Constitutional Provision

The Constitution vests on local governments the power to create their own sources of revenue and to levy taxes, fees, and
charges Through the exercise of governmental powers LGUs can levy taxes and regulatory fees Through the exercise of
corporate /proprietary powers LGUs can impose charges for services rendered, establish economic enterprises, and enter into
contracts

General Principle on Local Finance

The financial affairs, transactions, and operations of LGUs shall be governed by the following fundamental principles and
policies, to wit:

1. No money shall be paid out of the local treasury except in pursuance of an appropriations ordinance or law;(Sec. 305 (a), LGC)

2. Provincial, city and municipal treasurers shall open and maintain in the name of their respective local government units
separate depository accounts for each fund only with government financial institutions (GFIs) that have universal bank license
and CAMELS rating of at least “3”.(DOF Circular No. 001-2015, dated June 1, 2015); General Principle on Local Finance

3. Local government funds and monies shall be spent solely for public purposes(Sec. 305 (b), LGC);

4. Local revenue is generated only from sources expressly authorized by law or ordinance, and collection thereof shall at all
times be acknowledged properly Sec. 305 (c), LGC); General Principles on Local Finance

5. For every payment received, the collecting officer shall immediately issue an official receipt in acknowledgment thereof. The
receipt may be in the form of cash tickets and the like, or officially numbered receipts subject to proper custody, accountability
and audit (Sec. 4, COA Circular No. 92-382 dated. July 3, 1992);

6. All monies officially received by a local government officer in any capacity or on any occasion shall be accounted for as local
funds, unless otherwise provided by law(Sec. 305 (d), LGC); General Principles on Local Finance

7. Provinces, cities and municipalities shall maintain a General Fund which shall be used to account for such monies and
resources as may be received by and disbursed from the local treasury.

The General Fund shall consist of monies and resources of the local government which are available for the payment of
expenditures, obligations or purposes not specifically declared by law as accruing and chargeable to, or payable from, any other
fund (Sec. 1, COA Circular No. 92-382 dated July 3, 1992; Sec. 308, LGC);

8. There shall also be maintained in every Provincial, City or Municipal Treasury the following special funds: • Special Education
Fund(SEF) • Trust Funds(TF) • Special Accounts in the General Fund General Principles on Local Finance

9. Receipts, transfers, and expenditures involving the foregoing special accounts shall be properly taken up thereunder(Sec.
313, LGC);

10. Profits or income derived from the operation of public utilities and other economic enterprises, after deduction for the cost
of improvement, repair and other related expenses of the public utility or economic enterprise concerned, shall first be applied
for the return of the advances or loans made therefor. Any excess shall form part of the general fund of the local government
unit concerned.(Sec. 313, LGC); General Principles on Local Finance

11. Every officer of the local government unit whose duties permit or require the possession or custody of local funds shall be
properly bonded, and such officer shall be accountable and responsible for said funds and for the safekeeping thereof in
conformity with the provisions of law(Sec. 305 (f), LGC); and

12. Local governments shall formulate sound financial plans, and local budgets shall be based on functions, activities, and
projects, in terms of expected results. (Sec. 305 (g), LGC)
Fundamental Principles in Local Taxation (Sec. 130, LGC)

1. Taxation shall be uniform in each local government unit

2. Taxes, fees, charges and other impositions shall:

a. Be equitable and based as far as practicable on the taxpayer’s ability to pay

b. Be levied and collected only for public purposes

c. Not be unjust, excessive, oppressive, or confiscatory

d. Not be contrary to law, public policy, national economic policy, or in restraint of trade Fundamental Principles in Local
Taxation (Sec. 130, LGC)

3. The collection of local taxes, fees. Chargers and other impositions shall in no case be let to any private person.

4. The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of of, and be subject to
disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided
herein;

5. Each local government unit, shall, as far as practicable, evolve a progressive system of taxation

The Revenue Sources of LGUs have differing purposes

• Taxes – enforced contributions made for purposes of revenue generation and redistribution

• Fees – imposed collections as a system of recovery for delivery of service by a public officer; purpose is regulation and service
delivery

• Charges – pecuniary liability as rents against persons or property

Basic Formula for the Computation of Tax Standard formula :

Tax Due = Tax base x Tax rate + penalty/discounts

Basic Elements of a Tax 3 basic elements of a tax:

•Tax subject - the object to be taxed land? business? professional?

•Tax base – characteristic of object where tax is indexed (For land) zonal value? assessed value? market value? (For business)
gross receipts? capitalization?

• Tax rate – fixed? percentage of tax base? combination?

Increasing local income of LGUs depends on the willingness and ability to use their taxing powers

• Constitution grants the powers to LGUs

• Code sets the operating framework

• BUT, provisions not self-executory. Decisions must be made by the Sanggunian, and enacted through an ordinance,
implemented by the Local Chief Executive though the different departments, with the local treasurer leading the way in
generating revenues for the LGU…
RESPONSIBILITIES and ACCOUNTABILITIES of LOCAL TREASURERS and OTHER ACCOUNTABLE OFFICERS
ART. XI, Sec. 1. Accountability of Public Officers “Public office is a public trust. Public officers and employees must at all times be
accountable to the people, serve them with utmost responsibility, integrity, loyalty, and efficiency, act with patriotism and
justice, and lead modest lives.”

Responsibility - the obligation to prudently exercise assigned or imputed authority attaching to the assigned or imputed role of
an individual or group participating in organizational activities or decision. (Section 108(l) LTOM

Responsibility of a Local Treasurer Immediately and primarily responsible for all government funds and properties under his/her
custody

Responsibility of Treasury Employees Local treasury personnel directly entrusted with custody/possession of funds or property
shall be immediately responsible to the Local Treasurer without prejudice to the liability of either party to the LGU

Accountability - answerability of every public officer whose duties permit or require the possession or custody of government
funds or property and who shall be accountable therefor and for the safekeeping thereof in conformity with law, otherwise he
shall be liable for the loss thereof. (Section 108(a) LTOM)

Accountability of Local Treasurer over Government Funds and Properties. • Take custody and exercise proper management of
funds of the city and take charge of the disbursement of all local government funds and such other funds the custody of which
may be entrusted to the office by law or other competent authority (Section 470 of LGC)

Accountability of Local Treasurer over Government Funds and Properties. • Take custody of and be accountable for all
properties, real or personal, owned by the local government unit and those granted to it in the form of donation, reparation,
assistance and counterpart of joint projects (Section 490 of LGC) • In case the LGU failed to create the position of a General
Services Officer (GSO

Accountability of Local Treasurer over Documents • Custodianship of accountable forms. - The treasurer shall be the custodian
of all accountable forms requisitioned by the local government unit. He shall maintain a complete record of the receipt, issue
and transfer of accountable forms (Sec. 24 of COA CIRCULAR NO. 92-382, July 3, 1992 )

ACCOUNTABLE OFFICERS – the officer of any government agency whose duties permit or require the possession or custody of
government funds and property (such as the Local Treasurer, Collecting Officer, Disbursing Officer, Cashier, Paymaster, and
Property Officer), who is required by law to render account to the Commission on Audit. (LTOM) –

Every officer of any government agency whose duties permit or require the possession or custody of government funds or
property shall be accountable therefor and for the safekeeping thereof in conformity with law. (P.D. 1445) – Every accountable
officer shall be properly bonded in accordance with law. RESPONSIBILITY, ACCOUNTABILITY AND LIABILITY OF LOCAL
TREASURERS AND OTHER ACCOUNTABLE OFFICERS 1

Liability – a personal obligation arising from an audit disallowance or charge in the course of post audit of a transaction or
examination of the cash and accounts of an accountable officer, which may be satisfied through payment or restitution as
determined by competent authority and in accordance with law. (Sec. 105, PD 1445)

Liability of Accountable Officers

• Accountable officers for government property shall be liable for its money value.

• Accountable officers for government funds shall be liable for all losses attributed to negligence in the safekeeping of funds.

• Local Treasurer shall exercise the “diligence of a good father of a family” over accountable officers under his/her supervision,
otherwise, the treasurer shall be jointly liable with them

Liability for Acts Done Upon Direction of Superior Officer, or Upon Participation of Other Department Heads or Officers of
Equivalent Rank 

The local treasurer or other accountable officer in the Local Treasury Office shall not be relieved of liability for illegal or
improper use or application or deposit of government funds or property by reason of his/her having acted upon the direction of
a superior officer, elective or appointive, or upon participation of other department heads or officers of equivalent rank, unless
objection in writing is registered. (Sec. 342, LGC

Period of Accountability

 As a general rule, the accountability of a Provincial, City or Municipal Treasurer for government funds and property shall begin
at the time he/she actually assumes control of the transactions connected therewith and ends at the time he/she actually
ceases to have such control.  Control refers to the actual and complete turnover of the accountabilities.

ADMINISTRATIVE, CIVIL AND CRIMINAL LIABILITIES OF LOCAL TREASURERS AND OTHER GOVERNMENT
EMPLOYEES

. Code of Conduct and Ethical Standards of Public Officials and Employees (Republic Act No. 6713
a. Commitment to public interest  Public officials and employees shall always uphold the public interest over and above
personal interest.  All government resources and powers of their respective offices must be employed and use efficiently,
effectively, honestly and economically, particularly to avoid wastage in public funds and revenues.

b. Professionalism  They shall perform and discharge their duties with the highest degree of excellence, professionalism,
intelligence and skill. They shall enter public service with utmost devotion and dedication to duty. They shall endeavor to
discourage wrong perceptions of their roles as dispensers or peddlers of undue patronage

c. Justness and sincerity  They shall remain true to the people at all times.  They must act with justness and sincerity and
shall not discriminate against anyone, especially the poor and the underprivileged.  They shall at all times respect the rights of
others, and shall refrain from doing acts contrary to the law, good morals, good customs, public policy, public order, public safety
and public interest.  They shall not dispense or extend undue favors on account of their office to their relatives whether by
consanguinity or affinity except appointments of relatives to positions considered strictly confidential or personal staff whose
terms are coterminous

d. Political neutrality  They shall provide service to everyone without unfair discrimination and regardless of party affiliation or
preference.

e. Responsiveness to the public  They shall extend prompt, courteous, and adequate service to the public.  Provide
information on their policies and procedures in clear and understandable language;  Ensure openness of information, public
consultations and hearings whenever appropriate, encourage suggestions, simplify and systematize policy, rules and procedures;
 Avoid red tape;  Develop an understanding and appreciation of the socio-economic conditions prevailing in the country,
especially in the depressed rural and urban areas.

e. Responsiveness to the public  They shall extend prompt, courteous, and adequate service to the public.  Provide
information on their policies and procedures in clear and understandable language;  Ensure openness of information, public
consultations and hearings whenever appropriate, encourage suggestions, simplify and systematize policy, rules and procedures;
 Avoid red tape;  Develop an understanding and appreciation of the socio-economic conditions prevailing in the country,
especially in the depressed rural and urban areas.

g. Commitment to democracy  They shall commit themselves to the democratic way of life and values, maintain the principle
of public accountability, and manifest by deeds the supremacy of civilian authority over the military.  They shall at all times
uphold the Constitution, and put loyalty to country above loyalty to persons or party

h. Simple living They and their family shall lead modest lives appropriate to their positions and income. They shall not
indulge in extravagant or ostentatious display of wealth in any form. Basically, modest and simple living means maintaining
standard of living within the public official’s or employee’s visible means of income as correctly disclosed in his income tax
returns, annual statement of assets, liabilities and net worth and other documents relating to financial and business interest and
connections.
 I. CIVIL LIABILITY
• THE DOCTRINE OF : “OMNIA PRAESUMUNTUR RITE ET SOLEMNITER ESSE ACTA” – Public officers are presumed to have
regularly performed their duties. – All things are presumed to be correctly and solemnly done. – It is upon him who alleges the
contrary that the burden of proof lies.

LIABILITY ARISING FROM BAD FAITH

• GENERAL RULE – A public official is not immuned from damages in his personal capacity for acts done in bad faith. A different rule would
sanction the use of public office as a “tool of oppression”.

• BAD FAITH – Not simply bad judgment or negligence; – Imputes dishonest purpose or some moral obliquity and a conscious doing of wrong, a
breach of sworn duty through some evil motive or intent or ill-will.

ADMINISTRATIVE LIABILITY

LIABILITY OF SUPERIOR OFFICERS (SEC. 38) – A public officer shall not be civilly liable in performance of duty unless there’s a
clear showing of bad faith, malice, and gross negligence; – Neglects to perform a duty within the period fixed; – Superior not
liable for acts of subordinates unless actually authorized by written order.

LIABILITY OF SUBORDINATE OFFICERS (SEC. 39) – Not liable if done in good faith; – Liable for willful, negligent acts which are
contrary to law, morals, public policy even if ordered or instructed by superior.

Anti-Graft and Corrupt Practices Act

PENALTIES – Violation of Section 3, 4, 5, and 6 of the Act shall be punished with an imprisonment of not less than SIX YEARS and
ONE MONTH nor more than FIFTEEN YEARS; – Perpetual Disqualification from public office; – Confiscation of forfeiture in favor
of Government of any prohibited interest and unexplained wealth manifestly out of proportion to his salary and other lawful
income

CRIMINAL LIABILITY ARISING FROM STATUTES •

Revise Penal Code

• Republic Act No. 3019, as amended [“Anti-Graft and Corrupt Practices Act”]

• Republic Act No. 7080, as amended by Republic Act No. 7659 [“Plunder”]

• Republic Act No. 6713 [Code of Conduct and Ethical Standards for Public Officials]

• Presidential Decree No. 46

• Republic Act No. 1379

• Presidential Decree No. 1445

• Republic Act No. 7160 [“Local Government Code”]

Violation of the provisions of Sec. 67, 68, 89, 106 and 108 P.D. No. 1445 or any regulation issued by the Commission on Audit
implementing said sections, shall be punished a FINE not exceeding ONE THOUSAND PESOS or of imprisonment NOT EXCEEDING
SIX (6) MONTHS, or both

REAL PROPERTY TAXATION

Direct taxes imposed on the privilege to use real property such as land, building, machinery and other improvements, unless
specifically exempted.

• Province of Nueva Ecija v. Imperial Mining Co., Inc., GR No. 59463, November 19, 1982 –

Actual use – refers to the purpose for which the property is principally or predominantly utilized by the person in possession
thereof. (Sec. 199(b), LGC
ILLUSTRATION 1 •

Pedro owns a shop in the business district of Laoag City. His family migrated to Hawaii in 2013. When they left, he allowed his
best friend Jose to use the shop. In January 2014, Jose went to the City Treasurer’s Office purposely to pay his local taxes. The
City Treasurer however, refused to receive his payment for the Real Property Tax of the shop for the reason that the property
was registered to Pedro and not to Jose. Is this right?

ANSWER TO ILLUSTRATION 1 •

Section 217, Local Government Code – Real property shall be classified, valued, and assessed on the basis of its actual use
regardless of where located, whoever owns it and whoever uses it. • Testate Estate of Lim v. City of Manila, GR No. 90639,
February 21, 1990 – Unpaid realty taxes attach to the property and are chargeable against the person who had actual or
beneficial use and possession of it regardless of whether or not he is the owner.

ILLUSTRATION 2 •

In January 2013, Jose bought a piece of land from Pedro. Pedro did not pay his real property taxes from 2010 to 2012. Jose
went to Pedro and asked the latter to pay his Real Property Tax for 2010 to 2012. Pedro refused, saying that it is now Jose’s
responsibility as the new owner. Is this right?

ANSWER TO ILLUSTRATION 2

• Testate Estate of Lim v. City of Manila, GR No. 90639, February 21, 1990 – Unpaid realty taxes attach to the property and are
chargeable against the person who had actual or beneficial use or possession of it regardless of whether or not he is the owner.
To impose the real property tax on the subsequent owner which was neither the owner nor the beneficial user of the property
during the designated periods would not only be contrary to law but also unjust

FUNDAMENTAL PRINCIPLES GOVERNING REAL PROPERTY TAXATION (Sec. 198, LGC)

a) Real property taxes shall be appraised at its current and fair market value; – Fair market value – the price at which a property
may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy. (Sec. 199 (l), LGC)

b) Real property shall be classified for assessment purposes on the basis of its actual use. – For purposes of assessment, real
property shall be classified as residential, agricultural, commercial, industrial, mineral, timberland, or special. (Sec. 215, LGC)

c) Real property shall be assessed o the basis of a uniform classification within each local government unit;

d) The appraisal, assessment, levy, and collection of real property tax shall not be left to any private persons; and e) The
appraisal and assessment of real property shall be equitable

The provinces, cities, including the municipalities within the Metropolitan Manila Area, shall be primarily responsible for the
proper, efficient, and effective administration of the real property tax.

HOW? • Sec. 232 and 233, LGC; and Sec 323, LGC IRR (paraphrased) – By way of an ordinance, the sanggunian of a province or a
city or a municipality in within the Metropolitan Manila Area may levy and fix a uniform rate of an annual ad valorem tax on real
property within their locality

TAXABLE PROPERTIES REAL PROPERTY,

such as:

• Land

• Building

• Machinery

• Other improvements not specifically exempted

Exemptions from Real Property Tax (Sec. 234, LGC)

1. Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use
thereof has been granted for consideration or otherwise, to a taxable person;

2. Charitable institutions, churches, parsonages, or convents appurtenant thereto, mosques, non-profit or religious cemeteries
and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational
purposes;

3. All machineries and equipment that are actually, directly, and exclusively used by local water districts and government-owned
or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric
power;

4. All real property owned by duly registered cooperatives as provided for under RA6938;

5. Machinery and equipment used for pollution control and environment protection

CONDONATION OR REDUCTION OF RPT AND INTEREST

By the Sanggunian upon recommendation of the Local Disaster Risk Reduction and Management Council, in case of

• A general failure of crops, or

• Substantial decrease in the price of agricultural or agri-based products, or

• Calamity in the province, city, or municipality (Sec. 276, LGC) By the president of the Philippines when public safety so
requires (Sec. 277, LGC)

TYPES OF REAL PROPERTY TAX

1. BASIC

2. SPECIAL LEVIES

1. Special Education Fund

2. Additional Ad Valorem on Idle Lands

3. For Public Works (Special Assessments

BASIC REAL PROPERTY TAX
FORMULA TAX DUE=(ASSESSED VALUE)x (TAX RATE)
Where, ASSESSED VALUE = FMV x ASSESSMENT LEVEL
ILLUSTRATION 6

• Ana has a farm in Atok, Benguet. The farm currently has an assessed value of P345,000.00. The province of Benguet imposes a
1% basic real property tax rate. How much is the real property tax due? •

ANSWER: TAX DUE =ASSESSED VALUE x TAX RATE

= p345,000.00 x 1%

=P3,450.00

SPECIAL EDUCATION TAX (Sec. 235, LGC)

A province or city or municipality within the Metropolitan Manila Area, may levy and collect an annual tax of one percent (1%)
on the assessed value of real property which shall be in addition to the basic real property tax. The proceeds thereof shall
exclusively accrue to the Special Education Fund. RA 5447 created the Special Education Fund for specified activities with its
fund to be derived from additional tax on real property and a certain portion of the taxes on Virginia-type cigarettes and duties
on imported leaf tobacco.

Sec. 272, Local Government Code …the proceeds shall be allocated for the operation maintenance of public schools,
construction and repair of school buildings, facilities and equipment, educational research, purchase of books and periodicals,
and sports development as determined by the Local School Board

ILLUSTRATION 7
• Ana has a farm in Atok, Benguet. The farm currently has an assessed value of P345,000.00. The
province of Benguet imposes a 1% basic real property tax and 1% SEF. How much is the real property tax
due?

• ANSWER:

– TOTAL TAX DUE = BASIC + SEF

= 1%(345,000) + 1%(345,0000

= 3,450 + 3,450

= 6,900.00

ADDITIONAL AD VALOREM ON IDLE LANDS (Sec. 236, LGC)

A province or city or a municipality within the Metropolitan Manila Area, may levy an annual tax on idle
lands at the rate not exceeding five percent (5%)of the assessed value of the property which shall be in
addition to the basic real property tax.
IDLE LANDS (Sec. 237, LGC) INCLUDES
 AGRICULTURAL LANDS
 • More than one hectare in area
 • Suitable for cultivation, dairying, inland fishery, and other agricultural uses
 • One-half remain unutilized or unimproved EXCLUDES – Agricultural lands planted to permanent or
perennial crops with at least fifty (50) trees to a hectare – Lands actually used for grazing purposes b)
Lands, other than agricultural
 • Located in a city or municipality
 • More than one thousand square meters in area
 • One-half of which remain unutilized or unimproved INCLUDES – Residential Lots in subdivisions duly
approved by proper authorities

IDLE LANDS EXEMPT FROM TAX (Sec. 238, LGC)

A province or city or a municipality within the Metropolitan Manila Area may exempt idle lands from the additional
levy by reason of force majeure, civil disturbance, natural calamity, or any cause or circumstance which physically
or legally prevents the owner or the property or person having legal interest therein from improving, utilizing or
cultivating the same.

SPECIAL LEVY BY LOCAL GOVERNMENT UNITS (Sec. 240)

A province or a city or a municipality may impose a special levy on the lands comprised within its territorial
jurisdiction specially benefited by public works projects or improvements funded by the local government units..

– Special levy shall not exceed 60% of the actual cost of such project or infrastructure.

• Collected over a period of 5 to 10 years (Sec. 241, Local Government Code) – DOES NOT APPLY TO:

• Lands exempt from basic real property tax

• Remainder of the land portions of which have been donated to the local government unit concerned for the
construction or such projects or improvements

SPECIAL LEVY IMPOSED BY OTHER LAWS

• Socialized Housing Tax (RA 7279, Urban Development and Housing Act of 1992) – LGUs are authorized to impose
an additional onehalf percent on the assessed value of all lands in urban areas in excess of P50,000.00 except those
specifically exempted
ILLUSTRATION 8

• Ana has a farm in Atok, Benguet. The farm currently has an assessed value of P345,000.00. The province of Benguet imposes a 1% basic real
property tax rate. In 2013, she left the country without paying her current Real Property Tax. She only paid all of her Real Property tax
obligations when she came back on March 1, 2016. How much should she pay?

ILLUSTRATION 9

• Ana has a farm in Atok, Benguet. The farm currently has an assessed value of P345,000.00. The province of Benguet imposes a 1% basic real
property tax rate. In 2013, she left the country without paying her current Real Property Tax. She only paid all of her Real Property tax
obligations when she came back on March 5, 2016. Because she felt very ashamed because of her delinquencies, she also paid her tax due for
the year 2017. How much did she pay?
ILLUSTRATION 10

• Imelda owns a piece of lot. She mortgage it to the bank. Because of her failure to pay her loan, the
bank foreclosed the property. What will happen with her delinquent taxes?

ANSWER TO ILLUSTRATION 10

• Her delinquent taxes stays. It attached to the property.

• Sec. 257, Local Government Code – The basic real property tax and any other tax levied under this title
shall constitute 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.
ILLUSTRATION 11

• Enzo made a sworn declaration of his property to have a value of P5,000 per square meter. The City
Assessor assessed the said property at P2,000 per square meter. What is the remedy of Enzo if he would
like to maintain his declared value. Explain briefly. ANSWER: PROTEST

ILLUSTRATION 12

For failure to pay delinquent real property taxes, the local government resorted to the administrative
remedy of levy upon real property. Whereupon, the real property was sold at a public auction. The real
owner questioned the legality of the sale, contending that he was not notified thereof. The reason for
this was that he failed to transfer the tax declaration in his own name. Is the auction sale valid?

ANSWER TO ILLUSTRATION 12

• GR No. 120974 Estate of the late Mercedes, et. al. vs. CA – The notification thereof to the right person
is an indispensable requirement of the law, noncompliance of which renders the auction sale void.
Failure on the part of the registered owner to transfer the tax declaration in his name may not be used
as a basis of not informing the registered owner. The Local Government Code directs the local assessor
to declare the property in the name of the defaulting owner, if known, or against the unknown owner as
the case may be, and to assess the property to assess the property for taxation