TAXATION

1. 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
C. Sumptuary theory
B. Lifeblood theory
D. Symbiotic doctrine
2. There is no taxable income until such income is recognized. Taxable income is recognized when
the:
A. taxpayer fails to include the income in his income tax return.
B. income has been actually received in money or its equivalent.
C. income has been received, either actually or constructively.
D. transaction that is the source of the income is consummated.
3. Keyrand, Inc., a Philippine corporation, sold through the local stock exchange 10,000 PLDT
shares that it bought 2 years ago. Keyrand sold the shares for P2 million and realized a net gain of
P200,000. How shall it pay tax on the transaction?
A. It shall declare a P2 million gross income in its income tax return, deducting its cost of
acquisition as an expense.
B. It shall report the P200,000 in its corporate income tax return adjusted by the holding period.
C. It shall pay 5% tax on the first P100,000 of the P200,000 and 10% tax on the remaining
P100,000.
D. It shall pay a tax of one-half of 1% of the P2 million gross sales.
4. Mia, a compensation income earner, filed her income tax return for the taxable year 2007 on
March 30, 2008. On May 20, 2011, Mia received an assessment notice and letter of demand
covering the taxable year 2007 but the postmark on the envelope shows April 10, 2011. Her return
is not a false and fraudulent return. Can Mia raise the defense of prescription?
A. No. The 3 year prescriptive period started to run on April 15, 2008, hence, it has not yet
expired on April 10, 2011.
B. Yes. The 3 year prescriptive period started to run on April 15, 2008, hence, it had already
expired by May 20, 2011.
C. No. The prescriptive period started to run on March 30, 2008, hence, the 3 year period expired
on April 10, 2011.
D. Yes. Since the 3-year prescriptive period started to run on March 30, 2008, it already expired
by May 20, 2011.
5.

Mr. Sebulba, a single parent with a qualified child, is a non-resident citizen who works in
Taiwan as the operations manager of a manufacturing firm has the following information:
Gross Income
Compensation income
Gross income from business
Business expenses
Other income

Income from the Philippines

0
360,000
250,000
30,000

Compute for his taxable income subject to Philippine income tax.

A. 65,000
C. 540,000
B. 90,000
D. 465,000

Income derived from Japan

330,000
150,000
120,000
40,000

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

A. income tax on individuals.
C. value-added tax on certain articles.
B. excise tax on petroleum products.
D. amusement tax on boxing exhibitions.
7. The payor of passive income subject to final tax is required to withhold the tax from the payment
due the recipient. The withholding of the tax has the effect of:
A. a final settlement of the tax liability on the income.
B. a credit from the recipient's income tax liability.
C. consummating the transaction resulting in an income.
D. a deduction in the recipient's income tax return.
8.

A VAT subject real estate dealer sold a residential lot on January 15, 2014. The following
information was made available on the terms of the sale:
Gross selling price
Initial payments on January 15, 2014
Balance to be paid in equal installment,
Installment payments start on 2/15/2014

3,000,000
750,000
2,250,000

The zonal value of the residual lot was 3,500,000. How much was the output tax (VAT) on
January 15, 2014 using 12% VAT rate?
A. 420,000
C. 360,000
B. 105,000
D. None [VAT-exempt transaction]
9. Celia donated 110,000.00 to her friend Victoria who was getting married. Celia gave no other
gift during the calendar year. What is the donor's tax implication on Celias donation?
A. The 100,000 portion of the donation is exempt since given in consideration of marriage.
B. A 10,000 portion of the donation is exempt being a donation in consideration of marriage.
C. Celia shall pay a 30% donor's tax on the 110,000 donation.
D. The 100,000 portion of the donation is exempt under the rate schedule for donor's tax.
10. The actual effort exerted by the government to effect the exaction of what is due from the taxpayer
is known as:
A. assessment.
C. payment.
B. levy.
D. collection.

9. Gerardo died on July 31, 2011. His estate tax return should be filed within
A. six months from filing of the notice of death.
B. sixty days from the appointment of an administrator.
C. six months from the time he died on July 31, 2011.
D. sixty days from the time he died on July 31, 2011.
10. Real property taxes should not disregard increases in the value of real property occurring over a
long period of time. To do otherwise would violate the canon of a sound tax system referred to as
A. theoretical justice.
C. administrative feasibility.
B. fiscal adequacy.
D. symbiotic relationship.
11. Although the power of taxation is basically legislative in character, it is generally NOT the
function of Congress to:
A. fix with certainty the amount of taxes.
C. identify who should collect the tax.
B. collect the tax levied under the law.
D. determine who should be subject to the tax.

12. On July 31, 2011, Esperanza received a preliminary assessment notice from the BIR demanding
that she pays P180,000.00 deficiency income taxes on her 2009 income. How many days from
July 31, 2011 should Esperanza respond to the notice?
A. 180 days.
C. 60 days.
B. 30 days.
D. 15 days.
13. The excess of allowable deductions over gross income of the business in a taxable year is known
as:
A. net operating loss.
C. net deductible loss.
B. ordinary loss.
D. NOLCO.
14. Lualhati Educational Foundation, Inc., a stock educational institution organized for profit, decided
to lease for commercial use a 1,500 sq. m. portion of its school. The school actually, directly, and
exclusively used the rents for the maintenance of its school buildings, including payment of
janitorial services. Is the leased portion subject to real property tax?
A. Yes, since Lualhati is a stock and for profit educational institution.
B. No, since the school actually, directly, and exclusively used the rents for educational purposes.
C. No, but it may be subject to income taxation on the rents it receives.
D. Yes, since the leased portion is not actually, directly, and exclusively used for educational
purposes.
15. In which of the following cases is pre-assessment notice required?
A. When the deficiency tax is the result of a mathematical error
B. When the excise tax due has not been paid
C. Transfer by an exempt person of articles to non-exempt person
D. When the commissioner or his duly authorized representative finds that proper tax should be
assessed.
16. The police power, the power of taxation and the power of eminent domain are co-equal and
inherent powers of government. May a tax be validly imposed in the exercise of the police power
and not of the power to tax?
A. Yes, because the power to tax and police power have some similar objectives.
B. Yes, because the police power of the state includes the power to regulate
C. Yes, because taxes may be imposed to regulate.
D. Yes, because taxation also involves the power to carry out the legitimate objects of the govt.
17. This is a summary administrative remedy, seizure of real property to enforce payment of tax due:
A. Levy.
C. Distraint.
B. Forfeiture.
D. Tax lien.
18. A tax imposed at every stage of distribution process on the sale, barter or exchange of goods and
services and transactions deemed sale, as well as importation of goods and services.
A. privilege tax
C. percentage tax
B. value-added tax
D. excise tax
19. Where the gross income of a taxpayer exceeds P150,000 per quarter his income tax return must be
accompanied by:
A. Audit certificate of an independent CPA.
C. Comparative Financial Statements
B. Schedule of Taxes and Licenses
D. Summary of Income payments
20. Which escape from taxation does not result in loss of revenue to the government?
A. Tax evasion
C. Tax avoidance

B. Tax exemption

D. Tax Shifting

21. One of the following is NOT a major business internal revenue tax in the Tax Code.
A. Value-Added Tax
C. Income Tax
B. Excise Tax
D. Percentage Tax
22. No credit/refund of taxes shall be allowed unless the taxpayer:
A. Files a written claim for credit/refund with the BIR within 2 years from payment.
B. Files a written claim for credit/refund with the BIR within 3 years from payment.
C. Pays the tax under protest, and makes an appeal to the CTA within 2 years from payment.
D. Amends his tax return within 3 years from the date of filing.
23. Which of the following compensation of a minimum wage earner shall be taxable?
A. Commission pay
C. Night shift differential pay
B. Overtime pay
D. Holiday pay
24. A person who becomes subject to the value-added tax for the first time can have an input tax out
of the inventory of goods, properties, materials and supplies on hand at the time he became liable.
This tax is called:
A. Presumptive input tax.
C. Creditable input tax.
B. Transitional input tax.
D. Creditable output VAT.
25. Under the value-added tax law, which of the following sales may not always be subject to zero
percent (0%) rate?
A. Foreign currency denominated sales.
B. The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air transport operations.
C. Sale of gold to the Banko Sentral ng Pilipinas.
D. Sale of goods to an export-oriented enterprise.
26. Statement 1: An excise tax which imposes a tax based on selling price or other specified value of
the article is called ad valorem tax.
Statement 2: An excise tax which imposes a tax based on weight or volume capacity or any other
physical unit of measurement is called specific tax.
A. Both statements are True.
C. Only Statement 1 is True.
B. Both statements are False.
D. Only Statement 1 is False.
27. The following statements about employee benefits are False. Which is the exception?
A. The fringe benefit tax is not deductible from gross income in computing the taxable income of
the employer.
B. The amount of de minimis benefits given to managerial or supervisory employees are subject to
fringe benefits tax.
C. The equivalent value of free meals and living quarters which are given to an employee for the
convenience of the employer are considered as fringe benefits subject to fringe benefits tax.
D. The amount of de minimis benefits given to rank and file employees are not subject to fringe
benefits tax.
28. A taxpayer is preparing the Quarterly Income Tax Return for the 3 rd Quarter of the calendar year
2015. When is the deadline of filing for such return?
A. October 15, 2015
C. November 15, 2015
B. October 30, 2015
D. December 15, 2015
29. A taxpayer is required to be VAT-registered if the annual gross receipts exceed:
A. 1,500,000
C. 1,000,000

B. 1,919,500

D. 1,199,500

30. In cases of deductions and exemptions on income tax returns, doubts shall be resolved:
A. Strictly against the taxpayer;
C. Strictly against the government
B. Liberally in favor of the taxpayer;
D. Liberally in favor of the employer.