IT Prelim Reviewer (©eysiqt)

TRUE OR FALSE 21. One of the essential characteristics of a tax is that it is

1. Regulatory tax is intended to achieve some social or an enforced contribution. TRUE
economic end. TRUE 22. Income tax is an ad valorem tax. FALSE
2. Special assessment is levied only on land and is a 23. Income tax is an excise tax. TRUE
personal liability of the person assessed. FALSE 24. Taxes imposed under special laws are not tax laws.
3. Not all taxes imposed and collected by the Bureau of FALSE
Internal Revenue are internal revenue taxes. FALSE 25. Community tax is a poll tax. TRUE
4. Even in the absence of any constitutional provision, 26. The power of taxation is inherent in sovereignty. TRUE
taxation power falls under Congress as part of the 27. Taxes on distilled spirits, fermented liquors and the like
general power of lawmaking. TRUE are specific taxes. TRUE
5. Toll is a demand of proprietorship, is paid for the use of 28. In the case of intangible personal property, as a rule,
another's property and may be imposed only by the situs is the domicile of the owner even if he has
government. FALSE acquired a situs in another place. FALSE
6. The Bureau of Internal Revenue functions under the 29. Real estate tax is a national tax. FALSE
supervision and control of the Bureau of Treasury. 30. In determining the situs of taxation, the nature of tax is
FALSE not to be considered at all. FALSE
7. There are two kinds of double taxation-evasion and
avoidance. FALSE MULTIPLE CHOICE
8. Penalty is designed to regulate conduct and may be 1. Among the nature of taxation are the following. Which
imposed by the government, private individuals or one is not?
entities. TRUE a. It is inherent in sovereignty.
9. Progressive tax is not imposed in the Philippines. b. The citizenry benefits from it.
FALSE c. The government solely benefits from it.
10. Subject to review by the Secretary of Finance, the BIR d. It is a means by which the government raises
Commissioner has the exclusive power to interpret income.
provisions of the NIRC and other tax laws. TRUE 2. The following are authorized to administer oaths and
11. Income, unless otherwise specified, means cash or its take testimony. Who is not
equivalent. TRUE a. BIR Service Chief
12. The Constitution is a source of tax laws. TRUE b. BIR Commissioner
13. Income tax is a tax on all yearly profits arising from c. BIR Deputy Commissioner
property, profession, trade or business. TRUE d. BIR rank-and-file employee
14. The levying of tax is essentially an administrative 3. In case of conflict between tax laws and generally
function. FALSE accepted accounting principles (GAAP)
15. Donor's tax is a direct tax. TRUE a. GAAP shall prevail over tax laws.
16. Excise taxes on specific goods imposed under the b. b. tax laws shall prevail over GAAP.
National Internal Revenue Code are always specific. c. the issue shall be resolved by the courts.
FALSE d. both tax laws and GAAP shall be enforced.
17. Tax evasion is known as tax minimization while tax 4. Which is not a valid definition of income?
avoidance is known as tax dodging. FALSE a. Income is a fund at one distinct point of time.
18. Import and export duties are provided for in the Tariff b. Income is the return from capital invested.
and Customs Code of 1978. TRUE c. Income means cash or its equivalent unless
19. In a gratuitous transfer of property, situs is the otherwise specified.
taxpayer's residence, citizenship or location of the d. Income means all wealth which flows into the
property. TRUE taxpayer other than a return of capital.
20. Indirect double taxation is unconstitutional. FALSE
 IT Prelim Reviewer (©eysiqt)
5. The following are sources of tax laws. Which is not a 11. Provincial, city, municipal and barangay ordinances
source? may impose taxes subject limitations by the Local
a. Barangay resolutions Government Code. The following, except one, are
b. Supreme Court decisions existing taxes thereunder. Which is it?
c. Treaties or international agreements a. professional tax
d. Revenue Regulations by the Department of b. community tax
Finance c. travel tax
6. One of the characteristics of internal revenue laws is d. real property tax
that they are 12. As to object, taxes may be classified according to the
a. penal in nature following except one. Which is the exception?
b. criminal in nature. a. excise
c. political in nature. b. specific
d. generally prospective in application. c. property
7. It is a tax of a fixed proportion of the value of the d. personal, poll or capitation
property with respect to which the tax is assessed and 13. The distinction of a tax from permit or license fee is that
requires the intervention of assessors or appraisers to a tax is
estimate the value of such property. a. imposed for regulation.
a. specific b. one which involves an exercise of police power.
b. ad valorem c. one in which there is generally no limit on the
c. special or regulatory amount that may be imposed.
d. none of the above d. none of the above
8. It is the proportional contribution by persons and 14. All of the following are similarities of the inherent
property levied by the lawmaking body of the State by power of taxation, eminent domain, and police power.
virtue of its sovereignty for the support of the Which is not?
government and all public needs. a. affect all persons or the public
a. taxes b. are legislative in implementation
b. license fees c. are necessary attributes of sovereignty
c. special assessment d. interfere with private rights and property
d. none of the above 15. Situs of taxation is the place of taxation. Which of the
9. Percentage tax is an example of statements is not true about situs?
a. graduated tax. a. Subject matter is a must to determine situs.
b. regressive tax. b. Situs of persons is the residence of the taxpayer.
c. progressive tax. c. Citizenship, in determining the situs, is not a
d. proportional tax. factor to consider.
10. Which statement is false? Income tax d. None of the above
a. is always a direct tax. 16. One of the following is not among the basic principles
b. is always based on gross amount. of a sound tax system. Which one is it?
c. is a tax on person's income, emoluments or a. fiscal adequacy
profits. b. collection of tax
d. is a tax on all yearly profits arising from property, c. theoretical justice
profession, trade or business. d. administrative feasibility
 IT Prelim Reviewer (©eysiqt)
17. The following are national internal revenue taxes. 23. Tax as distinguished from license fee
Which one is not? a. a regulatory measure
a. excise tax b. limited to cover cost of regulation
b. import duty c. imposed in the exercise of police power
c. value-added tax d. non-payment does not necessarily render the
d. documentary stamp tax business illegal
18. One characteristic of a tax is that 24. All of the following except one are inherent limitations
a. it is generally assignable. of taxation. Which one is it?
b. it is generally based on contract. a. Taxes may be levied only for public purpose.
c. it is generally payable in money. b. Governmental agencies are exempt from
d. none of the above taxation.
19. The following statements are correct except one. c. The State may tax persons and properties under its
Which one? jurisdiction.
a. For the exercise of the power of taxation, the State d. The property of another State may not be taxed by
can tax anything at any time. other States.
b. The provisions of taxation in the Philippine 25. When the BIR and taxpayers are unable to agree as to
Constitution are grants of power and not the correct application of tax statutes to specific
limitations on taxing powers. situations,
c. Taxes may be imposed to raise revenues or to a. taxpayer's decision prevails.
provide disincentives to certain activities within b. court decision prevails.
the state. c. BIR decision prevails.
d. The state can have the power of taxation even if the d. all of the above
Constitution does not expressly give it the power to
tax. MULTIPLE CHOICE
20. Which is not an example of excise tax? 1. Anne Lapada, a student activist, wants to impugn the
a. value-added tax validity of a tax on text messages. Aside from claiming
b. transfer tax that the law adversely affects her since she sends
c. real property tax messages by text, what may she allege that would
d. income tax strengthen her claim to the right to file a taxpayer's
21. Taxation is a means by which the national government suit?
attempts to a. That she is entitled to the return of the taxes
a. shift wealth from the rich to the poor. collected from her in case the court nullifies the
b. encourage full employment. tax measure.
c. maintain price stability. b. That tax money is being extracted and spent in
d. all of the above violation of the constitutionally guaranteed right
22. Which statement refers to police power as to freedom of communication.
distinguished from taxation? c. That she is filing the case in behalf of a substantial
a. The amount imposed has no limit. number of taxpayers.
b. It can only be imposed on specific property or d. That text messages are an important part of the
properties. lives of the people she represents.
c. It involves the taking of property by the
government.
d. The amount imposed depends on whether the
activity is useful or not.
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2. There is no taxable income until such income is 2. In the Philippines, progressive rates of income taxes
recognized. Taxable income is recognized when the are imposed on citizens and resident aliens. TRUE
a. taxpayer fails to include the income in his income 3. A taxpayer whose father or mother is a Filipino citizen
tax return. is likewise a Filipino citizen. TRUE
b. income has been actually received in money or its 4. Non-resident alien is an individual whose residence is
equivalent. not within the Philippines and who is not a resident
c. income has been received, either actually or thereof. TRUE
constructively. 5. Resident alien is an individual whose residence is
d. transaction that is the source of the income is within the Philippines but who is not a citizen thereof.
consummated. TRUE
3. Which theory in taxation states that without taxes, a 6. Non-resident citizens and alien individuals are taxable
government would be paralyzed for lack of power to on income derived from sources within and without the
activate and operate it, resulting in its destruction? Philippines. FALSE
a. Power to destroy theory 7. Resident citizens are taxable only on income derived
b. Lifeblood theory from sources within the Philippines. FALSE
c. Sumptuary theory 8. An overseas contract worker is taxable only on his
d. Symbiotic doctrine income from sources within the Philippines. TRUE
4. Although the power of taxation is basically legislative 9. Compensation income means all remuneration for
in character, it is NOT the function of Congress to services performed by an employee for his employer
a. fix with certainty the amount of taxes. not necessarily under an employer-employee
b. collect the tax levied under the law. relationship. FALSE
c. identify who should collect the tax. 10. Generally, self-employment income consists of the
d. determine who should be subject to the tax. earnings derived by the individual from the practice of
5. Income is considered realized for tax purposes when profession or conduct of trade or business carried on
a. it is recognized as revenue under accounting by him as a sole proprietor or by a partnership of which
standards even if the law does not do so. he is a member. TRUE
b. the taxpayer retires from the business without 11. Trade, business or profession excludes the
approval from the BIR. performance of the functions of a public office. FALSE
c. the taxpayer has been paid and has received in 12. Taxable income is the amount or tax base upon which
cash or near cash the taxation income. tax rate is applied to arrive at the tax due. TRUE
d. the earning process is complete or virtually 13. If any income cannot be definitely attributed to or
complete and an exchange has taken place. identified as income exclusively earned or realized by
6. Real property taxes should not disregard increases in either of the spouses, the same shall be divided
the value of real property occurring over a long period equally between the spouses for the purpose of
of time. To do otherwise would violate the canon of a determining their respective taxable income. TRUE
sound tax system referred to as 14. Passive income is included in the computation of
a. theoretical justice. taxable income from compensation or business/
b. fiscal adequacy. professional income. FALSE
c. administrative feasibility. 15. Passive income is subject to a separate and final tax.
d. d. symbiotic relationship. TRUE
16. Estimated tax means the amount which the individual
TRUE OR FALSE declared as income tax in his final adjusted and annual
1. Global treatment views indifferently the tax base and income tax return for the preceding taxable year minus
generally treats in common all categories of the the credits allowed. TRUE
taxable income of a taxpayer. TRUE
 IT Prelim Reviewer (©eysiqt)
17. Non-resident Filipino citizens, with respect to income 11. The taxable income from both compensation and
from without the Philippines, and non-resident aliens business shall be combined if the taxpayer is subject
not engaged in trade or business in the Philippines, are to the graduated income tax rates. TRUE
not required to render a declaration of estimated 12. The mixed income earner has the option to avail of the
income tax. TRUE 8% income tax rate on his income from business if his
18. Self-employed and professionals are required to file a gross sales exceeds the VAT threshold. FALSE
declaration of their estimated income for the current
taxable year on or before April 15 of the same taxable MULTIPLE CHOICE
year. TRUE Ryan, a caregiver, is under a three-year employment
contract with a hospital in Australia. His wife, Judy, and a
TRUE OR FALSE minor child live in the Philippines. In 2019, he earned
1. For compensation earners, taxable income is gross P80,000 (converted) a month.
compensation income less non-taxable income and 1. For the annual income of P960,000, Ryan shall pay
benefits subject to limitations, and employee's income tax
mandatory contributions. TRUE a. for the entire amount it being taxable in the
2. Minimum wage earners are exempt from payment of Philippines.
income tax. TRUE b. for half the full amount because the other half
3. The holiday pay of a minimum wage earner is subject pertains to his wife
to income tax. FALSE c. of nothing because as OFW, he is considered a
4. Purely self-employed individuals whose gross non-resident citizen.
sales/receipts and other non- operating income do not d. none of the above
exceed the VAT threshold under Section 109(BB) may 2. If Ryan puts 30% of his earnings in a dollar deposit
avail of the graduated rates under Section 24(A), both account with a local bank, interest income therein
of the Tax Code. TRUE a. for the full amount, is taxable at 15% final
5. The default income tax rate for an individual purely in withholding tax.
business who failed to signify his intention to avail of b. may be exempt from income tax provided he
the 8% income tax rate is the said 8% tax. FALSE presents proof of non-residency to the bank.
6. A purely self-employed taxpayer who is subject to the c. shall be taxed at 15% final withholding tax for half
graduated income tax rates is no longer subject to the the amount invested.
applicable business tax. FALSE d. none of the above
7. Taxable income for purely practicing professionals, if 3. If the dollar deposit account above is joint (with Judy)
the graduated rates applies, shall be the net income. with the same percentage of earnings invested,
TRUE interest income in that account
8. If the option availed of by an individual taxpayer who is a. for the full amount, is taxable at 15% final
purely in business is the 8% income tax rate, taxable withholding tax.
base is the gross sales/receipts and other non- b. may be exempt from income tax provided he
operating income. TRUE presents proof of non-residency to the bank.
9. An individual earning compensation income from c. shall be taxed at 15% final withholding tax for
employment, and income from business, practice of half the amount invested.
profession and/or other sources aside from d. none of the above
employment is a mixed income earner. TRUE
10. The compensation of a mixed income earner shall be
subject to the 8% income tax rate. FALSE
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4. If Ryan arrives in the Philippines on June 30, 2020 and Problem 6B
luckily lands a job that pays him P30,000 a month, his Both Compensation and Self-Employment
income from August to December shall be Mr. Adrien, Advertising Director of Binah Corporation has
a. exempt because he is considered non-resident the following records for his income from employment and
citizen for the entire year. souvenir shop business in 2018:
b. taxed based on the graduated income tax
schedule (Section 24(A)).
c. taxed at 15% final withholding tax.
d. none of the above

Problem 6A
Both Compensation and Self-Employment A. Mr. Adrien opted to be taxed at 8% income tax rate on
In 2018, Mr. Bonaro, Senior Manager of Bosley, Inc. earned his gross sales for his income from business.
an annual compensation of P1,800,000, inclusive of 13th Determine Mr. Adrien's income tax due for 2018?
month pay and other benefits amounting to P130,000 but
net of mandatory contributions to SSS, Philhealth and B. Assume that Mr. Adrien did not signify his intention to
HDMF. Aside from being employed, he is also into the be taxed at the 8% income tax rate based on gross
business of selling travel accessories. His gross sales for sales and other non-operating income. Compute for
the year was P2,700,000. His cost of sales and operating Mr. Adrien's income tax due for the year.
expenses were P1,200,000 and P700,000, respectively,
while non-operating income was P250,000. C. Mr. Adrien filed his resignation from employment in
March 2019. Up to that month, his total compensation
A. Compute for the income tax due for 2018 assuming income totaled P480,000 inclusive of P80,000
that he signified his intention to be taxed at 8% income benefits. Assume that his business operations for 2019
tax rate on his gross sales for his income from were the same as last year. For 2019, he opted for the
business. 8% income tax rate. What will be the total income tax
due of Mr. Adrien for the year 2019?
B. Had Mr. Bonaro opted not to be taxed at the 8% income
tax rate based on gross sales and other non-operating
income, what will be his income tax due for 2018?

C. Mr. Bonaro decided to resign from employment in

February 2019. His total compensation income by
then amounted to P180,000 inclusive of P20,000
benefits. Assuming that his business operations for
2019 were the same as the year before and that the 8%
income tax rate was availed of, determine the total
income tax due of Mr. Bonaro for the year 2019?