income taxation

I.

MULTIPLE CHOICE TEST (100x1)

1. It is the government’s duty to give taxpayers general advantages and protection in exchange for the contributions that they have made. Which principle of taxation is described in this situation? a. Benefit –received principle c.Fiscal adequacy b. Theoretical justice d. Life blood theory 2. Which of these is a fee imposed on the right to exercise a professional practice or privilege? a. Toll b. Tax c. License d. Tarif 3. This type of administrative tax remedy is used when the government seizes the personal property of a delinquent taxpayer to enforce payment of taxes. a. Levy b. Distraint c. Tax lien d. Forfeiture 4. In this type of administrative tax remedy, the taxpayer’s property is transferred to another without compensation or consent of the wrongdoer. a. Levy b. Distraint c. Tax lien d. Forfeiture 5. In a compromise, two parties agree to avoid litigation by reciprocal concessions. One party may demand compliance of the other party, who would then alter their demand to accommodate the compromise. a. Statement 1 and statement 2 are both correct. b. Statement 1 is correct while statement 2 is incorrect. c. Statement 1 is incorrect while statement 2 is correct. d. Statement 1 and statement 2 are both incorrect. 6. Which type of a situation allows compromise as a tax remedy? a. Criminal cases filed in a court b. The taxpayer’s financial position demonstrates an inability to pay tax c. Taxpayer commits tax fraud d. There is no reasonable doubt as to the validity of the claim against the taxpayer 7. Which of these is NOT a requirement for withholding tax? a. There must be an employer-employee relationship b. There must be wage payment for the services rendered c. There must be a payroll period d. Withholding exemption of the employee must be unknown 8. This type of withholding income is applicable for the compensation and passive incomes. a. Final tax c. Creditable tax b. Deductible tax d. Fiscal tax 9. In withholding tax, the employer must actually direct the work that the employee does. Withholding tax is applicable only for the full-time employees. a. Criminal cases filed in a court b. The taxpayer’s financial position demonstrates an inability to pay tax c.Taxpayer commits tax fraud d. There is no reasonable doubt as to the validity of the claim against the taxpayer 10. Which of the following best describes capital gains? a. It is the sale or exchange of shares of stock b. It is the interest on savings and time deposits. c. It is the income gained from a service rendered d. It is the amount received as winnings. 11. What is the main reason for setting up tax treaties? a. To enforce tax evasion c. To promote international trade b. To obtain business profits d. To discourage domestic laws. 12. Which of the following is a tax exclusion obtained from the proceeds paid to beneficiaries upon the death of an individual?

a. Retirement benefit b. Prizes and awards

c. Tax treaties d. Life insurance

13. Which of these is NOT and allowable deduction t the estate of a citizen or resident? a. Expenses from business b. Medical expenses less that P 500.00 incurred in a year prior to the death of the decedent c. Taxes d. Standard equivalent to P1M 14. A person is insolvent when his properties are not enough to pay his obligators. These claims will be paid out of the executor’s property. a. Statement 1 and statement 2 are both correct. b. Statement 1 is correct while statement 2 is incorrect. c. Statement 1 is incorrect while statement 2 is correct. d. Statement 1 and statement 2 are both incorrect. 15. Which of these is NOT required for casualty losses to be deducible? a. There must be a loss arising from fire, storms, or robbery b. The loss must not be compensated by insurance c. The loss has incurred not later than the last day for the payment of the estate tax d. The loss has been claimed as a deduction for income tax purposes 16. Which statement would best describe the vanishing deduction? a. It is a deduction for taxes previously claimed. b. It is a penalty due for a tax fraud c. It is an exclusion for indebtedness d. It is a deduction for property previously taxed. 17. Which type of ordinary customs duty is applicable for items that are charged based only on some standard of measurement? a. Specific c. Alternative b. Ad valorem d. Compound 18. Imported vehicles are charged with 5% of their market value price, plus P500 per metric ton. Which type of ordinary customs duty is to be paid n this example. a. Specific c. Alternative b. Ad valorem d. Compound 19. The Philippine charges taxes on products delivered from China in large quantities with abnormally low prices. What type of special custom duty does China pay? a. Countervailing duty c. Marking duty b. Anti-dumping duty d. Discriminatory duty 20. The make-up company L’Oreal failed to properly list all the chemicals in the delivery of cosmetic products to the Philippines. Which type of customs duty must L’Oreal pay? a. Countervailing duty c. Marking duty b. Anti-dumping duty d. Discriminatory duty 21. Which of these is NOT a characteristic of Value Added Tax? a. It is a uniform tax imposed on every c. It is an equal amount imposed on firms sale d. It is an indirect tax. b. It is a form of sales tax 22. Which of these business activities may be included under the optional registration? a. Sale of agricultural food products c. Lease of properties b. Publication of books d. Sales under international agreements 23. Which of these statements best describes a VAT-exempt sale? a. The sale of goods and services which are not subject to output tax b. The sale of goods and services which are not subject to input tax

c. The sale of agricultural goods and services d. The sale of domestic goods and services 24. If a person sells items that are VAT-exempt, he is required to pay VAT to the BIR. The seller of the VAT-exempt items may pass on the burden of the tax to the buyers. a. Statement 1 and statement 2 are both correct. b. Statement 1 is correct while statement 2 is incorrect. c. Statement 1 is incorrect while statement 2 is correct. d. Statement 1 and statement 2 are both incorrect. 25. Which of these is NOT a violation of VAT laws? a. Failure to issue receipts b. Failure to file VAT returns

c. Failure to pass VAT to buyers d. Failure to register under VAT

26. What do value added taxes and percentage taxes have in common? a. Both are taxes for individuals b. Both must be registered with bureau of customs c. Both are based on annual receipts less than P 1,500,000 d. Both are business taxes. 27. Percentage taxes cannot be passed on to the buyers. However, it is possible for the business to pass on value added tax to buyers. a. Statement 1 and statement 2 are both correct b. Statement 1 is correct while statement 2 is incorrect. c. Statement 1 is incorrect while statement 2 is correct d. Statement 1 and statement 2 are both incorrect 28. Which of these is NOT an excisable product? a. Automobil b. Tobacco es products

c.Imported goods

d. Alcohol products

29. This classification of excise tax can capture increases in the volume of production. a. Specific b. Ad c.Alternative tax d. Compoun tax valorem tax ded tax 30. In this classification of excise tax, only a shit in a product’s price can afect the excise tax imposed. a. Specific b. Ad c.Alternative tax d. Compoun tax valorem tax ded tax 31. Which of these items have compounded excise taxes? a. Cigars b. Mineral c.Wines products d. Jewelry 32. Which classification of excise tax is used for yachts and other vessels intended for pleasure or sports? a. Specific tax c.Alternative tax d. Compounded b. Ad valorem tax tax 33. Which is the main purpose of documentary stamp tax? a. To allow parties to form a contract c.To validate the authenticity of a document b. To nullify an existing contract d. To record transaction 34. The community tax is a form of residence tax used for documentation purposes. The community tax is also applicable to documents that are going to be used as evidence in court. a. Statement 1 and statement 2 are both correct b. Statement 1 is correct while statement 2 is incorrect c. Statement 1 is incorrect while statement 2 is correct. d. Statement 1 and statement 2 are both incorrect.

35. Which of these is NOT an example of a situation where community tax must be presented? a. An individual liable to tax acknowledges any document before a notary public b. And individual receives a license c. An individual takes an oath of office in government service d. An individual sells real property

II.

Problem Solving. Show your solutions 1. Ms. Elsa Delgado is a resident citizen of the Philippines, single, with no legal dependents. She earned an annual income of P 245,000 for the year 2014. She also the sole owner of a business that earned a depreciation expense of P 30,000. What is her income after tax? 2. Mr. Brad Dicarpio is a resident alien, married with two dependent kids. He and his wife agreed that any income tax deductions would be subtracted to his own income. What is his income after tax? For the year 2013, he earned: Income Income from business Compensation for injuries Retirement and benefits Business expenses Free legal services

Amount P275,000 P 10,000 P 10,000 P 35,000 P 25,000

3. Stark manufacturing is a foreign resident corporation that specializes in innovative technologies. What is the income after tax? For the year 2013, it earned: Income Amount Income from business P1,120,000 Business expenses P 200,000 Research and development expense P 60,000 Losses P 15,000 Bad debts P 25,000 4. Mr. Clark Kent, a resident citizen of the Philippines passed away and left his estate to his heirs. After valuation, it amounted to: For the year 2013, it earned: Income Amount Gross estate P4,500,000 War damage payments P 500,000 Transfers to Philippine government P 500,000 Fair market value of family home P 750,000 How much is the value of the estate after taxes? 5. Barako cofee shop is a Philippine corporation that has several locations within Metro Manila. For the year 2013, their sales and purchases amounted to: For the year 2013, it earned: Income Amount Gross sales P4,500,000 Purchases of raw materials P 500,000 Rent expense to VAT-registered businesses P 500,000 Salaries expense P 750,000 How much is the VAT payable?

III.

Essay

1. Explain the method of payment for the excise taxes. (5-10 sentences)

I. MULTIPLE CHOICE (1 point each, a total of 20 points) 1. A 2. C 3. B 4. D 5. B 6. B 7. D 8. A 9. D 10. A 11. C 12. D 13. A 14. B 15. C 16. D 17. A

18. B 19. B 20. C 21. C 22. A 23. A 24. D 25. C 26. D 27. C 28. C 29. A 30. B 31. A 32. B 33. C 34. B 35. D

II. Problem Solving (25 points) 1. Gross income Less: allowable deductions( itemized or optional) Net income Less: personal and additional exemptions Net taxable income Tax rate P 22,500 +( 25% of excess over 140,000 = P 6, 250) Income after tax

P 245,000 P 30,000 P215, 000 P 50,000 P 165,000

2. Gross income Less: allowable deductions Net income Less: personal and additional exemptions Net taxable income Tax rate: P 8,500 + (20% in excess of P 70,000) Income after tax

P P P P P

P 28,750 P 136,250 275, 000 70,000 205,000 100,000 105, 000 P 15, 500 P 89, 500

3. Income tax for corporation Gross income Less: itemized deductions or 10% standard deduction Taxable income Multiplied by: tax rate (30%) Income after tax

P 1,120,000 P 300,000 P 820,000 P 246,000 P 547,000

4. Item Gross estate Less: allowable deductions Net estate Less: exemptions Taxable Net Estate Multiplied by: Tax Rate (11% of excess over P2M) Estate Tax Payable Estate after tax ( gross estate less estate tax payable)

P 4, 500, 000 P 1, 250, 000 P 3, 250, 000 n/a P 3, 250, 000 P 137, 500 P 272, 500 P 4, 227, 500

5. Gross sales Multiplied by: 12%

P 2, 050, 000 0.12

Output tax

P 246, 000

Purchase of Goods/ Properties/ services Multiplied by: 12% Input tax

P 580, 000 .12 P 69, 600

Output tax Less: input tax VAT Payable

P 246, 000 69, 600 P 176, 400

II. Essay (5 points) Explain the method of payment for excise taxes. The excise tax on domestic goods shall be paid by the manufacturer or produce before the products are removed from the place of production. For imported products, the excise tax shall be paid by the owner, lessee, concessionaire or operator of the firm. Every person liable to pay excise tax shall file a separate return for each place of production. The excise tax return shall include a description and quantity of the goods to be removed, the applicable tax base and the tax amount due. The excise tax return is a document filed by the taxpayer that includes the taxpayer’s information and payment details. The excise tax return and its payment may b submitted to any authorized agent bank (AAB) of the place where the taxpayer is registered. In places where there are no AAB’s, the excise tax return and its payment will be submitted directly to the Revenue Collection Officer, or duly authorized City or Municipal Treasurer in the owner’s principal place of business. The business owner may also choose to pay through the electronic filing and payment system (eFPS)