Local Government Taxes

Nature and Source

Note: not inherent in local government
Sec 5 Art X Consti
Section 5. Each local government unit shall have the power to create its own sources of revenues
and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges
shall accrue exclusively to the local governments.

Cities have broadest taxing powers.

Taxies levied by the province cannot be levied by municipalities (unahan)
But cities may still tax them

They enjoy it pursuant to a direct authority conferred by the Constitution

Subject to such guidelines and limitations as the Congress may provide, which however, is
consistent with basic policy of local autonomy
power to tax = not granted by LGC but by Consti (San Pablo v Reyes, 1999)

S129 LGC mandates each LGU shall exercise power to create its own sources
power to levy carries with it power to prescribe penalties in tax ordinances

S516 limits amount of fine and period of imprisonment that ordinance may provide
In general - fine of not less than P1K nor more than P5K and/or imprisonment of not less than 1
month but not more than 6 months
Barangay - fine of not less than P100 nor more than P1000

power to levy carries power to grant tax exemptions

S192 - LGUs may, through ordinances duly approved, grant tax exemptions, incentives or reliefs
under such terms and conditions as they may deem necessary
Power to grant tax exemptions will not extend to regulatory fees
Tax exemptions shall be conferred through issuance of a tax exemption certificate which is not
transferable

Tax exemptions or reliefs may be granted in cases of natural calamities, civil disturbance,
general failure of crops, or adverse economic conditions s.a. substantial decrease in prices of
agri-based products
Grant of exemption/reliefs shall be through an ordinance
Any exemption or relied granted to a type or kind of business shall apply to all business similarly
situated
It shall take effect only during next calendar year and a period not exceeding 6 months
In case of shared revenues. it shall extend only to LGU granting exemption or relief.

plantation and home office different venue

Tax incentives
• only to new investments in locality
• definite periodnot exceeding one calendar year
• ordinance prior to Jan 1 of the year since it take effect Jan 1 of suceeding year
• apply to all businesses similarly situated (S282 b IRR)

Adjustment of local taxes

• LGUS have power S191
• not oftener than once every 5 years
• not exceed 10% of the rates fixed under LGC

Residual Taxing Powers

• LGUs can also imposed TFC which do not fall within scope enumerated in LGC as well as this
which are levied on subjects or bases which are not taxes under NRC or laws
• SB not unjust, excessive oppressive confiscatory or contrary to declared national policy
• Must be by an ordinance which shall not be enacted without a conducting a prior public
hearing
Bawal na SSB - pero swede sales taxes not based on sales per year (excise and OPT na ‘yun)
baka double tax even though different taxing authority cf. Exclusionary rule

Limits on residual powers

1. Consti Limits - DP EPC uniformity equitability
2. Common limits under S133
3. Fundamental principles governing exercise of taxing power S130
4. Enacted through ordinance after public hearing conducted
5. Follow principle of pre-emption

Common limits S133

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:chanrobles virtual law library

(a) Income tax, except when levied on banks and other financial institutions;

(b) Documentary stamp tax;

(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;

(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all
other kinds of customs fees, charges and dues except wharfage on wharves constructed and
maintained by the local government unit concerned;

(e) Taxes, fees and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for
wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever
upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;

(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively from the date of registration;

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended,
and taxes, fees or charges on petroleum products;

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein; (j) Taxes on the gross receipts of
transportation contractors and persons engaged in the transportation of passengers or freight by
hire and common carriers by air, land or water, except as provided in this Code;

(k) Taxes on premiums paid by way of reinsurance or retrocession;

(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds
of licenses or permits for the driving thereof, except tricycles;

(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise
provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives
duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-
eight (R.A. No. 6938) otherwise known as the "Cooperatives Code of the Philippines"
respectively; and

(o) Taxes, fees or charges of any kind on the National Government , its agencies and
instrumentalities, and local government units.

Principe of preemption

Whenever the NG elects to tax a particular area, the local government should not be allowed to
tax the same field. However, should Congress allow LGUs to cover fields of taxation it already
occupies, then doctrine of preemption will not apply.

A province may not ordinarily tax stones sand gravel, earth and quarry resources as they are
already taxed under the NIRC.

A province may tax them when extracted from public lands because it is expressly allowed under
LGC (Bulacan v CA)

Kaya check mo yung business- Of the preceding year - para not a duplication VAT/OPT

Note: Congress can tax LGU

Fundamental principles
A. Inherent Principles
• Uniformity of taxation
• Equitability and progressivity of taxation
• Public purpose of taxes
• Taxes must accrue exclusively to the benefit of the LGU
b. Statutory Principles
• Local taxes must not be unjust, excessive, oppressive, or confiscatory
• Not contrary to law, PP, national economic policy, or in restraint of trade
• The collection of local taxes fees and charges and other impositions shall in no case be let to
any private person

Procedures for enactment

1. Follow same procedure as local ordinances
1. necessity of quorum in sangggunian
2. approval of chief executive
3. mater of veto and overriding the same as well as their publication and effectivity
2. Public hearings prior to enactment S187
3. Publication for 3 consecutive days in newspaper of general circulation to be made within 10
days after approval. In places with no newspapers, posting in a t least 2 conspicuous and
publicly accessible places S188
4. Public dissemination by respective local treasurers S 189

Specific Taxing Powers - Provinces

1. Tax on transfer of RP ownership - 50% of 1% of the consideration or FMV, whichever is
higher payable within 60 days from execution of deed and date of death S135
2. Printer’s or publisher’s tax - 50% of 1% of gross annual receipts of preceding calendar year
S136
3. Franchise tax
4. Tax on sand, gravel and other quarry resources extracted from public lands - 10% of FMV
S138
5. Professional Tax - for professions requiring govt examination in an amount exceeding P300 -
of national application
6. Amusement Tax - not more than 30% of gross receipts from admission fees S140 dati may
hatian: NG - pag may audience participation; LGU - no participation
7. Fixed tax on delivery trucks and vans - not more than P500 per truck/vehicle S141

common carriers yung may pipelines to oil depots pero not subject to franchise tax under NIRC

Pre-emption among LGUs

• Taxes levied by provinces cannot be levied by municipalities S142
• Provinces and municipalities may not pre-empt cities on the imposition of local taxes
◦ The city may levy taxes, fees and charges which province and municipality may
impose S151

Specific Taxing Power - Municipality

1. Manufacturers - graduated annual fixed tax but if gross sales/receipts for precerfing year
amounts to P6.5m or more, percentage tax of 37.5% of 1% S143
2. Wholesalers, distributors, or dealers - graduated annual fixed tax but if sales/receipts amount
to P2m or more, percentage tax of not exceeding 50% of 1% S143
3. Exproters and amnufacturers, millers, producers, wholesalers, dealers or retailers of essential
commodities - rate not exceeding 1/2 of rates in 1&2 above
4. Retailers - annual percentage tax; gross sales/receipts not exceeding 400k for preceding year
@2%; exceeding 400k - 1%
5. Contractors and other independent contractors - annual fixed tax but when the gross receipts in
preceding year is P2m or more, 50% of 1% percentage tax
6. Banks and other financial institutions - 50% of 1%
7. Peddler of any merchandise - P50 per peddler annually
8. Other businesses If subject to excise VAT OPY, rate is 2% of gross sales or receipts for the
preceding year
1. if MM, municipalities may impose a tax not to exceed by 50% of the maximum rates
prescribed in the LGC

Specific Taxing Powers - Barangay

1. Taxes - on retailers with gross sales//receipts not exceeding P50 K in cities and P30kin
municipalities - 1%
2. Service fees and charges - used of barangay owned properties or service facilities such as play
copra or tobacco dryers
3. Barangay clearance
4. Other fees and charges
1. commercial breeding of fighting cooks, cockfights and cockpits;
2. on places of recreation with admission fees
3. on bill boards, signboards, neon signs, and outdoor advertisement (S152)

Situs of Local Taxation

(Principal Ofiice and Branch Operations)
• For businesses operating a branch or sales outlet in another municipality, the salws shall be
recorded by the branch or sales outlet and the tax paid to the municipality where the
branch or sales outlet is located.
• If there is no branch or sales outlet in the municipality where sales took place, the same must
be recorded in the principall office and taxes shall be paid
• For manufacturers, assemblers, contracters producers with factories project office plant
plantations
◦ 30% of all sales recorded in principal office shall be taxable by city where principal
office is located
◦ 70% is taxable on city/municipality where factory, project office plant tor plantation is
located
• If plantation is located different from factory
◦ 70% allocated as follows - 60% where factory is located; 40% where plantation is
located
• In cases where there are 2 or more factories, the 70% allocation shall be prorated in
proportion to their volume of production
2010 BAR QUESTION FERREMARO INC

Common Revenue Raising Powers

1. Reasonable fees and charges for services rendered S153
2. Rates for the operation of public utilities owned and operated and maintained by LGUs
within its jurisdiction
3. Toll fees or charges for use of any public roads pier or wharf waterway bridge ferry or
telecommunication system funded and constructed by the lug
1. no fees shall be charged afp and pnp personnel on mission, post office personnel
delivering mail, physically handicapped and disabled citizens who are 65 years
or older

Community Tax
• Who are authorised to levy - Cities or municipalities
• Persons liable:
1. Inhabitant of PH at age 18 years or more:
1. employed on a wage or salary basis for at least 30 consecutive working days
2. engaged in business or occupation
3. owns real property with assessed value of at least P1000
4. required by law to file an ITR
5. Amount - annual community tax of P5 plus P1 for every P1,000 income but not
to exceed P5,000
2. Juridical persons doing business in PH
1. Amount - annual community tax of P500 and an annual additional tax which in
no case shall exceed P10,000
1. For every P5,000 worth of real property - P2.00
2. For every P5,000 of gross receipts or earning (including dividends)
derived by it - P2.00
• Who are exempt from community tax?
1. Diplomatic and consular representatives
2. Transient visitors whose stay does not exceed 3 months S159
3. NRFC (since doing business and requirement)

Collection of local taxes

• Tax period and manner of payment - CY but may be payable in quarterly instalments
• Accrual: 1st day of the quarter following effectivity of ordinance; January 1
• Time of payment: first 20 days of January or of each subsequent quarer Extended for
justifiable reasons without penalties but not exceeding 6 months (S167)
• Penalties of unpaid taxes, fees and charges - not more than 25% surcharge and interest for a
 period not exceeding 36 months (S168) The interest is 2% per moth until paid S169
• Authority to collect and inspection of books - By treasurer or duly authorised deputies of the
LGUs

Prescription
• Period of assessment and collection - 5 years from due date, in case of fraud or intent to
evade, 10 years from discovery. Period to collect is 5 years from date of assessment
S194
• Suspension of prescriptive period
a. Treasurer is legally prevented from making an assessment and collection
b. TP requests for reinvestigation and executes a waiver in writing before prescription
c. TP is out of the country or cannot be located S194

Taxpayer’s remedies
• Protest against a newly-enacted ordinance
◦ Any question on legality or constitutionality is appealable to SOJ within 30d from
effectivity
◦ Appeal will not suspend accrual and payment of tax fee and charge levied therein
◦ Secretary must render a decision within 60 days from date of receipt of appeal
◦ Decision of Secretary or inaction within 60 days is appealable to regular courts (RTC)
within 30 days from receipt or lapse of 60 days. CTA has no jurisdiction.
• Protest against assessment
◦ Filed with local treasurer within 60 days form receipt
◦ 30 days from denial of protest or from the lapse of 60 days to appeal to the court of
proper jurisdiction (not CTA?)
• Claim for refund or Tax Credit
◦ Claim must be filed within 2 years from date of payment or from date TP is entitled to
refund or credit with local treasurer, irrespective of any supervening event
◦ Denial is appealable to regular courts (not CTA?)

RTC-CA-SC
Civil Remedies for Collection
1. Local Government’s Lien - on property and property rights and extinguished only upon full
payment (S173)
2. Civil Remedies
1. By Admin action
1. Distraint of PP
2. Levy on RP and rights to RP
2. By Judicial action
1. Filing of collection case in court by local treasurer