Income Tax CHAPTER 1:

Problem 1-1 True or False

Write True if the statement is correct, or False if the statement is incorrect.

1. The existence of a 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 tax 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 citizens 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 nation.

14. Taxation is considered as the lifeblood of the 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.

Problem 1-2 True or False
Write True if the statement is correct, or False if the statement is incorrect.

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 state that taxes in general are not cancellable.

9. The primary requisite of equity principle is that each taxpayer should be required to contribute
equal amounts in the forms of taxes.

10. Tax assessment refers to the fiscal policy of the government.

11. An aspect of tax power that should be delegated to the president covers both legislative and
administrative discretion.

12. Eminent domain and police power can effectively be performed even without taxation.

13. When the power to tax is delegated to the local government can exercise the power.

14. All inherent powers presuppose equivalent compensation.

15. There is no imposition of amount in police power.

16. Police power and eminent domain may defeat the constitutional rights of a person.
Problem 1-3 True or False
Write True if the statement is correct, or False if the statement is incorrect.

1. In tax capitalization, the buyer absorbs the payment of tax and includes the same as part of the cost
of the acquired property.

2. In tax condonation, the government has the option to restore what has already been taken from the
taxpayer.

3. 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.

4. A tax may be levied for the support of religious activities as long as all churches benefit from it.

5. In general, bills need not to be signed by the president to become a law.

6. No law granting any tax exemption shall be passed without the concurrence of two thirds of the
members of the congress

.
7. The constitution grants autonomous region certain legislative powers which shall include
legislative power over taxation.

8. Taxes collected by the BIR are local taxes.

9. Real estate tax and income tax collected on the same real estate double taxation.

10. A tax evader sidesteps the law, while the tax avoider breaks it.

11. All revenues and assets of non-stocks, nonprofit educational institutions used directly or indirectly
for educational purposes shall be exempt from taxes and duties.

12. Taxes may be exercised to encourage economic growth by granting tax exemption.

13. Taxes may be used as a tool and weapon in international relations and to protect trade relations.

14. Protection is the basic consideration that justifies tax situs.

15. The tax situs for occupation is a place where occupation is pursued even if the criterion for
nationality is given.

16. There is direct double taxation by taxing corporate income and corporate stockholders’ dividends
from the same corporation.
Problem 1-4 True or False
Write True if the statement is correct, or False if the statement is incorrect.

1. Tax exemption is transferable and assignable.

2. Revenue regulations that are inconsistent with law have the effect and force of law if they are
useful and reasonable.

3. BIR Rulings are the best opinions regarding the interpretation of tax laws and are considered
‘sound law until change by the court.

4. The tax doctrine of Marshall Dictrum explains that the tax is the power to destroy.

5. Tax rulings of the secretary of finance are binding to the courts because the department of finance
is the highest agency regarding tax administration.

6. The power of judicial review in taxation is limited only to the interpretation and application of tax
laws.

7. Interpretations made by executive branch for the enforcement of tax laws are generally respected
by the courts because they are conclusive.

8. Tax laws are given retroactive effect because the rule of “ex post facto law” is applicable for tax
purposes.

9. In taxation, it is one’s civil liability to pay taxes which gives rise to criminal liability.

10. No person shall be imprisoned for nonpayment of income tax.

11. Tax laws must be construed strictly against the government, and tax exemptions must be construed
strictly against the taxpayer.

12. As a rule, doubts as to imposition must be revolved liberally to favor of the government and
strictly against the taxpayer.

13. The Philippine tax laws are not political and penal in nature.

14. The doctrine of equitable recoupment is applicable to cases where the taxes involved are totally
unrelated.

15. 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.
Problem 1-5 Multiple Choice
Encircle the letter that contains the best answer.

1. Which of the following defines the country’s tax policy?

a. Philippine Constitution
b. National Internal Revenue Law
c. Pari Materia Principle
d. Tax Transformation

2. Taxation co-exist with the four elements of the state which includes all, except.
a. Government.
b. Property.
c. Sovereignty.
d. Territory.

3. Which of the following statement is not correct?

a. The government automatically processes the power to collect taxes from its inhabitants.
b. The government can enforce contribution upon its citizen only.
c. Taxation power exists inseparably with the State.
d. The State has the supreme power to command and enforce contribution from people within this
jurisdiction.

4. Which of the following statement is/are correct?

i. Taxation is a process.
ii. Enactment of Tax Laws is part of the taxation process.
iii. The Constitution expressly conferred the power of taxation to the President of the Philippines.
iv. Taxation requires voluntary contribution from inhabitants to support the government.

Choices:
a. i, ii, iii and iv.
b. ii and iii only.
c. i and ii only
d. i only

5. Which of the following is/are natural qualities of Taxation Power?

i. An inherent power
ii. Essentially an executive function
iii. An absolute power
iv. Territorial in operation

Choices:
a. i and iv only
b. ii and iii only
c. i and ii only
d. i only

6. Which of the following is not correct?

a. Only the national government exercises the inherent power of taxation.
b. The power to tax by the local government units is a delegated power granted by the constitution
and other special laws.
c. National legislation is exercised by congress.
d. Interpretation of tax laws is done by the legislative branch of the government.\

7. Which of the following statement is not correct?

 a. Collections from taxes are public money.
b. Appropriation of taxes for the common good of the people is valid.
c. Construction of private road from taxes is a valid appropriation.
d. Allocation of taxes for the benefit of greater portion of population is considered for public
purposes.

8. All of the following statements are correct except one.

a. Taxation power is an absolute power.
b. Taxation power is the strongest of all inherent powers of the government.
c. Tax laws must not violate constitutional restrictions.
d. Exercise of taxation power is subject to restriction.

9. One of the following is not among the basic justification for taxation.
a. Taxation is based on necessity.
b. Taxation is the life hood of the government.
c. Taxation is the bread and butter of the government.
d. Taxation is the voluntary contribution for the benefits received.

10. Which of the following could be an object of taxation?

i. Person
ii. Tangible property
iii. Intangible property
iv. Rights

Choices:
a. i and ii
b. i, ii and iii
c. i and iv
d. i, ii, iii and iv

11. These refer to the rules or orders having forced of law issued by the executive branch of the
government to insure uniform application of the tax law.
a. Revenue regulations
b. BIR rulings
c. Memorandum orders
d. Local tax ordinances
Problem 1-6 Multiple Choice
Encircle the letter that contains the best answer

1. It is a scheme of reducing payment of taxes through legally permissible means.

a. Tax evasion
b. Tax avoidance
c. Tax remission
d. Tax amnesty

2. The power to tax includes the power to destroy because the taxpayer has non option but to pay the
tax imposed to him.
a. Marshall dicturm
b. Holmes doctrine
c. Pari Materia Principle
d. Strictissimi Juris

3. This refers to the process of taxation to determine the amount of tax based on existing tax law.
a. Levying
b. Imposition
c. Assessment
d. Collection

4. All of the following are legislative aspect of taxation except.

a. Selection of the object or subject of tax.
b. Fixing of tax rate.
c. Valuation of property for taxation .
d. Prescribing the general rules of taxation.

5. Which of the following is/are elements of impact of taxation?

i. Levy
ii. Assessment
iii. Collection

Choices:
a. i, ii and iii
b. i and ii only
c. ii and iii only
d. iii only

6. All of the following are administrative functions of taxation except.

a. Selection of object of tax
b. Valuation of property for taxation
c. Equalization of assessment
d. Collection of taxes

7. The statement that “ he who received more should give more “ is based on this basic tax principle.
a. Fiscal adequacy
b. Theoretical justice
c. Administrative feasibility
d. Due process of law

8. To spread the burden of taxation, the corresponding estimated tax is collected at once every
payroll period so that at the end of taxable year, the amount of tax withheld will be equal or
approximate to the actual tax for the year. This taxation system of collection at source is based on
what tax principle?
a. Fiscal adequacy
 b. Theoretical justice
c. Administrative feasibility
d. Due process of law

9. All of the following inherent restriction on the exercise of taxation power, except.
a. Rule of uniformity
b. For public purposes
c. Territorial jurisdiction
d. International comity

10. Which of the following is not correct?

In the absence of specific tax provision , taxes in general are not cancelable.
Prescriptive period for assessment and collection is applicable to returnable taxes.
The law on prescription being a remedial measure should be