Basic Taxation Principles and Legal Bases of Revenue Raising Powers of LGUs

(Module 2)

Module 2 Outline
Legal

Bases LG Fiscal Organization Provisions of R. A. No. 7160 Issues and Initiatives Future Challenges

Legal Bases on the Taxing & Revenue Raising Powers of LGUs

Sources of Power of Local Governments

1987 Constitution, its provisions on local government R. A. 7160, or the Local Government Code of 1991 all existing laws, acts, decrees, executive orders, proclamations and administrative regulations not inconsistent with the 1987 Constitution and the Local Government Code of 1991

Sec. of Finance vs. Ilarde and Cabaluna

May 9, 2005

For real property taxes due from 1986 to 1991, including penalties and interests, the computation should be based from the provisions of Sec. 66 of P.D. 464, i. e., 2% on the amount of the delinquent tax for each month of delinquency or fraction thereof, but in no case shall the total penalty exceed 24% of the delinquent tax. Thus, penalties imposed are valid only up to 24% of the delinquent tax. However, from 1992 onwards, the basis for the computation of the real property tax payable, including penalties or interests, if applicable, must be R.A. 7160 (Local Government Code) as it has expressly repealed P.D. 464. Thus, the penalty is 2% for each month of delinquency, but not to exceed 36 months or penalties imposed are valid up to 72% of the delinquent tax.

Fiscal Organization of LGUs Under the Decentralized Regime

NG Level DILG
NEDA

DBM DOF COA

LG Level
LCE

Sanggunian
Local Treasurer

Budget Officer
Assessor

Accountant
Local Planning and Development Officer Local Finance Committee

Provisions of the Local Government Code of 1991, Governing the Exercise of Revenue Raising Powers of LGUs

Power to Create Own-Source Revenues

Sec. 129 authority to create own-source revenues and to levy taxes, fees, and charges consistent with the basic policy of local autonomy subject to limitations under the 1991 LGC proceeds accrue exclusively to the LGU

Fundamental Principles

Sec. 130

uniformity of taxation in each LGU taxes, fees, charges and other impositions :

equitability taxpayers ability to pay public purpose not unjust, excessive, oppressive, or confiscatory not contrary to law, public policy, national economic policy, or in restraint of trade

collection shall not be let to private persons proceeds shall inure solely to the LGU imposing the tax, fee or charge progressive system of taxation

LGU Taxing and Revenue Raising Powers

Section 132 revenue ordinance by the sanggunian Section 186 - impose tax, fee, or charge on any base or subject Section 187 - mandatory public hearing; issue on constitutionality/legality
appealable to DOJ- will not suspend the effectivity of the ordinance- DOJ decision appealable to the regular court

Section 188 publication in full of the approved revenue ordinance for 3

consecutive days in a newspaper of local circulation/posting in at least 2 conspicuous and publicly accessible places

Section 189 dissemination of revenue ordinance by the local treasurer Section 190 attempt to enforce void revenue ordinance is sufficient
ground for administrative action against local officials and employees responsible therefor

Section 191 - authority to adjust tax rates once every 5 years, but not to
exceed 10% of the rates under the 1991 LGC

Section 192 grant of tax exemptions, incentives or reliefs

Limitations on LGU Power to Tax

Section 133

income tax except on banks and other financial institutions documentary stamp tax tax on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except tax on transfer of real property ownership customs duties, registration fees of vessel and wharfage on wharves, tonnage dues and all other kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by the LGU impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of LGUs in the guise of charges for wharfage, toll for bridges or otherwise, or other taxes, fees or charges in any form upon such goods or merchandise impositions on agricultural and aquatic products when sold by marginal farmers or fishermen

taxes on business enterprises certified to by the BOI as pioneer or nonpioneer for a period of 6 and 4 years, respectively from the date of registration excise taxes on articles enumerated under the NIRC, as amended impositions on petroleum products percentage tax or VAT on sales, barters or exchanges, or similar transactions on goods or services, except as provided in the 1991 LGC (Sec. 143, h, LGC) taxes on 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 (Sec. 143, h, LGC) taxes on premiums paid by way of reinsurance or retrocession impositions for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles impositions on Philippine products for exports, except as otherwise provided in the 1991 LGC (Sec. 143, h, LGC) impositions on duly registered Countryside & Barangay Business Enterprises and cooperatives impositions on the NG, agencies & instrumentalities, & LGUs

Sources of LGU Income

External Sources
Shares from National Taxes
IRA, Tobacco Excise Tax, ECOZONES, & VAT Shares from the Utilization of National Wealth royalties, mining taxes, forestry and fishery charges, and other fees and charges

Grants foreign or local

Loans/Borrowings banks and other financial institutions, LGUs

Internal Sources
Taxes Real Property Taxes Business Taxes Other Taxes Non-Tax Revenues Fees : regulatory fees; permit fees; toll fees Service/User Charges

Receipts from Economic Enterprise Operations

Other Receipts

Internal/Own Source Income of LGUs

LGU Own Source Income

Revenue Tax Revenues:
Tax on Transfer of Real Property Ownership 50% of 1% of price or FMV, whichever is higher (max.) rates may exceed the maximum rates allowed for the province or municipality by not more than 50% - do -do- dox x

Province

City

Municipality

Barangay

Franchise Tax Tax on Business of Printing and Publication Annual Fixed Tax for Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products Tax on Sand, Gravel & Other Quarry Resources Professional Tax Amusement Tax

50% of 1% of gross receipts (max.) 50% of 1% of gross receipts (max.) Php 500.00

x x x

x x x

10% of FMV per cubic meter (max.) Php 300.00 (max.) 10% of gross receipts from admission fees (max.) X

- do -

Php 300.00 (max.) 10% of gross receipts from admission fees (max.)

x x

x x

Community Tax Individual Corporate

LGU Own Source Income

Revenue
Real Property Tax (Basic) Special Education Fund (SEF) Tax on Idle Lands Special Levy on Lands benefited by Public Works, Projects or Improvements funded by LGU Tax on Business

Province
1% of AV (max.) 1% of AV 5% of AV (max.) 60% of project cost (max.) x

City/Municipality within M. Manila

2% of AV (max.) 1% of AV 5% of AV (max.) 60% of project cost (max.) graduated schedule based on gross sales or receipts

Municipality
x x x x

Barangay
x x x x

graduated schedule based on gross sales or receipts

gross sales or receipts of Php50,000 or less within a city; gross sales or receipts of Php30,000 or less within a municipality 1% of gross sales or receipts

Non-Tax Revenues:
Service Fees and Charges Public Utility Charges Toll Fees or Charges x x x

Current Issues

 LGUs continue to be financially dependent from the central government

LGU AVERAGE REVENUE SOURCES (2001 - 2008) In Php Million

NON-TAX REVENUE 26%

TAX REVENUE 74%

LGU AVERAGE REVENUE SOURCES (2001 - 2008) In Php Million

Other Receipts 5.3 % Real Property Tax 36.7 %

Receipts from Eco. Enterprise 11.0% Service/User Charges 3.9% Regulatory Fee 6.0 %

Toll Fees 0.1 %

Other Taxes 4.4 %

Business Taxes 32.6 %

LOCAL AVERAGE TAX SOURCES (2001 2008)

In Php Million

OTHER TAXES 6.0%

BUSINESS TAXES 44.3%

REAL PROPERTY TAX 49.8%

LOCAL AVERAGE NON-TAX SOURCES (2001 - 2008) in Php Million

Other Receipts 20.3%

Regulatory Fees 22.8%

Toll Fees 0.3% Service/User Charge 14.9%

Receipts from Eco. Enterprise 41.8%

Current Issues on Tax Administration and Public Finance

1.

Misconception or misunderstanding of the true meaning of local autonomy aggravated by the inability of NGAs to transform the mindset of LGU officials who remain in the traditional realm of politics, into a culture of progressivity.

Current Issue/s on Tax Administration and Public Finance

2. 3.

Lack of synchronization and harmonization of policies among the various national government agencies and bureaus involved in fiscal devolution. Problems in real property valuation.
Compliance of LGUs in the Conduct of General Revision of SMV 1993-2006
100% 90%

Percent of LGU Compliance

80% 70% 60% 50% 40% 30% 20% 10% 0%

83%
63%

54%

36%
31% 25%
75% 92% 1993 (1st GR) 75% 92% 83% 61% 66% 1996 (2nd GR) 61% 66% 63% 57% 52% 1999 (3rd GR) 57% 52% 54% 41% 33% 2002 (4th GR) 41% 33% 36% 27% 34% 2005 (5th GR) 27% 34% 31% 28% 22% 2008 (6th GR) 28% 22% 25%

Provinces Cities Total

Source: Bureau of Local Government Finance (BLGF)

Initiatives

Response/Initiatives of the Government to the Issue/s

JMC No. 2010-01
enjoining all provinces, cities, and the municipality of Pateros, MM to revise SMV and conduct general revision of property values for RPT

JMC No. 2010-02

implementation of the idle land tax

Response/Initiatives of the Government to the Issue/s

JMC No. 001, series of 2007

an attempt to synchronize and harmonize local planning, investment programming, revenue administration, budgeting and expenditure management in the LGU

Response/Initiatives of the Government to the Issue/s

LAMP2-Valuation Component
Valuation Reform Act Bill address the issues on real property undervaluation and the adverse impact on revenue generation and administration legislative reforms are being pursued by the DOF to address certain dysfunctions in the LGC that are not conducive to revenue generation both in the national and local government which adversely affect fiscal autonomy implemented by the DOF through the BLGF and the NTRC

Response/Initiatives of the Government to the Issue/s

R. A. No. 9646, or the Real Estate Service Act (RESA)
took effect, August 1, 2009 subjects real estate service practitioners, real estate brokers, real estate appraisers/valuers both in private and government sectors, local government assessors, and real estate consultants, to a licensure examination significant feature of this law is the inclusion of government appraisers and local assessors in the professionalization, and which now requires licensure for their appointment.

Response/Initiatives of the Government to the Issue/s

Credit Financing through MDFO special revolving fund that aims to establish an effective mechanism that would enable LGUs to avail funds local and international assistance for the implementation of various social and economic development projects at concessional financing terms

Future Challenges!!!

There is no doubt that the Philippines is on the right track towards more effective governance, and that is through the empowerment of LGUs. However, what has been accomplished in the past 15 years since the adoption of the Local Government Code, is the legislative structural showcase for decentralization. The framework remains to be operationalized to achieve its intended objective of making local governments truly autonomous or capable of generating by itself adequate resources to fund its developmental programs and improve the scope and quality of services to its constituencies. There should be greater and genuine effort to substantiate the Local Government Code by addressing the problems identified earlier in this presentation. The most important of this is financial autonomy. The solution lies in the areas of legislative, as well as administrative remedies. In the former case, there is an urgent need to plug the loopholes of the Local Government Code which had been identified through the years.

These problems have been identified and complied in several proposed legislations amending the Local Government Code, which have been pending for years. These initiatives have been subjected to various consultations and research studies by the University of the Philippines Local Government Center, the Department of Local Government, and a number of projects funded by international institutions. The Congress of the Philippines should take-up these proposed reforms for legislation. From the point of view of administration, the need for clarifying and coordinating the programs and projects of the government relating to local governments should likewise be an agenda for the immediate future. This will lead to better management of resources for local governments and also reduce or remove useless duplication of efforts. A complementary program should focus on further capacitating local government officials, both elective and appointive for their roles in effective governance.

References: 1987 Philippine Constitution1987. Constitution of the Philippines. Republic Act No. 7160 or the Local Government Code of the Philippines. Studies Conducted by the Land Administration and Management Project (LAMP) funded by AusAID and World Bank. Local Government Bureaucracy and Local Fiscal Administration, 2006, Local Government Foundation (LOGODEF) and Kondrad Adenauer Stiftung. Harmonization of Local Planning, Investment Programming, Revenue Administration, Budgeting and Expenditure Management with Joint Memorandum Circular No. 001, series of 2007, German Agency for Technical Cooperation Decentralization Program. MDFO-LOGOFIND Project Completion Report 2008.

Thank You and Mabuhay!!!

Ching Q. Agcaoili Bureau of Local Government Finance Department of Finance