TAXATION

GENERAL PRINCIPLES
QUIZ

I. TRUE OR FALSE

1. The power of taxation must first be expressly granted, either by law or the
Constitution, before the state may validly exercise it.

2. Taxation is the lifeblood of the government.

3. The Philippine government may subject the land where embassies of foreign
governments are located to real property taxes.

4. A taxpayer who fails or refuses to pay his taxes cannot be imprisoned for non-
payment of the same.

5. The power of taxation is superior to the non-impairment clause of the

Constitution.

6. The constitutional exemption granted to religious, charitable and educational

institutions refers to real property taxes only.

7. Tax exemption are strictly construed against the government and liberally in favor
of the taxpayer.

8. The regulatory fees charged by the various government agencies on business

establishment is an exercise of police power.

9. A government that imposes more direct taxes than indirect taxes has managed
to evolve a progressive system of taxation.

10. The progressive system of taxation to be evolved by Congress as mandated by the

Constitution is to be interpreted as a permissive, rather than amendatory,
provision.

11. Taxes are imposed primarily to raise revenue, while fees and charges are imposed
primarily for regulatory purposes.

12. There is no constitutional limitation if Congress will pass a law subjecting the
Armed Forces of the Philippines to taxation.

13. A deliberate understatement of expenses is an example of tax evasion.

14. Where a taxpayer was entitled to a tax refund regarding his prior taxes and the
same is already by prescription, he may nevertheless offset such refund with his
current tax liability.

15. Under the withholding tax system, the recipient of the income deducts the
withholding tax and remits the same to the BIR within the period prescribed by
law.

16. Direct double taxation is expressly prohibited by the Philippine Constitution.

 17. A local tax ordinance which fails to specify its purpose is invalid for not meeting
the requirement of public purpose.

18. The real property rented by a private educational institution to be used as a

library is exempt from real property taxation.

19. A tax exemption granted in a bond indenture agreement may be revoked at any
time without violating the non-impairment clause of the Constitution.

20. A school canteen which is operated by a private concessionaire is exempt from

taxation.

21. The situs of a patent is the place of use of the intangible.

22. There are no regressive taxes in the Philippines.

23. Philippine tax laws are civil in nature.

24. A global tax system subjects different types of income to different set of
graduated or flat rates.

25. The severance test theory dictates that income is recognized where there is a
separation of something which is of exchange value.

II. MULTIPLE CHOICE

1. Which of the following is an indirect tax?

a. Income tax c. Donor’s tax
b. Estate tax d. None of the foregoing

2. Which of these imposition is a regressive tax?

a. Donor’s tax c. Documentary stamp tax
b. Income tax d. None of the foregoing

3. Which of these principles is not in accord with a sound tax system?

a. Fiscal adequacy c. Theoretical justice
b. Administrative feasibility d. Retroactivity of tax rulings

4. Which of the following taxes is based on the taxpayer’s ability to pay?

a. Value—added tax c. Documentary stamp tax
b. Excise tax d. income tax

5. Tax laws have been held to be:

a. Political in nature c. both a and b
b. Penal in nature d. Neither a nor b

6. Which of these items in the enactment of a tax may be delegated to the

administrative agencies (e.g. BIR)?
a) Determining the purpose of the tax
 b) Selecting the property to be taxed
c) Fixing he rate of the tax
d) None of the foregoing

7. Which of these impositions is deemed a tax?

a) Mayor’s business permit fee
b) Motor vehicle registration fee
c) Building permit fee
d) None of the foregoing

8. Which of the following is not expressly provided for in the Constitution?

a) Which of the following is not expressly provided for in the Constitution?
b) Uniformity of taxation
c) Progressive system of taxation
d) Non-imprisonment for non-payment of poll tax

9. Which of these theories is based on the reciprocal duties of protection and support
between the state and its inhabitants?
a. Lifeblood theory c. Benefits-Protection Theory
b. Necessity theory d. None of the foregoing

10. Which of these statements relative to the nature of taxes is inconsistent with the
Supreme Court’s rulings in tax cases?
a) A tax is not necessarily confined to those payable in money as, for instance,
back pay certificates may be used as payment of taxes.
b) In taxation, it is the civil liability to pay taxes that gives rise to criminal liability,
as opposed to criminal cases where it is the criminal liability that gives rise to
a civil liability.
c) A stockholder who has an unpaid stock subscription at the time the
corporation is dissolved cannot be held liable for the corporation’s tax
delinquency.
d) All of the foregoing statements are consistent with the Supreme Court’s
rulings.

11. Which of the following statements relative to the nature of a tax is true?
a) It is exacted pursuant to executive authority.
b) It is imposed to raise revenues.
c) It is always based on the taxpayer’s ability to pay.
d) None of the foregoing.

12. Which of the following statements reflects the nature of a compromise penalty?
a) It is penalty.
b) It is an imposition.
c) It can be imposed by the Commissioner of Internal Revenue.
d) None of the foregoing.

13. Which of the following real properties is subject to special assessment?

a) Land actually, directly and exclusively used for religious purposes.
b) Land actually, directly and exclusively used for educational purposes.
c) Building actually, directly and exclusively used for commercial purposes.
d) None of the foregoing.

14. One of the following taxes is a local tax:

a. Real property tax c. Documentary stamp tax
 b. Donor’s tax d. Capital gains tax

15. One of the following taxes is a national tax:

a) Community development tax
b) Amusement tax on admission fees of cinema houses
c) Percentage tax on domestic carriers.
d) Tax on quarry products

16. One of the following taxes is an ad valorem tax:

a) Excise tax on petroleum products
b) Income tax
c) Community development tax
d) Real property tax

17. Which of the following taxes adopts a system of graduated tax rates?
a. Income tax c. Estate tax
b. Value-added tax d. Donor’s tax

18. Which of the following is an element of a taxpayer’s suit?

a) Illegal disbursement of public funds
b) Illegal disposal of objects acquired from private sources
c) Either a or b
d) Neither a nor b

19. Which of these statements relative to license fees is false?

a) It is an exercise of the police power of the state.
b) The amount exacted must only by commensurate to the cost of the
regulation.
c) Motor registration fees are taxes.
d) Failure to pay the license fee will make the business illegal.

20. What is the system of taxation where all the items of income earned during the
taxable period are lumped together and subjected to a single set of income tax rates?
a) Global tax system
b) Schedular tax system
c) Semi-global and semi-schedular tax system
d) Proportionate tax system

21. What is the system of taxation where different types of income are subjected to
different set of graduated or flat rates depending on the classification of the income?
a) Global tax system
b) Schedular tax system
c) Semi-global and semi-schedular tax system
d) Proportionate tax system

22. What system of taxation is adopted in the Philippines?

a) Global tax system
b) Schedular tax system
c) Semi-global and semi-schedular tax system
d) Proportionate tax system

23. An increase in land value is not recognized as income until the property is sold or
exchanged. This is an application of the:
a. Severance test theory c. Economic benefit theory
b. Claim of right doctrine d. Accrual concept
24. Which of the following statements relative to tax administration is true?
a) The BIR is headed by the CIR and six (6) Deputy Commissioners.
b) The CIR has the exclusive and original jurisdiction to interpret the provisions
of the NIRC and other tax laws, subject to review by the Secretary of Finance.
c) The Commissioner of Customs is not an agent/deputy of the CIR with respect
to the collection of national internal revenue taxes on imported goods.
d) None of the foregoing.

25. The Bureau of Internal Revenue is headed by a Commissioner and Deputy

Commissioners numbering:
a. Two c. Six
b. Four d. Eight

26. The hornbook doctrine in the interpretation of tax laws states that:
a) A statute is not construed as imposing a tax unless it does so clearly and
unambiguously.
b) A tax cannot be imposed without clear and express words for that purpose.
c) Both a and b
d) Neither a and b

27. Which of the following statements relative to estoppel in taxation is false?

a) The state cannot be estoppel by the neglect of its agents and officers.
b) Estoppel applies where the BIR, for the first time on appeal, raises the defense
that the withholding agent is incapacitated to bring the action for tax refund.
c) The taxpayer who has made several requests for reinvestigation is estopped
from raising the defense of prescription against the government.
d) None of the foregoing.

28. Which of the following statements is not harmony with ”tax assessments”?
a) Assessments are prima facie presumed correct and made in good faith.
b) Assessment may be based on presumptions even if these presumptions have
no logical basis.
c) Assessment is discretionary on the part of the CIR.
d) The CIR may delegate his authority to assess taxes.

29. Which of the following statements is inconsistent with the “net worth method”?
a) It is an extension of the basic accounting principle “assets – liabilities = net-
worth”.
b) Increase in net-worth means taxable income.
c) The unexplained increase in net worth is presumed to be derived from
taxable sources.
d) It may be resorted to even if the taxpayer’s records and books of accounts
are adequate.

30. Which of these statements relative to tax exemptions false?

a) Constitutional grants of tax exemption are self-executing.
b) The rule of strict construction of tax exemptions applies to religious,
charitable and educational institutions.
c) The rule of strict construction of tax exemptions does not apply to
government political subdivisions and instrumentalities.
d) None of the foregoing.
31. In order to constitute direct double taxation, which of the following statements must
be present?
a) It is imposed on the same property by the same government.
b) It is imposed during the same period for the same purpose.
c) Both a and b
d) Neither a nor b

32. Which of these impositions constitutes direct double taxation?

a) The imposition of an excise tax and the value-added tax on the same
imported articles.
b) The imposition of amusement taxes on amusement places by both the
national government and the local government unit.
c) The imposition of a creditable income tax and a final income tax on the same
item of revenue.
d) None of the foregoing.

33. Which of these statements relative to “public purpose” is inconsistent with the
Supreme Court’s rulings in tax cases?
a) The public purpose requirement is not met if a tax ordinance does not
specifically state the purpose for which the tax is to be used.
b) The public purpose requirement is met if the thing to be furthered by the
appropriation of public revenue is something which is the duty of the State
to provide.
c) The public purpose requirement is met if the proceeds of tax will directly
promote the welfare of the community in equal measure.
d) All of the foregoing statements are consistent with the Supreme Court’s
rulings.

34. Congress passed a tax law imposing a certain rate on the taxpayer’s income as
“calamity tax”. The proceeds shall provide financial assistance to areas that are hit by
typhoons, floods, earthquake and other natural disasters. The enactment subjects all
income earners, including those who reside in localities that are never prone to
natural disasters. Which of these limitations is violated by the tax laws?
a. Public purpose c. Equal protection clause
b. Uniformity clause d. None of the foregoing

35. Which of the following powers is an exception to the principle of non-delegation of

the taxing power?
a) The power of the President of the Republic of the Philippines to fix tariff rates.
b) The power of the local government units to levy taxes.
c) Both a and b
d) Neither a nor b

36. Which of the following tax exemption and reliefs is an extension of “international
comity”?
a) Exemption of embassies of foreign governments from real property tax.
b) Exemption of income of foreign governments from income tax.
c) Both a and b
d) Neither a nor b

37. Which of the following violates the “due process clause” of the Constitution?
a) Failure of the government to furnish a notice to the taxpayer before levying
his properties for non-payment of taxes.
b) Violation of any of the inherent limitations on the power of taxation.
 c) Both a and b
d) Neither a nor b

38. A taxpayer enjoyed tax exemption benefits under a special franchise. Later, the
Congress passed a law revoking this tax exemption. The act of Congress in
withdrawing the tax exemption benefit constitutes:
a) Violation of the Uniformity rule of taxation
b) Non-observance of the equal protection clause
c) Impairment of the obligation of contracts
d) None of the foregoing

39. The Land Bank of the Philippines issued a tax-free government bonds with maturity
period of ten (10) years from date of issuance. After only a period of five (5) years,
the Congress passed a law revoking the tax exemption of all bonds issued by the
government. The revocation of the said tax exemption constitutes:
a) Impairment of the obligation of contracts
b) Violation of the uniformity rule of taxation
c) Denial of due process
d) None of the foregoing

40. One of the following is not a requisite of a valid and reasonable classification under
the equal protection clause of the Constitution:
a) It must rest on substantial distinctions
b) It must be germane to the purpose of the law.
c) It must be limited to existing conditions only.
d) It must apply equally to all members of the same class.

41. Which of these cases violates the “equal protection clause” of the Constitution?
a) A tax ordinance that imposes a tax on all “installation managers” where at
the time of its enactment there was only one installation manager in the area.
b) A tax ordinance that imposes a tax on “agents or consignees of outside
dealers” in softdrinks without the said tax being levied also on “local dealers”.
c) A grant of tax exemption to “coconut farmers and copra producers” but not
to “copra traders and dealers”.
d) None of the foregoing.

42. Which of the following statements relative to the constitution exemption from real
property taxes is false?
a) The test to determine the exemption is the use, not the ownership, of the
property.
b) The word “exclusively” means solely.
c) The exemption does not extend to special assessments.
d) None of the foregoing.

43. Which of the following real property of a non-stock, non-profit hospital shall be
subject to real property taxes?
a) Second and third floors of hospital building used as wards for paying in-
patients.
b) Fourth floor of hospital building used as doctors’ and nurses’ resting quarters.
c) Parking lot for hospital administrators, personnel, patients, and visitors.
d) Ground floor leased to a canteen concessionaire and to doctors holding their
clinics.
44. Which of these cases relative to a non-stock, non-profit educational institution is
consistent with administrative circulars and issuances?
a) Incidental income (e.g. income derived from canteen, bookstore and
dormitory facilities) shall be exempt from income tax where the said facilities
are owned and operated by the school itself and are inside or near the school
campus.
b) Where the school invests its income from tuition fees for an unrelated
purpose (e.g. money market placements), the earnings therefrom by way of
interest are exempt from income tax.
c) Interest income derived from bank deposits is automatically exempt from
income tax.
d) None of the foregoing.

45. Which of these incomes of a proprietary educational institution shall be tax-exempt?

a) Incidental income from a bookstore operated by the school itself inside the
campus.
b) Income from savings and time deposits in local banks.
c) Income from a dormitory operated by the school adjacent to the school
campus.
d) None of the foregoing.

46. A non-stock, non-profit educational institution operates a canteen and a

bookstore within the school campus. The income derived from these facilities (for
income tax purposes) and the real property therein (for real tax purposes),
respectively, are:
a. Both taxable c. taxable and exempt
b. Both exempt d. Exempt and taxable

47. Assume the same facts in the immediately preceding problem, except that the school
is a stock educational institution. The income derived from these facilities (for income
tax purposes) and the real property therein (for real property tax purposes),
respectively, are:
a. Both taxable c. taxable and exempt
b. Both exempt d. Exempt and taxable

48. Which of the following practices constitutes tax avoidance?

a. Availing of tax credits c. Overstatement of expenses
b. understatement of revenues d. None of the foregoing

49. Which of the following practices constitutes tax evasion?

a) Understating the revenues and overstating the expenses.
b) Deducting cost of goods sold from sales
c) Reporting sale discounts as deductions from gross sales
d) Claiming depreciation expense for permanent, useful assets

50. The situs of a business transaction is the:

a) Citizenship of the parties to the transaction
b) Residence of the parties to the transaction
c) Place where the act is performed.
d) None of the foregoing