Taxation Principles Quiz

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Questions and Answers

What does the 'Lifeblood Theory' of taxation compare tax to?

Water in a desert

Electricity for a home

Blood in the body (correct)

Fuel for a vehicle

Which principle underscores the reciprocal duties between the state and its citizens?

Taxation Principle

Equity Principle

Benefits-Received Principle (correct)

Sovereignty Principle

What is considered an aspect of fiscal adequacy in taxation?

Sufficient revenue for public expenditures (correct)

Protection of taxpayer's rights

Simple tax laws for administration

Equal distribution of tax burdens

Which of the following is NOT a constitutional limitation on the power of taxation?

Time limits on accruing revenue Signup and view all the answers

What must tax laws be capable of, according to administrative feasibility?

Convenient and just administration Signup and view all the answers

Which of the following entities is exempt from property tax?

Non-profit educational institutions Signup and view all the answers

Which statement is true regarding the payment stage of taxation?

It involves taxpayer's compliance and remedies. Signup and view all the answers

What principle states that the tax burden should align with a taxpayer's ability to pay?

Equity/Theoretical Justice Signup and view all the answers

What is the estate tax rate applied to a net estate exceeding $2,000,000 but not exceeding $5,000,000?

11% Signup and view all the answers

What is considered part of the gross estate of a decedent?

Real properties owned by the decedent at death Signup and view all the answers

Which deduction is calculated before determining the taxable net estate?

Half of the net share of the surviving spouse in conjugal property Signup and view all the answers

Which of the following is NOT part of the criteria for calculating estate tax rates?

Net share of surviving spouse Signup and view all the answers

If a decedent has a gross estate valued at $10,000,000, what is the estate tax payable?

$1,215,000 Signup and view all the answers

What is the standard deduction amount mentioned?

$1,000,000 Signup and view all the answers

What is polo y servicio?

Forced labor for 40 days by men aged 16 to 60 Signup and view all the answers

Which type of donation is subject to estate tax?

Mortis Causa Signup and view all the answers

What was the purpose of the tribute collected during the Spanish era?

To serve as a residence tax for inhabitants Signup and view all the answers

What requirement is not necessary for the donee in a donation?

Legal capacity Signup and view all the answers

Which of the following donations is exempt from donor’s tax?

Donations inter vivos of P50,000 or less Signup and view all the answers

What did the cédula replace in 1884?

Tribute Signup and view all the answers

How much was the base residence tax imposed by Commonwealth Act No. 465 in 1940?

Fifty centavos Signup and view all the answers

What is a defining characteristic of an inter vivos donation?

The transfer is void if the donor dies before execution. Signup and view all the answers

What does the payment of the community tax result in?

The issuance of a residence certificate Signup and view all the answers

What does ELIT stand for in the context of allowable deductions?

Estate Liability Income Tax Signup and view all the answers

Which of the following statements about donations is true?

Donations can be both revocable and irrevocable. Signup and view all the answers

Who were the encomenderos?

Landowners given authority to collect tribute Signup and view all the answers

What was one consequence of not carrying a cedula during the 19th century?

Detention by guardia civil for being 'indocumentado' Signup and view all the answers

Which formula calculates the allowable deduction for non-resident alien decedents?

World ELIT x (PGE/TGE) Signup and view all the answers

Which of the following describes the cédula?

A legal identification document as a primary form of identification Signup and view all the answers

What type of transfers are allowed as deductions from the estate?

Transfers for public use to the Philippine Government Signup and view all the answers

What is required for a deduction to be applicable under the vanishing deduction provisions?

The decedent must have died within 5 years of the transfer Signup and view all the answers

Which is true regarding the computation of vanishing deduction?

The initial basis is the lower value between the previous and present transfers, adjusted for debts only. Signup and view all the answers

How does the percentage of vanishing deduction vary over time?

It decreases the longer the period after the transfer. Signup and view all the answers

If a property had an initial value of $350,000 and appreciated to $475,000, what is the value used for deduction purposes?

$350,000 Signup and view all the answers

Which statement is true regarding bequests to the Philippine Government?

They must go through testamentary succession to be deductible. Signup and view all the answers

What happens if a husband makes a donation without the wife's consent?

The donation is deemed made exclusively by the husband. Signup and view all the answers

What must be true for a property to be eligible for vanishing deduction?

No similar deduction was previously claimed by a prior decedent. Signup and view all the answers

What does Republic Act No. 5447 primarily address?

Registration and tax imposition on drug-related activities Signup and view all the answers

Which law is known for imposing a Travel Tax on individuals leaving the Philippines?

Presidential Decree 1183 Signup and view all the answers

What is the primary purpose of Batas Pambansa Blg. 36?

To impose an energy tax on electric power consumption Signup and view all the answers

What is the main focus of Republic Act No. 2211?

Creation of a Joint Legislative-Executive Tax Commission Signup and view all the answers

According to the Local Government Code, what type of taxes are local government units authorized to impose?

Property taxes and civic service fees Signup and view all the answers

Which Republic Act is primarily concerned with tax evasion and potential deportation of aliens?

Republic Act No. 1093 Signup and view all the answers

What does the Local Government Code of 1991 allow local governments to assess for taxation?

Real property based on its true value Signup and view all the answers

What does the Travel Tax apply to?

Anyone departing from the Philippines regardless of citizenship Signup and view all the answers

Study Notes

Taxation Concepts and Characteristics

Taxation is the inherent power of a sovereign state to impose financial burdens on persons and property.
Taxes are levied as a means of raising revenue for government expenses.
Taxation's purpose is to support essential government functions, including defense, infrastructure, and public services.
A key characteristic of taxation is that failure to pay is punishable by law.

Historical Development of Taxation

Ancient Egypt (3000-2800 BC): The first known taxation system.
Biblical Times (Genesis 47:24): Taxation was prevalent, with a fifth of crops required to be given to the Pharaoh.
Roman Empire: Earliest Roman taxes (portoria) were customs duties on imports and exports.
Roman Empire: Augustus Caesar introduced an inheritance tax for military retirement funds (5% on inheritances, except gifts to children and spouses).
England: Taxes were initially used for emergency measures.

Historical Development of Taxation (Philippines)

Pre-Colonial Philippines: Communal societies lacked formal taxation systems.
Spanish Colonial Period (16th-19th centuries):
Manila-Acapulco Galleon Trade: A significant source of colonial income.
Polo y Servicio (Forced Labor): A mandatory service for community projects.
Bandala: A tax collected from Filipinos, in the form of threshed rice stalks.
Encomienda System: A system of land grants to individuals, who collected tribute from the inhabitants.
Tribute: Residence tax, paid in cash or in kind.
Cedula (1884): Replaced tribute; a personal identification document equivalent to the present-day community tax certificate.
Post-Spanish Period: Tax systems evolved following Philippine independence from Spanish rule.
A progressive system of taxation was adopted after the Americans gained control.

The Four Rs of Taxation

Revenue: Taxes are a primary revenue source for governments. Funds are used to fund various government operations like funding armies, roads, schools, hospitals, and indirectly regulating or overseeing markets.
Redistribution: Taxes from higher-income individuals can support lower-income individuals, leading to a more equitable distribution of wealth and societal resources.
Repricing: Taxes can be used to address negative externalities (like smoking through taxes). An example is a carbon tax.
Representation: Taxation is linked to representation, which the people have the right to demand.

Other Purposes and Objectives of Taxation

Regulation: Taxes are sometimes levied on activities or goods to control or regulate, which may impact behavior, like those imposed on tobacco or alcohol. Regulation may include industries which need support, like industries related to oil.
Promotion of General Welfare: Taxation can fund programs to improve public health and safety.
Reduction of Social Inequality: Progressive taxation helps reduce wealth concentration, where those with higher earning capacity contribute more.
Encourage Economic Growth: Tax incentives and exemptions may support investment and growth. This can include support via some tax exemptions or reliefs.
Protectionism: Taxes such as tariffs are to encourage local production, which can protect local industries from foreign competition.

Essential Characteristics of Tax

Enforced Contribution: Taxes are mandatory payments imposed on individuals or properties.
Payable in Money: Taxes are primarily in monetary form, although some may be paid in kind.
Proportionate in Character: Taxes are designed to be proportionate to the taxpayer's abilities and earnings, or the value of the property on which the tax is levied.

Nature of the Power of Taxation

Inherent in Sovereignty: The state's authority to tax is inherent in its power and authority.
Legislative in Character: The government, through its legislative authority, has the power to enact tax laws.
Subject to Constitutional and Inherent Limitations: The power to tax is constrained by constitutional limitations and other restrictions.

Stages of Taxation

Levying/Imposition: The legislative function of creating the tax law, defining the subject, amount, rate, and collection procedure.
Assessment/Collection: The executive function of determining the amount due, calculating surcharges and interest, and enforcing payment.
Payment Stage: The taxpayer's compliance with the assessment and collection procedures, and the remedies available to the taxpayer or the government.

Basic Principles of a Sound Tax System

Fiscal Adequacy: The tax system must generate sufficient revenue to meet government expenditure needs.
Equality/Theoretical Justice: The tax system should be fair and proportional to a taxpayer's ability to pay.
Administrative Feasibility: The tax laws must be easily and correctly administered.

Limitations on the Power of Taxation

Constitutional limitations: including due process, equal protection, uniformity and equity, no imprisonment for non-payment of poll tax, and others.
Inherent limitations: including the requirement that a tax must have a public purpose, the non-delegation of the taxing power, the prohibition of taxation on government entities and of a foreign country's property, and the requirement of territorial jurisdiction.

Situs of Taxation

Situs refers to the location where the right of the taxing authority to collect tax is based. The factors that lead to the classification of a property's situs include the property's nature and the taxpayer's residence or citizenship.
The taxable situs can be determined by various factors such as the property/income source, the taxpayer's residence, income earned, and the nature of the tax.
Important characteristics of situs include the residence of the taxpayer, the physical location of real properties, and the source of income.

Guidelines in the Interpretation of Taxation Laws

Prospective Application: Tax laws apply to future events and not past events.
Favor of the Taxpayer (Doubt): If any doubt arises in tax law interpretation, the ruling will favor the taxpayer.
Clear Indication of Tax Burden: Tax laws must clearly define taxable objects and obligations.
Clear Provision for Tax Exemptions: Tax exemption procedures and requirements must be clear.

Double Taxation

Double taxation, in its general sense, means taxing the same subject twice during the same taxing period.
In particular, direct double taxation violates the equal protection clause of the constitution and is prohibited. This includes taxing a single object multiple times.
Indirect double taxation is not considered repugnant in the constitution.
These are taxes that cover different objects and purposes, for instance, a property and an occupation tax on a property.

Kinds of Taxes

Personal/Poll Taxes: Imposed on individuals regardless of income/property value. An example of a personal/poll tax is a community tax.
Property Taxes: Levied on the value of property (real or personal).
Excise Taxes:Imposed on the performance of an act or the exercise of a profession. An example of excise taxes are VAT, professional tax, income tax, and estate tax).

Tax vs. Toll

Toll: A payment for use of a public facility or service.
Tax: A mandatory payment for support of the government.

Tax vs. Penalty

Penalty: A sanction for violation of a law or code of conduct.
Tax: A contribution for government funding.

Tax vs. Special Assessment

Special Assessment: A tax related to benefiting from public improvements.
Tax: A payment for general government purposes.

Tax vs. License or Permit Fee

License or Permit Fee: A charge for a privilege.
Tax: A mandatory contribution for government expenses.

Tax vs. Debt

Debt: Obligation arising from a contract.
Tax: Obligation arising from laws.

Tax Distinguished from Other Terms

Subsidy: A government grant for individual or enterprise benefit.
Revenue: All funds collected by the government for its functions.
Internal Revenue: Taxes imposed by the legislature other than import/export duties.
Customs Duties: Taxes on imported and exported goods.
Tariff: A list of rates for imported/exported goods.

Forms of Escape from Taxation

Shifting: Transfer of tax burden.
Capitalization: Reduction in price for expected future taxes.
Transformation: Improvement to reduce tax impact.
Evasion: Illegal means to avoid tax payment.
Avoidance: Legal methods to minimize tax liability.

Impact, Shifting, and Incidence of Tax

Impact: The initial burden of a tax.
Shifting: The transfer of the tax burden.
Incidence: The final resting place of the tax burden.

Kinds of Shifting

Forward Shifting
Backward Shifting
Onward Shifting

Capitalization

Transformation

Tax Evasion

Tax Avoidance

Exemption from Taxation

Kinds of Taxes under Existing Philippine Laws

National Taxes - the specific tax rules and regulation of the country's highest level of government

National Internal Revenue Code of 1997

Tariffs and Customs Code of the Philippines

Sugar Adjustment Act

Narcotics Drug Act

Special Education Fund Law

Travel Tax

Private Motor Vehicle Act

Energy Taxes

Republic Act Nos. 1093, 1125, & 2211

Presidential Decree No. 477

Local Taxes - applicable to the rules and regulations of the specific tax at the local level

Local Tax Code

Real Property Tax Code

Tax Ordinance of the Barangay, Municipality, Province

Income Tax - the rules and regulations that dictate the taxation of income in the nation

Sources of Income - different sources of wealth that flow to a taxpayer

Income Within - Involves earnings from within the nation.
Income Without - Involves earnings from outside the nation.
Income Partly Within & Partly Without - Involves earnings both within and outside the nation.

Individual Taxpayers

Resident Citizens
Non-Resident Citizens
Resident, Non-Resident Aliens

Classifications of Citizens

Classifications of Aliens

Income - the source and nature, how it is classified, and different kinds

Gross Income
Taxable Income
Non-Taxable Income

Income Taxable requisites - The requirements or conditions that need to be met to be considered as a type of income that can be taxed

Compensation Income - types, nature, and characteristics

Composition of Gross Compensation

Categories of Individual Taxpayer's Income

Personal Exemptions - the specific allowances applicable when calculating taxation of people for personal expenses

Taxpayers Allowed for Personal Exemptions

Requisites for Non-Resident Alien for Personal Exemptions

Limitations on the Principle of Reciprocity

Taxpayers Not Allowed for Personal Exemptions

Kinds of Personal Exemptions

Basic Personal Exemption

Taxpayers Entitled to Additional Exemptions

Qualifications of Dependents

Special Deductions - the items that can be deducted from taxable income of individuals

Examples of Special Deductions - the different items that are allowed as deductions

Rates of Taxable Income of Individuals

Formula in Computing Income Tax

Transfer Taxes - the taxation of the transfer of wealth from one person to another

Meaning and Concept
Kinds of Transfer Taxes
Governing Law
Situs of Transfer Taxes
Steps in the Determination of the Estate Tax

Rates of Estate Tax

Formula for Computing Net Estate

Meaning of Gross Estate

Gross Estate

Components of Gross Estate

Summary Components of Gross Estate

Property Included in Gross Estate

Meaning of Net Estate

Determination of Value of Estate

Usufruct
Properties

Deductions

Ordinary Deductions

Special Deductions

Allocation of Deduction

Non-Resident Alien Decedent (Allowed Deductions)

Donor's Tax - the taxation applicable to one individual donating something to another

Meaning and Concept
Kinds of Donation
Essential Characteristics of Donation

Donative Intent

Delivery and Acceptance of the Gift

Gross Gift

Classification of Donor

Valuation of Donation

Deductions from Gross Gifts

Diminution of Gift Provided by the Donor

Example Illustration

Donations to the National Government

Example Illustration

Tax Exempt Donations

Rules and examples

Donor's Tax (Formula & Rates)

Rates of Donor's Tax (Gift to Specific persons and/or the general public)

Tax Credits - Tax allowance/rebate to an individual

Illustration of the application of tax credits
Formula

Filing of Returns and Payment of Taxes

Attachments to the Donor's Tax Return

Penalties for Non-compliance (Donor's Tax)

Tax Rates of Donor's Tax

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Description

Test your knowledge on key taxation concepts such as the Lifeblood Theory, fiscal adequacy, and constitutional limitations. This quiz explores important principles and calculations related to taxation and estate tax. Engage with various scenarios to deepen your understanding of tax laws.