Each local government unit shall have the power: 1. To create its own source of revenue and; 2. To levy taxes, fees and charges a. Subject to such guidelines and limitations as the Congress may provide b. Consistent with the basic policy of local autonomy c. 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. GRANT OF LOCAL TAXING AUTHORITY UNDER EXISITING LAW Power to create sources of revenue- Each 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) DUAL STATUS OF LOCAL GOVERNMENTS 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. 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
1. Taxation shall be uniform in each LGU. 2. Taxes, fees, charges and other impositions shall be: a. Equitable and based on taxpayers ability to pay. b. For public purpose. c. Not unjust, excessive, oppressive or confiscatory. d. Not contrary to law, public policy, national economic policy, or in restraint of trade. 3. Not let to any private person 4. Inure solely to the local government levying except: a. Tax on Sand, Gravel, Quarry b. Amusement Tax c. Community Tax 5. Each LGU shall evolve a progressive system of taxation. COMMON LIMITATIONS ON THE TAXING POWER OF THE LGU SEC. 133, RA 7160 Exercise of the taxing power of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: 1. Income tax 2. Documentary stamp tax 3. Tax on estates, inheritance, gifts, legacies and other acquisitions mortis causa 4. Excise taxes on Alcoholic, Tobacco, Petroleum, Miscellaneous and Mineral products. 5. Taxes, fees or charges on petroleum products 6. 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. 7. 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 non-pioneer 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 REVENUE-RAISING POWERS OF PROVINCES AND CITIES Scope of Power 1. Tax on the transfer of real property ownership. (Sec. 135, RA 7160) 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 land and which tend directly to meet the needs of the industry or works. b. Only transactions of sale, barter or any other modes of transferring ownership are taxed. c. The tax rate is not more than 50% of 1% of the total consideration involved or the FMV, whichever is higher. d. Lands sold, transferred or disposed under CARL are exempted. e. 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, RA 7160) 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) 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 and other independent contractors 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 OF BUSINESS TAXES SEC. 146 RA 7160 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 Summary of rules: 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 REVENUE-RAISING 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 REVENUE-RAISING 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. 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.
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.