Tax 1 Activity (Soriano Book)

LORIQUE ALEXIS V.
PARAS TAXATION 1
SARA ANDREA NINA P. SANTIAGO SATURDAY | 9AM TO 12 NN
I. ESSAY
1. Distinguish gain from income. Give two examples to illustrate the difference.
Gain is the term used to represent an item that meets the definition of income,
which does not arise from the ordinary course of business activity. It is in irregular
nature. Examples of this are gains on sale of land, machinery or investment. Income on
the other hand, represents the profit earned during an accounting period, which is
calculated as the difference between the Revenue and Expenses. This is the excess of
revenue over the expenses of a business.
Gain and Income are terms that are often used interchangeably, however this
should not be done as these two terms, especially in the accounting world, are different
things. In financial statements, professionals and accountants distinguish these terms to
better reflect and calculate the financial standing.
Example of Income:
 A revenue of P25,000 from merchandise sale less the P10,650 total expenses. This equals
P14,350 of income;
 A revenue of P5,000 from training fees of dance instructing business less the P1,500
wages expense. The total income would be P3500.
Example of Gains:
 Income from a stock investment amounting to 500 pesos;
 Income from a sale of land of a business.
2. Distinguish final withholding tax from creditable withholding tax.
Final Withholding Tax (FWT) is the amount of tax withheld by the withholding
agent which constitutes the full and final payment of the income tax due to a payee of an
income. There is 0 liability on the part of the payee in income tax return. The creditable
withholding tax (CWT) is intended to equal or at least approximate the tax due from the
recipient of the income. The obligation to withhold the tax is imposed by law on the
payor of the goods or service. Only payments specified in the Consolidated Withholding
Tax Regulations or the graduated tax rate are subject to CWT.
As to income subject of the CWT it includes compensation income, professional

fees, rentals, cinematographic film rentals and other payments and income payments
while in FWT includes passive income and fringe benefits.
As to whether or not income should be reported as part of gross income. In CWT the
employee is required to include the income in his gross income, in FWT the recipient
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LORIQUE ALEXIS V. PARAS TAXATION 1
may not report said income because the withheld constitutes final and full settlement of
tax liability.
As to the effect of the tax withheld. In CWT the tax withheld can be claimed as a
tax credit or may be deducted from the tax due payable, in FWT the tax withheld cannot
be claimed as tax credit.
As to the filing of ITR, in CWT filing is necessary, in FWT the only source of
income is subject to final tax, there is no need to file an ITR on the part of the earner.
3. Is capital gains tax a misnomer? Explain.
Yes, capital gains tax is a misnomer. Capital gains realized from sale, barter or
exchange of shares of stock in domestic corporations not traded through the local stock
exchange, and real properties shall be subject to the similar tax prescribed on citizens and
resident aliens. Ironically, the more you earn or profitably accrue, the more the tax
applicable. Thus, the taxpayer does not “gain”, as the term expresses, but rather, it is
‘gain” on the part of the government for the purpose of revenue generation. Capital gains
tax is not for the gain of the taxpayer, but the gain for the government, that is why it
seems to be a misleading term.
4. X bought a condominium unit from Z for P1.2 m. The purchase price of Z from the
developer in 1999 is just P300,000. The fair market value of the property is P1m. Is Z
subject to income tax for the gain? Is X subject to income tax for the excess of P200,000
fair market value? Explain.
He is subject to capital gains tax of P 72,000.00 (6% of whichever is higher

between selling price, or fair market value). The excess of P 200,000.00 is not subject to
income tax because the whole selling price was already subjected to capital gains tax.
II. MULTIPLE CHOICE QUESTIONS. Explain briefly.
1. The Philippine income tax system follows a:

a. Global System
b. Schedular System
c. Semi-Schedular System
d. Anti-global System
Answer: C. Semi-Schedular System. The Philippines follows a semi-schedular system wherein
all compensation income, business or professional income, capital gains and passive income not
subject to final tax, and other income are added together to arrive at the gross income, and after
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deducting the sum of allowable deductions, the taxable income is subjected to one set of
graduated tax rates or normal corporate income tax rates.
2. Statement 1: Income tax is an excise tax

Statement 2: Income tax is a personal tax
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.
Answer: A. Only Statement 1 is true. Income tax is generally classified as an excise tax and a
personal tax. It is not levied upon persons, property, funds or profits but upon the right of a
person to receive income or profits.
3. Statement 1: Income tax is a national tax.

Statement 2: Considering that the impact and incidence of taxation in income tax rests on
the same person, income tax is considered as a direct tax.
Answer: C. Both statements are true. Income tax is a national tax since it is utilized by the
agencies of the National Government such as BIR and BOC. Likewise, income tax is considered
a direct tax since the burden must be borne by the income recipient upon whom the tax is
imposed.
4. All of the following are sources of exemption or exclusions to income tax, except:
a. The Philippine Constitution
b. The Tax Code
c. Special laws
d. Local ordinances
Answer: D. Local Ordinances. Though granted with the power to tax, local government units
are prohibited from exercising such authority to income taxes, subject to exemptions, as provided
by the Local Government Code.
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5. Which of the following is not a test to determine the timing of taxability of income?
a. Realization Test
b. All Events Test
c. Immediacy Test
d. Claim of Right Doctrine
Answer: C. Immediacy Test. The Immediacy Test refers to the justification for improperly
accumulated earnings tax (IAET) and not to income tax, such that, the term “reasonable needs of
business” is construed to mean immediate needs of the business, including reasonable anticipated
needs.
6. Under the all-events test, income is recognized when there is:

a. An available reasonable accurate determination of such income
b. A certain determination as to the amount of such income
c. A probability greater than fifty (50%) that income will accrue
d. A probability greater than ninety (90%) that income will accrue
Answer: A. An available reasonable accurate determination of such income. The all-events
test requires the right to income or liability be fixed, and the amount of such income or liability
be determined with reasonable accuracy. However, the test does not demand that the amount of
income or liability be known absolutely, only that a taxpayer has at his disposal the information
necessary to compute the amount with reasonable accuracy.
7. Statement 1: Individuals can only use the calendar year.

Statement 2: Corporations can only use the fiscal year.
Answer: A. Only Statement 1 is true. Under the provisions of the NIRC, Sec. 43 provides that
the individual taxpayers are mandated to use the calendar year, while under Sec. 52 of the Tax
Code provides that corporations may employ either calendar year or fiscal year as the basis for
the filing of annual income tax return.
8. A fiscal year is:

a. Any twelve-month period
b. Any twelve-month period that begins on the first day of the week
c. Any twelve-month period that begins on the first day of the month
d. Any twelve-month period that begins on the first day of the quarter
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Answer: C. Any twelve-month period that begins on the first day of the month. The term
“fiscal year” means an accounting period of twelve (12) months ending on the last day of any
month other than December.
9. Under the accrual method of income recognition:

a. Income is recognized when received.
b. Income is recognized when incurred.
c. Income is recognized when earned.
d. Income is recognized when declared.
Answer: C. Income is recognized when earned. Income, profits and gains are included in gross
income when earned, whether received or not, and expenses are allowed as deductions when
incurred, although not yet paid. It is the right to receive and not the actual receipt that determines
the inclusion of the amount in gross income.
10. Under BIR Regulations, income in long-term construction contracts is recognized

through:
a. Percentage of completion method only.
b. Completed contract method only.
c. Zero-profit method only.
d. Either of the above methods at the option of the taxpayer.
Answer: C. Percentage of completion method only. Income from long-term contracts is
reported for tax purposes on the basis of percentage of completion. Cost of the contract is
accumulated during the years of construction and deducted from the income of the contract in the
year it is completed.
11. Installment basis of reporting of income shall apply to casual sale of personal property
upon compliance with all the foregoing requisites, except:
a. The price exceeds P1,000.
b. The property would not be included in the inventory of the taxpayer if on hand at
the end of the taxable year.
c. The price will be paid in at least three (3) installments
d. Initial payments do not exceed 25% of the selling price.
Answer: C. The price will be paid in at least three (3) installments. The provisions of the Tax
Code are silent when it comes to the number of installment payments in a casual sale. Further, it
expresses that installment method may be applied if the selling price exceeds P1,000 and initial
payments do not exceed 25% of the selling price, provided that the personal property is not
considered as an inventory.
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12. Sana is a resident citizen, Tzuyu is a non-resident citizen, while Mina is a resident alien.
Who among them is subject to income tax on income derived from sources within and
outside the Philippines?
a. Sana only.
b. Sana and Tzuyu only.
c. Sana and Mina only.
d. Sana, Tzuyu, and Mina.
Answer: A. Sana only. A Filipino resident citizen is taxable on income from all sources (both
within and outside Philippines). A non-resident citizen is taxable only on income derived from
sources within the Philippines. A resident alien is taxable only on income from sources within
the Philippines.
13. Momo is a resident citizen, Nayeon is a non-resident citizen, while Dahyun is a resident
alien. Who among them is subject to income tax only on income derived from sources
outside the Philippines?
a. Momo only.
b. Nayeon only
c. Dahyun only.
d. Neither Momo, Nayeon, or Dahyun.
Answer: D. Neither Momo, Nayeon, or Dahyun. A Filipino resident citizen is taxable on
income from all sources (both within and outside Philippines). A non-resident citizen is taxable
only on income derived from sources within the Philippines. A resident alien is taxable only on
income from sources within the Philippines.
14. Big Hit Corporation is a domestic corporation. Which of the following items of income is
subject to tax?
I. Gain from sale of personal property in the Philippines.
II. Gain from sale of personal property in South Korea.
a. I only.
b. II only
c. Both I and II.
d. Neither I nor II.
Answer: C. Both I and II. A domestic corporation is taxable on all income derived from sources
within and outside the Philippines.
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15. JYP Corporation is a resident foreign corporation. Which of the following items of
income is not subject to tax?
I. Income from Philippine operations
II. Income from American operations
a. I only.
b. II only
c. Both I and II.
d. Neither I nor II.
Answer: A. I only. A resident foreign corporation engaged in trade or business in the Philippines
is taxable only on income derived from sources within the Philippines.
16. The situs of service income is:

a. Where the payment for services is made
b. Where the service contract was perfected
c. Where the services are performed
d. Where the party availing of the services is located
Answer: C. Where the services are performed. The power to levy an excise upon the
performance of an act or the engaging in the occupation does not depend upon the domicile of
the person subject of the excise, nor upon the physical location of the property, but it depends
upon the place in which the act is performed or occupation engaged in.
17. The situs of income from sale of real property is determined by:
a. The place where the real property is located.
b. The place where the registered owner of the real property resides.
c. The place where the current possessor of the real property has citizenship.
d. The place where the deed of sale of real property was notarized.
Answer: A. The place where the real property is located. The situs for the gains, profits, and
income from the sale of real property shall be the location of said property in the Philippines.
18. Statement 1: If an income is already subjected to creditable withholding tax, it is no

longer reported as part of gross income subject to regular income tax.
Statement 2: If an income is already subjected to final withholding tax, it is reported as
part of gross income at an amount net of the amount of tax withheld.
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Answer: D. Both statements are not true. The income from which it is withheld is still
required to be included in the taxpayer's gross income for income tax calculation purposes. The
CWT withheld is used to offset against the income tax due of the taxpayer. Further, since passive
incomes are subject to specific tax rates or final taxes, they are no longer included in the
computation of gross income. Simply put, these passive incomes have already been taxed finally
at source.
19. Assuming the taxpayer follows the calendar year, the deadline for the filing of the second
quarter Quarterly Remittance Return of Creditable Income Taxes Withheld (BIR Form
No. 1601EQ) is:
a. June 30
b. July 15
c. July 31
d. August 15
Answer: C. July 31. This quarterly withholding tax remittance return shall be filed and the tax
paid/remitted not later than the last day of the month following the close of the quarter during
which withholding was made.
20. Interest income of resident citizens from short-term currency bank deposits is subject to a
final withholding tax rate of twenty percent (20%). As a result,
a. Such interest income need not be declared as part of the gross income of the
resident citizen taxpayer in his/her annual income tax return.
b. Such interest income should still be declared as part of the gross income of the
resident citizen taxpayer in his/her annual income tax return, but in an amount net
of the withholding tax.
c. Such interest income should still be declared as part of the gross income of the
resident citizen taxpayer in his/her annual income tax return in an amount gross of
the withholding tax, with a claim of income tax credit.
d. Such interest income should still be declared as part of the gross income of the
resident citizen taxpayer in his/her annual income tax return in an amount gross of
the withholding tax, without a claim of income tax credit.
Answer: A. Such interest income need not be declared as part of the gross income of the
resident citizen taxpayer in his/her annual income tax return. Under the provisions of the
NIRC, since passive incomes are subject to specific tax rates or final taxes, they are no longer
included in the computation of gross income. Simply put, these passive incomes have already
been taxed finally at source.
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21. Final withholding tax is:

a. An approximation of the income tax due.
b. Deductible against gross income to compute for the taxable income.
c. The full and final payment of the income tax due.
d. Creditable against income tax due to compute for the income tax payable.
Answer: C. The full and final payment of the income tax due. The amount of income tax
withheld by the withholding agent is constituted as a full and final payment of the income tax
due from the payee on the said income.
22. This is an attachment to the quarterly remittance returns which lists the name of income
payees, their TINs, the amount of income paid segregated per month, and the total
amount of taxes withheld, if any:
a. Withholding Alphabetical List of Payees (WAP)
b. Statutory Alphabetical List of Payees (SAP)
c. Required Alphabetical List of Payees (RAP)
d. Quarterly Alphabetical List of Payees (QAP)
Answer: D. Quarterly Alphabetical List of Payees (QAP). Pursuant to Revenue Regulation
No. 11-2018, The returns filed shall be accompanied by the Quarterly Alphabetical List of
Payees (QAP), reflecting the name of income payees, Taxpayer Identification Number (TIN), the
amount of income paid segregated per month with total for the quarter (all income payments
prescribed as subject to withholding tax under these regulations, whether actually subjected to
withholding tax or not subjected due to exemption), and the total amount of taxes withheld, if
any.
23. When is the deadline for the filing of the Annual Information Return on Income Taxes
Withheld on Compensation (BIR Form No. 1604-C)?
a. January 15 of the following year
b. January 31 of the following year
c. February 28/29 of the following year
d. April 15 of the following year
Answer: B. January 31 of the following year. The return shall be filed on or before January
31of the year following the calendar year in which the compensation payment and other income
payments subjected to final withholding taxes were paid or accrued.
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24. Statement 1: In filing the BIR Form No. 1604-E, remittance will be simultaneously made
by the withholding agent of the withholding taxes so declared.
Statement 2: In case of termination of employment, a Certificate of Creditable Tax
Withheld at Source (BIR Form No. 2307) must be issued to the employee on the same
day the last payment of wages is made.
Answer: D. Both statements are not true. BIR Form No. 1604-E is an Annual Information
Return of Creditable Taxes and is not a payment return. Also, The proper return that must be
issued to the employee is BIR Form No. 2316, wherein every employer or other person who is
required to deduct and withhold the tax on compensation, including fringe benefits given to rank
and file employees, shall furnish every employee from whom taxes were withheld a Certificate
of Compensation Payment and Tax Withheld (BIR Form No. 2316) on or before January 31 of
the succeeding calendar year, or if employment is terminated before the close of such calendar
year, on the day on which the last payment of compensation is made.
25. Which of the following is not a characteristic of an income tax?

a. National tax
b. Property tax
c. Direct tax
d. None of the above
Answer: B. Property tax. The property tax is lodged within the local government units for its
levy and implementation. Income tax is not levied upon persons, property, funds or profits but
upon the right of a person to receive income or profits.
26. It is a type of income tax system whereby all income of the taxpayer will be reported in a
single income tax return and will be subjected to a single income tax rate?
a. Schedular income tax system
b. Global income tax system
c. Hybrid income tax system
d. Complicated income tax system
Answer: B. Global Income Tax System. Under a global tax system, it does not matter whether
the income received by the taxpayer is classified as compensation income, business or
professional income, passive investment income, capital gain, or other income. All items of gross
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income, deductions, and personal and additional exemptions, if any, are reported in one income
tax return, and one set of tax rates are applied on the tax base.
27. As to subject matter, what type of tax is an income tax?

a. Personal tax
b. Property tax
c. Excise tax
d. None of the above
Answer: C. Excise Tax. An excise tax is a charge imposed upon (a) The performance of an act,
(b) The enjoyment of a privilege, or (c) The engagement in an occupation, profession, or
business. The obligation to pay excise tax is based on the voluntary action of the person taxed in
performing the act or engaging in the activity which is subject to the excise.
28. What tax remedy is provided by the Tax Code to minimize the impact of indirect double
taxation on those income that have already been subject to tax in other countries but still
taxable in the Philippines?
a. Tax refund
b. Allowable deduction
c. Tax exemption
d. Tax credit
Answer: D. Tax credit. Tax Credit is a remedy against international double taxation to minimize
the onerous effect of taxing the same property twice.
29. What is the basis for the determination of the taxability of an income?
a. Provisions of the Philippine Financial Reporting Standards
b. Provisions of National Internal Revenue Code
c. Provisions of Code of Ethics
d. Provisions of Revised Corporation Code
Answer: D. Tax credit. The National Internal Revenue Code, as amended, is the basis for the
determination of the taxation in the country. One function of which is the rationalization of the
Philippine internal revenue tax system.
Situational Problem No. 1: For items 30 to 32, refer to the following information:
Lalisa, a resident citizen, purchased a parcel of land, measuring 1,000 square meters at a price of
P2,000,000, on January 5, 2021. Due to the construction of a subway station a few hundred
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meters away from Lalisa’s parcel of land, the fair market value of the land increased to
P15,000,000 by 2022. Lalisa procured an appraiser to determine the new value of the land, and
the appraiser affirmed the increase to Php15,000,000. The land was used as a collateral to secure
a loan amounting to P10,000,000 by way of a real estate mortgage. The proceeds of the loan
were used by Lalisa to construct buildings on the land for leasing.
30. Is Lalisa subject to income tax?

a. Yes. The amount that will be subject to income tax is P15,000,000.
b. Yes. The amount that will be subject to income tax is P13,000,000.
c. No. The increase in value of the land is not subject to income tax.
d. No. Loans are exempt from all internal revenue taxes.
Answer: C. No. The increase in value of the land is not subject to income tax. Income Tax is
defined as a tax on all yearly profits arising from property, professions, trades, or offices, or as a
tax on the person’s income, emoluments, profits and the like. It may be succinctly defined as a
tax on income, whether gross or net, realized in one taxable year.
31. Under the realization test, under which of the following scenarios would Lalisa be subject
to income tax?
a. Repayment of the loan
b. Foreclosure of the real estate mortgage
c. Payment of the documentary stamp taxes on the loan
d. Further, appreciation of the value of the land to ten times the amount it was
originally acquired.
Answer: B. Foreclosure of the real estate mortgage. No taxable income until there is a
separation from capital of something of exchangeable value, thereby supplying the realization or
transmutation which would result in the receipt of income. Income is recognized when both of
the following conditions are met: (a) the earning is complete or virtually complete; and (b) an
exchange has taken place.
32. Suppose that Rose is a real estate dealer, and she saw that everything she needs is on the
ground that Lalisa owns. Rose wanted to purchase half of Lalisa’s parcel of land, or an
area of 500 square meters. Lalisa sold the land to Rose at a gain in 2025. When shall
Lalisa file her annual income tax return and reflect the gain from the sale of land to Rose?
a. Thirty (30) days from the date of sale.
b. April 15, 2026.
c. April 15, 2025.
d. Fifteenth day of the fourth month following the close of Lalisa’s taxable year
which may be in any last day of the month other than December 31.
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Answer: B. April 15, 2026. Under the provisions of the Tax Code, the Annual Income Tax
Return is filed on or before April 15 of each year covering income for the preceding taxable year.
Thus, the gain from sale from the preceding year (2025) shall be reflected on the following year
(2026).
V sold to JK a parcel of land classified as a capital asset located in the province of Tarlac for
P6,000,000 on six equal semi-annual installments of P1,000,000 each. The first installment will
be paid on June 30, 2021, the second installment six months after, and so on, until the final
installment on December 31, 2023.
33. Can V declare his income on installment?

a. Yes. The initial payments did not exceed 25%. The initial payments are only 17%
of the selling price.
b. Yes. The initial payments are not at least 25%. The initial payments are only 17%
c. No. The initial payments exceeded 25%. The initial payments are 33% of the
selling price.
d. No. The initial payments are at least 25%. The initial payments are 33% of the
selling price.
Answer: C. No. The initial payments exceeded 25%. The initial payments are 33% of the
selling price. Under the provisions of the Tax Code, an individual may declare his income in
installment basis provided that the initial payments do not exceed 25% of selling price.
34. Suppose the first installment is to be made on December 31, 2021 instead, can V declare
his income on installment?
a. Yes. The initial payments did not exceed 25%. The initial payments are only 17%
b. Yes. The initial payments are not at least 25%. The initial payments are only 17%
c. No. The initial payments exceeded 25%. The initial payments are 33% of the
selling price.
d. No. The initial payments are at least 25%. The initial payments are 33% of the
selling price.
Answer: A. Yes. The initial payments did not exceed 25%. The initial payments are only
17% of the selling price. An individual who sells or disposes of real property, considered as
capital asset, and is otherwise qualified to report the gain therefrom under Subsection (B), initial
payments do not exceed twenty-five percent (25%) of the selling price, may pay the capital gains
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tax in installments under rules and regulations to be promulgated by the Secretary of Finance,
upon recommendation of the Commissioner.
A contract of loan was entered into between Kai, a resident of Japan and a citizen of South
Korea, and Sehun, a resident of Taiwan and a citizen of the Philippines. In the contract, Kai
agreed to lend Sehun 2,000,000 United States dollars to be paid by depositing in Kai’s account
opened at a branch in France. The contract of loan was signed by both parties in Germany and
was issued by Sehun to finance his business operations in Italy. The contract of loan provided
that Sehun is bound to pay the entire principal amount in three (3) years plus interest at seven (7)
percent per annum.
35. Statement 1: The situs of interest income is Japan.

Statement 2: The situs of interest income is Germany.
Answer: D. Both statements are not true. The situs of interest income is the residence of the
debtor. Here, the residence of Sehun is in Taiwan.
36. Is Kai’s interest income subject to Philippine income tax?

a. No. Kai is only taxable on income derived from sources within the Philippines,
and the interest income has a situs outside the Philippines.
b. Yes. Kai is taxable on income derived from sources within the Philippines, and
the interest income has a situs within the Philippines.
c. Yes. Kai is taxable on income derived from sources within and outside the
Philippines, and the interest income has a situs outside the Philippines.
d. Yes. Kai is taxable on income derived from sources within and outside the
Philippines, and the interest income has a situs within the Philippines.
Answer: A. No. Kai is only taxable on income derived from sources within the Philippines,
and the interest income has a situs outside the Philippines. An alien individual, whether a
resident or not of the Philippines, is taxable only on income derived from sources within the
Philippines.
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37. Would your answer in the previous item change assuming the contract was signed in the
Philippines?
a. No. There is no showing that there is a stipulation in the contract with respect to
the situs of interest income.
b. Yes. Situs of income from contracts follow the place where the contract is signed.
c. No. The place where the contract is signed is immaterial.
d. Yes. This evinces the intention of both parties to the contract of loan that they
intend the situs of income, to be within the Philippines.
Answer: C. No. The place where the contract is signed is immaterial. An alien individual,
whether a resident or not of the Philippines, is taxable only on income derived from sources
within the Philippines. There is no showing in any gain or profit from the contract signing in the
Philippines.
38. Which of the following changes in the facts in the above situation would Kai be subject
to Philippine income taxation?
a. Kai becomes a resident of the Philippines.
b. Sehun becomes a resident of the Philippines.
c. The interest is payable in Philippine pesos.
d. The interest will be deposited in an account with a Philippine bank.
Answer: B. Sehun becomes a resident of the Philippines. The situs of interest income is the
residence of the debtor. Should Sehun, the debtor, become a resident of the Philippines, then he
shall be subjected to income taxation of the country.
Vincenzo earned the following items of income for the calendar year ending 2021:
Interest income, debtor resides in Hong Kong, payment made in
420,000
the Philippines
Interest income, debtor resides in the Philippines, payment
330,000
made in China
Gain from sale of real property, real property situated in
440,000
America
Gain from sale of real property, sale made in UK, property is in
290,000
the Philippines
Gain from sale of shares of stock of a domestic corporation,
225,000
residence of buyer is Taiwan, sale made in Argentina
1,705,000
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39. If Vincenzo is a resident citizen, how much of his income is subject to Philippine income
tax?
a. 330,000
b. 555,000
c. 845,000
d. 1,705,000
Answer: D. 1,705,000. A resident citizen of the Philippines is taxable on all income derived
from sources within and without the Philippines, therefore, all profits incurred by Vincenzo shall
be taxable under the income taxation laws of the Philippines.
40. If Vincenzo is a resident alien, how much of his income is subject to Philippine income
tax?
a. 330,000
b. 555,000
c. 845,000
d. 1,705,000
Answer: B. 555,000. A resident alien is liable to pay Philippine income tax only on his income
from sources within the Philippines but is exempt from tax on his income from sources outside
the Philippines. Thus, the interest income of P330,000 and gain on sale from a domestic
corporation of P225,000 shall be taxable.
Doctor Adrian is a professional consultant visiting many hospitals in a week. Due to the
pandemic, he has been tirelessly seeing patients and their relatives advising them as to the proper
management of the disease. Doctor Adrian is being paid his professional fees, which the
hospitals subject to ten percent (10%) creditable withholding tax. For taxable year 2021, Doctor
Adrian received P3,780,000, net of withholding tax, from the hospitals.
One such hospital is Taguig City Hospital. The accountant of Taguig City Hospital recorded a
payable to Doctor Adrian amounting to P140,000 on March 19, 2021. However, the check
payable to Doctor Adrian was issued by the Treasury Department on May 4, 2021 and was
encashed by Doctor Adrian on July 20, 2021.
41. Is Doctor Adrian qualified under the substituted filing of returns?
a. No. Doctor Adrian is not subjected to final withholding tax.
b. No. Doctor Adrian is not a compensation income earner.
c. Yes, assuming there was proper withholding on all of Doctor Adrian’s income.
d. Yes, considering Doctor Adrian’s gross receipts exceeded the P3,000,000
threshold.
16
Answer: B. No. Doctor Adrian is not a compensation income earner. As provided under
Revenue Regulation No. 11-2018, an individual deriving compensation from two or more
employers concurrently or successively at any time during the taxable year, are not qualified for
substituted filing.
42. Which of the following statements is true?

a. Doctor Adrian should declare P4,200,000 as part of his income in his income tax
return, and claim P420,000 as income tax credit.
b. Doctor Adrian should declare P4,200,000 as part of his income in his income tax
return, but he cannot claim P420,000 as income tax credit.
c. Doctor Adrian should declare P3,780,000 as part of his income in his income tax
return, and claim P420,000 as income tax credit.
d. Doctor Adrian should declare P3,780,000 as part of his income in his income tax
return, but he cannot claim P420,000 as income tax credit.
Answer: A. Doctor Adrian should declare P4,200,000 as part of his income in his income
tax return, and claim P420,000 as income tax credit. From the above situation, P3,780,000 is
net of withholding, withholding rate is 10% so to come up with the gross amount, divide
P3,780,000 by 0.90 (10%creditable withholding tax).
43. Who is the withholding agent?

a. Doctor Adrian
b. Patients
c. Treasury Department
d. Taguig City Hospital
Answer: D. Taguig City Hospital. A withholding agent is any person or entity who is in
control of the payment subject to withholding tax and therefore is required to deduct and remit
taxes withheld to the government.
44. To claim income tax credit, Doctor Adrian should attach which certificate to his income
tax return?
a. BIR Form No. 2303
b. BIR Form No. 2306
c. BIR Form No. 2307
d. BIR Form No. 2316
17
Answer: C. BIR Form No. 2307. The hospitals, clinics or HMOs shall issue a Certificate of
Creditable Withholding Tax Withheld at Source (BIR Form No. 2307) to medical practitioners
who are subjected to withholding, every 20th day following the close of the taxable quarter or
upon request of the payee.
45. In what quarter should Taguig City Hospital remit the withholding taxes on its income
payments to Doctor Adrian?
a. First quarter
b. Second quarter
c. Third quarter
d. First or second quarter, at the option of Taguig City Hospital
Answer: A. First quarter. The obligation of the payor to deduct and withhold the tax rises at
the time an income payment is accrued or recorded as an expense or asset, whichever is
applicable, in the payor’s books, whichever comes first. In this case, creditable withholding
tax was recorded on March, therefore included during the first quarter.
18

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LORIQUE ALEXIS V.

2. Distinguish final withholding tax from creditable withholding tax.

As to income subject of the CWT it includes compensation income, professional

3. Is capital gains tax a misnomer? Explain.

He is subject to capital gains tax of P 72,000.00 (6% of whichever is higher

II. MULTIPLE CHOICE QUESTIONS. Explain briefly.

1. The Philippine income tax system follows a:

2. Statement 1: Income tax is an excise tax

3. Statement 1: Income tax is a national tax.

6. Under the all-events test, income is recognized when there is:

7. Statement 1: Individuals can only use the calendar year.

8. A fiscal year is:

9. Under the accrual method of income recognition:

10. Under BIR Regulations, income in long-term construction contracts is recognized

16. The situs of service income is:

18. Statement 1: If an income is already subjected to creditable withholding tax, it is no

21. Final withholding tax is:

25. Which of the following is not a characteristic of an income tax?

27. As to subject matter, what type of tax is an income tax?

30. Is Lalisa subject to income tax?

33. Can V declare his income on installment?

35. Statement 1: The situs of interest income is Japan.

36. Is Kai’s interest income subject to Philippine income tax?

42. Which of the following statements is true?

43. Who is the withholding agent?

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