Chapter 6.0 Taxation Under Local Govt

UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,

CALAMBA CITY, LAGUNA, PHILIPPINES
SYNTHESIS IN TAXATION EDMUND E. HILARIO, CPA, MBA
CHAPTER 6.0 – Taxation under local Gov’t (9 items) 2 ND SEMESTER 2019 – 2020
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Nature and Source of Local Taxing Power
The power of local government unit (1) to create its
sources of revenue and (2) to levy taxes, fees and
charges is delegated to it by the Constitution.
Aspects of Local Taxing Power

1) Local taxation
2) Real property taxation
Who has Local Taxing Authority?

Local taxing authority shall be exercised by the
Sanggunian of the Local Government Unit concerned
through appropriate ordinance.
The Principle of Preemption

Where the National government elects to tax a
particular area, it impliedly withholds from the local
government the delegated power to tax the same field.
This doctrine principally rests on the intention of
Congress. Examples are taxes levied under the NIRC,
Tariffs and Custom Code, or special laws cannot be taxed
by LGU.
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with some other business for which such tax has been
paid.
What is Community Tax?

All individuals who are inhabitants of the Philippines,
18 years old and over who had been employed over 1
month, or who is engaged in business, or who owns real
property, or who is required to file Income Tax Return
shall pay a basic community tax of P5.00 and additional
community tax P1 for every P1,000 income provided in
shall not exceed P5,000. All Corporation shall also pay
basic community tax of P500 and additional community
tax P2 for every P5,000 worth of real property or income
provided it shall not exceed P10,000.
What is Real Property Tax?

A direct tax imposed on ownership of lands and
buildings or other improvements.
What are the fundamental principles of governing real

property taxation?
1) Real property shall be appraised at its current and
fair market values
Where to pay Business tax: 2) Real property shall be classified for assessment
Shall be paid to the local treasurer where the purposes on the basis of actual use
business is situated. Payment of business taxes shall be 3) Real property shall be assessed on the basis of
payable for every separate or distinct establishment or uniform classification with each LGU
place where business is conducted and one line of
business does not become exempt by being conducted
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4) The appraisal, assessment, levy and collection of Real 1. Real property owned by Government
Property Tax shall not be delegated to any private 2. Real property of religious, charitable institution
person actually, directly and exclusively used for their
5) The appraisal and assessment of real property shall purpose
be equitable 3. Machineries for local water utilities
4. Real property owned by cooperatives
What other Real Property Tax may be imposed? 5. Machineries for pollution control
1) Basis real property tax What are administrative provisions for local taxes?
2) 1% additional real estate tax to finance special It is the local treasurer of each province,
education fund municipalities, cities or their duly authorized deputies who
3) 5% additional ad valorem on idle lands shall collect all local taxes within the first 20 days of
4) Special levy or special assessments on lands specially January or each quarter’s installment provided, failure to
benefited by public works. pay on said dates may incur surcharges up to 25% and
2% interest per month.
What are the procedures in computing real property tax?
1) Declaration of real property by owner and local ====================================
assessor upon ocular inspection MULTIPLE CHOICE PROBLEMS. Select the correct
2) Listing of real property in the assessment rolls answer for each item by writing the letter of your choice
3) Assessors determine the fair market value (Appraisal on the answer sheet. Submit necessary solution to
of the real property) support your answer if needed. NO SOLUTION WILL BE
4) Determination of assessed value or tax base: MARK INCORRECT!
a) take the schedule of FMV A. Local Taxation/Real Property tax
b) assessed value = FMV x assessment level
c) real property tax = assessed value x tax rate 1. Taxing power of local government units shall not
5) Payment and collection of real property tax extend to the following taxes exempt one:
a) Income tax on banks and other financial
institutions
b) Taxes of any kind on the national government its
agencies and instrumentalities and local
government units
c) Taxes on agricultural and aquatic product when
sold by the marginal farmers or fishermen
d) Excise taxes on articles enumerated under the
National Internal Revenue Code
2. Real property taxes should not disregard increase in

the value of real property occurring over a long
period of time. To do otherwise would violate the
canon of a sound tax system referred to as
a) Theoretical justice
b) Fiscal adequacy
c) Administrative feasibility
d) Symbiotic relationship
3. A municipality may levy an annual ad valorem tax on

real property such as land, building, machinery and
other improvement only if
a) The real property is within the Metropolitan
Manila Area
b) The real property is located in the municipality
What are the different classification of lands? c) The DILG authorizes it to do so
1) Commercial d) The power is delegated to it by the province
2) Agricultural
3) Residential 4. The appraisal, assessment, levy and collection of real
4) Mineral property tax shall be guided by the following
5) Industrial principles. Which statement does NOT belong here?
6) Timberland a) Real property shall be appraised at its current
7) Special and fair market value
b) Real property shall be classified for assessment
What are properties exempt from real property tax purposes on the basis of its actual use
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c) Real property shall be assessed on the basis of a c) Local Government Code
uniform classification within each local political d) Tariff and Customs Code
subdivision 11. What is the tax base for the imposition by the
d) The appraisal and assessment of real province of professional taxes?
property shall be based on audited financial a) That which Congress determined
statements of the owner b) The pertinent provision of the local Government
Code
c) The reasonable classification made by the
5. (Bar Exam) after the province has constructed a
provincial sanggunian
special levy upon the lands specially benefitted by the
d) That which the Dept. of Interior and Local
road up to an amount not to exceed
Government determined
a) 60% of the actual cost of the road without
giving any portion to the barangay
12. Lualhati Educational Foundation Inc. a stock
b) 100% of the actual cost of the road without
commercial institution organized for profit decided to
giving any portion the barangay
lease for commercial use a 1,500 sq. m. portion of its
c) 100% of the actual project cost keeping 60% for
school. The school actually, directly and exclusively
the province and giving 40% to the barangay
used the rents for the maintenance of its school
d) 60% of the actual cost diving the same between
buildings, including payment of janitorial services. Is
the province and the barangay
the leased portion subject to real property tax?
a) Yes since Lualhati is a stock and for profit
6. For the given year 2015 the following information
educational institution
from business
b) No since the school actually directly and
Gross Receipts from business P900,000 exclusively used the rents for educational
Rental Income 650,000 purposes
Operational Expenses 400,000 c) No but it may be subject to income taxation on
Real Properties 17,000,000 the rents it receives
d) Yes since the leased portion is not actually
directly and exclusively used for
Compute Individual Community tax educational purpose
a) P1,555
b) P1,155 13. The head priest of the religious sect Tres Personas
c) P5,200 Solo Dios as the corporation sole rented out a 5,000
d) P5,005 sq. m. lot registered in its name for use as school site
of a school organized for profit. The sect used the
7. Refer to #6 compute Corporate Community tax rentals for the support and upkeep of its priests. The
a) P7,920 rented lot is
b) P7,560 a) Not exempt from real property taxes because the
c) P1,120 user is organized for profit
d) P10,500 b) Exempt from real property taxes since it is
actually directly and exclusively used for religious
8. Who has the authority to collect Community tax? purposes
a) Bureau of International Revenue c) Not exempt from real property taxes since it is
b) Local Government Unit the rents not the land that is used for religious
c) Bureau of Customs purposes
d) National Treasury d) Exempt from real property taxes since it is
actually directly and exclusively used for
9. What is the characteristic of Community Tax? educational purpose
a) Tax
b) Fee 14. Apparently the law does not provide for the refund of
c) Identification Card real property taxes that have been collected as a
d) License result of an erroneous or illegal assessment by the
provincial or city assessor. What should be done in
10. Elorde a famous boxer intends to convert his boxing such instance to avoid an injustice?
gymnasium into a cockpit arena. Elorde summons a) Question the legality of the no-refund rule before
you to give him advise to go over his tax exposures the Supreme Court
as a certified public accountant you will recommend b) Enact a new ordinance amending the erroneous
to Mr. Elorde which following reference/dcuments? or illegal assessment to correct the error
a) National Internal Revenue Code
b) Revenue Regulations of the NIRC
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c) Subsequent adjustment in tax computation the exercise of one’s profession such as those
and the application of the excess payment rendered by accountants lawyers and doctors
to future real property tax liabilities Statement 2 An enterprise can only qualify for
d) Pass a new ordinance providing for the refund of registration as BMBE if it is not a branch subsidiary
real property taxes that have been erroneously division or office of a large scale enterprise and its
or illegally collected policies and business modus operandi are not
determined by a large scale enterprise or by persons
15. (Bar Exam) Prior to the enactment of the Local who are not owners or employees of the enterprise
Government Code consumer’s cooperatives registered (i.e franchise)
under the imposed by a local government. With the a) Only statement 1 is correct
Local Government Code’s withdrawal of exemptions b) Only statement 2 is correct
could these cooperatives continue to enjoy such c) Both statements are correct
exemption? d) Both statements are incorrect
a) Yes because the Local Government Code a
general law could not amend a special law such 20. Which of the following are the following incentives
as the Cooperative Development Act. may be granted to BMBEs?
b) No Congress has not by the majority vote of all a) Income tax exemption from income arising from
its members granted exemption to customers’ the operations of the enterprise
cooperatives b) Exemption from the coverage of the Minim Wage
c) No the exemption has been withdrawn to level law
the playing field for all taxpayers and preserve c) Technology transfer production and management
the LGU’s financial position training and marketing assistance programs for
d) Yes their exemption is specifically BMBE beneficiaries
mentioned among those not withdrawn by d) All of the above
the Local Government Code
21. Statement 1: Any person cooperative or association
16. The following Resident Foreign Corporations are owning an enterprise that fits the description of a
subject to preferential tax rates except BMBE may register for the first time or renew its
a) Regional Operating Headquarters registration with the Office of the Treasurer of the
b) International Carriers city or municipality where the business is located
c) Regional Area Headquarters Statement 2: For BMBE’s registration as a business
d) Offshore Banking Units entity or enterprise from the appropriate government
agency such as SEC, CDA, DTI as well as securing
17. Which of the following entities may be subject to business permit from city/municipality is still required
Minimum Corporate Income Tax? Statement 3: Local government units (LGUs) are
a) Philippine Carriers encourage to either reduce the amount of local taxes,
b) International Carriers fees and charges imposed or exempt BMBEs from
c) Regional Operating Headquarters local taxes, fees and charges
d) Regional or area Headquarters a) Only statement 1 and 2 are correct
b) Only statement 1 and 3 are correct
c) All statements are correct
B. BMBEs d) All statements are incorrect
18. A ______ is defined as any business enterprise

22. Statement 1: the Office of Treasurer of each city or
engaged in production processing or manufacturing of
municipality shall register the BMBEs and issue a
products including agro –processing as well as
Certificate of Authority (effective for a period 2 years
trading and services with total assets of not more
renewable for a period of 2 years for every renewal)
than P3 million. such assets shall include those
to enable the BMBE to avail of the benefits under the
arising from loans but not the land on which the plant
law
and equipment are located
Statement 2: LGUs shall issue the Certificate of
a) Eco zones
Authority promptly and free of charge. However to
b) RHQs/ROHQs of MNCs
defray the administrative costs of registering and
c) PEZA registered entities
monitoring the BMBEs the LGUs may charge a fee not
d) Barangay Micro Business Enterprises
exceeding One Thousand Pesos (P1,000)
(BMBEs)
a) Only statement 1 is correct
b) Only statement 2 is correct
19. Statement 1 “Services” offered by BMBEs shall
c) Both statements are correct
exclude those rendered by anyone who is duly
d) Both statements are incorrect
licensed by the government after having passed a
government licensure examination in connection with
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23. The BMBE purposes the concerned officer shall cancel 28. Which of the following statements regarding RA 8525
the registration of a BMBE for the following cause is correct?
except: a) “Adopt a School Program” or “Program” shall
a) When the BMBE transfers its place of business to refer to a program which allows private entities
another locality to assist a public school in particular aspect of its
b) When the value of its total assets as determined educational program within an agreed period
exceeds P3,000,000 b) “Public school” shall refer to a government school
c) When the BMBE voluntarily surrenders its whether elementary, secondary, post-secondary
certificate to the issuing officer or tertiary which enters into an Agreement with
d) When it establishes warehouse outside the an adopting private entity concerning assistance
locality to public schools
c) “Private entity” shall refer to an individual
24. The _______ of each City or Municipality shall engaged in trade or business or engaged in the
register BMBEs and issue Certificate of Authority to practice of his profession or other business
enable BMBE to avail of incentives under the BMBE organizations like a partnership, corporation or
Act cooperative either resident or non-resident
a) Office of the Major who/which teams up with the Department of
b) Office of the Treasurer Education (DepEd) or with the Commission on
c) Office of the Barangay Chairman Higher Education (CHED) or with the Technical
d) BIR Revenue District Office Education and Skills Development Authority
(TESDA) towards providing much needed
25. One can register as a BMBE if it is a business entity assistance and service to public schools
or enterprise whether operated as a sole d) All of the above
proprietorship or a corporation, partnership
cooperative or association, organized/incorporated 29. A pre- qualified adopting private entity which enters
and existing under Philippine laws engaged in which into an Agreement with a public school shall be
activities are barangay based and micro-business in entitled to
nature and scope except a) Deduction from the gross income of the amount
a) Production of products/commodities of contribution/donation that were actually
b) Agro processing directly and exclusively incurred for the Program
c) Trading and services in the preceding paragraph subject to limitations
d) Professional services conditions and rules set forth in Section 34(H) of
the Tax Code plus an additional amount
26. For BMBE purposes the Certificate of Authority shall equivalent to fifty percent (50%) of such
be affective for a period of ____ and renewable for contribution /donation
the same period. The concerned officer shall indicate b) Exemption of the Assistance made by the donor
in the certificate the date when the registration of from payment of donor’s tax
the BMBE commences c) Both a and b
a) 1 year d) Neither a nor b
b) 2 years
c) 3 years 30. Statement 1: A duly registered and accredited
d) 4 years Microfinance NGO under RA 10693 shall pay a two
percent (2%) tax based on its gross receipts from
microfinance operations in lieu of all national taxes
C. Other Special Laws Statement 2: The preferential rate of two percent
(2%) tax should only refer to lending activities and
27. Dr. Albert Rebosa a VAT registered ob-gyne
insurance commission which are bundled and forming
specialists owns a maternity lying in clinic. During the
integral part of the qualified lending activities if the
Month his clinic received payment totaling P750,000
Microfinance NGO
broken down as follows’ P350,000 as Dr. Rebosas’s
Statement 3: All microfinance activities other than
professional fee and P400,000 as payment given are
lending and insurance commission which are bundled
exclusive of the VAT. his output VAT for all month is
and forming integral part of the qualified lending
a) P90,000
activities of the Microfinance NGO shall be subject to
b) P48,000
all applicable to taxes
c) P42,000
d) P80,357
b) Only statement 1 and 2 are correct
c) Only statement 1 and 3 are correct
Output Vat = P350,000 x 12% = P42,000 d) All statements are correct
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31. Statement 1: Microfinance NGOs are NGOs with the
primary purpose of implementing a microenterprise
development strategy and providing microfinance
programs products and services for the poor
Statement 2: Microfinance NGOs are prohibited from
directly engaged in the insurance business
b) Only statement 2 is correct
c) Both statement are correct
d) Both statement are incorrect
32. As provided by the Tax Code the chief officials of the

BIR shall be composed by
a) 1 Commissioner and 4 Deputy
Commissioners
b) 1 Commissioner and 5 Deputy Commissioners
c) 1 Commissioner, 2 Assistant Commissioners and
2 Deputy Commissioners
d) 1 Commissioner and 7 Deputy Commissioners
33. The following are agents and deputies for collection of

National Internal Revenue taxes except
a) The commissioner of Customs and his
subordinates with respect to the collection of
national Internal Revenue Taxes on imported
goods
b) The head of the appropriate government office
and his subordinates with the respect to the
collection of energy tax
c) Bank duly accredited by the commissioner with
respect to receipts of payments of internal
revenue taxes authorized to be made thru banks
d) City treasurer with regard to collection of
real estate tax
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Chapter 6.0 Taxation Under Local Govt

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Chapter 6.0 Taxation Under Local Govt

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UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA

CALAMBA CAMPUS, BRGY. PACIANO RIZAL,

Aspects of Local Taxing Power

Who has Local Taxing Authority?

The Principle of Preemption

What is Community Tax?

What is Real Property Tax?

What are the fundamental principles of governing real

2. Real property taxes should not disregard increase in

3. A municipality may levy an annual ad valorem tax on

18. A ______ is defined as any business enterprise

32. As provided by the Tax Code the chief officials of the

33. The following are agents and deputies for collection of

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