GENERAL PRINCIPLES OF TAXATION

Taxation Defined
The exercise of the sovereign power to raise revenues for the expenses of the government.
Stages or Coverage of Taxation
Taxation covers three (3) separate areas or aspects of government activity, namely:
1. Levying or imposition of the tax. This involves the passage of tax laws which is generally a legislative act.
In the Philippines, the taxing power is exercised by Congress.
2. Assessment. The process of determining the correct amount of tax due.
3. Collection and payment – the act of compliance with the tax law by the taxpayer.
Executive or administrative in nature. Done by the Bureau of Internal Revenue (“BIR”)
3 Inherent Powers of a State:
1) Power to Tax
2) Police Power
3) Power of Eminent Domain
The Power to Tax
Subject to inherent and constitutional limitations, the power of taxation is regarded as supreme plenary,
unlimited, and comprehensive. As long as the legislature, in imposing ta 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 (51 Am. Jur. 77-78).
Police Power
Police power is the inherent power of a sovereign state to legislate for the protection of the health, general
welfare, safety, and morals of the public. It involves the power to regulate both liberty and property for the
promotion of the public good.
The police power of the State may be exercised through taxation because taxes may be levied for the
promotion of the welfare of the public (Lutz v. Araneta,98 PHIL. 148).
Power of Eminent Domain
The power of eminent domain is the inherent power of a sovereign state to take private state to take private
property for a public purpose. The Constitution limits the exercise of this power by providing that: “Private
property shall not be taken for public use without just compensation. “ (Art. III, Sec. 9, 1987 Philippine
Constitution)
Distinctions Among the Three Inherent Powers
A) Purpose:
Taxation To raise revenues for the expenses of the State.
Police Power To promote the general welfare thru regulations.
Eminent Domain To facilitate the State’s need of property for public use.

B) Amount of Taxation
Taxation No limit.
Police Power Limited to the cost of regulation, issuance of the license, and/or
surveillance.
Eminent Domain No exaction but private property is taken for public use.

C) Benefits Received
Taxation No special or direct benefit is received by an individual taxpayer.
The public receives the general benefit of protection of person,
property and the promotion of the general welfare.
Police Power No direct benefit is received by an individual. A healthy
economic standard of society is attained.
Eminent Domain A direct benefit results in the form of just compensation to the
property owner.

D) Non-Impairment of Contracts
Taxation Obligations of contracts may not be impaired. Tax exemptions
bilaterally agreed upon between the government and the
taxpayer cannot be withdrawn.
Police Power Obligations of contracts may be impaired.
Eminent Domain Obligations of contracts may be impaired.

E) Transfer of Property
Taxation Taxes paid become part of public funds.
Police Power No transfer, but only restraint in the exercise of property rights.
Eminent Domain Transfer is effected in favour of the State.

F) Scope
Taxation All persons, property, rights and privileges.
Police Power All persons, property, rights, privileges, and liberties
Eminent Domain Only upon specific property.
G) Authority which exercises the power
Taxation Exercised by the government or its political subdivisions
Police Power Exercised by the government or its political subdivisions
Eminent Domain May be exercised by public service corporations or private
entities operating public utilities if granted by law

Limitations on the Power to Tax

(1) Constitutional limitations.
(a) No person shall be deprived of life, liberty, or property without due process of law, nor shall any
person be denied the equal protection of the laws (Art. III, Sec.1).
(b) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation (Art. VI, Sec. 28 (1)).

Uniformity - persons or properties falling under the same class should be taxed the same kind
and rate of tax.
Equality - the same means and methods be applied impartially to all the members of each
class

Equal protection of the law - means equality before the law. However, such equality does not
deny to the state the power to recognize factual differences
between individuals and classes. It recognizes that inherent in the
right to legislate is the right to classify, provided that it is a valid and
reasonable classification. If the groupings are characterized by
substantial distinctions that make real differences, one class may be
treated and regulated differently from another (Tiu v. CA, G.R. No.
127410).
(c) No person shall be imprisoned for debt or non-payment of a poll tax (Art. III, Sec. 20).
(d) Charitable institutions, churches, and parsonages, or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational purposes shall be exempt from taxation
(Art. VI, Sec. 10)
(e) No law granting any tax exemption shall be passed without the concurrence of a majority of all
the members of Congress (Art. VI, Sec 28 (4)).
(f) No law impairing the obligation of contracts shall be passed (Art. III, Sec. 10).
i) When the tax exemption is bilaterally agreed upon between the government and the
taxpayer, the exemption cannot be withdrawn without violating the non-impairment
clause.
ii) When the tax exemption is unilaterally granted by law, the same may be withdrawn by
virtue of another law without violating the m=non-impairment clause.
Ex. When the tax exemption is granted under a franchise, the same may be withdrawn
at any time.
(g) No law shall be made respecting an establishment of religion or prohibiting the free exercise
thereof (Art. III, Sec. 5).

No public money or property shall be appropriated, applied, paid, or employed, directly or

indirectly for the use, benefit, or support of any sect, church, denomination, sectarian institution,
or system of religion, or of any priest, preacher, minister, or other religious teacher or dignitary as
such except when such priest, preacher, minister or dignitary is assigned to the armed forces or to
any penal institution, or government orphanage or leprosarium (Art. VI, Sec. 29 (2)).
(h) All appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives,
but the Senate may propose or concur with amendments (Art. VI, Sec. 24).
(i) 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 (Art. VI, Sec. 28 (2)).
(j) The Supreme Court shall have the power to review, revise, reverse, modify, or affirm on appeal or
certiorari as the law or the Rules of Court may provide, final judgements and orders of lower courts
in xxxx all cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed
in relation thereto (Art. VIII, Sec. (5) (2) (b)).
(k) 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. Xxxxxx
(l) 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)).
 (m) All money collected or any tax levied for a special purpose shall be treated as a special fund and
paid out for such purpose only. If the purpose for which a special fund was created has been
fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the
Government (Art. VI, Sec. 29 (3)).

(2) Inherent limitations. These are restrictions arising from the very nature of the power to tax itself. They
are:
(a) The levy must apply within territorial limits for the exercise of effective tax jurisdiction.
(b) The tax must be for a public purpose.
(c) Exemption from taxation of the government, any political subdivision thereof, or agencies
performing purely governmental functions. Ex. City government of Makati.

However, when a local government unit (LGU), government agency, or government owned and
controlled corporation engages in activities which are proprietary in character (i,e. engaging in
businesses and activities similar to those performed by other taxable corporations), such LGU,
government agency, or GOCC shall be subject to both income and business taxes as other
private corporations. Ex. Land Bank of the Philippines; PAGCOR.
EXC: The Government Service Insurance System (GSIS), the Social Security System (SSS) , the
Philippine Health Insurance Corporation (PHIC or Philhealth), and local water districts (LWDs); are
exempt from the income tax imposed under Section 27 of the National Internal Revenue Code
(“NIRC”)
(d) As a general rule, the taxing power of the legislature may not be delegated. Exceptions to this
non-delegability rule are:

i) The authority of the President to fix tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties and imposts (Art. VI, Sec. 28 (2), 1987 Constitution).
ii) Each local government unit shall have the power to create its own sources of revenues
and to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local governments? (Art. X, Sec. 5,1987
Constitution). Ex Real property taxes.
iii) Delegation to administrative agencies for implementation of the tax laws, and collection
of the tax to the BIR.

(e) International comity.

This principle limits the authority of the government to effectively impose taxes on a sovereign
state and its instrumentalities, as well as on its property held and activities undertaken in that
capacity. As a rule, the Philippine government cannot tax foreign ambassadors nor impose real
property taxes upon foreign embassies.
(f) Double Taxation. Two types of double taxation are direct double and indirect double taxation.
Direct double taxation – Where:
(1) The same subject is taxed twice;
(2) By the same taxing authority;
(3) Within the same jurisdiction;
(4) During the same taxing period; and
(5) Covering the same kind or character of tax (Villanueva v. City of Iloilo, L-26521).
There is no constitutional prohibition against double taxation in the Philippines (Villanueva v. City
of Iloilo, L-26521, December 28,1968), though it is not favoured.
Indirect double taxation, which lacks one or more of the elements of direct double taxation, is
also permissible.
Basic Principles of a Sound Tax System
1. Fiscal Adequacy – which means that the sources of revenue should be sufficient to meet the demands
of public expenditures;
2. Equality or Theoretical Justice – which means that the tax imposed should be proportionate to the
taxpayer’s ability to pay; and
3. Administrative Feasibility – which means that the tax laws should be capable of convenient, just, and
effective administration
Theory or Basis of Taxation
1) Life-blood Theory.
- Taxes are the lifeblood of the government. Without taxes, no government can function.
2) Benefits Protection Theory (Symbiotic Relationship)
- Taxes are what we pay for a civilized or organized society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it (Commissioner v. Algue, 158 SCRA
9).
Essential Elements or Characteristics of a Tax
1. Enforced contribution
2. Exacted pursuant to legislative authority
3. For raising revenue for public needs
4. Proportionate in character or uniform
5. Payable in money
6. Imposed within the state’s jurisdiction
7. Personal to the taxpayer

Classification of Taxes
a) According to scope or exercising authority
National tax Municipal or local tax
- Imposed by the National Government - Imposed by local government units
Exs. Income tax, Estate tax, Donor’s tax, VAT, Exs. Occupation tax, Real property tax (RPT)
OPT, Excise Tax, DST

b) According to subject matter or object

Personal, capitation, or poll tax Property tax Excise tax
- Fixed amount imposed upon persons - Imposed on - Imposed upon the performance of an
of a certain class without regard to property act; the exercise of a right; or the
property, trade, business, or engaging in business or profession
occupation
Ex. Community tax Ex. RPT Exs. VAT, Donor’s tax, Estate tax, Income
tax, Occupation tax, Exercise tax
c) According to who bears the burden of the tax
Direct tax Indirect tax
- The liability for the tax (impact), and the burden - The liability or impact for the tax falls on the
thereof (incidence) fall on the same taxpayer original taxpayer, but the burden or incidence
thereof is shifted to another.
Ex. Income tax Ex. VAT, excise tax, custom duties

d) According to purpose
General or Revenue tax Special tax
Levied without a specific or pre-determined purpose Levied for a special purpose
Ex. Income tax, VAT, etc. Ex. Protective tariffs

e) According to the rate applied

Proportional Progressive Regressive
Based on a fixed percentage of The tax rate increases as the The tax rate decreases as the tax
the tax base tax base increases base increases.
Exs. RPT, VAT, Donor’s tax, Estate Exs. Income tax on individuals Exs. None
tax. under the graduated rates

f) According to measurement of the amount due

Specific Ad Valorem
Measured by number, or based on weight Based on the value of the property and may require the
or physical measurement intervention of assessors and appraisers
Exs. Excise tax on lubricating oils, waxes, Exs. RPT; excise tax on liquors, cigarettes packed by
petroleum, etc. ,machine, and automobiles

Nature or Construction of Tax Laws

1. Tax laws are prospective, generally, but can have retrospective application.
Tax laws, like other statutes, are to be construed as having only a prospective operation unless the
purpose and intention of the legislature to give retrospective effect is expressly declared or is necessarily
implied from the language used (Lorenzo v. posadas, 64 Phil. 353).
Tax laws are not penal in character. Being civil in nature, the constitutional prohibition against the passage
of ex post facto legislation does not apply to tax laws (Law of basic taxation in the Philippines, Benjamin
Aban; citing Republic v. Oasan Vda. De Fernandez, et al., 99 Phil. 934; Ex Parte Garland, 18 Law Ed.336).

They can thereof be given retrospective application if expressly declared by the tax law.

A tax creates a civil obligation or liability on the part of the taxpayer, although the non-payment thereof
creates a criminal liability, which could be the subject of criminal prosecution under existing laws. In short,
in taxation, it is one’s civil liability to pay taxes that gives rise to criminal liability (Republic v. Patanao, L-
22356, July 21, 1967).

2. A statute will not be construed as imposing a tax unless it does so clearly, and unambiguously.
 A tax cannot be imposed without clear and express words for that purpose. Accordingly, the provisions
of a taxing act are not to be extended by implication (Marinduque Mines Agents v. Municipal Council of
Hinabangan, L-18924; Commissioner v. CA, GR 115349, April 18, 1997).
In case of doubt, statutes imposing a tax are construed most strongly against the Government, and
liberally in favor of the citizen because burdens are not to be imposed beyond what the statutes expressly
can clearly import (Manila Railroad v. Collector of Customs, GR 10214; CIR v. La Todeña, Inc. et. al., L-
10431).

3. Tax exemptions are to be construed strictly against the taxpayer.

Legal provisions providing for tax exemptions are to be construed strictly against the grant and liberally in
favour of the taxing power (Phil. Int’l. fair, Inc. v. Collector, G.R. L12928 and L-12932, 1962).

Exemption from the taxation is construed stictissimi juris, i.e. strictly against exemption. Hence, exemption
must be anchored firmly on an express provision of law. He who claims exemption must be able to justify
his claims by the clearest grant of organic and statute law (Collector v. Manila Jockey Club, Inc., 53 O.G.
3762).

4. Revenue laws are not political in nature.

Our internal revenue laws are not political in nature and as such were continued in force during the period
of enemy occupation and in effect were actually enforced by the occupation government (Emilio Y.
Hilado v. Collector, G. R. No. L-9408, October 31, 1956).

5. Legislative intention must be considered. Tax statutes are to receive a reasonable construction with a
view to carrying out their purpose and intent (51 Am. Jur. 361)

6. Tax laws are special laws, and prevail over general laws (see Republic v. Gancayco, L-18307, June 30,
1964).

Sources of Tax Laws

1. The 1987 Constitution;
2. Tax statutes such as the National Internal Revenue Code (“NIRC”), the Tariff and Customs Code, the
VAT Law, the Revised Documentary Stamp Tax Law, the Amended Excise Tax Law, and portions of the
Local Government Code;
3. Executive orders on taxation, and local tax ordinances;
4. Tax treaties and conventions with foreign countries;
5. Judicial decisions;
6. Rules and regulations promulgated by the Department of Finance, the Bureau of Internal Regulations
(“BIR”), Bureau of Customs, etc.
7. Administrative interpretations and opinions of tax officials particularly those of the Commissioner of
Internal Revenue.

Forms of Escape from Taxation

1. Shifting the burden of the tax.
2. Capitalization. By not selling property which has increased in value, the owner avoids the income tax to
be paid on the gain if the same is sold. An increase in the value of an asset is merely an unrealized increase
(gain) in capital.
3. Transformation. The manufacturer or producer upon whom the tax has been imposed, fearing the loss of
his market if he should add the tax to the price, pays the tax. He then endeavors to recoup the tax paid
by making his production more efficient and lowering his cost of production.
4. Tax exemption. Exemption from taxation is the freedom from the burden of paying tax.
5. Tax avoidance. Tax avoidance occurs when the means used to minimize taxes are legal and not
probihited by law.
6. Tax evasion. Tax evasion connotes fraud through the use of pretenses and forbidden devices to lessen or
defeat taxes (Yutivo Sons Hardwarev. CTA, L-13203, January 28, 1961, 1 SCRA 160).

Tax and Licence Distinguished

Tax License
Purpose To raise revenue To regulate action, businesses,
industries, professions
Limitations on taxation Subject to constitutional and Not subject to the limitations
inherent limitations on the on taxation
power to tax
Amount Unlimited Limited to the cost of
regulation (licensing,
inspection, surveillance)
 Effect of non-payment Does not make the business Makes the business illegal
illegal

“Special Assessment” Defined

A special assessment is in the nature of a tax upon property levied according to enefits conferred on the
property. The whole theory of a special assessment is absed on the doctrine that the property against
which it is levied derives some special benefit from the improvement xxxxxxx their property being
increased in value by the expenditure to an amount at least equal to the sum they are required to pay
(1 Cooley on Taxation, 105).

Characteristics of Special Assessment

1. A special assessment can be levied only on land;
2. A special assessment cannot ( at least in most states) be made a personal liability of the person assessed;
3. A special assessment is based wholly on benefits; and
4. A special assessment is exceptional both as to time and locality.
Tax Special Assessment
Imposed on all property (real or personal) in a Imposed only on property which benefit from
prescribed area the improvement
Tax and Debt Distinguished
Tax Debt
Source of Law Contract
obligations
Obligee Due to the Due to obligee under a contract; May be due to
government in its the government in its corporate capacity
sovereign capacity
Form of payment Money Money, property, or services
Interest No interest except in If stipulated or if the payment is in delay
cases of delinquency
Assignability Not assignable Generally assignable
Compensation/Set- No Yes
off
Incarceration for Yes, except for non- No person can be imprisoned for non-payment of
non-payment payment of poll tax debts (Constitution).

Tax and Toll Distinguished

Tax Toll
Demand for sovereignty Demand of ownership or proprietorship
Imposed by the Government May be imposed by private persons or entities
May be based on income or on the value of the Largely based on the cost of the property used,
property or on the cost of the improvement used
Forced contribution Compensation charged by the owner for the
voluntary use of the property/improvements

Tax Administration
It is a system involving assessment, collection, and enforcement of taxes, including the execution of
judgement in all tax cases decided in favour of the Bureau of Internal Revenue by the courts.

Powers and Duties of the Bureau of Internal Revenue (“BIR”)

1. The assessment and collection of all national internal revenue taxes, fees, and charges;
2. The enforcement of all forfeitures, penalties, and fines connected therewith;
3. The execution of judgements in all cases decided in its favour by the Court of Tax Appeals, and the
ordinary courts;
4. The giving effect to and the administering of the supervisory and police power conferred to it by the
Tax Code or other laws.
Powers of the Commissioner of Internal Revenue (“CIR”)
1. Power to interpret tax laws subject to review by the Secretary of Finance;
2. Power to decide disputed assessments, refunds of internal revenue taxes, fees and other charges,
penalties imposed in relation thereto, other matters arising under the National Internal Revenue Code
(“NIRC”) or other laws or portions thereof administered by the Bureau of Internal Revenue (“BIR”),
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals (“CTA”);
3. Power to examine any book, paper, record, or other data which may be relevant or material to a tax
inquiry;
4. Power to obtain information from any person other than the person whose internal revenue tax liability
is subject to audit or investigation or from any office or officer of the national or local governments,
government agencies and instrumentalities;
 5. Power to summon the person liable for tax or required to file a return, or any officer or employee of
such person, or any person having possession, custody, or care of the books of accounts and other
accounting records;
6. Power to take such testimony of the person concerned, under oath, as may be relevant or material
to such inquiry;
7. Power to make assessments.
8. Power to prescribe real property values by dividing the country into different zones and determining
the FMV of real properties located in each zone;
9. The Commissioner is authorized to inquire into the bank deposits and other related information held
by financial institutions of:
1) A decedent to determine his gross estate;
2) A taxpayer who has filed an application for comprise of his tax liability by reason of financial
incapacity to pay his tax liability; and
3) A taxpayer who is subject of a request for the supply of tax information from a foreign tax authority
pursuant to an international agreement or treaty.
10. The Commissioner has the authority to accredit and register individuals and general professional
partnerships (GPP) and their representatives who prepare and file tax returns, statements, reports and
other papers, or who appear before the BIR, for taxpayers.
11. Power to prescribe additional procedural or documentary requirements in connection with the
submission or preparation of financial statements accompanying the tax returns.

QUIZZER
GENERAL PRINCIPLES OF TAXATION
1. The principal purpose of taxation is
a. To encourage the growth of home industries through the proper use of tax exemptions and tax
incentives
b. To implement the police power of the state
c. The reduce excessive inequalities of wealth
d. To raise revenues for governmental needs
2. The aspects of taxation are
a. Legislative in character
b. Executive in character
c. Shared by the legislative and executive departments
d. Judicial in character
3. This rule is not applicable on the construction of tax laws
a. If the law is repealed, taxes assessed before repeal of the law may no longer be collected
b. If the intent of the tax is not clear as to whether the taxpayer is covered by the tax obligation, the law
shall be construed against the government.
c. Where the intent to tax is clear and the taxpayer claims he is exempt from the tax obligation, the tax
shall be construed against the taxpayer
d. Provisions intended for the security of the taxpayer or to ensure equality or uniformity of taxation are
mandatory.
4. Which of the inherent powers may be exercised even by public service corporations and public entities?
a. Power of taxation c. Power of eminent domain
b. Police power d. A and C
5. Which of the following statements is correct?
a. Income tax is an indirect tax
b. Our National Internal Revenue Laws are criminal in nature
c. The theory of taxation states that the power of taxation is supreme, plenary, unlimited, and
comprehensive
d. Taxation is subject to inherent and constitutional limitations
6. This is an inherent limitation on the power of taxation
a. Rule on uniformity and equity in taxation
b. Due process of law and equal protection of the laws
c. Non-impairment of the jurisdiction of the Supreme Court in tax cases
d. Tax must be for public purpose
7. This is a constitutional limitation on the power of taxation
a. Tax laws must e applied within the territorial jurisdiction of the state
b. Exemption of government agencies and instrumentalities from the taxation
c. No appropriation of public money for religious purposes
d. Power to tax cannot be delegated to private persons or entities
8. The power to acquire private property upon payment of just compensation for public purpose
a. Power of taxation c. Power of eminent domain
b. Police power d. Power of love
9. Which of the following is not acceptable for legally refusing to pay the tax?
a. That the right of the state to collect the tax has prescribed
 b. That there is no jurisdiction to collect the tax
c. That there is deprivation of due process of law
d. That there is no benefit from the tax
10. The tax imposed should be proportionate to the taxpayer’s ability pay
a. Fiscal adequacy c. Administrative feasibility
b. Equality or theoretical justice d. Economic consistency
11. Any amount subsequently received on account of a bad debt previously charged off and allowed as a
deduction from gross income for prior years must be included in gross income for the taxable year in
which received. This is
a. End-result doctrine b. Destination of income test
c. Severance theory d. Equitable doctrine of tax benefit
12. The tax laws must be capable of convenient, just and effective administration
a. Fiscal adequacy c. Administrative feasibility
b. Equality or theoretical justice d. Psychological compatibility
13. Statement 1 – The point on which a tax is originally imposed is impact of taxation
Statement 2 – Police power is superior to the non-impairment clause of the constitution
Statement 3 – As a rule, taxes are subject to set-off or compensation
Statement 4 – As a rule, provisions on the validity of tax exemptions are resolved
liberally in favour of the taxpayer

Statement 1 Statement 2 Statement 3 Statement 4

a. True False False False
b. True True False True
c. True True False False
d. False True False False
14. Enforced proportional contributions from persons and property levied by the state by virtue of its
sovereignty for the support of the government and for all public needs
a. Toll c. Taxes
b. License fee d. Assessment
15. Persons or things belonging to the same rate
a. Simplicity I taxation c. Equality in taxation
b. Reciprocity in taxation d. Uniformity in taxation
16. Which is not an essential characteristic of a tax?
a. It is unlimited as to amount c. It is proportionate in character
b. It is payable in money d. It is an enforced contribution
17. Special assessment is an enforced proportional contribution from owners of land especially benefited by
the public improvement. Which one of the following is not considered as one of its characteristics?
a. It is levied on land
b. It is based on the government’s need of money to support its legitimate objectives
c. It is not a personal liability of the persons assessed
d. It is based solely on the benefit derived by the owners of the land
18. It is privilege of not being imposed a financial obligation to which others are subject
a. Tax incentive c. Tax amnesty
b. Tax exemption d. Tax credit
19. As to scope of the legislative power to tax, which is not correct?
a. Where there are no constitutional restrictions, and provided the subjects are within the territorial
jurisdiction of the state, Congress has unlimited discretion as to the persons, property or occupations
to be taxed
b. In the absence of any constitutional prohibition, the House of Representatives has the right to levy a
tax of any amount it sees fit.
c. The discretion of Congress in imposing taxes extends to the mode, method or kind of tax, if not
restricted by the constitution.
d. The sole arbiter of the purpose for which taxes shall be levied is the Commissioner of Internal Revenue
(CIR), provided the purpose is public. However, the courts may review the levy of the tax to determine
whether or not the purpose is public.
20. Which of the following is a nature of taxation?
a. The power is exercised by legislative action c. It is generally payable in money
b. It is essentially an administrative function d. The state can exist without it
21. The use of illegal or fraudulent means to avoid or defeat the payment of tax
a. Shifting c. Avoidance
b. Exemption d. Evasion
22. Congress passed a new law imposing taxes on income earned out of particular activity that was not
previously taxed. The law, however, taxed incomes already earned within the fiscal year when the law
took effect. Is the law valid?
a. No, because the laws are intended to be prospective, not retroactive.
b. No, the law is arbitrary in that it taxes income that has already been spent.
 c. Yes, since the tax laws are the lifeblood of the government.
d. Yes, tax laws are an exception, they can be given retroactive effect.
23. Synonymous to tax evasion
a. Tax dodging c. Tax exemption
b. Tax minimization d. Tax shield
24. Synonymous to tax avoidance
a. Tax dodging c. Tax exemption
b. Tax minimization d. Tax shield
25. In case of doubt, tax statutes are construed
a. Strictly against the government and the taxpayer
b. Liberally in favour of the government and the taxpayer
c. Strictly against the government and liberally in favour of the tax payer
d. Liberally in favour of the government and strictly against the taxpayer
26. In case of doubt, tax exemptions are construed
a. Strictly against the government and the taxpayer
b. Liberally in favour of the government and the taxpayer
c. Strictly against the government and liberally in favour of the tax payer
d. Liberally in favour of the government and strictly against the taxpayer
27. In case of conflict between the Tax Code and the Philippine Accounting Standards (PAS)
a. PAS shall prevail over the Tax Code
b. Tax Code shall prevail over PAS
c. PAS and Tax Code shall be both disregarded
d. The taxpayer may choose between the PAS or the Tax Code
28. Tax of a fixed amount imposed upon all persons residing within a specified territory without regard to their
property or occupation they may be engaged in
a. Personal, poll or capitation c. Excise
b. Property d. Regressive
29. Tax imposed on personal or real property in proportion to its value or on some other reasonable method
of apportionment
a. Personal, poll or capitation c. Excise
b. Property d. Regressive
30. Double taxation in its general sense means taxing the same subject twice during the same taxing period.
In the sense, double taxation
a. Violates substantive due process.
b. Does not violate substantive due process.
c. Violates the right to equal protection.
d. Does not violate the right to equal protection.
31. Tax which is demanded from the person whom the law intends or desires to pay it
a. Direct b. Indirect c. Excise d. Income
32. Tax which is demanded from one person in the expectation and intention that he shall indemnify himself
at the expense of another
a. Direct b. Indirect c. Property d. Income
33. Tax which imposes a specific sum by the head or number or by some standard of weight or measurement
and which requires no assessment other than a listing or classification of the objects to be taxed
a. Specific b. Ad-valorem c. Excise d. Income
34. Joyful Educational Foundation, Inc., a stock educational institution organized for profit, decided to lease
for commercial use a 1,500 sq. m. portion of its school. The school actually, directly, and exclusively used
the rents for the maintenance of its school buildings, including payment of janitorial services Is the leased
portion subject to real property tax?
a. Yes, since Joyful is a stock and for-profit educational institution
b. No, since the school actually, directly, and exclusively used 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.
35. Tax based on a fixed percentage of the amount or property, income or other basis to be taxed
a. Proportional c. Regressive
b. Progressive d. Indirect
36. Tax where the rate decreases as the tax base increases
a. Proportional b. Progressive c. Regressive d. Indirect
37. 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 religious order exempt from property tax, but its
income is subject to income tax
c. The prohibition of delegation by the state of the 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.
38. Which of the following statements is not correct?
 a. Tax burdens shall neither be imposed nor presumed to be imposed beyond what the statute expressly
and clearly states because tax statutes should be construed strictly against the government.
b. Tax exemptions, tax amnesty, tax condonations and their equivalent provisions are not presumed
and, when granted, are strictly construed against the tax payer because such provisions are highly
disfavored by the government.
c. Exemptions from taxation are highly disfavored in law and he who claims tax exemption must be able
to justify his claim or right.
d. The Bureau of Internal Revenue has the duty and the exclusive power of enacting, implementing and
interpreting tax laws.
39. The strongest of all inherent powers of the state because without it, the government can neither survive
nor dispense any of its other powers and functions effectively.
a. Police Power c. Power of Taxation
b. Power of Eminent Domain d. Power of Greystone
40. This power is superior to the non-impairment clause and is broader in application because it is the power
to make and implement the laws.
a. Power of taxation c. Power of Eminent Domain
b. Power of Recall d. Police Power
41. Which of the following statements is not correct?
a. An inherent limitation of taxation may be disregarded by the application of the constitutional
limitation.
b. Income tax liabilities shall be paid by the inhabitants even if foreign invaders occupy our country.
c. Taxes may be imposed retroactively by law, but unless so expressed by such law, these taxes must
only be imposed prospectively.
d. Tax laws are either political or penal in nature.
42. Which of the following is not a constitutional limitation on the Power of Taxation?
a. No person shall be deprived of life, liberty or property without due process of law.
b. No person shall be denied the equal protection of the law.
c. No person shall be imprisoned for debt or non-payment of tax.
d. No law granting any tax exemption shall be passed without the concurrence of a majority of all the
members of Congress.
43. The distinction of a tax from permit or license fee that a tax is:
a. Imposed for regulation.
b. One which involves an exercise of police power.
c. One in which there is generally no limit on the amount that may be imposed.
d. Limited to the cost of regulation.
44. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under the Tax Code or other laws or positions
thereof administered by the BIR is vested in the
a. Secretary of Finance c. Court of Tax Appeals
b. Regional Trial Court d. Commissioner of Internal Revenue
45. A tax wherein both the impact of or the liability for the payment of the tax as well as the burden of the
tax falls on the same person.
a. Direct Tax b. VAT c. Indirect tax d. Percentage tax
46. Which of the following is not a characteristic or element of a tax?
a. It is an enforced contribution.
b. It is legislative in character.
c. It is based on the ability to pay.
d. It is payable in money or in kind.
47. Tax is distinguished from license fees:
a. Limited to cover cost of regulation.
b. A regulatory measure.
c. Non-payment does not necessarily render the business illegal
d. Imposed in the exercise of police power
48. The power to impose taxes is exercised by the
a. President b. Supreme Court c. BIR d. Congress
49. One of the characteristics of internal revenue laws is that they are:
a. Criminal in nature c. Political in nature
b. Penal in nature d. Generally, prospective in application
50. Which of the following is not an example of excise tax:
a. Transfer tax b. Sales tax c. Real property tax d. Income tax