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Saint Louis University

SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES

Department of Business Laws and Taxation

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

Basic Concepts

1. 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

2. In this power of the State, the person who is parting with his money or property is

presumed to receive a benefit. [A] Taxation [B] Police power [C] Eminent domain [D]

Forfeiture power

3. (CPA Exam) 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 Constitution [D] Property is taken by the government

for public purposes

4. The following are common to the inherent powers of the state, except: [A] They are

necessary attributes of sovereignty [B] They interfere with private rights and property. [C]

They affect all persons or public. [D] They are legislative in nature and character.

5. The basic principle of taxation which states that taxes must be based on taxpayer’s ability

to pay. [A] Equality in taxation [B] Ability to pay theory [C] Theoretical justice [D] Equity in

taxation

6. Under this basic principle of a sound tax system, the government should not incur a

deficit: [A] Theoretical justice [B] Administrative feasibility [C] Fiscal adequacy [D] Debt
restructuring

7. What basic principle of a sound tax system is met when Congress evolves a progressive

system of taxation as mandated in the Constitution? [A] Fiscal adequacy [B] Theoretical

justice [C] Administrative feasibility [D] Uniformity in taxation

8. Which of the following is not a basic principle of a sound taxation system? [A] It should

be capable of being effectively enforced. [B] It must be a progressive tax. [C] It must be

sufficient to meet government expenditures and other public needs. [D] It should be

exercised to promote public welfare.

9. Which of the following is not a characteristic of the State’s power to tax? [A] Inherent in

sovereignty [B] Legislative in character [C] Based on ability to pay [D] Subject to

constitutional and inherent limitations

INCTAXa_Activity_1

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES

Department of Business Laws and Taxation

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

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. Which of the following statements is not correct? (A) Taxes may be imposed to raise

revenue or to 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 any
time. (D) The provisions of taxation in the Constitution are grants of power and not

limitations.

12. One of the characteristics of internal revenue laws is that they are: (A) Criminal in nature.

(B) Penal in nature. (C) Political in nature. (D) Generally prospective in application.

13. The following are similarities of the inherent power of taxation, eminent domain, and

police power, except: (A) Are necessary attributes of sovereignty. (B) Interfere with

private rights and property. (C) Affect all persons or the public. (D) Are legislative in

implementation.

14. 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.

15. The distinction of a tax from permit or license fee is that a tax is: (A) Imposed for regulation.

(B) One which involves an exercise of police power. (C) One in which there is generally

no limit on the amount that may be imposed. (D) Answer not given.

16. Which of the following statements is most correct? 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. It is essentially a legislative function. Even if the absence of any constitutional provision,

taxation power falls to Congress as part of the general power of law-making. (A)

Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above.

17. 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.

18. Which statement refers to police power as distinguished from taxation? (A) It can only be

imposed on specific purposes. (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.

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES

Department of Business Laws and Taxation

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

19. The proportional contribution by person and property levied by the law-making body of

the State by virtue of its sovereignty for the support of the government and for all its public

needs is referred to as: (A) Taxes. (B) Special Assessment. (C) License Fees. (D) Answer not

given.

20. In this power of the state, the person who is parting with his money or property is presumed

to receive a benefit. (A) Taxation. (B) Police power. (C) Eminent domain. (D) Forfeiture

power.

21. As a basic principle of taxation, “Taxes must be based on the taxpayer’s ability to pay” is

called: (A) Equality in taxation. (B) Ability to pay theory. (C) Theoretical justice. (C) Equity

in taxation.

22. Tax of a fixed proportion of the value of the property with respect to which the tax is

assessed and requires the intervention of assessors of appraisers to estimate the value of

such property before the amount due from each taxpayer can be determined is known

as: (A) Specific. (B) Ad Valorem. (C) Special or regulatory. (D) Answer not given.

23. The basis of taxation is the reciprocal duties of protection and support between the State

and its inhabitants (A) Necessity Theory. (B) Benefits-Protection Theory. (C) Ability to Pay.

(D) Lifeblood Theory.

24. Which of the following is not an element of direct double taxation? (A) Two taxes or more.

(B) Same subject matter. (C) Same taxable year. (D) Same amount.

25. A tax must be imposed for a public purpose. Which of the following is not a public

purpose? (A) Levy on the video industry. (B) Public education. (C) Improvement of the

sugar industry. (D) None of the above.

(B) A national tax. (D) An Ad Valorem Tax.

27. Which of the following statements is not correct? [A] Taxes may be imposed to raise

revenues or to 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 any

time; [D] The provisions of taxation in the Constitution are grants of power and not

limitations on taxing powers.

28. One of the characteristics of our internal revenue laws is that they are: [A] political in

nature [B] Penal in nature [C] Generally prospective in operation [D] Answer not given.

29. Tax as 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.

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES

Department of Business Laws and Taxation

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

30. The distinction of a tax from a permit or license fee is that a tax is: [A] Imposed for

regulation [B] One which involves an exercise of police power [C] One in which there is

generally no limit on the amount that may be imposed [D] Not given.

31. VAT is an example of: [A] graduated tax [B] progressive tax [C] regressive tax [D]

proportional tax.

32. Under this basic principle of a sound tax system, the Government should not incur a

deficit:[A] theoretical justice [B] administrative feasibility [C] fiscal adequacy [D] none of
the above.

33. No person shall be imprisoned for non- payment of: [A] property tax [B] excise tax [C] poll

tax [D] none of the above.

34. It literally means the place of taxation. (A) Object of taxation. (B) Purposes of taxation.

(C) Situs of taxation. (D) Subject of taxation.

35. A financial aid granted by the government to help private commercial enterprises know

beneficial to the people is (A) Margin fee. (B) Subsidy. (C) Special assessment. (D) Toll.

36. Which is incorrect?

A. Power to tax includes power to exempt

B. Exemptions are construed against the taxpayer and in favour of the government.

C. Tax statutes are construed against the government in case of doubt.

D. Taxes should be collected only for public purpose.

For the following numbers, choices are:

A. Both statements are true

B. Both statements are false

C. Only S1 is true

D. Only S2 is true

37. S1. Taxation is the rule, exemption is the exception.

S2. Vague taxation laws are interpreted liberally in favor of the government.

38. S1: In the selection of the objects of taxation, the courts have no power to inquire into

the wisdom of a tax law.

S2: An imposition can be both a tax and a regulation.

39. S1: The benefit received theory presupposes that some taxpayers within the territorial

jurisdiction of the Philippines will be exempted from paying tax so long as they do not

receive benefits from the government.

S2: The ability to pay theory suggests that some taxpayers may be exempted from tax

provided they do not have the ability to pay the same.

40. Which is not a legislative act?

A. Determination of the subject of the tax

C. Assessment of the tax

D. Determining the purpose of tax

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES

Department of Business Laws and Taxation

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

41. Which is not legally tenable in refusing to pay tax?

A. Absence of benefit from the government

B. The taxing authority has no jurisdiction

C. The authority’s right to collect has prescribed

D. All of the above

42. The following are inherent limitations to the power of taxation, except one:

A. Territoriality of taxes

B. Legislative in nature

C. For public purpose

D. Non-appropriation for religious purpose

43. Which is not a constitutional limitation to the power to tax?

A. Non-appropriation for religious purpose

B. No law impairing the obligations on contracts shall be passed

C. Non-impairment of religious freedom

D. No tax law shall be passed without the concurrence of a majority of all members

of congress.

44. That all taxable articles or properties of the same class shall be taxed at the same rateA. Equality in
taxation
B. Equity in taxation

C. Uniformity in taxation

D. None of the above

45. The exemption of religious or charitable institution refers toA. Income tax

B. Real property tax

C. Property and income tax

D. Business tax

46. Which is violative of the non-delegation principle?

A. Requiring that legislative enactment must exclusively pertain to Congress.

B. Authorizing the President to fix the amount of impost on imported and exported

commodities.

C. Authorizing certain private corporations to collect taxes

D. Allowing the Secretary of Finance and the BIR to issue regulations or rulings

widening the scope of taxation.

47. Linda is the only heart transplant specialist in Baguio City. The local government of Baguio

passed an ordinance subjecting the practice to a 2% tax based on gross receipts. Linda

objected claiming that the other specialists in other regions of the country are not

subjected to tax. Is Linda correct?

A. Yes, because the rule of taxation should be uniform and equitable.

B. Yes, because Linda is the only subject.

C. No, because the ordinance would cover all transplant specialist who would

practice in Baguio City. The uniformity rule would not be violated.

D. No, because the ordinance would hamper economic growth.

48. An educational institution operated by a religious organization was being required by a

local government to pay real property tax. Is the assessment valid?

A. Yes, with respect to all properties

B. Yes, with respect to properties not actually devoted to educational purposes.

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES

Department of Business Laws and Taxation

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

C. No, with respect to any property held by such

D. No, with respect to properties not actually devoted to educational purposes.

49. Debt distinguished from tax

A. Non- payment will lead to imprisonment

B. Arises from contract

C. Generally payable in money

D. Never draws interest

50. The amount imposed is based on the value of the property

A. Eminent domain

B. License

C. Toll

D. Special assessment

51. Which is incorrect?

A. Tax collected is referred to as revenue

B. Tax is the sole source of government revenue

C. License is imposed before commencement of the business

D. Debt can be subject to compensation.

52. License distinguished from tax

A. Imposed under taxation power

B. A charge for other’s property

C. Non-compliance renders business illegal

D. Generally payable in money

A. Eminent domain

B. Special assessment

C. Taxation

D. toll

54. Select the incorrect statement

A. Tax may be unlimited in amount

B. Non-payment of license renders business illegal

C. Non-payment of tax does not render business illegal

D. Special assessment can be imposed on a building and other real right attached

to the land.

55. Tax as to subject matter does not include

A. Real property tax

B. Personal tax

C. Excise tax

D. Regulatory tax

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES

Department of Business Laws and Taxation

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

PROBLEM SOLVING (3 points EACH): Show your solution. Encircle your answer.

• A citizen taxpayer and a resident of Baguio City shows the following income:

Gain on sale of domestic stocks (buyer is located in

Cebu)
200,000

Gain on sale of foreign bonds (buyer is located in

Manila)

100,000

Gain on sale of a commercial lot in Baguio City

500,000

Gain on sale of car in Canada 200,000

Gain on sale of machinery in Pampanga

250,000

Interest income on foreign bonds 50,000

Dividends on domestic stocks 150,000

Gain on online sale of ornamental plants to buyers

in La Union

800,000

56. Compute for the income WITHIN (IN)

A. 900,000

B. 1,100,000

C. 1,900,000

D. 2,250,000

57. Compute for the income WITHOUT (OUT)

A. ZERO

B. 200,000

C. 250,000

D. 350,000

• In 2020, Linda, a resident citizen, earned a P400,000 dividend income from ABC

Corporation.

Compute for gross income of Linda IN and/or OUT if ABC is a:

58. Domestic corporation earning 70% of its income IN the Philippines and 30% abroad.
IN OUT

A. ZERO ZERO

B. 200,000 200,000

C. 280,000 120,000

D. 400,000 ZERO

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES

Department of Business Laws and Taxation

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

59. Resident Foreign Corporation earning 40% of its income IN the Philippines and 60%

abroad.

IN OUT

A. ZERO 400,000

B. 160,000 240,000

C. 240,000 160,000

D. 400,000 ZERO

60. Non-resident foreign corporation

IN OUT

A. ZERO 400,000

B. 200,000 200,000

C. 400,000 ZERO

D. ZERO ZERO

61. How much of the dividend income of the resident citizen taxpayer is taxable in the

Philippines assuming ABC is a RESIDENT FOREIGN CORPORATION earning 40% of its

A. ZERO

B. 160,000

C. 240,000

D. 400,000

• In 2020, Juan, a non-resident citizen, earned a P400,000 dividend income from ABC

Corporation, a resident foreign corporation earning 60% of its income IN the Philippines

and 40% abroad.

62. How much of the dividend income of the taxpayer is taxable in the Philippines? Show

your solution or explain your answer if a solution is not necessary.

A. ZERO

B. 160,000

C. 240,000

D. 400,000

• The following pertains to a merchandising operation (movable goods):

Goods purchased and sold in the Phils. 200,000

Purchased in the Phils. and sold in USA 100,000

Purchased from USA, sold in the Phils 150,000

Purchased and sold in USA 350,000

Compute for income earned63. within

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES

Department of Business Laws and Taxation

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

B. 250,000

C. 350,000

D. 800,000

64. without

A. 100,000

B. 350,000

C. 450,000

D. 500,000

• Linda bought a life insurance policy whereby she insured herself for 1 million for a period

of 10 years. Annual premium amount is 50,000. After 10 years, she received from the

insurance company the amount of 600,000.

65. How much is the gross income?

A. ZERO

B. 100,000

C. 600,000

D. 1,000,000

66. In the above problem, assuming Linda died on the end of the fourth year of the policy

and the beneficiary received 1 Million from the insurance company, how much is the

gross income recognizable?

A. ZERO

B. 200,000

C. 800,000

D. 1,000,000

• In a suit for damages attributable to a vehicular accident where Mando was the injured

party, Mando was awarded the following:

For medical expenses 100,000

For attorney’s fees 80,000

For the loss of his leg causing him incapacity and

For his lost salary (2 months) 100,000

For the sleepless nights 20,000

How much is:

67. Return on capital

A. ZERO

B. 100,000

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Department of Business Laws and Taxation

10

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

C. 280,000

D. 800,000

68. Return of capital

A. ZERO

B. 100,000

C. 620,000

D. 800,000

• The following pertains to Ana, a resident citizen taxpayer:

Fruits harvested to be sold at a later date 30,000

Interest on bank deposits 1,000

Dividends declared by ABC Company 3,000

Increase in the market value of lot 10,000

Gambling winnings 9,000

Income on goods delivered by home office to branch office

for sale by the latter 4,000

Indemnity received for moral damages claimed 50,000

Ana’s employer cancelled her (Ana) first debt upon her

request

5,000

Ana’s employer offset Ana’s second debt against her salary 4,000

69. Compute the total gross income of Ana.

A. 22,000

B. 23,000

C. 58,000

D. 103,000

70. Bing, resident citizen, operated her online selling without permit to engage in business.

During the year, she earned a total income of P900,000. How much is the taxable

income?

A. ZERO

B. 650,000

C. 900,000

-END OF Activity-