CHAPTER 1: Fundamental Principles of Taxation

TRUE or FALSE

1. FALSE- The three fundamental powers of the state may be exercised only by the government.
2. TRUE- Taxation is a process or means by which the sovereign, through its law making body
raises income to defray the expenses of the government.
3. TRUE- Eminent domains may be exercised even by public service corporations and public
entities.
4. TRUE- Police power regulates both liberty and property.
5. TRUE- Taxes are raised to cover the cost of governance.
6. FALSE- Toll is one of the taxes collected by the government.
7. TRUE- License fees are imposed in the exercise of police power.
8. FALSE- License fee is imposed to raise revenue.
9. TRUE- Tax is generally unlimited because it is based on the need of the state.
10. TRUE- The amount imposed in the exercise of police power depends on whether the activity is
useful or not.
11. TRUE- distinction of a tax from a permit or a license fee is that a tax is one in which there is
generally no limit on the amount that may be imposed.
12. TRUE- Debt as distinguished from tax - , may be paid in kind.
13. FALSE- Under the equal protection clause of the constitution, all persons subject to legislation
shall be treated alike under dissimilar circumstances and conditions, both in the privileges conferred
and liabilities imposed.
14. FALSE- Tax laws are civil and penal in nature because there are penalties provided in the case
of violation.
15. FALSE- Special assessment is a tax.
16. FALSE- Special assessment is imposed on persons, property and property rights.
17. FALSE- The Philippine government may subject the land where embassies of foreign
governments are located to real property taxes.
18. FALSE- A revenue bill may originate from the senate and on which same bill the House of
Representatives may propose amendments.
19. FALSE- A person may refuse to pay on the ground that he will not receive a benefit from the
tax.
20. TRUE- In the exercise of the power of taxation, the state can tax anything at any time. TRUE
21. TRUE- In cases of deduction and exemptions, doubts shall be resolved liberally in favor of the
government.
22. TRUE- Levying of local government taxes should be exercised only by the legislative branch of
the local government.
23. TRUE- The taxing power of provinces, municipalities and cities precede from a constitutional
grant.
24. FALSE- Taxation is regressive when their rate goes up depending on the resources of the
person affected. It should be progressive
25. FALSE- No law granting any tax exemption shall be passed without the concurrence of ⅔ of
all members of congress.
26. TRUE- There is no constitutional prohibition against double taxation in the Philippines. It is
something not favored, but nevertheless permissible.
27. FALSE- “Global system of income taxation” means separate graduated rates are imposed on
different types of income.
28. TRUE- One of the schemes of shifting the incidence of tax burden is by transferings the sales
tax of a manufacturer to the distributor, then in turn to the wholesaler, to the retailer and finally to the
consumer.
29. TRUE- Transformation is a method 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.
30. FALSE- In case of ambiguity, tax laws shall be interpreted liberally in favor of the government.

MULTIPLE CHOICE: DEFINITION, PURPOSE, THEORY AND BASIS

1. Which of the following statements is correct.

➔ A. Taxes are the revenues raised in the exercise of the police power of the State
2. The State having sovereignty can enforce contributions (tax) upon its citizens even without a
specific provision in the constitution authorizing it. Which of the following will justify the foregoing
statement.
➔ C. both A and B
Statement 1: It is so because the State has the supreme power to command and
enforce obedience to its will from the people within its jurisdiction.
Statement 2: Any provision in the Constitution regarding taxation does not
create rights for the sovereignty to have the power to tax but it merely
constitutes limitations upon the supremacy of tax power.
3. Statement 1. The distinction of a tax from permit or licence fee is that a tax is imposed for
regulation .
Statement 2. Non-payment of tax does not necessarily render a business illegal.
➔ B. Only statement 2 is correct
4. The primary purpose of taxation is to raise revenue for the support of the government. However
taxation is often employed as a device for regulation by means of which, certain effects or conditions
envisioned by the government may be achieved such as:
➔ D. All of the above
A. Taxation may be used to provide incentive to greater production through grant
of tax exemptions.
B. . Taxation can strengthen weak enterprises by creating conditions conducive to
their growth through grant of tax exemptions
C. Taxes may be increased in periods of prosperity to curb spending power and
halt inflation or lowered in periods of slump to expand business and ward off
depression.
5. Which of the following statements is correct?
➔ C. Both A and B
A. The purpose of taxation may also be “compensatory” meaning, it may be used
to make up for the benefit received.
 B. Taxes may be imposed for the equitable distribution of wealth and income in
society
6. 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.
➔ B. Lifeblood Theory
7. On a theoretical basis of taxation, which of the following statements is true?
➔ C. State needs taxation to exist, while ppl must support taxation because they need the
presence of the state.
8. Incidence of taxation means.
➔ C. Payment of Tax
9. The actual effort exerted by the government to affect the exaction of what is due from the
taxpayer is known as
➔ D. Collection
10. Statement 1. Symbiotic relation is the reason why the government would impose taxes on the
income of resident citizens derived from sources outside the Philippines.
Statement 2. Jurisdiction is the reason why citizens must provide support to the state so the
latter could continue to give protection
➔ D. Both statements are incorrect
11. A law was passed by congress which granted tax amnesty to those who have not paid income
taxes for a certain year and at the same time providing for the refund of taxes to those who have
already paid them. The law is:
➔ A. Valid because there is a valid classification
12. 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?
➔ D. Yes, tax laws are an exception; they can be given retroactive effect
13. Due to uncertainty whether or not a new tax law is applicable to printing companies, ABC
printers submitted a legal query to the BIR on that issue. The BIR issued a ruling that printing
companies are not covered by the new law. Relying on this “ruling ABC printers did not pay the said
tax. Subsequently however, the BIR reversed the ruling and issued a new one stating that the tax
covers printing companies. Could the BIR assess ABC printers for back taxes corresponding to the
years before the new ruling?
➔ D. No, reversal of ruling shall not be given a retroactive application if it will be prejudicial
to the taxpayer
14. Which of the following statements will justify the enacted EVAT law?
➔ C. Both I and II
15. Assuming senator Bobadilla filled in the Senate a substitute e-vat bill “in anticipation” of its
receipt of the bill from the House. The proposal is totally different from the version of the lower house.
Which of the following statements will justify the filing of a substitute bill by Honorable Senator
Bobadilla?
➔ C. I, II and III
16. Being legislative in nature, the power to tax may not not be delegated except.
➔ D. All of the choices
A. To local governments of political subdivisions
 B. When allowed by the Constitution
C. When delegation relates merely to administrative implementation of
sufficient standards expressed by law or implied from the policy and
purpose of the Act.
17. Statement 1. The aspects of taxation are shared by the legislative and executive branches of
the government.
Statement 2. Taxes should be prospective and should not be given retroactive effect because
they are a burden.
➔ A. Only statement 1 is correct
18. The power of taxation is basically legislative in character. Which of the following is a legislative
function?
➔ A. Fix with certainty the amount of tax -Yes
Identify who should collect the tax - Yes
Determine who should be subject to tax - Yes
19. As to scope a legislative power to tax, which of the following is correct?
➔ C. Congress has the right to levy a tax of any kind at any amount as it sees fit, even in
the absence of any constitutional
20. The following are the aspects of taxation
➔ B. I and II only
I. Levy or imposition of the tax on persons, property or exercises
II. Collection of taxes are already levied
21. Which of the following is incorrect?
➔ D. Assessment of tax liability ---- Legislative - Yes- Administrative- No
22. Which of the following is correct?
➔ D. Assessment of tax liability ---- Legislative - No- Administrative- Yes
23. Statement 1. Inherent powers of the State exist Independent of the constitution.
Statement 2. The taxing power of the local government units precede from a constitutional
grant.
➔ D. Statements 1 and 2 are true
24. The following are the characteristics of the State’s power to tax, except
➔ D. Neither A nor B
A. The strongest of all inherent power of State
B. Involve power to destroy
25. Levying of local government taxes may be exercised by:
➔ B. The legislative branch of the government only
26. Where does taxing power of the provinces, municipalities and cities precede from?
➔ A. Constitutional grant
27. Statement 1. Eminent domains may raise money for the government.
Statement 2. Barrios, barangays, municipalities and provinces may collect taxes from its
inhabitants.
➔ A. Statements 1 and 2 are false
Nature, Characteristics and Construction of Tax Laws
28. The following are nature of taxation except
➔ D. Subject to the approval of the ppl
29. “The power to tax involves power to destroy” means
➔ C. Both A and B
30. There can be no tax unless there is a law imposing the tax is consistent with the doctrine of
➔ C. Non-delegation of the power of tax
31. “The tax should be based on the taxpayer's ability to pay “In relation to this, which of the
following is not correct?
➔ A. No person shall be imprisoned for non-payment of tax
32. Rule of “No. estoppel against the government” means
➔ C. Both A and B
33. Progressivity of taxation is also mandated in the Constitution
Statement 1: Our income tax system is one good example of suc progressivity because it is
built on the principle of the taxpayer’s ability to pay.
Statement 2: Taxation is progressive when their rate goes up depending on the resources of
the person affected.
➔ D. Statements 1 and 2 are false
34. One of the characteristics of our internal revenue laws is that they are
➔ C. Generally prospective in operation although the tax statute may nevertheless operate
retrospectively provided it is clearly the legislative intent
35. Which of the following distinguishes tax from licence fee
➔ A. Non-payment does not necessarily render the business illegal
36. The least source of tax law
➔ C. Revenue regulations
37. Statement 1: A revenue must not be contrary to the provision of the law that it implement
Statement 2: A revenue regulation cannot expand the provision of the law that it implements by
imposing a penalty when the law that authorizes the revenue regulations does not impose a penalty
➔ Statements 1 and 2 are true
38. In every case of doubt, tax exemption are construed
➔ C. Liberally in favor of the government and the taxpayer
39. In every case of doubt, tax exemption are construed
➔ D. Liberally in favor of the government and strictly against the taxpayer
40. Which of the following statements is correct?
➔ A. I and II only
I. A tax cannot be imposed without clear and express words for that purpose
II. The provisions of taxing act are not be extended by implication
41. Which of the following factors are determinants to the “Situs” of taxation?
➔ D. I, II, III, IV, V and VI
42. Tax of a fixed amount imposed among all persons residing within a specified territory without
regard to their property or occupation they may be engaged.
➔ A. Personal, poll, or capitation tax
43. Tax of fixed proportion of the amount or value of the property with respect to which the tax
assessed.
➔ A. Ad-valorem
44. Tax base on a fix percentage of the amount of property, income or other basis to be taxed
➔ B. Proportional
45. Which of the following is a characteristic of taxation which distinguishes it from police power
and eminent domain?
➔ C. Generally payable in money
46. The following are basic principle of sound tax system
➔ C. I, II and III
I. It should be capable of being effectively enforced
II. It must be progressive
III. Sources of revenue must be sufficient to meet government expenditures and
other public needs
47. The sources of revenue should be sufficient to meet the demands of public expenditures. This
refers to
➔ B. Fiscal adequacy
48. The tax should be imposed proportionate to the taxpayer ability to pay.
➔ A. Equality or theoretical justice
49. The tax law must be capable of convenient just and effective administration.
➔ C. Administrative Feasibility
50. Statement 1: Inherent limitations are the natural restrictions to safeguard and ensure that the power
of taxation shall be exercised by the government only for the betterment of the people whose interest
should be served, enhanced and be protected
Statement 2: Constitutional limitations are provisions of the fundamental law of the land that restrict
the supreme, plenary, unlimited and comprehensive exercised by the State of its inherent power to tax
➔ Statement 1 and 2 are true
51. Equality in taxation means
➔ D. I, II and III
52. Which of the following statements correctly describes the “equal protection” clause of the
constitution regarding the government’s power to tax?
➔ C. I, II and III
53. Which of the following restrictions on the power of taxation recognizes that the country’s tax
laws shall not be applied to the property of foreign governments.
➔ B. Exercise of taxation is subject to international comity
54. This an inherent limitation on the power of taxation
➔ D. Tax laws cannot apply to the property of foreign governments
Exemption versus Amnesty
55. Exemption from tax is a privilege, which is being looked upon by law with disfavor because
everyone should be sharing the burden of taxation. On account of this view, exemption from tax is
construed strictly against the taxpayer, except in certain situation like:
➔ A. Exemption is granted to the impoverished sector in certain situation
56. Tax exemption is made different from tax amnesty
➔ A. It is privilege or freedom from tax burden
57. Statement 1: Tax exemption applies only to government entities that exercise proprietary functions.
Statement 2: All government entities regardless of their functions are exempted from taxes because
it would be impractical for the government to be taxing itself
➔ A. Statements 1 and 2 are False
58. Which of the following statements correctly described the tax exemption of the government?
 ➔ D. I, II and III
59. Which of the following statements correctly described the tax exemption of the government
➔ C. Opting to transfer the property through sale rather than through donation where tax
liability would be higher
60. Which of the following is correct.
➔ A. Tax avoidance, or tax minimization, through legal means is not punishable by law
61. Statement 1. An attempt to minimize one’s tax constitutes fraud. Taxpayers may diminish his
liability by any means, which the law permits.
Statement 2. To avoid is legal but to evade is illegal. The legal rights of a taxpayer to decrease
the amount of what otherwise would be his taxes, altogether avoid them, by means which the law
permits, cannot be doubted.
➔ C. Statement 1 is false but statement 2 is true
62. Which of the following is an element of double taxation
➔ C. All of the above
63. Double taxation in its general sense means taxing the same subject twice during the same
taxing period. In this sense double taxation
➔ Violates substantive due process
64. Statement 1. There can be double taxation where the state merely imposes tax on every
separate and distinct business in which a person is engaged.
Statement 2.there is no objectionable double taxation if the tenements in the city are subject to
real state tax while the business of leasing said property are also subject to real dealer’s tax.
➔ C. Statement 1 is false but statement 2 is true
65. Ligaya educational foundation Inc., a stuck educational institution organized for profit decided
to lease for commercial use a 1500 sqm portion of its school. The school actually directly, and
exclusively uses the rents for the maintenance of its school buildings, including payment of janitorial
services. Is the lease portion subject to real property tax?
➔ A.Yes, since Ligaya is stock and for profit educational institution