BASIC TAXATION

Multiple choices
2. Which of the following 'statements is not correct?
(a) Taxes may be imposed to raise revenues 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) 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.
Answer: d

3. A religious order. , lessee of a piece of land, constructed a seminary and church on a

portion of the land On the portion of the sand not used as seminary and constructed a one-
story building that it sub-leased toprivate individual:religious materials, food and
refreshments. The rentincome is used for teaching at the seminary.
Statement 1. The rent, In some of the religious order is subject to income tax;
Statement 2. The exemption from taxation provided in the Philippine Constitution prohibits
We imposition of any tax on the religious order.

(a) True, true; (b) False, false; (c)True, false; (d) False, true.

Answer. c
The constitutional provision on exemption of the church, parsonage or con.
vent appurtenant thexe ;o is an exemption of the church, etc. from property tax:
The income tax is not a property tax. However, since the church is also a non-
profit-educational institution, its rent income, since used actually, directly and
exclusively for educational purposes, is exempt from the income tax under the
Constitution.

4. The Philippine Constitution, a non-profit, non-stock educational institution is exempt

from income tax.
Statement 1: This exemption from tax applies whether the educational
institution by a religious order or not ;
Statement 2 The policy consideration for the tax exemption is to encourage the
establishment
and not profit-motivatedof educational institutions which is public service oriented

(a) True true; (b) False, false; (c) True, false; (d) False, true.
Answer A

5. A non-profit, non-stock educational corporation earned interest on its bankdeposits, on

which Its information return filed with the Bureau of InternalRevenue carried the item,
there is a certrfication from the depositary bank ofthe amount of the interest on which there
was no withholding income tax; and there is a certification from the corporation on the
utilization of the income,, or the use to which it is intended

Statement 1. If is a compliance with the documentation for the exemption.

hence, there is no income tax on the interest income,
Statement 2. Even without the documentation, the income is still exempt from
income tax pursuant to the provision of the Philippine Constitution. if it can be
shown that the income was used actually, directly and exclusively for the
Purpose for which the corporation was organized.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
Answer: a
6. One of the characteristics of internal revenue laws is that they are:
(a) Criminal in nature:
(b) Penal in nature;
(c) Political in nature;
(d) Generally prospective in application.

Answer: d

7. One of the characteristics of our internal revenue laws is that they are:
(a) Political in nature;
(b) Penal in nature;
(c) Generally prospective in operation although the tax statute may nevertheless
operate retrospectively provided it is clearly the legislative intent;
(d) Answer not given.
Answer c

8. In case of conflict between tax laws and generally accepted accounting principles (GAAP):
(a) Both tax laws and GAAP shall be enforced;
(b) GAAP shall prevail over tax laws;
(c) Tax laws shall prevail over GAAP;
(d) The issue shall be resolved by the courts
Answer: C

9. The following are similarities of the inherent power of taxation, eminent domain, and
police power, except one:
(a) Are necessary attributes of sovereignty
(b) Interfere with private rights and property;
(c) Affect all persons or the public;
(d) Are legislative implementation.

Answer : C
10. 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.
Answer a

11. Which statement refers to police power as distinguished from taxation?

(a) It can only be imposed on specific property or properties;
(b) The amount imposed depends on whether the activity is useful or not;
(c) It involves the taking of property by the government;
(d) The amount imposed has no limit.
Answer b

12. The distinction of a tax from permit or license fee is that a tax is:
(a) Imposed for regulation:
(b) One which involves an exercise of police power;
(c) One in which there is generally no limit on the amount that may be imposed;
(d) Answer not given.
Answer. c

13. Which of the following is not an example of excise tax

(a) Transfer tax,
(b) Sales tax.
(c) Real Property tax;
(d) Income tax.
Answer c

14. Value-added tax is an example of

(a) Graduated tax;
(b) ' Progressive tax;
(c) Regressive tax,
(d) Proportional tax
Answer d

15. The power of taxation is inherent in sovereignty being essential to the existence of every
government. Hence, even if not mentioned in the Constitution the state can still exercise the
power.
It is essentially a legislative function. Even in the absence of any constitutional provision,
taxation power falls to Congress as part of the general power of law-making
(a) True, true: (b) False, false. (c) True, false; (d) False,
Answer: a

16. Which of the following is not a scheme of shifting the incidence of taxation?
(a) The manufacturer transfers the tax to the consumer by adding the tax to
the selling price of the goods sold;
(b) The purchaser asks for a discount or refuses to buy at regular prices unless it is
reduced by the amount equal to the tax he will pay;
(c) Changing the terms of the sale like FOB shipping point in the Philippines to FOB
destination abroad, so that the title passes abroad instead of in the Philippines,
(d) The manufacturer transfers the sales tax to the distributor, then in turn to the
wholesaler, in turn to the retailer and finally to the consumer.
Answer: c

17. The proportional contribution by persons and property levied by the law-making body of
the State by virtue of its sovereignty for the support of the government and all public needs
is referred to as:
a. Taxes:
b. Special assessment;
c. License fees;
d. Answer not given.
Answer: a

18. One of the characteristics of a tax is that:

(a) It is generally based on contract;
(b) It is generally payable in money;
(c) It is generally assignable;
(d) Answer not given
Answer B

19. Tax of a fixed proportion of the value of the property with respect to which the tax is
assessed and requires the intervention of assessors or appraisers to estimate the value of
such property before the amount due from each tax payer can be determined is known as:
(a) Specific;
(b) Ad valorem,
(c) Special or regulatory,
(d) answer not given
Answer b

20. Which of the following statements is not correct?

(a) An inherent limitation of taxation may be disregarded by the application of a
constitutional limitation;
(b) The property of an educational institution operated by a religious orders exempt
from property tax, but its income is subject to income tax:
 (c) The prohibition of delegation by the state of the power of taxation will still allow
the Bureau of Internal Revenue to modify the rules on time for filing of returns and
payment of taxes;
(d) The power of taxation is shared by the legislative and executive departments of
government
Answer c

21. For an enhancement on revenue collection, the Bureau of Internal Revenue may adopt
measures that will minimize or eliminate tax evasion. In this regard:
Statement 1. A donation or gift of money or property directly to a political candidate is
subject to the donor's tax under the National Internal Revenue Code, and hence the donor
may be required to withhold a donor's tax on it.
Statement 2 A payment of money to a person who made campaign materials for a political
candidate is income payment by the payer to the payee, and hence the payor may be
required to withhold an income tax on it.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
Answer. a

22. Statement I A fee at an amount that is more than necessary for regulation is a tax, and
hence may be imposed only on a clear authority under the law to impose the tax.
Statement 2 A tax for a special purpose (as road tax) which is spent for purposes other
than those 'stated in the law for its use, if involving a huge amount to the crime of plunder
(a) True, true, (b) False, false, (c) True, false, (d) False, true
Answer a

23. Which statement is correct? A revenue regulation as a source of tax law, is:
(a) Promulgated by the Bureau of Internal Revenue,
(b) Promulgated by the Department of Finance,
(c) Promulgated by the Department of Finance upon the recommendation of the
Bureau of Internal Revenue,
(d) An interpretation of the revenue law by the Bureau of Internal Revenue
Answer. c

24. Congress enacted a law increasing the personal exemptions of individuals under the
income tax law to a uniform P50,000 for all individuals, regardless of status of the
individuals The law took effect sometime within the year. The Secretary of Finance will allow
the increase on personal exemption to a date:
(a) On the effectivity of the law within the year:
(b) As of the beginning of the year in which the law was passed by
Congress.
(c) As at the beginning of the succeeding year:
(d) Only when Congress passes a law clearly stating the effectivity of the increase
Answer. a

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

(a) Provinces;
(b) Cities,
(c) Barangays
(d) Barrios.
Answer d

26. A tax must be imposed for a public Purpose. Which of the following is not a public
purpose?
(a) National defense,
(b) Public education
(c) Improvement of the sugar industry,
(d) None of the above
Answer d
27. The basic community tax of P5 00 of an individual -s
(a) A personal tax.
(b) A direct tax,
(c) A national tax
(d) An ad valorem tax
Answer b

28. In 2013, a person was given by a special law the privilege to operate a public utility
(franchise), in consideration of which, h9 was required by that law to pay a franchise tax
This franchise can be amended by
(a) An amendment of that special law only,
(b) An amendment of that special law or a law of general application;
(c) An amendment of a revenue regulation.
(d) None of the above.
Answer: b

29. A tax on business is:

(a) Direct tax;
(b) Indirect tax;
(c) Property tax;
(d) None of the above.
Answer b

30. Which is the correct and best statement? A tax reform at any given time under the fact
that:
(a) Taxation is an inherent power of the state;
(b) Taxation is essentially a legislative power;
(c) Taxatii2n is a power that is very broad;
(d) The 'fate can and should adopt progressive taxation
Answer c

31. Which statement gives the correct answer? That a feasibility study needs or need not
look into the taxes of different political subdivisions of government which may be alternative
sites of the business is because
(a) Provinces. cities and municipalities must have uniform taxes between and among
themselves;
(b) The local taxes of one political subdivision need not be uniform with the local
taxes of another political subdivision;
(c) Businesses that are subject to national business taxes are exempt from local
business taxes;
(d) Local business taxes may be credited against national business taxes.
Answer. b
32. Which statement is wrong?
(a) A tax is a demand of sovereignty,
(b) A toll is a demand of ownership,
(c) A special assessment is a tax;
(d) Customs duty is a tax.
Answer c

33. A fundamental rule in taxation is that the property of one country may not be taxed by
another country. This is known as-
(a) International law;
(b) International comity;
(c) Reciprocity,
(d) International inhibition.
Answer: b
34. In this power of the state, the person who is parting with his money/property is
presumed to receive a benefit:
(a) Taxation
(b) Police power.
(c) Eminent domain
(d) None of the above
Answer a

35. In all, except one. there can be a classification of the subject matter being required to
shoulder the burden. Which is the exception?
(a) Tax;
(b) License fee:
(C) Toll:
(d) Eminent domain.
Answer. d

36. There can be no tax unless there is a law imposing the tax is consistent with the
doctrine or principle of
(a) Uniformity in taxation:
(b) Due process of law,
(c) Non-delegation of the power to tax;
(d) The power of taxation is very broad and the only limitation is the sense of
responsibility of the members of the legislature to their constituents.
Answer c

37. Which of the following is not an element of direct double taxation?

(a) Two taxes;
(b) Same subject matter;
(c) Same year.
(d) Same amount.
Answer d
38. Statement 1. The value-added tax is a property tax;
Statement 2: The estate tax is a direct tax.
(a) True, true; (b) False, false: (c) True, false; (d) False, true.
Answer d

41. Which statement is not true? The tax should be based on the taxpayers ability to pay
(a) As a basic principle of taxation, his is called "theoretical justice;"
(b) Asa theory of taxation, this is called 'ability-to pay-theory'
(r) No person shall be imprisoned for non-payment of a tax;
(d) A graduated tax table is in consonance with this rule.
Answer c

41. Statement I The power to tax can be delegated to units of local government, but with
limitations, as may be provided by law.
Statement 2 The power to tax cannot be delegated to the executive department of the
National Government.
(a) True. true: (b) False, false. (c) True, false, (d) False, true:
Answer: a

42. Which statement is false?

(a) A tax is a demand of sovereignty while a toll is a demand of property ownership;
(b) Non-payment of a tax does not make the activity taxed unlawful;
(c) A grant of police power to a unit of local government carries with it a grant of the
power to tax.
(d) Customs duty is a tax.
Answer C
43. Some franchise holders who are paying the franchise tax are being required by an
amendatory law to pay the value-added tax, while others remain subt1e to the franchise
tax. Which of the following constitutional provisions makes the law unconstitutional?
(a) No law shall be passed impairing the obligation of contracts;
(b) The rule on taxation shall be uniform;
(c) No person shall be deprived of property without due process of law;
(d) None of the above.
Answer: d

44. Under this basic principle of a sound tax system, the Government should not incur a
deficit
(a) Theoretical justice.
(b) Administrative feasibility,
(c) Fiscal adequacy
(d) None of the above
Answer c

45. That the legislative body can impose a tax at any amount underscores the legal truism
that.
(a) Taxation is an inherent power of the state.
(b) Taxation is a very broad power of the state.
(c) Taxation is essentially a legislative power:
(d) None of the above
Answer b

46. The City of Manila, claiming that it can impose taxes under the Local Government Code,
imposed a tax on banks (in addition to the percentage tax on banks imposed in the National
Internal Revenue Code) The banks within the City of Manila objected for the various
reasons given below. Which would justify the objection of the banks?
(a) The power of taxation cannot be delegated,
(b) The rule on double taxation;
(c) Uniformity in taxation;
(d) None of the above.
Answer d

47. The amount required is dictated by the needs of the government in:
(a) License fee;
(b) Tax,
(c) Toll;
(d) None of the above.
Answer: b

48. This is a demand of ownership:

(a) License fee;
(b) Tax;
(c) Toll;
(d) None of the above
Answer c

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

(a) Property tax;
(b) Excise tax.
(c) Poll tax;
(d) None of the above.
Answer c

50. As a basic principle of taxation, that "Taxes must be based on the taxpayer's ability to
pay" is called.
(a) Equality in taxation,
 (b) Ability-to-pay theory,
(C) Theoretical lusting;
(d) Equity in taxation
Answer. c

51. Which of the following may not raise money for the government?
(a) Power of taxation,
(b) Police power,
(c) Eminent domain;
(d) None of the above.
Answer. c

52. Which is not an essential characteristic of tax?

(a) it is unlimited as to amount;
(b) It is payable in money
(c) It is proportionate in character;
(d) It is a regular payment.
Answer: d

53. Statement 1. Direct double taxation involves two taxes by the same taxing authority
(e.g. National Government);
Statement 2. Indirect double taxation involves two taxes by two different taxing
authorities (e g., National Government and a unit of local government).
(a) True, true, (b) False, false; (c) True, false, (d) False, true
Answer a

54. Statement 1 Direct double taxation is prohibited by the Philippine Constitution,

Statement 2 Indirect double taxation is allowed by the Philippine Constitution
(a) True, true; (b) False, false; (c) True. false; (d) False, true.
Answer d

55. Statement 1 Tax evasion, which is the use of means to escape a tax that is already a
liability, is prohibited by law, and is punishable;
Statement 2. Tax avoidance which is the use of means to prevent an accrual of a
tax, or to minimize a tax that may accrue, is likewise prohibited by law and is punishable.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
Answer. C

56. Which statement is true?

The prohibition in the Philippine Constitution on taxation of religious corporation is
(a) A prohibition on imposition of excise taxes on the corporation;
(b) A prohibition on imposition of property taxes on the corporation;
(c) A prohibition on imposition of any and all local taxes on the corporation;
(d) A prohibition on imposition of any and all national taxes on the corporation.
Answer. b

57. Pioneer enterprises are exempt from certain taxes for a certain period of time, that are
otherwise applicable to other enterprises. Which of the following statements is wrong?
(a) This violates the constitutional requirement of rule of uniformity in taxation;
(b) This is a sound tax incentive for development of the national economy,
(c) This will provide employment opportunities;
(d) This will not involve unconstitutional delegation of the power of taxation even as
certain government agencies, other than the Congress of the Philippines, will determine who
qualify as pioneer enterprises.
58. Statement 1 A tax amnesty that forgives tax delinquency of prior years is a
legislative act of the Government,
Statement 2 A tax compromise that lowers the delinquent tax from a taxpayer is an
executive act pursuant to a legislative grant of power to the Executive Department of the
Government
 (a) True. true. (b) False, false. (c) True, false, (d) False, true.
Answer d

59. Statement 1 A revenue regulation must not be contrary to the provision of the law
that it implements.
Statement 2 A revenue regulation cannot expand the provision of the law that
implements by imposing a penalty when the law that authorizes the re-venue regulation
does not impose a penalty.
(a) True, true. (b) False, false, (c) True, false, (d) False, true.
Answer. a

60. Which statement is false?

(a) A law that imposes a tax on sugar mills and centrals where the revenue collected
will be used to improve the sugar industry is a tax for a public purpose, and the law
is constitutional,
(b) A law that imposes a tax on movie goers in a city, where the revenues will be
used to improve the city is constitution over flood control infrastructures in the low
areas.
(c) A law that gives tax privileges to manufacturers in defined industrial areas, which
are not enjoyed by other manufacturers elsewhere, is not discriminatory and is
constitutional.
(d) None of the above.
Answer. d

61. One of the following is false.

(a) Police power and license fee are for Purposes of regulation,
(b) Any license fee should only raise an amount necessary to the power to impose a
tax.
(c) The power impose a license fee does not carry with it carry out
(d) A business or activity subject to a license fee does not become illegal because no
license fee was paid for it.
Answer b

62. Statement 1. A tax that is allowed by law to be passed on by a taxpayer to another is

called an indirect tax.
Statement 2 Business taxes which are not allowed by law to be passed on by sellers
of goods and services to buyers are nonetheless imperceptibly passed on because they are
factored in on the selling price
(a) True, true. (b) False, false, (c) True, false, (d) False, true
Answer a

63. Statement 1 A tax imposed by a law can be changed on its applicability to persons,
properties, etc., only by an amendment of the particular law that imposed it
Statement 2 The applicability of a tax imposed by a law on certain persons
properties, etc. may be changed by another or new law that makes reference to the original
law that imposed the tax.
(a) True, true, (b) False, false. (c) True, false: (d) False, true.
Answer: d

64. A franchise is a law granting to a person the privilege to operate a public utility (e.g.
selling electricity or water). For the privilege, the franchisee will have to pay a franchise tax
in effect it is a contract between the franchisee and the government. In addition to the
activity covered by the franchise, the franchisee may sell other services (e.g. renting out its
equipment), which is subject to the value-added tax
Statement I A few may be passed requiring the holder of the franchise to pay on its
main activity a tax other than the franchise tax (e.g., the value-added tax).
Statement 2. The franchisee may not be required to pay a tax other than the
franchise tax on its main activity because the franchise is a contract that governs the
relationship between the government and the franchise holder.
 (a) True, true: (b) False, false, (c) True, false, (d) False, true.
Answer c

65. A non-payment of a tax has a civil liability (payment of the tax) and a criminal liability
(fine and/or imprisonment).
Statement I A civil case has to be filed in court apart of a criminal case filed in court
Statement 2 A case filed with the Court of Tax Appeals covers both the Civil and
criminal aspects of the case.
(a) True, true. (b) False, false: (c) True. false; (d) False, true.
Answer d

INCOME TAX PATTERNS

TAXPAYER: INDIVIDUAL

2. Which among the following is a non-resident alien?

(a) An alien who comes to the Philippines for a definite purpose which in its nature
may be promptly accomplished.
(b) An alien who comes to the Philippines for a definite purpose which in its nature
would require an extended stay.
(c) An alien who has acquired residence in the Philippines
(d) An alien who lives in the Philippines with no definite intention to stay
Answer a

3. Which statement is wrong Length of stay is determinative of purpose.

(a) A citizen of the Philippines who shall have stayed outside the Philippines for one
hundred eighty-three days or more by the end of the year shall be considered a non-
resident citizen by the mere fact of the length of stay abroad
(b) An alien who shall have stayed in the Philippines for more than one year by the
end of the calendar year shall be considered a resident alien.
(c) An alien who shall come to the Philippines and stay for an aggregate period of
more than one hundred eighty days during (and by the end of) a calendar year shall
be consider a non-resident alien in business in the Philippines.
(d) An alien who shall have stayed in the Philippines in the last one hundred days of
a calendar year and continuously to the first one hundred days of the succeeding
calendar year shall be considered a non-resident alien in business in the Philippines
Answer: d

4. Who is not a Philippine income tax payer'?

(a) A resident citizen of the Philippines with income from within and outside the
Philippines
(b) A resident citizen of the Philippines with income from within the Philippines only.
(c) A non-resident citizen of the Philippines with income from outside the
Philippines only.
(d) A non-citizen of the Philippines with income from within the Philippines only
Answer c

5. One who was previously a non-resident citizen and who arrives in the Philippines at any
time during the taxable year to reside permanently in taxable year in which he arrives in
the Philippines the Philippines shall be considered a non-resident citizen for the income
derived from sources abroad until the date of h with respect to Philippines (the law).
Case problem
A citizen of the Philippines was a non-resident citizen in
2013 is arrival in the he arrived in the Philippines to reside permanent in the
A From January 1, 2013 to may 14, 2013;
B From May 15, 2013 to December 31, 2013.
2012 On May 15, Philippines,
Which of the following is wrong.
(a) He is considered a resident citizen on "B' income:
(b) He is considered a non-resident citizen on "A” income,
(C) He is considered a resident citizen on "A" and “B" income,
(d) He is not taxable on A income
Answer c

6. Statement 1 All taxable income are reported in one income tax return for the year.
Statement 2 A creditable withholding income tax reduces the graduated income
tax on "other income" at the end of the year
(a) True. true; (b) False. false: (c) True, false; (d) False, true.
Answer d

8. The following, except one. Are personal exemptions in the Philippines;

(a) Non-resident alien not engaged in trade or business in Philippines;
(b) Non-resident alien engaged in trade or business in the
(c) Resident alien
(d) Citizen.
Answer a

9. Which of the following taxpayers whose personal exemption is subject to the law on
reciprocity under the Tax Code'
(a) Non-resident citizen with respect to his income derived from outside the
Philippines;
(b) Non-resident alien who shall come to the Philippines and stay therein for an
aggregate period of more than 180 days;
(c) Resident alien income from a foreign country.
(d) Non-resident alien engaged in trade or business in the Philippines whose country
allows personal exemption to Filipinos who are not residing but deriving income
from that country.
Answer b

10. The personal exemption of the non-resident alien engaged in trade to Philippines is
equal to that allowed by
(a) The income tax law of his country to a citizen of the Philippines not residing
there;
(b) The income tax law of his country to a citizen of the Philippines not residing there
or the amount provided by the NIRC to a citizen or resident, whichever is lower;
(c) The National Internal Revenue Code to a citizen or resident;
(d) The income tax law of his country allows to a citizen of the Philippines not
residing there or the amount provided by the NIRC to a citizen or resident alien,
whichever is higher.
Answer b