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Saint Paul School of Professional Studies

Taxation Review Local Government Code/ Omnibus Investment Code

Local Government Code

1. Which of the following statements is NOT a test of a valid ordinance?


a. It must not contravene the Constitution or any statute;
b. It must not be unfair or oppressive;
c. It must not be partial or discriminatory;
d. It may prohibit or regulate trade.

2. Prior to the enactment of the Local Government Code, consumer's cooperatives registered under the
Cooperative Development Act enjoyed exemption from all taxes imposed by a local government.

With the Local Government Code’s withdrawal of exemptions, could these cooperatives continue to enjoy
such exemption?
a. Yes, because the Local Government Code, a general law, could not amend a special law such as the
Cooperative Development Act.
b. No, Congress has not by the majority vote of all its members granted exemption to consumers'
cooperatives.
c. No, the exemption has been withdrawn to level the playing field for all taxpayers and preserve the LGUs'
financial position.
d. Yes, their exemption is specifically mentioned among those not withdrawn by the Local Government
Code.

3. Taxing power of local government units shall NOT extend to the following taxes, except one:
a. Income tax on banks and other financial institutions;
b. Taxes of any kind on the national government, its agencies and instrumentalities, and local government
units;
c. Taxes on agricultural and aquatic products when sold by the marginal farmers or fishermen;
d. Excise taxes on articles enumerated under the National Internal Revenue Code.

4. What is the tax base for the imposition by the province of professional taxes?
a. That which Congress determined.
b. The pertinent provision of the local Government Code.
c. The reasonable classification made by the provincial sanggunian.
d. That which the Dept. of Interior and Local Government determined.

5. XYZ Shipping Corporation is a branch of an international shipping line with voyages between Manila and the
West Coast of the U.S. The company’s vessels load and unload cargoes at the Port of Manila, albeit it does
not have a branch or sales office in Manila. All the bills of lading and invoices are issued by the branch office
in Makati which is also the company’s principal office. The City of Manila enacted an ordinance levying a 2%
tax on gross receipts of shipping lines using the Port of Manila.

The City Government of Manila may NOT impose:


a. Basic real property tax at 2% of the assessed value of real property;
b. Additional levy on real property for the special education fund at 1% of the assessed value of real
property;
c. Additional ad valorem tax on idle lands at a rate not exceeding 5% of the assessed value;
d. Special levy on lands within its territory specially benefited by public works projects or improvements
funded by it at 80% of the actual cost of the projects or improvements.

6. ABC Corporation is registered as a holding company and has an office in the City of Makati. It has no actual
business operations. It invested in another company and its earnings are limited to dividends from this
investment, interests on its bank deposits, and foreign exchange gains from its foreign currency account.
The City of Makati assessed ABC Corporation as a contractor or one that sells services for a fee. Is the City of
Makati correct?

Which statement is correct?

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a. Legislative acts passed by the municipal council in the exercise of its lawmaking authority are
denominated as resolutions and ordinances;
b. Legislative acts passed by the municipal council in the exercise of its lawmaking authority are
denominated as resolutions;
c. Legislative acts passed by the municipal council in the exercise of its lawmaking authority are
denominated as ordinances;
d. Both ordinances and resolutions are solemn and formal acts.

7. One of the local government units below does NOT have the power to impose real property tax:
a. Palo;
b. Tacloban City;
c. Eastern Samar;
d. Municipality of Pateros, Metro Manila.

8. After the province has constructed a barangay road, the Sangguniang Panglalawigan may impose a special
levy upon the lands specifically benefitted by the road up to an amount not to exceed:
a. 60% of the actual cost of the road without giving any portion to the barangay.
b. 100% of the actual project cost without giving any portion to the barangay.
c. 100% of the actual project cost, keeping 60% for the province and giving 40% to the barangay.
d. 60% of the actual cost, dividing the same between the province and the barangay.

9. Pheleco is a power generation and distribution company operating mainly from the City of Taguig. It owns
electric poles which it also rents out to other companies that use poles such as telephone and cable
companies. Taguig passed an ordinance imposing a fee equivalent to 1% of the annual rental for these poles.
Pheleco questioned 'the legality of the ordinance on the ground that it imposes an income tax which local
government units (LGUs) are prohibited from imposing.

Rule on the validity of the ordinance.


a. The ordinance is void; the fee is based on rental income and is therefore a tax on income.
b. The ordinance is valid as a legitimate exercise of police power to regulate electric poles.
c. The ordinance is void; 1% of annual rental is excessive and oppressive.
d. The ordinance is valid; an LGU may impose a tax on income.

10. In accordance with the Local Government Code (LGC), the Sangguniang Panglungsod (SP) of Baguio City
enacted Tax Ordinance No. 19, Series of 2018, imposing a P50.00 tax on all the tourists and travellers going
to Baguio City. In imposing the local tax, the SP reasoned that the tax collected will be used to maintain the
cleanliness of Baguio City and for the beautification of its tourist attractions. (D) is punishable by
administrative penalty only.

Claiming the tax to be unjust, Baguio Travellers Association (BTA), an association of travel agencies in Baguio
City, filed a petition for declaratory relief before the Regional Trial Court
(RTC) because BTA was apprehensive that tourists might cancel their bookings with BTA’s member agencies.
BTA also prayed for the issuance of a Temporary Restraining Order (TRO) to enjoin Baguio City from
enforcing the local tax on their customers and on all tourists going to Baguio City.

The RTC issued a TRO enjoining Baguio City from imposing the local tax. Aggrieved, Baguio City filed a
petition for certiorari before the Supreme Court (SC) seeking to set aside the TRO issued by the RTC on the
ground that collection of taxes cannot be enjoined.

i. The petition for certiorari filed by Baguio City will not prosper. The prohibition on the issuance of an
order or writ enjoining the collection of taxes applies only to national internal revenue taxes
ii. The prohibition on the issuance of a writ enjoining the collection of taxes does not apply to local
taxes.
iii. Unlike the NIRC, there is no express provision in the Local Government Code which prohibits courts
from enjoining the collection of such taxes.
iv. The RTC was properly vested with authority to issue the assailed TRO enjoining Baguio City from
imposing the local tax.

Examine the accuracy of the aforesaid statements.


a. i and ii are incorrect c. i and iv are incorrect; ii is correct
b. iii is incorrect; ii and iv are correct d. all are correct

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11. In 2018, M City approved an ordinance levying customs duties and fees on goods coming into the territorial
jurisdiction of the city. Said city ordinance was duly published on February 15, 2018 with effectivity date on
March 1, 2018.
i. There a ground for opposing said ordinance on the ground that the ordinance is ultra-vires.
ii. The taxing powers of local government units, such as M City, cannot extend to the levy of taxes, fees
and charges already imposed by the national government, and this include, among others, the levy
of customs duties under the Tariff and Customs Code.
iii. Any question on the constitutionality or legality of tax ordinances may be raised on appeal within
thirty (30) days from the effectivity to the Secretary of Justice.
iv. The Secretary of Justice shall render a decision within sixty (60) days from the date of receipt of the
appeal. Thereafter, within thirty (30) days after receipt of the decision the aggrieved party may file
the appropriate proceedings with the Regional Trial Court
v. After the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the
aggrieved party may file the appropriate proceedings with the Regional Trial Court.

Determine which is incorrect.


a. i, ii, iii are correct c. i, iv, v are correct
b. ii, iv, v are correct d. all are incorrect

12. Where the real property tax assessment is erroneous, the remedy of the property owner is:
a. To file a claim for refund in the Court of Tax Appeals if he has paid the tax, within thirty (30) days from
date of payment;
b. To file an appeal with the Provincial Board of Assessment Appeals within thirty (30) days from receipt of
the assessment;
c. To file an appeal with the Provincial Board of Assessment Appeals within sixty (60) days from receipt of
the assessment;
d. To file an appeal with the Provincial Board of Assessment Appeals within sixty (60) day from receipt of
the assessment and playing the assessed tax under protest.

13. Which statement on prescriptive periods is true?


a. The prescriptive periods to assess taxes in the National Internal Revenue Code and the Local
Government Code is the same;
b. Local taxes shall be assessed within five (5) years from the date they became due;
c. Action for the collection of local taxes may be instituted after the expiration of the period to assess and
to collect the tax;
d. Local taxes may be assessed within ten (10) years from discovery of the underpayment of tax which
does not constitute fraud.

Ferremaro, Inc., a manufacturer of handcrafted shoes, maintains its principal office in Cubao, Quezon City. It
has branches in Cebu and Davao. Its factory is located in Marikina City where most of its workers live. Its
principal office in Quezon City is also a sales office. Sales of finished products for calendar year 2018 in the
amount of P10 million were made at the following locations:
1. Cebu branch 25%
2. Davao branch 15%
3. Quezon City branch 60%

14. How much of the total sales should be taxable in Cebu City?
a. P1,500,000 c. P2,500,000
b. P1,800,000 d. P4,200,000

15. How much of the total sales should be taxable in Davao City?
a. P1,500,000 c. P2,500,000
b. P1,800,000 d. P4,200,000

16. How much of the total sales should be taxable in Quezon City?
a. P1,500,000 c. P2,500,000
b. P1,800,000 d. P4,200,000

17. How much of the total sales should be taxable in Marikina City?
a. P1,500,000 c. P2,500,000
b. P1,800,000 d. P4,200,000

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KT, Inc., a manufacturer sweet pineapple, established head office in Ayala, Makati. Its factory is located in
the City of Malabon while its pineapple plantation is in the City of Candon, Ilocos Sur. Total sales of P20
million for calendar year 2018 were generated as follows:

Ayala Center 60%; Tacloban branch 25%; Baguio branch 15%

18. How much of the total sales should be taxable in Tacloban?


a. P3,000,000 c. P2,000,000
b. P5,000,000 d. P0

19. How much of the total sales should be taxable in Makati?


a. P6,000,000 c. P3,600,000
b. P12,000,000 d. P0

20. How much of the total sales should be taxable in Malabon?


a. P8,400,000 c. P3,360,000
b. P5,040,000 d. P0

21. How much of the total sales should be taxable in Candon?


a. P4,800,000 c. P3,360,000
b. P5,040,000 d. P0

Ayala Land Developers extracted sand, gravel and other resources from the beds of seas, lakes, rivers,
streams, creeks, and other public waters within territorial jurisdiction of the province of Leyte. The total Fair
market value of the extracted ordinary stones, sand, gravel, earth, and other quarry resources is worth
P10,000,000. The LGU, through an ordinance, imposes the maximum local business tax on the same activity.

22. How much of the tax proceeds should go to the fund of the Province of Leyte?
a. P1,000,000 c. P300,000
b. P500,000 d. P200,000

23. How much of the tax proceeds should go to the fund of the component city or municipality?
a. P1,000,000 d. P450,000
b. P500,000 c. P300,000

24. How much of the tax proceeds should go to the barangay where resources were extracted?
a. P400,000 c. P300,000
b. P200,000 d. None

25. Who has the sole authority to issue permit to quarry the same resources?
a. Provincial governor c. Barangay Captain
b. Municipal mayor d. Any of the above

26. The Municipality of Tanauan imposed the maximum 37.5% of 1% percentage on manufacturers of liquors.
Tanduay Distillers, a manufacturer of liquor with a plant processor in the municipality generated
P20,000,000 in gross sales for the calendar year of 2017. Assuming that the liquor plant is located in the City
of Tacloban and the same tax applies, how much local business tax will be paid to Tacloban city’s treasurer’s
office?
a. 75,000 c. 93,750
b. 112,500 d. None

Robinsons Movie World, an operator of movie theaters in Barangay Marasbaras in the City of Tacloban,
Province of Leyte, generated P200,000,000 sales from its operation of theaters and cinemas. The accounting
department reported related cost of tickets at 60% of the total sales.

27. How much amusement tax shall be collected by the LGU?


a. P60,000,000 c. P24,000,000
b. P20,000,000 d. P8,000,000

28. What is the share of the Province of Leyte in the amusement tax?
a. 40% c. 60%
b. 50% d. 70%

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29. What is the share of the City of Tacloban in the amusement tax?
a. 40% c. 60%
b. 50% d. none

30. What is the share of Barangay Marasbaras in the amusement tax?


a. 40% c. 60%
b. 50% d. none

31. The Municipality of Palo collected amusement tax worth P2,000,000 from X Co., operator of concert hall.
Had the city of Tacloban imposed the same tax, it could have raised a maximum tax of?
a. P3,000,000 c. P2,000,000
b. P4,000,000 d. P1,000,000

32. The income tax return must be filed in


a. Duplicate b. Quadruplicate c. Triplicate d. Quintuplicate

33. Where the return is filed, as a general rule, the prescriptive period for assessment after the date the return
was due or was filed, whichever is later, is within
a. Three years c. Five years
b. Ten years d. Answer not given

34. The following are remedies available to the government to collect taxes, except?
a. Distraint and levy
b. Inquiring into bank deposit accounts of taxpayers
c. Entering into compromise of tax cases
d. Enforce forfeiture of property

35. Montenegro, a Filipino seaman who stayed in an international vessel most of the time last year had the
following data during that year:

Salary P 352,225
Gross receipts:
Ladies dormitory 100,500
Passenger jeepney 150,650
Expenses:
Ladies dormitory 60,000
Passenger jeepney 101,250

The community tax payable by Montenegro is


a. P613 c. P608
b. P612 d. P456

Lagrio, a Filipino resident and single, owns a restaurant in Session Road, Baguio City and in Dagupan,
Pangasinan. In 2016, it had the following data:

Gross receipts Expenses


Baguio City P 4,055,015.20 P 3,296,423.10
Dagupan, Pangasinan 3,624,980.60 3,025,114.80

36. In 2017 the total basic and additional community tax payable by Lagrio is
a. P7,074 c. P1,363
b. P7,699 d. P5,005

37. In the immediately preceding problem, the community tax shall be paid on
a. April 15, 2006 c. February 28, 2007
b. December 31, 2007 d. January 31, 2007

38. Helen Corporation, a domestic corporation had the following data for 2016:

Cash sales P 3,954,245


Sales on accounts 1,689,341
Cost of sales 3,453,957
Expenses 1,142,190
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Dividend from Zeus Corporation 43,096
Interest income 950

Real properties Zonal value Assessed value


Land P 1,234,590 P 945,687
Building 2,985,043 2,545,890

The total community tax to be paid by Helen Corporation in 2017 is


a. P2,994 c. P4,170
b. P3,494 d. P3,033

Omnibus Investment Code

39. ABS Corporation is a PEZA-registered export enterprise which manufactures cameras and sells all its
finished products abroad. Which is the best statement?
a. ABS Corporation is subject to the 5% final tax on gross income earned, in lieu of all national and
local taxes;
b. ABS Corporation is exempt from the 30% corporate income tax on net income, provided it pays
value added tax;
c. ABS Corporation may not be subject to the 30% corporate income tax on net income;
d. ABS Corporation is exempt from all national and local taxes, except real property tax.

40. Under the Tariff and Customs Code, abandoned imported articles become the property of the:
a. Government whatever be the circumstances.
b. Insurance company that covered the shipment.
c. Shipping company in case the freight was not paid.
d. Bank if the shipment is covered by a letter of credit.

41. Amaretto, Inc., imported 100 cases of Marula wine from South Africa. The shipment was assessed
duties and value-added taxes of P300,000 which Amaretto, Inc. immediately paid. The Bureau of
Customs did not, however, issue the release papers of the shipment yet since the Food and Drug
Administration (FDA) needed to test the suitability of the wine for human consumption. Is the Bureau
of Customs at fault for refusing to release the shipment just as yet?
a. Yes, because the importation was already terminated as a result of the payment of the taxes due.
b. Yes, the Bureau of Customs is estopped from holding the release of the shipment after receiving
the payment.
c. No, if the amount paid as duties and value-added taxes due on the importation was insufficient.
d. No, because the Bureau of Customs has not yet issued the legal permit for withdrawal pending the
FDA's findings.

42. Importation of goods is deemed terminated:


a. When the customs duties are paid, even if the goods remain within the customs premises;
b. When the goods are released or withdrawn from the customs house upon payment of
the customs duties or with legal permit to withdraw;
c. When the goods enter Philippines territory and remain within the customs house within thirty (30)
days from date of entry;
d. When there is part payment of duties on the imported goods located in the customs area.

43. Under the Tariff and Customs Code, as amended:


i. Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with
intention to unlade therein.
ii. Importation is deemed terminated upon payment of the duties, taxes and other charges upon the
articles.
iii. Importation is deemed terminated when payment of duties became secured for payment, at a port of
entry and the legal permit for withdrawal shall have been granted.
iv. Importation is deemed terminated when they have legally left the jurisdiction of the customs, incases
said articles are free of duties, taxes and other charges.

Determine which is not an incorrect statement.


a. i only c. i, ii, and iii
b. i and ii d. i, ii, iii, and iv

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44. Choose the correct answer. Smuggling
a. Does not extend to the entry of imported or exported articles by means of any false or fraudulent
invoice, statement or practices; the entry of goods at less than the true weight or measure; or the filing
of any false or fraudulent entry for the payment of drawback or refund of duties.
b. Is limited to the import of contraband or highly dutiable cargo beyond the reach of customs authorities.
c. Is committed by any person who shall fraudulently import or bring into the philippines, or assist in so
doing, any article, contrary to law, or shall receive, conceal, buy, sell or any manner facilitate the
transportation, concealment or sale of such article after importation, knowing the same to have been
imported contrary to law.
d. All are incorrect.

45. The imported articles shall in any case be subject to the regular physical examination when:
a. The importer disagrees with the findings as contained in the government surveyor’s report;
b. The number, weight and nature of packages indicated in the customs entry declaration and
supporting documents differ from that in the manifest;
c. The container is not leaking or damaged;
d. The shipment is covered by alert/hold orders issued pursuant to an existing order.

46. Mr. Z made an importation which he declared at the Bureau of Customs (BOC) as "Used Truck
Replacement Parts". Upon investigation, the container vans contained 15 units of Porsche and Ferrari
cars. Characterize Mr. Z's action.
a. Mr. Z committed smuggling.
b. Mr. Z did not commit smuggling because he submitted his shipment to BOC examination. (C)
Mr. Z only made a misdeclaration, but did not commit smuggling.
c. Mr. Z did not commit smuggling because the shipment has not left the customs area.

47. Is an article previously exported from the Philippines subject to the payment of customs
duties?
a. Yes, because all articles that are imported from any foreign country are subject to duty.
b. No, because there is no basis for imposing duties on articles previously exported from the
Philippines.
c. Yes, because exemptions are strictly construed against the importer who is the taxpayer.
d. No, if it is covered by a certificate of identification and has not been improved in value.

48. The dutiable value of an imported article subject to an ad valorem rate of duty under existing law
shall be:
a. The home consumption value;
b. The total value;
c. The total landed cost;
d. The transaction value.

49. Discriminatory duties may NOT be imposed upon articles:


a. Wholly manufactured in the discriminating country but carried by vessels of another country.
b. Not manufactured in the discriminating country but carried by vessels of such country.
c. Partly manufactured in the discriminating country but carried by vessels of another country.
d. Not manufactured in the discriminating country and carried by vessels of anothe r country.

50. Determine the accuracy of the following statements:


i. Decisions of the Collector of Customs in protest and seizure cases are appealable to the
Commissioner of Customs within 15 days from receipt of notice of the written decision of the
Collector.
ii. As a rule, decisions of the Collector of Customs are not appealable to the CTA.
iii. If the Collector does not decide a protest for a long period of time, the inaction may be
considered as an adverse decision by the Collector of Customs and the aggrieved taxpayer may
appeal to the CTA, even without the Collector’s and Commissioner’s actual decision.

a. i is correct; ii and iii are incorrect c. iii is incorrect; ii is correct


b. ii is incorrect; iii is correct d. all are not incorrect

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51. Which cases are appealable to the CTA?
a. Decisions of the Secretary of Finance in cases involving liability for customs duties, seizure,
detention or release of property affected;
b. Decisions of the Commissioner of Customs in cases involving liability for customs duties, seizure,
detention or release of property affected;
c. Decisions of the Collector of Customs in cases involving liability for customs duties, seizure,
detention or release of property affected;
d. Decisions of the BIR Commissioner in cases involving liability for customs duties, seizure, detention
or release of property affected.

52. MSI Corp. imports orange and lemon concentrates as raw materials for the fruit drinks it sells locally.
The Bureau of Customs (BOC) imposed a 1% duty rate on the concentrates. Subsequently, the BOC
changed its position and held that the concentrates should be taxed at 7% duty rate. MSI disagreed
with the ruling and questioned it in the CTA which upheld MSI's position. The Commissioner of
Customs appealed to the CTA en bane without filing a motion for reconsideration.

Resolve the appeal.


a. The appeal should be dismissed because a motion for reconsideration is mandatory.
b. The appeal should be dismissed for having been filed out of time.
c. The appeal should be given due course since a motion for reconsideration is a useless exercise.
d. The appeal should be upheld to be fair to the government which needs taxes.

53. A protest against an assessment issued by the Collector of Customs for unpaid customs duties on
imported goods shall be filed with:
a. The Commissioner of Customs;
b. The Regional Trial Court;
c. The Court of Tax Appeals;
d. The Collector of Customs.

A PEZA-registered entity reported the following items:


Details Registered Activities Unregistered Activities
Gross sales P 121,700,000 P 10,425,000
Cost of sales 103,400,000 7,297,500
Gross income P 18,300,000 P 3,127,500
Other income - 550,500
Total gross income P 18,300,000 P 3,678,000
Operating expense (90% allocated
to registered activities and the P9,890,100
rest to unregistered activities)

CWTs from the first 3 quarters amounted to P98,000 (including P10,000 dated 2019) while CWTs for
the 4th quarter totaled P33,600 (excluding P5,000 CWTs not in the name of the company).

54. Determine the 2% MCIT


a. P439,560 b. P62,550 c. P73,560 d. None of the choices

55. Determine the 30% RCIT


a. P0 b. P1,103,400 c. P806,697 d. None of the choices

56. Income tax still due


a. P0 b. P685,097 c. P675,097 d. None of the choices

57. How much tax has been paid to the provincial government where the PEZA entity is located?
a. P0 b. P366,000 c. P364,022 d. P915,000

58. How much income tax should be remitted to the BIR?


a. P1,234,097 b. P1,224,097 c. P1,600,097 d. None of the choices

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IBM Ph, a PEZA-registered entity, reported the following items for the covered period 2018:
Income
Details
Freeport Zones Custom Territory
Gross sales P 200,000,000 P 100,000,000
Cost of sales 100,000,000 75,000,000
Total gross income P 100,000,000 P 25,000,000
Operating expense (60% allocated
to freeport income and the rest to 10,000,000
income from custom territory)

The figures presented are exclusive of any applicable business tax.

59. Determine the RCIT


a. P34,500,000 b. P6,300,000 c. P28,200,000 d. some other amounts

60. Income tax payable to the BIR


a. P34,500,000 b. P3,000,000 c. P3,750,000 d. some other amounts

61. Income tax payable to the LGUs


a. 2,500,000 b. P2,000,000 c. P2,300,000 d. some other amounts

62. How much is the value added tax payable by IBM Philippines?
a. P36,000,000 b. P24,000,000 c. P12,000,000 d. some other amounts

--- end of quizzer ---

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