TAX 1 INCOME TAXATION

Chapter 2: SELF-TEST EXERCISES

Discussion Question:

1. Distinguish tax law from tax exemption law

2. Enumerate the sources of tax laws.
3. Discuss the nature of the Philippine tax law.
4. Distinguish tax laws, revenue regulations, and rulings.
5. Define tax and identify its elements
6. What are the classifications of taxes? Enumerate and provide examples for each classification.
7. Compare tax with revenue, license, toll, debt, special assessment, tariff and penalty.
8. What is a tax systems? What are its types?
9. Enumerate the principles of a sound tax system. Explain each.
10. Enumerate the powers of BIR.
11. Enumerate the none delegated powers of the CIR.

ANSWERS FROM ABOVE QUESTIONS:

1. Tax laws are laws that are provide for the assessment and collection of taxes while
the tax exemption laws are laws that grant certain immunity from taxation.

2.There are 8 sources of tax laws the constitution, statutes and presidential decrees,
judicial decisions or case laws, executive orders and Batas Pambansa, Administrative
issuances, local ordinances, tax treaties and conventions with foreign countries and
lastly the revenue regulations.

3. Philippines tax law are civil and not political in nature. They are laws of the occupied
territory and not by the occupying enemy. Tax payments made during occupations of
foreign enemies are valid. Our internal revenue laws are not penal in nature because
they do not define crime. Their penalty provisions are merely intended to secure tax
payers compliance.

4. Tax laws provide the assessment and collection of taxes (ex. The national internal
revenue code NIRC, The tariff and customs code, The local tax code and the real
property tax code)

5. Tax is an enforced proportional contribution leveid by the law making body of the state
to raise revenue for public purpose.
The elements of a valid tax are as follows:
(BASAHIN MO NALANG SA LIBRO KASI MARAMI) HAHAHAAHAH (nasa page 38)
6. A. As to purpose
Fiscal or Revenue Tax- A tax imposed for general purpose
B. As to subject matter
Personal, poll or capitation- A tax on persons who are residents of a particular
teritory
C. As to incidence
Direct Tax – When both the impact and incidence of taxation rest upon the same
tax payer, the tax is said to be direct.

D. As to amount –
Specific Tax- A tax of a fixed amount imposed on a per unit basis such as per
kilo, liter or metered. (NASA PAGE 38)
7. (NASA PAGE 40 LAHAT SAGOT NITO)

8. (NASA PAGE 41)

9. Tax System refers to the methods or schemes of imposing, assessing, and collecting
taxes. The Philippine tax system is divided into two: The national tax system and the
local tax system.

Types of tax system according to imposition:

1. Progressive-employed in the taxation of income f individuals, and transfers of
properties by individuals.
2. Proportional-employed in taxation of corporate income and business.
3. Regressive- not employed in the Philippines.
Types of tax system according to impact:
1. Progressive System- is one that emphasizes direct taxes. A direct tax cannot be
shifted, hence, it encourages economic efficiency as it leaves no other resort to
taxpayers than to be efficient. this type of tax systems impact more upon the rich.

10. Powers of the Bureau of Internal Revenue

1. Assessment and collection of taxes
2. Enforcement of all forfeitures, penalties and fines, and judgement in all cases
decided in its favor by the courts.
3.Giving effect to and administering the supervisory and police powers conferred
to it by the NIRC and other laws.
4. Assignment of internal revenue officers and other employees to other duties.
5. Provisions and distribution of forms, receipt, certificates, stamps, etc. to proper
officials
6. Issuance of receipts and clearances
7.Submition of annual report.

11. (NASA PAGE 45 BASAHIN MO NALANG SUBRANG DAMI_)

Exercise Drill No.1
Identify the type of tax that is describe the following:

1. A consumption tax collected by non-VAT businesses Other

percentage tax
2.Tax on gratuitous transfer of property by a living donor Donor’s tax
3. Tax that decrease in rates as the amount or value of the tax Regressive tax
object increases.
4. Tax collected upon persons who are not statutory Indirect tax
taxpayers.
5.Tax that is imposed based on the value of the tax object. Ad valorem
6.Tax for general purpose Fiscal or
revenue tax
7.Tax imposed by the national government National tax
8.A tax on sin products or non essential commodities. Excise tax
9.Impossed on the gratuitous transfer of property upon death. Estate tax
10.Tax on residents of a country. Personal, poll,
or capitation
11.Tax that remains at flat rate regardless of the value of the Proportional
tax object. tax
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
15.Tax upon performance of an act or enjoyment of a Excise/privilege
privilege. tax

EXERCISE DRILL NO.2

Identify which item is described by the following:

1.It refers to all income 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. Costum’s duties
5.It is a charge imposed prior to the commencement of License fee
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 set-off Debt
8.It is a charge for the use of others 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 tax payers for each of the ff:

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 A YEAR
2.Net worth 300,000,000 AT YEAR END
3.Gross purchases 800,000 IN THE PRECEDING
YEAR

MULTIPLE CHOICE-THEORIES: PART 1

1. B
2. A
3. C
4. C
CHAPTER 3:
Exercise Drill No.2
Check the box where each of the following items is taxable:

TRANSACTION INCOME TAX TRANSFER

TAX
1. Barter of properties √
2. Sale 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 than adequate √ √
consideration.

Exercise Drill No.3 The tax concept of income:

Check the box:

ITEM TAXABLE EXEMPT

1. Winnings from gambling √
2. Income from swindling √
3. Indemnity for moral damages √
4. Harvest 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 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, PSG-IBIG,OR PHILHEALTH √
22. Discovery of hidden treasure √

EXERCISE DRILL NO.4: INCOME TAX PAYER CLASSIFICATION: INDICATE

DC-Domestic Corporation
RFC-Resident Foreign Corporation
NRFC- 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
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 Phil’s. RC
5. An unemployed Filipino residing in the Phil’s 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 RA
been residing in the Philippines for 2 years
8. A 2nd year Korean college studying in the Philippines RA
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 NRFC
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

TAX PAYER WORLD PHILIPPINE

INCOME 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 trust 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 these 60,000 40,000
were from non-resident debtors.
2. A finance company earned P1,000,000 royalties from 600,000 400,000
a franchise; 40% of these were derived abroad
3. Raymond earned P100,000 royalties from his 40,000 100,000
apartment in the U.S. He also earned P40, 000 rent
from his Philippine condominium unit.
4. Chester, a resident citizen, works home online and 120,000 0
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 Afghanistan 0 500,000
for P500,000. The services were paid in Afghanistan.
6. Jun has a store in a tourist park in Baguio city, Phils. 40,000 0
 He earned a total of P40,000 gain from selling
souvenir items. 40% were from foreign tourist.
7. Don mariano sold at a gain of P2,000,000 to a client 2,0000,000 0
abroad a commercial building located in Quezon city.
8. John sold his stocks in a domestic corporation to a 50,000 0
foreign investor at a gain of P50,000.
9. Manso received P20,000 dividends from a domestic 20,000 30,000
corporation and P30,000 dividend income from a
non-resident foreign corporation.
10. Andrew received P40,000 dividends froma resident 24,000 16,000
foreign corporation; 60% of its historical incomes is
from the Philippines.
11. CDO,Inc.Manufactures in the Philippines and sells to 100,000 0
unaffiliated export clients. A total of P100,000 gross
income was earned during the period.
12. ABC manufactures abroad and sells to its Philippines 150,000 100,000
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 resident 0 100,000
foreign corporation which realized 40 of its income
in the Philippines.
14. Ellis received P20,000 dividend from a non- resident 0 20,000
foreign corporation.
15. Davao plant manufactures tables and sells resident 400,000 0
clients. A total of P400,000 gross income was
realized during the period.

MULTIIPLE CHOICE-THEORY: PART-1

1. C 6. D
2. D 7. B
3. A 8. B
4. A 9. B
5. A 10. B
MC PROBLEMS:

1. B
2. C
3. C
4. A

CASE PROBLEM 1:
REQUIRED:
COMPUTE THE TOTAL INCOME EARNED FROM SOURCES
1.WITHIN THE PHILIPPINES- (P1,040,000)
2. OUTSIDE OF THE PHILIPPINES- (P760,000)

CASE PROBLEM 2:
REQUIRED:
COMPUTE THE TOTAL INCOME EARNED FROM SOURCES
1. WITHIN THE PHILIPINES- (P750,000)
2. WITHOUT THE PHILIPPINES- (P340,000)

CASE PROBLEM 3:

1. A ( 1,960,000;1,360,000)