MIDTERM EXAM – TAXATION

NAME:VIDAL, ANGEL GLORY BORJ A. SCORE: ________

Success is not built overnight, to create a good sword one need hammering and tempering.

TRUE OR FALSE: Write true if the statement is correct and write false if the statement is not

correct.

TRUE 1. For compensation earners, taxable income is gross compensation income less non-taxable
income and benefits subject to limitations, and employee's mandatory contributions.

TRUE 2. Minimum wage earners are exempt from payment of income tax.

FALSE 3. The holiday pay of a minimum wage earner is subject to income tax.

TRUE 4. Purely self-employed individuals whose gross sales/receipts and other non-operating income do
not exceed the VAT threshold under Section 109(B8) may avail of the graduated rates under Section
24(A), both of the Tax Code.

5. The default income tax rate for an individual purely in business who failed to signify his intention to
avail of the 8% income tax rate is the said 8% tax.

6. A purely self-employed taxpayer who is subject to the graduated income tax rates is no longer subject
to the applicable business tax.

7. Taxable income for purely practicing professionals, if the graduated rates apply, shall be the net

income.

8. If the option availed of by an individual taxpayer who is purely in business is the 8% income tax

rate, taxable base is the gross sales/receipts and other non-operating income.

9. An individual earning compensation income from employment, and income from business, practice

of profession and/or other sources aside from employment is a mixed income earner.

10. The compensation of a mixed income earner shall be subject to the 8% income tax rate.

11. The taxable income from both compensation and business shall be combined if the taxpayer is

subject to the graduated income tax rates.

12. The mixed income earner has the option to avail of the 8%income tax rate on his income from

business if his gross sales exceed the VAT threshold.

13. Non-resident alien is an individual whose residence is not within the Philipines and who is not a

resident thereof.

14. Resident alien is an individual whose residence is within the Philippines but who is not a citizen

thereof.

15. Non-resident citizens and alien individuals are taxable on income derived from sources within and

without the Philippines.

MUTIPLE CHOICES: Write in CAPITAL the letter of the correct answer.

1. Among the nature of taxation are the following. Which one is not?

A. It is inherent in sovereignty.

B. The citizenry benefits from it.

C. The government solely benefits from it.

D. It is a means by which the government raises income.

2. The following are authorized to administer oaths and take testimony. Who is not?

A. BIR Service Chief

B. BIR Commissioner

C. BIR Deputy Commissioner

D. BIR rank-and-file employee

3. In case of conflict between tax laws and generally accepted accounting principle (GAAP)

A. GAAP shall prevail over tax laws.

B. tax laws shall prevail over GAAP.

C. the issue shall be resolved by the courts.

D. both tax laws and GAAP shall be enforced.

4. Which is not a valid definition of income?

Page | 2

A. Income is a fund at one distinct point of time.

B. Income is the return from capital invested.

C. Income means cash or its equivalent unless otherwise specified.

D. Income means all wealth which flows into the taxpayer other than a men return of capital.

5. The following are sources of tax laws. Which is not a source?

A. Barangay resolutions

B. Supreme Court decisions

C. Treaties or international agreements

D. Revenue Regulations by the Department of Finance

6. One of the characteristics of internal revenue laws is that they are

A. penal in nature.

B. criminal in nature.

C. political in nature.

D. generally prospective in application.

7. It is a 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.

A. specific

B. ad valorem

C. special or regulatory

D. none of the above

8. It is the proportional contribution by persons and property levied by the lawmaking body of the

State by virtue of its sovereignty for the support of the government and all public needs.

A. taxes

B. license fees
C. special assessment

D. none of the above

9. Percentage tax is an example of

A. graduated tax.

B. regressive tax.

C. progressive tax.

D. proportional tax.

10. Which statement is false? Income tax

A. is always a direct tax.

B. is always based on gross amount.

C. is a tax on person's income, emoluments or profits.

D. is a tax on all yearly profits arising from property, profession, trade or business

11. Provincial, city, municipal and barangay ordinances may impose taxes subject limitations by the

Local Government Code. The following, except one, are exist taxes thereunder. Which is it?

A. professional tax

B. community tax

C. travel tax

D. real property tax

12. As to object, taxes may be classified according to the following except one.Which the exception?

A. excise

B. specific

C. property

D. personal, poll or capitation

13. The distinction of a tax from permit or license fee 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.

Page | 3

D. none of the above

14. All of the following. are similarities of the inherent power of taxation, eminent domain, and police

power. Which is not?

A. affect all persons or the public

B. are legislative in implementation

C. are necessary attributes of sovereignty

D. interfere with private rights and property

15. Situs of taxation is the place of taxation. Which of the statements i not true abou situs?

A. Subject matter is a must to determine situs.

B. Situs of persons is the residence of the taxpayer.

C. Citizenship, in determining the situs, is not a factor to consider.

D. None of the above

16. Which statement is not true regarding our present tax system?

A. The taxable income is subject to a unitary but progressive, graduated rates.

B. It imposes progressive rates of income taxes on citizens and resident aliens.

C. Tax treatment views indifferently the tax base and generally treats in common all categories of

taxable income of the taxpayer.

D. Regressive rates of income taxes may apply depending on the kind of taxable income of the

taxpayer.

17. Which statement is false? In taxing 'individuals'

A. tax rates are generally higher for higher levels of income.

B. if a person engages in different business activities, his taxable income is determined by

aggregating income and losses.

C. if two or more individuals-professionals form a general professional partnership, there is no

income tax imposed on the entity.

D. all of the above

18. Which of the following is not true about source of income?

A. In case of income derived from labor, source is the place where the labor is performed.

B. In case of income derived from the use of capital, source is the place where the capital is

employed.

C. In the case of profits from the sale or exchange of capital assets, source is the place where the

sale or transaction occurs.

D. None of the above.

19. All statements except one are correct. Which is it?

A. Non-resident alien is taxable on income derived within the Philippines.

B. Non-resident citizen is taxable on income derived within the Philippines.

C. Resident alien is taxable on income derived within and without the Philippines.

D. Resident citizen is taxable on income derived within and without the Philippines.

20. Which of the following definitions does not apply to a Filipino citizen?

A. Those who are naturalized not in accordance with law

B. Those whose fathers or mothers are citizens of the Philippines

C. Those who are citizens of the Philippines at the time of the adoption of the Feb. 2,1987

Constitution.

D. Those born before Jan. 17, 1973, the date of the adoption of the 1973 Constitution, of Filipino

mothers, who elect Philippine citizenship upon reaching the age of majority.

21. Which of the following statements is never true?

A. Business income may arise from self-employment or practice of profession.

B. An individual taxpayer who earns compensation income is an employee.

C. Business income may arise from self-employment or compensation income.

D. An individual taxpayer may earn both compensation income and business income.

Page | 4

22. A citizen of the Philippines was a non-resident citizen in 2018. On May 15, 2019, he arrived in the

Philippines to reside permanently in the Philippines. His income for the year was:

A - From Jan.1,2019 to May 14,2019

B - From May 15, 2019 to Dec. 31, 2019

Which of the following is wrong?

A. He is not taxable on his “A” income.

B. He is considered a resident citizen on his “B” income.

C. He is considered a non-resident citizen on his “A” income.

D. He is considered a resident citizen on his “A” and “B” income.

23. Which of the following is not true about a resident alien?

A. His residence is within the Philippines but is not a citizen thereof.

B. His income is subject to the same treatment as a resident citizen's in all respects.

C. He is one who is actually present in the Philippines and who is not a mere transient or sojourner.

D. An alien is considered a resident or a non-resident depending on his intention with regard to the

length and nature of his stay.

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

A. An alien who has acquired residence in the Philippines

B. An alien who lives in the Philippines with no definite intention as to his stay

C. An alien who comes to the Philippines for a definite purpose which in its nature may be

promptly accomplished

D. An alien who comes to the Philippines for a definite purpose which in its nature would require

an extended stay
25. Alain Descartes, a French citizen permanently residing in the Philippines, received several items

during the taxable year. Which among the following is NOT subject to Philippine income taxation?

A. Consultancy fees received for designing a computer program and installing the same in the

Shanghai facility of a Chinese firm

B. Interests from his deposits in a local bank of foreign currency earned abroad converted to

Philippine pesos.

C. Dividends received from an American corporation which derived 60% of its annual gross

receipts from Philippine sources for the past 7 years.

D. Gains derived from the sale of his condominium unit located in The Fort, Taguig City to

another resident alien.

26. Pierre de Savigny, a Frenchman, arrived in the Philippines on Jan. 1, 2019 and continued to live and

engage in business in the Philippines. He went on a tour of Southeast Asia from Aug. 1 to Nov. 5,

2019. He returned to the Philippines on Nov. 6,2019 and stayed until Apr. 15, 2020 when he

returned to France. He earned during his stay in the Philippines a gross income of P3 million from

his investments in the country. For the year 2019, Pierre's taxable status is that of

A. a non-resident alien not engaged in trade or business in the Philippines.

B. a non-resident alien engaged in trade or business in the Philippines.

C. a resident alien not engaged in trade or business in the Philippines.

D. a resident alien engaged in trade or business in the Philippines.

27. Passive income includes income derived from an activity in which the earner does not have any

substantial participation. This type of income is

A. usually subject to a final tax.

B. exempt from income taxation.

C. taxable only if earned by a citizen.

D. included in the income tax return.

28. Which of the following statements is false?

A. Passive income are not included in the computation of gross income from compensation and

business.

B. Fringe benefits subject to the fringe benefit tax do not include fringe benefits to rank-and-file

employees.

C. Capital gains from sale of shares of stock, not traded through the stock exchange and capital

gains from sale of real property are not to be included in the computation of gross income

taxable under Section 24(A).

D. None of the above

29. Those required to file a declaration of their estimated income for the current taxable year must file

the same on or before

A. April 15 of the current taxable year

B. April 15 of the following taxable year

C. August 15 of the current taxable year

D. November 15 of the current taxable year

30. Who is not required to file a declaration of estimated income?

A. resident citizen with respect to his income without the Philippines

B. non-resident alien engaged in trade or business it the Philippines

C. non-resident alien not engaged in trade or business in the Philippines

D. non-resident citizen with respect to his income within the Philippines

PROBLEMS: Compute for the Following (Show your solutions)

Problem 1

Both Compensation and Self-Employment (A and B)

In 2023, Mr. Bonaro, Senior Manager of. Boslèy, Inc. earned an annual compensation of P1,800,000,

inclusive of 13th month pay and other benefits amounting to P130,000 but net of mandatory contributions
to

SSS, Philhealth and HDMF. Aside from being employed, he is also into the business of selling travel

accessories. His gross sales for the year was P2,700,000. His cost of sales and operating expenses were

P1,200,000 and P700,000, respectively, while non-operating income was P250,000.

A. Compute for the income tax due for 2023 assuming that he signified his intention to be taxed at 8%

income tax rate on his gross sales for his income from business. _________________________

B. Had Mr. Bonaro opted not to be taxed at the 8% income tax rate based on gross sales and other non-

operating income, what will be his income tax due for 2023? __________________________

Problem 2

Mr. Adrien, Advertising Director of Binah Corporation has the following records for his income from

employment and souvenir shop business in 2023:

Annual Compensation Income, including 13th Month Pay

and Other Benefits of P170,000, but net of mandatory

contributions to SSS, Philhealth and HDMF P2,400,000

Gross Sales-Souvenir Shop 1,700,000

Non-operating Income 85,000

Cost of Sales 700,000

Operating Expenses 300,000

A. Mr. Adrien opted to be taxed at 8% income tax rate on his gross sales for his income from business.

Determine Mr. Adrien's income tax due for 2023? ____________________________

B. Assume that Mr. Adrien did not signify his intention to be taxed at the 8% income tax rate based on
gross

sales and other non-operating income. Compute for Mr. Adrien's income tax due for the year.