No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : www.icarecpareview@gmail.com

TAX PRINCIPLES TAX09-01

A. Define Taxation

1. As a state power: Taxation refers to the inherent power of a sovereign state acting
through its legislature to impose a proportionate burden upon persons, property
rights or transaction to raise revenue to support government expenditure and as a
tool for general and economic welfare.
2. As a process: Taxation refers to the act of imposing a tax by a sovereign state
to raise revenue for the use and support of the government.

B. What are the PURPOSES of taxation?

1. Primary purposes: to raise funds for the expenses of the government: ( also called
Revenue purpose)
2. Secondary purpose: as a tool for general, social and economic welfare (also called
Regulatory / Sumptuary / Compensatory purpose)
3. Other purpose: promotion of general welfare, reduction of social inequality,
encourages economic growth and protectionism.

C. Give the NATURE or CHARACTERISTICS of the taxing power

1. It is inherent power of a sovereign state – being inherent in sovereignty, the state

has the power to tax even if not expressly granted by the constitution.
2. It is legislative in character – taxation is generally exercised by the law-making
body of a state.
3. It is subject to inherent and constitutional limitations.

D. What is SCOPE of the power of taxation?

In the absence of inherent and constitutional limitations, the power to tax is

comprehensive and unlimited. It is so comprehensive that in the words of justice
Marshall of US Supreme Court, the power to tax includes the power to destroy. It is
an awesome power.

Scope of the legislative taxing power (SARPKASM)

1. Subject of Taxation - The person, property, or occupation to be taxed.

2. The amount or rate of tax
3. The purpose for which taxes shall be levied provided they are public purpose
4. The kind of tax to be collected
5. The apportionment of the tax
6. The situs of taxation
7. The method of collection.

E. Where does the power of taxation proceed from?

It proceeds from the necessity of the existence of the government, and since it exists
for the people, it can compel them to pay taxes.

F. What is the basis of taxation?

The reciprocal obligation of protection and support between the state and its citizens.
In return for the protection provided by the state, the people pay taxes. Benefit –
Protection Theory.

G. Power of judicial REVIEW

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Courts cannot inquire into the wisdom of a taxing act. As long as the legislature, in
imposing a tax, does not violate applicable constitutional limitations or restrictions,
the courts have no concern with the wisdom or policy of the exaction, the political or
other collateral motives behind it, the amount to be raised, or the persons, property
or other privileges to be taxed.

H. Rules of interpretation of tax laws

1. Tax laws are construed in favor of the taxpayer and strictly against the
Government
2. Tax exemptions to be construed strictly against the taxpayer

I. What are the three inherent powers of the state? PET

1. Police Power
2. Eminent Domain
3. Taxation

SIMILARITIES:
1. They are indispensable to government existence.
2. They can exist independent of the constitution.
3. They are means by which the state interferes with private rights and properties.
4. They are generally exercised by the legislature.
5. They contemplate an equivalent compensation or benefit.

DISTINCTIONS Taxation Eminent Domain Police Power

Subject Persons, property and Private property Persons, property and
exercise of right or exercise of rights or
privilege. privileges.
Purpose Raise revenue for the To acquire private For regulation and
support of the property for public control.
government. use.
Limitation Generally unlimited Limited to the fair
Limited to the amount
value of the property.
necessary to defray the
cost of regulation
Act involved Taxpayer pays taxes. Private property is Restriction of personal
taken. and/or property rights.
Benefit in Benefits and protection Amount equivalent to Protection and other
exchange of the from the Government jus compensation. benefits from the
foregoing Government.
Status as against Inferior Superior Superior
the non-
impairment
clause of the
constitution

J. Enumerate and briefly define the principles/characteristics of a SOUND TAX

SYSTEM

1. Fiscal adequacy – The source of revenue as a whole should provide enough

funds to meet the various expenditures of the government.
2. Administrative feasibility and compliance – Tax laws should be easy to
understand, capable of enforcement by the administrative personnel and
convenient to the taxpayers as to the modes and methods and time of payment.
3. Theoretical justice and equality – Taxes should be imposed equitably based on
the taxpayer’s ability to pay and benefits received.
4. Consistency or compatibility with economic goals – Tax laws should be
consistent with the economic goals of the state.

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K. What are the limitations on the power of taxation?

1. Inherent limitations - Goes in the very nature of the taxing power itself.
Developed by customs, usages and tradition (CUT).

a. Public purpose.
b. Exemption of government agencies and instrumentalities.
c. Non-delegability.
d. International Comity
e. State’s territory

2. Constitutional limitations – those that limit the power of taxation as embodied in

the constitution.

a. Due process of law in taxation and equal protection of the laws.

b. Rule on uniformity and equity in taxation.
c. No imprisonment for non-payment of poll tax.
d. Non-impairment of the obligation of contracts.
e. No appropriation of public money for religious purposes.
f. Exemption of religious, charitable, educational entities, non-profit cemeteries
and churches from property taxation.
g. Exemption from taxation of non-stock, non-profit educational institutions and
donations for educational purposes.
h. Concurrence by a majority of the members of Congress for passage of a law
granting tax exemption.
i. The power of the President to veto a revenue or tariff bill.
j. Non-impairment of the jurisdiction of Supreme Court in tax cases.

3. Contractual limitations – these are restrictions on the taxing power imposed by

previously existing contracts entered into by the government with another party
who may be another state or its own citizens.

a. Franchise granted to its citizen

b. Service contracts on petroleum and other energy operations
c. Agreement with the Asian Development Bank.

L. Give the steps/stages involved under taxation system (Aspects).

1. Levying or imposition of taxes – which is a legislative act

2. Collection of taxes – an administrative act
a. Assessment
b. Actual tax collection
c. Enforcement of tax laws/criminal prosecution for willful violation of tax laws

M. Repository of tax laws

a. Constitution
b. Statues – National Internal Revenue Code and other special tax laws
c. Implementing Rules and Regulations
d. BIR Rulings
e. Decision of the Supreme Court (Jurisprudence or Case Law)
f. Decisions of the Court of Tax Appeals (persuasive; does not have the same
stature as that of decisions of the Supreme Court
g. Tax Treaty – executive agreement, duly approved by the Philippine Senate

N. Define TAXES

Taxes are enforced proportional contributions levied by the state for the support of
the government.

O. What are the essential characteristics, requisites or elements of a tax?

a. A tax is an enforced contribution.

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b. It is proportionate in character.
c. It is imposed pursuant to a legislative authority.
d. It is imposed for public purpose.
e. It is generally payable in money.
f. It is levied within the territorial and legal jurisdiction of a state.

P. CLASSIFICATION of taxes

1. As to subject matter:
a. Personal, poll or capitation tax
b. Property tax
c. Excise tax

2. As to who bears the burden:

a. Direct tax
b. Indirect tax

3. As to determination of amount:
a. Specific tax – tax based on weight, number or some other standards of weight or
measurement.
b. Advalorem tax – tax imposed based on the value of the taxable item.

4. As to purpose:
a. General tax – tax imposed for general purposes of the government.
b. Special tax – tax imposed for a special purpose or purposes.

5. As to jurisdiction /scope or authority imposing tax:

a. National tax – tax imposed on a national and for the national/government.
b. Local tax – tax imposed on a local level for the support of local governments.

6. As to graduation or rate:
a. Proportional tax – the tax rate of which is fixed or constant.
b. Progressive tax - the tax rate increases as the taxable amount or tax bracket
increases.
c. Regressive tax – the tax rate decreases as the taxable amount or tax bracket
increases.

Q. Tax distinguished from OTHER CHARGES and FEES

TAX TOLL
Demand of sovereignty Demand of proprietorship
Generally amount is unlimited Amount is limited to the cost and
maintenance of public improvement.

For the support of the government For the use of another’s property
Imposed by the State only May be imposed by private individuals or
entities

TAX SPECIAL ASSESSMENT

Imposed on persons, property rights and Levied only on lands
transactions
Support of the Government Contribution to the cost of public
improvement.
Regular exaction Exceptional as to time and place.

TAX LICENSE FEE

Imposed to raise revenue. For regulation.

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Exercised under taxation power of the Exercised under police power of the state.
State.
Generally, amount imposed is unlimited. Limited to the amount necessary to defray
the cost of regulation.
Non-payment does not make the activity Non payment makes the activity illegal.
illegal.

TAX DEBT
Based on law Based on contract
Not assignable Assignable
Payable in money Payable in kind or money
Non-payment may result to imprisonment No imprisonment
Bears interest only if delinquent Interest only if stipulated in writing

P. DOUBLE TAXATION

Direct double taxation – means taxing twice, on the same purpose, in the same year. To
constitute double taxation – the two or more taxes must be:

1. Imposed on the same property

2. By the same state or government
3. During the same taxing period, and
4. For the same purpose.

Q. Tax Administration

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

execution of judgement in all tax cases decided in favor of the BIR by the courts.

R. Powers and duties of the BIR

1. Assessment and collection of all national internal revenue taxes, fees and charges
2. Enforcement of all forfeitures, penalties and fines connected therewith
3. Execution of judgement in all cases decided in its favor by CTA and ordinary courts
4. Give effect to and administer the supervisory and police power conferred to it by the
NIRC or other laws.

S. Chief official of the BIR

The BIR shall have a chief to be known as Commissioner of internal revenue and four
assistant chiefs to be known as Deputy Commissioners.

Quizzers on Principles of Taxation

1. First Statement – Taxation power is considered inherent in a sovereign State

because it is a necessary attribute of sovereignty. Without this power no sovereign
State can exist or endure
Second Statement - The power to tax proceeds upon the theory that the existence
of a government is a necessity and this power is an essential and inherent attribute
of sovereignty, belonging as a matter of right to every independent state or
government.
a. True, False
b. True, True
c. False, True
d. False, False

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2. The following are stages/aspects of taxation, except

a. Levying and imposition
b. Administration and collection
c. Payment
d. Appeal to the Court of Tax Appeals

3. By its nature taxation is a legislative power, i.e., such power being exclusively
vested in the legislature, except
a. In case of local governments, to raise their own revenue, within their own
territorial jurisdiction, subject to limitations as may be provided by Congress.
b. The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program
of the Government.
c. Both A and B
d. Neither A nor B

4. The equal protection clause guarantees that persons and things similarly situated
are treated under the law similarly. However, constitutional guarantee allows
reasonable classification, provided the conditions are met, except
a. rest on substantial distinctions
b. be germane to the purpose of the law
c. not be limited to existing conditions only
d. apply equally to some members of the same class.

5. An Executive Order (EO) was issued pursuant to law, granting tax and duty
incentives only to businesses and residents within the "secured area" of the Subic
Economic Special Zone, and denying said incentives to those who live within the
Zone but outside such "secured area". Is the constitutional right to equal protection
of the law violated.

a. Yes, the EO gave preferential rights to those located within the SEZA as
against other business located within the Philippines.
b. Yes, the EO being an issuance made by the executive branch of the
Government encroached on the power of the Legislature to exercise the power
of taxation.
c. No. Equal protection of the law clause allows reasonable classification. There
are substantial differences between big investors being enticed to the "secured
area" and the business operators outside that are in accord with the equal
protection clause that does not require territorial uniformity of laws.
d. No. Equal protection is not the issue on this matter rather the territoriality
limitation has been breached.

6. The following are the usual methods of avoiding the occurrence of double taxation,
except
a. Allowing reciprocal exemption either by law or by treaty;
b. Allowance of tax credit for foreign taxes paid;
c. Allowance of deduction for foreign taxes paid; and
d. Granting of reduced taxation rates by the Department of Finance

7. Our national internal revenue laws are

a. Political in nature
b. Penal and nature
c. Criminal in nature
d. Civil in nature

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8. Generally, tax laws are prospective in character. It will be given retroactive effect
under the following circumstances, except:
a. It is necessarily implied from the language used
b. It involves income tax
c. It is expressly provided or the retroactive application is clearly the intent of
Congress
d. It imposes a criminal liability

9. Which of the following statements is not correct?

a. Taxes maybe imposed to raise revenue or to provide disincentives to certain
activities within the State.
b. The State can have the power of taxation even if the Constitution does not
expressly give it the power to tax.
c. In the exercise of the power of taxation, the State can tax anything at any time.
d. The power of taxation in the Philippine Constitution are grants of power and not
limitations on taxing power.

10. All of the following, except one, are basic principles of a sound taxation system:
a. Fiscal adequacy
b. Administrative feasibility
c. Social equality
d. Theoretical justice

11. Under this basic principle of a sound taxation system, the government should
not incur a deficit:
a. Theoretical justice
b. Administrative feasibility
c. Fiscal adequacy
d. None of the above

12. The basic principle of a sound taxation system, where, “Taxes must be based
on the taxpayer’s ability to pay” is called:
a. Equality in taxation
b. Ability to pay theory
c. Theoretical justice
d. Equity in taxation

13. The tax law must be capable of convenient, just and effective administration
a. Equality or theoretical justice
b. Fiscal adequacy
c. Administrative feasibility
d. Rule of apportionment

14. A taxpayer gives the following reasons for refusing to pay a tax. Which of his
reasons is not acceptable for legally refusing to pay the tax?
a. That he has been deprived of due process of law.
b. That there is lack of territorial jurisdiction.
c. That the prescriptive period for the tax has lapsed.
d. That he will derive no benefit from the tax.

15. No law granting any tax exemption shall be passed without the concurrence of
–
a. Majority of all members of Congress
b. 2/3 vote of all members of Congress
c. ¾ vote of all members of Congress
d. Unanimous vote of all members of Congress

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16. Compliance with procedural requirements must be followed strictly to avoid

collision between the State’s power to tax and the individual’s recognized
rights.
a. Due process of law
b. Equality in taxation
c. Non-infringement of religious freedom
d. Non-impairment of obligations and contracts

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

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

18. Where does the taxing power of the provinces, municipalities and cities
precede from?
a. Constitutional grant
b. Legislative enactment
c. Presidential decree or Executive act
d. Local legislation

19. Which of the following has no power of taxation?

a. Province of Bulacan
b. Quezon City
c. Barangay Holy Spirit
d. Cordillera Administrative Region

20. Levying of local government taxes may be exercised by:

a. The local executive only
b. The legislative branch of the local government only
c. The local executive and the legislative branch of the local government unit
d. Neither the local executive nor the legislative branch of the local government
can exercise the power.

21. First Statement - Tax evasion is a scheme used outside of those lawful means
to escape tax liability and, when availed of, it usually subjects the taxpayer to
further or additional civil or criminal liabilities.
Second Statement - Tax avoidance, is a tax saving device within the means
sanctioned by law, hence legal.
a. True, true
b. True, false
c. False, false
d. False, true

22. First Statement - Tax Pyramiding is the imposition of a tax upon another tax.
It is allowed under this jurisdiction.
Second statement - A tax is deemed to have satisfied the uniformity rule when it
operates with the same force and effect in every place where the subject maybe found.
a. True, true
b. True, False
c. False, False
d. False, True

23. One of the following is NOT an inherent limitation:

a. Taxes must be for public purposes
b. Uniformity of taxation
c. Territoriality rule
d. Government exemption

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

25. Although the power of taxation is basically legislative in character, it is NOT the
function of Congress to

a. Fix with certainty the amount of taxes.

b. collect the tax levied under the law.
c. identify who should collect the tax.
d. determine who should be subject to the tax.

26. Which among the following concepts of taxation is the basis for the situs of income
taxation?
a. Lifeblood doctrine of taxation
b. Symbiotic relation in taxation
c. Compensatory purpose of taxation
d. Sumptuary purpose of taxation

27. Taxes are assessed for the purpose of generating revenue to be used for public
needs. Taxation itself is the power by which the state raises revenue to defray the
expenses of government. A jurist said that a tax is what we pay for civilization. In our
jurisdiction, which of the following statements may be erroneous?

a. Taxes are pecuniary in nature.

b. Taxes are enforced charges and contributions.
c. Taxes are imposed on persons and property within the territorial jurisdiction of the
State.
d. Taxes are levied by the executive branch of the government.

28. Which theory in taxation states that without taxes, a government would be paralyzed
for lack of power to activate and operate it, resulting in its destruction?
a. Power to destroy theory
b. Lifeblood theory
c. Sumptuary theory
d. Symbiotic doctrine

29. First Statement - In civil cases involving the collection of internal revenue taxes,
prescription is construed strictly against the government and liberally in favor of the
taxpayer.
Second Statement - In criminal cases involving tax offenses punishable under the
National Internal Revenue Code (NIRC), prescription is construed strictly against the
government
a. True, True
b. True, False
c. False, False
d. False, True .

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30. The following are sources of tax laws, except:

a. Constitution
b. Statue
c. Decisions of the Supreme Court
d. Opinion of law luminaries

31. Money collected from taxation shall not be paid to any religious dignitary EXCEPT
when
a. The religious dignitary is assigned to the Philippine Army.
b. It is paid by a local government unit.
c. he payment is passed in audit by the COA.
d. It is part of a lawmaker’s pork barrel.

32. The actual effort exerted by the government to effect the exaction of what is due
from the taxpayer is known as
a. assessment.
b. levy.
c. payment.
d. collection.

33. Transfer of the tax burden by one whom the tax is assessed to another
a. Shifting
b. Capitalization
c. Tax exemption
d. Transformation

34. The method by which the manufacturer or producer upon whom the tax is imposed
pays the tax and strives to recover such expense through lower production cost
without sacrificing the quality of his product
a. Shifting
b. Capitalization
c. Tax exemption
d. Transformation

35. The reduction in the selling price of income producing property by an amount equal to
the capitalized value of future taxes that may be paid by the purchaser
a. Shifting
b. Capitalization
c. Tax exemption
d. Transformation

36. Tax as distinguished from license fee:

a. Non-payment does not necessarily render the business illegal;
b. A regulatory measure;
c. Imposed in the exercise of police power;
d. Limited to cover cost of regulation.

37. Value-added tax is an example of:

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

38. First Statement – There will only be a tax if there is a law imposing the tax.
Second Statement – The power to tax is inherent and no constitutional grant of said
power is required before the state can exercise such power.
a. True, True
b. True, False
c. False, True
d. False, False

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39. For purposes of determining income tax liability: In case of conflict between the tax
code and generally accepted accounting principles (GAAP):
a. Both tax codes and GAAP shall be enforced;
b. GAAP shall prevail over tax code;
c. Tax code shall prevail over GAAP;
d. The issue shall be resolved by the courts.

40. First Statement – Tax and debt can be subject to off-set.

Second Statement – Taxes are generally payable only in money.
a. True, True
b. True, False
c. False, True
d. False, False

41. Which of the following statements is not correct?

a. Taxes may be imposed to raise revenues or to regulate certain activities within
the state;
b. The state can have the power of taxation even if the Constitution does not
expressly give it the power to tax;
c. For the exercise of the power of taxation, the state can tax anything at any time;
d. The provisions of taxation in the Philippine Constitution are grants of power and
not limitations on taxing powers.

42. First Statement – The income from bank deposit of a non-stock non-profit educational
institution is exempt.
Second Statement – income of a non-stock non-profit educational institution is exempt
a. False; True
b. True; True
c. False; False
d. False, True
43. The following shall form part of taxation laws in the Philippines, except:
a. Decisions of the Supreme Court
b. National Internal Revenue Code
c. Comment of an authority in Taxation Law, submitted to the Supreme Court, as an
amicus curae
d. Implementing Rules and Regulation issued by the Secretary of Finance, upon the
recommendation of the Commissioner of Internal Revenue

44. The Financial Incentives Review Board are composed of the following,
a. Chairperson – Secretary of Finance
b. Co-chairperson – Secretary of Trade and Industry
c. Member – Executive Secretary of the Office of the President
d. Member- Secretary of Budget and Management
e. Member- Director General of the National Economic and Development
Authority
f. Member – Secretary of Department of Interior and Local Government

45. The following government agencies are tasked with the implementation of tax laws
in the Philippines, except.
a. Bureau of Internal Revenue
b. Bureau of Customs
c. Local Government Units – City, Province, Municipality
d. Philippine National Police

That in all things, God will be glorified

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