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Local Government Code 3

Local Taxation
Sec 129 – Power to Create Sources of
• The Constitution under Sec 5, Art X mandates that
each LGU 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, and that such taxes, fees
and charges shall accrue exclusively to the local
• While the local governments’ general power to tax
is constitutionally guaranteed, such that no
legislative act can take that power away from them,
their SPECIFIC power to tax still remains a
delegated power subject to the guidelines and
limitations as Congress may provide.
• Despite the provision on local autonomy and
decentralization, the traditional understanding
that local governments do not have the inherent
power to tax EXCEPT to the extent that such
power might be delegated to them either by the
basic law or by statute is still prevailing. Only a
general delegation of that power has been given
in favor of LGUs.
• When there is neither a grant nor a prohibition by
statute, the tax power must be deemed to exist
although Congress may provide statutory
limitations and guidelines. (Meralco v Prov of
Laguna 131359, May 5, 1999)
What is the effect of Sec 5 on the fiscal
position of municipal corporations?
• Accdg to Fr. Bernas, - Sec 5 does not change the doctrine
that municipal corporations do not possess inherent
powers of taxation. What it does is to confer municipal
corporations a general power to levy taxes and otherwise
create sources of revenue. They no longer have to wait
for a statutory grant of these powers. The power of the
legislative authority relative to the fiscal powers of local
governments has been reduced to the authority to impose
limitations on municipal powers. These limitations must
be “consistent with the basic policy of local autonomy”.
• The important legal effect is thus to REVERSE the
principle that doubts are resolved against municipal
corporations. In interpreting statutory provisions on
municipal fiscal powers, doubts will be resolved in favor
of LGUs.
Requisites of the Tax Measure
• It is understood however, that taxes imposed by local
governments must be for a public purpose, uniform within a
locality, must not be confiscatory, and must be within the
jurisdiction of the LGU to pass. (Quezon City Govt v Bayan
Telecom 162015, March 5,2006).
• Rationale for the rule is to safeguard the viability and self-
sufficiency of LGUs by directly granting them general and broad
tax powers. The Constitution did not intend the delegation to be
absolute and unconditional; the objective is to ensure that while
LGUs are being strengthened and made more autonomous, the
legislature must still see to it that
• a) the taxpayer will not be over-burdened or saddled with
multiple and unreasonable impositions b) each lgu will have its
fair share of available resources c) the resources of the national
government will not be unduly disturbed and d) local taxatkion
will be fair, uniform and just (Meralco v Prov of Laguna).
Relationship of Congress and LGU
relative to Taxing Power
• BASCO v PAGCOR ( 197 S 52) – The SC struck down the
contention that PD 1869 which exempts Pagcor, a GOCC
from paying any “tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever
nature, whether National or Local” constitutes a waiver
of the right of the City of Mnla to impose taxes and legal
fees and that the exemption clause in the law is
violative of the principle of local autonomy.
• The power of local government to impose taxes and fees
is always subject to LIMITATIONS which Congress may
provide by law. Since PD 1869 remains an operative law
until amended repealed or revoked, its exemption
clause remains as an exception to the exercise of the
power of local governments to impose taxes and fees.
• PD 1869 cannot be violative but rather is consistent with
the principle of local autonomy which means
decentralization. It does not make the local
governments sovereign within the state. As to what
powers should be decentralized and what may be
delegated to LGUs remains a matter of policy which
concerns wisdom and therefore a political question. The
matter of regulating, taxing or otherwise dealing with
gambling is a State concern and hence, it is the sole
prerogative of the State to retain it or delegate it to
local governments.
• Since the power to tax is inherently lodged in Congress,
it is only Congress and not any administrative or
executive agency, can define and limit such power of
local governments.
Local government cannot tax an
instrumentality of the National Govt
• The SC confirmed that a local government does not
have the inherent power to tax such that its power
to tax, therefore, must always yield toa legislative
act which is superior having been passed upon by
the state itself which has the inherent power to tax.
If Congress can grant the City of Manila the power
to tax certain matters, it can also provide for
exemptions or even take back the power.
• Whether or not a local government can tax an
instrumentality of the National Government like
PAGCOR, the SC ruled that it CANNOT upholding the
authority of Congress to provide guidelines and
limitations to the power to tax by local
LGU can tax GOCC
• In Mactan Cebu International Airport Authority (MCIAA)
v Marcos, Sept 11, 1996, however, the SC took a
different path on the same issue of the power to tax of
LGUs by ruling that the City of Cebu can tax a GOCC
created by the National Government like the MCIAA,
which was created by Congress thru a special law.
Upholding local autonomy as the prevailing framework
each time Congress exercises its power to establish
guidelines and limitations to local power to tax , the SC
refused to apply the BASCO doctrine, finding it
inapplicable having been decided before the effectivity
of the LGC. The SC found in the Code a provision that
withdrew all existing tax exemptions enjoyed by all
persons, before the effectivity of the Code.
Back to BASCO doctrine
• In Manila International Airport Authority (MIAA) v CA,
155650 July 20, 2006, after 10 yrs, the SC on exactly
the same factual and legal issues, reverted to the
Basco doctrine ruling that MIAA is exempt from real
property taxation by the local government because 1)
it is not a GOCC but an instrumentality of the
National Government and thus exempt from local
taxation and 2) the real properties of MIAA are owned
by the Republic and thus exempt from real estate tax.
• In overturning precedents, the SC said ONLY CHILDREN
Construction of Local Taxation
• As in national taxation, local tax measures,
being in derogation of property rights must
also be construed STRICTLY against the LGU
enacting it and LIBERALLY in favor of the
taxpayer in case of doubt. Since taxation,
however, is the lifeblood of the local
government, any tax exemption, incentive or
relief granted by any local government shall
be construed STRICTLY against the person
claiming it. Thus the principle that TAXATION
still applies in local taxation.
Sec 130 - Fundamental Principles in
Local Taxation
• a) Taxation shall be uniform in each LGU
• b) Taxes, fees and charges and other impositions shall:
• 1. be equitable and based on as far as practicable on the
taxpayer’s ability to pay
• 2. be levied and collected only for public purposes
• 3. not be unjust, excessive, oppressive, or confiscatory
• 4. not be contrary to law, public policy, national economic
policy, or in restraint of trade
• c) The collection of local taxes, fees, charges and other
impositions shall in no case be let to any private person;
• d) The revenue collected pursuant to the provisions of the Code
shall inure solely to the benefit of, and be subject to disposition
by, the LGU levying the tax, fee, charge or other imposition unless
specifically provided in the Code; and
• e) Each LGU shall, as far as practicable, evolve a progressive
system of taxation.
General Principles governing Local
• The general principles on taxation also apply to the
taxing power of LGUs. UNIFORMITY in taxation is the
principle by which all taxable articles or kinds of
property of the same class shall be taxed at the same
rate. Taxation is said to be EQUITABLE when its burden
falls on those better able to pay. It is PROGRESSIVE
when its rate goes up depending on the resources of the
taxpayer. Local taxes are to be utilized SOLELY for the
benefit of the LGU that levies the said taxes, charges and
fees. The EXCEPTIONS allowed by the Code refer to the
taxes, fees and charges where the central government or
higher level LGUs SHARE in the taxes that are collected
by the lower level LGUs. Ex. ComDev Tax collected by
the barangay where 50% goes to the city/mun, while the
rest goes to the barangay. (Sec 164 c (1)).
Sec 131 – Definition of Terms
• Taxes are pecuniary charges imposed by legislature or other
public authority upon persons or property for public
purposes; a forced contribution of wealth to meet the public
needs of government.
• Charges are pecuniary liabilities as rents or fees levied on
persons or property.
• Fees are charges fixed by law or ordinance for the regulation
or inspection of a business or an activity located in a
province, city or municipality or barangay.
• Taxes may be levied upon any natural person or a juridical
person. The corporations/partnerships do not include
• a) general professional partnerships
• b) joint ventures or consortiums formed to develop energy
resources like petroleum, coal, geothermal and other power
supplies under service contracts with the government
• Taxpayer is any person subject to tax or any person who
is liable to pay tax under the Code or any pertinent
• Direct taxes are those which are payable by the very
person who should be pay them as intended by law.
Indirect taxes are those demanded from one person in
the expectation and intention of the law that he can
shift the burden to someone else.
• Vessels, foreign or domestic, using local wharves may be
subjected to wharfage fees. Banks, financial institutions,
insurance companies and contractors of all kinds of
services as general engineering services, dress shops,
arrastre operations , private security agencies, film
owners, lessors and distributors are now subject to local
Sec 132 – Local Taxing Authority
• The power to impose a tax, fee or charge
or to generate revenue shall be exercised
by the sanggunian of the LGU thru an
• The sanggunian is local taxing authority of
LGUs and such authority is exercised by
the passage of an appropriate ordinance
which has to be subjected to public
hearings before it can be validly passed.
Sec 133 - Common Limitations on the
Taxing Power
• The exercise of the taxing powers of provinces,
cities, municipalities and barangays shall not
extend to the levy of the ff: (16)

• Sec 193 – Withdrawal of Tax Exemption Privileges.

Unless otherwise provided in this Code, tax
exemptions or incentives granted to or presently
enjoyed by all persons, whether natural or
juridical, including GOCC, except local water
districts, cooperatives duly registered under RA
6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn.
Sec 133 prevails over Sec 193
• Sec 133 limits the grant to local governments of the
power to tax, and not merely the exercise of a delegated
power to tax. Sec 133 states that the taxing powers of
local governments “shall not extend to the levy “ of any
kind of tax on the national government, its agencies and
instrumentalities. (Republic v Phil Reclamation Authority
191109 July 18, 2012). MIAA ruling is reiterated.
• Since Section 133 prescribes the “common limitations” on
the taxing powers of local governments, Sec 133 logically
prevails over Sec 193 which grants local governments
such taxing powers. The common limitations on the
taxing power prevail over the grant or exercise of the
taxing power. If sec 193 is to prevail, then it would result
• While Sec 193 had effectively withdrawn all tax
exemptions or incentives granted to, or enjoyed by all
persons, whether natural or juridical, including GOCC,
Congress may however, enact a law restoring such
exemption or privileges enjoyed by these persons
(Quezon city Govt v BayanTel).
• Tax exemptions cannot be merely implied but must be
categorically and unmistakably expressed in the law
granting the exemption (National Dev Corp v Comm
Internal Revenue 151 S 472).
• Taxation is the rule and exemption is the exception. Tax
exemptions should be granted only by clear and
unequivocal provision of law on the basis of language too
plain to be mistaken (National Power Corp v Prov of
Isabela 165827, June 16,2006).
Exception to the Exemption
• Local governments have no power to tax the national
government, its agencies and instrumentalities,
EXCEPT as otherwise provided in the LGC pursuant to
the saving clause in Sec 133 stating “unless otherwise
provided in the Code”. This EXCEPTION - which is an
exception to the exemption of the Republic from real
estate tax imposed by local governments – refers to
Sec 234 (a) of the Code. The exception to the
exemption in Sec 234 (a) subjects real property
owned by the Republic whether titled in the name of
the national government, its agencies or
instrumentalities, to real estate tax if the beneficial
use of such property is given to a taxable entity
(Republic v Phil Reclamation A).
Procedural Matters Affecting Tax
Ordinances and Measures
• PUBLIC HEARINGS – As a mandatory requirement, public
hearings shall always be conducted for the purpose prior
to the enactment of tax ordinances and measures (Sec
• Questions on Constitutionality or Legality of Tax Measures -
Any question may be raised on appeal within 30 days from
the effectivity thereof to the Sec of Justice who shall
render a decision within 60 days from the date of receipt
of the appeal. Such appeal shall not have the effect of
suspending the effectivity of the ordinance and the accrual
and payment of the tax levied therein, provided that
within 30days after receipt of the decision or the lapse of
the 60day period without the Secretary of Justice acting
upon the appeal, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction.
Publication and Public Dissemination
• Within 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 (Sec 188).
• Copies of all provincial, city and municipal and
barangay tax ordinances and revenue measures
shall be furnished the respective local treasurers
for public dissemination (Sec 189).
Sec 190 – Attempt to Enforce Void or
Suspended Tax Ordinances
• The enforcement of any tax ordinance or
revenue measure after due notice of the
disapproval or suspension thereof shall be
sufficient ground for administrative
disciplinary action against the local
officials and employees responsible
• Similar to Sec. 57
Sec 191 – Authority of LGUs to adjust
Rates of Tax Ordinances
• The Code imposes a limitation on local tax
rates. While LGUs shall have the authority
to adjust the tax rates prescribed in the
Code, the same must not oftener than
once every 5 years and in no case shal
such adjustment exceed 10% of the rates
fixed under the Code.
Sec 192 – Authority to Grant Tax
Exemption Privileges
• LGUs may thru ordinances, duly approved, grant tax
exemptions, incentives or reliefs under such terms
and conditions as they may deem necessary.
• In Sec 133, (Common limitations on Taxing Powers),
it may be recalled that local government cannot
impose taxes, fees or charges of any kind on the
National Government, its agencies and
instrumentalities. While Sec 193 had effectively
withdrawn all tax exemptions or incentives granted
to, or enjoyed by all persons, whether natural or
juridical, including GOCC, Congress may however,
enact a law restoring such exemption or privileges
enjoyed by these persons (Quezon City Government
v Bayan Telecom).
Just share in the National Taxes as
mandated in Sec 286
• Pursuant to the Constitutional mandate that this
share in the national taxes be automatically
released to the local governments, Section 286
specifically mandates that the share of each LGU
shall be released, without need of any further
action, directly to the provincial, city, municipal or
barangay treasurer, on a quarterly basis within
5days after the end of each quarter, and which shall
not be subject to any lien or holdback that may be
imposed by the national government for whatever
• The provision is imperative because of the use of
the word “shall” (Pimentel v Aguirre 132988 July 19,
Sec 284 - Allotment of Internal Revenue
• 40% Share shall be based on the collection of the
third fiscal year preceding the current fiscal year.
• In the event that the national government incurs
an unmanageable public sector deficit, the
President is authorized upon the recommendation
of the Secretary of DOF, DILG and DBM and
subject to consultation with Congress and the
presidents of the Liga, to make the necessary
adjustments in the internal revenue allotment of
LGUs but in no case shall the allotment be less
than 30% of the collection of national internal
revenue taxes of the 3rd fiscal year preceding the
current one.
Sec 285 – Allocation of Shares
• 23, 23, 34, 20
• Uniform and non-discriminatory criteria as
prescribed in the Code are essential to
implement a fair and equitable
distribution of national taxes to all LGUs.
If the criteria in creating LGUs are not
uniform and discriminatory, there can be
no fair and just distribution of the
national taxes to LGUs (First League of
Cities 2008).
Sec 287 - Appropriation and Utilization
of Shares by the LGUs
• To ensure that these IRAs will benefit the
local community, Sec 287 mandates that each
LGU shall appropriate in its annual budget no
less than 20% of its annual internal revenue
allotment for development projects. Copies
of the development plans of LGUs shall be
furnished the DILG for monitoring purposes
and to ensure that local governments deliver
the basic services to their constituents.
Power to Dispose of Patrimonial
Properties for Welfare purposes
• LGUs are authorized to acquire, develop,
lease, encumber, alienate or otherwise dispose
of real or personal property held by them in
their proprietary capacity and to apply their
resources and assets for productive,
developmental or welfare purposes, in the
exercise or furtherance of their governmental
or proprietary powers and functions. All these
powers are given to LGUs to ensure their
development into self-reliant communities and
active participants in the attainment of
national goals.