Republic of the Philippines

D E P A RT M E N T O F F I N A N C E
BUREAU OF LOCAL GOVERNMENT FINANCE

Seminar Workshop on
THE UPDATING OF LOCAL REVENUE CODE
ALEXANDER L.MIGUEL
Mobile No. 09053021667/email: [email protected]
Acting Regional Director
Bureau of Local Government Finance
Regional Office No 03
, Diosdado Macapagal Government Center, San Fernando City, Pampanga
Legal Framework on Local Taxation

1. Constitution

2. Local Government Code (R.A. No. 7160)

3. Ordinance

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CONSTITUTIONAL BASIS

Section 5. Article X, 1987 Constitution –

Each local government shall have the power to create
its own sources of revenue 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.

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LOCAL GOVERNMENT CODE

Section 129. Power to Create Sources of Revenue.

Each local government unit shall exercise its power to
create its own sources of revenue and to levy taxes,
fees and charges subject to the provisions herein,
consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively
to the local government units

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LOCAL GOVERNMENT CODE

Section 132. 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.

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In Summary

✓Constitution grants you powers

✓Code sets the operating framework

✓BUT, provisions not self-executory

Decisions must be made by the Sanggunian, and

enacted through an ordinance

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 DUAL NATURE OF LOCAL GOVERNMENT UNITS

Section 15. Political and Corporate Nature of Local

Government Units.

Every local government unit created or recognized

under this Code is a body politic and corporate
endowed with powers to be exercised by it in
conformity with law. As such, it shall exercise powers
as a political subdivision of the national government
and as a corporate entity representing the inhabitants
of its territory. (LGC of 1991)
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Fundamental Principles in Local Taxation

1. Equitable and based towards “ability to pay”

2. Only for public purposes;
3. Not unjust, excessive, oppressive, confiscatory
4. Not contrary to law, public and national economic
policy, restraint of trade;
5. Not let to any private person;
6. Uniformity of taxation;
7. For sole benefit and disposition of LGU;
8. LGU to evolve progressive tax system.
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COMMON LIMITATIONS ON THE TAXING
POWERS OF LGUs

SECTION 133. Common Limitations on the Taxing

Powers of Local Government Units. - Unless otherwise
provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:

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(a) Income tax, except when levied on banks
and other financial institutions;

(b) Documentary Stamp Tax;

(c) Taxes on estates, inheritance, gifts, legacies

and other acquisitions mortis causa, except as
otherwise provided

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(d) Customs duties, registration fees of vessels and
wharfage on wharves, tonnage dues, and all other
kinds of customs fees, charges and dues except
wharfage on wharves, constructed and maintained by
the local government unit concerned;

(e) Taxes, fees and charges and other impositions upon

goods carried into or out of passing through, the
territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or
otherwise, or other taxes, fees or charges in any form
whatsoever upon such goods or merchandise;
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(f) Taxes, fees, or charges on agricultural and
aquatic products when sold by marginal
farmers or fishermen;

(g) Taxes on business enterprises certified to by

the Board of Investments as pioneer or non-
pioneer for a period of six (6) and (4) four
years, respectively from the date of registration;

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(h) Excise taxes on articles enumerated under the
National Internal Revenue Code, as amended,
and taxes, fees or charges on petroleum
products;

(i) Percentage or value added tax (VAT) on

sales, barters or exchanges or similar
transactions on goods or services except as
otherwise provided herein;
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(j) Taxes on the gross receipts of transportation
contractors and persons engaged in the
transportation of passengers or freight by hire
and common carriers by air, land or water,
except as provided in this Code;

(k) Taxes on premium paid by way of reinsurance

or retrocession;

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(l) Taxes, fees or charges for the registration of
motor vehicles and for the issuance of all kinds
of licenses or permits for the driving thereof,
except tricycles;

(m) Taxes, fees or charges on Philippine products

actually exported, except as otherwise provided
herein;

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(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprises and
cooperatives duly registered under R.A. No.
6810 and Republic Act Numbered Sixty-nine
hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperatives Code of
the Philippines“ respectively; and

(o) Taxes, fees or charges, of any kind on

the National Government, its agencies and
instrumentalities, and local government units.
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MAIN SOURCES OF LGU REVENUES

❖ Internal or Local Sources

❖ External Sources

❖ Borrowings

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Internal (Local) Sources of Funds of LGUs
Revenues
Taxes are enforced contributions for the purpose of
redistribution through delivery of public goods and
services (property tax, business tax)

Receipts
Fees are imposed in the exercise of regulatory
powers or cost recovery impositions for services
delivered by a public official. Charges refer to
pecuniary liability as rents or fees against persons or
property (rental of market stall, parking charges
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External Sources of Funds of LGUs

* Share of Internal Revenue Allotment (IRA),

Aids from the national government

* National Tax Allotment (NATA)

* Borrowings from Banks and financial/credit

Institutions, Bond Flotations

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 Comparative Summary of LGU Impositions
Type Definition Remarks Example
Taxes Impositions under the Allocation among LGUs of Property Tax
taxing power of LGUs for taxing powers defined by
the purpose of raising law Business Tax
revenues
Permit Fees Charges made by law or Based on cost of Mayor’s Permit Fees
ordinance for the regulation of the activity
regulation or inspection of Large Cattle Registration
business or activities Fees

Service Fees Fees collected for services In an amount Sanitary Inspection Fee
rendered or conveniences commensurate to such
furnished by LGUs services Secretary’s Fee

Charges Imposition for the Full cost recovery as basis Market Fees
operation of public for amount of charge to Corral Fees
enterprises be imposed Slaughter Fees

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 TAXING POWERS
OF
LOCAL GOVERNMENT UNITS

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PROVINCES
1) Tax on Transfer of Real Property Ownership - at rate not
more than 50% of 1% of total consideration;

2) Franchise Tax - at rate not exceeding 50% of 1 % of the

gross receipts for the preceding calendar year;

3) Tax on Sand, Gravel and Other Resources - at rate not more

than 10% of fair market value;

4) Tax on Business of Printing and Publication - at rate not

exceeding 50% of 1%;

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5) Professional Tax - at rate not more than
P300.00 annually;

6) Amusement Tax - at rate not more than 10% of

gross receipts from admission fees;

7) Annual fixed Tax for every Delivery Truck, or

Van of Manufacturers or Producers, Wholesalers
of, Dealers, or Retailers in, Certain Products -
at rate not exceeding P500.00 annually.

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MUNICIPALITIES
1.) Manufacturer - at rate not exceeding 37 1/2 of 1% of gross
sales or receipts for the preceding calendar year;

2.) Wholesalers - at rate not exceeding 50% of 1 % of gross

sales or receipts for the preceding calendar year.

3.) On Exporters, Manufacturers, Wholesalers or Retailers of

Essential Commodities - at rate not exceeding 1/2 of the rate
prescribed under letters A, B, and D;

4.) Retailers -at rate with gross sales or receipts for the preceding
calendar year or P400,000 or less 2% per annum, More than
P400,000 1% per annum.
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MUNICIPALITIES

5.) Contractors – at rate not exceeding 50% of 1% on the

gross sales or receipts for the preceding calendar year;

6.) Banks and Other Financial Institution – at rate not

exceeding 50% of 1% on the gross receipts of the preceding
calendar year derived from interest, commissions and discounts
from lending activities.

7.) Peddlers – at rate not exceeding P50.00 annually;

8.) On any Business, not Otherwise Specified – at rate not

exceeding 2% of gross sales or receipts of the preceding
calendar year; 25
CITIES

They may levy taxes, fees and charges which

the province or municipalities may impose
and may exceed the maximum rates allowed
for provinces or municipalities by not more than
50% except the rates for professional and
amusement taxes.

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BARANGAYS

They may levy taxes, fees and charges which shall

exclusively accrue to them.
1) Taxes - on stores or retailers with gross sales
or receipts of the preceding calendar year of
P 50,000 or less in the case of cities and P 30,000
or less in the case of municipalities.
2) Service Fees and Charges - they may collect
reasonable fees or charges for services rendered.

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BARANGAYS

3) Barangay Clearance - no city or

municipality may issue any license or permit
unless a clearance is first obtained from the
barangay at reasonable rate.

4) Other Fees and Charges – reasonable fees

and charges.

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DISPOSITION OF SHARED PROCEEDS

1. Basic Real Property Tax

Province 35%
Municipality 40%
Barangay 25% where the property is
located

City 70%
Barangay 30%

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DISPOSITION OF SHARED PROCEEDS

2. SEF Additional Levy

Cities 100%
Provinces 50%
Municipalities 50%

3. Tax on Idle Lands 100% to City or

Province

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DISPOSITION OF SHARED PROCEEDS

-4. Tax on Sand, Gravel

- Province 30%
- Component City/Mun. 30%
- Brgy. where extracted 40%

5. Amusement Tax on Admission

- Cities 100%
- Province 50%
- Municipality 50%

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6. Community Tax (Cedula)

City or Mun. 100%

Barangay 50% if
collected by
the Barangay
Treasurer
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LEGAL BASES IN THE REVISION OF REVENUE CODE AND
ADJUSTMENT OF RATES OF TAXES

SECTION 191 (LGC). Authority of Local Government Units to

Adjust Rates of Tax ordinances. - Local units shall have the
authority to adjust the tax rates as prescribed herein not oftener
than once every five (5) years, but in no case shall such
adjustment exceed ten percent (10%) of the rates fixed under this
Code.

ARTICLE 281 (LGC – IRR). Authority to Adjust Rates of Taxes. —

LGUs shall be authorized to adjust the tax rates prescribed in this
Rule not oftener than once every five (5) years, but in no case
shall such adjustments exceed ten percent (10%) of the rates
fixed in this Rules.”
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LEGAL BASES IN THE REVISION OF REVENUE CODE AND

ADJUSTMENT OF RATES OF FEES AND CHARGES

Joint Memorandum Circular (JMC) 2019-01. dated 17 May 2017,

issued by the BLGF and DILG, entitled:

“Guidelines for the Review, Adjustment, Setting

and/or Adoption of Reasonable Regulatory Fees and
Charges of Local Government Units”

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LEGAL BASES IN THE REVISION OF REVENUE CODE AND

ADJUSTMENT OF RATES OF TAXES, FEES AND CHARGES

BLGF MEMORANDUM CIRCULAR NO. 020-2019, dated

September 02, 2019, entitled:

“Local Fees and Charges (LFC) Toolkit on the Review,

Setting, and/or Adoption of Reasonable Fees and
Charges”

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LEGAL BASES IN THE REVISION OF REVENUE CODE AND
ADJUSTMENT OF RATES OF TAXES, FEES AND CHARGES

Supreme Court ruling under G.R. No. 211093, June 06, 2017,
entitled: MINDANAO SHOPPING DESTINATION CORPORATION,
ACE HARDWARE PHILS., INC., INTERNATIONAL TOYWORLD, INC.,
STAR APPLIANCE CENTER, INC., SURPLUS MARKETING
CORPORATION, WATSONS PERSONAL CARE STORES (PHILS.),
INC., AND SUPERVALUE, INC., Petitioners, v. HON. RODRIGO R.
DUTERTE, IN HIS CAPACITY AS MAYOR OF DAVAO CITY, HON.
SARA DUTERTE, VICE-MAYOR OF DAVAO CITY, IN HER CAPACITY
AS PRESIDING OFFICER OF THE SANGGUNIANG PANLUNGSOD,
AND THE SANGGUNIANG PANLUNGSOD (CITY COUNCIL) NG
DAVAO, Respondents.
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LEGAL BASES IN THE REVISION OF REVENUE CODE AND
ADJUSTMENT OF RATES OF TAXES, FEES AND CHARGES

FACTS OF THE CASE

In 2005, the Sangguniang Panglungsod of the Dity of Davao

enacted City Ordinance No. 158-05 entitled “An Ordinance
Approving the 2005 Revenue Code of the City of Davao, as
amended. In the amended ordinance, it imposes a new rate of 1.5
percent to retailers on their sales in excess of P400,000.00 (from
1% to 1.5%). Petitioners questioned the legality of the increase in
rates being violative to the provisions (Section 191) of the LGC
mandating a maximum of 10 percent increase only once every five
(5) years.

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LEGAL BASES IN THE REVISION OF REVENUE CODE AND
ADJUSTMENT OF RATES OF TAXES, FEES AND CHARGES

RULING

“x x x Thus, dictated by justice and fairness, in its initial attempt to

implement the LGC, Davao City should, at the very least, start with 1%
(the minimum tax rate) as provided under Section 143 (d) of the LGC.
Considering that 11 years had already elapsed from its
implementation in 2006, Davao City could adjust its tax rate twice
now which will make its adjusted tax rate for retailers pegged at
1.2%, in accordance with Section 191 of the LGC. To clarify, from
2006-2011 (first 5 years), the initial tax rate should start with 1%;
from 2011-2016 (next 5 years) - 1.1%, thus, for the years 2017-
2021, the tax adjustment is 1.21%. However, for this purpose,
Davao City should pass an ordinance to give effect to the above-
discussed tax adjustments. x x x”
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SEPARATE CONCURRING OPINION
LEONEN, J.:

“x x x Should local government units decide to adjust

their tax rates, Section 191 of the Local Government
Code limits the amount of each adjustment and the
frequency by which this authority may be exercised.
Local government units can only adjust tax rates once
every five (5) years. Moreover, the amount of
adjustment should not exceed ten percent (10%) of
the rates fixed under the Local Government Code.
x x x”

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SEPARATE CONCURRING OPINION
LEONEN, J.:

“x x x Davao City cannot immediately increase the

tax rate on retailers to 1.25% without violating Section
191 of the Local Government Code. Evidently, it will
take time before Davao City can impose the maximum
rate of 1.5% on retailers. However, this is a necessary
limitation on the local government unit's power of
taxation. Otherwise, taxpayers will be prejudiced. That
Davao City decided to amend its tax code 14 years
after the effectivity of the Local Government Code
cannot justify an immediate increase in its tax rates.
x x x”
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SEPARATE CONCURRING OPINION
LEONEN, J.:

“x x x ACCORDINGLY, I concur in the result. Davao

City may impose a tax rate of one percent (1%) on
retailers from taxable years 2006 to 2011. Davao City
may then adjust the tax rate on retailers on a staggered
basis from 1 % to 1.1 % for taxable years 2011 to 2016
and from 1.1 % to 1.21 % for taxable years 2017 to
2021.

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ISSUES

1. Whether or not, LGUs could still based their

rates of increase in business tax from the original
rates provided under the LGC?

2. Whether or not LGUs could still opt not to

recoup/recover their lost rates of increase in
case they missed certain periods (5-year) of
revision?

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KEY POINTS
ISSUE NO. 1. Yes, LGUs could still based their
rates of increase in taxes from the original rates
provided under the LGC, since the increase is still
within the maximum allowable 10% increase?

ISSUE NO. 2. Yes, the operative word is

“COULD”, hence, permissive, and taking into
consideration the burden to the business sector as
a result of the sudden increase in tax rates.

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 Republic of the Philippines
D E P A RT M E N T O F F I N A N C E
BUREAU OF LOCAL GOVERNMENT FINANCE

THANK YOU!
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