TAX PRINCIPLES TAX1

A. Define Taxation

1. As a state power: Taxation refers to the inherent power of a sovereign state acting
through its legislature to impose a proportionate burden upon persons, property
rights or transaction to raise revenue to support government expenditure and as a
tool for general and economic welfare.
2. As a process: Taxation refers to the act of imposing a tax by a sovereign state
to raise revenue for the use and support of the government.

B. What are the PURPOSES of taxation?

1. Primary purposes: to raise funds for the expenses of the government: ( also called
Revenue purpose)
2. Secondary purpose: as a tool for general, social and economic welfare (also called
Regulatory / Sumptuary / Compensatory purpose)
3. Other purpose: promotion of general welfare, reduction of social inequality,
encourages economic growth and protectionism.

C. Give the NATURE or CHARACTERISTICS of the taxing power

1. It is inherent power of a sovereign state – being inherent in sovereignty, the state

has the power to tax even if not expressly granted by the constitution?
2. It is legislative in character – taxation is generally exercised by the law-making
body of a state.
3. It is subject to inherent and constitutional limitations.

D. What is SCOPE of the power of taxation?

In the absence of inherent and constitutional limitations, the power to tax is

comprehensive and unlimited. It is so comprehensive that in the words of justice
Marshall of US Supreme Court, the power to tax includes the power to destroy. It is
an awesome power.

Scope of the legislative taxing power (SARPKASM)

1. Subject of Taxation - The person, property, or occupation to be taxed.
2. The amount or rate of tax
3. The purpose for which taxes shall be levied provided they are public purpose
4. The kind of tax to be collected
5. The apportionment of the tax
6. The situs of taxation
7. The method of collection.

E. Where does the power of taxation proceed from?

It proceeds from the necessity of the existence of the government, and since it exists
for the people, it can compel them to pay taxes.
F. What is the basis of taxation?

The reciprocal obligation of protection and support between the state and its citizens.
In return for the protection provided by the state, the people pay taxes. Benefit –
Protection Theory.

G. Power of judicial REVIEW

Courts cannot inquire into the wisdom of a taxing act. As long as the legislature, in
imposing a tax, does not violate applicable constitutional limitations or restrictions,
the courts have no concern with the wisdom or policy of the exaction, the political or
other collateral motives behind it, the amount to be raised, or the persons, property
or other privileges to be taxed.

H. Rules of interpretation of tax laws

1. Tax laws are construed in favor of the taxpayer and strictly against the
Government
2. Tax exemptions to be construed strictly against the taxpayer

I. What are the three inherent powers of the state? PET

1. Police Power
2. Eminent Domain
3. Taxation

SIMILARITIES:
1. They are indispensable to government existence.
2. They can exist independent of the constitution.
3. They are means by which the state interferes with private rights and properties.
4. They are generally exercised by the legislature.
5. They contemplate an equivalent compensation or benefit.

DISTINCTIONS Taxation Eminent Domain Police Power

Subject Persons, property and Private property Persons, property and
exercise of right or exercise of rights or
privilege. privileges.
Purpose Raise revenue for the To acquire private For regulation and
support of the property for control.
government. public use.
Limitation Generally unlimited Limited to the fair Limited to the amount
value of the necessary to defray the
property. cost of regulation
Act involved Taxpayer pays taxes. Private property Restriction of personal
is taken. and/or property rights.
Benefit in Benefits and protection Amount Protection and other
 exchange of the from the Government equivalent to benefits from the
foregoing just Government.
compensation.
Status as against Inferior Superior Superior
the non-
impairment
clause of the
constitution

J. Enumerate and briefly define the principles/characteristics of a SOUND TAX

SYSTEM

1. Fiscal adequacy – The source of revenue as a whole should provide enough

funds to meet the various expenditures of the government.
2. Administrative feasibility and compliance – Tax laws should be easy to
understand, capable of enforcement by the administrative personnel and
convenient to the taxpayers as to the modes and methods and time of payment.
3. Theoretical justice and equality – Taxes should be imposed equitably based on
the taxpayer’s ability to pay and benefits received.
4. Consistency or compatibility with economic goals – Tax laws should be
consistent with the economic goals of the state.

K. What are the limitations on the power of taxation?

1. Inherent limitations - Goes in the very nature of the taxing power itself.
Developed by customs, usages and tradition (CUT).
a. Public purpose.
b. Exemption of government agencies and instrumentalities.
c. Non-delegability.
d. International Comity
e. State’s territory
2. Constitutional limitations – those that limit the power of taxation as embodied in
the constitution.
a. Due process of law in taxation and equal protection of the laws.
b. Rule on uniformity and equity in taxation.
c. No imprisonment for non-payment of poll tax.
d. Non-impairment of the obligation of contracts.
e. No appropriation of public money for religious purposes.
f. Exemption of religious, charitable, educational entities, non-profit cemeteries
and churches from property taxation.
g. Exemption from taxation of non-stock, non-profit educational institutions and
donations for educational purposes.
h. Concurrence by a majority of the members of Congress for passage of a law
granting tax exemption.
i. The power of the President to veto a revenue or tariff bill.
j. Non-impairment of the jurisdiction of Supreme Court in tax cases.
3. Contractual limitations – these are restrictions on the taxing power imposed by
previously existing contracts entered into by the government with another party
who may be another state or its own citizens.
a. Franchise granted to its citizen
b. Service contracts on petroleum and other energy operations
c. Agreement with the Asian Development Bank.

L. Give the steps/stages involved under taxation system (Aspects).

1. Levying or imposition of taxes – which is a legislative act

2. Collection of taxes – an administrative act
a. Assessment
b. Actual tax collection
c. Enforcement of tax laws/criminal prosecution for willful violation of tax laws

M. Repository of tax laws

a. Constitution
b. Statues – National Internal Revenue Code and other special tax laws
c. Implementing Rules and Regulations
d. BIR Rulings
e. Decision of the Supreme Court (Jurisprudence or Case Law)
f. Decisions of the Court of Tax Appeals (persuasive; does not have the same
stature as that of decisions of the Supreme Court
g. Tax Treaty – executive agreement, duly approved by the Philippine Senate

N. Define TAXES

Taxes are enforced proportional contributions levied by the state for the support of
the government.

O. What are the essential characteristics, requisites or elements of a tax?

a. A tax is an enforced contribution.

b. It is proportionate in character.
c. It is imposed pursuant to a legislative authority.
d. It is imposed for public purpose.
e. It is generally payable in money.
f. It is levied within the territorial and legal jurisdiction of a state.

P. CLASSIFICATION of taxes

1. As to subject matter:
a. Personal, poll or capitation tax
b. Property tax
c. Excise tax
2. As to who bears the burden:
a. Direct tax
b. Indirect tax
3. As to determination of amount:
 a. Specific tax – tax based on weight, number or some other standards of weight or
measurement.
b. Ad-valorem tax – tax imposed based on the value of the taxable item.
4. As to purpose:
a. General tax – tax imposed for general purposes of the government.
b. Special tax – tax imposed for a special purpose or purposes.
5. As to jurisdiction /scope or authority imposing tax:
a. National tax – tax imposed on a national and for the national/government.
b. Local tax – tax imposed on a local level for the support of local governments.
6. As to graduation or rate:
a. Proportional tax – the tax rate of which is fixed or constant.
b. Progressive tax - the tax rate increases as the taxable amount or tax bracket
increases.
c. Regressive tax – the tax rate decreases as the taxable amount or tax bracket
increases.

Q. Tax distinguished from OTHER CHARGES and FEES

TAX TOLL
Demand of sovereignty Demand of proprietorship
For the support of the government For the use of another’s property
Imposed by the State only May be imposed by private individuals or
entities

TAX SPECIAL ASSESSMENT

Imposed on persons, property rights and Levied only on lands
transactions
Support of the Government Contribution to the cost of public
improvement.
Regular exaction Exceptional as to time and place.

TAX LICENSE FEE

Imposed to raise revenue. For regulation.
Exercised under taxation power of the Exercised under police power of the state.
State.
Generally, amount imposed is unlimited. Limited to the amount necessary to defray
the cost of regulation.
Non-payment does not make the activity Non-payment makes the activity illegal.
illegal.

TAX DEBT
Based on law Based on contract
Not assignable Assignable
 Payable in money Payable in kind or money
Non-payment may result to imprisonment No imprisonment
Bears interest only if delinquent Interest only if stipulated in writing

P. DOUBLE TAXATION

Direct double taxation – means taxing twice, on the same purpose, in the same year. To
constitute double taxation – the two or more taxes must be:
1. Imposed on the same property
2. By the same state or government
3. During the same taxing period, and
4. For the same purpose.

Q. Tax Administration

It is a system involving assessment, collection and enforcement of taxes, including the

execution of judgement in all tax cases decided in favor of the BIR by the courts.

R. Powers and duties of the BIR

1. Assessment and collection of all national internal revenue taxes, fees and charges
2. Enforcement of all forfeitures, penalties and fines connected therewith
3. Execution of judgement in all cases decided in its favor by CTA and ordinary courts
4. Give effect to and administer the supervisory and police power conferred to it by the
NIRC or other laws.
S. Chief official of the BIR
The BIR shall have a chief to be known as Commissioner of internal revenue and four
assistant chiefs to be known as Deputy Commissioners.

Quizzers on Principles of Taxation

1. First Statement – Taxation power is considered inherent in a sovereign State
because it is a necessary attribute of sovereignty. Without this power no sovereign
State can exist or endure
Second Statement - The power to tax proceeds upon the theory that the existence
of a government is a necessity and this power is an essential and inherent attribute
of sovereignty, belonging as a matter of right to every independent state or
government.
a. True, False
b. True, True x
c. False, True
d. False, False

2. The following are stages/aspects of taxation, except

a. Levying and imposition
b. Administration and collection
c. Payment
d. Appeal to the Court of Tax Appeals

3. By its nature taxation is a legislative power, i.e., such power being exclusively
vested in the legislature, except
a. In case of local governments, to raise their own revenue, within their own
territorial jurisdiction, subject to limitations as may be provided by Congress.
b. The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program
of the Government.
c. Both A and B
d. Neither A nor B

4. The equal protection clause guarantees that persons and things similarly situated
are treated under the law similarly. However, constitutional guarantee allows
reasonable classification, provided the conditions are met, except
a. rest on substantial distinctions
b. be germane to the purpose of the law
c. not be limited to existing conditions only
d. apply equally to some members of the same class.

5. An Executive Order (EO) was issued pursuant to law, granting tax and duty
incentives only to businesses and residents within the "secured area" of the Subic
Economic Special Zone, and denying said incentives to those who live within the
Zone but outside such "secured area". Is the constitutional right to equal protection?
of the law violated
a. Yes, the EO gave preferential rights to those located within the SEZA as
against other business located within the Philippines.
 b. Yes, the EO being an issuance made by the executive branch of the
Government encroached on the power of the Legislature to exercise the power
of taxation.
c. No. Equal protection of the law clause allows reasonable classification. There
are substantial differences between big investors being enticed to the "secured
area" and the business operators outside that are in accord with the equal
protection clause that does not require territorial uniformity of laws.
d. No. Equal protection is not the issue on this matter rather the territoriality
limitation has been breached.

6. The following are the usual methods of avoiding the occurrence of double taxation,
except
a. Allowing reciprocal exemption either by law or by treaty;
b. Allowance of tax credit for foreign taxes paid;
c. Allowance of deduction for foreign taxes paid; and
d. Granting of reduced taxation rates by the Department of Finance

7. Our national internal revenue laws are

a. Political in nature
b. Penal and nature
c. Criminal in nature
d. Civil in nature

8. Generally, tax laws are prospective in character. It will be given retroactive effect
under the following circumstances, except:

a. It is necessarily implied from the language used

b. It involves income tax
c. It is expressly provided or the retroactive application is clearly the intent of
Congress
d. It imposes a criminal liability.

9. Under this basic principle of a sound taxation system, the government should not
incur a deficit:
a. Theoretical justice
b. Administrative feasibility
c. Fiscal adequacy
d. None of the above

10.The basic principle of a sound taxation system, where, “Taxes must be based on the
ability to pay” is called:
a. Equality in taxation
b. Ability to pay theory
c. Theoretical justice
d. Equity in taxation
11.The tax law must be capable of convenient, just and effective administration
a. Equality or theoretical justice
b. Fiscal adequacy
c. Administrative feasibility
d. Rule of apportionment

12.A taxpayer gives the following reasons for refusing to pay a tax. Which of his r
reasons is not acceptable for legally refusing to pay the tax?
a. That he has been deprived of due process of law.
b. That there is lack of territorial jurisdiction.
c. That the prescriptive period for the tax has lapsed.
d. That he will derive no benefit from the tax.

13.No law granting any tax exemption shall be passed without the concurrence of –
a. Majority of all members of Congress
b. 2/3 vote of all members of Congress
c. 3⁄4 vote of all members of Congress
d. Unanimous vote of all members of Congress

14.Compliance with procedural requirements must be followed strictly to avoid collision

between the State’s power to tax and the individual’s recognized rights.
a. Due process of law
b. Equality in taxation
c. Non-infringement of religious freedom
d. Non-impairment of obligations and contracts

15.No person shall be imprisoned for non-payment of this.

a. Property tax
b. Excise tax
c. Poll tax
d. Income tax

16.Where does the taxing power of the provinces, municipalities and cities precede
from?
a. Constitutional grant
b. Legislative enactment
c. Presidential decree or Executive act
d. Local legislation

17.Which of the following has no power of taxation?

a. Province of Bulacan
b. Quezon City
c. Barangay Holy Spirit
d. Cordillera Administrative Region

18.Levying of local government taxes may be exercised by:

 a. The local executive only
b. The legislative branch of the local government only
c. The local executive and the legislative branch of the local government unit
d. Neither the local executive nor the legislative branch of the local government
can exercise the power.

19. First Statement - Tax evasion is a scheme used outside of those lawful means to
escape tax liability and, when availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities.
Second Statement - Tax avoidance, is a tax saving device within the means
sanctioned by law, hence legal.
a. True, true
b. True, false
c. False, false
d. False, true

20. First Statement - Tax Pyramiding is the imposition of a tax upon another tax. It is
allowed under this jurisdiction.
Second statement - A tax is deemed to have satisfied the uniformity rule when it
operates with the same force and effect in every place where the subject maybe
found.
a. True, true
b. True, False
c. False, False
d. False, True

21.One of the following is NOT an inherent limitation:

a. Taxes must be for public purposes
b. Uniformity of taxation
c. Territoriality rule
d. Government exemption

22. 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 if it results to
the destruction of the property rights of a 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.
23. Although the power of taxation is basically legislative in character, it is NOT the
function of Congress to
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 among the following concepts of taxation is the basis for 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

25. Taxes are assessed for the purpose of generating revenue to be used for public
needs. Taxation itself is the power by which the state raises revenue to defray the
expenses of government. A jurist said that a tax is what we pay for civilization.
In our jurisdiction, which of the following statements may be erroneous?
a. Taxes are pecuniary in nature.
b. Taxes are enforced charges and contributions.
c. Taxes are imposed on persons and property within the territorial jurisdiction
of the State.
d. Taxes are levied by the executive branch of the government.

26. Which theory in taxation states that without taxes, a government would be paralyzed
for lack of power to activate and operate it, resulting in its destruction?
a. Power to destroy theory
b. Lifeblood theory
c. Sumptuary theory
d. Symbiotic doctrine

27. First Statement - In civil cases involving the collection of internal revenue taxes,
prescription is construed strictly against the government and liberally in favor of the
taxpayer.
Second Statement - In criminal cases involving tax offenses punishable under the
National Internal Revenue Code (NIRC), prescription is construed strictly against the
government
a. True, True
b. True, False
c. False, False
d. False, True .

28. The following are sources of tax laws, except:

a. Constitution
b. Statue
c. Decisions of the Supreme Court
d. Opinion of law luminaries

29. 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. he payment is passed in audit by the COA.
d. It is part of a lawmaker’s pork barrel.

30. The actual effort exerted by the government to effect the exaction of what is due
from the taxpayer is known as
a. assessment.
b. levy.
c. payment.
d. collection.

31.Transfer of the tax burden by one whom the tax is assessed to another
a. Shifting
b. Capitalization
c. Tax exemption
d. Transformation
32.The method by which the manufacturer or producer upon whom the tax is imposed
pays the tax and strives to recover such expense through lower production cost
without sacrificing the quality of his product
a. Shifting
b. Capitalization
c. Tax exemption
d. Transformation

33.The reduction in the selling price of income producing property by an amount

equal to the capitalized value of future taxes that may be paid by the purchaser
a. Shifting
b. Capitalization
c. Tax exemption
d. Transformation

34. 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.

35. Value-added tax is an example of:

a. Graduated tax;
b. Progressive tax;
c. Regressive tax;
d. Proportional tax.

36. First Statement – There will only be a tax if there is a law imposing the tax.
Second Statement – The power to tax is inherent and no constitutional grant
of said power is required before the state can exercise such power.
 a. True, True
b. True, False
c. False, True
d. False, False

37. For purposes of determining income tax liability: In case of conflict between the tax
code and generally accepted accounting principles (GAAP):
a. Both tax codes and GAAP shall be enforced;
b. GAAP shall prevail over tax code;
c. Tax code shall prevail over GAAP;
d. The issue shall be resolved by the courts.

38. First Statement – Tax and debt can be subject to off-set.

Second Statement – Taxes are generally payable only in money.
a. True, True
b. True, False
c. False, True
d. False, False

39. Which of the following statements is not correct?

a. Taxes may be imposed to raise revenues or to regulate 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 provisions of taxation in the Philippine Constitution are grants of
power and not limitations on taxing powers.

40. First Statement – The income from bank deposit of a non-stock

non-profit educational institution is exempt.
Second Statement – income of a non-stock non-profit educational institution
is exempt
a. False; True
b. True; True
c. False; False
d. False, True

41. The following shall form part of taxation laws in the Philippines, except:
a. Decisions of the Supreme Court
b. National Internal Revenue Code
c. Comment of an authority in Taxation Law, submitted to the Supreme Court,
as anamicus curae
d. Implementing Rules and Regulation issued by the Secretary of Finance,
upon the recommendation of the Commissioner of Internal Revenue
42. The Financial Incentives Review Board are composed of the following,
a. Chairperson – Secretary of Finance
b. Co-chairperson – Secretary of Trade and Industry
c. Member – Executive Secretary of the Office of the President
d. Member- Secretary of Budget and Management
e. Member- Director General of the National Economic and Development
Authority
f. Member – Secretary of Department of Interior and Local Government

43.The following government agencies are tasked with the implementation of tax laws
in the Philippines, except.
a. Bureau of Internal Revenue
b. Bureau of Customs
c. Local Government Units – City, Province, Municipality
d. Philippine National Police

44. The point at which tax is levied is also called.

a. Impact of taxation
b. Situs of taxation
c. Incidence of taxation
d. Assessment

45. Which of the following inappropriately describes the nature of taxation

a. Inherent in sovereignty
b. Essentially a legislative function
c. Subject to inherent and constitutional limitation
d. Generally for public purpose

46 Which is correct?
a. Tax condonation is a general pardon granted by the government.
b. The BIR has five deputy commissioners.
c. The government can still collect tax in disregard of a constitutional limitation
because taxes are the lifeblood of the government.
d. The President of the Philippines can change tariff or imposts without

47. A. Taxation is the rule; exception is the exemption.

B. Vague taxation laws are interpreted liberally in favor of the government.
Which is false?
a. A only
b. B only
c. Both A and B
d. Neither A nor B

48. Select the incorrect statement

 a. The power to tax includes the power to exempt
b. Exemption is construed against the taxpayer and in favor of the government
c. Tax statutes are construed against the government in case of doubt.
d. Taxes should be collected only for public improvements.

49. Which statement is incorrect?

a. Every person must contribute his share in government costs.
b. The existence of a government is expected to improve the lives of the people.
c. The government provides protection and other benefits while the
people provide support.
d. Only those who are able to pay tax can enjoy the privileges and protection or
the government.

50. Which is the most incorrect statement regarding taxes?

a. Taxes are necessary for the continued existence of the government.
b. The obligation to pay tax does not rest upon the privilege enjoyed by or the
protection afforded to the citizen of the government but upon the necessity
of money for the support of the State.
c. There should be personal benefit enjoyed from the government before on
is required to pay tax.
d. Taxes should be collected without unnecessary delay but its collection
should not be tainted with arbitrariness.
51. Statement 1: In the selection of the objects of taxation, the courts have no
power to inquire into the wisdom, objectivity, motive, expediency, or necessity of
a tax law.
Statement 2: An imposition can be both a tax and a regulation. Taxes may be
levied to provide means for rehabilitation and stabilization of threatened
industry. Which is correct?
a. Statement 1 only
b. Statement 2 only
c. Both statements
d. Neither statement

52. Statement 1: The benefit received theory presupposes that some

taxpayers within the territorial jurisdiction of the Philippines will be exempted
from paying tax so long as they do not receive benefits from the government.
Statement 2: The ability to pay theory suggests that some taxpayers may
be exempted from tax provided they do not have the ability to pay the same.
Which statement is true?
a. Only statement 1
b. Only statement 2
c. Both statements 1 and 2
d. Neither statement 1 nor 2

53. Statement 1: Taxation is the rule; exemption is the exception.

Statement 2: Taxation may be used to implement the police power of the state.
 a. I is true
b. II is true
c. I and II are true
d. I and II are not true
54. Which of the following powers of the Commissioner of Internal Revenue cannot
be delegated?
a. The examination of tax return and the determination of tax due thereon.
b. To refund or credit tax liabilities in certain cases.
c. The power to compromise or abate any tax liability involving basic
deficiency tax of P500,000 and minor criminal violations.
d. The power to reverse a ruling of the Bureau of Internal Revenue

55. When the provisions of tax laws are silent as to the taxability of an item, which
is true?
a. Taxation applies since taxation is the rule, exemption is the exception.
b. Exemption applies since vague tax laws are construed against
the government.
c. Taxation applies due to the Lifeblood doctrine.
d. Exemption applies since obligation arising from law is presumed; ignorance
of the law is not an excuse.

56. Which of the following statements does not support the principle that tax is
not subject to compensation or set-off?
a. The government and the taxpayer are not creditors and debtors of each other.
b. Tax is not in the nature of contract but it grows out of a duty wherein
taxpayers are bound to obey even without the personal consent of
the taxpayer.
c. Taxes arise from law, not from contracts.
d. Both tax and debt partake the nature of an obligation.

57. Which is not legally tenable in refusing to pay tax?

a. Absence of benefit from the government
b. Lack of jurisdiction of the taxing authority
c. Prescription of the tax authority's right to collect
d. All of these

58. An educational institution operated by a religious organization was being required

by a local government to pay real property tax, Is the assessment valid?
a. Yes, with respect to all properties held by such educational institution.
b. Yes, with respect to properties not actually devoted to educational purposes.
c. No, with respect to any properties held by such educational institution.
d. No, with respect to properties not actually devoted to educational purposes.

59. Which of the following is not an inherent limitation of the power to tax?
a. Tax should be levied for public purpose
 b. Taxation is limited to its territorial jurisdiction.
c. Tax laws shall be uniform and equitable.
d. Exemption of government agencies and instrumentalities.

60. That all taxable articles or properties of the same class shall be taxed at the
same rate underscores
a. Equality in taxation
b. Equity of taxation
c. Uniformity in taxation.
d. None of these

61. Ram is the only practicing lung transplant specialist in Baguio City. The
City Government of Baguio passed a local ordinance subjecting the practice of
lung transplant to 2% tax based on receipts. Ram objected claiming that
other transplant specialists in other regions of the country are not subjected to
tax. Is Ram's contention valid?
a. Yes, because the rule of taxation should be uniform and equitably enforced.
b. Yes, because Ram is the only one subject. Other practitioners who would
later practice would not be covered by the ordinance.
c. No, because the ordinance would cover all transplant specialist who
would practice in
Baguio City. The uniformity rule would not be violated.
d. No, because subjecting the new industry to taxation would hamper
economic growth.
62. Which of the following is violative of the principle of non-delegation?
a. Requiring that legislative enactment must exclusively pertain to Congress.
b. Authorizing the President to fix the amount of impost on imported and
exported commodities.
c. Authorizing certain private corporation to collect taxes.
d. Allowing the Secretary of Finance and the BIR to issue regulation or
rulings which go beyond the scope of a tax law.
63. Congress passed a law subjecting government-owned and controlled
corporations (GOCCs) to income tax. Is the law valid?
a. Yes, because all government agencies and instrumentalities are subject to tax.
b. Yes, because GOCCs are not government agencies and are
essentially commercial in nature.
c. No, because government agencies are exempt. This would pose a violation
of the equality clause in the constitution.
d. No, because GOCCs are constitutionally exempted from paying taxes.

64. Which of the following violates Constitutional provisions?

a. Payment of salaries to priests or religious ministers employed by the
Armed Forces of the Philippines.
b. Imposing tax on properties of religious institutions which are not directly
and exclusively used for religious purposes.
c. Imposition of license for the sale of religious literature.
 d. Authorizing the President of the Philippines to fix the rates of tariffs or imposts.

66. With the country under incessant shortage of sugar, the Philippine
Congress enacted a law providing tax exemptions and incentives to cane
farmers without at the same time granting tax exemptions to rice farmers
who produce the staple food of the Philippines? is the new law valid?
a. Yes, since there is a valid classification of the taxpayers who would
be exempted from tax.
b. Yes, since sugar is more important than rice.
c. No, since the grant of exemption is construed in favor of taxpayers.
d. No, because there is no uniformity in the grant of tax exemption.

67. In order to phase-out a huge deficit, the President of the Philippines passed a
law offering all taxpayers with previous tax delinquency to pay a minimum tax
in exchange for relief from tax assessment in the period of delinquency. Is this
a valid exercise of taxation power?
a. Yes, because the measure adopted is grounded upon necessity.
b. Yes, because the President is merely exercising his presidential discretion.
c. No, because the power of taxation is non-delegated.
d. No, because only the Department of Finance can issue such ruling.

68. Which of the following normally pays real property tax?

a. Bantay Bata, a non-profit charitable institution
b. Jesus Crusade movement, a religious institution
c. University of Pangasinan, a private proprietary educational institution
d. AM Property Holdings, a registered property development company

69. The Japanese government invested ₱100,000,000 in a Philippine local bank

and earned ₱10,000,000 interest. Which is correct?
a. The income is exempt on grounds of territoriality.
b. The income is exempt due to international comity.
c. The income is subject to tax on the basis of sovereignty.
d. The income is subject to tax because the income is earned within
the Philippines

70. Which is mandatorily observed in implementing police power?

a. Public interest
b. Just compensation
c. Public use
d. All of these

71. Which of the following entities will least likely exercise the power of eminent
domain?
a. Electric cooperatives
b. Water cooperatives
 c. Telecommunication business
d. Transportation operators
72. Select the correct statement.
a. Eminent domain refers to the power to take public property for private use
after paying just compensation.
b. Police power being the most superior power of the State is not subject to
any limitation.
c. Taxation power shall be exercised by Congress even without an
express Constitutional grant
d. Taxes may be collected even in the absence of a law since obligation a
rising from law is always presumed.

73. Select the correct statement.

a. The benefit received theory explains that the government is obliged to
serve the people since it is benefiting from the tax collection from its subjects.
b. The lifeblood theory underscores that taxation is the most superior
of the State.
c. The police power of the State is superior to the non-impairment clause of
the Constitution.
d. The power of taxation is superior to the non-impairment clause of
the Constitution.

74. Statement 1: Congress can exercise the power of taxation even

without Constitutional delegation of the power to tax.
Statement 2: Only the legislature can exercise the power of taxation,
eminent domain, and police power Which statement is correct?
a. Statement 1
b. Statement 2
c. Statements 1 and 2
d. Neither statement 1 nor 2

PROBLEM

In 2017, Alice earned P500,000

as income from her beauty
parlor
and received P250,000 as
Christmas gift from her aunt. She
had no
other receipts for the year. She
spent P150,000 for the operation
of her beauty parlor. For tax
purposes, her gross income for
2017
is
a. P750,000 c.
P350,000
b. P500,000 d.
P600,000
In 2017, Alice earned P500,000
as income from her beauty
parlor
and received P250,000 as
Christmas gift from her aunt. She
had no
other receipts for the year. She
spent P150,000 for the operation
of her beauty parlor. For tax
purposes, her gross income for
2017
is
a. P750,000 c.
P350,000
b. P500,000 d.
P600,000
1. In 2017, Alice earned P500,000 as income from her beauty parlor and received P250,000 as
Christmas gift from her aunt. She had no other receipts for the year. She spent P150,000 for the
operation of her beauty parlor. For tax purposes, her gross income for 2022 is

a. P750,000 c. P350,000
b. P500,000 x d. P600,000

2. Inday is a resident citizen of the Philippines. Data for a year:

Gross income from business P 700,000
Royalty from books 40,000
Gain on direct sale to buyer of shares of stock of a
 domestic corporation held as capital asset 70,000
Loss on sale of land in the Philippines held as
capital asset with cost of P1,500,000 when
the zonal value is P1,200,000 500,000
Business Expenses 300,000

How much is the total income tax expense for the year?

a. P177,500 c. P129,500
b. P80,000 d. P102,000 x

3. Mercy is a citizen and resident of the Philippines. She had a compensation income (net of exclusions)
of P200,000 and a net income from business of P700,000 for a year. She made quarterly income tax
payments amounting to P237,000 and her employer withheld P25,000 on her compensation income.
The income tax payable (refundable) for the year is:
a. (P2,900) c. P15,500 x
b. P27,000 d. P17,500

4. A domestic corporation, in its fifth (5th) year of operations, had the following data for the year:
Net sales P 2,000,000
Capital gain on direct sale to a buyer of shares of a
domestic corporation for P500,000 200,000
Capital gain on sale thru a real estate broker of
land and building outside the Philippines for P5,000,000 1,000,000
Dividend from a domestic corporation 50,000
Interest on bank deposit 40,000
Cost of sales 600,000
Quarterly corporate income tax paid 190,000
Operating expenses 500,000

The income tax payable upon filing of the annual income tax return is:
a. P425,000 c. P570,800
b. P225,000 x d. P520,800

BUSINESS TAX

1. A small business enterprise with a gross receipt of not exceeding 1.5 million may be taxed at
12% (VAT) or 3 % (non-vat) at the option of the taxpayer.
2. Clubs and caterers are subject to amusement tax.
3. A radio station with an annual gross receipts of 2,000,000 but voluntarily subjects itself to VAT
can never cancel its registration and revert back to Franchise Tax even if it later on decides to
abandon VAT.
 4. Taxpayers which are subject to other percentage taxes are generally required to file its tax
return within 20 days after the end of each month.
5. The sale of listed and traded shares of stocks after the initial public offering is exempt from
business tax.
6. The 30% amusement tax on jai alai has been abolished when the fronton has been ordered
closed by the government.
7. Pedi cab (pad yak) operators, being engaged in the carriage of passengers, are subject to
common carrier’s tax.
8. The term “gross annual sales” has no relation to profit; it means actual sales without deduction
of expenses.
9. The term “gross annual sales” includes cash sales and credit sales less sales returns, allowances
and discounts
10. When the restaurant is maintained within the premises or compound of a night club, the gross
sales of such restaurant is subject to VAT.
11. The gross sales of a bar inside a passenger ship is subject to amusement tax of 18%.
12. Service charge which nightclubs collect from their customers, and represented as charges in lieu
of cash tip to the employees are included in the term “gross receipts” which are subject to
amusement tax.
13. If there are vending machines installed by coca-cola inside the premises of race tracks, the sales
affected in the vending machines shall be subject to Amusement tax of 30%.
14. The gross receipts of a bank which operates a canteen where foods are served at subsidized
prices exclusively to its employees is subject to Tax on banks notwithstanding the fact that the
canteen is operated on a non-profit basis.
15. A private carrier which undertakes to deliver goods at a particular place without being bound in
law to undertake such transportation and does not bind himself out to the public is subject to
3% common carriers’ tax.
16. The commission of bus drivers and conductors are not deductible in computing gross receipts.
17. TrI-CYCLE are not covered by the minimum monthly gross receipts on common carriers.
18. When preferred shares are redeemed for cancellation or retirement when the corporation is still
in its “going concern” the capital gain shall be subject to regular income tax rates.
19. The wash sale provision does not apply in the case of dealer in stock if the sale or other
disposition of stock is made in the ordinary course of business of such dealer.
20. Amounts paid for messages transmitted by an Embassy to their own country are exempt from
Overseas Communication Tax.
21. The 5% Premium Tax on insurance company is based on gross premiums received less returned
premiums and reinsurance premiums ceded.
22. The gross receipts of a cabaret does not include the dance fee that is charged by cabaret as
compensation for its “bailarinas”.
23. The stock transaction of ½ of 1% is payable by the seller of the stocks even if he suffers loss on
the sale.
24. For purposes of IPO tax, the term “closely held corporation” means any corporation at least 50%
in value of the outstanding capital stock or at least 50% of the total combined voting power of
all classes of stock entitled to vote is owned directly or indirectly by or for not more than five
individuals.
25. Excise tax as a classification of tax is the same as the excise tax o business.

1. true 2.f 3. true 4. true 5.f 6.f 7.f 8. true 9. true 10.f 11.f 12.f 13.f 14.f 15.f 16. true 17. true 18. true 19.
true 20. true 21. true 22.f 23. true 24.f 25.f
1. Toll Corporation, a closely held corporation decided to open itself to the public. The initial
offering of its shares had a selling price of 6,250,000 which is 22.5% of its total outstanding
shares after the listing in the local stock exchange. The percentage tax due is
a. 31, 250
b. 125,000
c. 1,406,250
d. 250,000 x

2. Which of the following is not considered as a percentage tax?

a. ½ of 1% stock transaction on shares traded through the local stock exchange
b. 10% -20% tax on shares not traded through the local stock exchange x
c. 10% overseas communication tax
d. 3% tax on keepers of garage
3. KATRINA invested P500, 000 in the shares of stock of Manila Trading Corp. Later she sold the
said shares for only P350, 000. The corporation’s shares are listed and are traded in the local
stock exchange. The percentage tax on the sale is:
a. None c. P 1, 750
b. P 2, 500 x d. P 50, 000
4. Radio Station DZLAB has an annual gross receipts ranging from 4,000,000 to 5,000,000. During
the month, it had a gross receipt from advertisements of 330,000 (net of tax), while the
disbursements subject to VAT amounted to 224,000, inclusive of tax.
The franchise tax payable by DZLAB is
a. 30,000
b. 9,900 x
c. 50,000
d. 10,000
5. Too Big Company, a public service company, is a holder of a franchise to engage in the business
of supplying water to several towns and cities in Luzon. As recorded in its books during the
month, its total gross receipts from the sale of water amounted to 2,550,000, while the receipts
from rental of equipment and other services was 280,000. The operating expenses amounted to
2,000,000; 11% of which was paid to VAT registered persons.
The percentage tax due is
a. 51,000 x
b. 5,000
c. 16,500
d. 56,500
6. Carlos operates the El Combo Nightclub along Malate Avenue, Malayan City. His gross receipts
in February 2022 amounted to 126,700. The foods and drinks being served inside the nightclub
are being delivered by Tuber, a non-VAT taxpayer. During the month, Tuber sold 32,400 worth
of goods and drinks to Carlos.
The amusement tax payable is
a. 19,005
b. 22,806 x
c. 28,638
d. 5,832
7. Nose Bear operates a cockpit in Zamboanga City. Inside the cockpit is a restaurant which she
operates. The data during the month are as follows:
Gross receipts from the gates 390,000
 Receipts from advertisements inside the cockpit arena 15,000
Gross receipts from restaurant:
Sale of food and soft drink 21,000
Sale of liquor 33,000
(Disbursements (subject to VAT) 24,200 Disbursements (not subject to VAT) 12,000)

The amusement tax due is

a. 82,620 x
b. 81,828
c. 72,900
d. 19,980

8. An owner of several warehouses for rent, which used to be VAT exempt because its annual gross
receipts never exceeded P3,000,000 decided to register under the VAT system on January 2,
2019. The following data were from the first quarter ending March 31, 2019:
Rental from warehousing services, net of VAT P 672,000
Purchases of supplies, gross of VAT 224,000
Inventory of supplies, January 1, 2019 201,600
Actual VAT paid on the inventory of supplies, January 1, 2019 21,600

The value added tax payable for the quarter is:

a. P23,520 b. P35,040 x
c. P41,088 d. P52,608
Ans. #2
Gross Income from Business 700,000
Less: Business Expense 300,000

Net Taxable income 400,000

Tabular Schedule:
1st 250,000 Tax is 0
Excess of 250,000 - 400,000 = 150,000 x 15% 22,500
Capital Gains Tax on Shares (70,000 x 5%) 3,500
Royalty Income (40,000 x 10%) 4,000
Loss on Sale (Zonal Value 1.2 x 6%) 72,000
Total Income Tax Expense 102,000

Ans. #4
Net sales 2,000,000
Less; cost of sales 600,000
Gross profit 1,400,000
Less operating expense 500,000
Net profit 900,000

Tax 900,000 x 25% 225,000

Capital gain on shares:
200,000 x 15% 30,000
Capital gain on sale of real property
1,000,000 x 6% 60,000
Interest on bank deposit
40,000 x 20% 8,000
Total tax 323,000
Less payment 190,000
Tax due

VAT on rental (672,000 x 12 %) 80,640

VAT on purchase of supplies (224,000 x 12/112) (24,000)
Transitional Input Tax(higher) (21,600)
VAT Payable 35,040