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CPA Review School of the Philippines

Manila

GENERAL PRINCIPLES OF TAXATION Dela Cruz/De Vera/Llamado

1. 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

2. 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

3. 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

4. The power to tax is an inherent power of a state. It may thus be exercised by a state without any
constitutional provision granting it. Which of the following statements is false regarding the
power of taxation?
a. Its scope is unlimited.
b. Its exercise is absolutely unlimited.
c. It is based on necessity because without taxes, the state and its government cannot function.
d. Revenue raised thru its exercise must be used for public purposes.

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 purposes

7. This is a constitutional limitation on the power of taxation

a. Tax laws must be applied within the territorial jurisdiction of the state
b. Exemption of government agencies and instrumentalities from taxation
c. No appropriation of public money for religious purposes
d. Power to tax cannot be delegated to private persons or entities

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8. The power to impose taxes is exercised by the

a. President b. Supreme Court c. BIR d. Congress

9. Which of the following statements is wrong? A revenue bill:

a. Must originate from the House of Representatives and on which same bill the Senate
may propose amendments;
b. May originate from the Senate, and on which same bill the House of Representatives may
propose amendments;
c. May have a House version and a Senate version approved separately, and then consolidated,
with both houses approving the consolidation version.
d. May be recommended by the President to Congress.

10. 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

11. The actual effort exerted by the government to effect the exaction of what is due from the
taxpayer is known as
a. Assessment c. Payment
b. Levy d. Collection

12. Although the power of taxation is basically legislative in character, it is NOT the function of
Congress to
a. Fix with certainty the amount of taxes
b. Collect the tax levied under the law
c. Identify who should collect the tax
d. Determine who should be subject to the tax

13. The three fundamental powers of the state are

I. Inherent in the state and may be exercised by the state without need of any constitutional
grant.
II. Not only necessary but indispensable.
III. Methods by which the state interferes with private rights.
IV. Exercised primarily by the legislature.
a. All true c. Half true, half false
b. All false d. None of the above

14. I. Police power regulates both liberty and property while the power of eminent domain and
the power of taxation affect only property rights.
II. Police power and the power of taxation may be exercised only by the government while the
power of eminent domain may be exercised by some private entities.
III. The property taken in police power is destroyed while the property taken under the power of
eminent domain and power of taxation is not destroyed.
IV. In the power of taxation, the compensation received is the protection of the state afforded to
its citizens; in police power, a higher standard of living is enjoyed by the citizens; and in the
power of eminent domain, a citizen receives just compensation for the property taken from
him.
a. All true b. All false c. Half true d. None of the above

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15. Taxation as distinguished from police power and power of eminent domain
a. Property is taken to promote the general welfare
b. May be exercised only by the government
c. Operates upon the whole citizenry
d. There is generally no limit as to the amount that may be imposed

16. 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

17. 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

18. Which of the following may not raise money for the government?
a. Power of taxation c. Power of eminent domain
b. Police power d. License fees

19. The power to regulate liberty and property to promote the general welfare
a. Police power c. Power of eminent domain
b. Power of taxation d. Super power rangers

20. 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

21. Police power as distinguished from the power of eminent domain:

a. Just compensation is received by the owner of the property.
b. May be exercised by private individuals.
c. May regulate both liberty and property.
d. Property is taken by the government for public purpose.

22. The following are similarities of the inherent power of taxation, eminent domain, and police
power, except one:
a. Are necessary attributes of sovereignty;
b. Superior to the non-impairment clause of the constitution
c. Compensation/benefit is received;
d. Are legislative in character.

23. 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;

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d. The provisions of taxation in the Philippine Constitution are grants of power enabling the
state to impose taxes.

24. The tax imposed should be proportionate to the taxpayer’s ability to pay
a. Fiscal adequacy c. Administrative feasibility
b. Equality or theoretical justice d. Economic consistency

25. The sources of revenue as a whole, should be sufficient to meet the demands of public
expenditures
a. Fiscal adequacy c. Administrative feasibility
b. Equality or theoretical justice d. Revenue generation

26. 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 compatability

27. 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 favor 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

28. Statement 1 – Congress, which has the power to tax, also has the power to grant tax
exemptions.
Statement 2 – Power to tax includes the power to destroy.
Statement 3 – Police power includes the power to tax.
Statement 4 – Police power may be exercised through taxation.
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

29. Persons or things belonging to the same class shall be taxed at the same rate
a. Simplicity in taxation c. Equality in taxation
b. Reciprocity in taxation d. Uniformity in taxation

30. 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

31. One of the characteristics of a tax is that:

a. It is generally based on contract.
b. It is generally payable in money.
c. It is generally assignable.
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d. It is generally subject to compensation.

32. 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.

33. It is the 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

34. 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, Congress 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.

35. The use of illegal or fraudulent means to avoid or defeat the payment of tax
a. Shifting c. Avoidance
b. Exemption d. Evasion

36. The use of legal or permissible means to minimize or avoid taxes

a. Shifting c. Avoidance
b. Exemption d. Evasion

37. Synonymous to tax evasion

a. Tax dodging c. Tax exemption
b. Tax minimization d. Tax shield

38. Synonymous to tax avoidance

a. Tax dodging c. Tax exemption
b. Tax minimization d. Tax evasion

39. In case of doubt, tax statutes are construed

a. Strictly against the government and the taxpayer
b. Liberally in favor of the government and the taxpayer
c. Strictly against the government and liberally in favor of the taxpayer
d. Liberally in favor of the government and strictly against the taxpayer

40. In case of doubt, tax exemptions are construed

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a. Strictly against the government and the taxpayer

b. Liberally in favor of the government and the taxpayer
c. Strictly against the government and liberally in favor of the taxpayer
d. Liberally in favor of the government and strictly against the taxpayer

41. 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 taxpayer 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. Congress has the duty and the exclusive power of enacting, implementing and
interpreting tax laws.
e. None of the above.

42. 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

43. Tax of a fixed amount imposed upon all persons residing within a specified territory without
regard to their property, income, or occupation they may be engaged in
a. Personal, poll or capitation c. Excise
b. Property d. Regressive

44. 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

45. Tax imposed upon the performance of an act, upon the enjoyment of a privilege, or upon
engaging in an occupation.
a. Personal, poll or capitation c. Excise
b. Property d. Progressive

46. Tax which is demanded from the person whom the law intends or desires to pay it
a. Direct b. Indirect c. Excise d. Income

47. 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

48. 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
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49. Tax of a fixed proportion of the value of the property with respect to which the tax is assessed
a. Specific c. Excise
b. Ad-valorem d. Percentage

50. Tax based on a fixed percentage of the amount of property, income or other basis to be taxed
a. Proportional c. Regressive
b. Progressive d. Indirect

51. Tax where the rate decreases as the tax base increases
a. Proportional b. Progressive c. Regressive d. Indirect

52. Tax where the rate increases as the tax base increases
a. Proportional b. Progressive c. Regressive d. Indirect

53. 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. 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.

54. 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.

55. 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. Limited to the cost of regulation.

56. 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

57. Which one 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.

58. Tax as distinguished from license fees:

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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

59. 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

60. The following are the characteristics of our internal revenue laws except:
a. Political in nature
b. Civil in nature
c. Generally prospective in application
d. May operate retrospectively if Congress so provides

61. Which of the following is not an example of an excise tax:

a. Transfer tax b. Sales tax c. Real property tax d. Income tax

62. License fee as distinguished from tax:

a. Non-payment does not necessary render the business illegal;
b. A revenue raising measure;
c. Imposed in the exercise of taxing power
d. Limited to cover cost of regulation

63. Value-added tax is an example of a:

a. Graduated tax b. Progressive tax c. Regressive tax d. Proportional tax

64. Which tax principle is described in the statement “The more income earned by the taxpayer, the
more tax he has to pay.”?
a. Fiscal adequacy c. Administrative feasibility
b. Theoretical justice/Equitability d. Inherent in sovereignty

65. Tax as distinguished from special assessment:

a. not a personal liability of the person assessed
b. based wholly on benefits
c. exceptional as to time and place
d. based on necessity and the purpose is to raise revenues

66. Under this basic principle of a sound tax system, the Government should not incur a deficit:
a. Theoretical justice c. Fiscal adequacy
b. Administrative feasibility d. Uniformity in taxation

67. No person shall be imprisoned for non-payment of this:

a. Excise tax b. VAT c. Income tax d. Poll tax

68. This is a demand of ownership:

a. License fee b. Tax c. Toll d. Customs duties

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69. Income tax is generally regarded as

a. an excise tax
b. a tax on persons
c. a property tax
d. tax on profits

70. 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 the tax law was declared as unconstitutional
d. That there is no benefit derived from the tax

71. A law granting tax exemption requires the concurrence of

a. majority vote of all members of Congress
b. 2/3 vote of members of Congress
c. ¾ vote of members of Congress
d. unanimous vote of members of Congress

72. No person shall be imprisoned for debt or non-payment of a poll tax. This is a (an)
a. Inherent limitation c. International limitation
b. Constitutional limitation d. Territorial limitation

73. President Rodrigo Duterte and President Vladimir Putin entered into a bilateral agreement. In
such agreement, Russian pharmaceutical firms which establish branches in the Philippines shall
be exempt from all national and local taxes. In exchange, such firms shall provide COVID-19
drugs and vaccines to the Philippine population at a 50% discount rate. The agreement is:
a. Valid, because it is pursuant to the President’s executive power.
b. Void, because the power to grant tax exemption is vested in Congress
c. Void, because it is unfair to other foreign pharmaceutical firms.
d. Valid, because the purpose is to promote public welfare.

74. Tax as distinguished from debt

a. no imprisonment for non-payment c. based on contract
b. may be paid in kind d. based on law

75. A charge imposed on land for special benefits derived resulting from public improvements
a. Tax b. Toll c. License d. Special assessment

76. I. The point on which a tax is originally imposed is impact of taxation.

II. The point on which a tax burden finally rests or settles down is incidence of taxation.
III. Police power is superior to the non-impairment clause of the constitution.
IV. Power of taxation is not superior to the non-impairment clause of the constitution
a. All true b. All false c. Half true d. None of the above

77. I. No person shall be imprisoned for debt or non-payment of tax.

II. Tax laws are civil and penal in nature because there are criminal penalties when they are
violated.
III. Taxes may be collected in an unlimited amount.

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IV. License fees may be collected in an unlimited amount.

a. One statement is true b. Two statements are true.

c. Three statements are true d. All statements are true.

78. I. Tax is imposed on persons, property, and property rights.

II. Special assessment is imposed on persons, property and property rights.
III. Tax collection is a legislative act.
IV. Imposition of tax is an administrative act.
a. One statement is true. b. Two statements are true.
c. Three statements are true. d. All statements are true.

79. I. There can only be a tax if there is a law imposing the tax.
II. The power to tax includes the power to destroy.
a. True, true b. True, false c. False, true d. False, false

80. I. Due process of law in taxation under the constitution is a grant of power.
II. Provisions in the Philippine constitution on taxation are grants of power.
III. There may be double taxation in the Philippines.
IV. Taxation may be used to implement the police power of the state.
a. One statement is true. b. Two statements are true.
c. Three statements are true. d. All statements are true.

81. I. License fee is a charge imposed under police power.

II. Special assessment is levied on land only.
III. Tax is imposed regardless of public improvements.
IV. Special assessment is imposed regardless of public improvements.

a. One statement is true. b. Two statements are true.

c. Three statements are true. d. All statements are true.

82. A system of taxation where the amount of revenue from indirect taxes are more than the direct
taxes is
a. Progressive b. Regressive c. Proportional d. Schedular

83. 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?
a. Power to destroy theory c. Sumptuary theory
b. Lifeblood theory d. No money, no honey theory

84. An example of a tax where the concept of progressivity finds application is the
a. Graduated income tax rates on individuals
b. Excise tax on petroleum products
c. Value-added tax on certain articles
d. Amusement tax on boxing exhibitions

85. The power to tax is the power to destroy. Is this always so?

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a. No. The Executive Branch may decide not to enforce a tax law which it believes to be
confiscatory.
b. Yes. The tax collectors should enforce a tax law even if it results to the destruction of the
property rights of the taxpayer.
c. Yes. The tax laws should always be enforced because without taxes the very existence of the
State is endangered.
d. No. The Supreme Court may nullify a tax law, hence, property rights are not affected.

86. This is not an inherent limitation on the power of taxation:

a. Double taxation, though not prohibited, is disfavored.
b. Equality and uniformity in taxation
c. Public purpose of taxation
d. Territoriality

87. Revenue regulations (RRs) are:

a. Issuances signed by the Secretary of Finance, upon recommendation of the CIR,
that specify, prescribe or define rules and regulations for the effective enforcement
of the provisions of the National Internal Revenue Code (NIRC) and related
statutes.
b. Issuances that publish pertinent and applicable portions, as well as amplifications, of
laws, rules, regulations and precedents issued by the BIR and other agencies/offices.
c. Issuances that provide directives or instructions; prescribe guidelines; and outline
processes, operations, activities, workflows, methods and procedures necessary in the
implementation of stated policies, goals, objectives, plans and programs of the Bureau in
all areas of operations, except auditing.
d. None of the above.

88. Revenue Memorandum Circulars (RMCs) are:

a. Issuances signed by the Secretary of Finance, upon recommendation of the
Commissioner of Internal Revenue, that specify, prescribe or define rules and
regulations for the effective enforcement of the provisions of the National Internal
Revenue Code (NIRC) and related statutes.
b. Issuances that publish pertinent and applicable portions, as well as amplifications,
of laws, rules, regulations and precedents issued by the BIR and other
agencies/offices.
c. Issuances that provide directives or instructions; prescribe guidelines; and outline
processes, operations, activities, workflows, methods and procedures necessary in the
implementation of stated policies, goals, objectives, plans and programs of the Bureau in
all areas of operations, except auditing.
d. None of the above.

89. Revenue Memorandum Orders (RMOs) are:

a. Issuances signed by the Secretary of Finance, upon recommendation of the
Commissioner of Internal Revenue, that specify, prescribe or define rules and
regulations for the effective enforcement of the provisions of the National Internal
Revenue Code (NIRC) and related statutes.
b. Issuances that publish pertinent and applicable portions, as well as amplifications, of
laws, rules, regulations and precedents issued by the BIR and other agencies/offices.
c. Issuances that provide directives or instructions; prescribe guidelines; and outline
processes, operations, activities, workflows, methods and procedures necessary in
the implementation of stated policies, goals, objectives, plans and programs of the
Bureau in all areas of operations, except auditing.
d. None of the above.

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90. The following are the powers of the CIR except:

a. After a return has been filed or when no return is filed, the CIR may authorize the
examination of any taxpayer, and the assessment of the correct amount of tax.
b. The CIR has the power to issue Summons or Subpoena Duces Tecum to a taxpayer, an
officer or employee of a taxpayer, or to any person having possession of records relating
to the business of a taxpayer.
c. The CIR has the power to take the testimony of a person, under oath, that may be
relevant or material to the inquiry.
d. The CIR has the power to inquire into a taxpayer’s bank deposits in all instances.

91. What is tax mapping?

a) It is equivalent to tax assessment within the applicable reglementary periods depending on
whether the taxpayer is guilty of fraud or not.
b) It is a mere verification made by the BIR of a taxpayer’s compliance with registration
and other requirements prior to, during, and after its business operations such as the
following: (a) registration of the head office and branches; (b) payment of annual
registration fee and posting of the same in the place of business; (c) authority to print
receipts and invoices; (d) the issuance of receipts and invoices on every sale; (e) the
contents of such receipts and invoices; (f) registration of cash register machines, point-
of-sale machines, and computerized accounting systems; and (g) registration of books
of accounts.
c) This is the directory of the Revenue District Offices of the BIR with a listing of all officers
and revenue agents.
d) None of the above.

92. Dante Company is a hotel company registered as a local economic enterprise (“LEE”) of the City
of Dapitan. The company is asserting that, as an LEE owned and operated by a local government
unit (“LGU”), it should no longer be required to pay income taxes to the BIR. It argues that all
revenues collected by it must accrue exclusively to the city government of Dapitan. Is the
company correct?

a) Yes. Since the company is owned by an LGU which itself is exempt from taxes imposed by
the Tax Code, the same privileges must also be accorded to it.
b) Yes. Under Section 18 of the Local Government Code, LGUs are authorized to generate
their own sources of revenues, and the allocation of the same shall accrue exclusively to
them.
c) No. The company is not one of those corporations exempt from taxes under Section 30
of the Tax Code or under any special laws. Besides, the acts of an LGU in its corporate
capacity and for the purpose of economic gain may be subject to tax just like any other
private or government corporation (BLGF Opinion, April 20, 2017).
d) None of the above.

93. Mr. Compton sells shoes in Makati through a retail store. He pays the VAT on his gross sales to
the BIR, and the local business tax based on the same gross sales to the City of Makati. He
comes to you for advice because he thinks he is being subjected to double taxation which he
thinks is illegal.
a. There is double taxation and it is not allowed.
b. The City of Makati has no taxing power.
c. There is double taxation, and it is allowed.
d. All of the above.

THE END
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