TAXATION

General Principles

1. Consider the following statements:

I. The power of taxation involves the promulgation of rules.
II. The state has the power to impose taxes even without a constitutional grant.
III. Taxes are based upon the lifeblood theory.
IV. There should be no improper delegation of the power to tax.
Which of the following is true?
A. Statements I and II are both manifestations of taxation being legislative in nature.
B. Statements II and IV are both manifestations of taxation being legislative in nature.
C. Statements I and IV are both manifestations of the inherent nature of taxation.
D. Statements II and III are both manifestations of the inherent nature of taxation.
2. The power to tax is the power to destroy. Is this always so?
A. No. The Executive Branch may decide not to enforce a tax law which it believes to be confiscatory.
B. Yes. The tax collectors should enforce a tax law even if it results to the destruction of the property
rights of a taxpayer.
C. Yes. Tax laws should always be enforced because without taxes, the very existence of the State is
endangered.
D. No. The Supreme Court may nullify a tax law, hence, property rights are not affected.
3. The City of Iloilo passed an ordinance imposing a license fee on all motor vehicles entering the city
between the hours of 8:00 a.m. to 4:00 p.m. Commuters assailed the validity of the law. Decide on the
validity of the ordinance.
A. Valid, because it was issued as a source of revenue.
B. Valid, because it is a legitimate exercise of police power.
C. Void, because it discriminates against those who are not able to pay the license fee, particularly, the
low-salaried workers.
D. Void, because it is not imposed by any other city.
4. One of the characteristics of a sound tax system is administrative feasibility, which requires that:
A. The amount of taxes should be collected based on ability to pay.
B. Tax administration must be honest and accountable.
C. Tax laws must be capable of effective and efficient enforcement.
D. Taxes collected must be sufficient to meet the needs of the government.
5. Real property taxes should not disregard increases in the value of real property occurring over a long
period of time. To do otherwise would violate the cannon of a sound tax system referred to as:
A. Theoretical justice
C. Administrative feasibility
B. Fiscal adequacy
D. Symbiotic relationship
6. Which theory in taxation states that without taxes, a government would be paralyzed for lack of power
to activate and operate it, resulting in its destruction?
A. Power to destroy theory
C. Sumptuary theory
B. Lifeblood theory
D. Symbiotic doctrine
7. Which of the following concepts of taxation is the basis for the situs of income taxation?
A. Lifeblood doctrine
C. Compensatory purpose of taxation
B. Symbiotic relationship
D. Sumptuary purpose of taxation
8. Double taxation in its general sense means taxing the same subject twice during the same taxing period.
In this sense, double taxation:
A. Violates substantive due process.
B. Does not violate substantive due process.
C. Violates the right to equal protection.
D. Does not violate the right to equal protection.

9. Which of the following are not usually imposed when there is a tax amnesty?
A. Civil, criminal and administrative penalties
B. Civil and criminal penalties
C. Civil and administrative penalties
D. Criminal and administrative penalties
10. One who seeks a tax exemption should:
A. Invoke the warning that the State should recognize the exemption so as not to kill the hen that lays the
golden eggs.
B. Point to specific words in the tax exemption law which unmistakably grant the exemption.
C. First pay the tax, and after doing so, apply for a tax refund; if denied, seek refuge with the
Court of
Tax Appeals.
D. Not pay the tax, and wait for an assessment notice from the BIR which could then be the subject of a
protest.
11. Statement 1: In criminal cases involving tax offenses punishable by the NIRC, prescription is construed
strictly against the government.
Statement 2: In civil cases involving the collection of internal revenue taxes, prescription is construed
strictly against the government and liberally in favor of the taxpayer.
A. Both Statements are True
C. Only Statement 1 is True
B. Both Statements are False
D. Only Statement 2 is True
12. Which of the following is not among the inherent limitations of the power to tax?
A. Prohibition against double taxation.
B. Recognition of comity.
C. No improper delegation of the legislative authority to tax.
D. The taxing power should only be exercised within the territorial boundaries of the state.
13. An annual tax of 500 was imposed upon all residents of the Philippines, who are above 21 years of
age with a gross income of 250,000, whether or not they send their children to public schools. The
tax is for the purpose of raising funds in order to improve public school buildings. The tax is:
A. Violative of the equal protection clause of the Constitution.
B. Confiscatory.
C. For a public purpose.
D. Contradictory to the inherent limitations of taxation.
14. Although the power of taxation is basically legislative in character, it is not the function of congress to:
A. Fix with certainty the amount of taxes.
C. Identify who should collect the tax.
B. Collect the tax levied under the law.
D. Determine who should be subject to the tax.
15. Pierre de Francoise, a Frenchman, arrived in the Philippines on January 1, 2011 and continued to live
and engage in business in the Philippines. He went on a tour of Southeast Asia from August 1 to
November 5, 2011. He returned to the Philippines on November 6, 2011, and stayed until April 15,
2012. He earned during his stay in the Philippines income from his investments in Philippine
corporations. For the year 2011, Pierres taxable status is that of a:
A. Non-resident alien not engaged in trade or business.
B. Non-resident alien engaged in trade or business.
C. Resident alien not engaged in trade or business.
D. Resident alien engaged in trade or business.
16. Apples Corporation is registered under the laws of Thailand. In the Philippines, its products are imported
and sold at a mark-up by its exclusive distributor, Oranges, Inc. The BIR compiled a record
of all the
imports of Oranges from Apples, and imposed a tax on Apples net income derived from its
exports
to Oranges. Is the BIR correct?
A. Yes. Apples is a non-resident foreign corporation engaged in trade of business in the Philippines.
B. No. The tax should have been computed on the basis of gross revenues and not net income.
C. No. Apples is a non-resident foreign corporation not engaged in trade of business in the
Philippines.
D. Yes. Apples is doing business in the Philippines through its exclusive distributor, Oranges.

17. Income from the performance of service is treated as income from within the Philippines, if:
A. The payment of compensation for the service is made in the Philippines.
B. The contract calling for the performance of service is signed in the Philippines.
C. The service is actually performed in the Philippines.
D. The recipient of the service income is a resident of the Philippines.
18. In 2010, Mr. Hicks, a Filipino and permanent resident of Oslo, Norway, purchased a two-bedroom
condominium unit at Rockwell, Makati City for the use of his family members. The purchase price
came from his earnings in Norway. In 2012, he decided to sell the unit to Mr. Hockey, a permanent
resident of London. The contract was entered into in Oslo, and was paid for in Euros. Mr. Hicks intended
to use the proceeds to purchase a coffee shop in Boracay. For purposes of Philippine Taxation, the sale of
the condominium unit shall:
A. Not be subject to tax because the transaction was between parties who are not Philippine residents.
B. Be taxable because the condominium is a real property located within Philippine territory.
C. Not subject to tax because the transaction was consummated outside the Philippine territory and
paid in foreign currency.
D. Be taxable because the sale proceeds are to be utilized locally even if the parties are not residents
and the transaction occurred outside the Philippines.
19. Tax evasion is penalized by certain sanctions including imprisonment, unless the tax evaded is:
A. The estate tax
C. The value-added tax
B. The community tax
D. The franchise tax
20. The religious sect was organized as a corporation sole. It owns a 5,000 sq. m. lot, registered in the name of
the head priest, and rented out for use as a school site of an educational institution organized for profit.
The sect used the rentals for the support and upkeep of its priests. Choose which among the following is
the most appropriate ruling with regard to real property tax (RPT) exemption of the 5,000 sq. m. lot?
A. Not exempt from the payment of RPT because the user is organized for profit.
B. Exempt from the payment of RPT because it is actually, directly and exclusively used for educational
purposes.
C. Exempt from the payment of RPT because it is actually, directly and exclusively used for religious
purposes.
D. Not exempt from the payment of RPT because it is the proceeds, and not the property, that is actually,
directly and exclusively used for religious purposes.
21. Academic Institute, Inc., is a stock and for profit educational institution located along Taft Avenue,
Manila. It decided to lease to commercial establishments a 1,500 sq. m. portion of the school which fronts
Taft Avenue. The lease payments are actually, directly, and exclusively used for the maintenance of the
school buildings, including payment of janitorial services. The 1,500 sq. m. portion is:
A. Subject to RPT because Academic Institute is a stock and for-profit educational institution.
B. Not subject to RPT because the proceeds are actually, directly, and exclusively used for educational
purposes.
C. Not subject to RPT, but it may be subject to income taxation on the rental proceeds.
D. Subject to RPT because there is no actual, direct and exclusive use of the property for educational
purposes.
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 COA.
D. It is part of a lawmakers pork barrel, and therefore discretionary.
23. An example of a tax where the concept of progressivity finds application is the:
A. Income tax on individuals
C. Value-added tax on certain articles
B. Excise tax on petroleum products
D. Amusement tax on boxing exhibitions

24. The actual effort exerted by the government to effect the exaction of what is due to the taxpayer is known
as:
A. Assessment
C. Payment
B. Levy
D. Collection