Local Government Taxation

(Ong, Sartillo, Cosme, Abdillah, Sevilla)

I. Local Government Taxation (under RA 7160 otherwise known as the Local

Government Code of 1991)

A. Principles

Power to Create Sources of Revenue (Sec 129)

Each LGU (province, city, municipality, and barangay) shall exercise its
power:
 to create its own sources of revenue, and
 to levy taxes, fees, and charges
o subject to the provisions of the LGC , consistent with the basic
policy of local autonomy
 Such taxes, fees, and charges shall accrue exclusively to the local
government units.

Fundamental Principles (Sec. 130)

1. Taxation shall be uniform in each local government unit;
2. Taxes, fees, charges and other impositions shall:
a) be equitable and based 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 shall not be let to any private person;
4. The revenue collected shall inure solely to the benefit of, the local
government unit levying the tax, unless otherwise provided; and,
5. Each LGU shall evolve a progressive system of taxation.

B. Requirements for Imposition of Local Taxes by Local

Government Units (LGUs) (Sec. 132)
 Local tax must be levied pursuant to a valid ordinance.
 Hence, it is exercisable by the LGU through the Sanggunian.

Exceptions from Local Taxation (Sec. 186)

 Any subject or item already taxed by the NIRC;
 Unjust, oppressive, excessive, confiscatory, or otherwise contrary
to declared national policy; or
 Lack of a public hearing prior to the enactment of such ordinance
imposing the local tax.
Common Limitations on Local Taxing Powers (Sec. 133)
1. Income Tax (except if levied on banks and other financial
intermediaries)
2. Documentary Stamp Tax
3. Estate Taxes (in general, except those expressly conferred by
the LGC)
4. Customs Duties, registration of vessels, wharfage on wharves
(except those wharves constructed and maintained by the
LGUs)
5. Taxes on goods carried into or out of, or passing through the
territorial jurisdiction of the LGU in the guise of charges for
wharfage, tolls for bridges or otherwise.
o It is practically a restraint on trade, hence prohibited.
6. Taxes, fees or charges on agricultural and aquatic products
when sold by marginal farmers or fishermen
7. Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6)
and four (4) years, respectively from the date of registration.
(reckoning point is registration, not date of actual commercial
operation) (in contrast, income tax by the NIRC on such firms
starts from date of commercial operation)
8. Excise Tax on articles specifically enumerated under the NIRC;
AND taxes, fees, charges on petroleum products.
o Excise taxes on articles under the NIRC  those which
are subject to ad valorem or specific tax. The local tax
must be levied on a specific article rather than one upon
the performance, carrying on, or exercise of an activity.
o Taxes on Petroleum Products  not limited to excise
taxes on such petroleum products, but to all taxes,
including one imposed for the performance, carrying on,
or exercise of an activity.
9. Percentage Tax or VAT on sales, barters, or similar exchanges
on goods or services. (except as otherwise provided in the LGC)
10. 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)
o Pertains to common carriers as defined by the New Civil
Code, regardless of the means of transporting. (e.g.
includes the grantee of a pipeline concession)
o These entities are already taxed by the NIRC.
11. Taxes on premiums paid by way or reinsurance or retrocession
12. Taxes, fees or charges for the registration of motor vehicles and
for the issuance of all kinds of licenses or permits for the
driving thereof, (except tricycles)
 13. Taxes, fees, or other charges on Philippine products actually
exported, except as otherwise provided herein
14. Taxes, fees, or charges, on Countryside and Barangay Business
Enterprises and cooperatives (as defined by the Cooperative
Code)
15. Taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities, and local government units.
o EXCEPTION: In Sec. 234(A) of RA 7160 (pertaining to
Real Property Tax), the national government CAN BE
TAXED when the beneficial use of its property is given
to a taxable entity.

C. Authority to Adjust Rates and Grant Exemptions

1. Secs. 191 and 192, LGC

SECTION 191. Authority of Local Government Units to Adjust Rates of Tax

Ordinances. — 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 this Code.

SECTION 192. Authority to Grant 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.

D. Scope of Taxing Powers of Provinces (Sec. 134-141),

Municipalities (Sec. 142, 143, 147-149), Cities (Sec. 151), and
Barangays (Sec. 152)

1. Common Revenue-Raising Powers (Secs. 153 – 155)

a. Service Fees and Charges (for services rendered by the
LGU)
b. Public Utilities owned, maintained, and operated by the
LGU
c. Toll Fees and Charges for the use of public roads, piers,
wharves, or telecommunication systems constructed and
maintained by the LGU
 EXCEPTIONS:
o Official missions by officers/personnel of the AFP/PNP
o When used by post office personnel delivering mail
o PWDs, Senior Citizens
[NOTE: when the imposition is in the guise of a toll, but is
actually levied on goods carried into or out of the LGU’s
 territory, the toll shall be considered void (see the
prohibition above in Sec. 133, Common Limitations)]

2. Cities (Sec. 151)

a. In general, it can impose the same taxes, fees, and charges
which the province or municipality can impose, except when
the LGC so provides.
b. However, it can only impose such taxes provided the province
has not imposed it already.
c. Fees, taxes, and charges collected by highly urbanized and
independent component cities shall accrue to them.
d. MAXIMUM RATES: The City can impose taxes not exceeding
50% of the maximum allowable rates imposable by the
province or municipality.
a. EXCEPT: for professional or amusement taxes. Can go as
high as they want, provided not confiscatory, unjust,
oppressive, etc.

3. Provinces (Sec. 134 – 141) can impose taxes on the following

a. Transfer of Real Property
b. Printing and Publication Business
c. Franchise Tax
d. Sand, Gravel and Other Quarry Resources
e. Professional Tax
f. Amusement Tax
 In line with the common limitations, the PBA is already
taxed by the NIRC, hence the province cannot impose any
other amusement taxes on the professional PBA games.
g. Annual Fixed Tax For Every Delivery Truck or Van of
Manufacturers or Producers, Wholesalers of, Dealers, or
Retailers in Certain Products

4. Municipalities (Secs. 142, 143, 147 – 149)

a. Those which are not already imposed by the provinces can
be imposed by the Municipalities. Same as with the cities.
b. Same impositions as can be imposed by the provinces,
provided it shall not be taxed twice by the province and
municipality. The province appears to have the preferential
right to impose taxes, and the municipality can only impose if
the province has not or did not tax the same.
c. Generally limited by the rates under the LGC,
d. EXCEPT: Municipalities in Metro Manila can impose at
higher rates not exceeding 50% of the maximum allowable for
ordinary provinces, municipalities. (Sec. 144)
5. Barangay (Sec. 152)
a. Business Tax with gross sales in accordance with the table
in the LGC
b. Service Fees or Charges for Barangay-owned properties or
service facilities
c. Barangay Clearance (the prerequisite before a city or
municipality may issue licenses for businesses)
d. Other fees and Charges on commercial breeding of fighting
cocks, cockpits, cockfights, and on places of recreation with
admission fees, and on billboards and other outdoor
advertisements

6. Situs of Tax (Sec. 150)

a. Where the sale was made in a certain municipality or city:

i. If the sale was made and a branch (or sales office or
warehouse) is operating there, the tax accrues to the
municipality or city where the branch is located.
ii. If there is no branch (or sales office or warehouse)
operating there, then the tax accrues to the municipality or
city where the principal office is located.
iii. If there is no branch or sales office or warehouse and the
company has a factory, plants, plantations, project office
operating there, the tax is distributed:
(a) 30%  the municipality or city where the principal
office is located;
(b) 70%  the municipality or city where the factory,
plants, plantation office, project office is located.
(c) If the company has factories and plantations in
several places, the allocation of 70% is further
distributed in accordance with the tables in the
LGC.
b. Rules for allocation only applies if the company has no
branch or sales office in the municipality where the sale
was made.
c. Hence, general rule is that the tax accrues to where the
branch or sales office or warehouse is located.

7. REMEDIES

Government’s Remedies (Secs. 172 – 185)

a. Lien on the property or the rights subject to tax, including the
property used in the business, occupation, or practice of
profession.
b. CIVIL REMEDIES may be pursued concurrently or simultaneously
1. Administrative Action through Distraint and Levy (on any
property of the delinquent taxpayer)
2. Judicial Action for collection

 Some personal properties are exempt from distraint/levy (Sec.

185)

Taxpayer’s Remedies
1. Protest against an assessment (Secs. 194 – 196)
a. Prescription period for assessment  within 5 years from the date
the tax became due.
b. EXCEPTIONS:
a. Fraud or Tax Evasion  prescription is 10 years from
discovery

c. Prescription for Collection  5 years from date of assessment;

a. Either by judicial or administrative action.

d. Prescription is tolled if:

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

e. Protest of Assessment  within 60 days from receipt of the notice

of assessment. The local treasurer must decide the protest within
60 days.
a. Appeal is 30 days from notice of the denial of the protest,
OR if the protest is not acted upon within 60 days, he shall
have 30 days from such time of inaction to appeal the
imposition with a court of competent jurisdiction.

2. Claim for Refund of Tax Credit. — No case or proceeding shall be

maintained in any court for the recovery of any tax, fee, or charge
erroneously or illegally collected until a written claim for refund
or credit has been filed with the local treasurer.
i. No case or proceeding shall be entertained in any court after
the expiration of 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.
 3. Question the newly-enacted ordinance (Sec. 187-188)
SECTION 187. Procedure for Approval and Effectivity of Tax, Ordinances and
Revenue Measures; Mandatory Public Hearings. - The procedure for approval of
local tax ordinances and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall be conducted for the
purpose prior to the enactment thereof: Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice
who shall render a decision within sixty (60) days from the date of receipt of the
appeal: Provided, however, That such appeal shall not have the effect of suspending
the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge
levied therein: Provided, finally, That within thirty (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 appropriate proceedings with a court
of competent jurisdiction.

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.