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2010 Lex Star Tax

2010 Lex Star Tax

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Published by cmv mendoza
Assorted tax stuff for the 2011 Bar examinations. Copyright to the owners. Just sharing.
Assorted tax stuff for the 2011 Bar examinations. Copyright to the owners. Just sharing.

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Published by: cmv mendoza on Jan 02, 2012
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02/13/2014

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UNIVERSITY OF THE PHILIPPINES
UP LAW CENTER – Pre-Bar Review
“BAR STAR NOTES”
TAXATION
VER. 2010.06.12copyrighted 2010
Prepared by Prof. Abelardo T. Domondon
(AB (Econ), BSC (Acctg), LLB, MA (Econ), LLM, DCL (Cand.).Lawyer-CPA-Customs Broker, Management Consultant, Professor of Lawand Pre-Bar Reviewer)
How to use the “BAR STAR NOTES.”
The “BAR STARNOTES” in the form of questions and answers as well as textualdiscussion were
specially prepared by Prof. Domondon for theexclusive use of Bar Reviewees who attended his 2010 Lectures onTAXATION
held at the University of the Philippines. Included in thepresentation are doctrines contained in Supreme Court decisions up toApril 2010.The purpose of the ‘BAR STAR NOTES” is to provide the Bar Reviewee with a handy review material which serves as “memory- joggers” for the September 12, 2010 Bar Examinations in Taxation. Theauthor tries to second guess what would be included in the Bar Examsusing statistical analysis. The actual Bar questions may not beformulated in the same manner as the “BAR STAR NOTES”. However,the doctrines tested in the Bar would in all probability be included in theseNotes.If pressed for time, the author suggests that the reader shouldfocus his attention on the following:
Nice to know
 
Should know
 
Must know and master It is further suggested that the reader should merely browse thosewithout stars.
WARNING:
These materials are copyrighted and/or based on the writer’sbooks on Taxation and future revisions. It is prohibited to reproduce anypart of these Notes in any form or any means, electronic or mechanical,including photocopying without the written permission of the author.Unauthorized users shall not be prosecuted but
SHALL BE SUBJECTTO THE LAW OF
KARMA
SUCH THAT THEY WILL NEVER PASSTHE BAR OR WOULD BE UNHAPPY IN LIFE
for stealing theintellectual property of the author.
THE BEST OF LUCK ANDADVANCE CONGRATULATIONS
TAXATION
GENERAL PRINCIPLES OF TAXATION
TAXATION, IN GENERAL
1.State briefly and concisely the nature of taxation.Alternatively, define taxation.
SUGGESTED ANSWER: The inherent power of the sovereignexercised through the legislature to impose burdens upon subjects andobjects within its jurisdiction for the purpose of raising revenues to carryout the legitimate objects of government.
2.What is the nature of the State’s power to tax ?Explain briefly.
SUGGESTED ANSWER: The nature of the state’s power to tax istwo-fold. It is both an inherent power and a legislative power.It is inherent in nature being an attribute of sovereignty. This is so,because without the taxes, the state’s existence would be imperiled.There is thus, no need for a constitutional grant for the state to exercisethis power.It is a legislative power because it involves the promulgation of rules. Taxation is a set of rules, how much is the tax to be paid, whopays the tax, to whom it should be paid, and when the tax should bepaid.
 
3.What is the underlying theory of taxation ? Explainbriefly.
SUGGESTED ANSWER: Taxes are the lifeblood of the nation.Without revenue raised from taxation, the government will notsurvive, resulting in detriment to society. Without taxes, the governmentwould be paralyzed for lack of motive power to activate and operate it.
(
Commissioner of Internal Revenue v. Algue, Inc. et al.,
158 SCRA 8, 16-17)
4.Marshall said that, “the power to tax involves thepower to destroy.” On the other hand, Holmes stated that“the power to tax is not the power to destroy while thecourt sits.”Reconcile the statements.In the alternative, what are the implications that flowfrom the above statements ?
SUGGESTED ANSWERS: Marshall’s view refers to a valid taxwhile the Holmes’ view refers to an invalid tax.a.The imposition of a valid tax could not be judiciallyrestrained merely because it would prejudice taxpayer’s property.b.An illegal tax could be judicially declared invalidand should not work to prejudice a taxpayer’s property.
5.Discuss briefly the basis/bases, or rationale of taxation.
SUGGESTED ANSWER: a.Reciprocal duties of protection andsupport between the state and its citizens and residents. Also called“symbiotic relation” between the state and its citizens.b.Jurisdiction by the state over persons and propertywithin its territory.
6.Discuss briefly but comprehensively theobjectives or purposes of taxation.
SUGGESTED ANSWER: The purposes or objectives of taxationare the following:a.The primary purpose:1)Revenue purpose.b.The secondary purposes1)Sumptuary or regulatory purpose.2)Compensatory purpose.3)To implement the power of eminent domain.
7.Distinguish a tax from a license fee.
SUGGESTED ANSWER: The following are the distinctions:a.Purpose: Tax imposed for revenue while license fee foregulation. Tax for general public purposes while license fee for regulatory purposes only.b.Basis: Tax imposed under power of taxation while licensefee under police power.c.Amount: In taxation, no limit as to amount while license feelimited to cost of the license and the expenses of police surveillance andregulation.d.Time of payment: Taxes normally paid aftecommencement of business while license fee before.e.Effect of payment: Failure to pay a tax does not make thebusiness illegal while failure to pay license fee makes business illegal.f.Surrender: Taxes, being the lifeblood of the state, cannotbe surrendered except for lawful consideration while a license fee may besurrendered with or without consideration.
 
(Cooley on Taxation, pp. 1137-1138;
Pacific Commercial Company v. Romualdez, et al.,
49 Phil. 924)
8.How may the power to tax be utilized to carry outthe social justice program of our government ?
SUGGESTED ANSWER: The compensatory purpose of taxation isto implement the social justice provisions of the constitution through theprogressive system of taxation, which would result to equal distribution of wealth, etc.Progressive income taxes alleviate the margin between
 
rich andpoor 
.
(
Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al.,
G. R. No. 158540, August 3, 2005)
In recent years, the increasing social challenges of the timesexpanded the scope of the state activity, and taxation has become a toolto realize social justice and the equitable distribution of wealth, economicprogress and the protection of local industries as well as public welfareand similar 
 
objectives.
 
(
Batangas Power Corporation v. Batangas City, et al.,
G. R. No. 152675, and companion case, April 28, 2004 citing
National Power Corporation v. City of Cabanatuan,
G. R. No. 149110, April 9, 2003)
9.
Explain the sumptuary purpose of taxation.
SUGGESTED ANSWER: The sumptuary purpose of taxation is topromote the general welfare and to protect the health, safety or morals of the inhabitants. It is in the joint exercise of the power of taxation and policepower where regulatory taxes are collected.Taxation may be made the implement of the state’s police power.The motivation behind many taxation measures is the implementation of police power goals. [
Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al.,
G. R. No. 158540, August 3,2005)
The reader should note that the August 3, 2005
Southern Cross
caseis the decision on the motion for reconsideration of the July 8, 2004
Southern Cross
decision.The so-called “sin taxes” on alcohol and tobacco manufacturers helpdissuade the consumers from excessive intake of these potentially harmful
2
 
products.
(
Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al.,
G. R. No. 158540, August 3, 2005)
10.
Taxation distinguished from police power.
Taxationis distinguishable from police power as to the means employed toimplement these public goals. Those doctrines that are unique to taxationarose from peculiar considerations such as those especially punitive effects(
Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al.,
G. R. No. 158540, August 3, 2005) asthe power to tax involves the power to destroy and the belief that taxes arelifeblood of the state. (
Ibid.) t 
axes being the lifeblood of the government,their prompt and certain availability is of the essence.”These considerations necessitated the evolution of taxation as adistinct legal concept from police power. (
Ibid.
)
11.How the power of taxation may be used toimplement power of eminent domain.
Tax measures are but”enforced contributions exacted on pain of penal sanctions” and “clearlyimposed for public purpose.” In most recent years, the power to tax hasindeed become a most effective tool to realize social justice, public welfare,and the equitable distribution of wealth.
(
Commissioner of Internal Revenue v.Central Luzon Drug Corporation,
G.R. No. 159647, April 16, 2005)
Establishments granting the 20% senior citizens discount mayclaim the discounts granted to senior citizens
as tax deduction
based onthe net cost of the goods sold or services rendered:
Provided 
, That thecost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted.
Provided, further,
That the total amount of the claimed tax deduction net of value added taxif applicable, shall be included in their gross sales receipts for taxpurposes and shall be subject to proper documentation and to theprovisions of the National Internal Revenue Code, as amended.
[
M.E.Holding Corporation v. Court of Appeals, et al.,
G.R. No. 160193, March 3, 2008citing Expanded Senior Citizens Act of 2003, Sec. 4 (a)]
12. What are the three basic principles of a sound taxsystem? Explain each briefly.
 
SUGGESTED ANSWER: The canons of a sound tax system, alsoknown as the characteristics or, principles of a sound tax system, areused as a criteria in order to determine whether a tax system is able tomeet the purposes or objectives of taxation. They are:a. Fiscal adequacy.b. Administrative feasibility.c. Theoretical justice.
13. What are the elements or characteristics of a tax ?
 
SUGGESTED ANSWER:a. Enforced contribution.b. Generally payable in money.c.Proportionate in character.d.Levied on persons, property or exercise of a right or privilege.e.Levied by the state having jurisdiction.f.Levied by the legislature.g.Levied for a public purpose.h.Paid at regular periods or intervals.
14. State the requisites of a valid tax.
SUGGESTED ANSWER:a.A valid tax should be within the jurisdiction of the taxingauthority
.
b. That the assessment and collection of certain kinds
 
(Thesame as the inherent limitations of the power of taxation) should be for apublic purpose.c. The rule of taxation should be uniform.d. That either the person or property
 
of taxes guaranteesagainst injustice to individuals, especially by way or notice andopportunity for hearing be provided.e. The tax must not impinge on the inherent and Constitutionallimitations on the power of taxation.
15. What are the classes or kinds of taxes according tothe subject matter or object ?
SUGGESTED ANSWER:a. Personal, poll or capitalization imposed on all residents,whether citizen or not. Example – Community Tax.b. Property - Imposed on property. Example Real propertytax.c. Excise imposed upon the performance of an act, theenjoyment of a privilege or the engaging in an occupation. Example –income tax, estate tax.
16. What are the kinds of taxes classified as to whobears the burden ? Explain each briefly
.
SUGGESTED ANSWER: Based on the possibility of shifting theincidence of taxation, or as to who shall bear the burden of taxation, taxesmay be classified into:a. Direct taxes. Those that are extracted from the very personwho, it is intended or desired, should pay them
 
(
Commissioner of Internal 
3

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