ELCN17B – TAXATION 7.

Section 2 of the National Internal Revenue Code of 1997, as

Review of Tax 1 and Tax 2 amended, states the powers and duties of the BIR. Which of the
following is not included?
PRELIM PERIOD a. Assessment of taxes.
Activity 1 b. Collection of taxes and penalties connected thereof.
Choose the letter of the BEST answer. Write E if the
c. Execution of judgements in all cases decided in
answer is not in the choices provided.
favor of BIR by the CTA.
d. Amending provisions of the National Internal
1. The power of the state by which the sovereign raises revenue to Revenue Code.
defray the necessary expenses of the government.
a. Taxation. NOTE 6&7:
b. Eminent Domain.  The Bureau of Internal Revenue shall be under the supervision
c. Police Power. and control of the Department of Finance and its powers and
d. Tax. duties shall comprehend the assessment and collection of all
national internal revenue taxes, fees, and charges, and the
NOTE:
enforcement of all forfeitures, penalties, and fines connected
 The power to tax is inherent in sovereignty therewith, including the execution of judgments in all cases
 The power to tax is legislative in character decided in its favor by the Court of Tax Appeals and the
ordinary courts.
2. The power of the state to take private property for public use upon
payment of just compensation. 8. The BIR shall be headed by the Commissioner of Internal
a. Taxation. Revenue (CIR) and ___ assistant chiefs to be known as Deputy
b. Eminent Domain. Commissioners pursuant to Section 3 of the tax code, as
amended.
c. Police Power.
a. 2.
d. Tax.
b. 3.
3. The power of the state to enact laws to promote public health, public
morals, public safety and the general welfare of the people. c. 4.
a. Taxation. d. 5.
b. Eminent Domain.
NOTE:
c. Police Power.
 1 Commissioner of Internal Revenue (chief)
d. Tax.
 4 Assistant chiefs (Deputy Commisionners)
4. Statement 1: Taxation, as one of the powers of the state, is inherent in
sovereignty. 9. Which of the following is not included as a power of the
Statement 2: Taxes are the lifeblood of the government. Commissioner of Internal Revenue (CIR) pursuant to Sections
a. Both statements are correct. 4, 5, and 6 of the tax code, as amended?
b. Both statements are incorrect. a. Interpret and decide tax case, subject to the exclusive
c. Only statement 1 is correct. appellate jurisdiction of the CTA. (section 4)
d. Only statement 1 is incorrect. b. Obtain information, and to summon, examine, and take
5. Statement 1: The inherent power of taxation gives the government the testimony of persons. (section 5)
right to tax citizens and properties even outside its jurisdiction. c. Make assessments and prescribe additional requirements
Statement 2: Taxation is indispensable and inevitable price for for tax administration and enforcement. (section 6)
civilized society without which the government would be paralyzed. d. All of the above are powers of the CIR.
a. Both statements are correct. 10. Statement 1: The power of taxation is an inherent and
b. Both statements are incorrect. indispensable power of the State and as “taxes are the lifeblood
c. Only statement 1 is correct. of the government”, the power of the legislature is unlimited
and plenary.
d. Only statement 1 is incorrect.
Statement 2: The power of taxation is sometimes called the
power to destroy.
NOTE:
a. Both statements are correct.
 No state may tax anything not within its jurisdiction without violating
the due process clause of the constitution. The taxing power of a b. Both statements are incorrect.
state does not extend beyond its territorial limits, but within such c. Only statement 1 is correct.
limits it may tax persons, property, income, or business d. Only statement 1 is incorrect.
 Taxation may be exercised only within the territorial jurisdiction
of that taxing authority
11. Which of the following statements is incorrect?
6. The Government agency responsible for the assessment and a. The legislature is given a wide range of discretion in
collection of all national internal revenue tax is the: determining what to tax, the purpose of the tax, how much
the tax will be, who will be taxed, and where the tax will
a. Department of Finance.
be imposed.
b. Bureau of Internal Revenue.
b. In order to maintain the general public’s trust and
c. Congress. confidence in the Government, the power to tax must be
d. Court of Tax Appeals. used justly and not treacherously.
 c. Tax laws operate equally and uniformly on all persons under operations, activities, workflows, methods and
similar circumstances or that all persons must be treated in the procedures necessary in the implementation of
same manner, the conditions not being different both in the stated policies, goals, objectives, plans and
privileges conferred and the liabilities imposed. programs of the Bureau in all areas of
d. The power of taxation is inherently executive and may be operations, except auditing.
imposed or revoked only by the executive branch and o Revenue Administrative Orders (RAO)
moreover, this plenary power of taxation cannot be o Revenue Delegation of Authority Orders (RDAO)
delegated to any other branch of the Government or private
persons, unless its delegation is authorized by the 13. On December 29, 2022, ABC Company sold merchandise
Constitution itself. inventory to XYZ Company for Five hundred million pesos
(P500M). The president of ABC Company knows that the
NOTE: transaction would mean higher tax base, thus, will result in
 A state legislature has a plenary law-making power over all more taxes. He then instructed the accountant not to declare the
subjects, whether pertaining to persons or things, within its territorial sale until next taxable year, to lessen the company’s current
jurisdiction, either to introduce new laws or repeal the old, unless income tax. The company is said to be
prohibited expressly or by implication by the federal constitution or a. Tax Avoiding
limited or restrained by its own
b. Tax Evading.
 Scope of the taxation power: (CUPS)
c. Tax Planning.
o Comprehensive
o Unlimited d. Tax Shifting.
o Plenary
o Supreme NOTE:
 Marshall Doctrine: power to destroy  Tax avoidance - when the taxpayer minimizes his tax liability
- Taxation power can be used as an instrument of police power by taking advantage of legally available tax planning
- To discourage or prohibit undesirable activities or occupation opportunities (tax minimization)
- If it is used solely for the purpose of raising revenue, it does not  Tax evasion - when the taxpayer resorts to unlawful means to
include power to destroy lessen or to get away with his tax liability (tax dodging)
 Tax exemption is a grant of immunity to particular persons or
corporations.
12. Statement 1: The power to fill in details and manner as to the
o Burden of proof: taxpayer
enforcement and administration of a law may be delegated to various
specialized administrative agencies, like to the Secretary of Finance. - he must be able to justify his claim by the
clearest grant of organic or statute law and
Statement 2: If there is a conflict between the tax code and the rules
cannot be permitted to exist upon vague
and regulations implemented by the BIR, administrative rules from
implications.
the BIR shall prevail.
 Vague tax law
a. Both statements are correct.
o Burden of proof: government
b. Both statements are incorrect.
14. The law must be capable of convenient, just and effective
c. Only statement 1 is correct. administration of tax. This principle is called:
d. Only statement 1 is incorrect. a. Fiscal adequacy
b. Theoretical justice
NOTE:
c. Administrative feasibility
 The grant of the rule-making power to administrative agencies is a
relaxation of the principle of separation of powers and is an
d. Equality of Taxation
exception to the non-delegation of legislative powers.
 Sources of Tax Laws NOTE:
 Philippine 1987 Constitution. SOUND TAX SYSTEM
 National Internal Revenue Code of 1997, as amended.  Fiscal adequacy — the sources of revenues must be adequate
 Local Government Code to meet government expenditures and their variations;
 Tax Treaties  Ability-to-pay — the tax burden must be in proportion to the
 Jurisprudence taxpayer's ability to pay; and
 BIR Issuances  Administrative feasibility — the tax system should be capable
o Revenue Regulations (RR) of being effectively administered and enforced with the least
inconvenience to the taxpayer
- Are issuances signed by the Secretary of Finance,
upon recommendation of the Commissioner of
Internal Revenue, that specify, prescribe or define 15. A taxpayer is being assessed of tax deficiencies through a Letter
rules and regulations for the effective enforcement of Authority from the BIR. Which of the following is not a valid
of the provisions of the National Internal Revenue defense for the taxpayer if he wishes to refute the tax deficiency
Code (NIRC) and related statutes. allegations from the BIR?
o Revenue Memorandum Circulars (RMC) a. He has been deprived of due process.
- Are issuances that publish pertinent and applicable b. There is a lack of territorial jurisdiction.
portions, as well as amplifications, of laws, rules, c. The prescriptive period for the tax has elapsed.
regulations and precedents issued by the BIR and d. He will derive no benefit from the tax.
other agencies/offices
o Revenue Memorandum Order (RMO)
NOTE:
- Are issuances that provide directives or instructions;
 Letter of Authority (LOA)
prescribe guidelines; and outline processes,
 - authority given to the appropriate revenue officer assigned c. Absence of any of the elements of direct double
to perform assessment functions. taxation makes it indirect double taxation.
- enables revenue officer to examine the books of account and
d. A 20% final withholding tax on interest income
other accounting records of a taxpayer for the purpose of
on bank deposits and a 5% gross receipts tax on
collecting the correct amount of tax.
banks is a direct duplicate taxation.
 Due Process - No person shall be deprived of life, liberty, or property
NOTE:
without due process of law, nor shall any person be denied the equal
protection of the laws  the GRT is a percentage tax; and the FWT is an income tax.
 Taxation may be exercised only within the territorial jurisdiction  Percentage tax
of that taxing authority - is a national tax
 Prescription of tax assessment and collection (Sec. 203) - measured by a certain percentage of the gross selling
- Except as provided in Section 222, internal revenue taxes price or gross value in money of goods sold, bartered or
shall be assessed within three (3) years after the last day imported; or of the gross receipts or earnings derived by
prescribed by law for the filing of the return any person engaged in the sale of services.
- no proceeding in court without assessment for the collection of - It is not subject to withholding.
such taxes shall be begun after the expiration of such period:  Income tax
 where a return is filed beyond the period - is a national tax
prescribed by law - the three (3)-year period - imposed on the net or the gross income realized in a
shall be counted from the day the return was taxable year.
filed. - It is subject to withholding.
 a return filed before the last day prescribed
by law – the 3-year period shall be counted  Withholding tax system
from the last day of filing - Payee: taxpayer
 the person on whom the tax is imposed;
EXAMPLE:  have the benefit of Creditable
withholding tax (CWT)
 Can be used as tax credit
 They have CWT because the
amount withheld is still part of their
income.
 Records the account CWT

- Payor: separate entity

 acts as no more than an agent of the
government for the collection of the tax
in order to ensure its payment.
 The one who withhold the tax from the
payee and remit it to the BIR
16. These are formal interpretations of the Tax Code, as amended, and  Records the account EWT
are usually promulgated alone by the Secretary of Finance or in some
EXAMPLE:
cases, issued jointly with other Government agencies.
a. Revenue Regulations.
b. Supreme Court Decisions.
c. Court of Tax Appeals Decisions.
d. Revenue Memorandum Circulars.

17. The following constitute double taxation, except:

a. Both taxes are levied for the same purpose. - Services are subject to EWT
b. Both taxes are imposed in the same amount.
19. How much is the revenue to be reported by a VAT registered
c. Both taxes are imposed by the same taxing authority.
lessor from rental payments made by a VAT registered lessee
d. Both taxes are imposed upon the same person. from which total cash that will be received by the lessor and
paid by the lessee is P107,000?
NOTE: a. P107,000.00.
• Double taxation is taxing the same property twice when it should be b. P95,535.71.
taxed only once. Otherwise described as "direct duplicate taxation,"
the two taxes must be:
c. P100,000.00.
a) imposed on the same subject matter; d. P119,840.00.
b) imposed for the same purpose;
c) imposed by the same taxing authority; SOLUTION:
d) imposed within the same jurisdiction; Revenue (%) 100%
+VAT 12%
e) imposed during the same taxing period; and
- EWT -5%
f) of the same kind or character. Total cash (%) 107%

18. Which of the following statement about double taxation is incorrect? Total Cash 107,000.00
/% 107%
a. There is no constitutional prohibition on double taxation. Revenue 100,000.00
b. Direct duplicate taxation is a valid defense against a tax
measure if it is violative of the equal protection clause.
 20. A professional accountant rendered services to a VAT registered amounted to P13,631,300 which is composed of purchases
client and received cash of P306,000. The said accountant’s annual subject to VAT, P4,330,100 and purchases not subject to VAT,
gross income for the year is P5,000,000. How much is the revenue to P9,301,200. Assuming input VAT carryover from previous
be reported by the professional accountant? quarter is P200,000, how much is the VAT payable for the
a. P300,000.00. quarter?
b. P342,720.00. a. P351,612
c. P273,214.29. b. P1,115,148
d. P306,000.00. c. P915,148
d. 0
SOLUTION:
Revenue (%) 100%
+VAT 12%
- EWT -10%
Total cash (%) 102%

Total Cash 306,000.00

/% 102%
Revenue 300,000.00

24. Using the information above, how much should be the ending
balance of the account Input VAT in the general ledger at the
end of quarter 2?
a. P351,612
b. P551,612
c. P519,612
d. 0

*refer to the EWT table for percentage reference

21. A VAT registered entity has a total Sales for the 2nd quarter of 2022
of P3,023,000, composed of sales subject to VAT, P2,400,000; zero 25. Section 108 of the tax code, as amended, pertains to:
rated sales, P200,000; and VAT exempt sales, P423,000. Purchases,
a. VAT on importation.
on the other hand, amounted to P631,300 which is composed of
purchases subject to VAT, P330,100 and purchases not subject to b. VAT on sale of goods or properties.
VAT, P301,200. Assuming there is no input VAT carryover from c. VAT on sale of services and use of properties.
previous quarter, how much is the VAT payable for the quarter? d. Persons liable for VAT.
a. P248,388.
b. P287,004. NOTE:
c. P323,148.  Section 106 – VAT on goods and properties
d. P212,244.  Section 107 – VAT on importation
 Section 108 – VAT on services and use of properties
 Section 109 – VAT exemptions
 Section 110 – VAT carryover

26. The basis of 12% VAT on sale of goods or properties is:

a. Gross selling price.
b. Gross receipts.
22. Using the information above, what general ledger account should be
credited upon remittance of the VAT payable to the BIR? c. Net taxable income.
a. Sales d. Gross receipts less withholding tax.
b. Output VAT
NOTE:
c. Cash
 Goods and properties – Gross selling price
d. VAT Payable
 Services – Gross receipts

27. Which of the following is not included in computing for the

12% VAT on importation?
a. Freight.
b. Arrastre.
23. A VAT registered entity has a total Sales for the 2nd quarter of 2022 c. Wharfage.
of P13,623,000, composed of sales subject to VAT, P1,400,000 and d. Withholding tax.
VAT exempt sales, P12,223,000. Purchases, on the other hand,
NOTES: ABC Corporation prepared its income statement for their first three (3)
 Freight Charges – amounts paid to a carrier for the transport of years of operation, as follows:
goods from point of origin to destination.
 Arrastre – the amount which the owner, consignee, or agent of YEAR 1 YEAR 2 YEAR 3
either, of merchandise or baggage has to pay for the handling,
receiving and custody of the imported or exported merchandise or the Sales 25,000,000.00 11,000,000.00 18,000,000.00
baggage of the passengers. (RA 1371) Less: COS 13,000,000.00 10,000,000.00 10,000,000.00
 Wharfage - the amount assessed against the cargo of a vessel
engaged in the foreign trade, based on the quantity, weight or Gross Income 12,000,000.00 1,000,000.00 8,000,000.00
measure received and/or discharged by such vessel Less: Expenses

28. Which of the following is not a consequence of issuing erroneous Salaries 800,000.00 800,000.00 810,000.00
VAT invoice or VAT official receipt?
a. If a VAT registered person issues a VAT official receipt for a Advertising 780,000.00 750,000.00 800,000.00
VAT zero rated transaction and fails to display the term
“Zero Rated”, he is not liable for VAT. Maintenance 710,000.00 600,000.00 450,000.00
b. If a non-VAT registered person issues a VAT official receipt, he
shall be liable for VAT. Depreciation 400,000.00 400,000.00 430,000.00
c. If a non-VAT registered person issues a VAT official receipt, he Representation
is liable to pay 50% surcharge. and
Entertainment 385,000.00 350,000.00 400,000.00
d. If a VAT registered person issues a VAT official receipt for VAT
exempt transaction and fails to display the term “VAT exempt”, Repairs 80,000.00 150,000.00 50,000.00
he shall be liable for VAT. Other
Expenditures 50,000.00 70,000.00 10,000.00
NOTES:
Miscellaneous 4,000.00 5,000.00 8,000.00

-
29. Which of the following was introduced in TRAIN Law?
Profit/ Loss 8,791,000.00 2,125,000.00 5,042,000.00
a. New income tax table.
b. Reduced MCIT. Additional information:
c. Reduced Percentage Tax • ABC Corporation is a service type domestic corporation duly
d. All of the above. organized and existing under Philippine law.
30. Which of the following is an example of non-taxable De Minimis • Total assets of the Corporation, exclusive of the Land, is
Benefit? P120M, P125M, and P130M for the first three years of
a. Rice subsidy, P10,000 per month. operations, respectively.
b. Laundry allowance, P2,000 per month. • Salaries Expense includes employer share in government
contributions amounting to P100k, P110k, and P115k from year
c. Uniform and clothing allowance, P6,000 per annum.
1 to 3, respectively.
d. Medical cash allowance, P1,000 per month.
• Other Expenditures represents the total expenses paid each year
31. Compute the withholding tax on compensation for an employee who with no valid supporting documentations.
earned P20,000 gross salary in a given month.
34. How much is the corporate income tax due for Year 1?
a. 0.
a. P2,224,000.
b. 25.05
b. P2,197,750.
c. 153.33
c. P1,758,200.
d. Cannot be determined with the given details.
d. P1,795,200.
32. Under what income tax regime will an individual earning business
35. The year end entry to recognize the effect of income taxes in
income save more on income taxes if his annual sales is P2.8M, and
year 1 includes:
allowable expenses amounts to 25k?
a. Debit to Income Tax Payable.
a. 8% gross income tax.
b. Debit to Income Tax Expense.
b. Graduated income tax, itemized deduction
c. Debit to Deferred Tax Asset.
c. Graduated income tax, optional standard deduction.
d. Credit to Deferred Tax Liability.
d. All will yield equal benefit.
36. How much is the corporate income tax due for Year 2?
33. For withholding tax purposes, top withholding agents should:
a. P453,750.
a. Withheld 2% for service and 1% for goods from
income payments to regular suppliers. b. P531,250.
b. Not withheld if a single purchase amounts to P10k or c. P425,000.
more. d. Zero.
c. Transact at least 5 times to the same supplier to be 37. The year end entry to recognize the effect of income taxes in
considered as “regular supplier”. year 2 includes:
d. Withheld 2% for service and 1% for goods from casual a. Debit to Income Tax Expense.
purchases. b. Debit to Deferred Tax Asset.
 c. Credit to Income Tax Payable. c. Interest income trust funds.
d. Credit to Deferred Tax Liability. d. Interest income on dollar deposits.
38. How much is the corporate income tax due for Year 3? 47. The following taxpayers who received dividend income from a
a. P1,318,000. domestic corporation will receive net of 10% final withholding
b. P864,250. tax, except:
c. P806,750. a. Resident citizen.
d. Zero. b. Nonresident citizen.

39. The year end entry to recognize the effect of income taxes in year 3 c. Resident alien.
includes: d. Nonresident alien engaged in trade or business.
a. Debit to Income Tax Expense, P1,318,000. 48. Share in the net distributable income of a general copartnership
b. Debit to Income Tax Expense, P864,250. by a resident citizen is subject to:
c. Credit to Income Tax Payable, P806,750. a. 10% final withholding tax.
d. Credit to Deferred Tax Liability, P806,750.
b. 20% final withholding tax.

40. Which of the following is not a VAT exempt transaction pursuant to c. Graduated income tax.
Section 109 of the Tax Code, as amended? d. Exempt from withholding tax.
a. Sale or importation of agricultural and marine food products in 49. The income tax due of a mixed income earner who opted to be
their original state. taxed at 8% income tax rate shall be:
b. Services subject to percentage tax under Title V of the tax code, a. The tax due from compensation, computed using the
as amended. graduated tax rate.
c. Lease of a residential unit with a monthly rental not exceeding b. The tax due from self-employment and/or practice of
P15,000. profession, resulting from the multiplication of the
d. Sale of power or fuel generated through renewable energy 8% income tax rate with the total of the gross
sources of energy. sales/receipts and other non-operating income/
41. For the year 2023, Mr. Fredrinn purchased a condominium unit from c. Either A or B, depending on what will the mixed
Mr. Bane, a unit owner, amounting to P3,000,000. In the same year, income earner declare.
Mr. Fredrinn purchased a parking space from the condominium d. The sum of A and B.
developer amounting to P800,000. How much is the total VAT paid 50. A VAT registered taxpayer, engaged in selling services, was
by Mr. Fredrinn for the year 2023? being assessed by the BIR upon its tax audit of underdeclaration
a. P456,000. of income resulting to an income tax deficiency. The BIR
b. P360,000. examiner compared sales per income tax return and total sales
per VAT returns and come up with a conclusion that the
c. P96,000.
taxpayer is not reporting a certain amount of sales in its income
d. Zero. tax return because total sales per VAT returns were higher than
42. The taxpayer in estate tax is: sales per income tax return. What would be the possible reason
a. The decedent. for the higher amount of sales per VAT returns as compared to
b. The estate. sales per income tax return assuming the taxpayer correctly
reported its sales for both returns?
c. The heirs.
a. Realized foreign exchange gains.
d. The administrator.
b. Year-end accrual of certain income.
43. An act of liberality whereby one disposes gratuitously a thing or right
in favor of another who accepts it. c. Collections of revenue from prior year.
a. Succession. d. Uncollected revenue of the current year.
b. Occupation. 51. Which of the following transactions is subject to 6% capital
gains tax?
c. Donation.
a. Sale of condominium units by a real estate dealer.
d. Tradition.
b. Sale of real property utilized for office use.
44. Senior Chang, a resident citizen, 70 years of age, bought a medicine
with a selling price of P9,520 inclusive of VAT. How much is the net c. Sale of apartment houses.
amount to be paid by Senior Chang? d. Sale of vacant lot by an employee.
a. P8,500. 52. One of the following is not a Constitutional Limitation on the
b. P7,616. power of taxation. Which is it?
c. P6,916. a. Exemption from taxes of revenues and assets of
educational institutions, including grants,
d. P6,800.
endowments, donations and contributions.
45. Which of the following taxpayers is taxable on income from all
b. Non-impairment of the jurisdiction of Supreme
sources within the Philippines?
Court in tax cases.
a. Domestic Corporations.
c. Exemption of the government from taxes.
b. Resident Alien.
d. Non-infringement of religious freedom and worship.
c. Resident Citizen.
53. Nie Goh, an American-Chinese singer, went to the Philippines
d. All of the above. in 2022 to do a two-day concert after which he will return to
46. Which of the following interest income by a resident taxpayer is China. For income tax purposes, he is classified in the year
subject to 15%? 2022 as:
a. Interest income from peso bank deposits. a. Resident Alien.
b. Interest income from deposit substitutes.
 b. Nonresident Alien engaged in trade or business.
c. Resident Citizen.
d. Nonresident Citizen.
54. A nonresident alien not engaged in trade or business derived
P100,000 interest income from his long-term bank deposit here in the
Philippines. How much is the income tax due of the said alien?
a. P10,000.
b. P15,000.
c. P20,000.
d. Exempt from income tax.
55. CREATE Law is:
a. RA 11435
b. RA 11534
c. RA 19063
d. RA 10963
56. The BIR form for VAT filing is:
a. 2550Q.
b. 2551Q.
c. 1601C.
d. 0619E.
57. The taxpayer or its authorized representative or tax agent may protest
administratively against the aforesaid FLD/FAN within ____ days
from date of receipt thereof.
a. 30.
b. 180.
c. 60.
d. 15.
58. The basis of 12% VAT on sale of goods or properties is:
a. Gross selling price.
b. Gross receipts.
c. Net taxable income.
d. Gross receipts less withholding tax.
59. A tax imposed and prescribed on the items of income payable to
natural or juridical persons, residing in the Philippines, by a payor-
corporation/person (buyer) which shall be credited against the
income tax liability of the taxpayer (seller) for the taxable year.
a. Value-added-tax
b. Withholding Tax on Compensation
c. Income Tax
d. Creditable Withholding Tax
60. Exclusion from income tax of employees’ share in SSS, PHIC, and
HDMF contribution is mentioned on what specific section of the Tax
Code, as amended?
a. Section 32 (A)
b. Section 24 (A)
c. Section 32 (B)
d. Section 24 (B)

END GOOD
LUCK!