FINAL EXAMINATION-1ST TERM

TAX 1A
PHILIPPINE TAX SYSTEM AND INCOME TAXATION
UNIVERSITY OF MINDANAO-BANSALAN COLLEGE

Name:________________________________________________ Course:_____________________________

Instruction: Write the letter of your answer before the number. Do not encircle the letter.

Part I – Multiple Choice

1. Which statement is (are) true?

I. All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from tax.
II. All revenues of non-stock, non-profit educational institutions other than educational
purposes shall be subject to tax.
a. I only c. I and II
b. II only d. None are correct
2. All of the following are ways by the government to minimize double taxation, except
a. Taxing the same person twice.
b. Allowing foreign tax credit (deductions for taxes paid abroad)
c. Allowing reciprocal tax treatment between the home country and a foreign country
d. Entering into treaties or bilateral agreements.
3. Under this collection system, the taxpayer himself determines his income, reports the same through
income tax return and pays the tax to the government.
a. Withholding tax System c. Assessment Method
b. Taxation d. Tax Condonation
4. All of the following relates to license fee, except
a. It is a regulatory measure
b. It is imposed in the exercise of police power
c. It is limited to necessary expenses of inspection and regulation
d. It is imposed revenue.
5. Which statement is (are) true?
I. Penalty may be imposed by the government or private entities
II. Tax can only be imposed by the government
a. I only c. I and II
b. II only d. None are correct
6. Tax administration of the national tax system in the Philippines is entrusted to the _______ which is
under the supervision and administration of the Department of Finance.
a. Bureau of Customs c. Bureau of Internal Revenue
b. Department of Budget and Management d. Department of Finance
7. Which statement is (are) true?
I. Expenses are allowed to be deducted on purely compensation income earners
II. Expenses are allowed to be deducted on those earning through business.
a. I only c. I and II
b. II only d. None
8. If the creditor desires to benefit the debtor and without consideration cancels the debt, the amount of
the cancelled debt is a?
 a. Gift c. Payment of Dividend
b. Compensation Income d. Succession
9. If a corporation to which a shareholder is indebted forgives the debt, the transaction is a?
a. Gift c. Payment of Dividend
b. Compensation Income d. Succession
10. ___________is paid directly to an employee which is not accounted for by employee to the employer.
a. Fees c. Tips
b. Allowances d. Commissions
11. _________is an income in which the taxpayer merely waits for the amount to come in.
a. Passive Income c. Capital Gains
b. Compensation Income d. Exempt
12. All are inherent limitations, except
a. Purpose must be public in nature.
b. Exemption of government entities, agencies and instrumentalities.
c. Territorial Jurisdiction
d. All are correct
13. The payor of the income withholds or deducts the tax on the income before releasing to the payee
and remits the same to the government.
a. Withholding tax System c. Tax Condonation
b. Taxation Voluntary d. Compliance System
14. All persons subject to legislation shall be treated alike under similar circumstances and conditions
both in the privileges conferred and liabilities imposed.
a. Due process of Law
b. Equal Protection of Law
c. Non-impairment of religious freedom
d. Exemption of non-stock, non-profit educational institutions from taxation
15. Which statement is (are) true?
I. Taxes collected by the BIR are local taxes
II. The power of the legislative function of the government is limited to the interpretation and
application of tax laws.
a. I only c. I and II
b. II only d. None are correct
16. All are gratuitous transactions, except:
a. Sale c. Succession
b. Donation d. Transfer of property upon death
17. If a debtor performs a service for a creditor, who then cancels the debt, the amount is included as
a. Gift c. Payment of Dividend
b. Compensation Income d. Succession
18. All are requisites that a retirement pay is non-taxable, except:
a. Retirement program is approved by the BIR Commissioner
b. It must be a reasonable benefit plan. Its implementation must be fair and equitable for the benefit
of all employees.
c. The retiree should have been employed for 10 years in the said company.
d. The retiree should have been a senior citizen at the time of retirement.
19. All are involuntary reasons to receive separation pay, except:
a. Merger c. Bankruptcy
b. Death d. Retirement
20. Under the Train Law, the new tax rate for the interest income from a Depository Bank under a
Foreign Currency Deposit System is?
 a. 7 ½ % c. 10%
b. 15% d. 20%
21. Janet Napoles received the following amounts on December 31, 2018
First Prize – Essay Writing Contest 100,000
PCSO lotto winnings 2,000,000
Raffle Ticket Winnings 15,000
How much is the final tax paid by Janet?
a. 23,000 c. 3,000
b. 423,000 d. 400,000
22. In relation to number 2, how much is exempt from tax?
a. 100,000 c. 2,000,000
b. 15,000 d. 0
23. In relation to number 2, how much is subject to normal tax?
a. 100,000 c. 2,000,000
b. 15,000 d. 0
24. Which of the following is true about the final tax on winnings?
a. It is always subject to 20% final tax
b. subject to final tax of 20% except if the amount of prize is 10,000 or less
c. It is always subject to 10% final tax
d. subject to final tax of 10% except if the amount of prize is 10,000 or less
25. Which of the following is true about the final tax on prizes?
a. It is always subject to 20% final tax
b. subject to final tax of 20% except if the amount of prize is 10,000 or less
c. It is always subject to 10% final tax
d. subject to final tax of 10% except if the amount of prize is 10,000 or less
26. ______ is a reward for a contest or competition, in other words it is a remuneration of an effort
reflecting ones superiority.
a. Prize c. Royalties
b. Winnings d. Dividends
27. _________ is a reward for an event that depends on chance.
a. Prize c. Royalties
b. Winnings d. Dividends
28. Refers to items or receipts not included in the determination of the taxable income because the law or
treaty provides that they are exempt from income tax.
a. Exclusions from gross income c. Gross Income
b. Deductions from gross income d. Taxable Income
29. All of the following are excluded from gross income, except
a. Compensation income of minimum wage earners, who has no other reportable income.
b. Compensation income and/ or business income earned inside and outside the Philippines by
Overseas Filipino Workers, non-resident Filipino Citizen, resident alien and foreign corporation
c. 13th month pay not exceeding 90,000 per year
d. Compensation income under the employer’s benefit rule.
30. These are workers who earn below the minimum rate.
a. Maximum Wage Earners c. Executives
b. Minimum Wage Earners d. Managers
31. Mr. A took a life insurance policy amounting to P2,000,000 which is to be received after thirty years.
He died on the 15th year, leaving his heirs the life insurance cash surrender value after paying annual
 premiums of 10,000 per year he paid for 15 years amounting to 150,000. How much is the taxable
income of his heirs?
a. 2,000,000 c. 150,000
b. 1,850,000 d. None
32. Walang University received tuition fees during the school year amounting to 10,000,000 pesos and
earned 400,000 pesos on their water refilling station. Which statement is correct?
a. The entire tuition fees is not subject to tax.
b. The earnings from the station is not subject to tax.
c. The entire earnings from tuition fees and the station is not subject to tax.
d. Both A and B.
33. This refers to earnings that are compensation in nature but which the law specifically excludes as
part of the gross income for taxation purposes.
a. Exclusions from gross income c. Nontaxable compensation Income
b. Deductions from gross income d. Taxable compensation Income
34. Which of the following is correct about MWE’s with other income?
a. Any other income in addition to compensation income of MWE is not exempt from tax.
b. Any other income in addition to compensation income of MWE is exempt from tax.
c. Any other income excluding the compensation income of MWE is not exempt from tax.
d. Any other income excluding the compensation income of MWE is exempt from tax.
35. Which of the following is included in the computation of gross income?
a. GSIS membership c. SSS maternity benefit
b. SSS retirement benefit d. All are excluded from gross income
Part II- Problem Solving

Jed, a resident citizen and an employee of Bureau of Internal Revenue has received the following amounts
for the year 2018.

Salary:

Gross Pay 300,000

Less: SSS 2,000
Pag-ibig 3,000
Philhealth 1,000
Withholding tax 1,500
Net Pay 292,500

He also received the following amounts during the year.

Transportation Allowance 12,000

Honorariums received 60,000
Prize on Singing Contest 20,000
PCSO Lotto winnings 1,000,000
Winnings on gambling 50,000
Royalties on oil rights 80,000
Royalties on Musical Composition 48,000
Insurance paid by employer (beneficiary is employee) 3,300
Cost of Living Allowance 8,800
Fees as a commissioner 7,000
Dividend Income from a domestic corporation 80,000
Share dividends received in lieu of salary (1,000x20 per share) 20,000

Monetized vacation leave (8 days) 16,000

13th month pay 120,000

 On February 1, 2016, Sid invested in a long term deposit for 1,000,000 with 10% interest per annum
with maturity of six years. On December 31, 2017, he withdrew his investment.

1. How much is the gross income of Jed? (5points)

2. How much is the interest income earned by Jed? (5points)

3. How much is the final tax paid on the interest income? (5points)

4. How much is the final tax paid on royalties? (5points)

5. How much is the final tax paid on prizes and winnings? (5points)

6. How much is the net cash received by Jed on his long term deposit? (5points)

7. How much is the total final tax paid? (5points)