CHAPTER 1

Why can’t taxpayers avoid payment of tax with the reason of absence of benefit?

Because receipt of benefits is conclusively presumed

What is the concept of the Lifeblood Doctrine?

Taxes are essential and indispensible to the continued subsistence of the government

Why can’t the government tax foreigners living in another country?

Because the government can only demand tax from its subjects or residents within its
territorial jurisdiction

Why is taxing power vested exclusively in Congress?

Because the power of lawmaking regarding taxes is delegated to the legislature

Why is there a non-appropriation of public funds or property for the benefit of any
sect of religion?

This is to highlight the separation of the Church and the State. Also, this is to show that
the government does not favour any particular religion.

What does the phrase “the power of tax involves the power to destroy” mean?

Taxation can be an instrument of police power. It can be used to prohibit undesirable

activities.

Why is tax not subject to set-off?

Because tax is not a debt; hence, it is not subject to compensation

Why is double taxation discouraged?

Because it is believed to counter the rule of equal protection and uniformity in the
Constitution

Why doesn’t the government tax itself?

Because it will not bring additional funds but will only impute additional costs.

Why is it inappropriate to describe the nature of taxation as generally for public

purpose?

Because it must ALWAYS be for public purpose, not only generally

Why can’t courts issue injunction against the government’s effort to collect
taxes?

Because it is justified by the lifeblood doctrine

Taxes generally should not operate retrospectively unless?

The country is under war

Why are tax exemptions based on the Constitution irrevocable?

Because it is already stated in the Constitution and it can no longer be changed

What happens when exemption from a tax imposition is silent or not clearly
stated?

Taxation still applies since exemptions are construed against taxpayers.

What happens when provisions of tax laws are silent as to the taxability of an
item?
Exemption applies since vague tax laws are construed against the government
CHAPTER 2
Why is GAAP disregarded in relation to taxation?

GAAP is merely for recording transactions. In relation to taxation (filing and preparing
tax returns), taxpayers are mandated to follow tax laws in cases of conflict with GAAP.

Why are tax payments still mandated even in times of foreign occupation?

Because Philippine tax laws are civil rather than political and they are laws of the
occupied territory and not by the occupying territory

Why are internal revenue taxes not penal in nature?

Because they do not define crime and penalty provisions are merely intended to secure
taxpayers’ compliance

What is the difference of tax and revenue?

Tax is the amount imposed while revenue is the amount collected

What is the difference of tax and license fee?

Tax is a post activity imposition while license is a pre-activity imposition

What is the difference of tax and toll?

Tax is a demand of sovereignty, depends on the needs of the government, and is

imposed by public entities. Toll is a demand of ownership, depends on the value of
property, and is imposed by both public and private entities.

What is the difference of tax and debt?

Tax is sourced from law, non-payment implies imprisonment, not subject to set-off, and
interest is only present when taxpayer is delinquent. Debt is sourced from contract, non-
payment does not imply imprisonment, subject to set-off, and interest is based from
contract.
CHAPTER 3
CHAPTER 4
CHAPTER 5
Why are there three types of schemes in taxing income?

There are three types of schemes because there are different types of income. The
government developed these schemes so that they can better enforce collection of
income taxes by fitting the scheme to the nature of the income.

Why are the three types of schemes in taxing income “mutually exclusive”?

This implies that if an income was already subjected to one taxing scheme, the taxpayer
should no longer report it as income subject to another taxing scheme.

Why is income subject to regular income tax?

Income is subject to regular income tax because it is the General Rule. All incomes are
generally subject to regular income tax.

What is the concept of final tax?

Tax is already deducted from income by income payer (buyer) before giving it to the
income recipient (seller).

Why are certain types of passive income not subject to final tax if their source is
abroad?

Source of income is foreign implying that it is not regulated by PH government. It cannot

be withheld if they are not under PH laws.

What is the difference of Final tax from other Withholding tax?

For final tax, the whole tax is already deducted. As for other withholding tax, only a
portion of the tax is deducted.
Why is there final income tax?

It’s more effective in the type/nature of income. And since a domestic corporation is
governed by PH laws, this can be implemented. This scheme also is more convenient
for both the government and the taxpayer.

Why is passive income subject to final tax?

Because passive income requires little to no involvement Thus, implying that there is no
cost; therefore, they are capable to pay the whole amount of the tax.

Is it possible that a tax payer’s income is not subject to regular income tax?

Yes, if it is subject to final tax

Why is it that all income from non-resident alien not engaged in trade or business
& non-resident foreign corporation subject to final tax regardless whether it is
active or passive?

Because they are not governed by the Philippine laws. They cannot file regular income
tax return at the end of the year.

Why are individuals with long-term deposits exempted from interest income or
yield?

Because it can be used by banks to help the country’s economy to finance large
projects

Why are individuals taxed if the deposit is pre-terminated before 5 years?

To tax the previously exempted interest income which is not yet recorded and because
the individual did not finish the 5 years (long term)

Why is the interest income for foreign currency deposits lower?

To promote the deposit of foreign currency in banks to help the country’s international
trades and because the Philippine Peso is not globally recognized, unlike US Dollars

Generally, stock dividends are not subject to final tax. Why?

Stock dividends are generally not subject to final tax because it hasn't been realized.

Why are liquidating dividends not subject to final tax?

Because these are return of capital and returns of capital are not taxable

Why is subsequent cancellation and redemption of stock dividends subject to

final tax?

Subsequent cancellation and redemption of stock dividends are subject to final tax
because it is realized upon redemption. In substance, subsequent cancellation and
redemption of stock dividends is a cash dividend.

Why are inter-corporation (corporation to corporation) dividends exempt?

It will tantamount to double taxation.

Cite some major differences between creditable withholding tax and final
withholding tax and state their impact.

a. In CWT, only a portion of tax is withheld. While in FWT, the whole tax is
withheld. Hence, if an income is subject to CWT, that income should be reported and
subjected to regular income tax. While in FWT, the taxpayer no longer has to report the
income at the end of the taxable year (or regular income tax)

b. the tax withheld in CWT can be deducted from income tax due at the end of
the year using regular income tax

c. income types subject to CWT are the ones subject to regular income tax.
Income types subject to final withholding tax are the ones subject to final income tax.
CHAPTER 6
How is capital gains tax imposed?

Title of property cannot be transferred to buyer if tax is not yet paid.

Why is asset classification relative?

Because an ordinary asset to one may be a capital asset to another

Why is classification from ordinary asset into capital asset stricter than vice
versa?

Tax in capital asset is lower.

When can a domestic stock be an ordinary asset?

When the dealer in securities (buy-and-sell of securities/stocks)

Why are merger and consolidations under tax free exchanges?

Because it gain is not yet realized. There is no transfer of properties only a replacement
of shares of stocks of the shareholders of the absorbed corporation.

Why is it that if stocks are acquired through gift, the lower tax basis is applied?

Because the lower the tax basis, the lower the capital, the higher return on capital, the
higher the income, and the higher the tax. As previously said, the government’s goal is
for the collection of higher tax to fund larger projects.

When is CGT on stocks paid?

After every sale (transactional) or annually (annualized)

Why are refund given to CGT on stocks paid annually?

There is excess in CGT paid

Why isn’t refund given to CGT on stocks paid transactional?

Because capital loss is not taxable; therefore, refund is not necessary.

Why are merger and consolidation under tax free exchanges?

Because the gain or benefit is not yet realized (not yet sold) and when a merger occurs
there is no transfer of property, but merely a replacement of shares of stocks of the
shareholders from the absorbed company. UNLESS there is cash or property received
exceeding indicated gain, wherein you will recognize gain up to the extent of cash and
property received.

Who will receive dividends under ex dividends?

The person who owns shares at date of record

Significance of date of declaration

Person who owns share at date of declaration must recognize income

What is the difference of ex dividends and dividend on

a. ex dividend is sold between date of record and date of payment while dividend
on is sold between date of declaration and date of record.

b. in ex dividend, seller receives dividend because the ownership is still his as of

the date of record while for dividend on, the seller will not receive income because he is
no longer the owner.

c. ex dividend: dividend income is recognized and received; dividend on:

dividend income is recognized but not received.
Why are dividends that should’ve been received under dividend on deducted?

Because it is recognized as income and if not deducted, it will be taxed.

Why is old acquisition cost used for tax basis?

Because that’s your only cost

CHAPTER 7