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Northern CPAR: Taxation Fundamental Principles of Taxation

NORTHERN CPA REVIEW


Room 412 Pelizloy Centrum, Lower Session Road, Baguio City, Philippines
Mobile Numbers: SMART 09294891758 & GLOBE 09272128204
E-mail: ncpar@yahoo.com

REX B. BANGGAWAN, CPA, MBA


TAXATION
FUNDAMENTAL PRINCIPLES OF TAXATION
Taxation
1. As a power refers to the inherent power of the state to demand enforced
contribution for public purpose to support the government.
2. As a process the legislative act of laying a tax to raise income for the government
to defray its necessary expenses
Purpose of Taxation
1. Primary to raise revenue
2. Secondary
a. Regulatory
- To regulate the conduct of businesses or professions
- To achieve economic and social stability
- To protect local industries
b. Compensatory
- Key instrument of social control
- Check inflations
- Reduces inequities in wealth distributions
Tools on international
bargains
- Strengthens anemic enterprises
- Promotes science and inventions
- Provides incentives
- Uses as implement in the exercise of police power to promote general welfare
The Life Blood Doctrine
Taxes are indispensable to the existence of the state. Without taxation the state cannot
raise revenue to support is operations
Nature or Characteristics of the Power of Taxation
1. for public purpose
5. exaction payable in money
2. inherently legislative in nature
6. territorial
3. subject to international comity or treaty
4. not absolute being subject to constitutional and inherent limitations
How exercised:
- Legislation of laws by Congress and tax ordinances by the Local Sangguanian
- Tax collection by the administrative branch of the government
Scope of the Power of Taxation
Taxation is supreme, comprehensive, unlimited and plenary. It includes the power to
destroy
Discretion of the Taxing Power- this extends to:
1. amount or rate of the tax
5. situs of taxation
2. kinds of tax to be collected
6. method of collection
3. apportionment of the tax
7. purposes for its levy, provided for public
purpose
4. the person, property and excises to be taxed, provided within it jurisdiction
Underlying principles behind the power of taxation
1. Principles of Necessity the existence of the government is a necessity and it
cannot continue without means to support itself this is the Theory of Taxation
2. Benefit Received Theory the government and the people have the reciprocal and
mutual duties of support and protection this is the Basis of Taxation
Legal Basis of the Power of Taxation

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Northern CPAR: Taxation Fundamental Principles of Taxation

1. Benefit-received theory
2. the sovereign power of the state over is people and property
3. the presumption of receipts or enjoyment of benefits and protection by the people
4. to protect new conditions by imposing special duties
5. to uplift social conditions by imposing regulatory taxes or licenses
Objects of Taxation
1. businesses
5. acts
2. interests
6. persons
3. transactions
7. properties
4. rights
8. privileges
Phases of Stages of Taxation
Impact of
a. Levy or Imposition
Aspects of
b. Assessment of tax
taxation
Taxation
Incidence of Taxation
c. Payment of the tax
- these all comprise the taxation system
Elements of the tax system
a. Tax structure b. Tax administration

c. Public tax consciousness

Principles of a sound tax system


a. Fiscal Adequacy sources of revenue should be sufficient to meet the demand for
public expenditure
b. Administrative Feasibility- tax laws must be capable of convenient, just and
effective administration
c. Theoretical Justice- tax must be imposed with equity and certainty and must
consider the taxpayers ability to pay and benefits received
- Non-observance of the principles does not necessarily render a tax levy
unconstitutional.
Principal Approaches in the distribution of tax burden
a. Benefit Approach tax payment should be based on benefits received
b. Ability to Pay Approach tax payments should be based relative to the ability of
taxpayers to pay
Taxation and Economic Efficiency
1. Income Effect makes people economically efficient (ex: transformation)
2. Substitution Effect makes people economically inefficient (ex: indirect taxes)
The 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
Point of Differences of the Inherent Powers of the State
Point of
Taxation
Police Power
Eminent Domain
Difference
Exercising
Government
Government
Government or private
Authority
entities
Necessity of
Delegation is not
There must be
There must be due
Delegation
necessary since it
delegation before
delegation before local
is inherent
local governments
government or private
could exercised it
party may exercise it
Purpose
Revenue and
Property is taken
Property is taken for
support of the
for public use
public use
government
Persons affected
Community or
Community or
Operates on the owner
class of individuals class of individuals
of the property
Effect of transfer

Money paid as

There is no

There is transfer of

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Northern CPAR: Taxation Fundamental Principles of Taxation


of property rights

taxes becomes part


of the public fund

Amount of
Imposition

Unlimited

Importance

Most important of
the three
Inferior to the
Non-Impairment
Clause of the
Constitution

Relationship with
the Constitution

Limitation

transfer of title, at
most there is
restraint on the
injurious use of
property
Sufficient to cover
the costs of
regulation

right to property
whether it be of
ownership or lesser
right
No imposition, the
owner is paid the fair
market value of his
property

Most superior
Superior to the
Non-Impairment
Clause of the
Constitution

Superior and may


override the NonImpairment Clause
because the welfare of
the state is superior to
private contracts
Public purpose and
just compensation

Constitutionally
Public interest and
and inherently
the requirement of
restricted
due process
Similarities of the Three Powers
1. All three powers are necessary attributes of sovereignty, resting upon necessity
2. all are inherent powers of the State
3. All are legislative in nature
4. They are ways in which the State interferes with private rights and property
5. They exist independently with the Constitution although the condition for their
exercise may be prescribed or limited by the Constitution
6. They all presuppose an equivalent compensation received by the persons affected by
the exercise of the power, whether directly, indirectly or remote.
7. The exercise of these powers by the local government units may be limited by national
legislature
*Police power can be used to raise revenue for the government (ex: license fee)
LIMITATIONS OF TAXATION POWER
A. Constitutional Limitation
1. observance of due process of law
2. equal protection of the law
3. uniformity in taxation
4. progressive scheme of taxation
5. non-imprisonment for non-payment debt or poll tax
6. non-impairment of obligation and contract
7. free worship rule
8. non-appropriation of public funds or property for the benefit of any church, sect or
system of religion
9. exemption of religious, charitable or educational entities, non-profit cemeteries,
churches and mosque from property taxes.
10.exemption from taxes of the revenues and assets of non-profit, non-stock
educational institutions including grants, endowments, donations or contributions
for educational purposes
11.concurrence of a majority of all members of Congress for the passage of a law
granting tax exemption
12.non-diversification of tax collections
13.non-delegation of the power of taxation
Exception:
a. power to tax was delegated to the President under the Flexibility Clause of the
Tariff and Customs Code
b. power to tax was delegated to the local government units under the Local
Government Code
c. matters involving the expedient and effective administration and
implementations of assessment and collection of taxes or certain aspects of
taxing process that are not legislative in character
14.non-impairment of the jurisdiction of the Supreme Court to review tax cases

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Northern CPAR: Taxation Fundamental Principles of Taxation

15.appropriations, revenue or tariff bills shall originate exclusively in the House of


Representatives but the Senate may propose or concur with amendments
16.each local government unit shall exercise the power to create its own sources of
revenue and shall have a just share in the national taxes

B. Inherent Limitation
1. territoriality of taxation
2. subject to international comity or treaty
3. tax exemption of the government
4. tax is for public purpose
5. non-delegation of the power of taxation
*The last 2 limitations are also Constitutional limitations
SITUS OF TAXATION
The place of taxation
Factors that determine the situs of taxation
1. nature, kind or classification of the tax
5. sources of income
2. subject matter of the tax
6. place of exercise, business or occupation
being taxed
3. citizenship of the taxpayer
7. place where income-producing activity
was held or done
4. residence of the taxpayer
Applications
1. persons residence of the taxpayer
2. community development tax residence or domicile of the taxpayer
3. business taxes where the business was conducted or place where the transaction
took place
4. privilege or occupation tax where the privilege is exercised
5. real property tax where the property is located
6. personal property taxes
a. tangible where they are physically located
b. intangible domicile of the owner unless the property has acquired a situs
elsewhere
7. Income place where the income is earned or residence or citizenship of the taxpayer
8. Transfer Taxes residence or citizenship of the taxpayer or location of the property
9. Franchise Taxes State that grants the franchise
10.Corporate Taxes depend on the law of incorporation
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 this objectionable and prohibited because it violates the
constitutional provision on uniformity and equality
2. Indirect Double Taxation no constitutional violation. Ex: taxing the same property
by two different taxing authority
International Double Taxation a double taxation caused by two different taxing
authorities, one domestic and one foreign
Remedies to Double Taxation
1. provision for tax exemption
2. allowance for tax credit
3. allowance for principle of reciprocity
4. enter into treaties with and agreement with foreign government
Forms of Escape from Taxation
A. Those that will not result in loss of revenue to the government
1. Shifting the process of transferring the tax burden from the statutory taxpayer to
another without violating the law.

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Northern CPAR: Taxation Fundamental Principles of Taxation


2. Capitalization the seller is willing to lower the price of the commodity provided
the taxes will be shouldered by the buyers
3. Transformation 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.
B. Those that will result to loss of revenue to the government
1. Tax Evasion tax dodging resorting to acts and devices that illegally reduces or
totally escape the payment of taxes that are due to the taxpayer. They are
prohibited and are therefore are not subject to penalties.
2. Tax Avoidance tax minimization scheme the reduction or totally escaping
payment of taxes through legally permissible means, that are not prohibited and
therefore are not subject to penalties.
3. Tax Exemption- an immunity, privilege or freedom from payment of a charge or
burden to which others are obliged to pay.
Kinds of Exemptions:
1. Express- granted by the constitution, statute, treaties, ordinance, contracts or
franchise
a. constitutional
b. statutory
c. contractual
2. Implied exempted by accidental or intentional omission
3. Total-exemption from all taxes (OFWs)
4. Partial exemption from certain taxes, partially or totally
Grounds for Exemption
1. It may be based on a contract
2. It may be based on grounds of public policy - ex: granting of exemptions to rural
banks, and sweepstakes or lotto winnings
3. It may be based on some grounds to foster charitable and other benevolent
institutions
4. It may be created under a treaty on grounds of reciprocity
5. It may be created to lessen the rigors of international double or multiple taxation
Distinction between tax evasion and tax avoidance
Tax Evasion
Tax Avoidance
It is a scheme used outside of those
It is a tax saving device within the means
lawful means and when availed of, it
sanctioned by law
usually subjects the taxpayer to penalties
It is accomplished by breaking the law
Accomplished by legal procedures and do
not violate the law
It connotes fraud, deceit and malice
No fraud is involved
Tax Exemptions:
is not automatic
is non-transferable
is revocable by the government (except when granted under a valid contract or by the
Constitution)
rule shall be uniform
does not contravene the LifeBlood Doctrine
is always disfavored
is allowed only under a clear and unequivocal provision of the law
on real property tax will be based on the Doctrine of Usage and not Doctrine of
Ownership, except for real properties owned by the government which is absolutely
exempt form taxation
on real property tax cannot be granted by local governments but can condone real
property tax liabilities in special cases
on local taxes can be granted by local governments but they cannot condone existing
liabilities on local taxes

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Northern CPAR: Taxation Fundamental Principles of Taxation


Fundamental Doctrine in Taxation
1. No court may enjoin the collection of taxes
2. Claim for exemptions shall be interpreted strictly against the taxpayer
3. A law that permit deduction from the tax base is strictly construed against the
taxpayer
4. Tax assessment are presumed to be correct and done in good faith
5. Tax laws are generally prospective in application
6. Tax are not subject to compensation or set-off
7. Refund of taxes do not earn interest because interest do not run against the
government
Distinction between Tax Amnesty and Tax Condonation
Tax Amnesty a general pardon or intentional overlooking by the state of its authority
to impose penalties on persons otherwise guilty of tax evasion or violation of tax laws.
The purpose is to give the erring taxpayer a chance to reform and become part of the
society with a clean slate.
Tax Condonation means to remit or to desist or refrain form exacting or imposing a
tax. It cannot extend to refund of taxes already paid when obtaining condonation.
Tax Exemption
There is no tax liability at all
The grantee need not pay anything
Can be availed of by any qualified
taxpayer

Tax Amnesty
Connotes condonation from payment of
existing tax liability
The grantee pays a portion
Not always available

Exam Drill Problems:


1. The primary purpose of taxation is:
a. To enforce contribution from its subject for private purpose
b. To raise revenue for the government
c. To achieve economic and social stability
d. To regulate the conduct of business or profession
2.

This theory underscores that taxes are indispensable to the existence of the state.
a. Doctrine of equitable recoupment
c. The benefit received theory
b. The lifeblood doctrine
d. The Holmes Doctrine

3.

Select the correct statement.


a. The benefit received theory explains that the government is obliged to serve the
people since it is benefiting from the tax collection from its subjects
b. The lifeblood theory underscores that taxation is the most superior power of the
state
c. The police power of the state is superior to the non-impairment clause of the
Constitution .
d. The power of taxation is superior to the non-impairment clause of the
Constitution

4.

The income effect of taxation is exhibited in


a. Forward shifting of tax
c. Percentage taxes
b. Value added tax
d. Transformation

5.

That tax laws should be certain and consider the taxpayers ability to pay denotes
a. Fiscal adequacy
c. Theoretical justice
b. Administrative feasibility
d. Compatibility with economic objectives

6.

What is the theory of taxation?


a. Necessity
b. Constitutionality

c. reciprocal duties of support and protection


d. public purpose

What is the basis of taxation?


a. Constitutionality
b. public purpose

d. necessity
d. reciprocal duties of support and protection

7.

8.

Which of the following inappropriately describe the nature of taxation?

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Northern CPAR: Taxation Fundamental Principles of Taxation


a. inherent in sovereignty
limitation
b. essentially a legislative function

9.

c. subject to inherent and constitutional


d. generally for public purpose

I. Forward Shifting will result in increase prices


II. Tax evasion is also known as tax dodging
a. I is correct
c. I and II are correct
b. II is correct
d. I and II are not correct

10. When tax is recovered by the manufacturer or producer by finding out means of
improvement in production so as savings would compensate for taxes, this is known
as?
a. Capitalization
c. backward shifting
b. onward shifting
d. transformation
11. The point in which tax is levied is called?
a. Impact of taxation
c. Incidence of taxation
b. Situs of taxation
d. Assessment
12. When the impact and incidence of taxation are merged into the statutory taxpayer,
the tax is called?
a. personal tax
c. indirect tax
b. direct tax
d. national tax
13. The following are inherent limitation on the power to tax. Which is the exception?
a. Territoriality of taxes
c. Public purpose
b. Legislative in character
d. Non-appropriation for religious purpose
14. Which of the following is an administrative act in taxation?
a. Collection of taxes
c. Determination of the subject of the tax
b. Fixing the rate of the tax
d. Determination of the purpose of the tax
15. Select the correct statement.
a. The substitution effect makes people economically efficient since the impact of
the tax is spread forward to the consumers.
b. Only taxation and eminent domain presupposes a form compensation when
exercised by the government since police power merely involves confiscation.
c. Any tax laws which violate the principles of a sound tax system renders itself
unconstitutional.
d. Taxation means the apportionment of the costs of the government among those
who are benefited from its existence.
16. Select the correct statement.
A. Since taxation presupposes an equivalent form of compensation, there should be
a direct and proximate advantage received by any taxpayer before he could be
required to pay tax.
B. Compensation under police power is the intangible feeling of contribution to the
general welfare of the people.
a. A
c. Both A and B
b. B
d. Neither A nor B
17. Public improvement is a requisite to the exercise of which power of the state?
a. Police power
c. Eminent domain
b. Taxation
d. Eminent domain and taxation
18. Public utility entities may in some circumstance exercise the power of eminent
domain. Which of the following is not a public utility?
a. Electric cooperatives
c. Telecommunication business
b. Water cooperatives
d. Manufacturing business
19. I. Police power and the power of taxation are exercised primarily by the legislature
but not eminent domain
II. Taxation and eminent domain interferes with private right and property but not
with police power
a. I is true
c. I and II are true
b. II is true
d. I and II are not true
20. Select the incorrect statement.
a. the power of eminent domain may be exercised by private entities
b. by police power, the property taken is destroyed

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Northern CPAR: Taxation Fundamental Principles of Taxation

c. by eminent domain, the property taken is destroyed


d. eminent domain and taxation affects only property rights

21. The inherent powers of the state are similar in the following respect, except?
a. inherent to the existence of the state
b. exercisable without the need for an express constitutional grant
c. all affects property rights
d. exercised primarily by the legislature
22. The following statement correctly states the differences among the inherent powers
of the state, except?
a. the property taken under eminent domain and taxation are preserved but that of
police power is destroyed
b. eminent domain do not require constitutional grant but taxation being formidable
does in order to limit its exercise by the legislature
c. police power and taxation is exercised only by the government but eminent
domain may be exercised by private entities
d. Police power regulates both property and liberty; eminent domain and taxation
affects only property rights
23. Select the incorrect Statement.
a. since just compensation is involved, eminent domain raises money for the
government
b. once a government is established, taxation is exercisable
c. the most important of the power is taxation
d. police power is more superior than the non-impairment clause of the Constitution
24. Select the correct statement
a. the provision on taxation in the Philippine Constitution are grant of power
b. the power to tax includes the power to destroy
c. when taxation is used as a tool for general and economic welfare this is called
fiscal purpose
d. sumptuary purpose of taxation is to raise funds for the government
25. Which is not a legislative act?
a. Assessment of the tax
b. setting the amount of the tax

c. determination of the subject of the tax


d. determining the purpose of the tax

26. Which of the following is not an inherent limitation of the power to tax?
a. tax should be levied for public purpose
b. taxation is limited to its territorial jurisdiction
c. tax laws shall be uniform and equitable
d. exemption of government agencies and instrumentalities
27. Which of the following is not a constitutional limitation of the power to tax?
a. non-impairment of obligation or contracts
b. due process and equal protection of the law
c. non-appropriation for religious purposes
d. non-delegation of the taxing power
28. Agreement among nation to lessen tax burden of their respective subject is called:
a. Reciprocity
c. territoriality
b. international comity
d. tax minimization
29. I. No one shall be imprisoned for non-payment of tax.
II. Double taxation is not prohibited by the Constitution.
a. I is true
c. I and II are true
b. II is true
d. I and II are not true
30. The constitutional exemption of religious or charitable institution refers only to:
a. real property tax
c. real property tax and income tax
b. income tax
d. business tax
31. When a legislative body taxes persons and property, rights and privilege under the
same taxable category at the same rate, this is referred to as compliance with the
constitutional limitation of:
a. Equity
c. due process
b. Uniformity
d. equal protection clause

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32. When a certain tax imposed base tax burden on the ability of the subject to pay the
tax, this is construed as complying with the inherent limitation of taxation which is:
a. Equity
c. due process
b. Uniformity
d. none
33. The constitutional requirement for non-provision of any tax-exempt legislation
without the concurrence of the majority of all the members of Congress is intended
to prevent:
a. legislation of burdensome or oppressive tax laws
b. to ensure that the government will no incur a deficit
c. ensure approval of all tax bills prior to becoming tax laws
d. unethical lobbying in the lawmaking body
34. I. Taxation is the rule; exemption is the exception.
II. Taxation may be used to implement the police power of the state.
a. I is true
c. I and II are true
b. II is true
d. I and II are not true
35.

Select the incorrect statement.


a. the power to tax includes the power to exempt
b. exemption are construed against the taxpayer and in favor of the government
c. tax statutes are construed against the government in case of doubt
d. taxes should be collected only for public improvement

36. This refer to the privilege or immunity from a tax burden of which others are
subjected to:
a. Exclusion
c. tax holiday
b. Deduction
d. reciprocity
37. Mr. Sorotski, is a professional practitioner as a management adviser. In addition, he
held various properties and currently engaged in diverse business operations. As a
result, he has P1,895,000.00 in personal tax aside from his basic tax of P5.00. If Mr.
Sorotski intentionally disregard to pay his total personal tax, which of the following
is correct?
a. Mr. Sorotski can be imprisoned for non-payment of the P5.00 personal tax.
b. Mr. Sorotski cannot be imprisoned for non-payment of the personal tax because
he is a professional wherein his imprisonment could cause economic loss to the
country.
c. If Mr. Sorotski pays only the P5.00 personal tax, he cannot be imprisoned.
d. Non-payment of the additional tax could cause imprisonment.
38. DEF Shipping Lines operates a fleet of sheep from Metro Manila to Zambonga. DEF
was exempted from payments of the franchise tax but in return it has to transport
government mails and other government correspondence to and from Metro Manila
and Zamboanga. Subsequently, a new law was passed removing such exemptions
and requiring DEF to pay the franchise tax. Which of the following is correct?
a. The tax law is valid since the power of taxation is broad.
b. The new law is invalid being unconstitutional.
c. The new law is invalid since exemption, once given, cant be revoke if it prejudice
the taxpayer.
d. The new law is valid since tax is dictated by the needs of the government.
39. Wolf has many tax evasion cases. For most, he was found guilty by the courts. Which
of the following can be his sanctions?
A. Capital punishment
B. Imprisonment C. Confiscation of his properties
a. A,B; C
c. B; C
b. A; C
d. C only
40. Owl has a P5,000,000.00 tax evasion case with the BIR. BIR rendered him an
assessment but his appeal failed to meet the deadline due to his undue hesitation to
answer for the notice of assessment. As a result, the assessment became final and
demandable. Which of the following is correct?
a. Owl should be allowed an extension since the amount of the tax is highly material
so as his right for equal protection of the law will not be denied
b. Due process is not violated so long as the consideration is to be given by the BIR.
c. Due process is not violated.
d. Owl should demand for compromise so as he will be overburdened.

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Northern CPAR: Taxation Fundamental Principles of Taxation

41. The tax imposed upon the performance of an act, the enjoyment of a privilege or
engaging in a profession is known as?
a. Income tax
c. Excise tax
b. License
d. Transfer tax
42. When the determination of the amount of the tax requires an assessment of the
value of the subject of tax, this type of tax is known as?
a. proportional tax
c. ad valorem tax
b. specific tax
d. progressive tax
43. Tax as to graduation or rate include the following, except?
a. Progressive
c. pro-rata
b. Proportional
d. regressive
44.

A tax base and tax rate of an imposition is shown as follows:


Income
Tax Rate
P1,000,000.00
20%
800,000.00
30%
600,000.00
40%
This taxation scheme makes use of a?
a. progressive rate
c. digressive rate
b. proportional rate
d. regressive rate

45. Which of the following is a local tax?


a. value added tax
c. other percentage taxes
b. documentary stamp tax
d. real property tax
46. I. As a rule, taxes are not assignable.
II. Debt earns interest only when stipulated or when there is legal delay.
a. I is true
c. I and II are true
b. II is true
d. I and II are not true
47. Select the incorrect statement.
a. Tax may be unlimited in amount.
b. License make the business illegal when not paid while taxes do not.
c. Special assessment is not the liability of the person owning the property.
d. Special assessment can be imposed on building and other real right attaching
pertaining to land.
48. I. One of the essential characteristic of tax is its being unlimited in amount.
II. The State has complete discretion on the amount of license to be imposed after
distinguishing between useful and non-useful activity.
a. I is true
c. I and II are true
b. II is true
d. I and II are not true
49. Which of the following is correct regarding the tax table for individual taxable
income for residents and citizens?
a. the table shows purely progressive tax rates
b. the tax table is a combination of proportional and progressive tax rates
c. low income earners are subject to proportional rate while high income earners
are subject to both proportional and progressive tax rates
d. none of the above
50. Which of the following is not a local tax?
a. Community tax
c. Tax on banks and other financial institutions
b. Documentary stamp tax
d. Business taxes, fees and charges
51. A license that is imposed for revenue purposes is known as?
a. A license tax
c. Professional tax
b. Sin tax
d. Mixed tax
52. Select the incorrect statement.
A. Tax is a demand of sovereignty just as toll is a demand of ownership
B. No one shall be imprisoned for non-payment of debt or poll tax
a. A
c. A and B are true
b. B
d. Neither A nor B
53. Distinguishing between tax and debt, which is assignable? Which cannot be set-off?
a. Tax; debt
c. Tax, tax

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Northern CPAR: Taxation Fundamental Principles of Taxation


b. Debt; tax

d. Debt, debt

54. Select the correct statement.


a. The doctrine of estoppel operates against the taxpayer, not against the
government.
b. Non-compensation or set-off violates the principle of administrative feasibility.
c. Taxes are always imprescriptible.
d. The principle of strictissimi juris simply states that exemption is the rule, taxation
is the exemption.
55. Which of the following is a power of the Commissioner of Internal Revenue?
a. Assessment and collection of taxes
b. Enforcement of all forfeitures, penalties and fines
c. Interpretation of the provisions of the NIRC
d. Giving effects to and administering the supervisory and police powers conferred
by the NIRC and other laws
56. Which of the following powers of the Commissioner of Internal Revenue cannot be
delegated?
a. The examination of tax return and tax due thereon
b. To refund or credit tax liabilities in certain cases
c. The power to compromise or abate any tax liability involving basic deficiency tax
of P500,000 and minor criminal violations
d. The power to reverse a ruling of first impression
57. The following are the limitation on the taxing power of the state. Which of the
following inherent limitation of taxation is also categorized as a constitutional
limitation?
A. Territoriality of taxation
B. Exemption of the government
C. Public purpose of taxation
D. Non-impairment of contracts
E. Non-delegation of the power to tax
a. A and B
c. C and E
b. B and C
d. D and E
58. Which of the following forms of escapes to taxation will more likely to result in direct
loss of revenue to the government?
a. Shifting
c. transformation
b. Capitalization
d. tax exemption
59. When exemption from a tax imposition is silent or not clearly stated, which
statement is true?
a. Taxation applies since exemptions are construed against the government.
b. Exemption still applies since this is exemption by omission.
c. Taxation applies since exemptions are to be construed against the taxpayer.
d. Exemption applies since obligation arising from law cannot be presumed and
hence construed against the government.
60. When the provisions of tax laws are silent as to the taxability of an item, which is
true?
a. Taxation applies since taxation is the rule, exemption is the exception.
b. Exemption applies since vague tax laws are construed against the government.
c. Taxation applies in accordance with the Lifeblood doctrine.
d. Exemption applies since obligation arising from law is presumed; ignorance of
the law is not an excuse.
61. Which statement is correct?
A. Tax assessment are presumed to be correct and done in good faith.
B. Tax laws should not operate retrospectively.
C. Refund of taxes should earn interest since as a principle, no one shall be enriched
at the expense of another; the state should be the model of good faith among its
constituents.
a. A, B and C
c. A only
b. A and B
d. B and C
62. Select the incorrect statement regarding tax amnesty and condonation.
a. In tax amnesty, violators are required to pay a portion of the tax assessed.

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NCPARdriven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX
6th Batch HQ01

Northern CPAR: Taxation Fundamental Principles of Taxation

b. When the remaining unpaid portion of the tax is condoned, the taxpayer cannot
ask for refund for the balance already paid.
c. Tax amnesty operates as a general pardon and is always not available.
d. Tax condonation operates on the whole balance of the assessed tax and not only
to the unpaid portion.
--- End of Handouts ---

12
NCPARdriven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX
6th Batch HQ01