CHAPTER 1

Exercise Drills

In the space provided for, Indicate whether the statement relates to a Constitutional limitation (C)
or inherent limitation (I). If it is not a limitation to the taxing power, indicate (N).

1. Non-assignment of taxes C and I

2. Territoriality of taxation I
3. Taxes must be for public use I
4. Exemption of the property of religious institutions from N
income tax
5. Exemption of the revenues and assets of non-profit, non- C
stock educational institutions
6. Non-delegation of the taxing power C and I
7. Non-appropriation for religious purpose C
8. The requirement of absolute majority in the passage of a C
tax exemption law.
9. Non-imprisonment for non-payment of tax or debt N
10 Taxpayers under the same circumstance should be treated C
. equal both in terms of privileges and obligations.
11 Exemption from property taxes of religious, educational, C
. and charitable entities.
12 Government income and properties are not objects of I
. taxation.
13 Each local government shall have the power to create its C
. own sources of revenue.
14 Imprescribility in taxation N
.
15 Non-impairment of obligations and contracts. C
.
16 Guarantee of proportional system of taxation. C
.
17 International courtesy I
.
18 Non-impairment of the jurisdiction of the Supreme Court C
. to review tax cases.
19 The government is not subject to estoppel. N
.
20 Imprisonment of non-payments of poll tax. N
.
True or False 1

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

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

True or False 2

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

and mosques refers to income taX and real property tax. FALSE
2. Taxpayers under the same circumstance should be taxed differently. FALSE
3. Taxation is subject to inherent and Constitutional limitations. TRUE
4. International comity connotes courtesy between nations. TRUE
5. Collection of taxes in the absence of a law is violative of the Constitutional requirement for
due process. TRUE
6. The scope of taxation is regarded as comprehensive, plenary, unlimited, and supreme. TRUE
7. No one shall be imprisoned for non-payment of tax. FALSE
8. The lifeblood doctrine requires the government to override its obligations and contracts when
necessary. FALSE
9. 2/3 of all members of Congress is required to pass a tax exemption law. FALSE
10. 10. The government should tax itself. FALSE

Multiple Choice - Theory: Part 1

1. The point at which tax is levied is also called

a. Impact of taxation
b. Situs of taxation
c. Incidence of taxation
d. Assessment
2. Which of the following inappropriately describes the nature of taxation?
a. Inherent in sovereignty
b. Essentially a legislative function
c. Subject to inherent and constitutional limitation
d. Generally for public purpose
3. Which is correct?
a. Tax condonation is a general pardon granted by the government.
b. The BIR has five deputy commissioners.
 c. The government can still collect tax in disregard of a constitutional limitation because
taxes are the lifeblood of the government.
d. The President of the Philippines can change tariff or imposts without necessity of
calling Congress to pass a law for that purpose.
4. A. The power to tax includes the power to exempt.
B. The power to license includes the power to tax.

Which is true?
a. A only
b. B only
c. A andB
d. Neither A nor B
5. International double taxation can be mitigated by any of the following except
a. Providing allowance for tax credit
b. Provision of reciprocity provisions in tax laws
c. Provision of tax exemptions
d. Entering into treaties to form regional trade blockage against the rest of the world
6. Which is not an object of taxation?
a. Persons
b. Business
c. Transactions
d. Public properties
7. That courts cannot issue injunction against the government's effort to collect taxes is justified
by
a. the lifeblood doctrine.
b. imprescriptibility of taxes.
c. the ability to pay theory.
d. the doctrine of estoppel.
8. The power to enforce proportional contribution from the people for the support of the
government is
a. Taxation
b. Police power
c. Eminent domain
d. Exploitation
9. This theory underscores that taxes are indispensable to the existence of the state.
a. Doctrine of equitable recoupment
b. The Lifeblood Doctrine
c. The benefit received theory
d. The Holmes Doctrine
10. A. Taxation is the rule, exception is the exemption.
B. Vague taxation laws are interpreted liberally in favor of the government.

Which is false?
a. A only
b. B only
c. Both A and B
 d. Neither A nor B
11. Select the incorrect statement.
a. The power to tax includes the power to exempt.
b. Exemption is construed against the taxpayer and in favor of the government.
c. Tax statutes are construed against the government in case of doubt.
d. Taxes should be collected only for public improvements.
12. Which is not a public purpose?
a. Public education
b. National defense
c. Transportation
d. None of these.
13. Which does not properly describe the scope of taxation?
a. Comprehensive
b. Supreme
c. Discretionary
d. Unlimited
14. All of these are secondary purposes of taxation except
a. To reduce social inequality
b. To protect local industries
c. To raise revenue for the support of the government
d. To encourage growth of local industries
15. What is the theory of taxation?
a. Reciprocal duties of support and protection
b. Necessity
c. Constitutionality
d. Public purpose
16. A. Taxes should not operate retrospectively.
B. Tax is generally for public purpose.

Which is true?
a. A only
b. B only
c. A andB
d. Neither A nor B
17. Which provision of the Constitution is double taxation believed to violate?
a. Equal protection guarantee
b. Progressive scheme of taxation
c. Uniformity rule
d. Either A or C
18. Which limitation of taxation is the concept of "situs of taxation" based?
a. Territoriality
b. Public purpose
c. International comity
d. Exemption of the government
19. Which tax exemption is irrevocable?
a. Tax exemption based on contract
 b. Tax exemption based on the Constitution
c. Tax exemption based on law
d. Both A and B
20. Which statement is incorrect?
a. Every person must contribute his share in government costs.
b. The existence of a government is expected to improve the lives of the people.
c. The government provides protection and other benefits while the people provide
support.
d. Only those who are able to pay tax can enjoy the privileges and protection of the
government.
21. Which is the most incorrect statement regarding taxes?
a. Taxes are necessary for the continued existence of the government.
b. The obligation to pay tax does not rest upon the privilege enjoyed by or the protection
afforded to the citizen of the government but upon the necessity of money for the
support of the State.
c. There should be personal benefit enjoyed from the government before one is required
to pay tax.
d. Taxes should be collected without unnecessary delay but its collection should not be
tainted with arbitrariness.
22. Statement 1: In the selection of the objects of taxation, the courts have no power to inquire
into the wisdom, objectivity, motive, expediency, or necessity of a tax law.
Statement 2: An imposition can be both a tax and a regulation. Taxes may be levied to
provide means for rehabilitation and stabilization of threatened industry.

Which is correct?
a. Statement 1 only
b. Statement 2 only
c. Both statements
d. Neither statement
23. Which of the following acts in taxation is administrative by nature?
a. Determination of the amount to be imposed
b. Fixing the allocation of the amount to be collected between the local government and
the national government
c. Levy or distraint of taxpayers' property for tax delinquency
d. Determining the purpose of the tax to impose
24. This refers to the privilege or immunity from a tax burden which others are subject to:
a. Exclusion
b. Deduction
c. Tax holiday
d. Reciprocity
25. Statement 1: The benefit received theory presupposes that some taxpayers within the
territorial jurisdiction of the Philippines will be exempted from paying tax so long as they do
not receive benefits from the government.
Statement 2: The ability to pay theory suggests that some taxpayers may be exempted from
tax provided they do not have the ability to pay the same.
 Which statement is true?
a. Only statement 1
b. Only statement 2
c. Both statements 1 and 2
d. Neither statement 1 nor 2
26. Which is not a legislative act?
a. Determination of the subject of the tax
b. Setting the amount of the tax
c. Assessment of the tax
d. Determining the purpose of the tax
27. Statement 1: Taxation is the rule; exemption is the exception.
Statement 2: Taxation may be used to implement the police power of the state.
a. I is true
b. II is true
c. I and Il are true
d. I andII are not true
28. Which of the following powers of the Commissioner of Internal Revenue cannot be
delegated?
a. The examination of tax return and the determination of tax due thereon
b. To refund or credit tax liabilities in certain cases
c. The power to compromise or abate any tax liability involving basic deficiency tax of
P500,000 and minor criminal violations
d. The power to reverse a ruling of the Bureau of Internal Revenue
29. When exemption from a tax imposition is silent or not clearly stated, which is true?
a. Taxation applies since exemptions are construed against the government.
b. Exemption still applies since this is an instance of exemption by omission.
c. Taxation applies since exemptions are construed against the taxpayer.
d. Exemption applies since obligation arising fromn law cannot be presumed and hence
construed against the government.
30. What is the basis of taxation?
a. Reciprocal duties of support and protection
b. Constitutionality
c. Public purpose
d. Necessity
31. When the provisions of tax laws are silent as to the taxability of an item, which is true?
a. Taxation applies since taxation is the rule, exemption is the exception.
b. Exemption applies since vague tax laws are construed against the government.
c. Taxation applies due to the Lifeblood doctrine.
d. Exemption applies since obligation arising from law is presumed; ignorance of the
law is not an excuse.
32. Which of the following statements does not support the principle that tax is not subject to
compensation or set-off?
a. The government and the taxpayer are not creditors and debtors of each other.
b. Tax is not in the nature of contract but it grows out of a duty wherein taxpayers are
bound to obey even without the personal consent of the taxpayer.
c. Taxes arise from law, not from contracts.
 d. Both tax and debt partake the nature of an obligation.
33. Which is not legally tenable in refusing to pay tax?
a. Absence of benefit from the government
b. Lack of jurisdiction of the taxing authority
c. Prescription of the tax authority's right to collect
d. All of these
34. What is the primary purpose of taxation?
a. To enforce contribution from its subjects for public purpose
b. To raise revenue
c. To achieve economic and social stability
d. To regulate the conduct of business or profession

Multiple Choice - Theory: Part 2

1. The Constitutional exemption of religious or charitable institutions refers only to
a. Real property tax
b. Income tax
c. Property tax and income tax
d. Business tax
2. The agreement among nations to lessen tax burden of their respective subjects is called
a. Reciprocity
b. International comity
c. Territoriality
d. Tax minimization
3. An educational institution operated by a religious organization was being required by a local
government to pay real property tax. Is the assessment valid?
a. Yes, with respect to all properties held by such educational institution.
b. Yes, with respect to properties not actually devoted to educational purposes.
c. No, with respect to any properties held by such educational institution.
d. No, with respect to properties not actually devoted to educational purposes.
4. Which is not a Constitutional limitation?
a. No tax law shall be passed without the concurrence of a majority of all members of
Congress.
b. Non-appropriation for religious purpose
c. No law impairing government obligations on contracts shall be passed.
d. Non-impairment of religious freedom
5. Which of the following is not an inherent limitation of the power to tax?
a. Tax should be levied for public purpose.
b. Taxation is limited to its territorial jurisdiction.
c. Tax laws shall be uniform and equitable.
d. Exemption of government agencies and instrumentalities.
6. The following are inherent limitations to the power of taxation except one. Choose the
exception.
a. Territoriality of taxes
b. Legislative in character
c. For public purpose
d. Non-appropriation for religious purpose
7. That all taxable articles or properties of the same class shall be taxed at the same rate
underscores
a. Equality in taxation
b. Equity of taxation
c. Uniformity in taxation
d. None of these
8. The following are limitations of taxation:
A.Territoriality of taxation
B. Exemption of the government
C. Taxation is for publlc purpose.
D. Non-impairment of contracts
E.Non-delegation of the power to tax

Which of these are classified as both constitutional and inherent limitations?

a. A and B
b. B and C
c. C and E
d. D andE
9. The provisions in the Constitution regarding taxation are
a. Grants of the power to tax
b. Limitations to the power to tax
c. Grants and limitations to the power to tax
d. Limitations against double taxation
10. The Constitutional exemption of non-stock, non-profit educational institutions refers to
a. Real property tax
b. Income tax
c. Property tax and income tax
d. Business tax
11. Which of the following is violative of the principle of non-delegation?
a. Requiring that legislative enactment must exclusively pertain to Congress
b. Authorizing the President to fix the amount of impost on imported and exported
commodities
c. Authorizing certain private corporation to collect taxes
d. Allowing the Secretary of Finance and the BIR to issue regulation or rulings which go
beyond the scope of a tax law
12. Which of the following violates Constitutional provisions?
a. Payment of salaries to priests or religious ministers employed by the Armed Forces of
the Philippines
b. Imposing tax on properties of religious institutions which are not directly and
exclusively used for religious purposes
c. Imposition of license for the sale of religious literature
d. Authorizing the President of the Philippines to fix the rates of tariffs or imposts
13. In order to phase-out a huge deficit, the President of the Philippines passed a law offering all
taxpayers with previous tax delinquency to pay a minimum tax in exchange for relief from
tax assessment in the period of delinquency. Is this a valid exercise of taxation power?
a. Yes, because the measure adopted is grounded upon necessity.
b. Yes, because the President is merely exercising his presidential discretion.
c. No, because the power of taxation is non-delegated.
d. No, because only the Department of Finance can issue such ruling.
14. Concerned with increasing unemployment rates in the country, the President of the
Philippines encouraged the Philippine Senate to pass a law granting special tax privileges to
foreign investors who will establish businesses in the country. The Senate accordingly
drafted the bill and passed to Congress for approval.

Is this valid exercise of taxation power?

a. Yes. It is the discretion of the President to adopt any measures he deemed necessary
to alleviate poor conditions in the country.
b. Yes. Any means beneficial to the public interest should be given optimum priority.
c. Yes. The President's proposal will have to be finally approved and passed by the
legislature. The rule on non-delegation of taxation would not be violated.
d. No. Tax bills shall originate from the House of Representatives.
15. Ram is the only practicing lung transplant specialist in Baguio City. The City Government of
Baguio passed a local ordinance subjecting the practice of lung transplant to 2% tax based on
receipts. Ram objected claiming that other transplant specialists in other regions of the
country are not subjected to tax.

Is Ram's contention valid?

a. Yes, because the rule of taxation should be uniform and equitably enforced.
b. Yes, because Ram is the only one subject. Other practitioners who would later
practice would not be covered by the ordinance.
c. No, because the ordinance would cover all transplant specialist who would practice in
Baguio City. The uniformity rule would not be violated.
d. No, because subjecting the new industry to taxation would hamper economic growth.
16. With the country under incessant shortage of sugar, the Philippine Congress enacted a law
providing tax exemptions and incentives to cane farmers without at the same time granting
tax exemptions to rice farmers who produce the staple food of the Philippines. Is the new law
valid?
a. Yes, since there is a valid classification of the taxpayers who would be exempted
from tax.
b. Yes, since sugar is more important than rice.
c. No, since the grant of exemption is construed in favor of taxpayers.
d. No, because there is no uniformity in the grant of tax exemption.
17. Congress passed a law subjecting government-owned and controlled corporations (GOCCs)
to income tax. Is the law valid?
a. Yes, because all government agencies and instrumentalities are subject to tax.
b. Yes, because GOCCS are not government agencies and are essentially commercial in
nature.
 c. No, because government agencies are exempt. This would pose a violation of the
equality clause in the constitution.
d. No, because GOCCS are constitutionally exempted from paying taxes.
18. Which of the following is nota constitutional limitation of the power to tax?
a. Non-impairment of obligation or contracts
b. Due process and equal protection of the law
c. Non-appropriation for religious purposes
d. Non-delegation of police power
19. The Philippine Congress enacted a law requiring foreign banks to withhold taxes earned by
Filipino residents in their country and to remit the same to the Philippine government. Is this
a valid exercise of taxation power?
a. Yes, because foreign banks are within the territorial jurisdiction of the Philippines.
b. Yes, the Philippines can enforce tax requirements to subjects of foreign sovereignty
even if they are outside the country.
c. No, as this leads to encroachment of foreign sovereignty.
d. No, this is prohibited by the Constitution.
20. Which of the following normally pays real property tax?
a. Bantay Bata, a non-profit charitable institution
b. Jesus Crusade movement, a religious institution
c. University of Pangasinan, a private proprietary educational institution
d. AM Property Holdings, a registered property development company
21. Tax exemption bills are approved by
a. Majority of all members of Congress
b. Solely by the President of the Republic
c. 2/3 of all members of Congress
d. Majority of the representatives constituting a quorum
22. The Japanese government invested P100,000,000 in a Philippine local bank and earned
P10,000,000 interest. Which is correct?
a. The income is exempt on grounds of territoriality.
b. The income is exempt due to international comity.
c. The income is subject to tax on the basis of sovereignty.
d. The income is subject to tax because the income is earned within the Philippines.

Multiple Choice - Theory: Part 3

1. When a legislative body taxes persons and property, rights and privileges under the same
taxable category at the same rate, this is referred to as compliance with the constitutional
limitation of:
a. Equity
b. Uniformity
c. Due process
d. Equal protection clause
2. Which is not a legislative act?
a. Assessment of the tax
b. Setting the amount of the tax
c. Determination of the subject of the tax
d. Determining the purpose of the tax
3. The inherent powers of the State are similar in the following respect, except:
 a. They are inherent to the existence of the State.
b. They are exercisable without the need for an express constitutional grant.
c. All are not exercised by private entities.
d. They are exercised primarily by the legislature.
4. Which is mandatorily observed in implementing police power?
a. Public interest
b. Just compensation
c. Public use
d. All of these
5. Which is considered in the exercise of eminent domain?
a. Public use
b. Just compensation
c. Both a and b
d. Neither a nor b
6. The general power to enact laws to protect the well-being of the people is called
a. Police power
b. Eminent domain
c. Taxation
d. All of these
7. Which of the following entities will least likely exercise the power of eminent domain?
a. Electric cooperatives
b. Water cooperatives
c. Telecommunication business
d. Transportation operators
8. In exercising taxation, the government need not consider
a. Inherent limitations
b. Just compensation
c. Due process of law
d. Constitutional limitations
9. Licensing of business or profession is an exercise of
a. Police power
b. Taxation
c. Eminent domain
d. All of these
10. Select the correct statement.
a. Eminent domain refers to the power to take public property for private use after
paying just compensation.
b. Police power being the most superior power of the State is not subject to any
limitation.
c. Taxation power shall be exercised by Congress even without an express
Constitutional grant.
d. Taxes may be collected even in the absence of a law since obligation arising from law
is always presumed.
11. Which is principally limited by the requirement of due process?
a. Eminent domain
b. Police power
 c. Taxation
d. All of these
12. Statement 1: Congress can exercise the power of taxation even without Constitutional
delegation of the power to tax.
Statement 2: Only the legislature can exercise the power of taxation, eminent domain, and
police power.

Which statement is correct?

a. Statement 1
b. Statement 2
c. Statements 1 and 2
d. Neither statement 1 nor 2
13. Which power of the State affects the least number of people?
a. Police power
b. Eminent domain
c. Taxation
d. Taxation and police power
14. Select the correct statement.
a. The benefit received theory explains that the government is obliged to serve the
people since it is benefiting from the tax collection from its subjects.
b. The lifeblood theory underscores that taxation is the most superior power of the State.
c. The police power of the State is superior to the non-impairment clause of the
Constitution.
d. The power of taxation is superior to the non-impairment clause of the Constitution.
15. Which of the following is not exercised by the government?
a. Taxation
b. Police power
c. Eminent domain
d. Exploitation
16. Select the incorrect statement.
a. Since there is compensation, eminent domain raises money for the government.
b. Once a government is established, taxation is exercisable.
c. The most important of the power is taxation.
d. Police power is more superior than the non-impairment clause of the Constitution.
17. The following statements reflect the differences among the inherent powers except:
a. The property taken under eminent domain and taxation are preserved but that of
police power is destroyed.
b. Eminent domain and police power do not require Constitutional grant, but taxation,
being a formidable power, requires constitutional grant.
c. Only eminent domain can be exercised by private entities.
d. Taxation, police power, and eminent domain are ways in which the government
interferes with private right and property.
18. Statement 1: The Taxation power can be used to destroy if the law is valid.
Statement 2: A tax law which destroys things, business, or enterprises for the purpose of
raising revenue is an invalid tax lavw.
 Which is incorrect?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement
19. Select the correct statement.
a. The provisions on taxation in the Philippine Constitution are grants of the power to
tax.
b. The power to tax includes the power to destroy.
c. When taxation is used as a tool for general and economic welfare, this is called fiscal
purpose.
d. The sumptuary purpose of taxation is to raise funds for the government.
20. Which of the following powers is inherent or co-existent with the creation of the
government?
a. Police power
b. Eminent domain
c. Taxation
d. All of these
21. Which of the following is not an inherent limitation of the power to tax?
a. Tax should be levied for public purpose.
b. Taxation is limited to its territorial jurisdiction.
c. Tax laws shall be uniform and equitable.
d. Government agencies and instrumentalities are exemnpt from tax.
22. Select the incorrect statement.
a. The power to tax includes the power to exempt.
b. Exemption is construed against the taxpayer and in favor of the government.
c. Tax statutes are construed against the government in case of doubt.
d. Taxes should be collected only for public improvement.
23. Which of the following is not a constitutional limitation of the power to tax?
a. Non-impairment of obligation or contracts
b. Due process and equal protection of the law
c. Non-appropriation for religious purposes
d. Non-delegation of the taxing power
24. Which of the powers of the State is the most superior? Which is regarded as the most
important?
a. Taxation; Eminent domain
b. Police power; Taxation
c. Eminent domain; Police power
d. All the powers are equally superior and important
 CHAPTER 2
Exercise Drill No. 1
Identify the type of tax that is described by the following:

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

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

Exercise Drill No. 2

Identify which is described by the following:

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

2. It is an imposition for the support of the government. TAX
3. It is imposed upon land adjacent to public improvements. SPECIAL ASSESSMENT
4. It is imposed on imported and exported commodities. CUSTOM DUTIES
5. It is a charge imposed prior to the commencement of LICENSE
business or exercise of a profession.
6. It is a post-activity rather than a pre-activity imposition. TAX
 7. It is subject to compensation or off-set. DEBT
8. It is a charge for the use of other’s property. TOLL
9. It is an imposition intended to discourage an act. PENALTY
10. It arises from contracts rather than from law. DEBT

Exercise Drill No. 3

Indicate the criteria for the selection of large taxpayer for each of the following:
As to payment Criteria
1. Value Added Tax ≥ 200,000/ QUARTER
2. Excise Tax ≥1,000,000/YEAR
3. Income Tax ≥1,000,000/YEAR
4. Withholding Tax ≥1,000,000/YEAR
5. Percentage Tax ≥ 200,000/ QUARTER
6. Documentary Stamp Tax ≥1,000,000/YEAR
As to conditions and operations
1. Gross receipts or sales ≥1,000,000,000 IN AYEAR
2. Net worth ≥300,000,000 AT YEAR END
3. Gross purchases ≥800,000,000 IN THE PRECEDING YEAR

Multiple Choice – Theory: Part 1

1. When tax is collected upon someone who is effectively reimbursed by another, the tax is
regarded as
a. direct.
b. indirect.
c. personal.
d. illegal.
2. All are ad valorem taxes, except one. Select the exception.
a. Poll tax
b. Estate tax
c. Real property tax
d. Capital gains tax on real property capital asset
3. Taxation power can be used to destroy
a. as a revenue measure.
b. even if the tax is invalid.
c. as an implement police power.
d. when the state is in dire need of funds.
4. Which is not a characteristic of tax?
a. It is an enforced contribution.
b. It is generally payable in money.
c. It is subject to assignment.
d. It is levied by the law-making body of the State having jurisdiction.
5. Which of the following is a local tax?
 a. Value Added Tax
b. Real property tax
c. Documentary stamp tax
d. Other percentage taxes
6. Which is not a source of tax law?
a. CHED regulations
b. BIR rulings
c. Judicial decisions
d. Constitution
7. Tax as to purpose is classified as
a. Fiscal or regulatory
b. Direct or indirect tax
c. National or local tax
d. Specific or ad valorem tax
8. Tax as to incidence is classified as
a. Fiscal or regulatory
b. Direct or indirect tax
c. National or local tax
d. Specific or ad valorem tax
9. Tax as to source is classified as
a. Fiscal or regulatory
b. Direct or indirect tax
c. National or local tax
d. Specific or ad valorem tax
10. Which is not a nature of tax?
a. Enforced proportional contribution
b. Enforced within the territorial jurisdiction of the taxing authority
c. Levied by the lawmaking body
d. Generally payable in kind
11. Taxes that cannot be shifted by the statutory taxpayer are referred to as
a. direct taxes.
b. indirect taxes.
c. business taxes.
d. personal taxes.
12. Which is a local tax?
a. Donor's tax
b. Professional tax
c. Documentary stamp tax
d. Excise tax
13. As to subject matter, taxes do not include
a. Property tax
b. Regulatory tax
c. Poll tax
d. Excise tax
14. A tax that is imposed upon the performance of an act, the enjoyment of a privilege or the
engagement in a profession is known as
a. income tax.
b. license.
c. excise tax.
d. transfer tax.
15. Which is a national tax?
a. Real property tax
b. Community tax
c. Income tax
d. Professional tax
16. Which of the following distinguishes license from tax?
a. Unlimited in imposition
b. Imposed for revenue
c. Does not renders business illegal
d. Pre-activity in application
17. Which is correct?
a. Taxes may be subject to compensation.
b. Toll, being a demand of ownership, is exercised only by private entities.
c. Dacion en pago and cession in payment are applicable to taxation.
d. Special assessment applies only when public improvement is made.
18. Tax as to determination of amount is classified as
a. Fiscal or regulatory
b. Direct or indirect tax
c. National or local tax
d. Specific or ad valorem tax
19. Tax classifications as to object do not include
a. Poll tax
b. Property tax
c. Regulatory tax
d. Excise tax
20. A. Tax must not violate constitutional and inherent limitation.
B. Tax must be uniform and equitable.
C. Tax must be for public purpose.
D. Tax must be levied by the lawmaking body.
E. Tax must be proportionate in character.
F. Tax is generally payable in money.

Which of the above is/are not an essential characteristic of a valid tax?

a. All of the above
b. All except F
c. None, except F
d. None of the above
21. To limit the production of an environmentally harmful commodity, Congress passed a law
subjecting the sales of an environmentally unfriendly commodity to a P10/kilo tax but a 5%
tax is imposed on sales exceeding P100,000.
Which is incorrect?
a. The tax is a combination of an ad valorem tax and specific tax.
b. This is an example of a regulatory tax.
c. This is a national tax.
d. This is a local tax.
22. Which is not an excise tax?
a. Income tax
b. Community tax
c. Estate tax
d. Occupation tax
23. Which is an indirect tax?
a. Value added tax
b. Donor's tax
c. Income tax
d. Real property tax
24. Which is not an ad valorem tax?
a. Real property tax
b. Excise tax on cigar
c. Income tax
d. Donor's tax
25. A tax that is imposed based on per unit or per head basis is known as
a. Proportional tax
b. Specific tax
c. Ad valorem tax
d. Progressive tax
26. Tax as to rates excludes
a. Specific tax
b. Progressive tax
c. Mixed tax
d. Proportional tax
27. Mr. A has a tax obligation to the government amounting to P80,000. Since he is leaving the
country, he entered into a contract with Mr. B wherein Mr. B shall pay the P80,000 tax in his
behalf. On due date, Mr. B failed to pay the tax. The BIR sent a letter of demand to Mr. A
which he refused to pay.

Which of the following statements is correct?

a. The government cannot enforce collection charges against Mr. A since he has validly
transferred his obligations to B under the contract.
b. The government can no longer run after Mr. A because he is already outside the
Philippine territory.
c. The government should wait until Mr. B becomes solvent again.
 d. The government should force Mr. A to pay because taxes are non-assignable.
28. Philippine tax laws are, by nature,
a. political.
b. civil.
c. political and civil.
d. penal and civil.
29. Motor vehicles tax is an example of
a. Property tax t c.
b. Privilege tax
c. Income tax
d. Indirect tax
30. Which of the following statements is correct?
a. The Marshall Doctrine is not used in practice since it is unconstitutional.
b. An ex post facto tax law violates the constitution.
c. A tax bill personally drafted by the president shall become a law after approval by
congress.
d. It is in the public interest that errors of public officials should bind the government to
limit government abuse.
31. Tax rulings are issued by the
a. Secretary of Finance
b. Supreme Court
c. Court of Tax Appeals
d. Commissioner of internal Revenue
32. Which of the following is limited in application?
a. Tax laws
b. Revenue Regulations
c. Tax treaties
d. BIR Ruling
33. Which is not a source of tax law?
a. Judicial decisions
b. Revenue regulations
c. Opinions of tax experts
d. Tax treaties and ordinances
34. Which issues revenue regulations?
a. Department of Finance
b. Congress
c. Commissioner of Internal Revenues
d. Commissioner of Customs
35. Which is not an element of tax?
a. It must be for public purpose.
b. It must not violate Constitutional or inherent limitation.
c. It must be progressive by nature.
d. It must be uniform and equitable.
36. Tax as to purpose does not include
 a. Revenue
b. Sumptuary
c. Regulatory
d. Poll
37. When the impact and incidence of taxation are merged into the statutory taxpayer, the tax is
known as
a. Personal tax
b. Direct tax
c. Indirect tax
d. National tax
38. Tax as to object includes
a. Personal tax
b. Property tax
c. Excise tax
d. All of these
39. Which is not an indirect tax?
a. Duties
b. Impost
c. Excise tax
d. Personal tax
40. A tax that cannot be avoided is
a. Direct tax
b. Indirect tax
c. Specific tax
d. Personal tax
41. Statement 1: Taxes are voluntary contributions to the government.
Statement 2: Taxes are mandatory contributions to the government.

Which is correct?
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Neither statement is correct.
42. Which is an indirect tax?
a. Other percentage tax
b. Income tax
c. Donor's tax
d. Estate tax
43. Income tax is not a/an
a. Ad valorem tax
b. Direct tax
c. Revenue tax
d. Property tax
44. A transfer tax is not a/an
 a. Regressive tax
b. Ad valorem tax
c. National tax
d. Excise tax
45. Which of the following levy is fiscal or revenue by nature?
a. Tax law geared to phase out a deficit balance of the government.
b. Tax law intended to prohibit gambling in the Philippines.
c. Tax law intended to protect local industries.
d. Tax law supporting the development of a particular industry.

Multiple Choice - Theory: Part 2

1. Which is not an excise tax?
a. Income tax
b. Business tax
c. Personal tax
d. Transfer tax
2. Which of the following do not relate to tax?
a. Does not render business illegal when not paid
b. Arises from law rather than from contracts
c. Intended to cover cost of regulations
d. Intended for public purpose
3. A levy from a property which derives some special benefit from public improvement is
a. Special assessment
b. Eminent domain
c. Taxation
d. Toll
4. A. Government revenue may come from tax, license, toll and penalties.
B. Penalty may arise either from law or contracts.

Which is false?
a. A only
b. B only
c. A and B
d. Neither A nor B
5. What distinguishes tax from license?
a. Tax is a regulatory measure.
b. Tax is a demand of ownership.
c. Tax arises from contract.
d. Tax is a post-activity imposition.
6. Which of the following distinguishes license from tax?
a. It is imposed under taxation power.
b. It is a charge for other's property.
c. Non-compliance to it will render businesses illegal.
 d. It is generally payable in money.
7. The amount imposed is based on the value of the property
a. Eminent domain
b. License
c. Toll
d. Special assessment
8. Which is intended to regulate conduct?
a. Penalty
b. License
c. Police power
d. Toll
9. Toll exhibits all of the following characteristics, except one. Which 1s the exception?
a. Demand of ownership
b. Compensation for the use of another's property
c. Maybe imposed by private individuals
d. Levied for the support of the government
10. Which of the following is incorrect?
a. The collected tax is referred to as revenue.
b. Tax is the sole source of government revenue.
c. License is imposed before commencement of a business or profession.
d. Debt can be subject to compensation or set-off.
11. Debt as compared to tax
a. It is a demand of ownership.
b. It is not assignable.
c. It will not cause imprisonment when not paid.
d. It is generally payable in money.
12. Select the incorrect statement.
a. Tax may be unlimited in amount.
b. Non-payment of license renders the business illegal.
c. Special assessment is not a liability of the person owning the property.
d. Special assessment can be imposed on building and other real right attaching or
pertaining to land.
13. Tax as to subject matter does not include
a. Real property tax
b. Personal tax
c. Excise tax
d. Regulatory tax
14. What distinguishes debt from tax?
a. Arises from contract
b. Never draws interest
c. Non-payment will lead to imprisonment
d. Generally payable in money
Multiple Choice - Theory: Part 3
1. The Commissioner of Internal Revenue is not authorized to
a. interpret the provisions of the National Internal Revenue Code.
b. promulgate Revenue Regulations.
c. terminate an accounting period.
d. prescribe presumptive gross receipts.
2. Which is not a power of the Commissioner of Internal Revenue?
a. To change tax periods of taxpayers
b. To refund internal revenue taxes
c. To prescribe assessed value of real properties
d. To inquire into bank deposits only under certain cases
3. The principles of a sound tax system exclude
a. Economic efficiency
b. Fiscal adequacy
c. Theoretical justice
d. Administrative feasibility
4. Which of the following best describes the effect of tax condonation?
a. It only covers the unpaid balance of a tax liability.
b. It is conditional on the taxpayer paying some portion of the unpaid tax.
c. It generally applies to all taxpayers.
d. All of these
5. Which is not an application of a principle of a sound tax system?
a. Taxes should adjust based on government needs.
b. Taxation should be progressive.
c. Taxation should encourage convenient compliance.
d. None of these
6. By which principle of a sound tax system is the elasticity in tax rates is justified?
a. Theoretical justice
b. Fiscal adequacy
c. Administrative feasibility
d. All of these
7. Violation of this principle will make a tax law invalid
a. Fiscal adequacy
b. Theoretical justice
c. Administrative feasibility
d. Economic consistency
8. Which of the following is not an application of the lifeblood doctrine?
a. The government has the right to select the object of taxation.
b. Taxation is the rule; exemption is the exception.
c. Claim for exemption is strictly construed against the taxpayer.
d. None of these
9. Which one of the following is the BIR not empowered to do?
a. Assess national taxes
b. Collect income, business and transfer taxes
 c. Assess and collect local taxes
d. Enforce forfeitures, penalties and fines
10. Which principle demands that ax should be just, reasonable, and fair?
a. Theoretical justice
b. Fiscal adequacy
c. Administrative feasibility
d. Economic consistency
11. Which among the following powers of the Commissioner of Internal Revenue can be
delegated?
a. The power to conduct inventory surveillance
b. The power to recommend promulgation of revenue regulations.
c. The power to issue rulings of first impression.
d. The power to reverse a ruling, amend or modify an existing ruling.
12. The Commissioner of Internal Revenue is not empowered to
a. Make or amend a tax return for and in behalf of the taxpayer.
b. Obtain information and to summon, examine, and take testimony of persons to effect
tax collections.
c. Compromise tax liabilities of taxpayers.
d. Grant amnesty for erring taxpayers.
13. Which is true with tax amnesty?
a. It is unconditional.
b. It covers both criminal and civil liability of the taxpayer.
c. It applies for past and future non-compliance.
d. All of these
14. Which of the following may tax exemption come from?
a. Contract
b. Constitution
c. Law
d. All of these
15. Exemption based upon which of the following is repealable?
a. Contract
b. Constitution
c. Law
d. None of these
16. Select the incorrect statement regarding tax amnesty and condonation.
a. In tax amnesty, violators are required to pay a portion of the tax assessed.
b. When the remaining unpaid portion of the tax is condoned, the taxpayer cannot ask
for refund for the balance already paid.
c. Tax amnesty operates as a general pardon and is rarely available.
d. Tax condonation operates on the whole balance of the assessed tax; hence, the
taxpayer can ask for refund for the paid portion of the tax.
17. Which of the following is a power of the Commissioner of Internal Revenue?
a. Assessment and collection of taxes
b. Enforcement of all forfeitures, penalties, and fines
 c. Interpretation of the provisions of the NIRC
d. Giving effect to and administering the supervisory and police powers conferred by the
NIRC and other laws
18. The Commissioner of Internal Revenue can delegate the power to
a. refund or credit internal revenue tax.
b. recommend rules and regulations to the Secretary of Finance.
c. assign and re-assign revenue officer to establishments of excisable articles.
d. compromise or abate tax liability.
19. The BIR is under the supervision of
a. the Bureau of Customs.
b. the President.
c. the Department of Finance.
d. Congress.
20. Who is not a large taxpayer?
a. Mining companies
b. Listed companies
c. Banks with P120M authorized capital
d. None of these
21. In terms of financial measures, which of the following threshold for qualification as large
taxpayers is incorrect?
a. Gross receipts exceeding P1B
b. Net worth exceeding P300M
c. Gross purchases exceeding P800M
d. Gross sales exceeding P1.5B
22. As to tax payments measures, which of the following threshold for the qualification as large
taxpayer is incorrect?
a. Annual income tax payments of P1M
b. Annual value added tax payments of P1M
c. Quarterly percentage tax payments of P200,000
d. Annual documentary stamp tax of P1M
 CHAPTER 3
Exercise Drill No. 1: Return of capital and Return on capital
Indicate the amount representing return of capital or return on capital:

Return OF Return ON
Consideration For the loss of Capital Capital
1. P 1,000,000 Health 1M 0
2. P 500,000 P 400,000 car 400K 100K
3. P 300,000 P 350,000 building 300K 0
4. P 600,000 Income 0 600K
5. P 1,200,000 Life 1.2M 0

Exercise Drill No. 2: Income tax and transfer tax

Check the box of each of the following items is taxable:

Transaction Income tax Transfer tax

1. Barter of properties √
2. Sales of goods √
3. Rendering of services √
4. Donation of properties √
5. Transfer of properties from a √
decedent to the heirs upon death
6. Transfer for less than full and √ √
adequate consideration

Exercise Drill No. 3: The concept of income

Check the appropriate box whether the following are exempt or taxable:

Transaction Taxable Exempt

1. Winnings from gambling √
2. Income from swindling √
3. Indemnity for moral damages √
4. Harvested fruits from an orchard √
5. Compensation income √
6. Interest income √
7. Amount received by the insured in excess of √
insurance premiums paid
8. Proceeds of life insurance received by the heirs √
of the insured
9. Gain on sale of goods by the home office to its √
 branch
10. Gain on sale of goods and services between √
relatives
11. Gain on sale of goods by a parent corporation to √
a subsidiary corporation
12. Appreciation in the value of land √
13. Birth of animal offspring √
14. Income of a registered Barangay Micro- √
Business Enterprise
15. Cancellation of debt out of gratuity of the √
creditor
16. Cancellation of debt √
By the creditor in exchange of services
rendered by the debtor
17. Matured interest from coupon bonds √
18. Receipt of bank loan √
19. Salaries of a minimum wage earner √
20. PCSO or lotto winnings √
21. Benefits from GSIS, SSS, Pag-ibig or √
PhilHealth
22. Discovery of hidden treasure √

Exercise Drill No. 4: Income taxpayer classification

Indicate the appropriate classification for each of the following taxpayers:

DC – Domestic corporation
RFD – Resident foreign corporation
NRFD – Non-resident foreign corporation
NRA-ETB - Non-resident alien engaged in trade or business
NRA-NETB - Non-resident alien not engaged in trade or business
NT – Not a taxpayer
RC – Resident citizen
NRC – Non-resident citizen
RA – Resident Alien

Person or Entity Classification

1. A fat Mexican tourist NRA-NETB
2. A hardworking overseas Filipino worker NRC
3. An expatriate employee NRC
4. A Filipino who is privately employed in the Philippines RC
5. An unemployed Filipino residing in the Philippines RC
6. A Chinese businessman who has his domicile in the NRA-NETB
Philippines for 6 months
7. A Japanese who married a beautiful Filipina and has been RA
residing in the Philippines for 2 years
8. A 2nd year Korean college student studying in the RA
 Philippines
9. A corporation incorporated under Philippine law DC
10. A foreign corporation doing business in the Philippines RFC
11. Trust designated by the donor as irrevocable RC
12. Trust designated by the donor as revocable NT
13. A business partnership DC
14. A joint venture organized under a foreign law and is not NFRC
operating in the Philippines
15. An estate of a Filipino citizen judicially administered in NRC
Japan
16. An estate of a Filipino citizen extra-judicially NT
administered in the Philippines
17 A taxable joint venture organized in the Philippines DC
18. A non-profit corporation organized in the Philippines DC

Exercise Drill No. 5: General Income Tax Rule

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

Taxpayer World income Philippine

income
1. Non-resident citizen √
2. Resident alien √
3. Non-resident alien engaged in trade or business √
4. Resident foreign corporation √
5. Resident citizen √
6. Non-resident alien not engaged in business √
7. Non-resident foreign corporation √
8. Domestic corporation √
9. Taxable trusts established by a Filipino citizen √
in the Philippines
10. Taxable estate of a non-resident citizen √
judicially administered abroad

Exercise Drill No. 6: Location and situs of income

Compute how much is earned within and earned outside the Philippines from each of the
following independent cases:
Income description Within Without
1. Rey earned P100,000 interest income; 40% of 60K 40K
these were from non-resident debtors.
2. A finance company earned P1,000,000 royalties 600K 400K
from a franchise; 40% of these were derived
abroad.
3. Raymond earned P100,000 rent from OFWs 40K 100K
from his apartment in the US. He also earned
P40,000 rent from his Philippine condominium
 unit.
4. Chester, a resident citizen, works home online 120K 0
and submits his output to clients. He collected
P100,000 service fee from foreign clients and
P20,000 from resident clients.
5. Mark rendered audit services to client in 0 500K
Afghanistan for P500,000. The services were
paid in Afghanistan.
6. Jun has a store in a tourist park in Baguio City, 40K 0
Philippines. He earned a total of P40,000 gain
from selling souvenir items. 40% were from
foreign tourists.
7. Don Mariano sold at a gain of P2,000,000 to a 2M 0
client abroad a commercial building located in
Quezon City, Philippines.
8. John sold his stocks in a domestic corporation to 50K 0
a foreign investor at a gain of P50,000.
9. Manso received P20,000 dividends from a 20K 30K
domestic corporation and P30,000 dividend
income from a non-resident foreign company.
10. Andrew received P40,000 dividends from a 24K 16K
resident foreign corporation; 60% of its
historical income is from the Philippines.
11. CDO, Inc. manufactures in the Philippines and 100K 0
sells to unaffiliated export clients. A total of
P100,000 gross income was earned during the
period.
12. ABC manufactures abroad and sells to its 150K 100K
Philippines branch at market prices. Production
cost abroad were P200,000. Billings to branch
totaled P300,000 while branch sales totaled
P450,000.
13. James received P100,000 dividends from a 0 100K
resident foreign corporation which realized 40%
of its income in the Philippines.
14 Ellis received P20,000 dividend from a non- 0 20K
resident foreign corporation.
15. Davao plant manufactures tables and sells to 400K 0
resident clients. A total of P400,000 gross
income was realized during the period.

Multiple Choice – Theory: Part 1

1. Which is not a requisite of gross income?
a. Return on capital c. Exempted by law
b. Realized benefit d. Not exempted by law
2. Which is taxable item of income?
 a. Increase in numbers of a herd of animals
b. Compensation for personal injuries
c. Moral damages
d. Interest on moral damages
3. Which is not subject to income tax?
a. Donation c. Sales of goods
b. Sale of service d. Barter of goods
4. The total consideration received from the sale of service constitute
a. Return on capital c. Either a or b
b. Return of capital d. Both a and b
5. When paid for, which of the following items may involve a return on capital?
a. House and lot c. Dignity
b. Life d. Health
6. The total consideration received from the sale of goods at a gain represents
a. Return on capital c. Either a or b
b. Return of capital d. Both a and b
7. The total consideration received from the sale of goods at a loss represents
a. Return on capital c. Either a or b
b. Return of capital d. Both a and b
8. Why is income subject to taxation?
a. Income is the most prevalent source of a taxpayer's wealth.
b. Income is the best measure of taxpayers' ability to pay tax.
c. Rich people tend to have more income than the poor.
d. Any of these.
9. Which is not an item of gross income because of the absence of an undertaking from the
taxpayer?
a. Proceeds of a life insurance policy
b. Forgiveness of indebtedness as an act of gratuity
c. Revaluation surplus on properties
d. Service fees
10. Which is subject to income tax?
a. Proceeds of life insurance policy received by the family of the insured
b. Excess of proceeds over the premiums paid received by the taxpayer
c. Life insurance proceeds received by the corporation from the insurance of a deceased
officer
d. None of these
11. Which of the following is exempted from income taxation because of the absence of ability
to pay?
a. Damages received from patent infringement suit
b. Unrealized income from investments
c. Gain on sale of goods
d. Inheritance
12. Income tax may be imposed for the following purposes, except
a. To provide large amounts of revenues
b. To limit corruption
c. To offset regressive sales and consumption taxes
 d. To mitigate the evils arising from the inequalities in the distribution of income and
wealth
13. Which of the following constitutes taxable income?
a. Return of premium on life insurance received by the insured
b. Moral damages received from slander
c. Proceeds of crop insurance
d. Compensation for personal injury
14. Which of the following is not a constructive receipt of income?
a. Forgiveness of indebtedness in consideration of service
b. Matured detachable interest coupons
c. Deposit of income to taxpayer's bank accounts
d. Cash salary of an employee
15. Transfers for insufficient consideration are subject to
a. Income tax c. Either a or b
b. Transfer tax d. Both a and b
16. Which is specifically exempted from income taxation by virtue of legal exemption?
a. Minimum wage
b. Gain on sale of prohibited drugs
c. Unrealized gain
d. All of these

Multiple Choice - Theory: Part 2

1. A resident alien naturalized in accordance with Philippine laws is a
a. Resident citizen
b. Resident alien
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business
2. Who is not a resident alien?
a. An alien who stayed in the Philippines for more than two years.
b. An alien who married and stayed in the Philippines for one year.
c. An alien who stayed in the Philippines for more than one year.
d. An alien who established his intention before the CIR to stay in the Philippines for an
extended period of time.
3. Which taxpayer is not a natural person?
a. Resident citizen
b. Taxable estate
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business
4. A Filipino who has been abroad for more than 183 days is classified as a
a. Resident alien
b. Non-resident alien
c. Non-resident citizen
d. Non-resident citizen not engaged in trade or business
5. Which of the following is not an income taxpayer classification?
a. Resident citizen
b. Non-resident alien
 c. Resident foreign corporation
d. General professional partnership
6. An American who showed proof to the satisfaction of the Commissioner of Internal Revenue
of his intention to stay in the Philippines as an immigrant is classified as a
a. Resident citizen c. NRA- ETB
b. Resident alien d. NRA - NETB
7. A Japanese who is staying in the Philippines for 183 days is a
a. Resident alien
b. Non-resident alien
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business
8. A Canadian who is staying in the Philippines for more than one year is a
a. Resident alien
b. Non-resident alien
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business
9. An alien who stayed less than one year in the Philippines is classified as a non-resident alien
not engaged in trade or business if he stayed herein for less than
a. 180 days c. 183 days
b. 1 year d. 2 years
10. A corporation incorporated according to Philippines laws is a
a. Domestic corporation c. Non-resident corporation
b. Resident corporation d. De jure corporation
11. A foreign corporation which is not authorized to conduct business in the Philippines is a
a. Domestic corporation c. Non-resident corporation
b. Resident corporation d. De jure corporation
12. A foreign corporation which operates a branch in the Philippines is a
a. Domestic corporation c. Non-resident corporation
b. Resident corporation d. De jure corporation
13. A partnership which dominantly operates business abroad is a
a. Domestic corporation c. Non-resident corporation
b. Resident corporation d. De jure corporation
14. Which is required to pay income tax?
a. Revocable trusts
b. Estates under extrajudicial settlement
c. Co-ownership
d. Business partnership
15. Which is not an income taxpayer?
a. Non-resident foreign corporation
b. Non-resident alien not engaged in trade or business
c. Joint venture engaged in energy operation pursuant to a service contract with the
government
d. Irrevocable trusts
16. Which of the following taxpayers is taxable only on income earned from the Philippines?
a. Resident corporation c. Resident citizen
b. Domestic corporation d. All of these
17. All of the following are taxable only on income earned from sources within the Philippines,
except
a. Resident alien c. Non-resident corporation
b. Non-resident citizen d. Domestic corporation
18. Which is taxable on world income?
a. Resident corporation c. Resident citizen
b. Non-resident citizen d. Resident alien

Multiple Choice - Theory: Part 3

1. The place of taxation is
a. Situs rule c. Territoriality
b. Situs d. Gross income
2. Which is an incorrect statement regarding situs of income:
a. Service income is earned in the domicile of the taxpayer.
b. Interest income is earned in the residence of the debtor.
c. Royalty is earned where the intangible is employed.
d. Rent is earned in the location of the property.
3. Which statement is correct regarding situs of income?
a. The gain on the sale of real property is earned in the location of the property.
b. The gain on sale of any property is earned in the place of sale.
c. Merchandising income is earned in the residence of the proprietor.
d. Manufacturing income is earned in the place of sale
4. Pedro, a non-resident citizen, lent money to Shino, a resident Chinese. The indebtedness was
collateralized by a property located in Japan. The interest income is earned in
a. the Philippines.
b. China.
c. Japan.
d. Japan, China and the Philippines.
5. Gains on the sale of goods manufactured and sold by the taxpayer within the Philippines is
subject to tax
a. wherever sold.
b. if sold abroad only.
c. without the Philippines only.
d. within the Philippines only.
6. Yvonne, a resident alien, bought a car manufactured in the Philippines and exported the same
at a gain to Carla, a non-resident citizen. Which is correct?
a. The gain is subject to tax in the Philippines since the commodity involved is
manufactured in the Philippines.
b. The gain is subject to tax in the Philippines since the buyer is a citizen of the
Philippines.
c. The gain is both subject to tax in the Philippines and abroad since the commodity
involved is manufactured in the Philippines.
d. The gain is taxable abroad because it is sold abroad.
7. Juan, a resident alien, and Pedro, a non-resident alien, executed a contract of sale in Japan
whereby Pedro shall purchase the lot owned by Juan in the Philippines. Juan gains
P1,000,000 in the exchange.
Which is true?
a. The gain is exempt since the gain is derived outside the Philippines.
b. The gain is not subject to Philippine tax since Juan is a resident alien.
c. The gain is subject to Philippine tax because Juan is a resident alien.
d. The gain is subject to Philippine tax because the property is in the Philippines.

Multiple Choice – Problems

Problem 3-1
Beth negotiated a P1,000,000 non-interest bearing promissory note to Candy. Candy paid Beth
P950,000. On due date, Beth paid Candy P1,000,000. Which is true?
a. Beth earned P50,000 return on capital
b. Candy earned P50,000 return on capital
c. Candy received P50,000 donation
d. Candy received P1,000,000 return of capital

Problem 3-2
Andrew received a total sum of P42,000 from his employer consisting of the following:
 P5,000 reimbursements for employer's expenses paid by Andrew
 P15,000 payment of Andrew's computer set purchased by the employer
 P22,000 monthly salary
Andrew's computer set cost him P12,000. Compute the total return on capital which can be
subjected to income tax.
a. P42,000 c. P25,000
b. P37,000 d. P22,000

Problem 3-3
Betty paid P20,000 annual premium on a life insurance contract which would pay her
P1,000,000 in case of her death. After paying for 4 years, Betty assigned the policy to Carlos for
P120,000.

Compute the return on capital.

a. P120,000 c. P40,000
b. P80,000 d. P0

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

Problem 3-5
Dan purchased the P1,000,000 life insurance policy of Ben for P120,000. Dan paid the P20,000
annual premiums on the policy for 4 years after which Ben died.
Compute the total return on capital for Dan.
a. P1,000,000 c. P800,000
b. P880,000 d. P0

Problem 3-6
Carlos paid P20,000 annual premium for a P1,000,000 life insurance policy. After 7years, Carlos
surrendered the policy and was paid by the insurance company P200,000 which represents the
cash surrender value of the policy.

Compute the return on capital.

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

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

Compute the return on capital.

a. P0 c. P500,000
b. P1,500,000 d. P 2,000,000

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

Which statement is false?

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

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

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

a. P0 c. P 300,000
b. P100,000 d. P370,000
Problem 3-10
Felix sells hot chili-flavored pancakes using a secret formula he patented. He sued a competing
pancake house for alleged patent infringement and claimed a total indemnity of P1,200,000:
 P1,000,000 for loss of profits from loss of sales
  P200,000 as Attorney's fee reimbursement

If Felix wins the case and is awarded the total indemnity, compute his total return of capital.
a. P1,000,000 c. P0
b. P800,000 d. P 200,000

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

Compute Henson's return on capital.

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

Problem 3-12
Jake sued an unscrupulous person for derogatory remarks which he considered to have
besmirched his reputation. The court awarded him an indemnity of P1,000,000 inclusive of
P200,000 reimbursement for Attorney's fees and P100,000 exemplary damages. Compute
Henson's total return on capital.
a. P1,000,000 c. P700,000
b. P800,000 d. P0

Problem 3-13
Kendrick received the following items during the year:
 P200,000 donation from a girlfriend
 P100,000 service fee from professional services
 P300,000 inheritance from his deceased father
 P100,000 income from illegal gambling
 P50,000 gain on sale of his personal car
 P250,000 profits from his bar restaurant

Compute the total income subject to income tax.

a. P1,050,000 c. P550,000
b. P750,000 d. P500,000

Problem 3-14
Pines Corporation has a branch in Manila and a 70%-owned subsidiary, Choco Hills, Inc. in
Davao. The following data shows Pines Corporation's sales transactions during the year:

 Pines Corporation billed the Manila branch P1,500,000 for merchandise shipped to the
latter at a mark-up of 50% above acquisition cost. The branch stored the merchandise and
did not operate during the year.
 Sold merchandise to unrelated parties at a gain of P800,000
  Sold merchandise to Darrel Asuncion, Pines Corporation's controlling stockholder, at a
gain of P100,000
 Sold various merchandise to Choco Hills, Inc. at a gain of P200,000

Compute the total income of Pines Corporation subject to income tax.

a. P1,700,000 c. P1,100,000
b. P1,200,000 d. P900,000
Problem 3-15
Denver is a supervisory employee of Atlantis Corporation. He had the following items of gross
income during the year:
 Denver was paid P800,000 salaries.
 Denver's P100,000 personal loan was paid by Atlantis Corporation as rewards for his
excellent performance.
 Denver's P50,000 advances to the company was paid by Atlantis' chief executive officer
as a gift.
 Denver is entitled to excess representation and transportation allowances. Denver
received P200,000 total allowance out of which P120,000 was disbursed by him.

Compute Denver's total income subject to income tax.

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

Problem 3-16
Jen is engaged in business. The following pertains to her transactions during 2014:
 Sold his personal car which was purchased at P200,000 to a friend who paid only half of
the car's P500,000 current fair value.
 Sales of merchandise was P800,000 and the cost of goods sold was P600,000.
 Jen acquired several stocks from the Philippine Stock Exchange for speculation. These
stocks have an aggregate purchase price of P400,000 but with P700,000 fair value by
December 31, 2014.
 Jen's house and lot which he acquired for P1,500,000 in 2010 now have a current fair
value of P2,500,000.

Compute Jen's total income subject to income tax.

a. P1,800,000 c. P200,000
b. P1,550, 000 d. P250,000

Problem 3-17
A condominium homeowner’s association collects dues from unit holders and remits the same to
service providers on their behalf. Such dues include electricity, water, security, and maintenance.
The association charges unit holders an additional 2% of their utility bills as service charge.

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

How much taxable income is realized by the association?

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

Problem 3-18
Kenny used to bet in PCS0 lotto. On June 3, 2014, he won the P20,000,000 jackpot prize from
the 6/45 lotto. One P20-ticket out of 10 bets took the prize. How much is Kenny's total income
subject to tax?
a. P20,000,000 c. P19,999,900
b. P19,999,990 d. P0

Problem 3-19
An American citizen has been staying in the Philippines since August 15, 2013. What would be
his taxpayer classification for the year 2013 and 2014, respectively?
a. Non-resident alien engaged in trade or business; resident alien
b. Non-resident alien not engaged in trade or business; resident citizen
c. Non-resident alien engaged in trade or business; resident citizen
d. Non-resident alien not engaged in trade or business; resident alien

Problem 3-20
A citizen who left the Philippines on March 1, 2013 would be classified as
a. Non-resident for the year 2013.
b. Resident citizen for the year 2013.
c. Non-resident for the year 2014.000B1.r3
d. Resident citizen for the year 2014.

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

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

Problem 3-23
Sarah has the following items of income:

Philippines Abroad
Business income P 200,000 P 100,000
Professional fees 100,000 50,000
Compensation income 400,000 -
Rent income 300,000 200,000
Interest income 30,000 40,000
1. Assuming Sarah is a resident citizen, compute the total income subject to Philippine income
tax.
a. P 390,000 c. P1,030,000
b. P1,180,000 d. P1,420,000

2. Assuming Sarah is a resident alien, compute the total income subject to Philippine income
tax.
a. P1,420,000 c. P1,030,000
b. P1,180,000 d. P 390,000
3. Assuming Sarah is a resident corporation, compute the total income subject to Philippine
income tax.
a. P1,420,000 c. P1,180,000
b. P1,030,000 d. P 390,000
4. Assuming Sarah is a domestic corporation, compute the total income subject to Philippine
income tax.
a. P 390,000 c. P1,180,000
b. P1,030,000 d. P1,420,000

Case Problems

Case Problem 1
Jaypee has the following income in 2017:
 P10,000 interest income from a non-resident Japanese friend W/O
 P40,000 interest income from Philippine residents W
 P500,000 rent income from a commercial complex located in the USA which is leased to
resident Filipinos W/O
 P200,000 rent income from a boarding house in Baguio City, Philippines W
 P200,000 professional fees rendered to Chinese clients in Hong Kong W/O
 P300,000 salary from a resident employer W
 P100,000 gain from sale of merchandise imported and sold to Filipino residents W
 P50,000 gain on sale of merchandise purchased locally and sold during her business
travel in Hong Kong W/O
 P400,000 gain on sale of the boarding house located in Baguio City to a non-resident
buyer W

Required:
Compute the total income earned from sources
1. Within the Philippines = 1,040,000
2. Outside the Philippines= 760,000

Case Problem 2
Joy earns franchise fees from his Hot Burger franchise. He also deals in various properties.
Johnny realized the following gains in 2017:
 P500,000 royalty fees from local Hot Burger outlets W
 P200,000 royalty fees from foreign Hot Burger outlets W/O
  P100,000 gain from sales of equipment to foreign franchisees W/O
 P200,000 gain from sales of equipment to local franchisees W
 P50,000 gains from sale of investment in domestic stocks to foreign investors W
 P40,000 gains from sale of investments in foreign stocks to Filipino investors W/O

Required:
Compute the total income earned from sources
a. Within the Philippines= 950,000
b. Without the Philippines= 340, 000

Case Problem 3
TC Company manufactures wooden furniture for the local and export market. It has a
distribution outlet abroad which handles foreign sales. It bills all customers, including the foreign
outlet, 70% above manufacturing costs. The foreign outlet bills its customers 100% above TC
Company's billing price. TC Company reports P3,400,000 in total sales, exclusive of sales to the
foreign outlet. The foreign outlet reports P2,720,000 total sales to customers.

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