20250312 Midterm Examination

Question 1

Which of the following statements is correct?

a. The President is authorized to increase or decrease national internal revenue tax rates
b. One of the nature of taxation is the reciprocal duties of protection and support between the state and subject thereof
c. Every sovereign government has inherent power to tax
d. Income tax is indirect tax

Answer 1

ANS: c. Every sovereign government has inherent power to tax.

Question 2

As to scope of the legislative power to tax, which is incorrect?

a. Where there are no constitutional restrictions, and provided the subjects are within the territorial jurisdiction of the state, Congress has unlimited discretion as to the persons, property, or occupations to be taxed
b. In the absence of any constitutional prohibition, the House of Representatives has the right to levy a tax of any amount it sees fit
c. The discretion of Congress in imposing taxes extends to the mode, method, or kind of tax even if restricted by the Constitution
d. The sole arbiter of the purpose for which taxes be levied is Congress, provided the purpose is public, but the courts may review the levy of the tax to determine whether or not the purpose is public

Answer 2

ANS: c. The discretion of Congress in imposing taxes extends to the mode, method, or kind of tax even if restricted by the Constitution.

Question 3

Subject to inherent and constitutional limitations, the power of taxation is regarded as supreme, plenary, unlimited, and comprehensive

a. Basis of taxation
b. Situs of taxation
c. Scope of taxation
d. Theory of taxation

Answer 3

ANS: c. Scope of taxation.

Question 4

Synonymous to tax avoidance

a. Tax dodging
b. Tax minimization
c. Tax exemption
d. Tax evasion

Answer 4

ANS: Tax minimization.

Question 5

In case of conflict between the Tax Code and the Philippine Accounting Standard (PAS)

a. PAS shall prevail over the Tax Code
b. Tax Code shall prevail over PAS
c. PAS and Tax Code shall be both disregarded
d. The taxpayer may choose between the two

Answer 5

ANS: Tax Code shall prevail over PAS.

Question 6

Mr. X, an American management expert, is hired by a Philippine corporation to assist in its organization and operation, for which he has to stay in the Philippines for five months. His coming to the Philippines is for a definite purpose which, in its nature, will require an extended stay. To the end, he makes his home temporarily in the Philippines. The American management expert intends to leave the Philippines as soon as his job is finished.

For income tax purposes, the American management expert shall be classified as:

a. Resident alien
b. Non-resident alien engaged in trade or business
c. Non-resident alien not engaged in trade or business
d. Resident citizen

Answer 6

ANS: Resident alien.

Question 7

Mr. X, an American singer, was engaged to sing for one week at the Westin Plaza, after which he returned to the USA. For income tax purposes, X should be classified as:

a. Resident alien
b. Non-resident alien engaged in trade or business
c. Non-resident alien not engaged in trade or business
d. Resident citizen

Answer 7

ANS: Non-resident alien not engaged in trade or business.

Question 8

Which of the following individual taxpayers is taxed on income from sources within and without the Philippines?

a. Resident citizen
b. Resident alien
c. Non-resident citizen
d. Non-resident alien

Answer 8

ANS: Resident citizen.

Question 9

Which of the following assets is subject to depreciation for income tax purposes?

a. Inventories or stock in trade
b. Goodwill
c. Equipment used in business
d. Residential house

Answer 9

ANS: Equipment used in business.

Question 10

A non-resident alien is 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

Answer 10

ANS: Within the Philippines.

Question 11

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 on income from without the Philippines
c. Exempt from income tax
d. Taxable on income from within the Philippines

Answer 11

d. Taxable on income from within the Philippines

Question 12

It is the privilege of not being imposed a financial obligation to which others are subject:

a. Tax incentive
b. Tax exemption
c. Tax amnesty
d. Tax credit

Answer 12

b. Tax exemption

Question 13

The use of legal or permissible means to minimize or avoid taxes:

a. Exemption
b. Shifting
c. Avoidance
d. Evasion

Answer 13

c. Avoidance

Question 14

A tax must be imposed for public purpose. Which of the following is not a public purpose?

a. National defense
b. Public education
c. Improvement of the sugar and coconut industries
d. Improvement of a subdivision road

Answer 14

d. Improvement of a subdivision road

Question 15

Taxation as distinguished from police power and power of eminent domain:

a. Property is taken to promote the general welfare.
b. Maybe exercised only by the government.
c. Operates upon the whole citizenry.
d. There is generally no limit as to the amount that may be imposed.

Answer 15

d. There is generally no limit as to the amount that may be imposed.

Question 16

Which of the following is not a determinant of the place of taxation?

a. Source of the income
b. Residence of the taxpayer
c. Citizenship of the taxpayer
d. Amount of tax to be imposed

Answer 16

d. Amount of tax to be imposed

Question 17

This is a constitutional limitation on the power of taxation:

a. Tax laws must be applied within the territorial jurisdiction of the state.
b. Exemption of government agencies and instrumentalities from taxation.
c. No appropriation of public money for religious purposes.
d. Power to tax cannot be delegated to private persons or entities.

Answer 17

c. No appropriation of public money for religious purposes.

Question 18

An escape from taxation where the producer or manufacturer pays the tax and endeavors to recoup himself by improving his process of production, thereby turning out his units of products at a lower cost:

a. Shifting
b. Exemption
c. Transformation
d. Capitalization

Answer 18

c. Transformation

Question 19

In every case of doubt, tax exemptions are construed:

a. Strictly against the government and the taxpayer.
b. Liberally in favor of the government and the taxpayer.
c. Strictly against the government and liberally in favor of the taxpayer.
d. Liberally in favor of the government and strictly against the taxpayer.

Answer 19

d. Liberally in favor of the government and strictly against the taxpayer.

Question 20

Which of the following statements is not correct?

a. Tax burdens shall neither be imposed nor presumed to be imposed beyond what the statute expressly and clearly states because tax statutes should be construed strictly against the government.
b. Tax exemptions, tax amnesty, tax condonations, and their equivalent provisions are not presumed and, when granted, are strictly construed against the taxpayer because such provisions are highly disfavored by the government.
c. Exemptions from taxation are highly disfavored in law, and he who claims tax exemption must be able to justify his claim or right.
d. The House of Representatives has the duty and the exclusive power of constructing and interpreting tax laws.

Answer 20

d. The House of Representatives has the duty and the exclusive power of constructing and interpreting tax laws.

Question 21

Which of the following is not acceptable for legally refusing to pay the tax?

a. That the right of the state to collect the tax has prescribed.
b. That there is no jurisdiction to collect the tax.
c. That the tax law was declared as unconstitutional.
d. That there is no benefit derived from the tax.

Answer 21

d. That there is no benefit derived from the tax.

Question 22

Congress can impose a tax at any amount and at any time, which shows that:

a. Taxation is an inherent power of the state.
b. Taxation is essentially a legislative power.
c. Taxation is a very broad power of the state.
d. Taxation is based on taxpayers’ ability to pay.

Answer 22

c. Taxation is a very broad power of the state.

Question 23

Which of the following statements is never true?

a. A business income may arise from self-employment or practice of profession.
b. An individual taxpayer who earns compensation income is an employee.
c. Business income may arise from self-employment or compensation income.
d. An income taxpayer may earn both compensation income and business income.

Answer 23

c. Business income may arise from self-employment or compensation income.

Question 24

Passive income includes income derived from an activity in which the earner does not have any substantial participation. This type of income is

a. usually subject to a final tax
b. exempt from income taxation
c. taxable only if earned by a citizen
d. included in the income tax return

Answer 24

ANS: a. usually subject to a final tax.

Question 25

Those required to file a declaration of their estimated income for the current taxable year must file the same on or before a. April 15 of the current taxable year b. April 15 of the following taxable year c. August 15 of the current taxable year d. November 15 of the current taxable year

Answer 25

ANS: April 15 of the current taxable year.

Question 26

The option to be taxed at an 8% income tax rate is available to a. VAT registered taxpayer who is in business b. Self-employed taxpayer subject to Other Percentage Taxes under Title V of the Tax Code except those under Section 116 c. all of the above d. none of the above

Answer 26

ANS: none of the above.

Question 27

For purely self-employed taxpayers, the 8% tax on gross sales or receipts and other non-operating income in excess of P250,000 is in lieu of a. graduated income tax rates under Section 24 (A) of the Tax Code b. percentage tax under Section 116 of the Tax Code c. VAT d. a and b

Answer 27

ANS: a and b.

Question 28

Persons or things belonging to the same class shall be taxed at the same rate a. Simplicity in taxation b. Reciprocity in taxation c. Equality in taxation d. Uniformity in taxation

Answer 28

ANS: d. Uniformity in taxation.

Question 29

The tax should be proportional to the relative value of the property to be taxed a. Simplicity in taxation b. Reciprocity in taxation c. Equality in taxation d. Uniformity in taxation

Answer 29

ANS: Equality in taxation.

Question 30

Persons or things belonging to the same class shall be taxed at the same rate a. Simplicity in taxation b. Reciprocity in taxation c. Equality in taxation d. Uniformity in taxation

Answer 30

ANS: Uniformity in taxation.

Question 31

The tax should be proportional to the relative value of the property to be taxed a. Simplicity in taxation b. Reciprocity in taxation c. Equality in taxation d. Uniformity in taxation

Answer 31

ANS: Equality in taxation.

Question 32

Mr. X, a caregiver, is under a 3-year employment contract with a hospital in Australia. His wife, Y, and a minor child live in the Philippines. In 2019, he earned P80,000 (converted) a month. For the annual income of P960,000, X shall pay income tax a. for the entire amount it being taxable in the Philippines b. for half the full amount because the other half pertains to his wife c. of nothing because as an OFW, he is considered a non-resident citizen d. none of the above

Answer 32

ANS: c. of nothing because as an OFW, he is considered a non-resident citizen.

Question 33

The P90,000 exemption threshold is applicable to: a. regular employees b. rank and file employee c. managerial employees d. all employees

Answer 33

ANS: all employees.

Question 34

Pedro is a member of the board of directors of ABC Corporation. During the current taxable year, Pedro received director's fees amounting to P300,000 from quarterly board meetings he attended. Such fees should: a. form part of Pedro’s gross compensation income, whether or not he is at the same time an employee of the corporation b. form part of Pedro’s gross compensation income, only if he is at the same time an employee of the corporation c. Both statements are correct d. Neither statements are correct

Answer 34

ANS: form part of Pedro’s gross compensation income, only if he is at the same time an employee of the corporation.

Question 35

If Mr. X arrives in the Philippines on June 30, 2020, and luckily lands a job that pays him P30,000 a month, his income from August to December shall be: a. Exempt because he is considered a nonresident citizen for the entire year. b. Taxed based on the graduated income tax schedule (Section 24(A)). c. Taxed at a 15% final withholding tax. d. None of the above.

Answer 35

b. Taxed based on the graduated income tax schedule (Section 24(A)).

Question 36

Which is usually an employee? a. A director who at the same time is the chief executive officer. b. A director regularly receiving a retainer's fee. c. Consultant. d. A hired TV program talent.

Answer 36

a. A director who at the same time is the chief executive officer.

Question 37

Congress can impose a tax at any amount and at any time, which shows that: a. Taxation is an inherent power of the state. b. Taxation is a very broad power of the state. c. Taxation is essentially a legislative power. d. Taxation is based on the taxpayer’s ability to pay.

Answer 37

b. Taxation is a very broad power of the state.

Question 38

The BIR shall be under the control and supervision of the: a. Court of Tax Appeals. b. Supreme Court. c. DILG. d. Department of Finance.

Answer 38

d. Department of Finance.

Question 39

The tax laws must be capable of convenient, just, and effective administration: a. Fiscal adequacy. b. Equality or theoretical justice. c. Administrative feasibility. d. Internal acceptability.

Answer 39

c. Administrative feasibility.

Question 40

The principal purpose of taxation is: a. To encourage the growth of home industries through the proper use of tax exemptions and tax incentives. b. To implement the police power of the state. c. To reduce excessive inequalities of wealth. d. To raise revenues for government needs.

Answer 40

d. To raise revenues for government needs.

Question 41

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. Superpower.

Answer 41

b. Police power.

Question 42

The power to demand proportionate contributions from persons and property to defray the expenses of the government: a. Power of taxation. b. Police power. c. Power of eminent domain. d. National power.

Answer 42

a. Power of taxation.

Question 43

The following are the nature of taxation, except: a. Inherent in sovereignty. b. Essential legislative in character. c. Subject to inherent and constitutional limitations. d. Subject to approval by the people.

Answer 43

d. Subject to approval by the people.