General Principles of Taxation

Practice

1. All are characteristics of the power of

taxation, EXCEPT: 8. Imposed to regulate conduction:
A. It is an inherent power. A. Tax
B. It is legislative in character. B. Toll
C. It is civil in character. C. Penalty
D. It is subject to inherent and constitutional D. License fee
limitations.
9. A form of tax escape through which one is
2. Taxation is an inherent power because: given tax immunity wherein others are subjected
A. It is the life blood of the government. to tax:
B. Protection and benefit theory. A. Shifting
C. It co-exists with the existence of the state. B. Tax immunity
D. It is exercised for the general welfare of the C. Tax exemption
people. D. Tax avoidance

3. All are essential characteristics of a tax, 10. The power of taxation is inherent in
EXCEPT: sovereignty being essential to the existence of
A. It is an enforced contribution. the government. Hence, even if not mentioned
B. It is generally unlimited in amount. in the Constitution the state can still exercise the
C. It is generally payables in money power.
D. It is a proportionate burden. It is essentially a legislative function. Even in the
absence of any constitutional provision, taxation
4. All are secondary purpose of taxation power falls to Congress as part of the general
EXCEPT: power of law-making.
A. Sumptuary purpose A. False; False
B. Regulatory purpose B. False; True
C. Compensatory purpose C. True; True
D. Uniformity purpose D. True; False

5. In the absence of inherent and constitutional 11. In case of conflict between the tax code and
limitation, the power of tax is: generally accepted accounting principles
A. Comprehensive (GAAP):
B. Unlimited A. Both tax codes and GAAP shall be enforced
C. Both A and B B. GAAP shall prevail over tax code
D. Regulatory C. Tax code shall prevail over GAAP
D. The issue shall be resolved by the courts.
6. Below are characteristics of sound taxation
system, EXCEPT: 12. Which of the following statement is not
A. Administrative feasibility and compliance correct?
B. Fiscal adequacy A. Taxes may be imposed to raise revenues or
C. Theoretical justice to regulate certain activities within the state
D. Uniformity of taxation B. The state can have the power of taxation
even if the Constitution does not expressly give
7. It refers to a fraudulent act of minimizing it the power to tax
taxes: C. For the exercise of the power of taxation, the
A. Tax avoidance state can tax anything at any time
B. Tax evasion D. The provisions of taxation in the Philippines
C. Tax minimization Constitution are grants of power and not
D. Multiple taxation limitations on taxing powers
 17. What kind of taxes, fees and charges are
13. 1st Statement- Tax exemptions are strictly considered as National Internal Revenue Taxes
construed against the government. under the National Internal Revenue Code
2nd Statement- When the tax law is not clear and (NIRC)?
there is doubt whether he is taxable or not, the I. Income taxes
doubt shall be settled against the government. II. Estate taxes
A. Only the first statement is correct III. Donor’s taxes
B. Only the second statement is correct IV. Value added taxes
C. Both statements are correct V. Other percentage taxes
D. Both statements are incorrect VI. Excise taxes
VII. Documentary stamp taxes
14. Statement 1: To be exempt from taxation VIII. Community taxes or poll taxes
under the Constitution land and buildings must IX. Real property taxes
be exclusively and actually used for religious, A. I, II, III, IV, V, VI
educational or charitable purpose, even if not B. I, II, III, IV, V, VI, VII
directly. C. I, II, III, IV, V, VI, VII, VIII
Statement 2: Exemptions of non-profit schools
are only limited to revenue and assets derived 18. What is required to make a BIR ruling of first
from strictly school operations. impression a valid one, except?
A. True, True A. Must be reasonable and within the authority
B. False, False conferred.
C. False, True B. Must be germane to the purpose of the law.
D. True, False C. Must be published.
D. Must be prospective in application
15. Where does taxing power of the provinces,
municipalities and cities precede from? 19. The Constitution provides, “charitable
A. Constitutional grant institutions, churches, parsonages or convents
B. Legislative enactment appurtenant thereto, mosques and non-profit
C. Presidential or Executive act cemeteries and all lands buildings and
D. Local legislation improvements actually, directly and exclusively
used for religious, charitable or educational
16. The Local Government Code took effect on purposes shall be exempt from taxation. “This
January 1, 1992. PLDT’s legislative franchise provision exempts charitable institutions and
was granted sometime before 1992. Its religious institutions from what kind of taxes?
franchise provides that PLDT will only pay 3% A. From all kinds of taxes, i.e. income, vat,
franchise tax in lieu of all taxes. The legislative customs, local taxes, and real property tax
franchises of Smart and Globe Telecoms were B. From income tax only
granted in 1998. Their legislative franchises C. From value-added-tax
state that they will pay only 5% franchise tax in D. From real property tax
lieu of all taxes. The Province of Zamboanga del E. From capital gains tax
Norte passed an ordinance in 1997 that imposes
a local franchise tax on all telecommunication 20. 1st Statement: In every case of doubt, tax
companies operating within the province. The statutes are construed strictly against the
tax is 50% of 1% of the gross annual receipts of Government and liberally in favor of the
the preceding calendar year based on the taxpayers.
incoming receipts, or receipts realized, within its 2nd Statement: Where the intent to tax is clear
territorial jurisdiction. Is the ordinance valid? and the taxpayer claims that he is exempt from
A. No, the ordinance in effect resulted into the tax obligation, the tax shall be construed
double taxation. against the taxpayer and in favor of the
B. No, the Local Government Code prevails over Government because the power of taxation is
ordinances. necessary to the existence of such Government
C. Yes, the local government units are A. True; False
empowered by the Constitution to raise its own B. True; True
revenues. C. False; True
D. Yes, autonomy of Zamboanga del Norte D. False; False
 C. Where the intent to tax is clear and the tax
21. Which of the following statement is wrong? payer claims he is exempt from the tax
A revenue bill obligation, the tax shall be construed against the
A. Maybe recommended by the President to taxpayer
Congress D. Provisions intended for the security of the
B. May have a House version and a Senate taxpayer or to insure equality or uniformity of
version approved separately and then taxation are mandatory
consolidated with both houses approving the
consolidation version. 25. A progressive system of taxation means a
C. May originate from the Senate and on which tax structure
same bill the House of Representatives may A. Where the tax rate increase as the tax base
amendments. increase
D. Must originate from the House of B. Where persons who desired to avail of
Representatives and on which same bill the government services or benefits are required to
Senate may propose amendments. pay for their cost in the form of taxes
C. Where persons who possess more in wealth
22. Which of the following is not considered as or income are required to bear the cost of
one of the characteristics of special government corresponding to such capacity
assessments?
A. It is based solely on the benefit derived by 26. Which of the following is not an element of
the owners of the land. double taxation?
B. It is levied only on land. A. Two taxes
C. It is based on the government’s need of B. Same subject matter
money to support its legitimate objectives. C. Same year
D. It is not personal liability of the person D. Same amount
assessed.
27. One of the following is the least principle of
23. Which of the following is not a purpose of sound tax system.
taxation? A. Fiscal adequacy
A. To reduce inequalities of wealth B. Administrative feasibility
B. As proactive tariff on imported goods to C. Theoretical justice
protect local producers against foreign D. Economic consistency
competitions.
C. To encourage the growth of home industries 28. Basis of taxation?
through the proper use of tax incentives. A. Lifeblood theory
D. To expropriate property for the promotion of B. Necessity theory
general welfare. C. Benefit-protection theory
D. Reciprocal theory
24. This rule is not applicable on the
construction of tax laws 29. A suit questioning the validity of a tax
A. If the law is repealed, taxes assessed before statute or law is:
repeal of the law may no longer be collected A. Taxpayer’s suit
B. If the intent of the tax is not clear as to B. Derivative suit
whether the taxpayer is covered by the tax C. Class suit
obligation, the law shall be construed against D. Representative suit
the government.

30. Among the nature of taxation is that it is an b. There should be no improper

inherent power that is an attribute of delegation of the power to tax
sovereignty. Which of the following is not c. Taxes may be imposed even without a
among its manifestation as such an inherent constitutional grant
power? d. The state has a right to select the
a. Courts cannot issue an injunction to subjects and objects of taxation
enjoin the collection of taxes
 (B) wrong because the law recognizes
that the power to tax is the power to
destroy
31. A fundamental rule in taxation is that, the (C) correct because no government can
property of one country may not be taxed by deprive a person of his livelihood
(D) correct because Congress, in this
another country. This is known as:
a. International law case, exceeded its power to tax
b. International comity
c. Reciprocity
d. International inhibition 35 Real property taxes should not disregard
increases in the value of real property occurring
32. public money or property may be
over a long period of time. To do otherwise
appropriated:
would violate the canon of a sound tax system
a. For the use, benefit or support of any referred to as:
sect, church, denomination, sectarian, (A) theoretical justice.
institution or system of religion (B) fiscal adequacy.
b. For the use, benefit or support of any (C) administrative feasibility.
priest, preacher, minister, or other (D) symbiotic relationship.
religious teachers or dignitary as such
c. For the use, benefit or support of any 36 Which theory in taxation states that without
priest, preacher, minister or dignitary taxes, a government would be paralyzed for lack
assigned to the armed forces or to any of power to activate and operate it, resulting in
penal institution, or government its destruction?
orphanage or leprosarium (A) Power to destroy theory
d. None of the above (B) Lifeblood theory
(C) Sumptuary theory
(D) Symbiotic doctrine
33. A taxpayer gives the following reasons for
refusing to pay a tax. Which of the following
37 Choose the correct answer. Double Taxation -
reasons is not acceptable for legally refusing to (1%)
pay tax? (A) is one of direct duplicate taxations wherein
a. That he has been deprived of due two (2) taxes must be imposed on the same
process of law subject matter, by the same taxing authority,
b. That there is lack of territorial within the same jurisdiction, during the same
jurisdiction period, with the same kind or character of tax,
c. That the prescriptive period for the tax even if the purposes of imposing the same are
has elapsed different.
d. That he will derive no benefit from the (B) is forbidden by law; and therefore, it is a
tax valid defense against the validity of a tax
measure.
(C) means taxing the same property twice when
34. Congress passed a sin tax law that increased it should be taxed only once; it is
the tax rates on cigarettes by 1,000%. The law tantamount to taxing the same person twice by
was thought to be sufficient to drive many the same jurisdiction for the same thing.
cigarette companies out of business, and was (D) exists when a corporation is assessed with
questioned in court by a cigarette company that local business tax as a manufacturer, and at
would go out of business because it would not the same time, value-added tax as a person
be able to pay the increased tax. selling goods in the course of trade or business.

The cigarette company is __________ 38Mr. Alas sells shoes in Makati through a retail
(A) wrong because taxes are the store. He pays the VAT on his gross sales to the
lifeblood of the government BIR and the municipal license tax based on the
same gross sales to the City of Makati. He
comes to you for advice because he thinks he is installation manager in the municipality; thus,
being subjected to double taxation. only he would be liable for the tax. Is the law
What advice will you give him? constitutional?
(A) Yes, there is double taxation and it is (A) It is unconstitutional because it clearly
oppressive. discriminates against this person.
(B) The City of Makati does not have this (B) It is unconstitutional for lack of legal basis.
power. (C) It is constitutional as it applies to all persons
(C) Yes, there is double taxation and this is in that class.
illegal m the Philippines. (D) It is constitutional because the power to tax
(D) Double taxation is allowed where one tax is is the power to destroy.
imposed by the national government and the
other by the local government. 42 What is the rule on the taxability of income
that a government educational institution derives
39 Choose the correct answer. Tax Avoidance - from its school operations? Such income is:
(A) is a scheme used outside of those lawful (A) subject to 10% tax on its net taxable income
means and, when availed of, it usually subjects as if it is a proprietary educational institution.
the taxpayer to further or additional civil or (B) Exempt from income taxation if it is
criminal liabilities. actually, directly, and exclusively used for
(B) is a tax saving device within the means educational
sanctioned by law. purposes.
(C) is employed by a corporation, the (C) subject to the ordinary income tax rates with
organization of which is prompted more on the respect to incomes derived from educational
mitigation of tax liabilities than for legitimate activities.
business purpose. (D) Exempt from income taxation in the same
(D) is any form of tax deduction scheme, manner as government-owned and controlled
regardless if the same is legal or not. corporations.

40 The BIR, through the Commissioner,

instituted a system requiring taxpayers to submit
to the BIR a summary list of their sales and
purchases during the year, indicating the name
of the seller or the buyer and the amount. Based
on these lists, the BIR discovered that in 2004
ABC Corp. purchased from XYZ Corp. goods
worthP5,000,000. XYZ Corp. did not declare
these for income tax purposes as its reported
gross sales for 2004was only Pl,000,000.
Which of the following defenses may XYZ
Corp. interpose in an assessment against it by
the BIR?
(A) The BIR has no authority to obtain third
party information to assess taxpayers.
(B) The third party information is inadmissible
as hearsay evidence.
(C) The system of requiring taxpayers to submit
third party information is illegal for violating the
right to privacy.
(D) None of the above.

41 The municipality of San Isidro passed an

ordinance imposing a tax on installation
managers. At that time, there was only one