Overview

of the Local Government

Units in the Philippines,
Local Taxation and
Real Property Tax
Module 9
LEARNING
OBJECTIVES After completing the lesson, the students will be able to
 Understand the structure of the Philippine government.
 Identify the 3 branches of the government.
 Differentiate state from government.
 Discuss the essential elements of state.
 Understand the composition of local government units.
 Explain the foundation of creating local government units.
 Determine the rules on classifying local government units.
 Identify the duties and functions of local government officials.
 Enumerate the sources of local government funds.
 Explain the taxing duties of local government units.
 Identify and explain the different local taxes.
 Determine the scope and types of local government taxes.
 Enumerate the types of taxes on real properties
 Identify other taxes imposed on local government units.
The Philippine Government  Article 2 Section 1 of The 1987
Constitution, states “The Philippines is a
democratic and republican State.
Sovereignty resides in the people and all
government authority emanated from
them.

 a republic with a presidential form of

government; power is equally divided
among its three branches: executive,
legislative, and judicial.

 presidential system of government is the

principle of separation of powers
wherein legislation belongs to Congress,
execution to the Executive, and
settlement of legal controversies to the
Judiciary
 Legislative Branch
 authorized to make laws, alter, and repeal them
 enacts legislation, confirms or rejects Presidential appointments,
and has the authority to declare war

 composed of 24 Senators who are elected at

Senate large by the qualified voters of the Philippines

House of  composed of about 304 members elected  party-list representatives shall

Represen from legislative districts in the provinces,
cities, and municipalities, and
tatives representatives elected through a party-list
system of registered national, regional, and
sectoral parties or organizations
constitute twenty per cent of the
total number of representatives
including those under the party list.
 Executive Branch
 carries out and enforces laws
 includes the President, Vice President, the Cabinet, executive departments,
independent agencies, boards, commissions, and committees.

 leads the country; the head of state, leader

of the national government, and
President Commander-in-Chief of all armed forces of
the Philippines
 serves a six-year term and cannot be re-
elected.

 supports the President

Vice  serve as advisors to the President
 If the President is unable to serve, the
President Vice President becomes President.  include the Vice President and the
heads of executive departments.
 also serves a six-year term.
 nominated by the President and must
Cabinet be confirmed by the Commission of
Members Appointments.
 Judicial Branch
 holds the power to settle controversies involving
rights that are legally demandable and enforceable
 determines whether or not there has been a grave
abuse of discretion amounting to lack or excess of
jurisdiction on the part and instrumentality of the
Functions government.
 interprets the meaning of laws, applies laws
to individual cases, and decides if laws
violate the Constitution

 Supreme Court and

Composition  lower courts.
 Check and
Balance of Powers
 The President can veto laws passed by Congress.
 Congress confirms or rejects the President's
appointments and can remove (impeach) the
President from office in exceptional circumstances.
 The Supreme Court has the power of Judicial
Review, the power to declare a treaty, international
or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance or
regulation unconstitutional. The Justices of the
Supreme Court, who can overturn unconstitutional
laws, are appointed by the President.
State versus 01
Government is only an element of
the state
Government A State has four essential elements—Population, Territory,
Government and Sovereignty.

Government is an Agency or Agent

02 of the State
Government is an agency of the State which formulates the
will of the state into laws, implements the laws of the state
and ensures conformity to the laws of the state.

03 State is Abstract, Government is

Concrete:
State is a concept, an idea or a name used to denote a
community of persons living on a definite territory while the
Government is made by the people of the State

State is permanent; government is

04 temporary
Governments come and go regularly. After every general
election the government changes. State is permanent. It
continuously lives so long as it continues to enjoy sovereignty.
Four Elements 01 People

of State Population or the citizens. State is a community of persons

02 Land or Territory
State is a territorial unit.

03 Government
The organization or machinery or agency or magistracy of the
State which makes, implements, enforces and adjudicates
the laws of the state.

04 Sovereignty or independence
State has the exclusive title and prerogative to exercise
supreme power over all its people and territory. Sovereignty is
both internal and external.
The Creation of Local
Government Units
Art. X Sec. 1 & 2of the 1987 Philippine
Constitution

Sec. 1 states that “the territorial and political

subdivisions of the Republic of the
Philippines are the provinces, cities,
municipalities, and barangays. There shall be
autonomous regions in Muslim Mindanao and
the Cordilleras as hereinafter provided.”

Sec. 2 further states that “the territorial and

political subdivisions shall enjoy local
autonomy.
Authority to Create Local Creation and Conversion
Government Units General Powers
A local government unit may be As a general rule, the creation and Attributes
created, divided, merged,
abolished, or its boundaries
of a local government unit
or its conversion from one
of Local
substantially altered either by level to another level shall be Government
law enacted by Congress in the based on verifiable
case of a province, city, indicators of viability and
Units
municipality, or any other projected capacity to provide
political subdivision, or by services, to wit: Local Government
ordinance passed by the a. Income Code of 1991.
Sangguniang Panlalawigan or b. Population
Sangguniang Panlungsod c. Land Area
concerned in the case of a
barangay located within its Compliance with the foregoing
territorial jurisdiction, subject to indicators shall be attested to
such limitations and by the DOF, NSO, and the
requirements prescribed in this LMB of the DENR.
Code.
Quick Question…..
Among the three branches of the
government, which branch is mandated to
supervise the Local Government Units?
Art. X Sec. 4 Local Government Hierarchy
“The President of the
Philippines shall
exercise general
supervision over local
governments.
Provinces with respect
to component cities
and municipalities, and
cities and
municipalities with
respect to component
barangays, shall
ensure that the acts of
their component units
PDF: Supplemental Lesson
are within the scope of file:///D:/Documents/CCA/LESSONS/Special%20Topics%20in%20Taxation/Lessons/Module/M2%20-
their prescribed %20Local%20Government%20-%20supplemental.pdf
powers and functions.” Video: Local Government Unit
https://www.youtube.com/watch?v=D2TItIpbFrs
Provinces
 These are the primary political and administrative divisions of the Philippines. Each
province is governed by an elected legislature called the Sangguniang Panlalawigan
(Provincial Board) and by an elected governor and vice-governor.

Sangguniang Panlalawigan - is the legislative branch of the province and their powers
and responsibilities are defined by the Local Government Code of 1991. Its powers, duties
and functions are outlined into five broad mandates:
a. Approve ordinances and pass resolutions necessary for an efficient and effective
provincial government
b. Generate and maximize the use of resources and revenues for the development plans,
program objectives and priorities of the province... with particular attention to agro-
industrial development and country-wide growth and progress and relative thereto
c. Grant franchises, approve the issuance of permits or licenses, or enact ordinances
levying taxes, fees and charges upon such conditions and for such purposes
d. Approve ordinances which shall ensure the efficient and effective delivery of basic
services and facilities" and, in addition to the services and facilities outlined in Section
17 of the Local Government Code
e. Exercise such other powers and perform such other duties and functions as may be
prescribed by law or ordinance.
The Sangguniang Panlalawigan is composed of regularly elected members and ex
officio members. The Provincial Vice-Governor serves as its presiding officer, who does
not vote except in cases to break a tie.

The total number of SP members to be elected within the province, and the number
within each SP district, varies depending on several factors, including the province's
income, class and the population count within districts.

Ex officio members in the Sanggunian include:

1. The President of the Provincial Chapter of the Liga ng mga Barangay
2. The President of the Provincial Federation of Youth Councils (Sangguniang
Kabataan)
3. The President of the Provincial Federation of Sangguniang Panlungsod and
Sangguniang Bayan members from component cities and municipalities
4. The IP Representative is pursuant to the Republic Act 8371, or the Indigenous
Peoples Rights Act of 1997,
5. The Local Government Code of 1991 also provides for the election of 3 "sectoral
representatives,"[1] which are supposed to come from:
A. women's sector
B. agricultural or industrial sector
C. other sectors, including the disabled, the urban poor, or indigenous cultural
communities
Municipalities
 have some autonomy from the National Government of the Republic of the
Philippines under the Local Government Code of 1991
 have been granted corporate personality enabling them to enact local policies and
laws, enforce them, and govern their jurisdictions
 can enter into contracts and other transactions through their elected and appointed
officials and can tax
 enforcing all laws, whether local or national
 have their own executive and legislative branches and the checks and balances
between these two major branches
 do not have their own judicial branch: their judiciary is the same as that of the
national government.
Organization
According to Chapter II, Title II, Book III of Republic Act 7160 or the Local Government Code of
1991, a municipality shall mainly have
A. a mayor (alkalde) - the chief executive officer of the municipal government and shall determine
guidelines on local policies and direct formulation of development plans.
B. a vice mayor (ikalawang alkalde/bise alkalde) - sign all warrants drawn on the municipal
treasury. Being presiding officer of the Sangguniang Bayan (Municipal Council), he can as well
appoint members of the municipal legislature except its twelve (12) regular members or
kagawad who are also elected every local election. In circumstances where the mayor
permanently or temporarily vacates the position, he shall assume executive duties and
functions.While vice mayor presides over the legislature, he cannot vote unless the necessity
of tie-breaking arises.

C. members (kagawad) of the legislative branch Sangguniang Bayan alongside a secretary to

the said legislature.

Laws or ordinances proposed by the Sangguniang Bayan, however, may be approved or vetoed
by the mayor. If approved, they become local ordinances. If the mayor neither vetoes nor approves
the proposal of the Sangguniang Bayan for ten (10) days from the time of receipt, the proposal
becomes law as if it had been signed. If vetoed, the draft is sent back to the Sangguniang Bayan.
The latter may override the mayor by a vote of at least two-thirds (2/3) of all its members, in which
case, the proposal becomes law.
The following positions are also required for all municipalities across the Philippines:
a. Treasurer
b. Assessor
c. Accountant
d. Budget officer
e. Planning and development coordinator
f. Engineer/building official
g. Health officer
h. Civil registrar
i. Municipal Disaster Risks Reduction and Management Officer
j. Municipal Environment and Natural Resources Officer
k. Municipal Social Welfare and Development Officer

Depending on the need to do so, the municipal mayor may also appoint the following
municipal positions:
a. Administrator
b. Legal officer
c. Agriculturist
d. Architect
e. Information officer
f. Tourism officer
A municipality, upon reaching certain requirements – minimum population size, and
minimum annual revenue – may opt to become a city. First, a bill must be passed in
Congress, then signed into law by the President and then the residents would vote in the
succeeding plebiscite to accept or reject cityhood. One benefit in being a city is that the
city government gets more budget, but taxes are much higher than in municipalities.
Cities
 All Philippine cities are chartered cities, whose existence as corporate and
administrative entities is governed by their own specific municipal charters in
addition to the Local Government Code of 1991, which specifies their administrative
structure and powers.
 entitled to at least one representative in the House of Representatives if its
population reaches 250,000 and are allowed to use a common seal.
 As corporate entities, cities have the power to take, purchase, receive, hold, lease,
convey, and dispose of real and personal property for its general interests,
condemn private property for public use (eminent domain), contract and be
contracted with, sue and exercise all the powers conferred to it by Congress.
 Despite the differences in the powers accorded to each city, all cities regardless of
status are given a bigger share of the Internal Revenue Allotment (IRA) compared
to regular municipalities, as well as being generally more autonomous than regular
municipalities.
A city's local government is headed by a mayor elected by popular vote. The
vice mayor serves as the presiding officer of the Sangguniang Panlungsod (city
council), which serves as the city's legislative body. Upon receiving their charters,
cities also receive a full complement of executive departments to better serve their
constituents. Some departments are established on a case-by-case basis,
depending on the needs of the city.

 Cities, like municipalities, are composed of barangays (Brgy), which can range
from urban neighborhoods to rural communities.

 Barangays are sometimes grouped into officially defined administrative

(geographical) districts. Examples: Manila (16 districts), Davao (11 districts),
Iloilo (7 districts), and Samal (3 districts)

 Some cities such as Caloocan, Manila and Pasay even have an intermediate
level between the district and barangay levels, called a zone (not political units),
serve to make city planning, statistics-gathering other administrative tasks
easier and more convenient.
Classification of Provinces, Cities and Municipalities based
on its Annual Income
 The income classification of Provinces, Cities and Municipalities serves, among
other purposes, as basis for the determination of the financial capability of Local
Government Units (LGUs) to provide in full or in part the funding requirements of
developmental projects and other priority needs in their locality. Thus, in the
preparation of project studies and proposals, the income class of LGUs is used as a
factor in the allocation of national or other financial grants.
 Likewise, the income classification of LGUs is used to determine the maximum
amount expendable for salaries and wages, as well as the salary scales and rates of
allowances, per diems, and other emoluments that local government officials and
personnel may be entitled to; the number of sanggunian members and the
implementation of personnel policies on promotions, transfers, details or
secondments and related matters at the local government level.
 Considering therefore the marked increase in the Internal Revenue Allotment (IRA)
shares of LGUs and the corresponding improvements in their tax collection
performance, as reflected in the aggregate Statements of Income and Expenses
(SIEs) for CYs 2004-2007, in the Annual Financial Reports of the Commission on
Audit, the income re-classification of all Provinces, Cities and Municipalities shall be
based on the revised income brackets herein provided.
 The revised income brackets on the average were adjusted upward to net-out the
impact of IRA increases on the income of LGUs for the past four (4) years, i. e., CYs
2004-2007. In effect, this scheme will anchor the income reclassification on the own-
sourced revenue efforts of LGUs, thus, promoting greater local fiscal sustainability.
 “Annual income” shall refer to revenues and receipts realized by Provinces, Cities
and Municipalities from the regular sources of the Local General Fund, inclusive of
the IRA and other shares provided for in Section 284, Section 290 and Section 291
of the Local Government Code of 1991 or R. A. No. 7160, exclusive, however, of
nonrecurring receipts such as national aids, grants, financial assistance, loan
proceeds, sales of assets, and others.
 “Average annual income” shall refer to the sum of the “annual income”, as herein
defined, actually obtained by a Province, City, or Municipality during the required
number of consecutive calendar years immediately preceding the general
classification of LGUs, divided by such number of calendar years as may be certified
to by the Commission on Audit for the purpose of re-classification.
 As provided for under Section 1 and Section 2 of Executive Order No. 249, dated
July 25, 1987, Provinces, Cities and Municipalities, except Manila and Quezon City
which shall remain as special class cities, shall be divided into six (6) main classes
according to the Average Annual Income actually realized during the last four (4)
calendar years immediately preceding the year of re-classification.
Classification of Provinces
Provinces are classified according to average annual income based on the previous 4
calendar years. Effective July 29, 2008, the thresholds for the income classes for provinces
are:
Classifications of Municipalities
Municipalities are divided into income classes according to their average annual income
during the previous four calendar years:
City Classification based on Income
Cities are classified according to average annual income of the city based on the
previous four calendar years. Effective July 28, 2008, the thresholds for the
income classes for cities are:
 Accordingly, the Bureau of Local Government Finance is hereby directed to undertake the re-
classification of Provinces, Cities (except Manila and Quezon City) and Municipalities in
accordance with the foregoing income brackets and issue appropriate circulars therefor.

Period of General Re-classification of Provinces, Cities and Municipalities

a. Upon the effectivity of the re-classification of Provinces, Cities and Municipalities pursuant to
the provisions of this Order and Section 3 of the aforementioned Executive Order No. 249, the
general re-classification of LGUs shall be made once every four (4) consecutive years.
b. However, any newly converted/created/merged Province, City or Municipality, which has been
in existence for a period of less than four (4) full calendar years of the general re-classification
of LGUs as herein provided, shall be tentatively classified on the basis of its Average Annual
Income actually realized during the last four (4) calendar years immediately preceding the year
of classification.

Adjustment of Income Classification

 As provided for under Section 3 of Executive Order No, 249, an adjustment of the income
classification of any Province, City or Municipality shall not be made oftener than once every
four (4) consecutive years, except in cases of diminishing revenues, which upon the occurrence
thereof, this Department may order at any time the downward adjustment of the income
classification of the LGU concerned in accordance with the income brackets herein prescribed.
Legal Classification of Cities
The Local Government Code of 1991 (Republic Act No. 7160) classifies all cities
into one of three legal categories:

A. Highly urbanized cities (HUC): Cities with a

 minimum population of two hundred thousand (200,000) inhabitants, as
certified by the Philippine Statistics Authority, and
 with the latest annual income of at least fifty million pesos (₱50,000,000 or USD
1,000,000) based on 1991 constant prices, as certified by the city treasurer.

B. Independent component cities (ICC): Cities of this type have charters that
explicitly prohibit their residents from voting for provincial officials. All five of them
are considered independent from the province in which they are geographically
located: Cotabato, Dagupan, Naga (Camarines Sur), Ormoc, and Santiago.
Independent Cities
There are 38 independent cities in the Philippines, all of which are classified as
either "Highly urbanized" or "Independent component" cities. From a legal,
administrative and fiscal standpoint, once a city is classified as such:
a. its Sangguniang Panlungsod legislation is no longer subject to review by any
province's Sangguniang Panlalawigan;
b. it stops sharing its tax revenue with any province; and
c. the President of the Philippines exercises direct supervising authority over the
city government (given that the provincial government no longer exercises
supervision over city officials), as stated in Section 29 of the Local Government
Code

C. Component cities (CC): Cities which do not meet the preceding requirements
are deemed part of the province in which they are geographically located.
Barangays
A barangay, sometimes referred to its archaic name barrio, is the smallest
administrative division in the Philippines and is the native Filipino term for a village,
district, or ward. In metropolitan areas, the term often refers to an inner city
neighbourhood, a suburb, or a suburban neighborhood.

Regions
These are administrative divisions that primarily serve to coordinate planning and
organize national government services across multiple local government units
(LGUs). Most national government offices provide services through their regional
branches instead of having direct provincial or city offices. These regional offices
are usually (but not always) located in the city designated as the regional center.
Types of Regions
1. Administrative Region - An administrative region is not a local government unit
(LGU), but rather a group of LGUs to which the President has provided an
unelected policy-making and coordinating structure, called the Regional
Development Council (RDC). Metro Manila is recognized in law as a "special
development and administrative region", and was thus given the Metropolitan
Manila Development Authority (MMDA); the Metro Manila Council within the
MMDA serves as the National Capital Region's RDC.

2. Autonomous Region - An autonomous region of the Philippines (Filipino:

Rehiyong awtonomo ng Pilipinas) is a first-level administrative division that has
the authority to control a region's culture and economy. The 1986 iteration of the
Constitution of the Philippines allows for two autonomous regions: in the
Cordilleras (CAR) and in Muslim Mindanao (ARMM). Currently Bangsamoro which
largely consists of the Muslim-majority areas of Mindanao is the only autonomous
region in the country.
 Local Taxation
Sources of Local Government Funds
1. External Sources
Sec. 6 and 7 of Art. X of the Constitution state the LGU is entitled to just
share in the national taxes (taxes collected by the BIR and BOC) which shall
be automatically released to them.
2. Local Sources or internal Sources
Basis of LGU Taxation Power - Art. X Sections 5 to 7 of the Constitution
Sec. 5 “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.”
Local Taxing Authority
Section 132. 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.
Scope and Types of Local Government Taxes
Real Property Tax
a. Basic Real Property Tax
The real property tax (RPT) is an ad valorem tax (tax based on the value of the
property) on real properties such as lands, buildings, and other improvements,
and machineries imposed by provinces, cities and municipalities within the
Metropolitan Manila Area (MMA), at the following rates:
Provinces - Not exceeding 1% of the assessed value of the real property;
Cities or Municipalities within the MMA - Not exceeding 2% of the assessed
value of the real property
 Scope and Types of Local Government Taxes
The real property tax is based on the assessed value which is a certain percentage of the
market value of the real property. The assessed value is arrived at upon application of the
assessment levels to the market value of the property. The assessment levels are fixed by
ordinance of the local Sanggunian depending on the actual use of the property, at rates not
exceeding the following:

Lands
Class Assessment Levels
 Residential 20%
 Agricultural 40%
 Commercial, Industrial and Mineral 50%
 Timberland 20%

Buildings and Other Structures

The rate progresses directly with the fair market value (FMV) as follows:
 Residential – 0% for those with FMV of PhP175,000.00 or less, to 60% for those with FMV
of more than PhP10 million.
 Agricultural – 25% for those with FMV of PhP300,000.00 or less, to 50% for those with
FMV of more than PhP2 million.
 Commercial/Industrial – 30% for those with FMV of PhP300,000.00 or less, to 80% for
those with FMV of more than PhP10 million.
 Timberland – 45% for those with FMV of PhP300,000.00 or less, to 70% for those with
FMV of more than PhP2 million.
 Scope and Types of Local Government Taxes
Machineries
Class Assessment Levels
 Agricultural 40%
 Residential 50%
 Commercial and Industrial 80%

Special Classes
The assessment levels for all lands, buildings, machineries, and other
improvements are as follows:
Actual Use Assessment Levels
 Cultural 15%
 Scientific 15%
 Hospital 15%
 Local Water Districts 10%
 Government-owned or controlled corporations 10%
engaged in the supply and distribution of water
and/or generation and transmission of electric power
Scope and Types of Local Government Taxes
Exemptions: The following are exempted from payment of the RPT:
 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;
 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;
 All machineries and equipment that are actually, directly and exclusively used
by local water districts and government-owned or–controlled corporations
(GOCCs) engaged in the supply and distribution of water and/or generation and
transmission of electric power;
 All real property owned by duly registered cooperatives as provided for under
RA 6938; and
 Machinery and equipment used for pollution control and environment protection.
Scope and Types of Local Government Taxes
b. Special Levies on Real Property

Special Education Fund Tax

In addition to the basic RPT, a province or city, or a municipality within the MMA may levy and
collect an annual tax of 1% on the assessed value of real property which shall be in addition to
the basic RPT. The proceeds thereof shall exclusively accrue to the Special Education Fund
(SEF) to support public education.

Idle Lands Tax

A province or city, or a municipality within the MMA may levy an annual tax on idle lands at a
rate not exceeding 5% of the assessed value of the property which shall be in addition to the
basic RPT.
Coverage
a. Agricultural lands, more than one (1) hectare in area, suitable for cultivation, dairying, inland
fishery, and other agricultural uses, one-half (1/2) of which remain uncultivated or
unimproved. Not considered as idle lands are (i) agricultural lands planted to permanent or
perennial crops with at least fifty (50) trees to a hectare, and (ii) lands actually used for
grazing purposes.
b. Lands, other than agricultural, located in a city or municipality more than one thousand
(1,000) square meters in area, one-half of which remain unutilized or unimproved.
Scope and Types of Local Government Taxes
Regardless of land area, the tax shall likewise apply to residential lots in
subdivisions duly approved by proper authorities, the ownership of which has been
transferred to individual owners, who shall be liable for the additional tax.

Exemption
The LGU 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 of the property or person having legal interest therein
from improving, utilizing or cultivating the same.
Scope and Types of Local Government Taxes
Special Levy
A province, city or municipality may impose a special levy on the lands within its
territorial jurisdiction specially benefitted by public works projects or improvements
funded by the LGU concerned. The special levy shall not exceed 60% of the actual
cost of such projects and improvements, including the costs of acquiring land and
such other real property in connection therewith.

The special levy shall not apply to lands exempt from basic RPT and the remainder
of the land portions of which have been donated to the LGU concerned for the
construction of such projects or improvements.

Other Impositions on Real Property

a. Socialized Housing Tax
In addition to the RPT and SEF tax, a socialized housing tax may also be imposed
by a province, city or municipality within the MMA. The tax is 1/2 of 1% of the
assessed value of all lands in urban areas in excess of PhP50,000.00.
Scope and Types of Local Government Taxes
b. Tax on Transfer of Real Property Ownership
A province, city or municipality within the MMA may impose a tax on the sale,
donation, barter, or any other mode of transferring ownership or title of real property
at the rate of not more than 50% of 1% in the case of a province and 75% of 1% in
the case of a city or a municipality in MMA of the total consideration involved in the
acquisition of the property or of the FMV in case the monetary consideration
involved in the transfer is not substantial, whichever is higher.

The sale, transfer or other disposition of real property pursuant to RA 6657

(Comprehensive Agrarian Reform Law of 1988) shall be exempt from the tax.
Scope and Types of Local Government Taxes
Collection of Real Property Tax
The real property tax for any year shall accrue on the first day of January. The basic
RPT and the additional SEF tax may be paid without interest in four (4) equal
installments; the first installment to be due and payable on or before March 31; the
second installment, on or before June 30; the third installment, on or before
September 30; and the last installment on or before December 31.

The special levy shall accrue on the first day of the quarter next following the
effectivity of the ordinance imposing such levy. Its payments shall be governed by
the ordinance of the Sanggunian concerned.

The tax on transfer of real property ownership shall be paid within sixty (60) days
from the date of the execution of the deed or from the date of the decedent’s death.

The date for the payment of any other tax on real property shall be prescribed by
the Sanggunian concerned.
 Scope and Types of Local Government Taxes
Illustration:

A residential property located in Makati City, Metro Manila, owned by Ms. Mandarambong
is said to have a market price of Php10,000,000.00. The property is comprised of a parcel
of land valued at Php6,000,000, while the structure of the house itself, also known as
building or improvement, is valued at Php4,000,000.
We compute for the total assessed value of the property by adding the assessed value of
the residential land and assessed value of the building.
(A) Assessed Value of Land: Residential land (Php6,000,000) x Assessment Level (20%) =
Php1,200,000
(B) Assessed Value of the Building: House (Php4,000,000) x Assessment Level (40%) =
Php1,600,000
(C) Total Assessed Value of the Property: (A) + (B) = Php 2,800,000
(D) Real Property Tax: (C) x Metro Manila RPT rate (2%) = Php56,000
(E) Special Education Fund (SEF) levy: (C) x SEF levy = Php28,000
Therefore, the total tax to be paid by Ms. Mandarambong (D + E), is Php 84,000.
 Scope and Types of Local Government Taxes
Deadline for payment
For those who choose to pay it in full, the deadline is before January 31 of each year.
For those who choose to pay it in quarterly, deadlines are as follows:
 First quarter: On or before March 31
 Second quarter: On or before June 30
 Third quarter: On or before September 30
 Fourth quarter: On or before December 31

Owners may pay their taxes at Land Tax Division of the Treasurer’s Office of the Local
Government Unit. Online modes of payment may be available, but you must check this
first with your local government.

Penalties are imposed on late payments. Penalty is at 2% interest per month on the
unpaid amount, and can reach a maximum of 72% if unpaid for 36 months or 3 years.
Scope and Types of Local Government Taxes
Other Local Taxes
A. Provincial Taxes
a. Tax on business of printing and publication at a rate not exceeding 50% of
1% of the gross annual receipts for the preceding calendar year. In case of
newly started business, the tax shall not exceed 1/20 of 1% of the capital
investment.
b. Tax on a business enjoying franchise at a rate not exceeding 50% of 1% of
the gross annual receipts for the preceding calendar year. In case of a newly
started business, the tax shall not exceed 1/20 of 1% of the capital
investment.
c. Tax on sand, gravel and other quarry resources at a rate not exceeding 10%
of the fair market value in the locality per cubic meter of ordinary stones,
sand, gravel, earth, and other quarry resources, as defined under the
National Internal Revenue Code (NIRC), as amended, extracted from public
lands or from the beds of seas, lakes, rivers, streams, creeks, and other
public waters within its territorial jurisdiction.
Scope and Types of Local Government Taxes
d. Professional tax on each person engaged in the exercise or practice of
his/her profession requiring government examination at a rate not exceeding
PhP300.00.
e. Amusement tax payable by proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia, and other places of amusement
at a rate of not more than 10% of the gross receipts from admission fees.
f. Annual fixed tax not exceeding PhP500.00 for every delivery truck or van used
by manufacturers, producers, wholesalers, dealers or retailers in the delivery or
distribution of distilled spirits, fermented liquors, soft drinks, cigars and
cigarettes, to sales outlets, or consumers, whether directly or indirectly, within
the province.
Scope and Types of Local Government Taxes
B. Municipal Taxes
a. Business Taxes
There are three (3) kinds of business taxes imposed by municipalities: (a) a
combination of a graduated-fixed and percentage business taxes; (b) percentage tax;
and (c) annual tax.

The following are subject to a combination of a graduated-fixed and percentage

business taxes:
1. Manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers,
and compounders of liquors, distilled spirits, and wines or manufacturers of any
article of commerce of whatever kind or nature at rates ranging from PhP165.00
for gross receipts of less than PhP10,000.00 to PhP24,375.00 for gross receipts
of PhP5 million to PhP6,499,999.00. Those with gross receipts of
PhP6,500,000.00 or more are taxed at a rate of not exceeding 37 1/2% of 1% of
the gross receipts.
Scope and Types of Local Government Taxes
2. Wholesalers, distributors, or dealers in any article of commerce of whatever kind
or nature at rates ranging from PhP18.00 for gross receipts of less than PhP1,000.00
to PhP10,000.00 for gross receipts of PhP1 million to PhP1,999,999.00. Those with
gross receipts of PhP2 million or more are taxed at a rate of not exceeding 50% of
1% of the gross receipts.

3. Exporters, and manufacturers, millers, producers, wholesalers, distributors,

dealers or retailers of essential commodities are subject to not more than one-half
(1/2) of the rates prescribed for manufacturers wholesalers and retailers of other
products.

4. Contractors and other independent contractors at rates ranging from PhP27.50 for
gross receipts of less than PhP5,000.00 to PhP11,500.00 for gross receipts of PhP1
million to PhP1,999,999.00. Those with gross receipts of PhP2 million or more are
taxed at a rate of not exceeding 50% of 1% of the gross receipts.
Scope and Types of Local Government Taxes
Percentage taxes are imposed on the following:
1. Retailers, at rates of 2% for gross receipts of PhP400,000.00 or less and 1% for
gross receipts over PhP400,000.00.

*Barangays have exclusive power to levy taxes on gross sales or receipts of

P50,000 or less in the case of cities, and P30,000 or less, in the case of
municipalities.

2. Banks and other financial institutions at a rate not exceeding 50% of 1% of the
gross receipts of the preceding calendar year derived from interest, commissions
and discounts from lending activities, income from financial leasing, dividends,
rentals, on property and profit from exchange or sale of property, insurance premium.

3. Any business, not otherwise specified in the preceding paragraph at a rate to be

determined by the local Sanggunian. If the business is subject to the excise, VAT or
percentage tax under the NIRC, the rate shall not exceed 2% of the gross sales or
receipts of the preceding calendar year.

Annual tax on peddlers engaged in the sale of any merchandise or article of

commerce, at a rate not exceeding PhP50.00 per peddler.
Scope and Types of Local Government Taxes
C. City Taxes
The city government may impose and collect any of the taxes, fees and charges
imposed by the province or municipality. The rates of taxes may exceed the
maximum rates allowed for the province or municipality by not more than 50%
except the rates of professional and amusement taxes which are already fixed.

D. Barangay Taxes
The barangay may impose a tax on stores or retailers with fixed business
establishments with annual gross sales or receipts of PhP50,000.00 or less in the
case of cities; and PhP30,000.00 or less, in the case of municipalities, at a rate not
exceeding 1% of gross sales or receipts.
Scope and Types of Local Government Taxes
E. Community Tax
City and municipal government may impose a community tax at the following rates:
a. Individuals Basic community tax ………………………....... PhP5.00
Additional tax – For every PhP1,000.00 of income .…............ PhP1.00
The tax, however, shall in no case exceed PhP5,000.00.

b. Corporations Basic community tax………………………... PhP500.00

Additional tax –
 For every PhP5,000.00 worth of real property …............................. PhP2.00
 For every PhP5,000.00 worth of gross receipts/ earnings
derived from business…………………………………………….... PhP2.00

The tax, however, shall in no case exceed PhP10,000.00.

Exemptions:
The following are exempt from the community tax:
 Diplomatic and consular representatives; and
 Transient visitors when their stay in the Philippines does not exceed three (3)
months.
 Scope and Types of Local Government Taxes
Other Revenue-Raising Powers of Local Governments
1. Common
a. Service Fees and Charges - LGUs may impose and collect such reasonable fees and
charges.
b. Public Utility Charges - LGUs may fix the rates for the operation of public utilities
owned, operated and maintained by them within their jurisdiction.
c. Toll Fees and Charges - LGUs may prescribe the terms and conditions and fix the
rates for the imposition of toll fees or charges for the use of any public road, pier or
wharf, waterway, bridge, ferry or telecommunication system funded and constructed
by the LGU concerned.

2. Municipalities
a. Fees and charges on business and occupation and, except as reserved to the
province in Section 139 of the LGC, on the practice of any profession or calling,
commensurate with the cost of regulation, inspection and licensing at rates to be
prescribed by the Sangguniang Bayan.
b. Fees for the sealing and licensing of weights and measures at rates to be prescribed
by the Sangguniang Bayan.
c. Rentals, fees or charges on the use of municipal waters at rates prescribed by the
Sangguniang Bayan.
 Scope and Types of Local Government Taxes
3. Cities - Fees and charges imposed by the province or municipality.

4. Barangays
Fees and charges:
a. For services rendered in connection with the regulation or the use of barangay-owned
properties or service facilities.
b. For the issuance of a barangay clearance for any business or activity located or
conducted within the territorial jurisdiction of the barangay before the city or
municipality may issue a license or permit to said business or activity.
c. On commercial breeding of fighting cocks, cockfights and cockpits.
d. On places of recreation which charge admission fees.
e. On billboards, signboards, neon signs, and outdoor advertisement.

Video: Real Property Tax

https://www.youtube.com/watch?v=IhzAm3_8ixA&t=524s
Questions to Ponder
1. What are the three branches of the Philippine government? Enumerate their
functions.
2. How is the system of check and balances among the three branches of the
government work?
3. What are the differences between the state and government?
4. What are the elements of the state? Briefly discuss each element.
5. How is the local government unit in the Philippines created?
6. What are the duties and functions of Provincial Vice-Governor?
7. What are the duties and functions of municipal council?
8. How are the local government units being classified?
9. How is the system of check and balances of government branches in the local
government unit exercised?
10. What are the two classifications of regions in the Philippines? Briefly state their
differences.
11. What is basic real property tax and who are exempted from paying this tax?
12. What is idle land tax?
13. When is the deadline for collection of real property tax?
14. What are the three business taxes imposed by municipalities?
15. What are the other revenue raising power of local governments?
Required Readings and Other Learning Resources
"DEPARTMENT OF FINANCE ORDER No.23–08" (PDF). NSCB. 29 Jul 2008.
Archived from the original (PDF) on 13 Nov 2010.
https://www.gov.ph/philippine-government
https://www.yourarticlelibrary.com/difference/9-main-differences-between-state-and-
government/40327
https://www.officialgazette.gov.ph/downloads/1991/10oct/19911010-RA-7160-
CCA.pdf
https://www.officialgazette.gov.ph/constitutions/1987-constitution/
https://www.officialgazette.gov.ph/1987/07/25/executive-order-no-249-s-1987/
https://www.comelec.gov.ph/?r=References/RelatedLaws/ElectionLaws/OtherElection
Laws/RA6735
http://www.ntrc.gov.ph/images/Publications/guide-to-philippine-taxes-2016/local-
taxes.pdf
https://www.philippineairlines.com/FAQs/TaxesFeesandSurcharges
http://blgf.gov.ph/wp-content/uploads/2015/11/LGU-Taxation-and-Revenue-Practices-
October-2015.pdf

Videos:
Local Government Unit - https://www.youtube.com/watch?v=D2TItIpbFrs
Real Property Tax - https://www.youtube.com/watch?v=IhzAm3_8ixA&t=524s
 Appendix: Course Materials Evaluation
Adopted: BEST PRACTICES AND SAMPLE QUESTIONS FOR COURSE EVALUATION SURVEYS. Retrieved from
https://assessment.provost.wisc.edu/best-practices-and-sample-questions-for-courseevaluation-surveys//.