INCOME TAXATION- PRELIMINARY EXAMINATION

(REVIEWER)
1. Which of the following statements is not correct?
a. Taxes may be imposed to raise revenues or to provide disincentives to certain
activities within the state.
b. The state can have the power of taxation even if the Constitution does not expressly
give it the power to tax
c. For the exercises of the power of taxation, the state can tax anything at any time.
d. The provisions of taxation in the Philippine Constitution are grants of power and
not limitations on taxing powers.

2. The following are the similarities of the inherent power of taxation, eminent domain and
police power, except one:
a. Are necessary attributes of sovereignty
b. Interfere with private rights and property
c. Affect all persons or the public
d. Are legislative in implementation

3. Which of the following statements is not correct?

a. An inherent limitation of taxation may be disregarded by the application of a
constitutional limitation.
b. The property of an educational institution operated by a religious order is exempt
from property tax, but its income is subject to income tax.
c. The prohibition of delegation by the state of the power of taxation will still allow
the BIR to modify the rules on time of filings of returns and payment of taxes.
d. The power of taxation is shared by legislative and executive departments of
government.

4. Budots enterprises are exempt from certain taxes for a certain period of time, that are
otherwise applicable to other enterprises. Which of the following statements is wrong?
a. This violates the constitutional requirement of the rule of uniformity in taxation.
b. This is a sound tax incentive for development of the national economy.
c. This will provide employment opportunities
d. This will not involve unconstitutional delegation of the power of taxation even as
certain government agencies, other than Congress of the Philippines will determine
who qualify as pioneer enterprises.

5. Which statement below expresses the lifeblood theory?

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. 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 burdens upon
subjects and objects within its jurisdiction for the purpose of raising revenues.
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)
6. The following are the general principles of income taxation:
• A citizen of the Philippines residing therein is taxable on all income derived from
sources within and without the Philippines
• A nonresident citizen is taxable on income derived from sources within the
Philippines.
• An individual citizen of the Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable only on income from sources
within the Philippines.
• An alien individual, whether a resident or not of the Philippines, is taxable only
on income derived from sources within the Philippines.
• A domestic corporation is taxable on all income derived from sources within and
outside the Philippines.
• A foreign corporation, whether engaged or not in business in the Philippines, is
taxable only on income derived from sources within the Philippines.

a. All the statements are true.

b. All the statements are false.
c. One of the statements is false.
d. Some of the statements are false.

7. A citizen of the Philippines was a non-resident citizen in 2003. On May 15, 2004, he
arrived in the Philippines to reside permanently in the Philippines. His income for the
year was:
A – From January 1, 2004 to May 14, 2004.
B – From May 15, 2004 to December 31, 2004.

Which of the following is wrong?

a. He is considered a resident citizen on his “B” income
b. He is considered a non-resident citizen on his “A” income.
c. He is considered a resident citizen on his “A” and “B” income.
d. He is not taxable on his “A” income.

8. Ching Ah Chung, accomplished singer from Hong Kong, is included in one of the local
films produced by Bebecu Productions. Ching Ah Chung stays in the Philippines for five
(5) months and makes the Philippines his temporary home as required in the contract.
How will you classify Ching Ah Chung for Philippine income tax purposes?
a. Resident citizen
b. Resident alien business
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)
9. Jay 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, Roxy’s Trading, Inc. The BIR compiled a record of all
the imports of Roxy from Jay and imposed a tax on Jay’s net income derived from its
exports to Roxy. Is the BIR correct?
a. Yes. Jay is a non-resident foreign corporation engaged in trade or business in the
Philippines.
b. No. The tax should have been computed based on gross revenues and not net
income.
c. No. Jay is a non-resident foreign corporation not engaged in trade or business in
the Philippines.
d. Yes. Jay is doing business in the Philippines through its exclusive distributor Roxy’s
Trading, Inc.

10. Compania Italiani is a corporation in Italy. During the tax year, it distributed dividends to
its stockholders Filipinas, Inc., a Philippine company which has investments in stocks in
Italiani received said dividends.
a. Dividends are not taxable
b. Dividends are taxable at 30% or at 15% if the corporation is subject to a tax sparing
credit.
c. Dividends are taxable at 30%.
d. Dividends are taxable at 25%.

11. Which of the following is taxable?

a. Prize won in an essay contest.
b. Award for being a model employee.
c. The Nobel prize
d. Prize won as member mythical team in the
PBA.

12. Which of the following is not treated as a corporation?

a. General partnership in trade.
b. General professional partnership.
c. Mutual fund company.
d. Regional operating headquarters of a multinational company.

13. Who among the following is a non-resident alien?

a. An alien who comes to the Philippines for a definite purpose which in its nature
may be promptly accomplished.
b. An alien who comes to the Philippines for a definite purpose which in its nature
would require an extended stay.
c. An alien who has acquired residence in the Philippines.
d. An alien who lives in the Philippines with no definite intention as to his stay.
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

14. It is important to know the source of income for tax purposes because:
a. Some individual and corporate taxpayers are taxed on their worldwide income while
others are taxable only upon income from sources within the Philippines
b. The Philippines imposes income tax only on income from sources within.
c. Some individual taxpayers are citizens while others are aliens.
d. Export sales are not subject to income tax.

15. In cases of deduction and exemption on income tax return doubts shall be resolved:
a. Strictly against the taxpayer.
b. Strictly against the government.
c. Liberally in favour of the taxpayer.
d. Liberally in favour of the employer.

16. Which statement is WRONG?

a. The power of taxation may be exercised by the government, its political
subdivisions, and public utilities.
b. Generally, there is no limit on the amount of tax that may be imposed;
c. The money contributed as tax becomes part of the public funds
d. The power of tax is subject to certain constitutional limitations.

17. Tax avoidance -

a. is a scheme used outside of those lawful means and, when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities.
b. is a tax saving device within the means sanctioned by law.
c. is employed by a corporation, the organisation of which is prompted more on the
mitigation of tax liabilities than for legitimate business purposes.
d. is any form of tax deduction scheme, regardless if the same is legal or not.

18. Double taxation -

a. is one of direct duplicate taxations wherein two (2) taxes must be imposed on the
same subject matter, by the same taxing authority, within the same jurisdiction,
during the same period, with the same kind or character of tax, even if the
The purposes of imposing the same are different.
b. is one of direct duplicate taxations wherein two (2) or more taxes must be imposed
on the same subject matter, by the same taxing authority, during the same period,
with the same kind or character of tax, even if the purposes of imposing the same
are different.
c. is one of direct duplicate taxations wherein two (2) taxes must be imposed on the
same subject matter, within the same jurisdiction, during the same period, with the
same kind or character of tax, even if the purposes of imposing the same are
different.
d. is one of direct duplicate taxations wherein two (2) or more taxes must be imposed
on the same subject matter, by the same taxing authority, within the same
jurisdiction, during the same period, with the same kind or character of tax, even if
the purposes of imposing the same are different.
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

19. Although the power of taxation is basically legislative in character, it is NOT the function
of Congress to:
a. identify who should collect the tax.
b. fix with certainty the amount of taxes.
c. collect the tax levied under the law.
d. determine who should be subject to the tax.

20. On capital gain tax on real property, which of the following statements is not true?
a. The tax should be paid, if in one lump sum, within 30 days from the date of sale.
b. The term “initial payment” is synonymous to “down payment”.
c. The instalment payment of the tax should be made within 30 days from receipt of
each instalment payment on the selling price.
d. The tax may be paid in instalment if the initial payments do not exceed 25% of the
selling price.

21. Statement 1 – The point on which tax is originally imposed is the impact of taxation.
Statement 2 – Eminent domain is inferior to the non-impairment clause of the constitution.
Statement 3 – As a rule, taxes are subject to set-off or compensation.
Statement 4 – As a rule, provisions on the validity of tax exemptions are resolved
liberally in favour of the taxpayer
Statement 1 Statement 2 Statement 3 Statement 4
a. True False False True
b. False True True False
C. True True False False
d. False False True True

22. Which of the following is not a constitutional limitation on the Power of Taxation?
a. No person shall be deprived of life, liberty or property without due process of law
b. No person shall be denied the equal protection of the law.
c. No person shall be imprisoned for debt or non-payment of tax.
d. No law granting any tax exemption shall be passed without the concurrence of a
majority of all the members of Congress
.
23. I Tax avoidance is the use by the taxpayer of legal or fraudulent means to avoid or
defeat taxes.
II. Tax evasion is the use by the taxpayer of illegal or fraudulent means to avoid or defeat
taxes.
a. True; True
b. True; False
c. False; True
d. False; False
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

24. Which of the following statements is not correct?

a. An individual citizen of the Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable on income from sources within and
without the Philippines.
b. A seaman who is a citizen of the Philippines and who receives compensation for
services rendered abroad as a member of the complement of vessel engaged
exclusively in international trade shall be treated as a resident citizen.
c. A non- resident citizen who is not engaged in business in the Philippines is treated as
non-resident alien who is not engaged in business in the Philippines.
d. An alien individual, whether a resident or not of the Philippines, is taxable only on
income derived from sources in the Philippines.

25. A citizen of the Philippines who works and derives income from abroad is a resident if he
stayed outside the Philippines
a. For less than 180 days
b. For more than 180 days
c. For 183 days or more
d. For less 183 days

26. Dividends paid by a domestic corporation maybe taxable but subject to final tax, except;
a. if received by a resident citizen
b. if received by a resident alien
c. if received by a non-resident corporation
d. if received by another domestic corporation

27. Which of the following statements regarding dividends is wrong?

a. Exempt from income tax if received by a domestic corporation from another
domestic corporation
b. Exempt from income tax if received by a resident corporation from a domestic
corporation
c. Taxable subject to year-end tax if received by a resident citizen from a non-resident
corporation
d. Taxable subject to final tax if received by a non-resident citizen from a non-resident
Corporation

28. Which of the following is taxable?

a. P100,000 interest on long-term deposit or investment
b. P200,000 gain on sale of 10-year bonds
c. P12,000 prize in a supermarket raffle
d. P1 M winnings from Phil. Lotto
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

29. Which of the following real properties is classified as a “capital asset”?

a. REAL PROPERTY INITIALLY ACQUIRED BY A TAXPAYER ENGAGED IN REAL
ESTATE BUSINESS BUT SUBSEQUENTLY ABANDONED OR BECOME IDLE
b. REAL PROPERTY TRANSFERRED THROUGH SUCCESSION OR DONATION TO THE
HEIR OR DONEE WHO IS NOT ENGAGED IN THE REAL ESTATE BUSINESS WITH
RESPECT
TO THE REAL PROPERTY INHERITED OR DONATED, AND WHO DOES NOT
SUBSEQUENTLY USE SUCH PROPERTY IN TRADE OR BUSINESS
c. REAL PROPERTIES OF THE REAL ESTATE LESSOR, WHETHER LAND AND/OR
IMPROVEMENTS, WHICH ARE FOR LEASE OR BEING OFFERED FOR LEASE, OR
OTHERWISE FOR USE OR BEING USED IN THE TRADE OR BUSINESS Real time
d. REAL PROPERTIES ACQUIRED IN THE COURSE OF TRADE OR BUSINESS BY A
TAXPAYER HABITUALLY ENGAGED IN THE SALE OF REAL ESTATE.

30. The power of the Commissioner of Internal Revenue includes the following, except
a. Abate a tax liability of a taxpayer.
b. Compromise the payment of any internal revenue tax.
c. Credit or refund a tax that has been erroneously paid by the taxpayer.
d. Inquire into bank deposits of a taxpayer.

31. Which statements are correct?

a. Incomes from illegal activities are taxable.
b. Tax refunds constitute taxable income to the taxpayer.
c. Recovery of bad debts previously written off is part of taxable income
d. As a rule, contest awards and prizes are subject to 20% final tax if they amount to
P10,00 or more, otherwise they will be exempt from income tax.

32. The reciprocal duties of support and protection between the people and the
government.
a. Basis of taxation
b. Situs of taxation
c. Scope of taxation
d. Theory of taxation

33. The existence of the government is a necessity and that the state has the right to compel
all individuals and property within its limits to contribute
a.Basis of taxation
b. Situs of taxation
c. Scope of taxation
d. Theory of taxation

34. 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
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

35. 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.

1. The process by which the sovereign raises income to defray the expenses of the
government is called
A. Subsidy
B. Tariff
C. Taxation
D. Tribute

2. One of the characteristics of internal revenue tax is that they are

A. Criminal in nature
B. Penal in nature
C. Political in nature
D. Generally prospective in application

3. In case of conflict between the tax laws and generally accepted accounting principles
A. Both tax laws and GAAP shall been forced
B. GAAP shall prevail over tax laws
C. Tax laws shall prevail over GAAP
D. The issue shall be resolved by the court

4. Which of the following has no power of taxation?

A. Provinces
B. Cities
C. Barangays
D. Barrios

5. “Schedular System of Income Taxation” means

A. All types of income are added together to arrive at gross income
B. Separate graduated rates are imposed on different types of income
C. Capital gains are excluded in determining gross income
D. Compensation income and business/professional income are added together in arriving at
gross income.
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

6. One of the following is a primary purpose of taxation

A. Protection of local industries against foreign competition through imposition of high
customs duties on imported goods
B. Reduction of inequalities in wealth and income by imposing progressively higher tax
rates
C. To secure revenue for the support of the government
D. Strengthening of anaemic enterprises by giving tax exemption

7. Which of the following is not a secondary purpose of taxation?

A. To serve as key instrument of social control
B. To effect a more equitable distribution of wealth among people
C. To achieve social and economic stability
D. To raise revenue to defray the necessary expense of the government

8. Which is the best answer? A tax reform at any given time underscores the fact that
A. Taxation is an inherent power of the state
B. Taxation is essentially a legislative power
C. Taxation is a power that is very broad
D. The state can and should adopt progressive taxation

9. The legislative body can impose a tax at any amount underscores the legal dictum that
taxation is
A. An inherent power of the tax
B. A very broad power of the state
C. Essentially a legislative power
D. For public purpose

10. All of the following, but one, are basic principles of the sound tax system
A. Fiscal adequacy
B. Theoretical justice
C. Administrative feasibility
D. Inherent in sovereignty

11. Under this basic principle of sound tax system, the government should not incur a deficit
A. Theoretical justice
B. Administrative feasibility
C. Fiscal adequacy
D. None of the above

12. The following, except one, are basic principles of a sound tax system
A. It should be capable of being effectively enforced
B. It must be progressive
C. Sources of revenue must be sufficient to meet government expenditures and other public
needs
D. It should be exercised to promote public welfare
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

13. Which of the following is not one of the canons of a sound tax system?
A. Quantifiability
B. Equality
C. Certainty
D. Convenience

14. A law granting tax exemption requires the concurrence of

A. Majority vote of members of congress
B. 2/3 vote of members of Congress
C. 3/4 vote of members of Congress
D. Unanimous vote of members of Congress

15. Which statement is wrong? Tax laws

A. Must originate from the house of representatives and on which same bill the senate may
propose amendments
B. May originate from the senate and on which same bill the house of representatives
may propose amendments
C. May have a house version and senate version approved separately
D. May be recommended by the president to congress

16. In case of ambiguity, tax laws shall be interpreted

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

17. Which of the following compensation payments to a minimum wage earner is subject to
income tax?
A. Holiday pay
B. Overtime pay
C. Night shift differential pay
D. None of the above

18. For purposes of income taxation, which of the following is not considered as a
corporation?
A. General professional partnership
B. Business partnership
C. Unregistered partnership
D. Joint stock companies

19. Which of the following is subject to income tax?

A. SSS and GSIS
B. Philippine Health Insurance Corporation (PHIC)
C. Professional Regulation Commission (PRC)
D. Philippine Amusement and Gaming Corporation (PAGCOR)
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

20. Under instalment method of reporting income tax, the amount of tax payable in the year
of sale of a vacant lot is computed by applying the following formula:
A. (Down Payment/Contract price) X Final tax due
B. (Initial payment/Selling price) X Final tax due
C. (Final tax due/selling price) X Collection
D. (Initial payment/Contract price) X Final tax due

21. All of the following, except one, are not taken into account in determining the correct
amount of initial payments
A. Commissions
B. Other selling expenses
C. Instalment payments in the year of sale
D. Gross profit

22. The members of this form of business organisation shall be liable for income tax only on
their individual capacity, and their share in the profits, whether distributed or otherwise,
shall be returned for taxation. This applies to
A. Duly registered general co-partnership
B. Unregistered general co-partnership
C. General professional partnership
D. Joint-stock companies

23. Which of the following statements is false?

A. Individual taxpayers shall file their income tax returns on or before April 15 of each year
B. Extension of time for filing income tax returns may be granted by the Commissioner of
Internal Revenue (CIR)
C. Second instalment in the payment of income tax must be paid on or before July 15
of the same year
D. In places where there are no accredited banks, the return can be filed with the municipal
treasurer where the place of business is located

24. Which of the following individual taxpayers is not required to file an income tax return?
A. A citizen receiving compensation and business income
B. An employee whose salary grade in the government is 2
C. An employee receiving purely compensation income from two employers
D. An individual receiving purely compensation income from one employer, the income tax
of which has been withheld correctly, but whose spouse is required to file an income tax
return
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

25. As to the scope of the legislative power to tax, which is not correct?
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, Congress 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,
unless restricted by the constitution.
D. The sole arbiter of the purpose or which taxes shall be levied is Congress,
provided the purpose is public and the courts may not review the levy of the tax to
determine whether or not the purpose is public.

26. Which of the following statements is not correct?

A. An inherent limitation of taxation may be disregarded by the application of a
constitutional limitation.
B. The property of an educational institution operated by a religious order is exempt from
property tax, but its income is subject to income tax.
C. The prohibition of delegation by the state of the power of taxation will still allow the
BIR to modify the rules in time for filing of returns and payment of taxes.
D. The power of taxation is shared by the legislative and executive departments of the
government.

27. 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.

28. Which of the following statements is not correct?

A. An individual citizens of the Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable on income from sources within and
without the Philippines.
B. A seaman who is a citizen of the Philippines and who receives compensation for services
rendered abroad as a member of the complement of vessel engaged exclusively in
international trade shall be treated as a resident citizen.
C. A non- resident citizen who is not engaged in business in the Philippines is treated as
non-resident alien who is not engaged in business in the Philippines.
D. An alien individual, whether a resident or not of the Philippines, is taxable only on
income derived from sources in the Philippines
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

29. Which of the following is not a scheme of shifting the incidence of taxation?
A. The manufacturer transfers the tax to the consumer by adding the tax to the selling price
of the goods sold;
B. The purchaser asks for a discount or refuse to buy at regular prices unless it is reduced
by the amount equal to the tax he will pay;
C. Changing the terms of the sale like FOB shipping point in the Philippines to FOB
destination abroad, so that the title passes abroad instead of in the Philippines;
D. The manufacturer transfers the sales tax to the distributor, then in turn to the wholesaler,
in turn to the retailer and finally to the consumer.

30. Which of the following statements is not correct?

A. Taxes may be imposed to raise revenues or to provide disincentives to certain activities
within the state;
B. The state can have the power of taxation even 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 provisions of taxation in the Philippine Constitution are grants of power and
not limitations on taxing powers.

31. The following are constitutional limitations, except:

A. No imprisonment for non-payment of poll tax.
B. Non-impairment of the obligation of contracts.
C. Rule of uniformity and equity in taxation.
D. Exemption from income tax of charitable institutions, cemeteries, churches,
personage or convents appurtenant thereto, as well as all lands, buildings and
improvements actually, directly and exclusively used for religious, charitable and
educational purposes.

32. Which of the following statements is correct?

A. The President is authorised 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 subjects thereof.
C. Every sovereign government has the inherent power to tax.
D. Income tax in an indirect tax.

33. The Department of Finance thru its officers entered into a contract with foreign investors
granting them exemption from all forms of taxes to encourage investments in the Phils.
The contract is
A. Void, unless the President ratifies.
B. Void, because the power to grant tax exemption is vested in Congress.
C. Valid, if the President has authorised the officers to enter into such a contract.
D. Valid, because the purpose is to promote public welfare.
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

1. A. Taxes should not operate retrospectively B. Tax is generally for public purpose What is
true?
a) A only
b) b only
c) Both A and B
d) Neither A nor B
2. Which is not an object of taxation?
a)Persons
b)Business
c)Transactions
d)Public properties

3. Which statement is incorrect?

a)every person must contribute his share in government costs
b)the existence of a government is expected to improve the lives of the people
c)the government provides protection and other benefits while the people provide support
d)only those who are able to pay can enjoy the privileges and protection of the
government

4. Statement 1: The benefit received theory presuppose that some taxpayers within the
territorial jurisdiction of
the Philippines will be exempted from paying tax so long as they do not receive benefits from
the government
Statement 2: The ability to pay theory suggests that some taxpayers may be exempted from
tax provided they do not have the ability to pay the same Which statement is true?
a)Only statement 1
b)Only statement 2
c)Both statements 1 and 2
d)Neither statement 1 nor 2

5. Which tax exemption is irrevocable?

a)tax exemption based on contract
b)tax exemption based on the Constitution
c)tax exemption based on law
d)Both A and B

6.. The power to enforce proportional contribution from the people for the support of the
government is
a)Taxation
b)Police power
c)Eminent domain
d)Exploitation
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

7. Which is the most incorrect statement regarding taxes?

a)Taxes are necessary for the continued existence of the government
b)The obligation to pay tax does not rest upon the privilege enjoyed by or the protection
afforded to the citizen of the government but upon the necessity of money for the support of
the State
c)there should be personal benefit enjoyed from the government before one is
required to pay tax
d)taxes should be collected without unnecessary delay but its collection should not be
tainted with arbitrariness
8. Which provision of the Constitution is double taxation believed to violate?
a)Equal protection guarantee
b)Progressive scheme of taxation
c)Uniformity rule
d)Either A or C
9. International double taxation can be mitigated by any of the following except
a)Providing allowance for tax credit
b)Provision of reciprocity provisions in tax laws
c)Provision of tax exemptions
d)Entering into treaties to form regional trade blockage against the rest of the world
10. Which of the following inappropriately describes the nature of taxation?
a)inherent in sovereignty
b)Essentially a legislative function
c)subject o inherent and constitutional limitation
d)Generally for public purpose
11. Which limitation of taxation is the concept of “situs of taxation” based?
a)territoriality
b)public purpose
c)international comity
d)exemption of the government
12. Which does not properly describe the scope of taxation?
a)comprehensive
b)supreme
c)discretionary
d)unlimited
13. What is the theory of taxation?
a)reciprocal duties of support and protection
b)necessity
c)constitutionality
d)public purpose
14. This refers to the privilege or immunity from a tax burden which others are subject to:
a)exclusion
b)deduction
c)tax holiday
d)reciprocity
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

15. The point at which tax is levied is also called

a)impact of taxation
b)Situs of taxation
c)incidence of taxation
d)Assessment

1. Johnny English, an American tourist, went to the Philippines on September 1, 2020 and
stayed for 9 months.
What is his classification for the year 2020?
a. Non-resident citizen
b. Resident alien
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business
2. i. The point on which a tax is originally imposed is impact of taxation.
ii. Police power is superior to the non-impairment clause of the constitution.
iii. As a rule, provisions on the validity of tax exemptions are resolved liberally in favor of the
taxpayer.
iv. As a rule, taxes are subject to set-off compensation.
a. True, False, False, False
b. True, True, False, True
c. True, True, False, False
d. False, True, False, False

3. In case of doubt, tax exemptions are construed

a. Liberally in favor of the government and strictly against the taxpayer
b. Liberally in favor of the government and the taxpayer
c. Strictly against the government and in favor of the taxpayer
d. Strictly against the government and the taxpayer
4. Our tax laws are both
a. Civil and progressive
b. Progressive and prospective
c. Penal and regulatory
d. Personal and regulatory

5. Which is not a power of the BIR Commissioner?

a. Terminate taxable period
b. Promulgate rules and regulations
c. Make arrests and seizures
d. Prescribe real property value

6. i. Equal protection of the law is the right of every taxpayer to be heard.

ii. Equality is the same as progressive taxation.
a. True, True
b. True, False
c. False, True
d. False, False
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

7. A non-resident Chinese citizen in the Philippines is assigned as consular head of the

Chinese Embassy in the
Philippines. As consul, he generates several passive income from interest on bank deposit,
royalties from
intellectual creation and dividends from several multinational corporation. BIR assessed him
of deficiency
income tax. As his accountant, what would you advise him?
a. BIR is erroneous because of territorial jurisdiction
b. BIR is erroneous because of international comity
c. BIR is correct but with application of reciprocity provision
d. BIR is correct but with application of tax sparing rule

8. The following are the duties of the Commissioner of Internal Revenue, except:
a. Power to interpret tax law and decide tax cases
b. Power to obtain information, summons, examine and take testimony
c. Power to delegate power to any subordinate officials
d. Power to make assessments, prescribe additional requirements for tax administration and
enforcement

9. Which is not an essential characteristic of a tax?

a. It is unlimited as to amount
b. It is payable in money
c. It is proportionate in character
d. It is an enforced contribution

10. It is a privilege of not being imposed a financial obligation to which other are subject
a. Tax exemption
b. Tax incentive
c. Tax amnesty
d. Tax credit

11. The principal purpose of taxation is

a. To encourage 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 raise revenue for governmental needs
d. To reduce excessive inequalities of wealth

12. Taxation as distinguished from police power and power of eminent domain
a. Property is taken to promote general welfare
b. There is generally no limit as to the amount that may be imposed
c. Maybe exercised only by the government
d. Operates upon the whole citizenry
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

13. The aspects of taxation are

a. Legislative in character
b. Executive in character
c. Shared by legislative and executive departments
d. None of the above

14. 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. Power to tax cannot be delegated to private persons or entities
d. No appropriation of public money for religious purposes

15. Synonymous to tax evasion

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

16. In case of conflict between the Tax Code and the Philippine Accounting Standards (PAS)
a. Tax Code shall prevail over PAS
b. PAS shall prevail over the Tax Code
c. The taxpayer may choose either of the above
d. Both shall be disregarded

17. As to scope of the legislative power to tax, which is not correct?

a. Where there are not constitutional restrictions, and provided the subjects are within the
territorial
jurisdiction of the state, the Congress has unlimited discretion as to the persons, property, or
occupation to
be taxed.
b. In the absence of any constitutional prohibitions, the House of Representative 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,
if not restricted by the constitution.
d. The sole arbiter of the purpose for which taxes shall be levied is the Commissioner of
Internal Revenue (CIR),
provided the purpose is public. However, the courts may review the levy of the tax to
determine whether or not the purpose is public.

18. Which of the following is not a constitutional limitation on the power of taxation?
a. No person shall be deprived of life, liberty, or property without due process of law.
b. No person shall be denied the equal protection of the law.
c. No person shall be imprisoned for debt or non-payment of tax.
d. No law granting any tax exemption shall be passed without the concurrence of a majority
of all the member of the Congress.
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

19. The Department of Finance thru its officers entered into a contract with foreign investors,
granting them exemption from all forms of taxes to encourage investments in the Philippines.
The contract is
a. Void, unless the President ratifies
b. Void, because the power to grant tax exemption is vested in Congress
c. Valid, if the President has authorized the officers to enter into such contract
d. Valid, because the purpose is to promote public welfare

20. 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. Lifeblood theory
b. Sumptuary theory
c. Power to destroy theory
d. Benefits protection theory

1. Congress passed a sin tax law that increased the tax rates on cigarettes by 1000%. The
law was thought to be sufficient to drive many cigarette companies out of business and was
questioned by court by a cigarette
company that would go out of business because it would not be able to pay the increased
tax. The cigarette company is:
a. Correct because no government can deprive a person of his livelihood
b. Correct because Congress, in this case, exceeded its power to tax
c. Wrong because taxes are the lifeblood of the government
d. Wrong because the law recognizes that the power to tax is the power to destroy.

2. 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. It is essentially a legislative function. Even in the absence of any constitutional
provision, taxation power falls to Congress as part of the general power of lawmaking.
a. True, True
b. True, False
c. False, False
d. False, True

1. Tips or gratuities paid directly to an employee by a customer of the employer which are
not accounted for bythe employee to the employer are
Statement 1 – considered as passive incomeS
tatement 2 – subject to creditable withholding tax
a. Both statements are true
b. Both statements are false
c. Only the first statement is true
d. Only the second statement is true
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

2. The following, except one are the basic principles of a sound tax system. The exception
is:
a. It should be capable of being effectively enforced.
b. It should consider the taxpayer’s ability to pay.
c. It is levied by the lawmaking body of the state.
d. The sources of revenue must be sufficient to meet the government expenditures and other
public needs.

3. As to scope of legislature power to tax, which of the following is correct?

a. The power to tax is supreme, plenary, comprehensive and without any limit because the
existence of the government is a necessity
b. The discretion of Congress in imposing taxes extends to the mode, method and kind of
tax, even if theconstitution provides otherwise.
c. Congress has the right to levy a tax of any kind at any amount it sees fit, even in the
absence of anyconstitutional provision.
d. The sole arbiter of the purpose for which taxes shall be levied is Congress, provided that
the purpose ispublic and the courts may not review the levy of the tax to determine whether
or not the purpose is public.

4. Congress passed a sin tax law that increased the tax rates on cigarettes by 1000%. The
laws was thought to be sufficient to drive many cigarette companies out of business and was
questioned in court by a cigarette company that would go out of business because it would
not be able to pay the increased tax. The cigarette company is
a. Wrong because the law recognizes that the power to tax is the power to destroy.
b. Wrong because taxes are the lifeblood of the government.
c. Correct because no government can deprive a person of his livelihood.
d. Correct because Congress, in this case, exceeded its power to tax.

5. ABC Corporation manufactures glass panels and is almost at the point of insolvency. It
has no more cash and allit has are unsold glass panels. It received an assessment from the
BIR for deficiency income taxes. ABC wants to pay but due to lack of cash, it seeks
permission to pay in kind with glass panels. Should the BIR grant therequested permission?

a. It should grant permission to make payment convenient to taxpayers.

b. It should grant permission, otherwise, ABC would not be able to pay.
c. It should not grant permission because a tax is generally a pecuniary burden.
d. It should not grant permission because the government does not have the storage
facilities for glass panels

6. Joy sued Patrick for breach of promise to marry. Patrick lost the case and duly paid the
court’s award that
included among others, Php 100,000 as moral damages for the mental anguish Joy suffered.
Did Joy earn a
taxable income
a. She had a taxable income of Php 100,000 since income is income from whatever source.
b. She had no taxable income because it was a donation.
c. She had a taxable income since she made a profit.
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)
d. She had no taxable income since moral damages are compensatory.
7. Which of the following statements is incorrect?
a. The power of taxation may be exercised by the government, its political subdivisions and
public utilities.
b. The money contributed as tax becomes part of the public funds.
c. The power of the State to tax is subject to constitutional limitations.
d. Generally, there is no limit on the amount of tax that may be imposed.

8. For income tax purposes, the source of the service income is important for the taxpayer,
who is a
a. Filipino citizen residing in Makati City
b. Non-resident Filipino citizen working and residing in London
c. Filipino citizen who is married to a Japanese citizen and residing in BGC, Taguig City
d. Domestic corporation

9. Which of the following is correct?

a. The power of taxation must first be expressly granted, either by law or by the constitution
for the State to
validly exercise it.
b. The power of taxation and police power may be exercised simultaneously.
c. The Philippine government may subject the land where embassies of foreign governments
are located to
real estate taxes.
d. Government owned and controlled corporations are exempted from taxes because it
would be impractical
for the government to be taxing itself.

10. Statement 1 – All prizes and awards granted to athletes in local and international sports
competitions and
tournaments whether held in the Philippines or abroad and sanctioned by their national
sports associations are
exclusions from gross income.
Statement 2 – Income derived by the government from the exercise of any essential
governmental function
accruing to the Government of the Philippines or to any political subdivisions thereof are
exclusions from gross
income.
a. Both statements are correct.
b. Both statements are not correct.
c. Only Statement 1 is correct.
d. Only Statement 2 is correct.

11. A test applied in the realization of income and expenses by an accrual basis taxpayer.
a. All events test
b. Immediacy test
c. Rational basis test
d. Pre-dominance test
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)

12. 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 credit from the recipient’s income tax liability.
b. Consummating the transaction resulting in an income.
c. A deduction in the recipient’s income tax return.
d. A final settlement of the tax liability on the income.

13. John, a Filipino citizen, migrated to the United States seven years ago and got a
permanent resident status or
green card. He should pay his Philippine income taxes on
a. The gains derived from the sale in California, USA of jewelry he purchased in the
Philippines.
b. The proceeds he received from a Philippine insurance company as the sole beneficiary of
life insurance
taken by his father who died recently.
c. The gains derived from the sale in the New York Stock Exchange of shares in stock in
PLDT, a Philippine
corporation.
d. Dividends received from a two-year old foreign corporation.

14. Jane, a Canadian citizen permanently residing in the Philippines, received several items
during the taxable year.
Which among the following is not subject to Philippine income tax?
a. Interests from her deposits in a local bank of foreign currency earned abroad converted to
Philippine pesos.

b. Consultancy fees received for designing a computer program and installing the same in
the Shanghai facility
of a Chinese firm.
c. Dividends received from an American corporation which derived 60% of its annual gross
receipts from
Philippine sources for the past 5 years.
d. Gains derived from the sale of her condominium unit located in BGC, Taguig City to
another resident alien.
15. Pierre, a French citizen, arrived in the Philippines on January 1, 2019 and continued to
live and engage inbusiness in the Philippines. He went on a tour of Southeast Asia from
August 1 to November 5, 2019. He returned to the Philippines on November 6, 2019 and
stayed until April 15, 2020. For the year 2019, Pierre’staxable status is that of
a. A resident alien engaged in trade or business
b. A resident alien not engaged in trade or business
c. A non-resident alien engaged in trade or business
d. A non-resident alien not engaged in trade or business
 INCOME TAXATION- PRELIMINARY EXAMINATION
(REVIEWER)
16. There is no taxable income until such income is recognized. Taxable income is
recognized when
a. Taxpayer fails to include the income in his income tax return.
b. Income has been actually received in money or its equivalent.
c. Transaction that is the source of the income is consummated.
d. Income has been received, either actually or constructively.
17. Double taxation in its general sense means taxing the same subject twice during the
same taxing period. In this
sense, double taxation
a. Violates the right to equal protection
b. Does not violate the right to equal protection
c. Violates substantive due process
d. Does not violate substantive due process
18. The power to tax is the power to destroy. Is this always so?
a. Yes. The tax collectors should enforce a tax law even if it results to the destruction of the
property rights of a
taxpayer.
b. Yes. Tax laws should always be enforced because without taxes, the very existence of the
State is
endangered.
c. No. The Supreme Court may nullify a tax law hence, property rights are not affected.
d. No. The executive branch may decide not to enforce a tax law which it believes to be
confiscatory.
19. 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.
c. Identify who should collect the tax.
d. Determine who should be subject to the tax.

20. This is an inherent limitation on the power of taxation.

a. The rule on taxation shall be uniform and equitable.
b. No law impairing the obligations of contracts shall be enacted.
c. Charitable institutions, churches, personages or convents appurtenant thereto, mosque
and non-profit
cemeteries and all kinds of lands, buildings, and improvements actually, directly, and
exclusively used for
religious or charitable purposes shall be exempt from taxation.
d. The tax laws cannot apply to the property of foreign government