CHAPTER 1: Introduction to Taxation

Question 1

______ may be defined as a State power, a legislative process, and a mode of government cost distribution.

Answer 1

Taxation

Question 2

Taxation is an inherent power of the State to enforce a proportional contribution from its subjects for public purpose.

Answer 2

As a state power

Question 3

Taxation is a process of levying taxes by the legislature of the State to enforce proportional contributions from its subjects for public purpose.

Answer 3

As a process

Question 4

Taxation is a mode by which the State allocates its costs or burden ot its subjects who are benefited by its spending.

Answer 4

As a mode of cost distribution

Question 5

The government’s necessity for funding is the ______.

Answer 5

theory of taxation

Question 6

The government provides benefits to the people in the form of public services, and the people provide the funds that finance the government. This mutuality support between the people and the government is referred to as the ______.

Answer 6

basis of taxation

Question 7

______ is a mode of allocating government costs or burden to the people.

Answer 7

Taxation

Question 8

The government regards the following general considerations in the exercise of its taxation power:

Answer 8

1. Benefit received theory
2. Ability to pay theory

Question 9

The ______ presupposes that the more benefit one receives from the government, the more taxes he should pay.

Answer 9

benefit received theory

Question 10

The ______ presupposes that taxation should also consider the taxpayer’s ability to pay. Taxpayers should be required to contribute based on their relative capacity to sacrifice for the support of the government.

Answer 10

ability to pay theory

Question 11

Aspects of the Ability to Pay Theory

Answer 11

1. Vertical equity
2. Horizontal equity

Question 12

______ proposes that the extent of one’s ability to pay is directly proportional to the level of his tax base.

Answer 12

Vertical equity

Question 13

______ requires consideration of the particular circumstance of the taxpayer.

Answer 13

Horizontal equity

Question 14

Vertical equity is a ______ concept while horizontal equity is a ______ concept.

Answer 14

gross, net

Question 15

According to this doctrine, taxes are essential and indispensable to the continued subsistence of the government. Without taxes, the government would be paralyzed for lack of motive power to activate or operate it.

Answer 15

The Lifeblood Doctrine

Question 16

______ are the lifeblood of the government, and their prompt and certain availability are an imperious need.

Answer 16

Taxes

Question 17

(LBD) Tax is imposed even in the absence of a ______.

Answer 17

Constitutional grant

Question 18

(LBD) Claims for tax exemption are construed against ______.

Answer 18

taxpayers

Question 19

(LBD) The government reserves the right to choose the ______ of taxation.

Answer 19

objects

Question 20

(LBD) The courts are not allowed to interfere with the ______ of taxes.

Answer 20

collection

Question 21

(LBD) In income taxation, income received in advance is taxable upon ______.

Answer 21

receipt

Question 22

(LBD) In income taxation, deduction for ______ and ______ is not allowed as effectively defers the collection of income tax.

Answer 22

capital expenditures, prepayments

Question 23

(LBD) In income taxation, a lower amount of deduction is preferred when a claimable expense subject to ______.

Answer 23

limit

Question 24

(LBD) In income taxation, a higher tax base is preferred when the tax object has ______ tax bases.

Answer 24

multiple

Question 25

The Inherent Powers of the State

Answer 25

1. Taxation power
2. Police power
3. Eminent domain

Question 26

______ is the power of the State to enforce proportional contribution from its subject to sustain itself.

Answer 26

Taxation power

Question 27

______ is the general power of the State to enact laws to protect the well-being of the people.

Answer 27

Police power

Question 28

______ is the power of the State to take private property for public use after paying just compensation.

Answer 28

Eminent domain

Question 29

The scope of taxation si widely regarded as ______, ______, ______ and ______.

Answer 29

comprehensive, plenary, unlimited, supreme

Question 30

______ has its own inherent limitations and limitations imposed by the Constitution.

Answer 30

Taxation

Question 31

Inherent Limitations of Taxation

Answer 31

1. Territoriality of taxation
2. International comity
3. Public purpose
4. Exemption of the government
5. Non-delegation of the taxing power

Question 32

The government can only demand tax obligations upon its subjects or residents within its territorial jurisdiction.

Answer 32

Territoriality of Taxation

Question 33

Two-fold obligations of taxpayers:

Answer 33

1. Filing of returns and payment of taxes
2. Withholding of taxes on expenses and its remittance to the government

Question 34

It cannot enforce these upon subjects outside its territorial jurisdiction as this would result in encroachment of ______.

Answer 34

foreign sovereignty

Question 35

In ______, resident citizens and domestic corporations are taxable on income derived both within and outside the Philippines.

Answer 35

income taxation

Question 36

In ______, residents or citizens such as resident citizens, non-resident citizens and resident aliens are taxable on transfers of properties located within or outside the Philippines.

Answer 36

transfer taxation

Question 37

In the ______, countries of the world agreed to one fundamental concept of co-equal sovereignty wherein all nations are deemed equal with one another regardless of race, religion, culture, economic condition or military power.

Answer 37

United Nations Convention

Question 38

It is by this principle that each country observes ______ or mutual courtesy or reciprocity between them.

Answer 38

international comity

Question 39

Under the ______, the income of foreign government and foreign government-owned and controlled corporations are not subject to income tax.

Answer 39

National Internal Revenue Code (NIRC)

Question 40

Tax is intended for the common good. Taxation must be exercised absolutely for ______.

Answer 40

public purpose

Question 41

The income of the government from its properties and activities conducted for profit, including income from government-owned and controlled corporations is subject to ______.

Answer 41

tax

Question 42

The legislative taxing power is vested exclusively in ______ and is ______, pursuant to the doctrine of separation of the branches of the government to ensure a system of checks and balances.

Answer 42

Congress, non-delegable

Question 43

Under the ______, local government units are allowed to exercise the power to tax to enable them to exercise their fiscal autonomy.

Answer 43

Constitution

Question 44

Under the ______, the President is empowered to fix the amount of tariffs to be flexible to trade conditions.

Answer 44

Tariff and Customs Code

Question 45

No one should be deprived of his life, liberty, or property without ______ of law. Tax laws should neither be harsh nor oppressive.

Answer 45

due process

Question 46

Aspects of Due Process

Answer 46

1. Substantive due process
2. Procedural due process

Question 47

What aspect of due process?

Tax must be imposed only for public purpose, collected only under authority of a valid law and only by the taxing power having jurisdiction. An assessment without a legal basis violates the requirement of due process.

Answer 47

Substantive due process

Question 48

What aspect of due process?

There should be no arbitrariness in assessment and collection of taxes, and the government shall observe the taxpayer’s right to notice and hearing. The law established procedures which must be adhered to in making assessments and in enforcing collections.

Answer 48

Procedural due process

Question 49

Under the NIRC, assessments shall be made within ______ from the due date of filing of the return or from the date of actual filing, whichever is later. Collection shall be made within ______ from the date of assessment. The failure of the government to observe these rules violates the requirement of ______.

Answer 49

three years, five years, due process

Question 50

The rule of taxation shall be ______ and ______.

Answer 50

uniform, equitable

Question 51

Taxpayers under ______ should not be taxed the same.

Answer 51

dissimilar circumstances

Question 52

Hence, uniformity is relative ______.

Answer 52

equality

Question 53

Congress shall evolve a ______ system of taxation. Under the this system, tax rates increase as the tax base increases.

Answer 53

progressive

Question 54

Debt acquired ni bad faith constitutes ______, a criminal offense punishable by imprisonment.

Answer 54

estafa

Question 55

Tax arises from law and is a demand of ______. It is distinguished from debt which arises from ______.

Answer 55

sovereignty, private contracts

Question 56

Non-payment of tax compromises ______ while the non-payment of debt compromises ______.

Answer 56

public interest, private interest

Question 57

Poll tax has two components:

Answer 57

a. Basic community tax
b. Additional community tax

Question 58

The constitutional guarantee of non-imprisonment for non-payment of poll tax applies only to the ______ tax. Non-payment of the ______ tax is an act of tax evasion punishable by imprisonment.

Answer 58

basic community, additional community

Question 59

What rule is this?

The Philippine government adopts free exercise of religion and does not subject its exercise to taxation. Consequently, the properties and revenues of religious institutions such as tithes or offerings are not subject to tax. This exemption, however, does not extend to income from properties or activities of religious institutions that are proprietary or commercial in nature.

Answer 59

Free Worship Rule

Question 60

The Constitutional exemption from property tax applies for properties ______, ______, and ______ (i.e. primarily) used for charitable, religious, and educational purposes.

Answer 60

actually, directly, exclusively

Question 61

In observing this Constitutional limitation, the Philippines folows the doctrine of ______ wherein only properties actually devoted for religious, charitable, or educational activities are exempt from real property tax.

Answer 61

use

Question 62

Under the doctrine of ______, the properties of religious, charitable, or educational entities whether or not used ni their primary operations are exempt from real property tax. This, however, is not applied in the Philippines.

Answer 62

ownership

Question 63

Consistent with this constitutional recognition of education as a necessity, the NIRC also exempts government educational institutions from ______ and subjects private educational institutions to a ______.

Answer 63

income tax, minimal income tax

Question 64

As a safety net, the Constitution requires the vote of the ______ of all members of Congress in the grant of tax exemption.

Answer 64

majority

Question 65

In the approval of an exemption law, an ______ or the majority of all members of Congress, not a relative majority or quorum majority, is required. However, in the withdrawal of tax exemption, only a ______ is required.

Answer 65

absolute majority, relative majority

Question 66

Tax colections should be used only for public purpose. It should never be ______ or used for private purpose.

Answer 66

diversified

Question 67

The principle of checks and balances in a republican state requires that taxation power as part of lawmaking be vested exclusively in ______.

Answer 67

Congress

Question 68

Also, certain aspects of the taxing process that are non-legislative ni character are ______.

Answer 68

delegated

Question 69

Notwithstanding the existence of the Court of Tax Appeals, which is a special court, all cases involving taxes can be raised to and be finally decided by the ______.

Answer 69

Supreme Court of the Philippines

Question 70

Laws that add income to the national treasury and those that allows spending therein must originate from the ______ while ______ may concur with amendments.

Answer 70

House of Representatives, Senate

Question 71

STAGES OF THE EXERCISE OF TAXATION POWER

Answer 71

1 Levy or imposition
2. Assessment and collection

Question 72

This process involves the enactment of a tax law by Congress and is called impact of taxation.

Answer 72

Levy or imposition

Question 73

Levy or imposition is also referred to as the ______.

Answer 73

legislative act in taxation

Question 74

Congress is composed of two bodies:

Answer 74

1. The House of Representatives, and
2. The Senate

Question 75

As mandated by the Constitution, tax bills must originate from the ______.

Answer 75

House of Representatives

Question 76

Tax bills cannot originate exclusively from the ______.

Answer 76

Senate

Question 77

The tax law is implemented by the administrative branch of the government. Implementation involves assessment or the determination of the tax liabilities of taxpayers and collection.

Answer 77

Assessment and collection

Question 78

Assessment and collection stage is referred to as ______ or the ______.

Answer 78

incidence of taxation, administrative act of taxation

Question 79

______ is the place of taxation. It is the tax jurisdiction that has the power to levy taxes upon the tax object.

Answer 79

Situs

Question 80

______ serve as frames of reference in gauging whether the tax object is within or outside the tax jurisdiction of the taxing authority.

Answer 80

Situs rules

Question 81

Examples of Situs Rules

Answer 81

1. Business tax situs
2. Income tax situs on services
3. Income tax situs on sale of goods
4. Property tax situs
5. Personal tax situs

Question 82

Businesses are subject to tax in the place where the business is conducted.

Answer 82

Business tax situs

Question 83

Service fees are subject to tax where they are rendered.

Answer 83

Income tax situs on services

Question 84

The gain on sale is subject to tax in the place of sale.

Answer 84

Income tax situs on sale of goods

Question 85

Properties are taxable in their location.

Answer 85

Property tax situs

Question 86

Persons are taxable in their place of residence.

Answer 86

Personal tax situs

Question 87

“The power to tax involves the power ot destroy.” Taxation power can be used as an instrument of police power. It can be used to discourage or prohibit undesirable activities or occupation. As such, taxation power carries with it the power to destroy. However, the taxation power does not include the power to destroy if it is used solely for the purpose of raising revenue.

Answer 87

Marshall Doctrine

Question 88

“Taxation power is not the power to destroy while the court sits.” Taxation power may be used to build or encourage beneficial activities or industries by the grant of tax incentives.

Answer 88

Holme’s Doctrine

Question 89

Tax laws are generally ______ in operation. An ______ or a law that retroacts is prohibited by the Constitution.

Answer 89

prospective, ex post facto law

Question 90

Taxes are not subject to automatic ______ or ______. The taxpayer cannot delay payment of tax to wait for the resolution of a lawsuit involving his pending claim against the government.

Answer 90

set-off, compensation

Question 91

Tax is not a debt; hence, it is not subject to ______.

Answer 91

set-off

Question 92

Tax ______ cannot be assigned or transferred to another entity by contract. Contracts executed by the taxpayer to such effect shall not prejudice the right of the government to collect.

Answer 92

obligations

Question 93

______ is the lapsing of a right due to the passage of time. When one sleep on his right over an unreasonable period of time, he is presumed to be waiving his right.

Answer 93

Prescription

Question 94

Under the NIRC, tax prescribes if not collected within ______ from the date of its assessment. In the absence of an assessment, tax prescribes if not colected by judicial action within ______ from the date the return is required to be filed.

Answer 94

5 years, 3 years

Question 95

Under the doctrine of ______, any misrepresentation made by one party toward another who relied therein in good faith wil be held true and binding against that person who made the misrepresentation.

Answer 95

estoppel

Question 96

Generally, courts are not allowed to issue injunction against the government’s pursuit to collect tax as this would unnecessarily defer tax collection. This rule is anchored on the ______.

Answer 96

Lifeblood Doctrine

Question 97

When the law clearly provides for taxation, taxation is the general rule unless there is a clear ______. Hence the maxim, “Taxation is the ______, exemption is the ______.”

Answer 97

exemption, rule, exception

Question 98

Vague tax laws are construed against the ______ and in favor of the ______.

Answer 98

government, taxpayers

Question 99

A ______ tax law means no tax law.

Answer 99

vague

Question 100

Vague tax exemption laws are construed against the ______ and in favor of the ______.

Answer 100

taxpayer, government

Question 101

A ______ tax exemption law means no exemption law.

Answer 101

vague

Question 102

The right of taxation is inherent to the ______.

Answer 102

State

Question 103

Tax exemption cannot arise from ______ inference. Tax exemption must be ______ and ______.

Answer 103

vague, clear, unequivocal

Question 104

______ occurs when the same taxpayer is taxed twice by the same tax jurisdiction for the same thing.

Answer 104

Double taxation

Question 105

Elements of double taxation

Answer 105

1. Primary element: Same object
2. Secondary elements:
   a. Same type of tax
   b. Same purpose of tax
   c. Same taxing jurisdiction
   d. Same tax period

Question 106

Types of Double Taxation

Answer 106

1. Direct double taxation
2. Indirect double taxation

Question 107

This occurs when all the element of double taxation exists for both impositions.

Answer 107

Direct double taxation

Question 108

This occurs when at least one of the secondary elements of double taxation is not common for both impositions.

Answer 108

Indirect double taxation

Question 109

How can double taxation be minimized?

only one tax law is allowed to apply to the tax object while the other tax law exempts the same tax object

Answer 109

Provision of tax exemption

Question 110

How can double taxation be minimized?

both tax laws of the domestic country and a foreign country tax the tax object, but the tax payments made in the foreign tax law are deductible against the tax due of the domestic tax law

Answer 110

Allowing foreign tax credit

Question 111

How can double taxation be minimized?

provisions in tax laws imposing a reduced tax rates or even exemption if the country of the foreign taxpayer also gives the same treatment to Filipino non-residents therein

Answer 111

Allowing reciprocal tax treatment

Question 112

How can double taxation be minimized?

countries may stipulate for a lower tax rates for their residents fi they engage in transactions that are taxable by both of them

Answer 112

Entering into treaties or bilateral agreements

Question 113

______ are the means available to the taxpayer to limit or even avoid the impact of taxation.

Answer 113

Escapes from taxation

Question 114

Categories of Escapes from Taxation

Answer 114

A. Those that result to loss of government revenue
1. Tax evasion
2. Tax avoidance
3. Tax exemption
B. Those that do not result to loss of government revenue
1. Shifting
2. Capitalization
3. Transformation

Question 115

Forms of Shifting

Answer 115

a. Forward Shifting
b. Backward Shifting
c. Onward Shifting

Question 116

______, also known as tax dodging, refers to any act or trick that tends to illegally reduce or avoid the payment of tax.

Answer 116

Tax evasion

Question 117

______, also known as tax minimization, refers to any act or trick that reduces or totally escapes taxes by any legally permissible means.

Answer 117

Tax avoidance

Question 118

______, also known as tax holiday, refers to the immunity, privilege or freedom from being subject to a tax which others are subject to. These may be granted by the Constitution, law, or contract.

Answer 118

Tax exemption

Question 119

Al forms of tax exemptions can be revoked by Congress except those granted by the ______ and those granted under ______.

Answer 119

Constitution, contracts

Question 120

This is the process of transferring tax burden to other
taxpayers.

Answer 120

Shifting

Question 121

This is the shifting of tax which follows the normal flow of distribution (i.e. from manufacturer to wholesalers, retailers to consumers). It is common with essential commodities and services such as food and fuel.

Answer 121

Forward Shifting

Question 122

This is the reverse of forward shifting. It is common with non-essential commodities where buyers have considerable market power and commodities
with numerous substitute products.

Answer 122

Backward shifting

Question 123

This refers ot any tax shifting in the distribution channel that exhibits forward shifting or backward shifting.

Answer 123

Onward shifting

Question 124

This pertains to the adjustment of the value of an assets caused by changes in tax rates.

Answer 124

Capitalization

Question 125

This pertains to the elimination of wastes or losses by the taxpayer to form savings to compensate for the tax imposition or increase in taxes.

Answer 125

Transformation

Question 126

______ is a general pardon granted by the government for erring taxpayers to give them a chance to reform and enable them to have a fresh start to be part of a society with a clean slate. It is an absolute forgiveness or waiver by the government on its right to collect and is retrospective in application.

Answer 126

Amnesty

Question 127

______ is forgiveness of the tax obligation of a certain taxpayer under certain justifiable grounds. This is also referred to as tax remission.

Answer 127

Tax condonation

Question 128

Because they deprive the government of revenues, tax exemption, tax refund, tax amnesty, and tax condonation are construed against the ______ and in favor of the ______.

Answer 128

taxpayer, government

Question 129

______ covers both civil and criminal liabilities, but ______ covers only civil liabilities of the taxpayer.

Answer 129

Amnesty, condonation

Question 130

______ operates retrospectively by forgiving past violations. ______ applies prospectively to any unpaid balance of the tax; hence, the portion already paid by the taxpayer wil not be refunded.

Answer 130

Amnesty, Condonation

Question 131

______ is also conditional upon the taxpayer paying the government a portion of the tax whereas ______ requires no payment.

Answer 131

Amnesty, condonation