LOCAL GOVERNMENT TAXATION

SEC. 128-196 RA 7160

Each local government unit shall have the
power:
1. To create its own source of revenue
and;
2. To levy taxes, fees and charges
a. Subject to such guidelines
and limitations as the
Congress may provide
b. Consistent with the basic
policy of local autonomy
c. Such taxes, fees and
charges shall accrue
exclusively to the local
government (Sec 5, Art. X of
the Constitution)

The power to tax by the local
governments is no longer merely by
nature of valid delegation as before but
pursuant to direct authority conferred
by the Constitution.
Where there is neither a grant nor a
prohibition by statute, tax power is
deemed to exist although Congress may
provide statutory limitations and
guidelines. The rationale behind this
rule is to safeguard the viability and
self-sufficiency of local government
units.
GRANT OF LOCAL TAXING AUTHORITY
UNDER EXISITING LAW
Power to create sources of
revenue- Each local government
unit shall exercise its power to
create its own sources of revenue
and to levy taxes, fees, and charges
subject to the provisions herein,
consistent with the basic policy of
local autonomy. Such taxes, fees,
and charges shall accrue exclusively
to the local government units (Sec
129, RA 7160)
LGUs also have the power to:

1. Prescribe penalties for tax
violations (Sec. 516, RA 7160)
2. Grant local tax exemptions (Sec.
192, RA 7160)
3. Adjust local tax rates (Sec. 191,
RA 7160)
DUAL STATUS OF LOCAL GOVERNMENTS
1. In their public or governmental aspect
- They are agents of the state and for
that purpose exercise by delegation a
part of the sovereignty of the state such
as in the imposition and collection of
taxes, preservation of peace and order,
and establishment of schools.
2. In their private or corporate aspect
They are mere legal entities performing
functions not strictly governmental.
They act for their own purpose and not
as subdivisions of the state.
NATURE OF TAXING POWER
Not inherent Unlike a sovereign state,
municipal corporations have no inherent power
to tax. Being mere creatures of law, they may
exercise the power only if delegated to them by
the national legislature or conferred by the
Constitution itself.
Limitations of local tax power (Sec. 5, RA 7160)
1. The taxpayer will not be over-
burdened with unreasonable
impositions.
2. Local taxation is to be uniform and
just.
3. Each LGU will have its fair share of
available resources.
FUNDAMENTAL PRINCIPLES
SEC. 130, RA 7160

1. Taxation shall be uniform in each
LGU.
2. Taxes, fees, charges and other
impositions shall be:
a. Equitable and based on
taxpayers ability to pay.
b. For public purpose.
c. Not unjust, excessive,
oppressive or confiscatory.
d. Not contrary to law, public
policy, national economic
policy, or in restraint of
trade.
3. Not let to any private person
4. Inure solely to the local government
levying except:
a. Tax on Sand, Gravel, Quarry
b. Amusement Tax
c. Community Tax
5. Each LGU shall evolve a progressive
system of taxation.
COMMON LIMITATIONS ON THE TAXING
POWER OF THE LGU
SEC. 133, RA 7160
Exercise of the taxing power of provinces, cities,
municipalities, and barangays shall not extend
to the levy of the following:
1. Income tax
2. Documentary stamp tax
3. Tax on estates, inheritance, gifts,
legacies and other acquisitions mortis
causa
4. Excise taxes on Alcoholic, Tobacco,
Petroleum, Miscellaneous and Mineral
products.
5. Taxes, fees or charges on petroleum
products
6. Percentage or VAT on sales, barters, or
exchanges or similar transactions on
goods or services exchanges or similar
transactions on goods or services
exchanges or similar transactions on
goods or services except as otherwise
provided herein.
7. Taxes on the gross receipts of
transportation of contractors and
persons engaged in the transportation
of passengers or freight by hire and
common carriers by air, land or water
except as provided by the code.
8. Custom duties, registration fees of
vessels and wharfage on wharves,
tonnage dues and all other kinds of
custom fees, charges and dues.
9. Taxes, fees and charges and other
impositions upon goods carried into or
out of, or passing through the territorial
jurisdiction of LGUs in the guise of
charges for wharfage, tolls for bridges
or other taxes, fees, or charges in any
form whatever upon such goods or
merchandise.
10. Taxes, fees, or charges on agricultural
and aquatic products when sold by
marginal farmers or fishermen.
11. Taxes on business enterprises certified
by the Board of Investments as pioneer
or non-pioneer who enjoy tax holidays
for a period of 6 and 4 years
respectively.
12. Taxes on premiums paid by way of
reinsurance or retrocession.
13. Taxes, fees, or other charges on
Philippine products actually exported.
14. Taxes, fees, or charges on countryside
and barangay business enterprises and
cooperatives duly registered under RA
6810 and RA 6938.
15. Taxes, fees or charges of any kind on
the National Government, its agencies
and instrumentalities, and LGUs.
16. Taxes, fees or charges for registration of
motor vehicles and for the issuance of
all kinds of licenses or permits for
driving.
17. Taxes, fees and charges imposed under
the Tariff and Customs Code and other
special laws.
18. Taxes, fees and charges and other
impositions which contravene existing
government policies or which are
violative of the Fundamental Principles
of Taxation.
TAXING AND OTHER REVENUE-RAISING
POWERS OF PROVINCES AND CITIES
Scope of Power
1. Tax on the transfer of real property
ownership. (Sec. 135, RA 7160)
a. Refers only to lands,
improvements, buildings and
machineries intended by the
owner for an industry or works
which may be carried on in a
building or on a piece of land
and which tend directly to meet
the needs of the industry or
works.
b. Only transactions of sale, barter
or any other modes of
transferring ownership are
taxed.
c. The tax rate is not more than
50% of 1% of the total
consideration involved or the
FMV, whichever is higher.
d. Lands sold, transferred or
disposed under CARL are
exempted.
e. Tax shall be paid within 60 days
from date of execution of the
deed or date of decedents
death.
2. Tax on the business of printing and
publication (Sec. 136, RA 7160)
a. Transaction taxed is the
business of printing and
publication of books, cards,
posters, leaflets, handbills,
certificates, receipts,
pamphlets, and other similar in
nature.
b. The tax rate is not exceeding
50% of 1% of the gross annual
receipts for the preceding
calendar year.
c. For newly started business, the
tax rate shall not exceed 1/20
of 1% of the capital investment.
In the succeeding calendar year,
regardless of when the business
started to operate, the tax shall
be based on the gross receipts
for the preceding calendar year,
or any fraction thereof, as
provided herein.
d. The receipts from the printing
and/or publishing of books or
other reading materials
prescribed by DEPED as school
text or references are
exempted.
3. Franchise Tax (Sec. 137, RA 7160)
a. Franchise a privilege, affected
with public interest which is
conferred upon private persons
or corporations, under such
terms and conditions as the
government and its political
subdivisions may impose in the
interest of public welfare,
security and safety.
b. The tax rate shall not exceed
50% of 1% of gross receipts. If a
newly started business, 1/20 of
1% of the capital investment.
4. Tax on sand, gravel and quarry
resources (Sec. 138, RA 7160)
a. The subjects of tax are ordinary
stones, sand, gravel, earth, and
other quarry resources
extracted from public lands or
from the beds of seas, lakes,
rivers, streams, creeks or other
public waters.
b. The tax rate shall not be more
than 10% of FMV per cubic
meter.
c. Distribution of the proceeds
shall be 30% province, 30%
city municipality where the
earth is extracted and 40% to
the barangay where the earth is
extracted.
5. Professional tax (Sec. 139, RA 7160)
a. The tax rate shall be at such
annual amount and reasonable
classification as the Sanggunian
may determine which in no
case exceed P300.
b. The tax shall only apply to
natural or physical persons.
c. The tax shall be paid annually
on or before Jan. 31
d. The tax shall be paid on the
place where you practice your
profession.
6. Amusement tax (Sec. 140, RA 7160)
7. Annual fixed tax per delivery truck or
van manufacturers or producers and
wholesalers of dealers or retailers in
certain products (Sec. 141, RA 7160)
TAXING AND OTHER REVENUE-RAISING
POWERS OF MUNICIPALITIES
Municipal taxes Municipalities may impose
taxes on the following business (Sec. 143, RA
7160)
1. On manufacturers, assemblers,
repackers, processors, brewers,
distillers, rectifiers, and compounders
of liquors, distilled spirits and wines or
manufacturers of any articles of
commerce of whatever kind or nature.
a. The tax rate shall be at
graduated annual fixed rate
based on gross sales or receipts
for the preceding calendar year
in an amount not to exceed
P6.5M or more, a rate not
exceeding 37.5 of 1% imposed.
2. Wholesalers, distributors or dealers in
any article of commerce.
a. The tax rate shall be a
graduated annual fixed rate
based on gross sales or receipts
not exceeding P2M or more,
the rate not exceeding 50% of
1%.
3. Exporters, manufacturers, millers,
producers of essential commodities.
a. The tax rate shall not exceed
of the rate prescribed in 1 and
2.
4. Retailers
a. The rate shall be at an annual
tax of 2% on gross sales or
receipts totalling P400,000
5. Contractors and other independent
contractors
a. The tax rate shall be a
graduated annual fixed rate
when the gross receipts exceed
P2M, the rate is not to exceed
50% of 1%.
6. Banks and other financial institutions
a. The tax rate shall not exceed
50% of 1% on the gross receipts
of preceding calendar year.
7. Peddlers
a. The tax rate shall not exceed
50pesos per peddler annually.
8. Any business not otherwise specified
a. As the sanggunian may deem
proper.
RULES ON PAYMENT OF BUSINESS TAXES
SEC. 146 RA 7160
The taxes imposed under Section 143
shall be payable for every separate or
distinct establishment or place where
business subject to the tax is
conducted.
The tax on business must be paid by the
person conducting the same.
2 or more business subject to the same
tax rate and operated by same person
combined total gross sales or receipts
of the said 2 or more related
businesses.
2 or more business with different tax
rates operated by same person gross
sales and receipts shall be separately
reported.
Rates of tax within Metro Manila area
shall not exceed 50% the maximum
rates prescribed in Sec. 143.


SITUS OF LOCAL BUSINESS TAX
Summary of rules:
1. Sales of branch or sales office
Recorded at branch or sales office. No
allocation.
2. Sales with no branch or sales office
Recorded at principal office. No
allocation.
3. With plantation and factory in the sale
location Allocation to principal office
30% and allocation to plantation and
factory 70%
4. Plantation and factory in different
location 30% to principal office while
60% of 70% to factory and 40% of 70%
to plantation.
TAXING AND OTHER REVENUE-RAISING
POWERS OF CITIES
Scope of Power Cities are authorized
specifically to impose taxes, fees and charges
that provinces and municipalities may levy (Sec.
151, RA 7160)
The tax rate may be above the maximum
established for provinces and municipalities but
not exceeding 50% of such maximum rates.
TAXING AND OTHER REVENUE-RAISING
POWERS OF BARANGAYS
Scope of Power - The barangay may levy taxes,
fees and charges which shall accrue exclusively
to them:
1. Taxes on retailers or stores with the
fixed establishments with the gross
sales or receipts of the preceding
calendar year of P50,000 or less in the
cities and P30,000 in municipalities.
a. The rate shall not exceed 1% on
such gross sales and receipts.
2. Service fees/charges It may collect
reasonable fees or charges for services
rendered in connection with the
regulation or the use of barangay
owned property or facility.
3. Barangay clearance No
city/municipality may issue any
license/permit for any business/activity
is located. For such clearance, the
sangguniang brgy. may impose
reasonable fees.
4. Other fees and charges may levy
reasonable fees and charges:
a. On commercial breeding of
fighting cocks and cockpit.
b. On places of recreation which
charge admission fees.
c. On billboards, sign boards, neon
signs and outdoor
advertisement.
MISCELLANEOUS RULES
A revenue measure may only be
imposed through an appropriate
ordinance and require prior public
hearing.
LGUs have the power to adjust taxes
subject to a limit of once every 5 years
and shall not exceed 10% of that fixed
by RA 7160.
The interpretation of laws granting tax
powers to LGU is to be liberally
construed but doubts on the liability of
taxpayer shall be construed strictly
against the LGU.

COMMUNITY TAX
A tax imposed upon certain inhabitants of the
Philippines without regard to the property or
occupation in which they are engaged.
Cities may levy a community tax as well as the
rates and accrual of proceeds thereof.
The place of payment is the place of residence
of the individual or in the place where the
principal office of the juridical entity is located.
Time of payment shall be on January 1 of each
year.