University of Southern Philippines Foundation

Cebu City

Taxation
Examination DECEMBER 2020

General Principles

1. Which statement below expresses the lifeblood doctrine of taxation?

A. The assessed taxes must be enforced by the government.
B. The underlying basis of taxation is government necessity, for without taxation, a government can
neither exist nor endure.
C. The power of taxation is an arbitrary method of exaction by those who are in the seat of power.
D. The power of taxation is an inherent power of the sovereign to impose burden upon subjects and
objects within its jurisdiction.

2. True or False

Statement 1 - The power of taxation is inherent in sovereignty being essential to the existence of every
government. Hence, even if not mentioned in the Constitution, the state can still exercise the power.

Statement 2 - It is essentially an executive function. Even in the absence of any constitutional provision,
the power of taxation falls to the the Bureau of Internal Revenue as part of raising funds for the
government.

A. True, True
B. True, False
C. False, True
D. False, False

3. Which of the following statements is not correct?

A. Taxes may be imposed to raise revenue or to provide disincentives to certain activities within the state.
B. The state can have the power of taxation if the Constitution does not expressly give it the power to tax.
C. For the exercise of the power of taxation, the state can tax anything at any time.
D. The power of taxation in the Philippine Constitution are grants of power to tax and are not limitations
on taxing powers.

4. Those who have more income should pay more income tax, while minimum wage earners should be
exempt. This illustrates
A. Uniformity in taxation
B. Equality in taxation
C. Due process of law
D. Non-delegation of legislative power

5. In cases of deductions and exemptions on income taxes, doubts should be resolved

A. Strictly against the taxpayer
B. Strictly against the government
C. Liberally in favor of the taxpayer
D. Liberally against the government

6. Transfer of the tax burden by on whom the tax is assessed to another is called
A. Shifting
B. Capitalization
C. Transformation
D. Tax exemption

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7. True or False

Statement 1 - Our Constitution does not prohibit double taxation.

Statement 2 - The Philippine President may impose a tax to taxpayers operating within the jurisdiction of
the Philippines.

A. True, True
B. True, False
C. False, True
D. False, False

8. Difference of tax from a license fee is that a tax.

A. Non-payment does not necessarily render the business illegal.
B. Is a regulatory measure.
C. Is imposed in the exercise of police power.
D. Is limited to cover the cost of regulation.

9. Police power as distinguished from taxation or eminent domain.

A. Just compensation is received by the owner of the property.
B. Maybe exercised by private individuals.
C. Superior to the non-impairment clause of the Constitution.
D. Property is taken by the government for public use.

10. Diplomatic officials such as heads of states and ambassadors are exempt from taxes and duties
because of
A. Reciprocity provisions
B. International comity
C. Principle of territoriality
D. Exemption in the tax laws

Tax Remedies - Theory

11. A pre-assessment notice is required

A. Before a final notice of assessment is sent to the taxpayer.
B. When a discrepancy has been determined between the tax withheld and the amount actually remitted
by the withholding agent.
C. When an article locally purchased or imported by an exempt person has been sold, traded or transferred
to non-exempt persons.
D. When the deficiency tax is the result of mathematical errors in the computations appearing on the face
of the tax return.

12. Where a return was filed, as a general rule, the prescriptive period for assessment after the date the
return was due or filed, which ever is later, is within
A. Three years
B. Ten years
C. Five years
D. Not given

13. What is the effect on the tax liability of a taxpayer who does not protest an assessment for deficiency
taxes?
A. The taxpayer may appeal his liability to the Court of Tax Appeals (CTA) since the assessment is a final
decision of the Commissioner on the matter.
B. The BIR could already enforce the collection of the taxpayer’s liability if it could secure authority from
the CTA.
C. The taxpayer’s liability becomes fixed and subject to collection as the assessment becomes final and
collectible.
D. The taxpayer’s liability remains suspended for 180 days from the expiration of the period to protest.

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14. The following remedies are available to the government to collect taxes, except
A. Distraint and levy
B. Inquiring into bank deposit accounts of taxpayers
C. Entering into compromise of tax cases
D. Enforcement or forfeiture of property

15. The seizure by the government of real property and interest on rights to property of the taxpayer to
enforce the payment of taxes followed by a public sale.
A. Confiscation
B. Distraint
C. Levy
D. Forfeiture

Income Taxation - Theory

16. Which of the following is not included in the term “gross receipts”?
A. Advance payment actually or constructively received
B. Returnable security deposit
C. Installment payment
D. Amount charged for materials supplied with services

17. Which of the following statements is false?

A. Unless the taxpayer, who is taxable under the graduated income tax rate signifies in the income tax
return of the intention to elect the Optional Standard Deduction (OSD), it shall be considered as having
availed of the itemized deductions.
B. The election of the OSD, when made in the return, shall be irrevocable for the taxable quarter for
which the return is made.
C. An individual who is entitled to and claimed the OSD shall not be required to submit with the tax
return his or her financial statements.
D. A general professional partnership (GPP) may avail of the OSD only once, either by the GPP or the
partners comprising the partnership.

18. ABC Corp is an international carrier doing business in the Philippines. Its taxable base for income tax
purposes is
A. Gross Philippine billings
B. Gross Philippine billings minus deductible expenses
C. Regular rate of 30 % of its net taxable income
D. Allocation of income from sources within and without the Philippines as well as expenses

19. Which of the above will be subject to a 25% civil penalty of the tax or of the deficiency tax?
a. Willful neglect to file the return within the period prescribed by the Tax Code or
rules and regulations
b A false or fraudulent return is willfully made
.
c. A person who is not VAT-registered issues an invoice or receipt showing his TIN,
followed by the word "VAT"
d Failure to file any return and pay the tax due thereon as required under the provisions
. of the Tax Code or rules and regulations on the date prescribed

20. The imposition of the minimum corporate income tax (MCIT) shall not be suspended whenever the
corporation suffers losses due to
A. Prolonged labor dispute
B. Force majeure
C. Legitimate business reverses
D. Mismanagement

21. A deductible interest expense…

A. Interest on loan between members of a family
B. Interest that is not stipulated on the loan document or promissory note
C. Interest on indebtedness to finance petroleum operations
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D. Interest on tax delinquency

22. Great Western University, a proprietary educational institution spend P 100 million for the
construction of a new school building. The amount spent for the construction
A. Must be claimed as expense in the year of completion
B. Capitalized and claim annual depreciation over the life of the building
C. Capitalized or expensed at the option of the school
D. Must not be claimed as deduction because the school is an income tax-exempt entity

23. Which of the following is not a requisite for the deductibility of expenses from gross income?
A. Must be ordinary and necessary
B. Must have been incurred in connection with the trade or business, or profession of the taxpayer
C. Must be substantiated by official receipt or other adequate record
D. Must not result to future economic benefit to the taxpayer

24. Which of the following is not an allowable deduction from gross income?
A. Salaries and wages of employees
B. Depreciation of factory equipment
C. Fines and penalties
D. Cost of goods sold

Transfer Taxes - Theory

25.First statement: A donation on which the donor’s tax is net paid is a valid donation

Second statement: Title to a tax –exempt donation of a real property cannot be transferred to the
donee in the Register of Deeds unless the donor’s tax on the donation had been paid

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

26. Which of the following changes is not introduced on donor’s taxation by the TRAIN Law?
A. Removes the exemption on dowries or gifts made on account of marriage
B. Simplification of the tax rate
C. Provides extension for the filing of the tax return
D. Elimination of distinction on tax rate between relative and stranger donee

27. When a property is donated in contemplation of death the basis of the tax shall be:

a. Fair market value at the time of death

b. Fair market value in the hands of the donor before the time of donation
c. Fair market value at the time of death of the donor
d. Cost when the property was acquired

28. Donation made to non-profit institution is tax-exempt if the following requisites are complied. Which
is the exception?
A. The institution is accredited by the Philippine Council for NGO Certification
B. Not more than 30 % of the gift is used for administrative purposes.
C. The donor must inform the RDO of the donation whenever the amount is at least P 500,000
D. Devoting all income to the accomplishment of its purpose

29. The estate tax return should be accompanied by a certificate of an independent CPA if the gross estate
of a decedent who dies in 2018 is
A. P 1,000,000 or above
B. P 2,000,000 or above
C. Over P 3,000,000
D. Over P 5,000,000

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30. What is the estate tax rate under the TRAIN Law?
A. Graduated rates
B. 6 %
C. 2.5 %
D. 10 %

31. Where a property, other than real property capital asset, is transferred for less than adequate and full
consideration in money or money’s worth, the the amount by which the fair market value of the property
exceeded the value of the consideration shall be deemed a
A. Sale
B. Transfer
C. Gift
D. Bonus

VAT and Other Percentage Taxes - Theory

32. First Enterprises is an operator of parking lots. What business tax is due on First Enterprises’ income
from the business?
A. Common carrier’s tax
B. Value-added tax
C. Broker’s tax
D. Donor’s tax

33. Jelexie own a small store. Although the annual gross sales range from P 2,400,000 to P 2,900,000, he
decided to register as a VAT-business in 2018. The store..
A. May opt for the 8 % income tax option
B. Is subject to 12 % VAT
C. Is subject to 3 % VAT
D. May be subject to either to the 12 % VAT or the 3 % percentage tax

34. Effective January 1, 2018, the VAT threshold shall be

A. P 1,919,500
B. P 2,500,000
C. P 3,000,000
D. P 2,000,000

35. All of the following are exempt from the payment of the 3 % percentage tax. Which is the exception?
A. Cooperatives
B. Marginal income earners
C. Self-employed individuals and professionals availing of the 8 % tax on gross sales/receipts.
D. Self-employed individuals and processionals availing of the graduated rates in computing income tax
on their income.

36. All of the following are VAT-exempt transactions under Section 109. Which is not?
A. Sale or importation of agricultural and marine food products in their original state, livestock and
poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding
stock and genetic materials
B. Educational services rendered by private educational institutions duly accredited by the Department of
Education (DepED), the Commission on Higher Education (CHED) and the Technical Education and
Skills Development Authority (TESDA) and those rendered by the government educational institutions
C. Services rendered by individuals pursuant to an employer-employee relationship
D. Sale of electricity by electric distribution utilities

37. All of the following are transactions deemed sale for purposes of VAT. Which is not?
A. Transfer, use or consumption, not in the course of business, of goods or properties originally intended
for sale or for use in the course of business.
B. Distribution or transfer to shareholders or investors as share in the profits of the VAT-registered
person.
C. The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual production.
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D. Retirement from or cessation of business, with respect to all goods on hand, whether capital goods,
stock-in-trade, supplies or materials as of the date of such retirement or cessation, whether or not the
business is continued by the new owner or successor. 

38. Sale of gold to the Bangko Sentral ng Pilipinas is, under the TRAIN Law,
A. Subject to 12 % VAT
B. VAT zero-rated
C. VAT-exempt
D. Subject to 3 % percentage

Tax Remedies - Problems

39. A taxpayer paid excessive tax on April 15, 2019. On December 20, 2020, she filed a written claim for
refund. Her claim was denied by the BIR and she received the denial on March 15, 2021. She filed a
motion for reconsideration with the BIR on March 31, 2021. On April 10, 2021, she received the final
denial of the BIR. What will be the taxpayer’s remedy?
a. File another motion for reconsideration with the BIR within 30 days after the receipt
of the final denial
b File an appeal with the Court of Tax Appeals on or before May 10, 2021
.
c. File an appeal with the Court of Tax Appeals on or before April 15, 2021
d The taxpayer has no more remedy against the final denial
.
40. ABC Co. filed its 2018 Income Tax Return on April 14, 2019. On May 20, 2020, it received an
assessment from the BIR. The last day for the taxpayer to file a request for reconsideration is
A. April 15, 2022
B. April 14, 2022
C. June 20, 2020
D. June 19, 2020

41. The following are available information:

Date of tax erroneously paid June 20, 2019

Claim for refund was filed with the BIR January 17, 2021
Received BIR decision of denial June 3, 2021

The last day to appeal to the Court of Tax Appeals is

A. July 3, 2021
B. June 20, 2021
C. April 15, 2021
D. December 3, 2021

42. Mr. Dela Cruz paid excessive tax on April 15, 2018. On December 20, 2019, he filed a written claim
for refund. His claim for refund was denied by the BIR and he received the denial on March 20, 2020. Mr.
Dela Cruz filed a motion fore reconsideration with the BIR on March 31, 2020. On April 18, 2020, he
received the final denial of the BIR. What will be the taxpayer’s remedy?
A. File another motion for reconsideration with the BIR within 30 days after receipt of the final denial.
B. File an appeal to the Court of Tax Appeals (CTA) within 30 days after receipt of the final denial.
C. File an appeal to the Court of Tax Appeals (CTA) within 15 days after receipt of the final denial.
D. The taxpayer has no more remedy after the final denial.

43. Ms. Sue filed her income tax return for 2017 on April 15, 2018 and paid the tax of P 12,000. Upon
audit by the BIR, an assessment notice was issued on May 2, 2020 requiring Ms. Sue to pay a deficiency
tax of P 50,000, not later than July 15, 2020. Ms. Sue may
A. Go to the Supreme Court if the issues involved are pure questions of law
B. Ignore the assessment as the date of collection is beyond 3 years as the taxable year covers 2017
C. Request for an extension of time to pay the deficiency income tax
D. Go to the CTA to appeal the assessment made by BIR

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44. Which of the following is not an extrajudicial remedy of the government against the taxpayer?
A. Distraint of personal property
B. Levy of real property
C. Garnishment of bank accounts
D. Filing of criminal case in court

45. Which of the following violations cannot be subject to compromise penalties?

A. Failure to keep book of accounts
B. Failure to keep records in native language or English
C. Failure to have the books of accounts audited
D. Keeping two sets of books of accounts

Income Taxation - Problems

46. Mr. Juan is a compensation income earner. His basic pay amounted to P 220,000 which is more than
the statutory minimum wage. Other income received are as follows:

Overtime pay P 30,000

Holiday pay 15,000
Hazard pay 24,000
Night shift differential 18,000

If the amounts are already net of mandatory SSS, Philhealth and Pag-ibig contributions, how much is Mr.
Juan’s taxable income?
A. P 220,000
B. P 0 - exempt
C. P 307,000
D. P 57,000

47. Mr. Jimmy owns a trading store and a parlor. The following are available data:

Gross sales - trading business P 680,000

Gross receipts - parlor 500,000
Cost of sales and cost of service 300,000
Operating expenses 200,000

What will be the income tax due if he signified his intention to be taxed at 8 % income tax?
A. P 74,400
B. P 94,400
C. P 54,400
D. P 34,400

48. In relation to No. 47. If Mr. Jimmy failed to signify his intention to be taxed at 8 %, how much will be
percentage tax due?
A. P 35,400
B. P 20,400
C. P 5,400
D. Not subject to percentage tax

49. Angeles School of Business is a private educational institution recognized by the government. The
following are the data for the fiscal year ending June 30, 2019:

Tuition fee P 12,800,000

Miscellaneous fees 1,800,000
Interest income on bank deposits 12,300
Rent income of school facilities to outsiders 350,000
Salaries and bonuses - all personnel 7,500,000
Other operating expenses 3,500,000
Repayment of loan 400,000
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 Quarterly income tax payments 48,000

A building was constructed on April 2, 2019 at a cost of P 2,000,000 with a useful life of 50 years.

Assuming that the cost of construction of the building is treated as an expense, the income tax payable of
Angeles is
A. P 343,000
B. P 147,000
C. P 576,000
D. P 160,000

50. In relation to No. 49. The income tax payable if the cost of construction will be capitalized is
A. P 346,000
B. P 147,000
C. P 1,203,200
D. P 345,667

51. ABC Corp has the following data during the year:

1st Quarter 2nd Quarter

Normal income tax 10,000 12,000
Minimum corporate income tax 8,000 25,000
Taxes withheld during the year 2,000 3,000
Excess MCIT prior year 3,000
Excess withholding tax, prior year 1,000

The income tax payable of ABC for the 1st quarter is

A. P 7,000
B. P 4,000
C. P 3,000
D. P 2,000

52. In relation to No. 51. The income tax payable of ABC for the 2nd quarter is
A. P 15,000
B. P 20,000
C. P 27,000
D. P 23,000

53. Wisik Corp, a domestic corporation, has the following data for the year 2019:

Gross income (gross of withholding tax of 1 %) P 1,500,000

Business expenses 600,000
Gain on sale of business asset 60,000
Interest on bank deposit - PNB, net of tax 5,000
Selling price of shares, not listed (cost, P 115,000) 150,000

In 2018, the company suffered an operating loss of P 130,000. This amount will be carried forward and
claimed as a deduction from gross income in 2019.

The income tax payable of the company is

A. P 234,000
B. P 265,600
C. P 275,500
D. P 249,000

54. Excerpt of a company’s BIR 1702Q form for the second quarter is shown below:

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1702Q

Schedule 2 - Declaration this quarter - REGULAR/NORMAL RATE

1 Sales/Receipts/Revenue/Fees 10,000,000
2 Less: Cost of sales/services 6,000,000
3 Gross income from operation 4,000,000
4 Add: Non-operating and other taxable income 1,000,000
5 Total Gross Income 5,000,000
6 Less: Deductions 3,000,000
7 Taxable income this quarter 2,000,000
8 Add: Taxable income previous quarters ???
9 Total taxable income to date
10 Applicable income tax rate (except MCIT) 30%

First quarter data are:

Sales P 5,000,000
Cost of sales 3,000,000
Deductions 1,000,000
Interest income on Phil Peso bank deposit 100,000
Exempt other income 2,000,000

How much should be written to Row number 8 in the form above?

A. P 5,000,000
B. P 2,000,000
C. P 1,000,000
D. P 1,100,000

55. In relation to No. 54. Assuming that the company paid the correct amount of tax for the first quarter,
how much should be written on Row 20?

Part II - Total Tax Payable

14 Income tax due-Regular
15 Less: Unexpired excess of prior year's MCIT 0
16 Balance/Income tax still due
17 Add: Income tax due-special rate 0
18 Aggregate income tax due
19 Less: Total tax credits/payments
20 Net Tax Payable ???

A. P 900,000
B. P 600,000
C. P 300,000
D. Not given

Transfer Taxes - Problems

56. Mr. X, a decedent, widower, died on January 10, 2019, had the following data:

Gross estate P 10,000,000

Funeral expenses 250,000
Judicial expenses 150,000
Claims against the estate 100,000
Transfer for public use 200,000
Losses 300,000
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 Hospitalization expenses 85,000
Unpaid taxes 20,000
Unpaid mortgages 50,000
Family home 2,500,000
RA 4917 300,000

The estate tax due is

A. P 91,800
B. P 97,400
C. P 133,110
D. P 141,230

57. In relation to No. 56. How much is the estate tax payable, including increments, if the tax is paid
January 10, 2021?
A. P 91,800
B. P 97,400
C. P 133,110
D. P 125,766

58. A resident alien decedent was married at the time of death in 2018 and under the system of absolute
community of property regime. Among the properties in the gross estate was the family home consisting
of:

Land, inherited during the marriage, market value P 1,000,000

House built by the spouses on the inherited land 8,000,000

The deduction for the family home is

A. P 9,000,000
B. P 5,000,000
C. P 1,000,000
D. P 8,000,000

Items 59 to 62

Mr. Garcia, Filipino, married and resident of Los Angeles, California dies intestate on May 3, 2018. He
was survived by his wife and 2 children.
He left the following estate:

Exclusive real estate:

Land, 500 sq. meters, with fair market value of P 3,000,000 - This land, 200 sq. meters, was donated
by the decedent to his brother, the donation to take effect upon the death of the donor. The donor’s taxes
were not paid.

Community real estate:

Residential house and lot (family home) in Los Angeles valued at P 15,000,000 - This real estate is
mortgaged for P 1,200,000 in the bank and at the time of death, the mortgage is unpaid.

Community personal properties:

Miscellaneous personal properties with market value of P 8,000,000
Time deposit with PNB, P 5,000,000 - This time deposit is a joint time deposit. The co-depositor is
the decedent’s brother.

Actual funeral and judicial expenses were P 800,000 and P 300,000, respectively.

59. The gross estate on the estate of Mr. Garcia is

A. P 31,000,000
B. P 26,000,000
C. P 28,500,000
D. P 28,000,000

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60. The amount of deductible family home is
A. P 15,000,000
B. P 13,500,000
C. P 7,500,000
D. P 0

61. The net taxable estate is

A. P 650,000
B. P 1,150,000
C. P 2,650,000
D. P 10,150,000

62. If the family of Mr. Garcia decides to withdraw the decedent’s share in the time deposit and in the
community property prior to filing of the estate tax return, the amount to be withheld by the bank is
A. P 75,000
B. P 150,000
C. P 0
D. Not determinable

63. Donor made the following donations to a donee:

 P 500,000 - fair market value of land, with an unpaid mortgage of P 200,000, 50 % of which
shall be assumed by the donee.

 P 600,000 - car, with an agreement that the tax of P 36,000 on the donation shall be assumed by
the donee.

The net gift on the donation is

A. P 1,100,000
B. P 1,000,000
C. P 934,000
D. P 834,000

64. Mr. and Mrs. Santos gave the following donations on July 1, 2018:

 Community property was donated to the sister of Mrs. Santos. Fair market value of the property
is P 650,000

 To their legitimate son on account of marriage, exclusive property of Mr. Santos worth P
150,000.

The donor’s tax due on Mr. Santos is

A. P 12,900
B. P 13,500
C. P 9,000
D. P 8,400

VAT and Other Percentage Taxes - Problems

65. Mr. Co, rents his 12 residential units for P 14,800 per month. During the taxable year, his accumulated
gross receipts amounted to P 2,131,200.

Mr. Co is subject to

VAT 3 % percentage tax

A. Yes Yes
B. Yes No
C. No Yes
D. No No
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66. Esau Corp, a VAT registered business, has the following data during the quarter:

Export sales P 1,900,000

Domestic sales (tax included) 1,232,000
Purchases of goods for export and domestic sales 888,500
Purchases of supplies for export and domestic sales 124,850

Assuming that the input taxes on purchases of goods for export are claimed as tax credit, VAT
payable is
A. P 12,895
B. P 10,398
C. P 177,895
D. Not given

67. Betis, a VAT-registered person had the following data:

Price actually paid for the goods bought from abroad P 600,000
Related insurance premiums and freight abroad 100,000
Customs duties amount to 40 % of dutiable value.
Other import charges and expenses amount to 120 % of customs duties.

The VAT on importation is

A. P 82,560
B. P 145,920
C. P 135,360
D. P 157,920

68. Smashing Corp, VAT-registered entity, had the following data for the month of October:

Sales, total invoice value P 5,800,000

Purchases, net of input taxes 2,820,000
Sales returns, gross of tax 200,000
Purchases returns, net of input tax 300,000
Deferred input taxes (carried over from 3rd quarter) 9,500

The value added tax payable for the month of October is

A. P 320,500
B. P 285,500
C. P 80,000
D. P 288,100

69. Sarah Corp had the following data for the first quarter of the current year (all amounts are VAT
exclusive):
Taxable sales P 600,000
Exempt sales 300,000
Zero-rated sales 100,000
Input tax which cannot be directly
attributed to any of the above sales 50,000

VAT payable for the quarter if the input tax on zero-rated sales is claimed as tax credit
A. P 42,000
B. P 37,000
C. P 32,000
D. P 22,000

70. Trump Co had the following data during the first quarter of the current year:
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 Month Output tax Input tax
January P 20,000 P 15,000
February 40,000 22,000
March 50,000 10,000

The tax still payable that must appear in BIR Form 2550Q is:
A. P 55,000
B. P 63,000
C. P 40,000
D. P 53,000

END OF EXAMINATION

Under Train Law

Prior to Train Law

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