Local Government Taxation

• The 1987 Constitution grants each local government unit the power to create revenue sources and levy taxes, fees and charges.
• These revenues accrue exclusively to the local governments.
• Congress must enact a local government code for a responsive and accountable local government structure through decentralization.
• RA No. 7160 reinforces the local government units' power to create revenue and levy taxes, fees, and charges.
• Section 132 of the Local Government Code dictates that the Sanggunian exercises taxing power via ordinances.

Resolution vs. Ordinance

• Resolutions express opinions with temporary effect.
• Ordinances permanently direct and control matters.

Fundamental Principles of Taxation (Section 130)

• Taxation must be uniform within each local government unit.
• Taxes, fees, and charges should be equitable, based on ability to pay, and for public purposes.
• They should not be unjust, excessive, or contrary to law or national policy.
• Collection of local taxes cannot be privatized.
• Revenue from the Local Government Code (LGC) inures to the benefit of the local government levying the tax.
• Local government units should aim for a progressive taxation system.

Constitutional Limitations (Sec. 133)

• Taxes must follow due process and equal protection.
• Laws shouldn't impair obligations and contracts.
• There is no imprisonment for non-payment of poll tax.
• Religious and charitable groups have tax exemptions.
• Taxation follows a rule of uniformity.

Statutory & Inherent Limitations

• Statutory limitations are specified in the LGC.
• Inherent limitations include public purpose and territorial jurisdiction.
• There is a prohibition against double taxation.
• Government entities are exempt from taxation.

Common Limitations

• Local governments cannot levy income tax (except on banks/financial institutions) and documentary stamp tax.
• They can't impose taxes on estates, inheritances, or gifts (except as provided).
• Custom duties, vessel registration fees, and wharfage are prohibited.
• Taxes on goods moving across local jurisdictions are disallowed.

Scope of Taxing Powers of Local Government Units

• Provinces can only levy taxes, fees, and charges under the 1991 Local Government Code, unless stated otherwise.
• This includes tax on real property ownership transfer (Sec. 135).
• Tax on business of printing/publication (Sec. 136).
• Franchise tax (Sec. 137).
• Tax on sand, gravel, and quarry resources (Sec. 138).
• Professional tax (Sec. 139).
• Amusement tax (Sec. 140).
• Annual fixed tax for delivery trucks (Sec. 141).
• Service fees/charges (Sec. 153).
• Public utility charges (Sec. 154).
• Toll fees/charges (Sec. 155).
• Other unlisted taxes (Sec. 186).
• Real property taxes (Sec. 232).
• Additional levy for the special education fund (Sec. 235).
• Additional tax on idle lands (Sec. 236).
• Special levy on lands benefitted by public works (Sec. 240).

Tax on Transfer of Real Property Ownership

• Provinces can tax the transfer of real property at a rate of up to 0.5% of the total consideration or fair market value.
• Transfers under RA 6657 (Comprehensive Agrarian Reform Law) are exempt.
• The tax must be paid within 60 days of the deed execution or decedent's death.

Tax on Business of Printing and Publication

• Provinces can tax printing and publishing businesses at rates up to 0.5% of gross annual receipts.
• For new businesses, the tax cannot exceed 1/20 of 1% of capital investment.
• Receipts from educational materials prescribed by DepEd are exempt.

Franchise Tax

• Provinces can tax businesses with franchises at rates up to 0.5% of gross annual receipts.
• For new businesses, the tax cannot exceed 1/20 of 1% of capital investment.

Tax on Sand, Gravel, and Other Quarry Resources

• Local governments can collect up to 10% of the fair market value per cubic meter of extracted quarry resources.
• A permit is needed, issued by the provincial governor.

Professional Tax

• Provinces can levy an annual professional tax, not exceeding P300.
• Professionals who pay this tax can practice anywhere in the Philippines without additional local taxes.
• Employers must ensure their professionals have paid the tax.
• Professionals must indicate their official receipt number on documents.
• It's payable by January 31st each year.
• Government-employed professionals are exempt.

Amusement Tax

• Provinces can levy amusement taxes on places of entertainment at rates up to 30% of gross receipts.
• Theaters/cinemas withhold and pay the tax before dividing gross receipts.
• Operas, concerts, dramas, recitals, art exhibitions, and flower shows are exempt.

Annual Fixed Tax on Delivery Vehicles

• Provinces may impose an annual fixed tax, not exceeding P500, for every truck, van, or vehicle used by manufacturers and other sellers in the delivery of certain products.

Municipalities

• Municipalities can levy taxes, fees, and charges not levied by provinces, unless the Local Government Code states otherwise.

Taxes Municipalities May Impose

• Tax on business or local business tax (Sec. 143)
• Other services fees and charges (Sec. 153)
• Community tax (Sec 156)
• Real property tax for municipalities within the Metro Manila area only (Sec. 232)

Limitations on Municipalities

• Municipalities cannot impose taxes that provinces are authorized to impose, unless specifically authorized by the Local Government Code.
• They must abide by the Fundamental Principles in Section 130 and must not violate prohibitions in Section 133.

Rates of Taxes within the Metropolitan Manila Area

• Municipalities within the Metropolitan Manila Area can levy taxes at rates not exceeding by +5% the maximum rates prescribed.

Cities

• Cities can levy taxes, fees, and charges like provinces and municipalities, unless otherwise stated.
• Taxes levied by highly urbanized and independent component cities accrue to them.
• City tax rates can exceed the province or municipality rates by up to 50%, excluding professional and amusement taxes.
• Cities must have uniform rates for professional tax (Section 139) and amusement tax (Section 140) with provinces.

Community Tax

• Community tax is a local tax levied by cities or municipalities.

Who is Liable

• Every Philippine resident who is 18 or older and who has been employed regularly for 30 days, is engaged in business, owns real property worth P1,000 or more, or is required to file an income tax return is liable.

Juridical Persons

• Every corporation engaged in business in the Philippines must pay community tax.

Persons Exempt

• Exempted people includes diplomatic and consular representatives as well as transient visitors staying less than 3 months

Community Tax for Individuals

• Annual community tax is P5.00
• Additional tax of P1.00 for every P1,000 of income.

Community Tax for Juridical Persons

• Annual community tax of P500.00
• Additional tax of P2.00, not to exceed P10,000, based on real property and gross receipts.

Conditions for Additional Tax on Juridical Persons:

• Based on every P5,000 worth of real property owned
• Based on every P5,000 of gross receipts derived from business

Place and Time of Payment

• Community tax is paid where the individual resides, or where the juridical entity's principal office is located.
• It accrues on January 1 each year and must be paid by the last day of February.

Penalties

• Failure to pay the tax on time results in an interest of 24% per annum.

Community Tax Certificate

• A certificate is issued upon payment.
• Certificate may be issued even to those not subject to the tax upon payment of P1.00.

Printing & Proceeds

• The BIR prints and distributes CTCs.
• Tax proceeds accrue to the general funds of cities, municipalities, and barangays, except for the national government's share covering printing costs

Real Property Tax

• Provinces, cities, and municipalities within Metropolitan Manila can levy an annual ad valorem tax on real property.

Rates of Levy (Section 233)

• Province - not exceeding 1% of the assessed value of the real estate
• City and Municipality (w/in MMA) - not exceeding 2% of the assessed value of the real estate

Exemptions from RPT (Section 234)

• Exempt are property owned by the Republic of the Philippines.
• Charitable institutions, churches, parsonages, or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and improvements exclusively used for religious purposes.
• All machineries and equipment that are exclusively used by local water districts and their properties.
• Real property owned by duly registered cooperatives.
• Machinery and equipment used for pollution control.

Fundamental Principles (Sec. 198)

• Real property should be appraised at its current and fair market value and shall be classified for assessment.
• The appraisal, assessment, levy and collection of real property tax shall not be let to any private person.
• The appraisal and assessment of real property shall be equitable.

Appraisal of Real Property (Section 201)

• All real property shall be appraised at the current and fair market prevailing in the locality where the property is situated.

Declaration of Real Property (Sec 202)

• All persons owning/administering real property must file a sworn statement declaring the property's true value.
• The declaration should contain a detailed description for identification.
• This declaration should be filed once every three years from January 1 to June 30.

Duty of Person Acquiring Real Property or Making Improvement Thereon (Section 203)

• Anyone acquiring property or making improvements must file a sworn statement.
• The statement must be filed within 60 days of the acquisition or completion.

Proof of Exemption

• Those claiming tax exemption must file sufficient documentary evidence within 30 days of declaration.
• If evidence is not submitted, the property becomes taxable.

Assessment Levels (Section 218)

• Assessment levels are applied to the fair market value of real property to determine its assessed value with rates fixed by local ordinances

Real Estate Assessment Levels

• Residential is 20%
• Agricultural is 40%
• Commercial is 50%
• Industrial and mineral are 50%
• Timberland is 20%

Building and Other Structure Assessment Levels

• Residential starts at 0% for value smaller than P175,000 incrementing all the way up to 60%

Agricultural Assessment Levels

• Starts at 25% for value smaller than P300,000 incrementing all the way up to 50%

Commercial/Industrial Assessment Levels

• Starts at 30% for value smaller than P300,000 incrementing up to a defined amount

Timberland Assessment Levels

• Starts at 45% for value smaller than P300,000 incrementing up to a defined amount

Machinery Assessment Levels

• All lands, buildings, machineries, and other improvements;

Special Classes Assessment Levels

• Cultural, Scientific and Hospitals 15%
• Local water districts 10%
• Government-owned or controlled corporations engaged in the supply and distribution of water and/or generation of water and/or generation and transmission of electrical power 10%