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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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NCPAR…driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX
– 6th Batch – HQ01
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
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
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
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
5
NCPAR…driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX
– 6th Batch – HQ01
Northern CPAR: Taxation – Fundamental Principles of Taxation
8
NCPAR…driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX
– 6th Batch – HQ01
Northern CPAR: Taxation – Fundamental Principles of Taxation
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, can’t 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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NCPAR…driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX
– 6th Batch – HQ01
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
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NCPAR…driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX
– 6th Batch – HQ01
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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NCPAR…driven 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.
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NCPAR…driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX
– 6th Batch – HQ01