MIDTERM TAX 311-QUESTIONS

1. Which of the following statements is correct?

a. Revenue regulations have the force and effect of law and a memorandum order
of the Commissioner of Internal Revenue, approved by the Secretary of Finance,
has the same force and effect as revenue regulations.
b. The revenue regulations which are in conflict with law(s) are null and void
c. The interpretations of the former Secretary of Finance do not necessarily bind
their successors.
d. All of the above.
2. The Philippine income tax system has the following features, except
a. Comprehensive tax situs by using the nationality, residence, and source rules.
b. The individual income tax system is mainly progressive in nature.
c. Indirect rather than direct system
d. Semi-global and semi-schedular system.
3. Tax of a fix amount imposed among all persons residing within a specified territory without
regard to their property or occupation they may be engage
a. Personal, poll or capitation tax
b. Property
c. Excise tax
d. Regressive
4. Tax imposed on personal or real property in proportion to its value or some other
reasonable method of apportionment
a. Personal, poll or capitation tax
b. Property
c. Excise tax
d. Regressive
5. Which of the following is not an example of excise tax?
a. Transfer tax
b. Sales tax
c. Real property tax
d. Income tax
6. Tax which is demanded from the persons whom the law intends or desires to pay it
a. Direct
b. Indirect
c. Excise
d. Income
7. One is not a direct tax
a. Immigration tax
b. Transfer tax
c. Income tax
d. Value-added tax
8. A tax on business is
a. Direct tax
b. Indirect tax
c. Property tax
d. None of the choices
9. Tax which imposes a specific sume by the head or number or by some standards of weight
or measurement and which requires no assessment other than a listing or classification of
the objects to be taxed
a. Ad-valorem
b. Specific
c. Excise
d. Revenue
10. Tax which is a fixed proportion of the amount or value of the property with respect to which
the tax is assessed.
a. Ad-valorem
b. Specific
c. Excise
d. Revenue
11. This type of tax requires an assessment of the value of the subject of tax.
A. B. C. D.
Ad valorem tax True True False False
Specific tax True False True False
12. JJ is a mining operator. The tax he has to pay is based on the actual value of the gross output
or mineral products extracted is
a. Mining tax
b. Royalties
c. Rental
d. Ad valorem tax
13. Tax levied for particular or specific purpose irrespective of whether revenue is actually raised
or not
a. Revenue tax
b. Regulatory tax
c. Specific tax
d. Ad valorem tax
14. Tax based on a fix percentage of the amount of property, income or other basis to be taxed
a. Progressive
b. Proportional
c. Regressive
d. Indirect
15. Tax where the rate increases as the tax base increases
a. Progressive
b. Proportiona
 c. Regressive
d. Indirect
16. Which of the following taxes is always proportional?
a. Value added tax
b. Income tax
c. Estate tax
d. Donor’s tax
17. Which of the following taxes is always proportional?
a. Resident citizen
b. Resident alien
c. Nonresident alien engaged in trade
d. Nonresident alien not engaged in trade
18. Tax as distinguished from license fee
a. Non-payment dies not necessarily render the business illegal
b. A regulatory measure.
c. Imposed in the exercise of police power.
d. Limited to cover cost of regulation
19. The distinction of a tax from permit or license fee is that a tax is
a. Imposed for regulation
b. One which involves exercise of polic power
c. One in which there is generally no limit on the amount that may be imposed.
d. Answer not given
20. Which of the following terms describe this statement “that the State has complete
discretion on the amount to be imposed after distinguishing between a useful and non-
useful activity?
a. Tax
b. License Fee
c. Toll
d. Customs duty
21. 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
22. Which of the following is not a characteristic debt?
a. Generally arises from contract
b. Payable only in money
c. Assignable
d. Imprisonment is not a sanction for non-payment.
23. Debt as distinguished from tax.
a. Based on law
b. May be paid in kind
 c. Does not draw interest except when delinquent
d. Generally not subject to set-off or compensation
24. “Schedular system income taxation” means
a. All types of income are added together to arrive at gross income
b. Separate graduated rates are imposed on different types of income
c. Capital gains are excluded in determining gross income.
d. Compensation income and business/professional income are added together in
arriving at gross income
25. Under the Creditable Withholding Tax system, which of the following statements is
incorrect?
a. Taxes withheld on certain income payments are intended to equal or at least
approximate the tax due of the payee on said income.
b. The recipient of the income is no longer required to file an income tax return as
prescribed under the Tax Code
c. The payee is required to report the income and pay the difference between the
tax withheld and the tax due thereon.
d. Taxes withheld under this system are creditable in nature.
26. Which of the following statements is correct?
a. Withholding tax liability may arise only when the agent has possession, custody
or control of the funds withheld.
b. The withholding tax system was devised to provide the taxpayer a convenient
manner to meet his probable income tax liability and to ensure collection of the
income tax which could otherwise be lost or substantially reduced through
failure to file the corresponding returns.
c. Withholding tax system is designed to improve the government’s cash flow.
d. All of the above
27. Under the Final Withholding Tax system, which of the following statements is not
correct?
a. Income tax withheld by the withholding agent is constituted as a full and final
payment of the income tax due from the payee on the said income
b. The liability for payment of the tax rests primarily on the payee as a recepient of
income
c. In case of failure to withhold the tax, the deficiency tax shall be collected from
the withholding agent.
d. The payee is no longer required to file an income tax return for the particular
income
28. When the refund of a tax supposedly due to the taxpayer has already been barred by
prescription, and the said taxpayer is assessed with a tax at present, the two taxes may
be set-off with each other. This doctrine is called
a. Set-off doctrine
b. Doctrine of reciprocity
c. Tax sparing doctrine
 d. Equitable recoupment
29. 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 agent; erroneous
application and enforcement of law by public officers do not block the
subsequent correct application of statutes.
c. Both a and b
d. Neither a or b
30. In case of ambiguity, tax laws imposing a tax shall be interpreted
a. Strictly against the taxpayer
b. Liberally in favor of the taxpayer
c. Liberally in favor of the government
d. None of the choices
31. Which of the following propositions may be untenable?
a. The court should construe a law granting tax exemption strictly against the
taxpayer.
b. The court should construe a law granting a municipal corporation the power to
tax most strictly.
c. The Supreme Court has jurisdiction to review decisions of the Court of Tax
Appeals.
d. None of the above
32. Which of the following is incorrect?
a. Where doubts exist in determining the intent of legislature, the doubt must be
resolved strictly against the taxpayer and liberally in favor of the taxing authority.
b. The exemption contained in the tax statutes must be strictly construed against
the one claiming the exemption
c. Tax cannot be imposed without clear and express words for that purpose
d. All of the above.
33. In cases of deductions and exemptions, doubts shall be resolved
a. Strictly against the taxpayer
b. Strictly against the government
c. Literally in favor of the taxpayer
d. None of the choices
34. Statement 1: In case of conflict between a revenue regulation and the provision of the
National Internal Revenue Code, the latter shall prevail.
Statement 2: The revocation of a revenue regulation cannot be made retroactive even if
the reason for its revocation is that it is erroneous or contrary to law.
a. Statement 1 is correct; Statement 2 is wrong
b. Both statements are correct
c. Statement 1 is wrong; Statement 2 is correct
d. Both statements are correct
35. Which of the following is correct regarding the purpose(s) of revenue regulations issued by the
Department of Finance through the Bureau of Internal Revenue?
a. To properly enforce and execute the laws
b. To clarify and explain the law
c. To carry into effect the law’s general provisions by providing details of
administration
d. All of the above
36. The Secretary of Finance, upon recommendation of the Commissioner of Internal
Revenue, issued a Revenue Regulation using gross income as the tax base for
corporations doing business in the Philippines. The revenue regulation is:
a. Valid. Corporations are already taxable under our existing tax laws. Hence, the
action of the Secretary constitutes administrative action only which is within his
powers.
b. Valid if the tax is limited to gross income without deductions. Such action is not
tantamount to changing the amount of the tax as said amount ultimately
depends on the taxable base.
c. Not valid because the action of the Secretary constitutes legislation which is
exclusively within the powers of the legislative branch of the government.
d. None of the above.
37. Which of the following is required for validity of rules and regulations?
I. They must not be contrary to law and the Constitution.
II. They must be published in the Official Gazette or a newspaper of general
circulation.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
38. Statement 1: Tax avoidance is a scheme used outside of those lawful means to escape tax
liability
Statement 2: Tax avoidance is a tax saving device within the means sanctioned by law,
and, when availed of, it usually subjects the taxpayer to further or additional civil or
criminal liabilities.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
39. Pedro’s income from leasing his property reaches the maximum rate of tax under the law. He
donated one-half of his said property to a non-stock, non-profit educational institution
whose income and assets are actually, directly and exclusively used for educational purposes,
and therefore qualified for tax exemption under Article XIV, Section 4(3) of the Constitution
and Section 30 (h) of the Tax Code. Having thus transferred a portion of his said asset, Pedro
 succeeded in paying a lesser tax on the rental income derived from his property under the
lower tax bracket. Pedro’s action is considered/also known as:
a. Tax evasion
b. Tax avoidance
c. Shifting
d. None of the above
40. Pedro sold a parcel of land classified as capital asset to Juan. The parties agreed that the capital
gains tax shall be shouldered by Juan. Is this a form of Shifting? Is the Stipulation valid?
Shifting Stipulation
a. Yes Yes
b. No No
c. Yes No
d. No Yes
41. Which of the following statements is correct?
I. Shifting will result in increase prices
II. Tax evasion is also known as tax dodging
a. I only
b. II only
c. I and II
d. Neither I not II
42. _________ is finding out means of improvement in production so as savings would
compensate for taxes paid by manufactures or producers.
a. Shifting
b. Capitalization
c. Transformation
d. Tax dodging
43. Which of the following statements regarding “Taxpayer’s Suit” is incorrect?
a. It is one brought or filed by a taxpayer arguing the validity of a tax statute and
its enactment or the constitutionality of its alleged public purpose.
b. It is a case where the act complained of directly involves the illegal
disbursement of public funds derived from taxation.
c. Taxpayers have “locus standi” to question the validity of tax measures or illegal
expenditures of public money.
d. A taxpayer is relieved from the obligation of paying a tax because of his belief
that it is being misappropriated by certain officials.
44. The Philippine income tax system has the following features, except
a. Comprehensive tax situs by using the nationality, residence, and source rules.
b. The individual income tax system is mainly progressive in nature.
c. Indirect rather than direct system.
d. Semi-global and semi-schedular system.
Use the following data for the next two (2) question:
Pedro started to operate his taxi business in 2018. He provided the following data for tax
purposes:
Gross receipts P2,500,000
Cost of direct services 750,000
Operationg expenses 400,000
45. Assuming Pedro signified his intention to be taxed at 8% income tax rate on his initial quarterly
income tax return. How much is his income tax for the year?
a. P216,000
b. P300,000
c. P430,000
d. P540,000
46. Assuming instead that Pedro is engaged in the business of transporting goods or cargoes and he
signified his intention to be taxed at 8% income tax rate on his initial quarterly income tax
return. How much is his income tax for the year?
a. P180,000
b. P300,000
c. P430,000
d. P540,000

Use the following data for the next four (4) qustions:
Kardo owns a nightclub and a videoke bar, with gross receipts of P2,500,000. His cost of direct
services and operating expenses are P1,000,000 and P600,000 respectively, and with non-
operating income of P200,000.
47. Which of the following statements is correct?
a. Kardo has no option to avail the 8% income tax rate.
b. Kardo’s income tax shall be computed using the graduated tax rate.
c. Aside from income tax computed using the graduated income tax, Kardo is liable to
prescribed business tax, which, under this case, is Amusement Tax under Sec. 125 of the
Tax Code, as amended.
d. All of the above
48. Kardo’s income tax due for the year shall be:
a. P188,000
b. P208,000
c. P220,000
d. P250,000
49. Kardo’s business tax due for the year shall be:
a. P196,000
b. P216,000
c. P480,000
d. P486,000
50. Kardo’s total tax due for the year shall be :
 a. P706,000
b. P486,000
c. P216,000
d. P188,000

Use the following data for the next three (3) questions:
Ador, an executive of Ang Probinsyano Promotions, earned in 2018 P1,200,000 compensation
income, inclusive of 13th month pay and other benefits amounting to P120,000. Aside from
employment, he owns a farm, with gross sales of P5M. His cost of sales and operationg
expenses are P2,000,000 and P600,000 respectively, and with non-operating income of
P100,000.
51. Which of the following statements is incorrect?
a. Ador has no option to avail the 8% income tax rate.
b. Ador’s income tax shall be computed using the graduated tax rate.
c. Aside from income tax computed using the graduated income tax rate, Ador is liable to
prescribed business tax, which, under this case, is value added tax, since his gross
sales/receipts and other non-operationg income exceeded the vat threshold of P3M.
d. All of the above
52. Andor’s income tax due for the year shall be:
a. P490,000
b. P515,200
c. P1,005,200
d. P1,200,000
53. Ador’s business tax due for the year shall be:
a. P150,000
b. P153,000
c. P612,000
d. nil

Use the followng data for the nex four (4) questions:
Lorna, a self-employed resident citizen provided the following data for 2018 taxable year:
Sales P2,800,000
Cost of sales 1,125,000
Business Expenses 650,000
Gain on sale of shares of foreign corporation 50,000
Interest income from peso bank deposit 80,000
Interest income from bank deposit under FCDS 120,000
Gain on sale of shares of DC (non-listed) 150,000
Gain on sale of land in the Philippines held as capital asset with cost
of P1,500,000 when the zonal value is P1,200,000 500,000
54. How much is the total income tax expense of Lorna for the year?
a. P321,500
b. P351,500
 c. P374,000
d. P389,000
55. How much is the total income tax of Lorna assuming she opted to be taxed at 8%?
a. P321,500
b. P342,500
c. P358,000
d. P384,500
56. Assuming Lorna is a vat-registered taxpayer, how much is her total income tax expense
assuming she opted to be taxed at 8% income tax rate?
a. P321,500
b. P351,500
c. P384,500
d. P389,000
57. Using the same data except that her gross sales for the year was P3,800,000, how much is her
total income tax expense assuming she opted to be taxed at 8% income tax rate?
a. P321,500
b. P351,500
c. P352,000
d. P690,500
58. Statement 1: The provision of the Tax Code, as amended, which allows an 8% income tax rate on
gross sale/receipts and other non-operation income in excess of P250,000 is available only to
purely self-employed and/or professionals.
Statement 2: The P250,000 mentioned in the 1st statement is not applicable to mixed income
earners since it is already incorporated in the first tier of the graduated income tax rates
applicable to compensation income.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
59. The income tax due of a mixed income earner who opted to be taxed at 8% income tax rate shall
be:
a. The tax due from compensation, computed using the graduated tax rate.
b. The tax due from self-employment and/or practice of profession, resulting from the
multiplication of the 8% income tax rate with the total of the gross sales/receipts and other
non-operating income.
c. Either “a” or “b” , at the option of the self-employed and/or professional
d. The sum of “a” and “b”
60. Juan is a MIXED INCOME EARNER. He is a self-employed resident citizen and currently the
Finance manager of Omega Corporation. The following data were provided for 2018 taxable
year.

Compensation Income P1,800,000

 Sales 2,800,000
Cost of sales 1,125,000
Business Expenses 600,000
Interest income from peso bank deposit 80,000
Gain on sale of land in the Philippines held as capital asset with cost of
P1,500,000 when the zonal value is P1,200,000 500,000
How much is his total income tax expense assuming he opted to be taxed at 8%?
a. P321,500
b. P788,500
c. P808,000
d. P358,000
61. Statement 1: Individual taxpayers who are not allowed to avail the 8% preferential income tax
rate is not required to submit/attach Financial Statements (FS)
Statement 2: Individual taxpayers who are allowed to avail the 8% preferential income tax rate
is not required to submit/attach Financial Statements (FS)
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
62. When Pedro registered in the BIR, he initially presumed that his gross sales/receipts and other
non-operating income for the taxable year will not exceed the P3,000,000 vat threshold.
However, his actual gross, sales/receipts amounted to P4,000,000 during the taxable year.

Statement1: Pedro shall pay the required percentage tax covering the sales/receipts and other
non-operationg income, from the beginning of the taxable year or commencement of
business/practice of profession until the time he becomes liable to vat, without imposition of
penalty of timely paid in the immediately succeeding month/quarter.

Statement 2: Pedro has to file two (2) business tax returns during the month/quarter
(percentage tax and vat)
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

Use the following data for the next 3 questions:

63. Lorna is a newly registered non-vat taxpayer engaged in merchandising of cellphone accessories
on February 1, 2018. In September 2018, her cumulative gross sales/receipts reached
P3,500,000. Assume further that she availed 8% income tax rate upon her registration with the
BIR on February 1, 2018 or upon filing of her first quarterly income tax return. Which of the
following statements is correct?
 a. Lorna is required to register under the vat system on or before October 31, 2018, one
month from the time she exceeded the P3,000,000 vat threshold.
b. She is required to file Percentage return covering the sales/receipts and other non-
operating income from February 1 to September 30, 2018 due on or before October 20,
2018, without imposition of penalty if timely paid.
c. She is liable to vat beginning October 1, 2018.
d. All of the above
64. Statement 1: Lorna shall be automatically subjected to graduated income tax rates from the
time the gross sales/receipts and other non-operationg income exceeded the vat threshold.
Statement 2: The 8% income tax rate paid by Lorna shall be credited/deducted from her annual
income tax due using the graduated income tax regime.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements is correct
d. Both statements is incorrect
65. Assume that Lorna did not avail the 8% income tax rate upon her registration with the BIR on
February 1, 2018 or upon filing of her first quarterly income tax return. Which of the following
statements is correct?
Statement 1: She is subject to the graduated income tax rate.
Statement 2: The last quarterly percentage return that she needs to file should cover the period
from July 1 to September 2018, which is due on or before October 20, 2018.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements is correct
d. Both statements are incorrect

Use the following data for the next two (2) questions:
66. In 2018, Pedro signified his intention to be taxed at 8% income tax rate on gross sales in his 1st
quarter income tax return. His gross sales during the year exceeded the vat threshold of P3M as
follows:

Q1 Q2 Q3 Q4/Annual
(8% tax) (8% tax) (8% tax) (Graduated)
Sales P500,000 P500,000 P2,000,000 P3,500,000
Cost of sales (300,000) (300,000) (1,200,000) (1,200,000)
Gross Income 200,000 200,000 800,000 2,300,000
Operating Expenses (120,000) (120,000) (480,000) (720,000)
Net taxable income P80,000 P80,000 P320,000 P1,580,000
how much is Pedro’s annual incoem tax payable?
a. 220,00
b. 289,200
c. 509,200
d. 2,060,00
67. How much us Pedro’s total business due for the year?
a. P90,000
b. P195,000
c. P510,000
d. nil
68. Juan initially presumed that his gross sales/receipts and other con-operating income for the
taxable year will not exceed P3,000,000 vat threshold. Consequently, he registered an a non-vay
taxpayer, However, his acually gross sales/receipts and other non-operating income exceeded
the vat treshold during the taxable year. Which of the following statments is correct?
a. He shall immediately update his/her registration to reflect the change in tax profile from
non-vat to vat taxpayer.
b. He shall be required to update registration immediately within the month following the
month s/he exceeded the vat threshold.
c. He shall be liable to vat prospectively starting on the first day of the month following the
month when the threshold is breached.
d. All of the above.
69. When Ana registered in the BIR, she initially presumed that his gross sales/receipts and other
non-operating income for the taxable year will exceed the P3,000,000 vat threshold . Hence, she
registered under the vat system. However, her actual gross sales/receipts for the immediately
preceding 3-year period did not exceed the vat threshold.
Statement 1: She shall update the registration records on or before the first quarter of a taxable
year to reflect the change in the registration
Statement 2: She shall remain liable for vat as long as there is no update of registration and vat
registered invoices/receipts are conticously issued.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statement is correct
d. Both statement is incorrect
70. G.I. Joe, an alien employed in Pan Pacific Petroleum, a Petroleum Service Contractor, received
compensation income of P5M in 2018, inclusive of P400,000 13th month pay and other benefits.
G.I. Joe’s Income tax due for the year shall be:
a. P490,000
b. P931,000
c. P1,421,200
d. nil
71. Which of the following statements regarding minimum wage earner (MWE) is correct?
a. The MWE is exempt from income tax on his basic statutory minimum wage (SMW).
b. The MWE is exempt from income tax on his overtime pay, holiday pay, night shift
differential, and hazard pay.
c. The MWE is subject to income tax on income other than those mentioned in “a” and “b”.
d. All of the above
72. What is the correct treatment of overtime pay, holiday pay, night shift differential, and hazard
pay received by those whose basic pay is more than the SMW?
a. Exempt from income tax
b. Subject to income tax, and consequently, to the withholding tax on compensation income
c. Considered as fringe benefit subject to fringe benefit tax, provided the employee is holding
management or supervisory position.
d. Non of the above.
73. Minimum Wage Earners (MWEs) receiving “other benefits” exceeding P90,000 limit shall be
a. Taxable on the excess benefits only
b. Taxable on the excess benefits as well as his salaries, wages and allowance, just like an
employee receiving compensation income beyond the statutory minimum wage.
c. Exempt from income tax
d. None of the above.
74. Pedro, single, is a minimum wage earner of Makibaka Corporation. In addition to his basic
minimum wage of P180,000 for the year, he also received the following benefits:
 Holiday pay, P32,000
 Overtime pay, 25,000
 Night shift differential, 18,000
The income subject to tax should be
a. P57,000
b. P75,000
c. P255,000
d. nil
75. Pedro’s taxable income assuming the taxable year is 2017 should be:
a. P60,000
b. P110,000
c. P192,000
d. nil
76. How much is the income tax due of Pedro assuming the taxable year is 2018?
a. P80,000
b. P102,000
c. P192,000
d. Nil
77. How much is the income tax due of Pedro in 2018 assuming he also earned P450,000 derived
from his business of buying and selling various consumer products?
a. P30,000
b. P38,000
c. P68,000
d. nil
78. Senior citizens deriving returnable income during the taxable year, whether from compensation
or otherwise, are
a. Required to file their ITRs and pay the tax as they file the return.
 b. Exempt from compensation income taxes.
c. Exempt from business taxes.
d. Given a special tax at 15% of gross income.
79. Persons with disability (PWD) deriving returnable income during the taxable year, whether from
compensation or otherwise, are
a. Required to file their ITRs and pay the tax as they file the return.
b. Exempt from compensation income taxes.
c. Exempt from business taxes.
d. Given a special tax at 15% of gross income.
80. If the returnable income of a SC/PWD is in the nature of a compensation income but she
qualifies as MWE under RA 9504, such income shall be:
SC PWD
a. Exempt Exempt
b. Exempt Basic Tax
c. Basic Tax Basic Tax
d. Basic Tax Exempt
81. A senior citizen and PWD, as a regular income taxpayer, is liable for the following internal
revenues taxes:
Basic income tax FWT on passive income Capital gains tax
a. Yes Yes Yes
b. No Yes Yes
c. Yes No No
d. No No No
82. A PWD/SC who is self-employed and/or professional may qualify for the 8% income tax rate:
PWD SC
a. Yes Yes
b. No Yes
c. Yes No
d. No No
83. Statement 1: Passive incomes are subject to separate and final tax rates.
Statement 2: Passive income are included in the computation of taxable income from
compensation or business/professional income.
A. B. C. D.
Statement 1 True False True False
Statement 2 True False False True
84. Statement 1: Tax on certain passive income is a capital gains tax
Statement 2: Other income, for income tax purposes, is excluded in the determination of an
individual taxpayer’s returnable income.
A. B. C. D.
Statement 1 True False True False
Statement 2 True False False True
85. Which of the following shall not be subject to the 20% final tax beginning January 1, 2018?
 a. Amount of interest from any currency bank deposit and yield or any other monetary
benefit from deposit substitutes and from trust funds and similar arrangements
b. Winnings other than Philippine Charity Sweepstakes and Lotto winnings, regardless of
amount
c. Philippine Charity Sweepstakes and Lotto winnings exceeding P10,000
d. Prizes amounting to ten thousand pesos (P10,000) or less
86. Which of the following statements is incorrect?
a. To be subject to final tax, passive income must be from Philippine sources.
b. An income which is subject to final tax es excluded from the computation of income
subject to Section 24 (A) of the tax code.
c. Lotto winnings in foreign countries are exempt from income tax in the Philippines
d. None of the above
87. Which of the following statements is correct?
I. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10,000 received by
citizens, residents and non-resident aliens engaged in trade or business are exempt from
income tax.
II. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 received by citizens,
residents and non-resident aliens engaged in trade or business are subject to 20% final
withholding tax.
III. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10,000 received by
non-resident aliens not engaged in trade or business are exempt from income tax.
a. I only
b. I and II only
c. I and IV only
d. All of the above
88. Which of the following statements is correct?
I. Prizes not more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are exempt from income tax.
II. Prizes of more than P10,000 received by citizens, residents and non-resident aliens engaged
in trade or business are subject to 20% final withholding tax.
III. Prizes of not more than P10,000 received by non-resident aliens not engaged in trade or
business are exempt from income tax.
a. II only
b. I and II only
c. II and III only
d. I, II and III
89. Which of the following income of an individual taxpayer is subject to final tax?
a. P10,000 prize in Manila won by a resident citizen.
b. Dividend received by a resident citizen from a resident foreign corporation.
c. Shares in the net income of a general professional partnership received by a resident
citizen.
d. Dividend received by a non-resident alien from a domestic corporation.
90. Statement 1: All royalty income derived from sources within the Philippines are subject to final
withholding tax.
Statement 2: All royalty income derived from sources outside of the Philippines received by
resident citizens are subject to basic income tax.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
91. Which of the following interest income derived within the Philippines is subject to basic income
tax?
a. Interest income from bank deposits
b. Interest income from loans
c. Interest income from deposit substitutes
d. Interest income from trust funds
92. Statement 1: “Deposit Substitutes”, as defined in Section 22(Y) of the NIRC of 1997, as amended,
means an alternative form of obtaining funds from the public other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the borrower’s own account, for
the purpose of re-lending or purchasing of receivables and other obligations, or financing their
own needs or the needs of their agent or dealer.

Statement 2: “Public”, is defined as borrowing from twenty (20) or more individual or corporate
lenders at any one time.
A B C D
Statement 1 True True True False
Statement 2 True True False False
93. Statement 1: Any income of nonresident individual taxpayers from transactions with offshore
banking units shall be exempt from income tax.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
94. Which of the following interest income by a resident taxpayer is subject to 15%?
a. Interest income from peso bank deposits
b. Interest income from deposit substitutes
c. Interest income trust funds
d. Interest income on dollar deposits
95. Which of the following statements is correct?
a. Interest income on bank deposit or investment with maturity period of at least five (5)
years is exempt from income tax.
b. Interest income on treasury-bond with maturity period at least five (5) years is exempt
from income tax.
 c. The tax exemption on long term bank deposit or investment extends to all types of
taxpayers.
d. All of the above
96. A non-resident alien not engaged in trade or business derived P50,000 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. P12,500
c. P5,000
d. nil
97. Which of the following statements is true?
a. Interest income from a foreign currency depository unit in the Philippines of a non-resident
alien is not subject to final tax
b. Prizes exceeding P10,000 derived by non-resident alien not engaged in trade or business
here in the Philippines is subject to a final tax of 20%
c. Share in earnings received by non-resident alien from a domestic partnership is subject to
basic tax.
d. All of the above
98. If an account in a depository bank under the foreign currency deposit system is jointly in the
name of a nonresident citizen such as an overseas contract worker, or a Filipino seaman, and his
spouse or dependent who is a resident of the Philippines, the interest on such deposit shall be:
a. Exempted in its entirety.
b. Subject to final withholding tax of 15% in its entirely.
c. 50% exempt and 50% subject to final withholding tax of 15%
d. Subject to regular income tax rates for individuals
99. A non-resident alien derived interest income only in his bank deposit here in the Philippines
under the FCDU system of a domestic bank. The interest amounted to $500. How much is the
income tax due of the said alien? ($1 = Php 50)
a. P0
b. P3,000
c. P8,000
d. P10,000
100. A taxpayer received during the taxable year the following passive Income derived from
within the Philippines:
Interest on bank deposit under FCDU (net) P231,250
Royalty on a software application (gross) 95,000
Dividend income RFC (gross) 150,000

If taxpayer is a non-resident alien engaged in business, the final tax on the above passive
income would amount to
a. P52,750
b. P19,000
 c. P28,250
d. P37,750
101. Which of the following passive income is exempt from tax when received by resident or
citizen and nonresident aliens engaged in trade or business in the Philippines but
subject to 25% final tax when received by nonresident aliens not engaged in trade or
business?
a. Prizes of more than P10,000
b. Interest income from long-term deposit or instrument evidenced by certificates
prescribed by Bangko Sentral ng Pilipinas
c. Yield or any other monetary benefit from trust funds and similar arrangements
d. Other winnings
102. Which of the following statements about interest income from long-term deposit is
false?
a. Interest income from long-term deposit or investment is exempt from income tax
b. If a long-term deposit or investment is pre-terminated, the applicable tax rate on
the interest income is 0% if the holding period is 5 years or more.
c. If a long-term deposit is pre-terminated, the applicable tax rate on the interest
income is 0% if the holding period is 4 years to less than 5 years.
d. If a long-term deposit is pre-terminated, the applicable tax rate on the interest
income is 12% if the holding period is 3 years to less than 4 years.