TRUE OR FALSE 1. The three fundamental powers of the state may be exercise only by the government. 2, Taxation is a process or means by which the sovereign, through its law making body raises income to defray the expenses of the government. 3. Eminent domain may be exercise even by public service corporations and public entities. 4. Police power regulates both liberty and property. 5. Taxes are raised to cover the cost of governance. 6. Toll is one of the taxes collected by the government. 7. License fees are imposed in the exercise of police power. 8. License fee is imposed to raise revenue. 9. Tax is generally unlimited because it is based on the needs of the State, 10. The amount imposed in the exercise of police power depends on whether the activity is useful or not. 11. The distinction of a tax from permit or license fee is that a tax is one in which there is generally no limit on the amount that may be imposed. 12. Debt, as distinguished from tax, may be paid in kind, 13. Under the equal protection clause of the constitution, all persons subject to legislation shall be treated alike under dissimilar circumstances and conditions, both in the privileges conferred and liabilities imposed. 14. Tax laws are civil and penal in nature because there are penalties provided in the case of violation. 1. Special assessment is a tax. 16. Special assessment is imposed on persons, property and property rights. 417. The Philippine government may subject the land where embassies of foreign governments are located to real property taxes. 18. A revenue bill may originate from the Senate and on which same bil the House of Representatives may propose amendments. 4219. 20. a 22. 23, 24. 25. 26. 27. 28. 29. 30. Chap * Evereises ~ Principles A person may refuse to pay on the ground that he will not receive a benefit from the tax. In the exercise of the power of taxation, the State can tax anything at any time. In cases of deductions and exemptions, doubts shall be resolved liberally in favor of the government. Lewying of local government taxes should be exercise only by the legislative branch of the local government The taxing power of provinces, municipalities and cities precede from a constitutional grant. Taxation is regressive when their rate goes up depending on the resources of the person affected. No law granting any tax exemption shall be passed without the concurrence of 2/3 of all members of Congress. There is no constitutional prohibition against double taxation in the Philippines. It is something not favored, but nevertheless permissible. “Global system of income taxation” means separate graduated rates are imposed on different types of income. One of the schemes of shifting the incidence of tax burden is by transferring the sales tax of a manufacturer to the distributor, then in turn to the wholesaler, to the retailer and finally to the consumer. Transformation is a method by which the manufacturer or producer upon whom the tax is imposed pays the tax and strives to recover such expense through lower production cost without sacrificing the quality of his product. In case of ambiguity, tax laws shall be interpreted liberally in favor of the government. MULTIPLE CHOICE Definit 1. n, Purpose, Theory and Basi Which of the following statements is incorrect? a. Taxes are the revenues raised in the exercise of the police power of the State. b. One of the special characteristic of tax is it is: unlimited in amount. c. The three fundamental powers of the State are Inherent in the State and may be exercised without the need of any constitutional grant. d. Allof the above 4310, 1. c ‘Mapter Lovercises Princip Which theory in taxation states that without taxes, a government would be paralyzed for lack of power to activate ‘and operate it, resulting in its destruction? . ‘a, Power to destroy theory b. Lifeblood theory cc, Sumptuary theory d. Symbiotic doctrine On theoretical basis of taxation, which of the following statements is true? 3. People pay taxes which their government uses to expand its powers and territorial domination. b. People demand from their government certain responsibilities and then provide this government with the means to carry them out. ¢. State needs taxation to exist, while people must support taxation because they need the presence of the state. d. “b” and “c” Incidence of taxation means a. Shifting of tax c. Payment of tax b. Refunds of tax d. Imposition of tax The actual effort exerted by the government to effect the exaction of what is due from the taxpayer is known as a. Assessment. b. Levy. c. Payment. d. Collection. Statement 1; Symbiotic relation is the reason why the government would impose taxes on the income of resident citizens derived from sources outside the Philippines. Statement 2; Jurisdiction is the reason why citizens must provide support to the state so the latter could continue to give protection a. Only statement 1 is correct b. Only statement 2 is correct ¢. Both statements are correct d. Both statements are incorrect ‘A law was passed by Congress which granted tax amnesty to those who have not paid income taxes for a certain year and at the same time providing for the refund of taxes to those who have already paid thom. The law is: a. Valid because there is a valid classification. 45Chaser Exersvs ~ Princple b Not valid because those who did not pay their taxes are favored over those who have paid their taxes. | © Valid because it was Congress that passed the law and it did not improperly delegate the power to tax. d Not valid because only the President with the approval of Congress may grant amnesty. 12 Congress passed a new law imposing taxes on income earned out of porticular activity that was not previously taxed. The law, however, taxed incomes already earned within the fiscal year when the law took effect. 1s the law valid? ® No, because the laws are intended to be prospective, not retroactive. >. No, the law is arbitrary in that it taxes income that has already been spent ©. Yes, since the tax laws are the lifeblood of the government. d. Yes, tax laws are an exception; they can be given retroactive effect. 18. Due to an uncertainty whether or not a new tax law is applicable to printing companies, ABC Printers submitted a legal query to the BIR on that issue. The BIR issued a ruling that printing companies are not covered by the new law. Relying on this ruling, ABC Printers did not ay the said tax. Subsequently however, the BIR reversed the ruling and issued a new one stating that the tax covers printing companies. Could the BIR assess ABC Printers for back taxes corresponding to the years before the new ruling? a. Yes, because taxation is the rule and exemption is the exception b. Yes, because taxes are the lifeblood of the government c. No, the BIR is not allowed to reverse its ruling d. No, reversal of a ruling shall not be given a retroactive application if it will be prejudicial to the taxpayer Use the following data for the next two questions: The Constitution requires that all revenue bills shall originate “exclusively” from the House of Representatives. Assume that in 2014, Congressman Uro proposed an expansion of the coverage of the value added tax to be known as ¢-vat law, The proposed bill was approved by the House of Representatives later that year. However, the EVAT version of the Senate became the EVAT law. 14, Which of the following statements will justify the enacted EVAT law? |. The Constitution simply means that the initiative for filing revenue, tariff or tax bills must come from the House of Representatives on 46Ohupter Eercves Principle the theory that, elected as they are from the districts, the Members of the House can be expected to be more sensitive to the local needs and problems. Wit is not the law but the revenue bill which is required by the Constitution to “originate exclusively” in the House of Representatives because a bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole, and a distinct bill may be produced. a. lonly ¢. Both | and Il b. Honly d. Neither | nor II 48. Assuming Senator Bobadilla filed in the Senate a substitute e-vat bill “in anticipation” of its receipt of the bill from the House. The proposal is totally different from the version of the lower house. Which of the following statements will justify the filing of a substitute. bill by Honorable Senator Bobadilla? [To insist that a revenue statute not only the bill which initiated the legislative process culminating in the enactment of the law - must substantially be the same as the House bill would be to deny the Senate's power not only to “concur with amendments” but also to “propose amendment.” iit would be to violate the coequality of legislative power of the two houses of Congress and in fact make the House superior to the Senate. Given the power of the Senate to propose amendments, it can propose its own version even with respect to bills which are required by the Constitution to originate in the House. liLFiling in the Senate of a substitute bill in anticipation of its receipt of the bill from the House is not prohibited under the Constitution, so long as the action by the Senate as a body is withheld pending receipt of the House bill. a. lonly c.1, Hand Ill b. Honly d. None of the above 16. Being legislative in nature, the power to tax may not be delegated, except: a. To local governments or political subdivisions b. When allowed by the Constitution ©. When delegation relates merely to administrative implementation that may call for some degree of discretionary powers under a set of sufficient standards expressed by law or implied from the policy and purpose of the Act. d. All of the choices ATChapt Exurcias ~ Principle Scope and Aspect of Taxation 17. Statement 1: The aspects of taxation are shared by the legislative and executive branches of the government. Statement 2: Taxes should be prospective and should not be given retroactive effect because they are burdens. ‘a, Only statement 4 is correct b, Only statement 2 is correct ¢, Both statements are correct d. Both statements are incorrect 4g, The power of taxation is basically legislative in character. Which of the following is a legislative function? A B c D + Fix with certainty the amount Yes No Yes Yes of tax + Identify who should collect Yes Yes No Yes the tax + Determine who should be Yes Yes Yes No ‘subject to tax 19, As to scope of legislative power to tax, which of the following is correct?” a, The power to tax is supreme, plenary, comprehensive and without any limit because the existence of the government is a necessity, b. The discretion of Congress in imposing taxes extends to the mode, method and kind of tax, even if the constitution provides otherwise. c. Congress has the right to levy a tax of any kind at any amount as it sees fit, even in the absence of any constitutional provision. d. The sole arbiter of the purpose for 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. 20. The following are the aspects of taxation 1- Levy or imposition of the tax on persons, property or excises {I~ Collection of taxes already levied Ill Sufficiency of governments sources to satisfy its expenditure a, | land Ill ©. Land Ill only b, Land Il only d. Hand Ill only 48Chapler Eeersives Prine le 21. Which of the following is incorrect? Leoi snistreah a. Selecting the kind of tax eomive —Adminiatratve b. Fixing amount of tax Yes No c. Prescribing rules of Yes No taxation d. Assessment of tax liability Yes No 22. Which of the following is correct? Legislative Administrative a. Fixing of tax rates Yes Yes b. Valuation of object of tax Yes No c. Collection of tax Yes No 4. Assessment of tax lia No Yes Inherent Powers of the State 23, Statement 1; Inherent powers of the State exist independent of the constitution. Statement 2: The taxing power of the local government units precede from a constitutional grant. ‘a. Statements 1 & 2 are false b. Statement 1 is true but statement 2 is false c. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 24. The following are the characteristics of the State's power to tax, except ‘a. The strongest of all inherent powers of the State b. Involves power to destroy ¢. Both ‘a’ and “t d. Neither “a” nor “b” 25. Levying of local government taxes may be exercised by: a. The local executive only b. The legislative branch of the local government only c. The local executive and the legislative branch of the local government unit 4d. Neither the local executive nor the legislative branch of the local government can exercise the power. 26, Where does taxing power of the provinces, municipalities and cities precede from? a. Constitutional grant b. Legislative enactment 49Chepter Exvercises — Pri ciples c. Presidential decree or Executive act 4. Local legislation 27. Statement 1: Eminent domain may raise money for the government. Statement 2: Barrios, barangays, municipalities/cities and provinces may collect taxes from its inhabitants. a. Statements 1 & 2 are false b. Statement 1 is true but statement 2 is false c. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true Nature, Characteristics and Construction of Tax Laws 28. The following are the nature of taxation, except a. Inherent and sovereignty b. Essentially a legislative function c. Subject to inherent and constitutional limitation 4d. Subject to the approval of the people 29. “The power to tax involves power to destroy’ means: a. The power to tax is viewed as the power to destroy in the sense that a lawful tax cannot be defeated just because its exercise would be destructive or would bring about insolvency toa taxpayer. b. The principle implies that an imposition of lawful regulatory taxes would be destructive to the taxpayers and business establishments because the government can compel payment of tax and forfeiture of property through the exercise of police power. c. Both “a” and *b" d. Neither “a” nor "b" 30. There can be no tax unless there is a law imposing the tax is consistent with the doctrine of a, Uniformity in taxation b. Due process of law ¢, Non-delegation of the power of tax d. Allof the above 31. “The tax should be based on taxpayer's ability to pay’. In relation to this, which of the following is not correct? a. No person shall be imprisoned for non-payment of tax b. Agraduated tax table is in consonance with this statement c. Asa theory of taxation, this is called “ability to pay theory” 50Chipter Beers ~ Principle 4d. As a basic principle of taxation, this is called “theoretical justice” 32. Rule of 'No estoppel against the government” means: a. Rule of law that in the performance of its governmental functions, the state cannot be estopped by the neglect of its agents and officers, b, The government is not estopped by the mistakes or errors of its agents; erroneous application and enforcement of law by public officers do not block the subsequent correct application of statutes. c. Botha and b 4d. Neither a or b 33, Progressivity of taxation is also mandated in the Constitution Statement 1: Our income tax system is one good example of such progressivity because it is built on the principle of the taxpayer's ability to pay. Statement 2: Taxation is progressive when their rate goes up depending on the resources of the person affected a. Statements 1 & 2 are false b. Statement 1 is true but statement 2 is false c. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 34. One of the characteristics of our intemal 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 4d. Criminal in nature 35. Which of the following distinguishes tax from license fee a, Non-payment does not necessarily render the business illegal b. Aregulatory measure c. Imposed in the exercise of police power d. Limited to cover cost of regulation 36, The least source of tax laws: a. Statutes c. Revenue regulations b. Presidential decrees d. Tax treaties or conventions 51Chapter Exercises ~ Principles 37. Stalement 1: A revenue regulation must not be contrary to the provision of the law that it implement Statement 2; A revenue regulation cannot expand the provision of the law that it implements by imposing a penalty when the law that authorizes the revenue regulation does not impose a penalty. a. Statements 1 & 2 are false b. Statement 1 is true but statement 2 is false c. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 38. In every case of doubt, tax statutes are construed a. Strictly against the government and the taxpayer b. Liberally in favor of the government and the taxpayer c. Strictly against the government and liberally in favor of the taxpayer d. Liberally in favor of the government and strictly against the tax payer 39. In every case of doubt, fax exemption are construed a. Strictly against the government and the taxpayer b._ Liberally in favor of the government and the taxpayer c. Strictly against the government and liberally in favor of the taxpayer 4. Liberally in favor of the government and strictly against the taxpayer 40. Which of the following statements is correct? 1. A tax cannot be imposed without clear and express'words for that purpose. Il. The provisions of a taxing act are not to be extended by implication. Ill, If the law is repealed, taxes assessed before repeal of the law may no longer be collected IV, Tax law is ex post facto in application. a, land Il only c. Allof the above b. Ill and IV only d. None of the above 41. Which of the following factors are determinants to the “Situs” of taxation? |. Nature, kind, or classification of the tax being imposed. Il. Subject matter of the tax (person, property, rights or activity) II Citizenship of the taxpayer IV. Residence of the taxpayer V. Place of the excise, privilege, business or occupation 522 43 44 48. Chaster Evercises — Princ 4 d Vi. Source of the income subject to tax ‘a. Land I only c. Il, Vand VI only b. IIL IV, Vand Vi only d. 1,1, ML, IV, V and Vi a specified territory without regards to their property or occupation they may be engage a. Personal, poll or capitation tax c. Excise tax b. Property d. Regressive Tax of a fix amount imposed among all persons residing wit Tax of fixed proportion of the amount or value of the property with respect to which the tax assessed a. Ad-valorem c. Excise b. Specific d. Revenue Tax base on a fix percentage of the amount of property, income or other basis to be taxed a. Progressive c, Regressive b. Proportional d. Indirect Which of the following is a characteristic of taxation which distinguishes it from police power and eminent domain? ‘a. For public purposes b. Legislative in nature c. Generally payable in money d._ Inferior to non-impairment clause in the Constitution Sound Tax System 46. 47, The following are basic principles of sound tax system |. It should be capable of being effectively enforced il, Itmust be progressive lll. Sources of revenue must be sufficient to meet government expenditures and other public needs IV. Itshould be exercised to promote public welfare a. land Il only c. |, Wand Ill only b. Il and IV only d. All of the above The sources of revenue should be sufficient to meet the demands of public expenditures. This refers to a. Equality or theoretical justice b. Fiscal adequacy c. Administrative feasibility d. Rule of apportionment 53Chaser Egervises — Principle / 49. Tho tax should be imposed proportionate to the taxpayer ability to pay Equality or theoretical justice b- Fiscal adequacy Administrative feasibility Rule of apportionment 49 The tax law must be capable of convenient just and effective administration 1 Equality or theoretical justice b. Fiscal adequacy Administrative feasibility 4. Rule of apportionment id Constitutional Limitations Statement 1 Inherent limitations are the natural restrictions to safeguard and ensure that the power of taxation shall be exercised by the government only for the betterment of the people whose interest should be served, enhanced and protected. Siatoment 2: Constitutional limitations are provisions of the fundamental |aw of the land that restrict the supreme, plenary, unlimited and comprehensive exercised by the State of its inherent power to tax. ‘a. Statements 1 & 2 are false b. Statement 1 is true but statement 2 is false c. Statement 1 is false but statement 2 is true 4. Statements 1 and 2 are true 51. “Equality in taxation” means: |. Progressive system of taxation shall be applied. i The tax laws and their application must be fair, just, reasonable and proportionate to one’s ability to pay. lil, The tax laws shall give emphasis on direct rather than indirect taxes or on the ability-to-pay principle of taxation. a. lonly c. Ilonly b. Monly d. 1, land Il 52. Which of the following statements correctly described “Equal protection” clause of the Constitution regarding the government's power to tax? 1. All persons subject to legislation shall be treated alike under dissimilar circumstances and conditions, both in the privileges conferred and liabilities imposed. il. The purpose is to protect persons belonging to the same class against intentional and arbitrary discrimination. 54Chapter Exercises ~ Pringle I. There is denial of equal protection of laws if there is discrimination in the implementation of tax laws. a, Land Il only ©. Mand Ill only b, Land Ill only d. I, land iit 53. Which of the following restrictions on the power of taxation recognizes that the country’s tax laws shall not be applied to the property of foreign government? ‘a. Taxation is inherently a legislative function b. Exercise of taxation is subject to international comity c. Due process of law d. Equal protection of law 54. This is an inherent limitation on the power of taxation. ‘a. The rule on taxation shall be uniform and equitable b. No law impairing the obligations of contracts shall be enacted c. Charitable institutions, churches, personages or convents appurtenants thereto, mosque and non-profits cemeteries and all kinds of lands, buildings and improvements actually, directly and exclusively used for religious or charitable purposes shall be exempt from taxation dé. The tax laws cannot apply to the property of foreign governments Exemption versus Amnest} 55. Exemption from tax is a privilege, which is being looked upon by law with disfavor because everyone should be sharing the burden of taxation. On account of this view, exemption from tax is construed strictly against the taxpayer, except in certain situation like: a. Exemption is granted to the impoverished sector in certain situation b. Exemption relates to a public official . Exemption refers to a public property d. Allof the above. 56. Tax exemption is made different from tax amnesty: a. Itis a privilege or freedom from tax burden; b. It allows immunity from all criminal, civil and administrative liabilities arising from non-payment of taxes; c. Amount foregone by the government is substantial; 4. {tapplies to all past, present and future tax obligations. 55c chapter u 7. Stotement Tax exemption applies only to government entities, that exorcise proprietary functions. ‘Statement 2. All government entities regardless of their functions are exempted from taxes because it would be impractical for the government to be taxing itself a Statements 1 & 2 are false b Statement 1 is true but statement 2 is false © Statement 1 is false but statement 2 is true Statements 1 and 2 are true y es — Pr cif ‘es 58 Which of the following statements correctly described the tax exemption of the government? | The State cannot be taxed without its consent, otherwise, such is derogation to its sovereignty. ‘i. Tax exemption applies only to government entities through which the government immediately and directly exercises its governmental functions like the Department of Justice, Department of Foreign Affairs, Philippine National Police, and the like. \\l Government agencies performing governmental functions are exempt from tax unless expressly taxed, while those performing proprietary functions are subject to tax unless expressly exempted a. lonly c. Monly b. only d. I, lland il Tax Avoidance/ Double Taxation 59 Which of the following is to be regarded as tax minimization through legal means? a. Not declaring all taxable income b. Padding of expenses for deduction from income c. Opting to transfer the property through sale rather than through donation where tax liability would be higher d. Allof the above 60. Which of the following is correct? a, Tax avoidance, or tax minimization, through legal means, is ‘not punishable by law. b. Deliberate reduction of taxable income that has been received is an example of tax avoidance. ¢. Evasion of the tax takes place only when there are no proceeds on the part of the government. d. All of the above 56= Caaster bvercises — Prin Y u Statement 1 An attempt to minimize one's tax constitute fraud, taxpayer May diminish his liability by any means, which the law 7 Statement 2 To avoid is legal but to evade is illegal. The legal rights +1 4 taxpayer to decrease the amount of what otherwise would be his taxes, altogether avoid them, by means which the law permits, cannot be doubted ments 1 & 2 are false Statement 1 is true but statement 2 is false ment 1 is false but statement 2 is true Statements 1 and 2 are true of the following is an element of double taxation? Same kind of tax Same subject matter | Same taxable period \v. Same taxing authority a. | and I only c. All of the above |. tland Ill only d. None of the above Oouble taxation in its general sense means taxing the same subject ‘wice during the same taxing period. In this sense, double taxation a Violates substantive due process. ©. Does not violate substantive due process. c Violates the right to equal protection. 4. Does not violate the right to equal protection. 4 Statement 1: There can be double taxation where the state merely imposes tax on every separate and distinct business in which a person 1s engaged. Statement 2. There is no objectionable double taxation if the tenements in the city are subjects to real estate tax while the business of loasing said property are also subject to real dealer's tax. a Statements 1 & 2 are false b. Statement 1 is true but statement 2 is false ¢ Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true © Ligaya Educational Foundation, Inc., a stock educational institution organized for profit, decided to lease for commercial use a 1,500 sq. ‘portion of its school. The school actually, directly, and exclusively used the rents for the maintenance of its schoo! buildings, including payment of janitorial services. Is the leased portion subject to real property tax? 3 Yes, since Ligaya is a stock and for profit educational institution. 57Chapter Exeereises ~ Principles b. No, since the school actually, directly, and exclusively used the rents for educational purposes. No, but it may be subject to income taxation on the rents it receives. Yes, since the leased portion is not actually, directly, and exclusively used for educational purposes. 58Classification of Taxpayers 2-1, Determine the correct classification of the following individual taxpayers: |. Manny, a Filipino businessman, went on a business trip abroad and stayed there most of the time during the year. Kyla, a Filipino professional singer, held a series of concerts in various countries around the world during the current taxable year. She stayed abroad most of the time during the year. Efren, a Filipino “cue” artist went to Canada during the taxable year to train and participate in the world cup of pool. He stayed there most of the time during the year. Mr. Almansor Sebastian, an Iranian and a resident of Tehran, Iran stayed in the Philippines from July 1-15, 2018 to watch the 2018 FIBA ‘Asia World Cup Qualifier held in MOA. During his stay, he bought equity investments from Alpha and Delta Corporations (domestic corporations). He likewise invested in a mutual fund of Banko de Isla de Pilipinas, a local bank. 5, Due to his expertise, Engr. Pedro D. Magiba (a freelancer) was hired by a foreign petroleum contractor in Thailand to provide technical assistance for two months from February to March. He was hired again for the months of June-July and October-December of the same taxable year. 6. In October 2018, Mr. Bald Nha, an American basketball coach was hired as a team consultant by one of the teams in the Philippine Basketball Association (PBA) for one conference which will last for a period of not more than three (3) months from October to December 2018. His coming to the Philippines was for a definite purpose. However, he was subsequently chosen to coach Gilas, the Philippine’s national basketball team and lead the country's campaign for the upcoming FIBA World Cup Qualifying Tournament to be held in Manila in July 2019, The American mentor intends to leave the Philippines as soon as his job is finished. 123Chapter Exercises Iudevidea 7 Determination of Income Tax Due/Payable 2-3. |. Pedro ts a resident citizen, earning purely compensation income as follows for the taxable year a, 200,000 b. P250,000 c P800,000 d. P2,800,000 Juan is a resident citizen, earning purely business income for the taxable year: Gross sales 2,800,000 Cost of sales 1,200,000 Operating expenses 650,000 Creditable withholding taxes 80,000 Use the same data in #2 but assume that Juan opted to be taxed using 8% income tax rate. 4. Juan is a resident citizen, eaming purely business income for 2020 taxable year: Gross sales 2,800,000 Cost of sales 1,200,000 Operating expenses 650,000 Rental income (net of CWT) 380,000 Other creditable withholding taxes 80,000 Can Juan choose to be taxed at 8% instead of the graduated income tax rate in #4? If yes, how much is his income tax payable for the year? a 6. Ana is a practicing professional with the following data for 2020 taxable year: Gross receipts P4,000,000 Cost of direct services 1,800,000 Other operating expenses 825,000 ‘Can Ana choose to be taxed at 8% instead of the graduated income tax rate in #6? If yes, how much is her income tax payable for the year? 126ypter Evervises Individe g, Lora is a resident citizen, earning compensation and business income for 2020 as follows: Compensation income 1,400,000 Gross sales 2,800,000 Cost of sales 1,200,000 Operating expenses 650,000 Withholding tax on compensation income 310,000 Other Creditable withholding taxes 80,000 9. Can Lorna choose to be taxed at 8% instead of the graduated income tax rate in #8? If yes, how much is her total income tax payable for the year? Computation of Basie Income Tax, Final Tax on Passive Income and Capital Gains Tax 2.4, Cu, single, had the following data for 2020 taxable year: Gross business income, Philippines 1,000,000 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 foreign corporation 40,000 Interest income from peso bank deposit- 20,000 Philippines 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 425,000 income REQUIRED: 10, Determine the following assuming the taxpayer is a resident citizen: Taxable net income Income tax payable Total final taxes on passive income Total income tax expense aese 127Crater burcives Irdiridnale 11. Determine the following assuming the taxpayer 1s a nonresident cihzen a Taxable net income b Income tax payable Total final taxes on passive income d Total income tax expense Determine the folowing assuming the taxpayer is a resident alien. a Taxable net income b Income tax cayabie ¢. Total final taxes on passive income ne tax exo: payable on pas: tax expense income tho total income taxes of the taxpayer assuming the tuspayer a convesident alien not engaged in trade or business (ignom business income, business expenses and creditable withholding taxes on business incame in the Philippines) 14 Determ A practicing professional, single, with his parents living and dependent upon him, revealed the following data for 2020 taxable Income From Philippines Abroad Income trom employment P 180,000 280,000 Buwness income 850,000, 960,000 Deductbie business expenses . 610,000 730,000 interest income on personal loans: 6,000 3,000 Interest income on bank deposits 10,800 4,200 Interest income on money market placements 7,500 1,600 Dividend income from domestic corp, 5,700 . Dividend income from foreign corp 6,800 2,000 Royalty come 90,000 50,000, Winnings! prizes from lottenes, rattle draws 45,000 16,900 Prizes from singing contest 5,600 : Lotto winnings 150,000 50,000 Royalty income from sate of books 68,000 : 128Coaster b vercises — Fudivadua ADDITIONAL DATA «Jy February. the taxpayer bought a lot deemed as capital asset The acquisition cost was P8A0.000 He tater sold the lot in December for 1,060,000 «in September, the taxpayer sold his 560 shares of stock of Ayala jwestment Comoraton held by hin as capital asset, thr a local oc exchange The cost was P36,900 whereas the sales price 54,000, «jp Getober, the taxpayer sold for P820,000 his house and lot located i) Makati, held as capital asset (not his principal joswence) The fair market value on the date of sale was P950,000 and the acquisition cost was P475,000. ipetermine the following assuming the taxpayer is a resident citizen: Taxable net income Income tax payable © Finat tax on passive income apital gains tax » Determine the following assuming the taxpayer is a non-resident enizen: a. Taxable net income Income tax payable Final tax on passive income: 4 Capital gains tax + Determine the following assuming the taxpayer is a NRA-ETB © Taxable net income Income tax payable Final tax on passive income 4. Capital gains tax O° 129Income Taxos of Spouses 1 Evervises —Individea 2-6, Mr and Mrs De Leon, residents of Quezon City with three (3) qualified dependont chvidron, provided the following data for 2020 taxable year + Compensation income + Personal and family expenses (including premium payment for ile and fire insurance of P2,000 each) «Premium payment for + Income from trading business s0s from trading business REQUIRED Husband Wife Husband & Wite 850,000 650,000 30,000 20,000 5,000 5,000 800,000 320,000 250,000 100,000, 3 Determine the taxable income of Mr. De Leon Determine the taxable income of Mrs. De Leon © Determine the consolidated income tax payable of Mr. and Mrs. De Leon 2-7, Danvel, married to Kat, is a citizen and resident of the Philippines. The parents of the couple are also living with the spouses for chief support. They had the following data for 2020 taxable year: Gross income from business Gross income from profession, net of P40,000 CWT Rental income, net Dividend income: from domestic corporation {rom resident corporation {rom nonresident corporation Interest income on notes receivable Interest on Philippine bank deposit, net interest on Phil bank deposit under FCDU Interest on bank deposit abroad Jniterest income on long-term bank deposit Interest on government bonds Royalty income-iterary works, DANIEL KAT DANIEL&KAT 600,000, - > = P360,000 : 190,000 40,000 . . = 20,000 . 10,000 6,000 4,000 2,000 3,200 2.400 8,000 4,000 4,000 2,000 5,000 5,000 5,000 20,000 10,000 : 10,000 : : 130mse ~ Iudividrale Royalty income (other than literary works) Capital gain on Sale directly to buyer at P550,000 me of shares of domestic corporation. 150,000 a . Capital gain on sale directly to a buyer of land held 500,000 as investment in Quezon City. SP=P5M Capital gain on sale of land held as investment * - 500,000 abroad Gain on sale thru New York Stock Exchange at 100,000 of shares of domestic corp. : - 30,000 Loss on sale thru Philippine Stock Exchange at : - 10,000 100,000 of shares of domestic corporation Expenses: business/profession 350,000 200,000 75,000 Determine the following: a. Total capital gains taxes paid by the spouses b. Total final taxes withheld on passive income of the spouses c. Taxable income of Daniel d. Taxable income of Kat QUARTERLY INCOME TAX RETURNS 2-8. The following cumulative balances during the year on income and expenses were provided by Juan Dela Cruz, a resident citizen: 1 2g 3Q Year Gross Profit from Sales 300,000 P650,000-P910,000 1,200,000 Business expenses 120,000 262,000» «405,890 426,700 Dividends-domestic corp. 20,000 20,000 30,000 30,000 Interest income from 6PI 4,000 8,000 12,000 16,000 uCPB 8,000 12,000 16,000 18,000 Metro Bank 5,000 10,000 15,000 30,000 Capital gain on sale of Land: 150,000 150,000 += 180,000 150,000 Selling price-P600,000; Cost - P450,000 REQUIRED: Using above information, compute the following Income tax payable, first quarter Income tax payable, second quarter Income tax payable, third quarter Income tax payable, fourth quarter Total final taxes (for the year) on passive income Total capital gains tax Oooeens 131ey CAPITAL GAINS TAX 1. A resident citizen taxpayer sold a vacant lot (held as investmen, in the Philippines. Other data regarding the sale are as follows: Solling price 5,500,000 Fair market value 6,000,000 Zonal value 5,850,000 Expenses on the sale 275,000 Required: Compute the capital gains tax. A resident citizen taxpayer sold a vacant lot (held as investmen) in the Philippines. Other data regarding the sale are as follows: Gain on sale 500,000 Zonal value 2,200,000 Cost 2,000,000 Expenses on the sale 150,000 Required: Compute the capital gains tax. A resident citizen taxpayer sold a residential house and tol (principal residence) in the Philippines. Other data regarding the sale are as follows: Selling price 5,000,000 Fair market value 6,000,000 Zonal value 5,500,000 Expenses on the sale 275,000 Required: Determine the capital gains tax assuming the taxpayer purchased a new principal residence worth P5,800,000 within eighteen months (18) from disposal of the principal residence. The BIR was properly informed about the sale. 4. Using the same data in the preceding number, determine the capital gains tax assuming the taxpayer utilized only 80% of the proceeds in acquiring his new principal residence. 2-10, Assume the following data: Selling price of Building No.1 P15,000,000 Selling price of Building No.2 20,000,000 Cost of Building No.1 10,000,000 Cost of Building No. 2 30,000,000 200,000 Expenses on sale of Building No. 1 Expenses on Building No. 2 2 oOo Fair market value of Building No. 1 ‘on Fair market value of Building No. 2 132Crater Evercives Individa / Required 4) Compute the capital gains tax on Building No. 1 bp) Compute the capital gains tax on Building No. 2 ) Compute the capital gains tax on Building No. 2 assuming the Building is situated abroad. 9-41. The taxpayer is a resident citizen Selling price at prevailing market value on a P600,000 cirect sale to buyer of shares of stock of a nestic corporation t of the shares sold 650,000 Required: Compute the capital gains tax. 2-412. The taxpayer is a resident alien Soil price on a direct sale to buyer of shares 300,000 { stock of a domestic corporation Cost of the shares sold 220,000 Required: Compute the capital gains tax. 2:43, The taxpayer is a resident alien: Selling price on a direct sale to buyer of shares P3110, 000 of stock of a domestic corporation Cost of the shares sold 150,000 Required: Compute the capital gains tax. 2-14. The taxpayer is a nonresident alien engaged in trade or business: Selling price on sale of shares of stock of a 550,000 somesbe corporation through the local stock exchange Cost of the shares sold 300,000 Required: Compute the capital gains tax. 133eC verctses sudividuals Cha; TRUE OR FALSE 1, Individual taxpayers are natural persons with income derived vaithin tho toritorial jurisdiction of a taxing authority. 2. Incomes eared outside the Philippines by OFWs are tax exempt because they are considered nonresident citizen. 1. The intention with regard to the length and nature of stay of an alien determines whether he is a resident or nonresident 4. A foreigner who has acquired residency in the Philippines shall only become a nonresident when he actually departs with the intention of abandoning his resideney in the Philippines. 5. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines 6. A foreigner who shall live in the Philippines with no definite intention as to his stay is a nonresident alien. 7. Nonresident alien who shall come to the Philippines and stay herein for an aggregate period of more than 180 days during any calendar year is subject to the rule on reciprocity under the Tax Code with respect to their allowed personal exemption. 8. An alien individual is deemed doing business in the Philippines if he shall come to the Philippines and stay herein for an aggregate periog of more than 180 days during the calendar year. 9. Generally, 2 nonresident alien not engaged in trade or business is subject to 25% creditable withholding-tax on his gross income in the Philippines. 10. Sale of real property classified as capital asset located abroad by a resident citizen is subject to 6% capital gains tax based on the higher amount between selling price or zonal value. 11. Sale of real property classified as capital asset to the government is subject to 6% capital gains tax or basic income tax, at the option of the taxpayer. 12, Sale of real property classified as ordinary asset to the government is subject to 6% capital gains tax or basic income tax, at the option of the taxpayer. 134