CHAPTER 1

INTRODUCTION TO TAXATION

Chapter Overview and Objectives

This chapter discusses the fundamental principles of taxation.

After this chapter, readers must be able to comprehend and demonstrate mastery of the
following:
1. Concept taxation and its necessity for every government
2. Lifeblood doctrine and its implication to taxation
3. Theories of the government cost allocation
4. Inherent power of the State
5. Scope of the taxation power
6. Limitations of the taxation power
7. Stages of taxation
8. Concept of situs in taxation
9. Fundamental principles surrounding taxation
10. Various escapes from taxation
11. Concept of tax amnesty and condonation

WHAT IS TAXATION?
Taxation may be defined as a State of power, a legislative process, and a mode of government
cost distribution.

1. As a state of power
Taxation is an inherent power of the State to enforce a proportional contribution from its
subjects or public purpose.

2. As a process
Taxation is a process of levying taxes by the legislature of the State to enforce
proportional contributions from its subjects for public purpose.

3. As a mode of cost distribution

Taxation is a mode by which the State allocates its costs or burden to its subjects who are
benefited by its spending.

The Theory of Taxation

Every government provides a vast array of public services including defense, public order and
safety, health, education, and social protection among others.

A system of government is indispensable to every society. Without it, the people will not relish
the benefits of a civilized and orderly society. However, a government cannot exist without a
system funding. The government’s necessity for funding is the theory of taxation.

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The Basis of Taxation
The government provides benefits to the people in the form of public services, and the people
provide the funds that finance the government. This mutuality of support between the people
and the government is referred to as the basis of taxation.

Receipt of benefits is conclusively presumed

Every citizen and resident of the State directly or indirectly benefits from the public services
rendered by the government. These benefits can be in the form of daily free usage of public
infrastructures, access on public health or educational services, the protection and security of
person and property, or simply the comfort of living in a civilized and peaceful society which is
maintained by the government.

While most public services are received indirectly, their realization by every citizen and resident
is undeniable. In taxation, the receipt of these benefits by the people is conclusively presumed.
Thus, taxpayers cannot avoid payment of taxes under the defense of absence of benefit received.
The direct receipt or actual availment of government services is not a precondition to taxation.

THEORIES OF COST ALLOCATION

Taxation is a mode of allocating government costs or burden to the people. In distributing the
costs or burden, the government regards the following general considerations in the exercise of
its taxation power:
1. Benefit received theory
2. Ability to pay theory

Benefit received theory

The benefit received theory presupposes that the more benefit one receives from the government,
the more taxes he should pay.

Ability to pay theory

The ability to pay theory presupposes that taxation should also consider the taxpayer’s ability to
pay. Taxpayers should be required to contribute based on their relative capacity to sacrifice for
the support of the government.

In short, those who have more should be taxed more even if they benefit less from the
government. Those who have less shall contribute less even if they receive more of the benefits
from the government.

Aspects of the Ability to Pay Theory

1. Vertical equity

Vertical equity proposes that the extent of one’s ability to pay is directly proportional to
the level of his tax base.

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 For example, A has P200,000 income while B has P400,000. In taxing income, the
government should tax B more than A because B has greater income; hence, a greater
capacity to contribute.

2. Horizontal equity

Horizontal equity requires consideration of the particular circumstance of the taxpayer.

For example, Businessmen A and B both have P300,000 income. A incurred P200,000 in
business expenses while B incurred only P50,000 business expenses. The government
should tax B or more than A because he has lesser expenses and thus greater capacity to
contribute taxes.

Vertical equity is a gross concept while horizontal equity is a net concept.

The Livelihood Doctrine

Taxes are essential and indispensable to the continued subsistence of the government. Without
taxes, the government would be paralyzed for lack of motive power to activate or operate it.
(CIR vs. Algue)

Taxes are the lifeblood of the government, and their prompt and certain availability are an
imperious need. Upon taxation depends the government’s ability to serve the people for whose
benefit taxes are collected. (Vera vs. Fernandez)

Implication of the lifeblood doctrine in taxation:

1. Tax is imposed even in the absence of a Constitutional grant.

2. Claims for tax exemption are construed against taxpayers.
3. The government reserves the right to choose the objects of taxation.
4. The courts are not allowed to interfere with the collection of taxes.
5. In income taxation:
a. Income received in advance is taxable upon receipt.
b. Deduction for capital expenditures and payments is not allowed as it effectively
defers the collection of income tax.
c. A lower amount of deduction is preferred when a claimable expense is subject to
limit.
d. A higher tax base is preferred when the tax object has multiple tax bases.

INHERENT POWERS OF THE STATE

A government has its basic needs and rights which co-exist with its creation. It has rights to
sustenance, protection, and properties. The government sustains itself by the power of taxation,
secures itself and the well-being of its people by police power, and secures its own properties to
carry out its public services by the power of eminent domain.

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These rights, dubbed as “powers” are natural, inseparable, and inherent to every government.
No government can sustain or effectively operate without these powers. Therefore, the exercise
of these powers by the government is presumed understood and acknowledged by the people
from the very moment they establish their government. These powers are naturally exercisable
by the government even in the absence of an express grant of power in the Constitution.

The Inherent Powers of the State

1. Taxation power is the power of the State to enforce proportional contribution from its
subjects to sustain itself.
2. Police power is the general power of the State to enact laws to protect the well-being of
the people.
3. Eminent domain is the power of the State to take private property for public use after
paying just compensation.

Comparison of the three powers of the State

Point of Difference Taxation Police Power Eminent Domain
Exercising Authority Government Government Government and
private utilities
Purpose For the support of the To protect the general For public use
government welfare of the people
Persons affected Community or class Community or class Owner of the
of individuals of individuals property
Amount of Unlimited (Tax is Limited (Imposition is No amount imposed
Imposition based on government limited to cover cost (The government
needs.) of regulation.) pays just
compensation.)
Importance Most important Most superior Important
Relationship with the Inferior to the “Non- Superior to the “Non- Superior to the “Non-
Constitution impairment Clause” impairment Clause” impairment Clause”
of the Constitution of the Constitution of the Constitution
Limitation Constitutional and Public interest and Public purpose and
inherent limitations due process just compensation

Similarities of the three powers of the State

1. They are all necessary attributes of sovereignty.

2. They are all inherent to the state.
3. They are all legislative in nature.
4. They are all ways in which the State interferes with private rights and properties.
5. They all exist independently of the constitution and are exercisable by the government
even without Constitutional grant. However, the constitution may impose conditions or
limits for their exercise.
6. They all presuppose an equivalent form of compensation received by the persons
affected by the exercise of the power.
7. The exercise of these powers by the local government units may be limited by the
national legislature.

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SCOPE OF THE TAXATION POWER
The scope of taxation is widely regarded as comprehensive, plenary, unlimited and supreme.

However, despite the seemingly unlimited nature of taxation, t is not absolutely unlimited.
Taxation has its own inherent limitations and limitations imposed by the Constitution.

THE LIMITATIONS OF THE TAXATION POWER

A. Inherent limitations
1. Territoriality of taxation
2. International comity
3. Public purpose
4. Exemption of the government
5. Non-delegation of the taxing power

B. Constitutional limitations
1. Due process of law
2. Equal protection of the law
3. Uniformity rule in taxation
4. Progressive system of taxation
5. Non-imprisonment for non-payment of debt or poll tax
6. Non-impairment of obligation and contract
7. Free worship rule
8. Exemption of religious or charitable entities, non-profit cemeteries, churches and
mosque from property taxes.
9. Non-appropriation of public funds or property for the benefit of church, sect or
system of religion
10. Exemption from taxes of the revenues and assets of non-profit, non-stock
educational institutions
11. Concurrence of a majority of all members of Congress for the passage of a law
granting tax exemption
12. Non-diversification of tax collections
13. Non-delegation of the power of taxation
14. Non-impairment of the jurisdiction of the Supreme Court to review tax cases
15. The requirement that appropriations, revenue, or tariff bails shall originate
exclusively in the House of Representatives
16. The delegation of taxing power to local government units

INHERENT LIMITATION OF TAXATION

Territoriality of taxation
Public services are normally provided within the boundaries of the State. Thus, the government
can only demand tax obligations upon its subjects or residents within its territorial jurisdiction.
There is no basis in taxing foreign subjects abroad since they do not derive benefits from our
government. Furthermore, extraterritorial taxation will amount to encroachment of foreign
sovereignty.

Two-fold obligations of taxpayers:

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 1. Filing of returns and payment of taxes
2. Withholding of taxes on expenses and its remittance to the government

These obligations can only be demanded and enforced by the Philippine government upon its
citizens and residents. It cannot enforce these upon subjects outside its territorial jurisdiction as
tis would result in encroachment of foreign sovereignty.

Exception to territoriality principle

1. In income taxation, resident citizens and domestic corporations are taxable on income
derived within and outside the Philippines.
2. In transfer taxation, residents or citizens such as resident citizen, non-resident citizens
and resident aliens are taxable on transfers of properties located within or outside the
Philippines.

International comity
I the UN Convention, countries of the world agreed to one fundamental concept of co-equal
sovereignty wherein all nations are deemed equal with one another regardless of race, religion,
culture, economic condition, or military power.

No country is powerful than the other. It is by this principle that each country observes
international comity or mutual courtesy or reciprocity between them. Hence,
1. Governments do not tax the income and properties of other governments.
2. Governments give primacy to their treaty obligations over their own domestic tax laws.

Embassies or consular offices of foreign governments in the Philippines including international

organizations and their non-Filipino staff are not subject to income taxes or property taxes.
Under the National Internal Revenue Code (NIRC), the income of foreign government and
foreign government-owned and controlled corporations are not subject to income tax.

When a state enters into treaties with other states, it is bound to honor the agreements as a
matter of mutual courtesy with the treaty partner even if the same conflicts with its local tax
laws.

Public purpose
Tax is intended for the common good. Taxation must be exercised absolutely for public
purpose. It cannot be exercised to further any private interest.

Exemption of the government

The taxation power is broad. The government can exercise the power upon anything including
itself. However, the government normally does not tax itself as this will not raise additional
funds but will only impute additional costs.

Under the NIRC, government properties and income from essential public functions are not
subject to taxation. However, income of the government from its properties and activities
conducted for profit including income from government owned and controlled corporations is
subject to tax.

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Non-delegation of the taxing power
The legislative power is vested exclusively in Congress and is non-delegable pursuant to the
doctrine of separation of the branches of the government to ensure a system of checks and
balances.

The power of lawmaking, including taxation, is delegated by the people to the legislature. So as
not to spoil the purpose of delegation, it is held that what has been delegated cannot be further
delegated.

Exceptions to the rule of non-delegation

1. Under the Constitution, local government units are allowed to exercise the power to tax
to enable them to exercise their fiscal autonomy.
2. Under the Tariff and customs code, the President is empowered to fix the amount of
tariffs to be flexible to trade conditions.
3. Other cases that require expedient and effective administration and implementation of
assessment and collection of taxes.

CONSTITUTIONAL LIMITATIONS OF TAXATION

Observance of due process of law

No one should be deprived of his life, liberty, or property without due process of law. Tax laws
should neither be harsh nor oppressive.

Aspects of Due Process

1. Substantive due process
Tax must be imposed only for public purpose, collected only under authority of a valid
law and only by the taxing power having jurisdiction. An assessment without a legal
basis violates the requirement of due process.
2. Procedural due process
There should be no arbitrariness in assessment and collection of taxes, and the
government shall observe taxpayer’s right to notice and hearing. The law established
procedures which must be adhered o in making assessments and in enforcing
collections.

Under the NIRC, assessments shall be made within three years from the due date of
filling of the return or from the date of actual filling, whichever is later. Collection shall
be made within five years from the date of assessment. The failure of the government to
observe these rules violates the requirement of due process.

Equal protection of the law

No person shall be denied the equal protection of the law. Taxpayers should be treated equally
both in terms of rights conferred and obligations imposed.

This rule applies where taxpayers are under the same circumstances and conditions. This
requirement would mean Congress cannot exempt sellers of “ballot” while subjecting sellers of
“penoy” to tax since they are essentially the same goods.

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Uniformity rule in taxation
The rule of taxation shall be uniform and equitable. Taxpayers under dissimilar circumstances
should not be taxed the same. Taxpayers should be classified according to commonality in
attributes, and the tax classification to be adopted should be based on substantial distinction.
Each class is taxed differently, but taxpayers falling under the same class are taxed the same.
Hence, uniformity is relative equality.

Progressive system of taxation

Congress shall evolve a progressive system of taxation. Under the progressive system, tax rates
increase as the tax base increases. The Constitution favors progressive tax as it is consistent with
the taxpayer’s ability to pay. Moreover, the progressive system aids in an equitable distribution
of wealth to society by taxing the rich more than the poor.

Non-imprisonment for non-payment of debt or poll tax

As a policy, no one shall be imprisoned because of his poverty, and no one shall be imprisoned
for mere inability to pay debt.

However, this Constitutional guarantee applies only when the debt is acquired by the debtor in
good faith. Debt acquired in bad faith constitutes estafa, a criminal offense punishable by
imprisonment.

Is non-imprisonment of tax equivalent to non-payment of debt?

Tax arises from law and is a demand of sovereignty. It is distinguished from debt which arises
from private contracts. Non-payment of tax compromises public interest while the non-
payment of debt compromises private interest. The non-payment of tax is similar to a crime.
The Constitutional guarantee on non-imprisonment for non-payment of debt does not extend to
non-payment of tax, except poll tax.
Poll, personal, community or residency tax
Poll tax has two components:
a. Basic community tax
b. Additional community tax

The constitutional guarantee of non-imprisonment for non-payment of poll tax applies only to
the basic community tax. Non-payment of the additional community tax is an act of tax evasion
punishable by imprisonment.

Non-impairment of obligation and contract

The State should set an example of good faith among its constituents. It should not set aside its
obligations from contracts by the exercise of its taxation power. Tax exemptions granted under
contract should be honored and should not be cancelled by a unilateral government action.

Free ownership rule

The Philippine government adopts free exercise of religion and does not subject its exercise to
taxation. Consequently, the properties and revenues of religious institutions such as tithes or
offerings are not subject to tax. This exemption, however, does not extend to income from
properties or activities of religious institutions that are proprietary or commercial in nature.

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Exemption of religious, charitable or educational entities, non-profit cemeteries, churches
and mosque, lands, buildings, and improvements from property taxes

The Constitutional exemption from property tax applies for properties actually, directly, and
exclusively (i.e. primarily) used for charitable, religious, and educational purposes.

In observing this Constitutional limitation, the Philippines follows the doctrine of use wherein
only properties actually devoted for religious, charitable, or educational activities are exempt
from real property tax.

Under the doctrine of ownership, the properties of religious, charitable, or educational entities
whether or not used in their primary operations are exempt from real property tax. This,
however, is not applied in the Philippines.

Non-appropriation of public funds or property for the benefit of any church, sect, or system
of religion
This constitutional limitation is intended to highlight the separation of religion and the State. To
support freedom and religion, the government should not favour any particular system of
religion by appropriating public funds or property in support thereof.

It should be noted, however, that compensation to priests, imams, or religious ministers

working with the military, penal institutions, orphanages, or leprosarium is not considered
religious appropriation.

Exemption from taxes of the revenues and assets of non-profit, non-stack educational
institutions including grants, endowments, donations, or contributions for educational
purposes
The Constitution recognizes the necessity of education in state building by granting tax
exemption on revenues and assets of non-profit educational institutions. This exemption,
however, applies only revenues and assets that are actually, directly, and exclusively devoted
for educational purposes.

Consistent with this constitutional recognition of education as a necessity, the NIRC also
exempts government educational institutions from income tax and subjects private educational
institutions to a minimal 10% income tax.

Concurrence of a majority of all members of Congress for the passage of a law granting tax
exemption
Tax exemption law counters against the livelihood doctrine as it deprives the government of
revenues. Hence, the grant of tax exemption must proceed only upon a valid basis. As a safety
net, the constitution requires the vote of the majority of all members of Congress in the grant of
tax exemption.

In the approval of an exemption law, an absolute majority or the majority of all members of
congress, not a relative majority or quorum majority, is required. However, in the withdrawal of
tax exemption, only relative majority is required.

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Non-diversification of tax collections
Tax collections should be used only for public purpose. It should never be diversified or used
for private purpose.

Non-delegation of the power of taxation

The principle of checks and balances in a republican state requires that taxation power as a part
of lawmaking be vested exclusively in Congress.

However, delegation may be made on matters involving the expedient and effective
administration and implementation of assessment and collection of taxes. Also, certain aspects
of the taxing process that are non-legislative in character are delegated.

Hence, implementing administrative agencies such as the Department of Finance and the
Bureau of Internal revenue (BIR) issues revenue regulations, rulings, orders, or circulars to
interpret and clarify the application of the law. But even so, their functions are merely intended
to interpret or clarify the proper application of the law. They are not allowed to introduce new
legislations within their quasi-legislative authority.

Non-impairment of the jurisdiction of the Supreme Court to review tax cases

Notwithstanding the existence of the Court of Tax Appeals, which is a special court, all cases
involving taxes can be raised to and be finally decided by the Supreme Court of the Philippines.

Appropriations, revenue, or tariff bills shall originate exclusively in the House of

Representatives, but the Senate may propose or concur with amendments.
Laws that add income to the national treasury and those that allows spending therein must
originate from the House of Representatives while Senate may concur with amendments. The
origination of a bill by Congress does not necessarily mean that the House bill must become the
final law. It was held constitutional by the Supreme Court when the Senate changed the entire
house version of a tax bill.

Each local government unit shall exercise the power to create its own sources of revenue and
shall have a just share in the national taxes
This is a constitutional recognition of the local autonomy of local governments and an express
delegation of the taxing power.

STAGES OF THE EXERCISE OF TAXATION POWER

1. Levy or imposition
2. Assessment and collection

Levy or imposition
This process involves the enactment of a tax law by Congress and is called impact of taxation. It is
also referred to as the legislative act in taxation.

Congress is composed of two bodies:

1. The House of Representatives, and

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 2. The Senate

As mandated by the Constitution, tax bills must originate from the House of Representatives.
Each may, however, have their own versions of a proposed law which is approved by both
bodies, but tax bills cannot originate exclusively from the Senate.

Matters of legislative discretion in the exercise of taxation

1. Determining the object of taxation
2. Setting the tax rate or amount to be collected
3. Determining the purpose for the levy which must be public use
4. Kind of tax to be imposed
5. Apportionment of the tax between the national and local government
6. Situs of taxation
7. Method of collection

Assessment and Collection

The tax law is implemented by the administrative branch of the government. Implementation
involves assessment or the determination of the tax liabilities of taxpayers and collection. This
stage is referred to as incidence of taxation or the administrative act of taxation.

SITUS OF TAXATION
Situs is the place of taxation. It is the tax jurisdiction that has the power to levy taxes upon the
tax object. Situs rules serve as frames of reference in gauging whether the tax object is within or
outside the tax jurisdiction of the taxing authority.

Examples of Situs Rules:

1. Business tax situs: Business are subject to tax in the place where the business is
conducted.

Illustration
A taxpayer is involved in car dealership abroad and restaurant operation in the Philippines.

The restaurant business will be subject to business tax in the Philippines since the business
is conducted herein, but the car dealing business is exempt because the business is
conducted abroad.

2. Income tax situs on services: Service fees are subject to tax where they are rendered.

Illustration
A foreign corporation leases a residential space to a non-resident Filipino citizen abroad.
The rent income will be exempt from Philippine taxation s the leasing service is rendered
abroad.

3. Income tax situs on sale of goods: The gain on sale is subject to tax in the place of sale.

Illustration

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 While in China, a non-resident OFW agreed with a Chinese friend to sell his diamond
necklace to the latter. They stipulated that the delivery of the item and the payment will be
made a week later in the Philippines. The sale was consummated as agreed.

The contract of sale is consensual and is perfected y the meeting of the minds of the
contracting parties. The perfection of the contract of sale is in China. The situs of taxation is
China. The gain on the sale of the necklace will be taxable abroad and exempt in the
Philippines.

4. Property tax situs: Properties are taxable in their location.

Illustration
An overseas Filipino worker has a residential lot in the Philippines.

He will still pay real property tax despite his absence in the Philippines because his property
is located herein.

5. Personal tax situs: Persons are taxable in their place of residence.

Illustration
Ahmed Lofti is a Sudanese studying medicine in the Philippines.

Ahmed will pay personal tax in the Philippines even if he is an alien because he is residing
in the Philippines.

OTHER FUNDAMENTAL DOCTRINES IN TAXATION

1. Marshall Doctrine- “The power to tax involves the power to destroy.” Taxation power can be
used as an instrument of police power. It can be used to discourage or prohibit
undesirable activities or occupation. As such, taxation power carries with it the power to
destroy.

However, the taxation power does not include the power to destroy if it is only used
solely for the purpose of raising revenue. (Roxas vs. CTA)

2. Holme’s Doctrine- “Taxation power is not the power to destroy while the court sits.” Taxation
power may be used to build or encourage beneficial activities or industries by the grant
of tax incentives.

While the Marshall Doctrine and the Holme’s Doctrine appear to contradict each other.
Both are actually employed in practice. A good manifestation of the Marshall Doctrine is
the imposition of excessive tax on cigarettes while applications of the Holme’s Doctrine
include the creation of Ecozones with tax holidays and provision of incentives, such as
Omnibus Investment Codee (E.O.226) and the Barangay Micro-Business Enterprise
(BMBE) Law.

3. Prospectivity of tax laws

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 Tax laws are generally prospective in operation. An ex post facto law or a law that
retroacts is prohibited by the Constitution.

Exceptionally, income tax laws may operate retrospectively if so intended by Congress

under certain justifiable conditions. For example, congress can levy tax on income
earned during periods of foreign occupation even after the war.

4. Non-compensation or set-off
Taxes are not subject to automatic set-off or compensation. The taxpayer cannot delay
payment of tax to wait for the resolution of a lawsuit involving his pending claim
against the government. Tax is not a debt; hence, it is not subject to set-off. This rule is
important to allow the government sufficient period to evaluate the validity of the claim.
(See Philex Mining Corporation vs. CIR, G.R. 125704)

Exceptions:
a. Where the taxpayer’s claim has already become due and demandable such as when
the government already recognized the sae and an appropriation for refund as
made.
b. Cases of obvious overpayment of taxes
c. Local taxes

5. Non-assignment of taxes
Tax obligations cannot be assigned or transferred to another entity by contract.
Contracts executed by the taxpayer to such effect shall not prejudice the right of the
government to collect.

6. Imprescriptibility in taxation
Prescription is the lapsing of a right due to the passage of time. When one sleep on his
right over an unreasonable period of time, he is presumed to be waiving his right. The
government’s right to collect taxes does not prescribe unless the law itself provides for
such prescription.

Under the NIRC, tax prescribes if not collected within 5 years from the date of its
assessment. In the absence of an assessment, tax prescribes if not collected by judicial
action within 3 years from the date the return is required to be filed. However, taxes due
from taxpayers who did not file a return or those who filed fraudulent returns do not
prescribe.

7. Doctrine of estoppel
Under the doctrine of estoppel, any misrepresentation made by one party toward
another who relied therein in good faith will be held true and binding against that
person who made the misrepresentation.

The government is not subject to estoppel. The error of any government employee des
not bind the government. It is held that the neglect or omission of government officials
entrusted with the collection of taxes should not be allowed to bring harm or detriment

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 to the interest of the people. Also, erroneous applications of the law by public officers do
not block the subsequent correct application of the same.

8. Judicial Non-interference
Generally, courts are not allowed to issue injunction against the government’s pursuit to
collect tax as this would unnecessarily defer tax collection. This rule is anchored on the
Lifeblood Doctrine.

9. Strict Construction of Tax Laws

When the law clearly provides for taxation, taxation is the general rule unless there is
clear exemption. Hence the maxim, “Taxation is the rule, exemption is the exception.”

When the language of the law is clear and categorical, there is no room for
interpretation. There is only room for application. However, when taxation laws are
vague, the doctrine of strict legal construction is observed.

Vague tax laws

Vague tax laws are construed against the government and in favor of the taxpayers. A
vague tax law means no tax law. Obligation arising from law is not presumed. The
Constitutional requirement of due process requires laws to be sufficiently clear and
expressed in their provisions.

Vague exemption laws

Vague tax exemption laws are construed against the taxpayer and in favour of the
government. A vague tax exemption law means no exemption law means no exemption
law. The claim for exemption is construed strictly against the taxpayer in accordance
with the lifeblood doctrine.

The right of taxation is inherent to the State. It is prerogative essential to the perpetuity
of the government, He who claims exemption from the common burden must justify his
claim by the clearest grant of organic or statute law. (Iloilo, et al. vs. Smart
Communications, Inc., G.R. No. 167260, February 27, 2009)

When exemption is claimed, it must be shown indubitably to exist. At the outset, every
presumption is against it. A well-founded doubt is fatal to the claim; it is only when the
terms of the concession are too explicit to admit fairly of any other construction that
proposition can be supported. (Ibid)

Tax exemption cannot arise from vague inference. Tax exemption must be clear and
unequivocal. A taxpayer claiming a tax exemption must point to a specific provision of
law conferring on the taxpayer, in clear and plain terms, exemption from a common
burden. Any doubt whether tax exemption exists is revolved against the taxpayer. (see
Digital Telecommunications, Inc. vs. City Government of Batangas, et al)

DOUBLE TAXATION
Double taxation occurs when the same taxpayers is taxed twice by the same ta
jurisdiction for the same thing.

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 Elements of double taxation
1. Primary element: Same object
2. Secondary elements:
a. Same type of tax
b. Same purpose of tax
c. Same taxing jurisdiction
d. Same tax period

Types of Double Taxation

1. Direct double taxation

This occurs when all the element of double taxation exists for both impositions.

Examples:
a. An income tax of 10% on monthly sales and a 2% income tax on the annual sales
(total of monthly sales)
b. A 5% tax on bank reserve deficiency and another 1% penalty per day as a
consequence of such reserve deficiency

2. Indirect double taxation

This occurs at least one of the secondary elements of double taxation is not common for
both impositions.

Examples:
a. The national government levies business tax on the sales or gross receipts of business
while the local government levies business tax upon the same sales or receipts.
b. The national government collects income tax from a taxpayer on his income while
the local government collects community tax upon the same income.
c. The Philippine government taxes foreign incomes of domestic corporations and
resident citizens while a foreign government also taxes the same income
(international double taxation).

Nothing in our law expressly prohibits double taxation. In fact, indirect double taxation is
prevalent in practice. However, direct double taxation is discouraged because it is oppressive
and burdensome to taxpayers. It is also believed to counter the rule of equal protection and
uniformity in the Constitution.

How can double taxation be minimized?

The impact of double taxation can be minimized by one or a combination of the following:

a. Provision of tax exemption- only one tax law is allowed to apply to the tax object while the
other tax law exempts the same tax object
b. Allowing foreign tax credit- both tax laws of the domestic country and a foreign country
tax to the object but the tax payments made in the foreign tax law is deductible against
the tax due of the domestic tax law

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 c. Allowing reciprocal tax treatment- provisions in tax laws imposing a reduced tax rates or
even exemption if the country of the foreign taxpayer also give the same treatment to
Filipino non-residents therein
d. Entering into treaties or bilateral agreements- countries may stipulate for a lower tax rates
for their residents if they engage in transactions that are taxable by both of them

ESCAPES FROM TAXATION

Escapes from taxation are the means available to the taxpayer to limit or even avoid the impact of
taxation.

Categories of Escapes from Taxation

A. Those that result to loss of government revenue

1. Tax evasion, also known as tax dodging, refers to any act of trick that tends to
illegally reduce or avoid the payment of tax.
Examples:
a. This can be achieved by gross understatement of income, non-declaration of income,
overstatement of expenses or tax credit.
b. Misrepresenting the nature of amount of transaction to take advantage of lower
taxes.

2. Tax avoidance, also known as tax minimization, refers to any act or trick that
reduces or totally escapes taxes by any legally permissible means.
Examples:
a. Selection and execution of transaction that would expose taxpayer to lower taxes.
b. Maximizing tax options, tax carry-overs or tax credits
c. Careful tax planning

3. Tax exemption, also known as tax holiday, refers to the immunity, privilege or
freedom from being subject to a tax which others are subject to. Tax exemptions may
be granted by the Constitution, law, or contract.

All forms of tax exemptions can be revoked by Congress except those granted by the
Constitution and those granted under contracts.

B. Those that do not result to loss of government revenue

1. Shifting- This is the process of transferring tax burden to other taxpayers.

Forms of shifting

a. Forward shifting- This is the shifting of tax which follows the normal flow of
distribution. (i.e. from manufacturer to wholesalers, retailers to consumers). Forward
shifting is common with essential commodities and services such as food and fuel.

16
 b. Backward shifting- This is the reverse of forward shifting. Backward shifting is
common with non-essential commodities where buyers have considerable market
power and commodities with numerous substitute products.
c. Onward shifting- This refers to any tax shifting in the distribution channel that
exhibits forward shifting or backward shifting.

Shifting is common with business taxes where taxes imposed on business revenue can
be shifted or passed-on to customers.

2. Capitalization- This pertains to the adjustment of the value of an asset caused by

changes in tax rates.
For instance, the value of a mining property will correspondingly decrease when mining
output is subjected to higher taxes. This is a form of backward shifting of tax.

3. Transformation- This pertains to the elimination of wastes or losses by the taxpayer to

form savings to compensate for the tax imposition or increase in taxes.

Tax Amnesty
Amnesty is a general pardon granted by the government for erring taxpayers to give them a
chance to perform and enable them to have a fresh start to be part of a society with a clean state.
It is an absolute forgiveness or waiver by government on its right to collect and is retrospective
in application.

Tax Condonation
Tax condonation is forgiveness of the tax obligation of a certain taxpayer under certain justifiable
grounds. This is also referred to as tax remission.

Because they deprive the government of revenues, tax exemption, tax refund, tax amnesty and
tax condonation are construed against the taxpayer and in favour of the government.

Tax Amnesty vs. Tax Condonation

Amnesty covers both civil and criminal liabilities, but condonation covers only civil liabilities of
the taxpayer.

Amnesty operates retrospectively by forgiving past violations. Condonation applies

prospectively to any unpaid balance of the tax; hence, the portion already paid by the taxpayer
will not be refunded.

Amnesty is also conditional upon the taxpayer paying the government a portion of the tax
whereas condonation requires no payment.

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Discussion Questions

1. Define taxation.
2. Distinguish the theory and the basis of taxation.
3. What are the theories of government cost allocation? Explain each.
4. Differentiate vertical and horizontal equity.
5. Discuss the Lifeblood Doctrine.
6. Enumerate and explain the inherent powers of the State.
7. Distinguish the three powers of the State and enumerate their similarities.
8. Describe the scope of the power of taxation.
9. Distinguish substantive due process from procedural due process.
10. Distinguish the concept of equality from the concept of uniformity in taxation.
11. Distinguish non-payment of debt versus non-payment of tax in terms of consequences.
12. What institutions are exempt from real property tax in the Constitution?
13. Which of the constitutional limitations are also classified as inherent limitations?
14. Explain the stages of the exercise of taxation power.
15. Explain the concept of situs.
16. Distinguish the Marshall Doctrine from the Holme’s Doctrine.
17. Discuss the doctrine of strict construction of tax laws.
18. Explain double taxation, its elements, and its types.
19. What are the categories of escapes from taxation? Enumerate and explain each means of
escape under each category.
20. Distinguish tax amnesty from tax condonation.

Reference: Income Taxation- Laws Principles and Applications (2019 OBE Edition)
Author: REX B. BANGGAWAN, CPA, MBA

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Drill 1: In the space provided or, indicate whether the statement relates to a Constitutional
limitation (C) or inherent limitation (I). If it is not a limitation to the taxing power, indicate (N).

1. Non-assignment of taxes
2. Territoriality of taxation
3. Taxes must be for public use
4. Exemption of the property of religious institutions from income tax
5. Exemption of the revenues and assets of non-profit, non-stock
educational institutions
6. Non-delegation of the taxing power
7. Non-appropriation for religious purpose
8. The requirement of absolute majority in the passage of a tax
exemption law
9. Non-imprisonment for non-payment of tax or debt
10. Taxpayers under the same circumstance should be treated equal both
in terms of privileges and obligations
11. Exemption from property taxes of religious, educational and
charitable entities
12. Government income and properties are not objects of taxation.
13. Each local government shall have the power to create its own sources
of revenue.
14. Imprescriptibility in taxation
15. Non-impairment of obligation and contacts
16. Guarantee of proportional system of taxation
17. International courtesy

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 18. Non-impairment of the jurisdiction of the Supreme Court to review
tax cases.
19. The government is not subject to estoppel.
20. Imprisonment for non-payment of poll tax

Drill 2: True or False

1. Eminent domain involves confiscation of prohibited commodities to protect the well-
being of the people.
2. Horizontal equity requires consideration of the circumstance of the taxpayer.
3. Taxes are the lifeblood of the government.
4. Taxation is a mode of apportionment of government costs to the people.
5. There should be direct receipt of benefit before one could be compelled to pay taxes.
6. The exercise of taxation power requires Constitutional grant.
7. Taxation is inherent in sovereignty.
8. Police power is the most superior power of the government. Its exercise needs to be
sanctioned by the Constitution.
9. All inherent powers presuppose an equivalent form of compensation.
10. The reciprocal duty of support between the government and the people underscores the
basis of taxation.
11. The constitutional exemption of religious, charitable, and non-profit cemeteries,
churches and mosques refers to income tax and real property tax.
12. Taxpayers under the same circumstance should be taxed differently.
13. Taxation is subject to inherent and Constitutional limitations.
14. International comity connotes courtesy between nations.
15. Collection of taxes in the absence of a law is violative of the Constitution requirement for
due process.
16. The scope of taxation is regarded as comprehensive, plenary, unlimited, and supreme.
17. No one shall be imprisoned for non-payment of tax.
18. The lifeblood doctrine requires the government to override its obligations and contracts
when necessary.

20
 19. 2/3 of all members of Congress is required to pass tax exemption law.
20. The government should tax itself.

Drill 3: Multiple Choice- Theory: Part 1

1. The point at which tax is levied is also called

a. Impact of taxation c. Incidence of taxation
b. Situs of taxation d. Assessment

2. Which of the following inappropriately describes the nature of taxation?

a. Inherent in sovereignty
b. Essentially a legislative function
c. Subject to inherent and constitutional limitation
d. Generally for public purpose

3. Which one is correct?

a. Tax condonation is a general pardon granted by the government.
b. The BIR has five deputy commissioners.
c. The government can still collect tax in disregard of a constitutional limitation
because taxes are the lifeblood of the government.
d. The President of the Philippines can change tariff or impose without necessity of
calling Congress to pass a law for that purpose.

4. A. The power to tax includes the power to exempt.

B. The power to license includes the power to tax.

Which is true?
a. A only c. A and B

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 b. B only d. Neither A nor B

5. International double taxation can be mitigated by any of the following except

a. Providing allowance for tax credit
b. Provision of reciprocity provisions in tax laws
c. Provision of tax exemptions
d. Entering into treaties to form regional trade blockage against the rest of the world

6. Which is not an object of taxation?

a. Persons c. Transactions
b. Business d. Public properties

7. That courts cannot issue injunction against the government’s effort to collect taxes is
justified by
a. the lifeblood doctrine c. the ability to pay theory
b. imprescriptibility of taxes d. the doctrine of stoppel

8. The power to enforce proportional contribution from the people for the support of the
government is
a. Taxation c. Eminent domain
b. Police power d. Exploitation

9. This theory underscores that taxes are indispensable to the existence of the state.
a. Doctrine of equitable recoupment
b. The Lifeblood Doctrine
c. The benefit received theory
d. The Holmes Doctrine

10. A. Taxation is the rule, exception is the exemption.

B. Vague taxation laws are interpreted liberally in favors of the government.

Which is false?
a. A only c. Both A and B
b. B only d. Neither A nor B

11. Select the incorrect statement.

a. The power to tax includes the power to exempt.
b. Exemption is construed against the taxpayer and in favour of the government.
c. The statutes are construed against the government in case of doubt.
d. Taxes should be collected only for public improvements.

12. Which is not a public purpose?

a. Public education c. Transportation
b. National defense d. None of these

13. Which does not properly describe the scope of taxation?

a. Comprehensive c. Discretionary

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 b. Supreme d. Unlimited

14. All of these are secondary purposes of taxation except

a. To reduce social inequality
b. To protect local industries
c. To raise revenue for the support of the government
d. To encourage growth of local industries

15. What is the theory of taxation?

a. Reciprocal duties of support and protection
b. Necessity
c. Constitutionality
d. Public purpose

16. A. Tax should not operate retrospectively.

B.Tax is generally for public purpose.

Which is true?
a. A only c. A and B
b. B only c. Neither A nor B

17. Which provision of the Constitution is double taxation believed to violate?

a. Equal protection guarantee
b. Progressive scheme taxation
c. Uniformity rule
d. Either A or C

18. Which limitation of taxation is the concept of “situs of taxation” based?

a. Territoriality c. International comity
b. Public purpose d. Exemption of the government

19. Which tax exemption is irrevocable?

a. tax exemption based on contract
b. tax exemption based on the Constitution
c. tax exemption based on law
d. both A and B
20. Which statement is incorrect?
a. Every person must contribute his share in government costs.
b. The existence of a government is expected to improve the lives of the people.
c. The government provides protection and other benefits while the people provide
support.
d. Only those who are able to pay tax can enjoy the privileges and protection of the
government

21. Which is the most incorrect statement regarding taxes?

a. Taxes are necessary for the continued existence of the government.

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 b. The obligation to pay tax does not rest upon the privilege enjoyed by or the
protection afforded to the citizen of the government but upon the necessity of money
for the support of the State.
c. There should be personal benefit enjoyed from the government before one is
required to pay tax.
d. Taxes should be collected without unnecessary delay but its collection should not be
tainted with arbitrariness.

22. Statement 1: In the selection of the objects of taxation, the courts have no power to
inquire into the wisdom, objectivity, motive, expediency, or necessity of a tax law.

Statement 2: an imposition can be both a tax and a regulation. Taxes may be levied to
provide means for rehabilitation and stabilization of threatened industry.

Which is correct?
a. Statement 1 only c. Both statements
b. Statement 2 only d. Neither statement

23. Which of the following acts in taxation is administrative by nature?

a. Determination of the amount to be imposed
b. Fixing the allocation of the amount to be collected between the local government and
the national government
c. Levy or distraint of taxpayers’ property for tax delinquency
d. Determining the purpose of the tax to impose

24. This refers to the privilege or immunity from a tax burden which others are subject to:
a. Exclusion c. Tax holiday
b. Deduction d. Reciprocity

25. Statement 1: The benefit received theory presupposes that some taxpayers within the
territorial jurisdiction of the Philippines will be exempted from paying tax so as long as
they do not received benefits from the government.

Statement 2: 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.

Which statement is true?

a. Only statement 1 c. Both statement 1 and 2
b. Only statement 2 d. Neither statement 1 nor 2
26. Which is not legislative act?
a. Determination of the subject of the tax
b. Setting the amount of the tax
c. Assessment of the tax
d. Determining the purpose of the tax

27. Statement 1: Taxation is the rule, exemption is the exception.

Statement 2: Taxation may be used to implement the police power of the state.

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 a. I is true c. I and II is true
b. II is true d. I and II are not true

28. Which of the following powers of the Commissioner of Internal Revenue cannot be
delegated?
a. The examination of tax return and the determination of tax due thereon
b. To refund or credit tax liabilities in certain cases
c. The power to compromise or abate any tax liability involving basic deficiency tax of
P500,000 and minor criminal violations
d. The power to reverse a ruling of the Bureau of Internal Revenue

29. When exemption from a tax imposition is silent or not clearly stated, which is true?
a. Taxation applies since exemptions are construed against the government.
b. Exemption still applies since this is an instance of exemption by omission.
c. Taxation applies since exemptions are construed against the taxpayer.
d. Exemption applies since obligation arising from law cannot be presumed and hence
construed against the government.

30. What is the basis of taxation?

a. Reciprocal duties of support and protection
b. Constitutionality
c. Public purpose
d. Necessity

31. When the provisions of tax laws are silent as to the taxability of an item, which is true?
a. Taxation applies since taxation is the rule, exemption is the exception.
b. Exemption applies since vague tax laws are construed against the government.
c. Taxation applies due to the lifeblood doctrine.
d. Exemption applies since obligation arising from law is presumed; ignorance of the
law is not an excuse.

32. Which of the following statements does not support the principle that tax is not subject
to compensation or set-off?
a. The government and the taxpayer are not creditors and debtors of each other.
b. Tax is not in the nature of contract but it grows out of a duty wherein taxpayers are
bound to obey even without the personal consent of the taxpayer.
c. Taxes arise from law, not from contracts.
d. Both tax and debt partake the nature of an obligation.

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

a. Absence of benefit from the government
b. Lack of jurisdiction of the taxing authority
c. Prescription of the tax authority’s right to collect
d. All of these

34. What is the primary purpose of taxation?

a. To enforce contribution from its subjects for public purpose

25
 b. To raise revenue
c. To achieve economic and social stability
d. To regulate the conduct of business of profession

Drill 4: Multiple Choice - Theory: Part 2

1. The Constitutional exemption of religious or charitable institutions refers only to

a. Real tax property c. Property tax and income tax
b. Income tax d. Business tax

2. The agreement among nations to lessen tax burden of their respective subjects is called
a. Reciprocity c. Territoriality
b. International comity d. Tax minimization

3. 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 held by such educational institution.
b. Yes, with respect to properties not actually devoted to educational purposes.
c. No, with respect to any properties held by such educational institution.
d. No, with respect to properties not actually devoted to educational purpose.

4. Which is not Constitutional limitation?

a. No tax law shall be passed without the concurrence of a majority of all members of
Congress.
b. Non-appropriation for religious purpose
c. No law impairing government obligations on contracts shall be passed.
d. Non-impairment of religious freedom

26
5. Which of the following is not inherent limitation of the power to tax?
a. Tax should be levied for public purpose.
b. Taxation is limited to its territorial jurisdiction.
c. Tax laws shall be uniform and equitable.
d. Exemption of government agencies and instrumentalities.

6. The following are inherent limitations to the power of taxation except one. Choose the
exception.
a. Territoriality of taxes
b. Legislative in character
c. For public purpose
d. Non-appropriation for religious purpose

7. That all taxable articles or properties of the same class shall be taxed at the same rate
underscores
a. Equality in taxation c. Uniformity in taxation
b. Equity of taxation d. None of these

8. The following are limitations of taxation:

a. Territoriality of taxation
b. Exemption of the government
c. Taxation is for public purpose
d. Non-impairment of contracts
e. Non-delegation of the power to tax

Which of these are classified as both constitutional and inherent limitations?

a. A and B c. C and E
b. B and C d. D and E

9. The provisions in the Constitution regarding taxation are

a. Grants of the power to tax
b. Limitations to the power to tax
c. Grants and limitations to the power to tax
d. Limitations against double taxation

10. The Constitutional exemption of non-stock, non-profit educational institutions refers to

a. Real tax property c. Property tax and income tax
b. Income tax d. Business tax

11. Which of the following is violative of the principle of non-delegation?

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 corporation to collect tax
d. Allowing the Secretary of Finance and the BIR to issue regulation or rulings which
go beyond the scope of a tax law

27
12. Which of the following violates Constitutional provisions?
a. Payment of salaries to priests or religious ministers employed by the Armed Forces
of the Philippines
b. Imposing tax on properties of religious institutions which are not directly and
exclusively used for religious purpose
c. Imposition of license for the sale of religious literature
d. Authorizing the President of the Philippines to fix the rates of tariffs or imposts

13. In order to phase-out a huge deficit, the President of the Philippines passed a law
offering all taxpayers with previous tax delinquency to pay a minimum tax in exchange
for relief from tax assessment in the period of delinquency. Is this a valid exercise of
taxation power?
a. Yes, because the measure adopted is grounded upon necessity.
b. Yes, because the President is merely exercising his presidential discretion.
c. No, because the power of taxation is non-delegated.
d. No, because only the Department of Finance can issue such ruling.

14. Concerned with increasing unemployment rates in the country, the President of the
Philippines encouraged the Philippine Senate to pass a law granting special tax
privileges to foreign investors who will establish business in the country. The Senate
accordingly drafted the bill and passed to Congress for approval.
Is this valid exercise of taxation power?
a. Yes. It is the discretion of the President to adopt any measures he deemed necessary
to alleviate poor conditions in the country.
b. Yes. Any means beneficial to the public interest should be given optimum priority.
c. Yes. The President’s proposal will have to be finally approved and passed by the
legislature. The rule on non-delegation of taxation would not be violated.
d. No. Tax bills shall originate from the House of Representatives.

15. Ram is the only practicing lung transplant specialist in Baguio City. The City
Government of Baguio passed a local ordinance subjecting the practice of lung
transplant to 2% tax based on receipts. Ram objected claiming that other transplant
specialists in other regions of the country are not subjected to tax.

Is Ram’s contention valid?

a. Yes, because the rule of taxation should be uniform and equitably enforced.
b. Yes, because Ram is the only one subject. Other practitioners who would later
practice would not be covered by the ordinance.
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 subjecting the new industry to taxation would hamper economic
growth.

16. With the country under incessant shortage of sugar, the Philippine Congress enacted a
law providing tax exemptions and incentives to cane farmers without at the same time

28
 granting tax exemptions to rice farmers who produce the staple food of the Philippines.
Is the new law valid?
a. Yes, since there is a valid classification of the taxpayers who would be exempted
from tax.
b. Yes, since sugar is more important than rice.
c. No, since the grant of exemption is construed in favor for taxpayers.
d. No, because there is no uniformity in the grant of tax exemption.

17. Congress passed a law subjecting government-owned and controlled corporations

(GOCCs) to income tax. Is the law valid?
a. Yes, because all government and instrumentalities are subject to tax.
b. Yes, because GOCCs are not government agencies and are essentially commercial in
nature.
c. No, because government agencies are exempt. This would pose a violation of the
equality clause in the constitution.
d. No, because GOCCs are constitutionally exempted from paying taxes.

18. Which of the following is not a constitutional limitation of the power to tax?
a. Non-impairment of obligation or contracts
b. Due process and equal protection of the law
c. Non-appropriation for religious purposes
d. Non-delegation of the police power
19. The Philippine Congress enacted a law requiring foreign banks to withhold taxes earned
by the Filipino residents in their country and to remit the same to the Philippine
government. Is this a valid exercise of taxation power?
a. Yes, because foreign banks are within the territorial jurisdiction of the Philippines.
b. Yes, the Philippines can enforce tax requirements to subjects of foreign sovereignty
even if they are outside the country.
c. No, as this leads to encroachment of foreign sovereignty.
d. No, this is prohibited by the Constitution.

20. Which of the following normally pays real property tax?

a. Bantay Bata, a non-profit charitable institution
b. Jesus Crusade movement, a religious institution
c. University of Pangasinan, a private proprietary educational institution
d. AM Property Holdings, a registered property development company

21. Tax exemption bills are approved by

a. Majority of all members of Congress
b. Solely by the President of the Republic
c. 2/3 of all members of Congress
d. Majority of the representatives constituting a quorum

22. The Japanese government invested P100,000,000 in a Philippine local bank and earned
P10,000,000 interest. Which is correct?
a. The income tax is exempt on grounds of territoriality
b. The income is exempt due to international comity.

29
 c. The income is subject to tax on the basis of sovereignty.
d. The income is subject to tax because the income is earned within the Philippines.

Drill 5: Multiple Choice – Theory: Part 3

1. When a legislative body taxes persons and property, rights and privileges under the
same taxable category at the same rate, this is referred to as compliance with the
constitutional limitation of:
a. Equity c. Due process
b. Uniformity d. Equal protection clause

2. Which is not a legislative act?

a. Assessment of the tax c. Determination of the subject of the tax
b. Setting the amount of the tax d. determining the purpose of the tax

3. The inherent powers of the State are similar in the following respect, except:
a. They are inherent to the existence of the State.
b. They are all exercisable without the need for an express constitutional grant.
c. All are not exercised by private entities.
d. They are exercised primarily by the legislature.

4. Which is mandatorily observed in implementing police power?

a. Public interest c. Public use
b. Just compensation d. All of these

5. Which is considered in the exercise of eminent domain?

a. Public use c. Both A and B

30
 b. Just compensation d. Neither A nor B

6. The general power to enact laws to protect the well-being of the people is called
a. Police power c. Taxation
b. Eminent domain d. All of these

7. Which of the following entities will least likely exercise the power of eminent domain?
a. Electric cooperatives c. Telecommunication business
b. Water cooperatives d. Transportation operators

8. In exercising taxation, the government need not consider

a. Inherent limitations c. Due process of law
b. Just compensation d. Constitutional limitations

9. Licensing of business of profession is an exercise of

a. Police power c. Eminent domain
b. Taxation d. All of these

10. Select the correct statement.

a. Eminent domain refers to the power to take public property for private use after
paying just compensation.
b. Police power being the most superior power of the State is not subject to any
limitation.
c. Taxation power shall be exercised by Congress even without an express
Constitutional grant.
d. Taxes may be collected even in the absence of a law since obligation arising from law
is always presumed.

11. Which is principally limited by the requirement of due process?

a. Eminent domain c. Taxation
b. Police power d. All of these

12. Statement 1: Congress can exercise the power of taxation even without Constitutional
delegation of the power to tax.

Statement 2: Only the legislature can exercise the power of taxation, eminent domain,
and police power.

Which statement is correct?

a. Statement 1 c. Statements 1 and 2
b. Statement 2 d. Neither statement 1 nor 2

13. Which power of the State affects the least number of people?
a. Police power c. Taxation
b. Eminent domain d. Taxation and police power

14. Select the correct statement.

31
 a. The benefit received theory explains that the government is obliged to serve the
people since it is benefiting from the tax collection from its subjects.
b. The lifeblood theory underscores that taxation is the most superior power of the
State.
c. The police power of the State is superior to the non-impairment clause of the
Constitution.
d. The power of taxation is superior to the non-impairment clause of the Constitution.

15. Which of the following is not exercised by the government?

a. Taxation c. Eminent domain
b. Police power d. Exploitation

16. Select the incorrect statement.

a. Since there is compensation, eminent domain raises money for the government.
b. Once a government is established, taxation is exercisable.
c. The most important of the power is taxation.
d. Police power is more superior than the non-impairment clause of the Constitution.

17. The following statements reflect the differences among the inherent powers except:
a. The property taken under eminent domain and taxation are preserved but that of
police power is destroyed
b. Eminent domain and police power do not require Constitutional grant, but taxation,
being a formidable power, requires constitutional grant.
c. Only eminent domain can be exercised by private entities.
d. Taxation, police power, and eminent domain are ways in which the government
interferes with private right and property.

18. Statement 1 : The taxation power can be used to destroy if the law is valid.
Statement 2 : A tax law which destroys things, business, or enterprise for the purpose of
raising revenue is an invalid tax law.

Which is incorrect?
a. Statement 1 c. Both statements
b. Statement 2 d. Neither statement

19. Select the correct statement

a. The provisions on taxation in the Philippine Constitution are grants of the power to
tax.
b. The power to tax includes the power to destroy.
c. When taxation is used as a tool for general and economic welfare, this is called fiscal
purpose.
d. The sumptuary purpose of taxation is to raise funds for the government.

20. Which of the following powers is inherent or co-existent with the creation of the
government?
a. Police power c. Taxation
b. Eminent domain d. All of these

32
21. Which of the following is not an inherent limitation of the power to tax?
a. Tax should be levied for public purpose.
b. Taxation is limited to its territorial jurisdiction.
c. Tax laws shall be uniform and equitable.
d. Government agencies and instrumentalities are exempt from tax.

22. Select the incorrect statement.

a. The power to tax includes the power to exempt.
b. Exemption is construed against the taxpayer and in favor of the government.
c. Tax statutes are construed against the government in case of doubt.
d. Taxes should be collected only for public improvement.

23. Which of the following is not a constitutional limitation of the power to tax/
a. Non-impairment of obligation or contracts
b. Due process and equal protection of the law
c. Non-appropriation for religious purposes
d. Non-delegation of the taxing power

24. Which of the powers of the State is the most superior? Which is regarded as the most
important?
a. Taxation; Eminent domain
b. Police power; Taxation
c. Eminent domain; Police power
d. All the powers are equally superior and important

33