LOCAL GOVERNMENT TAXATION

1.
2.
a.
b.
c.

(SEC. 128-196, RA 7160) Each local

government unit shall have the power:
To create its own source of revenue 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 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.

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)

GRANT OF LOCAL TAXING AUTHORITY

UNDER EXISITING LAW

Power to create sources of revenueEach 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)

a.
b.
c.
d.
3.
4.
a.
b.
c.

1. Taxation shall be uniform in each

LGU.
2. Taxes, fees, charges and other
impositions shall be:
Equitable and based on taxpayers ability to
pay.
For public purpose.
Not unjust, excessive, oppressive or
confiscatory.
Not contrary to law, public policy, national
economic policy, or in restraint of trade.
Not let to any private person
Inure solely to the local government levying
except:
Tax on Sand, Gravel, Quarry
Amusement Tax
Community Tax

5. Each LGU shall evolve a progressive system

of taxation.

DUAL STATUS OF LOCAL GOVERNMENTS

COMMON REVENUE RAISING POWERS
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.

1. Local government units may impose and

collect such reasonable fees and charges for
services rendered. (Sec.
153, RA 7160)
a. In reference to Section 131:
"Charges" refers to pecuniary
liability, as rents or fees against

persons or property; "Fee"

means a charge fixed by law or
ordinance for the regulation or
inspection of a business or
activity
2. Local government units may fix the
rates for the operation of public
utilities
owned,
operated
and
maintained by them within their
jurisdiction. (Sec. 154, RA 7160)
3. 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, physicallyhandicapped, and disabled citizens
who are sixty-five (65) years or older.
(Sec. 155, RA 7160)
COMMON LIMITATIONS ON THE TAXING
POWER OF THE LGU (SEC. 133, RA
7160)

1.
2.
3.

5.
6.

7.

Exercise of the taxing power of provinces,

cities, municipalities, and barangays shall
not extend to the levy of the following:
Income tax
Documentary stamp tax
Tax on estates, inheritance, gifts, legacies
and other
acquisitions mortis causa
4. Excise
taxes
on
Alcoholic,
Tobacco, Petroleum, Miscellaneous and
Mineral products.
Taxes, fees or charges on petroleum
products
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.
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
nonpioneer 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 REVENUERAISING

POWERS OF PROVINCES AND CITIES
Scope of Power
1. Tax on the transfer of real
ownership. (Sec. 135, RA 7160)

property

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

b.
c.
d.
e.

land and which tend directly to meet the

needs of the industry or works.
Only transactions of sale, barter or any other
modes of transferring ownership are taxed.
The tax rate is not more than 50% of 1% of
the total consideration involved or the FMV,
whichever is higher.
Lands sold, transferred or disposed under
CARL are exempted.
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, RA7160)

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)
Notes:
Professional basketball games are not
subject to amusement tax. (PBA v. CA,
digest found at end of the chapter)
Amusement taxes under the NIRC, which
cannot be imposed by the province or the
city, include taxes collected from the
proprietor, lessee or operator of cockpits,
cabarets, night or day clubs, boxing
exhibitions, professional basketball games,
Jai-Alai and racetracks. (Sec. 125, NIRC).
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
contractors

and

other

independent

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
BUSINESS TAXES
(SEC. 146, RA 7160)

OF

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

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 REVENUERAISING
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 REVENUERAISING
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.

thousand pesos (P1,000.00) of income

regardless of whether from business,
exercise of profession or from property
which in no case shall exceed Five
thousand pesos (P5,000.00). (Sec.
157, RA 7160)

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.

EXEMPTIONS FROM COMMUNITY TAX

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

Every

inhabitant of
the
Philippines eighteen (18) years of age
or over who has been regularly
employed on a wage or salary basis
for at least thirty (30) consecutive
working days during any calendar
year, or who is engaged in business or
occupation, or who owns real property
with an aggregate assessed value of
One thousand pesos (P1,000.00) or
more, or who is required by law to file
an income tax return shall pay an
annual additional tax of Five pesos
(P5.00) and an annual additional tax of
One peso (P1.00) for every One

Diplomatic and consular representatives;

and transient visitors when their stay in the
Philippines does not exceed three (3)
months. Are exempt from community tax.
(Sec. 159, RA 7160)
COLLECTION OF TAXES

ALL local taxes, fees and charges shall be

the calendar year. Such taxes, fees and
charges
may
be
paid
in
quarterly
installments. (Sec. 165, RA 7160), BUT
they shall accrue on the first (1st) day of
January of each year. However, new taxes,
fees or charges, or changes in the rates
thereof, shall accrue on the first (1st) day of
the quarter next following the effectivity of
the ordinance imposing such new levies or
rates. (Sec. 166, RA 7160)

Unless otherwise provided in this Code, all

local taxes, fees, and charges shall be paid
within the first twenty (20) days of January
or of each subsequent quarter, as the case
may be. The sanggunian concerned may, for
a justifiable reason or cause, extend the
time for payment of such taxes, fees, or
charges without surcharges or penalties, but
only for a period not exceeding six (6)
months. (Sec. 167, RA 7160). So, this
means that generally, taxes may be paid on
the first twenty days of January, April, July,
and October.

For unpaid taxes, the sanggunian may

impose a surcharge not exceeding twentyfive (25%) of the amount of taxes, fees or
charges xxx and an interest at the rate not
exceeding two percent (2%) per month until
such amount is fully paid but in no case shall
the total thirty-six (36%) months.
(Sec. 168, RA 7160)

WHO ARE LIABLE FOR COMMUNITY TAX

Every corporation no matter how created or

organized, whether domestic or resident
foreign, engaged in or doing business in the
Philippines shall pay an annual community
tax of Five hundred pesos (P500.00) and an
annual additional tax, which, in no case,
shall exceed Ten thousand
pesos
(P10,000.00). (Sec. 158, RA 7160)

Who shall collect the taxes, fees and

charges? According to Sec. 170, all local
taxes, fees, and charges shall be collected
by the provincial, city, municipal, or
barangay treasurer, or their duly authorized
deputies. (Sec. 170,
RA 7160) BUT it may be designated
to the barangay treasurer.
REMEDIES UNDER LOCAL TAXES

The following are the remedies available to

the taxpayer PRIOR to assessment: o
Question the legality of ordinances (Sec.
187, RA 7160)

The following are the remedies available to

the taxpayer AFTER assessment:
o Protest of assessment
(Sec. 195, RA 7160) o Refund
(Sec 196, RA
7160)

The following are the civil remedies

available to the Local Government unit for
the collection of revenues.
o Administrative action
Distraint
of
Personal Property (Sec.
175, RA 7160)
Levy Upon Real Property
(Sec.
176, RA 7160)
Compromise o Judicial
Action (Sec. 138
and Sec. 194, RA 7160)

CLASS RECITATION WITH SUGGESTED

ANSWERS
Q: Is an illegal business subject to local
tax?
A: Yes. To
businesses
contrary to
complied to
taxes.

answer otherwise is to favor

established and/or maintained
law by burdening those which
the requirements of the law with

Q: What is the taxation situs in the case

of trucks delivering soft drinks to
places belonging to different cities or
municipalities?
A: Section 150 (a) of the Local Government
Code is instructive in the case at bar: For
purposes of collection of the taxes under

Section 143 of this Code, manufacturers,

assemblers, repackers, brewers, distillers,
rectifiers and compounders of liquor,
distilled
spirits
and
wines,
millers,
producers,
exporters,
wholesalers,
distributors, dealers, contractors, banks, and
others financial institutions, and other
businesses, maintaining or operating branch
or sales outlet making the sale or
transaction, and the tax thereon shall
accrue and shall be paid to the municipality
where such branch or sales outlet is located.
In cases where there is no such branch or
sales outlet in the city or municipality where
the sale or transaction is made, the sale
shall be duly recorded in the principal office
and the taxes due shall accrue and shall be
paid to such city or
municipality.
Pursuant to the cited provision, the place
where the declaration of sales shall be made
will depend on whether or not the company
has a branch, sales outlet or warehouse in
the place where the products are delivered.
If the answer is in the affirmative, the situs
of taxation is the city or municipality where
the place of delivery is situated. Otherwise,
the situs is the city or municipality where
the branch, sales outlet, or warehouse (from
which the products were withdrawn)
belongs.
Q: There is a subdivision developed by
a company in Quezon City with its
model house located in San Juan, and
the sales office is in Manila. In its selfassessment, the company declared
zero sales for the taxable period. When
the assessor went to the developer
companys sales office however, it was
discovered that all the units were
already sold. It was also found out that
the developer company entered into an
escrow agreement with the local
government unit concerned where it
was agreed upon that until the
company fulfills a certain condition, the
sales pertaining to the houses in the
subdivision shall be under the custody
of the said local government unit.
Consequently, the non-fulfillment of the
condition will result in the refund of the
payments made by the purchasers of
the units.
How will you defend the stand of the
company that their declaration of zero
sales notwithstanding a sold-out status
of their units is valid?

A: The company may still declare zero sales

in its financial statements because its
absolute
control
over
the
money
represented by the earnings from the sale of
the houses is subject to a suspensive
condition imposed by the local government
unit concerned.
Article 1181 of the New Civil Code states: In
conditional obligations, the composition of
rights, as well as the extinguishment or loss
of those already acquired, shall depend
upon the happening of the event which
constitutes the condition.
The existence of the escrow agreement bars
the obligation of the company to declare the
sales for taxation purposes.
Q: What if the sale took place in the
sales office or model house? In which
city shall the sale be declared?

A: In the city where the sales office belongs

under the Local Government Code.
Section 150 (a) of the Local Government
Code states: For purposes of collection of
the taxes under Section 143 of this Code,
manufacturers,
assemblers,
repackers,
brewers,
distillers,
rectifiers
and
compounders of liquor, distilled spirits and
wines,
millers,
producers,
exporters,
wholesalers,
distributors,
dealers,
contractors, banks, and others financial
institutions,
and
other
businesses,
maintaining or operating branch or sales
outlet making the sale or transaction, and
the tax thereon shall accrue and shall be
paid to the municipality where such branch
or sales outlet is located xxx