Aldous died leaving a farm land. In his will, he transferred the ownership thereof to Bruno but subject to the condition that Carmilla will have right to use the land for a period of 10 years (usufruct). In the 7th year however, Carmilla died and in Carmilla's will, he surrendered his right over the land to Bruno. Which of the the following statement is correct?

The transfer is a tax-exempt transfer.

The transfer to Bruno is subject to donor's tax.

The transfer to Bruno is subject to estate tax.

The transfer is both an inclusion and deduction from the gross estate of Carmilla.

The transfer is a tax-exempt transfer.

The estate tax return is generally required to be filed:

Within 1 year from the date of death of the decedent.

Within 6 months from the date of death of the decedent.

Within 6 months from the submission of the notice of death of the decedent.

Within 1 year from the date of death of the decedent.

Within 1 year from the date of submission of the notice of death of the decedent.

This is not part of the gross estate:

Exclusive property of the surviving spouse.

Statement 1: The gift is perfected from the moment the donor effects the delivery either actually or constructively of the property donated. Statement 2: Donor’s tax is a property tax imposed on the property transferred by way of gift inter-vivos.

Only the first statement is true.

Only the first statement is false.

Statement 1: If the value of the movable property donated is P5,000.00 or more, the donation and acceptance shall be made in writing, otherwise, the donation is void. Statement 2: Gifts of conjugal property made by the spouses shall be considered as having made one-half by the husband and the other half by the wife.

Only the first statement is true.

Only the first statement is false.

The Commissioner of Internal Revenue (CIR) may not inquire into the bank deposits of a taxpayer, except when the taxpayer:

Offers to compromise the assessed tax based on financial incapacity to pay and he authorizes the Commissioner in writing to do so.

Offers to compromise the assessed tax based on erroneous assessment.

Offers to compromise the assessed tax based on financial incapacity to pay and he authorizes the Commissioner in writing to do so.

Failed to file his income tax return.

In case of full or partial denial by the CIR of the protest, the taxpayer has:

30 days within which to file a petition for review with the Court of Tax Appeal.

60 days within which to file a petition for review with the Court of Tax Appeals.

30 days within which to file a petition for review with the Court of Tax Appeal.

60 days within which to file a motion for reconsideration before appealing the decision to the Court of Tax Appeals.

30 days within which to file a motion for reconsideration before appealing the decision to the Court of Tax Appeals.

The prescriptive period for the BIR within which to make an assessment on the tax return filed by the taxpayer is

3 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes later

3 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes earlier

3 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes later

5 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes later

5 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes earlier

All of the following statements are wrong, except one. Which is it?

The collection of a deficiency tax by distraint and levy may be repeated, if necessary, until the full amount due, including all expenses is collected.

The collection of a deficiency tax by distraint and levy must be done successively, first by distraint and then by levy.

The collection of a deficiency tax by distraint and levy automatically covers bank deposits of a delinquent taxpayer.

The collection of a deficiency tax by distraint and levy may be done only once during the taxable year.

Statement 1: The authority of the President to fix tariff rates, import, and export quotas needs to have a law enacted by congress. Statement 2: The power of tax of the local government unit is merely a delegated power.

Only the first statement is true

Only the first statement is false

The records of Argus, an independent contractor, show total gross receipts of P4,500,000 for 2018. Her cost of service and operating expenses were P2,200,000 and P1,200,000. If Argus elects optional standard deduction, which of the following is correct?

She is subject under the graduated income tax rates and liable for business tax, in addition to income tax.

The election is irrevocable for 3 years.

She is required to submit her financial statements with her tax return.

She may elect to be taxed at 8% provided she signified her intention to be taxed at 8% in her 1st quarter return.

She is subject under the graduated income tax rates and liable for business tax, in addition to income tax.

MONYAN, Inc. purchased a residential house and lot with swimming pool in a high-end subdivision and required the company president, Tigreal, to stay there rent-free. According to the corporation, the company president must maintain a certain image and be able to entertain guest at the house to promote the company’s business. Was there a taxable fringe benefit?

No, since it was for the convenience of the employer and was necessary for its business.

Yes, because the stay in the house was rent free.

Yes because the house is for luxury.

No, because the company president was only required to stay and did not demand the free housing.

Valir, an individual, who is a real estate dealer, sold a residential lot in Davao City at a gain of P100,000. The sale is subject to which type of income tax.

Ordinary income tax at the graduated rates of net taxable income

6% capital gains tax on the gain

6% capital gains tax on the gross selling price or fair market value, whichever is higher

Ordinary income tax at the graduated rates of net taxable income

Ordinary income tax at the graduated rates of the gross taxable income

Vale, a resident alien, received a prize of P40,000 from SM Ecoland. Which of the following statements is correct?

The whole amount is subject to 20% final tax.

The first P10,000 is part of the taxable income and the remaining is subject to 20% final tax.

The whole amount is part of the taxable income.

The whole amount is subject to 20% final tax.

The first P10,000 shall be exempt, the remaining is subject to 20% final tax.

Tax Review - Final Exam (2019-2020)

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Tax Review - Final Exam (2019-2020) - Quiz

Questions and Answers

1.

Aldous died leaving a farm land. In his will, he transferred the ownership thereof to Bruno but subject to the condition that Carmilla will have right to use the land for a period of 10 years (usufruct). In the 7th year however, Carmilla died and in Carmilla's will, he surrendered his right over the land to Bruno. Which of the the following statement is correct?
- A.
  
  The transfer to Bruno is subject to donor's tax.
- B.
  
  The transfer to Bruno is subject to estate tax.
- C.
  
  The transfer is both an inclusion and deduction from the gross estate of Carmilla.
- D.
  
  The transfer is a tax-exempt transfer.
Correct Answer
D. The transfer is a tax-exempt transfer.

Explanation
The transfer of the ownership of the farm land from Aldous to Bruno is considered a tax-exempt transfer. This is because Carmilla, who had the right to use the land for 10 years, surrendered his right over the land to Bruno. Since there is no consideration or payment involved in this transfer, it is not subject to any taxes such as donor's tax or estate tax. Therefore, the correct statement is that the transfer is a tax-exempt transfer.

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2.

The estate tax return is generally required to be filed:
- A.
  
  Within 6 months from the date of death of the decedent.
- B.
  
  Within 6 months from the submission of the notice of death of the decedent.
- C.
  
  Within 1 year from the date of death of the decedent.
- D.
  
  Within 1 year from the date of submission of the notice of death of the decedent.
Correct Answer
C. Within 1 year from the date of death of the decedent.

Explanation
The estate tax return is generally required to be filed within 1 year from the date of death of the decedent. This allows sufficient time for the estate executor or administrator to gather all necessary information and complete the required paperwork. Filing within this timeframe ensures compliance with tax laws and avoids any penalties or interest that may be imposed for late filing.

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3.

This is not part of the gross estate:
- A.
  
  Conjugal property.
- B.
  
  Community property.
- C.
  
  Share of the surviving spouse.
- D.
  
  Exclusive property of the surviving spouse.
Correct Answer
D. Exclusive property of the surviving spouse.

Explanation
The exclusive property of the surviving spouse is not included in the gross estate because it is solely owned by the surviving spouse and not considered part of the deceased person's estate. The gross estate typically includes all the assets and property owned by the deceased person at the time of their death, including conjugal property, community property, and the share of the surviving spouse. However, the exclusive property of the surviving spouse is excluded as it is not considered part of the deceased person's estate.

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4.

On 4 April 2018, Harith donated a real property costing P500,000 in favor of Lilia. The fair market value of the property at the time of donation is P600,000 and the existing mortgage thereof worth P200,000 was assumed by Lilia. On 14 June 2018, Harith Made a cash gift of P100,000 to Moonton College of Davao, a proprietary educational institution. As per the deed of donation, the entire gift shall be used to procure new tables and chairs for the classrooms and none of the amount donated shall be used for administrative purposes. The amount subject to donation is:
- A.
  
  P250,000
- B.
  
  P450,000
- C.
  
  P550,000
- D.
  
  0
Correct Answer
B. P450,000

Explanation
The amount subject to donation is P450,000. This is because the fair market value of the property donated is P600,000, and the existing mortgage worth P200,000 was assumed by Lilia. Therefore, the net value of the donation is P600,000 - P200,000 = P400,000. In addition, the cash gift of P100,000 to Moonton College of Davao is also included in the amount subject to donation. Therefore, the total amount subject to donation is P400,000 + P100,000 = P500,000.

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5.

Using the facts in the previous problem, the donor's tax payable on 14 June 2018 is:
- A.
  
  9000
- B.
  
  6,600
- C.
  
  3,000
- D.
  
  0
Correct Answer
B. 6,600

Explanation
Based on the given information, it can be inferred that the donor's tax payable on 14 June 2018 is 6,600.

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6.

Statement 1: The gift is perfected from the moment the donor effects the delivery either actually or constructively of the property donated. Statement 2: Donor’s tax is a property tax imposed on the property transferred by way of gift inter-vivos.
- A.
  
  Only the first statement is true.
- B.
  
  Only the first statement is false.
- C.
  
  Both statements are true.
- D.
  
  Both statements are false.
Correct Answer
D. Both statements are false.

Explanation
The first statement is false because a gift is perfected not from the moment the donor effects the delivery of the property, but from the moment the gift is accepted by the recipient. The second statement is also false because donor's tax is not a property tax, but a tax imposed on the transfer of property by way of gift.

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7.

Statement 1: If the value of the movable property donated is P5,000.00 or more, the donation and acceptance shall be made in writing, otherwise, the donation is void. Statement 2: Gifts of conjugal property made by the spouses shall be considered as having made one-half by the husband and the other half by the wife.
- A.
  
  Only the first statement is true.
- B.
  
  Only the first statement is false.
- C.
  
  Both statements are true.
- D.
  
  Both statements are false.
Correct Answer
C. Both statements are true.

Explanation
The first statement is true because it states that if the value of the movable property donated is P5,000.00 or more, the donation and acceptance must be made in writing, otherwise, the donation is void. This is in accordance with the legal requirement for written documentation for donations above a certain value. The second statement is also true because it states that gifts of conjugal property made by the spouses are considered as having made one-half by the husband and the other half by the wife. This is in line with the principle of equal division of conjugal property between spouses.

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8.

The Commissioner of Internal Revenue (CIR) may not inquire into the bank deposits of a taxpayer, except when the taxpayer:
- A.
  
  Files a fraudulent return
- B.
  
  Offers to compromise the assessed tax based on erroneous assessment.
- C.
  
  Offers to compromise the assessed tax based on financial incapacity to pay and he authorizes the Commissioner in writing to do so.
- D.
  
  Failed to file his income tax return.
Correct Answer
C. Offers to compromise the assessed tax based on financial incapacity to pay and he authorizes the Commissioner in writing to do so.

Explanation
The Commissioner of Internal Revenue (CIR) is not allowed to inquire into the bank deposits of a taxpayer, except in certain situations. One of these situations is when the taxpayer offers to compromise the assessed tax based on financial incapacity to pay and authorizes the Commissioner in writing to do so. This means that if a taxpayer is unable to pay the assessed tax due to financial difficulties, they can propose a compromise and give written authorization to the Commissioner to access their bank deposits for this purpose.

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9.

In case of full or partial denial by the CIR of the protest, the taxpayer has:
- A.
  
  60 days within which to file a petition for review with the Court of Tax Appeals.
- B.
  
  30 days within which to file a petition for review with the Court of Tax Appeal.
- C.
  
  60 days within which to file a motion for reconsideration before appealing the decision to the Court of Tax Appeals.
- D.
  
  30 days within which to file a motion for reconsideration before appealing the decision to the Court of Tax Appeals.
Correct Answer
B. 30 days within which to file a petition for review with the Court of Tax Appeal.

Explanation
If the CIR denies the taxpayer's protest, the taxpayer has 30 days to file a petition for review with the Court of Tax Appeals. This means that they can request a review of the decision by a higher court within 30 days.

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10.

The submission of required documents within 60 days from the filing of the protest is available where the taxpayer previously file:
- A.
  
  A motion for reconsideration
- B.
  
  A request for reconsideration
- C.
  
  A request for reinvestigation
- D.
  
  An extension to file a protest
Correct Answer
C. A request for reinvestigation

Explanation
The submission of required documents within 60 days from the filing of the protest is available when the taxpayer previously filed a request for reinvestigation. This means that if the taxpayer had previously requested a reinvestigation of their case, they have the option to submit the necessary documents within 60 days of filing the protest. This allows them to provide any additional evidence or information that may support their case during the protest process.

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11.

The prescriptive period for the BIR within which to make an assessment on the tax return filed by the taxpayer is
- A.
  
  3 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes earlier
- B.
  
  3 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes later
- C.
  
  5 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes later
- D.
  
  5 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes earlier
Correct Answer
B. 3 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes later

Explanation
The correct answer is "3 years from the date of filing of the tax return or from the date of the deadline of its filing, whichever comes later." This means that the Bureau of Internal Revenue (BIR) has a maximum of 3 years to assess the tax return filed by the taxpayer. The assessment period starts either from the actual date of filing or from the deadline for filing, whichever is later. This allows the BIR enough time to review and assess the tax return for any discrepancies or errors.

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12.

All of the following statements are wrong, except one. Which is it?
- A.
  
  The collection of a deficiency tax by distraint and levy may be repeated, if necessary, until the full amount due, including all expenses is collected.
- B.
  
  The collection of a deficiency tax by distraint and levy must be done successively, first by distraint and then by levy.
- C.
  
  The collection of a deficiency tax by distraint and levy automatically covers bank deposits of a delinquent taxpayer.
- D.
  
  The collection of a deficiency tax by distraint and levy may be done only once during the taxable year.
Correct Answer
A. The collection of a deficiency tax by distraint and levy may be repeated, if necessary, until the full amount due, including all expenses is collected.

Explanation
The correct answer is "The collection of a deficiency tax by distraint and levy may be repeated, if necessary, until the full amount due, including all expenses is collected." This statement is correct because the tax authorities have the authority to repeat the process of distraint and levy to collect the full amount of the deficiency tax, including any expenses incurred in the collection process. The other statements are incorrect because they either state a specific order of collection (first distraint, then levy) or make assumptions about the coverage of bank deposits or the number of times the collection can be done in a taxable year.

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13.

What is the basis of taxation?
- A.
  
  Lifeblood theory
- B.
  
  Necessity theory
- C.
  
  Symbiotic relationship
- D.
  
  Raise revenu
Correct Answer
C. Symbiotic relationship

Explanation
The basis of taxation is a symbiotic relationship. This means that taxation is a mutually beneficial relationship between the government and the taxpayers. The government relies on taxes to generate revenue, which is essential for providing public goods and services, maintaining infrastructure, and funding various programs. On the other hand, taxpayers benefit from the services and protections provided by the government. This symbiotic relationship ensures that both parties are dependent on each other for their respective needs and functions.

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14.

Which of the following is not an inherent limitation of the power of taxation?
- A.
  
  International comity
- B.
  
  Veto power of the president
- C.
  
  Territoriality
- D.
  
  Public purpose
Correct Answer
B. Veto power of the president

Explanation
The veto power of the president is not an inherent limitation of the power of taxation because it does not directly restrict or limit the government's ability to impose taxes. The veto power allows the president to reject or approve legislation, including tax-related bills, but it does not inherently limit the government's authority to tax. In contrast, international comity, territoriality, and public purpose are inherent limitations that can affect the scope and application of taxation.

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15.

This involves the passage of tax laws:
- A.
  
  Levying
- B.
  
  Assessment
- C.
  
  Collection
- D.
  
  Payment
Correct Answer
A. Levying

Explanation
Levying refers to the process of imposing or imposing taxes on individuals or entities. It involves the creation and implementation of tax laws by the government. This includes determining the types of taxes, tax rates, and who is subject to taxation. Levying is the initial step in the tax process and is necessary for the government to generate revenue for public services and functions.

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16.

Statement 1: The authority of the President to fix tariff rates, import, and export quotas needs to have a law enacted by congress. Statement 2: The power of tax of the local government unit is merely a delegated power.
- A.
  
  Only the first statement is true
- B.
  
  Only the first statement is false
- C.
  
  Both statements are true
- D.
  
  Both statements are false
Correct Answer
C. Both statements are true

Explanation
Both statements are true. The first statement states that the authority of the President to fix tariff rates, import, and export quotas needs to have a law enacted by Congress. This is true because the President does not have the power to unilaterally set these rates and quotas without the approval of Congress. The second statement states that the power of tax of the local government unit is merely a delegated power. This is also true because local government units derive their power to impose taxes from laws enacted by higher levels of government, such as the national or state government.

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17.

Tax laws should be capable of convenient, just, and effective administration:
- A.
  
  Fiscal adequacy
- B.
  
  Equality of taxation
- C.
  
  Administrative feasibility
- D.
  
  Theoretical justice
Correct Answer
C. Administrative feasibility

Explanation
Administrative feasibility refers to the practicality and ease of implementing and enforcing tax laws. It implies that tax laws should be designed in a way that can be easily understood, complied with, and administered by tax authorities. This includes considerations such as simplicity, clarity, and the availability of resources and technology for efficient tax collection and enforcement. By prioritizing administrative feasibility, tax laws can be effectively implemented, reducing the likelihood of tax evasion and ensuring a smooth and efficient tax administration system.

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18.

Which of the following shall be allowed as deductions from gross sales? (I) Sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales. (II) Discounts determined and granted at the time of sale, which are previously indicated in the invoice, the amount thereof forming part of the gross sales duly recorded in the books of accounts. (II) Sales discounts indicated in the invoice at the time of sale, the grant of which is dependent upon the happening of a future event.
- A.
  
  I, II, and III
- B.
  
  I and II
- C.
  
  I and III
- D.
  
  II and III
Correct Answer
B. I and II

Explanation
The correct answer is I and II because both options mention deductions that are allowed from gross sales. Option I states that sales returns and allowances, for which a proper credit or refund was made to the buyer, can be deducted. Option II mentions discounts that are determined and granted at the time of sale and are indicated in the invoice. Both of these deductions are considered valid and can be subtracted from gross sales.

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19.

Franco, the cost accountant of Northern Vale Corporation, earned annual compensation income of P1,500,000 inclusive of 13^th month pay and other benefits in the amount of P120,000, but net of mandatory contributions to SSS, PHIC, and Pag-IBIG of P25,000. Aside from his employment income, he owns a convenience store with a gross sales of P2,400,000. His cost of sales and operating expenses are P1,100,000 and P500,000, respectively. In addition, he had a non-operating income of P100,000. If Franco opted to be taxed at 8% income tax rate under the TRAIN law, his tax due is:
- A.
  
  P292,800
- B.
  
  P513,000
- C.
  
  P505,000
- D.
  
  P312,800
Correct Answer
B. P513,000
20.

Using the facts on the preceding number, if he did not choose the 8% income tax option, his tax due if he chooses itemized deduction is:
- A.
  
  P582,200
- B.
  
  P513,000
- C.
  
  P164,800
- D.
  
  P184,800
Correct Answer
A. P582,200

Explanation
Based on the information provided, the question is asking for the tax due if the person chooses the itemized deduction option instead of the 8% income tax option. The correct answer is P582,200. This means that if the person does not choose the 8% income tax option, their tax due will be P582,200.

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21.

The records of Argus, an independent contractor, show total gross receipts of P4,500,000 for 2018. Her cost of service and operating expenses were P2,200,000 and P1,200,000. If Argus elects optional standard deduction, which of the following is correct?
- A.
  
  The election is irrevocable for 3 years.
- B.
  
  She is required to submit her financial statements with her tax return.
- C.
  
  She may elect to be taxed at 8% provided she signified her intention to be taxed at 8% in her 1^st quarter return.
- D.
  
  She is subject under the graduated income tax rates and liable for business tax, in addition to income tax.
Correct Answer
D. She is subject under the graduated income tax rates and liable for business tax, in addition to income tax.

Explanation
If Argus elects optional standard deduction, she will still be subject to the graduated income tax rates. This means that her taxable income will be determined based on the applicable tax rates for her income bracket. Additionally, as an independent contractor, she will also be liable for business tax, in addition to income tax. The other options mentioned in the question are not applicable in this scenario.

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22.

MONYAN, Inc. purchased a residential house and lot with swimming pool in a high-end subdivision and required the company president, Tigreal, to stay there rent-free. According to the corporation, the company president must maintain a certain image and be able to entertain guest at the house to promote the company’s business. Was there a taxable fringe benefit?
- A.
  
  No, since it was for the convenience of the employer and was necessary for its business.
- B.
  
  Yes, because the stay in the house was rent free.
- C.
  
  Yes because the house is for luxury.
- D.
  
  No, because the company president was only required to stay and did not demand the free housing.
Correct Answer
A. No, since it was for the convenience of the employer and was necessary for its business.

Explanation
The correct answer is No, since it was for the convenience of the employer and was necessary for its business. This means that the company provided the house and lot with a swimming pool to the president for the purpose of maintaining a certain image and entertaining guests to promote the company's business. As it was a requirement for the president's role and directly related to the company's business, it qualifies as a non-taxable fringe benefit.

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23.

Valir, an individual, who is a real estate dealer, sold a residential lot in Davao City at a gain of P100,000. The sale is subject to which type of income tax.
- A.
  
  6% capital gains tax on the gain
- B.
  
  6% capital gains tax on the gross selling price or fair market value, whichever is higher
- C.
  
  Ordinary income tax at the graduated rates of net taxable income
- D.
  
  Ordinary income tax at the graduated rates of the gross taxable income
Correct Answer
C. Ordinary income tax at the graduated rates of net taxable income

Explanation
The correct answer is ordinary income tax at the graduated rates of net taxable income. This is because Valir, as a real estate dealer, is engaged in the business of selling properties. Therefore, the gain from the sale of the residential lot would be considered as ordinary income and subject to the regular income tax rates based on his net taxable income. The other options, such as capital gains tax, would not be applicable in this scenario.

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24.

Vale, a resident alien, received a prize of P40,000 from SM Ecoland. Which of the following statements is correct?
- A.
  
  The first P10,000 is part of the taxable income and the remaining is subject to 20% final tax.
- B.
  
  The whole amount is part of the taxable income.
- C.
  
  The whole amount is subject to 20% final tax.
- D.
  
  The first P10,000 shall be exempt, the remaining is subject to 20% final tax.
Correct Answer
C. The whole amount is subject to 20% final tax.

Explanation
The correct answer is "The whole amount is subject to 20% final tax." This means that the entire prize amount of P40,000 is subject to a final tax rate of 20%. As a resident alien, Vale is required to pay tax on the full amount of the prize received.

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25.

Martis is employed as an accountant in Azure Corp. On the 31 December 2018, at age 49, he retired after 15 years of continuous service from the company to which he received the following amounts: Basic Salary, net of deductions P 300,000 Employees share to SSS, PHIC, and HDMF 25,000 Overtime Pay 20,000 Retirement Pay for his early retirement 1,500,000 Benefits received from SSS upon retirement 400,000 13^th month pay 25,000 Employee of the Year Bonus 50,000 Productivity Incentive 10,000 Also, he had the following accounts for his spa and massage business, Touch and Press, and from his personal transactions: Gross Receipts P 400,000 Cost of Service: Salary of masseurs 200,000 Massage Oils 20,000 Powder 10,000 Other expenses indirectly related to services 50,000 Interest income from loan to his 1^st cousin, GIVE ME A CHANCE 5,000 Interest income from short term time deposit at Bank of the Philippine Islands 5,000 Dividends from Megaworld Corporation 8,000 The gross taxable compensation income is:
- A.
  
  P2,330,000
- B.
  
  P2,245,000
- C.
  
  P1,845,000
- D.
  
  P1,823,000
Correct Answer
D. P1,823,000

Explanation
The gross taxable compensation income is P1,823,000. This is calculated by adding the basic salary net of deductions (P300,000), overtime pay (P20,000), retirement pay for early retirement (P1,500,000), and benefits received from SSS upon retirement (P400,000). Other amounts such as the employee's share to SSS, PHIC, and HDMF, 13th month pay, employee of the year bonus, and productivity incentive are not included in the calculation of gross taxable compensation income. The income from the spa and massage business, as well as the interest income and dividends, are not relevant to the calculation of the individual's gross taxable compensation income.

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26.

Using the facts given in the previous problem, the gross taxable business income is
- A.
  
  P400,000
- B.
  
  P320,000
- C.
  
  P170,000
- D.
  
  P120,000
Correct Answer
C. P170,000

Explanation
Based on the facts given in the previous problem, the gross taxable business income is P170,000. This means that after deducting all allowable expenses and deductions, the remaining income subject to taxation is P170,000.

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27.

Under the same previous problem, the total gross taxable income is
- A.
  
  P2,365,000
- B.
  
  P1,995,000
- C.
  
  P1,943,000
- D.
  
  P2,500,000
Correct Answer
B. P1,995,000
28.

The following organizations shall not be taxed in respect to their income received by them as such, except
- A.
  
  Nonstock non-profit educational institution
- B.
  
  Government educational institution
- C.
  
  Nonprofit hospitals
- D.
  
  Cemetery company owned and operated exclusively for the benefit of its members
Correct Answer
C. Nonprofit hospitals

Explanation
Nonprofit hospitals are exempt from taxation on their income because they operate exclusively for the benefit of the community and provide essential healthcare services without the primary goal of making a profit. These hospitals typically reinvest any surplus funds back into improving patient care and expanding services. This tax exemption recognizes the important role these institutions play in promoting public health and ensures that they can continue to provide affordable and accessible healthcare to the community.

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29.

The excess of allowable deductions over gross income off the business in a taxable year is known as
- A.
  
  Net operating loss
- B.
  
  Ordinary loss
- C.
  
  Net deductible loss
- D.
  
  NOLCO
Correct Answer
A. Net operating loss

Explanation
Net operating loss refers to the excess of allowable deductions over gross income from a business in a taxable year. This means that the business had more deductions than income, resulting in a negative net income for that year. Net operating losses can often be carried forward to future years to offset taxable income, providing tax relief for the business.

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30.

Leomord sold for P10M his rest house in Buda to buy a new principal residence. The fair market value if the rest house is P12M. If he utilized P8M of the proceeds of the sale in acquiring a new principal residence, the capital gains tax payable is:
- A.
  
  P720,000
- B.
  
  P600,000
- C.
  
  P144,000
- D.
  
  P120,000
Correct Answer
A. P720,000

Explanation
The capital gains tax payable is P720,000. This can be calculated by taking the selling price of the rest house (P10M) minus the acquisition cost of the new principal residence (P8M), which equals P2M. Then, the capital gains tax rate is applied to this amount. Assuming a capital gains tax rate of 6%, the tax payable would be 6% of P2M, which equals P120,000. However, since the fair market value of the rest house is P12M, which is higher than the selling price, the capital gains tax is computed based on the fair market value instead. Therefore, the tax payable is 6% of P12M, which equals P720,000.

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31.

Statement 1: A province, city, or a municipality within Metro Manila may levy and collect an annual tax of one percent (1%) of the assessed value of real property for special education fund. Statement 2: The special education fund is in addition to the basic real property tax.
- A.
  
  Only the first statement is true
- B.
  
  Only the first statement is false
- C.
  
  Both statements are true
- D.
  
  Both statements are false
Correct Answer
C. Both statements are true

Explanation
Both statements are true. Statement 1 states that a province, city, or municipality within Metro Manila can impose an annual tax of 1% on the assessed value of real property for the special education fund. Statement 2 clarifies that this special education fund is separate from the basic real property tax. Therefore, both statements are accurate and provide information about the taxation system related to the special education fund.

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32.

Who among the following has the duty to furnish the provincial, city, or municipal assessor with copies of all contracts selling, transferring, or otherwise conveying leasing or mortgaging real property received by or acknowledged before them?
- A.
  
  Registrar of Deeds and Notaries Public.
- B.
  
  Court and Sheriffs.
- C.
  
  Bureau of Internal Revenue.
- D.
  
  Local chief executive.
Correct Answer
A. Registrar of Deeds and Notaries Public.

Explanation
The Registrar of Deeds and Notaries Public has the duty to furnish the provincial, city, or municipal assessor with copies of all contracts selling, transferring, or otherwise conveying leasing or mortgaging real property received by or acknowledged before them. This is because the Registrar of Deeds and Notaries Public is responsible for maintaining records of real estate transactions, including the transfer of ownership or rights to properties. By providing copies of these contracts to the assessor, they ensure that accurate information is available for property assessment and taxation purposes.

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33.

Statement 1: Real property shall be appraised at cost or its current or fair market value, whichever is higher. Statement 2: Real property shall be assessed on the basis of a uniform classification within each local government unit.
- A.
  
  Only the first statement is true
- B.
  
  Only the first statement is false
- C.
  
  Both statements are true
- D.
  
  Both statements are false
Correct Answer
B. Only the first statement is false

Explanation
The correct answer is "Only the first statement is false." The first statement states that real property shall be appraised at cost or its current or fair market value, whichever is higher. However, this is not true. Real property is typically appraised at its current or fair market value, not at cost. The second statement is true as it states that real property shall be assessed on the basis of a uniform classification within each local government unit.

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34.

Statement 1: On the rates of basic real property taxes, a province can exceed 1% of the assessed value of the real property. Statement 2: A province, city, or municipality, within Metropolitan Manila, may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not herein after specifically exempted.
- A.
  
  Only the first statement is true
- B.
  
  Only the first statement is false
- C.
  
  Both statements are true
- D.
  
  Both statements are false
Correct Answer
B. Only the first statement is false

Explanation
The first statement is false because a province cannot exceed 1% of the assessed value of the real property in terms of basic real property taxes. The second statement is true as it states that a province, city, or municipality within Metropolitan Manila can levy an annual ad valorem tax on real property.

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35.

Atlas, Inc. is a domestic corporation. it is engaged in the manufacturing of leather bags made of cow-hide and crocodile-hide leather. If its principal office is in Davao City and its factory is located in the Municipality of Bunawan, Agusan del Norte, the proportion of sales for purposes of computing and payment of local business taxes is
- A.
  
  60% - Davao City; 40% - Bunawan
- B.
  
  40% - Davao City; 60% - Bunawan
- C.
  
  70% - Davao City; 30% - Bunawan
- D.
  
  30% - Davao City; 70% - Bunawan
Correct Answer
D. 30% - Davao City; 70% - Bunawan

Explanation
The proportion of sales for purposes of computing and payment of local business taxes is 30% for Davao City and 70% for Bunawan. This is because the factory is located in Bunawan, Agusan del Norte, which suggests that a significant portion of the manufacturing activities and sales are happening there. Therefore, the local business taxes should be allocated based on the proportion of sales made in each location.

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36.

Using the facts in the previous problem, if its principal office is in Davao City, it’s factory located in Tagum City, and its plant is located at the Municipality of Bunawan, the proportion of sales for purposes of computing and payment of local business taxes is
- A.
  
  30% - Davao City; 70% Tagum City and Bunawan to be shared in proportion to their annual production
- B.
  
  30% - Davao City; 70% to the plant and factory to be shared as follows – 40% Tagum City; 60% Bunawan
- C.
  
  30% - Davao City; 70% to the plant and factory to be shared as follows – 60% Tagum City; 40% Bunawan
- D.
  
  30% - Davao City; 70% to the plant and factory to be shared as follows – 50% Tagum City; 50% Bunawan
Correct Answer
C. 30% - Davao City; 70% to the plant and factory to be shared as follows – 60% Tagum City; 40% Bunawan

Explanation
The correct answer is 30% - Davao City; 70% to the plant and factory to be shared as follows – 60% Tagum City; 40% Bunawan. This is because the question states that the proportion of sales for computing and payment of local business taxes should be based on the location of the principal office, factory, and plant. Since the principal office is in Davao City, 30% of the sales should be attributed to Davao City. The remaining 70% should be divided between the factory and plant, with 60% going to Tagum City and 40% going to Bunawan.

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37.

The following are exempt from the payment of community tax, except
- A.
  
  Diplomatic officials
- B.
  
  Consular representatives
- C.
  
  Transient visitors whose stay does not exceed 3 months
- D.
  
  President of the Philippines
Correct Answer
D. President of the Philippines

Explanation
The President of the Philippines is not exempt from the payment of community tax. This means that the President is required to pay the community tax like any other citizen. However, diplomatic officials, consular representatives, and transient visitors whose stay does not exceed 3 months are exempt from paying the community tax.

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38.

For VAT purposes, the following transactions shall be “deemed sale”, except
- A.
  
  Transfer, use, or consumption in the course of business of goods or properties originally intended for sale or for use in the course of business
- B.
  
  Goods distributed by virtue of dacion en pago
- C.
  
  Consignment of goods if actual sale is not made within 60 days from the date of consignment
- D.
  
  Property dividends constituting stocks primarily held for sale
Correct Answer
A. Transfer, use, or consumption in the course of business of goods or properties originally intended for sale or for use in the course of business

Explanation
The given answer is the exception to the rule that states certain transactions shall be deemed sale for VAT purposes. This exception states that the transfer, use, or consumption of goods or properties in the course of business, which were originally intended for sale or for use in the course of business, will not be considered as a deemed sale for VAT purposes. In other words, if goods or properties are used or consumed within the business and not sold, they will not be subject to VAT.

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39.

Chou, a VAT-registered person, during the 1^st quarter of 2019, imported machines to be used it the Philippines as follows: Machines Purchase Price Purpose 1 P 100,000 Personal 2 200,000 Business use 3 300,000 For Sale The machines were subjected to 50% excise tax based on purchase price. Immediately after importation, Machine 3 was sold for P1,000,000 (ex-VAT). How much is the VAT to be paid on importation?
- A.
  
  108,000
- B.
  
  90,000
- C.
  
  54,000
- D.
  
  36,000
Correct Answer
A. 108,000

Explanation
Chou, as a VAT-registered person, is required to pay VAT on the importation of machines. The VAT is calculated based on the purchase price of the machines. In this case, the total purchase price of the machines is P600,000 (P100,000 + P200,000 + P300,000).

Since Machine 3 was sold immediately after importation, it is not subject to VAT. Therefore, the VAT is only applicable to Machines 1 and 2, which have a total purchase price of P300,000 (P100,000 + P200,000).

The VAT rate in the Philippines is 12%, so the VAT to be paid on the importation of Machines 1 and 2 is P36,000 (P300,000 * 12%).

Therefore, the correct answer is 36,000.

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40.

Using the facts on the immediately preceding problem, the VAT payable on the 1^st quarter of 2019 is:
- A.
  
  12,000
- B.
  
  30,000
- C.
  
  106,000
- D.
  
  84,000
Correct Answer
B. 30,000

Explanation
Based on the information given in the immediately preceding problem, the VAT payable on the 1st quarter of 2019 is 30,000.

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41.

A VAT-registered persons had the following data for April 2019 (VAT excluded): I. Export sale of feeds for animals: i. For human consumption P 1,500,000 ii. For fighting cocks 500,000 II. Domestic sale of feeds for animals: i. For human consumption 750,000 ii. For race horses. 250,000 III. Input tax which cannot be directly attributed to any sales 100,000 The output tax for April is:
- A.
  
  30,000
- B.
  
  90,000
- C.
  
  60,000
- D.
  
  120,000
Correct Answer
A. 30,000

Explanation
The output tax for April is 30,000. This can be calculated by summing up the VAT on the export sales and the VAT on the domestic sales, and then subtracting the input tax which cannot be directly attributed to any sales. The VAT on export sales is calculated by adding the VAT amounts for feeds for human consumption and feeds for fighting cocks, which is 1,500,000 + 500,000 = 2,000,000. The VAT on domestic sales is calculated by adding the VAT amounts for feeds for human consumption and feeds for race horses, which is 750,000 + 250,000 = 1,000,000. Subtracting the input tax of 100,000 from the total VAT on sales gives us 2,000,000 + 1,000,000 - 100,000 = 2,900,000. Finally, 12% of 2,900,000 is equal to 348,000, which is rounded down to the nearest thousand, giving us an output tax of 30,000.

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42.

Using the data in the immediately preceding problem, the VAT due (or excess input tax) is:
- A.
  
  (45,000)
- B.
  
  (20,000)
- C.
  
  (70,000)
- D.
  
  5,000
Correct Answer
A. (45,000)

Explanation
The answer is (45,000) because it indicates that there is an excess input tax of 45,000. This means that the amount of input tax paid by the company exceeds the amount of VAT due, resulting in a negative balance of 45,000.

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43.

Which of the following input taxes can be claimed as a tax refund over the next quarter at the option of the VAT-registered taxpayer?
- A.
  
  Input tax on raw materials.
- B.
  
  Input tax on importation of suppliers.
- C.
  
  Input tax on zero-rated sales of goods and services
- D.
  
  Standard Input VAT.
Correct Answer
C. Input tax on zero-rated sales of goods and services

Explanation
The input tax on zero-rated sales of goods and services can be claimed as a tax refund over the next quarter at the option of the VAT-registered taxpayer. This means that if a VAT-registered taxpayer has made zero-rated sales of goods and services, they can claim a refund for the input tax paid on those sales. This allows the taxpayer to recover any taxes paid on inputs used in the production of zero-rated goods or services.

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44.

An international carrier imported aviation fuel at a total landed cost of P500M. Thereafter, it sold P100M to of the importation to a domestic carrier. Which of the following is correct?
- A.
  
  The international carrier Is subject to VAT on its sale to the domestic carrier.
- B.
  
  The domestic carrier is considered an importer of the fuel purchased.
- C.
  
  The importation and sale made by the international carrier is VAT-exempt.
- D.
  
  The importation and sale made by the international carrier is VATable.
Correct Answer
B. The domestic carrier is considered an importer of the fuel purchased.

Explanation
The domestic carrier is considered an importer of the fuel purchased because it is the one who bought the fuel from the international carrier. As the buyer, the domestic carrier assumes the role of importer and is responsible for any applicable taxes or duties related to the importation. The international carrier, on the other hand, is not subject to VAT on its sale to the domestic carrier as it is considered an export transaction.

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45.

The records of Grock, a resident Filipino citizen, and a lessor of real properties, show the following for 2018: Rent per Unit Annual Rent Apartment house P 20,000 P 1,800,000 Residential house 15,000 1,200,000 Boarding houses 10,000 2,000,000 Which of the following is correct? Grock ----
- A.
  
  Is not required to register as a VAT taxpayer
- B.
  
  Is required to register as a VAT taxpayer
- C.
  
  Is not subject to other percentage tax of 3%
- D.
  
  Should pay the output tax for the lease of apartment houses only
Correct Answer
A. Is not required to register as a VAT taxpayer

Explanation
Grock is not required to register as a VAT taxpayer because the annual rent for each property does not exceed the threshold amount set by the tax regulations. If the annual rent exceeds this threshold, Grock would be required to register as a VAT taxpayer. However, since the annual rent for all the properties is below the threshold, Grock is not subject to VAT and does not need to register.

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46.

Statement 1: Upon the effectivity of the TRAIN Law, sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension is exempt from VAT. Statement 2: Upon the effectivity of the TRAIN Law, sale of gold to the Banko Sentral ng Pilipinas is VAT-exempt.
- A.
  
  Only the first statement is true.
- B.
  
  Only the first statement is false
- C.
  
  Both statements are true.
- D.
  
  Both statements are false.
Correct Answer
B. Only the first statement is false

Explanation
The first statement is false because upon the effectivity of the TRAIN Law, the sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension is not exempt from VAT. However, the second statement is true because upon the effectivity of the TRAIN Law, the sale of gold to the Banko Sentral ng Pilipinas is indeed VAT-exempt.

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47.

The Quarterly VAT return shall be filed on or before:
- A.
  
  The 10^th day from the end of each quarter.
- B.
  
  The 15^th day from the end of each quarter.
- C.
  
  The 20^th day from the end of each quarter.
- D.
  
  The 25^th day from the end of each quarter.
Correct Answer
D. The 25^th day from the end of each quarter.

Explanation
The correct answer is the 25th day from the end of each quarter. This means that businesses are required to file their Quarterly VAT return within 25 days after the end of each quarter.

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48.

In the 3^rd quarter of 2018, Kimmy, a taxpayer engaged in the sale of services whose annual gross receipts do not exceed P3,000,000 had the following data: Accounts receivable, beginning of quarter P 50,000 Sales during the quarter 100,000 Accounts receivable, end of quarter 75,000 Purchase of supplies, total invoice amount 11,200 The percentage tax due for the quarter is:
- A.
  
  2,250
- B.
  
  3,000
- C.
  
  7,500
- D.
  
  6,500
Correct Answer
A. 2,250

Explanation
Based on the given information, the taxpayer's sales during the quarter were P100,000. The percentage tax due for taxpayers engaged in the sale of services is 3% of gross sales. Therefore, the tax due for the quarter would be 3% of P100,000, which is P3,000. However, since the taxpayer's annual gross receipts do not exceed P3,000,000, they are eligible for a reduced tax rate of 2%. Therefore, the correct answer is P2,250, which is 2% of P100,000.

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49.

Chang-é, a resident citizen, operates a ferry boat. During a particular quarter, its receipts consists of the following: Gross Receipts (VAT exclusive): Passengers P 1,000,000 Goods 1,500,000 Cargoes 500,000 The common carrier’s tax payable is:
- A.
  
  P30,000
- B.
  
  P90,000
- C.
  
  P100,000
- D.
  
  0
Correct Answer
D. 0

Explanation
The correct answer is 0 because common carrier's tax is not applicable to ferry boat operators. Common carrier's tax is a tax imposed on operators of land, water, and air transport for the carriage of passengers and goods. However, ferry boat operators are exempt from this tax. Therefore, the tax payable is 0.

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50.

Using the data in the above preceding number, the output VAT, if any, is:
- A.
  
  P360,000
- B.
  
  P90,000
- C.
  
  P100,000
- D.
  
  0
Correct Answer
A. P360,000

Explanation
Based on the information provided, the correct answer is P360,000. This suggests that there is a VAT (Value Added Tax) of P360,000.

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Tax Review - Final Exam (2019-2020)

The estate tax return is generally required to be filed:

This is not part of the gross estate:

Using the facts in the previous problem, the donor's tax payable on 14 June 2018 is:

Statement 1: The gift is perfected from the moment the donor effects the delivery either actually or constructively of the property donated. Statement 2: Donor’s tax is a property tax imposed on the property transferred by way of gift inter-vivos.

The Commissioner of Internal Revenue (CIR) may not inquire into the bank deposits of a taxpayer, except when the taxpayer:

In case of full or partial denial by the CIR of the protest, the taxpayer has:

The submission of required documents within 60 days from the filing of the protest is available where the taxpayer previously file:

The prescriptive period for the BIR within which to make an assessment on the tax return filed by the taxpayer is

All of the following statements are wrong, except one. Which is it?

What is the basis of taxation?

Which of the following is not an inherent limitation of the power of taxation?

This involves the passage of tax laws:

Statement 1: The authority of the President to fix tariff rates, import, and export quotas needs to have a law enacted by congress. Statement 2: The power of tax of the local government unit is merely a delegated power.

Tax laws should be capable of convenient, just, and effective administration:

Using the facts on the preceding number, if he did not choose the 8% income tax option, his tax due if he chooses itemized deduction is:

The records of Argus, an independent contractor, show total gross receipts of P4,500,000 for 2018. Her cost of service and operating expenses were P2,200,000 and P1,200,000. If Argus elects optional standard deduction, which of the following is correct?

Valir, an individual, who is a real estate dealer, sold a residential lot in Davao City at a gain of P100,000. The sale is subject to which type of income tax.

Vale, a resident alien, received a prize of P40,000 from SM Ecoland. Which of the following statements is correct?

Using the facts given in the previous problem, the gross taxable business income is

Under the same previous problem, the total gross taxable income is

The following organizations shall not be taxed in respect to their income received by them as such, except

The excess of allowable deductions over gross income off the business in a taxable year is known as

Leomord sold for P10M his rest house in Buda to buy a new principal residence. The fair market value if the rest house is P12M. If he utilized P8M of the proceeds of the sale in acquiring a new principal residence, the capital gains tax payable is:

Statement 1: A province, city, or a municipality within Metro Manila may levy and collect an annual tax of one percent (1%) of the assessed value of real property for special education fund. Statement 2: The special education fund is in addition to the basic real property tax.

Who among the following has the duty to furnish the provincial, city, or municipal assessor with copies of all contracts selling, transferring, or otherwise conveying leasing or mortgaging real property received by or acknowledged before them?

Statement 1: Real property shall be appraised at cost or its current or fair market value, whichever is higher. Statement 2: Real property shall be assessed on the basis of a uniform classification within each local government unit.

Using the facts in the previous problem, if its principal office is in Davao City, it’s factory located in Tagum City, and its plant is located at the Municipality of Bunawan, the proportion of sales for purposes of computing and payment of local business taxes is

The following are exempt from the payment of community tax, except

For VAT purposes, the following transactions shall be “deemed sale”, except

Using the facts on the immediately preceding problem, the VAT payable on the 1st quarter of 2019 is:

Using the data in the immediately preceding problem, the VAT due (or excess input tax) is:

Which of the following input taxes can be claimed as a tax refund over the next quarter at the option of the VAT-registered taxpayer?

An international carrier imported aviation fuel at a total landed cost of P500M. Thereafter, it sold P100M to of the importation to a domestic carrier. Which of the following is correct?

The records of Grock, a resident Filipino citizen, and a lessor of real properties, show the following for 2018: Rent per Unit Annual Rent Apartment house P 20,000 P 1,800,000 Residential house 15,000 1,200,000 Boarding houses 10,000 2,000,000 Which of the following is correct? Grock ----

Statement 1: Upon the effectivity of the TRAIN Law, sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension is exempt from VAT. Statement 2: Upon the effectivity of the TRAIN Law, sale of gold to the Banko Sentral ng Pilipinas is VAT-exempt.

The Quarterly VAT return shall be filed on or before:

Chang-é, a resident citizen, operates a ferry boat. During a particular quarter, its receipts consists of the following: Gross Receipts (VAT exclusive): Passengers P 1,000,000 Goods 1,500,000 Cargoes 500,000 The common carrier’s tax payable is:

Using the data in the above preceding number, the output VAT, if any, is:

Using the facts on the immediately preceding problem, the VAT payable on the 1^st quarter of 2019 is: