Table 1.

Comparative Summary of LGU impositions

TYPE REMARKS EXAMPLE

DEFINATION
Taxes Imposition under Allocation among Property taxes
the taxing power of LGUs of taxing
LGUs for the powers defined by Business taxes
purpose of raising law
revenues
Permit fees Charges made by Based on cost of Mayors permit fees
law or ordinance regulation of the
for the regulation activity Large cattle
or inspection of registration fees
business or
activities
Service Fees Fees collected for In an amount Sanitary inspection
service rendered commensurate to fee
or for such services
conveniences
furnished by the
LGU
Charges Imposition for the Full cost recovery Market fees
operation of as basis for amount
public enterprise of charge to be Corral fees
posted
Slaughter fees

Theoretical Inputs on Taxitaion

Tax formula
Tax has a standard formula expressed as follows;
tax due = tax base x tax rate

Tax base shall refer to the characteristic pf the object being subjected to a tax from
where the tax will be based. For example, real property has its value that can be the
basis of the tax. Businessed, on the other hand, may have gross sales/ receipts or
amusement places which charge admission fees that may be the basis of the tx.
The tax rate is the portion of the base which shall represent the tax. The more
common forms are: a fixed rate, percentage rates, or a combination.
Tax due of the individual taxpayers is arrived at by performing the operation of the tax
based multiplied by the rate. The impact of the tax due to the taxpayers represent the
tax burden which may run low to high. The aggregated tax due shall become the total
collectible revenues for the LGU

The standard formula can be expanded by adding the penalties and/or deducting
incentives. Penalties are added burdens such as surcharges and interest for failing to
adequately pay the tax within a prescribe period. Incentives may come in many
formula the most common of which is the discount on the tax, granted for paying
promptly or in advance.

Depending on the intent of the LGUs, the burden of the tax can be increased or
decreased by adjusting either the tax based or the rate. For example, on real
property tax, an increase can be adjusted upward. In business tax, increase population
may increase the gross sales and corresponding taxes.

Imposing taxes rests on the Sanggunian because it passes the tax ordinance.
Sanggunian members are generally cautious in enacting tax ordinances because of
potential impact on the local economy as well on their political careers.

However, the raising of revenues is inevitable in local governance because the extent of
service, facilities and accomplishments will be determined by the amount of resources
(IRA and internal resources) the LGU generate.

Therefore, it may be more reasonable for an LGU administration to pass an ordinance

generate revenues and put them to good user rather than not raise revenues and
accomplish minimal result.

The ultimate challenges is to make strong connection between the taxes collected and
the service provided.
Criteria of a Good Revenue Structure

It may be important thereof to build a tax package that can be explained

reasonably to the constituents by considering the five (5) criteria of a good
revenue structure

1. Revenue Adequacy
The criterion refers to the amount of yield expected from a tax imposition it its wise to
consider taxes which are productive because the principal objectives of taxation is
revenue generation. Attempting to impose the widest ranges of taxes within an LGU
particulary those which are less productive will only dissipate the administrative effort
leading to non-optimization of collections. Beside, frequent petty collection from more
or less the same taxpayers may antagonize them. To the sanggunian members, it may
be provide an impression that the LGU is stable financially.

2. Tax Elasticity

Tax elascticity is formally defined as the percentage in the tax yield over a given
period of time to the percentage in GNP, income or tax base. Thus, elasticity
equal to 1 or unity implies that teax revenues increase at the same rate as the
base.

Note that usually local government budgets are continually growing not only
because of population growth but also because of inflation. Thus, to running into
fiscal deficts, its is highly desirable that the taxes should exhibit elasticity, i.e,,
tax revenues should grow automatically in line with growth in prices, aggregate
income and/or government expenditures.

Elasticity has two dimensions: growth of the potential tax base and ease with
which the tax exploits that growth.
 For example:
Sales Taxes
In times of rising prices and/or exuberant economic activity, the tax base of the sales
tax increase. If the sales tax is imposed on and ad valorem basis, its yield will grow
automatically in pace with tax base. In contrast, if the sales tax is imposed on a unit
basis, adjustment on tax rates are necessary to keep rates are often with beset by
intense political debate.

Real property tax

Inflation usually increases the true market values or properties. However even if real
property tax is levied on an ad valorem rate, this growth in the potential real property
tax base is only exploited if properties are re-valued in a timely fashion

Thus, dpendingon how the taax is imposed, elasticity may be automatic or it may be
dependent on sensitive discreationary decision of the taxing authority. Its also maybe
be dependent on the administrative capacity of the tax collection agency.

3. Administrative Feasibility
LGUs may start computuing for the contingent costs of collection such as records,
receipts and processing, The aggregate cost must be compared with yield. If the cost is
higher than the yield, it implies that the LGU is subsidizing the collection. It is deal to
have a tax which is simple yet a net revenue producer. It is also a common experience
that taxpayers pay taxes which are understoond and easily paid.

4. Equity

Taxpayers will always be conscious about the taxes they pay compared to the
others or to the services they get.

There are two approaches to viewing equity-‘ the ability to pay approach’ which
is based on the principle that those who can afford more should pay more and
the ‘ benefit approach’ which considers the amount of benefit received as basis
of tax contribution. Current conditions show a bias towards the ability-to-pay
approach.
 Sensitivity to the issue of equity enhances degree of compliance among
taxpayers. When the taxi is deeked fair in the sense that it is not confiscatory
and taxpayers dues correspond their ability to pay, collection are expected to be
a lost easier.

5. Economic Efficieny

Taxes are desirable if they are neutral or non-distrotionary, meaning they will
least affect economic decision. This can be achieved when a taxpayer cannot do
anything to change his liability because it is indexed on a non-alterable criterion
such as sex or age

This also happens to taxes that are reasonably low that they become
insignificant for the taxpayers to even attempt to avoid them. Among local
taxes, rate and the base is the age and employment
6. Political Acceptabality

This criterion pertains to the ability of the LGUs to lessen direct political impact of
the tax. While taxation will remain to be political because the tax structure and
enforcement decision have to be made by the elective officials, there are ways to
mitigate the circumstances.

One way is to lessen the visibility by considering taxes which attract less
controversy. Another is to lessen the frequency of making sensitive decisions by
making some adjustment automatic in the Ordinances.

The most effective means of lessening political sensitivity of taxes is being

transparent in the entire gamut of tax administration and putting the proceeds to
good use.

The five criteria discussed above may not turn out positive in all types of taxes.
There will always be negative and positive result such as tax which may be more
politically acceptable but shall not substantively result in revenues. Others like
business tax may received high marks in revenue potentials bit may have its
impact interm of economic distortions. Priorities should be set by the LGUs and
they should strat assessing the taxes which have more advantages to implement.

The ultimate test of political acceptability is if the LGU can make a strong
connection between the taxes collected and the services provided to the
community.
 Criteria in taxation decisions;

1. Revenue adequacy and elasticity

2. Equity
3. Economic effiency
4. Administrative efficiency
5. Political acceptability

Fundemental Principles in Local Taxation

The exercise of the taxing and other revenue-raising powers of local government is
government by fundamental princioles provided in Sec.130 of the Local Government
Code of 1991
 Taxation shall be uniform in each local government unit;
 Taxes, fees, charges, and other imposition shall
o be equitable and based as far as practicable on the taxpayer’s ability
o be levied and collected only for public purposes;
o not be unjust, excessive, oppressive, or confiscatoey;
o not be contrary to law, public policy, national economic policy, or in
restraint of trade.

 The collection of local taxes, fees and charges and other impositions cannot be
let to any private person;
 The revenue collected shall be used solely for the benefit of, and be subject to
disposition by, the local government unit levying the tax, fee, charge or
 Each local government unit shall, as far as practicable, evolve a progressive
system of taxation. As defind in the 1991 LGC:
 A tax is ‘unjust’ if it is deficient in justice and fairness;
 ‘ excessive’, if it characterized by whatever is notably greater that what is
moderate, proper, usual, necessary and just; and
 ‘oppressive’ if it unreasonably burdensome, unjustly severe, or harsh.
Limitations on LGUs’ Taxing Powers

LGUs’ taxing and revenue raising powers are limited. They can only impose taxes, fees
and charge as the law may allow.

Sec. 133 of the Code defines the common limitations on specific subjects which are
beyond the scope of LGUs taxing and revenue raising powers. This is to ensure that
local taxing powers do not contravene but rather support national tax policies.

There are two kinds of limitations on the local taxing powers; the common and the
specific.

Limitation 1: Income Tax

 Income tax, expect when levied on banks and other financial institutions
The tax on income being allowed under the provision is only when it is imposed on
banks and other financial institutions. It is likewise different from the
business tax levied under Section 143 (f) of the Code. The former is based on income
on a percentage basis while the latter is based on gross receipts.

The Code defines the base of business tax as the gross receipts of the preceding
calendar year derived from interest, commission and discussion from lending activities,
income from financial leasing, diviidends, rental on property and profit from exchange
or sale of property and insurance premium.
It does not any specific provision as to which receipts or income of banks and other
banking institutions may be the base of income tax.

However, under Article 232((f) of the IRR, a provision exists which may be applicables
in determining the base of the income tax on banks and other financial institutions. It
states that’’ all other income and receipts of banks and other financial institutions not
otherwise included in the enumeration shall be excluded ftom taxing authority of the
local government concerned.
It may be observed that is authority granted under the Code to local government has
not been maximized even as bank and other financial institutions, being
profitable business, can be potential source of the local revenues.

However, the Sangugunian, in passing a revenue measure for this purpose, should
consider that several other taxes have already been imposed on banks under R.A 8424
other wise known as the Tax Reform Act of 1997 (formerly the NIRC)

Limitation 2: Documentary Stamp Tax

 The documentary stam p tax is an exercise tax upon documents, instruments
and other papers, and upon acceptance, assignments, sales and transfers of the
obligation, right or property incident thereto.
It is an imporatnat under R.A 8424 the proceeds of which accure to the National
Goverments are prohibited from imposing this tax express provision of the Code.

The tax neither a tax on the transaction nor on the property it describes but rather is an
exise upon yes privilege, opportunity or facility offered at exhanges for the transaction
of the business.

Limitation 3: Taxes on Estate, etc.

 Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa,
expect, as otherwise provided in the Code
This type of tax is covered by R.A 8424. Local Government units are expressly
prohibited from imposing taxes on states, inheritance, gifts, legacies and other
acquistions mortis causa.

The exception to this limitation is provided under Sec. 135 of the Code, which provides
that provinces and cities may impose a tax on the sale, donation, barter, or any other
made of transferring ownership or title of real property
Limitation 4: Customs Duties
 Customs, duties, registration fee of vessels, wharfage on wharves tonnage dues,
and all other kins of custom fees, charges and dues excepts wharfage on
wharves constructed ad maintained by the city or municipality;and

 Customs duties are in the nature of tax on imported or exported goods covered
under the customs and Tariff Code being implemented by the Bureau of
Customs.

Registration Fee on Vessels

 Local government are prohibited from imposing registration fees on

vessels.

However, cities and municipalities are authorized to impose license fee

for the operation of fishing vessels of three (3) tons or less as provided under Sec.
149 of the Code

Wharfage
 Wharfage fees on wharves constructed and maintained by the National
Government cannot be imposed by local goverments

However, local government may impose wharfage on wharves owned

and operated by them

Limitation 5: Good Passing Through

 Taxes, fees and charges and other impositions upon goods carried into or
out of, or passing through, the territorial jurisdictions of local government
units in the guise of charges for wharfage, tolls for bridges or otherwise, or
other taxes, fee or charges in any form whatsoever upon such goods or
merchandise.
Local government are prohibited from imposing specific tax upon goods and
merchandise carried through, into or out their terrirtorial jurisdiction.
The prohibitred tax may take various from such as those supporting to be charges for
wharfage, use of bridges, or otherwise. In a long line of cases, the Supreme Court has
invalidated a number of tax ordinance which imposed the prohibited tax. It was ruled
that such tax hampered the free flow of commerce not only within the territorial
jurisdiction of the local government concerned but also within the county.

Limitation 6: Agricultural and Aquatic Products

 Taxes, fees or charges on agricultural and aquatic products when sold by
marginal farmers or fisherman.
The term agricultural products include the yield of the soil, such as corn, rice, wheat,
rye,hay, coconut, sugarcane, tobacco, roots crops, vegetables, fruits, flowers and their
by-products; all kinds of fish, poulty, and livestock and animal products, whether in
their original form or not ( Sec. 131-a LGC)

To be considered a marginal or fisherman, the following requisites must occur,

 a person is engaged in subsistence farming or fishing;

 limited to the sale, barter or exchange of agricultural or marine products

produced by the person and his her immediate family;

 the annual net income such farming does not exceed P50,000,00 or the
poverty line established by NEDA for the particular region or locality,
whichever is higher ( Art.220(p),IRR).

It would seem therefore, that agricultural and aquatic products become taxable
when:
 these are sold by person other than the farmer or fisherman, even without
undergoing any process;

 the net income exceeds that provided by law;

 these have been transformed into manufactured products such as a sugar, balut
etc.
 Limitation 7: BOI-Certified Enterprises

 Taxes on business enterprise certified by the Boarad of Investments as

pioneer or non-pioneer for a period of six (6) and four (4) years, respectively
from the date of registration
For purposes of Implementing this provison, the DOF issued LFC No. 5-93, dated
October 21,1993 prescribing the limiitations, manner and procedures fro the imposition
of local business taxes on BOI-registered enterprises.

On the 60-day period provided under LFC No. 5-93 within which BOI-registered
enterprises may avail of the exemption granted under the Code, it was ruled that the
period is only directory and not mandatory, and therefore, the failure of any
business to observe the same will no render taxable what the law has expressly
exempted from the local taxation (DOF Opinion, April 24, 1995)

So long as a business enterprise is certified by thr BOI as pioneer or non-pioneer, it

shall remain exempt from local taxation for period of (6) years for pionerr and four (4)
years for non-pioneer, respectively, from the date of registration ( DOF Opinion,
January 4, 1996)

BOI_registered enterprises become ecempt only upon the promulgation of

the LGC whoch took effect on January 1, 1992. PD 231, the law prevailing then,
did not provide exemption for such enterprises.
Since the law has no retroactive effect, the exemption from payment of business taxes
shall only be for the reminder of the four (4) years (in case of non-pionerr enterprises
from the date of registration with BOI ( DOF opinion, February 20). Thereafter, it shall
become liable to the business tax imposed theron (DOF Opinion, March 5, 1996).
In the case of registered expanding firms, the gross sales or receipts directly arising
from such expansion shall be exemot from the local business taxes for a period of siz
(6) and four (4) years pioneer and non-pioneer enterprises, respectively, from date of
registration (Sec. 3, LFC No. 5-93, October 22, 1997).
Limitation 8: Excise Taxes
 Exercise taxes on artciles enumerated under National Internal Revenue Code,
as amended, and taxes, fees or charge on petroleum products.

Exercise taxes imposed under the NIRC ( now Tax Reform Act of 1997)
may be in the form of a specific tax or an ad valorem tax.

Specific tax is based on the unit or number, weight or volume capacity or

any other physical unit of measurement of the objects to be taxed.

Ad valorem tax is based on the selling price or other specified value of

the goods.

This provision should be reconciled wuth Sec. 143(h) of the LGC. Under
the latter municipalities and cities are authorized to impose business tax
based on gross receipts of business subject to the excise tax, VAT or
percentage tax under vvalue of the article.

The five(5) categories of goods subject to excise tax under the NIRC
and which the LGUs are prohibited from imposing are:

 Alchohol products
 Tobacco products
 Petroleum products
 Miscellaneous products such as as fireworks, cinematographic films, jewerly,
perfume, etc
 Mineral products

Limitation 9: Percentage of VAT

 Percentage or value-added tax (VAT) on sales, barters or exchanges or
similar transactions on goods or service expect as otherwise provided in the
Code

Under Sec. 116 of the R.A. 8424 otherwise know as the Tax Reform Act
of 1997, any person whose sales or receipts are exempt from the
payment of value-added tax and who is not a VAT-registered person shall
be liable to pay a percentage tax of 3% of his gross quarterly sales or
receipts.
 Any person who, in the course of trade as business, sells barters
echanges, leases goods or properties, or renders service, and any person
who imports goods shall be subject to the value-added tax (VAT) (Sec.
106, Tax Reform Act of 1997, RA 8424).

Under the Code, local government are authorized to impose fixed

graduated taxes on gross sales as provided in Sec. and Sec. 150 of the
LGC.

Limitation 10: Transportation Conctractors

 Taxes on the gross receipts of transportation contractors and person
engaged in the transportation of passengers or freight by hire and common
carriers by air, land, or water, except as provider in the Code
This provision prohibits the imposition of taxes based on gross receipts of transportation
contractors and person engaged in the transportation of passenger or freight by
common carriers.

The exception, it is interesting to note that under Art. 14(e) of the Code which impose
atax on contractors wherein a fixed graduated tax based on gross receipts provided.

However, it is interesting to note that under Art. 221 (5) of the IRR, the operation and
franchising of trycle is specially exemptedfrom the prohibition.

It may be implied that LGUs may impose a tax on bases other than gross receipts i.e.
type of vehicle, number of vehicles, capacity weight and the like.

A firm which does not sell nor offer to sell for its own account any merchandise, but
merely delivers the same in behalf of its clients for a fee, using its own trucks, cannot
be classified as a manufacturer, producer, or dealer.

It is merely a transportation contractor as such, is subject to business tax imposable by

cities on contractors (DOF Opinion, November 8, 1995)
Limitation 11: Taxes on Premiums
 Taxes on premiums paid by way of reinsurance or retrocession

Reinsurance is a contract by which an insurer procures a third person to ensure him

against losss or liability by reason of original insurance (Black’s Law Dictionary,5 th Ed.)

Retrocession is the rejection of the risk being insured.

Premiums paid by way of reinsurance or retrocession are exclude from the
determination of the taxable receipts.

Limitation 12: Vechile Registration

 Taxes, fees, or charges for the registration of motor vehicles and for the
issuance of all kinds of license or permits for the driving thereof, except
tricyles.
Section 131(q) of the LGC defines motor vichles as any vehicle propelled by any
power other than muscular power using the public roads , but excluding roads rollers,
trolley cars, street-sweepers, sprinkles, lawn mowers, bulldozers, graders, fork-lifts,
amphibian trucks and tractors, trailers and traction engines of all kinds used exclusively
for agricultural processes

Under this provision, LGU may now impose tazes, fees or charges for the registration of
tricycles, and the inssuance of license or permits for the driving thereof. However the
tax should not be based on gross receipts as expressly provided under Sec. 133(j)

Insofar as motor vehicles excluded under the definition above-quoted are concerned
LGUs may impose fees for the registration thereof and for the issuance og licenses or
permits for the driving thereof;

Limitation 13: Export Products

 Taxes, fees, or other chargers on Philippine’s products actually exported,
expect as otherwise provided
It should be observed that what is prohibited under this provison is the imposition of
taxes, fees or charges on Philippine products. Said prohibition does not apply to
the business of exporting.

Under Sec. 143 (c) of the Code, exporters are imposed a rate not exceeding one-half
(1/2) of the rates imposed on the business of manufacturing, wholesaling, or retailing.
The prohibition of the above-quoted provision is the impostion of exports taxes,
fees and other levies on the products or goods then exported. But the business
tax on exporters are provided under Sec. 143, par (c) of the LGC is a tax on privilege to
engage in a business of exporting.

The former has reference to the exported products, while the latter, to the business
exporting itself. Hence, the provison os Sec 143, par (c ) do not fall within the ambit of,
nor would it be in conflict with the prohibition enunciated under Section 133 (b) of the
LGC (DOF- Opinion, March 10, 1994).

Limitation 14: RA 6810 and 6938

 Taxes, fees, or charger on Countryside and Barangay Business Enterprises
and cooperatives duly registered under RA No. 6810 and RA 6938 otherwise
known as the Cooperative Code of the Phillippines respectively.

It should be stressed that in order to be exempt from local taxes, Countryside and
Barangay Business Enterprises must be registered in accordance with RA 6810 while
cooperatives must be registered in accordance with RA 6938.

However, the exemption enjoyed by such cooperatives does not include payment of
service charges or rental for the use of property and equipment or public utilities owned
by a local government such as a charges for actual consumption of water, electric
power, toll fees, use of public roads and bridges, and the like (DOF Opinion, November
14, 1994.)
Limitation 15: National Government
 Taxes fees or charge of any kind on the National Government, its agencies
and instrumentalities, and local government units

This provision should be read in connection with section 193 of the Code which provides
that ‘tax exemptions or incentives granted to, or presently enjoyed by all person,
wether natural or juridical, including government owned or controlled corporations,
except local water district , non-stock and non-profit hospital and educational
institution, are hereby withdrawn upon the effectively of this Code”.

The Philippine overseas Employment Agency (POEA), being a national agency, is

exempt from the payment on the tax or transfer of real property being imposed and
collected by the local government (DOF Opinion, May 3, 1933)

The Philippine Ports Authority (PPA) is liable to pay business tax in view of the
withdraws of tax exemption privileges being enjoyed by government-owned or
controlled corporation (DOF Opinion, December 14, 1993).
Key features of the Local Tax Structure

The code provided local government units with enough leeway to enable them to tailor-
fit local revenue program to the unique conditions in the localities

Among the key features are:

 National agencies are no longer authorized to review local Ordinancnes.

 LGUs have the leeway in the selection of taxes to impose since the operative
word is “may” and not “shall”

The code removed review powers of national agencies and strengthened local fiscal
autonomy

LGUUs can:

Choose the taxes, fees, and charges to impose

Set taxes rates within prescribe minimum-maximum ranges

Adjust tax rates every 5 years at a maximum of 10%

 Under section 186, local government are given the opportunity to define tax
bases other than those enumerated in the Code as long they are within the
parameters of local taxing powers (e.g., agricultural products sold by non-
marginal farmers and fishermen, forest products sold by the concessionaire
himself, banks and financial institutions, etc.)

 They also have wider latitude in setting rates for the taxes. Tax rates are
provided as ranges giving LGUs the flexibility to set their own rates within
the maximum and minimum levels provided.
  Tax rates may be adjusted once every five years at rates not exceeding
10%. The periodic adjustment provides LGUs the leverage of regular
updating (Section 191).

 Types and rates of fees are not specified. LGUs have the option to set the
rates based on the cost of issuing the permit or license plus the cost of
surveillance. They can be adjusted as often as needed. This implies that the
Local Sanggunian can set the rates within the parameters prescribed in the
new Code. This will give LGUs opportunity to recover the cost of supervision
and administration from their regulatory fees and user charges. As a matter
of fact, the proper pricing of service is strongly encouraged particularly with
respect to the operation of economic enterprise. The idea is to inject
entrepreneurial spirit into government operations.

Asisde from the determination of the tax base and rates, other options which can be
explored included the following:

 Imposition of Surcharge and Penalties

A surcharge not exceeding 25% may be be imposed on delinquent taxpayers.
In addition, the LGU may increase the tax liability through a 2% percent per month or a
fraction thereof penalty/interest on the unpaid amount for a maximum of 36 months
which is equivalent to 72%.
The punitive action can be utilized to comple the taxpayers to pay within the prescribed
period.

Also, LGUs can:

Impose penalties and

charges

Provide tax relief,

discount, and incentives

 Grant of Tax Exemption and Tax Relief

The objectives of the tax relief is to cushion its impact to the taxpayers of abrupt
changes in the tax schemes. It is employed at times when taxes shall increase during
hardship periods or to be able to draw increased collections.

It comes in many froms but the more tested ones include grant of suspension of taxes
for a definite period in case iof calamity, civil disturbance, failure of crops or adverse
economic conditions in the LGU. This should be applicable for all taxpayers similarly
situated within the LGU.

 Grant of Incentives
Taxation to a limited extent may be ulitized to attract investments. The concession may
range from the simple creation of express lanes in the issuance of business permit, to
reduction, waiver or deferment of taxes. Non fiscal incentives should be pursued
significantly by LGUs in the grant of incentives fro investor. A rational investment
incentive can be formulated can be formulated through the enactment of an Investment
and Incentives Code.

 Discount
These are granted to encourage payment within the prescribed period or event earlier.
Discount may reach up to 20% of the tax due.

 Stratification of Tax Base

At times, there is a need for LGUs to distinguish differences in tax bases. For example,
in the imposition of the professional tax, the rate can be stratified to reflect various
ranges of income of various professional, e.g., doctor from nurse. This can also be
adopted for delivery vans and truck. The same is true for business permits. Business
establishment can be further stratified into cottage, small, medium and large and the
corresponding differentiated rates applied.

Short-Term Revenue Agenda for LGU’s

Even as the Local Government Code of 1991 introduced basic changes in the structure
of local business taxation that could be Optimized by LGU’s they still need to marshal
the political will compare skills to address issues that hinder the full potential of the
local resources structure.

There are serious implication on the aspect of tax policy revenue-structure as well as
the administrative mechanism the must be put in place by LGU’s to evolve equitable
and efficient revenue system. A number of these implication will be discussed in greater
detail in the subsequent sessions. However, the most significant issues are introduced
below.

Some Major Issue LGU’s Need Address

 Under-Utilization of Real Property Tax Bases

Many local government units have failed to maximize fully their real property tax base a
means to boost local revenues.

 Under-Assessment of Business Taxes

The potentials of business tax as a revenue source have been largerly unexplored.

 Poor Operation and Management of Economics Enterprises

In many instances, the net revenue effect of local economics enterprises, particularly of
public markets, and slaughterhouse is insignificant because of poor management and
operation.

 Outdated Local Tax Codes

Many local government units have outdated local tax codes, which are no longer
responsive to the provision of the 1991 Local Government Code.

 Insufficient Utilization of Available External Financial Resources

The 1991 LGC has opened a whole new avenue for local government units to tap
external resources to finance their capital investment requirements such as various
credit financing option and private sector participation. These are new windows of
opportunities which need to be explored.

 Poor Planning and Budgeting

Annual budgets are not fully used as a planning tool to highest priority activities and
Investment and ensure funding for such priorities.

Reform Agenda

Local revenue reform agenda can be broadly categorized in three general directions-
expanding coverage, enhancing assessment, and improving collections. There are
possible steps local government unit can be take to improved local resources
mobilization and delivery of service within the framework of the LGC to address some of
the issue cited above:

 Improving the collection of real property and business taxes:

 Increase direct cost recovery through greater use of user fees

to link payment to local governments within the provision of services and special levies
on the real property tax for lands which have benifited from public works or
improvements funded by the government. Direct cost recovery would help break the
vicious circle of poor serves, lack of additional funds, further deterioration in services;

 Training key local staff

To enhance the technical capabilities of the local government staff in those areas where
theywill be taking on additional function;

 Automating routine administration with greater use of computer.

 Details of these approaches will be the subject of the succeeding session.\

ANNEX A
PROCEDURES FOR ENACTMENT OF REVENUE ORDINANCE

The provision of the code are obviously not self- executory. It is therefore important
that the LGU issue
an appropriate ordinance to set the implementation in motion. The ordinance should
define the subject
covered by imposition, rates of levy, frequency and procedures of collection, and the
sanction in case of
violation. Aside from establishing the legal basis, the approved ordinance gives
authority to the local
treasures to start collecting the revenue.
It is essential that ordinance are properly enacted. The Code provides for stringent
procedures because
the provincial review shall be principally confined to determination whether all provision
are within the
framework provided under the Code. If not the LGU’s ordinance may run the risk of
being declared
illegal and shall be required to re-enact the process.

The steps in enacting a valid ordinance are:

1. Pre-Publication and/or Posting
The proposal shall be published and/or posted within ten (10) days from the date of
filling. Publication shall be for three (3) consecutive days in a newspaper of local
circulation while posting be done four conspicuous places which shall include areas
where the constituents normally converge such as the municipal/city halls, churches,
markets, plazas, barangay hall and the like. The idea is to initiate wide public
information about the proposal.

2. Written Notice to Interested or Affected Parties

The LGU must then exert to reach interested and/or parties to be directly affected by
the imposition. The market vendor association for example should be invited in case of
a market rate fee increase and business association in case of a business tax increase.
A written notice may be sent specifying the dates and venue of the public hearings. It
may also be worthwhile to attach the copy of the proposed ordinance for the public’s
cursory review. The Code did not mention how many should be invited but this
requirement has to be appropriately compiled with the LGU.

3. Publication and Review

The public hearing should have at least ten (10) days lead from the last day of
publication or sending of written notice. This shall allow be allowed to express their
sentiments whether it is for against the proposed ordinance. The LGU should
adequately prepare a package of explanation because it is expected that many
comment will be adverse. Also, it is mandatory for the Sanggunian to compile and
document people’s reaction include submissions. The Sanggunian Secreatary is tasked
to prepare the minutes of the public hearing

The reaction during the public hearing may serve as inputs to Sanggunian decision.
These reaction are just guide and SB member may exercise their option to pass, deny
or modify the proposal.

4. APPROVAL
Once approved by the Sanggunian, the ordinance shall be forwarded for signature of
the Local Chief Executive. This is considered as the process of approval of the
ordinance.
The Local Chief Executive reserves the right veto the proposed ordinance once it is the
‘’ultra vires’’ or prejudicial to public welfare. The LCE shall put his specific veto in writing
and should communicate such to the Sanggunian within fifteen (15) days in case of a
province and ten (10) days in case of a municipality. The Sanggunian however, can
override the veto by 2/3 votes of all its member.
5. Publication and Review
The LGU should published the approved ordinance three consecutive times in a
newspaper of local circulation. This should be accomplished within ten (10) days after
approval.

Within three (3) days after approval, the Sanggunian Bayan or Panlungsod shall
forward the ordinance to the Sanggunian Panlalawigan. The Sanggunian Panlalawigan
shall be act on the ordinance within thirty days from the receipt thereof. If no action is
taken within the said period, the ordinance is deemed approved.

Appeals on issues of legality or constitutionality may be raised to the Department of

Justice (DOJ) within thirty (30) days from the effectivity of the questioned ordinance
and DOJ shall have sixty (60) days to decide on the case.
The process has to be compiled with religious because if the LGU loses an appeal, it
does not only lose credibility but the ordinance shall be repealed from the start and
earlier collection shall either be refunded or tax credited.

It is also very common for LGU’s to compile all revenue ordinances in a codified form.
This system of codification works to the advantage of LGU because it makes the
imposition consistent, organized and more efficient in addition, there are several
agencies notably DILG and DOF that provide these kinds of assistance.

FLOW CHART ON ADAPTION/ APPROVAL OF TAX ORDINANCE

PUBLICATION STAGE DELIBERATION/ REFINEMENT STAGE DRAFTING

STAGE
 Draft Sanggunia
Reven ng
Local Public Certified True Copies
ue Panlalawi Sanggunian
Chief Hearing
Code/ gan/Pangl and CL.C.E
Executive ungsod/
Tax
Ordina Pambayan
/Pambara
nggay

 Three
Assisted By: consecutive
 Consultant  Referral to proper days in
 Inter-agency Committee newspaper of
 Committee Report local
Technical  Discussion deliberation circulation or
Committee  Documentation two
 Treasurer,  Amendment/Modification conspicuous
Planning and  Approval and publicly
Developmen accessible
t places.
 Copies furnish
 Coordinator, local treasurer
Assessor, for public
budget dissemination
Officer,
Accountants, FOR
etc. PENAL PROVISION

 NGOs  Three
 Others consecutives’
weeks in the
Reference provincial
Database capitol, city,
 Law, rules municipal,
and barangay hall
regulations and in a news
 Previous tax paper of
measures general
circulation
 Financial within
reports territorial
jurisdiction of
the LGU.
 Business tax
 maps,  Officals copies
census to the CEO of
the official
 Others gazette

What Business may LGUs Tax?

The Code categorize eight (8) clusters of businesses on which cities and municipalities
may impose a levy.
Business Classifications
 Graduated fixed tax manufacturers, assemblers, repackers, processors,
distillers, rectifiers and coumpunders of liquors, distlled spirits, wines
and any articles of commerce of whatever kind
 Graduated fixed tax on wholesalers, distributors, or dealer in any
article or commerce of whatever kind or nature
 Graduated fixed tax on exporters, manufacturers, millers, producers,
wholesalers, distributors, dealers or retailers of essential commodities
as follows

o Rice and corn

o Wheat or cassava, flour, meat, dairy products, locally
manufactured process or preserved food, sugar, salt and other
agricultural, marine and fresh water products, whether in their
orginal state or not
o Cooking oil and gas
o Laundry soap, detergents and medicine
o Agricultural implements, equipement, and post-harvest facilities,
fertilizers, pesticides, insecticides and other farm inputs
o Poultry feeds and other animal feeds
o School supplies

 Percentage tax on retailers

 Graduated fixed tax on contractors and other independent contractors
and other independent contractors
 Percentage tax on banks and other financial institutions, such as:
 o lending investors
o finance and investment companies
o pawnshops
o money shops
o insurance companies
o stock markets
o stock brockers
o dealers in securities and foreign exchange


Fixed tax on peddlers engaged in the sale of any merchandise or
article of commerce
 Garduated fixed tax or percentage tax on any other business not
otherwise specified which the Sangguniang may deem proper to tax
subject to the following conditions:
Other Business (Sec.143-h)
In addition, the LGU may improve a tax on any business subject to exercise, value-
added or percentage tax under the National Internal Revenue Code, as amended. The
rate shall not exceed.
 Three percent (3%) of gross sales or reciepts of the preceding
calendar year for cities; and
 Two percent (2%) of gross sales or reciept of the preceeding calendar
year for municipalities.

The Sangguniang concerned may prescribe a schedule of graduated tax rates but in no
case to exceed the rates prescribed in Section 143.

Sample of types of businesses that may fall under Sec. 143-h:

 Commission agents;
 Lessors, dealers, broken of real estate;

Rate Structure
The prescribed rate structure is a combination of fixed and precentage rates bsed on
gross reciepts by business classification.
It is structured as a graduated fixed tax with each business classification falling under a
tax shceduled based on accumulated annual gross reciept. Each bracket in the tax
schedule has an equivalent fixed tax amount.
After reaching a threshold level in the tax, the rate becomes a percentage tax.
The corresponding tax rates for each business classification are shown in Table 2.