OUR LADY OF FATIMA UNIVERSITY subject to excise tax are produced or

Dela Paz Norte, City of San Fernando (P) kept.

COLLEGE OF BUSINESS AND ACCOUNTANCY
5. Which of the following statements is
Preliminary Exam in TAX 1A
Income Taxation wrong? A revenue bill:
a. May be recommended by the
President to Congress.
b. May have a House version and a
GENERAL INSTRUCTIONS: Shade the letter that Senate version approved separately
corresponds to your answer. STRICTLY NO and then consolidated with both
CHEATING. houses approving the consolidated
version.
c. May originate from the Senate and on
which same bill the House of
THEORIES: Representatives may propose
amendments.
1. Which of the following is not a scheme of
d. May originate from the House of
shifting the incidence of taxation?
Representatives and on which same
a. A manufacturer transfer tax to the
bill the Senate may propose
consumer by adding tax to the selling
amendments.
price of the goods sold.
6. This rule is not applicable on the
b. A tax forms part of the purchase price.
construction of tax laws.
c. Changing the terms of the sale like
a. If the law is repealed, taxes assessed
FOB shipping point in the Philippines
before repeal of the law may no longer
to FOB destination abroad, so that the
be collected.
title passes abroad instead of in the
b. If the intent of the tax is not clear as to
Philippines.
whether the taxpayer is covered by
d. The manufacturer transfers the sales
the tax obligation, the law shall be
tax to the distributor, then in turn to
construed against the government.
the wholesaler, in turn to the retailer,
c. Where the intent to tax is clear and the
and finally to the consumer.
taxpayer claims he is exempt from the
2. In case of conflict between the tax code
tax obligation, the tax shall be
and generally accepted accounting
construed against the taxpayer.
principles (GAAP):
d. Provisions intended for the security of
a. Both tax code and GAAP shall be
the taxpayer of to insure equality or
enforced.
uniformity of taxation are mandatory.
b. GAAP shall prevail over tax code.
7. Which of the following is not a purpose of
c. Tax code shall prevail over GAAP.
taxation?
d. The issue shall be resolved by the
a. To reduce inequalities of wealth.
courts.
b. As protective tariff on imported goods
3. What is required to make a BIR ruling first
to protect local producers against
impression a valid one, except?
foreign competitions.
a. Must be reasonable and within the
c. To encourage the growth of home
authority conferred.
industries through the proper use of
b. Must be germane to the purpose of the
tax incentives.
law.
d. To expropriate property for the
c. Must be published.
promotion of general welfare.
d. Must be prospective in application.
8. The following reasons may be given by a
4. Which of the following powers of the
taxpayer in refusing to pay his tax liability.
Commissioner of the Bureau of Internal
Which is not acceptable for legally refusing
Revenue may be delegated?
to pay the tax?
a. Enforcement of all forfeitures,
a. That he has been deprived of due
penalties, and fines in connection with
process of law.
the collection of national internal
b. That there is lack in territorial
revenue taxes.
jurisdiction.
b. The power to recommend the
c. That the prescription period for the
promulgation of rules and regulations
collection of tax has lapsed.
by the Secretary of Finance.
d. That he will derive no benefit from the
c. The power to issue rulings of first
tax.
impression of to reverse, revoke, of
9. The power to interpret the provisions of
modify any existing ruling of the
NIRC and other tax laws shall be under the
bureau.
exclusive and original jurisdiction of the:
d. The power to assign or reassign
a. The Commissioner of Internal
internal revenue officers to
Revenue, subject to the review by the
establishments where the articles
Secretary of Finance.
 b. The Commissioner of Internal
Revenue, subject to the exclusive
appellate jurisdiction of the Court of
Tax Appeals.
c. The Court of Tax Appeals, subject to
the exclusive appellate jurisdiction of
the Court of Appeals.
d. The Regular Courts, subject to the
review by the Court of Tax Appeals.
10. What is the rule on taxability of income
that a government educational institution
derives from its school operations? Such
income is:
a. Subject to 10% tax on its net taxable
income as if it is a proprietary
educational institution.
b. Exempt from income taxation if it is
actually, directly, and exclusively used
for educational purposes.
c. Subject to the ordinary income tax
rates with respect to incomes derived
from educational activities.
d. Exempt from income taxation in the
same manner as government-owned
and controlled corporations.
11. Which statement below expresses the
lifeblood theory?
a. The assessed taxes must be
enforced by the government.
b. The underlying basis of taxation is
government necessity for without
taxation, a government can
neither exist nor endure.
c. Taxation is an aribitrary method
of exaction by those who are in
the seat of power.
d. The power of taxation is an
inherent power of the sovereign
to impose burdens upon subjects
and objects “within its
jurisdiction for the purpose of
raising revenues?.
12. 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
13. Which statement is wrong?
a. The power of taxation may be
exercised by the government, its
political subdivision, and public
utilities.
b. Generally, there is no limit on the
amount of tax that may be
imposed.
c. The money contributed as tax
becomes part of the public funds.
d. The power of tax is subject to
certain constitutional limitations.
14. Taxation is equitable in all of the following,
except:
a. Its burden falls on those better to
pay.
b. It is based on ability to pay.
c. It is based on benefits received.
d. It is based on uniformity rule.
15. 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.
16. Persons or things belonging to the same
class shall be taxed at the same rate.
a. Simplicity in taxation
b. Reciprocity in taxation
c. Equality in taxation
d. Uniformity in taxation
17. The tax should be proportional to the
relative value of the property to be taxed.
a. Simplicity in taxation
b. Reciprocity in taxation
c. Equality in taxation
d. Uniformity in taxation
18. The tax imposed should be proportionate
to the taxpayer’s ability to pay.
a. Fiscal adequacy
b. Equality or theoretical justice
c. Administrative feasibility
d. Economic consisitency
19. The sources of revenue as a whole, should
be sufficient to meet the demands of public
expenditures.
a. Fiscal adequacy
b. Equality or theoretical justice
c. Administrative feasibility
d. Revenue generation
20. The tax laws must be capable of
convenient, just and effective
administration.
a. Fiscal adequacy
b. Equality or theoretical justice
c. Administrative feasibility
d. Internal acceptability
21. A law granting tax exemption requires
concurrence of:
a. Majority vote of the members of
the Congress
b. 2/3 vote of members of Congress
c. ¾ vote of members of Congress
d. Unanimous vote of members of
Congress
22. 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. The payment is passed in audit by
the COA.
d. It is part of a lawmaker’s pork
barrel.
 23. An escape from taxation where the tax Internal Revenue put under “preventive
burden is transferred by the one on whom embargo” said luxury items?
the tax is imposed or assessed to another. a. Yes, it is like constructive distraint.
a. Shifting b. Yes, because of anti-smuggling law.
b. Exemption c. No, violative of search and seizure
c. Transformation clause of the Constitution.
d. Capitalization d. No, violative of the due process clause
24. An escape from taxation where the of the Constitution.
producer or manufacturer pays the tax 33-34. The President of the Philippines and the
and endeavors to recoup such payment by Prime Minister of Japan entered into an
improving his process of production executive agreement of a loan facility to the
thereby turning out his units of products at Philippines from Japan whereby it is
a lower cost. stipulated that interest on loans granted by
a. Shifting private Japanese financial institutions to
b. Exemption private institutions in the Philippines shall
c. Transformation not be subject to Philippine income taxes. Is
d. Capitalization the tax exemption valid?
25. An escape from taxation where there is a. Yes, based on international comity.
areduction in the price of the taxed object b. Yes, based on executive agreements
equal to the capitalized value of future and treaties.
taxes which the taxpayer expects to be c. No, it is a violation of essential
called upon to pay. characteristics of taxation.
a. Shifting d. No, based on the doctrine of
b. Exemption territoriality.
c. Transformation 35-36. In a loan agreement between the Bangko
d. Capitalization Sentral ng Pilipinas (as borrower) and
26. A use of illegal or fraudulent means to private international banks (as lenders), it is
avoid of defeat the payment of tax. stipulated that all payments of interest by
a. Shifting the Central Bank to the lenders shall be made
b. Exemption free and clear from all Philippine taxes which
c. Avoidance may be imposed thereon. Is the stipulation
d. Evasion valid?
27. The use of legal or permissible means to a. Yes, based on international comity.
minimize or avoid taxes. b. Yes, based on the doctrine of non-
a. Shifting taxability of the government.
b. Exemption c. No, violative of the inherent
c. Avoidance limitations.
d. Evasion d. No, violative of the constitutional
28. Tax based on a fixed percentage of the limitations.
amount of property, income or other basis 37-38. An internal revenue officer (IRO), having
to be taxed. been reliably informed from unimpeachable
a. Proportional source that articles subject to excise taxes
b. Regressive were kept in the house of Aasa entered said
c. Progressive house to look for and to seize the
d. Indirect aforementioned articles over the objection of
29. Tax where the rate decreases as the tax Aasa. Since said officer was not armed with a
base increases. search warrant, Aasa invoked the sanctity of
a. Proportional his home. Is the IRO’s actuation described
b. Regressive above sanctioned by law or not?
c. Progressive a. Yes, because of primary jurisdiction of
d. Indirect the BIR over excisable goods pursuant
30. Tax where the rate increases as the tax to the lifeblood doctrine.
base increases. b. Yes, the IRO is exempted from
a. Proportional obtaining a search and seizure
b. Regressive warrant.
c. Progressive c. No, violative of search and seizure
d. Indirect clause of the Constitution.
d. No, violative of the right to privacy and
SITUATIONAL PROBLEM ANALYSIS: abode.
31-32. A store in the Umasa market in Paasa City 39-40. XXX Corporation, an export oriented
was discovered by the BIR agents selling company, was able to secure a BIR ruling in
luxury items worth P500,000.00 suspected June 2005 that exempts from tax the
to have been smuggled into the country by importation of some of its raw materials. The
the storeowner. May the Commissioner of ruling is of first impression, which means the
interpretation made by the Commissioner of
 Internal Revenue is one without established
precedents. Subsequently, however, the BIR
issued another ruling which in effect would
subject to tax such kind of importation. XXX
Corporation is concerned that said ruling
may have a retroactive effect, which means
that all their importations done before the
issuance of the second ruling could be
subject to tax. May the BIR rulings be given
retroactive effect?
a. No, BIR rulings are prospective in
nature.
b. No, BIR rulings are not retroactive if
they are prejudicial to the taxpayer.
c. Yes, tax exemptions should be
interpreted strictly against the
taxpayer.
d. Yes, tax must favor the government’s
power to collect its revenues.
41-42. The Local Government Code took effect on
January 1, 1002. PLDT’s legislative franchise
was granted sometime before 1992. Its
franchise provides that PLDT will only
pay3% franchise tax in lieu of all taxes. The
legislative franchises of Smart and Globe
Telecoms were granted in1998. Their
legislative franchise state that they will pay
only 5% franchise tax in lieu of all taxes. The
Province of Zamboanga del Norte passed an
ordinance in 1997 that imposes a local
franchise tax on all telecommunication
companies operating within the province.
The tax is 50% of 1% of the gross annual
receipts of the preceding calendar year
based on the incoming receipts, or receipts
realized, within its territorial jurisdiction. Is
the ordinance valid?
a. No, the ordinance in effect resulted
into double taxation.
b. No, the Local Government Code
prevails over ordinances.
c. Yes, the local government units are
empowered by the Constitution to
raise its own revenues.
d. Yes, autonomy of Zamboanga del
Norte.
43-44. Congress passed a law which granted tax
amnesty to those who have not paid their
income taxes in 2010 but did not provide for
the refund to those who paid. Is the law
valid?
a. No, this will encourage taxpayers not
to pay their taxes.
b. Yes, Congress has the sole discretion
of determining whom to tax.
c. No, the grant of amnesty is the ive of
the President.
d. Yes, Congress provided for valid
classification.
45-46. Congress passed a law imposing taxes on
income earned out of particular activity that
was not previously taxed. The law, however,
taxed incomes already earned within the
fiscal year when the law took effect. Is the
law valid?
a. No, because laws are intended to be
prospective, not retroactive.
b. No, the law is arbitrary in that it taxes
income that has already been spent.
c. Yes, since tax laws are the lifeblood of
the nation.
d. Yes, tax laws are an exception; they
can be given retroactive effect.
47-48. The municipality of San Isidro passed an
ordinance imposing a tax on installation
managers. At the time, there was only one
installation manager in the municipality,
thus, only he would be liable for the tax. Is the
law constitutional?
a. It is unconstitutional because it clearly
discriminates against this person.
b. It is unconstitutional for lack of legal
basis.
c. It is constitutional as it applies to all
persons in that class.
d. It is constitutional because the power
to tax is the power to destroy.
49-50. In 2010, Mr. Paasa sent his sister Erika
$1,000 via telegraphic transfer through the
Bank of PI. The bank’s remittance clerk made
a mistake and credited Erika with
$1,000,000 which she promptly withdrew.
The bank demanded the return of the
mistakenly credited excess, but Erika
refused. The BIR entered the picture and
investigated Erika. Would the BIR be correct
if it determines that Erika earned taxable
income under these facts?
a. No, she had no income because she
has no right to the mistakenly credited
funds.
b. Yes, income is income regardless of
the source.
c. No, it was not her fault that the funds
in excess of $1,000 were credited to
her.
d. No, the funds in excess of $1,000 were
in effect donated to her.
51-52. Congress passed a sin tax law that
increased the tax rates on cigarettes by
1,000%. The law was thought to be sufficient
to drive many cigarette companies out of
business, and was questioned in court by a
cigarette company that would go out of
business because it would not be able to pay
the increased tax. The cigarette company is:
a. Wrong because taxes are the lifeblood
of the government.
b. Wrong because the law recognizes
that the power to tax is the power to
destroy.
c. Correct because no government can
deprive a person of his livelihood.
d. Correct because Congress, in this case,
exceeded its power to tax.
53-54. Mr. Malas sells shoes in Makati through a
retail store. He pays VAT on his gross sales to
the BIR and the municipal license tax based
on the same gross sales to the City of Makati.
He comes to you for advice because he thinks
 he is being subjected to double taxation.
What advice will you give him?
a. Yes, there is double taxation and it is
oppressive.
b. The City of Makati does not have this
power
c. Yes, there is double taxation and this
is illegal in the Philippines.
d. Double taxation is allowed where one
is imposed by the national
government and the other by the local
government.
55-56. Pheleco is a power generation and
distribution company operating mainly from
the City of Taguig. It owns electric poles
which it rents out to other companies that
use pole such as telephone and cable
companies. Taguig passed an ordinance
imposing a fee equivalent to 1% of the
annual rental for these poles. Pheleco
questioned the legality of the ordinance on
the ground that it imposes an income tax
which local government units are prohibited
from imposing. Rule on validity of the
ordinance:
a. The ordinance is void; the fee is based
on rental income and is therefore a tax
on income.
b. The ordinance is valid as a legitimate
exercise of police power to regulate
electric poles.
c. The ordinance is void; 1% of annual
rental is excessive and oppressive.
d. The ordinance is valid; an LGU may
impose tax on income.
57-58. RAF Corporation secured an income tax
holiday for 5 years as a pioneer industry. On
the fourth year of the tax holiday, RAF
Corporation declared and paid cash
dividends to its stockholders, all of whom are
individuals. Are the dividends taxable?
a. The dividends are taxable, the tax
exemption of RAF Corporation does
not extend to its stockholders.
b. The dividends are tax-exempt because
of RAF Corporation’s income tax
holiday.
c. The dividends are taxable if they
exceeded 50% of RAF Corporation’s
retained earnings.
d. The dividends are exempt if paid
before the end of RAF Corporation
fiscal year.
59-60. Dina Gaganda sued Dino Titino for breach
of promise to marry. Dino lost the case and
duly paid the court’s award that included
among others, Php100,000 as moral
damages for mental anguish Dina suffered.
Did Dina earn a taxable income?
a. She had a taxable income of P100,000
since income is income from whatever
source.
b. She had no taxable income because it
was a donation.
c. She had taxable income since she
made a profit.
d. She had no taxable income since moral
damages are compensatory.
For items 61-90: Choose your answers from the
following:
Shade A if both statements are false.
Shade B if statement 1 is false
and statement 2 is true.
Shade C if statement 1 is true
and statement 2 is false.
Shade D if both statements are true.
61. I. Taxation without representation is not
tyranny.
II. In the exercise of taxation, the state can
tax anything at anytime and at any
amount.
62. I. Taxation and power of eminent
domain may be exercised
simultaneously.
II. Taxation and police power may be
exercised simultaneously.
63. I. Estate tax is a proportional tax.
II. A progressive tax is a tax, the rate of
which is directly proportional to tax base.
64. I. All of our tax laws are statutory laws.
II. The non-impairment clause is a
statutory law on taxation.
65. I. An excise tax is also called privilege
tax.
II. A tax which is neither personal nor
property, is an excise tax.
66. I. Non-payment of tax makes the
business illegal.
II. The non-payment of license fee makes
the business illegal.
67. I. Provisions in the Philippine
Constitution on taxation are grants of
power.
II. Due process of law in taxation in the
Constitution is a grant of power.
68. I. Margin fee is a tax.
II. Custom’s duty is a tax.
69. I. The RDO is known as the alter ego of
the BIR Commissioner.
II. The BIR Commissioner is directly under
the President’s Office.
70. I. Territoriality is one of the
constitutional limitations on the power
of taxation.
II. International comity is an inherent
limitation in taxation.
71. I. A person cannot be imprisoned for
non-payment of property tax.
II. A law may be passed violating
uniformity of taxation.
72. I. Taxes may be used for sectarian
purposes if allowed by an ordinance.
II. The President can refuse to implement
a tax law if it appears to be
unconstitutional.
73. I. A tax is based on law while debt is
based on contract.
 II. A tax is also a custom’s duty.
74. I. There can be double taxation in the
Philippines.
II. Double taxation is illegal if it violates the
uniformity of taxation.
75. I. There can only be a tax if there is a law
imposing the tax.
II. The power to tax is inherent.
76. I. A progressive system of taxation
means a tax structure where the tax base
increases as the tax rate increases.
II. Tax exemption is a grant of immunity to
a particular taxpayer from where others
are obliged to pay.
77. I. A state has the power to tax even if not
granted by the Constitution.
II. A state cannot exercise police power if
not granted by the Constitution.
78. I. Tax avoidance is a form of tax escape.
II. Tax evasion is not punishable.
79. I. Imposition of taxes is a legislative act.
II. Collection of taxes is an administrative
act.
80. I. A tax may include the power to
destroy.
II. A tax may be imposed violating
uniformity of taxation.
81. I. A license fee is a charged imposed
under the police power of the state.
II. Penalty is imposed by the state only.
82. I. A tax may be subjected to set-off or
compensation.
II. A tax ordinarily includes interest.
83. I. One of the essential characteristics of a
tax is it is unlimited in amount.
II. A tax is generally unlimited because it is
based on the needs of the state.
84. I. A tax bill may embrace more than one
subject.
II. Non-payment of a tax cannot result to
criminal liability on the part of the
taxpayer, only civil liability.
85. I. A person may refuse to pay a tax on the
ground that he receives no personal
benefit from it.
II. A taxpayer has a right to question illegal
expenditures of public funds.
86. I. 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.
II. 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.
87. I. Tax exemptions are strictly construed
against the government.
II. When the law is not clear and there is
doubt whether he is taxable or not, the
doubt shall be settled against the
government.
88. I. To be exempt from taxation under the
Constitution land and buildings must be
exclusively and actually used for
religious, educational, or charitable
purpose, even if not directly.
II. Exemptions of non-profit schools are
only limited to revenue and assets derived
from strictly school operations.
89. I. Real property is subject to taxation in
the place in which it is situated
regardless of whether the owner is a
resident or a non-resident therein.
II. As far as personal property is
concerned. The ancient rule of mobilia
sequntur personam applies. This means
that the thing follows the law of the owner
thereof.
90. I. The property taken in police power is
destroyed while the property taken
under the power of eminent domain and
power of taxation are not destroyed.
II. In power of taxation, the compensation
received is the protection afforded to the
citizens; in police power the compensation
received is the altruistic feeling that
somehow you contributed to the
promotion of the general welfare; in
power of eminent domain, the
compensation received is the just
compensation paid for the property taken.
IDENTIFICATION:
For items 91 – 95:
A. Basis of taxation
B. Theory of taxation
C. Scope of taxation
D. Situs of taxation
E. Aspects of taxation
91. The levying or imposition of tax, and the
collection of the tax are processes which
constitute the taxation system.
92. It literally means “place of taxation”; the
country that has the power and
jurisdiction to levy and collect the tax.
93. The reciprocal duties of support and
protection between the people and the
government.
94. Subject to inherent and constitutional
limitations, the power of taxation is
regarded as supreme, plenary,
unlimited, and comprehensive.
95. The existence of the government is a
necessity and that the state has the right
to compel all individuals and property
within its limits to contribute.
For items 96 – 100:
A. Direct tax
B. Capitation tax
C. Excise tax
D. Indirect tax
E. Property tax
 96. Tax which is demanded from one person Prepared by:
from one person in the expectation and
intention that he shall indemnify himself
at the expense of another. FRANCESCO RAFIEL A. MALLARI, CPA
97. Tax imposed upon the performance of FACULTY, Department of Accountancy
an act, the enjoyment of privilege, or the OLFU – Pampanga
engaging in an occupation.
98. Tax imposed on personal or real
Reviewed and Checked by:
property in proportion to its value or on
some other reasonable method of
apportionment. ALEND KERSEY Q. SAMPANG, CPA
99. Tax which is demanded from the person OIC – Department of Accountancy
whom the law intends to pay it. OLFU – Pampanga
100. Tax of a fixed amount imposed
upon all persons residing within a
specified territory without regard to
their property or occupation they may Approved by:
be engaged in.
Dr. IGNACIO C. CORDOVA Jr.
For items 101 – 105:
Dean – College of Business and Accountancy
A. National tax OLFU
D. Local tax

101. Real property tax

102. Income tax
103. Donor’s tax
104. Occupation tax
105. Estate tax

For items 106 – 120:

A. Tax
B. License
C. Special Assessment
D. Debt
E. Toll

106. Not assignable

107. Compensation charged by the
owner for the voluntary use of the
property or improvements
108. May be based on income or on the
value of the property
109. Based wholly on benefits
110. Not subject to the limitations on
taxation
111. Based on contract
112. Demand of ownership or
proprietorship
113. Exceptional both as to time and
locality
114. Payable in money, property, or
services
115. Subject to constitutional and
inherent limitations
116. Limited to the cost of regulation
117. Imposed only on property which
benefit from the improvement
118. Interest is enforced if stipulated
or if the payment is in delay
119. Largely based on the cost of the
property used, or on the cost of the
improvement used
120. Due to the government in its
sovereign capacity