TAXATION

FAR EASTERN UNIVERSITY – MANILA

PRINCIPLES OF TAXATION (2601)

I. Inherent Powers of the State

1. Police Power – power to make and implement laws for the general welfare
2. Taxation Power – power to enforce contribution to raise government funds; it is an inherent power by which the
sovereign through its law-making body raises revenue to defray the necessary expenses of the government.
3. Eminent Domain Power–power to take private property for public use with just compensation

II. Similarities and Differences

POLICE TAXATION EMINENT DOMAIN

Power to MAKE and IMPLEMENT laws Power to ENFORCE contribution to Power to TAKE private property for
for the general welfare raise government funds public use with just compensation

Plenary, comprehensive, and supreme

Broader in application Merely to take private property
BUT NOT ABSOLUTE

Property is taken or destroyed to promote Money is taken to support the

Property is taken for public use
general welfare government

Cannot be delegated, if delegated, it

Can be expressly delegated should be to the legislative department of Can be expressly delegated
the LGU (e.g. to make ordinances)

No imposition as to amount, instead, it is

Limited to the cost of regulation, license
Generally, NO limit on amount the Government which is to compensate
and other necessary expense
the property taken.

Relatively FREE from Constitutional Subject to Constitutional and Superior to and may override
limitations Inherent limitations Constitutional impairment provision

Superior to Non-Impairment Clause Inferior to Non-Impairment Clause

III. Concept of Taxation

1. Principles or Canons of a Sound Taxation System (FEA)
a. Fiscal Adequacy – sufficiency to meet government expenditures and other public needs (Government Budget
Balance). This is in consonance of the Lifeblood Theory.
a.1. Budget Deficit = Government Revenues < Government Expenditures
a.2. Budget Surplus = Government Revenues > Government Expenditures

b. Equality or Theoretical Justice – based on the taxpayer’s ability to pay; must be progressive
c. Administrative Feasibility – capability of being effectively enforced. Tax laws should not obstruct business growth and
economic development.

2. Purpose
a. Primarily, to raise revenue
b. To regulate (inflation, economic and social stability, social control, etc.)
c. To compensate the benefits provided by the government to the people

3. Characteristics (ILS)
a. Inherent power of the state.
b. Exclusively lodged with the legislative body
c. Subject to inherent and constitutional limitations

4. Nature
a. Plenary – full and complete in all respect
b. Comprehensive – it covers persons, businesses, activities, professions, rights and privileges.
c. Supreme – it is supreme ONLY insofar as the selection of the subject of taxation is concerned
d. Not Absolute – it is subject to limitations
5. Limitations in Taxation Power
a. Inherent Limitations (PENTI)
a.1. Public purpose
a.2. Exemption of the Government
a.3. Non-delegability of the power to tax
a.4. Territoriality
a.5. International Comity

b. Constitutional Limitations
b.1. Due process clause
b.2. Equal protection clause
b.3. Freedom of speech and of the press
b.4. Non-impairment of contracts
b.5. Rule requiring that appropriations, revenue and tariff bills shall originate exclusively from the House
of Represenatatives (Congress)
26. Principles of taxation Page 1 of 13
 b.6. Uniformity, equality, and progressivity of taxation
b.7. Tax exemption of the properties actually, directly and exclusively used for religious, charitable and
educational purposes.
b.8. Voting requirement (2/3) in connection with the legislative grant of tax exemption
b.9. Non-impairment of the jurisdiction of the Supreme Court in tax cases
b.10. Exemption from taxes of the revenues and assets of educational institutions, including grants,
endowments, donations and contributions
b.11. Power of the Presidentto veto any particular item (item veto) or items in an appropriation, revenue
or tariff bill (pocket veto).
b.12. Necessity of an appropriation before money may be paid out of the public treasury
b.13. Non-appropriation of public money or property for the use, benefit or support of any sect, church
or system of religion

IV. Double Taxation

- It is taxing the same property twice when it should be taxed once.

1. Direct Duplicate Taxation – double taxation in the objectionable or prohibited sense; not allowed in the Philippines. This
constitutes a violation of substantive due process.
Elements:
i. Same property or subject matter is taxed twice
ii. Same purpose
iii. Same taxing authority
iv. Same jurisdiction
v. Same taxing period
vi. Same kind or character of tax
2. Indirect Duplicate Taxation – legal/permissible. The absence of one or more of the above-mentioned elements.

V. Theories of Taxation
1. Necessity Theory (Theory of Taxation) – the power to tax is an attribute of sovereignty emanating from necessity
(national defense, health, education, public facilities, etc.).
2. Lifeblood Theory (Importance of Taxation) – without taxes, the government would be paralyzed for lack of the motive
power to activate and operate it.
3. Benefits – Protection Theory/ Reciprocal Duties (Basis of Taxation) – there is a symbiotic relationship between the
State and the citizens whereby in exchange of the protection and benefits that the citizens received from the State, taxes
are paid.

VI. Aspects of Taxation (shared by both executive and legislative body)

1. Levy – the imposition or making of tax laws
2. Assessment – similar to audit
3. Collection – enforcement of tax
Note:
a. Levy is often called as tax legislation.
b. Assessment and collection are collectively termed as tax administration.
c. Levy and assessment comprise the impact of taxation, while tax collection comprises the incidence of taxation.
d. An impact of taxation is a point on which tax is originally imposed.
e. An incident of taxation is a point on which the tax burden finally rests or settles down.

VII.Doctrines of Taxation
1. May the court interfere with tax legislation?
Answer: As long as the legislature, in imposing a tax, does not violate applicable constitutional limitations or restrictions, it
is not within the province of the courts to inquire into the wisdom or policy of the exaction, the motives behind it, the
amount to be raised or the persons, property or other privileges to be taxed. The court’s power is limited only to the
application and interpretation of the law.

2. Is the doctrine of equitable recoupment followed in the Philippines?

Answer: No. A tax presently being assessed against a taxpayer may not be recouped or set-off against an overpaid tax, the
refund of which is already barred by prescription.

3. May a tax be subject of compensation or set-off?

Answer: Generally, no. Taxes cannot be the subject of compensation or set-off. Taxes are not contractual obligations but
one arising out of duty to the government.

4. What is a taxpayer suit?

Answer: It is a case fied by a bona fide taxpayer impugning the validity, legality or constitutionality of a tax law or its
implementation.

5. What is the nature of our tax laws?

Answer: Internal revenue laws are not political in nature. In times of war, they are deemed to be the laws of the occupied
territory and not of the occupying enemy. Tax laws are civil and not penal in nature, although there are penalties provided
for their violation.

26. Principles of taxation Page 2 of 13

 6. A tax statute is construed against the government, liberally in favor of the taxpayer; while tax exemptions are construed
against the taxpayer and liberally in favor of the government.

7. Tax laws are special laws which prevail over a general law.

8. Tax laws operate prospectively unless the purpose of the legislature is to give a retrospective effect.

VIII. Concept of a Tax

1. It is an enforced proportional contribution from the persons and property levied by the law-making body of the State.

2. Taxation vs. Tax

a. Taxation is the process or means of imposing and enforcing contributions.
b. Tax is the enforced contribution, itself, which generally payable in money.

3. Characteristics of Taxes
a. Forced charge
b. Generally payable in money
c. Exclusively levied by the legislative body
d. Assessed in accordance with some reasonable rule of apportionment (ability-to-pay principle)
e. Imposed by the State within its jurisdiction
f. Levied for public purpose

4. Classification of Taxes
a. As to subject matter:
i. Personal tax – imposed upon persons of certain class with fixed amount (e.g. Community tax or poll tax)
ii. Property tax – assessed on property of certain class (e.g. Real Property tax)
iii. Excise tax – imposed on the exercise of privilege (e.g. income tax, donor’s tax, estate tax, etc.)
iv. Custom duties – charged upon the commodities being imported into or exported from a country (e.g. tariffs)

b. As to burden:
i. Direct tax – both incidence or liability for the payment of tax as well as the impact or burden of the tax falls on the
same person (e.g. income tax)
ii. Indirect tax – the incidence or liability for the payment of tax falls on one person but the impact or burden of the
tax falls on another person (e.g. VAT)

c. As to purpose
i. General tax – levied for the general or ordinary purposes of the government
ii. Special tax – levied for special purpose

d. As to measure of application
i. Specific tax – imposes a specific sum by the head or number or by some standard of weight or measurement (e.g.
excise tax on cigarettes)
ii. Ad Valorem tax – tax upon the value of the article or thing subject to taxation (e.g. VAT of 12% regardless of the
value of sales)

e. As to taxing authority
i. National tax – levied by the National Government (e.g. income tax, business taxes, transfer taxes)
ii. Local tax – imposed by the Local Government (e.g. Poll tax, real property taxes)

f. As to rate
i. Progressive tax – rate or amount of tax increases as the amount of income increases (e.g.
normal/tabular/schedular tax of 5% - 32%, tabular tax for donor’s tax and estate tax)
ii. Regressive tax – rate dcreases as the amount of income to be taxed increases (not applicable in the Philippines)
iii. Proportionate tax – based on fixed proportion or rate of the value of the property assessed (e.g. VAT of 12%)

5. Impositions Other Than Tax

a. Toll – charged for the cost and maintenance of the property used
b. Penalty – punishment for the commission of a crime
c. Compromise Penalty – amount collected in lieu of criminal prosecution in cases of tax violation
d. Special Assessment – levied on land based entirely on the benefit accruing thereon as a result of the improvements
or public works undertaken by the government within the vicinity
e. License or Fee – regulatory imposition in the exercise of the police power
f. Margin Fee – exaction designed to stabilize the currency
g. Debt – a sum of money due upon contract or one which is evidenced by judgment
h. Subsidy – a legislative grant of money in aid of a private enterprise deemed to promote the public welfare
i. Custom Duties and fees – duties charged upon commodities on their being transported into or exported from the
country.
j. Impost – in general sense, it signifies any tax, tribute or duty; in limited sense, it means a duty on imported goods
and merchandise
k. Tithe– contributions given to a church or sect
l. Tribute – imposed by a monarch.

26. Principles of taxation Page 3 of 13

IX. Escape from Taxation
1. Tax Avoidance (Tax Planning) – legal and permissible means
a. Shifting– the process by which the tax burden is transferred from the statutory taxpayer to another without violating
the law.
b. Transformation–the manufacturer or producer pays the tax imposed upon him and endeavors to recoup himself by
improving his process of production, thereby turning out his units of production at a lower cost.
c. Capitalization – a mere increase in the value of the property is not an incoem but merely an unrealized increase in
capital.
d. Tax-exemption – a grant of immunity to a particular persons or corporations from the obligation to pay taxes
2. Tax Evasion (Tax Dodging) – the use of illegal or fraudulent means to defeat or lessen the payment of tax

X. Tax Laws, BIR Rulings and Revenue Regulations

1. Tax laws
- A tax law is a set of rules that provide means for the State to raise revenues.
- All revenue bills must originatefrom the House of Representatives (Congress). After passing 3 readings by a majority
vote in technical committee, it shall be elevated to the Senate which needs to pass the same 3 readings. The
President’s signature is necessary so that the bill becomes a law.
- In case of doubt, tax statutes are construed against the Government in favor of the taxpayer.
- In case of doubt, tax exemptions are construed against the taxpayer in favor of the Government.

2. Revenue Regulations
- These are interpretations of an administrative body (BIR) intended to clarify or explain the tax laws and carry into
effect its general provisions by providing details of administration and procedure.
- It is promulgated (made) by the Secretary of Finance, upon the recommendation of the Commissioner of Internal
Revenue (quasi-legislative function).
- It must be reasonable, within the authority conferred, not contrary to laws, must be published and prospective in
application.

3. BIR Rulings
- The BIR issues a general interpretation of tax laws usually upon a requrest of a taxpayer to clarify a provision of law.
-

Legislation of Tax Laws

Under the 1987 Philippine Constitution, all revenue and tariff bills shall originate from the House of Representative. A revenue
bill is one that levies taxes and raises funds for the government, while a tariff bill specifies the rates or duties to be imposed on
imported articles.

a. Concurrence by a Majority of all Concurrence by a Majority of all Members of the Congress for the Passage of Law
Members of the Congress to Pass Tax Granting Tax Exemptions [Art. VI, Sec 28 (4)];
Exemption
b. Appropriation, Revenue or Tariff Bills All Appropriation, Revenue or Tariff Bills Shall Originate Exclusively from the House of
Originate from House of Representatives. (Art. VI, Sec. 24)
Representatives
c. Senate May Propose or Concur The senate may Propose or Concur with Amendments (Art. VI, Sec. 24)
d. Conference Committee The committee will harmonize the bill introduced by the House Representative and a
parallel bill introduced in the Senate.
e. President’s Approval The harmonized bill signed by the president becomes law.
f. President’s Veto The president shall have the power to veto any particular item or items in an
appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to
which he does not object. [Art. VI, Sec. 27 (2)]
g. Congress May Authorize President to The congress may Authorize the President to Fix Tariff Rates, Import and Export
Fix Certain Items Quotas, Tonnage and Wharfage Dues and other Duties or Imposts [Art. VI, Sec. 28
(2)];
e. Congress May Provide Incentives Congress May Provide for Incentives Including Tax Deductions to Encourage Private
Participation in Programs of Basic and Applied Scientific Research (Art. XIV, Sec. 11).

Impact of Taxes in Nation-Building

Taxes are use to support government in nation-building. It is levied for public purpose such as:
1. Construction of roads and bridges
2. Pensions to retired government employees and their widows and children.
3. Assistance to victims of calamities.
4. Social welfare and health projects.

Organization of the BIR, BOC, LGU, BOI and PEZA

Bureau of Internal BIR- is an administrative agency which is involved in the administration and collection of national taxes. It
Revenue (BIR) is under the supervision and control of the Department of Finance. The power and duties of BIR are the
following:
a. Assessment and collection of all national internal revenue taxes, fees and charges.
b. Enforcement of all forfeitures, penalties and fines connected therewith.
c. Execution of judgments in all cases decided in its favour by the Court of Tax Appeals (CTA) and the
ordinary courts; and
d. Give effect to and administer the supervisory and police power conferred to it by the National Internal
Revenue Code (NIRC) or other laws.

26. Principles of taxation Page 4 of 13

 Power of the Commissioner of Internal Revenue
The Commissioner has been given broad powers in order to enforce tax law and collect the needed revenue.
These include the following:
1. To interpret tax laws and to decide tax cases.
2. To obtain information and to summon, examine and take testimony of persons.
3. To make assessments and prescribe additional requirements for tax administration and enforcement.
Bureau of Customs BOC- is a Philippine government agency under the Department of Finance. It is responsible for regulating
(BOC) and facilitating trade, assessment and collecting import duties and taxes, combating illegal trade and other
form of customs fraud, and devising and managing customs management systems for trade facilitation.
Local Government LGU- includes provinces, cities, municipalities and barangays. They have the power to create its own
Tax Collecting sources of revenue and to levy taxes, fees and charges, consistent with the basic policy of local autonomy.
Units Such taxes, fees, and charges shall accrue exclusively to the local government units.
The Board of BOI – an attached agency of Department of Trade and Industry (DTI), is the lead government agency
Investment (BOI) responsible for the promotion of investments in the Philippines. BOI assists Filipino and foreign investors to
venture and prosper in desirable areas of economic activities. Investors are welcome to experience the
potentials of the booming Philippines industry sectors.
Philippine PEZA – an attached agency of Department of Trade and Industry (DTI). It is the Philippine government
Economic Zone agency tasked to promoted investments, extend assistance, register, grant incentives to and facilitate the
Authority (PEZA) business operations of investors in export oriented manufacturing and service facilities inside selected areas
throughout the country proclaimed by the President of the Philippines as PEZA Special Economic Zones. It
oversees and administers incentives to developers/operators of and locators in world-class ready to occupy
environment-friendly secured and competitively price Special Economic Zones.

I. Power to Interpret Tax Laws and to Decide Tax Cases (Sec. 4)

A. The power to interpret the provisions of the Tax Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance;
B. B. The power to decide disputed assessments, refunds of internal revenue, taxes, fees and other charges, penalties
imposed in relation thereto, or other matters arising under the Tax Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals

II. Power to obtain information and to Summon, Examine, and Take Testimony of Persons (Sec. 5)
In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the
liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance,
the Commissioner is authorized:

A. To examine any book, paper, record, or data which may be relevant or material to such inquiry
B. To obtain on a regular basis any information such as, but not limited to, costs and volume of production, receipts
or sales and gross income of taxpayers, and the names, addresses, and financial statements of corporations and
other companies and their members;
TRAIN LAW
Additional provision: The Cooperative Development Authority shall submit a report on tax incentives
availed by cooperatives to the BIR and DOF. These information shall be included in the Tax Incentives
Management and Transparency Act (TIMTA) database.
C. To summon persons to appear before the Commissioner or his duly authorized representative at a time and place
specified in the summons and to produce books, papers, records or other data and to give testimony;
D. To take such testimony of the persons concerned, under oath, as may be relevant or material to such inquiry;
E. To cause revenue officers and employees to make a canvass from time to time of any revenue district or region
and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or possession of any object with respect to which a tax is
imposed.

III. Power to Make Assessments and Prescribe Additional requirements for Tax Administration and Enforcement
(Sec. 6)

A. Examination of Returns and Determination of Tax Due

1.) After a return has been filed or when there is failure to file a return, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer and the assessment of the correct amount of
tax, notwithstanding any law requiring the prior authorization of any government agency or
instrumentality: Provided, however, that failure to file a return shall not prevent the Commissioner from
authorizing the examination of any taxpayer;
2.) The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or
from his duly authorized representative;
3.) Any return, statement or declaration filed in any office authorized to receive the same shall not be withdrawn;
Provided, That within three (3) years from the date of such filing, the same may be modified /changed or
amended; Provided, further, That no notice or audit or investigation of such return, statement or declaration
has, in the meantime, been actually served to the taxpayer.

B. Failure to Submit Required Returns, Statements, Reports and other Documents

26. Principles of taxation Page 5 of 13

 1.) When a report required by law as a basis for assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any
such report is false, incomplete, or erroneous, the Commissioner shall assess the proper tax on the best
evidence obtainable;
2.) In case a person fails to file a required return or other document at the time prescribed by law, or wilfully or
from his own knowledge and from such information as he can obtain through testimony or otherwise, which
shall be prima facie correct and sufficient for all legal purposes.

C. Authority to Conduct Inventory-Taking, Surveillance and to Prescribe Presumptive Gross Sales and
Receipts
1.) The Commissioner may, at any time during the taxable year, order inventory-taking of goods of any taxpayer
as a basis for determining his internal revenue tax liabilities, or may place the business operations of any
person, natural or juridical, under observation or surveillance if there is reason to believe that such person is
not declaring his correct income, sales or receipts for internal revenue tax purposes;
2.) The findings may be used as a basis for assessing the taxes for the other months or quarters of the same or
different taxable years and such assessment shall be deemed prima facie correct;
3.) When it is found that a person has failed to issue receipts and invoices in violation of the requirements of the
Tax Code, or when there is reason to believe that the books of accounts and other records do not correctly
reflect the declarations made or to be made in a return required to be filed under the provisions of the Tax
Code, the Commissioner, after taking into account the sales, receipts, income or other taxable base of other
persons engaged in similar business under similar situations or circumstances or after considering other
relevant information, may prescribe a minimum amount of such gross receipts, sales and taxable base, and
such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax
liabilities of such persons.

D. Authority to Terminate Taxable Period

1.) The Commissioner shall declare the period of a taxpayer terminated at any time when it shall come to his
knowledge:
a. That a person is retiring from business subject to tax, or
b. Is intending to leave the Philippines or remove his property therefrom or to hide or conceal his property,
or
c. Is performing any act tending to obstruct the proceedings for the collection of the tax for the past or
current quarter or year or to render the same totally or partly ineffective unless such proceedings are
begun immediately.
2.) The Commissioner shall send the taxpayer a notice of his decision to terminate together with a request for
immediate payment of the tax for the period so declared terminated and the tax for the preceding year or
quarter, or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and
shall be subject to all penalties prescribed, unless paid within the time fixed in the demand made by the
Commissioner.

E. Authority to Prescribe Real Property Values

1.) The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon
consultation with competent appraisers both from the private and public sectors, determine the fair market
value of real properties located in each zone or area.

In exercising this authority, the following shall be observed:

1.Mandatory consultation with both private and public competent appraisers before division of the Philippines into
zones.
2.Prior notice to affected taxpayers before the determination of fair market values of the real properties.
3.Publication or posting of adjustments in zonal value in a newspaper of general circulation in the province, city or
municipality concerned.
4.The basis of valuation and records of consultation shall be public records open to the inquiry of any taxpayer.
5.Zonal valuations shall be automatically adjusted once every three years

2.) For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher
of:
a. the fair market value as determined by the Commissioner; or
b. the fair market value as shown in the schedule of values of the Provincial and City Assessors.

F. Authority to Inquire into Bank Deposit Accounts

1.) Notwithstanding any contrary provisions of R.A. No. 1405 and other general or special laws, the Commissioner
is hereby authorized to inquire into bank deposits of:
a. decedent to determine his gross estate; and
b. any taxpayer who has filed an application for compromise of his tax liability by reason of financial
incapacity to pay his liability.
2.) In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his
financial position demonstrates a clear inability to pay the tax assessed, his application shall not be considered
unless and until he waives in writing his privilege under R.A. No. 1405 or under other general or special laws,

26. Principles of taxation Page 6 of 13

 and such waiver shall constitute and authority of the Commissioner to inquire into the bank deposits of the
taxpayer.

G. Authority to Accredit and Register Tax Agents

1.) The Commissioner shall accredit and register, based on their professional competence, integrity and moral
fitness, individuals and general professional partnerships and their representatives who prepare and file tax
returns, statements, reports, protests, and other papers with, or who appear before the Bureau for taxpayers;
2.) Individuals and general professional partnerships and their representatives who are denied accreditation by the
Commissioner and/or the national and regional accreditation boards may appeal such denial to the Secretary
of Finance, who shall rule on the Appeal within sixty (60) days from receipt of such appeal;
3.) Failure of the Secretary of Finance to rule on the appeal within the prescribed period shall be deemed as
approval of the application for accreditation of the appellant.

H. Authority to Prescribe Additional Procedural or Documentary Requirements

1.) The Commissioner may prescribe the manner of compliance with any documentary or procedural requirement
in connection with the submission or preparation of financial statements accompanying the tax returns.

IV. Authority of the Commissioner to Delegate Power (Sec. 7)

A. The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any
or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and
restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner;
B. The following powers of the Commissioner shall not be delegated;
1.) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
2.) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
3.) The power to compromise or abate any tax liability;
4.) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax
are produced or kept.

V. Organization of the Bureau of Internal Revenue

Powers and Duties of The Bureau of Internal Revenue shall be under the supervision and control of the Department of
the Bureau of Internal Finance and its powers and duties shall comprehend the assessment and collection of all national
Revenue internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and
fines connected therewith, including the execution of judgments in all cases decided in its favor by
the Court of Tax Appeals
Chief Officials of the The Bureau of Internal Revenue shall have a chief to be known as:
Bureau of Internal a. Commissioner of Internal Revenue, hereinafter referred to as the Commissioner, and
Revenue b. Four deputy commissioner
1. Legal and inspection group
2. Information systems group
3. Operations group
4. Resources management group

VI. Organization of the Bureau of Customs

Chief Officials of the The Bureau of Customs shall have:
Bureau of Customs
a. one chief and
b. four assistant chiefs, to be known respectively as the Commissioner of Customs.
Deputy Commissioners The Bureau of Customs shall have five (5) Deputy Commissioners, each one to head:

a. Customs Revenue Collection Monitoring Group

b. Customs Assessment and Operations Coordinating Group
c. Intelligence and Enforcement Group
d. Internal Administration Group
e. Management System Technology Group
Appointment of the The Commissioner and the Deputy Commissioner of Customs shall be appointed by the President of
Commissioner and the the Philippines.
Deputy Commissioner

VII.Local Tax Collecting Units

Scope of local taxes The provision under Local Government Taxation shall govern the exercise by provinces, cities,
municipalities, and Barangays of their taxing and other revenue-raising powers.

Local Taxing Authority The power to impose a tax, fee, or charge or to generate revenue under this Code shall be exercised
by the Sanggunian of the local government unit concerned through an appropriate ordinance.

Venue of Filling of All local taxes, fees, and charges shall be collected by the provincial, city, municipal, or Barangay
Return treasurer, or their duly authorized deputies.

Time of filling of tax Unless otherwise provided in this Code, all local taxes, fees, and charges shall be paid within the first

26. Principles of taxation Page 7 of 13

return twenty (20) days of January or of each subsequent quarter, as the case may be.

The Sanggunian concerned may, for a justifiable reason or cause, extend the time of payment of
such taxes, fees, or charges without surcharges or penalties, but only for a period not exceeding six
(6) months.

VIII. Organization of Board of Investments

Composition of the Board The Board of Investments shall be composed of seven (7) governors:

a. The Secretary of Trade and Industry,

b. three (3) Undersecretaries of Trade and Industry to be chosen by the President; and
c. three (3) representatives from other government agencies and the private sector.

The Secretary of Trade and Industry shall be concurrently Chairman of the Board and the
Undersecretary of the Department of Trade and Industry for Industry and Investments
shall be concurrently the Vice-Chairman of the Board and its Managing Head.

The three (3) representatives from the other government agencies and the private sector
shall be appointed by the President for a term of four (4) years.

Upon the expiration of his term, a governor shall serve as such until his successor shall
have been appointed and qualified.

No vacancy shall be filled except for the unexpired portion of any term, and that no one
may be designated to be governor of the Board in an acting capacity but all appointments
shall be ad interim of permanent.

IX. Philippine Economic Zone Authority

Purpose of Creation Philippine Economic Zone Authority (PEZA) is a government agency in the
Philippines attached to the Department of Trade and Industry created to help promote
investments in the export-oriented manufacturing industry into the country by assisting
investors in registering and facilitating their business operations and providing tax
incentives.

PEZA also assists investors who locate in service facilities inside selected areas in the
country (areas are called PEZA Special Economic Zones) which are usually business
process outsourcing and knowledge process outsourcing firms.

Other activities also eligible for PEZA registration and incentives include establishment
and operation within special economic zones for tourism, medical tourism, logistics and
warehousing services, economic zone development and operation and facilities providers

Composition of PEZA Board PEZA was enacted under Republic Act 7916 and was passed by the House of
Representatives and the Senate and approved by former Philippine President Fidel V.
Ramos on the 21st of February, 1995.

As provided in the Special Economic Zone Act, the PEZA Board is:

a. chaired by the Secretary of the Department of Trade and Industry.

b. Vice-Chair is the Director General (Chief Executive Officer) of PEZA.
c. Members of the Board are Undersecretaries representing nine(9) key
government Departments, to ensure efficient coordination between PEZA and
their respective Departments on matters pertaining to investors’ operations
inside the Special Economic Zones.
Incentives Offered by PEZA PEZA offers both fiscal and non-fiscal incentives as well as ready-to-occupy business
locations in world-class economic zones and IT parks or buildings.

Fiscal incentives include:

a. Income tax holiday for a certain number of years, which translates to 100%
from corporate income tax;
b. Tax and duty-free importation of raw materials, capital equipment, machineries
and spare parts;
c. exemption from wharfage dues and export tax, impost or fees;
d. VAT zero-rating of local purchases subject to compliance with BIR and PEZA
requirements;
e. Exemption from payment of any and all local government imposts, fees, licenses
or taxes; and
f. Exemption from expanded withholding tax.

Non-fiscal incentives, on the other hand include:

a. simplified import-export procedures, extended visa-facilitation assistance to

26. Principles of taxation Page 8 of 13

 foreign nationals and
b. spouses and dependents; special visa multiple entry privileges;
c. and more.

MULTIPLE CHOICE

1. They exist independent of the Constitution being fundamental powers of the State, except:
a. Taxation c. Police Power
b. Eminent Domain d. People Power

2. The process or means by which the sovereign, through its law-making body raises income to defray the necessary expenses of
the government:
a. Toll c. Taxation
b. License Fee d. Assessment

3. Which of the following inherent powers of the government is inferior to the non-impairment clause of the constitution?
a. Taxation c. Eminent Domain
b. Police Power d. A and C

4. Which of the inherent powers may be exercised even by public service corporations and public entities?
a. Taxation c. Police Power
b. Eminent Domain d. A and B

5. The power to acquire private property upon payment of just compensation for public purpose:
a. Taxation c. Eminent Domain
b. Police Power d. Power of recall

6. Which of the following may not raise money for the government?
a. Power of Taxation
b. Police Power
c. Power of Eminent Domain
d. Privatization of government’s capital assets

7. The power to regulate liberty and property to promote the general welfare:
a. Taxation c. Eminent Domain
b. Police Power d. Power of recall

8. The power to demand proportionate contributions from persons and property to defray the necessary expenses of the
government:
a. Taxation c. Eminent Domain
b. Police Power d. Power of recall

9. Which statement is wrong?

a. The power of taxation is an inherent power of the State;
b. The power of taxation cannot be delegated as a rule;
c. License Fees may discriminate against not-useful activities;
d. Eminent domain can be made to apply to all properties within the State.

10. Which statement refers to police power as distinguished from taxation?

a. It can only be imposed on specific property or properties.
b. The amount imposed depends on whether the activity is useful or not.
c. It involves the taking of property by the government.
d. The amount imposed has no limit.

11. Police power as distinguished from eminent domain.

a. Just compensation is received by the owner of the property.
b. May be exercised by private individuals.
c. Superior to impairment clause of the institution.
d. Property is taken by the government for public purposes.

12. The following are common to the inherent power of taxation, power of eminent domain and police power, except for which of the
following?
a. They are necessary attributes of sovereignty.
b. They interfere with public rights and property.
c. They affect all persons or the public.
d. They are legislative in implementation.

13. 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 the governmental needs

14. Which of the following is not a secondary purpose of taxation?

a. To serve as key instrument of social control
b. To effect a more equitable distribution of wealth among people
c. To achieve social and economic stability
d. To raise revenue to defray the necessary expenses of the government

26. Principles of taxation Page 9 of 13

15. Which of the following is not a characteristic of the State’s power to tax?
a. It is inherent in sovereignty.
b. It is legislative in character.
c. It is based on the ability to pay.
d. It is subject to constitutional and inherent limitations.

16. Statement 1: The power of taxation is inherent in sovereignty being essential to the existence of every government. Hence,
even if not mentioned in the Constitution, the State can still exercise the power.

Statement 2: Taxation is essentially a legislative function. Even in the absence of any constitutional provision, taxation power falls
to Congress as part of the general power of lawmaking.
a. Both statements are false c. Both statements are true
b. Only statement 1 is false d. Only statement 1 is true

17. The power of taxation proceeds upon what theory?

a. Government is a necessity theory c. Benefits received theory
b. Ability to pay d. Severance Test

18. That taxation is based on the principle of reciprocal duties of protection and support between the State and its inhabitants.
a. Government is a necessity theory c. Benefits received theory
b. Ability to pay d. Severance Test

19. It is an enforced contribution levied by the State by virtue of the sovereignty on persons and property within its jurisdiction for
the support of the government and all public needs.
a. Tax c. Special Assessment
b. Toll d. License

20. One of the following is not a characteristic or an element of tax:

a. It is levied by the legislature
b. It is proportionate in character
c. It is payable in money or in kind
d. It is an enforced contribution

21. One of the characteristics of tax is that:

a. It is generally based on contract
b. It is generally assignable
c. It is generally payable in money
d. Answer not given

22. All of the following, except one, are basic principles of a sound tax system:
a. Fiscal Adequacy
b. Theoretical Justice
c. Administrative Feasibility
d. Inherent in Sovereignty

23. Under this basic principle of a sound tax system, the government should not incur a deficit:
a. Theoretical justice
b. Fiscal Adequacy
c. Administrative Feasibility
d. None of the above

24. The basic principle of a sound tax system, where, “Taxes must be based on the taxpayer’s ability to pay” is called:
a. Equality in Taxation
b. Theoretical Justice
c. Ability to pay Theory
d. Equity in Taxation

25. These are part and parcel of the power of taxation and originate from the very nature of taxation.
a. Inherent Limitations c. Canons of Taxation
b. Constitutional Limitations d. None of the choices

26. The following constitute double taxation except one:

a. Both taxes are imposed in the same amount
b. Both taxes are levied for the same purpose
c. Both taxes are imposed by the same taxing authority
d. Both taxes are imposed upon the same person

27. A tax must be imposed for a public purpose. Which of the following is not a public purpose?
a. National Defense c. Improvement of Sugar Industry
b. Public Education d. None of the choices

28. A fundamental rule in taxation is that “the property of one country may not be taxed by another country”. This is known as:
a. International Law c. International Comity
b. Reciprocity d. International Inhibition

29. Being legislative in nature, the power to tax may not be delegated, except:
a. To local governments or political subdivisions
b. When allowed by the Constitution

26. Principles of taxation Page 10 of 13

c. When delegation relates merely to administrative implementation that may call for some degree of discretionary powers under a
set of sufficient standards expressed by law or implied from the policy and purpose of the Act
d. All of the choices

30. “Government agencies performing governmental functions are exempt from tax unless expressly taxed while those performing
propriety functions are subject to tax unless expressly exempted” refers to:
a. The tax imposed should be for public purpose
b. There should be no improper delegation of the taxing power
c. The power to tax is limited to the territorial jurisdiction of the taxing government
d. Exemption of government entities from taxation

31. This stems from the principle that we pay taxes for the protection and services provided by the taxing authority which could not
be provided outside the territorial boundaries of the taxing state.
a. The tax imposed should be for public purpose
b. There should be no improper delegation of the taxing power
c. The power to tax is limited to the territorial jurisdiction of the taxing government
d. Exemption of government entities from taxation

32. These are restrictions imposed by the Constitution.

a. Inherent Limitations
b. Basic principles of sound tax system
c. Constitutional Limitations
d. None of the choices

33. No law granting any tax exemption shall be passed without the concurrence of
a. Majority of all member of the Congress
b. ¾ vote of all members of the Congress
c. 2/3 vote of all member of the Congress
d. Unanimous vote of all members of the congress

34. Compliance with procedural requirements must be followed strictly to avoid collision course between the state’s power to tax
and the individual’s recognized rights.
a. Due process of law
b. Non-infringement of religious freedom
c. Equality in Taxation
d. Non-impairment of obligations and contracts

35. No person shall be imprisoned for non-payment of this.

a. Property Tax
b. Poll Tax
c. Excise Tax
d. Income Tax

36. Which statement is WRONG? A revenue bill:

a. Must originate from the House of Representatives and on the same bill the Senate may propose amendments.
b. May originate from the Senate and on which same bill the House of Representatives may propose amendments.
c. May have a House version and a Senate version approved separately.
d. May be recommended by the President to Congress.

37. This requires that all subjects or objects of taxation, similarly situated are to be treated alike or put on equal footing both in
privileges and liabilities.
a. Due process c. Progressive Taxation
b. Uniformity d. None of the Choices

38. The basis or test of exemption of real properties owned by religious, or charitable entities from real property taxes is:
a. Use of the real 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

39. Which of the following statements is not correct?

a. Taxes may be imposed to raise revenue or provide disincentives to certain activities within the state.
b. The state can have the power of taxation even if the Constitution does not expressly give it the power to tax.
c. For the exercise of the power of taxation, the state can tax anything at anytime.
d. The power of taxation in the Philippine Constitution are grants of power and not limitations on taxing powers.

40. 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 elapsed
d. That he will derive no benefit from the tax

41. Which of the following has no power of taxation?

a. Provinces c. Barangays
b. Cities d. Barrios

42. One of the characteristics of our internal revenue laws is that they are:
a. Political in nature

26. Principles of taxation Page 11 of 13

b. Penal in nature
c. Generally prospective in operation although the tax statute may nevertheless operate retrospectively, provided it is clearly the
legislative intent.
d. Criminal in nature

43. In case of conflict between tax laws and generally accepted accounting principle (GAAP):
a. Both tax laws and GAAP shall be enforced
b. GAAP shall prevail over tax laws
c. Tax laws shall prevail over GAAP
d. The issue shall be resolved by the court

44. All of the following, except one, are sources of tax laws:
a. Legislations, tax treaties and tax ordinances
b. Judicial decisions
c. Opinion of Authors
d. Administrative rules and regulations

45. Which of the following is not an example of Excise Tax?

a. Transfer Tax c. Sales Tax
b. Real Property Tax d. Income Tax

46. One is not a Direct Tax

a. Immigration Tax c. Transfer Tax
b. Income Tax d. Value-added Tax

47. A tax in business is:

a. Direct Tax
b. Property Tax
c. Indirect Tax
d. None of the choices

48. Guiller is a mining operator. His mineral lands are not covered by any lease contract. The tax Guiller has to pay based on the
actual value of the gross output or mineral products extracted is
a. Mining Tax c. Rental
b. Royalties d. Ad Valorem Tax

49. Tax levied for particular or specific purpose irrespective of whether revenue is actually raised or not
a. Revenue Tax c. Specific Tax
b. Regulatory Tax d. Ad Valorem Tax

50. Taxes imposed by a political subdivision of the state and is effective only within the territorial boundaries thereof
a. National Tax c. Progressive Tax
b. Local tax d. Regressive Tax

51. Which of the following taxes is always proportional?

a. Value-added Tax c. Estate tax
b. Income Tax d. Donor’s Tax

52. Tax is distinguished from License Fee

a. Non-payment does not necessarily render the business illegal
b. A regulatory measure
c. Imposed in the exercise of Police Power
d. Limited to cover cost of regulation

53. The distinction of a tax from permit or license fee is that a tax is
a. Imposed for regulation
b. One which involves exercise of police power
c. One in which there is generally no limit on the amount that may be imposed
d. Answer not given

54. Which of the following terms describes this statement: “that the state has complete discretion on the amount to be imposed
after distinguishing between a useful and non-useful activity?
a. Tax c. Toll
b. License fee d. Customs Duty

55. Which of the following is not a distinction or similarity of license fee from tax?
a. Imposed for regulation
b. Involves exercise of police power
c. Non-payment makes the business illegal
d. Legal compensation or reward of an officer for services

56. This is a demand of ownership

a. License Fee c. Toll
b. Tax d. Franchise

57. Toll as distinguished from tax.

a. Demand of sovereignty
b. Imposed by government only
c. Amount is based on the cost of construction of public improvement used

26. Principles of taxation Page 12 of 13

d. Paid for the support of the government

58. Which statement is wrong?

a. A tax is a demand of sovereignty
b. A toll is a demand of ownership
c. A special assessment is a tax
d. Customs duty is a tax

59. Which of the following is not a characteristic of Debt?

a. Generally arises from contract
b. Payable only in money
c. Assignable
d. Imprisonment is not a sanction for non-payment

60. Debt as distinguished from tax.

a. Based on law
b. May be paid in kind
c. Does not draw interest except when delinquent
d. Generally not subject to set-off or compensation

61. Which of the following is designed to regulate conduct?

a. Tax c. Penalty
b. Toll d. Special Assessment

62. “Schedular system of income taxation” means:

a. All types of income are added together to arrive at gross income.
b. Separate graduated rates are imposed on different types of income.
c. Capital gains are excluded in determining gross income.
d. Compensation income and business/professional income are added together in arriving at gross income.

63. When the refund of a tax supposedly due to the taxpayer has already been barred by prescription, and the said taxpayer is
assessed with a tax at present, the two taxes may be set-off with each other. This doctrine is called:
a. Set-off Doctrine c. Tax sparring Doctrine
b. Doctrine of Reciprocity d. Equitable Recoupment

64. Transfer of the tax burden by one whom the tax is assessed to another.
a. Shifting c. Transformation
b. Capitalization d. Tax Exemption

65. Which of the following is not a scheme of shifting the incidence of tax burden?
a. The manufacturer transfers the tax to the consumer by adding the tax to the selling price of the goods sold.
b. The purchaser asks for a discount or refuses to buy at regular price unless it is reduced by an amount equal to the tax he will
pay.
c. Changing the terms of the sale like FOB shipping point in the Philippines to FOB Destination abroad, so that the title passes
abroad instead of in the Philippines.
d. The manufacturer transfers the sales tax to the distributor, then in turn to the wholesaler, to the retailer and finally to the
consumer.

66. The 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.
a. Shifting c. Transformation
b. Capitalization d. Tax exemption

67. The reduction in the selling price of income producing property by an amount equal to the capitalized value of future taxes that
may be paid by the purchaser
a. Shifting c. Transformation
b. Capitalization d. Tax exemption

68. In case of ambiguity, tax laws shall be interpreted

a. Strictly against the taxpayer
b. Liberally in favor of the taxpayer
c. Liberally in favor of the government
d. None of the choices

69. In cases of deductions and exemptions, doubts shall be resolved

a. Strictly against the taxpayer
b. Strictly against the government
c. Liberally in favor of the taxpayer
d. None of the choices

70. The use of illegal or fraudulent means to avoid or defeat the payment of tax.
a. Exemption c. Avoidance
b. Shifting d. Evasion

26. Principles of taxation Page 13 of 13