Topic 1: Fundamental Principles of Taxation

Introduction

People have been paying taxes to the government almost since the beginning of time. The money
collected supported the empires of kings and provided revenue for military efforts. While most
people complain about paying taxes, they still enjoy the goods and services paid for by the
government. Today, we pay several different kinds of taxes to local and national governments
and receive many goods and services in return.

Taxation is the imposition of financial charges or other levies upon a taxpayer (an individual or
legal entity) by a state such that failure to pay is punishable by law. When taxes are not fully
paid, civil penalties (such as fines or forfeiture) or criminal penalties (such as incarceration) may
be imposed on the non-paying entity or individual. It is a mode by which the government make
exactions for revenue in order to support their existence and carry out their legitimate objectives.
It is the inherent power by which the sovereign state imposes financial burden upon persons and
property as a means of raising revenues in order to defray the necessary expenses of the
government.

This chapter discusses the fundamental principles of tax policy that have traditionally guided the
basis in the development of tax systems in the Philippines. It then provides an overview of the
inherent power of the state, concept of taxation, lifeblood doctrine, theories of government
allocation, limitations of the taxing power, and classification of taxes.

Learning Objectives

At the end of the topic, students will be able to:

• Compare and contrast the three inherent powers of the state (police power, taxation,
eminent domain).
• Explain the different inherent and constitutional limitations of taxation.
• Contrast the concept of taxation in the Philippines.
• Describe the nature, scope, characteristics, and principles of taxation.
• Differentiate tax from other similar terms like revenue, toll, license fee, special
assessment, etc.).

Activating Prior Learning

Choose two members from your family or from your neighborhood. Ask them the following
questions:

1. What are the different taxes they are paying to the government?
2. What are the benefits derived from the government in paying those taxes?

List their answers on the table below.

 Taxpayer No. 1 Taxpayer No. 2
Taxes Paid Benefits Taxes Paid Benefits

Good job! Let’s learn more as you go through to this lesson.

Presentation of Contents

The Three Inherent Power of the State

Inherent power means existing as a natural or basic part of every sovereign State without being
conferred or granted by the people or the Constitution. These are the 3 inherent power of the
state:

1. Power to Tax – The act of levying a tax. It’s the process or means by which the
sovereign (independent State), through its law-making body (legislative branch), raises
income to defray the necessary expenses of the government.

2. Police Power – It is the power of the State of promoting public welfare by restraining
and regulating the use of liberty and property. It may be exercised only by the
government. The property taken in the exercise of this power is destroyed because it is
harmful or intended for harmful purpose.

3. Eminent Domain – it is the power to take private property for public purpose upon
payment of just compensation.

Similarities among the Inherent Powers of the State

1. They are inherent in the State.

2. Underlie and exist independently of the constitution although the conditions for their
exercise maybe prescribed by the constitution.
3. Ways by which the State interfere with private rights and property.
4. Legislative in nature and character.
5. Presuppose an equivalent compensation received, directly or indirectly, by the persons
affected.
 Distinctions among the Inherent Powers of the State

Taxation Police Power Eminent Domain

Nature Power to enforce Power to make and Power to take private
contributions to raise implement laws for the property for public use with
gov’t funds. general welfare. just compensation.
Authority Government only. Government only. May be granted to public
service/utility companies.
Purpose For the support of the Promotion of general The taking of private
government. welfare through regulation. property for public use.
Persons Affected Community or class of Community or class of On an individual as the
individuals. individuals. owner of personal property
Applies to all persons, Applies to all persons, Only particular property is
property and excises that property and excises that comprehended.
may be subject thereto. may be subject thereto.
Type of Property Property is wholesome Property is harmful or Property is wholesome and
and is devoted to public intended for a harmful is devoted to public use or
use or purpose. purpose and as such taken purpose.
and destroyed.
Effect Contributions becomes No transfer of title. There There is a transfer of title to
part of the public fund may just be a restraint on property
the injurious use of
property.
Rights Affected Property right Property right and liberty Property right
Scope Plenary, Comprehensive, Broader in application. Merely a power to take
supreme General power to make and private property for public
implement law. use.
Benefits Received Inform of protection and No direct and immediate Market value of property
benefits received from benefit but only such as taken.
government. may arise from the
maintenance of a healthy
economic standard society.
Amount of No limit. Sufficient to cover cost of No imposition. The owner is
Imposition the license and the paid equivalent to the fair
necessary expenses of value of his property.
police surveillance and
regulation.

Taxation Defined

Taxation is the power by which the sovereign raises revenue to defray the necessary expenses of
the government from among those who in some measure are privileged to enjoy its benefits and
must bear its burden.

Tax is the enforced proportional contribution from persons and the properties levied by the State
by virtue of its sovereignty for the support of government and for public needs.

Nature and Characteristics of Taxation

1. It is inherent in sovereignty - it is essential to the existence of every government.

2. It is legislative in character - the power to tax is pecuniary and exclusively vested to the
Congress.
3. It is subject to limitations - inherent and constitutional.
4. For public purpose
5. The strongest of all the inherent powers of the state.
6. Subject to international comity of treaty.
 7. Generally payable in money.
8. Territorial in scope.

Purposes of Taxation

1. Primary Purpose – To raise revenues/funds to defray the necessary expenses of the

government (also called Revenue or Fiscal Purpose).

2. Secondary Purpose:
a. Regulatory Purpose – Taxation is employed as a devise for regulation or control
by means of which certain effects or conditions envisioned by the government
may be achieved.
b. Compensatory Purposes
▪ Reduction of Social Inequality
▪ Economic Growth
▪ Protect local industries against unfair competition.

Theory of Taxation

1. Necessity Theory – The existence of government is a necessity. The government cannot

continue to perform of serving and protecting its people without means to pay its
expenses. For this reason, the state has the right to compel all its citizens and property
within its limits to contribute.

2. Lifeblood Doctrine - Taxes are the lifeblood of the government without which it can
neither exist nor endure.

Manifestation of the Lifeblood Theory

▪ No estoppel against the Government
▪ Collection of taxes cannot be enjoined (stopped) by injunction.
▪ Taxes could not be the subject of compensation or set-off.
▪ A valid tax may result in the destruction of the taxpayer’s property.
▪ Right to select objects (subjects) of taxation.

Basis of Taxation

The Benefits-Protection Theory/Benefits-Received Theory – The basis of taxation is the

reciprocal duties of “protection and support” between the state and its inhabitants. The state
collects taxes from the subjects of taxation in order that it may be able to perform the functions
of government. The citizens, on the other hand, pay taxes in order that they may be secured in
the enjoyment of the benefits of organized society. This theory spawned the Doctrine of
Symbiotic Relationship which means, taxes are what we pay for a civilized society.

Scope of the Taxing Power of the Legislative

The Supreme Court held that the power of taxation is the most absolute of all powers of the
government. It has the broadest scope of all the powers of the government because in the absence
of limitations, it is considered as comprehensive, unlimited, plenary and supreme (130 SCRA
654). The matters within the competence of the legislature include the determination of the
following:

1. The subject or object (person, property, or excises/privileges) to be taxed. Excises or

privileges to be taxed.
2. The purpose of the tax as long as it is a public purpose.
3. The amount or rate of the tax
 4. Kind of tax
5. Apportionment of the tax
6. Situs of taxation
7. The manner or method of collection.

Stages/Aspects of Taxation

1. Levying or Imposition – This process involves the passage of tax laws or ordinances
through the legislature.

2. Assessment and Collection – The process involves the act of administration and
implementation of tax laws by the executive through its administrative agencies such as
the Bureau of Internal Revenue or Bureau of Customs.

3. Payment of Tax – This process involves the act of compliance by the taxpayer in
contributing his share to pay the expenses of the government.

Principles of Sound Tax System

1. Fiscal Adequacy – The sources of government revenue must be sufficient to meet

government expenditures and other public needs.

2. Administrative Feasibility – Tax laws must be capable of convenient, just and effective
administration – free from confusion and uncertainty.

3. Theoretical Justice – A good tax system must be based on the taxpayer’s ability to pay.
This suggests that taxation must be progressive conformably with the constitutional
mandate that congress shall evolve a progressive system of taxation.

Limitations of the Taxing Power

A. Inherent Limitations – The taxing power has very distinct and positive limitations some of
which inhere in its very nature and exist whether declared or not declared in the written
constitution.

1. Public purpose – Proceeds from tax must be used for:

▪ Support of the government
▪ Some of the recognized objects of government.
▪ To promote the welfare of the community (not individuals).

2. Situs of Taxation or Territoriality – The taxing power of a country is limited to person

and property within and subject to its jurisdiction.

Place of Taxation

a. The state where the subject to be taxed has a situs may rightfully levy and collect the
tax.
b. The situs is necessarily in the State which has jurisdiction or which exercises
dominion over the subject in question.

Factors to Consider in Determining Situs of Taxation

a. Subject matter (person, property or activity)

b. Nature of the tax
c. Citizenship
d. Residence of the taxpayer
 Application of Situs of Taxation
Subject Matter Situs
Persons Residence of the taxpayer
Real property Location
Tangible personal property Location
Intangible personal property Domicile of the owner
Income Residence, citizenship, source of income
Business Place of business
Gratuitous transfer of property Residence or citizenship of the transferor or location of
property.

3. International Comity or Treaty – A state cannot tax another state based on the principle
of Sovereign Equality among states. i. e. tax law passed imposing taxes on foreign
ambassadors is not a valid law.

4. Non-delegability of the Taxing Power (Enactment of Tax Laws) – Power of taxation is

purely legislative, hence the power cannot be delegated either to the executive or judicial
departments. The limitation arises from the doctrine of separation of powers among the
three branches of the government.

Exceptions to the Rule against Delegation

a. Delegation to the President, subject to some limitations and restrictions, to fix within
specified limits, tariff rates and tonnage or wharfage duties and other duties and
imposts.
b. Delegation to local government the power to create its own sources of revenues and
to levy taxes, subject to such limitations as may be provided by law.
c. Delegation to administrative agencies certain aspects of the taxing process that are
not legislative such as:
▪ The power to fix value of property for purposes of taxation pursuant to fixed
rules.
▪ The power to assess and collect taxes.

5. Exemption of the government

a. Agencies performing governmental functions are tax exempt unless expressly taxed.
b. Agencies performing proprietary function are subject to tax unless expressly
exempted.
c. GOCCs performing proprietary functions are subject to tax, however the following
are granted exemptions:
▪ Government Service Insurance System (GSIS)
▪ Social Security System (SSS)
▪ Philippine Health Insurance Corporation (PHIC)
▪ Local Water Districts (RA 10026)
▪ Philippine Charity Sweepstakes Office (PCSO) –already taxable beginning
Jan. 1, 2018 under the TRAIN Law.

B. Constitutional Limitations – the following provisions may be said to be limitations

prescribed in the constitutions on the taxing power of the government.

1. Observance of due process

2. Equal protection of law
3. Uniformity in taxation
4. Progressive scheme of taxation
5. No imprisonment for non-payment of poll tax
6. Non-impairment of the obligations of contracts
7. Freedom of religious profession and worship
 8. Exemption of charitable institutions , churches, parsonages, or convents appurtenant
thereto, mosques, and non-profit cemeteries, and all lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or
educational (Section 30 of the Tax Code)
9. Exemption from taxes of the revenues and assets of non-profit, non-stock educational
institutions including grants, endowments, donations or contributions for educational
purposes.
10. Non-appropriation of public funds or property for the benefit of any church, sect or
system of religion, etc.
11. No money shall be paid out of the Treasury except in the pursuance of an
appropriation made by law.
12. Concurrence of a majority of ALL MEMBERS OF CONGRESS for the passage of
law granting tax exemptions.
13. Non diversification of tax collections.
14. The President shall have the power to veto any particular item(s) in an appropriation,
revenue, or tariff, but the veto shall not affect the item(s) to which no objection has
been made.
15. Non-impairment of the jurisdiction of the Supreme Court to review tax cases.
16. Appropriations, revenue, tariff bills shall originate exclusivelyin the Houseof
Representative but the Senate may propose on concur with amendments.
17. Each local government unit shall exercise the power to create its own sources of
revenue and shall have a just share in the national taxes.

National Taxes vs. Local Taxes

National Local
Authority Inherent Delegated Power
Nature Legislative in nature through Legislative in nature through
enactment of tax laws by the enactment of local ordinances by the
Congress and the Senate local legislative branch
Process Levying = Congress Levying = Legislative branch of the
Assessment/Collection = LGU
BIR/BOC Assessment/Collection = Treasurer

National Internal Revenue Taxes under the administration of the BIR:

a. Income Tax
b. Estate and Donor’s Tax
c. Value-added Tax
d. Other Percentage Taxes
e. Excise Taxes
f. Documentary Stamp Taxes

Double Taxation

1. Direct Duplicate Taxation – this is objectionable and prohibited because it violates the
constitutional provision on uniformity and equality. It means:
▪ Taxing twice
▪ By the same taxing authority
▪ Within the same jurisdiction or taxing district
▪ For the same purpose
▪ In the same year or taxing period
▪ Same kind or character of tax.

Tax Laws

Tax laws are civil and not penal in nature, although there are penalties provided for their
violation. The purpose of tax laws in imposing penalties for delinquencies is to compel the
timely payment of taxes or to punish evasion or neglect of duty in respect thereof.
Construction or Interpretation of Tax Laws in Case of Doubt

1. Tax statutes are construed strictly against the government and liberally in favor of the
taxpayer. Taxes, being burdens, are not to be presumed beyond what the statute expressly
and clearly declares.
2. Provisions granting tax exemptions are construed strictly against the taxpayer claiming
tax exemption and liberally in favor of the government.

Application of Tax Laws

Tax laws are prospective in operation because the nature and amount of the tax could not be
foreseen and understood by the taxpayer at the time the transactions which the law seeks to tax
was completed.

Exception – While it is not favored, a statute may nevertheless operate retroactively provided it
is expressly declared or is clearly the legislative intent. But a tax law should not be given
retroactive application when it would be harsh and oppressive.

Sources of Tax Laws

1. Constitution
2. Tax Code (Train Law), Tariff and Customs Code and portion of Local Government Code
3. Statutes and Laws
4. Presidential decrees
5. Executive orders
6. Court decisions
7. Implementing rules and regulations promulgated by Department of Finance
8. Administrative issuances of the BIR like Revenue Memorandum Circulars and those of
the Bureau of Customs like Customs Memorandum Orders
9. BIR rulings
10. Local tax ordinance
11. Tax treaties and conventions with foreign countries

Classification of Taxes

A. According to Subject Matter

1. Personal, Poll or Capitation Tax – Tax of a mixed amount imposed upon individual,
whether citizens or nor, residing within a specified territory without regard to their
property or the occupation in which he may be engaged (e.g. basic community tax)
2. Property Tax – Tax imposed on property, whether real or personal, in proportion
either to its value, or in accordance with some other reasonable method of
apportionment (e.g. real estate tax)
3. Excise Tax – Any tax which does not fall within the classification of a poll tax or a
property tax. This is a tax on the exercise of certain rights and privileges (e.g. income
tax, estate tax, donor’s tax, VAT)

B. According to Who Bears the Burden

1. Direct Tax (e.g. Income Tax, Estate Tax, Donor’s Tax)
➢ Imposed on the person obliged to pay the same and this burden cannot be shifted
or passed on to another.
➢ A tax in which the taxpayer who pays the tax is directly liable therefor, that is, the
burden of paying the tax falls directly on the person paying the tax.
 ➢ Demanded from the very person who, as intended, should pay the tax which he
cannot shift to another
2. Indirect Tax (e.g. VAT and OPT)
➢ Payment is demanded from a person who is allowed to transfer the burden of
taxation to another.
➢ A tax paid by a person who is not directly liable therefore, and who may therefore
shift or pass the tax to another person or entity which ultimately assumes the tax
burden.
➢ Demanded on the first instance form one person with the expectation that he can
shift the burden to someone else, not as a tax but as part of the purchase price.

C. According to Determination of Amount

1. Specific Tax– this is a fixed amount based on volume, weight or quantity of goods as
measured by tools, instruments or standards (e.g. Excise Tax on cigars and liquors).
2. Ad Valorem Tax - This imposition is based on the value of the property subject to
tax. (e.g. VAT, Income Tax, Donor’s Tax and Estate Tax)

D. According to Purpose
1. Fiscal/General/Revenue Tax – Levied without a specific or pre-determined purpose.
(e.g. Income Tax, Donor’s Tax and Estate Tax)
2. Regulatory/ Special/ Sumptuary Tax – Those intended to achieve some social or
economic goals. (e.g. Tariff and certain duties on imports)

E. According to Jurisdiction/Scope or Authority

1. National Tax – Imposed by the National Government
2. Local Tax – Imposed by the LGU (e.g. Real Estate Tax)

F. According to Graduation or Rate

1. Proportional/Flat Rate Tax- Unitary or single rate (e.g. VAT, OPT)
2. Progressive/Graduated Tax – As the tax base grows the tax rate increases. (e.g.
Income tax on individuals, estates, trusts, Estate tax Donor’s tax)
3. Regressive Tax – the tax rate increases as the tax base decreases.

Tax Distinguished From Other Charges and Fees

Tax Toll
▪ It is demand of sovereignty. ▪ It is a demand of proprietorship
▪ It is one’s support for the government. ▪ It is a compensation for the use of
▪ It is imposed only by the government. somebody else’s property.
▪ It is based on governmental needs. ▪ It may be imposed by the government or
private individuals.
▪ It is determined by the cost of property or
improvement thereon.
Tax Penalty
▪ It is imposed to raise revenue. ▪ It is a imposed to regulate conduct through
▪ It is imposed only by the government. punishment and suppression of injurious
▪ It arises from law. act.
▪ Generally, payable in money. ▪ May be imposed by the government or by
private individuals.
▪ It may arise from law or contract.
▪ May be paid in money or in kind.
Tax Special Assessment
▪ Levied on business, interests, transactions, ▪ Levied on land
rights, persons, properties or privileges. ▪ Cannot be made the personal liability of
▪ May be made a personal liability of the the person assessed, because it is the land
person assessed. that answers for the liability
▪ Based on necessity with no hope of direct ▪ Based wholly on benefits received.
 or immediate benefit to the taxpayer. ▪ It is exceptional in application for the
▪ Is of general application. recovery of cost and/or maintenance of
improvement.
Tax License Fee
▪ Tax is levied in the exercise of the taxing ▪ Emanate from police power of the state.
power. ▪ The purpose of it is regulatory.
▪ The purpose of it is to generate revenue. ▪ Limited to the necessary expenses of
▪ Generally amount is unlimited. regulation and control.
▪ Imposed on person, property, rights or ▪ Imposed on the exercise of a right or
transactions. privileges.
▪ Non-payment does not make the business ▪ Non-payment makes the business illegal.
illegal.
Tax Custom Duties
▪ Imposed on person, rights, property or ▪ Imposed on imported or exported goods.
transactions. ▪ It is also a tax.
▪ It comprehends more than the term custom
duties.
Tax Debt
▪ Based on law. ▪ Based on contract.
▪ Not assignable ▪ Assignable.
▪ Payable in money. ▪ Payable in kind or in money.
▪ Not subject to set off ▪ Subject to set-off.
▪ Non-payment may result to imprisonment. ▪ No imprisonment(except when debt arises
▪ Bears interest only if delinquent. from crime)
▪ Interest depend upon the stipulation of the
parties.

Subsidy
▪ Refers to pecuniary aid directly granted by the government to an individual or private
commercial enterprise deemed beneficial to the public.
▪ Not a TAX although tax may have to imposed to pay it.

Revenue
▪ Refers to all the funds or income derived by the government, whether from tax or any
other source.
▪ Amount collected

Internal Revenue
▪ Taxes imposed by the legislature other than duties on imports and exports.

Tariff
▪ The system or principle of imposing duties on the importation or exportation of goods.

Systems of Income Taxation

1. Global System – All items of gross income, deductions are reported in one tax return and
the applicable tax rate is applied on the tax base.

2. Schedular System –Different types of income are subject to different sets of graduated
or flat tax rates.

Other Doctrines/Rules in Taxation

1. Equitable Recoupment – Claim refund which is prevented by prescription may be

allowed to be used as payment for unsettled tax liabilities if both taxes arise from the
same transaction in which overpayment is made and underpayment is due.
 2. Set-off taxes – Taxes are not subject to set-off or legal compensation because the
government and the taxpayer are not mutual creditors and debtors of each other.

3. Taxpayer Suit – This provides that a taxpayer suit can only be allowed if the act involves
a direct and illegal disbursement of public funds derived from taxation.

Exemption from Taxation

It is a grant of immunity, express or implied, to particular persons, or corporations of a particular

class, from a tax upon property or an excise tax which persons and corporations generally within
the same taxing district, are obliged to pay.

Escape from Taxation

1. Evasion or Dodging – The taxpayer uses unlawful means to evade or lessen the payment
of tax.

2. Avoidance/Tax Minimization – It is the reduction or totally escaping payment of tax

through legally permissible means.

3. Shifting – It is the transfer of tax burden to another. The imposition of tax is transferred
from the statutory taxpayer to another without violating the law.
▪ Impact is the point at which a tax is originally imposed.
▪ Incidence is the point at which the tax burden finally rests or settles down.

3 types of Shifting
a. Forward shifting
b. Backward shifting
c. Onward shifting

4. Capitalization – The seller is willing to lower the price of the commodity provided the
taxes will be shouldered by the buyer.

5. Transformation – The manufacturer absorbs the additional taxes imposed by the

government without passing it to the buyers for fear of lost of his/its market. Instead, he/it
increases quantity of production, thereby turning their units of production at a lower costs
resulting to the transformation of the tax into a gain through the medium of production.

6. Exemption – It is an immunity, privilege or freedom from payment of a charge or burden

to which others are obliged to pay.

Application

Exercise Drill No. 1

In the space provided for, indicate whether the statement relates to Constitutional limitation (C)
or Inherent limitation (I). If it is not a limitation to the taxing power, indicate (N).

1. Non-imprisonment for non-payment of tax or debt.

2. Non-delegation of taxing power.
 3. Taxes must be for public use.
4. Exemption of the property of religious institutions from income tax.
5. Exemption of the revenues and assets of non-profit, non-stock educational
institutions.
6. Territoriality of taxation.
7. Non-appropriation for religious purpose.
8. The requirement of absolute majority in the passage of a tax exemption law.
9. Non-assignment of taxes.
10. Imprisonment for non-payment of poll tax.
11. Exemption from property taxes of religious, educational and charitable
entities.
12. Non-impairment of the jurisdiction of the Supreme Court to review tax cases.
13. Each local government shall have the power to create its own sources of
revenue.
14. Imprescriptibility in taxation.
15. Non-impairment of obligation and contracts.
16. Guarantee of proportional system of taxation
17. International courtesy
18. Government income and properties are not objects of taxation.
19. The government is not subject to estoppel.
20. Taxpayers under the same circumstance should be treated equal both in
terms of privileges and obligations.

Exercise Drill No. 2: TRUE/FALSE

Directions: Read each statement below carefully. Place a T on the space provided if you think a
statement is TRUE. Place an F on the space if you think the statement is FALSE.

1. The three fundamental powers of the state may be exercise only by the
government.
2. Taxation is a process or means by which the sovereign, through its law
making body raises income to defray the expenses of the government.
3. Eminent domain may be exercise even by public service corporations and
public entities.
4. Police power regulates both liberty and property.
5. Taxes are raised to cover the cost of governance.
6. Toll is one of the taxes collected by the government.
7. License fees are imposed in the exercise of police power.
8. License fee is imposed to raise revenue.
9. Tax is generally unlimited, because it is based on the needs of the state.
10. The amount imposed in the exercise of police power depends on whether the
activity is useful or not.
11. The distinction of a tax from permit or license fee is that a tax is one in
which there is generally no limit on the amount that may be imposed.
12. Debt, as distinguished from tax, may be paid in kind.
13. Under the equal protection clause the constitution, all persons subject to
legislation shall be treated alike under dissimilar circumstances and
conditions, both in the privileges conferred and liabilities imposed.
14. Tax laws are civil and penal in nature because there are penalties provided in
the case of violation.
15. Special assessment is a tax.
16. Special assessment is imposed on persons, property and rights.
17. The Philippine government may subject the land where embassies of foreign
governments are located to real property taxes.
18. A revenue bill may originate from the Senate and on which same bill the
 House of Representatives may propose amendments.
19. A person may refuse to pay on the ground that he will not receive a benefit
from the tax.
20. In the exercise of the power of taxation, the State can tax anything at any
time.
21. In cases of deductions and exemptions, doubts shall be resolved liberally in
favor of the government.
22. Levying of local government taxes should be exercise only by the legislative
branch of the local government.
23. The taxing power of provinces, municipalities and cities precede from a
constitutional grant.
24. Taxation is regressive when their rate goes up depending on the resources of
the person affected.
25. No law granting any tax exemption shall be passed without the concurrence
of 2/3 of all the members of Congress.
26. There is no constitutional prohibition against double taxation in the
Philippines. It is something not favored, but nevertheless permissible.
27. “Global system of income taxation” means separate graduated rates are
imposed on different types of income.
28. One of the schemes of shifting the incidence of tax burden is by transferring
the sales tax of the manufacturer to the distributor.
29. Transformation is method by which the manufacturer or producer upon
whom the tax is imposed pays the tax and strives to recover such expense
through lower production cost without sacrificing the quality of his product
30 In case of ambiguity, tax laws shall be interpreted liberally in favor of the
government.

Feedback

Multiple Choices: Directions: Read each question carefully, and then write the letter of answer
that best fits the question on the space provided.

1. The following statements correctly described the power of the State to tax, except
a. It is a power inherent in every sovereign state to impose a charge or burden upon
persons, properties or rights to raise revenues for the use and support of the
government and to enable it to discharge its functions.
b. The state can exercise the power of taxation only if it is expressly mentioned in
the constitution.
c. It passes a legislative undertaking through the enactment of laws by the Congress
which will be implemented by the Executive Branch of the government through
its Bureau of Internal Revenue to raise revenue for the inhabitants in order to pay
the necessary expenses of the government.
d. It is a way of collecting and apportioning the cost of government among those
who are privileged to enjoy its benefits.
2. The strongest of all inherent powers of the government is
a. Power of taxation c. Power of eminent domain
b. Police power d. Power of recall
3. Which of the following may not raise money for the government?
 a. Power of taxation c. Power of eminent domain
b. Police power d. Privatization of government’s capital asset
4. The existence of the government is a necessity and that the state has the right tocompel
all individuals and property within its limits to contribute
a. Basis of taxation c. Scope of taxation
b. Situs of taxation d Theory of taxation
5. The principal purpose of taxation is
a. To encourage the growth of home industries through the proper use of tax
incentives.
b. To implement the police power of the State.
c. To reduce excessive inequalities of wealth.
d. To raise revenue for government.
6. After having been informed that most of the massage parlors in the municipality arebeing
used as fronts for prostitution, the Sanguniang Bayan passed a tax ordinance subjecting
massage parlors within its jurisdiction to such “onerous taxes” that leave them no other
alternative but to stop operating. The passage of the ordinance is a valid exercise of
a. Taxation c. Eminent domain
b. Police power d Taxation and police power
7. The official action of an officer authorized by law in ascertaining the amount of tax due
under the law from a taxpayer?
a. Assessment c. Deficiency
b. Delinquency d Distraint
8. The Congress enacted a new law, known as Expanded Value Added Tax Law. An
association of taxpayers questions the constitutionality of this law on the ground that it
did not originate exclusively in the House of Representative as required by the
Constitution because it is in fact the result of the consolidation of two distinct bills, one
from the House of Representative and the other from the Senate. Is the law
unconstitutional?
a. Yes, because all appropriation, revenue or tariff bill, shall originate exclusively in
the House of Representatives.
b. Yes, because the Senate has no authority to propose on concur any amendments
with the revenue or tax bill proposed by the House of Representatives.
c. No, because all appropriation, revenue or tariff bills, bill authorizing increase of
public debt, bills of local application, and private bills, shall be initiated by thr
Senate.
d. No, because it is not the law but the revenue bill which is required by the
Constitution to originate exclusively in the House of Representatives and insisting
otherwise would violate the coequality of legislative power of the two houses of
Congress and in fact would make House superior to the Senate.
9. The city council passed a tax ordinance imposing an occupation or profession tax of a
scientist. Rey Vil is the only person with such an occupation in the city. Which of the
following is correct?
a. Rey Vil can successfully challenge the validity of the ordinance being
discriminatory since he is the only once adversely affected.
b. The ordinance violates the constitutional rule of equality in taxation.
c. The ordinance is class legislation since it does not subject to occupation the other
industrial engineers.
d. The ordinance is a valid exercise of the council’s power to enact tax ordinance to
raise revenue under the Local Government Code.
10. One of the following is not a characteristic or an element of tax.
 a. It is levied by the legislature c. It is proportionate in character
b. It is payable in money or in kind d It is an enforced contribution
11. Which limitation on the power of taxation inherently implied that the State’s primary
concern is for the common good of the people?
a. Equality in taxation c. Due process of law
b. Equal protection of law d For public purposes
12. One of the following is not a Constitutional limitation on the power of taxation.
a. Exemption from taxes of revenues and assets of educational institutions, including
grants, endowments, donations and contributions.
b. Non Impairment of the jurisdiction of Supreme Court in tax cases
c. Exemption of the government from taxes.
d. Non-infringement of religious freedom and worship.
13. No law granting any tax exemption shall be passed without the concurrence of
a. Majority of all members of Congress.
b. 2/3 vote of all the members of Congress
c. 3/4 vote of all the members of Congress
d. Unanimous vote of all members of Congress.
14. St. Mary University is a non-stock, non-profit educational institution registered with
Securities and Exchange Commission as corporation. For the year ended December 31,
2019, it reported rental income amounting to P150M from various tenants leasing
portions of the said corporation. The Bureau of Internal Revenue assessed SMU P45M
deficiency income tax for rental income earned. Is the action of the BIR proper?
a. No, because a proprietary educational institution shall be subject 10% preferential
corporate income tax.
b. No, because all revenues of non-stock, non-profit educational institution shall be
exempt from taxes and duties as long as they are actually, directly and exclusively
for educational purposes.
c. Yes, because leasing a property is not actually, directly and exclusively related to
educational purpose.
d. Yes, because taxes are lifeblood of the government and tax exemption sre
construed strictly against the taxpayer and liberally in for the government.
15. The basis or test of exemption of real properties owned by religious, or charitable entities
from real property taxes is:
a. Use of the reel property
b. Ownership of the real property
c. Location of the real property
d. Ownership or location real property at the option of the government.
16. A taxpayer gives the following reasons for refusing to pay a tax. Which of his reasons is
not acceptable for legally refusing to pay the tax?
a. That he has been deprived of due process of law.
b. That there is lack of territorial jurisdiction.
c. That the prescriptive period for the tax has lapsed.
d. That he will derive no benefit from the tax.
17. It literally means “place of taxation” the country that has the power and jurisdiction to
levy and collect the tax
a. Basis of taxation c. Scope of taxation
b. Situs of taxation d. Theory of taxation
18. Tax of a fix amount imposed among all persons residing within a specified territory
without regard to their property or occupation they may be engage
a. Personal, poll or capitation tax c. Excise tax
 b. Property tax d. Regressive tax
19. Tax which imposes a specific sum by the head or number or by some standards of weight
or measurement and which requires no assessment other than a listing or classification of
the objects to be taxed
a. Ad-valorem tax c. Excise tax
b. Specific tax d. Income tax
20. RDV is mining operator. The tax he has to pay is based on the actual value of the gross
output or mineral products extracted is
a. Mining tax c. Rental tax
b. Royalty tax d. Ad-valorem tax
21. Debt as distinguished from tax.
a. Based on law c. Does not draw interest except when delinquent
b. May be paid in kind. d. Generally not subject to set-off or compensation
22. When the refund of a tax supposedly due to the taxpayer has already been barred by the
prescription, and the said taxpayer is assessed with a tax at present, the two taxes may be
set-off with each other. The doctrine is called
a. Set-off doctrine c. Tax sparring doctrine
b. Doctrine of reciprocity d. Equitable recoupment
23. In case of ambiguity, tax laws imposing a tax shall be interpreted
a. Strictly against the taxpayer
b. Liberally in favor of the taxpayer
c. Liberally in favor of the government
d. Strictly against the taxpayer and government.
24. The use of illegal or fraudulent means to avoid or defeat the payment of a tax
a. Exemption c. Avoidance
b. Shifting . d. Evasion
25. Transfer of the tax burden by one whom the tax is assessed to another
a. Shifting c. Transformation
b. Capitalization d. Tax exemption

Student Reflection on Learning

1. How much did you know about the subject before we started?

2. What did you learn about this topic that surprised you?