TEST BANK-INCOME TAXATION

CHAPTER 1
GENERAL PRINCIPLES AND CONCEPTS OFTAXATION
A. MULTIPLE CHOICE:
1. THES PROCESS BY WHICH THE SOVEREIGN RAISES INCOME TO DEFRAYTHE EXPENSES OF THE
GOVERNMENT IS CALLED - (RPCPA)
A. SUBSIDY
B. TARIFF
C. TAXATION
D. TRIBUTE

2. ONE OF THE CHARACTERISTICS OF INTERNAL REVENUE TAX IS THATTHEY ARE - (RPCPA)

A) CRIMINAL IN NATURE
B) PENAL IN NATURE
C) POLITICAL IN NATURE
D) GENERALLY PROSPECTIVE IN APPLICATION

3. IN CASE OF CONFLICT BETWEEN THE TAX LAWS AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) - (RPCPA)
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

4.WHICH OF THE FOLLOWING HAS NO POWER OF TAXATION? (RPCPA)

A) PROVINCES
B) CITIES
C) BARANGAYS
D) BARRIOS

5."SCHEDULAR SYSTEM OF INCOME TAXATION" MEANS(RPCPA)

A) ALL TYPES OF INCOME ARE ADDED TOGETHER TO ARRIVE ATGROSS INCOME
B) SEPARATE GRADUATED RATES ARE IMPOSED ON DIFFERENTTYPES 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
6. ONE OF THE FOLLOWING IS A PRIMARY PURPOSE OF TAXATION
A) PROTECTION OF LOCAL INDUSTRIES AGAINST FOREIGN COMPETITION THROUGH
IMPOSITION OF HIGH CUSTOMS DUTIES ON IMPORTED GOODS
B) REDUCTION OF INEQUALITIES IN WEALTH AND INCOME BY IMPOSING PROGRESSIVELY
HIGHER TAX RATES
C) TO SECURE REVENUE FOR THE SUPPORT OF THE GOVERNMENT
D) STRENGTHENING OF ANEMIC ENTERPRISES BY GIVING TAX EXEMPTION

7. 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 DISTRIB UTION OF WEALTH AMONG PEOPLE
C) TO ACHIEVE SOCIAL AND ECONOMIC STABILITY
D) TO RAISE REVENUE TO DEFRAY THE NECESSARY EXPENSE OF THE GOVERNMENT

8. WHICH IS THE BEST ANSWER? A TAX REFORM AT ANY GIVEN TIME UNDERSCORES THE FACT
THAT-(RPCPA)
A) TAXATION IS AN INHERENT POWER OF THE STATE
B) TAXATION IS ESSENTIALLY A LEGISLATIVE POWER
C) TAXATION IS A POWER THAT IS VERY BROAD
D) THE STATE CAN AND SHOULD ADOPT PROGRESSIVE TAXATION

9. THE LEGISLATIVE BODY CAN IMPOSE A TAX AT ANY

AMOUNT UNDERSCORES THE LEGAL DICTUM THAT TAXATION IS - (RPCPA)
A) AN INHERENT POWER OF THE TAX
B) A VERY BROAD POWER OF THE STATE
C) ESSENTIALLY A LEGISLATIVE POWER
D) FOR PUBLIC PURPOSE

10. ALL OF THE FOLLOWING, EXCEPT ONE, ARE BASIC PRINCIPLES OF THE SOUND TAX SYSTEM
A) FISCAL ADEQUACY
B) THEORETICAL JUSTICE
C) ADMINISTRATIVE FEASIBILITY
D) INHERENT IN SOVEREIGNTY

11. UNDER THIS BASIC PRINCIPLE OF SOUND TAX SYSTEM, THE

GOVERNMENT SHOULD NOT INCUR A DEFICIT-(RPCPA)
A) THEORETICAL JUSTICE
B) ADMINISTRATIVE FEASIBILITY
C) FISCAL ADEQUACY
D) NONE OF THE ABOVE
12. THE FOLLOWING, EXCEPT ONE, ARE BASIC PRINCIPLES OF A SOUND TAX SYSTEM
A) IT SHOULD BE CAPABLE OF BEING EFFECTIVELY ENFORCED
B) IT MUST BE PROGRESSIVE
C) SOURCES OF REVENUE MUST BE SUFFICIENT TO MEET GOVERNMENT EXPENDITURES AND
OTHER PUBLIC NEEDS
D) IT SHOULD BE EXERCISED TO PROMOTE PUBLIC WELFARE

13. WHICH OF THE FOLLOWING IS NOT ONE OF THE CANONS OF A

SOUND TAX SYSTEM?
A) QUANTIFIABILITY
B) EQUALITY
C) CERTAINTY
D) CONVENIENCE

14. THE POWER OF TAXATION CAN ONLY BE EXERCISED BY THE LAWMAKING BODY
A) SUBJECT TO CONSTITUTIONAL AND INHERENT LIMITATIONS
B) EQUALITY OR THEORETICAL JUSTICE
C) LEGISLATIVE IN CHARACTER
D) INHERENT IN SOVEREIGNTY

15. THE PRESIDENT OF THE PHILIPPINES AND THE PRIME MINISTER OF JAPAN ENTERED INTO
AN EXECUTIVE AGREEMENTIN RESPECT OF A LOAN FACILITY TO THE PHILIPPINES FROM JAPAN
WHEREBY IT WAS STIPULATED THAT INTEREST ON LOANS GRANTED BY PRIVATE JAPANESE
FINANCIAL INSTITUTIONS IN THE PHILIPPINES SHALL NOT BE SUBJECT TO PHILIPPINE INCOME
TAXES. WHAT BASIC CHARACTERISTIC OF TAXATION HAS BEEN VIOLATED BY THIS AGREEMENT?
A) INHERENT LIMITATION
B) THEORETICAL JUSTICE
C) LEGISLATIVE IN CHARACTER
D) ADMINISTRATIVE FEASIBILITY

16. WHICH STATEMENT GIVES THE CORRECT ANSWER? THAT A FEASIBILITY STUDY NEEDS OR
NEED TO LOOK INTO THE TAXES OF DIFFERENT POLITICAL SUBDIVISIONS OF GOVERNMENT
WHICH MAY BE ALTERNATIVE SITES OF BUSINESS BECAUSE-(RPCPA)
A) PROVINCES, CITIES AND MUNICIPALITIES MUST HAVE UNIFORM TAXES BETWEEN AND
AMONG THEMSELVES
B) THE LOCAL TAXES OF A POLITICAL SUBDIVISION NEED NOT BE
UNIFORM WITH THE LOCAL TAXES OF ANOTHER POLITICAL
SUBDIVISION
C) BUSINESSES THAT ARE SUBJECT TO NATIONAL TAXES ARE EXEMPTED FROM LOCAL BUSINESS
TAXES
D) LOCAL BUSINESS TAXES MAY BE CREDITED AGAINST NATIONAL
17. 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 IN THE ABSENCE OF ANY

CONSTITUTIONAL PROVISION, TAXATION POWER FALLS TO CONGRESS AS PART OF THE
GENERAL POWER OF LAWMAKING. - (RPCPA)
A) FALSE, FALSE
B) FALSE, TRUE
C) TRUE, TRUE
D) TRUE, FALSE

18. THOSE RESTRICTIONS ON THE EXERCISE OF THE POWER OF TAXATION THAT AREW FOUND
IN THE CONSTITUTION OR IMPLIED FROM ITS PROVISIONS
A) THEORETICAL JUSTICE
B) LEGISLATIVE IN CHARACTER
C) INHERENT LIMITATIONS
D) CONSTITUTIONAL LIMITATIONS

19. WHICH OF THE FOLLOWING STATEMENTS IS NOT CORRECT? - (RPCPA)

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
NECESSARILY GIVE IT THE POWER TO TAX
C) FOR THE EXERCISE OF THE POWER OF TAXATION, THE STATE CANJ TAX ANYTHING AT ANY
TIME
D) THE POWER OF TAXATION IN THE PHILIPPINE CONSTITUTION ARE GRANTS OF POWER AND
NOT LIMITATIONS ON TAXING POWERS

20. ONE OF THE FOLLOWING IS NOT AN INHERENT LIMITATION ON THE EXERCISE OF THE
POWER OF TAXATION-
A) INTERNATIONAL COMITY
B) DOUBLE TAXATION
C) NON-DELEGATION OF THE LEGISLATIVE POWER TO TAX
D) TERRITORIALITY

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JAPANESE FINANCIAL INSTITUTIONS IN THE PHILIPPINES SHALL

NOT BE SUBJECT TO PHILIPPINE INCOME TAXES. WHAT BASIC
CHARACTERISTIC OF TAXATION HAS BEEN VIOLATED BY THIS
AGREEMENT?
A)
INHERENT LIMITATION
B)
THEORETICAL JUSTICE
C)
LEGISLATIVE IN CHARACTER
D)
ADMINISTRATIVE FEASIBILITY

16. WHICH STATEMENT GIVES THE CORRECT ANSWER? THAT A

FEASIBILITY
STUDY NEEDS OR NEED TO LOOK INTO THE TAXES OF
DIFFERENT POLITICAL SUBDIVISIONS OF GOVERNMENT WHICH MAY
BE ALTERNATIVE SITES OF BUSINESS BECAUSE-(RPCPA)
A)
PROVINCES, CITIES AND MUNICIPALITIES MUST HAVE UNIFORM
TAXES BETWEEN AND AMONG THEMSELVES
B)
THE LOCAL TAXES OF A POLITICAL SUBDIVISION NEED NOT BE
UNIFORM WITH THE LOCAL TAXES OF ANOTHER POLITICAL
SUBDIVISION
C)
BUSINESSES
THAT
ARE
SUBJECT
TO
NATIONAL
TAXES
ARE
EXEMPTED FROM LOCAL BUSINESS TAXES
D)
LOCAL BUSINESS TAXES MAY BE CREDITED AGAINST NATIONAL
BUSINESS TAXES

17.
STATE,MENT 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
IN THE ABSENCE OF ANY CONSTITUTIONAL PROVISION, TAXATION
POWER FALLS TO CONGRESS AS PART OF THE GENERAL POWER OF
LAWMAKING.-(RPCPA)
A)
FALSE, FALSE
B)
FALSE, TRUE
C)
TRUE, TRUE
D)
TRUE, FALSE

18.
THOSE RESTRICTIONS ON THE EXERCISE OF THE POWER OF
TAXATION THAT AREW FOUND IN THE CONSTITUTION OR IMPLIED
FROM ITS PROVISIONS
THEORETICAL JUSTICE
A)

B)
LEGISLATIVE IN CHARACTER
C)
INHERENT LIMITATIONS
D)
CONSTITUTIONAL LIMITATIONS
19.
WHICH OF THE FOLLOWING STATEMENTS IS NOT CORRECT?-(RPCPA)
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 NECESSARILY GIVE IT THE POWER TO TAX
C)
FOR THE EXERCISE OF THE POWER OF TAXATION, THE STATE CANJ
TAX ANYTHING AT ANY TIME
D)
THE POWER OF TAXATION IN THE PHILIPPINE CONSTITUTION ARE
GRANTS OF POWER AND NOT LIMITATIONS ON TAXING POWERS

20. ONE OF THE FOLLOWING IS NOT AN INHERENT LIMITATION ON THE

EXERCISE OF THE POWER OF TAXATION-
A)
INTERNATIONAL COMITY
B)
DOUBLE TAXATION
C)
NON-DELEGATION OF THE LEGISLATIVE POWER TO TAX
D)
TERRITORIALITY

21. THE CITY COUNCIL PASSED AN ORDINANCE IMPOSING AN OCCUPATION TAX ON AN

AIRCONDITIONING TECHNICIAN. CONDE IS THE ONLY PERSON WITH SUCH OCCUPATION IN THE
CITY. HE CHALLENGED THE VALIDITY OF THE ORDINANCE AS BEING DISCRIMINATORY SINCE HE
IS THE ONLY ONE ADVERSELY AFFECTED.
A) THE CONTENTION OF CONDE IS TENABLE
B) THE ORDINANCE IS UNCONSTITUTIONAL BECAUSE CONDE IS DENIED OF HIS RIGHT TO
EQUAL PROTECTION OF LAW
C) THE CONTENTION OF CONDE IS NOT JUSTIFIED BECAUSE THE RULE ON UNIFORMITY IS NOT
VIOLATED CONSIDERING THAT THE ORDINANCE WOULD ALSO IMPOSE ON ALL
AIRCONDITIONING TECHNICIAN WHO MAY COME WITHIN THE JURISDICTION OF THE CITY
D) THE ISSUE ON VALIDITY OR INVALIDITY OF THE ORDINANCE SHOULD BE SET ASIDE

22. TREATING PERSONS WHO ARE SIMILARLY SITUATED IN THE SAME MANNER-
A) UNIFORMITY OF TAXATION
B) EQUALITY OF TAXATION
C) DUE PROCESS OF LAW
D) NON-DELEGATION OF LEGISLATIVE POWE

23. WHICH OF THE FOLLOWING IS VIOLATIVE OF THE UNIFORMITY RULE IN TAXATION?

A) DIFFERENT TAX RATES ON BOARDING STABLES FOR RACEHORSES AND BOARDING HORSES
THAT ARE NOT FOR RACING
B) WHOLESALE DEALERS IN OIL ARE SUBJECT TO OCCUPATION TAX WHILE WHOLESALE
DEALERS IN OTHER ARTICLES SCU AS SUGAR, BACON, COAL, IRON AND OTHER THINGS ARE NOT
SO SUBJECT
C) A ROAD USERS' TAX IMPOSED ON ALL MOTOR VEHICLES REGISTERED AND OPERATING IN
THE CITY OF MANILA BUT DOES NOT SUBJECT VEHICLES NOT REGISTERED THEREIN BUT
ALSO OPERATING TEMPORARILY IN SAID CITY
D) A TAX OF P2 PER SQM OR FRACTION THEREOF IS IMPSED ON EVERY BILLBOARD OR SIGN
ANYWHERE IN THE COUNTRY

24. THE LUNG CENTER OF THE PHILIPPINES, A CHARITABLE INSTITUTION, IS ERECTED IN THE
MIDDLE OF A 12-HECTARE LOT:
I. A BIG SPACE AT ITS GROUND FLOOR IS BEING LEASED TO PRIVATE PARTIES, FOR CANTEEN
AND SMALL STORE SPACES, AND TO MEDICAL OR PROFESSIONAL PRACTITIONERS WHO USE
THE SAME AS THEIR PRIVATE CLINICS FOR THEIR PATIENTS WHOM THEY CHARGE FOR THEIR
PROFESSIONAL FEES.
II. THE REST OF THE PORTIONS OF THE BUILDING ARE USED FOR ITS PATIENTS, WHETHER
PAYING OR NON-PAYING
III. ALMOST ½ OF THE ENTIRE AREA OF THE LOT ON THE LEFT SIDE OF THE BUILDING IS VACANT
AND IDLE
IV. A BIG PORTION ON THE RIGHT SIDE IS BEING LEASED FOR COMMERCIAL PURPOSES TO A
PRIVATE ENTERPRISE KNOWN AS THE ELLIPTICAL ORCHIDS & GARDEN CENTER WHICH PORTION
IS SUBJECT TO REAL PROPERTY TAX?
A) I ONLY
B) I AND II
C) III AND IV
D) I, III AND IV

5. STATEMENT 1: THE CONSTITUTIONAL EXEMPTION ON INCOME TAXES, PROPERTY TAXES AND

CUSTOMS DUTIES IS ALLOWED ON NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS
ONLY.
STATEMENT 2: A BUILDING BEING LEASED BY ITS OWNER TO A PRIVATE EDUCATIONAL
INSTITUTION FOR USE AS CLASSROOMS IS EXEMPT FROM PROPERTY YAX
STATEMENT 3: INCOME OF A NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION RUN BY
THE ARCHDIOCESE IS EXMEPT FROM TAX PROVIDED THAT INCOMES ARE ACTUALLY, DIRECTLY
AND EXCLUSIVELY USED FOR EDUCATIONAL PURPOSES

WHICH OF THE STATEMENTS ARE CORRECT?

A) STATEMENT 1 ONLY
B) STATEMENTS 1 AND 2
C) STATEMENT 2 ONLY
D) ALL OF THEM

26. WHICH OF THE FOLLOWING STATEMENTS IS NOT CORRECT? - (RPCPA)

A) AN INHERENT LIMITATION OF TAXATION MAY BE DISREGARDED BY THE APPLICATION OF A
CONSTITUTIONAL LIMITATION
B) THE PROPERTY OF AN EDUCATIONAL INSTITUTION OPERATED BY A RELIGIOUS ORDER IS
EXEMPT FROM PROPERTY TAX, BUT ITS INCOME IS SUBJECT TO INCOME TAX
C) THE PROHIBITION OF DELEGATION BY THE STATE OF THE POWER OF TAXATION WILL STILL
ALLOW THE BIR TO MODIFY THE RULES ON TIME FOR FILING OF RETURNS AND PAYMENT OF
TAXES
D) THE POWER OF TAXATION IS SHARED BY THE LEGISLATIVE AND EXECUTIVE
DEPARTMENTS OF GOVERNMENT

27. ST. BARNABAS COLLEGE (SBC) IS A NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION.

IT OWNS A 5-HECTARE LOT ½ OF WHICH IS BEING USED AS ITS SCHOOL CAMPUS WHILE THE
OTHER HALF IS VACANT. TO COPE WITH THE INCREASING OPERATING COSTS AND TO UPGRADE
ITS FACILITIES, SBC PLANS TO DO THE FOLLOWING EFFECTIVE JANUARY 1, 2006; 1). RENT OUT
TO A MARKETING FIRM THE VACANT PORTION OF THE LAND; 2) INCREASE TUITION FEES
BY 10% IN ACCORDANCE WITH GOVERNMENT REGULATIONS;.3)IMPORT 20 SETS OF
COMPUTERS FOR USE IN ITS COMPUTER COURSES.

WHICH OF THE FOLLOWING QUESTIONS IS ANSWERABLE BY "YES."?

A) IS SBC SUBJECT TO REAL ESTATE TAX ON THE ½ PORTION TO BE RENTED OUT TO A BUSINESS
ESTABLISHMENT?
B) WILL IT BE EXEMPT FROM INCOME TAX ON ITS RENTAL TO THE MARKETING FIRM?
C) WILL THE INCREASE IN TUITION FEES BE SUBJECT TO INCOME TAX IF IT RESULTS TO NET
INCOME FROM SCHOOL OPERATIONS?
D) WILL IT BE SUBJECT TO CUSTOMS DUTIES ON THE IMPORTATION OF THE COMPUTERS?

28. THE QUEZON SCHOOL OF BUSINESS AND ARTS, A PROPRIETARY EDUCATIONAL

INSTITUTION WHICH IS OFFERING PRIMARY, SECONDARY AND TERTIARY EDUCATIONB, IS
REGISTERED AND ACCREDITED BY DEPED AND CHED.
WHICH OF THE FOLLOWING IS EXEMPT FROM TAX? WHAT KIND OF TAX?
A) THE IMPORTATION OF LABORATORY EQUIPMENTS-FROM CUSTOMS DUTIES
B) THE SCHOOL BEING RENTED BY THE SCHOOL-FROM REAL PROPERTY TAX
C) A PORTION OF THE SCHOOL BUILDING BEING LEASED TO A FASTFOOD CHAIN-FROM REAL
PROPERTY TAX
D) THE INCOME FROM OPERATION-FROM INCOME TAX

9. IN RELATION TO NO. 28 ABOVE, ASSUMING THAT THE SCHOOL IS A NON-STOCK, NON-

PROFIT EDUCATIONAL INSTITUTION, WHICH OF THE FOLLOWING IS SUBJECT TO TAX ? WHAT
KIND OF TAX?
A) THE SCHOOL BUILDING OWNED BY THE SCHOOL-FROM REAL ESTATE TAX
B) THE SCHOOL BUILDING BEING RENTED BY THE SCHOOLFROM REAL ESTATE TAX
C) A PORTION OF THE SCHOOL BUILDING BEING LEASED TO A FASTFOOD CHAIN-FROM REAL
PROPERTY TAX
D) THE INCOME FROM OPERATION-FROM INCOME TAX

30. THE MUNICIPALITY OF SAN FRANCISCO HAS A 10HECTARE CEMETERY OF 4 DIFFRRENT

CEMETERIES WHICH ARE OWNED BY DIFFERENT ENTITIES. WHICH OF THE FOLLOWING IS
SUBJECT TO REAL ESTATE TAX?
A) CEMENTERIO MUNICIPAL DEL SAN FRANCISCO- A GOV'T CEMETERY OWNED BY THE
MUNICIPALITY WHICH WAS ESTABLISHED FOR THE PURPOSE OF USING IT AS BURIAL GROUND
OF THE PAUPERS OF SAN FRANCISCO
B) SAN FRANCISCO CATHOLIC CEMETERY-OWNED BY THE CATHOLIC CHURCH; PAYMENTS ARE
REMITTED TO THE CATHOLIC CHURCH AND FOR THE IMPROVEMENT OF THE CEMETERY
C) LAST TRIP MEMORIAL PARK-OWNED BY A CORPOR5ATION WHERE DIVIDENDS ARE
DISTRIBUTED TO THE SHAREHOLDERS AT THE END OF THE YEAR
D) QUITA-QUITA MEMORIAL PARK-OWNED BY AN ASSOCIATION CONSISTING OF 100
DIFFERENT FAMILIES; EACH FAMILY OWNS SEVERAL SQUARE METERS OF LOT; NOT A SINGLE
PORTION IS HELD FOR SALE TO EITHER MEMBER OR NON-MEMBERS OF THE ASSOCIATION