross)
60% of its income came from the Philippines 50,000
40% of its income came from the Philippines 40,000

47. The taxpayer’s taxable income is

a. P750,000 c. P796,000
b. P780,000 d. P800,000

48. The final withholding taxes on dividends amount to

a. P16,200 c. P25,200
b. P18,000 d. P26,000

49. Which of the following is taxable?

a. Interest on long-term deposit or investment by an individual taxpayer
 b. Gain on sale of 10-year bond
c. Prize not exceeding P10,000
d. PCSO Lotto winnings not exceeding P10,000

50. Situs of taxation on income from sale of property purchased.

a. Place of the seller
b. Place of sale
c. Place of buyer
d. As determined by the Commissioner

51. Which of the following test of source of income is incorrect?

a. Interest income - residence of the debtor
b. Income from services – place of performance
c. Royalties – place of use of intangible
d. Gain on sale of real property – place of sale.

52. Which of the following income is derived from sources within the Philippines:
a. Dividends received from a non-resident foreign corporation;
b. Gain on sale of personal property (movable) manufactured in the Philippines and sold outside of the Philippines.
c. Gains on sale of real property located in Malaysia.
d. Royalty income arising from use in the Philippines of technical know-how whereby the owner and developer is
situated in Japan.

53. Which of the following is included in the gross income of a non-resident alien not engaged in trade or business in the
Philippines:
a. Payments earned from services rendered in Australia.
b. Interest on loan whereby the debtor is domiciled in Japan.
c. Rent income on condominium unit at Serendra at the Fort, Taguig City
d. Gain on sale of real property, located in San Juan city, Philippines, inherited from his grand father

54. Assume the following:

Gain on sale of personal property P400,000
purchased in the Philippines and sold in
Hongkong
Compensation received for personal 200,000
services in the Philippines
Rent income from real property in 300,000
Malaysia
Gain from sale in the Philippines of 100,000
shares of a foreign corporation
Deductions identified with:
Philippine income 80,000
Foreign income 120,000
Deductions unidentified with any 30,000
particular income

The Philippine net income is

a. P220,000 c. P190,000
b. P211,000 d. P111,000

B. MULTIPLE CHOICE EXERCISES

1. Which of the following is a characteristic of income?

A. B. C. D.
Increase in True True True False
taxpayer’s wealth
Realization of gain True False False False
Return on True True False False
taxpayer’s wealth

2. For income tax purposes, gains derived from the following transactions shall be recognized:
e. Transactions between related taxpayers
f. Illegal transactions
g. Both “a” and “b”
h. Neither “a” nor “b”

3. Which of the following compensation will be subject to graduated rates?

a. Basic salary whether or not the employee is a minimum wage earner
b. Basic salary only if the employee is not a minimum wage earner
c. 13th month pay and other benefits not exceeding P82,000
d. Fringe benefits received by supervisory or managerial employee

4. Which of the following items that reduces salaries of employees is not an exclusion from gross income?
 a. GSIS or SSS Contributions
b. Pag-ibig Contributions
c. Labor Union Dues
d. None of the choices

5. One of the following compensation income of an individual taxpayer is not an exclusion from gross income:
a. Monetized vacation leaves not exceeding 10 days a year.
b. Separation pay of an employee who resigned from his employment.
c. Retirement benefits of an employee who has worked for an employer for at least 10 years, who at the time of
retirement is not less than 50 years of age, and who avails of the retirement for the first time.
d. All of these.

6. Which of the following statements is incorrect?

a. Income from business is never subject to final withholding tax
b. Income from exercise of profession may be exempt from income tax
c. Income from business may be subject to capital gains tax
d. Income from exercise of profession may be subject to income tax

7. Which of the following dealings in property is subject to normal income tax?

a. Sale of ordinary assets
b. Sale of real property, located in the Philippines, classified as capital asset
c. Sale of shares in a domestic corporation sold outside the local stock exchange
d. All of the choices

8. Donald Trump received royalty fees from Viva Records Corporation, a domestic corporation, for his musical
compositions under the album “There’s no Other Way”. Donald is an American composer and has never set foot in the
Philippines. The royalty fee shall be subject to:
a. 15% final withholding tax
b. 20% final withholding tax
c. 25% final withholding tax
d. 5-32% graduated tax rate

9. Clifford Rama received P100,000 winnings from horseracing. Determine his tax liability.
IV. Subject to basic income tax
V. Subject to 20% final tax on passive income
VI. Subject to 10% OPT
a. I only c. III only
b. II only d. I and III

10. JJ, a member of the Philippine boxing team received the following during the taxable year:
Prize for winning gold in the Asian P500,000
games
Athlete of the year award 100,000
Winnings from Philippine lotto 400,00
Prize – Mc Donald raffle promo 10,000
Cash gift from SM Foundation 100,000

The amount not subject to income tax is

a. P600,000 c. P1,000,000
b. P700,000 d. P1,100,000

11. Prizes and awards received shall be exempt from income tax when the following conditions are met, except
e. It is given in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement.
f. The recipient of the award or prize is not required to render substantial future services as a condition in receiving
the prize or award.
g. The recipient of the award was selected without any action on his part to enter the contest or proceeding.
h. None of the above

12. Statement 1: Representation and transportation allowance given regularly on a monthly basis are not taxable fringe
benefits but taxable as compensation income subject to basic tax under Sec. 24(A) of the Tax Code.
Statement 2: Expenses in connection with attending business meeting or convention in the Philippines such as food,
beverages and transportation are nontaxable benefits of the employee
e. Only statement 1 is correct
f. Only statement 2 is correct
g. Both statements are correct
h. Both statements are incorrect

13. Pedro is a regular college professor of Mapagpala University. All tenured instructors and professors of the university
regularly receive a fixed daily meal allowance of P250 per day for a total of twenty six (26) working days per month.
The meal allowance is:
e. Exempt from basic income tax
f. Subject to fringe benefit tax if the recipient is a rank and file employee
g. Subject to fringe benefit tax if the recipient is a managerial employee
h. Subject to basic income tax
14. Which of the following statements regarding thirteenth (13th) month pay is correct?
e. Thirteenth (13th) month pay and other benefits received by officials and employees of public and private entities
are exempt from income tax and creditable withholding tax on compensation, provided that the total exclusion
shall not exceed P90,000.
f. The excess of de minimis benefits over the ceiling would form part of an individual's gross income only if the total
excess benefits including bonuses exceeds P90,000 and would be subject to income tax and applicable final
withholding taxes.
g. Statements “a” and “b” are correct
h. Neither statement “a” nor “b” is correct

15. Proceeds of insurance taken by a corporation on the life of an executive to indemnify the latter’s beneficiaries against
loss in case of his death is:
a. Exempt from income tax
b. Part of taxable income
c. Subject to final tax
d. Partly exempt, partly taxable

16. The premiums paid by the corporation in the preceding number is a:

e. Taxable income of the executive
f. Deductible expense of the corporation
g. Both “a” and “b”
h. Neither “a” nor “b”

17. Under the global system of income taxation:

e. There is no need for classification of income as all taxpayers are subject to a single rate.
f. There are different categories of taxable income.
g. There are different tax rates.
h. Individuals are subject to different tax treatments.

18. One of the following income shall be returned in the year received.
e. Interest earned on bank deposit.
f. Share in the net income of a general partnership.
g. Stock dividend.
h. Rentals for 2015, 2016 and 2017 received in 2015 by a lessor under accrual method.

19. On July 1, 2014, Mr. V leased his vacant lot for a period of 12 years to Mr. J at an annual rate of P2,400,000. It was
also agreed that Mr. J will pay the following:
▪ P4,800,000 representing rental payment for two (2) years. Subsequent rental payments will be made every
July 1 of the applicable year.
▪ Security deposit of P2,400,000.
▪ Annual real property tax of P30,000.

The lease contract provides, among others that the lessee will construct a 5-storey building for parking purposes at a
cost of P36,000,000. Ownership of the building shall belong to the lessor upon the expiration or termination of the
lease contract.

The building was completed on July 1, 2016 with an estimated useful life of 15 years. Mr. V shall report total income
from the lease for 2014 at
a. P2,430,000 c. P4,830,000
b. P2,400,000 d. P2,640,000

20. Assuming Mr. V will use outright method in recognizing income from leasehold improvements, how much is the total
income from lease for year 2016?
a. P3,030,000 c. P38,430,000
b. P3,630,000 d. P2,400,000

21. Assuming Mr. V will use spread-out method in recognizing income from leasehold improvements, how much is the total
income from lease for year 2016?
a. P3,030,000 c. P14,430,000
b. P3,630,000 d. P2,400,000

22. Assuming that due to the fault of the lessee, the lease contract was terminated on January 1, 2018, how much income
is to be reported by the lessor in 2018?
a. P32,400,000 c. P34,830,000
b. P30,600,000 d. P33,030,000

23. (Phil. CPA) If a corporation distributes its assets to its stockholders upon dissolution, this kind of corporate distribution
will result in:
a. stock dividend c. cash dividend
b. property dividend d. liquidating dividend

24. Which among the following dividend income is tax exempt? Dividend income received from
V. A domestic corporation by a domestic corporation.
VI. A domestic corporation by a resident foreign corporation.
VII. A domestic corporation by a nonresident foreign corporation.
 VIII. A resident foreign corporation by a domestic corporation.
a. All of the above c. I and II only
b. None of the above d. I, II and III only

25. Which among the following dividend income is tax exempt?

III. Pure stock dividend
IV. Pure liquidating dividend

a. I only c. I and II only

b. II only d. None of the choices

26. A cash dividend of P100,000 received by a taxpayer in 2017 from a foreign corporation whose income from Philippine
sources is 40% of its total income is
Statement 1: partly taxable if he is a resident citizen.
Statement 2: Partly taxable if he is a non-resident alien
e. Statements 1 & 2 are false
f. Statement 1 is true but statement 2 is false
g. Statement 1 is false but statement 2 is true
h. Statements 1 and 2 are true

27. Annuity payments received by a taxpayer represent a part which is taxable and not taxable. Which of the following
statement is correct?
a. If annuity received represents interest, it is a taxable income.
b. If annuity received represents return of premium, it is not a taxable income.
c. Both statements are correct
d. Both statements are not correct

28. Mr. Santiago purchased a life annuity for P100,000 which will pay him P10,000 a year. The life expectancy of Mr.
Santiago is 12 years. Which of the following will Mr. Santiago be able to exclude from his gross income?
a. P100,000 c. P20,000
b. P10,000 d. P120,000

29. The following data on net income, bad debt, write-off and recovery show:
2019: Case A Case B Case C
Net income (loss) P120,000 P60,000 (P40,000)
before write-off
Less: Bad debt 40,000 40,000 50,000
written-off claimed as
deduction
Net income (loss) after P80,000
write-off P20,000 (P90,000)

2020:
Subsequent P40,000 P10,000 P50,000
recovery

The taxable recovery in 2018 is:

Case A Case B Case C
a. P40,000 P20,000 P50,000
b. P40,000 P20,000 P 0
c. P40,000 P10,000 P 0
d. P40,000 P 0 P 0

30. Which of the following is not a taxable income?

e. Bad debts previously written off and recovered subsequently.
f. Tax expense previously disallowed as deduction from taxable income, fully refunded subsequently.
g. Income from gambling.
h. Income from usurious financing.

31. The following are not taxable, except

e. Refund of fringe benefits tax
f. Refund of Philippine income tax
g. Refund of estate or donor’s tax
h. Refund of special assessment

32. Which of the following tax refunds is taxable?

e. Percentage tax on person’s exempt from VAT
f. Estate or donor’s tax
g. Stock transaction tax
h. Income tax paid to a foreign country if claimed as tax credit during the year.

33. If an individual performs services for a creditor who in consideration thereof cancels the debt, the cancellation of
indebtedness may amount:
a. To a gift
b. To a capital contribution
 c. To a donation inter vivos
d. To a payment of income

34. An operator of an illegal horse betting business, single, has the following data:
Receipt from illegal bets P600,000
Rent of space where bets are received, gross of 5% 120,000
withholding tax
Salaries of assistants, gross of creditable withholding tax 100,000
Bribe money to obtain protection from arrest and 50,000
prosecution

How much is the taxable income

a. P380,000 c. P180,000
b. P330,000 d. P150,000

35. Pedro, single received the following during the taxable year:
Proceeds of his life insurance paid at an annual premium of P15,000 within 25 P2,000,000
years
Proceeds of his mother’s life insurance paid at an annual premium of P10,000 1,000,0000
within 20 years
House and lot inherited from his mother 4,000,000
Rent income from inherited properties 200,000

For income tax purposes, how much of the above items must be included in his gross income?
a. P7,200,000 c. P200,000
b. P1,200,000 d. P1,825,000

36. Corazon insured her life with Malayan Insurance company. Under the contract, she will pay a monthly premium of
P2,000 for 10 years. In case of death before the 10th year, her beneficiary will receive an indemnification in the amount
of P150,000. If she is still living on the 10th year, she will receive P500,000. If Corazon dies on the 5th year, her
beneficiary will report an income of:
a. P500,000 c. P260,000
b. P150,000 d. nil

37. Suppose Corazon dies on the 5th year and her beneficiary was offered to receive the P150,000 in cash or to receive it
in installment of P20,000 for ten (10) monthly installment payments and the beneficiary chose the 2nd option, she will
report an income of:
a. P500,000 c. P50,000
b. P150,000 d. nil

38. If Corazon survives the policy and is able to receive the P500,000, she will report an income of:
a. P500,000 c. P150,000
b. P260,000 d. nil

39. Which of the following is taxable?

a. Property acquired through donation
b. Inherited properties
c. Income from letter “a” and “b”
d. None of the choices

40. The following are examples of nontaxable compensation for injuries, except.
e. Actual damages for injuries suffered.
f. Compensatory damages for unrealized profits.
g. Moral damages for grief, anxiety and physical sufferings
h. Exemplary damages.

41. Which of the following is taxable?

e. Income derived by a political subdivision of the government performing essential function of the government.
f. Income derived by foreign government in the Philippines.
g. Both “a” and “b”.
h. Neither “a” nor “b”

42. Marlon was hit by a car driven by Jaysee causing severe injuries to the former. It was found out during trial that the
driver was drunk at the time of the incident.
After trial, the court awarded the following:
• P1,500,000 actual damages for hospitalization
• P300,000 exemplary damages
• P500,000 for loss of income,; and
• P100,000 moral damages.

Marlon also received a cash gift of P100,000 from Jaysee. The taxable income received by Marlon is:
a. P2,400,000 c. P1,500,000
b. P1,900,000 d. P500,000
43. In order for gains realized from the sale or exchange or retirement of bonds, debentures or other certificate of
indebtedness be exempt from income taxation, what is the prescribed length of its maturity?
a. 5 years or more
b. 5 years or less
c. More than 5 years
d. Exactly 5 years

44. Gains realized by the investor upon redemption of shares of stock in a mutual fund company is:
a. Exempt
b. Subject to final withholding tax
c. Subject to basic tax
d. Any of the choices

45. Sandara, a nonresident Korean stockholder, received a dividend income of P300,000 in 2017 from Super Bowl
Corporation, a foreign corporation doing business in the Philippines. The gross income of the foreign corporation from
within and without the Philippines for the past three years preceding 2015 were as follows:
Source 2014 2015 2016
Philippines P16,000,000 P12,000,000 P14,000,000
Abroad 8,000,000 14,000,000 16,000,000

The amount of income subject to tax should be:

a. P0 c. P157,500
b. P90,000 d. P300,000

46. Assuming Super Bowl is a domestic corporation, the amount of income subject to tax of Sandara should be:
a. P0 c. P157,500
b. P90,000 d. P300,000

Use the following data for the next two (2) questions:
A resident alien had the following data in 2017:
Gross income, Philippines P2,000,000
Business expenses 1,200,000

Dividends received:
From domestic corporation (net)
60% of its income came from the Philippines 90,000
40% of its income came from the Philippines 72,000
From resident foreign corporation (gross)
60% of its income came from the Philippines 50,000
40% of its income came from the Philippines 40,000

47. The taxpayer’s taxable income is

a. P750,000 c. P796,000
b. P780,000 d. P800,000

48. The final withholding taxes on dividends amount to

a. P16,200 c. P25,200
b. P18,000 d. P26,000

49. Which of the following is taxable?

e. Interest on long-term deposit or investment by an individual taxpayer
f. Gain on sale of 10-year bond
g. Prize not exceeding P10,000
h. PCSO Lotto winnings not exceeding P10,000

50. Situs of taxation on income from sale of property purchased.

e. Place of the seller
f. Place of sale
g. Place of buyer
h. As determined by the Commissioner

51. Which of the following test of source of income is incorrect?

e. Interest income - residence of the debtor
f. Income from services – place of performance
g. Royalties – place of use of intangible
h. Gain on sale of real property – place of sale.

52. Which of the following income is derived from sources within the Philippines:
a. Dividends received from a non-resident foreign corporation;
b. Gain on sale of personal property (movable) manufactured in the Philippines and sold outside of the
Philippines.
c. Gains on sale of real property located in Malaysia.
d. Royalty income arising from use in the Philippines of technical know-how whereby the owner and developer
is situated in Japan.
53. Which of the following is included in the gross income of a non-resident alien not engaged in trade or business in the
Philippines:
e. Payments earned from services rendered in Australia.
f. Interest on loan whereby the debtor is domiciled in Japan.
g. Rent income on condominium unit at Serendra at the Fort, Taguig City
h. Gain on sale of real property, located in San Juan city, Philippines, inherited from his grand father

54. Assume the following:

Gain on sale of personal property P400,000
purchased in the Philippines and sold in
Hongkong
Compensation received for personal 200,000
services in the Philippines
Rent income from real property in 300,000
Malaysia
Gain from sale in the Philippines of 100,000
shares of a foreign corporation
Deductions identified with:
Philippine income 80,000
Foreign income 120,000
Deductions unidentified with any 30,000
particular income

The Philippine net income is

a. P220,000 c. P190,000
b. P211,000 d. P111,000
 CAPITAL ASSETS

1. Determine whether ordinary asset or capital asset.

A. Inventories of raw materials, work in process and finished goods
B. Office equipment
C. Land used in business
D. Land for sale by a real estate dealer
E. Accounts receivable
F. Securities held as investment
G. Land held for investment purposes
H. Residential house
I. Business of sole proprietorship sold to a corporation
J. Interest of a partner in a partnership
K. Car used partly for business and partly for personal purposes.

2. This is a capital asset

A. A residential land previously foreclosed by PNB and is not being offered for sale to the public
B. A commercial building foreclosed by a lending institution
C. A 10-door apartment unit owned by a retired government employee
D. A residential land owned by a practicing CPA

3. An individual taxpayer owns a ten (10)-door apartment with a monthly rental of P10,000 each residential unit.
He sold this property to another individual taxpayer. Which is not correct?
A. The seller is not liable to pay the capital gains tax.
B. The property sold is a capital asset.
C. The taxpayer is engaged in business.
D. The rental income is subject to income tax in the taxpayer’s ITR.

4. Basic rule sale of capital assets, except

A. Sale of real property located in the Philippines by a foreign corporation is subject to 6% CGT based on the
selling price or FMV, whichever is higher.
B. Sale of shares of stock of a domestic corporation through the local stock exchange or initial public offering
is exempt from income tax.
C. Sale, by individual taxpayers and domestic corporations, of shares of stock of a domestic corporation not
through the local stock exchange is subject to a final tax of 15%.
D. Sale of personal property located in the Philippines by a resident citizen is subject to the rules on holding
period.

5. S1: Capital losses are deductible from ordinary gains but net capital loss is not deductible from ordinary gain.

S2: Ordinary losses are deductible only to the extent of the capital gains but the net capital loss is not deductible
from ordinary gain.
A. True; True
B. True; False
C. False; True
D. False; False

6. B had an original investment in a general professional partnership of P200,000 in 2017. His share in the net
income of the partnership for 2017 which was credited to his capital account was P30,000. In 2018, P50,000
was credited to his capital account as his share in the partnership income, but he withdrew P10,000 from such
share. He paid the income tax on his share in the partnership net income of 2017 and 2018. B retired at the
end of 2018 and receive P300,000. Determine his capital gain or loss.

Answer: 15,000

7. A is a 40% partner in ABC, a general professional partnership. The partnership was organized in 2010 with A
contributing P200,000. The partnership had the following net income:
2017 – P120,000 distributed to and received by the partners.
2018 – P70,000 not yet distributed to the partners.

In 2018, the partnership was dissolved and A received the sum of P250,000 upon liquidation.

Determine the taxable gain or deductible loss of A.

Answer: 11,000
8. Where the taxpayer is a corporation, which of the following statements is true?
A. The holding period does not apply to corporations, hence, capital gains and losses are recognized at 50%.
B. The net capital loss can be carried over in the next succeeding year.
C. Capital loss is deductible only up to the extent of ordinary gains.
D. Ordinary loss is deductible from capital gains.

9. The term “capital assets” include

A. Stock in trade or other property included in the taxpayer’s inventory.
B. Real property not used in the trade or business of taxpayer.
C. Property primarily for sale to customers in the ordinary course of his trade or business
D. Property used in the trade or business of the taxpayer and subject to depreciation.

10. Where taxpayer is a corporation, the following rules as to recognition of capital gains or losses from the
disposition of property classified as capital asset shall apply. Which is the exception?
A. The holding period does not apply to corporations, hence capital gains and losses are recognized at 100%
B. Capital losses are deductible only to the extent of capital gains.
C. Ordinary losses are deductible from capital gains but net capital loss cannot be deducted from ordinary gain.
D. Net capital loss carry-over should not exceed the net income in the year the loss was incurred.

11. The following rules as to recognition of capital gains or losses from the disposition of personal property classified
as capital asset apply when the taxpayer is an individual. What is the exception?
A. Depending on the holding period, the percentages of gain or loss is 100% if the capital asset has been held
for 12 months or less, and 50% if the capital asset has been held for more than 12 months.
B. Capital losses are deductible only to the extent of the capital gains; hence, the net capital loss is not
deductible.
C. Ordinary losses are deductible from capital gains but net capital loss cannot be deducted from ordinary
gains.
D. Net capital loss carry over in a taxable year should not exceed the capital gain in the year the loss was
incurred.

INSTALLMENT/DEFERRED PAYMENT METHOD OF REPORTING INCOME

12. Which of the following statements is not correct? Those who make a casual sale or disposition of personal
property on the installment plan may elect the installment basis of reporting income if
A. The personal property sold is of a kind which would be included in the inventory
B. The selling price exceeds P1,000
C. The sale is in installment
D. The initial payments do not exceed 25% of the selling price

13. Income from a deferred sale of the property may be reported using
A. The installment method only
B. Deferred payment method only
C. Either the installment or deferred payment method
D. Neither the installment nor deferred payment method

14. In 2018, A sold a piece of land which had a cost of P1,000,000 for a selling price of P4,000,000. The sale called
for an assumption by the buyer of a mortgage on the land of P1,500,000, cash of P500,000 on the date of sale,
and installment payments of P500,000 every year thereafter. The land is an ordinary asset. The income to be
reported in 2018 under the installment method of operating income is
A. P500,000 B. P750,000 C. P375,000 D. P1,000,000

15. A sold his ring, a capital asset, on February 14, 2018. The ring was acquired on January 14, 1980 at a cost of
P60,000. The terms of payment are as follows:
Down payment, February 14, 2018 P25,000
Installment payment, February 14, 2019 25,000
Installment payment February 14, 2019 50,000
Mortgage assumed by the buyer 20,000
Total P120,000

The taxable gain to be reported by A in 2018 is

A. P60,000 B. P30,000 C. P15,000 D. P7,500

16. F, sold the following capital assets

 Land 1 Land 2 Land 3 Land 4
Selling price P400,000 P600,000 P800,000 P1,200,000
Cost 200,000 250,000 400,000 400,000
Commission paid 30,000 70,000 - -
Selling expense incurred 20,000 30,000 40,000 50,000

Terms of sale:
Down payment, Feb. 14, 2018 50,000 70,000 50,000 150,000
July 14, 2018 50,000 70,000 50,000 150,000
July 14, 2019 150,000 100,000 200,000 200,000
July 14, 2020 150,000 260,000 - 200,000
Mortgage assumed by the buyer - 100,000 500,000 500,000

The final tax for 2018 is

A. P180,000 B. P112,080 C. P85,080 D. P82,080

17. A sold a delivery truck in installment on February 14, 2018, as follows:

Down payment, February 14, 2018 P40,000
Installment payment, February 14, 2019 80,000
Installment payment, February 14, 2020 80,000
Acquisition cost of delivery truck 300,000
Accumulated depreciation up to February 14, 2018 200,000

The income to be reported in 2018 is

A. P100,000 B. P40,000 C. P20,000 D. P10,000

18. A, a real estate dealer sold a house and lot for P600,000 on November 20, 2018. The cost of the property is
P375,000. Terms are: a) Down payment of P100,000 and b) Balance payable in monthly installments of P25,000
beginning December 20, 2018. The income to be reported in 2018 is
A. P225,000 B. P125,000 C. P46,875 D. P37,500

19. Using the preceding number, except that the asset above is a capital asset, the capital gains tax payable in 2018
is
A. P36,000 B. P7,500 C. P6,000 D. P3,750

20. On December 1, 2018, a real estate dealer sold a residential land for P6,000,000 (cost of P3,600,000) receiving
P2,000,000 as down payment and a promissory note for the P4,000,000 balance payable at P400,000 a month
beginning January 1, 2019. The promissory note has fair market value equal to 75% of its face value. If the
income is to be reported under the deferred payment method, the income in 2018 is
A. P2,400,000 B. P1,400,000 C. P800,000 D. P1,200,000

21. On June 1, 2018, A sold shares of stocks of a resident foreign corporation held as capital assets for 24 months
for P500,000 (cost of P300,000), payable as follows: P200,000 on the date of sale and the balance is secured
by a promissory note when fair market value is 85% of tis face value. Payments on the note were as follows:
January 1, 2019 P100,000
June 1, 2019 100,000
December 1, 2019 100,000

The capital gain in 2018 is

A. P200,000 B. P85,000 C. P77,500 D. P100,000

FRINGE BENEFITS TAX

22. The fringe benefit tax is

 a. Imposed on the employer b. Withheld at source c. Deductible expense by the employee

A. Only A and B
B. Only A and C
C. Only B and C
D. A, B and C

23. Which of the following is subject to the fringe benefit tax?

A. Compensation income of the rank and file employees
B. Fringe benefit of the rank and file employees
C. Compensation income of the managerial employees
D. Fringe benefit of the managerial employees

24. The following concepts denotes exemption from the fringe benefits tax, except
A. Convenience of the employer
B. Necessity to the business or trade
C. Welfare and benefit of the employees
D. De minimis benefits

25. With regard to the amount of which the fringe benefit tax rate is applied, which statement is wrong?
A. The monetary value of the fringe benefit
B. The grossed-up monetary value of the fringe benefit
C. The amount deductible by the employer from gross income
D. Both amounts of the fringe benefit and the fringe benefit tax

26. The following fringe benefits are not subject to fringe benefit tax, except
A. If required by the nature of or necessary to the trade, business or profession of the employer
B. Contribution of the employer for the benefit of the employee to retirement, insurance and hospitalization
benefit plans.
C. Benefits given to rank and file employees
D. If given for the convenience or advantage of a managerial/supervisory employee

27. Basic rules on fringe benefit tax, except

A. Fringe benefits given to rank and file employees are not subject to fringe benefit tax
B. Fringe benefits given to a supervisory or managerial employee are subject to fringe benefit tax
C. De minimis benefits whether given to rank and file employee or to a supervisory or managerial employee
are not subject to fringe benefit tax
D. The fringe benefit tax is a tax imposed on the managerial or supervisory employee

28. Which of the following statements is correct?

A. Fringe benefit given to employees is subject to fringe benefit tax.
B. Fringe benefit given to employees is exempt from fringe benefit tax.
C. If the fringe benefits is taxable, the tax will be paid by the employer.
D. Fringe benefits may be given to managerial, supervisory and rank and file employee

29. Daily meal allowance for overtime work is a de minimis benefit if not exceeding what percent of the basic
minimum wage?
A. 10% B. 15% C. 20% D. 25%

30. Facilities or privileges furnished or offered by an employer to his employees that are of relatively small value
and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment,
or efficiency of his employees.
A. Fringe benefit
B. Fringe benefit tax
C. De minimis fringe benefits
D. Grossed-up monetary value

31. Which statements is wrong? The fringe benefit tax is

A. Imposed on the employer
B. Imposed on the rank and file employee if the amount of the benefit exceeds the ceiling allowed by the tax
code
C. Withheld at source
D. Deductible by the employer

32. The following are considered as de minimis benefits granted to each employee except
 A. Monetized unused sick leave credits of private employees not exceeding 10 days during the year
B. Monetized unused vacation leave credits of private employees not exceeding 10 days during the year
C. Monetized value of vacation leave credits paid to government officials and employees
D. Monetized value of sick leave credits paid to government officials and employees

33. Which of the following is not considered as “de minimis benefits”?

A. Employees achievement award for length of service or safety achievement in the form of cash or gift
certificates not exceeding P10,000 per year.
B. Medical cash allowance to dependents of employees not exceeding P3,000 per year.
C. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per year
D. Medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity
assistance and routine consultation not exceeding P10,000 per year.

34. In 2018, A Corporation allowed its Sales Manager to incur expenses subject to reimbursement, as follows:
Electricity (Meralco) – 70% in the name of A Corporation P20,000
Water (Maynilad) – 70% in the name of A Corporation 2,000
Grocery (SM) 10,000
Gasoline of Company car used for business trip 12,000
Representation and Transportation – business trip 4,000

The amount subject to fringe benefit tax is

A. P48,000 B. P25,400 C. P15,400 D. P16,600

Electricity (Meralco) 100% - 70% = 30% 20,000 x .30 6,000

Water (Maynilad) 100% - 70% = 30% 2,000 x .30 600
Grocery (SM) 10,000
Total amount subject to Fringe Benefit Tax 16,600

35. The gross-up monetary value of fringe benefits subject to fringe benefit tax received by a non-resident alien
individual not engaged in trade or business in the Philippines is computed by dividing the monetary value of the
fringe benefit by
A. 75% B. 68% C. 85% D. 15%

36. The following data belong to A Corp. for the year 2018
Educational assistance to supervisors and their children P100,000
Employer’s contribution for the benefit of the employees to retirement, insurance and 80,000
hospitalization benefit plans
Year’s rental for an apartment paid by the corporation for the use of its comptroller 120,000

The fringe benefit tax due in 2018 is

A. P75,294 B. P103,529 C. P86,154 D. P87,340

Educational Assistance 100,000

Rental for an apartment paid by the corporation
for the use of its comptroller (120,000 / 2) 60,000
Total Market Value 160,000
Gross monetary value factor ÷ 65%
Gross Up Monetary Value 246,154
Tax Rate 0.35
Fringe Benefit due in 2018 86,154

37. A Corp. a regional operating headquarter of a MNC in the Philippines provided its employees cash and non-cash
fringe benefits in 2018 as follows:
Total amount of fringe benefits P1,000,000
60% of said amount was given to rank and file employees
40% of said amount was given to corporate officers as follows:
a. To resident citizens (tax at regular rates) 45%
b. To non-resident aliens not engaged in business in the Philippines 35%
c. To special aliens and Filipino employees 20%

The total FBT due in 2018 is

 A. P186,667 B. P123,345 C. P34,456 D. P123,300

Resident citizen Fringe Benefit

(1,000,000 x 40% x 45%) ÷ 65% x 35% 96,923
Non-resident aliens not engaged in business in the Phil.
(1,000,000 x 40% x 35%) ÷ 75% x 25% 46,667
Special aliens and Filipino employees
(1,000,000 x 40% x 20%) ÷ 65% x 35% 43,077
Total Fringe Benefit Tax due in 2018 186,667

38. B Co., owns a condominium unit which is being used by the President of the corporation. It has a fair market
value per Real Property Tax Declaration of P2,100,000 and a zonal value of P3,000,000.

Determine the fringe benefit taxes in 2018.

P40,384.62

Monetary Value (3,000,000 ÷ 20) ÷ 2 75,000

Gross monetary value factor (÷ 65%) 0.65
Gross Up Monetary Value 115,384.62
Fringe Benefit Tax Rate (x 35%) 0.35
Fringe Benefit Tax in 2018 40,384.62

39. Mr. A is a mining engineer employed by B Co., a mining firm. The company’s mine is in Mindanao. Mr. A was
provided by the company with living quarters at the mine site. The fair rental of the living quarters is P15,000
a month.

Determine the fringe benefit taxes due in 2018.

P0

40. In addition to other fringe benefits in 2018, Mr. B, a Chief Accountant, availed of the car plan of his employer, C
Company. Under the plan, Mr. B shouldered only (50%) of the cost of the car, with the company shouldering
the other 50%. Mr. B paid P340,000 for the car. The car was registered in the name of Mr. B.

Determine:
a. The fringe benefit tax due.
b. The deductible expense of the employer

P183,076.92
(P340,000 + ) P523,076.92

Monetary Value (340,000) 340,000

Gross monetary value factor (÷ 65%) 0.65
Gross Up Monetary Value 523,076.92
Fringe Benefit Tax Rate (x 35%) 0.35
Fringe Benefit Tax 183,076.92

C ost of the car 340,000

The deductible expense of the employer 523,076.92

41. In 2018, A Company purchased a second hand car for its Chief Accountant as a fringe benefit. The cash purchase
price of the car was P120,000. The company paid P30,000 as down payment plus four equal annual installment
of P30,000 (P120,000 plus P30,000 interest). The ownership was transferred to the chief accountant.

Determine the fringe benefit tax due in 2018.

 12,923.08

(120,000 ÷ 5) = 24,000
Monetary Value (24,000) 24,000
Gross monetary value factor (÷ 65%) 0.65
Gross Up Monetary Value 36,923.08
Fringe Benefit Tax Rate (x 35%) 0.35
Fringe Benefit Tax in 2018 12,923.08

42. In 2018, A, the sales manager, purchased a brand new car amounting to P500,000 of which P200,000 was
contributed by the company as his fringe benefits.

Determine the fringe benefit tax due.

P107,692.31

Monetary Value 200,000

Gross monetary value factor (÷ 65%) 0.65
Gross Up Monetary Value 307,692.31
Fringe Benefit Tax Rate (x 35%) 0.35
Fringe Benefit Tax 107,692.31

43. In 2018, ABC Corp. hired Miss A as sales manager for cosmetics. She was given the following compensation
and fringe benefits:
Salary P200,000/ month
Three maids 4,000 per maid/ month
Personal driver 8,000 / month
Home owner’s Association dues 1,200 / year

Determine the annual fringe benefit tax due.

P129,876.92

Three Maids (4,000 x 3 x 12 months) 144,000

Personal Driver (8,000 x 12 months) 96,000
Home owner's Association dues 1,200
Monetary Value 241,200
Gross monetary value factor (÷ 65%) 0.65
Gross Up Monetary Value 371,076.92
Fringe Benefit Tax Rate (x 35%) 0.35
Annual Fringe Benefit Tax 129,876.92

44. In 2018, A, the owner of Victory Supermarket lent P100,000 to B, the supermarket manager. It was stipulated
in their agreement that the amount should be paid in one year with an annual interest of 3%.

Determine the fringe benefit tax due.

P4,846.15

(100,000 x 3%) ÷ (100,000 x 12%) + 9,000 = 9,000

Monetary Value 9,000.00
Gross monetary value factor (÷ 65%) 0.65
Gross Up Monetary Value 13,846.15
Fringe Benefit Tax Rate (x 35%) 0.35
Fringe Benefit Tax 4,846.15
45. In 2018, Mr. A, the Vice President for Finance of X Corporation incurred the following expenses is attending a
three-day foreign business convention:
Plane tickets (USA travel)
First class $1,000
Economy 500
Hotel accommodation (USA) 2,700
Inland travel 600

Assume $1 = P50

Determine the fringe benefit tax due amounting that the business convention was:
a. With documentary evidence
b. Without documentary evidence

a. P56,538
b. P129,231

Plane tickets - First class (1,000 x 30%) x 50 15,000.00

Hotel accomodation (2,700 x 2/3) x 50 90,000.00 2/3 because the 1st day is for documentation
Monetary Value 105,000.00
Gross monetary value factor (÷ 65%) 0.65
Gross Up Monetary Value 161,538.46
Fringe Benefit Tax Rate (x 35%) 0.35
Fringe Benefit Tax 56,538.46

Plane tickets - Economy (500x50) 25,000

Hotel Accomodation (2,700 x 50) 135,000
Plane ticket - First class (1,000 x 50) 50,000
Inland Travel (600 x 50) 30,000
Monetary Value 240,000
Gross monetary value factor (÷ 65%) 0.65
Gross Up Monetary Value 369,230.77
Fringe Benefit Tax Rate (x 35%) 0.35
Fringe Benefit Tax 129,230.77

46. In 2018 ABC Corporation paid for the annual rental of a residential house used by its general manager amounting
to P136,000. The entry to record the benefit is
A. Fringe Benefit Expense P136,000
Fringe Benefit Tax Expense 73,230
Cash P209,230

B. Fringe Benefit Expense P136,000

Fringe Benefit Tax Expense 36,615
Cash P172,615

C. Fringe Benefit Expense P68,000

Fringe Benefit Tax Expense 36,615
Cash P104,615

D. Fringe Benefit Expense P68,000

Fringe Benefit Tax Expense 64,000
Cash P132,000
 Monetary Value (136,000 ÷ 2) 68,000
Gross monetary value factor (÷ 65%) 0.65
Gross Up Monetary Value 104,615.38
Fringe Benefit Tax Rate (x 35%) 0.35
Fringe Benefit Tax Expense 36,615.38

47. As a means promoting the health, goodwill, contentment, and efficiency of his employees, employer A gave rank
and file employee B the following fringe benefits in 2018:
a. Monetized unused vacation leave of 15 days P24,000
b. Rice subsidy 36,000
c. Uniform and clothing allowance 12,000
d. Achievement award for length of service in the form of tangible personal 20,000
property
e. Gifts given during Christmas and major anniversary celebration 15,000
f. Medical benefits 20,000
g. Laundry allowance 12,000
h. 13th month pay 30,000
i. Mid-year bonus 30,000
j. Productivity bonus 15,000

Determine the amount of:

a. Deductible expense of A
b. Taxable benefits of B

a. P214,000
b. P49,400
 amount excess other benefits
Unused leave (5/15) 24,000 8,000
Rice Subsidy 36,000 12,000
Uniform allowance 12,000 6,000
award in form of tangible property 20,000 10,000
gifts 15,000 10,000
medical benefits 20,000 10,000
laundry allowance 12,000 8,400
13th month pay 30,000 30,000
mid-year bonus 30,000 30,000
productivity bonus 15,000 15,000
Total Expense of A 214,000 64,400 75,000
Excess DMB 64,400

(90,000)
Taxable Benefits of B 49,400

48. Enrique Gil, Filipino, is manager of a PEZA-registered enterprise. He receives fringe benefits which normally are
subject to the FBT. Is the PEZA-registered enterprise still liable to pay the FBT?
A. NO, if the PEZA registered enterprise is under ITH. The FBT is considered an income tax from which the
PEZA registered enterprise is exempt under the ITH.
B. NO, if the PEZA registered enterprise is under the 5% GIT. After paying the 5% GIT, such enterprise is
exempt from the payment of all other taxes, national or local including the FBT.
C. Yes, If the PEZA registered enterprise is under the 5% GIT, the monetary value of the fringe benefits of
Enrique will first be grossed up by dividing its by 95%, and the FBT is computed by multiplying the GUMV
by 5%.
D. Yes, the monetary value of the fringe benefits of Enrique will first be gross up by dividing it by 65%, and
the FBT is computed by multiplying the GUMV by 35%.
 INDIVIDUAL TAXPAYER

1. Annakin, a French citizen permanently residing in the Philippines, received several items during the taxable year.
Which among the following is not subject to Philippine income taxation?
A. Consultancy fees received for designing a computer program and installing the same in the Shanghai facility
of a Chinese firm.
B. Interest from his deposits in a local bank of foreign currency earned abroad converted to Philippine pesos.
C. 60% of the dividends received from an American corporation which derived 60% of its annual gross receipts
from the Philippine sources for the past 3 years.
D. Gain derived from the sale of his condominium unit located in the Fort, Taguig City to another resident alien.

2. Noah Reed, a Canadian, arrived in the Philippines on January 1, 2018 and continued to live and engage in
business in the Philippines. He went on a tour in India and Pakistan from April 1 to November 5, 2018. He
returned to the Philippines on November 6, 2018 and stayed until A pril 15, 2019 when he returned to Quebec,
Canada. From his investments in the Philippines, he earned a gross income of P2.5 million. For the year 2018,
Noah’s taxable status is that of
A. A non-resident alien not engaged in trade or business in the Philippines.
B. A non-resident alien engaged in trade or business in the Philippines.
C. A resident alien not engaged in trade or business in the Philippines.
D. A resident alien engaged in trade or business in the Philippines.

3. Which of the following is not correct? A non-resident citizen means, a citizen of the Philippines
A. Who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a
definite intention to reside therein.
B. Who leaves the Philippines during the taxable year to resid e abroad, either as an immigrant or for
employment on a permanent basis.
C. Who works and derives income from abroad and whose employment thereat requires his to be physically
present abroad most of the time during the taxable year.
D. Who has been previously considered a non-resident citizen and who arrives in the Philippines at any time
during the taxable year to reside permanently in the Philippines and who is treated as a non -resident citizen
with respect to his income derived from sources abroad for the entire taxable year.
4. Which of the following statement is not correct?
A. An individual citizen of the Philippines who is working and deriving income from abroad as an overseas
contract worker is taxable only on income from sources within the Philippines
B. A seaman who is citizen of the Philippines and who receives compensation for services rendered abroad as
a member of the complement of a vessel engaged exclusively in international trade shall be treated as a
non-resident citizen.
C. A non-resident citizen who is not engaged in business in the Philippines is treated as a non-resident alien
who is not engaged in business in the Philippines.
D. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from
sources within the Philippines.

5. A citizen of the Philippines who works and derives income from abroad is a resident citizen if he stayed outside
the Philippines
A. For less than 180 days
B. For more than 180 days
C. For 183 days or more
D. For less than 183 days

6. A citizen of a foreign country is considered a non-resident alien engaged in business in the Philippines if he
stayed inside the Philippines
A. For 183 days or more
B. For less than 183 days
C. For more than 180 days
D. For less than 180 days

7. A resident citizen is taxable on all income derived from sources

A. Within the Philippines only
B. Without the Philippines only
C. Partly within and partly without
D. Within and without the Philippines

8. A non-resident citizen (NRC), resident alien (RA), and non-resident alien (NRA) are taxable on all income derived
from sources
A. Within the Philippines
B. Without the Philippines
C. Partly within and partly without
D. Within and without the Philippines

9. A citizen of the Philippines who works abroad and whose employment requires him to be physically present
abroad most of the time during the taxable year is
A. Taxable on income within and without the Philippines
B. Taxable income from without the Philippines
C. Exempt from the income tax
D. Taxable on income from within the Philippines

10. A non-resident alien is deemed business in the Philippines if he

A. Is an individual whose residence is within the Philippines
B. Is an individual whose father or mother is an alien who is engaged in business in the Philippines
C. Is an individual whose is naturalized in accordance with law
D. Shall come to the Philippines and stay therein for an aggregate period of more than 180 days during a
calendar year

11. In his first year of business, Manny Durugas did not derive any income nor any gain as he had not yet started
operations of his on-online store. However, he was assessed a deficiency tax by the BIR. The BIR found that
overstated its pre-operating expenses, some of which were unsubstantiated. Should such disallowed expenses
give rise to income tax?
A. Yes, he should not have overstated his expenses in the first place increasing his deductions in the process.
B. No, in order for income tax to be imposed, 3 elements should be present: (1) there must be gain or profit;
(2) the gain or profit is realized or received, actually or constructively; and (3) such gain or profit is not
exempted by law or treaty from income tax. In this case, no income tax shall be imposed in the absence of
the first 2 elements above.
C. All of the above.
D. None of the above
12. In 2018, Nelia Gomez, an MWE, received from her employer an annual minimum wage salary of P99,702. Aside
from this, she also received P8,000 for holiday pay, overtime pay, and night shift diff erential pay. Furthermore,
she received P8,303 as her 13 th month pay. What amount shall she be taxable on?
A. P8,000 B. P107,702 C. P8,303 D. None

13. Nelia in the immediately preceding number was promoted in June 2018, and starting the same month was given
a raise in salary which was more than the statutory minimum wage. Will her entire compensation during 2018
be taxable and subject to withholding tax?
A. Yes. Her entire earnings shall be taxable.
B. No. Her entire earnings shall not be taxable.
C. Only her earnings from June 2018 to December 2018 shall be taxable and subject to withholding tax.
D. None of the above.

14. Virginia Pecson is an MWE working in Quezon City. As such, her employer did not withhold any tax from her
compensation. In addition to her Statutory Minimum Wage (SMW), she also earned a one -time commission
from her employer in September of taxable year 2018.

In what of the taxable year shall her employer withhold income tax from her SMW?
A. When she received the commission in September, she ceased to be an MWE. Her employer shall withhold
income taxes from her compensation (which includes the SMW) received in the months of September thru
December 2018.
B. None. Her employer may not withhold income taxes from the SMW she received in all the 12 months of
2018. Her employer shall withhold the CWT only from the commission she received in September 2018.
C. In call the months of 2018.
D. None of the above.

15. Mario is a minimum wage earner (MWE) employed in a fast food restaurant in Metro Manila. Aside from this, he
also earns income form the operation of a small “barbeque stand” in front of his house. What should be included
in his taxable income for the year?
A. His taxable income shall include his entire salary earned from the fast food restaurant, and the income from
his barbeque stand.
B. His taxable income shall include only his income from the barbeque stand. As fart as his minimum wage is
concerned, Mario is still an MWE who is entitled to exemption as such.
C. Both his minimum wages and his income from his business shall be exempt from tax.
D. None of the above.

16. Angelo Bata is an MWE employed with the Philippine National Police. He was assigned in the National Capital
Region from January 1, 2018 to April 30, 2018, earning the SMW of P492 per day. Beginning May 1, 2018, he
was transferred to PNP- Region V, receiving the same rate of P492 per day. The SMW in Region V for the period
May 2018 to December 2018 was just P450 per day.

Should PNP-Region V withhold tax from the salary of Angelo?

A. I don’t know
B. No. He is considered an MWE for the entire year.
C. Yes. His daily wage rate is above the prevailing SMW in Region V which makes its taxable and subject to
withholding.
D. None of the above.

17. Mr. Gigolo (resident citizen) appoints the Trust Department of Tyra Bank to manage his money pursuant to a
trust agreement. The Trust Department proceeds to invest the money in a 5-year corporate bond.

If Mr. Gigolo withdraws his money from the trust account after 8 years, the interest income from the corporate
bond is:
A. Exempt from income tax
B. Subject to the 20% final tax
C. All of the above
D. None of the above

18. If instead, the bank in the immediately preceding number, in the name of Mr. Gigolo, invests the money in a 20-
year long-term investment certificate issued by Bank of Ruptcy, will the interest income therefrom be exempt
from income tax?
A. Yes, regardless of the holding periods of Mr. Gigolo and the trust.
B. Yes, provided the holding period of Mr. Gigolo and the holding period of the trust in the long term investment
certificate are both at least 5 years.
C. All of the above
D. None of the above
19. Kaino sold his principal residence located in Manila on January 5, 2018 for P8,000,000. The property was
purchased in 2005 for P3,000,000. The current market value of the property at the time of sale was:

BIR Commissioner’s zonal valuation P9,000,000

City Assessor’s schedule of values 6,000,000

What is the capital gains tax on the sale?

A. P300,000 B. P360,000 C. P480,000 D. P540,000

BIR Zonal Evalutaion 9,000,000

CGT rate 6%
Capital Gains Tax 540,000 9,000,000*6%

20. If Kaino in the preceding number, within 6 months after the sale, purchases another residence for P8,000,000,
what will be the capital gains tax on the sale and what would be the cost (basis) of the new residen ce for income
tax purposes?
A. P540,000; P8,000,000
B. P0; P6,000,000
C. P540,000; P9,000,000
D. P0; P3,000,000

No capital gains tax on sale since it meets the requisites for exemption.
The new basis is the old residence which is 3M. No additional cost incurred.

No capital gains tax on sale since it meets the requisites for exemption.
Tax Basis

C ost of purchase of old property 3,000,000

C ost of New Property 8,000,000
Proceeds (8,000,000)
Cost for Income Tax Purpose 3,000,000

21. Suppose Kaino in number 19, within the 18-month reglementary period, instead purchase a new principal
residence at a cost of P10,000,000. What will be the capital gains tax on the sale and what would be the cost
(adjusted basis) of the new residence for income tax purposes?
A. P0; P3,000,000
B. P0; P10,000,000
C. P0; P9,000,000
D. P0; P5,000,000

C ost of purchase of old property 3,000,000

New Principal C ost 10,000,000
Proceeds (8,000,000)
Cost for Income Tax Purposes (Adjusted) 5,000,000

22. Suppose Kaino in number 19, within the 18-month reglementary period instead purchases a new residence at a
cost of P5,000,000. What will be the capital gains tax on the sale?
A. P202,500 B. P300,000 C. P480,000 D. P337,500

C ost of purchase of old property 3,000,000

Proceeds 8,000,000
BIR Zonal Evalutaion 9,000,000
C GT Rate 6%
Capital Gains Tax on Sale 202,500 3,000,000/8,000,000*9,000,000*6%

23. In number 22, what would be the cost (adjusted basis) of the new residence for income tax purposes?
A. P3,000,000 B. P1,875,000 C. P5,000,000 D. P0
Utilized cost 5,000,000
Proceeds 8,000,000
C ost of purchase of old property 3,000,000
Cost for Income Tax Purposes (Adjusted) 1,875,000 5,000,000/8,000,000*3,000,000

24. Alma sold her principal residence to Bobby as evidenced by a notarized Deed of Absolute Sale executed on
September 10, 2019. Alma also acquired a new principal residence from Carlo which was evidenced by another
notarized Deed of Sale executed on September 9, 2019. In the sale of Alma’s principal residence exempt from
the 6% capital gains tax.
A. Yes. Alma bought a new principal residence even before selling her old principal residence.
B. Yes. Alma utilized the proceeds from the sale of her old principal residence in buying a new principal
residence within 18 months from the sale of her old residence.
C. No. The sale of the old principal residence must precede the acquisition of the new principal residence.
D. None of the above.

25. Upon retirement, Kaitlyn Gabriel planned to sell a parcel of idle land (capital asset) in Calamba, Laguna which
she inherited from her father 20 years ago. Before selling, she hired a professional appraiser who estimated the
value of her land of P3.0 M. She consulted with her bank which told her that the “mortgage value” of the land
is P3.5 M.

She eventually sold the parcel of idle land to her friend for P2.4 M. The zonal value at the time of sale was P2.6
M and the assessor’s value was P2.7 M. What is the capital gain (CGT) on the sale?
A. 6% of P3.0 M
B. 6% of P3.5 M
C. 6% of P2.4 M
D. 6% of P2.7 M

26. The following are taxed at a final rate of 20% except:

A. Cash or property dividend payment by a domestic corporation to a NRAETB
B. Share of a NRAETB in the distributable after-tax net income of a business partnership where he is a partner,
or share in the after-tax net income of an association or joint venture taxable as a corporation of which he
is a member.
C. Royalty payments (except royalties on books, literary works and musical composition) to citizens, Ras, and
NRAETB, and prizes exceeding P10,000 paid to the same persons.
D. Interest and other payments upon tax-free covenant bonds, mortgages, deeds of trust, or other obligations
under Section 57 (C) of the Tax Code.

27. A Corporation declared and distributed to its stockholder shares of B Corporation. One of its stockholders, W,
received 100 shares of B Corporation shares as dividends. At the date of dividend declaration, the fair market
value of B Corporation shares was P120 per share and by the time W received the dividend, the fair market
value per share was P180. Which of the following is correct?
A. A stock dividend, hence exempt from tax.
B. A property dividend, hence part of the taxable income of W.
C. A property dividend, hence subject to final tax based on its fair market value of P120 per share at the time
of declaration
D. A property dividend, hence subject to final tax based on its fair market value of P180 per sh are.

28. All of the following statements are correct, except one. Which is the exception?
A. The source of interest income is the country where the debtor resides.
B. The source of dividend income is the country where the corporation was incorporated.
C. Rents are considered derived from the country where the property is located.
D. Income from personal services is considered derived from the country where the services were rendered.

29. Statement 1: A gain from sale of shares of a domestic corporation shall be considered derived from the
Philippines regardless of where the shares were sold.

Statement 2: A gain from sale of shares of a foreign corporation shall be considered derived from the country
where the corporation was created or organized.
A. True; True B. True; False C. False; True D. False;False
Use the following information for the next five (5) questions:

Allan Reyes, married, VAT-registered, had the following data for the taxable year:
Gross sales, Philippines P2,000,000
Cost of sales, Philippines 1,600,000
Gross sales, USA 1,500,000
Cost of sales, USA 1,200,000
Operating expenses, Philippines 10,000
Operating expenses, USA 35,000

30.
a) If the taxpayer is a resident citizen, his tax due is
A. P93,750 B. P158,600 C. P81,250 D. P87,500

b) If the taxpayer is a resident citizen, not VAT-registered, can he avail of the 8% income tax rate on gross
sales plus non-operating income?

No. because it excess P3,000,000

Gross Sales, Philippines 2,000,000

Gross Sales, USA 1,500,000
C ost of Sales, Philippines (1,600,000)
C ost of Sales, USA (1,200,000)
Operating Expense, Philippines (10,000)
Operating Expense, USA (35,000)
Taxable Income 655,000
Tax due per Table 93,750 First 400,000 = 30,000; 255,000*25% = 63,750

b) No, because it exceed 3,000,000

31. If the taxpayer is a non-resident citizen, VAT-registered, his tax due is

A. P15,000 B. P77,000 C. P28,000 D. P43,000

32. If the taxpayer is a resident alien, VAT-registered, his tax due is

A. P14,000 B. P77,000 C. P28,000 D. P15,000

Gross Sales, Philippines 2,000,000

C ost of Sales, Philippines -1,600,000
Operating Expense, Philippines -10,000
Taxable Income 390,000
Tax due per Table 28,000 First 250,000 = 0; 140,000*20% = 28,000

Gross Sales, Philippines 2,000,000

C ost of Sales, Philippines -1,600,000
Operating Expense, Philippines -10,000
Taxable Income 390,000
Tax due per Table 28,000 First 250,000 = 0; 140,000*20% = 28,000

33.
a) If the taxpayer is a non-resident alien engaged in business in the Philippines, married, VAT-registered and
his country allows reciprocity of P30,000 as personal exemption for married individua ls, his tax due is
A. P22,000 B. P28,000 C. P83,000 D. P15,000
 b) If the taxpayer is numbers 31, 32, and 33 (A) was not VAT-registered, can he avail of the 8% income tax
rate option?

Yes. (P2,000,000 – P250,000)= P1,750,000 x 8% = P140,000

Gross Sales, Philippines 2,000,000

C ost of Sales, Philippines (1,600,000)
Operating Expense, Philippines (10,000)
Taxable Income 390,000
Tax due per Table 28,000 First 250,000 = 0; 140,000*20% = 28,000

Yes. (2,000,000 - 250,000) = 1,750,000 * 8% = 140,000

34. If the taxpayer is a non-resident alien not engaged in business in the Philippines, married, and his country grants
P35,000 as personal exemption for married individuals, his tax due is
A. P100,000 B. P93,750 C. P400,000 D. P450,000

Gross Sales, Philippines 2,000,000

C ost of Sales, Philippines (1,600,000)
Taxable Income 400,000
Multiply 25%
Taxable Income 100,000

35. Sally, Rafa, an MWE, works for McDonny’s, Inc. Shw has no other source of income. For the taxable year, her
total regular compensation income, inclusive of the 13 th month pay, amounted to P180,000. During the year,
she received a 13th month pay equivalent to P10,000 and contributed to SSS, Philhealth, and Pag-ibig a total
amount of P3,000.

In addition to the abovementioned amounts she received the following amounts: P90,000 for overtime pay,
P10,000 for night shift differential pay, P25,000 for hazard pay, and P35,000 for holiday pay. The tax due from
her compensation income is
A. P10,000 B. P13,200 C. P14,200 D. None

D. None
Sally has no tax due from her compensation income

Use the following information for the next four (4) questions:

(Taxpayer earning income purely from self-employment/practice of profession)

36. Elena Putito, a part-time exercise trainer, also operates a shoe store while offering her services to clients living
in Metro Manila. In 2018, the gross sales of her shoe amounted to P1,100,000 while her receipts from her
training services amounted to P400,000. Her total cost of sales and operating expenses amounted to P1 50,000
and P35,000 respectively.

She signified in her 1st Quarterly ITR her intention to be taxed at the 8% income tax rate.

Compute her income tax due for 2018.

A. P100,000 B. P120,000 C. P68,000 D. P69,000
 Gross Sales 1,100,000
Receipts from training services 400,000
Total 1,500,000
Less (250,000)
1,250,000
Multiply 8%
Income Tax Payable 100,000

37. If Elena Putito, in number 36, failed to signify her intentions to be taxed at the 8% income tax rate, what will be
her income tax due in 2018??
A. P566,879 B. P369,800 C. P284,500 D. P267,900

Income Tax
Gross Sales 1,100,000
Receipts from training services 400,000
C ost of sales (150,000)
Operating Expenses (35,000)
Total 1,315,000
Less: First 800,000 (800,000) 130,000
Tax Due 515,000
Multiply 30% 154,500
Total Income Tax Payable 284,500

38. Amyjo Perez owns a pet store specializing in reptiles which is her only source of income. She signified her
intention to be taxed at 8% of gross sales in her 1 st Quarterly ITR of the taxable year. Her sales, cost of sales,
and operating expenses for the 4 quarters are as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Sales P400,000 P600,000 P2,000,000 P3,500,000
Cost of sales (100,000) (200,000) (600,000) (800,000)
Gross income P300,000 P400,000 P1,400,000 P2,700,000
Operating expenses (170,000) (190,000) (500,000) (820,000)
Net income P130,000 P210,000 P900,000 P1,880,000

Compute her income tax payable in her 1 st, 2nd, 3rd Quarterly ITRs and in her Annual ITR.

1st Quarterly ITR 2nd Quarterly ITR 3rd Quarterly ITR Annual ITR
A. P12,000 P48,000 P160,000 P628,400
B. P12,000 P48,000 150,000 P638,400
C. P12,000 P60,000 78,000 P638,500
 D. P12,000 P60,000 P70,000 P623,400

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Sales 400,000 600,000 2,000,000 3,500,000
Prior 400,000 1,000,000 3,000,000
Sales 400,000 1,000,000 3,000,000 6,500,000 6,500,000
Less (250,000) (250,000) (250,000) Cost of Sales (1,700,000)
150,000 750,000 2,750,000 Gross Income 4,800,000
Multiply 0 0 0 Operating Expense (1,680,000)
60,000 220,000 Taxable Income 3,120,000
(12,000) (60,000) Tax due per Table 848,400
Income Tax Payable 12,000 48,000 160,000 Less: Quarterly (220,000)
Still Due 628,400

39. Mr. Rolly Gomez operates a small night club in which he employs dancers to dance with the patrons of his night
club. In 2018, his gross receipts, cost of services and operating expenses amounted P2,800,000, P100,000 and
P35,000, respectively. The night club also earned other non-operating income of P150,000 in 2018.

Can he avail of the 8% income tax rate option? What is his income tax due for 2018?
A. Yes, because his gross receipts plus non-operating income doe not exceed P3,000,000; Tax due is P216,000
under the 8% tax regime.
B. No, because his business is subject to the 18% OPT under Section 125 and not to the 3% OPT under Section
116. Tax due is P750,800 under the graduated rates.
C. Yes and No. He can avail of the 8% income tax rate option if he chooses this option in hi s 1st Quarterly ITR.
Otherwise, he will be taxed under the graduated rates.
D. None of the above.

B. No. Because his business is suject to 18% OPT under Section 125 and
not to the 3% OPT under 116. Tax due is P750,800 under the graduated tax rates

Use the following information for the next four (4) questions:

Taxpayer earning income from Employment and from Self -Employment (Business or practice of
profession) – Mixed Income Earners

40. In 2018, Maginoo M. Henyo, the CEO of the Philippines Nuclear Fus ion Corporation, earned compensation income
of P4,000,500. This amount is inclusive of his 13 th month pay and other benefits of P250,000, but net of the
mandatory contributed to SSS and Philhealth.

Aside from his employment, he also owns a cafeteria. In 2018, the cafeteria had gross sales of P1,500,000, cost
of sales of P500,000 and operating expenses of P300,000. It also had non-operating income of P700,000.

Compute his income tax due for 2018 if he avails of the 8% income tax rate option on his gross sales plus non-
operating income arising from his cafeteria business.
A. P1,101,360 B. P1,277,360 C. P1,257,360 D. P1,734,430

MIXED INCOME
Gross Sales 1,500,000Compensation Income 4,000,500
Non-Operating Income 700,00013th Month Pay and
Taxable Income 2,200,000other benefits
Multiply 8% Less: Ceiling (90,000)
Taxable Income 3,910,500
Income Tax Payable 176,000 Tax due per table 1,101,360
Total Tax Payable 1,277,360 176,000 + 1,101,360

41. In the previous number, what would be Maginoo’s total income tax due if he di not avail of the 8% income tax
rate on gross sales plus non-operating income arising from his business?
 A. P696,969 B. P1,650,920 C. P1,549,360 D. P1,202,340

MIXED INCOME
Gross Sales 1,500,000
Non-Operating Income 700,000
Cost of Sales -500,000
Operating Expenses -300,000
Txable Income 1,400,000
Compensation Income 4,000,500
Less: 13th Month Pay and other benefits
90,000 ceiling (90,000)
Total Income Tax Payable 5,310,500
Tax due per Table 1,549,360 First 2,000,000 = 490,000; 3,310,500*32% = 1,059,360

42. Maginoo in number 40 resigned from Philippine Nuclear Fusion in the first week of January 2019 to concentrate
in his cafeteria business. His total compensation income in 2019 amounted to P180,000 inclusive of other
benefits (productivity bonus) of P30,000.

In 2019, the bakery had gross sales of P2,300,000, cost of sales of P750,000, and operating expenses of
P450,000. It also had non-operating income of P235,000.

What is his income tax due for 2019 if he avails of the 8% income tax rate option on his gross sales plus non-
operating income arising from his business?
A. P202,800 B. P194,800 C. P182,800 D. P192,200

Gross Sales 2,300,000

Non-Operating Income 235,000
Taxable Income 2,535,000
Multiply 8%
Income Tax Payable 202,800

43. Pong Pagong is the CEO of Sesame Zoo Corporation. In 2018, he received total compensation of P10,000,000
inclusive of 13th month pay and other benefits in the amount of P800,000.

He also owns a poultry farm which applies the we market in his province. Its gross sales totaled P5,000,000.
The farm’s cost of sales and operating expenses amounted P2,300,000 and P580,000, respectively. Its non-
operating income amounted to P230,000.

Compute his income tax due in 2018.

A. P3,910,000 B. P3,874,760 C. P3,901,000 D. P3,400,030

MIXED INCOME
Gross Sales 5,000,000
Non-Operating Income 230,000
Cost of Sales (2,300,000)
Operating Expenses (580,000)
Txable Income 2,350,000
Compensation Income 10,000,000
Less: 13th Month Pay and other benefits
90,000 ceiling (90,000)
Total Income Tax Payable 12,260,000
Tax due per Table 3,901,000 First 8,000,000 = 2,410,000; 4,260,000*35% = 1,491,000

44. Sally, the MWE in number 12, also has a small business with the following data: Sales of P500,000, cost of goods
sold of P100,000, operating expenses of P60,000, and non-operating income of P10,000. What would be the
income tax due under the graduated rates, and under the 8% income tax rate option?
A. P23,600 ; P54,564 B. P18,000 ; P42,350 C. P20,000 ; P40,800 D. P23,300 ; P34,000
 8% Graduated Tax Table
Sales 500,000 500,000
Non-Operating Income 10,000 10,000
C ost of Sales (100,000)
Operating Expenses (60,000)
(250,000)
Total 260,000 350,000
Multiply 8% 20% As per tax table
Income Tax Payable 20,800 70,000

DEDUCTIONS AND EXEMPTIONS

1. Which of the following statements is true?

A. Payments which constitute bribes, kickbacks and others of similar nature which are necessary to realized
profits are allowed as deductions from gross income.
B. The taxes which are deductible from gross income include the taxes, interest and penalties incident to tax
delinquency.
C. Deduction are amounts allowed by the Tax Code to be deducted from gross income to arrive at the income
tax liability of a taxpayer.
D. Losses from wagering transactions shall be allowed only up the extent of the gains from such transactions.

2. This is not deductible from gross income

A. Transportation expenses from the main office to the branch.
B. Transportation expenses from home to the office and from the office back to home.
C. Travel expenses on business trips.
D. Travel expenses while away from home in the pursuit of trade, business or profession

3. A revenue expenditure is
A. Usually incurred in the acquisition, betterment or permanent improvement of the asset.
B. Capitalized and the cost is recovered through annual depreciation
C. Ordinarily to benefit more than one accounting period
D. To benefit one accounting period and is a deduction from gross income in the year paid or incurred

4. No deductions shall be allowed where the transactions is between “related taxpayers” under Sec. 36(B) of the
Tax Code for
A. Losses from sales or exchange of property
B. Interest expense
C. Bad debts
A. A and B
B. B and C
C. A and C
D. A, B and C

5. The phrase “related taxpayers” under Sec. 36(B) of the Tax Code will apply to the following, except:
A. Between members of a family
B. Between the grantor and a fiduciary of any trust
C. Between a fiduciary of a trust and a beneficiary of such trust
D. Between an individual and a corporation more than 50% in value of the outstanding stock of which is owned,
directly or indirectly by or for such individual, in case of distribution in liquidation.

6. The optional standard deduction for corporation is

A. 10% of gross income
B. 10% of the gross sales/receipts
C. 40% of the gross income
D. 40% of the gross sales/receipts

7. The optional standard deduction for individuals is

 A. 10% of the gross income
B. 10% of the gross sales/receipts
C. 40% of the gross income
D. 40% of the gross sales/receipts

8. Interest expense incurred to acquire property used in trade or business or exercise of a profession is
A. Not allowed as a deduction against gross income
B. Required to be treated as a capital expenditure to form part of the cost of the asset
C. Allowed as a deduction or treated as a capital expenditure at the option of the taxpayer
D. Allowed as a deduction or treated as a capital expenditure at the option of the government

9. A Corporation has net sales of P1,000,000. The actual entertainment, amusement and recreation expense
amounted to P20,000. The deductible “EAR” expense is
A. P20,000 B. P6,000 C. P10,000 D. P5,000

10. C Corporation had net revenues of P1,000,000. The actual entertainment, amusement and recreation expense
amounted to P20,000. The deductible “EAR” expense is
A. P20,000 B. P6,000 C. P5,000 D. P10,000

11. C Corporation is engaged in the sale of goods and services with net sales and net revenue of P2,000,000 and
P1,000,000, respectively. The actual entertainment, amusement and recreation expense amounted to P18,000.
The deductible “EAR” expense is
A. P18,000 B. P16,000 C. P12,000 D. P6,000

12. If an individual is on the cash basis of accounting, will interest paid in advance be allowed as a deduction?
First answer – No, it is a deduction in the year that the indebtedness is paid and not in the year that the interest
is paid.

Second answer – Yes, if the indebtedness is payable in periodic amortization, the amount of the interest which
compounds to the amount of the principal amortized or paid during the year shall be allowed as a deduction in
such taxable year.

A. True, true B. True, false C. False, false D. False, true

13. One of the following losses cannot be deducted from gross income:
A. To construct a bigger warehouse, a corporation demolished an old warehouse which had a construction cost
of P2,000,000 and a book value of P300,000.
B. Expenses of demolition of a building existing on land purchased, where the corporation had no use for the
building at the time of purchase and it was its intention to remove the building in order to build its factory.
C. A corporation retired its machinery from the business because of the increase in the cost of production and
the failure of the machinery to meet the desired number of units of production.
D. A Corp. ascertained that its B Corp. stocks are worthless because of the total insolvency of B Corp.

14. Examples of taxes that are deductible except

A. Occupation tax
B. Privilege tax
C. Documentary stamp tax
D. Philippine income tax

15. Non-deductible taxes, except

A. Special assessment
B. Donor’s tax
C. Estate tax
D. Business tax

16. A, not happy with her present job, resigned and started her own business. The business requires her to travel
so she used her car for the purpose. Assume that A started her business on April 1 and that she uses the car
for business 70% of the time. Assuming total expenses for the year for the use of the car is P300,000, the
deductible expense is
A. P210,000 B. P300,000 C. P225,000 D. P157,500

17. A acquired a machine at a cost of P500,000. Scrap value is P40,000 and the estimated useful life was 25 years.
After depreciating the asset for 20 years using the straight-line method, it was determine that the remaining life
 is not five years. The annual depreciation from the 21 st year assuming a remaining life of 10 years without scrap
is
A. P17,600 B. P20,000 C. P35,200 D. P13,200

18. Statement I: An expense which is necessary but not ordinary, or ordinary but not necessary is deductible from
gross income.
Statement II: The taxpayer must signify his intention to elect the itemized deduction, otherwise, he is deemed
to have chosen the optional standard deduction.
A. True; True B. True; False C. False; True D. False; False

19. Statement I: Interest paid on preferred stock is deductible from gross income of the paying corporation.

Statement II: A Capital expenditure usually benefits more than one accounting period and is deductible from
gross income in the year it is paid or incurred.
A. True; True B. True; False C. False; True D. False; False

20. Statement 1: The cost of leasehold improvements shall be deductible by the lessee by spreading the cost of the
improvements over the life of the improvements or the remaining term of the lease whichever period is shorter.

Statement 2: Contribution by the employer to a pension trust for past service cost is deductible in full in the
year that the employer made the contribution.
A. True; True B. True; False C. False; True D. False; False

21. Beginning 1/1/2018, for individuals with purely gross compensation income, the following may not be deducted:
A. Personal exemptions
B. Additional exemptions
C. Optional standard deduction
D. Premium payments on health and/or hospitalization insurance
E. All of the above

22. Beginning 1/1/2018, for individuals with gross income from business or practice of profession, which of the
following may be deducted?
A. Optional standard deduction
B. Itemized deduction
C. Personal basic exemption
D. Additional exemption
E. Premium payments on health and/or hospitalization insurance

A. A, B, C and D
B. B, C and D
C. C, D and E and Either A or B
D. Either A or B

23. Any amount subsequently received on account of a bad debt previously charged off and allowed as a deduction
from gross income in prior years must be included in gross income in the taxable year in which received. This
is
A. Severance test
B. Life-blood theory
C. Destination of income test
D. Equitable doctrine of tax benefit

24. A took out a life insurance policy of P1,000,000 naming his wife as beneficiary. The policy provides that the
insurance company will pay A and his beneficiary the amount of P1,000,000 after the 25 th year of the policy,
should he die before this date. The premiums paid on the po licy is P700,000. If A outlived the policy and
received the proceeds of P1,000,000, such proceeds will be:
A. Taxable in full
B. Exempt from income tax
C. Partly taxable, partly exempt
D. Subject to final tax

25. Using the preceding number, if A dies and his beneficiary received the proceeds of P1,000,000, such proceeds
will be
A. Taxable in full
B. Partly taxable, partly exempt
C. Exempt from income tax
D. Subject to final tax
26. May consider capital expenditure as revenue expenditures
A. Resident citizen
B. Domestic corporation
C. Private educational institutions
D. Resident alien

27. A building was partially destroyed by fire in 2017. The building had a book value of P5,000,000. The insurance
company was willing to pay P4,000,000, which was refused by the owner. Finally, the claim was settled in 2018
for P4,600,000. The proceeds will be
A. Exempt from income tax
B. Part of taxable income
C. Subject to final tax
D. Partly exempt, partly taxable

28. One of the following is not correct for deductibility of losses from gross income
A. Must arise from fire, storm or other casualty, robbery, theft or embezzlement.
B. Must not be compensated by insurance or other form of indemnity.
C. A declaration of loss by casualty should be filed with the Bureau of Internal Revenue.
D. Must have been claimed as deduction in the estate return of the taxpayer.

29. Which of the following statements is not correct?

A. The Optional Standard Deduction is an amount equal to forty (40%) of the gross income from business or
practice of profession of the taxpayer.
B. The Optional Standard Deduction is not available against compensation income arising out of an employer-
employee relationship.
C. The election of Optional Standard Deduction is irrevocable for the taxable year for which the choice is made.
D. Unless the taxpayer signifies in his return his intention to avail of the OSD, he shall be considered as having
availed of the itemized deductions.

30. The net operating loss, which had not been previo usly offset as deduction from gross income shall be carried
over as deduction from gross income for the next
A. 2 consecutive taxable years immediately following such loss.
B. 3 consecutive taxable years immediately following such loss.
C. 4 consecutive taxable years immediately following such loss.
D. Taxable year immediately following such loss.

Use the following data for the next two (2) questions:
A taxpayer engaged in business incurred a partial loss of property as follows:

Asset 1 Asset 2
Book value of the asset at the asset at the time of loss P200,000 P200,000
Cost to restore the property back to its normal operating condition 120,000 300,000
Insurance recovery 50,000 None
Salvage None 40,000

31. The deductible loss for asset 1 is

A. P120,000 B. P70,000 C. P30,000 D. P80,000

32. The deductible loss for asset 2 is

A. P300,000 B. P150,000 C. P160,000 D. P240,000

Use the following data for the next three (3) questions:
ABC put up a qualified retirement plan approved by the BIR. It appointed B Corp. to administer the plan, which
called for the payment of P200,000 to cover the retirement of employees for past services rendered and a yearly
contribution of P50,000. The following amounts were paid for the first three years of the plan’s operation.

Contribution for Services

Past Years Current Years
First year P100,000 P50,000
Second year 60,000 50,000
Third year 40,000 50,000

33. The pension expense for the first year is

A. P150,000 B. P15,000 C. P60,000 D. P105,000
34. The pension expense for the second year is
A. P110,000 B. P11,000 C. P56,000 D. P66,000
35. The pension expense for the third year is
A. P90,000 B. P9,000 C. P54,000 D. P70,000

36. The records of Manila Bus Corp. show salaries and wages paid for its rank and file employees:
To non-senior citizens P1,800,000
To senior citizen 200,000

The deductible salaries and wages expense is

A. P2,000,000 B. P1,960,000 C. P2,400,000 D. P2,030,000

37. The term “net operating loss” shall mean

A. The excess of allowable deductions (excluding NOLCO and any deductible item under special laws does not
involve any cash outlay) over gross income of the business in a taxable year.
B. The excess of the ordinary itemized deductions over gross income of the business in a taxable year.
C. The excess of optional standard deduction over gross income of the business in a taxable year.
D. Loss incurred which shall be carried over as a deduction from gross income to be spread for th e next three
years.

38. For mines other than oil and gas wells, a net operating loss without the benefit of incentives under Executive
Order 226, as amended, otherwise known as Omnibus Investment code of 1987, may be carried over as a
deduction from taxable income, if incurred in any of the
A. First 10 years of operation
B. First 4 years of operation
C. First 3 years of operation
D. First 5 years of operation

39. Using the preceding number, such net operating loss can be carried as deduction from taxable income, within
how many years immediately following the year of such loss?
A. 5 years
B. 3 years
C. 10 years
D. 4 years

40. Atty. A rendered the following services during the year:

Gross receipts from legal fees P3,000,000
Value of 60 hours assistance to indigent client 200,000
Value of other pro-bono services 150,000
Direct cost of services 1,200,000
Other deductible expenses 900,000

The taxable net income of Atty. A is

A. P550,000 B. P720,000 C. P750,000 D. P900,000

41. ABC Corporation employs regular people, persons with disabilities (PWDs) and senior citizens as employees, and
pays the following compensation:
Regular employees P800,000
PWD employee 300,000
Senior citizen employee with salary grade:
A. Above poverty level 200,000
B. Below poverty level 100,000

The deductible compensation expense is

A. P1,400,000 B. P1,490,000 C. P1,115,000 D. P1,500,000

42. Healthy Drugs Corporation had the following data during the year:
Transactions Customer Totals
Regular Senior Citizen
 Sales (net) P8,000,000 P3,200,000 P11,200,000
Cost of Sales 5,000,000 2,000,000 7,000,000
Other Deductible expenses 2,000,000

Healthy adopts a policy of giving senior citizens a 20% discount. As a result, it granted P800,000 total senior
citizen’s discount during the year. The taxable net income is
A. P2,000,000 B. P1,400,000 C. P2,200,000 D. P1,250,000

Use the following data for the next two (2) questions:
Delicious Eatery Corporation provides 20% discount to senior citizens. It recorded the following during the year:
Transactions Customer Totals
Regular Senior Citizen
Receipts (net) P8,000,000 P2,000,000 P10,000,000
Cost of Sales 6,000,000
Other Deductible expenses 2,000,000

43. The regular and special itemized deductions from gross income total:
A. P2,500,000 B. P2,400,000 C. P2,000,000 D. P1,600,000

44. Using the above data, the taxable net income is

A. P1,600,000 B. P2,000,000 C. P1,500,000 D. P1,000,000

45. To improve productivity, ABC Corporation negotiated a productivity incentive program wherein the employees
will receive productivity bonuses equivalent to 40% of production cost savings measured by an independent
expert. ABC requires employees to undergo studies through an “employee advancement study program” with
TESDA. All employees who finished their special studies are required to remain at ABC for a period of at least 2
years. The following were determined during the year:
Cost of special studies:
Managerial employees P2,000,000
Rank and file employees 4,000,000
Total distributable productivity bonus 2,000,000
Total P8,000,000

The allowable deduction for the benefits given is

A. P8,000,0000 B. P9,000,000 C. P10,000,000 D. P11,000,000

46. Dick Tracy Corporation paid the following expenses during the year:
Interest for late payment (delinquent) income tax P5,000
Surcharge and compromise for late payment of income tax 30,000
Interest on bonds issued 40,000
Interest on money borrowed by the Company from a stockholder who owns 80% of 20,000
the outstanding stock of the Company

What is Dick Tracy Corporation’s deductible expense?

A. P45,000 B. P75,000 C. P95,000 D. P60,000

47. Mr. Alian Bautista is engaged in the business of buying and selling of used cars. In the taxable year, he sold a
used car to his first cousin thereby incurring a loss of P50,000. Allan’s acquisition cost of the car was P100,000.
Can Allan deduct the loss in his ITR in computing his income tax payable?
A. No. The loss is a personal, and not connected with his business.
B. No. The loss is connected with his business, but the loss is between related parties under Section 36 (B) of
the Tax Code.
C. Yes. The loss is a capital loss which can be offset against capital gains the are includible in the ITR.
D. Yes. The loss is connected with his business, and is not betwe en related parties.

Use the following data for the next two (2) questions:
ABC, is a domestic corporation engaged in the merchandise business. For the calendar year 2018, it had a net
income per books of P500,000, after considering, among others, the following:

a. Dividend received from a domestic corporation P30,000

 b. Provision for doubtful accounts 10,000
c. Dividend received from a foreign corporation 20,000
d. Portion of P150,000 advance rental already earned 20,000
e. Recovery of receivables previously written off
I. Previously allowed by the BIR as deduction 10,000
II. Previously disallowed by the BIR as deduction 30,000
f. Refund of deductible taxes
I. Previously allowed by the BIR as deduction 25,000
II. Previously disallowed by the BIR as deduction 15,000
g. Bank interest income
I. Philippine Bank 80,000
II. USA Bank 100,000

48. The taxable net income is

A. P485,000 B. P365,000 C. P375,000 D. P405,000

49. In the preceding problem, if the amounts in items (e) and (f) are included as part of book net income, the taxable
net income is:
A. P485,000 B. P375,000 C. P365,000 D. P405,000

50. The net operating loss incurred in a taxable year during which the taxpayer was exempt from income tax shall
A. Be carried over as a deduction from gross income for the next taxable year.
B. Be carried over as a deduction from gross income for the next 3 consecutive taxable years.
C. Be carried over as a deduction from gross income for the next 5 consecutive taxable years.
D. Not be allowed as a deduction from the next taxable year.

51. Statement 1: Under Sec. 34 (L) of the Tax Code, as amended by R.A. No. 10963 (TRAIN), a general professional
partnership and the partners comprising such partnership may avail of the OSD only once, either the by GPP or
the partners comprising the partnership.

Statement 2: The partners of a GPP can may avail either the Itemized Deduction or the OSD against their
distributive shares if the basis of such distributive share is the GPP’s gross income, and not its net income. This
means that the GPP does not avail either of the Itemized Deductions nor of the OSD in computing the basis of
the distributive shares of the partners.
A. Both are true
B. Only Statement 1 is true
C. Only Statement 2 is true
D. Both are false
 ESTATES AND TRUSTS

1. The property, rights and obligation of a person which are not extinguished by this death and those which accrued
thereto since the opening of succession.
A. Assets B. Capital C. Estate D. Income

2. The term applied to the person whose property is transmitted through succession, whether or not be left a will
A. Decedent B. Transferor C. Transferee D. Grantor

3. The term applied to the answer in No. 2 if he left a will

A. Transferor B. Grantor C. Donor D. Testator

4. The person called to the succession either by the provision of a will or by operation of law
A. Heir B. Devisee C. Donor D. Testator

5. The person to whom a gift of real property is given by virtue of a will

A. Heir B. Devisee C. Legatee D. Trustor

6. The person to whom a gift of personal property is given by virtue of a will

A. Heir B. Devisee C. Legatee D. Trustor

7. The person who establishes a trust

A. Heir B. Devisee C. Legatee D. Trustor

8. The person in whom confidence is reposed as regards property for the benefit of another person
A. Devisee B. Trustee C. Legatee D. Heir

9. The person for whose benefit the trust has been created
A. Legatee B. Heir C. Beneficiary D. Trustee

10. For income tax purposes, any person or corporation that holds in trust an estate (or property) of another person
or persons
A. Beneficiary B. Fiduciary C. Legatee D. Devisee

11. Which of the following statements is correct?

A. Estates and trusts are allowed as personal exemption of P50,000 if the executor or trustee is married.
B. The income tax rates for corporate taxpayers apply to taxable estates and trusts.
C. The taxable year of estates and trusts may be calendar or fiscal year.
D. For a trust to be taxable, it must be irrevocable, both as to corpus (principal) and income

12. A died on January 2, 2018, survived by his wife and four qualified dependent children. He left a net estate of
P80,000,000 which is in the hands of an executor. In 2018, the estate gross receipts of P7,000,000, cost of
sales of P4,000,000, business expenses of P2,200,000, and non-operating income of P100,000. The net taxable
income of the estate in 2018 is
A. P800,000 B. P650,000 C. P900,000 D. P1,000,000

Gross Receipts 7,000,000

Less: C ost of Sales (4,000,000)
Less: Business Expenses (2,200,000)
Add: Other Income 100,000
Taxable Income 900,000

13. A died on January 2, 2018 leaving a net estate of P4,000,000. The estate is in the hands of an executor. B, a
nephew of A, married, is one of the heirs of A.

In 2019, the estate had a gross income of P800,000 and expenses of P500,000 on the properties in the estate.
B, has his own gross sales of P600,000, cost of sales of P400,000, and business expenses of P120,000. The
executor distributed to B the following:
From the properties in the estate P250,000
From the current year’s income, net of 15% CWT 85,000

For 2019, both the administrator of A’s estate, and B did not avail of the 8% income tax rate option.
 Determine:
a. The taxable income of the estate in 2019
b. The taxable income of B in 2019
c. Income tax payable/refund of B in 2019

a. P200,000
b. P180,000
c. P15,000 refund

Estate (a)
Gross Income 800,000
Less: Business Expenses (500,000)
Income distributed to beneficiary (100,000) (85,000/85%)
Taxable Income 200,000

Heir B (b)
Gross Income 600,000
Less: C ost of Sales (400,000)
Less: Business Expenses (120,000)
Add: Amt. received from the income of the trust 100,000 (85,000/85%)
Taxable Income 180,000 Tax Exempt

Tax Exempt 180k < 250K Tax Refund of Heir B (c )

85,000/85% 100,000
C WT (15%) 15%
Tax Refund 15,000
 CORPORATIONS

1. ABC, a corporation registered in Norway, has a 50MW electric power plant in San Jose, Batangas. Aside from
ABC’s income from its power plant, which among the following is not considered as part of its income from
sources within the Philippines?
A. Gains from the sale to an Ilocos Norte power plant of generator bought from the United States.
B. Interest earned on its dollar deposits in a Philippine bank under the Expanded Foreign Currency Deposit
System.
C. Gain from the sale, in London of shares of stock and other securities of San Miguel Corporation, a domestic
corporation.
D. Royalties from the use in Brazil of generator sets designed in the Philippines by its engineers.

2. Aplets Corporation is registered under the law of the Virgin Islands. It has extensive operations in Southeast
Asia. In the Philippines, its products are imported and sold at a mark-up by its exclusive distributor, Kim’s
Trading, Inc. The BIR compiled a record of all the imports of Kim from Aplets and imposed a tax on Aplets’s net
income derived from its exports to Kim. Is the BIR correct?
A. Yes. Aplets is a non-resident foreign corporation engaged in trade or business in the Philippines.
B. No. The tax should have been computed on the basis of gross revenues and not net income.
C. No. Aplets is a non-resident foreign corporation not engaged in trade or business in the Philippines.
D. Yes. Aplets is doing business in the Philippines through its exclusive distributor Kim’s Trading Inc.

3. ABC Inc., a corporation registered and holding office in Australia, not operating in the Philippines, may be subject
to Philippine income taxation on
A. Gains it derived from sale in Australia of an ore crusher it bought from the Philippines with the proceeds
converted to pesos.
B. Gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine
corporation.
C. Dividends earned from investment in a foreign corporation that derived 40% of its gross income from
Philippine sources.
D. Interest derived from its dollar deposits in a Philippine bank under the Expanded Foreign Currency Deposit
System.

4. A corporation organized and created under the laws of a foreign country and is authorized to do business trade
in the Philippines is
A. Domestic corporation
B. Resident foreign corporation
C. Government owned and controlled corporation
D. Non-profit hospital

5. A domestic corporation may employ, as a basis for filing its annual corporate income tax return the:
A. Calendar year only
B. Fiscal year only
C. Either calendar or fiscal year
D. Neither calendar or fiscal year

6. A corporation files quarterly return within

A. 30 days after the end of each of the first 3 quarters
B. 60 days after the end of each of the first 3 quarters
C. 30 days after the end of each of the first 4 quarters
D. 60 days after the end of each of the first 4 quarters

7. A final or annual return is filed on or before the 15th day of the

A. Month following the close of the taxable year
B. 2nd month following the close of the taxable year
C. 3rd month following the close of the taxable year
D. 4th month following the close of the taxable year

8. One of the general principles of income taxation:

A. A foreign corporation engaged in business in the Philippines is taxable on all income derived from sources
within and without the Philippines
B. A foreign corporation engaged in business in the Philippines is taxable on all income derived from sources
within the Philippines only.
C. A domestic corporation is taxable on income derived from sources within the Philippines only.
D. A domestic corporation is taxable on income derived from sources without the Philippines only.
9. One of the following does not fall under the definition of a “corporation” for income tax purpose:
A. General partnership
B. Joint stock company
C. Insurance company
D. Sole proprietorship

10. Which of the following is subject to the income tax?

A. A non-stock and non-profit educational institution
B. Public educational institution
C. Civic league or organization not organized for profits and operated exclusively for the promotion of social
welfare
D. Mutual savings bank and cooperative bank having a capital stock represented by shares organized and
operated for mutual purposes and profit

11. The Philippine Health Insurance Corporation (Philhealth), a government-owned corporation is:
A. Exempt from the corporate income tax
B. Subject to the preferential corporate income tax for special corporation
C. Subject to the basic corporate income tax
D. Subject to final tax

12. Public educational institution, like the University of the Philippines is deemed by law:
A. Subject to the preferential corporate income tax for special corporations.
B. Subject to the basic corporate income tax.
C. Subject to both the preferential income tax and the basic corporate income tax.
D. Exempt from the corporate income tax.

13. Which is not correct? The following are exempt from the corporate income tax:
A. Local water districts
B. Bureau of Internal Revenue
C. Government owned or controlled corporation
D. Social Security System

14. Which of the following may be subject to the corporate income tax?
A. A non-stock and non-profit educational institution
B. A public educational institution
C. A private educational institution
D. Government Service Insurance System

15. Which of the following statements is not correct?

A. MCIT is not applicable to resident foreign corporations
B. The corporate quarterly return shall be filed within 60 days following the close of each of the first three
quarters of the taxable year.
C. Resident foreign corporations would be taxed on net income from within the Philippines only.
D. Non-resident foreign corporations are taxed on gross income from within the Philippines only.

16. The following income are subject to final tax, except

A. Royalty income received by a domestic corporation from a domestic corporation.
B. Cash dividends received by a non-resident foreign corporation from a domestic corporation
C. Cash dividends received by a domestic corporation from a domestic corporation
D. Interest income from a Peso deposit received by resident foreign corporation form a Philippine bank.
E. Branch profit remitted by a branch so the head office of a resident foreign corporation.

17. The MCIT shall not apply to the following resident foreign corporation, except
A. RFC engaged in business as international carrier subject to 2 ½ % of their Gross Philippine Billings
B. RFC engaged in business as Offshore Banking Units on their income from foreign currency transaction with
local commercial banks.
C. RFC engaged in business as registered operating headquarters
D. RFC engaged in hotel, motel and resort operations

18. If the gross income from unrelated activity exceeds 50% of the total gross income derived by any private
educational institution, the tax rate shall be the regular 30% based on the entire taxable income. This is known
as the
 A. Constructive receipt
B. Tax benefit rule
C. End trust doctrine
D. Predominance test

19. For income tax purposes, term “corporation” excludes one of the following:
A. Ordinary partnership
B. An incorporated business organization
C. General professional partnership
D. Business partnership

20. A domestic corporation’s record show:

Quarter Normal MCIT per Taxes Excess MCIT Excess
Income Tax Quarter Withheld per Prior Year Withholding
per Quarter Quarter Tax Prior Year
First P100,000 P80,000 P20,000 P30,000 P10,000
Second 120,000 250,000 30,000
Third 250,000 100,000 40,000
Fourth 200,000 100,000 35,000

The income tax due and income tax payable, respectively, for the first quarter are
A. P100,000; P100,000
B. P100,000; P80,000
C. P100,000; P50,000
D. P100,000; P40,000

21. The income tax due and income tax payable, respectively, for the second quarter are
A. P330,000; P120,000
B. P330,000; P250,000
C. P330,000; P150,000
D. P330,000; P230,000

22. The income tax due and income tax payable, respectively, for the third quarter are
A. P470,000; P250,000
B. P470,000; P100,000
C. P470,000; P140,000
D. P470,000; P70,000

23. The income tax due and income tax payable, respectively, for the year are
A. P670,000; P200,000
B. P670,000; P100,000
C. P670,000; P135,000
D. P670,000; P165,000

24. Using the preceding problem except that the normal income tax for the fourth quarter is P50,000 (instead of
P200,000), the income tax still due for the year is
A. P120,000
B. P55,000
C. P45,000
D. P75,000

25. Any income from transactions with depository banks under the expanded foreign currency deposit system shall
be exempt from income tax if derived by a
A. Domestic corporation
B. Resident foreign corporation
C. Non-resident foreign corporation
D. Resident alien

The records of a domestic corporation organized in 2000 show:

2016 2017 2018
Gross income P2,000,000 P3,000,000 P4,000,000
Other income:
Capital gain from sale of commercial land 400,000 500,000
Interest income from bank deposit 80,000 96,000
 Capital gain from sale of shares of stock listed 60,000 70,000
Allowable deduction 1,940,000 3,100,000 3,500,000

Use 30% and 2%

26. The income tax payable in 2016 is

A. P138,000 B. P40,000 C. P42,000 D. P18,000

27. What is the accounting entry for the excess MCIT in 2016?
A. Dr. Provision for income tax P18,000
Dr. Deferred charges – MCIT (2016) P22,000
Cr. Income tax payable P40,000

B. Dr. MCIT (2016) P18,000

Cr. Income tax payable P18,000

C. Dr. Income tax payable P40,000

Cr. Excess MCIT (2016) P22,000
Cr. Cash P18,000

D. None of the above

28. The taxable income in 2018 is

A. P400,000 B. P900,000 C. P1,000,000 D. P500,000

29. The income tax payable in 2018 is

A. P150,000 B. P120,000 C. P38,000 D. P68,000

30. What are the accounting entries to properly record the income tax payable in 2018?
A. Dr. Provision for income tax P120,000
Cr. Deferred charges – MCIT (2016, 2017) P82,000
Cr. Income tax payable P38,000

B. Dr. Provision for income tax P38,000

Cr. Income tax payable P38,000

C. Income tax payable P120,000

Cr. Cash P120,000

D. None of the above

PARTNERSHIP, JOINT VENTURE AND CO-OWNERSHIP

1. As regards a business partnership, which of the following is not correct?

A. The partnership must file quarterly and year end income tax returns.
B. The distributable income available to the partners is the taxable income less the income tax thereon.
C. The share of a partner in the distributable net income, even if not actually received is considered
constructively received by the partner.
D. The share of a partner in the distributive net income whether actually received or not is subject to a final
withholding tax on dividends.

2. The following statements regarding taxable partnership are correct, except

A. They file quarterly and year-end income tax returns.
B. They are subject to the rules on corporation for capital gains tax, final tax on passive income, normal income
tax, MCIT and gross income tax
C. The partner’s share in the distributable net income is subject to final tax.
D. They are subject to the improperly accumulated earnings tax.

3. Regarding a general professional partnership, which of the following is not correct?

A. It shall not be subject to income tax.
B. The partners shall be liable for income tax on their respective distributive shares.
C. Each partner shall report as gross income his distributive share in the partnership net income.
 D. The share of a partner shall be subject to a creditable withholding tax of 10% if his distributive share is
below P720,000 and 15% if at least P720,000.

4. If a partner, on his own transaction, is on the cash method of accounting while the general professional
partnership is on the accrual method of accounting, in the partner’s determination of his taxable income for the
year, he
A. Must convert his income from the partnership into cash method.
B. Must convert his own income into accrual method.
C. Does not report his income from the partnership because the partnership is exempt from income tax.
D. Cash consolidated his share in the net income of the partnership under accrual method with his own income
under the cash method.

5. Which of the following statements is not correct?

A. When the co-owners invest the income of the property co-owned in a business or in any income producing
properties or activities continuing themselves into a business partnership, such partnership is consequently
subject to tax as a corporation.
B. As a rule, a co-ownership is not subject to income tax because the activities of the co-owners are limited to
the preservation and enjoyment of the property and the collection of the income therefrom.
C. A co-owner is subject to income tax on his share in the net income of the co-ownership actually or
constructively received.
D. All partnership, no matter how created or organized, are considered corporations subject to corporate
income tax.

6. As regards an ordinary partnership, which of the following statements is correct?

A. Partners’ shares are subject to final tax, hence the partnership need not file an ITR.
B. Subject to improperly accumulated earnings tax.
C. Treated like corporations, hence partners have limited liability.
D. Partners’ shares, even if distributed, will not be included in their respective ITRs.

7. As regards a general professional partnership, which of the following statements is correct?

A. Treated like a corporation, hence it is subject to the corporate income tax.
B. It is exempt from income tax, hence it need not file an ITR.
C. Partners’ shares are subject to final tax.
D. Partners’ shares will be included in their respective ITRs, whether distributed or not.

8. Statement 1: A CPA and a Lawyer may form a general co-partnership to sell law and accounting books.
Statement 2: Partnership and Corporations have separate juridical personalities distinct from the owners.
Therefore, partners and stockholders are not liable to creditors of the business.
A. True; true
B. False; false
C. False; true
D. True; false

9. Statement 1: The general professional partnership may claim itemized deductions in computing its net income
and a partner may also claim itemized deductions in computing his net income.
Statement 2: The general professional partnership may claim the optional standard deduction in computing its
net income while a partner may claim itemized deductions in computing his net income.
A. True; true
B. True; false
C. False; true
D. False; false

10. Statement 1: The general professional partnership may claim itemized deductions in computing its net income
while a partner may claim the optional standard deduction in computing his net income.
Statement 2: The general professional partnership may claim the optional standard deduction in computing its
net income and a partner may also claim the optional standard deduction in computing his net income.
A. True; true
B. True; false
C. False; true
D. False; false

11. The net share received by a partner in a general professional partnership is

A. Part of his taxable income in his ITR.
B. Exempt from income tax.
 C. Subject to 10% creditable withholding tax
D. Subject to final tax

12. The net share received by a partner is a general co-partnership is

A. Part of his taxable income
B. Exempt from income tax
C. Subject to 10% creditable withholding tax
D. Subject to final tax

13. A lawyer was rejected by his extremely sexy and gorgeous secretary. He became so engaged that he raped her
10 times within 15 minutes. Since then, be become known in the media as the “Machine Gun Rapists.” For his
defense, he obtained the services of ACCRA, the biggest law partnership in the Philippines. ACCRA asked for a
fee of P10,000,000 for its legal services in defending him. How much should the lawyer withhold in CWT from
ACCRA’s fee?
A. 10% B. 15% C. 5% D. None
 CORPORATIONS

Corporate Taxpayers/Principles

1. RA 10963, otherwise known as the Tax Reform for Acceleration and Inclusion Act (TRAIN Law) took effect on
A. December 13, 2017
B. December 14, 2017
C. December 19, 2017
D. January 1, 2018

2. RA 11534, otherwise known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE Law) took
effect on
A. July 1, 2020
B. March 26, 2021
C. March 27, 2021
D. April 11, 2021

3. The term “Corporation” shall include

I. One Person Corporation
II. Partnerships, no matter how created or organized
III. Joint stock companies
IV. Joint accounts (cuentas en participacion)
V. Associations
VI. Insurance companies
VII. Mutual fund companies
VIII. Regional operating headquarters of multinational corporations

A. I and II only
B. I, II and III only
C. I, II, III, IV and V only
D. All of the above

4. _____are constituted when a group of individuals, acting jointly, establish and operate business enterprise under
an artificial name, with an invested capital divided into transferable shares, an elected board of directors, and
other corporate characteristics, but operating without formal government authority.
A. Joint stock companies
B. Joint account companies
C. Associations
D. None of the above

5. _____is constituted when one interests himself in the business of another by contributing capital thereto, and
sharing in the profits or losses in the proportion agreed upon. They are not subject to any formality and may
be privately contracted orally or in writing.
A. Joint stock companies
B. Joint account
C. Associations
D. None of the above

6. _____it includes all organizations which have substantially the salient features of a corporation to be taxable as
a “corporation.”
A. Joint stock companies
B. Joint account
C. Associations
D. None of the above

7. Which of the following is not treated as corporation?

A. General professional partnership
B. A joint venture or consortium formed for the purpose of undertaking construction projects
C. A joint or consortium for engaging in petroleum, coal, geothermal and other energy operations pursuant to
an operating consortium agreement under a service contract with the government.
D. All of the above.
8. Statement 1: Partnerships, no matter how created or organized, are taxable as corporations for income tax
purposes.

Statement 2: Associations and mutual fund companies, for income tax purposes, are excluded in the definition
of corporations.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

9. Which of the following is not a taxable corporation?

A. Ana, Lorna, and Fe agreed to contribute their money into a common fund to engage in the business of
buying and selling consumer goods. Their total investment amounted to P300,000 and they did not bother
to register their business with the DTI and the SEC.
B. Pedro, Juan and Luna, all certified public accountants, agreed to contribute their money, property and
industry to a common fund with the sole intention of jointly exercising their common profession. They have
registered with the SEC.
C. Victorious Bus Company and California Bus Company owns separate franchises to operate a public utility
covering the area of Northern Luzon. To achieve maximum efficiency of utilizing their assets and to avoid
the negative effects of competition, the two companies agreed to pool their resources together and operate
as a single company.
D. Rody and Allan, lawyer and certified public accounts, respectively, agreed to contribute their money,
property and industry to a common fund to render service of business process outsourcing.

10. Which is not a characteristic of corporate income tax:

A. Progressive tax
B. Direct tax
C. General tax
D. National tax

11. Which of the following is subject to income tax?

A. SSS and GSIS
B. Philippine Health Insurance Corporation (PHIC)
C. Local Water Districts
D. Philippine Amusement and Gaming Corporation (PAGCOR)

12. One of the following is exempt from income tax

A. Proprietary educational institutions
B. Private cemeteries
C. Government educational institutions
D. Mutual savings bank

13. Statement 1: Corporations exempt from income tax are not subject to income tax on incomes received which
are incidental or necessarily connected with the purposes for which they were organized and operating.

Statement 2: Corporations exempt from income tax are subject to income tax on income of whatever kind and
character from any of their properties (real or personal) or from any other activity conducted for profit, regardless
of the disposition of such income.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

14. Which of the following statements is incorrect? “Joint Stock Companies” are constituted when a group of
individuals, acting jointly, establish and operate business enterprise.
A. Under an artificial name.
B. With an invested capital divided into transferable shares.
C. An elected board of directors, and other corporate characteristics.
D. Operating with formal government authority.

15. A “Joint Account” is constituted when one interests himself in the business of another by/and
I. Contributing capital thereto.
II. Sharing in the profits or losses in the proportion agreed upon.
III. They are not subject to any formality.
IV. It may be privately contracted orally or in writing.
A. I and II only
 B. I, II and III only
C. I, II, III and IV
D. None of the above

16. Statement 1: Joint ventures, regardless of the purpose by they were created, are generally exempt from
corporate income tax.
Statement 2: The share of a co-venturer corporation in the net income of tax exempt joint venture or consortium
is subject to corporate income tax.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

DC, RFC and NRFC

17. It is important to know the sources of income for tax purposes, i.e., from within and without the Philippine,
because:
A. Some individual and corporate taxpayers are taxed on their worldwide income while others are taxable only
from sources within the Philippines.
B. The Philippines imposes income tax only on income from sources within.
C. Some individual taxpayers are citizens while other are aliens.
D. Export sales are not subject to income tax.

18. Which of the following statements is correct?

I. The term “ domestic”, when applied to a corporation, means created or organized in the Philippines or under
the laws of a foreign country as long as if maintains a Philippine branch.
II. A corporation which is not domestic may be a resident (engaged in business in the Philippines) or
nonresident corporation (not engaged in business in the Philippines).
III. Resident foreign corporations are subject to income tax based on net income from sources within the
Philippines.
A. I only
B. II only
C. II and III only
D. I, II and III

19. Statement 1: Non-resident foreign corporation applies to a foreign corporation engaged in trade or business
within the Philippines.

Statement 2: Resident foreign corporation applies to a foreign corporation not engaged in trade or business in
the Philippines.
A. Statements 1 and 2 are false
B. Statement 1 is true but statement 2 is false
C. Statement 1 is false but statement 2 is true
D. Statements 1 and 2 are true

20. Which of the following is taxable based on income from all sources, within and without?
A. Domestic Corporations
B. Resident Foreign Corporations
C. Non-resident Foreign Corporations
D. All of the choices

21. The term applies to a foreign corporation engaged in trade or business in the Philippines
A. Resident foreign corporation
B. Nonresident foreign corporation
C. Multinational corporation
D. Petroleum contractor

22. Which of the following does not have the benefit of claiming in computing income tax?
A. Domestic Corporations
B. Resident Foreign Corporations
C. Non-resident Foreign Corporations
D. All of the choices
23. Which of the following corporations shall pay a tax equal to thirty percent (30%) of the gross income received
under the TRAIN Law and twenty five percent (25%) upon effectivity of CREATE, from all sources within the
Philippines?
A. Domestic corporation
B. Resident foreign corporation
C. Nonresident foreign corporation
D. None of the choices

24. Aside from the regular corporate income tax, what other tax(es) may be imposed on corporations under the
Philippine income tax laws?
A. Minimum corporate income tax
B. FWT on passive income
C. Capital gains tax
D. All of the above

COMPUTATION OF RCIT UNDER TRAIN LAW AND CREATE

Use the following data for the next six (6) questions:

A domestic corporation has the following income and expenses for the year:
Phils. Abroad
Gross sales P100,000,000 P50,000,000
Cost of sales 40,000,000 20,000,000
Operating expenses 30,000,000 12,000,000

25. How much is the income tax due assuming the taxable year is 2019?
A. P12,000,000
B. P13,200,000
C. P14,400,000
D. P18,000,000

26. How much is the income tax due assuming the taxable year was 2020?
A. P12,000,000
B. P13,200,000
C. P14,400,000
D. P18,000,000

27. How much is the income tax due assuming the taxable year is 2021?
A. P12,000,000
B. P13,200,000
C. P14,400,000
D. P18,000,000

28. How much is the income tax due assuming the taxable year is 2021 and the Company’s total assets amounted
to P80 million only?
A. P9,600,000
B. P12,000,000
C. P14,400,000
D. P18,000,000

29. How much is the income tax due assuming the taxable year is 2021 and the Corporation is a resident foreign
corporation?
A. P7,500,000
B. P13,200,000
C. P14,400,000
D. P18,000,000

30. How much is the income tax due assuming the taxable year is 2021 and the Corporation is a nonresident
foreign corporation?
A. P7,500,000
B. P13,200,000
C. P14,400,000
D. P15,000,000
31. CREATIVE Corporation, a domestic corporation, has the following income and expenses for 2020 taxable year:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Gross sales P1,000,000 P1,500,000 P2,500,000 P5,000,000
Cost of sales 600,000 800,000 1,400,000 2,200,000
Operating expenses 200,000 500,000 800,000 700,000

Additional data:
• The company’s assets amounted to P25,000,000

How much is the income tax due?

A. P300,000
B. P450,000
C. P750,000
D. P825,000

32. Using the same data in the immediately preceding number and assuming further that the taxable year was 2021,
how much is the correct income tax due for 2021?
A. P300,000
B. P450,000
C. P750,000
D. P825,000

33. Using the same data in the immediately preceding number and assuming further that the company is a resident
foreign corporation, how is the correct income tax due for 2021?
A. P300,000
B. P450,000
C. P750,000
D. P825,000

34. TENTATIVE Corporation, a resident foreign corporation, has the following income and expenses in the
Philippines for 2019 FISCAL year:
Oct. 2019 to June 2020 July to Sept. 2020
Gross sales P2,000,000 P8,000,000
Cost of sales 1,000,000 4,000,000
Operating expenses 400,000 1,600,000

How much is the income tax due for 2019 fiscal year?
A. P187,500
B. P675,000
C. P750,000
D. P862,500

35. A domestic corporation has the following income and expenses for 2021 taxable year”
Gross sales P20,000,000
Cost of sales 10,000,000
Operating expenses 3,800,000
Assets 48,000,000

How much is the income tax due?

A. P1,240,000
B. P1,550,000
C. P1,860,000
D. P3,000,000
36. ABC Corporation, a domestic corporation has the following income and expenses for 2021 taxable year:
Gross sales P20,000,000
Cost of sales 10,000,000
Operating expenses 6,500,000

How much is the income tax due?

A. P600,000
B. P700,000
C. P800,000
D. P875,000

37. CREATE Corporation, a domestic corporation and a retailer of goods has gross sales of P1,400,000 with a cost
of sales of P580,000,000 and allowable deductions of P150,000,000 for the calendar year 2021. Its total assets
of P180,000,000 as of December 31, 2021 per Audited Financial Statements includes the land costing
P50,000,000 and the building of P25,000,000 in which the business entity is situated, with an aggregate amount
of P75,000,000 as Fixed Assets.

How much is the income tax due in 2021?

A. P125,000,000
B. P138,000,000
C. P172,500,000
D. P207,000,000

38. Maasahan Corporation, a domestic corporation and a retailer of goods has gross sales of P14,000,000 with a
cost of sales of P7,600,000 and allowable deductions of P2,500,000 for the calendar year 2021. Its total assets
of P150,000,000 as of December 31, 2021 per Audited Financial Statements includes the land costing
P50,000,000 and the building of P25,000,000 in which the business entity is situated, with an aggregate amount
of P75,000,000 as Fixed Assets.

How much is the income tax due in 2021?

A. P60,000,000
B. P780,000
C. P975,000
D. P1,170,000

39. Matatag Corporation, a domestic corporation and a retailer of goods has gross sales of P14,000,000 with a cost
of sales of P7,600,000 and allowable deductions of P2,500,000 for the calendar year 2021. Its total assets of
P150,000,000 as of December 31, 2021 per Audited Financial Statements includes the land costing P40,000,000
and the building of P30,000,000 in which the business entity is situated, with an aggregate amount of
P70,000,000 as Fixed Assets.

How much is the income tax due in 2021?

A. P60,000,000
B. P780,000
C. P975,000
D. P1,170,000

40. Hananiah Corporation, a corporation engaged in business in the Philippines and abroad has the following data
for 2021 taxable year:
Gross Income, Philippines P975,000
Expenses, Philippines 750,000
Gross income, Malaysia 770,000
Expenses, Malaysia 630,000
Interest on bank deposit 25,000
Assets 15,000,000

Determine the income tax due assuming the corporation is:

Domestic Res. Foreign Corp. Non-resident Foreign Corp.
A. P116,800 P72,000 P320,000
B. P109,500 P67,500 P300,000
C. P73,000 P56,250 P250,000
D. P91,250 P56,250 P250,000
 RCIT VS. MCIT UNDER TRAIN LAW AND CREATE GROSS INCOME TAX (GIT)

41. Which of the following statements is correct?

I. A minimum corporate income tax (MCIT) of 1% of gross income from July 1, 2020 to June 30, 2023 and
2% beginning July 1, 2023 is imposed upon any domestic corporation and resident foreign corporation
beginning on the 4th taxable year immediately following the taxable year in which such corporation
commenced its business operations.
II. MCIT shall be imposed whenever such corporation has zero or negative taxable income or when the amount
of MCIT is greater than normal income tax due from such corporation.
III. The computation and the payment of MCIT, shall likewise apply at the time of filing the quarterly corporate
income tax.
A. I and II only
B. II and III only
C. I, II and III
D. None of the above

42. A domestic corporation was registered with the BIR in 2018. What year would the first MCIT will be imposed on
such corporation?
A. 2020
B. 2021
C. 2022
D. 2023

43. Prior to the effectivity of CREATE law, MCIT shall apply to which of the following resident corporations?
I. International carrier
II. Offshore banking units (OBUs) on their income from foreign currency transactions with local commercial
banks
III. Regional headquarter

A. I only
B. I and II only
C. I, II, and III
D. None of the above

44. Upon the effectivity of CREATE law, MCIT shall apply to which of the following resident foreign corporations?
I. International carrier
II. Offshore banking units (OBUs) on their income from foreign currency transactions with local commercial
banks
III. Regional headquarters

A. II only
B. I and II only
C. I, II, and III
D. None of the above

45. Which of the following scenarios presented below is subject to MCIT?

Scenario 1: The corporation is exempt from income tax by virtue of tax holidays granted by the Board of
Investment.

Scenario 2: The corporation is subject to 5% tax in lieu of all types of taxes such as firms that are taxed under
special income tax regime like PEZA registered firms.

A B C D
Scenario 1 Yes Yes No No
Scenario 2 Yes No No Yes

46. The minimum corporate income tax is imposed on:

A. Proprietary educational institutions
B. General professional partnerships
C. Business partnerships
D. All of the above

47. Jose, Aquino and Ongpin are classmates during their college days. After five (5) years from their admission to
the Accountancy Profession, they have decided to form a partnership whose sole purpose is the joint exercise of
 their common profession. Five (5) years into the partnership, they have decided to offer CPA review classes to
aspiring CPAs and they did so via JAO CPA Review Incorporated, a corporation whose shares are owned by them
divided equally. Which of the following conclusions is correct?
A. The professional fees earned by the firm shall be exempt from income tax to the partnership. However, the
respective share of each partner in the net distributable income shall be subjected to 10% final tax on
dividend income.
B. JAO CPA Review Incorporated will be subjected to income tax on its taxable income whereby the applicable
income tax rate shall be 10%.
C. The Firm and the individual partners shall be exempt from income tax.
D. Assuming JAO CPA Review Incorporated is already in its fourth year of operation, it may be subjected to the
minimum corporate income tax (MCIT).

48. The minimum corporate income tax (MCIT) does not apply to a corporation, if
A. Imposition was suspended by the Secretary of Finance due to a corporation’s heavy losses arising from
prolonged labor disputes;
B. Corporation is in its initial year of operation;
C. Corporation is exempt from income tax by virtue of tax holidays granted to it by the Board of Investment;
D. All of the above

49. Of the following is not accepted basis for relief from the MCIT:
A. Prolonged labor dispute
B. Force majeure problems
C. Legitimate business reverses
D. Law suits filed by the company

50. A domestic corporation is generally liable for Minimum Corporate Income Tax. However, the Secretary of
Finance may suspend the imposition of MCIT on any corporation which suffers losses on account of any of the
following, except:
A. Prolong labor disputes
B. Mismanagement
C. Force majeure
D. Legitimate business reverses

51. Substantial losses from a “prolonged labor disputes” mean

A. Losses arising from a strike staged by the employees which lasted for more than six (6) months within a
taxable period.
B. The strike resulted to temporary shutdown of business operations.
C. Both of the above.
D. Non of the above.

52. “Force majeure” includes

A. A cause due to irresistible force as by “Act of God”.
B. Lighting, earthquake, storm, flood and the like.
C. Armed conflicts like war or insurgency.
D. All of the above.

53. If the taxpayer is a seller of services, which of the following shall not form part of its cost of services?
A. Salaries and supplies
B. Employee benefits
C. Depreciation and rental expenses
D. Interest expense

54. The following information were taken from the records of ABC Inc., a domestic corporation in its 4 th year of
operations:
Gross profit from sales P31,000,000
Capital gain on sale directly to buyer of shares in a domestic corporation 1,000,000
Dividend received during the month of December from:
Domestic corporation 200,000
Resident foreign corporation (the ratio of gross income in the Philippines over gross 100,000
income from all sources for the past 3 years is 80%)
Interest on:
Bank deposit 200,000
Trade receivable 500,000
Business expenses 21,000,000
Income tax withheld 1,150,000
Quarterly income tax payments 600,000
 Excess tax payment 2020 100,000
Assets 125,000,000

How much is the income tax payable assuming the taxable year is 2020?
A. P330,000
B. P430,000
C. P1,037,000
D. P1,065,000

55. How much is the income tax payable assuming the taxable year is 2021?
A. P330,000
B. P775,000
C. P800,000
D. P3,180,000

Use the following data for the next two (2) questions:

ABC Inc., a domestic corporation registered with BIR since 2015, has the following data for 2021 taxable year:
Gross receipts P11,500,000
Discounts and allowances 2,500,000
Salaries of personnel directly involved in rendering service 3,000,000
Salaries of administrative personnel 1,000,000
Fees of consultants directly involved in rendering service 500,000
Rental of equipment used in rendering service 700,000
Rental of office space for use of administrative personnel 500,000
Other operating expenses 4,200,000
Assets 35,000,000

56. How much was the income tax due and payable in 2021?
A. P0
B. P66,000
C. P48,000
D. P96,000

57. Continuing the preceding number, the Company provided the following data in 2022:
Gross receipts P120,000,000
Salaries of personnel directly involved in rendering service 38,000,000
Salaries of administrative personnel 12,000,000
Fees of consultants directly involved in rendering service 16,000,000
Rental of equipment used in rendering service 15,000,000
Rental of office space for use of administrative personnel 5,000,000
Other operating expenses 23,000,000

How much was the income tax due and payable in 2022?
A. P48,000
B. P2,477,000
C. P2,525,000
D. P2,750,000

58. A domestic corporation in its 8th year of operations as of January 1, 2021, classified as MSME under CREATE law,
has the following data:
2021 2022
Sales P17,000,000 P23,000,000
Cost of Sales 10,500,000 14,250,000
Operating Expenses 6,750,000 4,800,000

How much is the income tax payable for 2021?

A. P65,000
B. P130,000
C. P350,000
D. Nil

59. The income tax payable in 2022 was:

A. P87,500
B. P675,000
 C. P740,000
D. P1,110,000

60. A domestic corporation registered in 1998, provided the following data:

2021 2022 2023 2024

Gross Sales P25,000,000 P32,000,000 P29,000,000 P35,000,000
Cost of goods sold 18,000,000 20,000,000 19,000,000 18,000,000
Business expenses 7,200,000 11,900,000 10,250,000 9,000,000

Additional information:
• Remaining net operating loss (NOL) from 2018: P50,000
• NOL incurred in 2020: P180,000
• Excess MCIT over RCIT in 2018: P200,000
• Excess MCIT over RCIT in 2020: P80,000
• Assets, P125,000,000

The income tax payable in 2024 should be:

A. P150,000
B. P277,500
C. P617,500
D. P1,527,500

QUARTERLY MCIT

The next five (5) questions are based on the following:

Le Bron Corporation has the following information for 2021 taxable year:
Quarter RCIT MCIT CWT
First P200,000 P160,000 P40,000
Second 240,000 500,000 60,000
Third 500,000 150,000 80,000
Fourth 300,000 200,000 70,000

Additional Information:
• Excess MCIT from 2020: P60,000
• Excess tax credits from 2020: P20,000

61. How much was the income tax payable for the first quarter?
A. P200,000
B. P180,000
C. P120,000
D. P80,000

62. How much was the income tax payable for the second quarter?
A. P660,000
B. P460,000
C. P200,000
D. P160,000

63. How much was the income tax payable for the third quarter?
A. P860,000
B. P120,000
C. P600,000
D. P140,000

64. How much was the annual income tax payable?

A. P1,260,000
B. P390,000
C. P230,000
D. P930,000
65. Using the same data in the preceding problem except that the MCIT on the 4th Quarter was P500,000, how much
was the annual income tax payable?
A. P330,000
B. P1,310,000
C. P380,000
D. P360,000

66. Delta Corporation is a resident foreign corporation operating in the Philippines since 2010. The Company ‘s
income and expenses in 2021 are shown below:
Philippines Hongkong
Gross income P20,000,000 P30,000,000
Business expenses 19,500,000 21,000,000
Interest income from dollar deposit 500,000
Yield on money market placement 1,000,000

How much is the income tax payable in 2021?

A. P125,000
B. P200,000
C. P375,000
D. P450,000

Passive Incomes subject to FWT; Capital Gains subject to CGTs

67. Statement 1: Passive incomes are subject to separate and final tax rates.

Statement 2: Passive income are included in the computation of taxable net income from business operations of
a corporation

A B C D
Statement 1 True False True False
Statement 2 True False False True

68. The following passive income received by a domestic corporation shall be subject to 20% final withholding tax,
except:
A. Interest income from peso bank deposit
B. Yield from deposit substitutes
C. Dividend income from another domestic corporation
D. Royalties

69. Upon effectivity of CREATE law, which of the following dividend is subject to RCIT rate of 25%?
A. Dividend income received by a domestic corporation from another domestic corporation
B. Dividend income received by a domestic corporation from resident foreign corporation
C. Dividend income received by a resident foreign corporation from another resident foreign corporation
D. All of the above

70. Upon effectivity of CREATE law, which of the following dividend may be exempt from income tax?
A. Dividend income received by a resident foreign corporation from another resident foreign corporation
B. Dividend income received by a domestic corporation from nonresident foreign corporation
C. Dividend income received by a nonresident foreign corporation from resident foreign corporation
D. All of the above

71. Foreign-sourced dividend shall pertain to dividend received from:

A. Domestic corporations with operations abroad
B. Resident foreign corporation
C. Nonresident foreign corporation
D. Resident and nonresident foreign corporation

72. Dividend income received by a domestic corporation from a nonresident foreign corporation may be exempt from
income tax, provided:
 A. The dividends actually received or remitted into the Philippines are reinvested in the business operations of
the domestic corporation within the next taxable year from the time the foreign-source dividends were
received or remitted.
B. The dividends received shall only be used to fund the working capital requirements, capital expenditures,
dividend payments, investment in domestic subsidiaries, and infrastructure project, and
C. The domestic corporation holds directly at least twenty percent (20%) in value of the outstanding shares of
the foreign corporation and has held the shareholdings uninterruptedly for a minimum of two (2) years at
the time of the dividends distribution. In case the foreign corporation has been in existence for less than
two (2) years at the time of dividends distribution, then the domestic corporation must have continuously
held directly at least twenty percent (20%) in value of the foreign corporation’s outstanding shares during
the entire existence of the corporation.
D. All of the above.

73. Interest income on bank deposit or investment with maturity period of at least five (5) years received by a
corporation in 2019 taxable year is subject to:
Domestic Resident Foreign Corporation Non-resident Foreign Corporation
A. 20% 20% 30%
B. Exempt Exempt Exempt
C. 20% 20% Exempt
D. 20% Exempt Exempt

74. Interest income on bank deposit or investment with maturity period of at least five (5) years received by a
corporation upon effectivity of the CREATE Law is subject to:
Domestic Resident Foreign Corporation Non-resident Foreign Corporation
A. 20% 20% 30%
B. Exempt Exempt Exempt
C. 20% 20% 25%
D. 20% Exempt Exempt

75. On January 1, 2018, Ms. D. Nagkulang invested P1,000,000 to BDO’s 5-year, tax-free time deposit. The long-
term deposit pays 10% annual interest every January 1. In need of cash, she pre-terminated her investment
on July 1, 2021. How much is the final tax due in 2021?
A. P6,000
B. P12,000
C. P17,500
D. P42,000

76. Assuming the same information in the problem above, except that the investment was made by a domestic
corporation, how much final tax is withheld in the year of pre-termination?
A. P2,500
B. P6,000
C. P10,000
D. P12,000

77. Interest income received by corporations from their deposit under the expanded foreign currency deposit system
(FCDS) prior to the effectivity of CREATE law is subject to FWT rate of:
Domestic Resident Foreign Corporation Non-resident Foreign Corporation
A. 20% 20% 20%
B. 7.5% 7.5% Exempt
C. 15% 15% Exempt
D. 15% 7.5% Exempt

78. Interest income received by corporations from their deposit under the expanded foreign currency deposit system
(FCDS) upon the effectivity of CREATE law is subject to FWT rate of:
Domestic Resident Foreign Corporation Non-resident Foreign Corporation
A. 20% 20% 20%
B. 7.5% 7.5% Exempt
C. 15% 15% Exempt
D. 15% 7.5% Exempt

79. Royalty income received by a corporation prior to the effectivity of CREATE is subject to FWT of:
 Domestic Resident Foreign Corporation Non-resident Foreign Corporation
A. 20% 20% 30%
B. 7.5% 7.5% Exempt
C. 15% 15% Exempt
D. 15% 7.5% Exempt

80. Royalty income received by a corporation upon the effectivity of CREATE is subject to:
Domestic Resident Foreign Corporation Non-resident Foreign Corporation
A. 20% 20% 30%
B. 7.5% 7.5% Exempt
C. 20% 20% 25%
D. 15% 7.5% Exempt

81. Royalty income from books received by a corporation prior to the effectivity of CREATE is subject to FWT rate
of:
Domestic Resident Foreign Corporation Non-resident Foreign Corporation
A. 10% 10% 30%
B. 20% 20% 30%
C. 15% 15% Exempt
D. 15% 7.5% Exempt

82. Royalty income from books received by a corporation upon the effectivity of CREATE law is subject to FWT rate
of:
Domestic Resident Foreign Corporation Non-resident Foreign Corporation
A. 10% 10% 30%
B. 20% 20% 30%
C. 20% 20% 25%
D. 15% 7.5% Exempt

83. During 2021, a domestic corporation derived the following items of revenues:
• Gross receipts from a trading business, P500,000
• Interest from money placements in the banks, P30,000
• Dividends from its stock investments in domestic corporations, P20,000
• Gains from stock transactions through the Philippine Stock Exchange, P50,000
• Proceeds under an insurance policy on the lost of goods, P100,000

How much should the corporation report as taxable income?

A. P500,000
B. P550,000
C. P600,000
D. P650,000

84. Lenovo, Inc., a resident corporation, has earned the following income during 2019:
DIVIDEND INCOME FROM:
• Microsoft, a non-resident foreign corporation P500,000
• Intel, a resident foreign corporation (ratio of Philippine income over world income for 400,000
the past 3 years was 40%)
• Panday, a domestic corporation 300,000
INTEREST INCOME FROM:
• Current account, BDO 600,000
• Saving deposit, ABN-AMRO bank, UK 700,000
• FCDU deposit 800,000
ROYALTY INCOME from various domestic corporation 100,000

The total final tax on passive income assuming the taxable year is 2019:
A. P200,000
B. P260,000
C. P328,000
D. P1,088,000

85. Using the same information, in the immediately preceding number, how much is the total final tax on passive
income assuming the dividends were received during the effectivity of the CREATE law
 A. P200,000
B. P260,000
C. P328,000
D. P1,088,000

86. ACB Corporation, a domestic corporation, has earned the following income:
DIVIDEND INCOME FROM:
• IBM, a non-resident corporation P180,000
• Fox Tech., a resident foreign corporation (dividend within) 325,000
• Isabela Corp., a domestic corporation 200,000
INTEREST INCOME FROM:
• Current account, BPI 150,000
• Saving deposit, United Overseas Bank, Singapore 410,000
• US $deposit (FCDU) – Metrobank, Makati 100,000
ROYALTY INCOME from various domestic corporation 500,000

How much is the final tax on passive income assuming the taxable year was 2019?
A. P145,000
B. P172,000
C. P200,000
D. P372,000

87. How much is the final tax on passive income assuming the taxable year was 2021 and assuming further that
the dividend income from IBM were not reinvested in the ABC Corporation?
A. P145,000
B. P172,000
C. P200,000
D. P372,000

88. RLI Corporation, a domestic corporation, owns twenty percent (20%) of the outstanding shares of USA
Corporation, a non-resident foreign corporation (NRFC), since August 1, 2015. On June 30, 2021, it received
dividends amounting to P1,000,000 from the said NRFC. The said dividend has not been used until January 13,
2023. The dividend income should be:
A. Exempt from income tax
B. Subject to final withholding tax of 20%
C. Declared as taxable income for calendar year 2021, subject to surcharge, interest, and penalty, since it was
not utilized within the next taxable year, which is in 2022
D. None of the above

89. RSDV Corporation, a domestic corporation, owns twenty percent (20%) of the outstanding shares of UK
Corporation, a non-resident foreign corporation (NRFC), since August 1, 2015. On May 1, 2021, it received
dividend amounting to P1,000,000 from the said NRFC. On September 1, 2022, RSOV Corporation utilized
P800,000 for its dividend payments. On January 1, 2023, it utilized the remaining P200,000 for its working
capital requirements. Which of the following is the correct treatment of the dividend income received?
A. P800,000 shall be treated as tax-exempt since this was properly utilized within 2022 while the P200,000
shall be declared as taxable income for the taxable year 2021 subject to surcharge, interest, and penalty,
since the utilization is not within the following taxable year, which is in 2022.
B. P200,000 shall be treated as tax-exempt since while the P800,000 shall be declared as taxable income for
the taxable year 2021, subject to surcharge, interest, and penalty, since the utilization is not within the
following taxable year, which is in 2022.
C. The P1,000,000 dividend shall be exempt from tax.
D. None of the above.

90. BKTD Corporation, a domestic corporation, hold 20% of the stocks of EU Corporation, a non-resident foreign
corporation. BKTD is a wholly-owned subsidiary of GKCM Corporation, a non-resident foreign corporation.
BKTD’s holding in EU Corporation started in 2018, and the holding period is uninterrupted. On July 1, 2021,
BKTD Corporation received dividends from EU Corporation amounting to P2,000,000 and subsequently paid out
dividends on December 31, 2022, in the amount of P1,500,000. The remaining amount of P500,000 has not
been used in any qualified activity for exempt foreign-sourced dividends. Which of the following statements is
correct?
A. The P500,000 dividend shall be exempt from tax
B. The P2,000,000 dividend shall be exempt from tax
C. The P2,000,000 dividend shall be subject to income tax in the taxable period 2021, subject to surcharge,
interest and penalty.
D. The unused amount of P500,000 shall be subject to income tax in the taxable period 2021, subject to
surcharge, interest, and penalty.
 91. In 2021, a domestic corporation declared and paid dividends to its shareholders as follows:
To Apol, a resident citizen P100,000
To Alex, a nonresident citizen 100,000
To George, a resident alien 100,000
To LJ, a nonresident alien engaged in trade in the Philippines 100,000
To Francis, a nonresident alien not engaged in trade in the Philippines 100,000
To Chan, a domestic corporation 100,000
To a resident foreign corporation 100,000
To a nonresident foreign corporation (with tax sparing) 100,000

How much final tax shall be withheld by the corporation?

A. P80,000
B. P90,000
C. P85,000
D. P95,000

92. The share of a co-venturer corporation in the net income after tax of a joint venture or consortium taxable as a
corporation is
A. Subject to final withholding tax of 20%
B. Subject to regular corporate income tax of 25%
C. Subject to capital gains tax
D. Exempt from income tax

93. The share of a con-venturer corporation in the net income of a tax-exempt joint venture or consortium is:
A. Subject to final withholding tax
B. Subject to regular corporate income tax
C. Subject to capital gains tax
D. Exempt from income tax

Capital Gains Tax

94. As a rule, there is no income tax if there is no income. Which of the following is the exception?
A. Capital Gains Tax on sale of land and/or building
B. Capital Gains Tax on sale of share of stock outside the local stock exchange
C. Tax on passive income
D. Regular Corporate Income Tax

Use the following data for the next three (3) questions

Kris Incorporated sold its vacant lot to Moca Corporation for P10,000,000 which it acquired at a cost of P5,000,000.
The fair market value of the said property per tax declaration was P12,000,000 while its zonal value was P15,000,000.

95. How much is the income tax applicable on the transaction?

A. P600,000
B. P720,000
C. P900,000
D. P1,500,000

100. Based on the preceding number, if the buyer of the property is the Philippine Government or a government
owned and/or controlled corporation (GOCC), what type of income tax will apply to the transaction?
A. Basic income tax
B. Capital gains tax
C. Either A or B at the option of the seller
D. Either A or B at the option of the buyer

101. If the property is located abroad, what type of income tax will apply on the transaction?
A. Basic income tax
B. Capital gains tax
C. Either A or B at the option of the seller
D. Either A or B at the option of the buyer
102. A foreign corporation sold a condominium unit to Pedro for P10,000,000 which it acquired at a cost of P5,000,000.
The fair market value of the said property per tax declaration was P12,000,000 while the zonal value was
P15,000,000. How much is the capital gains tax?
A. P600,000
B. P720,000
C. P900,000
D. NIL

103. Statement 1: Gain on sale of all kinds of capital assets are subject to the final tax on capital gains.

Statement 2: Gain from sale of real property classified as capital asset and located in Miami, Florida, USA is not
subject to the final tax on capital gain.
A. Both statements are correct
B. Both statements are not correct
C. Only the first statement is correct
D. Only the second statement is correct

Use the following data for the next five (5) questions

East Star, a domestic corporation, sold shares of stock of a domestic corporation for P250,000. The shares were
acquired in 2015 for investment purposes at a cost of P100,000 and were sold directly to a buyer.

104. Assuming the taxable year was 2019, how much was the capital gains tax due?
A. P10,000
B. P15,000
C. P22,500
D. P45,000

105. How much is the capital gains tax assuming the taxable year was 2021?
A. P10,000
B. P15,000
C. P22,500
D. P45,000

106. How much is the capital gains tax assuming the shares sold were shares of a foreign corporation and the sale
was made during the effectivity of TRAIN law?
A. P10,000
B. P15,000
C. P22,500
D. nil

107. How much is the capital gains tax assuming the shares sold were shares of a foreign corporation and the sale
was made during the effectivity of CREATE law?
A. P10,000
B. P15,000
C. P22,500
D. nil

108. Assume the shares sold were from a domestic corporation but were not held for investment purposes. Assume
further that the seller is a dealer in securities. How much is the capital gains tax?
A. P10,000
B. P15,000
C. P22,500
D. nil
 Use the following data for the next two (2) questions

South West Corporation, a resident foreign corporation, sold shares of stock of a domestic corporation for P500,000.
The shares were acquired three (3) years ago for investment purposes at a cost of P300,000. The shares were sold
outside of the local stock exchange.

109. Assuming the taxable year was 2019, how much was the capital gains tax due?
A. P10,000
B. P15,000
C. P22,500
D. P30,000

110. Using the same data in the immediately preceding number, how much is the capital gains tax assuming the
taxable year was 2021?
A. P10,000
B. P15,000
C. P22,500
D. P30,000

111. Mabuhay Corporation, a domestic corporation, sold shares of stock of another domestic corporation for P250,000
through the local stock exchange (LSE). The shares were acquired in 2018 at a cost of P100,000 and were
held for investment purposes. How much was the applicable tax due?
A. P1,250
B. P1,500
C. P10,000
D. P15,000

112. Assume the shares sold were not held for investment purposes and the seller is a dealer in securities, how much
is the stock transaction tax (STT)?
A. P1,250
B. P1,500
C. P10,000
D. nil

113. In 2021, Mabuhay Inc., a Philippine corporation, sold through the local stock exchange 10,000 PLDT shares
that is bought 2 years ago. Mabuhay sold the shares for P2 million and realized a net gain of P200,000. How
shall it pay tax on the transaction?
A. It shall a P2 million gross income in its income tax return, deducting its cost of acquisitions as an expense.
B. It shall report the P200,000 in its corporate income tax return adjusted by the holding period.
C. It shall pay a tax of ½ of 1% of the P2 million gross sales.
D. It shall pay a tax of 6/10 of 1% of the P2 million gross sales.

114. Manila Corporation (dealer in securities) sold unlisted shares of stocks of a domestic corporation in 2021 and
derived a gain of P500,000 therefrom. The gain is
A. Subject to regular corporate income tax of either 20% or 25% based on the gain derived from the sale.
B. Subject to 30% regular corporate income tax based on the gain derived from the sale.
C. Subject to 15% capital gains tax based on net capital gain.
D. Subject to stock transaction tax of 6/10 of 1% based on the gross selling price or fair market value,
whichever is higher.

Use the following data for the next three (3) questions

Pacific Rim Corporation, a resident corporation, has the following data for 2021 taxable year:
Gross income, Phil. P9,500,000
Gross income, USA 5,000,000
Expenses, Phil. 7,000,000
Expenses, USA 2,000,000
Other income:
Dividend from San Miguel Corp., a domestic corp. 700,000
Dividend income from Omega corporation, a resident foreign corporation 250,000
Gain on sale of shares of a domestic corporation sold directly to buyer 150,000
Royalty income, Philippines 500,000
Interest income on peso bank deposit 800,000
Interest income on FCDS deposit 300,000
 Interest from receivables in the Philippines 600,000

The Company also sold a real property classified as capital asset for P20,000,000. The cost of Condominium is
P18,800,000 while its Zonal Value is P30,000,000. The Company’s total assets excluding the condominium sold and
the land on which the business office building is situated amounted to P68,000,000.

115. How much is the company’s total taxes on all its income in 2021?
A. P22,500
B. P305,500
C. P1,137,500
D. P1,465,000