LYCEUM-NORTHWESTERN UNIVERSITY

Tapuac District, Dagupan City

COLLEGE OF BUSINESS EDUCATION

Preliminary Examination – Income Taxation

1st Semester, A.Y. 2020-2021
Prepared by: Judy Anne T. Ramirez, CPA

Name: _______________________ Score: _________________

Student No: _______________________ Date of Examination: _________________

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

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

A. Criminal in nature C. Political in nature
B. Penal 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 be C. Tax laws shall prevail over GAAP
enforced D. The issue shall be resolved by the
B. GAAP shall prevail over tax laws court

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

A. Provinces C. Barangays
B. Cities 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

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 anemic 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 C. Essentially a legislative power
B. A very broad power of the state D. For public purpose

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

11. Under this basic principle of sound tax system, the government should not incur a deficit
A. Theoretical justice C. Fiscal adequacy
B. Administrative feasibility 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

13. Which of the following is not one of the canons of a sound tax system?
A. Quantifiability C. Certainty
B. Equality 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 C. Night shift differential pay
B. Overtime 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 C. Unregistered partnership
B. Business 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)

20. Under installment 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. (Downpayment/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. Installment payments in the year of sale
D. Gross profit
E.
22. The members of this form of business organization 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 installment 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

25. As to 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

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 authorized 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.
E.
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 authorized the officers to enter into such contract.
D. Valid, because the purpose is to promote public welfare.
E.