Chapter 1 - Introduction to Taxation

Chapter 1 - Introduction to Taxation

A system of government is indispensable to every society. Without it, the people
CHAPTER 1 will not relish the benefits of a civilized and orderly society. However, a
government cannot exist without a system of funding.
INTRODUCTION TO TAXATION iii~ is th theorJ!
Chapter Overview and Objectives The Basis of Taxation
-------------------------------------------------------------------------···--
This chapter discusses the fun dam en ta) principles of taxation.
·-~---·- --·-~------------ The government Ji)rovides benefits to the people in the form of public services, an
the people provide the funds that finance the government This mutuality
After this chapter, readers must be able to comprehend and demonstrate mastery support between the people and the government is referred to as the basis
of the following: taxation.
1. Concept of taxation and its necessity for every government
2. Lifeblood doctrine and its implication to taxation This mutuality is illustrated as follows:
3. Theories of government cost allocation
4. Inherent power of the State
Public services
5. Scope of the taxation power
Government
+
6. Limitations of the taxation power People
7. Stages of taxation
8. Concept of situs in taxation t Taxes
9. Fundamental principles surrounding taxation
10. Various escapes from taxation Receipt of benefits is conclusively presumed
11. Concept of tax amnesty and condonation Every citizen and resident of the State directly or indirectly benefits from
public services rendered by the government. These benefits can be in the form
WHAT IS TAXATION? daily free usage of public infrastructures, access to public health or educatio
Taxation may be defined as a State power, a legislative process, and a mode of services, the protection and security of person and property, or simply
government cost distribution. comfort of living in a civilized and peaceful society which is maintained by th
,. I} f; f ~ '~ ~ .,·, ) •
government.
1. As a state power , •
Taxation is an .-....-.
er_e_n-=-t- po_w
_e_r..,. of the State to While most public services are received indirectly, their realization by every
contribution from its subjects for public p~irpose. citizen and resident is undeniable. In taxation, the receipt of these benefits by the
, , • ~ 1 J, I • ..
2. As a process t r , ii 1 , 11
people is conclusively presumed. Thus, taxpayers cannot avoid payment of taxes
Taxation is a roceu o levying tax by th legisl tur . J' the tate to enforce under the defense of absence of benefit received. The direct receipt or actual
proportional contributions from its subject for publi purp availment of government services is not a precondition to taxation.
3. As a mode of cost distrib11tio11
Taxation is a nu~• by which th tat - ii~!!!~IIJ~!l"'• ~lf' to its THEORIES OF COST ALLOCATION
Taxation is a mode of allocating government costs or burden to the people. In
subjects who are benefited by its sp nding.
distributing the costs or burden, the government regards the following general
The Theory of Taxation considerations in the exercise of its taxation power:
Every government provides a vast array of publi rvi including defense, 1. Benefit received theory
public order and safety, health, education, and o i l prot . tion mong others. 2. Ability to pay theory

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Chapter 1 - Introduction to Taxation
Chapter 1 - Introduction to Taxation
Benefit received theory
The benefit received theory presupposes that the .m.1m~ flf~---~ one receives from
_;.;a.a.....,.....__._ Implication of the lifeblood doctrine in taxation:
the government, the
1. Tax is impbsed even in the absence of a Constitutional grant.
Ability to pay theory , 2. Claims for tax exemption are construed against taxpayers.
The ability to pay theory presupposes that taxation should also consider the 3. The government reserves the right to choose the objects of taxation.
taxpayer's ability to pay. Taxpayers should be required to contribute based on 4. The a no o with the collection of taxes.
their relative capacity to sacrifice for the support of the government. 5. In income taxation:
a. Income received in advance is taxable upon receipt.
In short, . . .,_111;..-_.L.-.:'-..__.. . .__"'"'!"'-""__,;;,,.i. . . i;,::~~f_§fJij ,:ia:]j!i!}j even if they benefit less from b. Deduction for capital expenditures and prepayments is not allowed as i
the gove ute less even if they receive effectively defers the collection of income tax.
more of the benefits from the government. . c. A o e ctio is preferred · when a claimable expense i
',

Aspects of the Ability to Pay Theory d.

1. Vertical equity u-1 rs { C'nirrr'i·
Vertical equity proposes that the extent of one's ability to pay is directly INHERENT POWERS OF THE STATE
proportional to the level of his A government has its basic needs and rights which co-exist with its creation. It
For example, A has P200,000 income while B has P400,000. In taxing income, the rights to sustenance, protection, and properties. The government sustains itself
government should tax B more than A because B has greater income; hence, a greater the power of taxation, secures itself and the well-being of its people by polic
capacity to contribute. power, and secures its own properties to carry out its public services by th
2. Horizontal equity .- t, Kt- :::.c) ~- r. ry~ power of eminent domain.
Horizontal equity requires consideration of the particular circumstance of the
taxpayer. These rights, dubbed as "powers" are natural, inseparable, and inherent to eve
government. No government can sustain or effectively operate without the
For example, Businessmen A and B both have P300,000 income. A incurred P200,000 powers. Therefore, the exercise of these powers by the government is presume
in business expenses while B incurred only PS0,000 · business expenses. The
understood and acknowledged by the people from the very moment they establi
government should tax B more than A because he has lesser expenses and thus greater
capacity to contribute taxes. their government. These powers are naturally exercisable by the governmen
even in the absence of an expre~s grant of power in the Constitution.
Vertical equity is a gross concept while horizontal equity is a net concept.
The Inherent Powers of the State
The Lifeblood Doctrine 1. Taxation power is the er f the State to
Taxes are essential and indispensable to the continued subsistence of the from its subjects to sustam itself.
government. Without taxes, the governme9t would be paralyzed for lack of motive
power to activate or operate it. (CIR vs. Alglie) 2. Police power is the general nn11N11 of the State to
(~ ~ , 'N \ )
Taxes are the lifeblood of the government, and their prompt and certain 3. Eminent domain is the mMHll of the State to
availability are an imperious need. Upon taxation depends the government's use after paying for publi
ability to serve the people for whose benefit taxes are collected. (Vera vs.
Fernandez)

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 h r 1 - Inti ju ti n
Chapter 1 - Introduction to Taxation
p OF THE TAXATION POWER .
Comparison of the three powers of the State _ P f ta tion I wld ly r gard d as comprehensive, plenary, unlimited
Point of Eminent n d "'Ul .r m '-
Di erence Taxation Police Power Domain H , , r, d pit th · mtngly unlimited nature of taxati?n, it ~s not absolutely
Exercisiny Government Government Government and unlhni d. T· .~ati n h • its own inherent limitations and hmitat1ons Imposed by
Authori private utilities
Purpose th n titution.
For
the government general welfare of
the le
TH LIMITATIONS OF THE TAXATION POWER
Persons Community or Community or Owner of the . lnh rent limitations
affected class of class of property 1. T rritori lity of taxation
individuals Int rn tional comity\
Amount of mted
Imposition (Imposition is
. Publi purpose
government limited to cover (The government 4. E 1nption of the government
needs.) cost of regulation.) pays just 5. Non-delegation of the taxing power
com ensation.
B. Constitutional Limitations
Im ortance Most important Most superior Important
1. Due process of law
Relationship Inferior to the Superior to the Superior to the
"Non-impairment "Non-impairment "Non-impairment 2. Equal protection of the law
with the
Constitution Clause" of the Clause" of the Clause" of the 3. Uniformity rule in taxation
Constitution Constitution Constitution 4. Progressive system of taxation
Limitation Constitutional Public interest Public purpose 5. Non-imprisonment for non-payment of debt or poll tax
and inherent and due process and just 6. Non-impairment of obligation and contract
limitations com ensation 7. Free worship rule
8. Exemption of religious or charitable entities, non-profit cemeteries,
Similarities of the three powers of the State
churches and mosque from property taxes
1. They are all necessary attributes of sovereignty.
9. Non-appropriation of public funds or property for the benefit of any
2. They are all inherent to the State.
church, sect or system of religion
3. They are all legislative in nature.
4. They are all ways in which the State interferes with private rights and
10. Exemption from taxes of the revenues and assets of non-profit, non-stock
properties. educational institutions
5. They all exist independently of the Constitution and are exercisable by the 11. Concurrence of a majority of all members of Congress for the passage of a
government even without a Constitutional grant. However, the Constitution law granting tax exemption
may impose conditions or limits for their exercise. 12. Non-diversification of tax collections
6. They alJ presuppose an equivalent form of compensation received by the 13. Non-delegation of the power of taxation
persons affected by the exercise of the power.
14. Non-impairment of the jurisdiction of the Supreme Court to review w
7. The exercise of these powers by the local government units may be limited by cases
the national legislature. 15. The requirement that appropriations, revenue, or tariff bills shall
originate exclusively in the House of Representatives
16. The delegation of taxing power to local government units
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 Chapter 1 - Introduction to Taxation Chapter 1 _ Introduction to Taxation

.
mcome · government and foreign · government-owned and controlled
of ,,ore1gn
INHERENT LIMITATION OF TAXATION
corporations are not subject to income tax. . .
Territoriality of taxation Wh en a st ate enters into treaties with other states,
h
1t 1s bound to honor the
·r h
Public services are normally provided within the boundaries of the State. Thus, agreements as a matter of mutual courtesy with t e treaty partners even 1 t e
the government can only demand tax obligations upon its subjects or residents same conflicts with its local tax laws. ,
within its territorial jurisdiction. There is no basis in taxing foreign subjects
abroad since they do not derive benefits from our government. Furthermore, Public purpose • . 1

extraterritorial taxation will amount to encroachment of foreign sovereignty. Tax is intended for the common good. Taxation must be exercised absolutely for
public purpose. It cannot be exercised to further any private interest.
Two-fold ob\igations of taxpayers:
1. Filing of returns and payment of taxes Exemption of the government ,
2. Withholding of taxes on expenses and its remittance to the government The taxation power is broad. The government can exercise the power upon
anything ,including itself. However, e govern en §lliai as
These obligations can only be demanded and enforced by the Philippine this will not raise additional funds but will only impute additional costs.
government upon its citizens and residents. It cannot enforce these upon subjects
outside its territorial jurisdiction as this would result in encr~achment of foreign Under the NIRC, government properties and income from essential public
sovereignty. functions are not subject to taxation. However, the income of the government
from its properties and activities conducted for profit, including income from
. Exception to the territoriality principle government-owned and controlled corporations is subject to tax:
1. In income taxation, resident citizens and domestic corporations are taxable on
income derived both within and outside the Philippines. Non-delegation of the taxing power
2. In transfer taxation, residents or citizens such as resident citizens, non- The legislative taxing power is vested exclusively in Congress and is non-
resident citizens and resident aliens are taxable on transfers of properties delegable, pursuant to the doctrine of separation of the branches of the
located within or outside the Philippines. government to ensure a system of checks and balances.

International comity The power of lawmaking, including taxation, is delegated by the people to the
legislature. So as not to spoil the purpose of delegation, it is held that what has
In the United Nations Convention, countries of the world agreed to one
been delegated cannot be further delegated.
fundame!}tal concept of co-equal sovereignty wherein all nations are deemed
equal with one another regardless of race, religion, culture, economic condition or Exceptions to the rule of non-delegation
military power. 1. Under the Constitution, local government units are allowed to exercise the
I
power to tax to enable them to exercise their fiscal autonomy.
No country is powerful than the other. It is by this principle that each country
2. Under the Tariff and Customs Code, the President is empowered to fix the
observes international comity or mutual courtesy or reciprocity between them.
Hence, amount of tariffs to be flexible to trade condition .
1. Governments do not tax the income and properties of othe~ governments. 3, Other cases that require expedient and etl ctive administration and
2. Governments give primacy to their treaty obligations over their own domestic implementation of assessment and collection of truce .
tax laws.
CONSTITUTIONAL LIMITATIONS OF TAXATION
~mbassies or consular offices of foreign governments in the Philippines including Observance of due process of law
International organizations and their non-Filipino staff are not subj~ct to income No one should be deprived of his life, liberty, or property without due process of
taxes or property taxes. Under the National Internal Revenue Code (NIRC), the law. Tax laws should neither be harsh nor oppressive.
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Chapter 1 - Introduction to Taxation Chapter 1 - Introduction to Taxation

Aspects of Due Process Non-imprisonment for non-payment of debt or poll tax

. h II b · risoned because of his poverty, and no one s hall be
1. Substantive due process As a pohcy, no ones a e imp
Tax must be imposed only for public purpose, collected only under authority of a imprisoned for mere inability to pay debt.
valid law and only by the taxing power having jurisdiction. An assessment without . c t·t ti'onal guarantee applies only when the debt is acquired by
However, t h1s ons I u . . ,f.'.
a legal basis violates the requirement of due process. ~ . .;,,. Debt acquired in bad faith constitutes esta,a, a criminal
t he de btor m "'0
offense punishs-a-bl......e-..-y-1m
-- prisonment.
2. Procedural due process
There should be no arbitrariness in assessment and collection of taxes, and the Is non-payment of tax equivalent to non-payment of debt?
government shall observe the taxpayer's right to notice and hearing. The law Tax arises from law and is a demand of sovereignty. It is distinguished from deb
established procedures which must be adhered to in making assessments and in which arises from private contracts. Non-payment of tax compromises publi
enforcing collections. interest while the non-payment of debt compromises private interest. The non-
payment of tax is similar to a crime. The Cqnstitutional guarantee on non
Under the NIRC, essmen shall be made within , from the due date imprisonment for non-payment of debt does not extend to non-payment of tax,
of filing of the return or rom the date of actual filing, whichever is later. · · except poll tax.
shall be made within ve year from the date of assessment. The failure o
government to observe these rules violates the requirement of due process. Poll, personal, community or residency tax
Poll tax has two components:
Equal protection of the law a. Basic community tax
No person shall be denied the equal protection of the law. Taxpayers should be b. Additional community tax
treated equally both in terms of rights conferred and obligations imposed.
The constitutional guarantee of non-imprisonment for non-payment of poll
This rule applies where taxpayers are under the same circumstances and applies only to the basic community tax. Non-payment of the
conditions. This requirement would m·ean Congress cannot exempt sellers of unity= is an act of tax evasio punishable by imprisonment.
"balot'' while subjecting sellers of "penoy" to tax since they are essentially the
same goods. · Non-impairment o_f obligation and contract
The State should set an example of good faith among its constituents. It should no
Uniformity rule in taxation set aside its obligations from contracts by the exercise of its taxation power. T
--~---=------~~
The rule of taxation shall be niform an u I Taxpayers under dissimilar exemptions granted under contract should be honored and should not be
circumstances should not be taxed the same. Taxpayers should be classified cancelled by a unilateral government action. t, ·Jt-', t, /., . - .'}. ~re ·· -1.{ ~ . .- l

according to commonality in attributes, and the tax classification to be adopted Free worship rule
''•t
1, ) · .
:J;I-
•
0 ~
\.
should be based on substantial distinction, Each class is taxed differently, · but
The Philippine government adopts free exercise of religion and does not subject
taxpayers falling under the same class are taxed the same, Hence, uniformity is
its exercise to taxation. Consequently, the properties and revenues of religious
relative equality.
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
Progressive system of taxation
institutions that are proprietary or commercial in nature.
Congress shall evolve a progressive system of taxation. Under the progressive
system, m.i•Ai•a• i7tliirt1~J~_liJBN1lW•iW The Constitution favors Exemption of religious, charitable or educational entities, non-profit
progressive tax as it is consistent wit the taxpayer's ability to pay. Moreover, the cemeteries, churches and mosques, lands, buildings, and improvements
progressive system aids in an equitable distribution of wealth to society by taxing from property raxes
the rich more than the poor.

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 Chapter 1 - Introduction to Taxation
Chapter 1 - Introduction to Taxation
The Con sti tutional ex~mption from property tax applies for properties actually,
directl?', a nd exclusively (i.e. primarily) used for charitable, religious, and Non-diversification of tax collections
educational purposes. Tax collections should be used only for public purpose. It should never be
diversified or used for private purpose.
In observin_g this Constitutional limitation, the Philippines follows the octrine of
wherem only properties actually devoted for religious chanta e, or Non-delegation of the power of taxation
educational activities are~~~~~~~i!iiiiif!~r;/ ' The principle of checks and balances in a republican state requires that taxation
Under the doctrine of ownership, the properties of religious, charitable, or power as part of lawmaking be vested exclusively in Congress.
educational entities whether or not used in their primary operations are exempt
However, delegation may be made on matters involving the expedient and
from real property tax. This, however, is not applied in the Philippines.
effective administration and implementation of assessment and collection of taxes.
Non-appropriation of public funds or property for the benefit of any church, Also, certain aspects of the taxing process that are non-legislative in character are
sect, or system of religion delegated.
This constitutional limitation is intended to highlight the separation of religion
Hence, implementing administrative agencies such as the Department of Finance
and the State. To support freedom of religion, the government should not favor and the Bureau of Internal Revenue (BIR) issues revenue regulations, rulings,
any particular system of religion by appropriating public funds .or property in orders, or circulars to interpret and clarify the application of the law. But even so,
support thereof. their functions are merely intended to interpret or clarify the proper application
It should be noted, however, that compensation to priests, imams, or religious of the law. They are not allowed to introduce new legislations within their •quasi-
ministers working with the military, penal institutions, orphanages, or legislative ·authority.
leprosarium is not considered religious appropriation.
Non-impairment of the jurisdiction of the Supreme Court to review tax cases
Exemption from taxes of the revenues and assets of non-profit, non-stock Notwithstanding the existence of the Court of Tax Appeals, which is a special
educational institutions including grants, endowments, donations, or court, all cases involving taxes can be raised to and be finally decided by the
contributions for educational purposes Supreme Court of the Philippines.
The Constitution recognizes the necessity of education in state building by
granting tax exemption on revenues and assets of non-profit educational Appropriations, revenue, or tariff bills shall originate exclusively in the
institutions. This exemption, however, applies only on revenues and assets that House of Representatives, but the Senate may propose or concur with
are actually, directly. and exclusively devoted for educational purposes. amendments.
Laws that add income to the national treasury and those that allows spending
Consistent with this constitutional recognition of education as a necessity, the therein must originate from the House of Representatives while Senate may
NIRC also exempts government educational institutions from income tax and concur with amendments. The origination of a bill by Congress does not
subjects private educational institutions to a minimal income tax. necessarily mean that the House bill must become the final law. It was held
constitutional by the Supreme Court when Senate changed the entire house
Concurrence of a majority of all members of Congress for the passage of a
version of a tax bill.
law granting tax exemption
Tax exemption law counters against the lifeblood doctrine as it deprives the Each local government unit shall exercise the power to create its own
government of revenues. Hence, the grant of tax exemption must proceed only sources of revenue and shall have a just share in the national taxes
upon a valid basis. As a safety net, the Constitution requires the vote of the
This is a constitutional recognition of the local autonomy of local governments and
majority of all members of Congress in the grant of tax exemption.
an express delegation of the taxing power.
In the approval of an exemption law, an absolute majority 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 relative majority is required. 12
11
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Chapt 1 1 .. In r u ti n t 111 n 0
Chapter 1 - Introduction to Taxation

STAGES OF THE EXERCI E OF TAXATION POW R The restaurant business will be subject to business tax in the Philippines since the
1. L vy or impo ition business is conducted herein, but the car dealing business is exempt because the
2. Assessm nt and oil tton business is conducted abroad.
Levy or in1position 2. Income tax situs on services: Service fees are subject to tax where they are
Thi pro e involv s th n tm nt f 1 t x l w by n r n- l II rendered.
~~~kJfl It is also r f rr d to th / 9/, /a Iv a tn x lo Illustration
Congress i composed of w bodl ·: A foreign corporation leases a residential space to a non-resident Filipino citizen
abroad.
1. The House of R pres nt'itlv , nd
2. The Senate The rent income will be exempt from Philippine taxation as the leasing service is
rendered abroad.
As mandated by the Constitution, 11
Re1tresetltat:Neisi Each may, how v r, h N 3. Income tax situs on sale of goods: The gain on sale is subject to tax in the
place of sale. '
which is approved by both bodi , but tax bllls nnot origin te exclusively fr m
the Senate. Illustration
While in China, a non-resident OFW citizen agreed with a Chinese friend to sell his
Matters of legislative discretion in the exercise of taxation
1. Determining the object of taxation
2. Setting the tax rate or amount to be oil ct d
l diamond necklace to the latter. They stipulated that the delivery of the item and
the payment will be made a week later in the Philippines. The sale was
consummated as agreed.
3. Determining the purpose for the levy whi h must be public use
4. Kind of tax to be imposed I The contract of sale is consensual and is perfected by the meeting of the minds of
the contracting parties. The perfection of the contract of sale is in China. The situs
5. Apportionment of the tax between the national and local government
6. Situs of taxation
7. Method of collection
I of taxation is China. The gain on the sale of the necklace will be taxable abroad and
exempt in the Philippines.

4. Property tax situs: Properties are taxable in their location.

Assessment and Collection
illustration
The tax law is implemented by the administrativ br n h An overseas Filipino worker has a residential lot in the Philippine
Implementation involves asse sment or th d t rmln
taxpayers and collection. This stage is ref IT d ta a He will still pay real property tax despite his absence in th Philippine becau e
administrative act of taxation. his property is located herein.
5. Personal tax situs: Persons are taxable in their place of re idence.
SITUS OF TAXATION
Situs is the place of tax tion. It is the t x jurisdt ti n th t h Illustration
taxes upon the tax obj ct. Situs rut s s rv ft· \m Ahmed Lofti is a Sudanese studying medicine in the Philippine .
whether the tax obj ct is within or outstd th t Ahmed will pay personal tax in the Philippines even if he is an alten be use he is
authority. residing in the Philippines.
Examples of Situs Rules: OTHER FUNDAMENTAL DOCTRINES IN TAXATlON
1. Business situ : Busin ar ubj to t t•• th wh r th bu In 1. Marshall Doctrine - ''The power to tax involve the power to•destroy.» Taxation
is candu d. 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
Illustration
A p y r i involv d in r d ·ll r ·hip ·1bro·1d nd r urant op r tlon ln th power carries with it the power to destroy.
Philippin . 14
 -• •a!Jcer 1 - Introduction to Taxation
Chapter 1 - Introduction to Taxation
6. Imprescriptibility in taxation
However, the taxation power does not include the power to destroy if it is Prescription is the lapsing of a right due to the passage of time. When one
used solely for the purpose of raising revenue. (Roxas vs. CTA) sleep on his right over an unreasonable period of time, he is presumed to be
waiving his right. , ta\'llfflNll'l - ~ftlllr~lllltif'tlllllPlilDll'IIIII tsilfflle
2. Holme's Doctrine - "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. ~nder the NIRC, tax prescribes if not collected within 5 years from the date of
its assessment. In the absence G>f an assessment, tax prescribes if not collected
While the Marshall Doctrine and the Holme's Doctrine appear to contradict by judicial action within 3_years from the date the return is required to be
each other, both are actually employed in practice. A good manifestation of the filed. However, taxes due from taxpayers who did not file a return or those
Marshall Doctrine is the imposition of excessive tax on cigarettes while who filed fraudulent returns do .hot prescribe
applications of the Holme's Doctrine include the creation of Ecozones with tax
holidays and provision of incentives, such as the Omnibus Investment Code 7. Doctrine of estoppel · ,
(E.O. 226) and the Barangay Micro-Business Enterprise (BMBE) Law. Under the doctrine of estoppel, any misrepresentation made by one party
3. Prospectivity of tax laws ( "'fkv -t'1-t rtil0t toward another who relied therein in good faith will be held true and binding
against t:hat person ·who made the misrepresentation.
Tax laws are generally prospective in operation. An ex post facto law or a law
that retroacts is prohibited by the ~pnstitution. The government is not subject to estoppel~ The error of any government
t-CJ-1'-l C\l) l f\ "'d. ~ :f~ \ t, i\l 0 (t(\ 1\.
1 \~ M. rt'!,
Exceptionally,· ·ncom~ tax law ay_ oper.at _t-!e=. =o=s=pe
=CfflQ if so intended by employee does not bind tlie government. It is held that the neglect or omission
Congress under certain justifia]?le conditions. or examp e, Congress can levy of government officials entrusted with the collection of taxes should not be
tax on income earned during periods of foreign occupation even after the war. allowed to bring harm or detriment to the interest of the people. Also,
erroneous applications of the law by public officers do not block the
4. Non-compensation or set-off subsequent correct application_of the sa~e.
Taxes are not subject to automatic set-off or compensation. The taxpayer
cannot delay payment of tax to wait for the resolution of a lawsuit involving 8. Judicial Non-interference
his pending claim against the government. Tax is not a debt; hence, it is not Generally, courts are not allowed to issue injunction against the government's
subject to set-off. This rule is important to allow the government sufficient pursuit to collect tax as this would unnecessarily defer tax collection . . This rule
period to evaluate the validity of the claim. (See Phi/ex Mining Corporation vs. is anchored on the Lifeblood Doctrine.
CIR, G.R. 125704)
9. Strict Construction of Tax Laws
Exceptions: When the law clearly provides for tax~tion, taxation is the genera) rule, unless
a. Where the taxpayer's cla1m has already become due and demandable such there is a clear exemption. Hence the max1m, "Taxation ,s the rule,, exemption is ·
as when the government already recognized the same and an I

appropriation for refund was made

.the exception." ·
b. Cases of obvious overpayment of taxes When the language of the law is clear and categorica}Athere is no room ~or
c. Local taxes , interpretation. There is only room for application, Howeveri when taxation
laws are vague, the doctrine of strict legal construction is observed.
5. Non-assignment of taxes
Tax obligations ca nnot be ass igned or transf rred to another entity by
contract. Contracts executed by the taxpayer to such effect shall not prejudice Vague tax laws .
Vague tax laws ate construed against the gover~me~t an~ ~n favor of t~e
the right of the government to collect.
taxpayers. A vague tax law means no tax law, Obhgat1on ans1ng ~rom law 1s
not presumed. The Constitutional requirement of due process requires laws to
be sufficiently clear and expressed in their provisions.
15 16
Chapter 1 - Introduction to Taxation
Chapter 1 - Introduction to Taxation

Vague exemption laws Examples:

Vague tax exen1 ption laws are construed against the taxpayer and in favor of a. An income tax of 10% on monthly sales and a 2% income tax on the annual
the governinent. A vague tax exemption law means no exemption law. The sales (total of monthly sales) ·
claim for _exemption is construed strictly agains.t the taxpayer in accordance b. A 5% tax on bank reserve deficiency and another 1% penalty per day as a
with the hfeblood doctrine. ' · consequence of such reserve deficiency

The rigl~t of taxatio!1 is inhe~ent to the ~tate. It is a prerogative essential to the 2. Indirect double taxation
perpetmty of _the. gov~rnment. He wh~ claims exell}ption from the common This occurs when at least one of the secondary elements of double taxation is
burden must Justify his claim by the clearest grant of organic or statute law. not con1mon for both impositions.
(lloilo, et al. vs. Smart Comrryunic.ations, Inc.., G.R. ,No. )67260, February 27, Examples:
2009'J1 '
'i
'
I a. The national government levies business tax on the sales or gross receipts of
business while the local government levies business tax upon the same sales
When exemption is claimed, it must be shown indubitably to exist. At the or receipts.
outset, every presumption ·is against it. A well-founded doubt is fatal to the
b. The national government collects income tax from a taxpayer on his income
claim; it is only when the terms of the 1 concession are-too explicit to admit
while the local government collects community tax upon the same income.
f~irly of any other construction that the proposition .can;be supported. (Ibid)
• j t' - ' . •
c. The Philippine government taxes foreign income of domestic corporations
Tax exemption cannot arise from vague _inference. Tax exemption must be and resident citizens while a foreign government also taxes the same income
clear and unequivocal. A taxpayer claiming a tax exemption must point to a (international double taxation).
specific provi~ion of law conf~rring. op .t he taxpayer, in ~lear and plain terms,
exemption from a co.mm on burden ..Any doubt.whether a tax exe!llption exists Nothing in our law expressly prohibits double taxation. In fact, indirect double
is resolved against the taxpayer. {see Di9-~tal Telecommffnications,, Inc. vs~City taxation is prevalent in practice. However, direct double taxation is discourCI{Jed
Government of Batangas, et al) . , .: 1 ,
I because it is oppressive and burdensome to taxpayers. It is also believed to
counter the rule of equal protection and uniformity in the Constitution.
DOUBLE TAXATION I.i '
• ,; . i •

Double taxation occurs when the same taxpayer is taxed twice by the same tax How can double taxation be minimized?
jurisdiction for the same thing. The impact of double taxation can be minimized by any one or a combination of
the fallowing:
Elements of double taxation
1. Primary element: Same object a. Provision of tax exemption - only one tax law is allowed to apply to the tax
2. Secondary elements: object while the other tax law exempts the same tax object
a. Same-type of tax b. Allowing foreign tax credit - both tax laws of the domestic country and a
b. Same purpose of tax foreign country tax the tax object, but the tax payments made in the foreign
c. Same taxing jurisdiction · tax law are deductible against the tax due of the domestic tax law ~
d. Same tax period c. Allowing reciprocal tax treatment - provisions in tax laws imposing a reduced
tax rates or even exemption if the country of the foreign taxpayer also gives
Types of Doub I~ Taxation the same treatment to Filipino non-residents therein
1. Direct double taxation d. Entering into treaties or bilateral agreements - countries may stipulate for a
lower tax rates for their residents if they engage in transactions that are
This occurs when all the element of double taxation · exists for both
taxable by both of them
impositions.

17 18
Chapter 1 - Introduction to Taxation Chapter 1 - Introduction to Taxation

ESCAPES FROM TAXATION b. Backward shifting - This is the reverse of forward shifting. Backward
shifting is c01nmon with non-essential commodities where buyers
Escapes from taxation are the means available to the taxpayer to limit or even
have considerable market power and commodities with numerous
avoid the impact of taxation.
substitute products.
Categories of Escapes from Taxation c. Onward shifting - This refers to any tax shifting in the distribution
channel that exhibits forward shifting or backward shifting.
A. Those that result to loss ofgovernment revenue
Shifting is common with business taxes where taxes imposed on business
1. Tax evasion, also known as tax dodging, refers to any act or trick that revenue can be shifted or passed-on to customers.
tends to illegally reduce or avoid the payment of tax.
2. Capitalization - This pertains to the adjustment of the value of an asset
caused by changes in tax rates.
Examples:
a. This can be achieved by gross understatement of income, non- For instance, the value of a mining property will correspondingly decrease
declaration of income, overstatement of expenses or tax credit. when mining output is subjected to higher taxes. This is a form of
backward shifting of tax.
b. Misrepresenting the nature or amount of transaction to take
advantage of lower taxes. 3. Transformation - This pertains to the elimination of wastes or losses by
the taxpayer to form savings to compensate for the tax imposition or
2. Tax avoidance, also known as tax rninimization, refers to any act or trick
increase in taxes.
that reduces or totally escapes taxes by any legally permissible means.
Examples: Tax Amnesty
a. Selection and execution of transaction that would expose taxpayer to Amnesty is a general pardon granted by the government for erring taxpayers to
lower taxes. give them a chance to reform and enable them to have a fresh start to be part of a
b. Maximizing tax options, tax carry-overs or tax credits society with a clean slate. It is an · solute for: · ivene or waiver by the
c. Careful tax planning • government on its right to collect and is retrospective in application.

3. Tax exemption, also known as tax holiday, refers to the immunity,

Tax Condonation
Tax condonation is forgiveness of the tax obligation of a certain taxpayer under
privilege or freedom from being subject to a tax which others are subject
certain justifiable grounds. This is also referred to as tax remission.
to. Tax exemptions may be granted by the Constitution. law, or contract.
Because they deprive the government of revenues, tax exemption, tax refund, tax
All forms of tax exemptions can be revoked by Congress except those
amnesty, and tax condonation are construed against the taxpayer and in favor of
granted by the Constitution al}d those granted under contracts.
the government.
B. Those that do not result to loss ofgovernment revenue
Tax Amnesty vs. Tax Condonation ·
1. Shifting - This is the process of transferring tax burden to other Amnesty covers both civil and criminal liabilities, but condonation covers only
taxpayers. civil liabilities of the taxpayer.
Forms of shifting Amnesty operates retrospectively by forgiving past violations. C~ndonation
a. Forward shifting - This is the shifting of tax which follows the normal applies prospectively to any unpaid balance of the tax; hence, the port10n already
flow of distribution (i.e. from manufacturer to wholesalers, retailers to paid by the taxpayer will not be refunded.
consumers). Forward shifting is common with essential com.modities
and services such as food and fuel. Amnesty is also conditional upon the taxpayer paying the government a portion of
the tax whereas condonation requires no payment.
20
19
 Chapter 1 - Introduction to Taxation
Chapter 1 - Introduction to Taxation
10. Taxpayers under the same circumstance should be
CHAPTER 1: SELF-TEST EXERCISES treated equal both in terms of privileges and obligations.
11. Exemption from property taxes of religious, educational,
Discussion Questions and charitable entities. G
1. Define taxation. 12. Government income and properties are not objects of
2. Distinguish the theory and the basis of taxation. taxation. t.
3. ~hat are_the the~ries of government cost allocation? Explain each. 13. Each local government shall have the power to create its
~
4. D1fferent1ate vertical and horizontal equity. own sources of revenue.
5. Discuss the Lifeblood Doctrine. 14. lmprescriptibility in taxation ~J
6. Enumerate and explain the inherent powers of the State. 15. Non-impairment of obligation and contracts. (' -
7. Distinguish the three powers of the State and enumerate their similarities. 16. Guarantee of proportional system of taxation. "- I
8. Describe the scope of the power of taxation. 17. International courtesy \
9. Distinguish substantive due process from procedural due process. 18. Non-impairment of the jurisdiction of the Supreme Court
10. Distinguish the concept of equality from the concept of uniformity in taxation. C,
to review tax cases.
11. Distinguish non-payment of debt versus non-payment of tax in terms of 19. The government is not subject to estoppel. \--J
consequences. 20. Imprisonment for non-oavment of poll tax. ~
12.
13.
14.
What institutions are exempt from real property tax in the Constitution?
Which of the constitutional limitations are also classified as inherent limitations?
Explain the stages of the exercise of taxation power.
I True or False 1
1. There should be direct receipt of benefit before one could be compelled to pay
15.
16.
17.
Explain the concept of situs.
Distinguish the Marshall Doctrine from the Holme's Doctrine.
Discuss the doctrine of strict construction of tax laws.
I taxes.
2. Eminent domain involves confiscation of prohibited commodities to protect the
well-being of the people.
18. Explain double taxation, its elements, and its types. 3. Horizontal equity requires consideration of the circumstance of the taxpayer.
19. What are the categories of escapes from taxation? Enumerate and explain each 4. Taxes are the lifeblood of the government.
means of escape under each category. 5. Taxation is a mode of apportionment of government costs to the people.
20. Distinguish tax amnesty from tax condonation.
6. The exercise of taxation power requires Constitutional grant.
7. Taxation is inherent in sovereignty.
Exercise Drills
8. Police power is the most superior power of the government. Its exercise needs
In the space provided for, indicate whether the statement relates to a Constitutional
limitation (C) or inherent limitation (I). If it is not a limitation to the taxing power, to be sanctioned by the Constitution.
9. All inherent powers presuppose an equivalent form of compensation.
indicate (N).
. 10. The reciprocal duty of support between the government and the people
1. Non-assignment of taxes f underscores the basis of taxation.
2. I
Territoriality of taxation True or False 2
I
3. Taxes must be for public use 1. The scope of taxation is regarded as compr h nsive, plenary! unlimited, and
4. Exemption of the property ·of religious institutions from
C supreme.
income tax 2. The Constitutional exemption of religious, ch ritable, and non-profit cemeteries,
5. Exemption of the revenues and assets of non -profit, non- .'"\
churches, and mosques refers to income tax and r al property tax.
stock educational institutions ' - '., -
4 3. Taxpayers under the same circumstance hould be tax d differently.
6. Non-delegation of the taxing power
4. Taxation is subject to inherent and Constitutional limitations.
7. Non-appropriation for relhiious purpose
8. Th e requirem
· ent of absolute majority in the passage of a s. International comity connotes courtesy between nations.
C) 6. Collection of taxes in the absence of a law is violative of the Constitutional
tax exemption law.
9. Non-1mpnson
. . ment for non-payment of tax or debt G requirement for due process.
7. No one shall be imprisoned for non-payment of tax.
21
22
 Chapter 1 - Introduction to Taxation
Chapter 1 - Introduction to Taxation

8 The lifeblood doctrin · . ·

8.
f nal contribution from the people for the suppor,
The power to enforce propor 10
I
· h e reqmres the government to override its obligations and of the government is d .
contracts w en necessary. • · ..a.--·· Taxation c. Eminent omam
9. 2/3 of all members of Congress is required to pass a tax exemption law. b. Police power d. Exploitation
10. The government should tax itself.
9 . This theory underscores that taxes are indispensable to the existence of the state.
Multiple Choice - Theory: Part 1 ' ' 1 a. Doctrine of equitable recoupment
1. That courts cannot issue injunction against the g~vernnient's effort to collect taxes
Y. ·The Lifeblood Doctrine
is justified by 1 •• , -~ • •• , c. The benefit received theory
JV' the lifeblood doctrine. c. the ability to pay th1e~ry. '. d. The Holmes Doctrine
b. imprescriptibility of taxes. d. the doctrine of estoppel. · · ( 10. A. Taxation is the rule, exception is the exemption.
I B. Vague taxation laws are interpreted liberally in favor of the government.
2. The point at which tax is levied is also called
..a:- Impact of taxation c. Incidence of taxation Which is false?
b. Situs of taxation d. Assessment a. Aonly G.-Both A and B
b. B only d. Neither A nor B
3. Which of the following inappropriately describes the nature of taxation?
<er. Inherent in sovereignty 11. Statement 1: The benefit received theory presupposes that some taxpayers within
b. Essentially a legislative function the territorial jurisdiction of the Philippines will be exempted from paying tax so
c. Subject to inherent and constitutional limitation long as they do not receive benefits from the government.
d. Generally for public purpose
Statement 2: The ability to pay theory suggests that some taxpayers may be
4. Which is correct? exempted from tax provided they do not have the ability to pay the same.
.a. ~ Tax condonation is a general pardon granted by the government.
b. The BIR has five deputy commissioners. Which statement is true?
c. The government can still collect tax in disregard of a constitutional limitation a. Only statement 1 c. Both statements 1 and 2
because taxes are the lifeblood of the government. b. Only statement 2 d. Neither statement 1 nor 2
d. The President of the Philippines can change tariff or imposts without
necessity of calling Congress to pass a law for that purpose. 12. Select the incorrect statement.
a. The power to tax includes the power to exempt.
5. A. The power to tax includes the power to exempt. b. Exemption is construed against the taxpayer and in favor of the government
B. The power to license includes the power to tax. c. Tax statutes are construed against the government in case of doubt.
Which is true? d. Taxes should be collected only for public improvements.
.a; A only c.Aand B
d. Neither A nor B 13. Which is not a public purpose?
b. B only
. '
a. Public education c. Transportation
6. International double taxation can be mitigated by any of the following except b. National defense d. None of these
a. Providing allowance for tax credit
b. Provision of reciprocity provisions in tax laws 14. Which does not properly describe the scope of taxation?
c. Provision of tax exemptions a. Comprehensive c. Discretionary
~ Entering into treaties to form regional trade blockage agains~ the rest of the b. Supreme d. Unlimited
world
15. All of these are secondary purposes of taxation except
7. Which is not an object of taxation? , , ·1 1 I

a. Persons . ~ransa_ctions
')
a. To reduce social inequality
b. To protect local industries
b. Business d. Public pr9pertie~
c. To raise revenue for the support of the government
23 d. To encourage growth oflocal industries
24
 Chapter 1 -- Introduction to Taxation
Chapter 1 - Introduction to Taxation
23. Sta·t ement 1.· In the selection of the objects of ta"atton, the courts have no power to
16. What is the theory of taxation? inquire into the wisdom, obj,Mtivlty, mottve, expediency, or necessity of a tax law.
a. Recipr~cal duties of support and protection
b. Necessity Statement 2: An irnposition cah be both a tax and a regulati_on. Taxes may be tevted
c. Constitutionality to provide means for rehabilitation and stabilization of threatened industry.
d. Public purpose
Which is correct?
17. A. Tax~s should not operate retrospectively. a. Statement 1 only c. 80th statements
B. Tax 1s generally for public purpose. b. Statement 2 only d. Neither statement
\
Which is true? 24. Which of the fo1lowing acts in taxation is administrative by nature?
a. A only c.Aand B a. Determination of the amount to be imposed
b. B only d. Neither A nor B b. Fixing the allocation of the amount to be collected between the loal
governm·e nt and the national government
18. Which provision of the Constitution is double taxation believed to violate? c. Levy or distraint of taxpayers' property for tax delinquency
a. Equal protection guarantee d. Determining the purpose of the tax to impose
b. Progressive scheme of t,txation
c. Uniformity rule 25. This refers to the privilege or immunity from a tax burden which others are
d. Either A or C subject to~
a. :Exclusion c. Tax holiday
19. Which limitation of taxation is the concept of "situs of trucation" based?
b. Deduction d. Reciprocity
a. Territoriality c. International comity
b. Public purpose d. Exemption of the government 26. Which is not a legislative act?
a Determination of the subject of the tax
20. Which true exemption is irrevocable?
b. Setting the amount of the tax
a. Tax exemption based on contract
b. Tax exemption based on the Constitution
c. Assessment of the tax
d. Determining the purpose of the tax
c. Tax exemption based on law
d. Both A and B
27. Which of the following statements does not support the principl · .t not
21. Which statement is incorrect? subject to compensation or set-off!
a Every person must contribute his share in government costs. a. The government and the taxpayer are not er ditor
b. The existence of a government is expected to improve the lives of the people. b. Tax is not in the nature of contract but it n-rf"l,~<-
c. The gpvernment provides protection and other benefits while the people taxpayers are bound to obey even without th
provide support. taxpayer.
d. Only those who are able to pay tax can enjoy the priVlileges and protection of c. Taxes a~ise from law, not from contra
the government. d. Both tax and debt partake th natur of .n Ji
22. Which is the most incorrect state,roent regarding truces? 28. Statement 1: Taxation is the rule; emp i · n i h
a. Taxe~ an~ n~c~ssal'}'i for the continued existence of the government. Statement 2: Taxation may be u ed to i plem nt t
b. The obligation to pay tax doe~ not rest upon the privilege enjoyed by or the a. I is true c. I and U r ru
protection afforded to the citizen of the government. but upon the necessity of b. II is true d. J nd fl r n t t u
money for the support of the State.
c. There should be personal benefit enjoyed from the government before one is 29. Which .of the following powe . of h - o . mi i · flnte , Rev nue cannot be
required to pay tax. · delegated?
d. Taxes should be collected without unnecessary delay, but its collection should The examination of tax return nd the du thereon
not be tainted with arbitrariness. ~ To refund or credit tax liabilitie in ce1
25 26
 Chapter 1 - Introduction to Taxation Chapter 1 - Introduction to Taxation

2. The Constitutional exemption of religious or charitable institutions refers only to

c. The power to compromise or abate any tax liability involving basic deficiency
tax of PSOO,000 and minor criminal violations a. Real property tax c. Property tax and income tax
d. The power to reverse a ruling of the Bureau of Internal Revenue b. Income tax d. Business tax

30. When exemption from a tax imposition is silent or not clearly stated, which is 3. An educational institution operated by a religious organization was being
true? required by a local government to pay real property tax. Is the assessment valid?
a. Taxatio? app~ies since exemptions are construed against the government. a. Yes, with respect to all properties held by such educational institution.
b. Exemption still applies since this is an instance of exemption by omission. b. Yes, with respect to properties not actually devoted to educational purposes.
c. Taxation applies since exemptions are construed against the taxpayer. c. No, with respect to any properties h~ld by such educational institution.
d. Exemption applies since obligation arising from law cannot be presumed and d. No, with respect to properties not actually devoted to educational purposes.
_hence construed against the government.
4. Which is not a Constitutional limitation?
31. What is the basis of taxation? a. No tax law shall be passed without the concurrence of a majority of all /
a. Reciprocal duties of support and protection ' members of Congress.
b. Constitutionality " b. Non-appropriation for religious purpose I
·•.
c. Public purpose c. No law impairing government obligations on contracts shall be passed.
d. Necessity d. Non-impairment of religious freedom

32. When the provisions of tax laws are silent as to the taxability of an item, which is 5. Which of the following is not an inherent limitation of the power to tax?
true? a. Tax should be levied for public purpose.
a. Taxation applies since taxation is the rule, exemption is the exception. b. Taxation is limited to its territorial jurisdiction.
b. Exemption applies sin£e vague tax laws qre construed against the c. Tax laws shall be uniform and equitable.
government. d. Exemption of government agencies and instrumentalities.
c. Taxation applies due to the Lifeblood doctrine.
6. The following are inherent limitations to the power of taxation except one. Choose
d. Exemption applies since obligation arising from law is presumed; ignorance
the exception. .
of the law is not an excuse.
a. Territoriality of taxes
33. Which is not legally tenable in refusing to pay tax? b. Legislative in character
a Absence of benefit from the government c. For public purpose '· l.,

b. Lack of jurisdiction of the taxing authority d. Non-appropriation for religious, purpose

.1

c. Prescription of the tax authority's right to collect

d. All of these 7. The following are limitations of taxation: '
A. Territoriality of taxation
34. What is the primary purpose of taxation? ·•
8. Exemption of the government
a. To enforce contribution from its subjects for public purpose
C. Taxation is for public purpose. , ·,
b. To raise revenue
D. Non-impairment of contracts
c. To achieve economic and social stability
E. Non-delegation of the power to·tax
d. To regulate the conduct of business or profession
Which of these are classified as both constitutional and inherent limitations?
Multiple Choice - Theory: Part 2 a. A and B c. C and E
1. That al] taxable articles or properties of the same class shall be taxed at the same
b. B and C d. D and E
rate underscores
a. Equality in taxation c. Uniformity in taxation.
8. The provisions in the Constitution regarding taxation are
b. Equity of taxation d. None of these
a. Grants of the power to tax
27 28
Chapter 1 - Introduction to Taxation
Chapter 1 - Introduction to Taxation

b. Limitations to the power to tax

Is this valid exercise of taxation power?
c. Grants and limitations to the power to tax a. Yes. It is the discretion of the President to adopt any measures he deerneQ
d. Limitations against double taxation
necessary to alleviate poor conditions in the country.
9. The agreement among nations to lessen tax burden of their respective subjects is
b. Yes. Any means beneficial to the public interest should be given optimuni
called priority.
a. Reciprocity c. Territoriality , ,
c. Yes. The President's proposal will have to be finally approved and p_assed by
b. International comity the legislature. The rule on non-delegation of taxation would not be VIOiated.
d. Tax.minimization
d. No. Tax bills shall originate from the House of Representatives.
10. The Constitutional exemption _of non-stock, non-profit educational institutions
refers to 15. Ram is the only practicing lung transplant specialist in Baguio City. The Ci~
a. Real property tax c. Property tax and income tax Government of Baguio passed a local ordinance subjecting the practice of lung
b. Income tax d .. Business tax transplant to 2% tax based on receipts. Ram objected claiming that other
transplant specialists in other regions of the country are not subjected to tax.
11. Which of the following is violative of the principle of non-delegation?
a. Requiring that legislative enactment must exclusively pertain to Congress Is Ram's contention valid?
a. Yes, because the rule of taxation should be uniform and equitably enforced.
b. Authorizing the President to fix the amount of impost on imported and
b. Yes, because Ram is the only one subject. Other practitioners who would later
exported commodities
c. Authorizing certain private corporation to collect taxes practice would not be covered by the ordinance.
d. Allowing the Secretary of Finance and the BIR to issue regulation or rulings c. No, because the ordinance would cover all transplant specialist who would
which go beyond the scope of a tax law practice in Baguio City. The uniformity rule would not be violated.
d. No, because subjecting the new industry to taxation would hamper economic
12. Which of the following violates Constitutional provisions? growth.
a. Payment of salaries to priests or religious ministers employed by the Armed
Forces of the Philippines 16. With the country under incessant shortage of sugar, the Philippine Congress
b. Imposing tax on properties of religious institutions which are not directly and enacted a law providing tax exemptions and incentives to cane farmers without at
exclusively used for religious purposes the same tim~ _gr~nting tax exemptions to rice farmers who produce the staple
c. Imposition oflicense for the sale of religious literature food of the Ph1hppmes. Is the new law valid?
d. Authorizing the President of the Philippines to fix the rates of tariffs or a. Yes, since there is a valid classification of the taxpayers who would be
imposts exempted from tax.
b. Yes, since sugar is more important than rice.
13. In order to phase-out a huge deficit, the President of the Philippines passed a law c. No, since the grant of exemption is construed in favor oft
offering all taxpayers with previous tax d linqu n to pay a minimum tax in d. No, because there is i:io uniformity in the grant of tax exe;;~i~~rs.
exchange for relief from tax assessment in the period of d linquenc . I thi a valid
exercise of taxation power? 17. Congress passed a law subjecting government-ow d d .
a. Yes, because the measurJ! adopted is ground d upon n ~ ity, (GOCCs) to income tax. ls the law valid? ne aTi controlled corporat10ns
b. Yes, because the Pr sident him rely r i ing hi pre id ntial di cretion. a. Yes, because all government agencies d . . .
c. No, bee use the power of taxation i non-dele ted1 b. Yes, because GOCCs are not an mstrumentaht1es are subject to tax,
d. No, because only the D p rtment of Finan n i '\1 commercial in nature. government age n cies and are essentiallY
c. No, because government agencies are exem t Th.
14. Concerned with in re sing un mpl m nt r te ir th ountry. the President of the equality clause in the constitution. p . Is would pose a violation of
the Philippin s n our g d th Philippin . en t to p l w granting special
d. No, because GOCCs are constitutionally exempted from .
tax privileg s to for ign in e tor who will e t bli h busin s in the country. paymg taxes.
The Senate c ordingly dr ft d th bill nd p d to C ngr for pproval.
18. The Philippine Congress enacted a I ..
ea~ned by Filipino residents i tha~ reqmrmg foreign banks to withhold taxes
Philippine government. n e1r country and to remit the same to the
29
30
 Chapter 1 - Introduction to Taxation Chapter 1 - Introduction to Taxation
. ·'ghts and privil g s un
Is this a valid exercise of taxation power?
a. Yes, because foreign banks are , within the territorial jurisdiction of the
2. When a l gislati e body ta, s P rsons utl p\r?P. 1 zf;i\edto as cornplia n c Wi\
the same taxabl c te ory t th e ame rate, t n s 15
Philippines.
the constitutional limitation of:
b. Yes, the Philippines can enforce tax requirements to subjects of · foreign c. Due process
sovereignty even if they are outside the country. a. Equity d. Equal protection clause
c. No, as this leads to encroachment of foreign sovereignty. b. Uniformity
d. No, this is prohibited by the Constitution. 3. Which is not a legislative act?
c. Determm. ati· on of the subject of the tax
a. Assessment of the tax
19. Which of the following normally pays real property tax? d. Det ermining th e purpose of th e tax
a. Bantay Bata, a non-profit charitable institution b. Settin g the amount of the t ax
b. Jesus Crusade movement, a religious institution 4. The inherent powers of the State are similar in the following respect, except:
c. University of Pangasinan, a private proprietary educational institution a. They are inherent to the existence of the State.
d. AM Property Holdings, a registered property development company b. They are exercisable without the need for an express Constitutional grant.
c. All are not exercised by private entities.
20. Tax exemption bills are approved by
d. They are exercised primarily by the legislature.
a. Majority of all members of Congress
b. Solely by the President of the Republic 5. Which is mandatorily observed in implementing police power?
c. 2/3 of all members of Congress a. Public interest c. Public use
d. Majority of the representatives constituting a quorum b. Just compensation d. All of these

21. Which of the following is not a constitutional limitation of the power to tax? 6. Which is considered in the exercise of eminent domain?
a. Non-impairment of obligation or contracts a. Public use c. Both a and b
b. Due process and equal protection of the law b. Just compensation d. Neither a nor b
c. Non-appropriation for religious purposes
d. Non-delegation of police power 7. The gen_eral power to enact laws to protect the well-being of the people is called
a. Pohce power c. Taxation
22. The Japanese government invested Pl00,000,000 in a Philippine local bank and b. Eminent domain d. All of these I
earned Pl0,000,000 interest. Which is correct?
a. The income is exempt on grounds of territoriality. 8. . ti
Which. of the following entities will least likely exercise the powe r o f emmen
d omam.7
I
b. The income is exempt due to international comity.
a. Electric cooperatives c. Telecommunication business
c. The income is subject to tax on the basis of sovereignty. d. Transportation operators
b. Water cooperatives
d. The income is subject to tax because the income is earned within the
Philippines. 9. In exercising taxation, the government need not consider
a. Inherent limitations c. Due process of law
Multiple Choice - Theory: Part 3 b. Just compensation d. Constitutional limitations
1. Select the correct statement. 10. Licensing of business or profession is an exercise of
a. The benefit received theory explains that the government is obliged to serve a. Police power · c. Eminent domain
the people since it is benefiting from the tax collection from its subjects. b. Taxation d. All of these
b. The lifeblood theory underscores that taxation is the most superior power of l 1. Select the correct statement. .
the State. a.
Eminent domain refers to the power to take pubhc property for
. .
.
Private se
c. The police power of the State is superior to the non -impairment clause of the after paying just compensation. . ,. u
Constit4tion.
p r
b. o ~c .
e power being the most superior power of the State 1s not sub·
, ~ , . · Ject to any
d. The power of taxation is superior to the non -impairment clause of the limitation.
Constitution. 32
31
 Chapter 1 - Introduction to Taxation
Chapter 1 - Introduction to Taxation
c. Only eminent domain can be exercised by private entities.
c. Taxation power shall be exercised by Congress even without an express d. Taxation, police power, and eminent domain are ways in which th
Constitutional grant. government interferes with private right and property.
d. Taxes may be collected even in the absence of a law since obligation arising
from law is always presumed. 19. Statement 1: The Taxation power can be used to destroy if the law is valid.
Statement 2: A tax law which destrgys things, business, or enterprises for the
12. Which is principally limited by the r-equirement of due process? purpose of raising revenue is an invalid tax law.
a. Eminent domain c. Taxation
b. Police power d. All of these Which is incorrect?
a. Statement 1 c. Both statements
13. Statement 1: Congress can exercise the power of taxation even without b. Statement 2 d. Neither statement
Constitutional delegation of the power to tax.
20. Select the correct statement.
Statement 2: Only the legislature can exercise the power of taxation, eminent a. The provisions on taxation in the Philippine Constitution are grants of the
domain, and police power. power to tax.
Which statement is correct? b. The power to tax includes the power to destroy.
a. Statement 1 c. Statements 1 and 2 c. When taxation is used as a tool for general and economic welfare, this is called
b. Statement 2 d. Neither statement 1 nor 2 fiscal purpose.
14. Which of the following powers is inherent or co-existent with the creation of the
government?
I d. The sumptuary purpose of taxation is to raise funds for the government.

21. Which of the following is not an inherent limitation of the power to tax?
a. Police power
b. Eminent domain
c. Taxation
d. All of these
I a. Tax should be levied for public purpose.
b. Taxation is limited to its territorial jurisdiction. ·

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15. Which power of the State affects the least number of people? c. Tax laws shall be uniform and equitable.
a. Police power c. Taxation d. Government agencies and instrumentalities are exempt from tax.
b. Eminent domain d. Taxation and police power
22. Select the incorrect statement.
16. Which of the following is not exercised by the government? a. The power to tax includes the power to exempt.
a. Taxation c. Eminent domain b. Exemption is construed against the taxpayer and in favor of the government
b. Police power d. Exploitation· c. Tax statutes are construed against the government in case of doubt.
17. Select the incorrect statement. d. Taxes should be collected only for public improvement.
a. Since there is compensation, eminent domain raises money for the
government. 23. Which of the following is not a constitutional Umit~tion of th power to tax?
b. Once a government is established, taxation is exercisable. a. Non-impairment of obligation or contracts
c. The most important of the power is taxation. b. Due process and equal protection of the \aw
d. Police power is more superior than the non-impairment clause of the c. Non-appropriation for r~ligious purposes
Constitution. d. Non-delegation of the taxing power
18. The following statements reflect the differences among the inherent powers 24. Which of the powers of the State is the most superior? Which is regarded as the
except:
most impoftilnt? ·
a. The property taken under eminent domain and taxation are preserved but
a. Taxation; Eminent domain
that of police power is destroyed.
b. Eminent domain and police power do not require Constitutional grant, but b. Police power; Taxation
taxation, being a formidable power, requires constitutional grant. c. Eminent domain; Police power
d. All the power$ are equally superior and important
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