Taxation Law Outline Answers

1. What is taxation?; Distinguish it from taxes.

Answer > Taxation is the power inherent in every sovereign State to impose a charge or
burden upon persons, properties, or rights to raise revenues for the use and support of
the government to enable it to discharge its appropriate functions. Taxes, on the other
hand, are the enforced proportional contribution from persons and property levied by the
State by virtue of its sovereign power for public purposes.
2. What are the basic principles of a sound tax system {F-A-T}?
Answer > The basic principles in taxation are Fiscal Adequacy, Administrative Feasibility
and Theoretical Justice. Fiscal adequacy maintains that the sources of government
revenue must be sufficient to meet governmental expenditures and other public needs.
Administrative Feasibility refers to the maintenance of an administrative agency capable
of enforcing tax laws and its collection. Theoretical Justice on the other hand emphasizes
that the system of taxation must be based on the tax payers ability.
3. What is the so called lifeblood doctrine?
Answer > It simply means that taxes are the lifeblood of the nation. Without revenue
raised from taxation, the government will not survive to the detriment of the society.
Without taxes, the government would be paralyzed for lack of motive power to activate
and operate it.
4. Describe the other theories on taxation. Define each theory.
Answer > Necessity Theory is premised on the belief that the existence of government is
a necessity and that it cannot continue without the necessary means to defray its
expenses and due to those means, it has the right to compel all citizens and property
within its territorial jurisdiction to contribute. Benefit Theory states that the State
demands and receives taxes from the subjects of taxation within its jurisdiction so that it
may be able to carry its mandate into effect and perform the functions of government
and the citizens pay from his property the portion demanded in order that it may by
means thereof be secured in the enjoyment of the benefits of organized society.
5. What are the 3 different processes of taxation? {L-A-P} Define each.
Answer > The three processes of taxation are Levy, Assessment and Payment.
6. Explain briefly the secondary or non-revenue purposes of taxation.
7. State briefly the differences of taxation from other inherent powers of the State and other
Impositions. [See attached table]
8. What are the inherent limitations of the taxing power? {S-P-I-N-G}
Answer > The inherent limitations of taxing power are: (1) Situs or territoriality of
taxation, (2) must be for a Public purpose, (3) international comity, (4) non-delegability of
the taxing power and (5) Exemptions of government agencies.
9. Explain the Latin Maxim Mobilia Sequuntur Personam. Is it absolute? If not, give the
exemptions.

10. State the Constitutional Limitations on the Power to Tax.

Answer > Due Process Clause [Sec. 1, Art. III]; Equal Protection Clause [Sec. 1, Art. III];
Freedom of Religion [Sec. 5, Art. III]; Non-impairment of Contracts [Sec. 10, Art. III]; Nonimprisonment for non-payment of Tax [Sec. 20. Art. III]
Note: Rule on Exemption from Real Tax > The properties must be ACTUALLY,
DIRECTLY and EXCLUSIVELY used for religious, educational and charitable purposes
to be exempt from taxation. [Sec. 28 [3], Art. VI]
11. What are the kinds of taxes? Explain briefly.
12. What is the concept of double taxation? What are the 4 of double taxation?
13. What is the doctrine of imprescriptibility?
14. Distinguish tax evasion (tax dodging) from tax avoidance (tax minimization).
Answer > The former connotes fraud through the use of pretenses and forbidden
devices to lessen or defeat taxes and it must be willful and intentional while the latter is a
tax saving device that is legally permissible.
15. What is shifting in taxation?
16. What is tax avoidance? Distinguish tax avoidance from tax evasion.
17. What is tax exemption?
18. What is a compromise? Give the difference between compromise and tax amnesty.
19. What are the remedies of the government? What is meaning of best obtainable evidence under
the National Internal Revenue Code?
20. What are the remedies for collection of delinquent taxes? Kindly define each remedy.
21. What is taxable income?
22. State briefly the distinctions between income, capital, revenue and receipts.
23. Give the different sources of income.
24. What are the requisites for an income to be taxable?
Answer > (1) There must be a gain or addition to net worth, (2) the gain must be realized
or received, actually or constructively; recipient must have complete dominion and (3) the
gain must not be excluded by law or treaty from taxation.
25. Give the statutory definition and broad definition of gross income. Give some sources.
Gross income is defined as all income derived from whatever source. This is an open ended
definition, suggestive of an intention to include rather exclude. The following items comprise the
gross income subject to income tax:
Answer > 1. Compensation for services in whatever form paid, including but not limited
to fees, salaries, wages, commissions, and similar items., EXCEPT for the

following: a. Those received by taxpayers who are subject to the Gross Income Tax b.
Those received by Aliens employed by MNCs, OBUs and Petroleum Service Contractors
because their compensation are subject to the 15% Final tax unless they choose pay by
way of final income tax.
2. Gross income derived from the conduct of trade or business or the exercise of a
profession.
3. Gains derived from dealings in property. If the real property is capital, the gain
therefrom is subject to income tax and not included as gross income. b. If the real
property is ordinary, it should be included.
4. Interest income a. Interests from loans are always included in the gross income. b.
Interests from bank deposits are not included since they are subject to final income tax.
5. Rental income
6. Royalties a. The royalty is subject to final income tax if it is derived from sources within
the Philippines. b. If the source is outside the Philippines, the net income tax is
applicable.
7. Dividends
8. Annuities
9. Prizes and winnings, instances to be included in the gross income: a. It should be
derived from sources within the Philippines and should be less than or equal to P10k
b. The prize is derived from sources without the Philippines c. The taxpayer is a
corporation.
10. Pensions (unless excluded)
11. Partners distributive share from the net income of the GPP
26. What are the two (2) reasons for exclusion for gross income?
27. Who are the individual taxpayers? Explain each taxpayer.
Answer > The individual taxpayers are the following: (1) resident citizen - citizen of the
Philippines residing therein; citizen residing outside the Philippines without the intention
of residing thereat permanently; and citizen who did not manifest to the total satisfaction
of the Commissioner the fact of his physical presence abroad with a definite intention to
reside therein permanently. (2) non-resident citizen - citizen who established to the
satisfaction of the Commissioner the fact of his physical presence abroad with a definite
intention to reside therein and a citizen who leaves the Philippines during the taxable
year to reside abroad as immigrants. (3) resident alien - an individual residing in the
Philippines who is not a citizen thereof and (4) non-resident alien an alien engaged in
trade or business in the PHL or not engaged in trade of business in the PHL.
28. Explain the tax base for each sources of income of individual taxpayers.
29. Give the five (5) categories of income; Define each briefly.
30. Give the forms of compensation and their brief meaning.
31. What are de minimis and fringe benefits? Give examples.
32. What are two (2) steps for a taxpayer to avail tax deduction?
33. Explain the Cohan Rule Principle.

34. What are the kinds of allowable deductions?