Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

TAX.3401-1 NARANJO/SIAPIAN/WONG/GUDANI
GENERAL PRINCIPLES IN TAXATION MAY 2023

LECTURE NOTES

TAX
- An enforced proportionate contribution imposed upon persons, properties, businesses, rights,
interests, privileges, transactions and acts within the territorial jurisdiction of the taxing authority
exercise by the legislature for a public purpose and generally payable in money.
- It is a compulsory contribution to state revenue, levied by the government on workers' income
and business profits or added to the cost of some goods, services, and transactions.
- The enforced proportional contributions from persons and property levied by the lawmaking body of
the State by virtue of its sovereignty for the support of the government and all public needs
- It is a sum of money demanded by a government for its support or for specific facilities or
services, levied upon incomes, property, sales, etc.
- An involuntary fee levied on corporations or individuals that is enforced by a level of government
in order to finance government activities.
- A contribution for the support of a government required of persons, groups, or businesses within
the domain of that government.
TAXATION
AS A POWER:
- is the power by which the sovereign raises revenue to defray the expenses of government.
- is the inherent power of the state to demand enforced contribution for public purpose to support
the government.
- Is the destructive power which interferes with the personal and property rights of the people
and takes from them a portion of their property for the support of the government.

AS A MEANS OR PROCESS:
- is the process or means by which the sovereign, through its lawmaking body, raises income to
defray the necessary expenses.
- Is the means by which governments finance their expenditure by imposing charges on citizens
and corporate entities.
- is the process or means by which the sovereign through its law-making body, imposes burdens
upon subjects or objects within its jurisdiction for the purpose of raising revenues to carry out the
legitimate objects of the government.

AS A PRICE:
- is the indispensable and inevitable price for civilized society.

AS AN ACT:
- is the legislative act of levying/imposing a tax to raise income for the government to defray its
necessary expenses
- refers to the act of a taxing authority actually levying tax.
- is the practice of collecting taxes (money) from citizens based on their earnings and property.

AS A MODE OF COST ALLOCATION:

- is a way of apportioning the cost of government among those who in some measures are
privileged to enjoy its benefits and must bear its burden.
ELEMENTS OF A VALID TAX (LP-PLUG)
1. must not violate the constitutional, inherent and or contractual limitation of the power of taxation
2. must be for a public purpose
3. must be proportionate in character
4. must be levied by the taxing power (legislature) having jurisdiction over the object of taxation
5. must be uniform and equitable, not unjust, excessive, oppressive, confiscatory or discriminatory
6. generally payable in money

1. Primary (Revenue or Fiscal) – to raise revenue to promote the general welfare and protection of
its citizens
2. Secondary
a. Regulatory – to provide means for the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the State.
b. Compensatory – to provide some sort of compensation to an activity
c. Promotion of general welfare – as an implement of police power
d. Reduction of social inequality – progressive system of taxation prevents the undue
concentration of wealth in the hands of the few (those who have more should pay more)
e. Encourage economic growth by granting incentives and exemptions
f. Protect local industries from foreign competition

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THEORY OR UNDERLYING BASIS OF TAXATION/PRINCIPLES BEHIND THE POWER OF

TAXATION
1. Lifeblood Theory –
- The existence of the government is a necessity; it cannot exist nor endure without means
to pay its expenses; and for those means, the government has the right to compel all its
citizens and property within its limits to contribute in the form of taxes.
- Taxes are indispensable to the existence of the State. Without taxation the State cannot
raise revenue to support its operations
- Taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it.
- Principles of Necessity/Theory of Taxation
2. Benefit-Received Theory or Benefits-Protection Theory or Reciprocity Theory
- the government and the people have the reciprocal and mutual duties of support and
protection
- Basis of Taxation
- Doctrine of Symbiotic Relationship – every person who is able to must contribute his share
in the running of the government. The government, for its part, is expected to respond in
the form of tangible and non-tangible benefits intended to improve the lives of the people
and enhance their moral and material values.
INHERENT POWERS OF THE GOVERNMENT
1. Power of Taxation – the power to take property for the support of the government and for public
purpose
2. Police Power – the power to enact laws to promote the general welfare of the people. It is wider
in application because it is the general power to make laws.
3. Power of Eminent Domain – the power to take private property for public use upon payment of
just compensation (Power to Expropriate)
Elements:
a. Permanent taking of private property (not temporary)
b. Payment of Just Compensations (Market value – BIR zonal / Assessor’s fair value)
c. Public use

Distinctions of the Inherent Powers of the State

Taxation Police Power Eminent Domain
Who exercises State State state or private entities
authority or power? (quasi-public
corporations or public
utilities)
Necessity of Delegation is not Valid delegation thru Valid delegation thru
Delegation necessary since it is legislative act (law) legislative act (law) e.g.
inherent franchise
Purpose Revenue to support Protection or Property is taken for
the government regulation for general public use
welfare
Persons affected Community or class of Community or class Specific person (owner of
individuals of individuals the property)

Effect of transfer of Tax paid goes to There is no transfer There is transfer of right
property rights treasury (becomes of title, at most there to property whether it be
part of the public is restraint on the of ownership or lesser
fund) injurious use of right
property
Amount of Imposition Generally, unlimited Sufficient to cover the No imposition, the owner
costs of regulation is paid the fair market
value of his property
Importance Most important of the Most superior
three
Relationship with the Inferior to the “Non- Superior to the “Non- Superior and may
Constitution Impairment Clause” of Impairment Clause” override the “Non-
the Constitution of the Constitution Impairment Clause”
because the welfare of
the state is superior to
private contracts
Limitation Constitutionally and Public interest and Public purpose and just
inherently restricted the observance of compensation
due process

SIMILARITIES OF THE THREE POWERS

1. All are inherent powers of the State
2. All are legislative in nature
3. All three powers are necessary attributes of sovereignty
4. They are means by which the State interferes with private rights of persons

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5. They exist independently with the Constitution although the condition for their exercise may be
prescribed or limited by the Constitution
6. The exercise of these powers by the local government units may be limited by national
legislature Notes:
• Taxation power can be used as an implement of Police power.
• Police power can be used to raise revenue for the government (ex: license fee)
• If generation of revenue is the primary purpose and regulation is secondary or incidental, the
imposition is a tax. If the regulation is the primary purpose, if the revenue is raised
incidentally, the imposition is not a tax e.g. Collection of universal charge pursuant to EPIRA
Law is an exercise of police power not power of taxation.
NATURE OR CHARACTERISTICS OF THE POWER OF TAXATION
1. It is an attribute of sovereignty
2. It is legislative in character
3. It is subject to international comity or treaty
4. It is subject to constitutional and inherent limitations
5. It is generally payable in money
6. It is territorial
7. It is for public purpose
SCOPE OF THE POWER OF TAXATION
Taxation is (CUPS):
1. Comprehensive – it covers practically everything e.g. persons, businesses, activities, etc.
2. Unlimited – in the absence of limitations, the power to tax is unlimited
3. Plenary – it is complete
4. Supreme – as to the selection of the subject/object of taxation
DISCRETION OF THE TAXING POWER (Legislative Branch of Government)
1. Determine the following: NOPE-SCAM
a. Nature or kind of tax (whether income tax, VAT, or documentary stamp tax, etc.)
b. Object to be taxed (person, property, business, transaction, activity and excisable
articles to be taxed)
c. Purpose of taxation (e.g. imposition of sin tax to discourage use or consumption of sin
products or use of collected tax for the purpose of augmenting hospital budget)
d. Extent (amount or rate of tax)
e. Situs or place of the imposition
f. Coverage of those to be taxed (subjects or objects)
g. Apportionment of the tax (general or limited application or setting aside portion for special
use)
h. Method of collection (e.g. withholding tax system)
2. Grant tax exemptions or condonations or amnesty
3. Specify or provide for the administrative as well as judicial remedies that either the government or
the taxpayers may avail themselves in the proper implementation of the tax measure (Petron v
Pililla, 198 SCRA 82)

Note: Administrative matters (assessment and collection) are not part of legislative discretion
LEGISLATION OF TAX LAWS
How a Tax Bill becomes a law:
1. A tax bill (proposal) is filed or introduced by a member of the House of Representatives and a
number is assigned to it.
2. 1st Reading – reading the title, the bill number and the author on the floor and referral to
appropriate committee (Ways and Means Committee).
3. Committee Hearings - The Committee schedules the hearings. The Committee members vote
on the Bill after hearings. If it is rejected, the bill is transferred to the archives. If it is
approved, the Committee Report is submitted to the Plenary for Debates
4. The Committee Report is calendared for 2nd Reading
nd
5. 2 Reading – debates by the members of the contents of the bills.
6. Voting, as a whole, will be made after deliberations through ayes and nays (viva voce) or
nominal voting
7. 3rd reading – Final reading of the Bill as approved by the members
8. Transmission to the Senate for concurrence
9. If the Senate has its own version, the Bill goes through the same version (from 1-7)
10. If there are differences in the final bills/conflicting provisions, the Senate and the House of
Representatives appoint members of the Bicameral Conference Committee to consolidate the
Bill. The consolidated bill is enrolled and transmitted to the President for signature after
ratification of the respective “Houses”. The enrolled bill is the final copy as certified as correct
by the Secretary of the Senate and HOR and duly signed by the Senate President and Speaker
of the House of Representatives. Then proceed to 12.
11. If Senate concurs in whole, the bill is enrolled or the HOR may concur with the Senate version,
in which case, the bill is enrolled. After ratification, the enrolled bill is transmitted to the
President for signature.
12. President’s action:
a. When the president signs it, it becomes a law
b. After 30 days without the President signing it, it lapses into law 30

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c. Vetoes the bill and sends it back to the HOR and Senate with veto message
Note:
1. Bills are general measures, which if passed upon by the legislative body, may become laws.
2. The Bill in the HOR is pre-fixed by a HB No. (House Bill) while SB No. (Senate Bill) in the Senate.
3. Congress may override the veto by 2/3 vote of both “Houses” voting separately.
4. Generally, laws take effect 15 days after publication in the Official Gazette or in at least two
(2) national newspapers of general circulation.
ASPECTS OF TAXATION (PHASES/STAGES/PROCESS)
1. Levy or Imposition – legislative – enactment of law imposing tax
2. Assessment of tax – administrative (BIR)
3. Collection of the tax – administrative (BIR)

Assessment and collection refer to tax administration. Payment refers to the act of compliance by the
taxpayer.
PRINCIPLES OF A SOUND TAX SYSTEM (FAT)
1. Fiscal Adequacy – sources of revenue should be sufficient to meet the demand for public
expenditure
2. Administrative Feasibility- tax laws must be capable of convenient, just and effective
administration
Examples:
a. Establishment of Revenue District Offices throughout the Philippines
b. Introduction of electronic Filing (Electronic Filing and Payment System (EFPS) or e-BIR
Forms Package)
c. Accreditation of Authorized Agent Banks (AABs)
d. Substituted Filing of Qualified Compensation Income Earners
e. Payment of tax thru credit/debit/prepaid cards/G-Cash or other portals
f. Electronic Tax Payment System (eTPS)/Land Bank Remittance System (LBRS)
g. Introduction of the e-AFS, an online system of the BIR which lets taxpayers submit their
Filed ITR and its Attachments through BIR's webpage
h. Introduction of NewBizReg, a gateway in the electronic submission of application for
registration through email which is available to individual and non-individual business
taxpayers (Head Office and Branches) pursuant to Ease of Doing Business Law
i. E-ONETT System
j. Online Registration and Update System (ORUS)
3. Theoretical Justice- considers the taxpayers’ ability to pay (ability-to-pay
principle) Manifested through the following:
• Use of progressive tax scheme (schedular or graduated tax rates)
• Equity in taxation
LIMITATIONS OF POWER OF TAXATION
A. Inherent Limitations
1. territoriality of taxation
2. international comity or treaty
3. exemption of the government from taxation
4. tax is for public purpose
5. non-delegation of the power of taxation
Exceptions:
a. power to tax was delegated to the President under the Flexibility Clause of the Tariff and
Customs Code (amended by R.A. 10863 or the Customs Modernization and Tariff Act)
Note: Delegated power to executive department is called administrative regulation or
subordinate legislation
b. power to tax was delegated to the local government units thru respective Sanggunian
under the Local Government Code (R.A.7160)
c. power to grant tax incentives delegated to the President in the interest of national
economic development (R.A. 11534 or Corporate Recovery and Tax Incentives for
Enterprises (CREATE) Act)

B. Constitutional Limitations
1. Due process of law – notice and hearing
2. equal protection of the law –equality among equals
3. uniformity in taxation – taxation of same class
4. progressive system of taxation – use of graduated tax table
5. non-imprisonment for non-payment of debt or poll tax
6. non-impairment of obligation and contract
7. freedom to exercise religion
8. freedom of the press
9. non-appropriation of public funds or property for the benefit of any church, sect or system
of religion
10. exemption of religious, charitable or educational entities, non-profit cemeteries, churches
and mosque from property taxes
11. exemption from taxes of the revenues and assets of non-profit, non-stock
educational institutions for educational purposes

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12. concurrence of a majority of all members of Congress for the passage of a law granting
tax exemption (voting separately)
13. non-impairment of the jurisdiction of the Supreme Court to review tax cases – final arbiter
14. appropriations, revenue or tariff bills shall originate exclusively in the House of
Representatives but the Senate may propose or concur with amendments
15. each local government unit shall exercise the power to create its own sources of revenue
and shall have a share in the national taxes (Internal Revenue Allotments)
SITUS OF TAXATION
The place of taxation, or jurisdiction, or source of income.

Factors that determine the situs of taxation

1. nature, kind or classification of the tax
2. subject matter of the tax
3. citizenship of the taxpayer
4. residence of the taxpayer
5. sources of income
6. place of exercise, business or occupation being taxed (service)
7. place where income-producing activity was held or done
8. activity

Criteria in Imposing Tax Under Philippine Setting

1. Citizenship Principle (Nationality Theory) – considers the citizenship of taxpayer
2. Residence Principle (Domiciliary Theory) – considers the residence of taxpayer
3. Source Principle (Source of the Income) – considers the source of the income
DOUBLE TAXATION
Taxing the object or subject within the territorial jurisdiction twice, for the same period, involving the
same kind of tax by the same taxing authority

Kinds:
1. Direct Double Taxation/Direct Duplicate/Taxation in Strict Sense
– Elements:
a. Same object/subject (taxpayer)
b. Same type of tax
c. Same purpose
d. Same taxing authority
e. Same period
Note: If one of the elements is missing, then there is Indirect Double Taxation
2. Indirect Double Taxation/Indirect Duplicate/Taxation in Broad Sense –

International Double Taxation –a double taxation caused by two different taxing authorities, one
domestic and one foreign.
ELIMINATION OF DOUBLE TAXATION
1. Exclusive right to tax is conferred on one of the contracting states
2. Relief is given thru:
• Exemption method/principle – the income or capital which is taxable in the state
of source or situs is exempted in the state of residence; the focus is on the income
or capital itself (thru tax covenants or treaties)
• Credit method/principle – the income or capital which is taxed in the state of source is still
taxable in the state of residence, the tax paid in the former is credited against the tax
levied in the latter; the focus is upon the tax (thru foreign tax credits but subject
to limitation)
Other ways of relief:
• Tax sparing – taxes exempted or reduced are considered fully paid e.g. a non-resident may
obtain a tax credit for the taxes that have been “spared: under the incentive program of
the state if source”
• Matching credit – the state of residence agrees, as a counterpart to the reduced tax, to allow
a deduction against its own tax of an amount fixed at a higher rate
• Application of the most favored nation clause:
o First, income derived from the Philippines by a resident of the other state and of the
third state must be of the same kind or class (e.g. royalty) in order to avail of the
lower tax enjoyed by the third state
Second, the tax consequences of the income payment under the two treaties must be under similar
circumstances which requires a showing that the method employed for eliminating or mitigating the
effects of double taxation under the treaty with the other state and the third state are the same
FORMS OF ESCAPE FROM TAXATION (ESCATE)
1. Evasion (tax dodging) – is a scheme used outside of those lawful means and when availed
of it exposes taxpayers to criminal and administrative liabilities. It refers also to acts and
devices that illegally reduces or totally evade the payment of taxes.
Examples:
• Non-registration
• Non-issuance of receipts

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• Non-filing of returns and non-payment of tax

• Understatement of sales or income or overstatement of expenses by more than 30%
• Intentional non-declaration of income
• Unjustifiable refusal to pay the tax
2. Shifting –the process of transferring the tax burden from the statutory taxpayer to
another (e.g. VAT)
3. Capitalization – generally occurs at the time of selling process or exchange or transfer of
land or other assets which generate a flow of income and are subject to a series of
successive annual taxes during their lifetime. Tax capitalization is not common in the
Philippines. Common application is increase in capitalization to avoid payment of
Improperly Accumulated Earnings Tax (Note: IAET is repealed under CREATE Law)
4. Avoidance –tax minimization– tax saving device within the means sanctioned by law. It is
the reduction or totally escaping payment of taxes through legally permissible means.
Should be used in good faith and at arm’s length.
5. Transformation – the effective application of organizational design, process
improvement, and enabling technology to improve data integrity, tax function efficiency,
and performance—while driving value for the business (Deloitte). The manufacturer
absorbs the additional taxes imposed by the government without passing it to the buyers
for fear of lost of his market. Instead, it increases quantity of production, thereby turning
their units of production at a lower cost resulting to the transformation of the tax into a
gain through the medium of productions (Banggawan).
6. Exemption- an immunity, privilege or freedom from payment of tax by virtue of law (e.g.
income tax holidays for pioneer/non-pioneer PEZA-enterprises or under CREATE Law;
exemption from tax of minimum wage earners)
DISTINCTION BETWEEN TAX AMNESTY AND TAX CONDONATION
Tax Amnesty –is a limited time offer by the State to a specified group of taxpayers to pay a defined
amount (certain percentage) in exchange for forgiveness of a tax liability relating to a previous tax
period as well as freedom from criminal prosecution. It is a general pardon or intentional overlooking
by the state of its authority to impose penalties on persons. (e.g. Estate Tax Amnesty Law)

Tax Condonation – means to remit or to desist or refrain from exacting or imposing a tax.
condonation of a tax liability is equivalent to and is in the nature of a tax exemption.

Tax Exemption Tax Amnesty

There is no tax liability at all but a grant of Connotes condonation from payment of existing
incentive tax liability
The grantee generally do not pay anything The grantee pays a portion
Can be availed of by any qualified taxpayer Not always available. Limited-offer only.
STATUTORY CONSTRUCTION AND INTERPRETATION OF TAX
LAWS Taxation
1. If tax laws are clear, there’s no need for interpretation, only application
2. If tax laws are vague, it shall be interpreted strictly against the taxing authority and in liberally
in favor of the taxpayer (statutes levying taxes are construed against the government)

Exemptions/Deductions
3. Exemptions shall be interpreted strictly against the taxpayer and liberally in favor of the
taxing authority
4. Deductions partake the nature of an exemption, hence strictly construed against the taxpayer

Presumption of Regularity
5. Tax assessments are presumed to be correct and done in good faith i.e. disputable
presumption only which can be overcome by evidence)

Application
6. Tax laws are generally prospective in application.
Exception: If the law so provides (e.g. Tax Amnesty Law, CREATE Law)

No compensation or set-off
7. Taxes are not subject to compensation or set-off (excess payments can be carried-over and
credit on same tax type, e.g. income tax to income tax and not income tax to VAT. If the excess
payment is converted to Tax Credit Certificate, the taxpayer can use the TCC to pay internal
revenue taxes except withholding taxes (expanded withholding tax (EWT)/Withholding Tax on
Compensation (WTC)/Final Withholding Taxes (FWT or FT)

Others
8. Construction of statute by predecessors is not binding on the successors.
9. Special laws prevail over the general laws (e.g. Bayanihan Laws over Tax Code)
INCOME TAX SYSTEMS
1. Global Tax System – all incomes regardless of classification e.g. as compensation, business
or professional income, passive income or capital gain, and the deductions are reported in the
income tax return and then the tax is computed thereon.

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2. Schedular Tax System – different types of income are subject to different sets of income tax
rates (graduated or flat). The basis may be gross income (without deductions) or net income
(gross income less allowable deductions).
3. Semi-Schedular or Semi-Global Tax System – regular or ordinary income including passive
income and capital gain not subjected to final tax are lumped or added together and after
deducting allowable deductions, the taxable income is subjected to tax in accordance with tax
rules i.e. graduated for individual or flat rate for non-individual. In this case, global system is
applied. For income not subjected to final tax, e.g. if passive income, it is subject to final tax;
if capital gains, it is subject to capital gains tax).
In this system, different returns are filed when reporting the income (e.g. Annual ITR for
ordinary incomes, final tax returns for passive incomes and capital gains tax returns for capital
gains on sale of real properties classified as capital asset and shares of stocks not traded in the
stock exchange. This is adopted in the Philippines.
TAX LAW
Any law that provides for the assessment and collection of taxes for the support of the
government and other public purposes

Sources of Tax Laws:

1. Constitution of the Philippines
2. Statutes (Republic Acts) and Presidential Decrees
3. Executive Orders and Batas Pambansa
4. Tax Treaties and conventions with foreign countries
5. Revenue Regulations issued by the Department of Finance
6. Supreme Court Decisions
7. Local Ordinances (Sangguniang Panlalawigan/Panglungsod/Bayan/Barangay)

Note: Revenue Memorandum Circulars (RMCs), Revenue Memorandum Orders (RMOs) and Revenue
Rulings are NOT considered tax laws.
NATURE OF PHILIPPINES TAX LAWS
1. Civil
2. Not Penal
3. Not criminal
MARSHALL VS HOLMES
A. Marshall Doctrine (US Justice John Marshall) – “The power to tax includes the power to destroy”
- Constitutional if taxation power is used validly as an implement of police power in discouraging
certain acts and enterprises inimical to public welfare.
- Unconstitutional if in raising revenue, taxation is allowed to confiscate or destroy properties
B. Holmes Doctrine (US Justice Oliver Wendell Holmes) – “Taxation power is the power to build”,
“The power to tax is not the power to destroy while this court sits”
The power to tax should not be the power to destroy. The power to destroy is merely a
consequence of taxation.
END

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 Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977

TAX.3401-2 NARANJO/SIAPIAN/WONG/GUDANI
CLASSIFICATION OF TAXES MAY 2023

LECTURE NOTES

CLASSIFICATION OF TAXES
A. As to authority (who imposes the tax)
1. National tax – imposed by the National Government. National internal revenue taxes (DIVE-PESO)
a. donor’s tax
b. income taxes
c. value-added tax
d. estate tax
e. other percentage taxes
f. excise tax
g. documentary stamp tax
h. other taxes as may be imposed

2. Local tax – tax imposed by local governments (provincial/city/municipal/barangay)

Examples:
a. real property tax
b. professional tax
c. business taxes, fees and charges
d. community tax

B. As to purpose (P-FRS)
1. Fiscal – general, fiscal or revenue- tax imposed for the general purpose of the government or to raise
revenue for government needs, e.g. income tax, transfer taxes (estate/donor’s taxes)
2. Regulatory – for purposes of regulation (exercise of police power), e.g. PRC and driver’s licenses
3. Special or sumptuary – tax imposed for a special purpose or to achieve some social or economic ends,
e.g. Special Education Fund under Local Government Code to be used exclusively for education; Php 500
million collected from Tax Amnesty shall be used exclusively for purposes of establishing tax database and
any excess shall be allocated to augment appropriations for the social mitigating measures and the Build,
Build, Build Infrastructure projects.

C. As to subject matter or object (SM-PPPE)

1. Personal, poll or capitation – tax of a fixed amount imposed on individuals residing within a specified
territory e.g. community tax certificate/cedula
2. Property tax – tax imposed on property, whether real or personal e.g. real property tax / factory machinery
3. Excise tax – tax on commodities/excisable articles e.g. sin products
(alcohol/cigarettes/automobiles/minerals/jewelries/non-essential services)
4. Privilege tax – tax imposed upon the performance of an act, the enjoyment of a privilege or the engaging
in an occupation, e.g. Professional tax (issued PTR); estate and donor’s tax on the privilege to transmit
property from one person to another.

D. As to who bears the burden of paying the tax / incidence (I-DI)

1. Direct –
-is one which the taxpayer who pays the tax is directly liable therefor
- the burden of paying the tax falls directly on the person paying the tax -
the tax is demanded from one person who is intended to pay it
Examples: income tax (taxpayer himself to pay), estate tax (estate to pay), donor’s tax (donor to pay)
2. Indirect –
-one paid by a person who is not directly liable therefor, and who may therefore shift or pass on the tax to
another person or entity, which ultimately assumes the tax burden
- the tax is demanded from one person who can shift the burden of paying the tax to another person
Example: Value-Added Tax

E. As to determination of amount (A-SA)

1. Specific tax – a tax of a fixed amount imposed by the head or number e.g. excise tax on wines or distilled
spirits, cigars, etc.
2. Ad valorem – tax is imposed for a fixed proportion of the amount or value of the property to which the tax
is assessed e.g. income tax, transfer taxes (estate and donor’s), VAT

F. As to rate (MR-PP)
1. Proportional or flat rate – the tax is based on a fixed percentage of the amount of the property, income
or other basis to be taxed.
Examples:

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a. Preferential Income Tax of 8% for Self-Employed individuals or mixed income earners on their
business/professional income
b. VAT (12%) and percentage taxes.
c. Regular corporate income tax (from 30% to 25% under CREATE Law)
d. Under TRAIN: Donor’s tax and Estate tax (6%)
e. Capital gains tax on sale of real property classified as capital asset or creditable withholding tax on
sale of ordinary asset (6%)
f. Capital gains tax on sale of shares of stocks not listed in Stock Exchange (15%)
2. Progressive or graduated tax – the tax rate increases as the tax base increases.
Example: Income tax for individual taxpayers (retained under TRAIN) (taxpayer did not avail 8%)
3. Regressive tax – the tax the rate of which decreases as the tax base increases. The Philippines has no
regressive tax.
4. Mixed tax- mixture of proportional, progressive or regressive.
Examples:
a. Income tax for individuals (progressive/graduated) and for corporation (proportional/flat)
b. Income tax for Mixed Income Earners who opted 8% on his business income while the
compensation income is subject to graduated tax rate

DISTINCTION OF TAX WITH SIMILAR ITEMS

TAX VS. REVENUE
Tax Revenue
Definition Refers to the amount imposed Refers to the amount collected
Scope Only one of the sources of The product of taxation. It refers
government revenues to the funds derived by the
government whether from tax or
from other sources

TAX VS. LICENSE

Tax License
Purpose For revenue For regulation
Amount No limit Limited
Time of payment Generally paid after start of Generally paid before the
business commencement of business
Subject/Object of Person, properties, business Required for the commencement
Imposition rights, interests, privilege, acts of a business profession
and transactions
Effect of non-compliance Does not necessarily make the act, Makes the business illegal
business or profession illegal
Revocability Has a nature of permanence Always revocable
Scope The power to tax includes the Power to license does not include
power to license the power to tax
When imposed Post-activity Pre-activity
Basis of imposition Current data Preceding year or quarter date. If
new business, based on
capitalization
Basis/Sources of Power Power of taxation Police power

TAX VS. TOLL

Tax Toll
Definition Enforced contribution Sum of money paid for use of road
or bridge
Basis Demand of sovereignty Demand of ownership
Purpose One’s support for the government Compensation for the use of
somebody else’s property (road or
bridge and the like)
Authority Imposed only by the government May be imposed by the
government or by private
individuals
Amount Based on government needs (no Determined by the cost of the
limit as to the amount of tax) property or improvements thereon

TAX VS. DEBT

Tax Debt
Basis Law Contract or judgment
Effect of non-compliance Taxpayer may be imprisoned for No imprisonment
non-payment (except for poll tax)
Assignable? No Yes
Mode of settlement Generally payable in money Money, property or service
Subject to Set-off? Generally, not subject to set-off Subject to set-off

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Interest Does not earn interest except Draws interest when stipulated or
when delinquent when in default
Authority Imposed by the State Can be imposed by private
individuals
Prescription Provided under the NIRC Provided under the Civil Code

TAX VS. SPECIAL ASSESSMENT

Tax
Definition Enforced proportional
contribution from persons or
properties
Subject of the imposition business, interests, transactions,
rights, persons, properties or
privileges
Effect on the person Personal liability of the person
liable or the one owning assessed
the subject
Basis of Imposition Necessity (with no hope of direct
or immediate benefit to the
taxpayer)
Coverage of application General application
Special Assessment
Enforced proportional contribution
from owners of lands benefited by
public improvements
Land only
Cannot be made the personal
liability of the person assessed,
because it is the land that answers
for the liability
Entirely on benefits received
Exceptional both as to the time and
place

TAX VS. TARIFF

Tariff refers to a book of rates containing names of merchandises with corresponding duties to be paid for the
same. Tariff refers to the duties payable on goods imported or exported. It is a system or principle of imposing
duties on the importation or exportation of goods.

TAX VS. PENALTY

Tax Penalty
Definition Enforced proportionate Sanction imposed as punishment
contribution for violation of a law or acts deem
injurious
to regulate conduct through
Purpose to raise revenue punishment and suppression of
injurious act
Exercising authority the government the government or by private
individuals
Source Law Law or contract
Mode of settlement in money in money or in kind

Notes:
• Payment of tax is compulsory to those who are covered by imposition
• Taxes are important because they are the lifeblood of the government.
• Taxes are generally personal in nature (direct). The burden of taxation cannot be transferred from one person
to the other by private agreement as this is determined by law.
• While the power of taxation includes the power to destroy, it is not absolute. It is subject to limitation or
restrictions.
END

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 Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977

TAX.3401-3 NARANJO/SIAPIAN/WONG/GUDANI
ACOUNTING METHODS AND PERIODS MAY 2023

LECTURE NOTES

TAX REPORTING VS FINANCIAL REPORTING

Tax Reporting Financial Reporting
Source of Rules Tax Code and other tax laws PRFS, PAS
Basic reportorial requirements Returns and its attachments Audited FS/SMR
Where reported BIR SEC, PEZA, BSP, CDA, etc.
TAX ACCOUNTING METHODS
A. Cash Basis - A method of accounting whereby all items of gross income received during the year shall be
accounted for such taxable year and that only expenses actually paid for shall be claimed as deductions
during the year.
B. Accrual Basis - A method of accounting for income in the period it is earned regardless of whether it has
been received or not. In the same manner, expenses are accounted for in the period they are incurred and
not in the period they are paid.
C. Completion of Contract Basis - An accounting method applicable to contractors in the construction of
building, installation of equipment and other fixed assets or other construction work covering a period in
excess of one year.
D. Percentage of Completion Basis - A method applicable in the case of a building, installation or
construction contract covering a period in excess of one year whereby gross income derived from such
contract may be reported upon the basis of percentage of completion.
E. Installment Basis - A method considered appropriate when collections extend over relatively long periods
of time and there is a strong possibility that full collection will not be made. As customers make installment
payments, the seller recognizes the gross profit on sale in proportion to the cash collected.
F. Crop Year Basis - A method applicable only to farmers engaged in the production of crops which take
more than a year from the time of planting to the process of gathering and disposal. Expenses paid or
incurred are deductible in the year the gross income from the sale of the crops are realized.
Revenue Recognition Expense Recognition
General Rule - The amount of all items of gross - The deductions shall be taken
income shall be included in the for the taxable year in which
gross income for the taxable "paid or accrued" or "paid or
year in which received by the incurred", dependent upon the
taxpayer method of accounting the basis
of which the net income is
computed

-Under methods of accounting - In order to clearly reflect the

Exception: permitted under the Tax Code income, the deductions should
(see A-F above) be taken as of a different
period.
Accounting for Long- Gross income derived in whole or in All expenditures made during the
Term Contracts part from such contracts shall report taxable year on account of the
such income upon the basis of contract, account being taken of
percentage of completion. The the material and supplies on hand
return should be accompanied by a at the beginning and end of the
return certificate of architects or taxable period for use in
engineers showing the percentage of connection with the work under
completion during the taxable year the contract but not yet so applied.
of the entire work performed under Note: If upon completion of a
contract. contract, it is found that the
‘Long-term contracts' means taxable net income arising
building, installation or construction thereunder has not been clearly
contracts covering a period in excess reflected for any year or years, the
of one (1) year. Commissioner may permit or
require an amended return.
Installment Basis – A person who regularly sells or
Sales of Dealers in otherwise disposes of personal
Personal Property property on the installment plan may
(Section 49) return as income therefrom in any
taxable year that proportion of the
installment payments actually
received in that year, which the
gross profit realized or to be realized

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when payment is completed, bears

to the total contract price.

Installment Basis – In the case (1) of a casual sale or

Casual Sales of other casual disposition of personal
Personality property (other than property of a
kind which would properly be
included in the inventory of the
taxpayer if on hand at the close of
the taxable year), for a price
exceeding One thousand pesos
(P1,000),

or

Sales of Realty (2) of a sale or other disposition of

real property, if in either case the
initial payments do not exceed
twenty-five percent (25%) of the
selling price

the income may be returned on the

basis and in the manner above
prescribed in this Section (49). See
above

“Initial payments" means the

payments received in cash or
property other than evidences of
indebtedness of the purchaser
during the taxable period in which
the sale or other disposition is made.

Note: Change in accounting period shall be filed within 90 days after the beginning of the taxable year to be
covered by the return.
TAX ACCOUNTING PERIODS
General Rule: The taxable income shall be computed upon the basis of the taxpayer's annual accounting period
(i.e. fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly
employed in keeping the books of such taxpayer
Exception: the taxable income shall be computed on the basis of the calendar year under specific
circumstances. Section 43

Taxable year can be calendar or fiscal year

1. Calendar year – the 12-month period ending December 31 and is applicable to:
a. If no such method of accounting has been so employed
b. If the method employed does not clearly reflect the income, the computation shall be made in
accordance with such method as in the opinion of the Commissioner clearly reflects the income
c. If the taxpayer's annual accounting period is other than a fiscal year
d. If the taxpayer has no annual accounting period
e. If the taxpayer does not keep books
f. If the taxpayer is an individual
2. Fiscal period – any 12 months period ending the last day of any month other than December 31st.

Change of Accounting Period

Prior BIR approval is required. Application shall be filed with the CIR thru RDO where the business is registered
within 60 days prior to the beginning of the proposed new accounting period.

Short accounting period may arise in the following cases:

1. death of a taxpayer
2. newly organized business
3. dissolution of a business
4. change in accounting period
END

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 Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977

TAX.3401-4 NARANJO/SIAPIAN/WONG/GUDANI
TAX ADMINISTRATION MAY 2023

LECTURE NOTES

TAX ADMINISTRATION
The Bureau of Internal Revenue
The Bureau of Internal Revenue is tasked with tax administration function of the government and is under the
supervision and control of the Department of Finance.

Chief Officials of the Bureau (E.O. 366)

1. One (1) chief officer: The Commissioner of Internal Revenue
2. Four (4) assistant chiefs: LINE Deputy Commissioner
a. Operations Group
b. Legal Group
c. Information Systems Group
d. Resource Management Group
Notes:
1. The CIR and Line Deputy Commissioners are members of the National Evaluation Board (NEB) which
handles applications for compromise settlement.
2. Regional Offices – 19
3. Revenue District Offices - 124
POWERS OF THE BUREAU OF INTERNAL REVENUE
1. Assessment and collection of taxes
2. Enforcement of all forfeitures, penalties, and fines and judgments in all cases decided in its favor by the courts
3. Give effect to and administer the supervisory and police powers conferred to it by the NIRC and or other laws
BIR ISSUANCES
1. Revenue Regulations (RRs) – specify, prescribe or define rules and regulations for the effective enforcement
of the provisions of the National Internal Revenue Code (NIRC) and related statutes.
Note: RR’s, which are recommended for issuance by the CIR, and approved by the Secretary of Department
of Finance, are considered laws hence generally applies prospectively.
2. Revenue Memorandum Orders (RMOs) – are 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 (BIR internal rules).
Note: Issued by the CIR and applies prospectively.
3. Revenue Memorandum Circulars (RMCs) – are 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. Note:
Issued by the CIR and retroacts from the date of the effectivity of the tax law it interprets.
4. Revenue Administrative Orders (RAOs) -are issuances that cover subject matters dealing strictly with the
permanent administrative set-up of the Bureau, more specifically, the organizational structure, statements of
functions and/or responsibilities of BIR offices, definitions and delegations of authority, staffing and
personnel requirements and standards of performance,
Note: Issued by the CIR and applies prospectively.
5. Revenue Delegation of Authority Orders (RDAOs) – refer to functions delegated by the Commissioner to
revenue officials in accordance with law.
Note: Issued by the CIR and applies prospectively.
6. Revenue Rulings (Rulings) - are requests of taxpayers on taxability of certain matters or
transactions. Note: Issued by the CIR and applies prospectively.
POWERS OF THE COMMISSIONER OF INTERNAL REVENUE (CIR)
1. To interpret the provisions of the NIRC subject to review by the Secretary of Finance (exercised thru the
issuance of Revenue Rulings or Revenue Memorandum Circulars)
2. To decide disputed tax assessments (thru the issuance of Final Decision of Disputed Assessments (FDDA) /
Denial on Requests for Reconsiderations)
3. To refund internal revenue taxes, fees or other charges, penalties imposed in relation thereto
4. To decide on other matters arising under the NIRCS or other laws or portions thereof
Note: Items 2, 3 and 4 if appealed are subject to the exclusive appellate jurisdiction of the Court of Tax
Appeals
5. To obtain information from any person about an income/expense of another person, etc.
Note: CIR’s Power to Obtain Information/Accountant-Client Privilege
General Rule: Communication of Accountant (Lawyer)-Client is privileged
Exceptions:
a. When required by law to reveal the confidence or secrets
b. In contemplation of crime or perpetration of fraud
c. If through a subpoena
d. There is legal right or duty to disclose information
e. Lifeblood doctrine

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6. Power to summon
a. Subpoena duces tecum (SDT) – compels the taxpayer to produce the documents
b. Subpoena ad testificandum – compel the taxpayer to produce documents and provide testimony why
there is a failure to comply with the request to produce
7. Power to investigate or examine tax returns (through issuance of notice of audit):
a. Electronic Letter of Authority (e-LOA) – formal document authorizing Revenue Officers
(Assessment) to examine taxpayer records.
b. Tax Verification Notice (TVN) – BIR authority to audit taxpayer records but is lower than e-LOA
c. Letter Notice (LN) – third party information. Result of computerized matching of income and expense.
Not equivalent to e-LOA or TVN but has the effect of barring taxpayer to amend return. If issued, the LN
if protested must be converted to e-LOA
Note: If taxpayer is served with notice of audit, taxpayer is barred from amending returns
8. Power to take testimony of persons concerned under oath as may be relevant and material to such inquiry
9. To cause revenue officers and employees to make a canvass from time to time of any revenue district or
region concerning taxpayers.
10. To make assessment and prescribe additional requirement
a. To examine returns and determine correct amount of tax due
b. To assess based on best evidence obtainable
Note: The BIR can issue assessment
GR: 3 years from date of filing or deadline whichever is later.
Exception: 10 years if there is fraud reckoned from date of discovery.
Note: If already elapsed, the right of the BIR to assess has prescribed
11. To make or amend a return for and on behalf of a taxpayer; or to disregard one filed by the taxpayer
12. To conduct inventory-stock taking (with Mission Order)
13. To conduct surveillance (with Mission Order)
a. Covert surveillance – secret/posing as taxpayer/not known initially by taxpayer
b. Overt surveillance – known to the taxpayer
Note: The BIR also issues MO during tax mapping operations or Tax Compliance Verification Drive (TCVD)
14. To prescribe presumptive gross sales or receipts (Benchmarking)
15. To change tax accounting period
16. To terminate taxable period
a. Taxpayer is retiring from business
b. Taxpayer intends to leave the Philippines
c. Taxpayer is removing, hiding or concealing his property
d. Taxpayer is performing any act tending to obstruct the proceedings from the collection of the tax
17. To prescribe real estate values (zonal valuation)
The CIR is authorized to divide the Philippines into zones or areas and determine the fair market value of the
real properties located in each zones or area.
In exercising this authority, the following shall be observed:
a. Mandatory consultation with both private and public competent appraisers before division of the
Philippines into zones.
b. Prior notice to affected taxpayers before the determination of fair market values of the real properties.
c. Publication or posting of adjustments in zonal value in a newspaper of general circulation in the
province, city or municipality concerned.
d. The basis of valuation and records of consultation shall be public records open to the inquiry of any
taxpayer.
e. Zonal valuations shall be automatically adjusted once every three years.
18. To inquire into bank deposits under the following cases:
a. Estate tax purposes to determine gross estate
b. Application of compromise settlement based on financial incapacity
19. To accredit tax agents
20. To change venue of filing of returns
21. To extend filing of returns and payment of tax (i.e. estate tax)
22. To prescribe additional procedures or documentary requirements
23. To enter a compromise of tax liabilities with taxpayers
a. Doubtful validity – 40% of basic tax (the rate may be lower but with prior approval by the CIR)
b. Financial incapacity – 10% of basic tax (with required documentary requirements)
24. To abate or cancel tax liabilities:
a. Unjustly or excessively assessed (arbitrary, capricious and whimsical)
b. Cost of collection is higher than the amount to be collected (cost-benefit principle)
25. To close business establishments (Oplan Kandado; Ran After Tax Evaders (RATE)
26. To allocate income and deductions (application of transfer pricing)
In the case of two or more organizations, trades or businesses (whether or not incorporated and whether or
not organized in the Philippines) owned or controlled directly or indirectly by the same interests, the
Commissioner is authorized to distribute, apportion or allocate gross income or deductions between or
among such organization, trade or business, if he determined that such distribution, apportionment or
allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such
organization, trade or business.
27. To delegate his powers to any subordinate officer with rank equivalent to a division chief of an office

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28. To search for, test and seize taxable article – any internal revenue officer, may, in the discharge of his
official duties, enter any house, building or place where excisable articles are produced or kept, or are
believed by him upon reasonable grounds to be produced or kept, so far as may be necessary to examine,
test, discover or seize the same.

POWERS OF THE CIR THAT CANNOT BE DELEGATED

1. The power to recommend the promulgation of rules and regulations to the Secretary of Finance.
2. The power to issue rulings of first impression or to reverse, revoke or modify any existing rulings of the
Bureau.
3. The power to compromise or abate any tax liability
Exceptions: Compromise by Regional Evaluation Boards under the following requisites:
a. assessments are issued by the regional offices involving basic deficiency tax of P500,000.00, and
b. involves minor criminal violations as may be determined by rules and regulations to be promulgated by
the Secretary of Finance, upon recommendation of the CIR, discovered by regional and district officials
4. The power to assign and reassign internal revenue officers to establishment where articles subject to
excise tax are produced or kept. Revenue officers assigned to any such establishments shall in no case stay
in his assignment for more than 2 years.

Rules in assignments to other duties

Revenue officers assigned to perform assessment and collection function shall not remain in the same
assignment for more than three (3) years. Assignment of internal revenue officers and employees of the Bureau
to special duties shall not exceed 1 year.

Agents and Deputies for Collection of National Internal Revenue Taxes

1. The Commissioner of Customs and his subordinates with respect to collection of national internal revenue
taxes on imported goods.
2. The head of appropriate government offices and his subordinates with respect to the collection of energy tax.
3. Banks duly accredited by the Commissioner with respect to receipts of payments of internal revenue taxes
authorized to the made thru banks.
END

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 Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977

TAX.3401-5 NARANJO/SIAPIAN/WONG/GUDANI
DISCUSSION QUESTIONS MAY 2023

1. To provide funds or property with which to promote the general welfare and protection of its citizens and to
enable it to finance public expenditure is the:
a. Importance of taxation
b. Lifeblood theory
c. Primary purpose of taxation
d. Secondary purpose of taxation
2. The primary purpose of taxation is to:
a. Prevent inflation
b. Protect local industries
c. Provide revenue for the State
d. Reduce inequalities and wealth
3. The power of taxation proceeds upon a this theory that the existence of the government is a necessity; that it
cannot continue without means to pay its expenses; and that it has a right to compel all its citizens and property
within the its limits to contribute.
a. Benefit-received theory
b. Doctrine of symbiotic relationship
c. Lifeblood doctrine
d. Theory of relativity
4. As to subject matter, it is a tax imposed upon the performance of an act, the enjoyment if a privilege or the
engaging in an occupation.
a. Ad valorem tax
b. Excise or privilege tax
c. Personal, poll or capitation tax
d. Property tax
5. The basis of taxation is found on the reciprocal duties of protection and support between the State and its
inhabitants. This theory is otherwise known:
a. Benefit-received theory
b. Doctrine of symbiotic relationship
c. Lifeblood doctrine
d. Theory of relativity
6. The tax laws should be capable of convenient, just and effective administration:
a. Administrative Feasibility
b. Fiscal Adequacy
c. Theoretical Justice
d. Uniformity
7. The sources of revenue should be sufficient to meet the demands of public expenditures:
a. Administrative Feasibility
b. Equality
c. Fiscal Adequacy
d. Theoretical Justice
8. The tax burden should be proportionate to the taxpayer’s ability to pay.
a. Administrative Feasibility
b. Fiscal Adequacy
c. Theoretical Justice
d. Uniformity
9. Theoretical justice is the:
a. Ability to pay theory
b. Due process clause
c. Equal protection of the laws
d. Uniformity of taxation
10. Generally, the power of taxation can only levied by:
a. Bureau of Internal Revenue and Bureau of Customs
b. Congress of the Philippines
c. The Executive Department
d. The Judiciary
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. collection
c. levy
d. payment
12. The imposition of tax by the legislature is called:
a. assessment

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b. collection
c. levy
d. payment
13. Although the power of taxation is basically legislative in character, it is NOT the function of Congress to
a. collect the tax levied under the law
b. determine who should be subject to the tax
c. fix with certainty the amount of taxes
d. identify who should collect the tax
14. A rule in taxation which states that all taxable persons and property of the same class are taxed at the same rate
a. Scope of taxation
b. Situs of taxation
c. Theory of taxation
d. Uniformity in taxation
15. The country that has the jurisdiction or right to levy and collect the tax
a. Scope of taxation
b. Situs of taxation
c. Theory of taxation
d. Uniformity in taxation
16. It is the place of taxation.
a. Scope of taxation
b. Situs of taxation
c. Theory of taxation
d. Uniformity in taxation
17. A theory which states that no person shall be imprisoned for non-payment of this type of tax
a. Excise tax
b. Poll tax
c. Property tax
d. Value added tax
18. The existence of the government is a necessity is a theory founded on:
a. Benefits received theory
b. Doctrine of symbiotic relationship
c. Lifeblood theory
d. The power to destroy
19. The reason why cigarettes manufacturer are taxed heavily is based on the theory that:
a. The police power of the government is limitless
b. The power to tax includes the power to destroy
c. There is a symbiotic relationship between the taxing authority and the taxpayer
d. No viable answer given
20. These are restrictions arising from the very nature of the power to tax itself:
a. Constitutional limitations
b. Inherent limitations
c. Self-limitations
d. Self-restraints
21. These are restrictions founded on the fundamental law of the land:
a. Constitutional limitations
b. Inherent limitations
c. Self-limitations
d. Self-restraints
22. Taxation is inherent in every sovereignty because:
a. It may be exercised although it is not expressly granted by the fundamental law
b. The Congress of the Philippines, as a law-making body delegated such power to the State
c. The Constitution expressly provided for it
d. The Tax Code afforded such power to the State
st
23. 1 statement – The power of taxation is absolute.
2nd statement – The power of taxation is subject to limitations
a. 1st statement is true
b. 2nd statement is true
c. Both are true
d. Both are false
st
24. 1 statement - No person shall be deprived of life, liberty, or property without due process of law.
2nd statement – No person shall be denied equal protection of the law.
a. 1st statement is true
b. 2nd statement is true
c. Both are true
d. Both are false
25. It means the recognition or respect accorded by one jurisdiction within its territory over the law of another
because they are sovereign equals.
a. Exemption from taxation of government entities

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b. International comity
c. Reciprocity
d. Territoriality
26. It refers to fraudulent or forbidden schemes or devices designed to lessen or defeat taxes.
a. Tax avoidance
b. Tax evasion
c. Either tax evasion or avoidance
d. Neither tax evasion or avoidance
27. It is the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable
property or income in order to reduce tax liability.
a. Tax avoidance
b. Tax evasion
c. Either tax evasion or avoidance
d. Neither tax evasion or avoidance
28. The transfer of the tax burden by one whom the tax is assessed to another is called:
a. Tax avoidance
b. Tax evasion
c. Tax exemption
d. Tax shifting
29. It is the agreement between two States or countries reduced in writing as to the treatment of the income of
each citizens within its jurisdiction:
a. International comity
b. Reciprocity
c. Tax covenants
d. Tax treaty
30. The power of taxation can only be exercised by the State:
a. True
b. False
31. The power of eminent domain can only be exercised by the State:
a. True
b. False
32. The benefit-received theory is based on what principle?
a. Ability to pay theory
b. Equity
c. Necessity
d. Reciprocity
33. The statement “Without taxes, the government would be paralyzed” is based on:
a. Ability to pay theory
b. Benefit-received theory
c. Life-blood theory
d. Paralysis theory
34. A quasi-public corporation like the National Grid Corporation of the Philippines (NGCP) may exercise one of the
inherent powers of the state. Which is it?
a. Police power
b. Power of eminent domain
c. Taxation power
35. Which does NOT belong to the group?
a. Due process of law
b. Equal protection of the law
c. Non-impairment of obligation and contract
d. Territoriality
36. Identify which escape of taxation is not allowed by law.
a. Shifting
b. Tax dodging
c. Tax minimization
d. Transformation
37. Which is NOT an element of a valid tax?
a. It must be for public purpose
b. It must be payable in money
c. It must be proportional in character
d. It must be uniform and equitable
38. Which is NOT a source of tax law?
a. Decisions of the Court of Tax Appeals
b. Opinion of tax experts
c. Revenue regulations issued by the Secretary of Department of Finance
d. Tax treaties entered into by the Philippines and another foreign state
39. The issuance promulgated by the Secretary of Finance:
a. Revenue Regulations

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b. Revenue Memorandum Order

c. Revenue Memorandum Circular
d. Revenue Rulings
40. The Commissioner, when clarifying a specific provision of a law, shall issue:
a. Revenue Regulations
b. Revenue Memorandum Order
c. Revenue Memorandum Circular
d. Revenue Rulings

Powers of the Commissioner

Yes No
41. Promulgate revenue regulations relating to tax.
42. Interpret the provisions of the TRAIN Law (tax law)
43. Decide tax cases
44. Open the bank accounts of taxpayers
45. Enter into a compromise of tax liabilities
46. Accredit tax agents
47. Arrest tax evaders
48. Levy taxes
49. Assess and collect taxes
50. Issue subpoena to compel taxpayers to provide documents

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