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Basic Concepts
1. Which of the following may not raise money for the government? [A] Power of taxation
[B] Police power [C] Power of eminent domain [D] Privatization of government’s capital
assets
2. In this power of the State, the person who is parting with his money or property is
presumed to receive a benefit. [A] Taxation [B] Police power [C] Eminent domain [D]
Forfeiture power
3. (CPA Exam) Police power as distinguished from eminent domain. [A] Just compensation
is received by the owner of the property. [B] May be exercised by private individuals. [C]
Superior to impairment clause of the Constitution [D] Property is taken by the government
4. The following are common to the inherent powers of the state, except: [A] They are
necessary attributes of sovereignty [B] They interfere with private rights and property. [C]
They affect all persons or public. [D] They are legislative in nature and character.
5. The basic principle of taxation which states that taxes must be based on taxpayer’s ability
to pay. [A] Equality in taxation [B] Ability to pay theory [C] Theoretical justice [D] Equity in
taxation
6. Under this basic principle of a sound tax system, the government should not incur a
deficit: [A] Theoretical justice [B] Administrative feasibility [C] Fiscal adequacy [D] Debt
restructuring
7. What basic principle of a sound tax system is met when Congress evolves a progressive
system of taxation as mandated in the Constitution? [A] Fiscal adequacy [B] Theoretical
8. Which of the following is not a basic principle of a sound taxation system? [A] It should
be capable of being effectively enforced. [B] It must be a progressive tax. [C] It must be
sufficient to meet government expenditures and other public needs. [D] It should be
9. Which of the following is not a characteristic of the State’s power to tax? [A] Inherent in
sovereignty [B] Legislative in character [C] Based on ability to pay [D] Subject to
INCTAXa_Activity_1
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10. Which statement refers to police power as distinguished from taxation? (A) It can only be
imposed on specific property or properties. (B) The amount imposed depends on whether
the activity is useful or not. (C) It involves the taking of property by the government. (D)
11. Which of the following statements is not correct? (A) Taxes may be imposed to raise
revenue or to provide disincentives to certain activities within the State. (B) The State can
have the power of taxation even if the Constitution does not expressly give it the power
to tax. (C) For the exercise of the power of taxation, the state can tax anything at any
time. (D) The provisions of taxation in the Constitution are grants of power and not
limitations.
12. One of the characteristics of internal revenue laws is that they are: (A) Criminal in nature.
(B) Penal in nature. (C) Political in nature. (D) Generally prospective in application.
13. The following are similarities of the inherent power of taxation, eminent domain, and
police power, except: (A) Are necessary attributes of sovereignty. (B) Interfere with
private rights and property. (C) Affect all persons or the public. (D) Are legislative in
implementation.
14. Which statement refers to police power as distinguished from taxation? (A) It can only be
imposed on specific property or properties. (B) The amount imposed depends on whether
the activity is useful or not. (C) It involves the taking of property by the government. (D)
15. The distinction of a tax from permit or license fee is 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) Answer not given.
16. Which of the following statements is most correct? Statement 1. The power of taxation is
even if not mentioned in the Constitution the state can still exercise the power. Statement
taxation power falls to Congress as part of the general power of law-making. (A)
Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above.
17. Which statement is wrong? (A) A tax is a demand of sovereignty. (B) A toll is a demand
18. Which statement refers to police power as distinguished from taxation? (A) It can only be
imposed on specific purposes. (B) The amount imposed depends on whether the activity
is useful or not. (C) It involves the taking of property by the government. (D) The amount
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19. The proportional contribution by person and property levied by the law-making body of
the State by virtue of its sovereignty for the support of the government and for all its public
needs is referred to as: (A) Taxes. (B) Special Assessment. (C) License Fees. (D) Answer not
given.
20. In this power of the state, the person who is parting with his money or property is presumed
to receive a benefit. (A) Taxation. (B) Police power. (C) Eminent domain. (D) Forfeiture
power.
21. As a basic principle of taxation, “Taxes must be based on the taxpayer’s ability to pay” is
called: (A) Equality in taxation. (B) Ability to pay theory. (C) Theoretical justice. (C) Equity
in taxation.
22. Tax of a fixed proportion of the value of the property with respect to which the tax is
assessed and requires the intervention of assessors of appraisers to estimate the value of
such property before the amount due from each taxpayer can be determined is known
as: (A) Specific. (B) Ad Valorem. (C) Special or regulatory. (D) Answer not given.
23. The basis of taxation is the reciprocal duties of protection and support between the State
and its inhabitants (A) Necessity Theory. (B) Benefits-Protection Theory. (C) Ability to Pay.
24. Which of the following is not an element of direct double taxation? (A) Two taxes or more.
(B) Same subject matter. (C) Same taxable year. (D) Same amount.
25. A tax must be imposed for a public purpose. Which of the following is not a public
purpose? (A) Levy on the video industry. (B) Public education. (C) Improvement of the
27. Which of the following statements is not correct? [A] Taxes may be imposed to raise
revenues or to provide disincentives to certain activities within the state; [B] the state can
have the power of taxation even if the Constitution does not expressly give it the power
to tax; [C] For the exercise of the power of taxation, the state can tax anything at any
time; [D] The provisions of taxation in the Constitution are grants of power and not
28. One of the characteristics of our internal revenue laws is that they are: [A] political in
nature [B] Penal in nature [C] Generally prospective in operation [D] Answer not given.
29. 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]
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30. The distinction of a tax from a permit or license fee is 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] Not given.
31. VAT is an example of: [A] graduated tax [B] progressive tax [C] regressive tax [D]
proportional tax.
32. Under this basic principle of a sound tax system, the Government should not incur a
deficit:[A] theoretical justice [B] administrative feasibility [C] fiscal adequacy [D] none of
the above.
33. No person shall be imprisoned for non- payment of: [A] property tax [B] excise tax [C] poll
34. It literally means the place of taxation. (A) Object of taxation. (B) Purposes of taxation.
35. A financial aid granted by the government to help private commercial enterprises know
beneficial to the people is (A) Margin fee. (B) Subsidy. (C) Special assessment. (D) Toll.
B. Exemptions are construed against the taxpayer and in favour of the government.
C. Only S1 is true
D. Only S2 is true
S2. Vague taxation laws are interpreted liberally in favor of the government.
38. S1: In the selection of the objects of taxation, the courts have no power to inquire into
39. S1: 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
S2: The ability to pay theory suggests that some taxpayers may be exempted from tax
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42. The following are inherent limitations to the power of taxation, except one:
A. Territoriality of taxes
B. Legislative in nature
D. No tax law shall be passed without the concurrence of a majority of all members
of congress.
44. That all taxable articles or properties of the same class shall be taxed at the same rateA. Equality in
taxation
B. Equity in taxation
C. Uniformity in taxation
45. The exemption of religious or charitable institution refers toA. Income tax
D. Business tax
B. Authorizing the President to fix the amount of impost on imported and exported
commodities.
D. Allowing the Secretary of Finance and the BIR to issue regulations or rulings
47. Linda is the only heart transplant specialist in Baguio City. The local government of Baguio
passed an ordinance subjecting the practice to a 2% tax based on gross receipts. Linda
objected claiming that the other specialists in other regions of the country are not
C. No, because the ordinance would cover all transplant specialist who would
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A. Eminent domain
B. License
C. Toll
D. Special assessment
A. Eminent domain
B. Special assessment
C. Taxation
D. toll
D. Special assessment can be imposed on a building and other real right attached
to the land.
B. Personal tax
C. Excise tax
D. Regulatory tax
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PROBLEM SOLVING (3 points EACH): Show your solution. Encircle your answer.
• A citizen taxpayer and a resident of Baguio City shows the following income:
Cebu)
200,000
Manila)
100,000
500,000
250,000
in La Union
800,000
A. 900,000
B. 1,100,000
C. 1,900,000
D. 2,250,000
A. ZERO
B. 200,000
C. 250,000
D. 350,000
• In 2020, Linda, a resident citizen, earned a P400,000 dividend income from ABC
Corporation.
58. Domestic corporation earning 70% of its income IN the Philippines and 30% abroad.
IN OUT
A. ZERO ZERO
B. 200,000 200,000
C. 280,000 120,000
D. 400,000 ZERO
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59. Resident Foreign Corporation earning 40% of its income IN the Philippines and 60%
abroad.
IN OUT
A. ZERO 400,000
B. 160,000 240,000
C. 240,000 160,000
D. 400,000 ZERO
IN OUT
A. ZERO 400,000
B. 200,000 200,000
C. 400,000 ZERO
D. ZERO ZERO
61. How much of the dividend income of the resident citizen taxpayer is taxable in the
A. ZERO
B. 160,000
C. 240,000
D. 400,000
• In 2020, Juan, a non-resident citizen, earned a P400,000 dividend income from ABC
Corporation, a resident foreign corporation earning 60% of its income IN the Philippines
62. How much of the dividend income of the taxpayer is taxable in the Philippines? Show
A. ZERO
B. 160,000
C. 240,000
D. 400,000
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B. 250,000
C. 350,000
D. 800,000
64. without
A. 100,000
B. 350,000
C. 450,000
D. 500,000
• Linda bought a life insurance policy whereby she insured herself for 1 million for a period
of 10 years. Annual premium amount is 50,000. After 10 years, she received from the
A. ZERO
B. 100,000
C. 600,000
D. 1,000,000
66. In the above problem, assuming Linda died on the end of the fourth year of the policy
and the beneficiary received 1 Million from the insurance company, how much is the
A. ZERO
B. 200,000
C. 800,000
D. 1,000,000
• In a suit for damages attributable to a vehicular accident where Mando was the injured
A. ZERO
B. 100,000
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10
C. 280,000
D. 800,000
A. ZERO
B. 100,000
C. 620,000
D. 800,000
request
5,000
Ana’s employer offset Ana’s second debt against her salary 4,000
A. 22,000
B. 23,000
C. 58,000
D. 103,000
70. Bing, resident citizen, operated her online selling without permit to engage in business.
During the year, she earned a total income of P900,000. How much is the taxable
income?
A. ZERO
B. 650,000
C. 900,000
-END OF Activity-