TAX CHALLENGE #3

Name:____________________________________ Score:___________________

1. Which of the following is subject to VAT?

A. Sale of non-food agricultural products in their original state by farmers.
B. Services of non-VAT person subject to percentage tax.
C. Sale or importation of agricultural and marine food products in their original state.
D. None of the above.

2. Which of the following is deductible expense to arrive at the taxable income?

a. Personal, living or family expenses.
b. Any amount paid for new buildings or for permanent improvements, or betterment made of increase
the value of any property or estate
c. Any amount expended in restoring property or in making good the exhaustion thereof which an
allowance is or has been made.
d. Premiums paid or any life insurance policy covering the life of any officer or employee, when the
immediate family member of the insured officer or employee is directly the beneficiary.

3. Pheonix Resources Corp., a corporation registered in Norway, has a 50MW electric power plant in
San Jose, Batangas. Aside from Pheonix’s income from its power plant, which among the following is
considered as part of its income from sources within the Philippines?
a. Gains from the sale to an Ilocos Norte power plant of generators bought from the United States.
b. Interests earned on its dollar deposits in a Philippine bank under the Expanded Foreign Currency
Deposit System.
c. Dividends from a two-year old Norwegian subsidiary with operations in Zambia but derives 60% of its
gross income from the Philippines.
d. Royalties from the use in Brazil of generator sets designed in the Philippines by its engineers.

4. Statement 1: Itemized deductions from income should be duly supported by vouchers or receipts.
Statement 2: Only business expenses may be deducted from the income of taxpayers.
a. First statement is true while second statement is false.
b. Both statements are true.
c. First statement is false while second statement is true.
d. Both statements are false.

5. In filing the estate tax return, a CPA Certificate is required when the gross estate:
A. exceeds P2,000,000
B. reaches P200,000
C. exceeds P200,000
D. reaches P2,000,000
6. Properties owned before marriage and brought into the marriage are generally classified as:
I. Exclusive properties under conjugal partnership of gains.
II. Common properties under absolute community of properties.
A. Only I is correct C. Both I and II are correct
B. Only II is correct D. Both I and II are incorrect

7. Money collected from taxation shall not be paid to any religious dignitary EXCEPT when:
A. The religious dignitary is assigned to the Philippine Army.
B. It is paid by a local government unit.
C. The payment is passed in audit by the COA.
D. It is part of a lawmaker's pork barrel.

8. Crisostomo died on July 31, 2014. 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, 2014.
D. Sixty days from the time he died on July 31, 2014.

9. The following are the similarities of the inherent power of taxation, eminent domain and police
power except:
A. They are necessary attributes of sovereignty.
B. They affect all persons or the public
C. They interfere with private rights and property
D. They are legislative in implementation.

10. No person shall be imprisoned for non-payment of:

A. Property Tax B. Excise Tax C. Poll Tax D. All kinds of taxes
11. On July 31, 2014, Esperanza received a preliminary assessment notice from the BIR demanding that
she pays P180,000 deficiency income taxes on her 2012 income. How many days from July 31, 2014
should Esperanza respond to the notice?
A. 180 days B. 30 days C. 60 days D. 15 days

12. The distinction of a tax from permit or license is that a tax is:
a. Imposed for regulation.
b. One which involves an exercise of police power.
c. One in which there is generally no limit on the amount that may be imposed.
d. Imposed through the provisions of the Constitution.

13. Which of the following is not an element of double taxation?

A. Two taxes
B. Same subject matter
C. Same amount
D. Same year

14. A nonresident alien individual who shall come to the Philippines shall be deemed a nonresident
alien along doing business in the Philippines if he stays therein for an aggregate period of how many
days during any calendar year?
a. More than one hundred eighty-three (183) days.
b. One hundred eighty (180) days or less.
c. More than one hundred eighty (180) days.
d. More than one hundred ninety (190) days.

15. There shall be levied, collected and paid for each taxable year upon the gross income received by
every alien individual employed by regional or area headquarters and regional operating headquarters
established in the Philippines by multinational companies from such regional or area headquarters and
regional operating headquarters, a tax equal to:
a. Twenty-five percent (25%) of such gross income.
b. Twenty percent (20%) of such gross income.
c. Fifteen percent (15%) of such gross income.
d. Ten percent (10%) of such gross income.

16. A married resident citizen has five (5) qualified dependent children. The following information
pertains to his income and expenses in the year 2014:
Salary, net of P20,000 withholding tax P380,000
Interest income, bank deposit-BPI, Manila 50,000
Yield from money market placement, State Investment House, Manila 30,000
Rent expense, apartment house 36,000
Health insurance premium paid 5,000
How much is the taxable compensation income?
a. P 400,000 c. P250,000
b. P 336,000 d. P230,000

17. The following information are available relating to the computation of estate tax of a resident
decedent who died in August 29, 2015:
Australia – Net estate P100,000 and estate tax paid of P3,500
New Zealand – Net estate of P200,000 and estate tax paid of P5,000
Philippines – Net estate of P200,000
Compute for the estate tax still due after foreign tax credit.
A. P6,000 B. P6,500 C. P7,000 D. P8,000

18. The following data were provided by Air Asia, international carrier doing business in the Philippines:
Gross receipts, sales of tickets in the Philippines (Manila to Taipei flight) P8,000,000
Gross receipts, sales of tickets in Japan (Manila to Tokyo flight) 5,000,000
Gross receipts, sales of tickets in Japan (Tokyo to manila flight) 3,000,000
Gross receipts, sales of tickets in the Philippines (Manila to Hongkong flight),
passenger were endorsed to another international airline which airlifted them
from Manila 1,000,000
Gross receipts, sales of tickets in the Philippines (Manila to Los Angeles flight),
passengers were transshipped in Tokyo to Los Angeles by another airline
(flight from manila to Tokyo – 5 hours; flight from Tokyo to Los Angeles – 10
hours)
4,500,000
Expenses 4,000,000
How much was the Philippine income tax due and payable?
a. P5,250,000 c. P387,500
b. P 537,500 d. P287,500

19. Which of the following is not expressly provided for by the Philippine Constitution?
A. Due process of law.
B. Equal protection of laws.
C. Progressive system of taxation.
D. Prohibition against double taxation.

20. A local government unit (LGU) imposed taxes on the steam boilers of an electric company. The
Department of Labor and Employment also imposed fees on the said steam boilers. There is no conflict
between the two impositions on the same subject matter because:
A. The former is exercising the power of taxation while the latter is exercising the police power.
B. The purpose of the former is to raise revenue while the purpose of the latter is for regulation.
C. There is no direct duplicate taxation since there are two different taxing authorities: the local
government and the national government.
D. All of the above are correct.

21. 1st statement. To require businesses to register first with the government regulatory agency is an
exercise of the taxing power of the State.
2nd statement. Non-compliance to business registration renders the business illegal.
a. 1st statement is true while 2nd statement is false.
b. 1st statement is false while 2nd statement is true.
c. Both statements are true.
d. Both statements are false.

22. On January 15, 2014, a VAT-registered domestic corporation, engaged in the real estate business,
sold land and building for P10 million. Is the sale subject to Value-added tax (VAT)?
a. No, because the property sold does not form part of its goods available for sale.
b. No, because the sale of the property was only a one-time transaction.
c. Yes, because the sale of the property was made in the ordinary course of trade or business of the
corporation, being engaged in the real estate business.
d. Yes, because all sales of property whether used in business or not are subject to value added tax
(VAT).

23. The records of a resident citizen revealed the following income (all amounts at gross) from
Philippine sources for the taxable year 2014:
Interest on bank deposit P30,000
Royalty from patented invention 50,000
Royalty from copyrighted books 40,000
Prize won in the Singing Bee contest 7,500
Share from professional partnership 25,000
Dividend from San Miguel Corporation 10,000
Lotto winnings 20,000
The total final income taxes withheld amount to:
A. P21,000 B. P21,750 C. P22,500 D. P24,250

24. In which of the following debts is legal compensation proper? When one of the debts
a. Arises from the obligation of a depository
b. Arises from a voidable contract
c. Arises from a claim for support by gratuitous title
d. Consists in civil liability arising from penal offense

25. Under absolute community of property, which of the following is a community property?
A. Property inherited by the surviving spouse during the marriage
B. Property bought during the marriage using the salary of the decedent earned before marriage
C. Personal belongings (e.g. clothes, shoes, etc.) bought during the marriage for the exclusive use
of the decedent
D. Jewelry inherited by the decent during the marriage

26. If transfer in contemplation of death, revocable transfer or property passing under general power of
appointment is made created, exercised or relinquished for consideration in money or money’s worth,
but there is no bona fide sale for an adequate and full consideration in money or money’s worth, the
gross estate will include:
A. Fair market value of such property at the time of transfer
B. Historical cost of such property at the time acquired.
C. Excess of the fair market value of the property at the time of death over the value of the
consideration received therefore.
D. Fair market value or the assessed value of such property, at the time of death, whichever is higher.

27. The following selected data were taken from the Estate of Ed Sados:
Claim against an insolvent person (fully uncollectible) P 500,000
Claim against a person who absconded (fully uncollectible) 300,000
Claim against an insolvent person (20% collectible) 100,000
How much should be deducted from the gross estate?
A. P 80,000 B. P 100,000 C. 580,000 D. 880,000

28. A married couple donated a conjugal property to their son who is getting married. Which of the
following statements is incorrect in connection with the donation?
A. The husband is the proper claimant of the dowry, being head of the family
B. The husband wife shall file two separate donor’s tax returns.
C. The husband and the wife can claim P 10,000 dowry each.
D. The gross gift of the husband shall be one-half of the value of the donated conjugal property

29. A dealer in securities has the following data for the year 2014:
Sales, shares held as inventory P 4,000,000
Sales, shares held as investment 1,500,000
Cost, shares held as inventory 2,000,000
Cost, shares held as investment 500,000
Supplies expense, net of VAT 100,000
Rent expense, net of VAT 200,000
How much is the taxable net income assuming the dealer is single? BONUS
A. P 1,680,000 B. P 1,750,000 C. P 2,750,000 D. 1,730,000

30. Timothy died leaving a house and lot to Rudolf on March 31, 2014 which was questioned by Sander.
It is under litigation but the parties have started an extra-judicial settlement. The last day for the
payment of estate tax if extended shall be:
A. March 21, 2016 B. September 30, 2016 C. September 30, 2019 D. April 30, 2016

31. Tax of a fixed proportion of the value of the property with respect to which the tax is assessed and
requires the intervention of assessors or appraisers to estimate the value of such property before the
amount due from each taxpayer can be determined is known as:
a. Specific b. Ad valorem c. Special or regulatory d. Fiscal

32. The following are the powers of BIR except:

A. The assessment and collection of all national revenue taxes.
B. The execution of all judgments in all cases decided in its favor by the CTA and the ordinary courts
C. The enforcement of all forfeitures, penalties and fines connected with national internal revenue taxes
D. The assessment and collection of custom duties

33. Statement 1: Symbiotic relation is the reason why the government would impose donor’s tax on
property donated by a resident citizen located outside the Philippines.
Statement 2: Jurisdiction is the reason why citizens must provide support to the state so the latter could
continue to give protection.
a. Both statements are true c. Only statement 1 is correct
b. Both statements are false d. Only statement 2 is correct
34. Which among the following is not a tax-free donation?
a. Donation for prizes to be given to athletes in local sports competitions held in the Philippines
sanctioned by a national sports association.
b. Net gifts made by an individual to a non-stranger in the amount of P100,000 during the calendar
year.
c. A cash donation amounting to P1 million made to a candidate last election who is aspiring for the
position of Senator which donation was reported to the COMELEC.
d. Renunciation by a surviving spouse of his share in the absolute community in favor of his common
children with the decedent.

35. A married non-resident alien donates shares of stock valued at P300,000 to his son who is getting
married to a Filipina in the Philippines. Assuming there is reciprocity, how much is the gross gift and the
exempt dowry?
Gross gift Dowry Gross gift Dowry
a. P300,000 P10,000 c. P150,000 Zero
b. P300,000 Zero d. Zero Zero

36. First statement: Transfer inter vivos to the National Government for public use is a deduction from
the gross gifts.
Second statement: Transfer mortis causa to the National Government for public purpose is a deduction
from the gross estate.
a. True, true b. False, false c. True, false d. False, true

37. Panda Co. has the following data for a particular month:
Gross receipts, domestic calls P5,000,000
Gross receipts, overseas calls (originating from the Phils.) 3,000,000
Purchases of supplies used in connection with domestic calls, net of VAT 300,000
Purchases of equipment used in connection with both domestic calls and
overseas calls, net of VAT 2,000,000
Business expenses 1,000,000
How much is the VAT payable assuming the corporation is VAT-registered and has registered its tax-
exempt transactions under the VAT system?
a. P920,000 b. P912,000 c. P684,000 d. P 567,500

38. The following, except one, are exceptions to the rule that tax exemptions must be strictly construed:
a. Where the statute granting the exemption provides for the liberal interpretation thereof.
b. The taxpayer does not fall within the purview of exception by clear legislative intent.
c. Case of special taxes relating to special cases and affecting only special classes of persons.
d. Exemptions refer to public property.
39. The ranch of the decedent was mortgaged to accommodate the request of his brother for a loan.
The value of the loan to the brother was not included as receivable in the gross estate of the
decedent.What would be the treatment of the unpaid mortgage on the ranch?
a. Deductible from the gross estate
b. Not deductible from the gross estate
c. Deductible form the gross income of the estate
d. Deductible either from the gross estate or the gross income of the estate

40. The taxable income before income tax of Elaine Corporation for the current year was P500,000.
During the year, the corporation received the following refund of taxes paid in previous years and
recoveries of accounts written off, all of which were credited to miscellaneous income:
Refund of percentage tax, P20,000
Refund of income tax, P50,000
Bad debt recovered (allowed as deduction), P30,000
Bad debt recovered (disallowed as deduction), P15,000
How much would be the income tax payable of the corporation for the current year?
a. P150,000 c. P115,500
b. P130,500 d. None of the choices

41. Which of the following statements is not correct?

a. The sharing of heirs in testamentary succession must satisfy the rules on legitime.
b. When a compulsory heir is given by will less than his legitime, the provisions of the will should
be modified in such a way that he will receive his legitime.
c. The CIR may examine the bank deposit of a decedent for the purpose of determining his gross
estate even if the estate did not request for a compromise on the ground of financial incapacity.
d. The P 500,000 standard deduction for medical expenses for estate tax purposes is a legal
mechanism to further exempt the less privileged estate and heirs from tax burden.

42. For proceeds of life insurance not to constitute part of the gross estate
a. Must have been taken out by the decedent upon his life.
b. Must have designated the estate of the decedent as irrevocable beneficiary.
c. Must have designated a third person as, the decedent’s executor or administrator as the irrevocable
beneficiary.
d. Must have designated a third person other than the estate, the decedent’s executor or administrator
as irrevocable beneficiary.

43. Statement I – If the estate is settled extra-judicially, the estate tax return should be filed within 2
years from date of death of decedent.
Statement II – if the estate is settled judicially, the estate tax return should be filed within 5 years from
death of decedent.
Statement III - The value added tax return should be filed within 25 days from the close of the taxable
month.
Statement IV – the donor’s tax return is not required if the net gift does not exceed P 100,000.
a. All statements are true.
b. All statements are false.
c. Only one statement is true.
d. Only two statements are true.

44. The gross receipts of A, a lessor from his residential units for the year, show (net of VAT):
Monthly Rent/ Unit No. of Units Total
P 10,000 20 P 2,400,000
12,000 10 1,440,000
14,000 6 840,000
16,000 10 1,920,000
The output VAT is
a. P 230,400 b. P 331,200 c. P 504,000 d. P 792,000

45. Which of the following is not a basic principle of a sound taxation system?
a. It should be capable of being effectively enforced.
b. It must be a progressive tax.
c. It must be sufficient to meet government expenditures and other public needs.
d. It should be exercised to promote public welfare.

46. A dealer in securities has the following data for the year 2012
Sales, shares held as inventory P 4,000,000
Sales, shares held as investment 1,500,000
Cost, shares held as inventory 2,000,000
Cost, shares held as investment 500,000
Supplies expense net of VAT 100,000
Rent expense, net of VAT 200,000
How much is the taxable net income assuming the dealer is married with a qualified dependent niece,
18 years old person with disability?
A. P 1,625,000
B. P 1,650,000
C. P 2,650,000
D. not subject to income tax

47. A nonresident alien donor gifted his son and his daughter in law on account of their forthcoming
marriage in the Philippines. The maximum exempt dowry was:
Gift to Donee-Son Gift to Donee-Daughter-in-Law
A. P 10,000 P 10,000
B. P 10,000 Zero
C. Zero Zero
D. Zero P 10,000
48. Joseph sold his apartment house to Evelyn, his best friend, for P 1,000,000. The fair market value of
the land at the time of sale was P 1,500,000. For donor’s tax purpose, which of the following statements
was correct?
A. Joseph would be subject to donor’s tax at 30% based on P 500,000.
B. Joseph was not subject to donor’s at 30% based on P 1,500,000.
C. Joseph was not subject to donor’s tax but to 6% capital gains tax based on the selling price.
D. Joseph would be subject to donor’s tax or capital gains tax depending on his choice

49. Sunset Insurance Company, a domestic corporation, had the

Health and accidence insurance P 2,340,000
Motor vehicle insurance 1,250,000
Life and disability insurance 1,850,000
Property insurance 2,840,000
The percentage tax is:
A. P 83,800 B. P 92,500 C. P 272,000 D. P 414,000

50. In taxation, the following is included in the term corporation, except

a. Partnership
b. Joint stock companies
c. Joint venture
d. Joint accounts