General Principles of Taxation

GENERAL PRINCIPLES (1)

Which of the following statements is not correct?

a. Taxes may be imposed to raise revenues or to provide distinctive 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 tax in the Philippine Constitution are grants of power and not limitations on taxing powers. (2)

One of the characteristics of internal revenue laws is that they are:

a.

Criminal in nature;

b.

Penal in nature;

c.

Political in nature;

d.

Generally prospective in application.

(3)

One of the characteristics of our internal revenue laws is that they are:

a.

Political in nature;

b.

Penal in nature;

c. Generally prospective in operation although the tax statute may nevertheless operate retrospectively provided it is clearly the legislative intent; d.

Answer not given.

(4) In case of conflict between tax laws and generally accepted accounting principles (GAAP): a.

Both tax laws and GAAP shall be enforced;

b.

GAAP shall prevail over tax laws;

c.

Tax laws shall prevail over GAAP;

d. The issue shall be resolved by the Supreme Court as it is the one in charged for interpreting and clarifying provisions of laws.

(5) The following are similarities of the inherent power of taxation, eminent domain, and police power, except one: a.

Are necessary attributes of sovereignty;

b.

Interfere with private rights and property;

c.

Affect all persons or the public;

d.

Are legislative in implementation.

(6)

Which of the following is not an example of excise tax?

a.

Transfer tax;

b.

Sales tax;

c.

Real property tax;

d.

Income tax.

INHERENT POWERS (7)

Which of the following may not raise money for the government?

a.

Power of taxation;

b.

Power of eminent domain;

c.

Police power;

d.

Privatization of government’s sugar industry.

(8) In this power of the state, the person who is parting with his money or property is presumed to receive a benefit: a.

Taxation;

b.

Police power;

c.

Eminent domain;

d.

Forfeiture power.

(9)

Police power as distinguished from eminent domain:

a.

Just compensation is received by the owner of the property;

b.

May be exercised by the private individual;

c.

Superior to impairment clause of the constitution;

d.

Property is taken by the government for public purposes.

(10)Which statement refers to police power as distinguished from taxation? a.

It can only be imposed on specific properties.

b.

The amount imposed depends on whether the activity is useful or not.

c.

It involves the taking of property by the government;

d.

The amount imposed has no limit.

(11)The following are the similarities of the inherent power of taxation, eminent domain and police power, except one: a.

They are necessary attributes of sovereignty;

b.

They affect all persons or the public;

c.

They interfere with private rights and property;

d.

They are legislative in implementation.

BASIC PRINCIPLES OF TAXATION (12)As a basic principle of taxation, “taxes must be based on the taxpayer’s ability to pay” is called: a.

Equality in taxation;

b.

Ability to pay theory;

c.

Theoretical justice;

d.

Equity in taxation.

(13)Under this basic principle of sound tax system, the government must be sufficient and should not incur a deficit: a.

Theoretical justice;

b.

Fiscal adequacy;

c.

Administrative feasibility;

d.

Debt restructuring.

(14)What basic principle of a sound tax system is met when the Congress evolves a progressive system of taxation as mandated in the constitution? a.

Fiscal adequacy;

b.

Administrative feasibility;

c.

Theoretical justice;

d.

Balanced budget.

(15)Which of the following is not a basic principle of a sound tax system? a.

It should be capable of being effectively enforced;

b.

It must be a progressive tax;

c. It must be sufficient to meet government expenditures and other public needs; d.

It should be exercised to promote public welfare.

LIMITATIONS ON POWERS OF TAXATIONS (16)Which of the following has no power of taxation? a.

Provinces;

b.

Cities;

c.

Barangays;

d.

Barrios.

(17)A fundamental rule in taxation is that the property of one country may not be taxed by another country. This is known as: a.

International law;

b.

International comity;

c.

Reciprocity;

d.

International inhibition.

(18)There can be no tax unless there is a law imposing that tax is consistent with the doctrine principle of: a.

Uniformity in taxation;

b.

Due process of law;

c.

Non-delegation of power to tax;

d. The power of taxation is very broad and the only limitation is the sense of responsibility of the members of the legislature to their constituents.

DOUBLE TAXATION (19)Mrs. Napoles is the owner of various real estate properties in Baguio. These properties are for lease and yield rental income to Napoles. Every year, she pays value-added tax to the BIR. The city government of Baguio enacts an ordinance imposing tax on her a lessor tax in accordance with the schedule of amounts related to her gross rental income from the same real properties. First question: Does the local ordinance, constitute, in effect, double taxation? Answer: Yes, there is double taxation because there are two kinds of taxes levied on the same person for the same occupation or business.

Pork Barrel City enacts an ordinance which imposes an occupation tax upon owners of piggery farms. The validity of the ordinance is being challenged on the ground that it constitutes double taxation because the piggery farm is already subject to land use tax. Second question: Is the ordinance valid? Answer: Yes, because there are two different taxes involved, a tax on occupation and a tax on land. Hence, there is no double taxation. a.

Answer to 1st question is wrong, answer to 2nd question is correct;

b.

Answer to both questions are correct;

c.

Answers to both questions are wrong;

d.

Answer to 2nd question is wrong, answer to 1st question is correct

TAX AND OTHER CHARGES (20)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 is referred to as: a.

Taxes;

b.

Special assessment;

c.

License fees;

d.

Penalty.

(21)In case of deductions and exemptions on income tax returns, doubts shall be resolved:

a.

Liberally in favor of the tax payer;

b.

Strictly against the government;

c.

Liberally in favor of the employer;

d.

Strictly against the taxpayer.

(22)Which of the following terms describes the statement, “that the state has complete discretion on the amount to be imposed, after distinguishing between a useful or non-useful activity”? a. Tax duty

b. License fee

c. Toll

d. Customs

(23)Which statement is wrong? a.

A tax is a demand of sovereignty;

b.

A toll is a demand of ownership;

c.

A special assessment is a tax;

d.

Customs duty is a tax.

INCOME TAX PATTERNS (24)Who is not a Philippine income tax payer? a. A resident citizen of the Philippines with income from within and outside the Philippines; b. A resident citizen of the Philippines with income from within the Philippines only; c. A non-resident citizen of the Philippines with income from outside the Philippines only; d.

A non-citizen of the Philippines with income from within the Philippines only.

(25)Statement 1: A minimum wage earner with a fringe benefits not exceeding P30,000 is not a Philippine income tax payer. Statement 2: A minimum wage earner with fringe benefits exceeding P30,000 is a Philippine income tax payer on the excess of the benefits over P30,000 as well as on his wages. a.

Both statements are true;

b.

Both statements are false;

c.

The first statement is true, but the second statement is false;

d.

The first statement is false, but the second statement is true.

(26)If the tax payer is a resident citizen of the Philippines, which of the following is not subject to income tax? a.

Capital gain on sale of real property in the Philippines;

b.

Interest on the bank deposit in the Philippines;

c.

Rent income from property outside of the Philippines;

d. Capital gain on shares of stock of a domestic corporation sold through the Philippine Stocks Exchange. (27)The following, except one, may claim personal exemptions: a.

Non-resident alien not engaged in trade or business in the Philippines;

b.

Non-resident alien engaged in trade or business in the Philippines;

c.

Resident alien;

d.

Citizen.

(28)Which of the following BIR forms is used as a substitute filing for income tax returns (ITR) of employees? a.

1601C

b.

1604CF

c.

1701Q

d.

1701

e.

2316

(29)Which of the following BIR forms is used to file monthly taxes withheld on compensation? a.

1601C

b.

1604CF

c.

1701Q

d.

1701

e.

2316

(30)Which of the following BIR forms is used to give to employees as a substitute form for income tax returns (ITR)? a.

1601C

b.

1604CF

c.

1701Q

d.

1701

e.

2316

(31)Which of the following BIR forms is used for filing income tax returns for mixed income (compensation, business, and professional income)? a.

1601C

b.

1604CF

c.

1701Q

d.

1701

e.

2316

(32)May the purpose of a tax partly public and partly private without violating the limitation that a tax must be for public purpose? a. Yes. The purpose to be accomplished by taxation need not be exclusively public. Although private individuals are directly benefited (e.g. giving aids to victims of flood/typhoon), the tax will still be valid provided such benefit is only incidental. b. No. The purpose to be accomplished by taxation need to be exclusively public. To benefit private individuals will be tantamount to deprivation of property of those who paid the tax without due process. c. Yes. The purpose is not important as long as the use of the tax can be properly accounted for. d.

No. The purpose shall either be public of private. It cannot be both.

(33)One of the following is not a public purpose: a.

National defense

b.

Building churches common to all religions

c.

Improving sugar industry

d.

Retirement benefits of public officials

CORPORATE TAXATION (34)Hungry Shark corporation, in its third year of operations, had the following data: Gross Income, Philippines 2,000,000.00

P

Gross Income, foreign 1,000,000.00 Expenses, Philippines 1,000,000.00 Expenses, foreign 500,000.00

If the corporation is a domestic corporation, the taxable income is: (a)

P1,000,000

(b) P2,000,000 (c)

P500,000

(d) P1,500,000

(35)One of the following statements is not correct. Which is it? (a) For domestic corporations, the capital gain tax on sale of shares of stock are the same as the capital gain on such assets of resident citizens of the Philippines. (b) The final tax on interest on foreign currency deposit under the expanded foreign currency deposit system for domestic corporations is the same as that of resident citizens of the Philippines at seven and one-half percent (7 ½%) (c) Dividend received by a domestic corporation from a domestic corporation subject to tax is exempt from income tax of the corporation receiving the dividend. (d) Prizes exceeding P10,000 received by a domestic corporation is subject to a final tax of twenty percent (20%)

(36)Statement 1: The minimum corporate income tax of a trading or manufacturing concern is based on gross profit from sales. Statement 2: The minimum corporate income tax of a service concern is based on net revenues or receipts less direct costs of services. (a)

Both statements are true

(b) Both statements are false (c)

The first statement is true but the second statement is false

(d) The first statement is false but the second statement is true

(37)The following are true, except one. Which is exception: (a) A domestic corporation is subject to MCIT on gross income from within and outside the Philippines. (b) A resident corporation is subject to the MCIT on gross income from within the Philippines. (c)

A non-resident corporation is not subject to the MCIT

(d) The optional gross income tax (GIT) applies to domestic and resident corporations. (38)Which of the following statements is wrong? (a) The quarterly income tax of a corporation for any of the first, second or third quarters is filed, and the tax due is paid, within sixty (60) days after the close of the quarter. (b) The annual income tax return of a corporation is filed, and the tax due is paid on or before the fifteenth day of the fourth month following the close of the taxable year (c) There can be an income tax refundable in a quarterly income tax return of a corporation (d) There can be an income tax refundable in the final income tax return of a corporation

(39)One of the following statements is wrong. Identify. The improperly accumulated earnings tax imposed on corporations:

(a)

Is calculated to force corporations to pay-out dividends

(b) Is computed on the improperly accumulated income over several years (c)

Is based on the net income per books after the income tax

(d) Is based on a statutory formula for improperly accumulated income

(40)All, except one, of the following, are not subject to the improperly accumulated earnings tax (IAET). Which is the exception? (a)

Publicly-held corporations

(b) Banks and other financial intermediaries (c)

Insurance Companies

(d) Service Enterprises

(41)The following except one, give rise to the presumption that a corporation is improperly accumulating profits. Identify the exception: (a)

The corporation is mere holding company

(b) The corporation is an investment company (c) The corporation permits its profit to accumulate beyond the reasonable needs of the business (d) The corporation is a service enterprise (42)A mother corporation is abroad, with business in the Philippines through its branch in the Philippines. Which of the following statements is wrong? (a) In a year, the branch in the Philippines is subject to a profit remittance tax on its remittance of profits to the mother company abroad, even if the profits from which the remittance was made was a prior year’s profits. (b) The profit remittance tax is fifteen (15%) percent of the total amount or profit for remittance, as applied for with the bank. (c) The bank with which the application for remittance was filed would be the withholding agent of the Bureau of Internal Revenue

(d) Even activities registered with the Philippine Economic Zone Authority (PEZA), from the profits from which the remittance is applied for, will be subject to the profit remittance tax.

(43)Statement 1: A private educational institution is a special corporation subject to income tax on all its income at ten percent (10%) Statement 2: A private educational institution may be treated as an ordinary corporation subject to all the income tax rules on corporation. (a)

Both statements are true

(b) Both statements are false (c)

First statement is true but second statement is false

(d) First statement is false but second statement is true

(44)Statement 1: Corporations, agencies or instrumentalities owned or controlled by the government shall pay the income tax as their counterpart private corporations. Statement 2: The Government Service Insurance System and the Social Security System are subject to income tax. (a)

Both statements are true

(b) Both statements are false (c)

First statement is true but second statement is false

(d) First statement is false but second statement is true

(45)Corporations exempt from income tax are enumerated under Section 30 of the National Internal Revenue Code. Statement 1: They are not subject to income tax on income received which are incidental or necessarily connected with the purposes for which they were organized and are operating. Statement 2: They are subject to income tax on income of whatever kind and character from any of their properties, real or personal, or from any activity conducted for profit, regardless of the disposition of such income. (a)

Both statements are true

(b) Both statements are false (c)

First statement is true but second statement is false

(d) First statement is false but second statement is true

(46)Which of the following is treated as a corporation? (a)

General partnership in trade

(b) General professional partnership (c)

Joint venture or consortium for construction project

(d) Joint venture or consortium for engaging in energy operations under a service contract with the government. (47)Reasonable needs of the business is inconsistent with the concepts of IAET when: (a) The direct correlation of anticipated needs to the accumulation of profits is proved. (b) It is not necessary for the purpose of the business considering all the circumstances of the case (c) The “immediacy test” under the American jurisprudence is adopted in Philippine jurisdiction (d) Construed as immediate needs of the business including reasonable anticipated needs (48)For purposes of determining the Improperly Accumulated Taxable Income for a taxable year, the following, except one, are added to that year’s taxable income. Which one? (a)

Income exempt from tax

(b) Income excluded from gross income (c)

Income subject to final withholding tax

(d) The amount of net operating loss carry-over (NOLCO)

(49)For purposes of determining the Improperly Accumulated Taxable Income for a taxable year, the following except one, are reduced from that year’s taxable income after appropriately adding certain items. Which one? (a)

10% improperly accumulated earnings tax

(b) Income tax paid/ payable for the taxable year (c)

Dividends actually or constructively paid/ issued

(d) Amount reserved for the reasonable needs of the business

(50)Which of the following is not true? (a) For purposes of the MCIT, the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the BIR. (b) Firms which were registered with BIR in 1994 and earlier years shall be covered by the MCIT beginning January 1, 1998. (c) Firms which were registered with the BIR in any month in 1998 shall be covered by the MCIT in 2002 after the lapse of three (3) calendar years from 1998. (d) None of the above

(51)The MCIT applies to which of the following domestic corporations? (a)

Proprietary Educational Institutions

(b) Non-profit Hospitals (c) Depository banks under the Expanded Foreign Currency Deposit System (FCDS) on income from foreign currency transactions with the local commercial banks. (d) Firms that are taxed under a special income tax regime (e) All of the above (f)

None of the above

(52)Which of the following need not be deducted from gross sales to arrive at gross income for purposes of computing MCIT of a merchandising/ manufacturing concern? (a)

Sales returns and allowances

(b) Sales discounts (c)

Cost of sales

(d) None of the above

(53)Which of the following need not be deducted from gross sales to arrive at gross income for purposes of computing MCIT of a service concern? (a)

Sales returns and allowances

(b) Sales discounts (c)

Cost of sales

(d) None of the above

(54)Which of the following need not be deducted from gross sales to arrive at gross income for purposes of computing OCIT or GIT of a merchandising/ manufacturing concern? (a)

Sales returns and allowances

(b) Sales discounts (c)

Cost of sales

(d) None of the above

(55)Which of the following need not be deducted from gross sales to arrive at gross income for purposes of computing OCIT or GIT of a service concern? (a)

Sales returns and allowances

(b) Sales discounts (c)

Cost of sales

(d) None of the above

(56)A PEZA-registered enterprise has a “registered” and an “unregistered” activity. The MCIT shall apply to the: (a)

Registered activity

(b) Unregistered activity (c)

Both activities

(d) Neither registered nor unregistered activity

(57)The minimum corporate income tax of a domestic or resident corporation is: (a)

15% of gross income

(b) 2% of gross sales (c)

2% of gross income

(d) 2% of gross income for Domestic Corporations while Resident Foreign Corporations are exempted from MCIT computation. (58)A tax imposed whether a corporation has zero or negative taxable income or whenever the minimum income tax is greater than the normal income tax due from such corporation: (a)

Improperly accumulated earnings tax (IAET)

(b) Optional Corporate Income Tax (OCIT) (c)

Capital Gains Tax (CGT)

(d) Minimum Corporate Income Tax (MCIT)

(59)A corporation which was registered with the Bureau of Internal Revenue in May 2007 shall be covered by MCIT in: (a) 2008 (d) 2011

(b) 2009

(c) 2010

(60)The BIR form used by corporations to file quarterly income tax returns:

(a) 1702 (d) 2550Q

(b) 1702Q

(c) 2550