RTDG - ausl local taxation reviewer
LOCAL GOVERNMENT TAXATION Q: What is the source of the local taxing power of the government? It is granted by the Constitution under Section 5, Article X of the 1987 Constitution. It is not inherent in the Local Government. In Meralco v. Province of Laguna [May 5, 1999], the Supreme Court held that the taxing power of LGUs is a direct grant of the Constitution, and is not a delegated power of Congress. Q: What is the legal basis of the grant of local taxing power under the LGC? Section 129 of the LGC. 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. Q: Who has the authority to prescribe penalties for local tax violations? The Sanggunian of a LGU is authorised to prescribe fines or other penalties for violation of tax ordinances. (Sec. 516, LGC) Q: Who may grant local tax exemptions? The LGU may, through ordinance duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions, as they may deem necessary. (Sec. 192, LGC) Q: What entities are still exempt from local taxes? (1) Local Water Districts (2) Cooperatives duly registered under RA 6938 (3) Non-stock and non-profit hospitals (4) Educational institutions Q: May the government grant tax exemption to taxpayers whose previous exemption has been withdrawn? YES. In PLDT v. City of Davao [August 22, 2001], the Supreme Court held that withdrawal of a tax exemption does not prohibit future grants of tax exemption. (Sec. 193, LGC) Q: Who has the authority to adjust local tax rates? The LGU have the authority to adjust local tax rates. However, it should not be more than once every 5 years and in no case shall such adjustment exceed 10% of the rates fixed under the Code. (Sec. 191, LGC) Q: Who has the authority to issue local tax ordinance? The power to impose a tax, fee, or charge or to generate revenue shall be exercised by the Sanggunian of the LGU concerned through an appropriate ordinance. (Sec. 132, LGC) Q: What is the significance of a local tax ordinance?
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What determines tax liability is the tax ordinance. The LGC is simply the enabling law for the local legislative body. In Yamane v. BA Lepanto Condominium Corp [October 25, 2005], at issue was whether the City Government of Makati can hold condominium corporations liable to pay business taxes. The Supreme Court pointed out that in issuing a notice of assessment, reference to the local tax ordinance is vital because the power of LGUs to impose local taxes is exercised through the appropriate ordinance enacted by the Sanggunian and not by the LGC. Q: Can an ordinance with has been declared void for failure to publish for 3 weeks be remedied by passing another ordinance with purports to amend the ordinance that has been declared null and void? NO. In Coca-Cola Bottlers v. City of Manila [June 27, 2006], the Supreme Court held that the new ordinance is still void since it cannot cure something which had never existed in the first place as the same was void ab initio. Q: Is publication/posting of an ordinance fixing the assessment levels for different classes of real property in a LGU necessary? YES. In Figuerres v. CA [March 25, 1999], the Supreme Court held that the publication/posting requirement under Section 188 of the LGC must be complied with in case of an ordinance imposing real property taxes, as well as an ordinance fixing the assessment levels for different classes of real property. Q: What is the Principle of Pre-emption or Exclusionary Rule? When the national government elects to tax a particular area, it is impliedly withholding from the LGU the delegated power to tax the same field. Q: What is the taxing power of the following LGUs: (a) Province; (b) Municipalities; (c) Cities; and (d) Barangays? (A) Province (1) Local Transfer Tax (2) Business Tax on Printing and Publication (3) Local Franchise Tax (4) Tax on Sand, Gravel and other Quarry Resources (5) Professional Tax (6) Amusement Tax (7) Tax on Route Delivery Truck or Vans (B) Municipalities (1) Local Business Tax (2) Fees on business and occupation (3) Fees on selling and licensing of weights and measures (4) Fishery rentals, fees and charges (C) Cities - they may levy taxes which the province and municipality may impose. The tax rates, fees, and charges which the city may levy may exceed the maximum rates allowed for the province or municipality by not more than
RTDG - ausl local taxation reviewer
50% except the rates of professional and amusement taxes. (D) Barangays (1) Taxes on stores with fixed business establishment (2) Service fees for use of barangay-owned properties and services rendered (3) Barangay clearance (4) Other fees and charges for (a) commercial breeding of fighting cocks, cockpits and cockfighting; (b) on places of recreation with admission fees; (c) billboards, signboards and outdoor advertisements Q: What are not covered by the local transfer tax of real property? The sale, transfer or other disposition of real property pursuant to the Agrarian reform Program shall be exempt from local transfer tax. (Sec. 135, LGC) Q: What is not covered by the business tax on printing and publication? The receipts from the printing and/or publishing of books or other reading materials prescribed by the DepEd as schools texts or references shall exempt from business tax. (Sec. 136, LGC) Q: May the tax be imposed on extractions from private lands? NO. In Province of Bulacan v. CA [November 27, 1998], the tax be imposed only to those extracted from public lands or public waters within its territorial jurisdiction. Private lands are excluded. (Sec. 138, LGC) Q: What is the situs of professional tax? Professional tax is payable in the province where the taxpayer practices his profession or where the principal office is located in case he practices his profession in several places. (Sec. 139, LGC) Q: Is the amusement tax on admission tickets to PBA games a national or local tax? It is a national tax. In PBA v. CA [August 8, 2000], the Supreme Court held that it was the National Government which could collect amusement taxes from the PBA. While Section 13 of the Local tax Code mentions “other places of amusement,” professional basketball games are definitely not within its scope under the principle of ejusdem generis. Q: How are the sales of route trucks and vans taxed? If the sale is made in a place with a branch office: the sale is reported in the LGU where the branch office is located. If the sale is made in a place without a branch office: the sale is reported in the LGU where the sales are withdrawn. Q: The City of Cebu imposed a gross sales tax on sales of matches stored by Philippine Match Co. in Cebu City but delivered to customers outside the city. Is the imposition valid?
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YES. As held in Philippine Match Co. v. City of Cebu [January 18, 1978], the city can validly tax the sales of matches to customers outside of the city as long as the orders were booked and paid for in the company’s branch office in the city. Those matches can be regarded as sold in the city because the matches were delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer. Q: ABC Bottlers Inc. maintained a bottling plant in Pavia, Iloilo but sold softdrinks in Iloilo City by means of a fleet of delivery trucks called rolling stores which went directly to customers. Iloilo City passed an ordinance imposing a municipal license tax on distributors/sellers in the area. Is ABC liable under the tax ordinance? YES. In Iloilo Bottlers Inc. v. City of Iloilo [August 19, 1988], the Supreme Court found that the bottling company was engaged in the business of selling/distributing softdrinks in Iloilo City through its rolling stores where sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Hence, the company was subject to municipal license tax. Q: Who are covered by the local business tax? (1) Manufacturers, assemblers and producers (2) Wholesalers, dealers and distributors (3) Exporters, manufacturers of essential commodities (4) Retailers (5) Contractors (6) Banks and other financial institutions (7) Peddlers (8) Other business not specified (Sec. 143, LGC) Those already subject to tax under (1) to (7) can no longer be subject to tax under (8) otherwise it will be deemed double taxation. City of Manila v. Coca-Cola Bottlers [August 4, 2009] Q: What is the ceiling on business tax imposed on municipalities within Metro Manila? The municipalities in Metro Manila may levy taxes at rates which shall not exceed by 50% the maximum rate prescribed in Section 143, LGC. Q: May a municipality impose a professional tax? NO. The municipality may impose and collect such reasonable fees and charges on business and occupation and on the practice of any profession or calling except professional tax which is reserved to the province. (Sec. 147, LGC) Q: What are the limitations on the taxing power of LGUs? As provided in Sec. 133 of the LGC, LGUs cannot impose the following: (1) income tax (2) documentary stamp tax (3) estate and donor’s tax (4) customs duties
RTDG - ausl local taxation reviewer
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(5) taxes on goods passing through the LGU (6) taxes on agricultural and aquatic products sold by marginal farmers and fisherman (7) taxes on board of investments registered enterprises (8) excise taxes and taxes on petroleum products (9) percentage tax and VAT (10) taxes on gross receipts of transportation contractors (11) taxes on premium paid by way of reinsurance (12) taxes on registration of motor vehicles (13) taxes on Philippine products actually exported (14) taxes on Countryside and Barangay business enterprises and cooperatives (15) taxes and fees on the National Government
Q: When are local taxes paid? General Rule: Within the first 20 days of January or of each subsequent quarter, as the case may be Exception: For Justifiable reason or cause, the Sanggunian may extend the time for payment without surcharge or penalties but only for a period not exceeding 6 months. (Sec. 167, LGC)
Q: Is municipal ordinance imposing fees on goods (corn) that pass through a municipality;s territory valid? NO. As held in Palma Dev’t. Corp. v. Zamboanga Del Sur [October 16, 2003], LGUs through their Sanggunian, may impose taxes for the use of any public road such as a service fee imposed on vehicles using municipal roads to a wharf. In this case, the LGU cannot tax the goods even in the guise of police surveillance fees.
REMEDIES AVAILABLE TO THE TAXPAYERS Q: What are the remedies available to the taxpayer prior to assessment? (1) To question the constitutionality or legality of tax ordinances or revenue measures on appeal (Administrative Remedy) (2) Petition for declaratory relief as and when applicable (Judicial Remedy)
Q: Petron maintains a depot or bulk plant at the Navotas Fishport Complex where it engages in the selling of diesel fuels to vessels used in commercial fishing. Navotas City levied business taxes on its sale of petroleum products. Can the LGU levy the business tax on the sale of petroleum? NO. the LGU cannot impose any local tax on petroleum products. As held in Petron Corp. v. Tiangco [April 16, 2008], the prohibition with respect to petroleum products extends not only to excise taxes but all taxes, fees and charges.
PROCESS ON HOW AN APPEAL INVOLVING QUESTIONS OF CONSTITUTIONALITY OR LEGALITY OF TAX ORDINANCES (1) Appeal to the Secretary of Justice within 30 days from effectivity (2) The Secretary of Justice has 60 days to decide but an appeal does not suspend the effectivity of the ordinance (3) Within 30 days from the Secretary of Justice’s decision or after 60 days inaction, an appeal may be filed with the RTC
Q: What is the rationale for the exemption of common carriers from local taxes? AS held in First Philippine Industrial Corp (FPIC) v. CA [December 29, 1998], the legislative intent in excluding from the taxing power of the LGU the imposition of business tax against common carriers is to prevent a duplication of the so-called common carrier’s tax.
Q: What authority is given to the Secretary of Justice with respect to review of tax ordinances? The Secretary of Justice can declare an ordinance void for not having followed the requirements of the law but he cannot replace it with his own law or he cannot say that it is unwise. In Drilon v. Lim [August 4, 1994], then Secretary of Justice Drilon set aside the Manila Revenue Code on two grounds, namely the inclusion of certain ultra vires provisions and its non-compliance with the prescribed procedure in its enactment. In ruling that the act of then Secretary Drilon was proper, the Supreme Court noted that when the Secretary alters or modifies or sets aside a tax ordinance, he is not allowed to substitute his own judgment for the judgment of the LGU that enacted the measure. In the said case, Secretary Drilon only exercised supervision and not control.
Q: Are broadcasting and telecommunication companies liable to pay local transfer taxes? NO. As held in both Smart Communication v. City of Davao [September 16, 2008] and Quezon City v. ABSCBN Broadcasting Corp. [October 6, 2008], these franchise holders are now subject to VAT. Q: What is the tax period for local taxes? The tax period of all local taxes, fees and charges shall be the calendar year. Such taxes, fees, and charges may be paid in quarterly instalments. (Sec. 165, LGC) Q: When do local taxes accrue? General Rule: On January 1 Exception: New taxes which will accrue in the 1st day of the next quarter following effectivity of the ordinance.
Q: What penalties are imposable on failure to pay local taxes? The penalty of 25% surcharge and 2% interest per month not to exceed 36 months (or a maximum of 72%) may be imposed. (Sec. 168, LGC)
Q: X, a taxpayer who believes that an ordinance passed by the City Council of Pasay is unconstitutional for being discriminatory against him wants to know from you, his tax lawyer, whether or not he could file an appeal. In the affirmative, he asks you where such appeal should be made: The Secretary of Finance, the Secretary of Justice or the CTA or the
RTDG - ausl local taxation reviewer
Regular Courts. What would your advice be to your client? The appeal should be made with the Secretary of Justice. Any question on the constitutionality or legality of a tax ordinance may be raised on appeal with the Secretary of Justice within 30 days from the effectivity thereof. Hagonoy Market Vendor Assoc. v. Municipality of Hagonoy [February 6, 2002] Q: When may an action for declaratory relief be filed? When there is such an obscurity, declaratory relief would be applicable. This remedy is open to determine any question of construction or validity of a tax law and/or the declaration of taxpayer’s liabilities thereunder. Q: What are the rules on assessments? General Rule: An assessment must be made within 5 years from the date they become due. Exception: If there is fraud or intent to evade payment of the tax, the assessment may be made within 10 years from discovery of fraud or intent to evade. (Sec. 194, LGC) Q: What is the rule on collection? Collection must be within 5 years from assessment. Q: What are the remedies available to the taxpayer after assessment? (1) Protest of assessment (Sec. 195, LGC) (2) Claim for refund (Sec. 196, LGC)
(1) (2) (3) (4) (5) (6)
PROCEDURE IN PROTEST OF LOCAL TAX ASSESSMENT Assessment notice issued by local treasurer File written protest with the local treasurer within 30 days from date of payment The Treasurer has to decide within 60 days An appeal to the RTC is then available upon denial or 60 days inaction by the treasurer The RTC decision is appealable to the CTA En Banc Appeal to the SC within 15 days from receipt of resolution
Q: What is the rule on refunds? The taxpayer must file a written claim within 2 years from the date of payment of tax or from the date when the taxpayer is entitled to refund. REMEDIES AVAILABLE TO THE LOCAL GOVERNMENT Q: What are the civil remedies available to the LGU for collection of revenues? (1) Administrative Action - Distraint of personal property - Levy upon real property - Compromise (2) Judicial Action Q: How is the administrative remedy of distraint or levy exercised? By administrative action thru distraint of goods, chattels, or effects, and other personal property or whatever character, including stocks and other securities, debts, credits, bank
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accounts and interest in and rights to personal property, and by levy upon real property snd interest in or rights to real property. (Sec. 174, LGC) Q: How is the remedy of judicial action exercised? The LGU concerned may institute an ordinary civil action with the regular courts for the collection of delinquent taxes within 5 years from the date the taxes, fees or charges become due. (Sec. 194, LGC)
