28. principles of taxation - 1 file download

TAXATION

28. Principles of taxation of 32

FAR EASTERN UNIVERSITY – MANILA

PRINCIPLES OF TAXATION (2801)

Definition of Taxation

– This is the power by which the sovereign raises revenue to defray the necessary expenses of government.

– The mode by which government make exactions for revenue in order to support their existence and carry out

their legitimate objective.

– The power of the state to collect revenue for public purposes.

Taxes – the enforced proportional contributions levied by the law making body of the state by virtue of its sovereignty

upon the persons or property within its jurisdiction for the support of the government and all public needs.

Lifeblood Theory

a. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious (expecting

obedience) need

b. Upon taxation depends the government’s ability to serve the people for whose benefit taxes are collected

c. Manifestation of lifeblood theory:

1. Imposition of tax even in the absence of constitutional grant

2. Right to select objects of taxation

3. No injunction to enjoin (or stop) tax collection

Scope of Power of Taxation

1. Comprehensive

2. Plenary

3. Unlimited

4. Supreme

The power of taxation is subject to inherent and constitutional limitation.

Essential Characteristic of Tax

1. Enforced contribution

2. Legislative authority

3. Proportionate in character

4. Generally payable in money

5. Levied on persons and property within the jurisdiction of the state

6. Commonly required to be paid at regular intervals

Nature of Power of Taxation

1. The power is inherent in the state. It may be exercises although not expressly granted by the constitution.

2. It is essentially a legislative function. Only the legislature can impose taxes (high prerogative of sovereignty)

3. Based ability to pay

4. Subject to inherent and constitutional limitation. It is not an absolute power than can be exercised by the

legislature anyway it pleases.

Inherent Limitation (PENTI) – are those which restrict the power although they are not embodied in the

constitution.

1. Public purpose - This is the purpose affecting the inhabitants of the State as a community and not merely

as individuals

2. Exemption from taxation of government entities - Government agencies performing governmental

functions are exempt from tax unless expressly taxed while those performing proprietary functions are subject

to tax unless expressly exempted

3. Non-delegation of the power to tax - The power to tax is purely legislative, and it cannot be delegated by

the legislature to the executive or juridical departments of the government.

4. Territorial jurisdiction - The tax laws of a state are enforceable only within its territorial limits

5. International comity - The property of a foreign state or government may not be taxed by another.

Constitutional Limitation (DEO NUER) - are those which are expressly found in the constitution or implied from

its provisions

1. Due process of law

2. Equal protection of the laws

3. Non-impairment of obligation of contract

4. Non-imprisonment for non-payment of poll tax

5. Rule of taxation shall be uniform and equitable

6. Exemption from real property tax of charitable institutions, churches, parsonages or convents appurtenant

thereto, mosques, and non-profit institutions, and all lands, buildings and improvements actually, directly and

exclusively used for religious or charitable purposes.

7. All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively

for educational purposes shall be exempt from taxes and duties. Proprietary educational institutions, including

those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by

law.

Who are exempt? Charitable, educational and religious

institutions

Non-stock, non-profit educational

institutions

28. Principles of taxation

of 32

What taxes are exempt? Property tax Income tax, property tax, customs

duties.

The Fundamental (Inherent) Power of the State

1. Police power – to promote the general welfare. It is the power to regulate liberty, public health and morals.

2. Eminent Domain – it is also called as expropriation. The power of the state to take the private property for

public use upon payment of just compensation.

3. Power of taxation – the power of the state to collect revenue for the necessary expenses of government.

Similarities among the Fundamental Power of State

1. They are inherent in the state.

2. They are independently exists of the constitution.

3. They are not only necessary but indispensable, as the state cannot continue or be effective unless it is

able to exercise them.

4. They are methods by which the state interferes with private rights.

5. Each presupposes an equivalent compensation.

6. They are legislative in nature.

Differences among the Fundamental power

a. As to authority which exercises the power

Taxation Government only

Police power Government only

Power of eminent domain Government, public service companies and public utilities

b. As to purpose

Taxation Support of government

Police power Promote public welfare

Power of eminent domain Public purpose

c. As to Affected

Taxation Community or class of individuals

Police power Community or class of individuals

Power of eminent domain Individuals as owner of a particular property

d. As to Effect

Taxation Taxes become part of public funds

Police power No transfer of title, there is restraint on the injurious use of property

Power of eminent domain There is transfer of the right to property, either ownership or a lesser right

e. As to Benefits Received

Taxation Equivalent of tax in the form of protection and benefit

Police power No direct and immediate benefit, only such as may arise from the maintenance

of a healthy economic standard of society (damnum absque injuria or damage

without injury)

Power of eminent domain Market value of the property taken from him

f. As to Amount of Imposition

Taxation No limit

Police power Limited to the cost of the license and the necessary expenses of police

surveillance and regulation

Power of eminent domain No imposition, the owner is paid the fair market value of his property

g. As to Relationship to the Non-Impairment of Obligations Clause of the Constitution

Taxation Inferior to the clause

Police power Superior to the clause

Power of eminent domain Inferior to the clause

h. As to Compensation

Taxation For the protection and benefits received from the government

Police power The maintenance of a good economic standard of society

Power of eminent domain Just compensation for the property taken

Basis of Taxation

1. The reciprocal duties of protection and support between the state and inhabitants (benefits received

theory).


of 32

2. Necessity – that it cannot continue without means to pay its expenses and that for this means it has a right

to compel all its citizen and property within its limits contribute

a. Theory (authority) Life Blood Theory or Necessity Theory- Taxes are the lifeblood of the government

without which it can neither exist nor endure.

Manifestation of the Lifeblood Theory:

a. Rule of “No Estoppel against the Government”. It means that in the performance of

its governmental functions: the state cannot be stopped by the neglect of its agents and

officers. Erroneous application and enforcement of law by public officers do not block the

subsequent correct application of statutes.

b. Collection of taxes cannot be enjoined (stopped) by injunction. Under section 218 of

the tax code (as amended), no court, except the Court of Tax Appeals (CTA), shall have

the authority to grant an injunction to restrain the collection of any national internal

revenue tax, fee or charge imposed by the tax code.

This prohibition shall apply to all collection activities, including imposition and collection of

taxes, issuance of warrants of distraint and garnishment, and/or levy on final decisions of

the BIR on disputed assessment, cases filed before the CTA, and the sale of property

distrained or garnished (RMO 42-2010)

c. Taxes could not be the subject of compensation or set – off.

b. Basis of taxation The Benefits-Protection Theory- Taxes are what we pay for a civilized society. The

government and the people have a reciprocal and mutual duties of support and protection

to one another (symbiotic relationship between the government and the taxpayer).

Public Services

Taxes

Purpose of Taxation

a. Principal purpose – To raise revenue for governmental needs.

b. Secondary purpose

i. To reduce excessive inequalities of wealth

ii. Protective tariff on imported goods may be imposed to protect local produces against foreign

competitors

iii. To encourage the growth of home industries through the proper use of tax exemptions and tax

incentives

iv. To implement the police power of the state in promoting the general welfare

v. To maintain high level of employment

vi. To control inflation

Aspect/Process/Phases/System of Taxation (Embodied in the Term Taxation)

1. Levying or imposition of the tax – Legislative act. This is pertains to the passage of tax laws and tax

ordinance through legislature. (Impact of taxation / process of determining)

2. Assessment aspect – refers to the appraisal and valuation process of the subject or object of taxation to arrive

at total amount of collectible tax.

3. Collection of the tax – essentially administrative character (BIR or BOC)

4. Payment – an incidence of taxation. This is the compliance phase.

• The impact of taxation corresponds to the imposition of the tax, shifting refers to transfer of tax and incidence

consist of the payment of tax.

Matters within the Competence of the Legislature to Determine

1. The subject matter or object to be taxed

2. The purpose of the tax so long as it is a public purpose

3. The amount or rate of the tax

4. The manner, means and agencies of collection of the tax.

Tax Legislative Function

1. Prescribe the general rules of taxation

2. Selection of the object /subject to be taxed

3. Determination of the purpose for which taxes shall be imposed

4. Fixing the amount of the tax to be imposed

5. Fixing the amount of tax rate

Tax Administrative Function

1. Valuation of property for taxation

2. Equalization of assessment

3. Collection of tax

People Government


of 32

Basic Principles of a Sound Tax System (Canons of Taxation)

1. Fiscal adequacy – the source of revenues must be adequate to meet government expenditures.

2. Theoretical Justice/Equality on theoretical Justice – based on the ability to pay (Equity) and proportionate

character.

3. Administrative Feasibility – which means

a. The tax law must be clear and concise

b. Convenient

c. Just and effective administration

Situs of Taxation

Situs – place of taxation, the country that has the power and jurisdiction to levy and collect the tax.

The Situs will help in determining the source of an income, whether from within the Philippines or from abroad or

sources outside the Philippines. For taxpayers other than resident citizen and domestic corporation which are taxable

on incomes from all sources, this will serve to identify income which are taxable in the Philippines.

Subject Situs

Poll tax on persons Residence of the person

Real property tax State where the property is located whether the owner is resident or not

Tax on tangible personal

properties

State where it is physically located although the owner resides in another

jurisdiction (lexi rei sitae)

Tax on intangible personal

properties

Domicile of the owner (mobilia sequntur pesonam)

Income Tax State where the taxpayer is a resident or citizen

Business, occupation and

transaction tax

Place where the business is done, or the occupation is engaged in or the

transaction took place

Gratuitous transfer of property State where the transferor is/was a citizen or resident, or where the property is

located

Factors to Consider in Determining Situs of Taxation

1. Subject matter ( person, property, or activity)

2. Nature of tax

3. Citizenship

4. Residence of the taxpayer

5. Sources of income

6. Place of exercise, business or occupation being taxed

Sources of Income Test of Source of Income

1. Income from services Place of performance No. of days of performance in RP_________ x Compensation Received No. of days of performance in RP and outside RP

2. Rent Location of property

3. Royalties Place of use of intangible

4. Gain on sale of real property Location of property

5. Gain on sale of personal property purchased in one country and sold in another Place of sale 6. Gain on sale of foreign shares of stock Place of sale

6. Gain on sale of domestic shares of stock Income within (shares of domestic corporation treated as derived entirely from sources within the Philippines regardless of where the said shares are sold)

7. Interest Residence of debtor

8. Mining Place where mince is located

9. Farming Place where farm is located

10. Manufacturing business***

Source of income

Produced and sold within Within Produced and sold without Without

Produced in whole/part within and sold without

Partly within and without

Produced in whole/part without and sold within

Partly within and without

11. Dividend

a. From domestic company Income within

If ratio is:

(< 50%) Less than 50%, the entire dividend purely without the Philippines

b. From foreign company ( > 50%) At least 50%, the dividend income partly within and partly without the Philippines

From foreign corporation (based on the ratio of the gross income of the foreign corporation for the preceding 3 years prior to declaration of dividends derived from Philippine sources):

Philippine Gross income (3 years) x Dividend

Income within = Total Gross income (3 years)


of 32

***MANUFACTURING BUSINESS: Computation of income within when independent factory or production price

has not been established:

Taxable income X Value of property, within

2 Value of property, within and without

Add: Xxx

Taxable income X Gross sales, within

2 Gross sales, within and without Xxx

Income within Xxx

Deductions of Taxpayer Whose Taxable Income is From Philippine Sources Only

Gross income within xxx

Less: Expenses, interest, losses and other deductions properly allocated to income within

Ratably portion of unallocated expenses, interest, etc

Phil. Gross income x Unallocated expenses

Total Gross income (xxx)

Net Income xxx

Multiplicity of situs – income or intangible personal properties may be subject to taxation in several taxing

authorities

Remedies against multiplicity of situs

1. Provisions of exemption

2. Allowance of deduction or tax credit for foreign taxes

3. Treaties with other states

Double Taxation

Definition. Taxing twice, for the 1same purpose, 2in the same year or period, 3the same subject by the same taxing

jurisdiction, 4same authority.

Constitutionality of double taxation. – there is no provision in the constitution specifically prohibiting double taxation.

It should, however, whenever possible, be avoided.

Kinds of Double Taxation

1. Direct double taxation. This is prohibited by the constitution as it violates the rule of uniformity

Uniformity - that all properties or other taxable subjects belonging to the same class be taxed at the same rate or

measure.

2. Indirect double taxation.

Forms of Escape From Taxation

1. Shifting

2. Capitalization

3. Transformation

4. Evasion

5. Avoidance

6. Exemption

Shifting – transfer of the tax burden by the person on whom it is imposed by law to another who bears it.

Kinds of shifting

1. Forward shifting – this takes place when the burden of the tax is transferred from a factor or production

through the factors of distribution until it finally settles on the ultimate purchaser or consumer.

2. Backward shifting – this is effected when the burden of the tax is transferred from the customer or purchaser

through the factors of distribution to the factor of production

3. Onward shifting – this occurs when tax is shifted two or more time either forward or backward

Capitalization – Form of backward shifting whereby future taxes on property sold are capitalized at the time of

purchase and deducted in lump sum from the selling price.

Transformation – The process of production.

Evasion – known as tax dodging, is the use by the taxpayer or illegally permissible methods in order to reduce tax

liability

Avoidance – Known as tax minimization, is the used by the taxpayer or legally permissible methods in order to reduce

tax liability


of 32

Exemption From Taxation

Exemption from taxation – is a grant of immunity, express or implied, to particular persons or corporations, or to

persons or corporation of a particular class, from a tax upon property, or an excise tax which persons and

corporations generally within the same taxing district, are obliged to pay

Classification of exemptions

1. Express or affirmatives – these are express provisions in the constitution, statutes, treaties, ordinances,

franchise or contract.

2. Implied or exemption by omission – these occurs when a tax is levied on certain classes of persons,

properties, or transactions without mentioning other classes. Those not mentioned are deemed exempted by

omission

Classes of Taxes

As to subject matter

Personal, poll, capitation – tax of fixed amount imposed on individuals residing within a specified territory without

regard to their property or the occupation in which they may be engaged. Example Residence tax (community tax)

Property – tax imposed on property, whether real or personal, in proportion, either to its value or in accordance with

some other reasonable method of apportionment. Example Real estate tax

Excise – tax imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation.

Example income tax, privilege tax on business or occupation, transfer tax, VAT and Other percentage tax (Note this

is different from the excise tax which is a business tax imposed on items such as cigars, cigarettes, wines,

liquors, frameworks, mineral products)

As to who bears the burden

Direct – tax which is demanded from the person who is intended to pay it. Example: Income tax, immigration tax,

transfer tax (estate tax and donor’s tax).

Indirect – tax which is demanded from one person in the expectation and intention that shall indemnify himself at the

expense of another or tax which the taxpayer can shift to another. Example Percentage tax, Value added tax (Tax on

Business)

As to Determination of amount

Specific – tax of a fixed amount imposed by the head or member, or by some standard of weight or measurement; it

requires no assessment other than a listing or classification of the objects to be taxed. Example: Excise tax on

distilled spirits, excise tax on cigar, cigarettes and liquors

Ad-valorem – tax of a fixed proportion of the amount or value of the property to which the tax is assessed. It

requires the intervention of assessors or appraisers to estimate the value of such property before the amount due

from each taxpayer can be determined Example: Excise tax on watches, Real estate tax, VAT, Income tax, donors

tax and estate tax

As to purpose

General, fiscal or revenue – tax imposed for the general purpose of the government or to raise revenue for

governmental needs Example- Sales tax, Income tax, Donor’s tax , Estate tax

Special or regulatory – tax imposed for a special purpose or to achieve some social or economic ends. Example: Tariff

or customs duties.

As to authority imposing the tax/ As to Scope

National – tax imposed by the National Government. Example Income tax, estate tax, donor’s tax, valued added tax,

other percentage tax, documentary stamp tax

Municipal or local – imposed by the municipal governments. Example Real estate taxes, Municipal licenses,

community tax

As to graduation or rate

Proportional – tax based on fixed percentage of the amount of property income or other basis to be fixed. Example:

VAT, Percentage Tax, and Real Estate Tax


of 32

Progressive or Graduated Tax– the rate increase as the tax base increases. Example: income tax, estate tax, donors

tax

Regressive tax – the tax rate decreases as the tax base increases. The Philippines is not practicing the Regressive

tax.

Degressive tax – increase of rates is not proportionate to the increase of tax base

Regressive System of Taxation

a. A regressive tax must not be confused with regressive system of taxation. In a society where the majority of

the people have low income, it exists when there are more indirect taxes imposed that direct taxes

b. The low – income sector of the population as a whole buys more consumption goods on which indirect taxes are

collected. The burden of indirect taxes rests more on them than on the more affluent groups.

c. Studies reveal that progressive elements of the income and other direct taxes have not sufficiently offset the

regressive effects of the indirect as a whole.

License fee or permit – is a charged imposed under the police power for the purpose of regulations

Toll - is a sum of money collected for the use of something, generally applied to the consideration which is paid for

the use of road, bridge or the like, of a public nature.

Special assessment – is an enforced proportional contribution from owners of land for special benefits resulting from

public improvements.

Tax as distinguished from debt

Tax Debt

1. Based on law 1. Based on contract

2. May cover imprisonment 2. There is no imprisonment

3. Not assignable 3. Can be assigned

4. Generally payable in money 4. May be paid in money or in kind

5. Generally not subject to set-off or compensation 5. Subject to set off or compensation

6. Does not draw interest except when delinquent 6. Draws interest when stipulated or when

there is default

Tax as distinguished from license fees

Tax Licenses Fees

1. As revenue measure 1. A regulatory measure

2. Imposed in the exercise of power of taxation 2. Imposed in the exercise of police power

3. May be unlimited in amount 3. Limited to the cost to regulate

4. Non-payment as a rule, does not render the 4. Non payment of a license makes the business

business illegal illegal

Tax as distinguished from Toll

Tax Toll

1. A demand of sovereignty 1. A demand of proprietorship

2. May be unlimited in amount 2. Limited to the cost of the property

3. Imposed only by the state 3. May be imposed by a private individuals or entity

Tax as distinguished from Special Assessment

Tax Special Assessment

1. Imposed on persons, property or property rights 1. Imposed only on land

2. Imposed regardless of whether there is benefit 2. Imposed based wholly on benefits

or not


of 32

3. Personal liability of the person assessed 3. Not a personal liability of the person assessed -

it is attached or lien on the land itself

4. Not exceptional as to time and locality 4. Exceptional as to time and locality

Tax as distinguished from Penalty

Tax Penalty

1. Aimed at raising revenue 1. Designed to regulate conduct

2. Imposed by Government only 2. Imposed by Government or private entities

Other Charges / Related Terms

Subsidy – is pecuniary and directly granted by the government to an individual or private commercial enterprise

deemed beneficial to the public

Revenue – refers to all the funds or income derived by the government, whether from tax or any other sources.

Internal revenue – refers to taxes imposed by the legislature other than duties on imports and exports

Custom duties – are taxes imposed on goods exported to or imported from a country. Custom duties are really taxes

but the latter is broader

Tariff may be used in one of the following three senses:

1. A book rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the

corresponding duties to be paid for the same

2. The duties payable on goods imported or exported

3. The systems of principles of imposing duties on the importation or exportation goods.

Rules on Construction of income tax laws

1. Legislative intention must be considered.

2. Where there is doubt

a. On a tax statutes – they are constructed strictly against the government and liberally in favor of the

taxpayers.

b. On tax exemption – they are constructed strictly against the taxpayer and liberally in favor of the

government.

3. Where language is plain – if there is no doubt as to the legislative intent, then the words employed are to be

given their ordinary meaning.

Power and Duties of the BIR in General (under the supervision and control of the Department of Finance)

1. To assess and collect all national internal revenue taxes, fees and charges;

2. To enforce all forfeitures, penalties and fines connected therewith;

3. To give effect to and administer the police power conferred to it by law;

4. To recommend to the Secretary of Finance all needful rules and regulations for the effective enforcement of

the provisions of the National Internal Revenue Code.

Powers of the Commissioner of Internal Revenue

1. Interpret tax laws and to decide tax cases

2. Obtain information and to summon, examine, and take testimony of persons

3. Make assessment and prescribed additional requirements for tax administration and enforcement.

Authority of the Commissioner

1. Authority to delegate power

2. Authority to conduct inventory taking

3. Authority to terminate taxable period

4. Authority to prescribe real property values

5. Authority to inquire into Bank Deposit accounts

6. Authority to accredit and register tax agents

7. Authority to prescribe additional procedures or documentary requirement

Power of the Commissioner Shall not delegated

1. The power to recommend the promulgation of rules and regulation by the secretary of finance

2. The power to issue rulings of first impressions or to reverse, revoke or modify any existing ruling of the

Bureau


of 32

3. The power to compromise or abate. Except deficiency taxes P500,000 or less and minor criminal violations

(secretary of finance).

4. The power to assign or reassign internal revenue officers to establishment where articles subject to excise tax

are produced or kept.

Chief Officials of the BIR (Bureau of Internal Revenue)

Commissioner of internal revenue The chief

Four deputy Commissioner 1. Legal and inspection group

2. Information systems group

3. Operations group

4. Resource management group

Characteristic of National Internal Revenue:

� Generally prospective in application

The following taxes, fees and charges are deemed to be National Internal Revenue Taxes:

1. Income tax

2. Percentage tax

3. Value added tax

4. Estate tax

5. Excise tax

6. Documentary stamp tax

7. Other taxes may be imposed and collected by the BIR

National taxes imposed under Special Laws:

1. Custom duties

2. Sugar adjustment taxes

3. Taxes on narcotic drugs

4. Special educational fund tax

5. Science fund taxes

6. Energy taxes on aircraft; motorized watercraft and electrical power consumption

7. Travel tax

8. Private motor vehicle tax

Sources of Tax Laws

1. Constitution – The provisions of the constitution dealing on taxation merely regulate the exercise of the power

of taxation. They are not actually grants of the power, because of taxation can be exercised by the

government; the power of taxation is not a mere constitutional grant.

2. Statutes or laws – This refers to the tax laws passed by the Congress.

3. Administrative rulings and regulation – Administrative rulings are the less general interpretation of tax laws

which are issued from time to time by the Commissioner of Internal Revenue. They are usually rendered on

request of taxpayers to clarify certain provisions of a tax law. They are commonly known as “ BIR Rulings”.

Regulations are intended to clarify or explain the law and carry into effect its general provisions by providing

the details of administration and procedure. However, in case of conflict between a regulation and a statute,

the latter shall prevail.

a. Revenue Regulations (RRs) are issuances signed by the Secretary of Finance, upon

recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and

regulations for the effective enforcement of the provisions of the National Internal Revenue Code

(NIRC) and related statutes.

b. Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions;

prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures

necessary in the implementation of stated policies, goals, objectives, plans and programs of the

Bureau in all areas of operations, except auditing.

c. Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the

Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws,

as applied to a specific set of facts, with or without established precedents, and which the

Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax

consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs;

otherwise, the Rulings are null and void ab initio.

d. Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable

portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and

other agencies/offices.

e. BIR Rulings are the official position of the Bureau to queries raised by taxpayers and other

stakeholders relative to clarification and interpretation of tax laws.

4. Judicial decisions – This refers to decisions of the Court of Tax Appeals and the Supreme Court applying or

interpreting tax laws. They constitute major part of the jurisprudence on taxation and form part of the legal

system of the Philippines. Decisions of the Court of Tax Appeals, however, are still appealable to the Supreme

Court of the Philippines.


of 32

5. Presidential decree

6. Provincial, City, Municipal and barangay ordinance

7. Treaties and international agreements

Basic Tax Laws of the Philippines

1. National Internal Revenue Code

2. Tariff and Custom Code

3. The Local Tax Code

4. The Real Property Tax Code

Rules on Set-Off of Taxes

a. No set-off or compensation is admissible against demands for taxes levied for general or local purposes.

b. Reason: Taxes are not in the nature of contract between parties; the government and the taxpayer are not

mutually creditors and debtors of each other and the claim for taxes is not such a debt, demand, contract or judgment

as is allowed to be set-off.

c. Exception: Where both the claims of the government and the taxpayer against each other have already become

due and demandable as well as fully liquidated.

Global and Schedular System of Taxation

a. Schedular – a system which itemizes the different incomes and provides for varied percentages of taxes, to be

applied thereto.

b. Global – a system employed where the tax system views indifferently the tax base and generally treats in common

all categories of taxable income of the individual.

Other Doctrines in Taxation

1. Taxpayer’s suit – this suit can only be allowed if the act involves a direct and illegal disbursement of public funds

derived from taxation.

2. Equitable recoupment – this states that a claim for refund which is prevented by prescription may be allowed to be

used as payment for unsettled tax liabilities if both taxes arise from the same transaction in which overpayment is

made and underpayment is due.

3. Tax amnesty – it is a general pardon or the intention overlooking by the State of its authority to impose penalties

on persons otherwise guilty of violation of a tax law. It partakes of an absolute waiver by the government of its right

to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate.

Legislation of Tax Laws

Under the 1987 Philippine Constitution, all revenue and tariff bills shall originate from the House of

Representative. A revenue bill is one that levies taxes and raises funds for the government, while a tariff bill

specifies the rates or duties to be imposed on imported articles.

a. Concurrence by a Majority of all

Members of the Congress to Pass

Tax Exemption

Concurrence by a Majority of all Members of the Congress for the Passage

of Law Granting Tax Exemptions [Art. VI, Sec 28 (4)];

b. Appropriation, Revenue or Tariff

Bills Originate from House of

Representatives

All Appropriation, Revenue or Tariff Bills Shall Originate Exclusively from

the House of Representatives. (Art. VI, Sec. 24)

c. Senate May Propose or Concur The senate may Propose or Concur with Amendments (Art. VI, Sec. 24)

d. Conference Committee The committee will harmonize the bill introduced by the House

Representative and a parallel bill introduced in the Senate.

e. President’s Approval The harmonized bill signed by the president becomes law.

f. President’s Veto The president shall have the power to veto any particular item or items in

an appropriation, revenue, or tariff bill, but the veto shall not affect the

item or items to which he does not object. [Art. VI, Sec. 27 (2)]

g. Congress May Authorize

President to Fix Certain Items

The congress may Authorize the President to Fix Tariff Rates, Import and

Export Quotas, Tonnage and Wharfage Dues and other Duties or Imposts

[Art. VI, Sec. 28 (2)];

e. Congress May Provide Incentives Congress May Provide for Incentives Including Tax Deductions to

Encourage Private Participation in Programs of Basic and Applied Scientific

Research (Art. XIV, Sec. 11).

Impact of Taxes in Nation-Building

Taxes are use to support government in nation-building. It is levied for public purpose such as:

1. Construction of roads and bridges

2. Pensions to retired government employees and their widows and children.

3. Assistance to victims of calamities.

4. Social welfare and health projects.

Organization of the BIR, BOC, LGU, BOI and PEZA


of 32

Bureau of Internal

Revenue (BIR)

BIR- is an administrative agency which is involved in the administration and collection of

national taxes. It is under the supervision and control of the Department of Finance. The

power and duties of BIR are the following:

a. Assessment and collection of all national internal revenue taxes, fees and charges.

b. Enforcement of all forfeitures, penalties and fines connected therewith.

c. Execution of judgments in all cases decided in its favour by the Court of Tax Appeals (CTA)

and the ordinary courts; and

d. Give effect to and administer the supervisory and police power conferred to it by the

National Internal Revenue Code (NIRC) or other laws.

Power of the Commissioner of Internal Revenue

The Commissioner has been given broad powers in order to enforce tax law and collect the

needed revenue. These include the following:

1. To interpret tax laws and to decide tax cases.

2. To obtain information and to summon, examine and take testimony of persons.

3. To make assessments and prescribe additional requirements for tax administration and

enforcement.

Bureau of Customs

(BOC)

BOC- is a Philippine government agency under the Department of Finance. It is responsible

for regulating and facilitating trade, assessment and collecting import duties and taxes,

combating illegal trade and other form of customs fraud, and devising and managing customs

management systems for trade facilitation.

Local Government

Tax Collecting

Units

LGU- includes provinces, cities, municipalities and barangays. They have the power to create

its own sources of revenue and to levy taxes, fees and charges, consistent with the basic

policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local

government units.

The Board of

Investment (BOI)

BOI – an attached agency of Department of Trade and Industry (DTI), is the lead government

agency responsible for the promotion of investments in the Philippines. BOI assists Filipino

and foreign investors to venture and prosper in desirable areas of economic activities.

Investors are welcome to experience the potentials of the booming Philippines industry

sectors.

Philippine

Economic Zone

Authority (PEZA)

PEZA – an attached agency of Department of Trade and Industry (DTI). It is the Philippine

government agency tasked to promoted investments, extend assistance, register, grant

incentives to and facilitate the business operations of investors in export oriented

manufacturing and service facilities inside selected areas throughout the country proclaimed

by the President of the Philippines as PEZA Special Economic Zones. It oversees and

administers incentives to developers/operators of and locators in world-class ready to occupy

environment-friendly secured and competitively price Special Economic Zones.

I. Power to Interpret Tax Laws and to Decide Tax Cases (Sec. 4)

A. The power to interpret the provisions of the Tax Code and other tax laws shall be under the exclusive

and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance;

B. B. The power to decide disputed assessments, refunds of internal revenue, taxes, fees and other

charges, penalties imposed in relation thereto, or other matters arising under the Tax Code or other

laws or portions thereof administered by the Bureau of Internal Revenue is vested in the

Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

II. Power to obtain information and to Summon, Examine, and Take Testimony of Persons (Sec. 5)

In ascertaining the correctness of any return, or in making a return when none has been made, or in

determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in

evaluating tax compliance, the Commissioner is authorized:

A. To examine any book, paper, record, or data which may be relevant or material to such inquiry

B. To obtain on a regular basis any information such as, but not limited to, costs and volume of

production, receipts or sales and gross income of taxpayers, and the names, addresses, and financial

statements of corporations and other companies and their members;

C. To summon persons to appear before the Commissioner or his duly authorized representative at a

time and place specified in the summons and to produce books, papers, records or other data and to

give testimony;

D. To take such testimony of the persons concerned, under oath, as may be relevant or material to such

inquiry;

E. To cause revenue officers and employees to make a canvass from time to time of any revenue district

or region and inquire after and concerning all persons therein who may be liable to pay any internal

revenue tax, and all persons owning or having the care, management or possession of any object with

respect to which a tax is imposed.


of 32

III.Power to Make Assessments and Prescribe Additional requirements for Tax Administration and

Enforcement (Sec. 6)

A. Examination of Returns and Determination of Tax Due

1.) After a return has been filed or when there is failure to file a return, the Commissioner or his duly

authorized representative may authorize the examination of any taxpayer and the assessment of

the correct amount of tax;

2.) The tax or any deficiency tax so assessed shall be paid upon notice and demand from the

Commissioner or from his duly authorized representative;

3.) Any return, statement or declaration filed in any office authorized to receive the same shall not be

withdrawn; Provided, That within three (3) years from the date of such filing, the same may be

modified /changed or amended; Provided, further, That no notice or audit or investigation of such

return, statement or declaration has, in the meantime, been actually served to the taxpayer.

B. Failure to Submit Required Returns, Statements, Reports and other Documents

1.) When a report required by law as a basis for assessment of any national internal revenue tax shall

not be forthcoming within the time fixed by laws or rules and regulations or when there is reason

to believe that any such report is false, incomplete, or erroneous, the Commissioner shall assess

the proper tax on the best evidence obtainable;

2.) In case a person fails to file a required return or other document at the time prescribed by law, or

wilfully or from his own knowledge and from such information as he can obtain through testimony

or otherwise, which shall be prima facie correct and sufficient for all legal purposes.

C. Authority to Conduct Inventory-Taking, Surveillance and to Prescribe Presumptive Gross

Sales and Receipts

1.) The Commissioner may, at any time during the taxable year, order inventory-taking of goods of

any taxpayer as a basis for determining his internal revenue tax liabilities, or may place the

business operations of any person, natural or juridical, under observation or surveillance if there is

reason to believe that such person is not declaring his correct income, sales or receipts for internal

revenue tax purposes;

2.) The findings may be used as a basis for assessing the taxes for the other months or quarters of

the same or different taxable years and such assessment shall be deemed prima facie correct;

3.) When it is found that a person has failed to issue receipts and invoices in violation of the

requirements of the Tax Code, or when there is reason to believe that the books of accounts and

other records do not correctly reflect the declarations made or to be made in a return required to

be filed under the provisions of the Tax Code, the Commissioner, after taking into account the

sales, receipts, income or other taxable base of other persons engaged in similar business under

similar situations or circumstances or after considering other relevant information, may prescribe a

minimum amount of such gross receipts, sales and taxable base, and such amount so prescribed

shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such

persons.

D. Authority to Terminate Taxable Period

1.) The Commissioner shall declare the period of a taxpayer terminated at any time when it shall

come to his knowledge:

a. That a person is retiring from business subject to tax, or

b. Is intending to leave the Philippines or remove his property therefrom or to hide or conceal his

property, or

c. Is performing any act tending to obstruct the proceedings for the collection of the tax for the

past or current quarter or year or to render the same totally or partly ineffective unless such

proceedings are begun immediately.

2.) The Commissioner shall send the taxpayer a notice of his decision to terminate together with a

request for immediate payment of the tax for the period so declared terminated and the tax for

the preceding year or quarter, or such portion thereof as may be unpaid, and said taxes shall be

due and payable immediately and shall be subject to all penalties prescribed, unless paid within

the time fixed in the demand made by the Commissioner.

E. Authority to Prescribe Real Property Values

1.) The Commissioner is hereby authorized to divide the Philippines into different zones or areas and

shall, upon consultation with competent appraisers both from the private and public sectors,

determine the fair market value of real properties located in each zone or area.


of 32

2.) For purposes of computing any internal revenue tax, the value of the property shall be, whichever

is the higher of:

a. the fair market value as determined by the Commissioner; or

b. the fair market value as shown in the schedule of values of the Provincial and City Assessors.

F. Authority to Inquire into Bank Deposit Accounts

1.) Notwithstanding any contrary provisions of R.A. No. 1405 and other general or special laws, the

Commissioner is hereby authorized to inquire into bank deposits of:

a. decedent to determine his gross estate; and

b. any taxpayer who has filed an application for compromise of his tax liability by reason of

financial incapacity to pay his liability.

2.) In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim

that his financial position demonstrates a clear inability to pay the tax assessed, his application

shall not be considered unless and until he waives in writing his privilege under R.A. No. 1405 or

under other general or special laws, and such waiver shall constitute and authority of the

Commissioner to inquire into the bank deposits of the taxpayer.

G. Authority to Accredit and Register Tax Agents

1.) The Commissioner shall accredit and register, based on their professional competence, integrity

and moral fitness, individuals and general professional partnerships and their representatives who

prepare and file tax returns, statements, reports, protests, and other papers with, or who appear

before the Bureau for taxpayers;

2.) Individuals and general professional partnerships and their representatives who are denied

accreditation by the Commissioner and/or the national and regional accreditation boards may

appeal such denial to the Secretary of Finance, who shall rule on the Appeal within sixty (60) days

from receipt of such appeal;

3.) Failure of the Secretary of Finance to rule on the appeal within the prescribed period shall be

deemed as approval of the application for accreditation of the appellant.

H. Authority to Prescribe Additional Procedural or Documentary Requirements

1.) The Commissioner may prescribe the manner of compliance with any documentary or procedural

requirement in connection with the submission or preparation of financial statements

accompanying the tax returns.

IV. Authority of the Commissioner to Delegate Power (Sec. 7)

A. The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax

Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject

to such limitations and restrictions as may be imposed under rules and regulations to be promulgated

by the Secretary of Finance, upon recommendation of the Commissioner;

B. The following powers of the Commissioner shall not be delegated;

1.) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

2.) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of

the Bureau;

3.) The power to compromise or abate any tax liability;

4.) The power to assign or reassign internal revenue officers to establishments where articles subject

to excise tax are produced or kept.

V. Organization of the Bureau of Internal Revenue

Powers and Duties

of the Bureau of

Internal Revenue

The Bureau of Internal Revenue shall be under the supervision and control of the

Department of Finance and its powers and duties shall comprehend the assessment and

collection of all national internal revenue taxes, fees, and charges, and the enforcement

of all forfeitures, penalties, and fines connected therewith, including the execution of

judgments in all cases decided in its favor by the Court of Tax Appeals

Chief Officials of the

Bureau of Internal

Revenue

The Bureau of Internal Revenue shall have a chief to be known as:

a. Commissioner of Internal Revenue, hereinafter referred to as the Commissioner, and

b. Four deputy commissioner

1. Legal and inspection group

2. Information systems group

3. Operations group

4. Resources management group

VI. Organization of the Bureau of Customs

Chief Officials of the

Bureau of Customs

The Bureau of Customs shall have:

a. one chief and

b. four assistant chiefs, to be known respectively as the Commissioner of Customs.


of 32

Deputy

Commissioners

The Bureau of Customs shall have five (5) Deputy Commissioners, each one to head:

a. Customs Revenue Collection Monitoring Group

b. Customs Assessment and Operations Coordinating Group

c. Intelligence and Enforcement Group

d. Internal Administration Group

e. Management System Technology Group

Appointment of the

Commissioner and

the Deputy

Commissioner

The Commissioner and the Deputy Commissioner of Customs shall be appointed by the

President of the Philippines.

VII. Local Tax Collecting Units

Scope of local taxes The provision under Local Government Taxation shall govern the exercise by provinces,

cities, municipalities, and Barangays of their taxing and other revenue-raising powers.

Local Taxing

Authority

The power to impose a tax, fee, or charge or to generate revenue under this Code shall

be exercised by the Sanggunian of the local government unit concerned through an

appropriate ordinance.

Venue of Filling of

Return

All local taxes, fees, and charges shall be collected by the provincial, city, municipal, or

Barangay treasurer, or their duly authorized deputies.

Time of filling of tax

return

Unless otherwise provided in this Code, all local taxes, fees, and charges shall be paid

within the first twenty (20) days of January or of each subsequent quarter, as the case

may be.

The Sanggunian concerned may, for a justifiable reason or cause, extend the time of

payment of such taxes, fees, or charges without surcharges or penalties, but only for a

period not exceeding six (6) months.

VIII. Organization of Board of Investments

Composition of the Board The Board of Investments shall be composed of seven (7) governors:

a. The Secretary of Trade and Industry,

b. three (3) Undersecretaries of Trade and Industry to be chosen by the

President; and

c. three (3) representatives from other government agencies and the private

sector.

The Secretary of Trade and Industry shall be concurrently Chairman of the

Board and the Undersecretary of the Department of Trade and Industry for

Industry and Investments shall be concurrently the Vice-Chairman of the Board

and its Managing Head.

The three (3) representatives from the other government agencies and the

private sector shall be appointed by the President for a term of four (4) years.

Upon the expiration of his term, a governor shall serve as such until his

successor shall have been appointed and qualified.

No vacancy shall be filled except for the unexpired portion of any term, and

that no one may be designated to be governor of the Board in an acting

capacity but all appointments shall be ad interim of permanent.

IX. Philippine Economic Zone Authority

Purpose of Creation Philippine Economic Zone Authority (PEZA) is a government agency in the

Philippines attached to the Department of Trade and Industry created to help

promote investments in the export-oriented manufacturing industry into the

country by assisting investors in registering and facilitating their business

operations and providing tax incentives.

PEZA also assists investors who locate in service facilities inside selected areas


of 32

in the country (areas are called PEZA Special Economic Zones) which are

usually business process outsourcing and knowledge process outsourcing firms.

Other activities also eligible for PEZA registration and incentives include

establishment and operation within special economic zones for tourism,

medical tourism, logistics and warehousing services, economic zone

development and operation and facilities providers

Composition of PEZA Board PEZA was enacted under Republic Act 7916 and was passed by the House of

Representatives and the Senate and approved by former Philippine President

Fidel V. Ramos on the 21st of February, 1995.

As provided in the Special Economic Zone Act, the PEZA Board is:

a. chaired by the Secretary of the Department of Trade and Industry.

b. Vice-Chair is the Director General (Chief Executive Officer) of PEZA.

c. Members of the Board are Undersecretaries representing nine(9) key

government Departments, to ensure efficient coordination between

PEZA and their respective Departments on matters pertaining to

investors’ operations inside the Special Economic Zones.

Incentives Offered by PEZA PEZA offers both fiscal and non-fiscal incentives as well as ready-to-occupy

business locations in world-class economic zones and IT parks or buildings.

Fiscal incentives include:

a. Income tax holiday for a certain number of years, which translates to

100% from corporate income tax;

b. Tax and duty-free importation of raw materials, capital equipment,

machineries and spare parts;

c. exemption from wharfage dues and export tax, impost or fees;

d. VAT zero-rating of local purchases subject to compliance with BIR and

PEZA requirements;

e. Exemption from payment of any and all local government imposts,

fees, licenses or taxes; and

f. Exemption from expanded withholding tax.

Non-fiscal incentives, on the other hand include:

a. simplified import-export procedures, extended visa-facilitation

assistance to foreign nationals and

b. spouses and dependents; special visa multiple entry privileges;

c. and more.

END

MULTIPLE CHOICES (ADAPTED)- WITH SUGGESTED ANSWERS

1. The process by which the sovereign raises income to defray the expenses of the government is called (RPCPA) A. subsidy B. tariff C. taxation D. tribute 2. One of the characteristics of internal revenue taxes is that they are (RPCPA) A. Criminal in nature B. Penal in nature C. Political in nature D. Generally prospective in application 3. In case of conflict between tax laws and generally accepted accounting principles (GAAP) (RPCPA) A. Both tax laws and GAAP shall be enforced B. GAAP shall prevail over tax laws C. Tax laws shall prevail over GAAP D. The issue shall be resolved by the court

4. Which of the following has no power of taxation? (RPCPA) A. provinces B. cities C. barangays D. Barrios 5. “Schedular system of income taxation” means (RPCPA)


of 32

A. All types of income are added together to arrive at gross income. B. Separate graduated rates are imposed on different types of income C. Capital gains are excluded in determining gross income D. Compensation income and business/professional income are added together in arriving at gross income. 6. Which of the following statements is true? A. Opinions of legal luminaries are sources of tax laws. B. The Constitution grants exemption from all kinds of taxes to religious and charitable organizations. C. Because the power to tax is unlimited, comprehensive, plenary and supreme, the power to tax can reach over into any jurisdiction to seize upon person or property. D. The “benefits-protection theory” is the source of the “doctrine of symbiotic relationship”. 7. One of the following is a primary purpose of taxation A. Protection of local industries against foreign competition through imposition of high customs duties on imported goods B. Reduction of inequalities in wealth and income by imposing progressively higher tax rates C. To secure revenue for the support of the government D. Strengthening of anemic enterprises by giving tax exemptions. 8. Which of the following is not a secondary purpose of tax? A. To serve as key instrument of social control B. To effect more equitable distribution of wealth among people C. To achieve social and economic stability D. To raise revenue to defray the necessary expenses of the government.

9. Which is the best answer? A tax reform at any given time underscores the fact that (RPCPA) A. Taxation is an inherent power of the state. B. Taxation is essentially a legislative power C. Taxation is a power that is very broad D. The state can and should adopt progressive taxation 10. The legislative body can impose a tax at any amount underscores the legal truism that taxation is A. An inherent power of the tax B. A very broad power of the state C. Essentially a legislative power D. For public purpose 11. All of the following, except one, are canons of a. sound tax system A. Fiscal adequacy B. theoretical justice C. Administrative feasibility D. inherent sovereignty 12. Under the basic principle of sound tax system, the government should not incur a deficit. (RPCPA) A. Theoretical justice B. Administrative feasibility C. Fiscal Adequacy D. None of the above 13. The following, except one, are basic principles of a sound tax system A. It should be capable of being effectively enforced. B. It must be progressive C. Sources of revenue must be sufficient to meet government expenditures and other public needs. D. It should be exercised to promote public welfare. 14. Real property taxes should not disregard increases in the value of real property occurring over a long period of time. To do otherwise would violate the canon of a sound tax system referred to as (BEQ) A. theoretical justice B. fiscal adequacy C. administrative feasibility D. symbiotic relationship 15. Which of the following is not one of the canons of a sound tax system? A. Quantifiability B. Equality C. Certainty D. Convenience 16. Which theory in taxation states that without taxes, a government would be paralyzed for lack of power to activate

and operate it, resulting in the destruction? (BEQ) A. Power to destroy theory B. Lifeblood Theory C. Sumptuary theory D. Symbiotic doctrine 17. Congress passed a sin tax law that increased tax rates on cigarettes by 1,000%. The law was thought to be sufficient to drive many cigarette companies out of business, and was questioned in court by a cigarette company that would go online out of business because it would not be able to pay the increased tax. The cigarette company is ______________ (BEQ) A. wring because taxes are the lifeblood of the government


of 32

B. wrong because the recognizes that the power to tax is the power to destroy C. correct because no government can deprive a person of his livelihood D. correct because Congress, in this case, exceeded the power to tax 18. Which statement below expresses the lifeblood theory? A. The assessed taxes must be enforced by the government B. The underlying basis of taxation is government necessity, for without taxation, a government can neither exist nor endure. C. The power of Taxation is an arbitrary method of exaction by those who are in seat of power D. The power of taxation is inherent power of the sovereign to impose burdens upon subjects and objects within its jurisdiction of the purpose of raising revenues. 19. The power to tax is the power to destroy. Is this always so? A. No. The executive branch may decide not to enforce a tax law which it believes to be confiscatory. B. Yes. The tax collectors should enforce a tax law even it results to the destruction of the property rights of taxpayer. C. Yes. Tax laws should always be enforced because without taxes the very existence of the State is endangered. D. No. The Supreme Court may nullify a tax law hence, property rights are not affected. 20. The requirement of equality or theoretical justice is complied with if the tax is A. progressive B. regressive C. ad valorem D. specific

21. The power of taxation can only be exercised by the lawmaking body A. subject to constitutional and inherent limitations B. equality or theoretical justice C. legislative in character D. inherent in sovereignty 22. The President of the Philippines and the Prime Minster of Japan entered into an executive agreement in respect of a loan facility to the Philippines from Japan whereby it was stipulated that interest on loans granted by private Japanese financial institutions in the Philippines shall not be subject to the Philippine income taxes. What basic characteristic of taxation has been violated by this agreement? A. inherent limitation B. theoretical justice C. legislative in character D. administrative feasibility 23. Although the power of taxation is basically legislative in character, it is not the function of the Congress to (BEQ) A. fix with certainty the amount of taxes B. collect the tax levied under the law C. identify who should collect the tax D. determine who should be subject to the tax 24. Which statement gives the correct answer? That a feasibility study needs or need to look into taxes of different political subdivisions of government which may be alternative sites of the business because (RPCPA) A. Provinces, cities and municipalities must have uniform taxes between and among themselves B. The local taxes of a political subdivision need not be uniform with the local taxes of another political subdivision. C. Businesses that are subject to national taxes are exempted from local business taxes. D. Local businesses taxes may be credited against national business taxes. 25. The power of taxation is inherent in sovereignty being essential to the existence of every government. Hence, even if not mentioned in the Constitution, the state can still exercise the power. It is essentially a legislative function. Even in the absence of any constitutional provision, taxation power falls to Congress as part of the general power of lawmaking A. False, False B. False, True C. True, True D. True, False 26. Those restrictions on the exercise of the power of taxation that are found in the constitution or implied from its provisions A. theoretical justice B. legislative in character C. inherent limitations d. constitutional limitations

27. Which of the following statements is not correct? A. Taxes may be imposed to raise revenue or to provide disincentives to certain activities within the state. B. The state can have the power of taxation even if the Constitution does not expressly give it the power to tax. C. For the exercise of the power of taxation, the state can tax anything at any time. D. The power of taxation in the Philippine Constitution are grants of power and not limitations on taxing powers. 28. One of the following is not an inherent limitation on the exercise of the power of taxation— A. international comity B. double taxation C. non-delegation of the legislative power to tax


of 32

D. territoriality 29. The City Council passed an ordinance imposing an occupation ta on an air conditioning technician. Conde is the only person with such in the city. He challenged the validity of the ordinance as being discriminatory since he is the only one adversely affected. A. The contention of Conde is tenable B. The ordinance is unconstitutional because Conde is denied of his right to equal protection of the law. C. The contention of Conde is not justified because the rule on uniformity is not violated considering that the ordinance would also be imposed on all air conditioning technicians who may come within the jurisdiction of the city. D. The issue on validity or invalidity of the ordinance should be set aside. 30. Those who have more income should pay more income tax, while minimum wage earners should be exempt A. Uniformity of taxation B. Equality of taxation C. Due process of law D, Non-delegation of legislative power 31. All subject or objects that are similarly situated are treated alike as to the burden that may be imposed and the benefits that may result A. equitable B. proportional C. uniformity D. progressive

32. A tax law is not violative of the due process clause when it is A. arbitrary B. discriminatory C. excessive D. proportionate 33. Which of the following is violative of the uniformity rule in taxation? A. Different tax rates on boarding stables for racehorses and boarding horses are not for racing; B. Wholesale dealers in oil are subject to occupation tax while wholesale dealers in other articles such as sugar, bacon, coal, iron and other things are not so subject; C. A road users’ tax imposed on all motor vehicles registered and operating in the City of Manila but does not subject vehicles not registered therein but also operating temporarily in the said city. D. A tax of P2 per square meter or fraction thereof is imposed on every billboard or sign anywhere in the country. 34. The Lung Center of the Philippines, a charitable institution, is erected in the middle of twelve hectare lot: I. A big at its ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. II. The rest of the proportions of the building are used for its patients, whether paying or non-paying. III. Almost one-half of the entire area of the lot on the left side of the building is vacant IV. A big portion on the right side is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids & Garden Center. Which portion is subject to real property tax? A. I only B. I and II C. III. and IV D. I, III, and IV 35. Statement I: The constitutional exemption on income taxes, property taxes, and customs duties is allowed on non- stock, non-profit educational institutions only. Statement II: A building being leased by its owner to a private educational institution for used as classrooms is exempt from property tax. Statement III. Income of a non-stock, non-profit educational institution run by the Archdiocese is exempt from tax provided that the incomes are actually, directly and exclusively used for educational purposes Which of the statements are correct? A. Statement 1 only B. Statements 1&2 C. Statement 2 only D. All of them 36. Which of the following statements is not correct? A, An inherent limitation of taxation may be disregarded by the application of a constitutional limitation. B. The property of an educational institution operated by a religious order is exempt from property tax, but its income is subject to income tax.

C. The prohibition of delegation by the state of power of taxation will still allow the Bureau of Internal Revenue to modify the rules on time for filing of returns and payment of taxes. D. The power of taxation is shared by the legislative and executive departments of government. 37. Business College is a non-stock, non-profit educational institution. It owns a 5-hectare lot one-half of which is being used as its school campus while the other half is vacant. To cope with the increasing operating costs and to upgrade its facilities, BC plans to do the following effective January 1, 2016: (1) rent out to a marketing firm the vacant portion of the lot; (2) increase tuition fees by 10% in accordance with government regulations; and (3) import 20 sets of computers for use in its computer courses. Which of the following questions is answerable by “Yes”? A. Is BC subject to real estate tax on the one-half portion to be rented out to a business establishment? B. Will it be exempt from income tax on its rental to the marketing firm?


of 32

C. Will the increase in tuition fees be subject to income tax if it results to a net income from school operations? D. Will it be subject to customs duties on the importation of the computers? 38. The Bicol School of Business and Arts, a proprietary educational institution which is offering primary, secondary and tertiary education, is registered with and accredited by the Department of Education and the Commission on Higher Education Which of the following is exempt from tax? What kind of tax? A. The importation of laboratory equipment – from customs duties B. The school building being rented by the school – from real property tax C. A portion of the school building being leased to a fast-food chain – from real property tax D. The income from operation – from income tax 39. Assuming that the school in the preceding number is a non-stock non-profit educational institution. Which of the following is subject to tax? What kind of tax? A. The school building owned by the school – from real estate tax B. The school building being rented by the school – from real property tax C. A portion of the school building being leased to fast food chain – from real property tax D. The income from operation – from income tax 40. The head priest of the religious sect Tres Personas Solo Dios, as the corporation sole, rented a 5,000 sq. m. lot registered its name for use as school site of a school organized for profit. The sect used the rentals for the support and upkeep of its priests. The rented lot is (BEQ) A. not exempt from real property taxes because the user is organized for profit

B. exempt from real property taxes since it is actually, directly and exclusively used for religious purposes C. not exempt from real property taxes since it is the rent, not the land, that is used for religious purposes D. exempt from real property taxes since it is actually, directly and exclusively used for educational purposes 41. The Municipality of Monte Cristo has a ten hectare cemetery consisting of four different cemeteries which are owned by different entities. Which of the following is subject to real estate tax? A. Cemetenterio Municipal del Monte Cristo – a government cemetery owned by the municipality which was established for the purpose of using it as a burial ground of the paupers in Monte Cristo. B. Monte Cristo Catholic Cemetery – owned by the catholic church; payments are remitted to the catholic church and for the improvement of the cemetery. C. Last Trip Memorial Park – owned by a corporation where dividends are distributed to the shareholders at the end of the year. D. Quita-Quita Memorial Park – owned by an association consisting one hundred different families; each family owns several square meters of lot; not a single portion is held for sale to either member or non-member of the association. 42. Lualhati Educational Inc., a stock educational institution organized for profit, decided to lease for a commercial use a 1,500 sq. m. portion of its school. The school actually, directly and exclusively use the rents for the maintenance of its school’s building, including payment of janitorial services. Is the leased portion subject to real property tax? A. Yes, since Lualhati is a stock and for profit educational institution B. No, since the school actually, directly and exclusively use the rents for educational purposes C. No, but it may be subject to income taxation on the rents it receives D. Yes, since the leased portion is not actually, directly and exclusively used for educational purposes 43. All appropriation, revenue or tariff bills, bills authorizing increase of a public debt, bills of local application, and private bills shall originate exclusively in the A. office of the president B. House of the representatives C. Senate D. Supreme Court 44. Which statement is wrong? A. Must originate from the House of Representatives and on which same bill the Senate may propose amendments. B. May originate from the senate and on which same bill the House of Representatives may propose amendments. C. May have a house version and senate version approved separately D. May be recommended by the president to Congress 45. Congressman Luis R. Villafuerte of the 3rd District of Camarines Sur and Senator Juan Ponce Enrile sponsored a bill in the House of Representatives and the Senate, respectively, increasing the personal exemptions of individual taxpayers as well as granting tax exemptions to minimum wage earners. Which of the following is correct? A. The Senate bill should be discussed ahead of the House bill B. The Senate and House bill may be discussed at the same time in both houses C. The house bill should be discussed ahead of the senate bill D. No priority each bill can be discussed ahead of the other.

46. No law granting any tax exemption shall be passed without the concurrence of A. majority of all members of the Congress B. 2/3 vote of all members of the congress C. ¾ vote of all members of the Congress D. Unanimous vote of all members of the Congress 47. Which of the following statement is incorrect with respect to the power of the President? A. Congress may authorize the president to fix within specified limits tariff rates, import and export quotas, tonnage and wharfage dues, and other duties and imposts within the framework of the National Development Program of the government


of 32

B. The president can veto any particular item in a revenue or tariff bill, but the veto shall not affect the items or items which he does not object C. The power of taxation can be delegated to the President of the Philippines D. The President of the Philippines is empowered to grant tax exemption on certain class of taxpayers. 48. Which of the following statements is incorrect? A. No person shall be imprisoned for non-payment of debt or non-payment of taxes B. The passage of laws granting tax exemptions requires the concurrence by a majority of all the members of Congress. C. The Supreme Court’s jurisdiction over tax cases cannot be impaired. D. The revenues and assets of non-stock, non-profit educational institutions and donations for educational purposes are exempted from taxes and duties. 49. They restrict the exercise of the power of taxation although they are not embodied in the Constitution A. theoretical justice B. legislative in character C. inherent limitation D. constitutional limitations 50. Money collected from taxation shall not be paid to any religious dignitary except when A. the religious dignitary is assigned to the Philippine Army B. it is paid by a local government unit C. the payment is passed in audit by the COA D. it is part of the lawmaker’s pork barrel.

51. A tax must be appropriated and spent for public purpose. Which of the following is not a public purpose? A. dole-out to victims of calamity B. PantawidPamilyang Pilipino Program (4 Ps) C. improvement of sugar industry D. construction of a barangay chapel 52. Which of the following activities is not a public purpose? A. Construction of bridges B. Payment of Christmas bonuses of government officials and employees C. Opening of road on a tract of land owned by a private individual D. Scholarship to poor but deserving students 53. The fundamental rule in taxation is that “property of one country may not be taxed by another country” A. international law B. international comity C. reciprocity D. international inhibition 54. Question 1: Can the state tax the Armed Forces of the Philippines? Question 2: Are the government-owned and controlled corporations subject to tax? A. Yes, No B. Yes, Yes C. No, Yes D. No, No 55. Diplomatic officials such as heads of states and ambassadors are exempt from taxes and duties because of A. international comity B. reciprocity provisions C. principle of territoriality D. exemption in the tax code 56. Deals with the provision of the law which determines the person or property to be taxed, the sum or sums to be raised, the rate thereof, and the time and manner of levying, receiving and collecting taxes A. Collection B. payment C. enforced contribution D. levy 57. Constituted of the provisions of law which prescribe the manner of enforcing the obligation on the part of those taxed to pay demand thus created A. collection B. proportionate in character C. enforced contribution D. levy

58. The amount required is dictated by the needs of the government in A. license fee B. tax C. toll D. tariff 59. One of the characteristics of a tax is A. A tax is pecuniary burden and the law may not allow payment in kind B. It is dependent upon the will or contractual assent, express or implied, of the person taxed. C. It is levied by the state by virtue of its sovereignty


of 32

D. It is collected for public and private purposes 60. One of the characteristics of a tax is that A. It is generally base on a contract B. It is generally payable in money C. It is generally assignable D. Optional 61. XYZ Corporation manufactures glass panels and is almost at the point of insolvency. It has no more cash and all it has are unsold glass panels. It received an assessment from the BIR for deficiency income taxes. It wants to pay but due to lack of cash, it seeks permission to pay in kind with glass panels. Should the BIR grant the permission? A. It should grant the permission to make payment convenient to taxpayers B. It should not grant permission because a tax is generally a pecuniary burden C. It should grant permission; otherwise, XYZ Corporation would not be able to pay. D. It should not grant permission because the government does not have the storage facilities for glass panels. 62. Which is not an essential characteristic of tax? A. Unlimited as to amount B. Payable in money C. Proportionate in Character D. Regular in Payment 63. No person shall be imposed for non-payment of

A. property tax B. excise tax C. poll tax D. income tax

64. An example of a property tax is A. additional community tax on income of real properties B. real estate tax on real properties C. estate tax on inherited personal as well as real properties D. donor’s tax on donation of property 65. Which of the following is not an example of excise tax? A. transfer tax B. Sales tax C. Real property tax D. Income tax 66. Sharon, CPA has just obtained her CPA license. Before she can lawfully pursue her occupation, she should pay A. Professional tax B. Percentage tax C. CPA’s income tax D. Value-Added tax 67. A tax that is imposed upon a person who is directly bound to pay it— A. direct tax B. indirect tax C. excise tax D. poll tax 68. One is not a direct tax

A. immigration tax B. transfer tax C. income tax D. contractor’s tax 69. The basic community tax of P5.00 of an individual is a (an) A. property tax B. direct tax C. national tax D. ad valorem tax 70. Which of the following statements is wrong? A. Non-payment of additional community tax is a ground for imprisonment B. In case of conflict between a tax law and a revenue regulation, the latter shall prevail C. A revenue regulation can expand the provision of law by imposing a penalty even if the law that it implements does not

impose a penalty D. Revenue bills shall originate exclusively from the Senate 71. Statement 1: The value-added tax is property tax Statement 2: The estate tax is a direct tax A. the two statements are correct B. the two statements are wrong C. statement 1 is correct; statement 2 is wrong D. statement 1 is wrong; statement 2 is correct 72. Forms part of the purchase price of the commodity or service and passed on to customers


of 32

A. direct tax B. indirect tax C. excise tax D. poll tax 73. A tax on business is A. direct tax B. indirect tax C. property tax D. none of the above 74. Fermin is a mining operator. His mineral lands are not covered by any lease contact. The tax Fermin has to pay based on the actual value of the gross output or mineral products extracted is A. mining tax B. royalties C. rental D. ad valorem tax 75. The tax that is imposed solely to raise revenue for government expenditures A. revenue tax B. regulatory tax C. specific tax D. ad valorem tax

76. Tax levied for particular or specific purpose irrespective of whether revenue is actually raised or not A. revenue tax B. regulatory tax C. specific tax D. ad valorem tax 77. Tax imposed by the national government and is effective within the entire jurisdiction thereof A. national tax B. local tax C. proportional tax D. general tax 78. Taxes imposed by a political subdivision of the state and is effective only within the territorial boundaries thereof A. national tax B. local tax C. progressive tax D. regressive tax 79. Which of the following taxes is proportional? A. value-added tax B. income tax C. estate tax D. donor’s tax 80. The following are kinds of taxes as to graduation. Which one is not? A, Digressive B. Uniform C. Regressive D. Progressive 81. An example of a tax where the concept of progressively finds application is the A. income tax on individuals B. excise tax on petroleum products C. value-added tax on certain articles D. amusement tax on boxing exhibitions 82. The power of the state or those to whom the power has been delegated to take private property for public use upon paying to the owner a just compensation A. power of eminent domain B. police power C. power of taxation D. people power 83. There can be classification of the subject matter being required to shoulder the burden. Which is the exception?

A. tax B. license fee C. toll D’ eminent domain 84. The power of state to enact laws in relation to persons and property as may promote public health, public morals, public safety and the general welfare of the people. A. power of eminent domain B. police power C. power of taxation D. people power


of 32

85. The following are similarities of the inherent power of taxation, eminent domain and police power except one A. Are necessary attributes of sovereignty B. Interferes with private rights and property C. Affect all persons or the public D. Are legislative in their implementation 86. Which statement refers to police power as distinguished from taxation? A. It can only be imposed on specific property or properties B. The amount imposed depends on whether the activity is useful or not. C. It involves the taking of property by the government D. The amount imposed has no limit 87. Police power as distinguished from taxation or eminent domain A. Just compensation is received by the owner of the property B, Maybe exercised by private individuals C. Superior to the non-impairment clause of the constitution D, Property is taken by the government for public use 88. Which of statements is wrong? A. The power of taxation may be exercised by the government, its political subdivisions, and public utilities B. Generally, there is no limit on the amount of tax that may be imposed C. The money contributed as tax becomes part of the public funds

D. The power of taxation is subject to certain constitutional limitations. 89. Mr., No Null is exempt from all taxes Q1: Is he exempt from customs duties on the importation of goods? Q2: Is he exempt from parking fees on the parking areas owned by the government? Q3: Is he exempt from Mayor’s Permit Fees? Which of the above questions is/are answerable by “No”? A. Q2 only B. Q1 &Q2 C. Q2 & Q3 D. Q1, Q2 and Q3 90. After having been informed that some massage parlors are being used as fronts for prostitution, the SangguiniangPanlngsod of Manila passed a tax ordinance subjecting to massage parlors within its jurisdiction to such onerous taxes that leave them no other alternative but to stop operating. The passage of the ordinance is a valid exercise of – A. taxation B. eminent domain C. police power D. police power and power of taxation 91. Which of the following statements is correct? A. Non-payment of tax and debt is ground for imprisonment B. The power of taxation may include the power to destroy C. Provisions in the Public Constitution on taxation are grants of power D. Lands and buildings being used actually, directly and exclusively for religious and charitable purposes by churches and charitable institutions are exempt from income and property taxes. 92. The following statements are correct. Which is the exception? A. The rule of taxation shall be uniform and equitable B. Taxation may be used to implement the police power of the state C. Police power is superior to the non-impairment clause of the constitution D. The salary of the justices of the Supreme Court are exempt from income tax 93. Statement 1: An Executive order by the President of the Philippines directing the Commission on Higher Education to regulate the operation of review centers is a valid exercise of power. Statement 2: Construction of a church building is exempt from the payment of building permit fees because the constitution provide that churches are exempt from property taxes. Which of the above statements is true? A. Statement 1 only B. Statement 2 only C. Neither statements D. Both statements 94. Statement 1: The Congress can enact tax laws even in the absence of a constitutional provision granting said body

the power of tax. Statement 2: A tax may be validly imposed in the exercise of police power and not the power of tax. A. False, False B. False, True C. True, True D. True, False 95. Which of the following may not raise money for the government? A. Power of taxation B. Police power C. Power of eminent domain


of 32

D. Privatization of government’s capital assets 96. In this power of the State, the person who is parting with his money or property is presumed to receive a benefit A. Taxation B. Police power C. Eminent domain D. Forfeiture power 97. Which of the following inherent powers of the government is inferior to the non-impairment clause of the constitution? A. Taxation B. Police power C. Eminent domain D. None 98. Tax as distinguished from license fee A. Non-payment does not necessarily render the business illegal B. a regulatory measure C. Imposed in the exercise of police power D. Limited to cover cost of regulation 99. The distinction of a tax from permit or license fee is that a tax is A. Imposed for regulation

B. One which involves exercise of police power C. One in which there is generally no limit on the amount that may be imposed D. Answer not given 100. Which of the following terms describes this statement “that the state has compensate discretion on the amount to be imposed after distinguishing between a useful and non-useful activity”? A. Tax B. License fee C. Toll D. Customs duty 101. Which of the following is not a distinction or similarity of license fee from tax? A. Imposed for regulation B. Involves exercise of police power C. Nonpayment makes the business illegal D. Legal compensation or reward of an officer for services 102. All of the following, except one, are characteristics of a toll A. Demand of proprietorship B. Compensation for the use of another’s property C. Maybe imposed by private individuals D. Levied for the support of the government 103. This is A demand of ownership A. License fee B. Tax C. Toll D. Franchise 104. One of the following is not a characteristic of a special assessment/levy A. It has special application only to a particular time and place. B. It is levied only on land C. May be levied on business D. Based wholly on benefits 105. Which statement is wrong? A. A tax is a demand of sovereignty B. A toll is demand of ownership C. A special levy is a tax D. Customs duty is a tax 106. Which of the following is not a characteristic of debt? A. Generally arises from contract B. Payable only in money C. Assignable

D. Imprisonment is not a sanction for non-payment 107. All funds or income derived by the government om any other source A. Tax B. Customs duty C. Revenue D. Ordinary revenue 108. It comprises all kinds of funds including taxes A. License fee B. Income


of 32

C. Customs duty D. Revenue 109. Which of the following constitute objectionable double taxation? A. A license fee and a tax imposed on the same business or occupation for selling the same articles. B. A tax imposed both on the occupation of fishing and on fishpond operation C. Persons engaged in leasing or selling real property are subject to real estate dealers’ tax and their sales are also subject to 10% VAT D. A tax of 1% is imposed for bank reserve deficiency while a penalty of 1/10 of 1% is also imposed as a consequence of such reserve. 110. Which of the following is not an element of direct duplicate taxation which is violative of the equal protection and uniformity clauses in the constitution? A. Same property is taxed twice B. Same taxing authority C. Same amount D. Same purpose 111. Which of the following statements is correct? A. Tax laws can never have a retroactive effect B. The government cannot tax agencies and instruments C. A taxpayer’s suit can be filed by any taxpayer in any instance against the government D. In the Philippines, there may be double taxation.

112. The following constitute double taxation except one A. Both taxes are imposed in the same amount B. Both taxes are levied for the same purpose C. Both taxes are imposed by the same taxing authority D. Both taxes are imposed upon the same person 113. 1st Statement: Our Constitution does not prohibit double taxation 2nd Statement: If double taxation occurs, the taxpayer may seek relief under the uniformity clause or the equal protection guarantee A. 1st Statement is correct, 2nd Statement is wrong B. 1st Statement is wrong, 2nd Statement is correct C. Both Statements are wrong D. Both Statements are correct 114. Double taxation in its general sense means taxing the same subject twice during the same taxing period. In this sense, double taxation A. Violates substantive due process B. Does not violate substantive due process C. Violates the right equal protection D. Does not violate the right equal protection 115. Your client owns a row of apartments. He complains to you that he is being required to pay 4 kinds of taxes on this line of business alone. From the list given by your client, which of the following taxes has been wrongly imposed on him? A. Real estate tax on the land and building B. Value-Added tax on the gross receipts from rent C. Community tax based on the assessed value of the apartment house D. Income tax on income from rent 116. One of the following is a false statement about double taxation. Which is it? A. There is no constitutional prohibition on double taxation B. Direct duplicate taxation is a valid defense against a tax measure if it is violative of the equal protection clause. C. Absence of any of the elements of direct double taxation makes it indirect duplicate taxation D. A 20% final withholding tax on interest income on bank deposits and a 5% gross receipts tax on banks is a direct duplicate taxation 117. Statement 1: An ordinance imposing a tax on the manufacture of soft drinks and another tax on the sale of the soft drinks constitute double taxation Statement 2: Although a deficiency assessment is not necessary, the fact that a tax is due must first be proved before one cancan be prosecuted for tax evasion A. Statement 1 Only B. Statement 2 only C. Neither statements D. Both statements?

118. Mr. Alas shoes in Makati through a retail store. He pays the VAT on his gross sales to the BIR and the municipal license tax based on the same gross sales to the City of Makati. He comes to you for advice because he thinks he is subjected to double taxation. What advice will you give him? A. Yes, there is double taxation and it is oppressive B. The City of Makati does not have this power. C. Yes, there is double taxation and it is illegal in the Philippines D. Double taxation is allowed where one tax is imposed by the national government and the other by the local government. 119. Transfer of the tax burden by one whom the tax is assessed to another A. Shifting


of 32

B. Capitalization C. Transformation D. Tax exemption 120. Which of the following is not a scheme of shifting the incidence of tax burden? A. The manufacturer transfers the tax to the consumer by adding the tax to the selling price of the goods sold B. The purchaser asks for a discount or refuse to buy at regular price unless it is reduced by an amount equal to the tax he will pay C. Changing the term of the sale like FOB shipping point in the Philippines to FOB destination abroad, so that the title passes abroad instead in the Philippines D. The manufacturer transfers the sales tax to the distributor, then in turn to the wholesaler, to the retailer and finally to the consumer. 121. The reduction in the selling price of income-producing property by an amount equal to the capitalized value of the future taxes that may be paid by the purchaser A. Shifting B. Capitalization C. Transformation D. Tax exemption 122. The method by which the manufacturer or producer upon whom the taxes imposed pays the tax and strives to recover such expense through lower production ost without sacrificing quality of his product. A. Shifting

B. Capitalization C. Transformation D. Tax exemption 123. The grant of immunity to particular persons or corporation or to persons or corporations of a particular class from a tax which persons and corporations generally within the same taxing district are obliged to pay.

A. Tax exemption B. Tax evasion C. Tax avoidance D. Tax amnesty

124. Statement 1: The grant of a tax amnesty must be construed against the taxpayer and liberally in favor of the taxing authority Statement 2: A tax exemption is a personal privilege which can be assigned or transferred by the grantee unless disallowed in the law granting tax exemption. Which of the above statements is true? A. Statement 1 only B. Statement 2 only C, Neither statements D. Both statements 125. Which of the following are not usually imposed when there is tax amnesty? A. Civil criminal and administrative penalties B. Civil and criminal penalties C. Civil and administrative penalties D. Criminal and administrative penalties 126. Statement 1: A BIR Ruling issued by a Commissioner of Internal Revenue which grants tax exemption would create a perpetual exemption in favor of the taxpayer. Statement 2: A tax exemption may be withdrawn anytime at the pleasure of the taxing authority. A. Statement 1 only B. Statements 1 & 2 C. Statement 2 only D. Neither of them 127. It is also known as tax dodging A. Tax exemption B. Tax evasion

C. Tax avoidance D. Transformation

128. It is otherwise known as tax minimization A. Tax exemption B. Tax evasion C. Tax avoidance

D. Transformation 129. Which of the following statements constitute tax avoidance? A. Deliberate failure of a taxpayer to pay the taxes due to the government B. Connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes C. Punishable by law D. Maybe contrary to the intent of the legislature but nevertheless do not violate the law. 130. Which of the following fats pertain/s to tax avoidance? I. After studying his tax problems, Alicante decided to withdraw his bank deposits and to buy tax exempt securities


of 32

II. B who wishes to avoid the payment of taxes assessable on the transaction made it appear on the deed of dale that the selling price was only P200,000 although it was actually P300,000 III. Refraining from engaging in activities subject to tax IV. Clavillas Corp. sold its vacant lot to Royal Match, Inc. when the real intention was to donate it to the latter. A. I only B. I and II C. I and IV D. I, III and IV 131. In case of ambiguity, tax laws shall be interpreted A. Strictly against the taxpayer B. Strictly against the government C. Liberally in favor of the taxpayer D. Liberally against the government 132. The following, except one, are exceptions to the rule that the tax exemptions must be strictly construed against the taxpayer A. Where the statute granting the exemption provides for liberal interpretation thereof. B. If the taxpayer does not fall within the purview of the exception by clear legislative intent. C. In case of special taxes relating to special cases and affecting only special classes of persons D. If exemptions refer to public property 134. A franchise can be amended by

A. An amendment of special laws which granted the franchise B. An amendment of a law of general application C. An amendment of a revenue regulation D. An amendment of tax laws 135. Some franchise holders who are paying the franchise tax are being required by an amendatory law to pay the value-added tax, while others remain subject to franchise tax. Which of the following constitutional provisions makes the law unconstitutional? A. No law shall be passed impairing the obligation of contract. B. The rule of taxation shall be uniform C. No person shall be deprived of property without due process of law D. None of the above 136. S1: The point on which a tax is originally imposed is impact of taxation S2: As a rule, taxes are subject to set-off or compensation 1st Statement 2nd Statement A. True True B. False True C. False False D. True False 137. Which of the following is not considered as a step in making a revenue regulation effective? A. Recommendation by the Commissioner of Internal Revenue to the Secretary of Finance B. Approval by the Secretary of Finance C. Legislation by Congress D. Publication in a newspaper of general circulation 138. Statement 1: In case of conflict between a revenue regulation and the provisions of National Internal Revenue Code the latter shall prevail. Statement 2: The revocation of a revenue regulation cannot be made retroactive even if the reason for its revocation is that it erroneous or contrary to the law. A. Statement 1 is correct; Statement 2 is wrong B. Both statements are correct C. Statement 1 is wrong; Statement 2 is correct D. Both statements are wrong 139. All of the following, except one, are sources of tax laws A. Legislations, tax treaties and tax ordinances B. Judicial decisions C. Opinions of authors D. Administrative rules and regulations 140. The best source of our tax laws is— A. Statutes B. Court decisions

C. Constitution D. BIR Rulings 141. When the refund of a tax supposedly due to the taxpayer has already been barred by prescription, and the said taxpayer is assessed with a tax at present, the two taxes may be set-off with each other. This doctrine is called A. Set-off doctrine B. Doctrine of reciprocity C. Tax sparing doctrine D. Equitable recoupment 142. Statement 1: The doctrine of equitable recoupment is applicable in the Philippines


of 32

Statement 2: Where taxes and the claim of the taxpayer are fully liquidated, due and demandable, set-off or legal compensation may take place by operation of law. A. First statement is correct; second statement is wrong B. Both statements are correct C. First statement is wrong; second statement is correct D. Both statements are wrong 143. The place of authority that has the right to impose and collect taxes— A. Territoriality B. International comity C. Situs of taxation D. Transformation 144. Domicile or residence of the owner is not the situs of taxation in A. Income tax B. Community tax C. Estate tax D. Business tax 145. Which among of the following concepts of taxation is the basis of the situs of income taxation? A. Lifeblood doctrine of taxation B. Symbiotic relation in taxation C. Compensatory purpose of taxation

D. Sumptuary purpose of taxation 146. Which of the following is not correct with respect to a taxpayer’s suit? A. It must pertain to illegal disbursement of public funds B. It pertains to the passage of a seemingly unconstitutional measure C. The funds sought to be disbursed must have been raised through D. It must not refer to an enactment of a tax law 147. Anne Lapada, a student activist, wants to impugn the validity of a tax on text messages. Aside from claiming that the law adversely affects her since she sends messages by text, what may she allege that would strengthen her claim to the right to file a taxpayer’s suit? A. That she is entitled to the return of the taxes collected from her on case the court nullifies the tax measure B. That the tax money is being extracted and spent in violation of the constitutionally guaranteed right to freedom of communication C. That she is filing the case in behalf of a substantial number of taxpayers D. That text messages are an important part of the lives of the people she represents. 148. A real property tax is payable A. In the city or municipality where the owner is domiciled B. in the place where the property is located C. Anywhere in the Philippines D. In the revenue office where the property is located 149. Income tax on compensation income may accrue A. In the country of residence of the income earner B. In the country where the service has been rendered C. Neither in the residence of the income earner nor in the country where the service has been rendered D. Both in the country where the income earner is a resident and in the country where the service has been earned. 150. Which of the following is not a remedy against indirect double taxation? A. Reciprocity provisions B. Tax credit C. Tax exemptions D. Vanishing deduction

ANSWERS TO MULTIPLE CHOICE QUESTIONS

1. C

2. D

Revenue laws are prospective in operation, unless the legislative intent that the statute

operate retrospectively is distinctly expressed or necessarily implied.

Our tax laws are civil in nature and not criminal. It was also held that our tax laws are not

penal laws although there are penalties provided for their violation.


of 32

Political law is that branch or public law which deals with the organization of operations

of the governmental organs of the State and defines the relations of the State with the

inhabitants of its territory. Thus, our tax laws are not political.

3. C

Tax laws are passed by the legislative body while generally accepted accounting

principles are formulated by the Financial Reporting Standards Council. The accounting

principles should always be in accordance with law. Otherwise they are not enforceable.

4. D

5. B

6. D

7. C

8. D

9. C

10. B

11. D

12. C

13. D

14. B

15. A

16. B

17. A

18. B

19. D

20. A

21. C

22. C

23. B

24. B

25. C

26. D

27. D

28. B

29. C

30. B

31. C

32. D

33. C

34. D

35. D

36. B

37. A

38. B

39. C


of 32

40. D

41. C

42. D

43. B

44. B

45. C

46. A

47. D

48. A

49. C

50. A

51. D

52. C

53. B

54. B

55. A

56. D

57. A

58. B

59. C

60. B

61. B

62. D

63. C

64. B

65. C

66. A

67. A

68. D

69. B

70. A

71. D

72. B

73. B

74. D

75. A

76. B

77. A

78. B

79. A

80. B

81. A

82. A

83. D


of 32

84. B

85. C

86. B

87. C

88. A

89. C

90. D

91. B

92. D

93. C

94. C

95. C

96. A

97. A

98. A

99. C

100. B

101. D

102. D

103. C

104. C

105. C

106. B

107. C

108. D

109. D

110. C

111. D

112. A

113. D

114. C

115. C

116. D

117. A

118. D

119. A

120. C

121. B

122. C

123. A

124. C

125. A

126. C

127. B


of 32

128. C

129. D

130. B

131. C

132. A

133. B

134. B

135. D

136. D

137. C

138. A

139. C

140. D

141. D

142. C

143. C

144. D

145. B

146. B

147. B

148. B

149. D

150. C