LOCAL TAXATION

A. Local Government Taxation

Local Taxes or Municipal Taxes pertains to those which are imposed by a municipality under
constitutional or statutory authority delegated to it, on persons or property within the corporate
limits, to support the local government and pay its debts and liabilities.

Other Definition:

It pertains to those which are imposed and collected by the local government units in order to raise
revenues to enable them to perform the functions for which they have been organized.

I. Fundamental Principles1 (also known as the requisites of local government taxation)

1. Taxation shall be uniform in each local government unit;

2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in the restraint of
trade;
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any
private person;
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of,
and be subject to the disposition by, the local government unit levying the tax, fee, charge or
other imposition unless otherwise specifically provided herein; and
5. Each local government unit shall, as far as practicable, evolve a progressive system of taxation.

Uniformity of Taxation: Equality and uniformity in local taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the same rate within the territorial jurisdiction of
the taxing authority or local government unit and not necessarily in comparison with other units
although belonging to the same political subdivision.

Public purpose: It requires that the proceeds of taxation are used to support the existence of the
local government or the pursuit of its governmental objectives. Note: Market stall fees are not taxes;
such fees partake the nature of rentals or demands of proprietorship for the use of patrimonial
property. Not being taxes, the imperativeness of ‘public purpose’ in taxation would be inaccurately
applied to an imposition by ordinance of such market stall fees.

 Bar Question: Public Purpose

Q: An ordinance of Quezon City on the operation of market stalls and the collection of
market stall fees created a market committee “to formulate, recommend and adopt subject
to the ratification of the SangguniangPanglungsod regulations in the operations of the
market stalls.” It also entrusted the collection of the market stall fees to a private

1
Section 130, Local Government Code.

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 corporation. Does the entrusting of the collection of the market stall fees destroy the
“public purpose” of the ordinance? (1989 Bar)

A: Yes, because a portion of the fees collected would be diverted as fees to private corporation.
Entrusting of the collection of the market stall fees violates the limitation that local government
units shall in no case let to any private person the collection of local taxes, fees, charges and
other impositions. [Sec. 130 (c), R.A. No. 7160, The Local Government Code] As a result of this
prohibition, public funds are therefore utilized for a private purpose, which is to pay the private
corporation for its services.

 Bar Question: Equality and Uniformity (1988, 2000, 2003, 2004)

Q: RC is a law-abiding citizen who pays his real estate taxes promptly. Due to a series of
typhoons and adverse economic conditions, an ordinance is passed by MM City granting a
50% discount for payment of unpaid real estate taxes for the preceding year and the
condonation of all penalties on fines resulting from the late payment.

Arguing that the ordinance rewards delinquent taxpayers and discriminates against
prompt ones, RC demands that he be refunded an amount equivalent to one-half of the real
taxes he paid. The municipal attorney rendered an opinion that RC cannot be reimbursed
because the ordinance did not provide for such reimbursement. RC files suit to declare the
ordinance void on the ground that it is a class legislation. Will his suit prosper? Explain
your answer briefly. (2004 Bar)

A: The suit will not prosper. The remission or condonation of taxes due and payable to the
exclusion of taxes already collected does not constitute unfair discrimination. Each set of taxes is
a class by itself and the law would be open to attack as class legislation only if all taxpayers
belonging to one class were not treated alike. [Juan Luna Subdivision, Inc., v. Sarmiento, 91 Phil
371 (1952)]

II. Nature and Sources of Local Taxing Power

The taxing power of the provinces, municipalities and cities is directly conferred by the Constitution
by giving them the authority to create their own sources of revenue. The local government units do
not exercise the power to tax as an inherent power or by a valid delegation of the power by
Congress, but pursuant to a direct authority conferred by the Constitution.

a. Grant of Local Taxing Power under the LGC

Nature: The power of taxation, while inherent in the state in view of its sovereign prerogatives,
is not inherent in LGUs, being mere creations of the state. LGUs acquired their authority to
create revenue and impose taxes by virtue of the constitution. Thus, article X, section 5 of the
Constitution provides:

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

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 may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges
shall accrue exclusively to the local governments.

Role of the Congress: Congress cannot effectively reduce or diminish the LGU’s authority to
create revenue and impose taxes. It can only provide guidelines and limitations, which must be
consistent with the state policy of local autonomy. Local autonomy includes not only
administrative but also fiscal autonomy.

Local Fiscal Autonomy: It means that the local governments have the power to create their own
source of revenue in addition to their equitable share in the national taxes released by the national
government, as well as the power to allocate their resources in accordance with their own
priorities. It includes the preparation of budgets, and local officials in turn have to work within
the constraints thereof.

(Note: The authority to tax of the LGUs within the ARMM and CAR is not automatically
vested under the Constitution as their power to tax is based on the Organic Act creating
them pursuant to Section 20, Article X of the Constitution, which is not self-executory.)

 Bar Questions: Grant of Local Taxing power under the local government code (1987,
1998, 2001, 2003, 2007)

Q: What is the nature of the taxing power of the provinces, municipalities and cities? How
will the local government units be able to exercise their taxing powers? (2007 Bar)

A: The taxing power of the provinces, municipalities and cities is directly conferred by the
Constitution by giving them the authority to create their own sources of revenue. The local
government units do not exercise the power to tax as an inherent power or by a valid delegation
of the power by Congress, but pursuant to a direct authority conferred by the Constitution.
(Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667 [1996]; NPC v. City
of Cabanatuan, 401 SCRA 259 [2003])

The local government units exercise the power to tax by levying taxes, fees and charges
consistent with the basic policy of local autonomy, and to assess and collect all these taxes, fees
and charges which will exclusively accrue to them. The local government units are authorized
to pass tax ordinances (levy) and to pursue actions for the assessment and collection of the taxes
imposed in said ordinances. (Section 129, and 132, Local Government Code)

Q: May Congress, under the 1987 Constitution, abolish the power to tax of local
governments? (2003 Bar)

A: No. Congress cannot abolish what is expressly granted by the fundamental law. The only
authority conferred to Congress is to provide the guidelines and limitations on the local
government’s exercise of the power to tax. (Sec. 5, Art X, 1987 Constitution)

b. Authority to prescribe penalties for tax violations

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  The Sanggunian is authorized to prescribe fines or other penalties for violations of
tax ordinances, but in no case shall fines be less than P1,000 nor more than P5,000
nor shall the imprisonment be less than one (1) month nor more than six (6) months.
Such fine or other penalty shall be imposed at the discretion of the court.

 The Sangguniang Barangay may prescribe a fine of not less than P100 nor more than
P1,000. (Sec. 516, LGC)

 Surcharges and Penalties on Unpaid Taxes, Fees, or Charges.2

The sanggunian may impose a surcharge not exceeding twenty-five (25%) of the
amount of taxes, fees or charges not paid on time and an interest at the rate not
exceeding two percent (2%) per month of the unpaid taxes, fees or charges including
surcharges, until such amount is fully paid but in no case shall the total interest on the
unpaid amount or portion thereof exceed thirty-six (36) months.
 Interests on Other Unpaid Revenues.

Where the amount of any other revenue due a local government unit, except
voluntary contributions or donations, is not paid on the date fixed in the ordinance, or
in the contract, expressed or implied, or upon the occurrence of the event which has
given rise to its collection, there shall be collected as part of that amount an interest
thereon at the rate not exceeding two percent (2%) per month from the date it is due
until it is paid, but in no case shall the total interest on the unpaid amount or a portion
thereof exceed thirty-six (36) months.

c. Authority to Grant Local Tax Exemptions (Tax Exemption Privileges)

Local government units may, through ordinances duly approved, grant tax exemptions,
incentives or reliefs under such terms and conditions as they may deem necessary.

Note: The power to grant tax exemptions, tax incentives and tax reliefs shall not
apply to regulatory fees which are levied under the police power of the LGU.

Tax exemptions shall be conferred through the issuance of a non-transferable tax

exemption certificate. (Article 283, IRR of LGC)

Tax Exemptions and Reliefs may be granted, through an ordinance, in cases of natural
calamities, civil disturbance, general failure of crops or adverse economic conditions
such as substantial decrease in prices of agricultural or agri-based products. Any
exemption or relief granted to a type or kind of business shall apply to all business
similarly situated and may take effect only during the calendar year not exceeding 12
months as may be provided in the ordinance. In case of shared revenues, the relief or
exemption shall only extend to the LGU granting such.

Tax incentives shall be granted only to new investments in the locality and the
ordinance shall prescribe the terms and conditions therefore. The grant shall be for a

2
Section 168, LGC.

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 definite period not exceeding 1 calendar year. The grant shall be through an ordinance
passed prior to the 1st day of January of any year.

The power to tax includes the power to exempt thereof which is essentially a legislative
prerogative. Hence, the municipal mayor who is an executive officer may not unilaterally
withdraw such an expression of a policy thru tax. (Philippine Petroleum Corporation vs.
Municipality of Pililia, G.R. No. 90776)

d. Withdrawal of Tax Exemption Privileges (Section 193, LGC.)

Unless otherwise provided in the Local Government Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or -controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of
this Code.

 Exemptions retained by the LGC:

o Local Water Districts;
o Cooperatives duly registered uder RA 6938, otherwise known as the
“Cooperative Code of the Philippines”;
o Non-stock and non-profit hospitals and educational institutions;
o Business enterprises certified 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;
o Business entity, association, or cooperatives registered under RA 6810,
otherwise known as the “Magna Carta for Countryside and Barangay
Business Enterprises”; and
o Printer and/or publisher of boos or other reading materials prescribed by
DepEd as school texts or references, insofar as receipts from their printing
and/or publication are concerned.

e. Authority to adjust local tax rates

Local government units shall have the authority to adjust the tax rates as prescribed
herein not oftener than once every five (5) years, but in no case shall such adjustment
exceed ten percent (10%) of the rates fixed under the Local Government Code.

f. Residual taxing power of local governments

Local government units may exercise the power to levy taxes, fees or charges on any base
or subject not otherwise specifically enumerated in the Local Government Code or
taxed under the provisions of the National Internal Revenue Code, as amended, or other
applicable laws. (Section 186, LGC)

Limitations:

i. It must not be specifically granted to other LGUs to avoid double taxation;

ii. The levy must be consistent with the fundamental principles, and not in violation
of the common limitations;

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 iii. The proper procedure for the enactment of a revenue ordinance must be complied
with, including the conduct of prior public hearing and publication of the
proposed revenue measure;
iv. The revenue ordinance: (i) must not contravene the constitution or any statute;
(ii) must not be unfair or oppressive; (iii) must not be partial or discriminatory;
(iv) must not prohibit trade; and (v) must be consistent with public policy.3

Principle of pre-emption

Where the National Government elects to tax a particular area, it impliedly withholds
form the local government the delegated power to tax the same field. This doctrine
principally rests on the intention of the congress.

Conversely, should the Congress allow municipal corporations to cover fields of taxation
it already occupies then the doctrine of pre-emption will NOT apply (Victorias Milling
Co., Inc. vs. Municipality of Victorias Negros Occidental, G.R. No. L-21183, Sept. 27,
1968)

 LGUs cannot impose taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, except when specific provisions of the LGC authorize
the LGUs to impose taxes, fees or charges on the aforementioned entities (City
Government of San Pablo, Laguna v. Reyes, G.R. No. 127708, Mar. 25, 1999)

g. Authority to issue local tax ordinance

Two (2) kinds of tax ordinances:

1. Those imposing a fee or tax specifically authorized by the Local Government Code
for the local government units to impose. (Taxing power under the LGC)
2. Those imposing a fee or tax not specifically enumerated under the LGC or taxed
under the provisions of the NIRC or other applicable laws.(Residual taxing power)

Necessity of revenue ordinance: The LGC is merely a general law that delegates to the
LGUs the power to impose local taxes. It does not itself impose local taxes. It needs an
enabling revenue ordinance. Hence, before any tax, fee or charge may be collected from
the public, the same must first be levied under a duly enacted revenue ordinance of the
concerned LGU. Further, such revenue ordinance must expressly require the taxpayer to
pay tax and not merely declaratory of the LGU’s authority to impose tax.

Role of the DOF and BLGF: The DOF no longer reviews the revenue ordinances of
provinces and cities. Although the DOF extends technical assistance to LGUs in the
interpretation or clarification of the conflicting provisions of the Local Government
Code pertaining to local taxation, it cannot render a ruling on the legality or
constitutionality of a revenue ordinance. This matter is now exclusively under the

3
Magtajas, et al. vs. Pryce Properties, et al., G.R. No. 111097, July 20, 1994

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 jurisdiction of the Secretary of Justice or the court of competent jurisdiction, as the case
may be, pursuant to sec. 187 of the LGC.

III. Local Taxing Authority

a. Taxing Power of LGUs

1. To create its own sources of revenue; and
2. Levy taxes, fees, and charges subject to the provisions herein, consistent with the basic
policy of local autonomy.(Sec. 129, LGC)

b. Procedure for Approval and Effectivity of Tax Ordinances

Procedure for enactment of a Revenue Ordinance: LGUs impose revenue ordinances

through their respective legislative council. The ordinary procedure under the LGC for the
enactment of ordinances, including the review by the legislative council of the LGU where the
LGU enacting the ordinance belongs, applies. In addition, the LGC requires a prior public
hearing and publication of the revenue ordinance. They ensure that the taxpayers are properly
notified so they may be able to voice out their views or objections during the public hearing, or
later on through a petition with the Secretary of Justice questioning the constitutionality and
legality of the revenue ordinance pursuant to sec 187 of the LGC. The taxpayers’ views,
however, are not binding on the legislative body. The latter is not compelled to adopt the same.

Note: Public hearing is not necessary when the tax or fee is imposed on a tax base or subject
specifically enumerated in the LGC. This is so because when a tax base or subject is already
specifically enumerated in the law, the existence of the power to tax is beyond question as the
same is expressly granted.

SECTION 188. Publication of Tax Ordinances and Revenue Measures. – Within ten (10) days
after their approval, certified true copies of all provincial, city, and municipal tax ordinances or
revenue measures shall be published in full for three (3) consecutive days in a newspaper of
local circulation: Provided, however, That in provinces, cities and municipalities where there are
no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and
publicly accessible places.

 The requirement of publication in full for 3 consecutive days is mandatory for a tax
ordinance to be valid. The tax ordinance will be null and void if it fails to comply with such
publication requirement. (Coca-Cola v. City of Manila, G.R. No. 161893 June 27, 2006)

 Bar Question: CHALLENGING LOCAL TAX ORDINANCES (1991, 2003, 2015)

Q: What is the proper procedural remedy and applicable time periods for challenging
a tax ordinance? (2015 Bar)

A: Any question on the constitutionality or legality of tax ordinances may be raised on

appeal within 30 days from the effectivity to the Secretary of Justice. The Secretary of
Justice shall render a decision within 60 days from the date of receipt of the appeal.
Thereafter, within 30 days after receipt of the decision or the lapse of the sixty-day period
without the Secretary of Justice acting upon the appeal, the aggrieved party may file the
appropriate proceedings with the Regional Trial Court. (Section 187, LGC)

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IV. Scope of Taxing Power

1. Each local government unit shall exercise its power to create its own sources of revenue and
to levy taxes, fees, and charges, consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall exclusively accrue to it. (Sec. 129, LGC)
2. All local government units are granted general powers to levy taxes, fees or charges on any
base or subject not otherwise specifically enumerated herein or taxed under the provisions of
the NIRC, as amended, or other applicable laws. The levy must not be unjust, excessive,
oppressive, confiscatory or contrary to a declared national economic policy. (Sec. 186, LGC)
3. No such taxes, fees or charges shall be imposed without a public hearing having been held
prior to the enactment of the ordinance. (Sec. 187, LGC)
4. Copies of the provincial, city, and municipal tax ordinances or revenue measures shall be
published in full for three consecutive days in a newspaper of local circulation or posted in at
least two conspicuous and publicly accessible places. (Sec. 188, LGC)

V. Taxing Power of Provinces

1. Tax on transfer of real property ownership

A province may impose a “local transfer tax” on the sale, transfer (through intestate or
testate succession), barter or any other mode of transferring ownership or title of real
property. It shall be the duty of the seller, donor, transferor, executor or administrator to pay
the tax herein imposed within sixty (60) days from the date of the execution of the deed or
from the date of the decedent’s death. Exemption: Transfer pursuant to CARP law.

For this purpose, the Register of Deeds of the province concerned shall, before registering
any deed, require the presentation of the evidence of payment of this tax. The provincial
assessor shall likewise make the same requirement before cancelling an old tax declaration
and issuing a new one in place thereof. Notaries public shall furnish the provincial treasurer
with a copy of any deed transferring ownership or title to any real property within thirty (30)
days from the date of notarization.

 Bar Question: Tax on transfer of real property ownership (1991, 2016)

Q: The City of Maharlika passed an ordinance imposing a tax on any sale or

transfer of real property located within the city at a rate of fifty percent (50%) of
one percent (1%) of the total consideration of the transaction. Jose sold a parcel of
land in the city, which he inherited from his deceased parents, and refused to pay
the aforesaid tax. He instead filed a case asking that the ordinance be declared null
and void since the tax it imposed can only be collected by the national government,
as in fact he has paid the Bureau of Internal Revenue (BIR) the required capital
gains tax. If you were the City Legal Officer of Maharlika, what defenses would you
raise to sustain the validity of the ordinance? (2016 Bar)

A: The defenses I would raise are the following:

Cities like the City of Maharlika have the power to pass an ordinance imposing a tax
on the sale, donation, barter, or on any other mode of transferring ownership of title to
real property located within its territorial boundaries; (LGC, Sec. 135, in relation to
Secs. 142 and 151)

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 The required capital gains tax collected by the national government is different from
the tax that is imposable by the local government units such as the City of Maharlika;

The transfer tax imposed and collected by cities are not among those included in the
common limitations on the power of taxation which are reserved solely for the exercise
by the national government;

There is no direct duplicate taxation because there are two different taxing authorities,
the national government and a local government unit. (Domondon)

2. Tax on business of printing and publication

In general, only cities and municipalities may impose business taxes. Section 136 provides
an exception. A province is no longer prohibited from imposing a tax on business of printing
and publication, which used to be one of its limitations in the exercise of its taxing power.

Exemption: LGC exempts a taxpayer’s receipts from the printing and/or publishing of
books or other reading materials prescribed by the department of education as school texts or
references.

3. Franchise Tax

SECTION 137. Franchise Tax. – Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a franchise, at a rate
not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.

The LGC definition of a franchise is in the sense of a secondary or special franchise. It is not
levied on the corporation simply for existing as a corporation, upon its property or income,
but on its exercise of the right or privilege granted to it by the government.

Exemption: Congress may grant exemption from local franchise tax through legislative
franchises, however, the grant of exemption must be clear so as to leave no doubt that the
congress has intended to withdraw this taxing power from province and cities as such
franchise grantees are concerned. The “in lieu of all taxes” clause in a legislative franchise
must provide a categorical and encompassing grant of tax exemption from both national and
local tax.

4. Tax on sand, gravel and other quarry resources

Section 138 provides an exception to the common limitation under 133 (h), which prohibits
LGUs from levying an excise tax similar to the tax imposed by the NIRC. Nevertheless, the
grant of this taxing power to provinces and cities is limited to those quarry resources
extracted from public lands but not those extracted from private lands.

The proceeds of the tax on sand, gravel and other quarry resources shall be distributed as
follows:

(1) Province – Thirty percent (30%);

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 (2) Component City or Municipality where the sand, gravel, and other quarry resources are
extracted – Thirty percent (30%); and
(3) Barangay where the sand, gravel, and other quarry resources are extracted – Forty
percent (40%).

5. Professional tax

A province may levy an annual professional tax on each person engaged in the exercise or
practice of his profession. The tax may be imposed only to professions which require
government examinations prior to their exercise or practice.

Exemption: Professionals exclusively employed in the government are exempt from the
payment of this tax.

Place of payment: Every person legally authorized to practice his profession shall pay the
professional tax to the province where he practices his profession or where he maintains his
principal office in case he practices his profession in several places: Provided, however, That
such person who has paid the corresponding professional tax shall be entitled to practice his
profession in any part of the Philippines without being subjected to any other national or
local tax, license, or fee for the practice of such profession.

Note: Any individual or corporation employing a person subject to professional tax shall
require payment by that person of the tax on his profession before employment and annually
thereafter.

Multiple professions: A line of profession does not become exempt even if conducted with
some other profession for which the tax has been paid.

 Bar Question: PROFESSIONAL TAX (1991, 2005)

Q: Mr. Fermin, a resident of Quezon City, is a Certified Public Accountant-Lawyer

engaged in the Practice of his two professions. He has his main office in Makati City
and maintains a branch office in Pasig City. Mr. Fermin pays his professional tax as
a CPA in Makati City and his professional tax as a lawyer in Pasig City.

a. May Makati City, where he has his main office, require him to pay his
professional tax as a lawyer? Explain.

A: No. Mr. Fermin is given the option to pay either in the city where he practices his
profession or where he maintains his principal office in case he practices his profession in
several places. The professional tax paid as a lawyer in Pasig City, a place where he
practices his profession, will entitle him to practice his profession in any part of the
Philippines without being subjected to any other national or local tax, license, or fee for
the practice of such profession. (Sec. 139 in relation to 151, Local Government Code)

b. May Quezon City, where he has his residence and where he also practices his two
professions, go after him for the payment of his professional tax as a CPA and a
lawyer? Explain. (2005 Bar)

A: No. The professional tax shall be paid only once for every taxable year and the
payment shall be made either in the city where he practices his profession or where he

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 maintains his principal office. The city of residence cannot require him to pay his
professional taxes. (Sec. 139 in relation to Sec. 151, Local Government Code)

6. Amusement tax

A province may impose amusement tax on the proprietors, lessees or operators of: (a)
Theatre and cinemas; (b) Concert Halls; (c) Circuses; (d) Boxing stadia; and (e) other similar
places of amusement. The phrase “other similar places of amusement” shall mean those
which have of the same kind or class as “theaters, cinematographs, concert halls and circuses
with artistic expression of as their common characteristics.”

In the case of theaters or cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the provincial treasurer before the gross receipts
are divided between said proprietors, lessees, or operators and the distributors of the
cinematographic films.

Exemption: The holding of operas, concerts, dramas, recitals, painting and art exhibitions,
flower shows, musical programs, literary and oratorical presentations, except pop, rock, or
similar concerts shall be exempt from the payment of the tax herein imposed.

Division of the tax: The proceeds from the amusement tax shall be shared equally by the
province and the municipality where such amusement places are located.

7. Annual fixed tax for every delivery truck of van of manufacturer or producers, wholesalers
of, dealers, or retailer in certain products

A province or city may levy an annual fixed tax for every truck, van or any vehicle used by
manufacturers, producers, wholesalers, dealers or retailers in the delivery or distribution of
distilled spirits, fermented liquors, soft drinks, cigars and cigarettes and other products to
sales outlets, or consumer, whether directly or indirectly. This tax cannot be imposed upon
goods carried into or out of, or passing through, the province or city. Otherwise, the same
will be in violation of section 133 (e) of the LGC.

The manufacturers, producers, wholesalers, dealers and retailers referred to in the

immediately foregoing paragraph shall be exempt from the tax on peddlers prescribed
elsewhere in this Code.

VI. Taxing powers of Cities

SECTION 151. Scope of Taxing Powers. – Except as otherwise provided in this Code, the city,
may levy the taxes, fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province
or municipality by not more than fifty percent (50%) except the rates of professional and
amusement taxes.

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 Additional source of revenue: Taxes levied in the exercise of residual taxing power; 23% share
in the 40% IRA allocated to LGUs; and 45% share in the proceeds derived from the utilization
and development of the national wealth within their territorial jurisdiction.

VII. Taxing Powers of Municipalities

Municipalities may levy taxes, fees, and charges not otherwise levied by provinces.

1. Tax on various types of businesses such as:

 Manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and

compounders of liquors, distilled spirits, and wines or manufacturers of any article of
commerce of whatever kind or nature;
 Wholesalers, distributors, or dealers in any article of commerce of whatever kind or
nature;
 Exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or
retailers of Essential commodities;
 Retailers;
 Contractors;
 Banks and other financial institutions;
 Peddlers4;
 Other business not specified which the sanggunian concerned my deem proper to tax.

Note: Other businesses not specified herein may be taxed by the LGU provided the business
is not subject to Business Tax (VAT or Percentage Tax) under the NIRC and the tax rate to
be imposed shall not exceed 2% of the gross sales/receipts of the preceding calendar year.

Tax on business vs. tax on object of the business: A business tax is distinct from a tax on
the article itself. A business tax may be imposed on the person engaged in business even
though the article which is the object of such business may be exempt from local tax.

2. Ceiling on business tax imposable on municipalities within Metro Manila

The municipalities in Metro Manila may levy taxes at rates which shall not exceed 50% of
the maximum rates prescribed in municipalities outside Metro Manila. (Sec. 144, LGC)

3. Retirement of Business

SECTION 145. Retirement of Business. – A business subject to tax pursuant to the

preceding sections shall, upon termination thereof, submit a sworn statement of its gross
sales or receipts for the current year. If the tax paid during the year be less than the tax due
on said gross sales or receipts of the current year, the difference shall be paid before the
business is considered officially retired.

4
Peddler refers to any person who, either for himself or on commission, travels from place to place and sells his goods or
offers to sell and deliver the same.

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4. Rules on payment of business taxes

 Taxes shall be payable for every separate or distinct establishment or place where
business subject to the tax is conducted and one line of business does not become exempt
by being conducted with some other business for which such tax has been paid.
 The tax on a business must be paid by the person conducting the same.
 In cases where a person conducts or operates 2 or more of the businesses mentioned in
Section 143 of LGC which are subject to:
o Same rate of tax – the tax shall be computed on the combined total gross sales or
receipts of the said 2 or more related business.
o Different rates of tax – the gross sales or receipts of each business shall be separately
reported for the purpose of computing the tax due from each business.

Tax treatment of incidental activities: As a general rule, when a person is already subject
to tax on his main business, he is no longer subject to tax for engaging in an activity that is
but a part of, incidental to, and necessary to such main business. All the various transactions
tending to better accomplish the principal end in view must be treated as merely incidental to
the principal purpose of the business, in the absence of circumstances evidencing a different
intent.

Rules of Situs in business tax:

a. If a manufacturer, assembler, wholesaler, distributor, dealer, etc., maintains or operates a

branch or sales outlet where the sale or transaction is made (place of consummation) , the
tax on such sale or transaction should be paid to the city or municipality where such
branch or sale is located.
b. In case there is no branch or sales outlet in the city or municipality where the sale or
transaction is made, the tax on such sale or transaction should be paid to the city or
municipality where the principal office is located.

5. Fees and charges for regulation and licensing

Forms of Levy:

1. Taxes: pertain to impositions which are primarily intended to raise revenue. (Power of
the LGUs to levy local taxes & Power of provinces, cities and municipalities within
Metro Manila to levy realty taxes)
2. Fees: Pertain to impositions which are incidental to the exercise by the LGUs of their
power to regulate.
3. Charges: Pertain to payments in exchange for the services rendered of the privileges
provided by LGUs.

The municipality may impose and collect such reasonable fees and charges on business and
occupation except professional taxes reserved for provinces (Sec. 147, LGC)
1. Fees for Sealing and Licensing of Weights and Measures (Sec. 148, LGC)
2. Fishery Rentals, Fees and Charges, including the authority to grant fishery privileges
within municipal waters, as well as issue licenses for the operation of fishing vessels of three
tons or less.

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 3. The sanggunian may penalize the use of explosives, noxious or poisonous substances,
electricity, muro –ami, and other deleterious methods of fishing and prescribe a criminal
penalty therefore. (Sec. 149, LGC)

 Bar Question: Fees and charges for regulation and licensing (2008, 2009)

Q: The Sangguniang Bayan of the Municipality of Sampaloc, Quezon, passed an

ordinance imposing a storage fee of ten centavos (P0.10) for every 100 kilos of copra
deposited in any bodega within the Municipality’s jurisdiction. The Metropolitan
Manufacturing Corporation (MMC), with principal office in Makati, is engaged in the
manufacture of soap, edible oil, margarine, and other coconut oil-based products. It
has a warehouse in Sampaloc, Quezon, used as storage space for the copra purchased
in Sampaloc and nearby towns before the same is shipped to Makati. MMC goes to
court to challenge the validity of the ordinance, demanding the refund of the storage
fees it paid under protest.

Is the ordinance valid? Explain your answer. (2009)

A: Yes. The municipality is authorized to impose reasonable fees and charges as a regulatory
measure in an amount commensurate with the cost of regulation, inspection and licensing.
(Section 147, LGC) In the case at bar, the storage of copra in any warehouse within the
municipality can be the proper subject of regulation pursuant to the police power granted to
municipalities under the Revised Administrative Code or the “general welfare clause.” A
warehouse used for keeping or storing copra is an establishment likely to endanger the
public safety or likely to give rise to conflagration because the oil content of the copra, when
ignited, is difficult to put under control by water and the use of chemicals is necessary to put
out the fire. It is, thus, reasonable that the Municipality impose storage fees for its own
surveillance and lookout (Procter & Gamble Philippine Manufacturing Corporation v.
Municipality of Jagna, Province of Bohol, 94 SCRA 894 [1979]).

VIII. Taxing Powers of Barangays

SECTION 152. Scope of Taxing Powers. – The barangays may levy taxes, fees, and charges, as
provided in this Article, which shall exclusively accrue to them:

(a) Taxes – On stores or retailers with fixed business establishments with gross sales of receipts
of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities
and Thirty thousand pesos (P30,000.00) or less, in the case of municipalities, at a rate not
exceeding one percent (1%) on such gross sales or receipts.

(b) Service Fees or Charges. – Barangays may collect reasonable fees or charges for services
rendered in connection with the regulations or the use of barangay-owned properties or service
facilities such as palay, copra, or tobacco dryers.

(c) Barangay Clearance. – No city or municipality may issue any license or permit for any
business or activity unless a clearance is first obtained from the barangay where such business or
activity is located or conducted. For such clearance, the sangguniang barangay may impose a
reasonable fee. The application for clearance shall be acted upon within seven (7) working days
from the filing thereof. In the event that the clearance is not issued within the said period, the city
or municipality may issue the said license or permit.
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 (d) Other fees and Charges. – The barangay may levy reasonable fees and charges:

(1) On commercial breeding of fighting cocks, cockfights and cockpits;

(2) On places of recreation which charge admission fees; and

(3) On billboards, signboards, neon signs, and outdoor advertisements.

IX. Common Revenue-Raising Powers

SECTION 153. Service Fees and Charges. – Local government units may impose and collect
such reasonable fees and charges for services rendered.

SECTION 154. Public Utility Charges. – Local government units may fix the rates for the
operation of public utilities owned, operated and maintained by them within their jurisdiction.

SECTION 155. Toll Fees or Charges. – The sanggunian concerned may prescribe the terms and
conditions and fix the rates for the imposition of toll fees or charges for the use of any public
road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and
constructed by the local government unit concerned: Provided, That no such toll fees or charges
shall be collected from officers and enlisted men of the Armed Forces of the Philippines and
members of the Philippine National Police on mission, post office personnel delivering mail,
physically-handicapped, and disabled citizens who are sixty-five (65) years or older.

When public safety and welfare so requires, the sanggunian concerned may discontinue the
collection of the tolls, and thereafter the said facility shall be free and open for public use.

X. Community Tax

The community is a poll or capitation tax imposed upon residents of a city or municipality. (A
province has no power to impose community tax)

The following are subject to community tax:

1) Individuals – Every inhabitant of the Philippines eighteen (18) years of age or over:
a) who has been regularly employed on a wage or salary basis for at least thirty (30)
consecutive working days during any calendar year; or
b) who is engaged in business or occupation;
c) or who owns real property with an aggregate assessed value of P1,000.00 or more; or
d) who is required by law to file an income tax return. (Sec. 157, LGC)

2) Juridical Persons –Every corporation no matter how created or organized, whether domestic or
resident foreign, engaged in or doing business in the Philippines. (Sec. 158, LGC)

Exemptions from community tax:

1. Diplomatic and consular representatives

2. Transient visitors when their stay in the Philippines does not exceed three (3) months.
(Sec. 159, LGC)

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XI. Common Limitations on the Taxing Power

The Local Government Units cannot levy the following taxes:

I: Taxes, fees and charges similar to the national revenue taxes under the NIRC.

a. Income tax: The LGU may impose income tax on bank and other financial institutions, at
a rate not exceeding 50% of 1% on the gross receipts of the preceding calendar year
derived from interest, commissions and discounts from lending activities, income from
financial leasing, dividends, rentals on property and profit from exchange or sale of
property, insurance premium. All other income and receipts of banks and financial
institutions not otherwise enumerated shall be excluded from the taxing authority of the
LGU concerned.
b. Transfer taxes: Based on the wordings of sec 133 (c), the LGC does not forbid LGUs
from imposing donor’s tax or tax on transfers inter vivos. See. Sec. 135 and 151.
c. Business Taxes: By virtue of sub-paragraphs (i), (j) and (k) of section 133, LGUs may not
impose a tax similar to VAT or percentage tax levied under the NIRC, unless specifically
provided in the LGC. See sec. 137, 139, 140, 143 & 151

 Franchise tax: The LGC grants provinces and cities the power to impose a
franchise tax on business enjoying a franchise in addition to VAT and percentage
tax imposed upon franchise holders under the NIRC.
 Professional Tax: The LGC authorizes provinces and cities to impose an annual
professional tax on each person engaged in the exercise or practice of profession in
addition to VAT and percentage tax imposed under the NIRC to professionals.
 Amusement Tax: The LGC authorizes provinces and cities to impose an
amusement tax on “proprietors, lessees, or operators of theatres, cinemas, concert
halls, circuses, boxing stadia and other place of amusement.”
 Business Tax: Cities and municipalities may impose a business tax, which in most
cases is expressed as a percentage tax of the taxpayer’s gross receipt or sales.
 Transportation Tax: Sec 133 (j) – LGU may not levy 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 the LGC. Exception: Cities and municipalities have the authority to
levy taxes on the operation and franchising of tricycles, pursuant to section 151 and
147, respectively of the LGC.
 Taxes on premiums paid by way of reinsurance or retrocession:

d. Excise Tax: An excise tax has been broadly defined to be a tax upon the performance,
carrying on, or the exercise of an activity. This general definition of excise tax, however, is
not contemplated in sec 133(h). What is prohibited is the imposition of excise taxes
enumerated in the NIRC and taxes, fees or charges specifically on petroleum products.

 Provinces and cities may impose an excise tax on the extraction of quarry
resources from public lands

 Cities and municipalities may generally impose a business tax on businesses

dealing with articles subject to excise tax: Sec 133(h) only prohibits the
imposition of an excise tax on the products which are already subject to excise tax
under the NIRC. It does not prohibit the imposition of business taxes. A tax on

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 business is distinct from the tax on the article itself. Thus, cities and municipalities
may generally impose business taxes on persons engaged in businesses dealing with
articles subject to excise tax under the NIRC. Note, however, that the prohibition
against the imposition of an excise tax on petroleum products also includes a similar
prohibition on imposition of business tax on the person dealing with petroleum
products. The reason why the local government Code gives special concern over
petroleum products is because they remain to an area of public concern.

e. Documentary Stamp Tax: Contemplates absolute prohibition.

II: Taxes, fees, and charges similar to the customs duties and other levies imposed under
the CMTA: Note: Section 133(m) prohibits LGUs from imposing “taxes, fees, or other charges
on Philippine products actually exported, except as otherwise provided.” The exception refers to
the authority of cities and municipalities to impose a tax on the privilege to engage in an export
business, pursuant to section 143(c). It should be noted that section 133 (m) refers to the exported
products, while section 143(c) refers to the business of exporting itself.

III: Taxes, fees and charges on activities and transactions governed by special laws: The
local government Code complements certain special laws which provide incentives to taxpayers
on account of their activities or transactions. These include: (a) The Omnibus Investment act; (b)
the Magna Carta for Countryside and Barangay Business Enterprises; (c) the Cooperative Code
of the Philippines; and (d) the laws establishing economic zones.

IV: Taxes, fees and charges in restraint of trade or in violation of the principles of taxation:

a. Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdiction 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.
b. Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers
or fishermen.
c. Taxes, fees or charges for the registration of motor vehicles.
d. Taxes, fees or charges for the issuance of all kinds of licenses or permits for the driving of
motor vehicles, except tricycles.
e. Taxes, fees and charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.

Authorization Limitation - With the exception of cities, each local government unit could not
exercise the taxing powers granted to others. Hence, a province could not exercise the powers
granted to municipality and vice-versa. However, a city could exercise the taxing powers of both
a province and a municipality.

 Bar Question: Levy upon goods carried into, leaving or passing through and LGU’s
territorial boundaries (1987, 2015)

Q: In 2014, M City approved an ordinance levying customs duties and fees on goods
coming into the territorial jurisdiction of the city. Said city ordinance was duly
published on February 15, 2014 with effectivity date on March 1, 2014.

Is there a ground for opposing said ordinance? (2015 Bar)

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 A: Yes, on the ground that the ordinance is ultra vires. The taxing powers of local government
units such as M City, cannot extend to the levy of taxes, fees and charges already imposed by
the national government, and this includes, among others, the levy of customs duties under the
Tariff and Customs Code (Sec. 133 (e), LGC)

XII. Taxpayer’s Remedies

Remedies available to the taxpayer:

1. Protest assessment
2. Claim for refund or tax credit
3. Judicial action

A. Prior to assessment

1) Administrative appeal to the Secretary of Justice

Appeal to the SOJ: If the revenue ordinance has been upheld by the reviewing
sanggunian, a person questioning the validity of a proposed revenue measure may file his
appeal to the Secretary of justice within 30 days from the effectivity of the revenue
ordinance. Pursuant to the LGC, the SOJ may review the constitutionality or legality of
the revenue ordinance and, if warranted, revoke it on either or both of these grounds.

Effect of Appeal: The appeal, however, does not have the effect of suspending the
effectivity of the revenue ordinance and the accrual and payment of the levied tax, fee or
charge. This is consistent with the principle that a revenue ordinance is presumed correct
unless declared invalid by the courts.

Appeal to a court of competent jurisdiction: The aggrieved party may appeal to a court
of competent jurisdiction within thirty days from receipt of the decision of the SOJ or the
lapse of 60 day period in case the SOJ fails to act on the appeal. Note, however, that the
60 day period is only directory and the SOJ may still review the revenue ordinance and
issue decision even after the lapse of the said period. The SOJ must act within a
reasonable time. Note: The appeal is in the nature of a declaratory relief to determine the
constitutionality of a revenue ordinance.

Injunction: Unlike the NIRC, the Local Government Code does not specifically prohibit
an injunction against the collection of taxes. Hence, the collection of local taxes may be
restrained provided that the requirements of the Rules of Court, in particular, Rule 58,
must be present, viz: (1) a clear and unmistakable right that must be protected; and (2) an
urgent and paramount necessity for the writ to prevent serious damage. Note: the SOJ
may enjoin the collection of the local tax pending review.

Effect of failure to appeal: A taxpayer’s failure to appeal to the SOJ within 30 days from
the effectivity of a revenue ordinance bars the subsequent protest and/or claim for refund
on the ground of its invalidity. Such failure is fatal to the taxpayers claim, even if other
taxpayers have questioned the same ordinance with the SOJ. Compliance with the
prescriptive period to appeal is mandatory.

2) Action for declaratory relief

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 The constitutionality of a revenue ordinance could be questioned at any time despite the
prescription of the limited period to question it. Hence, if the taxpayer failed to appeal to
the SOJ within the 30-day period, he may still question the constitutionality of the
revenue ordinance through an action for declaratory relief filed with the RTC.

3) Appeal from the decision of the RTC

Appeal from the decision of the RTC: An action for declaratory relief can only be filed
with the RTC in the exercise of its original jurisdiction and not in the exercise of its
appellate jurisdiction. The remedy of the party adversely affected by the decision of the
RTC is to directly appeal by certiorari to the SC because the CTA is not competent to
review decisions of the RTC rendered in the exercise of its appellate jurisdiction when it
involves pure question of law.

B. After an assessment

Period to assess local taxes and fees: Local taxes, fees, or charges shall be assessed within 5
years from the date they became due. No action for collection of such taxes, fees, or charges
whether administrative or judicial, shall be instituted after the expiration of such period without
assessment having been made. In cases of fraud or intent to evade the payment of taxes, fees, or
charges, the same may be assessed within 10 years from the discovery of fraud or intent to evade
payment.

Period to collect: Local taxes, fees, or charges may be collected within 5 years from the date of
assessment by administrative or judicial action. No such action shall be instituted after the
expiration of said period.

Suspension of Prescriptive period: The running of the periods of prescription shall be

suspended for the time during which (a) the treasurer is legally prevented from making an
assessment or collection (b) the taxpayer requests for a reinvestigation and executes waiver in
writing before the expiration of the period within which to assess or collect; and (c) the taxpayer
is out of the country or otherwise cannot be located.

1. Protest of the assessment

i. When the correct tax, fee or charge is not paid, the Local Treasurer shall issue
a notice of assessment within the applicable prescriptive period. (Sec. 184,
LGC) stating the nature of the levy, the amount of deficiency, the surcharges,
interests and penalties.
ii. The taxpayer may file a written protest of the assessment with the local
treasurer contesting the assessment; otherwise the assessment shall become
final and executory.
iii. The local treasurer shall decide the protest within sixty (60) days from the
time of its filing. If the local treasurer finds the assessment to be wholly or
partly correct, he shall deny the protest wholly or partly with notice to the
taxpayer.
iv. The taxpayer shall have thirty (30) days from the receipt of the denial of the
protest or from the lapse of the sixty (60) day period prescribed herein within
which to appeal with the court of competent jurisdiction otherwise the
assessment becomes conclusive and unappealable. (Sec. 195, LGC)
v. The competent court referred to is the Regional Trial Court (RTC) which acts
in the exercise of its original jurisdiction.
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 2. Action for refund
i. A written claim for refund or credit is filed with the local treasurer.
ii. A claim or proceeding is then filed with the court of competent jurisdiction
(depending upon the jurisdictional amount) within two (2) years from the date
of the payment of such tax, fee, or charge, or from the date the taxpayer is
entitled to a refund or credit. (Sec. 196, LGC)

Note: The filing of a written claim for refund with the local treasurer is a condition
precedent for maintaining a court action.

Note: Instead of filing a written protest, the taxpayer may opt to pay the tax, fee or
charge within 60 days from the receipt of assessment and then seek its refund within 2
years from the payment of the tax, fee or charge, or from the date the taxpayer is
entitled to a refund or credit. Note: same rule on refund under NIRC. Remember,
however, the jurisdictional amount of local tax cases in the MTC and RTC (including
refund).

XIII. Civil Remedies by the LGUs for the Collection of Revenues

Remedies of LGUs:

Local government lien

Local taxes, fees, charges and other revenues constitute a lien, superior to all liens, charges
or encumbrances in favor of any person, enforceable by appropriate administrative or
judicial action, not only upon any property or rights therein which may be subject to the lien
but also upon property used in business, occupation, practice of profession or calling, or
exercise of privilege with respect to which the lien is imposed. The lien may only be
extinguished upon full payment of the delinquent local taxes fees and charges including
related surcharges and interest. (Sec. 173, LGC)

1) Civil remedies
a. Administrative action remedies of Distraint of personal property/ Levy of real property
b. Judicial action

The LGU concerned may enforce the collection of delinquent taxes, fees, charges and
other revenues by civil action in any court of competent jurisdiction. The civil action shall
be filed by the local treasurer within five (5) years from delinquent taxes, fees or
charges become due. (Note: The local government files an ordinary suit for the
collection of sum of money before the MTC, RTC or CTA depending upon the
jurisdictional amount. See remedies.)

 The following property shall be exempt from distraint and levy, attachment or execution thereof
for delinquency in the payment of any local tax, fee or charge, including the related surcharge
and interest:

(a) Tools and implements necessarily used by the delinquent taxpayer in his trade or
employment;
(b) One (1) horse, cow, carabao, or other beast of burden, such as the delinquent taxpayer may
select, and necessarily used by him in his ordinary occupation;

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(c) His necessary clothing, and that of all his family;
(d) Household furniture and utensils necessary for housekeeping and used for that purpose by the
delinquent taxpayer, such as he may select, of a value not exceeding Ten thousand pesos
(P10,000.00);
(e) Provisions, including crops, actually provided for individual or family use sufficient for four
(4) months;
(f) The professional libraries of doctors, engineers, lawyers and judges;
(g) One fishing boat and net, not exceeding the total value of Ten thousand pesos (P10,000.00),
by the lawful use of which a fisherman earns his livelihood; and
(h) Any material or article forming part of a house or improvement of any real property.

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