CHAP 1 GEN. PRIN 7th PDF

INCOME TAXATION 7th Edition (BY: VALENCIA & ROXAS) 1
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation
CHAPTER 1
GENERAL PRINCIPLES AND CONCEPTS OF
TAXATION
Review Questions
1)Define Taxation
A) A power by which an Independent State,
through its lawmaking body, raises and
accumulates revenue from its inhabitants to pay
the necessary expenses of the government.
As a power it refers to the inherent power of a

state, co-extensive with sovereignty to demand
contributions for public purposes to support the
government.
B) A process or act of imposing a charge by
governmental authority on property, individuals
or transactions to raise money for public
purposes.
As a process , it passes a legislative

undertaking through enactment of tax laws by
the Congress which will be implemented by the
SUGGESTED ANSWERS
Executive Branch of the government through its

Bureau of Internal Revenue (BIR) to raise
revenue from the inhabitants in order to pay the
necessary expenses of the government.
C) A means by which the Sovereign State

through its law-making body demands for
revenue in order to support its existence and
carry out its legitimate objectives.
As a means, it is a way of collecting and

apportioning the cost of government among
those who are privileged to enjoy its benefits.
2) Why is taxation important?
a)It is essential for the continuous existence of

a nation, hence, this makes the payment of
taxes compulsory;
b)Without it, the other inherent powers of
government (police and eminent) will be
paralyzed;
SUGGESTED ANSWERS
c) Without revenue, there can be no continuing

government, hence, there can be no
civilization.
3)What are the bases of the exercise of tax

power:
a)Principle of Necessity- it is power

emanating from necessity to preserve the
State’ s sovereignty. It is the “ lifeblood”
or the “ bread and butter” of the
government, hence, every citizen must pay
his taxes.
b)Principle of Benefits-Received or
Benefits-Protection Theory-Based on
reciprocal duties, the government collects
taxes from the subjects of taxation in order
that it may be able to perform its functions
and provide services to them.
The government right to tax income

emanates from its being a silent partner in
the production of income through means of
providing protection, proper business
SUGGESTED ANSWERS
climate, and peace and order to the

taxpayers in the making of earnings.
The citizen, on the other hand, pays taxes to

support the government in order that he may
continuously be sustained with security and
benefits of an organized society.
The symbolic relationship and

partnership between the taxing authority
and the subject of taxation is enough to
justify the imposition of tax power.
Qualifications of Benefit-Received
Principle
It is intended for general welfare.
a)It does not mean that only those who are

able to pay taxes can enjoy the privileges
and protection given to a citizen by the
government;
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On the contrary, the subject of tax cannot

object or resist the payment of taxes
because no specific personal benefit to him
can be pointed out as arising from tax.
b)The government renders no special or

commensurate benefit to any particular
property or person.
The only benefit to which the taxpayer is

entitled is that derived from his enjoyment of
the privileges of living in an organized
society established and safeguarded by the
devotion of taxes to public purposes.
4) Explain briefly the three main purposes of

Taxation?
Three Main Purposes of Taxation
1. Revenue Purpose- The primary purpose of

taxation is to raise revenue by collecting
funds or property for the support of the
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government in promoting the general

welfare and protecting its inhabitants;
The fiscal policy of the government is based

on the rule that receipts or revenue should
be equal to annual government
expenditures. The significant portion of the
required receipts is raised from taxation.
2. Regulatory or Sumptuary Purpose-is a
secondary purpose of imposing tax, and it is
accomplished to:
a)Regulate inflation;
b)Achieve economic and social stability,
and
c) Serve as key instrument for social
control.
Examples;
a. Taxes may be increased to curve

spending power and minimize inflation
in times of prosperity. It may be
reduced to expand business and ward
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off depression in times of declining

economic condition;
b. It may be imposed to encourage
economic growth by granting tax
exemptions, tax relief and incentives
to attract investments that will create
employment;
c. It may be implemented to serve the
general welfare of the people in
promoting science and invention, in
financing educational activities, in
improving the efficiency of local police
forces to maintain peace and order
through the grant of subsidy, as a tool
and weapon in international relations,
as an instrument to encourage foreign
trade by providing tax incentives or
protect local industries against foreign
competition by imposing additional
taxes on imported goods.
As a tool to protect trade relation,

special duties maybe created to protect new
conditions as follows:
SUGGESTED ANSWERS
a. Discriminatory duty-is designed to

offset any foreign discrimination against
our local commerce;
b. Countervailing duty-may be imposed
to offset any foreign subsidy granted
to imported goods to the prejudice of
our local industries;
c. Marking duty-is generally imposed as
additional duty tax on imported articles
and/or containers with improper
classifications;
d. Dumping duties-refer to additional duty
taxes imposed on imported goods with
lower prices compared to their fair
market values to protect local industries.
3. Compensatory Purpose-A tax may be

used to make up for the benefit received.
Example: an excise tax on gasoline
consumed is imposed on vehicle owners
using roads.
SUGGESTED ANSWERS
Example- Excise tax on gasoline consumed

is imposed on vehicle owners using roads.
Taxes may be imposed for the equitable

distribution of wealth and income in the
society.
In income taxation, higher taxes are

collected from those who earn more and use
the funds collected for the welfare of the
people in general.
In estate taxation, the estate tax reduces

the property received by the successor
through the portion of the property collected
by the government, which is to be used for
the benefit of he public or to defray the
expenses of the government.
SUGGESTED ANSWERS
5)Explain briefly the nature of police ,

eminent domain and taxation powers of the
state?
1. Nature of Police Power-refers to the

inherent power of the sovereign state to
legislate for the protection of health, welfare
and morals of the community. It is
exercised usually to guard against excesses
or abuses of individual liberty. It is restricted
by the “ due process clause” of the
Constitution which provides that no person
may be deprived of “ life, liberty, or property,
without due process of law. It may be
exercised through taxation because taxes
may be levied for the promotion of the
welfare of the public.
Examples:
Preservation of natural resources,
imprisonment of convicted criminals,
segregation of lepers from the public and
regulation of various professionals.
SUGGESTED ANSWERS
2. Nature of Eminent Domain-is the power of

the sovereign state to take private property
for public purpose. It is founded from the
idea that the common necessities and
interests of the community transcend
individual rights in property. Since eminent
domain is inherent in sovereignty,
pertinent provisions in the Constitution
are not grants of the power, but rather
limitations upon its exercise.
“ Just compensation” means paying the

owner the full monetary equivalent of the
property taken for public use..
3. Nature of Taxation Power-is an attribute of

sovereignty that is exercised by the
government for the betterment of the people
within its jurisdiction whose interest should
be served, enhanced and protected.
Includes the following:

SUGGESTED ANSWERS
I)Inherent power of sovereignty-taxation is as

old as government itself. Its existence
commences concurrently with four elements
of the state-people, territory, sovereignty
and government. From the moment a state
is born, it automatically possesses the power
to collect taxes from its inhabitants. It can
enforce contributions from its citizens
even without a specific provision in the
Constitution authorizing it. Any
Constitution’ s provision regarding
taxation merely constitutes limitations
upon the supremacy of tax power. Only the
national government exercises the inherent
power of taxation of the state, except when
1)there is an expressed Constitutional
provision granting local government units or
political subdivision the power to tax, and 2)
valid delegation of tax power through the
statute from the national legislature granting
local government units political subdivisions to
exercise the power to tax (i.e., Local
Government Code of the Philippines), in the
absence of a Constitutional provision.
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II)Essentially a legislative function-The law

making body of the government and its
political subdivisions exercise the power of
taxation. The power to exact laws and
ordinances, and impose and collect taxes are
given to Congress. The scope of the
legislative taxing power comprises the
following:
1. Subjects of taxation (persons,

property, transactions, occupation,
etc. to be taxed);
2. Amount or rate of the tax (e.g., 5%-
32% for individuals net taxable
income, 30% for corporation’ s net
taxable income, 12% value-added tax
based on sales or gross receipts,
etc.);
3. Purposes of tax (public purposes);
4. Appropriation of tax;
5. Situs of taxation; and
6. Method of tax collection.
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When the power to tax is delegated to the

local government units, only the legislature
branch of LGU can exercise the power. And,
if it is delegated to the President, it is limited
to administrative discretion subject to valid
standards.
EXAMPLES OF TAXATION POWER THAT

CANNOT BE DELEGATED:
a. Power to select the coverage, object or
property to be taxed;
b. Determining the nature and purposes for
which taxes shall be collected;
c. Determining the place or situs of taxation;
d. Fixing the amount to be imposed and tax
rates;
e. Granting tax exemptions or condonations;
and
f. Setting down the rules of taxation in general.
The powers that can be delegated are

ministerial, advisory and administrative in nature
(e.g., the power to value property, assess and
collect taxes ).
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If what is delegated is tax legislation, the

delegation is invalid. However, if the
delegation involves only tax administration,
it is valid.
III)For public purposes-it flows from the

legislative objective of supporting the services
of the government. Public taxes are public
money to finance constructions and
maintenance of roads, health care, education,
security, promotion of science, commerce,
industry, and others for the welfare of the
general public. No individual or private
person shall primarily be enriched or
benefited by the public funds;
IV)Territorial in operation-as a rule, the
power to tax can only be exercised within the
territorial jurisdiction of a taxing authority,
except when there exists a “privity of
relationship” between the taxing State and
the object of tax based on the principle of
reciprocal duties. Where “ privity of
relationship” exists, the state can still
SUGGESTED ANSWERS
exercise taxing powers over its citizens

outside its territory. The state cannot tax
property wholly and exclusively within the
jurisdiction of another state since it does
not afford protection on property beyond
its territorial boundaries for which a tax is
supposed to compensate. Taxation is
bound to observe “ International Comity” ,
which is the courteous recognition, friendly
agreement. Interaction and respect accorded
by one nation to the laws and institutions of
another. An example of International
Comity limitation on the power of taxation
is the tax exemption of properties used by
diplomats or head of states in the exercise
of sovereign powers and diplomatic
functions. As a matter of international
courtesy, property of one foreign state may
not be taxed by another because of the
principle of sovereign equality among
states under international law;
V)Tax exemption of the government-is

inherent in its power to impose tax. The
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state cannot be taxed without its consent,

otherwise, such is derogation to its
sovereignty. Tax exemption applies only to
government entities through which the
government immediately and directly
exercises it governmental functions like the
Armed Forces of the Philippines (AFP).
If, however, the government entities are
performing proprietary functions such as
Philippine National Railways )PNR) and the
National Power Corporation (NPC) they are
generally subject to tax in the absence of
tax exemption provisions in their charters
or the law creating it;
VI)The strongest among the inherent

powers of the government, because, without
money the government can neither survive nor
dispense any of its other powers and functions
effectively;
VII)Subject to Constitutional and inherent

limitations.
SUGGESTED ANSWERS
Taxation power that cannot be delegated
a)Power to select the coverage, object or

property to be taxed;
b)Determining the nature and purposes for
which taxes shall be collected;
c) Determining the place or situs of tax
imposition;
d)Fixing the amount to be imposed and tax
rates;
e)Granting tax exemptions or condonations;
f) Setting down the rules of taxation in general;
g)The power to make tax laws to non-
legislative bodies.
If the powers delegated are ministerial and

advisory like:
a)Power to value property;
b)Assess and collect taxes.
They shall be allowed since they are not

legislative but only administrative in nature.
SUGGESTED ANSWERS
International Comity-is the courteous

recognition, friendly agreement, interaction and
respect accorded by one nation to the laws and
institutions of another.
Example: Tax exemption of properties used by

diplomats or head of states in the exercise of
sovereign powers and diplomatic functions.
Principle of Sovereign Equality Among

States Under International Law-is one wherein
the property of one foreign state may not be
taxed by another.
Tax Exemption:
Exemption from taxation is a grant of tax

immunity to a particular class of persons or
corporations. The State’ s immunity from
taxation is inherent in its power to impose
tax. It cannot be taxed without its consent.
SUGGESTED ANSWERS
Agencies performing governmental

functions are exempt from tax unless
expressly taxed, and those performing
proprietary functions are subject to tax
unless expressly exempted.
6)Why is taxation considered as the

strongest among the three inherent powers
of the State? because, without money the
government can neither survive nor dispense
any of its other powers and functions
effectively;
7. What are the similarities among the three

inherent powers of the State?
Similarities among Taxation, eminent

Domain and Police Powers
a) They are inherent in sovereignty (they can

be exercised even without being
expressly granted in the Constitution);
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b)They are all necessary attributes of

sovereignty because there can be no
effective government without them;
c) They constitute the three ways by which the
state interferes with the private rights and
property;
d)They are legislative in nature and character;
e)They presuppose an equivalent
compensation; and
The provisions in the Constitutions are just

limitations on the exercise of these powers
As a tool to protect trade relation, special

duties may be created to protect new
conditions, such as:
a)Discriminatory duty-is designed to offset

any foreign discrimination against our local
commerce;
b)Countervailing duty-imposed to offset any
foreign subsidy granted to imported goods
to the prejudice of our local industries;
SUGGESTED ANSWERS
c) Marking duty-imposed as additional duty to

tax on imported articles and/or containers
with improper classifications;
d)Dumping duties-are additional duty taxes
imposed on imported goods with lower
prices compared to their fair market values
to protect local industries.
8) Differentiate taxation power from police

power and eminent domain power?
Distinction of Taxation, Police Power and

Eminent Domain
a)As to concept;
b)As to scope;
c) As to authority;
d)As to purpose;
e)As to necessity of delegation;
f) As to person affected;
g)As to benefits;
h)As to amount of imposition;
i) As to importance;
j) As to relationship to constitution;
k) As to limitation.
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9. What are the inherent limitations of

taxation power? Explain each?
a)Taxes may be levied only for public

purposes. it flows from the legislative
objective of supporting the services of the
government. Public taxes are public money to
finance constructions and maintenance of
roads, health care, education, security,
promotion of science, commerce, industry,
and others for the welfare of the general
public. No individual or private person shall
primarily be enriched or benefited by the
public funds;
b)Being inherently legislative, taxation may

not be delegated The law making body of the
government and its political subdivisions
exercise the power of taxation. The power to
exact laws and ordinances, and impose and
collect taxes are given to Congress;
c)Tax power is limited to the territorial
jurisdiction of the State. When the power to
SUGGESTED ANSWERS
tax is delegated to the local government units,

only the legislature branch of LGU can
exercise the power. And, if it is delegated to
the President, it is limited to administrative
discretion subject to valid standards.;
d)Taxation is subject to international
comity- the courteous recognition, friendly
agreement, interaction and respect accorded
by one nation to the laws and institutions of
another.
Example: Tax exemption of properties used by

diplomats or head of states in the exercise of
sovereign powers and diplomatic functions.
Principle of Sovereign Equality Among

States Under International Law-is one wherein
the property of one foreign state may not be
taxed by another.
d)Government entities are generally-exempt-it is

inherent in its power to impose tax. The state
cannot be taxed without its consent, otherwise,
SUGGESTED ANSWERS
such is derogation to its sovereignty. Tax

exemption applies only to government entities
through which the government immediately and
directly exercises it governmental functions like
the Armed Forces of the Philippines (AFP).
If, however, the government entities are
performing proprietary functions such as
Philippine National Railways )PNR) and the
National Power Corporation (NPC) they are
generally subject to tax in the absence of tax
exemption provisions in their charters or the law
creating it;
10. Give the reason why a State can still

exercise its taxing powers over its citizen who
resides outside of its territory? Where “ privity
of relationship” exists, the state can still
exercise taxing powers over its citizens outside
its territory.
11. Does the Constitution create the power

for the State to tax? As a rule, the Constitution
does not create the power for the state to tax.
Justify? Instead, it simply defines and regulates
SUGGESTED ANSWERS
the exercise of tax power in order to safeguard

the interest of affected taxpayers.
12. Explain the the “ due process of law” in

relation to the exercise of taxation power? Due
process requires giving notice to the taxpayer,
providing him hearing, so as to be given fair
opportunity to assert his substantial rights
before a competent court before he shall be
denied or deprived of his property for non-
payment of tax.
13. Explain the phrase “ no public money shall

be appropriated for religious purposes? The
limitation is fundamentally supported by the
principle that taxes can only be levied for public
purposes. Thus, congress has no power to
appropriate funds for private purposes, more so
with any sec, church, denomination, sectarian,
institution, or system of religion, or for the use,
benefit or support of any priest, preacher,
minister, or other religious teacher or dignitary,
except as specified in Art.VI, Section 29 of the
Philippine Constitution.
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14.Describe the three stages of taxation?

Stages of Taxation:
a. Levy or imposition of taxes-involves the

passage of tax laws or ordinances through
the legislature. It shall determine the nature
of taxes (kind), the subjects (person,
property or rights) provided that the law
making body does not violate any inherent
and constitutional limitations, the purpose of
the tax (objective), how much is to be
collected ( the rate and the tax base), and
how taxes are to be implemented ( the
manner of imposing and collecting tax) and
also the granting of tax exemptions, tax
amnesties and remedies that the
government and taxpayers may avail for the
proper implementation of tax measure.
b. Assessment-involves the act of

administration and implementation of the tax
laws by the executive through its
administrative agencies like the BIR or BOC.
SUGGESTED ANSWERS
Technically, it refers to the appraisal and

valuation of the subject or object of
taxation. It is important in the
determination of tax prescription, surcharges
and interests to arrive at the specific sum of
tax charged on a person or property in
accordance with prevailing tax laws.
c. Payment of Tax or Collection-it is the act

of compliance by the taxpayer in
contributing his share to defray the
expenses of the government. It is also
called “ tax collection” , the process of
obtaining payment of tax. It also
includes the options schemes or
remedies as may be legally open or
available to the raxpayer.
The “ Impact of Taxation” includes – the first

two stages of taxation, which are: Levy and
Assessment;
SUGGESTED ANSWERS
The “ incidence of taxation” includes-the

third stage of taxation, which is tax payment or
collection.
Tax administrative Aspects that can be
delegated are:
a.Valuation of property for taxation;
b. Equalization of assessment, and
c. Collection of taxes.
15.Give the two administrative aspects of

taxation?
a. Assessment
b. collection of taxes
16. What are the principles of a sound tax
system?
1. Principle of Fiscal Adequacy-states that

the sources of revenue of the government
should be sufficient to meet the demand of
public expenditures regardless of business
condition. The revenue of the government
should be capable of expanding or
contracting annually in response to
variations in public expenditures.
SUGGESTED ANSWERS
Because of inelastic government revenue,

there may be surplus in the budget if the
revenue is greater than government
expenses and budget deficit if government
expenses are more than government
revenue.
An ideal budget to achieve fiscal

adequacy is a balanced budget, when
revenue equals the expenditures.
2. Equality or Theoretical Justice-it states

that the tax burden must be proportionate to
the taxpayer’ s ability to pay.
It is based on the philosophy that “ he

who received more should give more.”
Since the Constitution provides that taxation

must be equitable, a tax measure that
violates equality or theoretical justice
would make such tax measure null and
void.
SUGGESTED ANSWERS
3. Administrative Feasibility-Tax laws must

be convenient, just, uniform and effective
in their administration – free from
confusion and uncertainty. Their exercise
should be convenient as to the place, time
and mode of payment, and not burdensome
or discouraging to business. Competent
public officials must enforce them uniformly.
Application of administrative feasibility

are:
a. Collecting of taxes at source (withholding

tax);
b. Assigning of duly authorized banks to
collect taxes;
c. Quarterly filing and payment of income
taxes; and
d. Electronic filing of tax returns.
The principles of fiscal adequacy and

theoretical justice represent the nature of
the government’ s tax policy and the
SUGGESTED ANSWERS
administrative feasibility represents tax

administration.
17.Enumerate and explain some of the

underlying doctrines in the exercise of taxation
power?
1. Prospective application of tax laws-states

that a tax bill must only be applicable and
operative after becoming a law.
The retroactive application of tax laws shall

not be applied unless there is a clear
intent of the legislature that such law
shall also be imposed on past
transactions.
Consequently, the rule of “ ex pos facto”

is not applicable for tax purposes. However,
when it comes to civil penalties like fines
and forfeiture (not including interest), tax
laws may be applied retroactively unless
they produce harsh and oppressive
consequences that violate taxpayer’ s
SUGGESTED ANSWERS
constitutional rights regarding equity and

due process.
The law is “ ex post facto” , if it provides

for the infliction of punishment upon a
person for an act done which, when such
act was committed, is not subject to any
punishment
2. Imprescriptibility of taxes-states that
unless otherwise provided by tax law itself,
taxes in general are not cancelable.
Although the tax code provides for the
limitation in the assessment and
collection of taxes imposed, such
prescriptive period will only be
applicable to those taxes that were
returnable. The prescriptive period shall
start from the time the taxpayer files the tax
return and declares his tax liability.
The court held that here is no time limit

on the right of the BIR Commissioner to
assess taxes on unreasonable
accumulated earnings of the corporation.
SUGGESTED ANSWERS
The law on prescription being a remedial

measure should be interpreted liberally
in order to protect the taxpayer.
3. Double Taxation-an act of the sovereign

by taxing twice for the same purpose in the
same year upon the same property or
activity of the same person, when it should
be taxed once, for the same purpose and
with the same kind of character of tax.
The Supreme Court held that there is no

Constitutional prohibition against double
taxation in the Philippines, therefore it is
not a valid defense against the validity of
tax measure. This decision , however,
springs valid constitutional defenses
against oppression and inequality in the
implementation of tax power.
To avoid injustice and unfairness, doubts

as to whether double taxation has been
SUGGESTED ANSWERS
imposed should be resolved in favor of

the taxpayer.
Indirect Duplicate Taxation-it is usually

allowed as long as there is no violation
of the equal protection and uniformity
clauses of the Constitution.
Indirect double taxation may be

counteracted through the application of:
a. Tax exemptions;
b. Reciprocity clause/tax treaty;
c. Tax credit, and
d. Allowance for deductions such a vanishing
deduction in Estate Tax.
Direct Duplicate Taxation-it is double

taxation in its strict sense. It is prohibited
because it comprises imposition of the
same tax on the same property for the
same purpose by the same state during
the same taxing period.
SUGGESTED ANSWERS
There is no double taxation in the

following cases:
1. By taxing corporate income and

stockholders dividends from the same
corporation;
2. A tax imposed by the state and local
government upon the same occupation,
calling or activity;
3. Real estate tax and income tax collected
on the same real estate property leased
for earning purpose;
4. Taxes are imposed on the taxpayer’ s
final product and the storage of raw
materials used in the production of the
final product.
4. Escape from taxation-the “ doctrine of

escape from taxation” permits the
taxpayer to minimize (if not to escape)
payment of tax by lawful means.
The ways by which a taxpayer could

escape tax burdens:
SUGGESTED ANSWERS
a. Tax evasion(unlawful),A tax evader

breaks the law
b. Tax avoidance or tax minimization
(lawful)the tax avoider sidesteps it.
Several forms of tax avoidance
a. Tax option-the taxpayer may choose to

pay lower tax rate in some transactions as
permitted by law.
b. Shifting-the transfer of tax burden to
another without violating the law.
Forms of Tax shifting

1. Forward shifting-the burden of tax is
transferred from the manufacturer, then
to the distributor and finally to the
ultimate consumer of the product;
2. Backward shifting-the tax burden is
transferred from the ultimate consumer
through the factors of distribution to the
factors of production.
SUGGESTED ANSWERS
3. Onward shifting-the tax burden is

shifted two or more times either forward
or backward.
Capitalization-is made when the price of

the property is lowered to accommodate the
exclusion of the tax which is expected to be
paid by the seller as a result of sale
transaction.
For example, a reduction made by the
seller on the price of the Real Estate, in
anticipation of the capital gains tax agreed to
be shouldered by the buyer.
Transformation-the producer absorbs the

payment of tax to reduce prices and to
maintain market share. He recovers his
additional tax expense by improving the
process of production.
5. Exemption from Taxation-denotes a

grant of immunity, expressed or implied,
to a particular person, corporation, or to
persons or corporations of a particular
SUGGESTED ANSWERS
class, from a tax upon property or on

excise which persons and corporations
generally within the same taxing district
are obliged to pay.
Tax exemption cannot be transferred or
assigned by the person to whom it is
given without the consent of the state.
Taxation is the rule and the exemption is

the exception
Classes of Tax exemption
1. Expressed exemption-are statutory laws in

nature as provided by the constitution,
statute, treaties, ordinances, franchises or
similar legislative acts.
Examples:
Section 105 of the tariff & customs code; The

following articles shall be exempt from the
payment of import duties upon compliance
with the formalities prescribed in, or with the
regulations which shall be promulgated by
SUGGESTED ANSWERS
the Commissioner of Customs with the

approval of the department head:
a. Animals and plants for scientific,
experimental, propagation, botanical, breeding,
zoological and national defense
purposes: Provided, That no live trees, shoots,
plants and moss, and bulbs, tubers and seeds
for propagation purposes may be imported
under this section, except by order of the
Government of the Philippines or other duly
authorized institutions: Provided, further, That
the free entry of animals for breeding purposes
shall be restricted to animals of a recognized
breed, duly registered in the book of record
established for that breed: And Provided,
finally, That certificate of such record, and
pedigree of such animal duly authenticated by
the proper custodian of such book of record,
shall be produced and submitted to the Collector
of Customs, together with affidavit of the owner
or importer, that such animal is the identical
animal described in said certificate of record and
pedigree.
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SUGGESTED ANSWERS
b. Aquatic products (e.g., fish, crustaceans,

mollusks, marine animals, seaweed, fish oil,
roe), including preparations or manufactures
thereof, caught or gathered by vessels of
Philippine registry: Provided, That they are
imported in such vessels or in crafts attached
thereto: And Provided, further, That they have
not been landed in any foreign territory or, if so
landed, they have been landed solely for
transshipment without having been advanced in
condition.
c. Samples of the kind, in such quantity and of
such dimensions or construction as to render
them unsalable or of no appreciable commercial
value, models not adapted for practical use and
samples of medicine properly marked
"physicians' samples not for sale".
chanrobles virtual law library
Commercial samples, except those that are not
readily and easily identifiable (e.g., precious and
semi-precious stones, cut or uncut, and jewelry
set with precious or semi-precious stones), the
value of any single importation of which does not
SUGGESTED ANSWERS
exceed ten thousand pesos, upon the giving of a

bond in an amount equal to one and one-half
times the ascertained duties, taxes and other
charges thereon, conditioned for the exportation
of said samples within six months from the date
of the acceptance of the import entry, or in
default thereof, the payment of the
corresponding duties, taxes and other charges.
If the value of any single consignment of such
commercial samples exceeds ten thousand
pesos, the importer thereof may select any
portion of same not exceeding in value ten
thousand pesos for entry under the provisions of
this subsection, and the excess of the
consignment may be entered in bond, or for
consumption, as the importer may elect.
d. Articles, including binnacles, propellers, and
the like, the character of which, as imported,
prevents their use for other purposes than the
construction, equipment, or repair of vessels
and aircraft, and life-preservers and life buoys,
related equipment and parts and accessories
thereof, which are necessary for the take-off and
SUGGESTED ANSWERS
landing and for the safe navigation of vessels

and aircraft.
e. Equipment for use in the salvage of vessels or
aircraft, upon identification and the giving of a
charges thereon, conditioned for the exportation
thereof or payment of the corresponding duties,
taxes and other charges within six months from
the date of acceptance of the import entry:
Provided, That the Collector of Customs may
extend the time for exportation or payment of
duties, taxes and other charges for a term not
exceeding six months from the expiration of the
original period.
f Cost of repairs made in foreign countries upon
vessels or aircraft documented, registered or
licensed in the Philippines, upon proof
satisfactory to the Collector of Customs (1) that
adequate facilities for such repairs are not
afforded in the Philippines, or (2) that such
vessels or aircraft, while in the regular course of
SUGGESTED ANSWERS
her voyage or flight was compelled by stress of

weather or other casualty to put into a foreign
port to make such repairs in order to secure the
safety seaworthiness or airworthiness of the
vessel or aircraft to enable her to reach her port
of destination.
g. Articles brought into the Philippines for repair,
processing or reconditioning to be re-exported
upon completion of the repair, processing or
reconditioning: Provided, That the Collector of
Customs may, in his discretion, require the
giving of a bond in an amount equal to one and
one-half times the ascertained duties, taxes and
other charges thereon, conditioned for the
exportation thereof or payment of the
corresponding duties, taxes and other charges
within six months from the date of acceptance of
the import entry.
h. Medals, badges, cups and other small articles
bestowed as trophies or prizes, or those
received or accepted as honorary distinctions.
SUGGESTED ANSWERS
i. Wearing apparel and household effects,

including those articles provided for under
subsections "j" and "k", and belonging to
residents of the Philippines returning from
abroad, which were exported from the
Philippines by such returning residents upon
their departure therefrom or during their
absence abroad, upon the identity of such
articles being established to the satisfaction of
the Collector of Customs; personal and
household effects brought into the Philippines by
returning residents, the export value of which
does not exceed five hundred pesos, solely for
personal or household use but not imported for
the account of any other person nor intended for
barter, sale or hire:Provided, That such returning
residents have not received the benefit of any
exemption hereunder within one hundred and
eighty days from and after the date of the last
exemption granted: And Provided, further, That
in the event the total export value of the
imported article or articles exceeds the amount
of five hundred pesos, such article or articles
shall be subject to duty only on the amount in
SUGGESTED ANSWERS
excess of five hundred pesos; articles of the

same kind and class purchased in foreign
countries by residents of the Philippines during
their absence abroad and accompanying them
upon their return to the Philippines, or arriving
within a reasonable time which in no case shall
exceed ninety (90) days before or after the
owner's return, upon proof satisfactory to the
Collector of Customs that same have been in
their use abroad for more than one year; articles
in any single shipment consigned to any single
person when the total export value of such
shipment does not exceed one hundred
pesos: Provided, finally, That when the export
value exceeds the amount of one hundred
pesos, only the amount in excess of one
hundred pesos shall be subject to duty.
j. Wearing apparel, articles of personal

adornment, toilet articles, portable tolls and
instruments, theatrical costumes, and similar
personal effects, accompanying travelers or
tourists in their baggage or arriving within a
reasonable time, in the discretion of the
SUGGESTED ANSWERS
Collector of Customs, before or after the

owners, in use of and necessary and
appropriate for the wear or use of such persons
according to their profession or position for the
immediate purposes of their journey and their
present comfort and convenience:Provided,
That this exemption shall not be held to apply to
articles intended for other persons or for barter,
sale or hire: Provided, further, That the Collector
of Customs may, in his discretion, require a
charges upon articles classified under this
subsection, conditioned for the exportation
taxes and other charges, within six months from
the date of acceptance of the import entry:
And Provided, finally, That the Collector of
Customs may extend the time for exportation or
payment of duties, taxes and other charges for a
term not exceeding six months from the
expiration of the original period.
k. Vehicles, horses, harness, bed and table
linen, table service, furniture, musical
SUGGESTED ANSWERS
instruments and personal effects of like

character, owned and imported by travelers or
tourists for their convenience and comfort, upon
identification and the giving of a bond in an
amount equal to one and one-half times the
ascertained duties, taxes and other charges
thereon, conditioned for the exportation thereof
or payment of the corresponding duties, taxes
and other charges within six months from the
date of acceptance of the import entry: Provided,
That the Collector of Customs may extend the
time for exportation or payment of duties, taxes
and other charges for a term not exceeding six
months from the expiration of the original
period.
l. Professional instruments and implements,
tools of trade, occupation or employment,
wearing apparel, domestic animals, and
personal and household effects, including those
of the kind and class provided for under
subsections "j" and "k" and belonging to persons
coming to settle in the Philippines, in quantities
and of the class suitable to the profession, rank
SUGGESTED ANSWERS
or position of the person importing them, for their

own use and not for barter or sale,
accompanying such persons, or arriving within a
reasonable time, in the discretion of the
Collector of Customs, before or after the arrival
of their owners, upon the production of evidence
satisfactory to the Collector of Customs that
such persons are actually coming to settle in the
Philippines, that the articles are brought from
their former place of abode, that change of
residence is bona fide, and that the privilege of
free entry under this subsection has never been
previously granted to them: Provided, That
neither merchandise of any kind, nor machinery
or other articles for use in manufacture, shall be
classified under this subsection.
m. Animals, vehicles, portable theaters, circus

and theatrical equipment, including musical
instruments, sceneries, panoramas, properties,
saddlery, wax figures and similar objects for
public entertainment, and other articles for
display in public expositions, or for exhibition or
competition for prizes, and devices for projecting
SUGGESTED ANSWERS
pictures and parts and appurtenances therefor,

upon identification and the giving of a bond in an
thereon, conditioned for exportation thereof or
payment of the corresponding duties, taxes and
other charges within six months from the date of
acceptance of the import entry: Provided, That
the Collector of Customs may extend the time
for exportation or payment of duties, taxes and
other charges for a term not exceeding six
months from the expiration of the original period;
and technical and scientific films when imported
by technical, cultural and scientific institutions,
and not to be exhibited for profit: Provided, That
if any of the said films is exhibited for profit, the
proceeds therefrom shall be subject to
confiscation, in addition to the penalty provided
under section three thousand six hundred and
ten of this Code.
n. Articles (e.g., photographic, sound recording,

electrical and other equipment, vehicles,
animals, costumes, apparel, properties,
SUGGESTED ANSWERS
supplies, unexposed motion picture films)

brought by foreign producers for making or
recording motion pictures on location in the
Philippines, upon identification and the giving of
a bond in an amount equal to one and one-half
charges thereon, conditioned for exportation
taxes and charges within six months from the
date of acceptance of the import entry.
Unexposed motion picture films allowed free
entry under bond for exportation falling within
this subsection and subsequently exposed,
whether or not developed, may be reexported
free of import duties, taxes and other charges.
Negative films, undeveloped, exposed outside
the Philippines by resident Filipino citizens or by
producing companies of Philippine registry
where the principal actors and artists employed
for the production are Filipinos, upon affidavit by
the importer that such exposed films are the
same films previously exported from the
Philippines. As used in this paragraph, the
SUGGESTED ANSWERS
terms "actors" and "artists" include the persons

working the photographic camera or other
photographic and sound recording apparatus by
means of which the film is made.
o. Costumes, regalia and other articles,
including office supplies and equipment,
imported for the official use of members and
attaches of foreign embassies, legations,
consular officers and other representatives of
foreign government: Provided, That the country
which any such person represents accords like
privileges to corresponding officials of the
Philippines.
Articles imported for the personal or family use
of the members and attaches of foreign
embassies, legations, consular officers and
other representatives of foreign
governments: Provided, That such privilege
shall be accorded under special agreements
between the Philippines and the countries which
they represent: And Provided, further, That the
privilege may be granted only upon specific
SUGGESTED ANSWERS
instructions of the Department of Finance in

each instance which will be issued only upon
request of the Department of Foreign Affairs.
p. Regalia, gems, statuary, specimens or casts

of sculptures imported for the bona fide use and
by the order of any society incorporated or
established solely for religious, philosophical,
educational, scientific or literary purposes, or for
the encouragement of the fine arts, or for the
use and by the order of any institution of
learning, public library, museum, orphan asylum
or hospital, and not for barter, sale or
hire: Provided, That the term "regalia" shall be
held to embrace only such insignia of rank or
office or emblems as may be worn upon the
person or borne in the hand during public
exercises or ceremonies of the society or
institution, and shall not include articles of
furniture or fixtures, or ordinary wearing apparel,
nor personal property of individuals.
q. Musical organs imported for the bona fide use

and by the owner of any society incorporated or
SUGGESTED ANSWERS
established for religious or educational

purposes, or, expressly for presentation thereto.
r. Scientific apparatus, instruments and utensils

specially imported for the bona fide use and by
the order of any society or institution
incorporated or established solely for
educational, scientific, or charitable purposes, or
for the encouragement of the fine arts, or for the
bona fide use and by the order of any institution
of learning in the Philippines, and not for barter,
sale or hire.
s. Philosophical, historical, economic, scientific,

technical and vocational books specially
imported for the bona fide use and by the order
of any society or institution, incorporated or
established solely for philosophical, educational,
scientific, charitable or literary purposes, or for
the encouragement of the fine arts, or for
the bona fide use of and by the order of any
institution of learning in the
Philippines: Provided, That the provisions of this
subsection shall apply to books not exceeding
SUGGESTED ANSWERS
two copies of any one work when imported by

any individual for his own use, and not for barter,
sale or hire.
Bibles, missals, prayerbooks, koran, ahadith and

other religious books of similar nature and
extracts therefrom, hymnal and hymns for
religious uses, specially prepared books, music
and other instrumental aids for the deaf, mute or
blind, and textbooks prescribed for use in any
school in the Philippines: Provided, That
complete books published in parts in periodical
form shall not be classified herein.
t. Newsprint, whenever imported by or for

publishers for the exclusive use in the
publication of newspapers.
u. Articles donated to public or private

institutions established solely for educational,
scientific, cultural, charitable, health, relief,
philanthropic or religious purposes, for free
distribution among, or exclusive use of, the
needy.
SUGGESTED ANSWERS
v. Food, clothing, house-building and sanitary-

construction materials, and medical, surgical
and other supplies for use in emergency relief
work, when imported by or directly for the
account of any victim, sufferer, refugee, survivor
or any other person affected thereby, or by or for
the account of any relief organization, not
operated for profit, for distribution among the
distressed individuals, whenever the President
shall, by proclamation, declare an emergency to
exist by reason of a state of war, pestilence,
cholera, plague, famine, drought, typhoon,
earthquake, fire, flood and similar
conditions:Provided, That the importation free of
duty of articles described in this herein
subsection shall continue only during the
existence of such emergency, or within such
limits and subject to such conditions as the
President may, by his proclamation, deem
necessary to meet the emergency.
w. Philippine articles previously exported from

the Philippines and returned without having
SUGGESTED ANSWERS
been advanced in value or improved in condition

by any process of manufacture or other means,
and upon which no drawback or bounty has
been allowed, and foreign articles when
returned after having been loaned and exported
for use temporarily abroad solely for exhibition,
examination or experimentation, for scientific or
educational purposes, and foreign containers
packed with exported Philippine articles and
returned empty if imported by or for the account
of the person or institution who exported them
from the Philippines and not for sale, subject to
identification: Provided, That any Philippine
article falling under this subsection upon which
drawback or bounty has been allowed shall,
upon re-importation thereof, be subject to a duty
under this subsection equal to the amount of
such drawback or bounty.
x. Large containers (e.g., demijohns, cylinders,

drums, casks and other similar receptacles of
metal, glass or other material) which are, in the
opinion of the Collector of Customs, of such a
character as to be readily identifiable may be
SUGGESTED ANSWERS
delivered to the importer thereof upon

identification and the giving of a bond in an
thereon, conditioned for the exportation thereof
on payment of the corresponding duties, taxes
and other charges within one year from the date
of acceptance of the import entry.
y. Supplies or ship stores listed as such for the

use of the vessel; supplies which are intended
for the reasonable requirements of the vessel in
her voyage outside the Philippines, including
such articles transferred from a bonded
warehouse in any collection district to any
vessel engaged in foreign trade, for use or
consumption of the passengers or its crew on
board such vessel as sea stores; or articles
purchased abroad for sale on board a vessel as
saloon stores or supplies: Provided, That any
surplus or excess of such ship, sea or saloon
stores arriving from foreign ports shall be
dutiable according to the corresponding heading
or subheading.
SUGGESTED ANSWERS
z. Articles and salvage from vessels recovered

after the period of two years from the date of
filing the marine protest or the time when the
vessel was wrecked or abandoned as
determined by the Collector of Customs, or such
part of Philippine vessel or her equipment,
wrecked or abandoned in Philippine waters or
elsewhere: Provided, That articles and salvage
recovered within the said period of two years
shall be dutiable according to the corresponding
heading or subheading.
aa. Articles of easy identification exported from
the Philippines for repairs abroad and
subsequently reimported: Provided, That the
cost of the repairs made to any such article shall
pay a rate of duty of twenty-five per cent ad
valorem.
bb. Coffins or urns containing human remains,
bones or ashes, and all articles for ornamenting
said coffins or urns and accompanying same;
used personal and household effects, not
merchandise, of deceased persons, upon
SUGGESTED ANSWERS
identification as such, satisfactory to the

Collector of Customs.
Inter-corporate dividends by a domestic

corporation from another domestic corporation;
Section 234 of the local Government Code;
Exemptions from Real Property Tax. - The
following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of
the Philippines or any of its political
subdivisions except when the beneficial use
thereof has been granted, for consideration
or otherwise, to a taxable person;
(b) Charitable institutions, churches,
parsonages or convents appurtenant
thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and
improvements actually, directly, and
exclusively used for religious, charitable or
educational purposes;
SUGGESTED ANSWERS
(c) All machineries and equipment that are

actually, directly and exclusively used by
local water districts and government owned
or controlled corporations engaged in the
supply and distribution of water and/or
generation and transmission of electric
power;
(d) All real property owned by duly
registered cooperatives as provided for
under R.A. No. 6938; and
(e) Machinery and equipment used for
pollution control and environmental
protection.
Except as provided herein, any
exemption from payment of real property
tax previously granted to, or presently
enjoyed by, all persons, whether natural
or juridical, including all government-
owned or controlled corporations are
hereby withdrawn upon the effectivity of
this Code.
SUGGESTED ANSWERS
Omnibus Investment code of 1987ART.

21. Tax Credit shall mean any of the
credits against taxes and/or duties equal
to those actually paid or would have
been paid to evidence which a tax credit
certificate shall be issued by the
Secretary of Finance or his
representative, or the Board, if so
delegated by the Secretary of Finance.
The tax credit certificates including those
issued by the Board pursuant to laws
repealed by this Code but without in any
way diminishing the scope of
negotiability under their laws of issue are
transferable under such conditions as
may be determined by the Board after
consultation with the Department of
Finance. The tax credit certificate shall
be used to pay taxes, duties, charges and
fees due to the National
Government: Provided, That the tax
credits issued under this Code shall not
form part of the gross income of the
grantee/transferee for income tax
SUGGESTED ANSWERS
purposes under Section 29 of the

National Internal Revenue Code and are
therefore not taxable:Provided, further,
That such tax credits shall be valid only
for a period of ten (10) years from date of
issuance.c
2. Implied Exemption- or by omission-it is

either intentional or accidental.
3. Contractual Exemptions-are those lawfully
entered into by the government in contracts
under existing laws.
Tax amnesty-The government allows

absolute forgiveness or waiver its right to
collect what is due in order to give the tax
evader who wishes to reform a chance to
become a part of the new society with a
clean slate. It is granted by the state.
Tax Condonation or Tax Remission-when

the state desists or refrains from exacting,
inflicting or enforcing something as well as
SUGGESTED ANSWERS
to restore what has already been taken. It is

in the nature of tax exemption.
6. Equitable Recoupment-states that a tax

claim for 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. This is
not applicable to cases where the taxes
involved are totally unrelated.
7. Set-off Taxes-states that taxes are not
subject to set-off or legal compensation
because the government and the
taxpayer are not mutual creditor and
debtor of each other.
Exeptions:
1. Where both the claims of the government

and the taxpayer against each other have
already become due, demandable and
fully liquidated;
SUGGESTED ANSWERS
2. When there is an actual compromise

between the taxpayer and tax officer.
8. Taxpayer suit-effected through court
proceedings could only be allowed if the act
involves a direct and illegal disbursement of
public funds derived from taxation.
Not classified as taxpayer suit:
1. Where the disbursement does not involve

funds raised by taxation.
2. To stop Commission on Election from
holding an exercise of suffrage or question
its inaction to call a special election.
9. Compromise-provides that compromises

are generally allowed and enforceable when
the subject matter thereof is not prohibited
from being compromised and the person
entering such compromise is duly
authorized to do so.
Officers allowed to compromise:

SUGGESTED ANSWERS
1. BIR Commissioner is expressly authorized

by the Tax Code to enter into compromise
for both civil and criminal liabilities subject to
certain conditions (Sec. 204, NIRC);
2. Collector of Customs is given the power to
compromise with respect to customs duties
limited to cases where legitimate authority is
specifically granted, such as in the
remission of duties (sec. 709 TCC);
3. Customs Commissioner, subject to the
approval by the Sec. of Finance, has the
power to compromise cases involving the
imposition of fines, surcharges and
forfeitures (Sec. 2316 TCC);
4. Under the Local Government Code-tax
liability, not criminal liability, is not prohibited
from being compromised (Art. 2034 & 2035,
Civil Code).
10. Power to Destroy-based on the

“ Marshall Dictum” which states that the
power to tax includes the power to destroy
because the taxpayer has no option but to
pay the tax imposed to him.
SUGGESTED ANSWERS
Power to Build-under the “ Holmes

Doctrine”, tax power should not be viewed to
destroy. The burden to pay tax is only a
means to nation building and a
consequence of taxation..
11. Situs of Taxation-it is the place of

taxation, of the state or political unit which
has jurisdiction to impose tax over its
inhabitants.
18.Explain the nature and essential

characteristics of taxes?
Nature of Taxation
a.Taxes are forced burdens, charges,
exactions, impositions or contributions
assessed in accordance with some
reasonable rule of apportionment, by
authority of sovereign state, upon the
person, property, or rights exercised,
within its jurisdiction, to provide public
revenues for the support of the
SUGGESTED ANSWERS
government, the administration of law, or

the payment of public expenses.
b.Taxes are obligations created by law.
Taxes can be imposed even without
previous agreement between the
government and the taxpayers.
c.Taxes are generally personal to the
taxpayer. Their payment should be borne
specifically by the person with tax liability.
Essential Characteristics of Taxes
1.Enforced contribution-The
imposition shall not be dependent upon
the will of the taxpayer;
2.Imposed by the legislative body-The
congress makes tax laws;
3.Proportionate in character-The
“ ability to pay principle” is the basic
rule in collecting taxes;
4.Payable in the form of money-
Money is the preferred payment of
taxes. If property is taken to satisfy tax
liability, the property is sold through
SUGGESTED ANSWERS
public auction to satisfy the tax

obligation;
5.Imposed for the purpose of raising
revenue-Taxes are the primary source
of government funds to finance it
expenditures and projects;
6.Used for a public purpose-Money is
taken from the public so it can be
returned to them in the form of public
benefits;
7.Enforced on some persons,
properties or rights-objects of taxation
are either tangible or intangible
properties including business
transactions;
8.Commonly required to be paid at
regular intervals-The dates for paying
of taxes are fixed by the law to comply
with the principle of administrative
feasibility; and
9.Imposed by the sovereign state
within its jurisdiction-the enforcement
of tax is subject to territorial jurisdiction
and international comity.
SUGGESTED ANSWERS
19.Enumerate and explain the characteristics of

taxes?
Classification of Taxes:
1. As to purpose:
a. Revenue or fiscal-These taxes are
imposed solely for the purpose of raising
revenue for the gov’ t (ex. Income Tax,
VAT and Transfer Taxes);
b. Regulatory, Special or Sumptuary-
These taxes are imposed for the purpose
of achieving some social or economic
goals having no relation to the raising of
revenue (ex. customs duties, protective
tariff on imports to control foreign trade,
and excise tax);
c. Compensatory-Taxes may be imposed
for the equitable distribution of wealth
and income in the society.
SUGGESTED ANSWERS
2. As to object or subject matter:

a. Personal, Poll or Capitation-These taxes
are fixed in amount and imposed on
persons residing within a specified
territory regardless of the amount of their
property or their occupation or business
(ex. community tax);
b.Property-These Taxes are imposed on
personal or real property based on its
proportionate value or in accordance with
some other reasonable method
apportionment (ex. real estate tax); and
c. Excise-These taxes are imposed upon
the performance of a right or act, the
enjoyment of a privilege or the
engagement in an occupation (ex.
professional tax, income tax, estate tax,
donor’ s tax and VAT). (The excise tax as
indicated here should not be confused
with excise tax (on property) imposed on
certain specified articles manufactured or
produced in or imported into the
Philippines for either domestic sale or
consumption, or for any other disposition).
SUGGESTED ANSWERS
3. As to Determination of amount:
a. Ad valorem-These taxes are fixed
amounts in proportionate to the value of
the property with respect to which the tax
is assessed. It requires the intervention of
Assessors to estimate the value of such
property before the amount due from each
taxpayer can be determined (ex. real
estate tax, custom duties and excise tax
on fermented liquors, cigars, cigarettes,
gasoline and automobiles).
b.Specific-These taxes are fixed amounts
imposed and based on some standard of
weight or measurement, head or number,
length or volume. It requires independent
assessment other than a listing or
classification of the subject to be taxed
(like excise taxes on distilled spirits,
wines, fireworks, and cinematographic
films).
4. As to Who Bears the Burden:
SUGGESTED ANSWERS
a. Direct-These taxes are non-transferable.

They are demanded from persons who
are bound by law to pay the tax. The
liability for the payment of tax as well as
the burden of the tax falls on the same
person (ex. community tax, income tax,
transfer taxes, traveler’ s tax and
corporate income tax).
b.Indirect-These taxes are transferable.
The liability for the payment of tax falls on
one person but the burden thereof can be
shifted or passed to another (are imposed
on commodities. They form part of the
purchase price of the commodity or
service and passed on to the customers
(ex. VAT, customs duties, amusement tax,
excise tax on specified goods and
percentage taxes).
5. As to Scope or Authority Collecting the

Tax:
a. National-Those taxes collected by the
National Government (ex. Estate and
Donor’ s Taxes, Income Tax, VAT, Excise
SUGGESTED ANSWERS
Tax, Customs Duties, Documentary

Stamp Taxes).
b.Local or Municipal-Those taxes collected
by the Municipal Governments (ex.
community tax, municipal license taxes,
professional tax, and real estate tax).
6. As to Rate or Graduation:
a. Proportional or flat rate-The rate of
the tax is based on a fixed percentage
of the amount of the property, receipt
or other basis to be taxed (ex. Real
Estate Tax and VAT).
b. Progressive or Graduated Rate-The

rate of the tax increases as the tax
base or bracket increases (ex. Income
Taxes, Estate Taxes and Donor’ s
Taxes).
c. Regressive Rate-The rate of tax
decreases as the tax base or bracket
increases. There is no regressive tax
in the Philippines (Regressive tax rate
is not the same with “ regressive
SUGGESTED ANSWERS
taxation system,” which exist when

there are more indirect taxes than
direct taxes putting the burden more on
the low-income sector of the population
for they buy more consumable goods
on which indirect taxes are collected).
d.Digressive Rate-A fixed rate is
imposed on a certain amount but
diminishes gradually on sums below it.
In digressive rate, the tax is arbitrary
because the increase in tax rate is not
proportionate to the increase of tax
base.
e. Mixed Tax-is a tax system that uses a
combination of the different tax rates.
20. Distinguish the following terms from tax:

a)Penalty is any sanction imposed, as a
punishment for violations of law or acts
deemed injurious. The gov’ t or private
person may imposed it.
b)Revenue-refers to all funds or income
derived by the gov’ t whether from tax or
from other sources.
SUGGESTED ANSWERS
c) Debt-is an obligation to pay or render

service for a definite future period of time
based on contract. Imprisonment is not
covered by non-payment of debt.
d)Toll-is a compensation for the use of
somebody else’ s property determined by
the cost of the improvement. It may be
imposed by private individual or entity or the
government.
e)License fee-is a contribution enforced by the
government primarily to restrain and
regulate business or organization.
f) Custom duties-are imposition on imported
goods brought into the country to protect
local industry.
g)Special Assessment-is an amount collected
by the gov’ t. for the purpose of reimbursing
itself for certain extended benefits regarding
construction of public works.
h) Subsidy-is a monetary aid directly
granted or given by the gov’ t. to an
individual or private commercial enterprises
deemed beneficial to the public. A subsidy
SUGGESTED ANSWERS
is not a tax, although a tax may have to

be imposed to pay it.
i) Tariff-is a schedule or list of rates, duties or
taxes imposed on imported goods.
j) Margin fee-is a tax on foreign exchange
designed to curb the excessive demand
upon our international reserves.
21.Describe the nature of Philippine Tax Laws?
Tax Law is that body of laws which codifies all

national tax laws including income, estate, gift,
excise, stamp and other taxes. It also includes
Republic CT 9337- VAT Reform Law and local
tax ordinances issued by the local government.
The Tax Code is an example of a special law

which prevails over a general law such as
the Civil Code or the Rules of Court.
The Philippine Tax Laws are generally civil in
nature, they are neither political nor penal in
nature. It is valid and legal that income tax
returns shall be filed and paid by the
inhabitants even if foreign invaders occupy
SUGGESTED ANSWERS
our country. They are not penal in nature

because they do not define crimes and
provide for their punishment. They are not
remedial laws. They do not include
procedures to protect rights and prevent or
rectify wrong doings.
Internal Revenue Law-includes all laws

legislated pertaining to the national
government taxes, which is embodied in the
NIRC. Such legislation is commonly called
“ revenue measures.”
Internal Revenue Taxes-are taxes imposed by

legislative body other than customs duties on
imports
The tax Code (1997 NIRC) or “ The

Comprehensive Tax Reform of the
Philippines are special laws which prevail
over general laws such as Civil Code or
Rules of Court. Accordingly, the provisions of
the NIRC on prescription are given priority
SUGGESTED ANSWERS
over provisions of the Civil Code on

prescriptions.
22.Explain the prospective application of the tax

laws?
A tax statute must be applicable and operative
only upon becoming a law. It is given retroactive
effect only if there is a clear legislative intent in
that regard. Tax Laws, however should not be
given retroactive application when it would be
harsh and oppressive against the taxpayer so as
not to violate the constitutional limitation of due
process.
23. Enumerate and explain the sources of

Philippine Tax Laws?
Sources of the Philippine Ta Laws:

1. Constitution of the Philippines-the body
of rules and rmaxims in accordance with
which he powers of sovereignty are
habitually exercised.. It is the “ Supreme or
Fundamental Law” of the Land because all
other laws must conform to it. It is the basis
SUGGESTED ANSWERS
in determining the legality of all-

governmental actions and decisions. The
state can exercise the power to tax even if
the Constitution is completely silent about
taxation.
2. Statutes;
3. Judicial Decisions;
4. Executive Orders;
5. Special Laws;
6. Tax Treaties can Conventions with
foreign countries-
7. Revenue regulations promulgated by the
DOF;
8. BIR Revenue Memorandum Circulars and
Customs Memorandum Orders;
9. BIR Rulings;
10. Local Government Code – Book II
Problem 1 – 1 TRUE OR FALSE

1. False – The inherent powers of Sovereign
State exist and are exercised even without a
Constitution. The Constitution only provides
SUGGESTED ANSWERS
general guidelines and limitations in the

exercise of inherent powers.
2. True
3. False – The benefits from taxation may or
may not be experienced by the taxpayer.
The justification to collect tax is
government’ s survival under the “ life-
blood” theory.
4. False – Not all government’ s funds come
from taxes.
5. True
6. True
7. False - Government agencies engaged in
proprietary functions are subject tax unless
stated otherwise.
8. True
9. False – Each local government shall have
the power to create its own sources of
revenues and to levy taxes.
10. False – This describes taxation as a
means.
11. True
12. True
13. True
SUGGESTED ANSWERS
14. False – Not every government unit can

exercise the power of taxation. It is
exclusively legislative in nature.
15. True
16. False – Taxation is an inherent power.
The Constitution only limits the power to tax.
It is not the source of the State’ s taxing
power.

1. True
2. False – Tax exemption is granted to
government entities with governmental
function unless stated otherwise.
3. False – This describes the levying aspect of
taxation. Tax assessment would refer to the
determination of correct taxes followed by
the collection of unpaid taxes.
4. False - Just compensation clause is a
Constitutional restriction on exercise of
Eminent Domain only. In taxation, a private
property may be taken by the Government
to satisfy the taxpayer’ s unpaid taxes.
SUGGESTED ANSWERS
5. True
6. True
7. True
8. True
9. False – Equity does not necessarily
collection of equal amounts from each
taxpayer. Tax contribution must be fair, just,
reasonable and proportionate to one’ s
ability to pay.
10. False – Tax assessment is part of

administrative function of principal
government unit concerned.
11. False – Delegated tax power to the
President involves only administrative
discretion.
12. False - These powers could not be
effectively performed without revenue.
Revenue is raised through taxation.
13. True
14. True
15. False – Penalty in the form of fines is
imposition of amount by the police power.
16. True
SUGGESTED ANSWERS

1. True
2. True
3. True
4. False – No public funds shall be
appropriated for religious purposes.
5. False - In general, bills should be signed by
the President to become law.
6. False – To grant tax-exemption, only
majority of all the members of the congress
is needed, not two-thirds.
7. True
8. False – Taxes collected by the BIR are
national taxes.
9. True
10. False – the tax evader breaks the law.
11. False – Transfers of real property
classified as capital asset is subject to
capital gain tax of 6%. The revenue and
asset must be used exclusively and directly
for educational purposes.
SUGGESTED ANSWERS
12. True
13. True
14. True
15. True
16. False – No direct double taxation
because the corporation has separate and
distinct personality from the stockholders.

1. False – Not transferrable and not
assignable.
2. False – Null and void, not binding and no
effect as law.
3. True
4. True
5. False – Tax rulings are not final
interpretations of tax laws. The court can
change them if found contrary to law.
6. True.
7. False – Interpretations made by the
executive officers are not conclusive. It can
be disregarded by the Courts if found
erroneous.
SUGGESTED ANSWERS
8. False – “ Ex post facto law” is not

applicable for tax purposes.
9. True
10. False – Nonpayment of poll tax.
11. True
12. False – Doubts must be resolved in
favor of the taxpayer.
13. True
14. False – Not applicable to totally
unrelated taxes.
15. True
Prob. Prob. Prob. Prob. Prob. Prob.

1-5 1– 6 1– 7 1– 8 1– 9 1– 10
1. B 1. B 1. D 1. C 1. C 1. D
2. B 2. A 2. B 2. B 2. C 2. C
3. B 3. C 3. A 3. C 3. D 3. C
4. C 4. C 4. A 4. C 4. D 4. B
5. A 5. B 5. B 5. A 5. B 5. C
6. D 6. A 6. A 6. B 6. D 6. B
7. C 7. B 7. C 7. D 7. B 7. C
8. A 8. C 8. C 8. D 8. C 8. B
9. D 9. A 9. B 9. B 9. D 9. D
10. D 10. D 10. D 10. B 10. B 10. C
SUGGESTED ANSWERS
11. A 11. A 11. B 10. B 10. B 10. C

12. C 12. B 10. B 10. B 10. C

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INCOME TAXATION 7th Edition (BY: VALENCIA & ROXAS) 1

As a power it refers to the inherent power of a

As a process , it passes a legislative

Executive Branch of the government through its

C) A means by which the Sovereign State

As a means, it is a way of collecting and

2) Why is taxation important?

a)It is essential for the continuous existence of

c) Without revenue, there can be no continuing

3)What are the bases of the exercise of tax

a)Principle of Necessity- it is power

The government right to tax income

climate, and peace and order to the

The citizen, on the other hand, pays taxes to

The symbolic relationship and

It is intended for general welfare.

a)It does not mean that only those who are

On the contrary, the subject of tax cannot

b)The government renders no special or

The only benefit to which the taxpayer is

4) Explain briefly the three main purposes of

1. Revenue Purpose- The primary purpose of

government in promoting the general

The fiscal policy of the government is based

a. Taxes may be increased to curve

off depression in times of declining

As a tool to protect trade relation,

a. Discriminatory duty-is designed to

3. Compensatory Purpose-A tax may be

Example- Excise tax on gasoline consumed

Taxes may be imposed for the equitable

In income taxation, higher taxes are

In estate taxation, the estate tax reduces

5)Explain briefly the nature of police ,

1. Nature of Police Power-refers to the

2. Nature of Eminent Domain-is the power of

“ Just compensation” means paying the

3. Nature of Taxation Power-is an attribute of

Includes the following:

I)Inherent power of sovereignty-taxation is as

II)Essentially a legislative function-The law

1. Subjects of taxation (persons,

When the power to tax is delegated to the

EXAMPLES OF TAXATION POWER THAT

The powers that can be delegated are

If what is delegated is tax legislation, the

III)For public purposes-it flows from the

exercise taxing powers over its citizens

V)Tax exemption of the government-is

state cannot be taxed without its consent,

VI)The strongest among the inherent

VII)Subject to Constitutional and inherent

Taxation power that cannot be delegated

a)Power to select the coverage, object or

If the powers delegated are ministerial and

They shall be allowed since they are not

International Comity-is the courteous

Example: Tax exemption of properties used by

Principle of Sovereign Equality Among

Exemption from taxation is a grant of tax

Agencies performing governmental

6)Why is taxation considered as the

7. What are the similarities among the three