TAXATION UNDER THE LOCAL GOVERNMENT CODE

Constitutional Basis
Creation of the LGUs (Section Article X – Local Government)
The territorial and political subdivisions of the Republic of the Philippines are the provinces, cities,
municipalities, and barangays.

Taxation Power of LGUs (Section 5 Article X – Local Government)

Each local government unit shall have the power to create its own sources of revenues and to levy taxes,
fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments.

Residual Taxing Power and Pre-emption Rule

RESIDUAL TAXING POWER – LGUs may impose Taxes, Fees and Charges which are not Taxed by the
National Government or are not Limited by Law.

PRE-EMPTION or EXCLUSIONARY RULE – When the National Government elects to Tax a particular
subject, area, or activity, it impliedly withholds from the LGU the delegated power to Tax the same field.

Other Powers of LGU relative to Taxation

 Power to grant local tax exemptions and incentives
 Power to adjust local tax rates
 Power to prescribe penalties for tax violations

Taxing Powers of LGU

Exemptions Incentives

Coverage Calamities, Civil Disturbances, General Failure New Investments

of Crops, Adverse Economic Conditions
Application Uniform – to all similarly situated Uniform – to all similarly
situated
Manner Through an Ordinance Through an Ordinance
Effectivity To take effect during the next calendar year, for For a Definite Period not
a period not exceeding 12 months as may be exceeding 1 calendar Year
provided in the ordinance.

QUESTION
True or False
Local Taxation is the ONLY Source of LGU Funds.

Fundamental Principles
a) Taxation shall be UNIFORM in each local government unit;
b) Taxes, fees, charges and other impositions shall:
1) be EQUITABLE and based as far as practicable on the taxpayer’s ability;
2) be levied and collected only for PUBLIC PURPOSES;
 3) not be UNJUST, EXCESSIVE, OPPRESSIVE, OR CONFISCATORY; and
4) Taxes, fees, charges and other impositions shall NOT be CONTRARY TO LAW, public policy,
national economic policy, or in the restraint of trade.
c) The collection of local taxes, fees, charges and other impositions shall IN NO CASE BE LET TO ANY
PRIVATE PERSON;
d) The revenue collected pursuant to the provisions of this Code shall INURE SOLELY TO THE BENEFIT
of, and be subject to the disposition by, the local government unit levying the tax, fee, charge or
other imposition unless otherwise specifically provided; and
e) Each local government unit shall, as far as practicable, evolve a PROGRESSIVE SYSTEM OF TAXATION.

Common Limitations on the Taxing Power of LGUs

 Taxes which ALL LGUs cannot Impose
1. Taxes Under the NIRC
2. Taxes, Fees and Charges Imposed by the TCC – Tariff and Customs Code
3. Taxes, Fees and Charges Imposed under Special Laws
4. Taxes, Fees and Charges the Imposition of which contravenes Government Policies or Violative of
the Fundamental Principles of Taxation

Scope of Local Taxation

A. Local Government Taxation
 Provinces
 Cities
 Municipalities
 Barangays
B. Real Property Taxation

Taxes by Each LGUs

Provinces Cities Munics Brgys

T P&M P B

F A 0

P C S

P E S

A R

D B

S O

Local Government Unit (LGU) Tax

 Exclusive Local Taxes

A. Provinces (FAST BAP)

1) Franchise Tax
 First year of business: Any rate not exceeding 0.05% of the investment
 Succeeding years: Any rate not exceeding 0.50% of gross annual receipts

2) Amusement Tax
 Any rate not exceeding 30% of the gross receipts of admission fees

3) Tax on Sand, Gravel and Other Quarry Resources

 Any rate not exceeding 10% of the quarry resources’ FMV per cubic meter extracted from
public areas

4) Tax on Transfer of Real Property Ownership

 Any rate not exceeding 50% of 1% (or 0.50%) of whichever is higher between the total
consideration involved or FMV

5) Tax on Business of Printing and Publication

 Same rates with local franchise tax

6) Annual Fixed Tax for Delivery Vehicles of Business Owners for Certain Products

 Any amount not exceeding P500.00 for every delivery vehicle used for operations or sales
within the province

7) Professional Tax

 Any amount not exceeding P300.00 on active professionals

B. Municipalities – Business Taxes (MR BCEPP)

1) Middlemen (e.g. Wholesalers, Dealers)

o From P18.00 to a rate up to 0.50% of P2,000,000.00 and above gross sales

2) Retailers

o 2% of gross annual receipts of P400,000.00 or below; all others 1%

3) Banks and Other Financial Institutions

o 50% of 1% on the gross receipts

4) Contractors, whether independent or not

o From P27.50 to a rate up to 0.50% of P2,000,000.00 and above gross sales

5) Essential Commodities – Related

o Any rates not exceeding 50% of the original rates for middlemen, retailers, and producers

6) Producers (e.g. Manufacturers, Brewers)

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 o From P165.00 to a rate up to 0.375% of P6,500,000.00 and above gross sales

7) Peddlers

o The rate amounts to P50.00 per peddler annually

C. Cities
 The city councilors may levy all taxes that a province or a municipality may enact, unless provided
otherwise by the local government code

D. Barangays
 In relation to tax, fixed business establishments with gross sales of P50,000 or less for cities and
P30,000 or less for municipalities are subject to tax at any rate not exceeding 1% based upon their
gross sales or receipts

Community Tax

 Cities and municipalities may impose community taxes to its inhabitants whether natural or juridical

 For natural persons, his age must be of majority and/or is a member of the labor force for at least 30
consecutive days, or who owns a business, or who owns a real property with assessed value of
P1,000.00 or more, or who is required to file an ITR

Exemptions:

 Diplomatic and consular representatives

 Transient visitors whose stay in the Philippines does not exceed 3 months

 For natural persons, the minimum annual community tax rate is P5.00 plus P1.00 for every
P1,000.00 income but up to P5,000.00 total income limit

 For juridical persons, the minimum annual community tax rate is P500.00 plus:

 P2.00 for every P5,000.00 worth of real property registered under its name; and

 P2.00 for every P5,000.00 gross receipts or earnings (including inter-corporate dividends) derived
from the Philippines

 The total additional tax should not exceed P10,000.00

 Community taxes shall accrue on January 1 of each year and is due not later than the last day of
February

Community Tax Certificate (Cedula)

 It is a document which proves that a person paid his community tax due

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 Authority and Procedure
Local Taxing Authority - The power to impose a tax, fee, or charge or to generate revenue under this
Code shall be exercised by the sanggunian of the local government unit concerned through an
appropriate ordinance.

Basic Procedure
A. Passage
B. Approval
C. Posting

SURVEY OF CASES
Question No. 1
Congress, after much public hearing and consultations with various sectors of society, came to the
conclusion that it will be good for the country to have only one system of taxation by centralizing the
imposition and collection of all taxes in the national government. Accordingly, it is thinking of passing a
law that would abolish the taxing power of all local government units. In your opinion, would such a law
be valid under the present Constitution? Explain your answer.

Question No. 2
In order to raise revenue for the repair and maintenance of the newly constructed City Hall of Makati,
the City Mayor ordered the collection of P1.00, called “elevator tax,” every time a person rides any high-
tech elevators in the city hall during the hours of 8:00 a.m. to 10:00 a.m. and 4:00 p.m. to 6:00 p.m. Is
the “elevator tax” a valid imposition? Explain.

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