11/11/20081:19 PM

Local Government Taxation

Readings in Local Taxation

A. Sections 128 to 133, Local Government Code, RA 7160;

B. Sections 218 to 222, Implementing Rules & Regulations (IRR) of RA 7160
C. Vitug & Acosta Book & Hector DeLeon’s Fundamentals of Taxation on local taxation
D. Cases:
1. Pepsi Cola v. City of Butuan , 24 SCRA 789 (1968) Ordinance impose business tax only on local agents
of outside dealers. Ultra vires.
2. In Petron Corp v Mayor Tobias Tiangco of Navotas, GR 158881 Apr 16, 2008, where the issue is
whether sale of petroleum products may be subject to business taxes under Navotas tax ordinance
issued pursuant to Sec 143 of LGC or is it exempt under Sec 133(h) of LGC and Art 232(h) of the IRR,
the SC ruled that it is exempt.
3. Asiatic Integrated Corp 72 SCRA 285 (1975) Validity of contract to manage and operate public markets.
4. Bagatsing v. Ramirez 7 SCRA 306 GR41631 Dec 17, 1976. Required publication of ordinance is
governed by charter or local tax code; special law v general law; particular subject v general subject.
5. Villanueva v. City of Iloilo, 26 SCRA 578 (Dec 1968) Business tax on tenement not real property tax; no
double taxation; penalty allowed.
6. Progressive Dev. Corp v. Quezon City, GR 36081 Apr 24, 1989 - 5% tax imposed in Ordinance No.
9236 constitutes, not a tax on income, not a city income tax (as distinguished from the national income
tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local
Autonomy Act, but rather a license tax or fee for the regulation of the business in which the petitioner is
engaged.
7. PLDT v. City of Bacolod, 463 SCRA 528 (GR149179 Jul 15 2005) – Franchise Tax in lieu of all other
taxes
8. Arabay Inc. v. CFI, 66 SCRA 617
9. Procter & Gamble vs. Mun of Jagna, L-24265, Dec. 29, 1979
10. Allied Thread Co. and Ker & Co. v. City of Manila, 133 SCRA 338
11. Mobil Phils v. City Treasurer, 463 SCRA 379 (2005) Retirement of business
12. Luz Yamane (City Treasurer) v. BA Lepanto Condo GR154993, Oct 25, 2005
13. Palma Development Corp. v. Mun of Malangas, Zamboanga del Sur, 413 SCRA 572 (2003).
14. National Development Company v. Cebu City, 215 SCRA 382. Sec. 133(0) Tax exemption of property of
the Rep of the Phil refers to properties owned by the gov and its agencies which do not have separate
legal personalities
15. Panaligan et al v. City of Tacloban, GR No. L 9319, Sept 27, 1957; Relating to Sec 133(e) of LGC,
Common Limitations of taxing powers. Declared invalid an ordinance which inhibits the free flow of
goods into, or out of, the territorial jurisdiction of the City of Tacloban.
16. First Philippine Industrial Corp. v. Court of Appeals, et al, GR No. 125948, Dec 29, 1998. – Sec.
133(J)Pipeline Concessionaire transporting petroleum products from its refineries granted under
Petroleum Act of the Phil is considered a common carrier thus not liable to local tax. Batangas was
ordered to refund.
 17. Sps Tan v Bantegui GR554027 Oct 24, 2005 - The auction sale of real property for the collection of
delinquent taxes is in personam, not in rem.
18. Ericson v City of Pasig, GR 176667 Nov 22, 2007 – Basis of local taxes is Gross Receipts per the local
tax code. It cannot be Gross Income.
19. San Juan v Castro, Treasurer of Marikina City, GR 17461 Dec 27, 2007 – Basis of Transfer Tax under
the LGC (Sec 135) in case of transfer is consideration or FMV whichever is higher. This point was not
tackled by the SC. It based its decision on the procedure under Sec 195 – Protesting Assessment of
LGC Treasurer cannot be compelled by mandamus to accept payment based on consideration in the
Deed of Assignment. Remedy is the procedure laid down in the LGC.
20. Allied Bank v QC GR 154126 Oct 11, 2005 – Basis of RPT per Ordinance was the Deed of Sale instead
of the General Revision Values null and void; Prohibition does not lie because there are other remedies;
SC not trier of facts
21. Smart Communications v City of Davao GR 155491 Sep 16, 2008 – Smart is subject to Franchise Tax
imposed by the Tax Code of Davao City pursuant to Sec 137 and 151 of LGC despite the provision of its
franchise that the franchise tax imposed therein is in” lieu of all other taxes.” This phrase refers to
national taxes and not to local taxes. Unlike in Globe’s franchise which covers both national and local
taxes. Note: Smart is now subject to VAT, Income tax, local taxes and real property tax. VAT has
replaced the Franchise Tax imposed under Telecom franchises.
22. Quezon City v ABS CBN Broadcasting GR 166408 Oct 6, 2008 – is the provision in its franchise issued
after the enactment of the LGC withdrawing exemptions that the 3% franchise tax is lieu of all other
taxes, except income, exempts it from the 3% franchise tax? The present controversy essentially boils
down to a dispute between the inherent taxing power of Congress and the delegated authority to tax of
local governments under the 1987 Constitution and effected under the LGC of 1991. Congress has the
inherent power to tax, which includes the power to grant tax exemptions. On the other hand, the power
of Quezon City to tax is prescribed by Section 151 in relation to Section 137 of the LGC which expressly
provides that notwithstanding any exemption granted by any law or other special law, the City may
impose a franchise tax. It must be noted that Section 137 of the LGC does not prohibit grant of future
exemptions. As earlier discussed, this Court in City Government of Quezon City v. Bayan
Telecommunications, Inc. sustained the power of Congress to grant tax exemptions over and above the
power of the local government’s delegated power to tax. The more pertinent issue now to consider is
whether or not by passing R.A. No. 7966, which contains the “in lieu of all taxes” provision, Congress
intended to exempt ABS-CBN from local franchise tax. The basis for the rule on strict construction to
statutory provisions granting tax exemptions or deductions is to minimize differential treatment and foster
impartiality, fairness and equality of treatment among taxpayers. In sum, ABS-CBN’s claims for
exemption must fail on twin grounds. First, the “in lieu of all taxes” clause in its franchise failed to
specify the taxes the company is sought to be exempted from. Neither did it particularize the jurisdiction
from which the taxing power is withheld. Second, the clause has become functus officio because as the
law now stands, ABS-CBN is no longer subject to a franchise tax. It is now liable for VAT.
23. Digitel Telecommunications Phis. v Prov of Pangasinan GR 152534 Feb 23, 2007 – Issues affecting
exemption from franchise tax and real property tax under the LGC.
24. Petron Corp v Mayor Tobias Tiangco of Navotas, GR 158881 Apr 16, 2008, where the issue is whether
sale of petroleum products may be subject to business taxes under Navotas tax ordinance issued
pursuant to Sec 143 of LGC or is it exempt under Sec 133(h) of LGC and Art 232(h) of the IRR, the SC
ruled that it is exempt.
25.

REVIEW Q & A

1. What is the nature of the local government units’ taxing power?

It is not inherent but since time immemorial the power to tax had been delegated by Congress to the local
government units; and under the 1973 and the present Constitution, this power has been constitutionally granted
to them subject such limitations as the law may impose. (Pepsi Cola Bottling Co. vs. Municipality of Tanauan, 69
SCRA 460)

2. What are the main provisions of the Constitution affecting the taxing power of the local government units?

Sec. 3, Art. X of the Constitution enjoins the enactment of a Local Government Code which would, among other
things, allocate among the different local government units their respective powers, functions, responsibilities
and resources; and Sec. 5, ibid., declares that each LGU shall have the power to create its own sources of
revenue and to levy taxes, subject to such limitations as may be provided by law, consistent with the principle of
local autonomy. Said taxes, etc. shall accrue exclusively to them. (see William Lines, Inc. vs. City of Ozamis, 56
SCRA 590; C. Basco v Pagcor GR 91649 May 14, 1991 – held LGU has no power to tax Pagcor; Prov of
Batangas v Romulo, GR 152774 May 27, 2004 – meaning of local autonomy)

a. What are the sources of funds of local government units?

a. Taxes, etc.
b. shares from national government collections
c. share in the utilization of their natural resources and
d. other sources [proprietary, etc.]

3. What law was enacted to flesh out the above constitutional mandate?

RA No. 7160, otherwise known as the Local Government Code, specifically, Book II - Local Taxation and Fiscal
Matters, Title One – Local Government Taxation, Title Two – Real Property Taxation and Title Three – Shares of
LGUs in the Proceeds of National Taxes.

4. Extant of the provisions of the LGC on Local Taxation and Fiscal Matters, what other provision therein can be
used as basis for imposing fees or licenses?

Sec. 16 of LGC . General Welfare. – Every LGU shall exercise the powers expressly granted, those necessarily
implied therefrom, as well as the powers necessary, appropriate, or incidental of its efficient and effective
governance, and those which are essential to the promotion of the general welfare.

5. How are LGUs tax powers construed?

Any provision on the power of a LGU shall be liberally interpreted in its favor, and in case of doubt, it shall be
resolved in favor of devolution of power and of the LGU. (Sec. 5(a) LGC); however, any doubt on the application
of any tax ordinance shall be construed against the LGU and liberally in favor of the taxpayer, except tax
exemption, incentive or relief granted by the LGU, which shall be interpreted against the grantee. (Sec. 5(b),
ibid.) Respondents cite our declaration in City Government of San Pablo v. Reyes[1][45] that following the 1987
Constitution the rule thenceforth “in interpreting statutory provisions on municipal fiscal powers, doubts will have
to be resolved in favor of municipal corporations.”[2][46] Such policy is also echoed in Section 5(a) of the Code,
which states that “[a]ny provision on a power of a local government unit shall be liberally interpreted in its favor,
and in case of doubt, any question thereon shall be resolved in favor of devolution of powers and of the lower
local government unit.” But somewhat conversely, Section 5(b) then proceeds to assert that “[i]n case of doubt,
any tax ordinance or revenue measure shall be construed strictly against the local government unit enacting it,
and liberally in favor of the taxpayer.”[3][47] And this latter qualification has to be respected as a constitutionally
authorized limitation which Congress has seen fit to provide. Evidently, local fiscal autonomy should not
necessarily translate into abject deference to the power of local government units to impose taxes. [cited in the
Apr 16, 2008 Petron Corp v Mayor Tobias Tetiangco case]

6. Are the provisions of LGC on Local Government Taxation sufficient for LGUs to assess and collect local
taxes, fees and licenses from their constituents? Or How shall the power of taxation be exercised by the LGUs?

No, there is a need for a baranggay, municipal, city or provincial ordinance to levy, assess and collect taxes,
fees and licenses. The power to impose a tax, fee or charge or to generate revenue under LGC shall be
exercised by the sanggunian of the LGU concerned through an appropriate ordinance. (Sec. 133, ibid.)

7. If a LGU failed to pass a tax ordinance pursuant to the provisions of the LGC upon the effectivity of the Code,
can it still assess and collect taxes, fees, and licenses?

Yes. All existing tax ordinances or revenue measures of LGUs shall continue to be in force and effect after
effectivity of the LGC unless amended by the sanggunian concerned, or inconsistent with, or in violation of, the
provision of LGC. (Sec. 530, ibid.). A SC decision ruled that when the mun of Pasig was converted into a city,
the ordinances issued prior to conversion were not deemed reenacted as city ordinances, thus collection of
taxes by the city under mun ordinance was invalid.

8. Definitions of terms

a. Agricultural products
b. Amusement
c. Amusement places
d. Business
e. Banks and other financial intermediaries
f. Capital investment
g. Charges
h. Contractor
 i. Corporation
j. Countryside and Barangay Business Enterprise
k. Dealer
l. Fee
m. Franchise
n. Gross Sales or Receipts
o. Manufacturer
p. Marginal Farmer or Fisherman
q. Motor Vehicle
r. Municipal waters
s. Operator
t. Peddler
u. Persons
v. Resident
w. Retail
x. Vessel
y. Wharfage
z. Wholesale

9. What are the [Fundamental Principles] general limitations on their taxing powers [Sec 130]

a. Taxation shall be uniform in each LGU

b. Taxes, fees, charges and other impositions shall
a. be equitable and based as far as practicable on ability to pay
b. be levied and collected only for public purposes
c. not be unjust, excessive, oppressive or confiscatory
d. no be contrary to law, public policy and national economic policy, or in restraint of trade
c. collection of taxes and other impositions not be let to any private person
d. taxes collected shall inure solely to the benefit and subject to the disposition of LGU, except as provided
in this Code
e. as far as practicable, evolve a progressive system of taxation

10. What is meant by uniformity?

Equality and uniformity in local taxation means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate within the territory of the LGU, not necessarily in comparison with other LGU
within the same political subdivision. In other words, it merely requires geographical uniformity. (Punzalan v. City
of Manila, 95 Phil 46) A tax is considered uniform when it operates with the same force and effect in every place
where the subject may be found.

11. What is meant by public purpose?

It requires that the proceeds of taxation be used to support the existence of the LGU or the pursuit of its
governmental objectives.

12. Is operation of market stall left with private contractor valid?

Yes, per Bagatsing vs. Ramirez, 7 SCRA 306. The fees collected do go to the coffers of the private corporation
but for revenue raising of the city. The people may be taxed for public purpose, although it be under the direction
of private entiy. Per Asiatic Integrated Corp v. Alikpala, 72 SCRA 285, these fees are not taxes but rentals or
demands of proprietorship. Per Vitug, impositions include acts of proprietorship, thus he made reservations on
Alikpala’s distinctions.

13. What are requirements of valid classifications?

1. substantial distinctions
2. germane to the purpose of the law
3. applies not only to present conditions but also to future conditions substantially identical to those of the
present
4. applies equally to all those who belong to the same class [Pepsi v City of Butuan, 24 SCRA 789 (1968) –
only agents of outside dealers were subjected to tax , held invalid]

14. What are the common limitations? Unless expressly provided in the Code, the LGUs cannot levy the
following: [Sec 133]

26. Income tax, except on banks and financial intermediary [Sec 133 (a) in relation to Sec 143(f) of LGC and
Sec 221(a) of IRR]. - Rural banks though there is an exemption against all taxes, fees, charges provision
RA 7353, said law states that they are subject to corporate tax, local taxes, fees, charges, thus they are
subject to local taxes under Sec. 143(f) of LGC.]
27. Doc stamps tax
28. On estates, inheritance, gifts, legacies and other acquisitions, mortis causa, except transfer tax by
provinces and cities. Thus, under Sec. 135 of LGC, provinces (and cities) are empowered to impose
transfer tax on real property at the rate of 50% of 1% percent.
29. Customs duties, etc., except wharfage on wharves constructed and maintained by LGU. Thus if wharf is
owned by the national government, the LGU cannot impose tax, charge, or fees on receipts therefrom.
Under Sec 155, LGU can impose toll fees or charges for the use of public road, pier or wharf, waterway,
bridge, ferry or telecommunication system funded and constructed by the LGU. But AFP, PNP, postal
service, handicap 65 or over. It may also waive collection when public safety and welfare require it.
However, under PPA Admin Order No. 02-98, some national gov ports can be transferred to LGU. Thus,
a mun ordinance imposing quarantine, sanitation, inspection and safety fees of P0.01 per kilo of copra,
etc. on ships anchoring and leaving the ports of its barangays was declared by BLFG ultra vires as it
 violates Sec 133(e) of LGC but it could impose fixed or flat rates wharfage fee, regulatory fee and
charges for services
30. Taxes, fees and charges and other impositions upon goods carried into or out of or passing through, the
territory of LGU in guise of charges for wharfage, tolls for bridges or otherwise, or other fees or charges
in any form whatsoever upon such goods or merchandise. – The reason is if allowed it would inhibit the
free flow of goods in or out of the LGUs. (Panaligan v. City of Tacloban GR 9312, Sept 27, 1957).
Furthermore, an ordinance imposing terminal fee for passengers and permit fee for equipment from the
PPA managed port was held by BLFG ultra vires pursuant to Sec. 155 and Sec 133(e) of LGC.
31. Taxes, fees and charges on agricultural and aquatic products when sold by marginal farmers or
fishermen. – In City of Cebu v. Intermediate Appellate Court 144 SCRA 710, it was held that inspection
fee on agricultural product is not allowed whether in its original form or not. But the prohibition refers to
the produce of farmer or fisherman and his immediate family, otherwise, the sale of said products are
subject to tax under Sec 143 ( c ) at ½ of the rate imposed on other products.
32. Taxes on business enterprises certified by BOI as pioneer and non-poineer for a period of 6 and 4 years,
respectively from date of registration. – Though they are exempt from business tax, they are however
subject to mayor’s permit, garbage fees, sanitary inspection fees, electrical inspection fees and other
charges for services rendered by the LGU.
33. Excise taxes on articles enumerated in NIRC, and taxes, fees, or charges on petroleum products, but
not on the business of importing, manufacturing or producing said products (Petron v. Pilila, 198 SCRA
82), meaning it can impose tax on this business. Issue: The City of Manila passed an Ordinance no.
7794 imposing 3% gross sales tax on petroleum products (both non-VAT and VAT products). This was
declared unconstitutional by DOJ because of lack of public hearing and being contrary national
economic policy [Sec 130(b)(4)] and Sec 133(h). City of Manila filed a petition for certiorari with the RTC
of Manila who declared that Sec. 187 pertaining to the appellate power of DOJ was unconstitutional
because it amounted to control and an excessive exercise of supervisory power. It did not touch on the
ultra vires issues because, City Council issued ordinance suspending indefinitely the ordinance
pertaining to petroleum products. However, in Drilon v. Lim 235 SCRA 135, SC said that the DOJ review
is merely supervisory and not control. Also, under a GR No. 42497 Aug 4, 1994 said ordinance was held
to be valid by SC en banc. Gasoline stations are not subject to tax for the sale of gasoline and other
petroleum products but their sales of TBA are subject. They are also subject to Mayors Permit and other
regulatory fees. In Petron Corp v Mayor Tobias Tiangco of Navotas, GR 158881 Apr 16, 2008, where
the issue is whether sale of petroleum products may be subject to business taxes under Navotas tax
ordinance issued pursuant to Sec 143 of LGC or is it exempt under Sec 133(h) of LGC and Art 232(h) of
the IRR, the SC ruled that it is exempt. “We can concede that a tax on a business is distinct from a tax
on the article itself, or for that matter, that a business tax is distinct from an excise tax. However, such
distinction is immaterial insofar as the latter part of Section 133(h) is concerned, for the phrase “taxes,
fees or charges on petroleum products” does not qualify the kind of taxes, fees or charges that could
withstand the absolute prohibition imposed by the provision. It would have been a different matter had
Congress, in crafting Section 133(h), barred “excise taxes” or “direct taxes,” or any category of taxes
only, for then it would be understood that only such specified taxes on petroleum products could not be
imposed under the prohibition. The absence of such a qualification leads to the conclusion that all sorts
of taxes on petroleum products, including business taxes, are prohibited by Section 133(h). Where the
law does not distinguish, we should not distinguish.

The language of Section 133(h) makes plain that the prohibition with respect to petroleum
products extends not only to excise taxes thereon, but all “taxes, fees and charges.” The
earlier reference in paragraph (h) to excise taxes comprehends a wider range of subjects of
taxation: all articles already covered by excise taxation under the NIRC, such as alcohol
products, tobacco products, mineral products, automobiles, and such non-essential goods
as jewelry, goods made of precious metals, perfumes, and yachts and other vessels
intended for pleasure or sports. In contrast, the later reference to “taxes, fees and charges”
pertains only to one class of articles of the many subjects of excise taxes, specifically,
“petroleum products”. While local government units are authorized to burden all such other
class of goods with “taxes, fees and charges,” excepting excise taxes, a specific prohibition
is imposed barring the levying of any other type of taxes with respect to petroleum products.
 While Section 133(h) does not generally bar the imposition of business taxes on articles
burdened by excise taxes under the NIRC, it specifically prohibits local government units
from extending the levy of any kind of “taxes, fees or charges on petroleum products.”
Accordingly, the subject tax assessment is ultra vires and void.”

34. Percentage tax or VAT on sales, barters, or exchanges of goods or services, but not fixed graduated
fixed tax on gross sales or on volume of production. – This should be read together with Sec 143(h) of
LGC which provides that mun may levy taxes on any business not otherwise specified in Sec 143(a)(b)
(c)(d)(e) and (f)) but for business subject to excise tax,, VAT or percentage tax, the rate shall not exceed
2% of gross sales or receipts (for cities 3%). As mentioned above, the power of city of manila to further
collect taxes on businesses already subject Sec 143 is being challenged in court. This was ultimately
resolved in 2006 by the SC. Look for this case.
35. Taxes on gross receipts of transportation contractors, or common carriers, except as provided in this
code – Pipeline concessionaires transporting petroleum products through the pipelines are considered
common carriers therefore LGU can no longer tax on their gross receipts. Since they are already subject
to 3% carriers tax, subjecting them further tax is double taxation ?(First Phil Industrial Corp vs. CA, Hon
Paterno Tac an, Batangas Ctiy and Adoracion Angeles, GR 125948, Dec 29, 1998). Under RA 7716, the
Expanded VAT Law, Sec 117 of NIRC, the gross receipts of common carriers derived from their
incoming and outgoing freight shall not be subject to local taxes imposed under LGC.
36. Taxes on premiums on reinsurance or retrocession
37. Taxes fees or charges for the registration of motor vehicles or for issuance of licenses or permits for
driving, except tricycle. Under a BFLG ruling, traction engine used in agriculture may be subject to
registration fees because it is not considered a motor vehicle as defined in Sec.131(q), nor is it an
agricultural product under Sec 133(f). It is even necessary to be regulated due to safety and wear and
tear of the road.
38. Taxes, fees or charges on Phil products actually exported, except as provided in this code. But may tax
the business of exporting said products under Sec 143 © at ½ the rate of 143(a)(b) and (d).. But EPZA
operators are not subject to local taxes, except service fees.
39. Taxes, fees, or charges on Countryside and Barangay Business Enterprises and cooperative duly
registered under RA No. 6810 and RA No. 6938 (Cooperative Code of the Philippines). Similar
exemption is granted for income tax and withholding tax. CBBE has already expired.
40. Taxes, fees or charges of any kinds on the National Government its agencies and instrumentalities and
local government units. (Thus in Basco v. Pagcor, 197 SCRA 52 (1991), it was held that Pagcor being a
gov agency is exempt from local taxes pursuant to the law creating it and under Sec. 133(o) of LGC.);
NDC v. Cebu City, 215 SCRA 382. Duty Free Philippines being an agency of the Philippine Tourism is
exempt from local taxes. While Sec 193 of LGC has withdrawn exemptions it also provides “Unless
otherwise provided for in this Code” means Sec 133(o) per DOJ opinion no 63 , May 13, 1993. Refer to
Cebu Mactan International Airport Authority v. Marcos and Manila International Airport Authority v. City
of Paranaque.

15. Give examples of valid taxes, licenses or fees

a. 5% tax on GR based on rentals on privately owned public markets is a valid license tax or fee
for regulations of the business rather than an income tax (Progressive Development Corp. v.
Quezon City, GR 36081, Apr 24, 1989)
b. imposing tax based on capital investment or purchases during preceding period is not a sales
tax (Tatel v. Viras 48 SCRA 79)
 c. a tax of P30/hec is a tax on privilege, not a property, percentage, or forest concession tax (P v.
Nazario, GR 44143 Aug 31, 1988)
d. a tax of P0.01/gal on all soft drinks produced or manufactured does not partake the nature of a
percentage tax on sales . The volume capacity is used only as basis. Pepsi v. Mun of Tanauan,
69 SCRA 460)

16. Example of invalid taxes?

a. Ordinance that charged a tax for selling and distributing refined and manufactured oils based on
the monthly allocation actually delivered, distributed and intended for sale clearly exacts a tax
based on sale thus void (Arabay, Inc. v. Cfi, 66 SCRA 617)
b. “(i)n Province of Bulacan v. Court of Appeals[4][35] is ultimately of little consequence, and so is
Petron’s reliance on such ruling. The Court therein had correctly nullified, on the basis of Section
133(h) of the Code, a province-imposed tax “of 10% of the fair market value in the locality per
cubic meter of ordinary stones, sand, gravel, earth and other quarry resources xxx extracted
from public lands,” because it noted that under Section 151 of the NIRC, all nonmetallic minerals
and quarry resources were assessed with excise taxes of “two percent (2%) based on the actual
market value of the gross output thereof at the time of removal, in case of those locally extracted
or produced”.[5][36] Additionally, the Court also observed that the case had emanated from an
attempt to impose the said tax on quarry resources from private lands, despite the clear
language of the tax ordinance limiting the tax to such resources extracted from public lands. [6]
[37]
On that score alone, the case could have been correctly decided.” [cited in Petron Corp v.
Mayor Tobias Tatiangco, supra.]

17. What taxes may the provincial governments impose?

a. Tax on transfer of real property ownership ½% of price or zonal valuation

b. Tax on business on printing and publication ½% of GR
c. Franchise tax, notwithstanding any exemption granted by any law or other special law based on prior CY
½%
d. Tax on sand, gravel and other quarry resources 10% of FMV [See 16(b) Question above]
e. Professional tax P300
f. Amusement tax => 30%
g. Annual fixed for every delivery truck or van of manufac, wholesalers, dealers or retailers – P500/van but
not on peddlers

18. What taxes may be imposed by municipalities?

a. Tax on business

1. on manuf, assemblers, repackers, processors, brewers, distillers, rectifiers, compounders, manuf of any
article of commerce of whatever kind or nature, min of P165 for less than P10,000, max of 37 ½ % of 1%
for P6.5 Million or more.
2. wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature, min P18 for
less than P1,000 max of 50% of 1% for 2P2.Million or more.
3. exporters, manufacturers, millers, producers, wholesalers, distributors, dealers, retailers of essential
commodities at a rate not exceeding ½ of the rates prescribed under sub a (manuf, etc.), b (wholesaler,
etc)and d (retailer).
a. Rice & corn
b. Wheat or cassava flour, meat, dairy products, locally preserved manuf, processed food, sugar,
salt and other agrix, marine, and fresh water prods, whether in their orig state or not.
c. Cooking oil and cooking gas
d. Laundry soap, detergent and medicine
e. Agrix implements, equipment and post harvest facilities, fertilizers, pecticides, insecticides,
herbicides and other farm inputs
f. Poultry feeds and other animal feeds
g. School supplies
h. cement
4. on retailers, 2% P400K or less, 1% in excess, but barangay has exclusive power P30K or P50K
5. Contractors and other independent contractors, min P27.50 for less than P5K max 50% of 1% for more
than P2 Million.
6. banks and other financial intermediaries, 50% of 1% from interest, commissions, discounts from lending,
income from financial leasing, dividends, rentals, on property and profit from exchange or sale of
property, insurance premiums
7. on peddlers, max P50 per peddler per year
8. On business not otherwise specified in the preceding paragraphs, but on business subject to excise tax,
VAT or percentage tax under NIRC, the rate shall not exceed 2% of GR or GS for preceding calendar
year. It may be graduated rates but should not exceed the rates prescribed in the LGC.
9. It cannot impose tax exceeding 2% of the gross sales or receipts of prior year on business subject to
excise tax, VAT or percentage tax not otherwise taxed under the code, but in accordance with the
national policy they cannot tax petroleum products.

19. What rates may be imposed by mun of Metro Manila?

Should not exceed by 50% of the rates of taxes other municipalities may impose.

20. What is the rule on retirement of business?

File a sworn statement of gross sales or receipts for current calendar year. If the tax paid during the year is less
than the tax due on said sales or receipts, the difference shall be paid before the business considered officially
retired. [Mobil Phils v City Treasurer 463 SCRA 379, (2005) – rule on retirement explained]
21. What are the rules if the business has separate or distinct establishment or place of business or more than
one line of business?

a. tax shall be paid for every separate or distinct establishment or place where bus is conducted
b. one line of business does not become exempt by being conducted with other businesses for
which tax has been paid
c. if a person conducts 2 or more businesses falling under the same rate of tax, the tax shall be
computed based on combined sales or receipts
d. if these 2 or more business are subject to different rates, taxes shall be computed separately

22. What other fees or charges may municipalities impose?

a. Fees and charges on occupation or calling not falling under the power of the provinces or
municipalities.
b. Fees for sealing and licensing of weights and measures
c. Fishery rentals, fees and charges on mIunicipal waters

23. What is the rule on situs of the tax?

a. If there is a branch, sales from it shall be reported in the mun where it is located
b. If there is no branch in the place where sales is made, sales shall be reported in the mun where principal
office is located, along with the sales made where the principal office is located.
c. If factory, project office, plant or plantation is in diff mun from principaloffice
a. 30% of all sales recorded in the principal office shall accrue to where it is located
b. 70% of all sales recorded in the principal office shall accrue to the mun where the factory, etc is
located
d. If factory is in mun separate from where plantation is located, 70% is allocated at 60% and 40%,
respectively.
e. If there are two or more factories, etc. located in different mun, the 70% allocation shall be prorated
among the factories, etc. in proportion to the volume of production
f. The allocation in par c above is irrespective of whether sales are made in the locality where the factory,
plant, etc is located. However, in case sales are made in factory, etc. the rules in par a and b above shall
apply. Ex. Factories in Gen San and in QC All sales were reported in QC and Gen San were prorated at
70:30 between factories and headoffice. 70% is prorated bet QC and Gen San based on volume of
production. Gen San complained that all sales its factory should be reported therein. Dept Finance said
no, unless its factory is itself converted in sales office.
g. In case a contract manufacturer is engaged by a manufacturer, the former shall be considered a factory
for purposes of allocation of revenues.

24. What taxes may a city impose?

Taxes, fees, charges and other impositions which a province or municipalities may impose may be imposed by a
city. However the rates shall not exceed by 50% the rates imposable by a province or mun, except the following:

a. amusement and professional taxes which shall be uniform with the provinces
b. percentage taxes not exceeding 3% of the revenues of the preceding year

25. What taxes may baranggays may impose?

a. taxes on stores or retailers with fixed business establishment P50K and P30K

at the rate not exceeding 1%

b. Service fees for regulations of its own properties

c. Baranggay clearances a requirement to obtain mayor’s permit
d. Other fees, commercial breeding of fighting cocks, cockfights and cockpits
e. Places of amusements, this cannot be a percentage based gross receipts but the fee should just be
sufficient to cover the cost of regulating or inspecting the place of recreation.
f. billboards

26. What are the common revenue raising powers of the LGUs?

a. Service Fees and charges reasonable for services rendered

b. public utility charges
c. toll fees or charges, but AFP and PNP exemp.

27. Who are subject to community tax?

28. How is it computed?

29. Who are exempt from it?

30. When does it accrue and up to when is its validity?

31. Under what circumstance is it required?

32. What is the process of enacting local tax ordinances?

The power to impose a tax, fee or charges or to generate revenue lies with the relevant Sanggunian through the
passage of an ordinance and only after a public hearing is conducted for the purpose. Said ordinance shall be
approved and signed by the head of the LGU, but if he considers it ultra vires or prejudicial to public welfare, he
may veto it by signifying his disapproval. The Sangunian may by 2/3 votes can override said veto. If the chief
neither approves nor vetoes the ordinance within 15 days, or 10 days, in the case of province, or city and mun,
respectively, the same shall likewise be deemed approved. For baranggay, once approved by majority of all its
Sangunian members, the captain should sign it.

33. When does an ordinance take effect?

Unless otherwise provided by it, it shall be effective 10 days from posting.

34. When does the tax imposed by an ordinance accrue?

Ist day of a calendar year. However if its effectivity falls on any date other than the beginning of a qtr, it shall be
effective the 1st day of following qtr.

35. What is the requirement of publication and posting?

Within 10 days after its approval, it shall be published for 3 consecutive days in a widely circulated newspaper in
the locality, or in its absence, posting in two conspicuous places. Copies furnished to local treasurers for
dissemination.

36. What is the review process of the ordinance?

Within 30 days in the case or city and mun, and within 10 days in case of barangay, copies of the approved
ordinance shall be sent to the Sangu of prov or of citiy or mun for review. Within 30 days from receipt from
receipt of city or mun ord, the prov sangu by it self, or send the ord to prov atty or if there is none to prov prosec,
who shall act within 10 days from his receipt. The prov. Sangu may disapprove if it finds it ultra vires, or invalid
and shall enter the same in the minutes and send to Sangu concerned. If it fails to act within 30 days, it shall be
deemed approved.
In the case of Barangay, if Sangu city or mun fails to act with in 30 days deemed approved or disapproved, if it
does send it back to barangay for adjustment or amendment. (Sec. 56 & 57)

37. When may an ordinance be declared invalid or suspended?

38. What are the remedies upon declaration of invalidity or suspension?

Re-enact the ordinance or appeal within 30 days from effectivity to DOJ if the issue is the constitutionality or
legality of the ordinance (this appears to be the remedy available to the taxpayers). In Meralco Securities vs.
Central Board of Tax Appeals, 114 SCRA 260 (1982) special civil action of certiorari would be the proper
remedy. (Caltex v. CBAA, 114 SCRA 294 (1982).

From the decision of the DOJ, aggrieved party may appeal to proper court.

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.

39. What are the remedies of the LCU to collect taxes?

a. Administrative –
a. Levy
b. Distraint

b. Judicial – ordinary civil action. It precludes criminal action to collect delinquent taxes (Republic v.
Patenao, 20 SCRA 712); People v. Arnault, 92 Phil. 252)

40. What are exempt from levy, distraint and attachment?

a. Tools e. household furniture

b. Clothing f. library
c. Crops g. fishing boat (10K)
d. one horse h. material or articles attached to the real property

41. When does the right of the LGU to issue assessments and initiate collection prescribe?

a. 5 years for assessment from due date but 3 years if tax ord was issued under LTC
b. 10 years from discovery
c. 5 years to collect from date of assessment or 3 years as above
42. What are the instances where the running of prescriptive period is interrupted?

a. treasury is legally prevented

b. taxpayer requested for reinvestigation and signed waiver
c. taxpayer is out of the country or cannot be located

43. May the LGU grant exemption? Yes

44. What exemptions were not withdrawn by the LGC?

a. water districts
b. cooperative
c. non-profit hospital and educational institution
d. EPZA under the IRR

45. What are the remedies of the taxpayers?

a. Prior to assessment

1. admin appeal to DOJ

2. action for declaratory relief

b. After assessment

1. protest within 60 days from receipt of assessment filed with the Treasurer, who has 60 days to
decide.

2. appeal within 30 days from denial or lapse of 60 days

3. Appeal to the DOJ to decide within 60 days, if denied within 30 days from denial or 60 days
4. Appeal to appropriate court within 30 days from denial or from the lapse of 60 days within which DOJ
should make a decision.

46. What is the procedure in appealing from the decision of the local treasurer denying the tax protest of a
taxpayer?

File an appeal with the RTC within 30 days from receipt of denial of protest or from the lapse of 60 days within
which treasurer should have rendered a decision. From the decision of the RTC, an appeal is made by filing a
petition for review with CTA under Rule 42 of 1997 Rules of Court. “Republic Act No. 9282 definitively proves in
its Section 7(a)(3) that the CTA exercises exclusive appellate jurisdiction to review on appeal decisions, orders
or resolutions of the Regional Trial Courts in local tax cases original decided or resolved by them in the exercise
of their original or appellate jurisdiction. Moreover, the provision also states that the review is triggered "by filing
a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil
Procedure." [Luz Yamane v BA Lepanto Condo, GR154993 Oct 25, 2005].

47. When the basis of tax liability is that a condo corporation may acquire “full appreciative living values”, may a
local government unit impose and collect taxes based on that standard?

Besides, we shudder at the thought of upholding tax liability on the basis of the standard of "full appreciative
living values", a phrase that defies statutory explication, commonsensical meaning, the English language, or
even definition from Google. The exercise of the power of taxation constitutes a deprivation of property under the
due process clause, 56 and the taxpayer's right to due process is violated when arbitrary or oppressive methods
are used in assessing and collecting taxes. 57 The fact that the Corporation did not fall within the enumerated
classes of taxable businesses under either the Local Government Code or the Makati Revenue Code already
forewarns that a clear demonstration is essential on the part of the City Treasurer on why the Corporation should
be taxed anyway. "Full appreciative living values" is nothing but blather in search of meaning, and to impose a
tax hinged on that standard is both arbitrary and oppressive. [ibid.].

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