AUTHORITY OF THE MUNICIPALITY TO IMPOSE TAXES, FEES, AND CHARGES

410. What taxes, fees, and charges may be imposed by the municipalities?

Municipalities are authorized to imposed the following taxes, fees, and charges:

a. Business tax, in such amounts as embodied in the Local Government Code (Section
143, R.A. No. 7160 cited in DILG Memorandum Circular No. 2009-42).
b. Tax on retirement of business (Section 145, ibid).
c. Fees and charges on business and occupation, in such amount commensurate with
the cost of regulations inspection and licensing(Section 147, ibid)
d. Fees for sealing and Licensing of weights and measures, at a reasonable amount
(Section 148, ibid)
e. Fishery rentals, fees and charges (Section 149, ibid)

ILLEGAL IMPOSITION AND ILLEGAL COLLECTION TAXES, FEES OR CHARGES

412. Distinguish illegal imposition from illegal collection of taxes, fees or

charges.

Illegal imposition refers to the levy of taxes, fees and charges duly imposed by a local
government unit on a certain subject through an appropriate ordinance but is outside of
the scope of its taxing and revenue raising power vis- à-vis the statutory scope of taxing
powers of provinces, cities, municiplaities and barangays as are conferred unto them by
the Local Government Code. On the other hand, illegal collection of fees, taxes or charges
pertains to those collections made without the benefit of a local revenue ordinance (Item
No. 9.0, DILG Memorandum Circular No. 2009-42)

413. Cite situations where there is illegal imposition of taxes, fees and
charges.

Illegal impositions of taxes, fees and charges include situations, but not limited to:

a. When the taxes, fees or charges are unjust, excessive, oppressive, confiscatory or
country to declared national policy (Section 186, R.A. No. 7160;
 b. When the imposition of taxes, fees or charges would amount to a restraint of trade
(Section 130, ibid);
c. When a local government adjust the rates of tax in violation of th provision of law
(Sectiona 191, ibid);
d. When a local government imposes fess and charges beyond its taxing powers
(Section 133, ibid

414. Cite situations where there is illegal collections of taxes and charges.

Illegal collection of taxes, fees and charges include situaions, but not limted to:

a. When a local government does not issue an official receipt for any tax, fee or
charge collected;
b. When the collection of taxes, fees or charges is let to a private person; and
c. When a local government collects additional peddlers tax from the manufacturers,
produces, wholesalers, dealers and retailer who have already paid the annual fixed
tax on delivery trucks and vans (Section 141, R.A. No. 7160).

415. Punong Barangay Carlos collected monthly garbage collection fees

from his constituents even without any ordinance authoriziing is collection.
State the possible legal ramification of Punong Barangay Carlos’s action.

He can be charged for illegal exactions penalized under Article 231 (2) of the Revised
Penal Code (Reynes vs Office of the Ombudsman, G.R. No. 223405, February 20,
2019.

TAX ORDINANCE

416. What is the presumption insofar as the enactment of tax ordinance?

The presumption is towards the validity in favor of an ordinance, that is, the ordinance
or revenue measure was validly passed in compliance with the legal or statutory
requirements (Reyes vs Court of Appeals, GR NO 118233, December 10, 1999, 320
SCRA 486).

417. What are the procedures to question the validity of a tax ordinance?

Challenging the validity of a tax ordinance involves the following procedures:

a. Any question of the constitutionally or legality of tax ordinances or revenue

measures may be raised on appeal to the Secretary of Justice within thirty (30)
days from the effectively thereof;
b. The secretaryof justice shall render a decision within sixty (60) days from the date
of reciept of the appeal provided that such appeal shall not have the effect of
suspending the effectively of the ordinance and the accrual and payment of the
tax, fee or charge levied therein;
c. The aggrieved party may file the appropriate proceedings with a court of
competent jurisdiction within thirty (30) days after reciept of the decision or the
lapse of the sixty (60) day period without the Secretary of Justice acting upon the
appeal (Sec 187, R.A. No. 7160)

418. Construe the statutory periods cited by the Local Government code
before an aggrieved party seeks redress in a competent court.

The three period are construed as mandatory. Such statutory periods are set to
prevent delays as well as enhance the orderly and speedy discharge of judicial
functions (Icagayan Electric Power and Light Co., Inc. vs. City of Cagayan de Oro, G.R
No. 191761, November 14, 2012; Hagonoy Market Vendor Association vs. Municipality
of Hagonoy, Bulacan, G.R. No. 137621, February 06, 2002, 376 SCRA 376)

419. Does the determination by the Secretary of Justice of the

constitutionality or legality of tax ordinance involve an exercise of quasi-
judicial power?
Yes. The determination by the Secretary of Justice of the constitutionality or legality
of tax ordinance involves an exercise of quasi-judicial power (De Lima vs. City of
Manila G.R. No. 222886, October 17, 2018)

420. Who has the burden of proving that indeed no public hearing was
conducted prior to the enactment of tax ordinance?

The burden falls on the shoulders of those who assail the ordinance. They must
present evidence to show that no public hearing was conducted ( Reyes vs. Court of
Appeals, G.R. NO. 118233, December 10, 1999, 320 SCRA 486).

421. A taxpayer questioned the legality of a tax ordinance before the

Secretary of Justice by raising an appeal within thirty (30) days from the
effectivity thereof. Is the effectivity of the assailed ordinance suspended
during the pendency of appeal?

No. During the pendency of appeal, the effectively of the assailed ordinance is not
suspended (DILG Opinion No. 49, s. 2015)

422. A tax ordinance was declared as null and void by a competent court.
May the sangguniang panlungsod enact another tax ordinance amending
the tax ordinance earlier declared as null and void by a competent court?

No. If an order or law sought to be amended is invalid, then it does not legally exist.
Thus, there should be no occasion or need to amend it (Coca-Cola Bottlers Philippines,
Inc. vs. City of Manila, G.R. NO. 156252, June 27, 2006).

LOCAL BUSINESS TAX

428. Explain the nature of a local business tax.

Local business taxes are levied on the privelege of doing business within the territotial
jurisdiction of the concerned local government unit (City of Davao vs. Randy Allied
Ventures, Inc., G.R. No. 241697, July 29, 2019

429. What is meant by the phrase “doing business”?

The phrase refers to some trade or commercial activity regularly engaged in as means
of livelihood or with a view to profit (Ibid., citing Section 131 [d], R.A. No. 7160)

430. Entities enumerated under Section 143 of the Local Government code
are made liable for local business tax. Explain.

They are made liable for local business taxes by virtue of their being regularly
enagaged in their business in their business as such within the city or municipality’s
locality. Local business tax is levied on the entity’s gross reciepts derived from the
conduct of its principal trade or business (City of Manila vs. Fortune Enterprises, Inc.,
108 Phil. 1058).

431. Michigan Holdings, Incorporated, a holding company, regularly pays

business taxes to the City Government of Makati. It regularly secures
mayor’s permit and a business permit from the City Government of Makati.
It is not doing a business as a bank or other financial instution. May the City
Government of Makati impose local business tax on the dividend income of
the Michigan Holdings, Incorporated?

No. The Local Government Code prohibits cities from imposing income axes, except
when levied on banks and other financial instituitons. Cities are authorized by the law
to impose local business tax on dividends and interest income only when they pertain
to the gross reciepts of banks and other financial instituions (The City Treasurer of
Makati City vs. Michigan Holdings, Inc., G.R. NO. 2243322, March 24, 2021, citing
Sections 133 [a] and 143 [f] and 143 [h], Local Government Code).

REAL PROPERTY TAXES

449. Define property taxes.

Real property taxes are annual taxes levied on a real property such as lands, buildings,
machinery, and other improvements not otherwise specifically exempted under the
Local Government Code (Section 232, R.A. No. 7160).
450. Describe real property taxes.

Real property taxes are a valorem, with the amount charged based on a fixed
proportion of the value of the property (Section 198 [c], R.A. No. 7160).

451. Do local government units have the power to levy real property taxes?

Yes. Under the Local Government Code, provinces, cities, and municipalities within
the Metropolitan Manila Area have the power to levy real property taxes within their
respective territories (Section 232, R.A. No. 7160).

452. Is the province entitled to receive a share in the distribution or

proceeds of the basic real property tax from component cities?

No. Real property taxes collected by cities are distributed to the barangay where the
property is located (DILG Opinion No. 38 s. 2020, citing Section 271, R.A. No. 7160).

453. Enumerate the exemptions from real property tax.

The following are exempted from payment of real property tax:

a. 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;
b. Charitable institutions, churches, parsonage or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings, and
improvement, actually, directly, and exclusively used for religious, charitable or
educational purposes;
c. All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or – controlled corprations engaged
in the supply and distribution of water and/ or generation and transmission of
electric power;
d. All real property owned by duly registrered cooperative as provided under R.A. No.
6938; and
e. Machinery and equipment used for pollution control and enviroment protection
(Section 234, R.A. No. 7160

454. Is the real property owned by the Republic of the Philippines or any of
its political subdivisions exempted from payment of the real property tax?

Yes. Real property owned by the Republic of the Philippines or any of its political
subdivisions is exempted from payment of the real property tax (Section 234 [a], R.A.
No. 7160).

455. Is there an Exemption?

Yes. Real property owned by the Republic of the Philippines or any of its political
subdivisions is not exempted from payment of the real property tax when the
“beneficial use” thereof has been granted, for consideration or otherwise, to a taxable
person (ibid.). The taxable government entity is subject to property tax but not the
government instrumentality it has dealt with, much less, the properties of the
government instrumentality subject of such beneficial use ( Light Rail Transit Authority
vs. Quezon City, G.R. No. 221626, October 9, 2019).

456. What is meant by “beneficial use”?

Beneficial use means the person or entity has the actual use and possession of the
property (City Treasurer of Taguig vs. Bases Convesion and Development Authority,
G.R. No. 232278, July 13, 2020, citing Sections 234 [a] and 205, R.A. No. 7160).

457. The National Power Corporation (NPC) entered into an Energy

Conversion Agreement (ECA) with an Independent Power Producer (IPP).
One of the obligations of NPC under ECA was the payment of all taxes that
the government may impose on the IPP. Are the machineries used by the
IPP in the generation and transmission of electricity exempted from the
payment of real property taxes?

No. They are not exempted from the payment of real property taxes. NPC does not
actually, directly, and exclusively use them. To be exempted under Section 234 (c) of
the Local Government Code, machinaries must be actually, directly, and exclusively
used by the government owned or controlled corporation. The test of exemption is
the use and the not the ownership of the machineries devoted to generation and
transmission of electric power (NPC vs. Province of Quezon and Muncipality of
Pagbilao, G.R. No. 171586, July 15, 2009, citing Section 234, R.A No. 7160).

458. Philippine Economic Zone Authority (PEZA) owns real properties in the
City of Lapu-Lapu and in the Province of Bataan. Is PEZA exempt from
payment of real property taxes?

Yes. PEZA is an instrumentality of the national government. Instrumentality of the

national government is exempted from payment of real property taxes underSection
133 (o) of the Local Government Code (City of Lapu-Lapu vs. PEZA, G.R. No. 184203,
November 26, 2014).

PASS THROUGH FEES

461. What are considered as illegal fees or illegal collections by the local
government units?

Considered as illegal fees or illegal collections by the local government units are as
follows: (a) those imposed by the local government npt covered by specific and
common taxing powers; (b) Those imposed under Section133 of the Local
Government Code; and (c) those imposed by the local government unit absent any
ordinance directing the imposition of the same (DILG Opinion Nos. 16 and 59, s. 2012)

462. What are considered as “pass through fees” prohibited under the Local
Government Code?
These refers to taxes, fees, charges and other impositions upon goods carried into or
out of, or passing through the territorial jurisdiction of the local government units in
the guise of a toll, charges for wharfage or other taxes, fees or charges in any from
upon goods or merchandise (DILG Opinio No. 04 s. 2012, citing Section 133 (e), R.A.
No. 7160).

463. A provision in the Municipal Revenue Code imposed service fees for
police surveillance on all goods and equipment sheltered in the premises of
the wharf. The amount of service fees is based on the type of goods being
transported. Is the provision valid?

No. It is null and void. The Local government Code prohibits charging services fees
against the goods that pass through the territorial jurrisdiction of local governement
code units. It is immaterial that the service fee charged against the good is for police
surveillance (Palma Development Corporation vs. Municipality of Malangas,
Zamboanga del Sur, G.R. No. 152492, October 16, 2003).

464. May the barangay exact entrance fees or require the purchase of
stickers before allowing the service vehicle of cable operators to enter the
village?

No. Such fees are in the nature of an illegal pass through fees (DILG Opinion No. 38,
s. 2013, citing Section 133 [e], R.A. No. 7160).

465. The provincial ordinance imposed a livestock quaratine regulatory fees

on the transport of frozen goods, poultry products and dressed chicken into
and out of the province. Is the ordinance consistent with the Local
Government Code?

No. section 133 of the Local Government Code prohibits the imposistion of fees against
the goods that pass through the territorial jurisdiction of local government units (DILG
Opinion No. 28, s. 2018
466. The municipal government has an ordinance imposing hauling fees.
The fees are charged on companies engaged in transporting raw materials.
Is the ordinance prohibited under the Local Government Code?

Yes. The said imposistion is considered as “pass through fee” which is prohibited under
the Local Government Code and in the direct contravention of existing DILG
Memorandum Circular (DILG Opinion No. 6, s. 2017, citing Section 133, R.A. No. 7160
and DILG Memorandum Circular No. 2017-23).

TAX ON TRANSPORTATION CONTRACTORS AND COMMON CARRIERS

467. Can local government units impose business tax on transportation

contractors and common carriers?

No. Section 133 (j) of the Local Government Code prohibits local government units
from imposing any tax on the gross reciept of transportation contractors, persons
engaged in the transportation of passenger or freight by hire, and common carriers
by air, land, or water (City of Manila vs. Valera, G.R. No. 120051, December 10, 2014).

TAX ON DELIVERY TRUCK OR VAN

468. Can a provinvial or city government impose tax on delivery truck or

van?

Yes. Provincial or city government can impose annual fixed tax of not exceeding
P500.00 as tax on delivery truck or van of manufacturers or producers, wholesales of,
dealers, or retailers in, certain products (DILG Memorandum dated December 17,
2002, citing Section 141, R.A. No. 7160).

469. Can municipalities impose tax on delivery truck or van?

No. Section 143 of the Local Government Code on the items taxable by municipalities
does not include such kind of tax (ibid).
TAX ON PETROLEUM PRODUCTS

470. Are local government units empowered under the Local Government
Code to impose business taxes on persons or entities engaged in the
business of manufacturing and distribution of petroleum products?

No. The Local Government Code expressly prohibits local government units from
imposing taxes, fees or charges on petroleum products (Batangas City vs. pilipinas
Shell Petroleum Corporation, G.R. No. 187631, July 8, 2015, citing Section 133 [h],
R.A. No. 7160).