AE 26/Tax 1 (Income Taxation)

1. The State, having sovereignty can enforce contributions (tax) upon its citizens even without a specific provision in the
Constitution authorizing it. Which of the following will justify the foregoing statement?

Statement 1: It is so because the State has the supreme power to command and enforce obedience to its will
from the people within its jurisdiction.

Statement 2: Any provision in the constitution regarding taxation does not create rights for the sovereignty to
have the power to tax but it merely constitutes limitation upon supremacy of tax power.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.

2. The following statements correctly described the power of the State to tax, except
a. It is a power inherent in every sovereign state to imposed a charge or burden upon persons,
properties or rights to raise revenues for the use and support of the government and to enable it to
discharge its functions.
b. The State can exercise the power of taxation only if it is expressly mentioned in the Constitution.
c. It passes a legislative undertaking through the enactment of laws by the Congress which will be implemented
by the Executive Branch of the government through its Bureau of Internal Revenue to raise revenue for the
inhabitants in order to pay the necessary expenses of the government.
d. It is a way of collecting and apportioning the cost of government among those who are privileged to enjoy its
benefits.

3. Which statement is wrong?

a. The power of taxation may be exercised by the government, its political subdivisions, and public utilities.
b. Generally, there is no limit on the amount of tax that may be imposed.
c. The money contributed as tax becomes part of public funds.
d. To power to tax is subject to inherent and constitutional limitations.

4. They exist independent of the constitution being fundamental power of the state, except
a. Power of taxation c. Power of eminent domain
b. Police power d. Power of recall

5. Statement 1: The constitution is the source of the State’s taxing power.

Statement 2: The police power of the government may be exercised through taxation.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements is correct.
d. Both statements is incorrect.

6. Statement 1: The Constitution cannot take away the inherent powers of the State but may only prescribed its
limitations.
Statement 2: No laws are necessary to confer the inherent powers of the State upon any government exercising
sovereignty.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.

7. Which of the following requires public improvement?

I. Taxation
II. Police Power
III. Eminent domain
a. I only c. III only
b. I and III only d. II and III only

8. The strongest of all inherent powers of the government is

a. Power of taxation c. Power of eminent domain
b. Police power Power of recall

9. The following are the similarities among the Fundamental Powers of the State, except:
a. They can be abolished by the Constitution.
 b. They constitute the three methods which the State interferes with private property rights.
c. Each presupposes an equivalent compensation to the inhabitants.
d. The emergence of the State carries with it these fundamental powers.

10. The following statements correctly states the differences among the inherent powers of the state, except:
a. The property taken under the eminent domain and taxation are preserved but that of police power is
destroyed.
b. Eminent domain does not require constitutional grant but taxation being formidable, does in order to limit its
exercise by the legislature.
c. Police power and taxation is exercised only by the government but eminent domain may be exercised by
private entities.
d. Police power regulates both property and liberty while eminent domain and taxation affects only property
rights.

11. Which of the following statements is not correct?

a. Taxes maybe imposed to raise revenue 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. In the exercise of the power of taxation, the State can tax anything at anytime.
d. The power of taxation in the Philippine Constitution are grants of power and not limitations on taxing powers.

12. The following are the difference between the Power of Taxation and the Power of Eminent Domain, except:
Power of Taxation Power of Eminent Domain
a. Enforced proportionate contribution Property to be taken is for public use
b. Government has no obligation to pay Gov’t is a debtor of the property taken
c. It operates in a community It operate son an individual
d. Attribute of Sovereignty Fundamental power

13. Which of the following statements is not correct?

a. The government automatically possesses the power to collect taxes from its inhabitants.
b. The government can enforce contribution upon its citizen only when the Constitution grants it.
c. Taxation power exist inseparably with the State.
d. The State has the supreme power to command and enforce contribution from the people within its
jurisdiction.

14. Statement 1: The power to tax is supreme, plenary, comprehensive and without any limit because the existence of
the government is a necessity.
Statement 2: The discretion of Congress in imposing taxes extends to the mode, method and kind of tax, even if
the constitution provides otherwise.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements is correct
d. Both statements is incorrect

15. How broad is the power of the legislature to impose taxes?

Answer 1:
The legislature has limited discretion as to the persons, property or occupation to be taxed., where there are no
constitutional restrictions, provided the property is within the territorial jurisdiction of the state.
Answer 2:
The legislature has the right to finally determine the amount or rate of tax, in the absence of any constitutional
prohibitions and it may levy a tax of any amount as it sees fit.
a. Answer 1 & 2 are false
b. Answer 1 is true but answer 2 is false
c. Answer 1 is false but answer 2 is true
d. Answer 1 and 2 are true

16. Which of the following statements is correct?

I. Taxes are pecuniary in nature
II. It co-exist with the existence of the State
III. Imposed on persons and property beyond the territorial jurisdiction of the State
a. I only c. I and II only
b. II only d. I, II and III

17. Which of the following statements is correct?

 I. A tax cannot be imposed without clear and express words for that purpose.
II. The provisions of a taxing act are not to be extended by implication.
III. If the law is repeated, taxes assessed before repeal of the law may no longer be collected.
a. I and II only c. All of the above
b. I and III only d. None of the above

18. Statement 1: The amount of money raised for the government in the exercise of its power to tax is and police power
is based on the needs of the government.
Statement 2: The amount of money raised for the government in the exercise of its power of eminent domain is
based on the cost of processing the transfer of property from private entities and/or individuals to the government.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements is correct
d. Both statements is incorrect

19. Which of the following statements is true?

a. The power of taxation and eminent domain are both exercisable only by the government and its political
subdivision.
b. In police power, the property taken is preserved for public use.
c. The power of eminent domain is created by the constitution.
d. The exercise of the power of eminent domain and police power can be expressly delegated to the local
government units by the law making body.

20. Statement 1: Taxation and Police Power may be exercised simultaneously

Statement 2: In the exercise of taxation, the State can tax anything at anytime and at any amount
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

21. After having been informed that most of the massage parlors in the city are being used as fronts for prostitution, the
Sanguniang Panlungsod of Manila passed a tax ordinance subjecting massage parlors
within its jurisdiction to such “onerous taxes” that leave them no other alternative but to stop operating. The passage of
the ordinance is a valid exercise of-
a. Taxation
b. Police power
c. Eminent domain
d. Police power and power of taxation

22. Statement 1: A provision on taxation in the Philippine Constitution is a grant of power.

Statement 2: The power to tax includes the power to destroy.
Statement 3: Sumptuary purpose of taxation is to raise funds for the government.

A B C D

Statement 1: True True False False

Statement 2: True True True True
Statement 3: True False True False

23. Statement 1: Income tax collected from the taxpayers is the main source of revenue of the local government.
Statement 2: Taxes collected are the main source of revenue of the government.

A B C D

Statement 1: True True False False

Statement 2: True False True False
24. All of the following are legislative aspect of taxation except
a. Selection of object of tax
b. Equalization of assessment
c. Valuation of property for taxation
d. Prescribing the general rules of taxation

25. All of the following are administrative functions of taxation except

a. Selection of object tax
b. Equalization of assessment
c. Valuation of property for taxation
d. Collection of taxes

26. LJ, married, left the Philippines in the middle of the year on July 1, 2018 to go abroad and work for five (5) years. The
following data were provided as of December 31, 2018:

Gross Business Income Business Expenses

PERIOD Phls. Abroad Phls. Abroad
Jan. 1 to June 30 P300,000 P200,000 P100,000 P50,000
July 1 to Dec. 31 600,000 400,000 150,000 50,000

His taxable income is:

a. P800,000 c. P1,100,000
b. P950,000 d. P600,000

27.Based on the above problem, but assuming he arrived from abroad on July 1, 2018 to permanently resettle in the
Philippines, after working abroad for 5 years, his taxable income as of December 31,2018 is:
a. P750,000 c. P1,100,000
b. P1,000,000 d. P600,000

28. If he did not leave Philippines at all, LJ’s taxable income is:
a. P750,000 c. P1,150,000
b. P950,000 d. P600,000

29. Chris is a Filipino immigrant living in the United States for more than 15 years. He is retired and he came back to the
Philippines as a balikbayan. Every time he comes to the Philippines, he stays here about a month. He regularly receives a
pension from his former employer in the United States, amounting to US$2,000 a month. While in the Philippines, with
his pension pay form his former employer, he purchased three condominium units in Makati which he is now in the
Philippines?
a. Yes, income received in the Philippines by the non-resident citizens is taxable
b. Yes, income received in the Philippines or abroad by non-resident citizen is taxable.
c. No, income earned abroad by non-resident citizens are not taxable in the Philippines.
d. No, the pension is exempt from taxation being one of the exclusions from gross income.

The next four (4) questions are based on the following data:

Carlo, married, with two dependent children, received the following income:
Rent, Philippines P1,000,000
Rent, Hongkong 200,000
Interest, peso deposit, MBTC 100,000
Interest, US$ deposit, BDO ($10,000 x P42) 420,000
Interest, deposit in Hongkong (HK$10,000 x P5) 50,000
Prize (cash) won in a local contest 8,000
Prize (TV) won in a local lottery 50,000
PCSO/Lotto winnings 2,000,000
Prize won in contest in U.S. 300,000
Lotto winning in U.S. 100,000
Dividend, domestic company 600,000
30. Assuming the taxable year is 2017, determine the taxable net income assuming he is:
RC NRC RA NRA-ETB
a. P80,000 P180,000 P830,000 P180,000
b. 180,000 80,000 1,000,000 1,000,000
c. 1,558,000 908,000 908,000 908,000
d. 1,658,000 1,008,000 1,008,000 1,008,000

31.Assuming the taxable year is 2018, determine the taxable income assuming he is:
RC NRC RA NRA-ETB
a. P80,000 P180,000 P830,000 P180,000
b. 180,000 80,000 1,000,000 1,000,000
c. 1,558,000 908,000 908,000 908,000
d. 1,658,000 1,008,000 1,008,000 1,008,000

32. Assuming the taxable year is 2017, determine the total final tax assuming he is:
RC NRC RA NRA-ETB
a. P553,000 P490,000 P550,000 P150,500
b. 121,500 90,000 150,000 937,500
c. 131,000 90,000 90,000 90,000
d. 142,000 90,000 150,000 150,000

33. Assuming the taxable year is 2018, determine the total final tax assuming he is:
RC NRC RA NRA-ETB
a. P553,000 P490,000 P150,000 P937,500
b. 121,500 90,000 121,500 150,000
c. 131,000 90,000 90,000 90,000
d. 553,000 490,000 550,000 687,500

Use the following date for the next two (2) questions:
Ana, a resident citizen of the Philippines, provided the following data for year current year:
Gross income from business P700,000
Business Expenses 300,000
Royalty from books 40,000
Gain on direct sale to buyer of shares of stock of a domestic corporation
held as capital asset 70,000
Loss on sale of land in the Philippines held as capital asset with cost of
P1,500,000 when the zonal value is P1,200,000 500,000

34. Assuming the taxable year is 2017, how much is the total income tax expense of Ana?
a. P116,500 c. P159,500
b. P207,500 d. P156,000

35. Assuming the taxable year is 2018, how much is the total income tax expense of Ana?
a. P116,500 c. P159,500
b. P207,500 d. P156,000

Use the following data for the next eight (8) questions:
Juan, married, supporting his three (3) minor children had the following data for
The current taxable year (Exchange Rate $1 = P50)
Philippines Abroad
Business income P1,000,000 $20,000
Professional income 400,000 10,000
Salaries 200,000 -
Business and professional expenses 250,000 8,000
Income tax paid - 4,000

36. If Juan is a resident citizen and taxable year is 2017, his income tax payable is:
a. P434,000 c. P589,000
b. P570,500 d. P509,000

37. If Juan is a resident citizen and taxable year is 2018, his income tax payable is:
a. P434,000 c. P589,000
b. P570,500 d. P509,000
38. If he is a resident alien and the taxable year is 2017, his income tax payable is:
a. P360,580 c. P384,380
b. P358,020 d. P357,000

39.If he is a non-resident citizen and the taxable year is 2017, his income tax payable is:
a. P360,580 c. P384,380
b. P358,020 d. P357,000

40. If he is a non-resident citizen and the taxable year is 2018, his income tax payable is:
a. P295,000 c. P384,380
b. P358,020 d. P357,000

41.If he is a non-resident alien engaged inn trade or business in the Philippines but without the b1,enefit of Reciprocity
Law, the income tax payable assuming the taxable year is 2017 should be:
a. P397,000 c. P405,500
b. P378,500 d. P338,500

42. If he is a non-resident alien not engaged in trade or business, disregarding professional & business data, the total
income tax that should be withheld from his income is:
a. P50,000 c. P31,500
b. P18,500 d. P338,500

43. If he is a Special Alien Employee, disregarding professional and business data, the total income tax should be
withheld from his income assuming the taxable year is 2017 should be:
a. P18,500 c. P11,500
b. P30,000 d. None

44. Mr. and Mrs. Dela Cruz, both CPA’s and residents of the Philippines, with 5 minor children, had the following data for
taxable year 2015:
Salaries, wife P150,000
Bonus (13th month pay), wife 42,000
Professional Fees, (net of 10% withholding tax) 450,000
Expenses – Practice of profession (15% nondeductible) 120,000
Rental income (net of 5% withholding tax) 190,000
Rental expenses 80,000
Other income, husband (20% non-taxable) 80,000

The taxable income of Mr. Dela Cruz is:

a. P371,000 c. P266,000
b. P275,000 d. P234,000

45. The taxable income of Mr. Dela Cruz is:

a. P371,000 c. P419,000
b. P359,000 d. P410,000

SELF-EMPLOYED and/or PROFESSIONALS

Use the following data for the next four (4) questions:
Ana, a self-employed resident citizen provided the following data for 2018 taxable year:
Sales P2,800,000
Cost of Sales 1,125,000
Business Expenses 650,000
Interest income from peso bank deposit 80,000
Interest income from bank deposit under FCDS 120,000
Gain on sale of land in the Philippines held as capital asset
with cost of P1,500,000 when the zonal value is P1,200,000 500,000

46. How much is the total income tax expense of Ana for the year?
a. P321,500 c. P351,500
b. P342,500 d. P358,000

47. How much is the total income tax of Ana assuming she opted to be taxed at 8%?
a. P321,500 c. P351,500
 b. P342,500 d. P358,000

48. Assuming Ana is a vat-registered taxpayer, how much is her total income tax expense assuming she opted to be
taxed at 8% income tax rate?
a. P321,500 c. P351,500
b. P342,500 d. P358,000

49. Using the same data except that her gross sales for the year was P3,800,000, how much is her total income tax
expense assuming she opted to be taxed at 8% income tax rate?
a. P321,500 c. P351,500
b. P342,500 d. P652,000

50. Ana is a mixed income earner. She is a self-employed resident citizen and currently the Finance manager if Omega
Corporation. The following data were provided for 2018 taxable year:
Compensation income P1,800,000
Sales 2,800,000
Cost of Sales 1,125,000
Business Expenses 650,000
Interest income from peso bank deposit 80,000
Interest income from bank deposit under FCDS 120,000
Gain on sale of land in the Philippines held as capital asset with cost
of P1,500,000 when the zonal value is P1,200,000 500,000
How much is her total income tax expense assuming she opted to be taxed at 8%?
a. P321,500 c. P808,000
b. P788,500 d. P358,000