INTEGRATED ACCOUNTING 3 1 ST Semester AY 2021-2022 LECTURE NOTES

W1 PRINCIPLES OF TAXATION
Learning Objectives:

 Assess your prior knowledge about principles of taxation

Identify if the statement is true or false. If it is false, tell me the word or phrase that makes the
statement false.
DRILL IN BASIC PRINCIPLES (INHERENT POWERS)
1. Taxation is the act of laying a tax, i.e., the process or means by which the sovereign,
through its lawmaking body, raises income to defray the necessary expenses of
government. - FALSE-
2. Power of eminent domain is the power of the State or those to whom the power has been
delegated to take private property for public use upon paying the owners a just
compensation to be ascertained according to law. - TRUE-
3. Police power is the power of the State enact such laws in relation to persons and property
as may promote public health, public morals, public safety and general welfare of the
people. -TRUE-
4. For police power, the amount imposed depends on whether the activity is useful or not. -
FALSE-
5. Power of eminent domain may not raise money for the government. - FALSE-
6. In police power of the State, the person who is parting with his money or property is
presumed to receive a benefit. - TRUE-
7. Equality in taxation means, “Taxes must be based on the taxpayer’s ability to pay”. - TRUE-
8. Under fiscal adequacy, a basic principle of a sound tax system, the government should not
incur a deficit. - TRUE-
9. Administrative feasibility, a basic principle of a sound tax system, is met when Congress
evolves a progressive system of taxation as mandated in the Constitution. - TRUE-
10. To be exercised to promote public welfare is not a basic principle of a sound taxation
system. - TRUE-
11. Based on the ability to pay is not a characteristic of the State’s power to tax. - FALSE-
12. 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. - FALSE-
13. Taxation is essentially a legislative function. Even in the absence of any constitutional
provision, taxation power falls on Congress as part of the general power of lawmaking. -
TRUE-
14. Taxes may be imposed to raise revenue or to provide incentives for certain activities within
the State. - TRUE-
15. For the exercise of the power of taxation, the state can tax anything at any time. - TRUE-
16. The provisions of taxation in the Philippine Constitution are grants of power and not
limtations on the taxing power. - TRUE-
17. A tax reform at any given time underscores the fact that taxation is a power that is very
broad. - TRUE-
18. Taxes are the lifeblood of the Government and their prompt and certain availability are
imperious (expecting obedience) need. - TRUE-

1
armarcojoscpa
INTEGRATED ACCOUNTING 3 1 ST Semester AY 2021-2022 LECTURE NOTES

19. The power of taxation proceeds upon the theory that the existence of the government is a
necessity, that is cannot continue without means to pay its expenses and that for this means
it has a right to compel all its citizens and property within its limits to contribute. - TRUE-
20. The basis of taxation is the reciprocal duties of protection and support between the State
and its inhabitants. - TRUE-
21. To implement the police power of the State and to promote the general welfare is a
compensatory purpose of taxation. - TRUE-
22. The principal (primary) purpose of taxation is to raise revenue for governmental needs. -
TRUE-
23. The power of taxation is comprehensive, plenary, unlimited and supreme and, therefore, not
subject to inherent and constitutional limitations. -TRUE-
24. Levying or imposition of tax is essentially administrative in character. - TRUE-
25. Power of eminent domain may be exercised by public service companies and public utilities.
-TRUE-

DRILL IN BASIC PRINCIPLES (LIMITATIONS ON THE POWER OF TAXATION)

1. Inherent limitations are part and parcel of the power of taxation and originate from the very
nature of taxation. - FALSE-
2. The tax imposed is for public purpose when the proceeds of the tax are used for the support
of the State or for some recognized objects of government or directly promote the welfare of
the community.- TRUE-
3. A tax imposed for the improvement of sugar industry satisfied the public purpose limitation. -
FALSE-
4. The purpose to be accomplished by taxation need not by exclusively public. Although
private individuals are directly benefited (e.g., giving aid to flood victims), the tax will still be
valid provided such benefit is only incidental. - FALSE-
5. The principle of separation of powers ordains that each of the three branches of the
government has exclusive cognizance of and is supreme in matters failing within its own
constitutionally allocated sphere satisfies the limitation that there should be no improper
delegation of the taxing power. - TRUE-
6. Being legislative in nature, the power to tax may not be delegated, except to local
government (to be exercised by the local legislative bodies thereof) or political subdivisions
or when allowed by the Constitution. -TRUE-
7. The power of tax is limited to the territorial jurisdiction of the taxing government 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. -
FALSE-
8. Sources of taxable income is the place or authority that has the right to impose and collect
taxes. - TRUE-
9. Allowance of deduction or tax credit for foreign taxes is a remedy against multiplicity of situs.
- TRUE-
10. Government agencies performing governmental functions are exempt from tax unless
expressly taxed while those performing proprietary functions are subject to tax unless
expressly exempted. - FALSE-
11. International law is a fundamental rule in taxation stating that the property of one country
may not be taxed by another country. - TRUE-

2
armarcojoscpa
INTEGRATED ACCOUNTING 3 1 ST Semester AY 2021-2022 LECTURE NOTES

12. The Philippine Constitution has expressly adopted the generally accepted principles of
international law as part of the law of the land. - TRUE-
13. A violation of inherent limitations can amount to taking of property without due process of
law. - FALSE-
14. Any tax law contravening any of the inherent limitations of taxation, in effect, will likewise be
unconstitutional. - TRUE-
15. A tax imposed both on the occupation of fishing and fishpond operation constitutes an
objectionable double taxation. FALSE-
16. An income tax on persons engaged in leasing or selling real property and VAT on their
sales/receipts constitute an objectionable double taxation. - FALSE-
17. Our Constitution prohibits double taxation. - TRUE-
18. If double taxation occurs, the taxpayer may seek relief under the uniformity rule or equal
protection guarantee. - TRUE-
19. Direct double taxation means taxing twice, by the same taxing authority, within the same
jurisdiction or taxing district, for the same purpose, in the same year (or taxing period) some
of the property in the territory. - TRUE-
20. Due process of law requires that compliance with procedural requirements must be followed
strictly to avoid collision course between the state’s power to tax and the individual’s
recognized profits. - TRUE-
21. A fixed license fee on the sale of bibles and other religious literature is a violation of non-
infringement of religious freedom. - FALSE-
22. No person shall be imprisoned for non-payment of poll tax. - TRUE-
23. A revenue bill must originate from the House of Representative and on the same bill the
Senate may propose amendments. - TRUE-
24. 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. - TRUE-
25. Uniformity 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. - TRUE-
26. The basis of test of exemption of real properties owned by religious or charitable entities
form real property taxes is ownership of the real property. - TRUE-
27. No law granting any tax exemption shall be passed without the concurrence of a majority of
all the members of Congress present during the deliberation of the tax exemption bill. -
TRUE-
28. Public money or property may be appropriated for the use, benefit or support of any priest,
preacher, minister or dignitary assigned to the armed forces, or to any penal institution, or
government orphanage or leprosarium. - TRUE-
29. That a feasibility study needs or need not look into the taxes of different political
subdivisions of government which may be alternative sites of the business because the local
taxes of a political subdivision need not be exactly the same as with the local taxes of
another political subdivision. - FALSE-
30. All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from taxes and duties. -
TRUE-
31. Upon the dissolution or cessation of the corporate existence of such non-stock, non-profit
educational institutions, their assets shall be disposed of in the manner provided by law. -
TRUE-

3
armarcojoscpa
INTEGRATED ACCOUNTING 3 1 ST Semester AY 2021-2022 LECTURE NOTES

32. Proprietary educational institutions, including those cooperatively owned, may likewise be
entitled to such exemptions subject to the limitations provided by law including restrictions
on dividends and provisions for reinvestment. - TRUE-
33. An inherent limitation of taxation may be disregarded by the application of a Constitutional
limitation. - TRUE-
34. The property of an educational institution operated by a religious order is exempted from
property tax, but is income is subject to income tax. - TRUE-
35. The power of taxation is shared by the legislative and executive departments of government.
- FALSE-
36. One of the characteristics of our internal revenue laws in that they are generally prospective
in operation although the tax statute may nevertheless operate retrospectively, provided it is
clearly the legislative intent. - TRUE-
37. Some franchise holders who are paying the franchise tax are being required by an
amendatory law to pay the value-added tax, while others remain subjected to franchise tax.
This is unconstitutional. - FALSE-
38. A franchise cannot be amended by an amendment of a special law, which granted the
franchise. - TRUE-
39. That a taxpayer will derive no benefit from the tax is not acceptable for legally refusing to
pay the tax. - TRUE-
40. That the prescriptive period for the tax has elapsed is acceptable for legally refusing to pay
the tax. - FALSE-
DRILL IN BASIC PRINCIPLES (TAXES AND OTHER CHARGES)
1. Tax 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, -
TRUE-
2. One of the characteristics of tax is that it is generally payable in money. - TRUE-
3. Regular payment is an essential characteristic of tax. - TRUE-
4. Based on the ability to pay is not an essential characteristic of tax. - FALSE-
5. Documentary stamp tax is a national tax imposed by the national government. - TRUE-
6. Community tax is a national tax imposed by local government. - TRUE-
7. Tax on business is a property tax. - TRUE-
8. Income tax and transfer taxes are examples of direct taxes. - FALSE-
9. The basic community tax of P5.00 of an individual is a direct tax. - TRUE-
10. Tax of fixed proportion to the value of the property with respect to which the tax is assessed
and requires the intervention of assessors or appraisers to estimate the value of such
property before the amount due from each taxpayer can be determined is known as ad
valorem tax. - TRUE-
11. Customs duty is not a general or revenue tax. - FALSE-
12. Real property tax is not an example of an excise tax. - FALSE-
13. A kind of tax where rate increases as the tax base increases is known as progressive tax. -
TRUE-
14. License fee is a demand of ownership. - TRUE-
15. Toll is based on the cost of construction of public improvement used. - TRUE-
16. Special assessment is an enforced proportional contribution from owners of lands for special
benefits resulting from public improvements. - TRUE-
17. License fee describes the statement, :that the state has complete discretion on the amount
to be imposed, after distinguishing between a useful and non-useful activity. - TRUE-

4
armarcojoscpa
INTEGRATED ACCOUNTING 3 1 ST Semester AY 2021-2022 LECTURE NOTES

18. The distinction of permit or license from tax is that license fee is one which involves an
exercise of police power. - TRUE-
19. The distinction of a tax from permit or license is that a tax is one which there is generally no
limit on the amount that may be imposed. - TRUE-
20. Debt as distinguished from tax is that debt may be paid in kind. - TRUE-
21. Penalty is designed to regulate conduct. - TRUE-
22. Subsidy is a pecuniary aid directly granted by the government to an individual or private
commercial enterprise deemed beneficial to the public. - TRUE-
23. Tariff may refer to a book of rates drawn usually in alphabetical order containing the names
of several kinds of merchandise with the corresponding duties to be paid for the same. -
TRUE-
24. Revenue comprises all kinds of funds including taxes. - TRUE-
25. In case of deductions and exemptions on income tax returns, doubts shall be resolved
strictly against the taxpayer. - TRUE-
26. Where the statute granting the exemption provides for the liberal interpretation thereof tax
exemptions must not be strictly construed. - TRUE-
27. Tax avoidance is not a legal way of not paying tax. - FALSE-
28. Changing the terms of the sale like FOB shipping point in the Philippines to FOB destination
abroad, so that the title passes abroad instead in the Philippines is not a scheme of shifting
the incidence of taxation. - TRUE-
29. Forward shifting takes place when the burden of the tax is transferred from a factory or
production through the factors of distribution until it finally settles on the ultimate purchaser
or consumer. - TRUE-
30. Tax evasion(tax dodging) is the use by the taxpayer of illegal means to defeat or lessen the
payment of tax. - TRUE-
31. Concurrence by a majority of all members of the Congress who are present during the
deliberation is required for the passage of a law granting tax exemptions all members of the
Congress. - FALSE-
32. All appropriations, revenue or tariff bills shall originate from either the House of
Representative or the Senate. - TRUE-
33. The Senate may propose or concur with amendments to all appropriation, revenue or tariff
bills that shall originate from the House of Representatives. - TRUE-
34. 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. - TRUE-
35. The Congress may authorize the President to fix tariff rates, import and export quotas,
tonnage and wharfage dues and other duties or imposts. - TRUE-
DRILL IN BASIC PRINCIPLES (POWER OF THE CIR)
1. The power to interpret the provision of the Tax Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner of Internal Revenue subject to review
by Secretary of Finance. - TRUE-
2. 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
to examine any book, paper, record, or other data which may be relevant or material to such
inquiry. - TRUE-

5
armarcojoscpa
INTEGRATED ACCOUNTING 3 1 ST Semester AY 2021-2022 LECTURE NOTES

3. 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, on in
collecting any such liability, or in evaluating tax compliance, the Commissioner is not
authorized to inquire into bank deposits of taxpayers under investigation for violations of the
Tax Code. - TRUE-
4. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges or other matters administered by the BIR is vested in the Commissioner of Internal
Revenue, subject to the exclusive appetite jurisdiction of the Court of Appeals. - TRUE-
5. To obtain on a regular basis from any person other than the person whose internal revenue
tax liability is subject to audit or investigation is within the power of the Commissioner to
obtain information, to summon, examine and take testimony of persons. - TRUE-
6. To take such testimony of the persons concerned, under oath, as may be relevant or
material to such inquiry is within the power of the Commissioner to obtain information, to
summon, examine and take testimony of persons. - TRUE-
7. To cause revenue officers to canvass from time to time of any revenue district or region and
require 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 is within the power of the Commissioner to
obtain information to summon, examine and take testimony of persons. - TRUE-
8. After a return has been filed as required under the provisions of the Tax Code, the
Commissioner or his duly authorized representative may authorize the examination of any
taxpayer and the assessment of the correct amount of tax. - TRUE-
9. Failure to file a return shall prevent the Commissioner from authorizing the examination of
any taxpayer. - FALSE-
10. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the
Commissioner or from his duly authorized representative. - TRUE-
11. Any return, statement or declaration filed in any office authorized to receive the same shall
not be withdrawn. - TRUE-
12. Within three years from the date of filing of any return, statement of declaration, the same
may be modified, changed, or amended. - TRUE-
13. The modification, change or amendment to any return, statement of declaration filed is
allowed if no notice for audit or investigation of such return, statement or declaration has in
the meantime been actually served upon the taxpayer. - TRUE-
14. When a report required by law as a basis for the 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. - TRUE-
15. In case a person fails to file a required return or other document at the time prescribed by
law, or willfully or otherwise files a false or fraudulent return or other document, the
Commissioner shall make or amend the return 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. - TRUE-
16. If there is a reason to believe that a person is not declaring his correct income, sales or
receipts for internal revenue tax purposes, the Commissioner may order inventory taking of
goods of any taxpayer as a basis for determining his internal revenue tax liabilities. - TRUE-
17. If there is reason to believe that a person is not declaring his correct income, sales or
receipts for internal revenue tax purposes, the Commissioner is not authorized to place the

6
armarcojoscpa
INTEGRATED ACCOUNTING 3 1 ST Semester AY 2021-2022 LECTURE NOTES

business operations of any person, natural or juridical, under observation or surveillance. -

FALSE-
18. The Commissioner has the authority to terminate taxable period when the taxpayer is
retiring from business subject to tax. - TRUE-
19. The Commissioner has the authority to terminate taxable period when taxpayer is intending
to leave the Philippines or remove his property therefrom. - TRUE-
20. The Commissioner has the authority to terminate taxable period when the taxpayer is
performing any act tending to obstruct the proceedings for collection of the tax for the past
or current year or quarter. - FALSE-
21. The Commissioner has the authority to terminate taxable period when the taxpayer’s
business is suffering losses. - TRUE-
22. The Commissioner is 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. - TRUE-
23. For purposes of computing any internal revenue tax, the value of property shall be,
whichever is the lower of the fair market value as determined by the Commissioner, or the
fair market value as shown in the schedule of values of the Provincial and City Assessors. -
TRUE-
24. Notwithstanding any contrary provision of R.A. No. 1405 and other general or special laws,
the Commissioner of Internal revenue is authorized to inquire into bank deposit of a
decedent to determine his gross estate. - TRUE-
25. Notwithstanding any contrary provision of R.A. No. 1405 and other general or special laws,
the Commissioner of Internal Revenue is authorized to inquire into bank deposit of any
taxpayer who has filed an application for compromise of his tax liability by reason of financial
incapacity whether or not there is waiver for his privilege under R.A. 1405 or under other
general or special laws. – FALSE-
26. 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. - TRUE-
27. 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 days from receipt of such appeal. - TRUE-
28. 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. - TRUE-
29. Only Certified Public Accountants who practice accountancy singly or in partnership with
other CPAs shall be accredited and registered to file tax returns, statements, reports,
protests, and other papers with or who appear before, the Bureau for taxpayers. - TRUE-
30. 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. - TRUE-
31. The Commissioner may delegate the power to recommend the promulgation of rules and
regulations by the Secretary of Finance. - FALSE-
32. The Commissioner of Internal Revenue may not delegate the power to issue rulings of first
impression or to reverse, revoke, or modify any existing ruling of the BIR. - FALSE-
33. The Commissioner of Internal Revenue may not delate the power to compromise or abate
any tax liability. - FALSE-

7
armarcojoscpa
INTEGRATED ACCOUNTING 3 1 ST Semester AY 2021-2022 LECTURE NOTES

34. The Commissioner of Internal Revenue may not delegate the power to assign or reassign
internal revenue officers to establishments where articles subject to excise tax are produced
or kept. - FALSE-
35. To obtain information, examine, summon and take testimony is not under the special power
of the Commissioner to make assessments and prescribe additional requirements for tax
administration and enforcement. – FALSE-
36. The Bureau of Internal Revenue shall be under the supervision and control of the
Department of Justice. - FALSE-
37. The BIR’s powers and duties shall comprehend the assessment and collection of all national
internal revenue taxes, fees and charges and the enforcement of all forfeitures, penalties
and times connected therewith, including the execution of judgments in all cases decided in
its favor by the Court of Tax Appeals and the ordinary courts. - TRUE-
38. The Bureau shall give effect to and administer the supervisory and police powers conferred
to it by this Code or other laws. - TRUE-
39. The Bureau of Internal Revenue shall a chief to be known as Commissioner of Internal
Revenue, also referred as the Commissioner. – TRUE-
40. The four assistant chiefs of the Commissioner shall be known as Deputy Commissioners. -
TRUE-
41. The Bureau of Customs shall have one chief and four assistants chiefs, to be known
respectively as the Commissioner of Customs. - TRUE-
42. The Bureau of Customs shall have five Deputy Commissioners. - FALSE-
43. The Commissioner and the Deputy Commissioners of Customs shall be appointed by the
Senate President of the Philippines. - TRUE-
44. The provision under Local Government Taxation shall govern the exercise by provinces,
cities, municipalities, and barangays of their taxing and other revenue-raising powers. -
TRUE-
45. The power to impose tax, fee, or charge or to generate revenue under this Code shall be
exercised by the Chief Executive/Mayor of the local government unit concerned through an
appropriate ordinance. - TRUE-
46. All local taxes, fees, and charges shall be collected by the provincial, city, municipal or
barangay treasurer, or their duly authorized deputies. - TRUE-
47. Unless otherwise provided in this Code, all local taxes, fees, and charges shall be paid
within thirty (30) days the first of January or of each subsequent quarter, as the case may
be. - FALSE-
48. 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 months. - TRUE-
49. The Board of Investments shall be composed of seven governors. - TRUE-
50. The Secretary of Finance 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. - TRUE-
51. The three representatives from the other government agencies and the private sector shall
be appointed by the President for a term of six years. - FALSE-
52. Upon the expiration of his term, a governor shall serve as such until his successor shall
have been appointed and qualified. - TRUE-
53. 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 or permanent. - TRUE-

8
armarcojoscpa
INTEGRATED ACCOUNTING 3 1 ST Semester AY 2021-2022 LECTURE NOTES

54. 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. - TRUE-
55. 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. - TRUE-
56. 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. -
TRUE-
57. As provided in the Special Economic Zone Act, the PEZA Board is chaired by the Secretary
of the Department of Trade and Industry. - FALSE-
58. PEZA offers fiscal incentives only as well as ready-to-occupy business locations in world-
class economic zones and IT parks or buildings. - TRUE-
59. Fiscal incentives include, among others, VAT zero-rating of local purchases subject to
compliance with BIR and PEZA requirements. - TRUE-
60. Fiscal incentives include, among others, income tax holiday for a certain number of years,
which translates to 100% exemption from corporate income tax. - FALSE-

Reference
ReSA.The Review School of Accountancy.Taxation (2016)

9
armarcojoscpa