GEN009

ENHANCEMENT ON INCOME TAXATION

MCQ. Choice the best possible answer. Write your answer at the given answer
sheet. No erasure
1. Which is not an inherent limitation to the power of taxation?
A. Tax must be restricted only for public use.
B. Taxation cannot be enforced beyond the territory of the State.
C. Taxation must consider taxpayer's right to due process.
D. Taxation must consider government commitments under contract.
E. All of the above
2. Which is an inherent limitation to the power of taxation?
A. Taxation shall not apply to government-owned and controlled
corporations.
B. Taxation shall not apply to income of foreign governments.
C. Taxation shall subject government agencies, bureaus or
instrumentalities.
D. The rule on taxation must be untforn,
E. None of the above
3. Which is not a constitutional limitation?
A. Exemption of the revenues and assets of non-profit educational
institution from taxation.
B. Exemption of the income of the government from taxation.
C. Exemption of the income of foreign government from taxation.
D. None of the above
E. All ofthe above
4. Accounting period is not applicable to this taxpayer.
A. Non-resident alien engaged in trade or buisiness
B. Non-resident alien
C. Non-resident alien not engaged in trade or business
D. None of these
5. Which is a regulatory tax?
A. Sin tax
B. Business tax
C. Income tax
 D. Tax surcharge
E. Real property tax
6. Income tax is not an
A. Excise tax
B. Internal revenue tax
C. Regulatory tax
D. Ad valorem tax
E. Business tax
7. PCSO or lotto winnings is
A. Exempt from final tax for any taxpayer
B. Subject to regular tax for aliens
C. Subject to regular tax if the recipient is a non-resident foreign
corporation
D. Subject to final tax for any taxpayer
E. Subject to capital gain tax for any taxpayer
8. It is a national tax as to imposition but local tax as to collection
A. Franchise tax
B. Professional tax
C. Real property tax
D. Amusement tax
E. Delinquent tax
9. The accounting period allowable to general professional partnership shall
be
A. Calendar only
B. Fiscal only
C. Calendar and fiscal
D. Calendar or fiscal
E. Neither calendar or fiscal
10.Mr. Asuncion is a self-published author. He prints his book and contracted
Rex Bookstore, another book publisher and distributor, to market his book.
He give Rex Bookstore a 30% discount off the total invoice price of his
books. During the month, Rex Bookstore purchased a total of
P3,000,000.Which is correct?
A. Mr. Asuncion is subject to regular tax on his gross income
B. Rex Bookstore shall withhold a 10% final tax on Mr. Asuncion's income
C. Mr. Asuncion shall withhold a final tax from the pre-agreed discounts of
Rex Bookstore d.
 D. None of these
11.ABC Company, a domestic corporation owned 60% of the stocks of DEF
Corporation, a corporation incorporated according to the laws of Vietnam.
DEF Corporation also owns 10% stake in ABC Company. During the year,
ABC declared P1,000,000 dividend while DEF also declared P500,000
dividends.Which is correct?
A. The dividends due ABC Company shall be subject to a final tax.
B. The dividends due DEF Corporation shall be subject to final tax.
C. The dividends due ABC Company shall be subject to regular tax.
D. The dividends due DEF Corporation shall be subject to regular tax.
E. Both dividends due ABC and DEF corporation shall be subject to regular
tax
12.Atty. Areno wrote a book entitled "The Sexy's Diary" published under
Bandolin Publishing. Bandolin Publishing pays annual royalty of net sales.
During the year, "The Sexy's Diary" fetched a gross sales of P1,000,000
before P80,000 sales discounts and P 200,000 bookstore commissions.
There were unsold copies with total retail prices of P 200,000. Compute
Atty. Areno's final tax.
A. P 52,000
B. P 92,000
C. P 144,000
D. P 100,000
E. P 72,000
13.Which is not subject to a final tax?
A. Compensation income of a special alien
B. Domestic dividends to a non-resident corporate shareholder
C. Deposit interest to a non-resident alien not engaged in business
D. None of these
E. All of these
14.Which is not generally subject to regular income tax
A. Compensation income
B. Business income
C. Professional income
D. Active income
E. Passive income
15.Active income is subject to
A. Regular tax
 B. Capital gain tax
C. Final tax
D. Any of these
16.Mr. Mo, CPA started a professional practice in early 2018 as a sole
proprietorship. With increasing clients, he was convinced of the need to
have a partner. He met a handsome and passionate accountant, Mr. Ko. So
he decided to admit ko into his professional practice on February 14, 2018.
The lover-partners agreed to share profits equally. The firm registered a
2018 profit of P1,000,000 which is inclusive of P 200,000 earned before
February 14. Compute Mr. Mo’s reportable gross income in 2018.
A. P 200,000
B. P500,000
C. P700,000
D. P600,000
E. 1,000,000
17.Wary of his deteriorating health conditions, Mr. Benigno resigned from his
job at age 40 after working as a supervisor for 12 years: He was paid
P2,000,000 as separation pay. Is the P2,000,000 separation pay subject to
income tax?
A. No, because the reason for Mr. Benigno's termination was beyond his
control.
B. Yes, because Mr. Benigno resigned.
C. No. because Mr. Benign worked for the company for more than 10 years
D. Yes, because Mr. Benigno is not yet 50 years old.
18.On December 25, 2014, Mr. Reynon was terminated by his employer at age
60 due to his failing eyesight. He joined the company in February 2006 and
has since then worked as treasurer of the company. Is Mr. Reynon's
retirement pay exempt from income tax?
A. Yes, because his termination was beyond his control.
B. No, because he was employed for less than 10 years.
C. Yes, because he is over 50 years old.
D. No, because the employee is already a senior citizen.
19. Ms. Henson retired from her job after 25 years of service. She joined the
company at the age of 23 and was promoted from an accounting clerk to
VP Finance. She was paid P2,000,000 total retirement pay from the
employer's contributory pension plan which was duly registered with the
BIR. Out of the total proceeds, Ms. Henson contributed P600,000. This was
 Ms. Henson's first retirement from employment. How much is excluded
from gross income?
A. P600,000
B. P1,400,000
C. P2,000,000
D. P0
20. Assuming Ms. Henson transferred to another company and was retired
after 15 years of service. The second employer paid P1,500,000 out of its
non-contributory pension fund as retirement pay to Ms. Henson. The
pension fund was also duly registered with the BIR. Is the second
retirement pay exempt from income tax?
A. No, because this is the second time Ms. Henson retired from
employment.
B. Yes, because Ms. Henson is already a senior citizen
C. Yes, because this is the first time Ms. Henson qualifies for retirement
pay exemption.
D. No, because an employee must work under one employer until
retirement to qualify for retirement exemption.
21.Which of the following is a requisite for an income to be taxable
A. There must be a gain
B. The gain must be realized
C. The gain must not be excluded by law fromtaxation
D. All of these
22.Which of the following is not an income for income tax purposes
A. Gain derived from labor
B. Return on capital
C. Excess of selling prices over cost of assets sold
D. Gifts received
E. None of the above
23.Which of the following is not an income for income tax purposes
A. Collection of loans receivable
B. Condonation of debt for services rendered
C. Excess ofselling price over the cost of an asset sold
D. All of the above
E. None of the above
24.Which of the following is NOT a characteristic of income
A. Increase in taxpayer’s wealth
 B. Realization or receipt of gain
C. Earning constructively received
D. All of the above
E. None of the above
25.Pedra earned interest income from promissory noteissued to her by
juanita, a resident of California USA. Assumming that pedra is a nonresident
citizen, the interest income is
A. Subject to basic income tax
B. Subject to final tax
C. Not subjected to income tax
D. Partly subjected to scheduler income tax and partly subject to final tax
26.A vat taxpayer collected P45,000 inclusive of 4,500 vat and net of 5,000.
Compute for the gross income subject to regular income tax
A. P50,000
B. P45,000
C. P45,500
D. P54,500
E. P49,500
27.A non vat taxpayer collected P79,200, net of 1% witholding tax. What is the
amount subject to regular income tax?
A. P71,351
B. P71,429
C. P80,000
D. P88,000
E. 79,200
28. A taxpayer is employed by a shipping company touching philippines and
foreign port. In 2022 he received a gross payment for service rendered at
P450,000. In the year, the vessel on board on which he rendered services
had a total stay in the philippines port for 5 months. His gross income from
the Philippines is?
A. P450,000
B. P225,000
C. P262,500
D. P187,500
E. P0
29.Which is NOT true with the creditable witholding tax
A. Advances to the annual tax due
 B. No need to pay further taxes
C. Need to file annual income tax return
D. Applicable to items for regular income
E. None of the above
30.Proportional income tax is only applicable for
A. Individuals taxpayer
B. Corporation
C. Compensation income earner
D. Professional income earner
E. Both individual and corporation
TRUE OR FALSE. Write your answer at the given answer sheet. No erasure
1. A special employee may include Filipino citizens.
2. A rank-and-file employee recommends managerial actions.
3. A consultant is not an employee.
4. A manager has the power to lay down and execute policies.
5. A regular employee is subject to the regular income tax.
6. Filipinos employed by international missions are generally exempt.
7. Filipinos working in Philippine embassies are exempt from taxation.
8. A minimum wage earner is exempt from income tax.
9. Compensation income includes regular compensation, supplemental
compensation and 13th month pay and other benefits in excess of P90,000.
10.Compensation income includes all remunerations received under an
employer-employee relationship, including all fringe benefits of managerial
or supervisory employees.
11.Items of gross income subject to regular income tax and capital gains tax are
reportable to the government.
12.Rent is a passive income, but is not subject to final tax.
13. The interest income from bonds issued by banks is subject to final tax.
14.Gains from dealings in capital assets are generally subject to the regular
income tax.
15.The gross income from operations enjoying a tax holiday are included in
gross income subject to regular tax, but are presented as deductions in the
income tax return.
16.The share in a business partnership is subject to final tax, but the share in a
general professional partnership is subject to regular income tax.
17.Gains from dealings in ordinary assets are subject to regular income tax
 18.Items of passive royalty income are subject to final income tax, but the share
in a general professional partnership is subject to regular income tax.
19.Compensation income is an inclusion in gross income subject to regular tax
except compensation income of special aliens.
20.The reportable gross income from business or the exercise of a profession is
net of the cost of goods sold or cost of services.

STRAIGHT PROBLEM. Use peso sign. Write your answer at the given answer sheet.
No erasure
A. NEBRA G. hired to produce EMPYRADORA beverages, has the following
income for the year 2024
Interest from ANASTASIA bank, a nonresident japanese bank ₱500,000
Interest from receivable from cutomers 400,000
Interest from DAWNJA bank, a domestic bank in USD 250,000
Interest from LUXXE bank, a domestic bank made 3 years ago the 350,000
deposit ends in 2025
Interest from MAIA bank, a domestic bank on a 4 year deposit which 100,000
begun on july 1 2021. The deposit was pre-terminated on May 31 of
this year
Dividends from BACARDI B corporation, a japanese corporation 50,000
Dividends from a domestic corporation 125,000
Royalties from its franchise 1,200,000
Prizes from contest 250,000
1. How much is the final witholding tax if the tax payer is a Resident Citizen
2. How much is the final witholding tax if the tax payer is a Nonresident
Citizen
3. How much is the final witholding tax if the taxpayer is a Resident Alien
4. How much is the final witholding tax if the taxpayer is a Nonresident
Alien Engagd in Trade and business
5. How much isbthe final witholding tax if the taxpayer is a Nonresident
Alien Not Engaged in trade and business
Use the following data for the next 17 questions:
CJ, single, had the following data for 2021 taxable year:
Gross business income, Philippines P1,000,000
Gross business income, USA 500,000
Business expenses, Philippines 700,000
Business expenses, USA 430,000
Compensation income, Philippines 600,000
Dividend income from a domestic corporation 50,000
Dividend income from a resident foreign corporation 40,000
Interest income from peso bank deposit- Philippines 20,000
Interest income from bank deposits abroad 30,000
Interest income from FCDS deposits 40,000
Royalty income from composition 25,000
Raffle draw prizes 10,000
PCSO winnings 200,000
Creditable withholding taxes on business income 125,000
Determine the following assuming the taxpayer is a resident citizen
1) Taxable net income
2) Income tax payable
3) Total final taxes on passive income
4) Total income tax Expenses
Determine the following assuming the taxpayer is a nonresident citizen
5) Taxable net income
6) Income tax payable
7) Total final taxes on passive income
8) Total income tax Expenses
Determine the following assuming the taxpayer is a nonresident alien
engaged in trade or business
9) Taxable net income
10) Income tax payable
11) Total final taxes on passive income
Determine the following assuming the taxpayer is a nonresident alien
engaged in trade or business
12) Taxable net income
13) Income tax payable
14) Total final taxes on passive income
15) Determine the total income taxes of the taxpayer assuming the
taxpayer is a nonresident alien not engaged in trade or business (ignore
business income, business expenses and creditable withholding taxes on
business income in the Philippines.
 MCQ

1. C 11. D 21. D
2. B 12. E 22. D
3. C 13. B 23. A
4. C 14. E 24. E
5. B 15. A 25. B
6. D 16. D 26. C
7. A or D 17. B 27. C
8. D 18. A 28. D
9. D 19. A 29. B
10.B 20 B 30 B
T/F
1 8 15 F
2. F 9 16
3 10 F 17
4 11 18
5 12 19
6F 13 F 20
7F 14
STRAIGHT PROBLEM
1. P430,000 8. P57,500 15. P15,000
2. P392,500 9. P222,500 16. P57,500
3. P430,000 10 P950,000 17. P950,000
4. P405,000 11 P15,000 18 P15,000
5. P606,250 12 P51,500 19. P56,500
6. P1,050,000 13 P191,500 20 P236,250
7. P40,000 14 P950,000