TAXATION

Problem 1-1 True or False

1. The existence of the constitution is necessary for the exercise of the inherent powers of the Sovereign
State.
2. Taxation is the government’s legitimate means of interfering with the private properties of its subjects.
3. The benefits from taxation have to be experienced to justify the legitimacy of collection of taxes from
the people.
4. Taxation is the primary source of government revenue. Hence, all government funds come from taxes.
5. Sovereign equality dictates that a nation cannot impose taxes on the property of another country.
6. The state can still exercise its taxing powers over its citizen, even if he resides outside the taxing state’s
territory.
7. All government entities regardless of their functions are exempted from taxes because it would be
impractical for the government to be taxing itself.
8. Revenues derived from taxes cannot be used for the exclusive use of private persons.
9. Local taxes ordinances must be uniformly and equally applied throughout the country.
10. Taxation could be described as a power, as a process, or as a means. As a power, taxation is a way of
apportioning the cost of government among those who are privileged to enjoy its benefits.
11. The state can enforce contributions upon its citizen in the form of taxes even without a constitutional
provision authorizing it.
12. Appropriation of taxes is considered valid if intended for the common good of the people without
identifying a particular person to be benefited from it.
13. Taxation is inseparable in the existence of a nation.
14. Taxation is considered as the lifeblood of the government and every government unit must exercise this
power.
15. The amount of taxes may be increased to curve spending power and minimize inflation.
16. The constitution is the source of the State’s taxing power.
Answer Key
1. False – Constitution’s existence is unnecessary.
2. True
3. False
4. False – Not all government funds come from taxes.
5. True
6. True
7. False— depends on its status and if accepted by the law.
8. True
9. False— Taxation shall be uniform in each local government unit.
10. False— As a means, taxation is a way of apportioning the cost of government among those who are
privileged to enjoy its benefits.
11. True
12. True
13. True
14. True
15. True
16. False
Problem 1-2
1. Tax amnesty allows absolute forgiveness to give tax evaders a chance to reform with a clean slate.
2. Tax exemption applies only to government entities that exercise proprietary functions.
3. Tax assessment is a process of taxation which involves the passage of tax laws and ordinances through
legislature.
4. Taxation, like eminent domain is limited by the constitutional provision that private property may not
be taken without just compensation.
5. The exercise of police power is superior to the non-impairment clause of the constitution.
6. Taxation, like police power is restricted by the due process clause of the constitution.
7. Dumping duty is the additional duty tax imposed on imported goods with lower prices than their fair
market values to protect local industries.
8. The doctrine of tax imprescriptibility states that taxes in general are not cancellable.
9.
10. The Pari Materia doctrine requires that tax laws should be interpreted with reference to other
legislations and their effect as a whole may be given consideration.
11. In general, bills need not to be signed by the President to become a law.
12. No law granting any tax exemption shall be passed without the concurrence of two thirds of the
members of the congress.
13.

1. True
2. False—governmental
3. False—Levy
4.
5.
6.
7. False
8. False— majority
9.

1. Which of the following theory justifies taxes being a preferred credit?

a. Doctrine of Equitable Recoupment
b. Marshall Doctrine
c. Necessity theory
 d. Lifeblood Doctrine
2. Without taxes, the government would be paralyzed for lack of the motive power to activate and
operate it.
a. Holmes Doctrine
b. Necessity Doctrine
c. Lifeblood Doctrine
d. Doctrine of Symbiotic Relationship
3. Levying of local government taxes may be exercised by:
a. The local executive only
b. The legislative branch of the local government only
c. Neither the local executive nor the legislative branch of the local government can exercise the power
d. The local executive and the legislative branch of the local government unit
4. How will the local government units be able to exercise their taxing powers?
a. By the issuance of the Department of Finance
b. By the help of the Bureau of Internal Revenue
c. By local legislation
d. By authority conferred by Congress.
5. Which of the following is classified as a local tax?
a. Income tax
b. Estate tax
c. Professional tax
d. Documentary stamp tax
6. Which of the following is an example of the State's exercise of police power?
a. The government's taking of a privately owned land for the construction of a railway
b. Conduct of the State of elections for positions in the national government
c. Congress' prohibition of illegally copying pirated movies
d. Collection of taxes on sweetened beverages as enacted by the Congress The correct answer is:
7. In this type of tax, non-payment is constitutionally exempted from imprisonment.
a. Poll tax
b. Documentary stamp tax
c. Income tax
d. Value added tax
8. Which of the following is not an administrative remedy of BIR Commissioner to collect tax?
a. Distraint of personal property
b. Civil case to collect a sum of money.
c. Garnishment of bank deposit
d. Levy of real property

Situational Problem No. 1: For items 21 to 25, refer to the following information:
Tim McGraw owns a chain of fifteen (15) convenience stores in Brgy. Nashville, Quezon City. The
convenience stores had an aggregate sale of Php4,800,000, as a result, Tim McGraw registered as a
VAT-registered taxpayer. For taxable year 2021, Tim McGraw paid income taxes amounting to P320,000.
His income tax due was P600,000, and Tim McGraw was able to make prior quarter’s payments
amounting to P280,000, resulting in an income tax payable of P320,000. A month after filing his annual
income tax return on the day of the deadline, Tim McGraw saw in his records that there were
Certificates of Creditable Tax Withheld (BIR Form No. 2307) pertaining to taxable year 2021 that were
not claimed. On May 27, 2022, Tim McGraw filed an amended return and sought for the refund of the
amount of the Certificates of Creditable Tax Withheld. The BIR denied Tim McGraw’s claim for refund
on the following grounds.
First, the BIR officer stated that according to the irrevocability rule, Tim McGraw is barred from claiming
refund.
Second, the amended return was filed out of time.
Third, the time has lapsed for Tim McGraw to claim for refund.
Finally, the BIR officer informed Tim McGraw that the principle of estoppel applies, and Tim McGraw
can no longer amend his return later on to reflect a refund. Tim McGraw, knowing that you are a
student of tax, sought your counsel.
1. Is the BIR correct in denying the claim for refund on the ground of the application of the
irrevocability rule?
a. It cannot be determined. Reference must be had on last year’s income tax return to determine
whether the irrevocability rule applies.
b.Yes, the irrevocability rule applies specifically to overpayments of income tax.
c.No, the irrevocability rule only applies with respect to errors in computation.
d.No, there was no option to claim for tax credit in the first place.
2.When is the last day to amend Tim McGraw’s annual income tax return?
a.April 15, 2022
b.April 15, 2023
c.April 15, 2025
d.April 15, 2027
3.Statement 1: The principle of estoppel bars a taxpayer from amending his/her own return. Statement
2: The principle of estoppel is applicable in Tim McGraw’s case because the declaration in the income
tax return amounts to a deliberate false representation in which the BIR has made reliance.
a.Only Statement 1 is true. b.Only Statement 2 is true. c.Both statements are true. d.Both
statements are not true.
4. When is the last day for Tim McGraw to file a claim for refund before the Bureau of Internal
Revenue? a.April 15, 2022 b.April 15, 2023 c.April 15, 2024 d.April 15, 2025
5. When is the last day for Tim McGraw to file a claim for refund before the Court of Tax Appeals
should the Bureau of Internal Revenue deny his claim for refund on April 2, 2024?
a.April 15, 2024
b.April 17, 2024
 c.May 2, 2024
d.June 1, 2024

6.Statement 1: Income tax is a national tax. Statement 2: Considering that the impact and incidence
of taxation in income tax rests on the same person, income tax is considered as a direct tax. a.Only
Statement 1 is true. b.Only Statement 2 is true. c.Both statements are true. d.Both statements are
not true.

7.Under BIR regulations, income in long-term construction contracts is recognized through:

a.Percentage of completion method only. b.Completed contract method only. c.Zero-profit method
only. d.Either of the above methods at the option of the taxpayer. 28. Big Hit Corporation is a
domestic corporation. Which of the following items of income is subject to tax? I.Gain from sale of
personal property in the Philippines. II.Gain from sale of personal property in South Korea. a.I only.
b.II only. c.Both I and II. d.Neither I nor II.

1. d. Lifeblood Doctrine
2. c. Lifeblood Doctrine
3. b. The legislative branch of the local government only
4. c. By local legislation
5. c. Professional tax
6. Congress' prohibition of illegally copying pirated movies
7. a. Poll tax
8. b. Civil case to collect a sum of money.
9.
10.

1. The state having sovereign can enforce contributions (tax) upon its citizens even without a specific
provision in the constitution authorizing it. Which of the following will justify the foregoing statement?
I. It is so because the State has the supreme power to command and enforce obedience to its will
from the people within its jurisdiction.
II. Any provision in the Constitution regarding taxation does not create rights for the sovereignty to
have the power to tax but it merely constitutes limitations upon the supremacy of tax power.
a. I only
b. II only
c. Both I and II
d. Neither I and II

1. C
 2.

1.Taxation could be described as power, as a process, or as a means. As a power, taxation is a way of

apportioning the cost of government among those who are privileged to enjoy its benefits.
2.The State can enforce contributions upon its citizens in the form of taxes even without constitutional
provision authorizing it.
3.Appropriation of taxes is considered valid if intended for the common good of the people without identifying
a particular person to be benefited from it.
4.Taxation is inseparable in the existence of a nation.
5.Taxation is considered as the lifeblood of the government and every government unit must exercise this
power.
6.The amount of taxes may be increased to curve spending power and minimize inflation.
7.The Constitution is the source of the State’s taxing power.
8.Taxation is the government’s legitimate means of interfering with the private properties of its subjects.
9.The benefits from the taxation have to be experiences to justify the legitimacy of collection of taxes from
people.
10.The taxation is the primary source of government revenue. Hence, all government funds come from
taxes.
11.Sovereign equality dictates that a nation cannot impose taxes on the property of another country.
12.The State can still exercise its taxing powers over its citizen, even if he resides outside the State’s
territory. 13.All government entities regardless of their functions are exempted from taxes because it would
be impractical for the government to be taxing itself.
14.Revenues derived from taxes cannot be used for the exclusive use of private persons. 15.Local tax
ordinances must be uniformly and equally applied throughout the country. 16.The primary requisite of
equity principle is that each taxpayer should be required to contribute equal amounts in the form of taxes.
17.Tax assessment refers to the fiscal policy of the government 18.An aspect of tax power that could be
delegated to the President covers both legislative and administrative discretion. 19.Eminent domain and
police power can effectively be performed even without taxation. 20.When the power to tax is delegated to
the local government, only the legislative branch of the local government can exercise the power. 21.All
inherent powers presuppose equivalent compensation. 22.There is no imposition of amount in police power.
23.Police power and eminent domain may defeat the Constitutional rights of a person. 24.Tax exemption
applies only to government entities that exercise proprietary functions. 25.Tax assessment is a process of
taxation which involves the passage of tax laws and ordinances through legislature. 26.Taxation, like
eminent domain is limited by the Constitutional provision that the private property may not be taken
without just compensation. 27.The exercise of police power is superior to the non-impairment clause of the
Constitution. 28.Taxation, like police power is restricted by the due process clause of the Constitution.
29.Dumping duty is the additional duty tax imposed on imported goods with lower prices than their fair
market values to protect local industries. 30.The doctrine of tax imprescriptibility states that taxes in general
are not cancellable. 31.Taxes may be exercised to encourage economic growth by granting tax exemptions.

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32.Taxes may be used as a tool and weapon in international relations and to protect trade relations.
33.Protection is the basis consideration that justifies tax situs.
34.The tax situs for occupation is the place where occupation is pursued even if the criterion for nationality
is given.
35.There is direct double taxation by taxing corporate income and corporate stockholders’ dividends from
the same corporation. 36.A nonresident alien is liable to pay transfer taxes for properties within and outside
the Philippines.
37.A tax may be levied for the support of religious activities as long as all churches benefit from it. 38.In
general, bills need not to be signed by the President to become a law. 39.No law granting any tax exemption
shall be passed without the concurrence of two thirds of the members of the Congress. 40.The Constitution
grants autonomous regions certain legislative powers which shall include legislative power over taxation.
41.Taxes collected by the BIR are local taxes. 42.Real estate tax and income tax collected on the same real
estate property is not a form of double taxation. 43.A tax evader sidesteps the law, while the tax avoider
breaks it. 44.All revenues and assets of non-stock, nonprofit educational institutions used directly or
indirectly for educational purposes shall be exempt from taxes and duties. 45.The power of Judicial Review
in taxation is limited only to the interpretation and application of tax laws. 46.Interpretations made by
executive branch for the enforcement of tax laws are generally respected by the Courts because they are
conclusive. 47.Tax laws are given retroactive effect because the rule of “ex post facto law” is applicable for
tax purposes. 48.In taxation, it is one’s civil liability to pay taxes which gives rise to criminal liability. 49.No
person shall be imprisoned for nonpayment of income tax. 50.Tax laws must be construed strictly against the
government, and tax exemptions must be resolved liberally in favor of the government and strictly against
the taxpayer. 51.As a rule, doubts as to imposition must be resolved liberally in favor of the government and
strictly against the taxpayer. 52.The Philippine tax laws are not political and penal in nature. 53.The doctrine
of equitable recoupment is applicable to cases where the taxes involved are totally unrelated. 54.When
there is ambiguity of tax laws, the rules of statutory construction may be used to search for the legislative
intent. However, when the meaning of the law is clear, the statute must be enforced as written. 55.Tax
exemption is transferable and assignable. 56.Revenue regulations that are inconsistent with law have the
effect and force of law if they are useful and reasonable. 57.BIR Rulings are the best opinions regarding the
interpretations of tax laws and are considered sound law until changed by the Court. 58.The tax doctrine of
Marshall Dictum explains the tax is a power to destroy. 59.Tax rulings of the Secretary of Finance are binding
to the Courts because the Department of Finance is the highest agency regarding tax administration
Answers key
 1.
2. True
3. True
4. True
5. True
6.
7.
8. True
9.
10.
11. True
12.

Taxation is inseparable in the existence of a nation.

Taxation is considered as the lifeblood of the government and every government unit must exercise this power.

The amount of taxes may be increased to curve spending power and minimize inflation.

A specific provision in the constitution is the source of the state's taxing power.

Taxation is the government's legitimate means of interfering with the private properties of its subjects.

The benefits from taxation have to be experienced to justify the legitimacy of collection of taxes from the
people.

Taxation is the primary source of government revenue. Hence, all government funds come from taxes.

Sovereign equality dictates that a nation cannot impose taxes on the property of another country.

The state can still exercise its taxing powers over its citizen, even if he resides outside such state's territory.

All government entities regardless of their functions are exempted from taxes because it would be impractical
for the government to be taxing itself.
Revenues derived from taxes cannot be used for the exclusive use of private persons.

Local tax ordinances must be uniformly and equally applied throughout the country.

1. Tax rate where the rate increases as the tax base increases.
Progressive
Proportional
Regressive
Indirect
2. Other income, for income tax purposes, is included in an individual taxpayer’s taxable / returnable
income.
True
False
3. A non-resident citizen is taxable on income derived from sources within the Philippines only.
True
False
4. The power to tax is subject to inherent and constitutional limitations.
5. Statement 1: The constitution is the source of the state’s taxing power.
Statement 2: The police power of the government may be exercised through taxation.
Only statement 1 is correct.
Only statement 2 is correct.
Both statements are correct
Bothe statements are incorrect.
6. Fixing the tax rate to be imposed is the best described as a/an
Administrative function
Legislative function
Executive function
Judicial function
7. The power of Taxation may be exercised by the government, its political subdivisions and public
utilities.
True
False
8. The provision of the tax code which allows 8% income tax gross sales / receipts and other non-
operating income in excess 250,000 is available only to mixed income earners.
True
 False
9. The constitution is the source of the State’s taxing power.
True
False
10.

Answer key
1. Progressive
2. True
3. True
4. True
5. Only statement 2 is correct.
6. Administrative function
7. False
8. False
9. False