RTDG - ausl local taxation reviewer

LOCAL GOVERNMENT TAXATION

Q: What is the source of the local taxing power of the
government?
It is granted by the Constitution under Section 5, Article X
of the 1987 Constitution. It is not inherent in the Local
Government.
In Meralco v. Province of Laguna [May 5, 1999], the
Supreme Court held that the taxing power of LGUs is a
direct grant of the Constitution, and is not a delegated
power of Congress.
Q: What is the legal basis of the grant of local taxing
power under the LGC?
Section 129 of the LGC. Each local government unit shall
have the power to create its own sources of revenues and
to levy taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide, consistent
with the basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local
governments.
Q: Who has the authority to prescribe penalties for
local tax violations?
The Sanggunian of a LGU is authorised to prescribe fines
or other penalties for violation of tax ordinances. (Sec. 516,
LGC)
Q: Who may grant local tax exemptions?
The LGU may, through ordinance duly approved, grant tax
exemptions, incentives or reliefs under such terms and
conditions, as they may deem necessary. (Sec. 192, LGC)
Q: What entities are still exempt from local taxes?
(1) Local Water Districts
(2) Cooperatives duly registered under RA 6938
(3) Non-stock and non-profit hospitals
(4) Educational institutions
Q: May the government grant tax exemption to
taxpayers whose previous exemption has been
withdrawn?
YES. In PLDT v. City of Davao [August 22, 2001], the
Supreme Court held that withdrawal of a tax exemption
does not prohibit future grants of tax exemption. (Sec. 193,
LGC)
Q: Who has the authority to adjust local tax rates?
The LGU have the authority to adjust local tax rates.
However, it should not be more than once every 5 years
and in no case shall such adjustment exceed 10% of the
rates fixed under the Code. (Sec. 191, LGC)
Q: Who has the authority to issue local tax ordinance?
The power to impose a tax, fee, or charge or to generate
revenue shall be exercised by the Sanggunian of the LGU
concerned through an appropriate ordinance. (Sec. 132,
LGC)
Q: What is the significance of a local tax ordinance?

Page 1

What determines tax liability is the tax ordinance. The LGC

is simply the enabling law for the local legislative body. In
Yamane v. BA Lepanto Condominium Corp [October
25, 2005], at issue was whether the City Government of
Makati can hold condominium corporations liable to pay
business taxes. The Supreme Court pointed out that in
issuing a notice of assessment, reference to the local tax
ordinance is vital because the power of LGUs to impose
local taxes is exercised through the appropriate ordinance
enacted by the Sanggunian and not by the LGC.
Q: Can an ordinance with has been declared void for
failure to publish for 3 weeks be remedied by passing
another ordinance with purports to amend the
ordinance that has been declared null and void?
NO. In Coca-Cola Bottlers v. City of Manila [June 27,
2006], the Supreme Court held that the new ordinance is
still void since it cannot cure something which had never
existed in the first place as the same was void ab initio.
Q: Is publication/posting of an ordinance fixing the
assessment levels for different classes of real property
in a LGU necessary?
YES. In Figuerres v. CA [March 25, 1999], the Supreme
Court held that the publication/posting requirement under
Section 188 of the LGC must be complied with in case of
an ordinance imposing real property taxes, as well as an
ordinance fixing the assessment levels for different classes
of real property.
Q: What is the Principle of Pre-emption or
Exclusionary Rule?
When the national government elects to tax a particular
area, it is impliedly withholding from the LGU the delegated
power to tax the same field.
Q: What is the taxing power of the following LGUs: (a)
Province; (b) Municipalities; (c) Cities; and (d)
Barangays?
(A) Province
(1) Local Transfer Tax
(2) Business Tax on Printing and Publication
(3) Local Franchise Tax
(4) Tax on Sand, Gravel and other Quarry
Resources
(5) Professional Tax
(6) Amusement Tax
(7) Tax on Route Delivery Truck or Vans
(B) Municipalities
(1) Local Business Tax
(2) Fees on business and occupation
(3) Fees on selling and licensing of weights and
measures
(4) Fishery rentals, fees and charges
(C) Cities
- they may levy taxes which the province and
municipality may impose. The tax rates, fees, and charges
which the city may levy may exceed the maximum rates
allowed for the province or municipality by not more than

RTDG - ausl local taxation reviewer

50% except the rates of professional and amusement

taxes.
(D) Barangays
(1) Taxes on stores with fixed business
establishment
(2) Service fees for use of barangay-owned
properties and services rendered
(3) Barangay clearance
(4) Other fees and charges for (a) commercial
breeding of fighting cocks, cockpits and cockfighting; (b) on
places of recreation with admission fees; (c) billboards,
signboards and outdoor advertisements
Q: What are not covered by the local transfer tax of
real property?
The sale, transfer or other disposition of real property
pursuant to the Agrarian reform Program shall be exempt
from local transfer tax. (Sec. 135, LGC)
Q: What is not covered by the business tax on printing
and publication?
The receipts from the printing and/or publishing of books or
other reading materials prescribed by the DepEd as
schools texts or references shall exempt from business tax.
(Sec. 136, LGC)
Q: May the tax be imposed on extractions from private
lands?
NO. In Province of Bulacan v. CA [November 27, 1998],
the tax be imposed only to those extracted from public
lands or public waters within its territorial jurisdiction.
Private lands are excluded. (Sec. 138, LGC)
Q: What is the situs of professional tax?
Professional tax is payable in the province where the
taxpayer practices his profession or where the principal
office is located in case he practices his profession in
several places. (Sec. 139, LGC)
Q: Is the amusement tax on admission tickets to PBA
games a national or local tax?
It is a national tax. In PBA v. CA [August 8, 2000], the
Supreme Court held that it was the National Government
which could collect amusement taxes from the PBA. While
Section 13 of the Local tax Code mentions other places of
amusement, professional basketball games are definitely
not within its scope under the principle of ejusdem generis.
Q: How are the sales of route trucks and vans taxed?
If the sale is made in a place with a branch office: the sale
is reported in the LGU where the branch office is located.
If the sale is made in a place without a branch office: the
sale is reported in the LGU where the sales are withdrawn.
Q: The City of Cebu imposed a gross sales tax on
sales of matches stored by Philippine Match Co. in
Cebu City but delivered to customers outside the city.
Is the imposition valid?

Page 2

YES. As held in Philippine Match Co. v. City of Cebu

[January 18, 1978], the city can validly tax the sales of
matches to customers outside of the city as long as the
orders were booked and paid for in the companys branch
office in the city. Those matches can be regarded as sold in
the city because the matches were delivered to the carrier
in Cebu City. Generally, delivery to the carrier is delivery to
the buyer.
Q: ABC Bottlers Inc. maintained a bottling plant in
Pavia, Iloilo but sold softdrinks in Iloilo City by means
of a fleet of delivery trucks called rolling stores which
went directly to customers. Iloilo City passed an
ordinance imposing a municipal license tax on
distributors/sellers in the area. Is ABC liable under the
tax ordinance?
YES. In Iloilo Bottlers Inc. v. City of Iloilo [August 19, 1988],
the Supreme Court found that the bottling company was
engaged in the business of selling/distributing softdrinks in
Iloilo City through its rolling stores where sales transactions
with customers were entered into and sales were perfected
and consummated by route salesmen. Hence, the
company was subject to municipal license tax.
Q: Who are covered by the local business tax?
(1) Manufacturers, assemblers and producers
(2) Wholesalers, dealers and distributors
(3) Exporters, manufacturers of essential commodities
(4) Retailers
(5) Contractors
(6) Banks and other financial institutions
(7) Peddlers
(8) Other business not specified
(Sec. 143, LGC)
Those already subject to tax under (1) to (7) can no longer
be subject to tax under (8) otherwise it will be deemed
double taxation. City of Manila v. Coca-Cola Bottlers
[August 4, 2009]
Q: What is the ceiling on business tax imposed on
municipalities within Metro Manila?
The municipalities in Metro Manila may levy taxes at rates
which shall not exceed by 50% the maximum rate
prescribed in Section 143, LGC.
Q: May a municipality impose a professional tax?
NO. The municipality may impose and collect such
reasonable fees and charges on business and occupation
and on the practice of any profession or calling except
professional tax which is reserved to the province. (Sec.
147, LGC)
Q: What are the limitations on the taxing power of
LGUs?
As provided in Sec. 133 of the LGC, LGUs cannot impose
the following:
(1) income tax
(2) documentary stamp tax
(3) estate and donors tax
(4) customs duties

RTDG - ausl local taxation reviewer

Page 3

(5) taxes on goods passing through the LGU

(6) taxes on agricultural and aquatic products sold by
marginal farmers and fisherman
(7) taxes on board of investments registered enterprises
(8) excise taxes and taxes on petroleum products
(9) percentage tax and VAT
(10) taxes on gross receipts of transportation contractors
(11) taxes on premium paid by way of reinsurance
(12) taxes on registration of motor vehicles
(13) taxes on Philippine products actually exported
(14) taxes on Countryside and Barangay business
enterprises and cooperatives
(15) taxes and fees on the National Government

Q: When are local taxes paid?

General Rule: Within the first 20 days of January or of
each subsequent quarter, as the case may be
Exception: For Justifiable reason or cause, the
Sanggunian may extend the time for payment without
surcharge or penalties but only for a period not exceeding
6 months. (Sec. 167, LGC)

Q: Is municipal ordinance imposing fees on goods

(corn) that pass through a municipality;s territory
valid?
NO. As held in Palma Devt. Corp. v. Zamboanga Del Sur
[October 16, 2003], LGUs through their Sanggunian, may
impose taxes for the use of any public road such as a
service fee imposed on vehicles using municipal roads to a
wharf. In this case, the LGU cannot tax the goods even in
the guise of police surveillance fees.

REMEDIES AVAILABLE TO THE TAXPAYERS

Q: What are the remedies available to the taxpayer
prior to assessment?
(1) To question the constitutionality or legality of tax
ordinances or revenue measures on appeal
(Administrative Remedy)
(2) Petition for declaratory relief as and when applicable
(Judicial Remedy)

Q: Petron maintains a depot or bulk plant at the

Navotas Fishport Complex where it engages in the
selling of diesel fuels to vessels used in commercial
fishing. Navotas City levied business taxes on its sale
of petroleum products. Can the LGU levy the business
tax on the sale of petroleum?
NO. the LGU cannot impose any local tax on petroleum
products. As held in Petron Corp. v. Tiangco [April 16,
2008], the prohibition with respect to petroleum products
extends not only to excise taxes but all taxes, fees and
charges.

PROCESS ON HOW AN APPEAL INVOLVING

QUESTIONS OF CONSTITUTIONALITY OR LEGALITY
OF TAX ORDINANCES
(1) Appeal to the Secretary of Justice within 30 days from
effectivity
(2) The Secretary of Justice has 60 days to decide but an
appeal does not suspend the effectivity of the
ordinance
(3) Within 30 days from the Secretary of Justices decision
or after 60 days inaction, an appeal may be filed with
the RTC

Q: What is the rationale for the exemption of common

carriers from local taxes?
AS held in First Philippine Industrial Corp (FPIC) v. CA
[December 29, 1998], the legislative intent in excluding
from the taxing power of the LGU the imposition of
business tax against common carriers is to prevent a
duplication of the so-called common carriers tax.

Q: What authority is given to the Secretary of Justice with

respect to review of tax ordinances?
The Secretary of Justice can declare an ordinance void for
not having followed the requirements of the law but he
cannot replace it with his own law or he cannot say that it is
unwise. In Drilon v. Lim [August 4, 1994], then Secretary
of Justice Drilon set aside the Manila Revenue Code on
two grounds, namely the inclusion of certain ultra vires
provisions and its non-compliance with the prescribed
procedure in its enactment. In ruling that the act of then
Secretary Drilon was proper, the Supreme Court noted that
when the Secretary alters or modifies or sets aside a tax
ordinance, he is not allowed to substitute his own judgment
for the judgment of the LGU that enacted the measure. In
the said case, Secretary Drilon only exercised supervision
and not control.

Q: Are broadcasting and telecommunication

companies liable to pay local transfer taxes?
NO. As held in both Smart Communication v. City of
Davao [September 16, 2008] and Quezon City v. ABSCBN Broadcasting Corp. [October 6, 2008], these
franchise holders are now subject to VAT.
Q: What is the tax period for local taxes?
The tax period of all local taxes, fees and charges shall be
the calendar year. Such taxes, fees, and charges may be
paid in quarterly instalments. (Sec. 165, LGC)
Q: When do local taxes accrue?
General Rule: On January 1
Exception: New taxes which will accrue in the 1st day of
the next quarter following effectivity of the ordinance.

Q: What penalties are imposable on failure to pay local

taxes?
The penalty of 25% surcharge and 2% interest per month
not to exceed 36 months (or a maximum of 72%) may be
imposed. (Sec. 168, LGC)

Q: X, a taxpayer who believes that an ordinance

passed by the City Council of Pasay is
unconstitutional for being discriminatory against him
wants to know from you, his tax lawyer, whether or not
he could file an appeal. In the affirmative, he asks you
where such appeal should be made: The Secretary of
Finance, the Secretary of Justice or the CTA or the

RTDG - ausl local taxation reviewer

Regular Courts. What would your advice be to your

client?
The appeal should be made with the Secretary of Justice.
Any question on the constitutionality or legality of a tax
ordinance may be raised on appeal with the Secretary of
Justice within 30 days from the effectivity thereof.
Hagonoy Market Vendor Assoc. v. Municipality of
Hagonoy [February 6, 2002]
Q: When may an action for declaratory relief be filed?
When there is such an obscurity, declaratory relief would
be applicable. This remedy is open to determine any
question of construction or validity of a tax law and/or the
declaration of taxpayers liabilities thereunder.
Q: What are the rules on assessments?
General Rule: An assessment must be made within 5 years
from the date they become due.
Exception: If there is fraud or intent to evade payment of
the tax, the assessment may be made within 10 years from
discovery of fraud or intent to evade. (Sec. 194, LGC)
Q: What is the rule on collection?
Collection must be within 5 years from assessment.
Q: What are the remedies available to the taxpayer
after assessment?
(1) Protest of assessment (Sec. 195, LGC)
(2) Claim for refund (Sec. 196, LGC)

(1)
(2)
(3)
(4)
(5)
(6)

PROCEDURE IN PROTEST OF LOCAL TAX

ASSESSMENT
Assessment notice issued by local treasurer
File written protest with the local treasurer within 30
days from date of payment
The Treasurer has to decide within 60 days
An appeal to the RTC is then available upon denial or
60 days inaction by the treasurer
The RTC decision is appealable to the CTA En Banc
Appeal to the SC within 15 days from receipt of
resolution

Q: What is the rule on refunds?

The taxpayer must file a written claim within 2 years from
the date of payment of tax or from the date when the
taxpayer is entitled to refund.
REMEDIES AVAILABLE TO THE LOCAL GOVERNMENT
Q: What are the civil remedies available to the LGU for
collection of revenues?
(1) Administrative Action
- Distraint of personal property
- Levy upon real property
- Compromise
(2) Judicial Action
Q: How is the administrative remedy of distraint or levy
exercised?
By administrative action thru distraint of goods, chattels, or
effects, and other personal property or whatever character,
including stocks and other securities, debts, credits, bank

Page 4

accounts and interest in and rights to personal property,

and by levy upon real property snd interest in or rights to
real property. (Sec. 174, LGC)
Q: How is the remedy of judicial action exercised?
The LGU concerned may institute an ordinary civil action
with the regular courts for the collection of delinquent taxes
within 5 years from the date the taxes, fees or charges
become due. (Sec. 194, LGC)