WorksheetsMidterms 2 _Income Taxation
Total questions: 30
Worksheet time: 15mins
Choose the best answer for each question. The primary purpose of income taxation in the Philippines is to:
Punish non-filers of income tax returns
Raise revenue for public purposes
Regulate imports and exports
Encourage foreign investment
Choose the best answer for each question. The “lifeblood doctrine” means that:
Taxes are optional for citizens
Government cannot function without taxes
Congress can waive taxes anytime
Only corporations are subject to taxes
Choose the best answer for each question. Which constitutional principle guides the structure of the tax system?
Simplicity and certainty
Uniformity and equity
Secrecy and selectivity
Balance and neutrality
Choose the best answer for each question. Who primarily exercises the power of taxation?
Bureau of Internal Revenue
Congress
Department of Finance
President of the Philippines
Choose the best answer for each question. A Filipino citizen working abroad for over 183 days is taxable only on:
Worldwide income
Philippine-source income
Foreign income only
None of the above
Which taxpayer is taxed on worldwide income?
Non-resident citizen
Resident citizen
Resident alien
Non-resident alien
The source of compensation income is determined by:
Where the employer resides
Where the services are performed
Where the salary is paid
Where the employee lives
A resident alien derives business income from operations in Japan. The income is:
Taxable in the Philippines
Exempt under reciprocity
Taxable only in Japan
Exempt under TRAIN Law
A tax is considered direct when:
The burden can be shifted to another person
The tax is imposed on property
The legal and economic burden fall on the same person
The rate is fixed by the President
An example of an indirect tax is:
Corporate income tax
Donor’s tax
Estate tax
Value-added tax (VAT)
“Gross income” means:
Only the compensation received by employees
All income derived from whatever source
Only income from business or profession
Only passive income
Which of the following is excluded from gross income?
Compensation income
13th month pay exceeding ₱90,000
Life insurance proceeds
Business income
The term “final tax” means that:
The taxpayer may still deduct it in computing income tax
The income must be declared again in annual ITR
The tax is already withheld and no longer included in regular tax computation
The BIR may still reassess it after audit
Which is not a characteristic of a deductible expense?
Ordinary and necessary
Supported by official receipts
Personal in nature
Incurred in trade or business
What is the effect of the TRAIN Law on the previous system of personal and additional exemptions?
It increased all exemptions to a higher amount
It removed personal and additional exemptions and replaced them with a zero-tax threshold
It reduced the exemption amounts for dependents
It added new exemptions for professionals
Why is the Optional Standard Deduction (OSD) helpful to small business owners and professionals?
It allows them to pay less tax automatically
It makes filing easier because they don’t need to list all their expenses
It exempts them from income tax completely
It removes the need to file any tax return
The main difference between itemized deductions and OSD is that:
Itemized deductions are optional while OSD is mandatory
OSD requires receipts for all expenses
Itemized deductions are based on actual expenses; OSD is based on a fixed percentage of income
Both are based on total assets
Why are passive incomes such as bank interest and royalties subject to final tax?
Because they are exempt from tax
Because the government prefers to collect them at the source to simplify collection
Because they are part of the taxpayer’s regular income
Because they are remitted directly to the DOF
Capital gains arise when:
An employee receives a salary increase
A taxpayer sells or exchanges a property at a profit
A corporation distributes dividends
A taxpayer inherits property
What is the key difference between ordinary income and capital gain?
Ordinary income is always tax-free
Capital gains come from selling capital assets; ordinary income comes from recurring sources
Ordinary income comes from property sales
Capital gains can offset any type of loss
What is the purpose of allowing deductions from gross income?
To encourage taxpayers to underreport income
To avoid taxing personal expenses
To ensure only net income used in earning profit is taxed
To reward compliance
Which of the following is not allowed as a deduction?
Salaries of employees
Bribes or kickbacks
Rent for business use
Depreciation expense
Net Operating Loss Carry-Over (NOLCO) allows a taxpayer to:
Carry losses indefinitely
Deduct losses for 3 succeeding years (5 under CREATE pandemic rule)
Deduct losses only once
Offset losses against personal expenses
The BIR can disallow a deduction if:
Proper withholding tax was not made
It was paid in cash
The expense was below ₱10,000
The taxpayer used OSD
Under CREATE, the regular corporate income tax rate for domestic corporations is:
30%
25% (20% for small corporations)
15%
35%
The power to interpret tax laws and decide cases is vested in:
Department of Finance
Court of Tax Appeals
Commissioner of Internal Revenue
Congress
Which is not part of the stages of taxation?
Levy
Assessment
Enforcement
Legislation by executive order
The legal document authorizing a BIR audit is called:
Notice of Assessment
Letter of Authority (LOA)
Tax Clearance
Tax Compliance Certificate
Failure to pay tax due because of fraud is penalized under:
Sec. 204 of NIRC
Sec. 254 – Attempt to evade or defeat tax
Sec. 27(A) of CREATE
Sec. 115 – VAT closure
Which best distinguishes tax avoidance from tax evasion?
Avoidance is illegal; evasion is legal
Both are legal tax planning strategies
Avoidance is legal use of tax-saving measures; evasion is willful fraud or concealment
Evasion occurs by mistake
