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LGUs DO NOT HAVE THE INHERENT POWER TO TAX: Local Government the taxing powers of provinces, cities, municipalities, and barangays shall
Units do not have the inherent power to tax. This power is delegated by not extend to the levy of the following:
Congress under Art. X, Sec. 3 of the 1987 Constitution, by virtue of which the (a) Income tax, except when levied on banks and other financial
Local Government Code was enacted. Accordingly, the LGUs power to tax institutions;
must always yield to the LGC which is a legislative act which is superior having (b) Documentary stamp tax;
been passed by Congress itself which exercises the inherent power of the (c) Taxes on estates, inheritance, gifts, legacies and other
state to tax. Thus, such power must be exercised within the limitations acquisitions mortis causa, except as otherwise provided herein;
imposed by the LGC, such as: (d) Customs duties, registration fees of vessel and wharfage on
1. It can only be exercised through a valid ordinance; wharves, tonnage dues, and all other kinds of customs fees,
2. Subject to the common limitations enumerated under Sec. 133; charges and dues except wharfage on wharves constructed and
3. It must not exceed the rates provided under the LGC, except their maintained by the local government unit concerned;
authority to adjust the same under Sec. 191, once every five years. (e) Taxes, fees, and charges and other impositions upon goods carried
into or out of, or passing through, the territorial jurisdictions of
Note that under Sec. 5 of Art. X of the 1987 Constitution, it is provided that local government units in the guise of charges for wharfage, tolls for
“Each local government unit shall have the power to create its own source of bridges or otherwise, or other taxes, fees, or charges in any form
revenue and to levy taxes, fees, and other charges subject to such guidelines whatsoever upon such goods or merchandise;
and limitation as the congress may provide, consistent with the basic policy (f) Taxes, fees or charges on agricultural and aquatic products when sold
on local autonomy. Xxx” by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of
NATIONAL TAXES LOCAL TAXES Investments as pioneer or non-pioneer for a period of six (6) and four
TYPES Income Tax Local Business Tax (4) years, respectively from the date of registration;
Value-Added Tax Real Property Tax (h) Excise taxes on articles enumerated under the National Internal
Excise Tax Revenue Code, as amended, and taxes, fees or charges on petroleum
Withholding Taxes products;
Estate and Donor’s Tax (i) Percentage or value-added tax (VAT) on sales, barters or
Other Percentage Taxes exchanges or similar transactions on goods or services except as otherwise
Documentary Stamp Tax provided herein;
GOVERNING 1997 National Internal Local Government Code of (j) Taxes on the gross receipts of transportation contractors and
LAW Revenue Code 1991 (LGC) persons engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this Code;
ROLE OF BUREAU OF LOCAL GOVERNMENT FINANCE: The BLGF assists (k) Taxes on premiums paid by way of reinsurance or retrocession;
the Department of Finance in the performance of its functions in overseeing (l) Taxes, fees or charges for the registration of motor vehicles and
local treasury office in the implementation of the provisions of the LGC and for the issuance of all kinds of licenses or permits for the driving
issues rulings and opinions to interpret such. However, such rulings and thereof, except tricycles;
interpretations relative to the levy and administration of local taxes, fees and (m) Taxes, fees, or other charges on Philippine products actually
charges are merely directory and not mandatory. exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business
It may extend technical assistance to LGUs in the preparation of tax ordinance Enterprises and cooperatives duly registered under R.A. No. 6810 and
and in the clarification of issues and controversies arising from the impositions Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
and/or collections of taxes and fees under the provisions of the LGC. otherwise known as the "Cooperative Code of the Philippines" respectively;
FUNDAMENTAL PRINCIPLES: (o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units.
Section 130. Fundamental Principles. - The following fundamental
principles shall govern the exercise of the taxing and other revenue-raising Percentage Tax: “amusement tax” is a percentage tax. However, Sec. 133(i)
powers of local government units: provides the exception: “except otherwise provided herein”. Since Sec. 140 of
the LGC specifically gave the province the power to impose amusement tax,
(a) Taxation shall be uniform in each local government unit; the same may be levied by the province regardless of it being a percentage
(b) Taxes, fees, charges and other impositions shall: tax. Sec. 140 provides for the exception from Sec. 133(i).
(1) be equitable and based as far as practicable on the taxpayer's ability
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory; Type of Tax Province Cities Municipalities
(4) not be contrary to law, public policy, national economic policy, or in
the restraint of trade; Printing and Publication ✓ ✓ x
(c) The collection of local taxes, fees, charges and other impositions shall
in no case be let to any private person; Franchise Tax ✓ ✓ x
(d) The revenue collected pursuant to the provisions of this Code shall
Sand and other Quarry ✓ ✓ x
inure solely to the benefit of, and be subject to the disposition by, the local
government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein; and, Amusement Tax ✓ ✓ x
(e) Each local government unit shall, as far as practicable, evolve a
progressive system of taxation. Delivery Van and Trucks ✓ ✓ x

COMMON LIMITATIONS: Business Tax x ✓ ✓

SECTION 133. Common Limitations on the Taxing Powers of Local I. PROVINCE

Government Units. — Unless otherwise provided herein, the exercise of
Cesar Nickolai F. Soriano Jr.
1 Arellano University School of Law 2011-0303
the province.
Imposition Rate and Base Exceptions Tax on Sand, Imposed on the ten percent
Tax on On the sale, fifty percent Transfer of Gravel and value of per cubic (10%) of fair
Transfer of donation, barter (50%) of one real property Other Quary meter of ordinary market value.
Real Property or any other percent (1%) of under RA No. Resources stones, sand,
Ownership mode of the total 6657, (Sec. 138) gravel, earth, and
(Sec. 135) transferring consideration otherwise other quarry
ownership or title involved or the known as the resources, as
of real property. fair market value Comprehensiv defined under the
in case monetary e Agrarian National Internal
It is likewise consideration Reform Revenue Code, as
applicable even in involved is not Program amended,
cases of mergers substantial. extracted from
or consolidations. public lands or
The fair market from the beds of
value, in this seas, lakes,
The seller, donor, case, is the one rivers, streams,
transferor, reflected in the creeks,
executor or prevailing and other public
administrator schedule of waters within its
shall pay the tax market values territorial
within sixty (60) enacted by the jurisdiction
days from the Sanggunian Professional Annual At such amount Professionals
date of the concerned and Tax professional tax and reasonable exclusively
execution or from not on the BIR- (Sec. 139) on each person classification as employed in
the date of the prescribed zonal engaged in the the the
decedent’s death. value.2 exercise or sangguniang government.
If the transfer is practice of his panlalawigan
subject to SEC profession may determine
approval, from requiring but shall in no
the date of government case exceed
approval examination. Three hundred
Tax on On the business fifty percent Receipts from pesos (P300.00)
Business of of persons (50%) of one the printing payable annually
Printing and engaged in the percent (1%) of and/or on or before the
Publication printing and/or the gross annual publishing of 31st of January
(Sec. 136) publication of receipts for the books or other Amusement Collected from Thirty percent The holding of
books, cards, preceding reading Tax the proprietors, (30%) of the operas,
posters, leaflets, calendar year. materials (Sec. 140) lessees, or gross receipts concerts,
handbills, prescribed by operators of from admission dramas,
certificates, the theaters, fees. recitals,
receipts, Department of cinemas, concert painting and
pamphlets, and Education, halls, circuses, The proceeds art
others of similar Culture and boxing stadia, shall be shared exhibitions,
nature Sports (now and other places equally by the flower shows,
Department of of amusement. province and musical
Education) as municipality programs,
school texts or where such literary and
references. amusement oratorical
Tax on On newly started One-twentieth places are presentations,
Capital business (1/20) of one located. except pop,
Investment percent (1%) of rock, or
(Sec. 136 the capital similar
and 137, 2nd investment concerts.
paragraph) Annual Fixed Annual fixed tax Five hundred None.
Franchise Any business fifty percent Tax For for every truck, pesos (P500)
Tax enjoying a (50%) of one Every van or Those liable
(Sec. 137) franchise percent (1%) of Delivery any vehicle used for this tax,
regardless of any the gross annual Truck or Van by manufacturers, however, are
exemption receipts for the (Sec. 141) producers, exempt from
granted by any preceding wholesalers, the tax on
law or other calendar year dealers or peddlers
special law.3 based on the retailers in the prescribed
incoming receipt, delivery or under Sec.
or realized, distribution of 143(g).
within the distilled spirits,
territorial fermented
jurisdiction of

(DOF-BLGF Opinion dated May 12, 2004) 3
Regardless of any exemption granted by law or other special law granted prior to January 1, 1992.
(DOF-BLGF Opinion dated April 21, 1997) (DOF-BLGF Opinion date May 12, 2006)
Cesar Nickolai F. Soriano Jr.
2 Arellano University School of Law 2011-0303
liquors, soft computing the amount of the amusement tax. (BLGF Opinion dated April
drinks, cigars and 6, 1993)
cigarettes, and
other products as II. MUNICIPALITY
may be
determined by SCOPE: Except as otherwise provided under the LGC, municipalities may levy
the sangguniang taxes, fees and charges not otherwise levied by the provinces.
to sales outlets, LOCAL BUSINESS TAX
or consumers,
whether directly TWO ASPECTS:
or indirectly, 1. Regulatory – for the enforcement of local rules and the cost is being
within the reimbursed by the taxpayer. (e.g., Mayor’s Permit, Garbage, Sanitary,
province etc.)
2. Local Revenue – for the fund raised by the Local Government Unit
”Capital Investment" is the capital which a person employs in any (municipality or city) to defray its expenses.
undertaking, or which he contributes to the capital of a partnership,
corporation, or any other juridical entity or association in a particular taxing CHARACTERISTICS:
jurisdiction. (Sec. 131[f]) 1. It is an excise tax on the privilege to engage in business;
2. It is an annual tax.
“Franchise” refers to a right or privilege, affected with public interest which 3. It is a tax on the current year based on the gross sales or receipts of the
is conferred upon private persons or corporations, under such terms and preceding year.
conditions as the government or its political subdivisions may impose in the 4. Cities and Municipalities within Metro Manila may impose tax on business
interest of public welfare, security and safety. (Sec. 131[m]) 50% higher than that of municipalities in provinces. (Sec. 144 and 151)
5. May be graduated, fixed or percentage tax.
*Quarrying permits may only be issued by the provincial governor NOT the 6. Businesses under classification (a) to (g) of Sec. 143, can no longer be
DENR. taxed under (h).
7. Tax is payable on every separate or distinct establishment where
The proceeds shall be distributed as follows: business is conducted.
1. Province — Thirty percent (30%); 8. If the Company is not operated for profit, it is exempt from LBT except
2. Component City or Municipality where the sand, gravel, and other on activities conducted for profit. (DOF-BLGF Opinion dated March 27,
quarry resources are extracted — Thirty percent (30%); and 2007)
3. Barangay where the sand, gravel, and other quarry resources are 9. Two or more businesses:
extracted — Forty percent (40%). a. If subject to the same rate – tax is imposed on the combined gross
sales or receipts;
Amusement Tax: b. If subject to different rates – taxable gross receipts or sales are
reported independently.
Resorts, swimming pools, bath houses, hot springs, and tourist spots are not 10. Tax period is calendar year.
within the phrase “other places of amusement” 11. LGUs have the authority to increase the rates by 10% of the rates fixed
under the Code once in every five (5) years. (Sec. 191)
Section 131 (c) of the LGC already provides a clear definition: "Amusement
Places" include theaters, cinemas, concert halls, circuses and other places of CLUSTER TYPES AND MAXIMUM RATES:
amusement where one seeks admission to entertain oneself by seeing or
viewing the show or performances. CLUSTER TYPE MAXIMUM RATE
Manufacturers assemblers, 37 1/2% of 1%
As defined in The New Oxford American Dictionary, ‘show’ means "a spectacle repackers, processors, brewers, (Sec. 143[a])
or display of something, typically an impressive one"; while ‘performance’ distillers, rectifiers, and
means "an act of staging or presenting a play, a concert, or other form of compounders of liquors, distilled
entertainment." As such, the ordinary definitions of the words ‘show’ and spirits, and wines or
‘performance’ denote not only visual engagement (i.e., the seeing or viewing manufacturers of any article of
of things) but also active doing (e.g., displaying, staging or presenting) such commerce of whatever kind or
that actions are manifested to, and (correspondingly) perceived by an nature
audience. Wholesalers, distributors, or 50% of 1%
dealers in any article of commerce (Sec. 143[b])
Considering these, it is clear that resorts, swimming pools, bath houses, hot of whatever kind or nature
springs and tourist spots cannot be considered venues primarily “where one Exporters/Dealers of essential Not exceeding 50% of the rates for
seeks admission to entertain oneself by seeing or viewing the show commodities manufacturers, et al. and
or performances”. While it is true that they may be venues where people wholesalers, et al.
are visually engaged, they are not primarily venues for their proprietors or (Sec. 143[c])
operators to actively display, stage or present shows and/or performances. Retailers Gross sales/receipts:
(Pelizloy Realty Corporation vs. Province of Benguet) P400,000 or less: 2%
More than P400,000: 1%
Computation of Amusement Tax: (Sec. 143[d])
1. If the admission ticket includes the amusement tax of thirty percent Contractors 50% of 1%
(30%), as well as other impositions such as a cultural tax, flood tax, and (Sec. 143[e])
similar others, the balance of the admission price would no longer be Banks and other financial 50% of 1% on the gross receipts
subject to another 30% amusement tax; institutions of the preceding calendar year
2. If the amount of tax, as well as other impositions, is not indicated on the derived from interest, commissions
face of the admission tickets, the price or amount paid for admission and discounts from lending
shall not be deemed to include the amount of such tax impositions and, activities, income from financial
therefore, such price or amount paid for the ticket shall be the basis for leasing, dividends, rentals on
Cesar Nickolai F. Soriano Jr.
3 Arellano University School of Law 2011-0303
property and profit from exchange processed or preserved food, sugar, salt and other agricultural, marine,
or sale of property, insurance and fresh water products, whether in their original state or not
premium. 3. Cooking oil and cooking gas
(Sec. 143[f]) 4. Laundry soap, detergents, and medicine
Peddlers P50 annually 5. Agricultural implements, equipment and post-harvest facilities, fertilizers,
(Sec. 143[g]) pesticides, insecticides, herbicides and other farm inputs
Others 2% 6. Poultry feeds and other animal feeds
(Sec. 143[h]) 7. School supplies
8. Cement
1. Manufacturing involves a physical or chemical process that : Manufacturers of Vinegar, Soy Sauce and Fish Sauce: Vinegar, Soy Sauce and
a. alters the exterior texture or form or inner substance of raw Fish Sauce fall under the term “condiment” which means “a seasoning or
material or manufactured or partially manufactured product, or relish” to give special or additional flavor to food.
b. alters the quality of any raw materials, or
c. combines raw materials with other materials to put to a special use Considering condiment falls within the purview of the term “food”,
to which such raw material in their original condition could not have manufacturers of vinegar, soy sauce and fish sauce shall likewise be subject
been put. to LBT at a rate of one-half (1/2) of the rate prescribed under Section 143 (a)
of the LGC. (DOF-BLGF Opinion dated July 8, 2004)
2. For the purpose of sale or distribution to others and not for own
use or consumption D. RETAILERS:
3. Manufacturers who exports all of its products are only subject to tax on
exporters. (DOF-BLGF Opinion dated February 16, 1994) Retail is the sale where the purchaser buys the commodity for his own
consumption, irrespective of the quantity of the commodity sold. (Sec.
Wholesale means a sale where the purchaser buys or imports the commodities
for resale to persons other than the end user regardless of the quantity of the Test to determine if company is wholesaler or dealer:
transaction. (Sec. 131[z]) • Wholesaler - invoices are issued to companies or business
establishments for re-sale to end-users;
Distributor is the middleman between the manufacturer and retailer. • Retailer – sales receipts are issued to individual consumers or end-users.

If engaged in both wholesale and retail: the taxpayer shall be liable for both Barangays have the exclusive power to levy taxes on retailers where the gross
taxes. (BLGF Opinion dated June 23, 1993) receipts/sales is P50,000 or less (in case of cities) or P30,000 or less (in case
of municipalities), at a rate not exceeding 1%. (Sec. 152)
Car Dealer: can either be a retailer or a dealer or both and should segregate
EXPORTERS shall refer to those who are principally engaged in the business sales directly to end-users and to retailers. (BLGF Opinion dated June 25,
of exporting goods and services, as well as manufacturers and producers 1998)
whose goods or services are both sold domestically and abroad.
The 1991 LGC does not embody any provision or classification for sale made
by an “indirect exporter”. Accordingly, a business engaged in the sale of goods Contractors include persons, natural or juridical, not subject to professional
may only be classified as a (direct) exporter, manufacturer, tax whose activity consists essentially of the sale of all kinds of service for a
wholesaler/distributor, dealer or retailer. fee, regardless of whether or not the performance of a service calls for the
exercise or use of the physical or mental faculties of such contractor or of his
However, exportation covers the Philippine F.O.B. value of export products employees.
exported directly by a BOI-registered export producer to another export
producer or to an export trader that subsequently export the same: Provided, The following are subject to contractors’ tax:
that the sales of export products to another shall be only deemed export sales 1. A company rendering management services. (DOF-BLGF Opinion dated
when actually exported by the latter, as evidenced by lading certificates of September 18, 2002)
similar commercial documents. (LFC No. 4-93) 2. Foreign Contractors;
3. Independent Power Producers (IPP) are considered contractors not
PEZA-registered enterprises: PEZA-registered export enterprises are manufacturers. (BLGF Opinion dated April 5, 2004)
exempt from payment of local taxes while enjoying ITH [Article 78, Book VI
of E.O. 226 (Omnibus Investment Code)]. Note that after the ITH, the PEZA F. BANKS AND OTHER FINANCIAL INSTITUTIONS:
registered entity shall be subjected to the 5% preferential tax rate, 2% of
which is due to the local government unit. This cluster includes non-bank financial intermediaries, lending investors,
finance and investment companies, pawnshops, money shops, insurance
However, the local tax exemption under Art. 78 of the Omnibus Investment companies, stock markets, stock brokers and dealers in securities and foreign
Code does not extend to PEZA-registered enterprises who are not export exchange. (Sec. 131[e])
enterprises even if entitled to ITH. (DOF-BLGF Opinion dated May 12, 2004)
Banks and other banking institutions refer to persons or entities engaged in
Not contrary to Sec. 133(m) on limitations on the power to tax: The the lending of funds obtained from public through the receipt of deposits or
prohibition is only on the imposition of export taxes on the products or goods the sale of bonds, securities or obligations of any kind and all entities regularly
thus exported. The business tax on exporters is a tax on the privilege to conducting such operations.
engage in a business of exporting. The former has as its reference the
exported products, while the latter, the business of exporting itself. (BLGF Offshore banking units are subject to LBT. (BLGF Opinion dated Feb. 24,
Opinion dated March 10, 1994) 1997)


1. Rice and corn
2. Wheat or cassava flour, meat, dairy products, locally manufactured,
Cesar Nickolai F. Soriano Jr.
4 Arellano University School of Law 2011-0303
A Peddler means any person who, either for himself or on commission, travels is to prevent a duplication of the so-called "common carrier's tax.” (City of
from place to place and sells his goods or offers to sell and deliver the same. Manila vs. Judge Colet, GR No. 120051, Dec. 10, 2014)
(Sec. 131[t])
Pipelines are likewise considered “common carriers” exempt from
Note that the tax on Peddlers under Sec. 143(h) does not apply to those LBT under Sec. 143(h): the definition of "common carriers" in the Civil
already subject to Sec. 141 (Annual Fixed Tax for Every Delivery Truck or Van Code makes no distinction as to the means of transporting, as long as it is by
of Manufacturers or Producers, Wholesalers of, Dealers, or Retainers, in land, water or air. It does not provide that the transportation of the
Certain Products) under par. (b) thereof. passengers or goods should be by motor vehicle. In fact, in the United States,
oil pipe line operators are considered common carriers. Likewise, RA No. 387
H. OTHERS: (Petroleum Act) and the BIR (in BIR Ruling No. 069-83) likewise considered
pipeline operators as common carriers. (First Philippine Industrial Corporation
This covers any other business not specified in preceding clusters (A-G) which vs. CA – GR No. 125948, December 29, 1998)
the Sanggunian may tax.
TAX BASE: is the “gross sales/receipts” which include the total amount of
THE TREASURER OF MANILA and JOSEPH SANTIAGO, in his money or its equivalent representing the contract price, compensation or
capacity as the CHIEF OF THE LICENSE DIVISION OF CITY OF service fee, including the amount charged or materials supplied with the
MANILA, petitioners, vs. COCA-COLA BOTTLERS PHILIPPINES, INC., services and deposits or advance payments actually or constructively received
Respondent. G.R. No. 181845 August 4, 2009: Tax Ordinance No. 7794 during the taxable quarter for the services performed or to be performed for
imposes a tax on business on manufacturers (Sec. 14) and on those entities another person. (Sec. 131[n])
subject to excise, VAT or Percentage Taxes under the NIRC (Sec. 21) but
providing exemption if they are already paying such taxes for their Local tax passed-on to customers is included in computing gross
business. Tax Ordinance No. 7988 was later issued removing such sales/receipts. (BLGT Opinion dated May 20, 1997)
exemption. Said ordinance was declared null and void by the SC. However,
before such decision, herein respondent was assessed deficiency LBT under EXCLUSIONS:
Sec. 14 and Sec. 21. HELD: Petitioners obstinately ignore the exempting 1. Discounts if determinable at the time of sales;
proviso in Section 21 of Tax Ordinance No. 7794, to their own detriment. 2. Sales return;
Said exempting proviso was precisely included in said section so 3. Excise tax; and
as to avoid double taxation. 4. VAT;
5. Foreign exchange profits are not among those enumerated as taxable
The Court finds that there is indeed double taxation if respondent is gross receipts of banks, thus, excluded from the taxing authority of the
subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. LGU concerned. (BLGF Opinion dated July 23, 1996)
7794, since these are being imposed: (1) on the same subject matter – the 6. Does not include nor make mention of passive income such as interest
privilege of doing business in the City of Manila; (2) for the same purpose from savings and time deposits, dividends, as well as other income
– to make persons conducting business within the City of Manila contribute derived from foreign currency variance as one of those that are
to city revenues; (3) by the same taxing authority – petitioner City of considered part or form part of the “gross sales or receipts” and therefore
Manila; (4) within the same taxing jurisdiction – within the territorial such income are not subject to LBT. (DOF-BLGF Opinion dated
jurisdiction of the City of Manila; (5) for the same taxing periods – per September 28, 2002)
calendar year; and (6) of the same kind or character – a local business tax 7. Payments made by main contractors to subcontractors. (DOF Circular
imposed on gross sales or receipts of the business. dated June 13, 1995)
8. Refundable deposits. (DOF-BLGF Opinion dated September 11, 2006)
Based on the foregoing case, if a business is already taxed under Clusters A
to G, it can no longer be taxed under H (Others) for such imposition will result COMPUTATION OF LBT:
in direct double taxation. Step 1: Classify the business
Step 2: Group different activities according to clusters. Each clusters has its
Common Carriers are not subject to LBT under Sec. 143(h): Section own separate tax rates, hence different business activities subject to different
133(j) of the LGC prevails over Section 143(h) of the same Code. tax rates should be separately reported.
Step 3: Determine gross sales/receipts for all business activities within the
Section 133(j) of the LGC is a specific provision that explicitly withholds from same cluster and consolidate.
any LGU, i.e., whether the province, city, municipality, or barangay, the power Step 4: Compute the tax due for each cluster using the tax rate imposed by
to tax the gross receipts of transportation contractors, persons engaged in the local tax ordinance
the transportation of passengers or freight by hire, and common carriers by
air, land, or water. (TAX BASE) x (TAX RATE) = TAX DUE

In contrast, Section 143 of the LGC defines the general power of the Notes:
municipality (as well as the city, if read in relation to Section 151 of the same 1. Incidental business may not be considered a separate business from the
Code) to tax businesses within its jurisdiction. While paragraphs (a) to (g) principal activity.
thereof identify the particular businesses and fix the imposable tax rates for 2. One line of business does not become exempt by being conducted with
each, paragraph (h) is apparently the "catch-all provision" allowing the some other business for which a tax has been paid.
municipality to impose tax "on any business, not otherwise specified in the 3. Ensure that the tax rate per local tax ordinance does exceed the maximum
preceding paragraphs, which the sanggunian concerned may deem proper to rate in LGC.
The omnibus grant of power to municipalities and cities under Section 143(h) 1. Fees and Charges on business and occupation and, except those
of the LGC cannot overcome the specific exception/exemption in Section reserved for the province under Sec. 139, on the practice of any
133(j) of the same Code. This is in accord with the rule on statutory profession or calling commensurate to regulation, inspection and
construction that specific provisions must prevail over general ones. A special licensing before any person may engage in business or occupation, or
and specific provision prevails over a general provision irrespective of their such practice of profession or calling. (Sec. 147)
relative positions in the statute. Generalia specialibus non derogant. 2. Fees for reading and licensing of weights and measures. (Sec. 148)
3. Fishery rentals, fees and charges – municipalities have the exclusive
It is clear that the legislative intent in excluding from the taxing power of the authority to grant fishery privileges in the municipal waters and impose
local government unit the imposition of business tax against common carriers rentals, fees and charges. (Sec. 149)
Cesar Nickolai F. Soriano Jr.
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Cities may levy the taxes, fees, and charges which the province or municipality
SITUS OF TAX: may impose at a rate more than the maximum rates provided for
1. Entities maintaining branches/sales outlets in places other than the head provinces and municipalities but not exceeding 50%. (Sec. 151)
office, shall record the sale in said branch/outlet and the tax thereon
shall accrue and shall be paid to the municipality where such Independent Component Cities and Highly Urbanized Cities in provinces are
branch/outlet is located. likewise covered by the above and such taxes, fees and charges levied and
2. If there is no such branch/outlet, the sales shall be recorded in the head collected by them shall accrue to them.
office and the tax due shall accrue and be paid to such city or
municipality where the head office is located. IV. BARANGAYS
3. Sales Allocation: shall apply if the sales are recorded in the head office
and the plant/factory/plantation/project is located in a different Taxes Stores and Retailers where the gross receipts/sales is
municipality: (Sec. 152[a]) P50,000 or less (in case of cities) or P30,000 or less (in
a. 30% of sales recorded in the head office shall be taxable in the case of municipalities), at a rate not exceeding 1%.
municipality/city where the same is located;
b. 70% of sales recorded in the head office shall be taxable in the If the gross sales/receipts is higher than the above
municipality/city where the factory/project office/plant/plantation is amounts, the retailer shall be subject to the tax on
located. business imposed by the municipality or city.
Service Fees Reasonable fees or charges for services rendered in
In case the plantation is located in a different municipality from the or Charges connection with the regulations or the use of barangay-
factory/plant, the said 70% shall be further divided as follows: (Sec. 152[b]) owned properties or service facilities such as palay, copra,
i. 60% where the factory is located; or tobacco dryers.
ii. 40% where the plantation is located. Barangay No city or municipality may issue any license or permit for
Clearance any business or activity unless a clearance is first obtained
In case there are two or more factories/project (Sec. 152[c]) from the barangay where such business or activity is
offices/plants/plantations, the 70% share shall be distributed pro rata located or conducted. For such clearance, the
among the localities where the said establishments are located. sangguniang barangay may impose a reasonable fee.
Other Fees Reasonable fees and charges on the following:
Principal Office: the head or main office of the business appearing in the and Charges 1. On commercial breeding of fighting cocks, cockfights
pertinent documents submitted to the Securities and Exchange Commission (Sec. 152[d]) and
or the Department of Trade and Industry, or other appropriate agencies. cockpits;
2. On places of recreation which charge admission fees;
Branch or Sales Office: - a fixed place in a locality which conducts operations and
of the business as an extension of the principal office. 3. On billboards, signboards, neon signs, and outdoor
Offices used only as display areas of the products where no stocks or items
are stored for sale, although orders for the products may be received thereat, V. COMMUNITY TAX
are not branch or sales offices, as herein contemplated.
SECTION 156. Community Tax. — Cities or municipalities may levy a
A warehouse which accepts order and/or issues sales invoices independent of community tax in accordance with the provisions of this Article.
a branch with sales office, shall be considered as sales office
Warehouse: buildings utilized for the storage of products for sale and from 1. Individual - P5.00 and an additional P1.00 for every P1,000 of income,
which goods or merchandise are withdrawn for delivery to customers or to a maximum of P5,000; (Sec. 157)
dealers, or by persons acting in behalf of the business. A warehouse does not 2. Corporate – P500 and an additional tax, which in no case, shall exceed
accept orders and/or issue sales invoices as aforementioned shall not be P10,000. Additional tax shall include:
considered a branch or sales office. a. P2.00 for every P5,000 worth of property;
b. P2.00 for every P5,000 gross receipts. (Sec. 158)
Plantation: a tract of agricultural land planted to trees or seedlings whether
fruit bearing or not, uniformly spaced or seeded by broadcast methods or EXEMPTIONS:
normally arranged to allow highest production. For purposes of this Article, 1. Diplomatic and consular representatives; and
inland fishing ground shall be considered as plantation. 2. Transient visitors when their stay in the Philippines does not exceed 3
months. (Sec. 159)
ACCRUAL AND PAYMENT OF TAX: Accrues every 1st of the January and
may be payable: ACCRUAL AND PAYMENT: Community Tax accrues on the 1st day of
1. Annually – not later than January 20; January of each year which shall be paid not later than the last day of February
2. Quarterly – within 20 days of the first month of the quarter. of each year.
RETIREMENT OF BUSINESS (Sec. 145): the business shall submit a sworn PLACE OF PAYMENT:
declaration of its gross receipts or sales in the year of retirement. 1. Individual – place of residence;
2. Corporation – principal place of business. (Sec. 160)
If the tax paid during the year be less than the tax due on said gross sales or
receipts of the current year, the difference shall be paid before the business VI. COMMON REVENUE RAISING POWERS
is considered officially retired. (Mobil Philippines Inc. vs. Treasurer of Makati;
GR No. 154092; July 14, 2005) Local government units may impose and collect:
1. Service Fees and Charges;
Regulatory Fees: are set only at a level that ensure full recovery of the costs 2. Public Utility Charges;
of issuing permit or license and surveillance. The LGU cannot use gross 3. Toll Fees or Charges (but not upon members of the AFP and PNP, post
receipts or capitalization as the basis thereof. office personnel delivering mail, physically-handicapped, and disabled
citizens who are 65 years or older);
Cesar Nickolai F. Soriano Jr.
6 Arellano University School of Law 2011-0303
evasion or neglect of duty, while interest is imposed to compensate the
LIEN: local taxes, fees, charges and other revenues constitute a lien, superior State "for the delay in paying the tax and for the concomitant use by the
to all liens, charges or encumbrances in favor of any person, enforceable by taxpayer of funds that rightfully should be in the government's hands."
appropriate administrative or judicial action, not only upon any property or
rights therein which may be subject to the lien but also upon property used If the legislative intent was to make the 25% surcharge proportionate to
in business, occupation, practice of profession or calling, or exercise of the period of delay, the law should have provided for the same in clear
privilege with respect to which the lien is imposed. The lien may only be terms.
extinguished upon full payment of the delinquent local taxes, fees and charges
including related surcharges and interest. (Sec. 173) 2. Interest – at the rate not exceeding 2% of the unpaid taxes, fees or
charges including surcharges, until such amount is fully paid but in no
AUDIT: the treasurer may examine the books, accounts, and other pertinent case shall the total interest on the unpaid amount or potion thereof
records of any person, partnership, corporation, or association subject to local exceed 36 months.
taxes, fees and charges in order to ascertain, assess, and collect the correct
amount of the tax, fee, or charge. Note that unlike in national taxes and real property tax, the base of the
interest for local business taxes is inclusive of surcharge.
Such examination shall be made during regular business hours, only once for
every tax period, and shall be certified to by the examining official. VIII. TAXPAYERS’ REMEDIES

For this purpose, the records of the revenue district office of the Bureau of 1. PRESCRIPTION
Internal Revenue shall be made available to the local treasurer, his deputy or
duly authorized representative. (Sec. 171) PERIOD OF ASSESSMENT: local taxes, fees or charges shall be assessed
within 5 years from the date they become due. No action for the collection
CIVIL REMEDIES: of the local government unit for the collection of local of such shall be instituted after the expiration of such period. EXCEPT: in
taxes, fees and charges, and related surcharges and interests resulting from case of fraud or intent to evade payment of taxes, fees or charges, the same
delinquency are: may be assessed within 10 years. (Sec. 194[a] and [b])
1. By administrative action through distraint or levy;
2. By judicial action. PERIOD OF COLLECTION: 5 years from date of assessment by
administrative or judicial action.
Either of these remedies or all may be pursued concurrently or simultaneously
at the discretion of the local government unit concerned. SUSPENSION OF PERIODS: during which:
a. The treasurer is legally prevented from making the assessment of
The remedies of distraint or levy may be repeated if necessary until the full collection;
amount due, including all expenses, is collected. (Sec. 184) b. The taxpayer requests for a reinvestigation and executes a waiver in
writing before expiration of the period within which to assess or collect;
The following are EXEMPT from distraint or levy: and
c. The taxpayer is out of the country or otherwise cannot be located. (Sec.
(a) Tools and implements necessarily used by the delinquent taxpayer in his 194[d])
trade or employment;
(b) One (1) horse, cow, carabao, or other beast of burden, such as the 2. PROTEST OF ASSESSMENT (Sec. 195)
delinquent taxpayer may select, and necessarily used by him in his
ordinary occupation; a. After receipt of the notice of assessment from the treasurer, the taxpayer
(c) His necessary clothing, and that of all his family; may file a written protest within 60 days to contest the assessment,
(d) Household furniture and utensils necessary for housekeeping and used otherwise the same will be final and executory;
for that purpose by the delinquent taxpayer, such as he may select, of a b. The local treasurer shall decide the protest within 60 days from its filing;
value not exceeding Ten thousand pesos (P10,000.00); • If protest is meritorious – treasurer shall issue notice cancelling
(e) Provisions, including crops, actually provided for individual or family use wholly or partially the assessment.
sufficient for four (4) months; • If not meritorious – treasurer shall deny the protest with notice to
(f) The professional libraries of doctors, engineers, lawyers and judges; the taxpayer.
(g) One fishing boat and net, not exceeding the total value of Ten thousand • The protest may likewise be considered denied if not acted upon
pesos (P10,000.00), by the lawful use of which a fisherman earns his within the 60 day period.
livelihood; and c. The taxpayer shall have 30 days from the receipt of denial or from the
(h) Any material or article forming part of a house or improvement of any lapse of the 60 day period to appeal with the court of competent
real property. jurisdiction. Otherwise, the assessment becomes conclusive and
CIVIL PENALTIES: Section 168 of the Local Government Code, the
Sanggunian may impose: 3. CLAIM FOR REFUND:
1. Surcharge – not exceeding 25% of the amount of taxes, fees or charges
not paid on time; 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
Surcharge is a one-time penalty, not annual similar to an for refund or credit has been filed with the local treasurer. No case or
interest: The surcharge is a civil penalty imposed once for late payment proceeding shall be entertained in any court after the expiration of two (2)
of a tax. Contrast this with the succeeding provisions on interest, which years from the date of the payment of such tax, fee, or charge, or from the
was imposable at the rate not exceeding 2% per month of the unpaid date the taxpayer is entitled to a refund or credit. (Sec. 196)
taxes until fully paid. The fact that the interest charge is made
proportionate to the period of delay, whereas the surcharge is not, No evidence of a written claim for refund; not deemed admitted: if
clearly reveals the legislative intent for the different modes in their the taxpayer failed to prove that they have filed a written claim for refund
application. with the local treasurer considering that such fact – although subject of their
Request for Admission which respondents did not reply to – had already been
Indeed, both the surcharge and interest are imposable upon failure of controverted by the latter in their Motion to Dismiss and Answer, regardless
the taxpayer to pay the tax on the date fixed in the law for its payment. if they filed the judicial claim for refund within the 2 year period, the same
The surcharge is imposed to hasten tax payments and to punish for must be denied.
Cesar Nickolai F. Soriano Jr.
7 Arellano University School of Law 2011-0303
Rule of Pre-emption: if the National Government elects a particular area as
Records show that petitioners filed their Request for Admission with the RTC subject to tax, it impliedly withholds from the local government unit the
and also served the same on respondents, requesting that the fact that they delegated power to tax the same fields or area.
filed a written claim for refund with the City Treasurer of Manila be admitted.
Respondents, however, did not – and in fact, need not – reply to the same Section 187. Procedure for Approval and Effectivity of Tax,
considering that they have already stated in their Motion to Dismiss and Ordinances and Revenue Measures; Mandatory Public Hearings. -
Answer that petitioners failed to file any written claim for tax refund or The procedure for approval of local tax ordinances and revenue measures
credit. In this regard, respondents are not deemed to have admitted the truth shall be in accordance with the provisions of this Code: Provided, That
and veracity of petitioners’ requested fact. (Metro Manila Shopping Mecca public hearings shall be conducted for the purpose prior to the enactment
Corp. vs. Toledo, GR No. 190818, June 5, 2013) thereof: Provided, further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on appeal
If refund is granted: it shall not be refundable in cash but shall only be within thirty (30) days from the effectivity thereof to the Secretary of
applied to future tax obligations of the same taxpayer for the same business. 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
If the taxpayer has no other tax obligations, it shall be applied in full in the the effect of suspending the effectivity of the ordinance and the accrual
first quarter of the next calendar year. 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
Any unapplied balance of the tax credit shall be refund in cash in the event of sixty-day period without the Secretary of Justice acting upon the appeal,
termination of business in the locality. the aggrieved party may file appropriate proceedings with a court of
competent jurisdiction.
No Need for WRIT OF EXECUTION: instead of moving for the issuance of
a writ of execution relative to the aforesaid Decision, petitioner should have Procedure in questioning the validity of Tax Ordinance:
merely requested for the approval of the City of Manila in implementing the 1. Appeal to the Secretary of Justice (“SOJ”) within 30 days from the
tax refund or tax credit, whichever is appropriate. In other words, no writ was effectivity of the ordinance.
necessary to cause the execution thereof, since the implementation of the tax 2. SOJ shall render a decision within 60 days from receipt of appeal.
refund will effectively be a return of funds by the City of Manila in favor of 3. Appeal shall not have the effect of suspending the effectivity of the
petitioner while a tax credit will merely serve as a deduction of petitioner’s tax ordinance and the accrual and payment of the tax, fee, or charge levied
liabilities in the future. therein.
4. Within 30 days after receipt of the decision or the lapse of the 60 period
In fact, Section 252 (c) of the Local Government Code of the Philippines is without the SOJ acting upon the appeal, the aggrieved party may file a
very clear that "[i]n the event that the protest is finally decided in favor of the declaratory relief petition with the RTC.
taxpayer, the amount or portion of the tax protested shall be refunded to the
protestant, or applied as tax credit against his existing or future tax liability." Sec. 187 only covers “tax” ordinance: The LGC defines the term
It was not necessary for petitioner to move for the issuance of the writ of "charges" as referring to pecuniary liability, as rents or fees against persons
execution because the remedy has already been provided by law. or property, while the term "fee" means "a charge fixed by law or ordinance
for the regulation or inspection of a business or activity.
residential Decree No. 1445 and Administrative Circular No. 10-2000 involve
a settlement of a claim against a local government unit, the same finds no Since the main purpose of Ordinance No. 18 is to regulate certain construction
application in the instant case wherein no monetary award is actually awarded activities of the identified special projects, which included "cell sites" or
to petitioner but a mere return or restoration of petitioner’s money, arising telecommunications towers, the fees imposed in Ordinance No. 18 are
from an excessive payment of tax erroneously or illegally imposed and primarily regulatory in nature, and not primarily revenue-raising. While the
received. fees may contribute to the revenues of the Municipality, this effect is merely
incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.
It could not have been the intention of the law to burden the taxpayer with
going through the process of execution under the Rules of Civil Procedure Considering that the fees in Ordinance No. 18 are not in the nature of local
before it may be allowed to avail its tax credit as affirmed by a court judgment. taxes, and Smart is questioning the constitutionality of the ordinance, the CTA
(Coca-Cola Bottlers Philippines, Inc. vs. City of Manila, GR No. 197561, April correctly dismissed the petition for lack of jurisdiction. Likewise, Section 187
7, 2014) of the LGC, which outlines the procedure for questioning the constitutionality
of a tax ordinance, is inapplicable, rendering unnecessary the resolution of
IX. MISCELLANEOUS PROVISIONS: the issue on non-exhaustion of administrative remedies. (Smart
Communications, Inc. vs. Municipality of Malvar, Batangas)
SECTION 186. Power To Levy Other Taxes, Fees or Charges. —
Local government units may exercise the power to levy taxes, fees or SECTION 191. Authority of Local Government Units to Adjust
charges on any base or subject not otherwise specifically enumerated Rates of Tax Ordinances. — Local government units shall have the
herein or taxed under the provisions of the National Internal Revenue authority to adjust the tax rates as prescribed herein not oftener than once
Code, as amended, or other applicable laws: Provided, That the taxes, every five (5) years, but in no case shall such adjustment exceed ten
fees, or charges shall not be unjust, excessive, oppressive, confiscatory or percent (10%) of the rates fixed under this Code.
contrary to declared national policy: Provided, further, That the ordinance
levying such taxes, fees or charges shall not be enacted without any prior Section 192. Authority to Grant Tax Exemption Privileges. - Local
public hearing conducted for the purpose. government units may, through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and conditions as they
Residual Powers: the LGUs may exercise the power to levy taxes, fees or may deem necessary.
charges on any base or subject not otherwise specifically enumerated under
the LGC, except: Section 193. Withdrawal of Tax Exemption Privileges. - Unless
1. Those taxed under the Tax Code; otherwise provided in this Code, tax exemptions or incentives granted to,
2. The taxes, fees or charges shall not be unjust, excessive or oppressive, or presently enjoyed by all persons, whether natural or juridical, including
confiscatory or contrary to declared national policy; government-owned or controlled corporations, except local water districts,
3. There must be a valid ordinance; cooperatives duly registered under R.A. No. 6938, non-stock and non-
4. There must be public hearing conducted prior to enactment of the profit hospitals and educational institutions, are hereby withdrawn upon
ordinance. the effectivity of this Code.

Cesar Nickolai F. Soriano Jr.

8 Arellano University School of Law 2011-0303
Note, however, that exemptions granted after the effectivity of the LGC are exempt from taxation. Moreover, the steel towers were not attached to any
effective. land or building. They were removable from their metal frames. Board of
Assessment Appeals vs. Manila Electric Company)
“In lieu of all taxes” provision found in existing franchises are withdrawn with
the enactment of LGC of 1991. However, if similar provision is found in Appraisal of Real Property: shall be at its current and fair market value,
franchises subsequent to the effectivity of LGC of 1991, said grantees are which is the price at which a property may be sold by a seller who is not
entitled to exemption from local franchise tax. (PLDT v. City of Davao, G.R. compelled to sell and bought by a buyer who is not compelled to buy.
No. 143867, March 25, 2003)
The owner of the property shall initially determine the fair market value to be
PART 2: REAL PROPERTY TAX indicated in the Tax Declaration. However, this does not bind the assessor in
making his own determination of fair market value. (Patalinhug vs. C.A., 229

SECTION 198. Fundamental Principles. — The appraisal, assessment, IMPROVEMENTS:

levy and collection of real property tax shall be guided by the following
fundamental principles: An Improvement is a valuable addition made to a property or an amelioration
(a) Real property shall be appraised at its current and fair market value; in its condition, which is intended to enhance its value, beauty or utility or to
(b) Real property shall be classified for assessment purposes on the basis adapt it for new or further purposes, amounting to more than a mere repair
of its actual use; or replacement of parts involving capital expenditures and labor and normally
(c) Real property shall be assessed on the basis of a uniform classification requiring a building permit. (Art. 290(m), IRR)
within each local government unit;
(d) The appraisal, assessment, levy and collection of real property tax shall MACHINERY:
not be let to any private person; and
(e) The appraisal and assessment of real property shall be equitable. For RPT purposes, Machinery embraces machines, equipment, mechanical
contrivances, instruments, appliances or apparatus which may or may not be
REAL PROPERTY: the Local Government Code does not have a definition of attached, permanently or temporarily, to the real property.
what constitutes “real property”. However, the Code provides assessment
levels applicable to land, buildings, improvements and machineries. It includes the physical facilities for production, the installations and
appurtenant service, facilities, those which are mobile, self-powered or self-
Generally, the definition under Art. 415 of the Civil Code is applied. propelled, and those not permanently attached to the real property which are
Accordingly, the following are considered real property: actually, directly, and exclusively used to meet the needs of the particular
a. Immovable by nature – those which cannot be moved from place to industry, business or activity and which by their very nature and purpose are
place, such as land, bldg., etc., mentioned in par. 1 & 8 (mines, quarries, designed for, or necessary to its manufacturing, mining, logging, commercial,
slag dumps) of this Article; industrial or agricultural purposes.
b. By Incorporation – essentially movables but are attached to an
immovable in such manner as to be an integral part thereof, such as Machinery that is permanently attached to land and buildings is subject to
things (except land, buildings and roads) mentioned in par. 1, 2, 3, 4 RPT, even though this is actually, directly, and exclusively used for religious,
and 6. e.g., trees and plants. charitable or educational purposes. (DOF Local Finance Circular No. 1-02)
c. By Destination – the purpose for which they have been placed in an
immovable, partake the nature of the latter because of the added utility Note that the Constitutional exemption under Sec. 28(3) of Art. VI covers
derived therefrom. (4,5,6,7 and 9) churches and parsonages or covenants appurtenant thereto, mosques, non-
d. By Analogy or by law, as those mentioned in par. 10. profit cemeteries, and all “land, buildings and improvements,” actually,
directly and exclusively used for religious, charitable, or educational purposes.
SUBJECT TO REAL PROPERTY TAX: The following are considered real
property subject to real property tax: Machinery that is not permanently attached to real estate is:
1. Underground tanks, elevated tank, elevated water tanks, water tanks, a. Subject to the RPT if it is an essential and principal element of an industry,
gasoline pumps, computing pumps, water pumps, car washer, car hoists, work or activity without such industry, work or activity cannot function
truck hoists, air compressors and tireflators in its gasoline stations - said b. Not subject to RPT, if it is NOT an essential and principal element of an
equipment and machinery, as appurtenances to the gas station building industry, work or activity. (DOF Local Finance Circular No. 1-02)
or shed owned by Caltex (as to which it is subject to realty tax) and
which fixtures are necessary to the operation of the gas station, for Machineries of General Purpose Use: including but not limited to office
without them the gas station would be useless, and which have been equipments, (e.g., telephone equipment, microcomputers, facsimile
attached or affixed permanently to the gas station site or embedded machines, telex machines, cash dispensers), furniture and fixtures, freezers,
therein, are taxable improvements and machinery within the meaning of refrigerators, display cases or racks, which are not directly and exclusively
the Assessment Law and the Real Property Tax Code. (Caltex vs. CBAA) used to meet the needs of a particular industry, business or activity shall not
2. While the two storage tanks are not embedded in the land, they may, be considered within the definition of machinery.
nevertheless, be considered as improvements on the land, enhancing its
utility and rendering it useful to the oil industry. It is undeniable that the In BLGF Opinion dated June 15, 2012, the Bureau opined that machineries for
two tanks have been installed with some degree of permanence as general purpose are not subject to RPT if they are not used directly and
receptacles for the considerable quantities of oil needed by Meralco for exclusively for the conduct of trade or business of the Company. In this
its operations. (Manila Electric Company vs. CBAA) instance, the computer equipment of Eastwest Bank fall under the category
of Machinery of General Purpose.
For purposes of taxation, the term "real property" may include
things which should generally be regarded as personal property. It Appraisal of Machineries: (Sec. 224)
is a familiar phenomenon to see things classed as real property for purposes
of taxation which on general principle might be considered personal property Appraisal is the act or process of determining the value of property as of a
(Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633). specified date for a specific purpose. (Sec. 199[e])

NOT SUBJECT TO REAL PROPERTY TAX: Meralco's steel towers were held 1. Brand New – acquisition cost;
not to be subject to realty tax, is not in point because in that case the steel
towers were regarded as poles and under its franchise Meralco's poles are
Cesar Nickolai F. Soriano Jr.
9 Arellano University School of Law 2011-0303
"Acquisition Cost" for newly-acquired machinery not yet depreciated and 2. Agricultural: devoted principally to the planting of trees, raising of crops,
appraised within the year of its purchase, refers to the actual cost of the livestock and poultry, dairying, salt making, inland fishing and similar
machinery to its present owner, plus the cost of transportation, handling, aquacultural activities, and other agricultural activities
and installation at the present site. (Sec. 199[a]) 3. Commercial: devoted principally for the object of profit
4. Industrial: devoted principally to industrial activity as capital investment
2. All other cases – it shall be computed as follows: 5. Mineral: minerals, metallic or non-metallic, exist in sufficient quantity or
grade to justify the necessary expenditures to extract and utilize such
Remaining useful life Replacement materials
Economic life Cost 6. Timberland
7. Special
"Remaining Economic Life" is the period of time expressed in years from
the date of appraisal to the date when the machinery becomes valueless. Special classes include all lands, buildings, and other improvements thereon
actually, directly and exclusively used for: (1) hospitals; (2) cultural or (3)
“Economic Life" is the estimated period over which it is anticipated that scientific purposes, and (4) those owned and used by local water districts,
a machinery or equipment may be profitably utilized. and (5) government-owned or -controlled corporations rendering essential
public services in the supply and distribution of water and/or generation and
"Replacement or Reproduction Cost" is the cost that would be incurred transmission of electric power. (Sec. 216)
on the basis of current prices, in acquiring an equally desirable substitute
property, or the cost of reproducing a new replica of the property on the ASSESSMENT LEVELS (Sec. 218):
basis of current prices with the same or closely similar material.
Assessment Level is the percentage applied to the fair market value to
3. If machinery is imported, the acquisition cost includes freight, insurance, determine the taxable value of the property. (Sec. 199[g])
bank charges, brokerage, arrastre and handling, duties and taxes, plus
cost of inland transportation, handling and installation charges at the The sanggunian concerned may fixed the assessment levels through
present site. ordinances but shall not exceed the rates enumerated under Sec. 218, to wit:

Depreciation Allowance: a depreciation allowance shall be made for (a) On Lands:

machinery at a rate not exceeding five percent (5%) of its original cost or its CLASS ASSESSMENT LEVELS
replacement or reproduction cost, as the case may be, for each year of use:
Provided, however, That the remaining value for all kinds of machinery shall Residential 20%
be fixed at not less than twenty percent (20%) of such original, replacement,
or reproduction cost for so long as the machinery is useful and in operation. Agricultural 40%
(Sec. 225)
Commercial 50%
Note that depreciation allowance for RPT purposes is available only against
Industrial 50%
machineries and not for other assets which are generally subject to
depreciation, e.g., buildings and improvements. Mineral 50%

ADMINISTRATION: The following shall be primarily responsible for the Timberland 20%
proper, efficient and effective administration of the real property tax:
1. Provinces; (b) On Buildings and Other Structures:
2. Cities;
3. Municipalities within Metro Manila.
(1) Residential

Over Not Over Assessment Levels

Under Sec. 202, it is the duty of all persons, natural or juridical, owning or
administering real property, including the improvements therein, to prepare P175,000.00 0%
and file a sworn statement declaring the true value of real property, taxable
or exempt, declaring the true value of the property which shall be the current P175,000.00 300,000.00 10%
and fair market value thereof.
300,000.00 500,000.00 20%
The declaration shall be filed with the assessor once every 3 years.
500,000.00 750,000.00 25%
New acquisitions: it shall also be the duty of any person, natural or juridical, 750,000.00 1,000,000.00 30%
acquiring real property to cause the declaration of real property within 60 days
from acquisition or upon completion or occupancy of the improvement, 1,000,000.00 2,000,000.00 35%
whichever comes earlier.
2,000,000.00 5,000,000.00 40%
Transfer of Real Property: a notice shall be submitted to the assessor 60 days
from the date of transfer containing the mode of transfer, the description of 5,000,000.00 10,000,000.00 50%
the property alienated, the name and address of the transferee.
10,000,000.00 60%
(2) Agricultural
Real property shall be classified, valued and assessed according to its actual Fair Market Value
use regardless of where located, whoever owns it, and whoever uses it. (Sec.
217) It may be classified as (Sec. 215): Over Not Over Assessment Levels

1. Residential: principally devoted to habitation P300,000.00 25%

Cesar Nickolai F. Soriano Jr.

10 Arellano University School of Law 2011-0303
P300,000.00 500,000.00 30% Government-owned or controlled 10%
corporations engaged in the supply and
500,000.00 750,000.00 35% distribution of water and/or generation
and transmission of electric power
750,000.00 1,000,000.00 40%

1,000,000.00 2,000,000.00 45% Actual Assessment Levels: vary depending on the LGU since the
Sanggunian may fix the assessment levels, provided they do not exceed the
2,000,000.00 50% above rates.

General Revision of Assessments and Property Classification: the

(3) Commercial / Industrial
assessor concerned shall undertake a general revision of real property
Fair Market Value
assessments within 2 years after the effectivity of the LGC and every 3 years
Over Not Over Assessment Levels thereafter. (Sec. 219)

P300,000.00 30% Valuation of Real Property: In cases where (a) real property is declared
and listed for taxation purposes for the first time; (b) there is an ongoing
P300,000.00 500,000.00 35% general revision of property classification and assessment; or (c) a request is
made by the person in whose name the property is declared, the provincial,
500,000.00 750,000.00 40% city or municipal assessor or his duly authorized deputy shall, in accordance
750,000.00 1,000,000.00 50% with the provisions of this Chapter, make a classification, appraisal and
assessment or taxpayer's valuation thereon: Provided, however, That the
1,000,000.00 2,000,000.00 60% assessment of real property shall not be increased oftener than once every
three (3) years except in case of new improvements substantially increasing
2,000,000.00 5,000,000.00 70% the value of said property or of any change in its actual use. (Sec. 220)

5,000,000.00 10,000,000.00 75% Reassessment: made after the 1st day of January of any year shall take
effect on the 1st day of January of the following year. EXCEPT: reassessment
10,000,000.00 80%
due to partial or total destruction or to a major change of the property’s actual
use, or to any great and sudden inflation or deflation of real property values,
(4) Timberland or the gross illegality of assessment when made or to any abnormal cause,
Fair Market Value the reassessment shall be made 90 days after such cause or causes occurred
and shall take effect at the beginning of the next quarter next following the
Over Not Over Assessment Levels reassessment. (Sec. 221)

P300,000.00 45% Real Properties Declared for the First Time: shall be assessed taxes for
the period during which it would have been liable but in no case for more than
P300,000.00 500,000.00 50% 10 years prior to the date of initial assessment.
500,000.00 750,000.00 55%
Duty of Registrar of Deeds:
750,000.00 1,000,000.00 60% a. To prepare and submit to the provincial, city or municipal assessor every
year an abstract of his registry, which shall contain:
5,000,000.00 2,000,000.00 65% (1) Brief but sufficient description of the real properties entered
2,000,000.00 70% (2) Their present owners;
(3) Dates of their most recent transfers or alienation accompanied by
(c) On Machineries copies of the corresponding deeds of sale, donation or partition or
other forms of alienation.
Class Assessment Levels
Purpose: is to ascertain whether or not any real property entered in the
Agricultural 40% Registry of Property has escaped discovery and listing for the purpose of
taxation. (Sec. 209[a])
Residential 50% b. To require every person who shall present for registration a document
of transfer, alienation, or encumbrance of real property to accompany
Commercial 80% the same with a certificate to the effect that the real property subject
of the transfer, alienation, or encumbrance, as the case may be, has
Industrial 80% been fully paid of all real property taxes due thereon.

(d) On Special Classes: The assessment levels for all lands buildings, Failure to provide such certificate shall be a valid cause for the Registrar
machineries and other improvements; of Deeds to refuse the registration of the document. (Sec. 209[b])

Actual Use Assessment Level ASSESSMENT APPEALS:

Cultural 15% When not satisfied with the action of the assessor with regards the
assessment of property, the owner or person having legal interest may appeal
Scientific 15% to the Local Board of Assessment Appeals (LBAA) within 60 days from receipt
of the notice of assessment, by filing a petition under oath, together with the
Hospital 15% copies of the tax declarations and such affidavits or documents submitted in
support of the appeal. (Sec. 226)
Local water districts 10%

Cesar Nickolai F. Soriano Jr.

11 Arellano University School of Law 2011-0303
The LBAA shall decide the appeal within 120 days. If unsatisfied with the Proof of Exemption of Real Property: under Sec. 206, every person who
decision of the LBAA, the owner or person having legal interest may appeal claims exemption from real property tax shall file with the assessor within 30
to the Central Board of Assessment Appeals (CBAA) within 30 days from days from the date of declaration of real property sufficient documentary
receipt of such decision. The decision of the CBAA shall be final and executory. evidence in support of such claim including corporate charters, title of
(Sec. 229) ownership, articles of incorporation, by-laws, contracts, affidavits,
certifications and mortgage deeds, and similar documents.
of real property shall, in no case, suspend the collection of the realty taxes on If the required evidence is not submitted within the period prescribed, the
the real property involved as assessed by the provincial or city assessor, property shall be listed as taxable in the assessment roll. However, if the
subject to adjustment depending on the outcome of the appeal. (Sec. 231) property shall be proven to be tax exempt, the same shall be dropped from
the assessment roll. (Sec. 206)
Thus, should the taxpayer/real property owner question the excessiveness or
reasonableness of the assessment, Section 252 directs that the taxpayer If, however, it is not dropped therefrom and the exemption is insisted after
should first pay the tax due before his protest can be entertained. (Olivarez an assessment for unpaid RPT has been issued, the taxpayer may question
vs. Marquez 438 SCRA 679) the validity of the assessment directly with the RTC, such assessment being
considered an illegal assessment, rather than an erroneous assessment. (see

RPT is an ad valorem tax on real property such as land, building, machinery Moreover, the exemption is explicitly granted by law and need not be applied
and other improvement administered by provinces, cities and municipalities for. (Testate Estate of Concordia T. Lim vs. City of Manila, GR No. 90639, Feb.
within Metro Manila. 21, 1990)

BASIC RPT RATE: the local government unit may fix the rate of RPT Property is leased: in case a private person owns a land which is leased to
applicable to their respective localities but shall not exceed: a school and the same is used actually, directly and exclusively for educational
1. 1% - Provinces; purposes, the same is exempt from RPT.
2. 2% - Cities and Municipalities within Metro Manila. (Sec. 233)
The owner/lessor must file with the LGU a claim for exemption and submit
RPT Tax Base: is the assessed/assessment value, which is the product of supporting document in accordance with Sec. 206 in order to list the property
the assessment level and the fair market value. in the assessment roll under exempt properties. Otherwise, the LGU will
assess the property for deficiency RPT. Failure to comply does not mean,
Computation of RPT: however, that the exemption will no longer apply, since under Sec. 198(b),
the actual use is the basis for the assessment. Accordingly, any assessment
Fair Market Value xxx of deficiency RPT issued by the LGU may be directly questioned before the
Assessment Level xx% RTC – the case being one of illegal assessment, not with the treasurer, LBAA,
Assessed Value xxx CBAA.
RPT Rate:
Special Education Fund 1% 2/3%
RPT Due xxx SPECIAL LEVIES: In addition to the Basic RPT, provinces, cities or
municipalities within Metro Manila may impose:
REAL PROPERTIES EXEMPT FROM RPT: 1. Special Education Fund – 1%; (Sec. 235)
2. Tax on Idle Lands – 5%; (Sec. 236)
SECTION 234. Exemptions from Real Property Tax. — The following 3. Special Levy on lands benefited by public works funded by the LGU – not
are exempted from payment of the real property tax: to exceed 60% of the actual cost of the project, payable in 5-10 years,
distributed among to various land owners benefited. (Sec. 240)
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been IDLE LANDS: shall include:
granted, for consideration or otherwise, to a taxable person; (a) Agricultural lands, more than one (1) hectare in area, suitable for
cultivation, dairying, inland fishery, and other agricultural uses, one-half (1/2)
(b) Charitable institutions, churches, parsonages or convents appurtenant of which remain uncultivated or unimproved by the owner of the property or
thereto, mosques, non-profit or religious cemeteries and all lands, person having legal interest therein. Agricultural lands planted to permanent
buildings, and improvements actually, directly, and exclusively used for or perennial crops with at least fifty (50) trees to a hectare shall not be
religious, charitable or educational purposes; considered idle lands. Lands actually used for grazing purposes shall likewise
not be considered idle lands.
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned or -controlled (b) Lands, other than agricultural, located in a city or municipality, more than
corporations engaged in the supply and distribution of water and/or one thousand (1,000) square meters in area one-half (1/2) of which remain
generation and transmission of electric power; unutilized or unimproved by the owner of the property or person having legal
interest therein.
(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and (c) Regardless of land area, residential lots in subdivisions duly approved by
proper authorities, the ownership of which has been transferred to individual
(e) Machinery and equipment used for pollution control and environmental owners. (Sec. 237)
Idle Lands Exempt From Tax: by reason of force majeure, civil
Except as provided herein, any exemption from payment of real property disturbance, natural calamity or any cause or circumstance which physically
tax or legally prevents the owner of the property or person having legal interest
previously granted to, or presently enjoyed by, all persons, whether natural therein from improving, utilizing or cultivating the same. (Sec. 238)
or juridical, including all government-owned or -controlled corporations are
hereby withdrawn upon the effectivity of this Code. Accrual: Special Levy shall accrue on the 1st day of the quarter next following
the effectivity of the ordinance imposing such levy. (Sec. 245) Any owner
Cesar Nickolai F. Soriano Jr.
12 Arellano University School of Law 2011-0303
affected by a special levy may avail of the remedies provided under Chapter On the other hand, an assessment is illegal if it was made without authority
III, Title Two, Book II of the LGC on Assessment Appeals. (Sec. 244) (See under the law. In case of an illegal assessment, the taxpayer may directly
Assessment Appeals) resort to judicial action without paying under protest the assessed tax and
filing an appeal with the Local and Central Board of Assessment Appeals.
In NPC vs. Municipal Government of Navotas (GR No. 192300 dated November
The RPT shall accrue on the 1st of January and shall constitute a lien on the 24, 2014), a claim of exemption under Sec. 234(c) of the LGC was considered
property which shall be superior to any other lien, mortgage, or encumbrance a legal issue. Thus, direct resort to the RTC was correct and payment under
of any kind whatsoever, and shall be extinguished only upon the payment of protest was held as not necessary.
the delinquent tax. (Sec. 246)
The Supreme Court added that the issue in this particular case is clearly legal
Duty to collect: is with the city or municipal treasurer. However, they may given that it involves an interpretation of the contract between the parties vis-
deputize the barangay treasurer, provided: à-vis the applicable laws, i.e., which entity actually, directly and exclusively
1. The barangay treasurer is properly bonded for the purpose; and uses the subject machineries and equipment. The answer to such question
2. The premium for the bond shall be paid by the city or municipal would then determine whether petitioner is indeed exempt from payment of
treasurer. (Sec. 247) real property taxes. Since the issue is a question of law, the jurisdiction was
correctly lodged with the RTC.
Notice of Time for Collection: the city or municipal treasurer shall, on or before
the 31st of January, in the case of the Basic RPT and SEF, post notice of the Once assessment is issued, remedy is a complaint for injunction NOT
dates when the tax may be paid without interest at a conspicuous and publicly declaratory relief: A petition for declaratory relief is not the proper remedy
accessible place at the city or municipal hall. Said notice shall likewise be once a notice of assessment was already issued.
published in a newspaper of general circulation in the locality once a week for
two (2) consecutive weeks. (Sec. 249) Instead of a petition for declaratory relief, the PEZA should have directly
resorted to a judicial action. The PEZA should have filed a complaint for
PAYMENT OF REAL PROPERTY TAX: may be done through four injunction, the “appropriate ordinary civil action” to enjoin the City from
instalments, due on the following dates: enforcing its demand and collecting the assessed taxes from the PEZA. After
a. March 31; all, a declaratory judgment as to the PEZA’s tax-exempt status is useless
b. June 30; unless the City is enjoined from enforcing its demand.
c. September 30;
d. December 31. (Sec. 250) Thus, the procedure for illegal assessments would be:
1. Taxpayer shall file a complaint for injunction before the Regional Trial
Discounts: Court to enjoin the LGU from collecting real property taxes;
a. Prompt payment – payment before due date of the quarterly RPT due; 2. The party unsatisfied with the decision of the RTC shall file an appeal,
not exceeding 10%; not a petition for certiorari, before the CTA, the complaint being a local
b. Advance payment – payment of the entire RPT in the first quarter; not tax case decided by the RTC case decided by the RTC. The appeal shall
exceeding 20% (Sec. 251) be filed within 15 days (should be 30 days); and,
3. Decision of the CTA is appealable to the SC under Rule 45 raising pure
PROTEST: Sec. 252 questions of law. (Atty. Lock, 2015)
a. No protest shall be entertained unless the taxpayer first pays the tax. 4. Claim of exemption under a BOT contract in relation to Sec. 234(C) (NPC
There shall be annotated on the receipts the words “paid under protest.” vs. Navotas).

The requirement of "payment under protest" is a condition sine qua non Cases of Illegal Assessments:
before a protest or an appeal questioning the correctness of an a. If the taxpayer questions the authority of the assessor to make the
assessment of real property tax may be entertained. (Camp John Hay assessment and collect the tax. (Ty vs. Trampe)
vs. CBAA, GR No. 169234, October 2, 2013) b. If the issue is the proper party liable for the tax (Estate of Concordia
b. The protest in writing must be filed within 30 days from payment of the c. Amount of protest to be paid is huge and the properties were already
tax to the treasurer, who shall decide the protest within 60 days. levied and to be auctioned-off. In this sense, appeal to the LBAA is not
c. The tax portion shall be held in trust by the treasurer concerned. a plain, adequate and speedy remedy. (Bayan Telecommunications)
d. If decided in favour of the taxpayer, the amount paid shall be:
b. Refunded; Proper party to contest the assessment: Section 226 of the LGC lists
c. Applied to existing or future tax liability. down the two entities vested with the personality to contest an assessment:
e. If the protest is denied or upon the lapse of 60 days from the filing (1) the owner and, (2) the person with legal interest in the property. A person
thereof, the taxpayer may appeal to the LBAA within 60 days from receipt legally burdened with the obligation to pay for the tax imposed on a property
of the decision, who shall decide within 120 days; has legal interest in the property and the personality to protest a tax
f. If unsatisfied with the decision of the LBAA, appeal may be had before assessment on the property.
the CBAA within 30 days from receipt of the decision.
This is the logical and legal conclusion when Section 226, on the rules
The above procedure applies only to erroneous assessments, not illegal governing an assessment protest, is placed side by side with Section 250 on
assessments. the payment of real property tax; both provisions refer to the same parties
who may protest and pay the tax:
Illegal vs. Erroneous Assessment: An erroneous assessment
“presupposes that the taxpayer is subject to the tax but is disputing the
SECTION 226. Local Board of SECTION 250. Payment of Real
correctness of the amount assessed.” With an erroneous assessment, the
Assessment Appeals. - Any owner Property Taxes in Instalments. -
taxpayer claims that the local assessor erred in determining any of the items
or person having legal interest The owner of the real
for computing the real property tax, i.e., the value of the real property or the
in the property who is not property or the person having
portion thereof subject to tax and the proper assessment levels. In case of an
satisfied with the action of the legal interest therein may pay
erroneous assessment, the taxpayer must exhaust the administrative
provincial, city or municipal assessor the basic real property tax xxx due
remedies provided under the Local Government Code before resorting to
in the assessment of his property thereon without interest in four
judicial action.
may, within sixty (60) days from the (4) equal instalments xxx.

Cesar Nickolai F. Soriano Jr.

13 Arellano University School of Law 2011-0303
This exemption, however, must be read in relation with Sec. 133(o) of the
date of receipt of the written notice
LGC, which prohibits LGUs from imposing taxes or fees of any kind on the
of assessment, appeal to the Board
national government, its agencies, and instrumentalities.
of Assessment Appeals of the
province or city xxx.
Thus read together, the provisions allow the Republic to grant the beneficial
use of its property to an agency or instrumentality of the national government.
The liability for taxes generally rests on the owner of the real property at the Such grant does not necessarily result in the loss of the tax exemption. The
time the tax accrues. This is a necessary consequence that proceeds from the tax exemption the property of the Republic or its instrumentality carries
fact of ownership. However, personal liability for realty taxes may also ceases only if, as stated in Sec. 234(a) of the LGC of 1991, beneficial use
expressly rest on the entity with the beneficial use of the real property, such thereof has been granted, for a consideration or otherwise, to a taxable
as the tax on property owned by the government but leased to private persons person.
or entities, or when the tax assessment is made on the basis of the actual use
of the property. In either case, the unpaid realty tax attaches to the However, when the beneficial use thereof is contracted to a taxable person,
property but is directly chargeable against the taxable person who its exempt status is lost; such party being liable for the RPT.
has actual and beneficial use and possession of the property
regardless of whether or not that person is the owner. As we declared in Testate Estate of Concordia T. Lim, the unpaid tax attaches
to the property and is chargeable against the taxable person who had actual
The NPC, neither being the owner nor the possessor/user of the machineries or beneficial use and possession of it regardless of whether or not he is the
subject of the RPT assessment, is not the proper party to question the validity owner. Of the same tenor is the Courts holding in the subsequent Manila
of the assessment. Electric Company v. Barlis and later in Republic v. City of Kidapawan. Actual
use refers to the purpose for which the property is principally or predominantly
Build-Operate-Transfer: The NPC contends that it should nevertheless be utilized by the person in possession thereof.
regarded as the beneficial owner of the plant, since it will acquire ownership
thereof at the end of 25 years. Moreover, in this case, the lessee was contractually liable to shoulder the
liability. (GSIS vs. City of Manila, GR No. 186242, Dec. 23, 2009)
In Cario v. Ofilado, we declared that legal interest should be an interest
that is actual and material, direct and immediate, not simply If the action consists of recovery of RPT paid for in behalf of another
contingent or expectant. In the present case, the NPCs ownership of the who is the party alleged to be liable, the case falls within the
plant will happen only after the lapse of the 25-year period; until such time jurisdiction of the RTC not the LBAA: In this case, the subject property
arrives, the NPC's claim of ownership is merely contingent, i.e., dependent on was foreclosed by GSIS and was the highest bidder in the auction sale. For
whether the plant and its machineries exist at that time. Prior to this event, failure to redeem, the title passed to GSIS. Later on, GSIS allowed the estate
the NPCs real interest is only in the continued operation of the plant for the of the previous owner to redeem said property and deed of sale was executed.
generation of electricity. This interest has not been shown to be adversely Prior to the transfer of property, the LGU required the payment of the RPT for
affected by the realty taxes imposed and is an interest that NPC can protect, the years the title was under GSIS. The estate paid the RPT under protest and
not by claiming an exemption that is not due to Mirant, but by paying the sought reimbursement from GSIS, which the latter refused. Hence, the
taxes it (NPC) has assumed for Mirant under the ECA. recovery of sum of money case filed before the RTC.

Contractual stipulation to assume payment of the RPT: the NPC indeed The Court held that the plaintiff-appellant (estate) correctly filed the action
assumed responsibility for the taxes due on the power plant and its for refund/reimbursement with the lower court as it is the courts which have
machineries, specifically, all real estate taxes and assessments, rates and jurisdiction to try cases involving the right to recover sums of money.
other charges in respect of the site, the buildings and improvements thereon
and the [power plant]. At first blush, this contractual provision would appear Section 30 of the Real Property Tax Code (now Sec. 226 of the LGC) is not
to make the NPC liable and give it standing to protest the assessment. The applicable because what is questioned is the imposition of the tax assessed
tax liability we refer to above, however, is the liability arising from and who should shoulder the burden of the tax. There is no dispute over the
law that the local government unit can rightfully and amount assessed on the properties for tax purposes. Section 30 pertains to
successfully enforce, not the contractual liability that is enforceable the administrative act of listing and valuation of the property for purposes of
between the parties to a contract as discussed below. By law, the tax real estate taxation.
liability rests on Mirant based on its ownership, use, and possession of the
plant and its machineries. does not clothe the party legal interest for purposes The issue on the existence or non-existence of the appellant's right to recover
of contesting an assessment. the amounts paid hinges on the basic question of the validity of the tax
imposition. If the imposition is valid and in accordance with law, then there is
The contractual assumption of the obligation to pay real property tax, by itself, no right to recover. Otherwise, the amounts paid must be refunded by the
is not sufficient to make one legally compellable by the government to pay for respondent City Treasurer of Manila acting in his official capacity.
the taxes due; the person liable must also have use and possession of the
property. To impose the real property tax on the estate which was neither the owner
nor the beneficial user of the property during the designated periods would
The NPC is neither the owner, nor the possessor or user of the property not only be contrary to law but also unjust.
taxed. No interest on its part thus justifies any tax liability on its part other
than its voluntary contractual undertaking. Under this legal situation, only However, GSIS is not liable: The Court rules, however, that the plaintiff-
Mirant as the contractual obligor, not the local government unit, can enforce appellant is not entitled to a reimbursement from the respondent GSIS
the tax liability that the NPC contractually assumed; the NPC does not have because: (1) the GSIS is exempt from payment of the real property tax under
the legal interest that the law and jurisprudence require to give it personality Sec. 33 of the Revised Charter of the GSIS; and (2) the tax should be based
to protest the tax imposed by law on Mirant. (NPC vs. Quezon, GR No. 171586, on "actual use" of the property. Section 40 of the Real Property Tax Code
July 15, 2009) (now Sec. 234 of the LGC) supports the view that not even the GSIS is liable
to pay real property tax on public land leased to other persons. (Testate Estate
Beneficial Use Doctrine: Sec. 234(a) exempts from real estate taxes real of Concordia Lim vs. City of Manila, GR No. 90639, Feb. 21, 1990)
property owned by the Republic, unless the beneficial use of the property is,
for consideration, transferred to a taxable person. Summary: Liability to pay RPT vis a vis right to institute a protest
against assessment thereof:
1. Sec. 234(a): The party liable to pay the RPT is the owner or the person
having legal interest thereto;
Cesar Nickolai F. Soriano Jr.
14 Arellano University School of Law 2011-0303
b. The notice shall also be published once a week for 2 weeks in a
Exemption under Sec. 234(a) does not extend to a taxable person who newspaper of general circulation in the locality.
leases the property. As such, the lessee thereof is liable for the RPT and c. The notice shall specify:
has legal standing to sue under the beneficial use doctrine; (2) The date upon which the tax became delinquent and shall state the
personal property may be distrained to effect payment
In a contract to sell, where the title to the property is retained by the (3) That anytime before distraint of personal property, payment of the
vendor, but the possession is transferred already to the vendee, the tax with surcharges, interests and penalties may be made; and
latter shall be liable for the RPT for the period prior to the transfer of (4) unless the tax, surcharges and penalties are paid before the
ownership. This is because beneficial ownership has already been given. expiration of the year for which the tax is due, except when the
(City of Baguio vs. Busuego) notice of assessment or special levy is contested administratively or
judicially, the delinquent real property will be sold at public auction,
2. Sec. 234(c): Legal interest must be ACTUAL. Thus, exemption under and the title to the property will be vested in the purchaser, subject,
Sec. 234(c) will not apply until the local water districts and government- however, to the right of the delinquent owner of the property or
owned or -controlled corporations engaged in the supply and distribution any person having legal interest therein to redeem the property
of water and/or generation and transmission of electric power has within one (1) year from the date of sale.
ownership or possession/use of the property. Under A BOT arrangement,
the GOCC’s right to the property remains contingent and not actual prior INTEREST ON UNPAID RPT:
to the expiration of the period.
In case of failure to pay the RPT when due, the taxpayer shall be subject to
Contractual obligation to shoulder the RPT under Sec. 234(c) binds only 2% interest per month on the unpaid amount for a maximum of 36 months.
the parties and the LGU may still assess the RPT due on the properties (Sec. 255)
held by private taxable persons. The GOCC who shoulders such liability
under a contract cannot clothe the GOCC with the personality to sue, Note that non-payment of RPT, unlike any other taxes, does not result in the
since it is not the owner or user/possessor thereof. imposition of a surcharge, only interests.

3. Between private persons: It follows that, in case of an operating REMEDIES FOR COLLECTION: the treasurer concerned may avail of:
lease, the party still liable to pay the RPT is the owner/lessor. A a. Levy on real property; or
stipulation that the lessee will shoulder the RPT cannot bind the LGU, b. Judicial action. (Sec. 256)
and the LGU may still assess the RPT against the lessor/owner under the
law and the latter may seek reimbursement from the lessee under Levy: real property subject to such tax may be levied upon through the
contract; nor will the lessee have personality to file a protest/refund of issuance of a warrant on or before, or simultaneously with, the institution of
the RPT. the civil action for the collection of the delinquent tax. The provincial or city
treasurer shall issue a warrant of levy, which shall be mailed to or served upon
In effect, the RPT shouldered by the lessee in behalf of the lessor, may the delinquent owner of the real property or person having legal interest
be deemed as additional rentals to the latter, which it will use to pay for therein, the assessor and the Register of Deeds who shall annotate the levy
the RPT; which, in turn, may be subject to Income Tax, EWT and VAT on the tax declaration and certificate of title, respectively.
(in appropriate cases).
The warrant shall operate with the force of a legal execution throughout the
The same is true with regards a contract to sell, where the vendor retains province, city or a municipality, within the Metropolitan Manila Area. (Sec.
the ownership. 258)

Note: the Beneficial Use Doctrine is applicable only under Sec. Thereafter, there shall be public advertisement for the public sale. The sale
234(a) and in all other cases, the owner or the person having shall be made at the entrance of the provincial, city or municipal building, or
legal interest is the one liable/have legal standing to sue. on the property to be sold, or at any other place specified at the notice of
No Motion for Reconsideration of Provincial Assessor’s decision: The
last action of the local assessor on a particular assessment shall be the notice Redemption: within 1 year from the date of sale; by paying the amount of
of assessment; it is this last action which gives the owner of the property the delinquent tax, including the interest due thereon, and the expenses of sale
right to appeal to the LBAA. The procedure likewise does not permit the and interest of not more than 2% per month on the purchase price from the
property owner the remedy of filing a motion for reconsideration before the date of sale to the date of redemption. (Sec. 261)
local assessor. (Fels Energy, Inc. vs. Province of Batangas, GR No. 168557,
February 16, 2007) Purchase of Property by the LGU for Want of Bidder: In case there is no
bidder, the local treasurer conducting the sale shall purchase the property in
REFUND (Sec. 253): behalf of the LGU concerned to satisfy the claim
a. When an assessment of basic real property tax, or any other tax levied
under this Title, is found to be illegal or erroneous and the tax is Within one (1) year from the date of such forfeiture, the taxpayer or any of
accordingly reduced or adjusted, the taxpayer may file a written claim his representative, may redeem the property by paying to the local treasurer
for refund or credit for taxes and interests with the provincial or city the full amount of the real property tax and the related interest and the costs
treasurer within two (2) years from the date the taxpayer is entitled to of sale.
such reduction or adjustment.
b. The provincial or city treasurer shall decide the claim for tax refund or If the property is not redeemed as provided herein, the ownership thereof
credit within sixty (60) days from receipt thereof. shall be vested on the local government unit concerned. (Sec. 263)
c. In case the claim for tax refund or credit is denied, the taxpayer may
avail of the remedies as provided in Chapter 3, Title II, Book II of this Resale: The sanggunian concerned may, by ordinance duly approved, and
Code. (See Assessment Appeals) upon notice of not less than twenty (20) days, sell and dispose of the real
property acquired under the preceding section at public auction. (Sec. 264)
a. When the real property tax becomes delinquent, the Treasurer shall Further distraint or levy: Levy may be repeated if necessary until the full
cause a notice of the delinquency to be posted at the main entrance of amount due, including all expenses, is collected. (Sec. 265)
the provincial capitol, or city or municipal hall and in a publicly accessible
and conspicuous place in each barangay of the LGU concerned.
Cesar Nickolai F. Soriano Jr.
15 Arellano University School of Law 2011-0303
Actions assailing the validity of tax sale: No court shall entertain any
action assailing the validity or any sale at public auction of real
property or rights therein under this Title until the taxpayer shall have
deposited with the court the amount for which the real property was sold,
together with interest of two percent (2%) per month from the date of sale
to the time of the institution of the action. The amount so deposited shall be
paid to the purchaser at the auction sale if the deed is declared invalid but it
shall be returned to the depositor if the action fails.

Neither shall any court declare a sale at public auction invalid by reason
or irregularities or informalities in the proceedings unless the substantive
rights of the delinquent owner of the real property or the person having legal
interest therein have been impaired. (Sec. 267)

Tax Lien: the basic real property tax constitutes a lien on the property subject
to tax, superior to all liens, charges or encumbrances in favor of any person,
irrespective of the owner or possessor thereof, enforceable by administrative
or judicial action, and may only be extinguished upon payment of the tax and
the related interests and expenses. (Sec. 257)

PERIOD WITHIN WHICH TO COLLECT RPT: 5 years when they become

due; 10 years, in case of fraud or intent to evade the payment of tax. These
periods are suspended upon the same ground for Tax on Business. (Sec. 270)


SECTION 276. Condonation or Reduction of Real Property Tax and

Interest. — In case of a general failure of crops or substantial decrease
in the price of agricultural or agribased products, or calamity in any
province, city or municipality, the sanggunian concerned, by ordinance
passed prior to the first (1st) day of January of any year and upon
recommendation of the Local Disaster Coordinating Council, may condone
or reduce, wholly or partially, the taxes and interest thereon for the
succeeding year or years in the city or municipality affected by the

Section 277. Condonation or Reduction of Tax by the President of

the Philippines. - The President of the Philippines may, when public
interest so requires, condone or reduce the real property tax and interest
for any year in any province or city or a municipality within the Metropolitan
Manila Area.

SECTION 281. Fees in Registration of Papers or Documents on

Sale of Delinquent Real Property to Province, City or Municipality.
— All certificates, documents, and papers covering the sale of delinquent
property to the province, city or municipality, if registered in the Registry
of Property, shall be exempt from the documentary stamp tax and
registration fees.

SECTION 282. Real Property Assessment Notices or Owner's

Copies of Tax Declarations to be Exempt from Postal Charges or
Fees. — All real property assessment notices or owner's copies of tax
declaration sent through the mails by the assessor shall be exempt from
the payment of postal charges or fees.

Cesar Nickolai F. Soriano Jr.

16 Arellano University School of Law 2011-0303