BUSINESS LAW AND TAXATION WITH LAWS

AFFECTING MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)

WEEK 02 HAND-OUT

GENERAL PRINCIPLES OF TAXATION

DEFINITION OF TAXATION

The exercise of the sovereign power to raise revenues for the expenses of the government.

STAGES OR COVERAGE OF TAXATION

Taxation covers three (3) separate areas or aspects of government activity, namely:

1. Levying or imposition of the tax. This involves the passage of tax laws which is
generally a legislative act. In the Philippines, the taxing power is exercised by Congress.
2. Assessment. The process of determining the correct amount of tax due.
3. Collection and payment – the act of compliance with the tax law by the taxpayer.

Items 2 and 3 are executive or administrative in nature. Done by the Bureau of Internal Revenue
(“BIR”).

THREE INHERENT POWERS OF A STATE

1. Power to Tax
2. Police Power
3. Power of Eminent Domain

THE POWER TO TAX

Subject to inherent and constitutional limitations, the power of taxation is regarded as supreme,
plenary, unlimited, and comprehensive. As long as the legislature, in imposing a tax, does not
violate applicable constitutional limitations or restrictions, the courts have no concern with the
wisdom or policy of the exaction, the political or other collateral motives behind it, the amount
to be raised, or the persons, property, or other privileges to be taxed.

POLICE POWER

Police power is the inherent power of a sovereign state to legislate for the protection of the
health, general welfare, safety, and morals of the public. It involves the power to regulate both
liberty and property for the promotion of the public good.

Note: The police power of the State may be exercised through taxation because taxes may be
levied for the promotion of the welfare of the public.

POWER OF EMINENT DOMAIN

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The power of eminent domain is the inherent power of a sovereign state to take private property
for a public purpose. The Constitution limits the exercise of this power by providing that:
“Private property shall not be taken for public use without just compensation.”

DISTINCTIONS AMONG THE THREE INHERENT POWERS

A. Purpose

Taxation To raise revenues for the expenses of the State.

Police Power To promote the general welfare through regulations.

Eminent Domain To facilitate the State’s need for property for public use.

B. Amount of Exaction

Taxation No limit.

Police Power Limited to the cost of regulation, issuance of the license, and/or
surveillance.

Eminent Domain No exaction but private property is taken for public use.

C. Benefits Received

Taxation No special or direct benefit is received by an individual taxpayer. The

public receives the general benefit of protection of person, property
and the promotion of the general welfare.

Police Power No direct benefit is received by an individual. A healthy economic

standard of society is attained.

Eminent Domain A direct benefit results in the form of just compensation to the
property owner.
D. Non-Impairment of Contracts

Taxation Obligations in contracts may not be impaired by the state where tax
exemptions are bilaterally agreed upon by the state and the taxpayer.
Tax exemptions bilaterally agreed upon between the government and
the taxpayer cannot be withdrawn.

Police Power Obligations in contracts may be impaired by the government.

Eminent Domain Obligations in contracts may be impaired by the government.

E. Transfer of Property Rights

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 Taxation Taxes paid become part of public funds.

Police Power No transfer, but only restraint in the exercise of property rights.

Eminent Domain Transfer is effected in favor of the State.

F. Scope

Taxation All persons, property, rights, and privileges.

Police Power All persons, property, rights, privileges, and liberties.

Eminent Domain Only upon specific property.

G. Authority which Exercises the Power

Taxation Exercised by the government or its political subdivisions

Police Power Exercised by the government or its political subdivisions

Eminent Domain May be exercised by public service corporations or private entities

operating public utilities if granted by law

LIMITATIONS ON THE POWER TO TAX

1. Constitutional Limitations
a. No person shall be deprived of life, liberty, or property without due process of law,
nor shall any person be denied the equal protection of the laws.
b. The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.

Uniformity - persons or properties falling under the same class should be taxed
the same kind and rate of tax.

Equality - the same means and methods be applied impartially to all the
members of each class.

Equal Protection of the Law - means equality before the law. However, such
equality does not deny to the state the power to recognize factual differences
between individuals and classes. It recognizes that inherent in the right to
legislate is the right to classify, provided that it is a valid and reasonable
classification. If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently from
another.
c. No person shall be imprisoned for debt or non-payment of a poll tax.
d. Charitable institutions, churches, and parsonages, or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and

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 improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.

Note: The exemption referred to here is exemption from the real property tax
which is a local tax levied by a province or city (not by the National Government).

e. No law granting any tax exemption shall be passed without the concurrence of a
majority of all the members of Congress.
f. No law impairing the obligation of contracts shall be passed.
i. When the tax exemption is bilaterally agreed upon between the
government and the taxpayer, the exemption cannot be withdrawn
without violating the non-impairment clause.
ii. However, when the tax exemption is unilaterally granted by law, the same
may be withdrawn by virtue of another law without violating the non-
impairment clause.

Example: When the tax exemption is granted under a franchise embodied

in a law, the same may be withdrawn at any time.

g. No law shall be made respecting an establishment of a religion or prohibiting the

free exercise thereof.

No public money or property shall be appropriated, applied, paid, or employed,

directly or indirectly for the use, benefit, or support of any sect, church,
denomination, sectarian institution, or system of religion, or of any priest,
preacher, minister, or other religious teacher or dignitary as such except when
such priest, preacher, minister or dignitary is assigned to the armed forces or to
any penal institution, or government orphanage or leprosarium.

h. All appropriation, revenue or tariff bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
i. The Congress may, by law, authorize the President to fix within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the
Government.
j. The Supreme Court shall have the power to review, revise, reverse, modify, or
affirm on appeal or certiorari as the law or the Rules of Court may provide, final
judgments and orders of lower courts in xxxx all cases involving the legality of
any tax, impost, assessment, or toll, or any penalty imposed in relation thereto.
k. All revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes shall be exempt from
taxes and duties.
l. The President shall have the power to veto any particular item or items in an
appropriation, revenue, or tariff bill, but the veto shall not affect the item or items
to which he does not object.
m. All money collected or any tax levied for a special purpose shall be treated as a
special fund and paid out for such purpose only. If the purpose for which a
special fund was created has been fulfilled or abandoned, the balance, if any,
shall be transferred to the general funds of the Government.

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 2. Inherent Limitations. These are restrictions arising from the very nature of the power to
tax itself. They are:
a. The levy must apply within territorial limits for the exercise of effective tax
jurisdiction.
b. The tax must be for a public purpose.
c. Exemption from taxation of the government, any political subdivision thereof, or
agencies performing purely governmental functions. Ex. City government of
Makati.

However, when a local government unit (LGU), government agency, or

government owned and controlled corporation engages in activities which are
proprietary in character (i.e. engaging in businesses and activities similar to
those performed by other taxable corporations), such LGU, government agency,
or GOCC shall be subject to both income and business taxes as other private
corporations. Exs. Land Bank of the Philippines; PAGCOR.

EXC: The Government Service Insurance System (GSIS), the Social Security
System (SSS), Home Development Mutual Fund (Pag-Ibig), the Philippine Health
Insurance Corporation (PHIC or Philhealth), and local water districts (LWDs); are
exempt from the income tax imposed under Section 27 of the National Internal
Revenue Code (“NIRC”).

d. As a general rule, the taxing power of the legislature may not be delegated.
Exceptions to this non-delegability rule are:
i. The authority of the President to fix tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties and imposts (Art. VI, Sec.
28 (2), 1987 Constitution).
ii. Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees, and charges subject to such
guidelines and limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments (Art. X, Sec. 5, 1987
Constitution). Ex. Real property taxes.
iii. Delegation to administrative agencies for implementation of the tax laws,
and collection of the tax to the BIR.
e. International comity. This principle limits the authority of the government to
effectively impose taxes on a sovereign state and its instrumentalities, as well as
on its property held and activities undertaken in that capacity. As a rule, the
Philippine government cannot tax foreign ambassadors nor impose real property
taxes upon foreign embassies.
f. Double Taxation. Two types of double taxation are direct double and indirect
double taxation.

Direct double taxation – Where:

(1) the same subject is taxed twice;
(2) by the same taxing authority;
(3) within the same jurisdiction;
(4) during the same taxing period; and
(5) covering the same kind or character of tax

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 There is no constitutional prohibition against double taxation in the Philippines,
though it is not favored.

Indirect double taxation, which lacks one or more of the elements of direct
double taxation, is also permissible.

BASIC PRINCIPLES OF A SOUND TAX SYSTEM

1. Fiscal Adequacy – which means that the sources of revenue should be sufficient to
meet the demands of public expenditures;
2. Equality or Theoretical Justice – which means that the tax imposed should be
proportionate to the taxpayer’s ability to pay; and
3. Administrative Feasibility – which means that the tax laws should be capable of
convenient, just, and effective administration.

THEORY OR BASIS OF TAXATION

1. Life-blood Theory.
Taxes are the lifeblood of the government. Without taxes, no government can
function.
2. Benefits Protection Theory (Symbiotic Relationship)
Taxes are what we pay for a civilized or organized society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and
operate it.

ESSENTIAL ELEMENTS OR CHARACTERISTICS OF A TAX

1. Enforced contribution
2. Exacted pursuant to legislative authority
3. For raising revenue for public needs
4. Proportionate in character or uniform
5. Payable in money
6. Imposed within the state’s jurisdiction
7. Personal to the taxpayer

CLASSIFICATION OF TAXES

1. According to scope or exercising authority

a. National Tax - Imposed by the National Government. Exs. Income tax, Estate tax,
Donor’s tax, VAT, OPT, Excise Tax, DST
b. Municipal or Local Tax - Imposed by local government units. Exs. Occupation tax,
Real property tax (RPT)
2. According to subject matter or object
a. Personal, capitation, or poll tax - Fixed amount imposed upon persons of a
certain class without regard to property, trade, business, or occupation. Ex.
Community tax
b. Property tax - Imposed on property. Ex. RPT
c. Excise tax - Imposed upon the performance of an act; the exercise of a right; or
the engaging in business or profession. Exs. VAT, Donor’s tax, Estate tax, Income
tax, Occupation tax, Excise tax

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 3. According to who bears the burden of the tax
a. Direct tax - The liability for the tax (impact), and the burden thereof (incidence)
fall on the same taxpayer. Ex. Income tax
b. Indirect tax - The liability or impact for the tax falls on the original taxpayer, but
the burden or incidence thereof is shifted to another. Ex. VAT, excise tax, custom
duties
4. According to purpose
a. General or Revenue tax - Levied without a specific or pre-determined purpose.
Ex. Income tax, VAT, etc.
b. Special tax - Levied for a special purpose. Ex. Protective tariffs; special
assessments
5. According to the rate applied
a. Proportional - Based on a fixed percentage of the tax base. Exs. RPT, VAT,
Donor’s tax, Estate tax.
b. Progressive - The tax rate increases as the tax base increases. Ex. Income tax on
individuals under the graduated rates.
c. Regressive - The tax rate decreases as the tax base increases. Ex. None
6. According to measurement of the amount due
a. Specific - Measured by number, or based on weight or physical measurement.
Exs. Excise tax on lubricating oils, waxes, petroleum, etc.
b. Ad Valorem - Based on the value of the property and may require the intervention
of assessors and appraisers. Exs. RPT; excise tax on liquors, cigarettes packed
by machine, and automobiles.

NATURE OR CONSTRUCTION OF TAX LAWS

1. Tax laws are prospective, generally, but can have retrospective application.

The constitutional prohibition against the passage of laws having retrospective

application (also called ex post facto legislation) is limited to penal or criminal statutes.

Tax laws are not penal in character. Being civil in nature, the constitutional prohibition
against ex post facto legislation does not apply to tax laws. They can therefore be given
retrospective application if expressly declared by the tax law.

However, tax laws, like other statutes, are to be construed as having only a prospective
operation unless the purpose and intention of the legislature to give retrospective effect
is expressly declared or is necessarily implied from the language used.

A tax creates a civil obligation or liability on the part of the taxpayer, although the
nonpayment thereof creates a criminal liability, which could be the subject of criminal
prosecution under existing laws. In short, in taxation, it is one’s civil liability to pay taxes
that gives rise to criminal liability.

2. A statute will not be construed as imposing a tax unless it does so clearly, and
unambiguously.

A tax cannot be imposed without clear and express words for that purpose. Accordingly,
the provisions of a taxing act are not to be extended by implication.

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 In case of doubt, statutes imposing a tax are construed most strongly against the
Government, and liberally in favor of the citizen because burdens are not to be imposed
beyond what the statutes expressly can clearly import.

3. Tax exemptions are to be construed strictly against the taxpayer.

Legal provisions providing for tax exemptions are to be construed strictly against the
grant and liberally in favor of the taxing power.

Exemption from taxation is construed as strictissimi juris, i.e. strictly against exemption.
Hence, exemption must be anchored firmly on an express provision of law. He who
claims exemption must be able to justify his claims by the clearest grant of organic and
statute law.

4. Revenue laws are not political in nature.

Our internal revenue laws are not political in nature and as such were continued in force
during the period of enemy occupation and in effect were actually enforced by the
occupation government.

5. Legislative intention must be considered.

Tax statutes are to receive a reasonable construction with a view to carrying out their
purpose and intent.

6. Tax laws are special laws, and prevail over general laws.

SOURCES OF TAX LAWS

1. The 1987 Constitution;

2. Tax statutes such as the National Internal Revenue Code (“NIRC”), the Tariff and
Customs Code, the VAT Law, the Revised Documentary Stamp Tax Law, the Amended
Excise Tax Law, and portions of the Local Government Code;
3. Executive orders on taxation, and local tax ordinances;
4. Executive orders on taxation, and local tax ordinances;
5. Judicial decisions;
6. Rules and regulations promulgated by the Department of Finance, the Bureau of Internal
Regulations (“BIR”), Bureau of Customs, etc.
7. Rules and regulations promulgated by the Department of Finance, the Bureau of Internal
Regulations (“BIR”), Bureau of Customs, etc.
FORMS OF ESCAPE FROM TAXATION

1. Shifting the burden of the tax.

2. Capitalization. By not selling property which has increased in value, the owner avoids the
income tax to be paid on the gain if the same is sold. An increase in the value of an
asset is merely an unrealized increase (gain) in capital.
3. Transformation. The manufacturer or producer upon whom the tax has been imposed,
fearing the loss of his market if he should add the tax to the price, pays the tax. He then
endeavors to recoup the tax paid by making his production more efficient and lowering
his cost of production.

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 4. Tax exemption. Exemption from taxation is the freedom from the burden of paying tax.
5. Tax avoidance. Tax avoidance occurs when the means used to minimize taxes are legal
and not prohibited by law.
6. Tax avoidance. Tax avoidance occurs when the means used to minimize taxes are legal
and not prohibited by law.

TAX AND LICENSE DIST

INGUISHED

Tax License

To regulate action, businesses,

Purpose To raise revenue
industries, professions

Subject to constitutional and

Limitations on Not subject to the limitations on
inherent limitations on the power
Taxation taxation
to tax

Limited to the cost of regulation

Amount Unlimited
(licensing, inspection, surveillance)

Effect of Non-
Does not make the business illegal Makes the business illegal
Payment

TAX AND SPECIAL ASSESSMENT DISTINGUISHED

Tax Special Assessment

Imposed on all property (real or personal) in a Imposed only on property which benefit from
prescribed area the improvement

“SPECIAL ASSESSMENT” DEFINED

A special assessment is in the nature of a tax upon property levied according to benefits
conferred on the property. The whole theory of a special assessment is based on the doctrine
that the property against which it is levied derives some special benefit from the improvement
of their property being increased in value by the expenditure to an amount at least equal to the
sum they are required to pay.

CHARACTERISTICS OF SPECIAL ASSESSMENT

1. A special assessment can be levied only on land;

2. A special assessment cannot (at least in most states) be made a personal liability of the
person assessed;
3. A special assessment is based wholly on benefits; and
4. A special assessment is exceptional both as to time and locality.

TAX AND DEBT DISTINGUISHED

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 Tax Debt

Source of
Law Contract
Obligations

Due to obligee under a contract;

Due to the government in its
Obligee May be due to the government in
sovereign capacity
its corporate capacity

Form of Payment Money Money, property, or services

No interest except in cases of If stipulated or if the payment is in

Interest
delinquency delay

Assignability Not assignable Generally assignable

Compensation /
No Yes
Set-off

No person can be imprisoned for

Incarceration for Yes, except for nonpayment of poll
non-payment of debts
Nonpayment tax
(Constitution).

TAX AND SPECIAL ASSESSMENT DISTINGUISHED

Tax Toll

Demand for sovereignty Demand of ownership or proprietorship

May be imposed by private persons or

Imposed by the government
entities

May be imposed by private persons or Largely based on the cost of the property
entities used, or on the cost of the improvement used

Compensation charged by the owner for the

Forced contribution
voluntary use of the property/improvements

TAX ADMINISTRATION

It is a system involving assessment, collection, and enforcement of taxes, including the

execution of judgment in all tax cases decided in favor of the Bureau of Internal Revenue by the
courts.

POWERS AND DUTIES OF THE BUREAU OF INTERNAL REVENUE (BIR)

1. The assessment and collection of all national internal revenue taxes, fees, and charges;
2. The enforcement of all forfeitures, penalties, and fines connected therewith;

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 3. The execution of judgments in all cases decided in its favor by the Court of Tax Appeals,
and the ordinary courts;
4. The giving effect to and the administering of the supervisory and police power conferred
to it by the Tax Code or other laws.

POWERS OF THE COMMISSIONER OF INTERNAL REVENUE (CIR)

1. Power to interpret tax laws subject to review by the Secretary of Finance;

2. Power to decide disputed assessments, refunds of internal revenue taxes, fees and
other charges, penalties imposed in relation thereto, other matters arising under the
National Internal Revenue Code (“NIRC”) or other laws or portions thereof administered
by the Bureau of Internal Revenue (“BIR”), subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals (“CTA”);
3. Power to examine any book, paper, record, or other data which may be relevant or
material to a tax inquiry;
4. Power to obtain information from any person other than the person whose internal
revenue tax liability is subject to audit or investigation or from any office or officer of the
national or local governments, government agencies and instrumentalities;
5. Power to summon the person liable for tax or required to file a return, or any officer or
employee of such person, or any person having possession, custody, or care of the
books of accounts and other accounting records;
6. Power to take such testimony of the person concerned, under oath, as may be relevant
or material to such inquiry;
7. Power to make assessments.
8. Power to prescribe real property values by dividing the country into different zones and
determining the FMV of real properties located in each zone;
9. The CIR is authorized to inquire into the bank deposits and other related information held
by financial institutions of:
a. A decedent to determine his gross estate;
b. A taxpayer who has filed an application for compromise of his tax liability by
reason of financial incapacity to pay his tax liability; and
c. A taxpayer who is subject of a request for the supply of tax information from a
foreign tax authority pursuant to an international agreement or treaty.
10. The CIR has the authority to accredit and register individuals and general professional
partnerships (GPPs) and their representatives who prepare and file tax returns,
statements, reports and other papers, or who appear before the BIR, for taxpayers.
11. Power to prescribe additional procedural or documentary requirements in connection
with the submission or preparation of financial statements accompanying the tax
returns.
ACTIVITY 02
I. MULTIPLE CHOICE QUESTIONS

1. This is the power by which an independent state, through its law-making body, raises
and accumulates revenue from its citizens or inhabitants to pay the necessary expenses
of the government.
a. Police Power
b. Power of Eminent Domain
c. Power to Tax

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 d. People Power
2. Which of the following is a nature of taxation?
a. The power is exercised by legislative action.
b. The power is exercised by legislative action.
c. It is generally payable in money.
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 true
regarding the power of taxation?
a. Its scope is limited.
b. Its exercise is circumscribed by both inherent and constitutional limitations.
c. It is not based on necessity.
d. Revenue raised thru its exercise may be used for private purposes.
5. Which of the following statements is incorrect?
a. Income tax is a direct tax.
b. Our National Internal Revenue Laws are civil in nature.
c. The scope of taxation states that the power of taxation is supreme, plenary,
unlimited, and comprehensive.
d. The exercise of the power to tax is not subject to any limitations or restrictions.
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
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 the 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

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 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
b. Levy
c. Payment
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
b. All false
c. Half True, Half False
d. None of the above
14. 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
15. The power to acquire private property upon payment of just compensation for public
purpose
a. Power of taxation
b. Police Power
c. Power of eminent domain
d. Power of love
16. Which of the inherent powers may be exercised even by public service corporations and
public entities
a. Power of taxation
b. Police Power
c. Power of eminent domain
d. A and C
17. Which of the following may not raise money for the government?
a. Power of taxation
b. Police Power
c. Power of eminent domain
d. License Fees
18. The power to regulate liberty and property to promote the general welfare
a. Power of taxation
b. Police Power

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 c. Power of eminent domain
d. Super Power Rangers
19. 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. Power of taxation
b. Police Power
c. Power of eminent domain
d. Power of Greystone
20. 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 purposes.
21. Which of the following statements are true or false?
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 po
IV. Power is destroyed while the property taken under the power of eminent domain
and power of taxation is not destroyed.
V. 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, Half False
d. None of the above
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;
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
b. Equality or Theoretical Justice
c. Administrative Feasibility
d. Economic Consistency
25. The sources of revenue as a whole, should be sufficient to meet the demands of public
expenditures

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 a. Fiscal Adequacy
b. Equality or Theoretical Justice
c. Administrative Feasibility
d. Revenue Generation
26. The tax laws must be capable of convenient, just and effective administration
a. Fiscal Adequacy
b. Equality or Theoretical Justice
c. Administrative Feasibility
d. Psychological compatibility
27. Persons or things belonging to the same class shall be taxed at the same rate
a. Simplicity in taxation
b. Reciprocity in taxation
c. Equality in taxation
d. Uniformity in taxation
28. Which is not an essential characteristic of a tax?
a. It is unlimited as to amount
b. It is payable in money
c. It is proportionate in character
d. It is an enforced contribution
29. 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.
d. It is generally subject to compensation.
30. 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 for 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.
31. It is the privilege of not being imposed a financial obligation to which others are subject
a. Tax incentive
b. Tax exemption
c. Tax amnesty
d. Tax credit
32. As to the 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. CONGRESS
33. The use of illegal or fraudulent means to avoid or defeat the payment of tax

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 a. Shifting
b. Exemption
c. Avoidance
d. Evasion
34. The use of legal or permissible means to minimize or avoid taxes
a. Shifting
b. Exemption
c. Avoidance
d. Evasion
35. Synonymous to tax evasion
a. Tax dodging
b. Tax minimization
c. Tax exemption
d. Tax shield
36. Synonymous to tax avoidance
a. Tax dodging
b. Tax minimization
c. Tax exemption
d. Tax evasion
37. 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
38. In case of doubt, tax exemptions 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
39. 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.
40. 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
41. 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
b. Property
c. Excise

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 d. Regressive
42. 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
43. 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.
44. 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
45. 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
46. 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
47. 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
48. 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
b. Lifeblood theory
c. Sumptuary theory
d. No money, no honey theory
49. No person shall be imprisoned for non-payment of this:
a. Excise tax
b. VAT
c. Income tax
d. Poll tax
50. This is not an inherent limitation on the power of taxation:

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

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