MIDTERMS

Question 1

Which of the following are National Internal Revenue Taxes?

I. Income tax
II. Estate tax
III. Donor’s tax
IV. VAT
V. OPT
VI. Excise tax
VII. DST

a. I, II, III, IV
b. I, II, III, IV, V
c. I, II, III, IV, V, VI
d. I, II, III, IV, V, VI, VII

Answer 1

d. I, II, III, IV, V, VI, VII

Question 2

The three fundamental powers of the state are:

I. Inherent in the state and may be exercised by the state without need of any constitutional grant.

II. Not only necessary but indispensable.

III. Methods by which the state interferes with private rights.

IV. Exercised primarily by the legislature.

a. All true
b. All false
c. Half true, half false
d. None of the above

Answer 2

a. All true

Question 3

I. Police power regulates both liberty and property while the power of eminent domain and the power of taxation affect only property rights.

II. Police power and the power of taxation may be exercised only by the government while the power of eminent domain may be exercised by some private entities.

III. The property taken in police power is destroyed while the property taken under the power of eminent domain and
power of taxation is not destroyed.

IV. In the power of taxation, the compensation received is the protection of the state afforded to its citizens; in police power, a higher standard of living is enjoyed by the citizens; and in the power of eminent domain, a citizen receives just compensation for the property taken from him.

a. All true
b. All false
c. Half true
d. None of the above

Answer 3

a. All true

Question 4

I. The point on which a tax is originally imposed is impact of taxation.

II. The point on which a tax burden finally rests or settles down is incidence of taxation.

III. Police power is superior to the non-impairment clause of the constitution.

IV. Power of taxation is not superior to the non-impairment clause of the constitution

a. All true
b. All false
c. Half true
d. None of the above

Answer 4

c. Half True

( I, II, III are TRUE. IV is FALSE)

Question 5

I. No person shall be imprisoned for debt or non-payment of tax.

II. Tax laws are civil and penal in nature because there are criminal penalties when they are violated.

III. Taxes may be collected in an unlimited amount.

IV. License fees may be collected in an unlimited amount.

a. One statement is true
b. Two statements are true.
c. Three statements are true
d. All statements are true.

Answer 5

a. One statement is true

(Only III is TRUE)

Question 6

I. Tax is imposed on persons, property, and property rights.
II. Special assessment is imposed on persons, property and property rights.
III. Tax collection is a legislative act.
IV. Imposition of tax is an administrative act.

a. One statement is true
b. Two statements are true.
c. Three statements are true
d. All statements are true.

Answer 6

a. One statement is true

(Only I is TRUE)

Question 7

I. There can only be a tax if there is a law imposing the tax.
II. The power to tax may include the power to destroy.

a. True, true
b. True, false
c. False, true
d. False, false

Answer 7

a. True, true
(BOTH TRUE)

Question 8

I. Due process of law in taxation under the constitution is a grant of power.

II. Provisions in the Philippine constitution on taxation are grants of
power.

III. There may be double taxation in the Philippines

IV. Taxation may be used to implement the police power of the state.

a. One statement is true
b. Two statements are true.
c. Three statements are true
d. All statements are true.

Answer 8

b. Two statements are true.

(I, II are FALSE - III, IV are TRUE)

Question 9

I. License fee is a charge imposed under police power.

II. Special assessment is levied on lands only.

III. Tax is imposed regardless of public improvements.

IV. Special assessment is imposed regardless of public improvements.

a. One statement is true
b. Two statements are true.
c. Three statements are true
d. All statements are true.

Answer 9

c. Three statements are true.

(Only IV is FALSE)

Question 10

I. One of the essential characteristics of a tax is it is unlimited in amount.
II. A tax is generally unlimited because it is based on the needs of the state.

a. True, true
b. True, false
c. False, true
d. False, false

Answer 10

c. False, True

Question 11

A system of taxation where the amount of revenue from indirect taxes are more than the direct taxes is

a. Progressive
b. Regressive
c. Proportional
d. Schedular

Answer 11

b. Regressive

Question 12

Congress passed a law which granted tax amnesty to those who have not paid their income taxes in 2010 but did
not provide for the refund to those who paid. Is the law valid?

a. No, this will encourage taxpayers not to pay their taxes
b. Yes, Congress has the sole discretion of determining whom to tax
c. No, the grant of amnesty is the sole prerogative of the President
d. Yes, Congress provided for a valid classification.

Answer 12

d. Yes, Congress provided for a valid classification.

Question 13

Money collected from taxation shall not be paid to any religious dignitary EXCEPT when

a. The religious dignitary is assigned to the Philippine Army
b. It is paid by a local government unit.
c. The payment is passed in audit by the COA.
d. It is part of a lawmaker’s pork barrel.

Answer 13

a. The religious dignitary is assigned to the Philippine Army

Question 14

Which theory in taxation states that without taxes, a government would be paralyzed for lack of power to activate
and operate it, resulting in its destruction?

a. Power to destroy theory
b. Lifeblood theory
c. Sumptuary theory
d. No money, no honey theory

Answer 14

b. Lifeblood Theory

Question 15

The actual effort exerted by the government to effect the exaction of what is due from the taxpayer is known as

a. Assessment
b. Levy
c. Payment
d. Collection

Answer 15

a. Assessment

Question 16

Although the power of taxation is basically legislative in character, it is NOT the function of Congress to

a. Fix with certainty the amount of taxes
b. Collect the tax levied under the law
e. Identify who should collect the tax
d. Determine who should be subject to the tax

Answer 16

b. Collect the tax levied under the law

Question 17

An example of a tax where the concept of progressivity finds application is the

a. Graduated income tax rates on individuals
b. Excise tax on petroleum products
c. Value-added tax on certain articles
d. Amusement tax on boxing exhibitions

Answer 17

a. Graduated income tax rates on individuals

Question 18

The power to tax is the power to destroy. Is this always so?

a. No. The Executive Branch may decide not to enforce a tax law which it believes to be confiscatory.
b. Yes. The tax collectors should enforce a tax law even if it results to the destruction of the property rights of the
taxpayer.
c. Yes. The tax laws should always be enforced because without taxes the very existence of the State is
endangered.
d. (No) The Supreme Court may nullify a tax law, hence, property rights are not affected.

Answer 18

d. No. The Supreme Court may nullify a tax law, hence, property rights are not affected.

Question 19

This is not an inherent limitation on the power of taxation:

a. Double taxation, though not prohibited, is disfavored.
b. Equality and uniformity in taxation
c. Public purpose of taxation
d. Territoriality

Answer 19

b. Equality and uniformity in taxation

Question 20

Revenue regulations (RRs) are:

a. Issuances signed by the Secretary of Finance, upon recommendation of the CIR, that specify, prescribi or define
rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC)
and related statutes.

b. Issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and
precedents issued by the BIR and other agencies/offices.

c. Issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations,
activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives,
plans and programs of the Bureau in all areas of operations, except auditing.

d. None of the above.

Answer 20

a. Issuances signed by the Secretary of Finance, upon recommendation of the CIR, that specify, prescribi or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC)
and related statutes.

Question 21

Revenue Memorandum Circulars (RMCs) are:

a. Issuances signed by the Secretary of Finance, upon recommendation of the CIR, that specify, prescribi or define
rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC)
and related statutes.

b. Issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and
precedents issued by the BIR and other agencies/offices.

c. Issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations,
activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives,
plans and programs of the Bureau in all areas of operations, except auditing.

d. None of the above.

Answer 21

b. Issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and
precedents issued by the BIR and other agencies/offices.

Question 22

Revenue Memorandum Orders (RMOs) are:

a. Issuances signed by the Secretary of Finance, upon recommendation of the CIR, that specify, prescribi or define
rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC)
and related statutes.

b. Issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and
precedents issued by the BIR and other agencies/offices.

c. Issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations,
activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives,
plans and programs of the Bureau in all areas of operations, except auditing.

d. None of the above.

Answer 22

c. Issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations,
activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives,
plans and programs of the Bureau in all areas of operations, except auditing

Question 23

The following are the powers of the CIR except:

a. After a return has been filed or when no return is filed, the CIR may authorize the examination of any taxpayer,
and the assessment of the correct amount of tax.

b. The CIR has the power to issue Summons or Subpoena Duces Tecum to a taxpayer, an officer or employee of a
taxpayer, or to any person having possession of records relating to the business of a taxpayer.

c. The CIR-has the power to take the testimony of a person, under oath, that may be relevant or material to the
inquiry.

d. The CIR has the power to inquire into a taxpayer’s bank deposits in all instances

Answer 23

d. The CIR has the power to inquire into a taxpayer’s bank deposits in all instances

Question 24

What is tax mapping?

a) It is equivalent to tax assessment within the applicable reglementary periods depending on whether the taxpayer
is guilty of fraud or not.

b) It is a mere verification made by the BIR of a taxpayer’s compliance with registration and other requirements
prior to, during, and after its business operations such as the following: (a) registration of the head office and
branches, (b) payment of annual registration fee and posting of the same in the place of business; (c) authority to
print receipts and invoices, (d) the issuance of receipts and invoices on every sale; (e) the contents of such receipts
and invoices; (f) registration of cash register machines, point-of-sale machines, and computerized accounting
systems; and (g) registration of books of accounts.

c) This is the directory of the Revenue District Offices of the BIR with a listing of all officers and revenue agents.

d) None of the above.

Answer 24

b) It is a mere verification made by the BIR of a taxpayer’s compliance with registration and other requirements
prior to, during, and after its business operations such as the following: (a) registration of the head office and
branches, (b) payment of annual registration fee and posting of the same in the place of business; (c) authority to
print receipts and invoices, (d) the issuance of receipts and invoices on every sale; (e) the contents of such receipts
and invoices; (f) registration of cash register machines, point-of-sale machines, and computerized accounting
systems; and (g) registration of books of accounts.

Question 25

Dante Company is a hotel company registered as a local economic enterprise (“LEE”) of the City of Dapitan. The
company is asserting that, as an LEE owned and operated by a local government unit (“LGU”), it should no longer be
required to pay income taxes to the BIR. It argues that all revenues collected by it must accrue exclusively to the
city government of Dapitan. Is the company correct?

a) Yes. Since the company is owned by an LGU which itself is exempt from taxes imposed by the Tax Code, the
same privileges must also be accorded to it.

b) Yes. Under Section 18 of the Local Government Code, LGUs are authorized to generate their own sources of
revenues, and the allocation of the same shall accrue exclusively to them.

c) No. The company is not one of those corporations exempt from taxes under Section 30 of the Tax Code or under
any special laws. Besides, the acts of an LGU in its corporate capacity and for the purpose of economic gain may
be subject to tax just like any other private or government corporation.

d) None of the above.

Answer 25

c) No. The company is not one of those corporations exempt from taxes under Section 30 of the Tax Code or under
any special laws. Besides, the acts of an LGU in its corporate capacity and for the purpose of economic gain may
be subject to tax just like any other private or government corporation.

Question 26

Mr. Compton sells shoes in Makati through a retail store. He pays the VAT on his gross sales to the BIR and the
municipal license tax based on the same gross sales to the City of Makati. He comes to you for advice because he
thinks he is being subjected to double taxation.

What advice will you give him?

a. Yes, there is double taxation and it is progressive.

b. The City of Makati has no taxing power.

c. Yes, there is double taxation and this is illegal in the Philippines.

d. Double taxation is allowed where one tax is imposed by the national government and the other by local
government.

Answer 26

d. Double taxation is allowed where one tax is imposed by the national government and the other by local
government.

Question 27

I: All income payments which are required to be subjected to withholding tax shall be subject to the
corresponding withholding tax rate to be withheld by the person having control over the payment and who, at the
same time claims the expenses.

II: The obligation to withhold is imposed upon the buyer-payor of income although the burden of
tax is really upon the seller-income earner. Hence, unjustifiable refusal of the latter to be subjected to withholding
shall be a ground for the mandatory audit of all internal revenue tax liabilities, as well as the imposition of penalties
under the Tax Code, upon verified complaint of the buyer-payor.

a. True, True
c. False, True
b. True, False
d. False, False

Answer 27

a. True, True

Question 28

I: All income payments received by a Minimum Wage Earner (MWE) are exempt from withholding.

II: An individual payee shall not be subjected to withholding if the total of the income payments he
receives is not more than P250,000.

a. True, True
c. False, True
b. True, False
d. False, False

Answer 28

d. False, False

Question 29

I. If the tax has actually been withheld at source, a credit or a refund shall be made to the recipient of
the income (e.g., the employee) even though such withheld tax has not been paid to the government by the
employer.

II. Any income subject to income tax may be subject to withholding tax. However, income exempt from
income tax is consequently exempt from withholding tax. Further, income not subject to withholding tax does not
necessarily mean that it is not subject to income tax.

a. True, True
c. False, True
b. True, False
d. False, False

Answer 29

a. True, True

Question 30

ABC, a corporation registered in Norway, has a 50MW electric power plant in San Jose, Batangas.

Aside from ABC’s
income from its power plant, which among the following is NOT considered as part of its income from sources
within the Philippines?

a. Gains from the sale to an Ilocos Norte power plant of generator bought from the United States.
b. Interests earned on its dollar deposits in a Philippine bank under the Expanded Foreign Currency Deposit System.
c. Gain from the sale, in London, of shares of stock and other securities of San Miguel Corporation, a domestic
corporation.
d. Royalties from the use in Brazil of generator sets designed in the Philippines by its engineers

Answer 30

d. Royalties from the use in Brazil of generator sets designed in the Philippines by its engineers.

Question 31

Aplets Corporation is registered under the laws of the Virgin Islands. It has extensive operations in Southeast Asia.

In the Philippines, its products are imported and sold at a mark-up by its exclusive distributor, Kim’s Trading, Inc.

The BIR compiled a record of all the imports of Kim from Aplets and imposed a tax on Aplets’s net income derived
from its exports to Kim. Is the BIR correct?

a. Yes. Aplets is a non-resident foreign corporation engaged in trade or business in the Philippines.
b. No. The tax should have been computed on the basis of gross revenues and not net income.
c. No. Aplets is a non-resident foreign corporation not engaged in trade or business in the Philippines.
d. Yes, Aplets is doing business in the Philippines through its exclusive distributor Kim’s Trading Inc.

Answer 31

c. No. Aplets is a non-resident foreign corporation not engaged in trade or business in the Philippines

Question 32

ABC Inc., a corporation registered and holding office in Australia, not operating in the Philippines, may be subject to
Philippine income taxation on

a. Gains it derived from sale in Australia of an ore crusher it bought from the Philippines with the proceeds
converted to pesos.
b. Gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine corporation.
c. Dividends earned from investment in a foreign corporation that derived 40% of its gross income from Philippine
sources.
d. Interest derived from its dollar deposits in a Philippine bank under the Expanded Foreign Currency Deposit
System.

Answer 32

b. Gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine corporation.

Question 33

A corporation organized and created under the laws of a foreign country and is authorized to do business/trade in
the Philippines is:

a. Domestic corporation
b. Resident foreign corporation
c. Government owned and controlled corporation
d. Non-profit hospital

Answer 33

b. Resident foreign corporation

Question 34

A domestic corporation may employ, as a basis for filing its annual corporate income tax return the:

a. Calendar year only
b. Fiscal year only
c. Either calendar or fiscal year
d. Neither calendar or fiscal year

Answer 34

c. Either calendar or fiscal year

Question 35

One of the general principles of income taxation:

a. A foreign corporation engaged in business in the Philippines is taxable on all income derived from sources within
and without the Philippines.
b. A foreign corporation engaged in business in the Philippines is taxable on all income derived from sources within
the Philippines only
c. A domestic corporation is taxable on income derived from sources within the Philippines only
d. A domestic corporation is taxable on income derived from sources without the Philippines only

Answer 35

b. A foreign corporation engaged in business in the Philippines is taxable on all income derived from sources within
the Philippines only

Question 36

One of the following does not fall under the definition of a “corporation” for income tax purpose:

a. General partnership
b. Joint stock company
c. Insurance company
d. Sole proprietorship

Answer 36

d. Sole proprietorship

Question 37

Which of the following is subject to the income tax?

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

Answer 37

d. Mutual savings bank and cooperative bank having a capital stock represented by shares organized and operated
for mutual purposes and profit.

Question 38

The Philippine Health Insurance Corporation (Philhealth), a government-owned corporation is:

a. Exempt from the corporate income tax.
b. Subject to the preferential corporate income tax for special corporations.
c. Subject to the basic corporate income tax
d. Subject to final tax

Answer 38

a. Exempt from the corporate income tax.

Question 39

Public educational institutions, like the University of the Philippines is deemed by law:

a. Subject to the preferential corporate income tax for special corporations.
b. Subject to the basic corporate income tax.
c. Subject to both the preferential income tax and the basic corporate income tax.
d. Exempt from the corporate income tax

Answer 39

d. Exempt from the corporate income tax

Question 40

Which is NOT correct? The following are exempt from the corporate income tax:

a. Local water districts
b. Bureau of Internal Revenue
c. Government owned or controlled corporation
d. Social Security System

Answer 40

c. Government owned or controlled corporation

Question 41

Which of the following may be subject to the corporate income tax?

a. A non-stock and non-profit educational institution
b. A public educational institution
c. A private educational institution
d. Government Service Insurance System

Answer 41

c. A private educational institution

Question 42

Which of the following statements is not correct?

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

Answer 42

a. MCIT is not applicable to resident foreign corporations

Question 43

The following income are subject to final tax, except

a. Royalty income received by a domestic corporation from a domestic corporation.
b. Cash dividends received by a non-resident foreign corporation from a domestic corporation
c. Cash dividends received by a domestic corporation from a domestic corporation.
d. Interest income from a Peso deposit received by resident foreign corporation from a Philippine bank.
e. Branch profit remitted by a branch to the head office of a resident foreign corporation.

Answer 43

b. Cash dividends received by a non-resident foreign corporation from a domestic corporation

Question 44

The MCIT shall not apply to the following resident foreign corporations, except

a. RFC engaged in business as international carrier subject to 2 1/2 % of their Gross Philippine Billings
b. RFC engaged in business as Offshore Banking Units on their income from foreign currency transactions with
local commercial banks
c. DFC engaged in business as regional operating headquarters
d. RFC engaged in hotel, motel and resort operations

Answer 44

d. RFC engaged in hotel, motel and resort operations

Question 45

If the gross income from unrelated activity exceeds 50% of the total gross income derived by any private
educational institution, the tax rate shall be the regular 25% based on the entire taxable income.

This is known as the

a. Constructive receipt
b. Tax benefit rule
c. End trust doctrine
d. Predominance test

Answer 45

d. Predominance test

Question 46

For income taxation purposes, the term “corporation” excludes one of the following:

a. Ordinary partnership
b. An incorporated business organization
c. General professional partnership
d. Business partnership

Answer 46

c. General professional partnership

Question 47

Allan Reyes, married, VAT-registered, had the following data for the taxable year:

Gross sales, Phils. P2,000,000
Cost of sales, Phils.1,600,000
Gross sales, USA 1,500,000
Cost of sales, USA 1,200,000
Operating expenses, Phils.10,000
Operating expenses, USA. 35,000

If the taxpayer is a resident citizen, his tax due is:

a. P93,750.00
b. P158,600.00
c. P81,250.00
d. None of the above

Answer 47

a. P93,750.00

Question 48

Allan Reyes, married, VAT-registered, had the following data for the taxable year:

Gross sales, Phils.
P2,000,000
Cost of sales, Phils.1,600,000
Gross sales, USA. 1,500,000
Cost of sales, USA. 1,200,000
Operating expenses, Phils.10,000
Operating expenses, USA. 35,000

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

a. P15,000
b. P77,000
c. P28,000
d. None of the above

Answer 48

c. P28,000

Question 49

If the taxpayer is a non-resident alien engaged in business in the Philippines, married, VAT registered and his
country allows reciprocity of P30,000 as personal exemption for married individual ben his tax due is

a. P22,000
b. P28,000
c. P83,000
d. None of the above.

Answer 49

b. P28,000

Question 50

If the taxpayer is a non-resident alien not engaged in business in the Philippines, married, and his country grants P35,000 as personal exemption for married individuals, his tax due is:

a. P100,000.00
b. P93,750.00
c. P400,000.00
d. None of the above

Answer 50

a. P100,000.00