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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
How exercised:
- Legislation of laws by Congress and tax ordinances by the Local Sangguanian
- Tax collection by the administrative branch of the government
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Northern CPAR: Taxation Fundamental Principles of Taxation
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
Objects of Taxation
1. businesses 5. acts
2. interests 6. persons
3. transactions 7. properties
4. rights 8. privileges
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Northern CPAR: Taxation Fundamental Principles of Taxation
3. Power of Eminent Domain the power to take private property for public use upon payment
of just compensation
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Northern CPAR: Taxation Fundamental Principles of Taxation
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
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
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
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Northern CPAR: Taxation Fundamental Principles of Taxation
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
Kinds of Exemptions:
1. Express- granted by the constitution, statute, treaties, ordinance, contracts or franchise
a. constitutional
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Northern CPAR: Taxation Fundamental Principles of Taxation
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
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
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.
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
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
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Northern CPAR: Taxation Fundamental Principles of Taxation
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
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
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
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Northern CPAR: Taxation Fundamental Principles of Taxation
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
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
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
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Northern CPAR: Taxation Fundamental Principles of Taxation
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
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
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
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
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Northern CPAR: Taxation Fundamental Principles of Taxation
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.
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
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Northern CPAR: Taxation Fundamental Principles of Taxation
P 1,000,000.00 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
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
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
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.
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Northern CPAR: Taxation Fundamental Principles of Taxation
d. Exemption applies since obligation arising from law is presumed; ignorance of the law is
not an excuse.
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.
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.
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