6. Taxation under the Local Government Code

TAXATION

6. Local Tax Page 1 of 22

FAR EASTERN UNIVERSITY – MANILA

TAXATION UNDER THE LOCAL GOVERNMETN CODE (601)

1. Local Government Taxation

Local Taxes

Local taxes are taxes that are imposed and collected by the local government units in order to raise revenues to

enable them to perform the functions for which they have been organized.

The LGC of 1991 governs the tax power as well as other revenue raising powers exercised by:

1. Provinces

2. Cities

3. Municipalities

4. Barangays

Fundamental principles of Local Government Taxation Requisites of municipal taxation:

1. Uniformity

2. Taxes, fees, charges and other impositions shall be equitable and based on ability to pay for public purposes not unjust, excessive oppressive or confiscatory, no contrary to law, public policy, national economic

policy, or in restraint of trade

3. The levy and collection shall not be left to any private person

4. Inures solely to the local government unit levying the tax

5. The progressivity principle must be observed

Interpretation of Laws

Interpretation of laws on the grant of tax powers to local government is liberally construed. Doubts on liability of a

taxpayer under a valid tax ordinance are construed strictly against the local government unit, except regarding

exemptions, incentives or reliefs.

What are the limitations on the taxing power of LGUs?

As provided in SECTION 133, LGUs cannot impose the following:

a. Income tax (except on bank and financial entities)

b. DST

c. Estate and Donor’s taxes

d Customs Duties

e. Taxes on goods passing through the LGU

f. Taxes on agricultural and aquatic products sold by marginal farmers and fisherman

g. Taxes on BOI-registered enterprises

h. Excise taxes on articles under the Tax Code and taxes on petroleum products

i. Percentage tax and VAT

j. Taxes on gross receipts of transportation contractors

k. Taxes on premium paid by way of reinsurance

l. Taxes on registration of motor vehicles

m. Taxes on Philippine products actually exported

n. Taxes on Countryside and Barangay Business Enterprises and cooperatives

o. Taxes and fees on the National Government

As provided in SECTION 186, LGUs cannot impose taxes that are specifically enumerated or taxed under the

provisions of the Tax Code.

Enactment and Effectivity of Local Tax Ordinances The following stages are observed to enact and effect tax laws: 1. Passage. The tax ordinance deliberated by the Sanggunian shall not be enacted without prior public hearing conducted for the purpose. 2. Approval. Local tax ordinances enacted shall be approved and signed by the local chief executive concerned. If vetoed, it could be overridden by a 2/3 vote of the Sanggunian members. 3. Effectivity. An ordinance, unless otherwise provided, shall take effect 10 days after the date of its posting. Aspects of Local Taxation/Scope of Local Taxation 1. Local Government Taxation (Sections 128-196, LGC) 2. Real Property Taxation (Sections 197 – 283, LGC)

Local Government Taxation Real Property Taxation

Imposition of license, taxes, fees and other impositions, including community tax

System of levy on real property imposed on a country - wide basis but authorizing, to a limited extent and within certain parameters, local governments to vary the rates of taxation.

.

SPECIFIC TAXING POWER OF LOCAL GOVERNMENT UNITS

Taxing power of provinces Taxing power of municipalities

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1. Tax on transfer of real property ownership

2. Tax on business of printing and publication

3. Franchise tax

4. Tax on sand, gravel and other quarry services

5. Professional tax

6. Amusement tax

7. Tax on delivery truck/van

1. Tax on various types of businesses

2. Ceiling on business tax impossible on municipalities within

Metro Manila

3. Tax on retirement of business

4. Rules on payment of business tax

5. Fees and charges for regulation and licensing

6. Situs of tax collected

(Taxing powers of provinces) The tax base and tax rates are shown in the following matrix:

Taxes imposable by province Tax Base Tax Rate

1. Transfer tax Selling price or market value (Higher)

Not more than ½%

2. Tax on business of printing and publication

Annual gross receipts for the preceding year

Not more than ½%; on newly started business, not exceeding 1/20 of 1% of capital investment

3. Franchise tax Annual gross receipts for the preceding year

Not more than ½%; on newly started business, not exceeding 1/20 of 1% of capital investment

4. Sand and gravel tax Fair market value per cubic meter Not more than 10%

5. Professional tax Not exceeding P300

6. Amusement tax on admission Gross receipts from admission fees Amended RA 9640 Not more than 10%

7. Fixed tax on delivery vehicles of manufacturers, producers, wholesalers, dealers or retailer in certain products

Not exceeding P500 per delivery vehicle

I. OTHER LOCAL TAXES

A. TAXING POWER OF PROVINCES SEC. 135. Tax on Transfer of Real Property Ownership

Transaction subject to tax

Sale, donation, barter, or on any other mode of transferring ownership or title of real property Tax Base Whichever is higher : 1. The total consideration involved in the acquisition of the property or

2. The fair market value in case the monetary consideration involved in the transfer is not substantial

Tax Rate Not more than fifty percent (50%) of the one percent (1%) in the case of province.

Note: 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.

Exception Transfer under the comprehensive agrarian reform program Person liable to Pay Seller, donor, transferor, executor or administrator

Time of Payment Within 60 days from the date of the execution of the deed or from the date of the decedent’s death Tax on transfer of real property ownership is due from: It is due from the seller of the property. However, if the buyer is a foreign government, no such tax is due.

SEC. 136. Tax on Business of Printing and Publication

Transaction subject to tax The province may impose a tax on the business of persons engaged in the printing and/or publication of books,

cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and others of similar nature

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Tax Base Tax Rate

Gross annual receipts for the preceding calendar year Not exceeding fifty (50%) of one percent (1%)

Capital investment In the case of a newly started business, the tax shall

not exceed one-twentieth (1/20) of one percent (1%)

Exception

The receipts from the printing and/or publishing of books or other reading materials prescribed by the DepEd as

school texts or references shall be exempt from the business tax.

SEC. 137. Franchise Tax

Transaction subject to tax Business enjoying a franchise

Tax Base Tax Base Tax Rate

Gross annual receipts for the

preceding calendar year based on the

incoming receipt or realized, within its

territorial jurisdiction

Not exceeding fifty (50%) of one

percent (1%)

Capital Investment In the case of a newly started

business, the tax shall not exceed

one-twentieth (1/20) of one percent

(1%)

Tax Rate

To be liable for local franchise tax, the following requisites should concur: 1. That one has a “franchise” in the sense of a secondary or special franchise;

2. That it is exercising its rights or privileges under this franchise within the territory of the pertinent local

government unit.

SEC. 138. Tax on Sand, Gravel and Other Quarry Resources

Transaction subject to tax Sand, gravel and other resources extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks

and other public waters within its territorial jurisdiction

Tax Base

Fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources. Tax Rate

Not more than ten percent (10%)

Who issues permit? The permit to extract sand, gravel and other quarry resources shall be issued exclusively by the provincial governor, pursuant to the ordinance of the sangguniang panlalawigan.

Distribution of Tax Proceeds: The proceeds of the tax on sand, gravel and other quarry resources shall be distributed as follows:

(1) Province - Thirty percent (30%);

(2) Component city or municipality where the sand, gravel, and other quarry resources are extracted - Thirty percent

(30%); and

(3) Barangay where the sand, gravel, and other quarry resources are extracted - Forty percent (40%).

SEC. 139. Professional Tax

Transaction subject to tax

Exercise or practice of profession requiring government licensure examination. (They are those who have passed the

CPA board examination or any board or examinations conducted by the Professional Regulation Commission (PRC).

E.g. A CPA who is also a Lawyer must pay for professional tax imposed on CPA and that fixed for Lawyer, if he is to

practice both professions)

Tax Base

At such amount and reasonable classification as the sanggunian panlalawigan may impose Tax Rate Not to exceed P300 Exception Professional exclusively employed in the government shall be exempt from the payment of this tax

Date of payment Payable annually on or before January 31 or before beginning the practice of the profession

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Place of payment Province where he practices his profession or where the principal office is located

Tax to be paid only once. Person who has paid the corresponding professional tax shall be entitled to practice his

profession in any part of the Philippines without being subjected to any other national or local tax, license, or fee for

the practice of such profession.

Note: Municipalities cannot impose professional tax since such power is reserved only to provinces and cities.

SEC. 140. Amusement Tax Transaction subject to tax Ownership, lease or operation of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement Tax Base Gross receipts from admission fees. In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors, lessees, or operators and the distributors of the cinematographic films. Tax Rate Not more than 10% of gross receipts from admission fees (amended RA 9640) Exception The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and oratorical presentations.

Note: Resorts, swimming pools, bath houses, hot springs and tourist sports do not belong to the same category or class as theaters, cinemas, concert halls, and boxing stadia. It follows that they cannot be considered as among the other places of amusement contemplated by Section 140 of LGB and which may properly be subject to amusement taxes. Subject to amusement tax Pop, Rock, or Similar Concerts Distribution of Proceeds Tax shall be shared equally by the province and municipality where such amusement places are located. Note: Amendments to the VAT law have been consistent in exempting persons subject to amusement tax under the NIRC from the coverage of VAT. Only lessor or distributor of cinematographic films are included in the coverage of VAT. This reveals the legislative intent not to impose VAT on persons already covered by the amusement tax. This holds true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was intended to replace the percentage tax on certain services. Amusement and amusement places as defined under the LGC 1. Amusement is a pleasurable diversion and entertainment. It is synonymous to relaxation, avocation pastime or fund. 2. Amusement places include theaters, cinemas, concert halls, circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or performance (Sec. 131 (b) and (c) LGC) The following are the amusement places upon which provinces or cities cannot impose amusement taxes 1. Cockpits 2. Cabarets 3. Night and day clubs 4. Boxing exhibitions 5. Professional basketball games 6. Jai-Alai 7. Racetracks There can be no imposition of amusement taxes on the above amusement places since the NIRC already imposes amusement taxes on the under Section 125 thereof.

SEC. 141. Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products

Transaction subject to tax Used by manufacturers, producers, wholesalers, dealers or retailers in the delivery or distribution of distilled spirits,

fermented liquors, soft drinks, cigars and cigarettes, and other products as may be determined by the sangguniang

panlalawigan, to sales outlets, or consumers, whether directly or indirectly

Tax Base Every truck, van or any vehicle Tax Rate Not exceeding P500

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Exception Exempt from tax on peddlers imposed by municipalities

B. TAXING POWER OF MUNICIPALITIES Definition of terms:

1. Wholesale A sale where the purchasers buys or imports the commodities for resale to persons other than the end user regardless of the quantity of the transaction.

2. Dealers One whose business is to buy or sell merchandise, goods and chattels as a merchant. He stands immediately between the producer or manufacturer and the consumer and depends for his profit not upon the labor he bestows upon his commodities but upon the skill and foresight with.

3. Retail A sale where the purchaser buys the commodity for his own consumption, irrespective of the quantity of the commodity sold.

4. Contractor Includes persons, natural or juridical not subject to professional tax under Section 139 of the Code, whose activity consists essentially of the sale of all kinds of services for a fee, regardless of whether or not the performance of the service calls for the exercise of the use of the physical or mental faculties of such contractor or his employees.

5. Peddler Any person whose, either for himself or on commission, travels from place to place and sells his goods or offers to sell and deliver the same (Sec. 131 [t] LGC).

1. TAX ON VARIOUS TYPES OF BUSINESS (BUSINESS TAXES)

Sec. 143 (a)

Person/Entities Subject to Tax 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

Tax Base

Based on the taxpayer’s gross sales or

receipts for the preceding calendar

year

Graduated annual fixed tax

Gross sales or receipts amount to

P6,500,000 or more for the preceding

calendar year

Ceases to be a fixed tax, instead a

percentage tax of 37.5% of 1% is

imposed

Tax Rate

Schedules

(a) On 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 of nature in accordance with the following schedule:

Preceding Amount of calendar year in the amount of Tax Per Annum

Less than 10,000.00 P 165.00

P10,000.00 or more but less than 15,000.00 220.00

15,000.00 or more but less than 20,000.00 302.00




50,000.00 or more but less than 75,000.00 1,320.00







750,000.00 or more but less than 1,000,000.00 10,000.00

1,000,000.00 or more but less than 2,000,000.00 13,750.00




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Sec. 143 (b)

Person/Entities Subject to Tax Wholesalers, distributors or dealers in any article of commerce of whatever kind or nature

Tax Base

Based on the gross sales or receipts

for the preceding calendar year


Gross sales or receipts amount to

P2,000,000 or more

Tax becomes a percentage tax at the

rate of 50% of 1%

Tax Rate

(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in accordance with the following schedule:

With gross sales or receipts for the preceding calendar in the amount of Tax Per Annum

Less than 1,000.00 P 18.00

P 1,000.00 or more but less than 2,000.00 33.00






















2,000,000.00 or more at a rate Not exceeding 50% of 1%

Sec. 143 (c)

Person/Entities Subject to Tax Exporters and manufacturers, millers, producers wholesalers, distributors, dealers or retailers of the following

essential commodities Tax Base Gross sales or receipts

Tax Rate Not exceeding one-half (1/2) of the rates prescribed under subsections (a) (b) and (d) of this section.

Sec. 143 (d)

Person/Entities Subject to Tax Retailers

Tax Base Gross sales or receipts for the

preceding calendar year P400,000 or

less

Annual percentage tax of 2%

Sales or receipts exceeding P400,000 Annual percentage tax of 1%

Tax Rate

Exception a. Gross sales or receipts in cities P50,000 or less

b. Gross sales or receipts in municipalities P30,000 or less

Note: Taxed by barangays

Tax Rate – not exceeding 1% of such gross sales or receipts.

Sec. 143. (e)

Person/Entities Subject to Tax Contractors and other independent contractors


6,500,000.00 or more at a rate Not exceeding 37 ½% or 1%

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Tax Base Gross receipts for the preceding

calendar year


Gross receipts amounting to

P2,000,000 or more

Percentage tax of 50% of 1%

Tax Rate

(c) On contractors and other independent contractors, in accordance with the following schedule:

With gross sales or receipts for the preceding calendar in the amount of Tax Per Annum

Less than 5,000.00 P 27.50

P 5,000.00 or more but less than 10,000.00 61.60

















2,000,000.00 or more at a rate Not exceeding 50% of 1%

Sec. 143. (f)

Person/Entities Subject to Tax Bank and other financial institution Tax Base

Gross receipts of the preceding calendar year derived from interest, commission and discount from lending activities,

income from financial leasing, dividends, rentals on property and profit from exchange or sale of property insurance

premium Tax Rate 50% of 1%

Sec. 143 (g)

Person/Entities Subject to Tax Peddlers engaged in the sale of any merchandise or article of commerce

Tax Base Per peddler Tax Rate Not exceeding P50

Sec. 143 (h)

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Person/Entities Subject to Tax On any business, not otherwise specified above which the Sanggunian concerned may deem proper to tax: Provided,

that on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code,

as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar

year Tax Base Gross sales or receipts

Tax Rate Graduated schedule imposed by the Sanggunian concerned, but in no case to exceed the rates prescribed in Sec. 143,

LGC. Business Permit In order that a business operation would be made legal, a business must first acquire a business permit.

A business permit is a license given to a person by the local executive to engage in business upon payment of

required licensing or annual fee.

The fee is intended to cover the cost of proper enforcement of existing laws and ordinances and the supervision of the

business or occupation.

The business permit could be issued only upon payment of local business tax and other fees and charges provided for

in the local tax ordinance.

C. CITY TAXES

2. CEILING ON BUSINESS TAX IMPOSABLE ON MUNICIPALITIES WITHIN METRO MANILA

SEC. 144. Rates of Tax within

the Metropolitan Manila Area

Rates of business within Metropolitan Manila Area:

The municipalities in Metro Manila may levy taxes at rates which shall not exceed

by 50% the maximum rates prescribed in Section 143, LGC

Notes: a. Cities have the broadest tax powers, embracing both specific and general tax powers as provinces and

municipalities may impose. (Sec. 151, LGC)

b. The rates of taxes that the city may levy may exceed the maximum rates allowed for the province and municipality by not more than fifty percent (50%) except the rates of professional and amusement tax.

3. TAX ON RETIREMENT OF BUSINESS

SEC. 145. Retirement of Business

1. A business subject to tax shall, upon termination thereof, submit a sworn

statement of its gross sales or receipts for the current year.

2. If the tax paid during the year be less than the tax due on said gross sales or

receipts of the current year, the difference shall be paid before the business is

considered officially retired (Sec. 145, LGC).

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4. RULES ON PAYMENT OF BUSINESS TAX

SEC. 146. Payment of Business Taxes 1. Taxes shall be payable for every separate or distinct establishment or place where business subject to the tax is

conducted and one line of business does not become exempt by being conducted with some other business for which

such tax has been paid.

2. The tax on a business must be paid by the person conducting the same.

3. In cases where a person conducts or operates 2 or more of the businesses mentioned in Section 143 of LGC which

are subject to:

a. Same rate of tax – the tax shall be computed on the combined total gross sales or receipts of the said 2 or more

related business.

b. Different rates of tax – the gross sales or receipts of each business shall be separately reported for the purpose of

computing the tax due from each business.

5. FEES AND CHARGES FOR REGULATION AND LICENSING

Fees and charges that a municipality may impose: Principal is the head or main office of the business appearing in the pertinent documents submitted to the SEC or DTI or other appropriate agencies, as the case may be.

The municipality may impose and collect such reasonable fees and charges on business and occupation except professional taxes reserved for provinces (Sec. 147, LGC). 1. Fees for sealing and licensing of weights and measures (Sec. 148, LGC) 2. Fishery rentals, fees and charges, including the authority to grant fishery privileges within municipal waters, as well as issue licenses for the operation of fishing vessels of three tons or less 3. The sanggunian may penalize the use of explosives, noxious or poisonous substances, electricity, muro-ami and other deleterious methods of fishing and prescribe a criminal penalty therefore (Sec. 149 LGC)

6. SITUS OF TAX COLLECTED

SEC. 150. Situs of the Tax Situation Recognition of sale Payment of Tax With

branch/sales

office

Recorded at Allocation

Yes Branch/sales office

None

No Principal office None

With branch or sales

office or warehouse

All sales made in the

locality where the branch

or office or warehouse is

located

The tax shall be payable to

the city or municipality

where the same is located

Where there is no

branch or sales office

or warehouse

The municipality where

the sale or transaction is

made.

The sale shall be

recorded in the principal

office along with the sales

made by said principal

office

The tax shall accrue to the

city or municipality where

said principal office is located.

Branch office – A fixed place in a locality which conducts operations of the business as an extension of the principal office.

Principal office – Head or main office of the business appearing in pertinent documents submitted to the SEC and specifically mentioned in the Articles

of Incorporation.

Where there is a

factory, project office,

plant or plantation in pursuit of business

All sales shall be recorded

in the principal office

Of all sales recorded in

the principal office:

1. 30% taxable to the city or municipality where the

principal office is located

2. 70% taxable to the city

or municipality where the

factory, plant, etc. is located

The 70% (above) shall be

divided as follows:

1. 60% to the city or

municipality where the factory is

2. 40% to the city or

municipality where the

plantation is located

The 70% shall be prorated

among the localities where

such factories, project

offices, plants and plantations are located

based on their respective

volumes of production

Plantation

factory in same

location

Allocation

Principal

Allocation to

factory, etc

Yes 30% 70%

No

30% The 70% above shall be

divided: 1. Factory 60%

2. Plantation 40%

If two or more factories,

etc = 70% prorated

based on their respective

volumes of production

If plantation is at a place other than where

the factory is located

All sales shall be recorded in the principal office

If manufacturer,

contractor, etc. has

two or more factories,

project offices, plants

or plantations located

in different localities

All sales shall be recorded

in the principal office

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.

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Collection of Taxes

Tax Period and Manner of Payment (Tax period for the collection of taxes) It is based on calendar year, unless otherwise provided (Sec. 165 LGC) Manner of payment of the taxes It may be paid in quarterly installment (Sec. 165, LGC) Accrual of tax Business tax accrues on the 1st day of January of each year.

New taxes, fees or charges, or changes in the rates thereof which shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates (Sec. 166, LGC). Time of payment Within 20 days of January or of each subsequent quarter

January 20 First quarter

April 20 Second quarter

July 20 Third quarter

October 20 Fourth quarter

It may be extended by the sanggunian for justifiable reasons, without surcharge or penalties. Extension cannot exceed 6 months (Sec. 167, LGC) Penalties on Unpaid Taxes, Fees or Charges Penalties for unpaid taxes, fees or charges: 1. Surcharge of 25% on taxes, fees, or charges not paid on time 2. Interest not exceeding 2% per month of the unpaid taxes, fees or charges including surcharges, until the amount is full paid. In no case shall the total interest exceed 36 months (Sec. 168, LGC). Collection of Local Revenues by Treasurer. - All local taxes, fees, and charges shall be collected by the provincial, city, municipal, or barangay treasurer, or their duly authorized deputies. The provincial, city or municipal treasurer may designate the barangay treasurer as his deputy to collect local taxes, fees, or charges.

In case a bond is required for the purpose, the provincial, city or municipal government shall pay the premiums thereon in addition

to the premiums of bond that may be required.

D. BARANGAY TAXES D. Scope of the taxing power of a barangay Scope of taxing powers of barangays The barangays may levy taxes, fees and charges, as provided in this Article, which shall exclusively accrue to them:

Sources of revenue Tax base Tax Rate Fees and charges

1. Barangay taxes – on stores or

retailers with fixed business

establishment

Gross sales or receipts from preceding calendar year of P50,000 or less (for barangay in the cities); and P30,000 or less (for barangay and municipalities)

Not exceeding 1% of such

gross sales or receipts

2. Service fees or charges Services rendered in connection

with the regulation or the use of

barangay-owned properties or

services facilities such as palay,

copra, or tobacco dryers

Reasonable fees or

charges

3. Barangay clearance Reasonable fee as the

Sanggunian Barangay

may impose

4. Other fees and charges: a. Commercial breeding of fighting cocks, cockfighting’s and cockpits b. Places of recreation which charge admission fees c. Billboards, signboards, neon signs

and outdoor advertisement

Reasonable fees and

charges as the

Barangay may levy

E. COMMUNITY TAX Common only to cities and municipalities Community tax

Community tax

The community is a poll or capitation tax imposed upon residents of a city or municipality. It replaced the former residence tax.

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Community tax may be levied by: It may be levied by a city or municipality but not a province.

Persons liable to pay community tax 1. Individuals – every inhabitant of the Philippines eighteen (18) years of age or over: a. who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year; or

b. who is engaged in business or occupation; c. who owns real property with an aggregate assessed value of P1,000 or more d. who is required by law to file an income tax return (Sec. 157, LGC) 2. Juridical Persons – every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines (Sec. 158, LGC)

How much they are liable to pay: 1. Individuals- a. Basic: Five pesos (P5) b. Additional: Additional tax on One peso (P1) for every one thousand pesos (P1,000) of income regardless of whether from business, exercise of profession or from property which in no case shall exceed Five thousand pesos (P5,000) Note: In case of husband and wife, the additional tax shall be based on the total property, gross receipts or earnings owned or derived by them. 2. Juridical persons – additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000) in accordance with the following schedule: a. For every Five thousand pesos (P5,000) worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax under existing laws, found in the assessment rolls of the city or municipality where the real property is situated – Two pesos (P2) and b. For every Five thousand pesos (P5,000) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year – Two pesos (P2) (Sec. 157&158, LGC).

Community tax, where paid: Residence of the individual, or in the place where the principal office of the juridical entity is located (Sec. 160, LGC). Payment of community tax, when required:

Accrued on the 1st day of January of each year which shall be paid not later than the last day of February of each year (Sec. 161, LGC)

Notes:

If the individual or corporation becomes liable after January 1 of the year, but

1. On or before March 31, the tax shall be paid within twenty days from the date that he became liable

2. After March 31, but before June 30, the tax shall be paid on the date he becomes liable

3. After June 30, the individual or corporation is exempt for the year

Penalty for delinquency

An interest of 24% per annum from the due date until it is paid shall be added to the amount due (Sec. 161, LGC)

Persons exempted from paying community tax 1. Diplomatic and consular representatives

2. Transient visitors when their stay in the Philippines does not exceed three (3) months (Sec. 159,LGC)

Definition of Community Tax Certificate

It is issued to every person or corporation upon payment of the community tax. It may also be issued to any person or corporation NOT subject to the

community tax upon payment of P1.00 (Sec. 162, LGC)

The city or municipal treasurer deputizes the barangay treasurer to collect the community tax in their respective jurisdictions and shall accrue entirely

to the general fund of the city or municipality concerned.

Conditions: Bonded in accordance with law (Sec. 164, LGC)

Proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows: 1. 50% accrues to the general fund of the city or municipality concerned; and

2. 50% accrues to the barangay where the tax is collected

Presentation of community tax certificate, when required:

1. Acknowledgement of any document before a notary public

2. Taking an oath of office upon election or appointment to any position in the government service

3. Receiving any license, certificate or permit form any public authority

4. Paying any tax or fee

5. Receiving any money from any public fund

6. Transacting other official business

7. Receiving any salary or wage from any person or corporation (Sec. 163 LGC)

II. REAL PROPERTY TAXATION

What is Real Property Tax?

Real Property Tax is an ad valorem tax collected by a city, municipality, or province on real property such as land,

buildings, machinery, and other improvements affixed or attached to real property.

Real properties and improvements for real property tax purposes. Neither the Real Property Tax Code

nor the Local Government Code carry a definition of “real property.” In the absence of such a definition, we

apply Article 415 of the Civil Code, the pertinent portions of which state:

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Art. 415. The following are immovable property:

(1) Lands, buildings and constructions of all kinds adhered to the soil; and

(2) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated

therefrom without breaking the material or deterioration of the object.

Improvement is defined as a valuable addition made to a property or an amelioration in its condition,

amounting to more than a mere repair or replacement of parts involving capital expenditures and labor, which

is intended to enhance its value, beauty or utility or to adapt it for new or further purposes.

Machinery

The term machinery includes machines, equipment, mechanical contrivances, instruments, appliances or

apparatus which may or may not be attached, permanently or temporarily, to the real property.

Real Property Tax is the tax on real property imposed by the Local Government Unit (LGU). The legal basis is Title II

of the Local Government Code (LGC), Republic Act (R.A.) no. 7160. The implementing rules and regulations of R. A.

7160 can be found here.

Laws governing real property taxation in the Philippines 1. The 1987 Philippine Constitution. “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 (Art X, Sec. 5).”

2. The Local Government Code of 1991 (Republic Act 7160). The provisions of RA 7160 on real property

taxation covers Section 197 to Section 283 composed of the following: a. General Provisions

b. Appraisal and Assessment of Property

c. Assessment Appeals

d. Imposition of Real Property Tax

e. Special Levies on Real Property Tax

f. Collection of Real Property Tax

g. Disposition of Proceeds

h. Special Provisions

3. Urban Development and Housing Act of 1992. All local government units are hereby authorized to impose an

additional one-helf percent (0.5%) tax on the assessed value of all lands in urban areas in excess of P50,000 (Section

43, RA 7279).

4. Presidential Decree No. 921. Decree providing for the administration of local financial services in Metropolitan

Manila, creating local treasury and assessment districts therein, and for other purposes

Nature of Real Property Taxes

The real property taxes are classified as:

1. Property taxes- The taxes are imposed on the properties.

2. Direct taxes- The burden of the taxes could not be shifted to other persons.

3. Local taxes- The levy, assessment and collection are made by the local government units.

4. Revenue taxes- Generally, the objective of the imposition is to raise revenue; in some cases, however, the

purpose is regulatory such as in Idle Land Tax where the imposition is being made to penalize property owners

who do not make their property productively.

5. Ad valorem taxes- The taxes are based on the value of the property, i.e. either assessor’s value or assessed

value.

6. Proportional tax- The real property tax on land is based on a flat tax rate.

Exemptions from real property tax The following are exempt from the payment of real property tax:

1. Real property owned by the Republic of the Philippines or any of its political subdivision except when the

beneficial use thereof has been granted to taxable person;

2. Charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques, non-profit

cemeteries, and all lands, buildings and improvements, actually, directly, and exclusively used for religious,

charitable, or educational purposes.

3. Non-profit or religious cemeteries or burial grounds;

4. Machineries and equipment that are actually, directly, and exclusively used by local water district and

government-owned or controlled corporations engaged in the supply of water and/or generation of electric

power;

5. All real property owned by duly registered cooperatives as provided for under R.A. No. 6938, and

6. Machineries and equipment used for pollution control and environmental protection.

6. LOCAL TAX

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Fundamental Principles The appraisal, assessment, levy and collection of real property tax shall be guided by the following fundamental

principles:

1. Real property shall be appraised at its current and fair market value;

2. Real property shall be classified for assessment purposes on the basis of its actual use;

3. Real property shall be assessed on the basis of a uniform classification within each local government unit;

4. The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and

5. The appraisal and assessment of real property shall be equitable.

Fair Market Value Fair market value is the price at which a property may be sold by a seller who is not compelled to sell and bought by a

buyer who is not compelled to buy.

For assessment purposes, it is also known as the “assessor’s value.”

The basis for assessment of real property is actual use and not ownership Real property shall be classified, valued and assessed on the basis of its actual use regardless of where located,

whoever owns it, and whoever uses it (Sec. 17, Local Government Code).

How do you compute real property tax (RPT)?

RPT = RPT Rate x Assessed Value

How do you compute the Assessed Value?

Assessed Value = Fair Market Value x Assessment Level

Sec. 199 (l) of the LGC defines “Fair Market Value” as the price at which a property may be sold by a seller who is not

compelled to sell and bought by a buyer who is not compelled to buy. In practice, however, the Fair Market Value is

based on the assessment of the municipal or city assessor as written in the Tax Declaration.

The Assessment Level shall be fixed through ordinances of the Sangguniang Panlalawigan, Sangguniang Panglungsod,

or the Sangguniang Pambayan of the municipality within the Metro Manila area.

Classes of real property for assessment purposes

For purposes of assessment, real property shall be classified as residential, agricultural, commercial, industrial,

mineral, timberland or special.

Residential land is land principally devoted to habitation.

Agricultural land is land devoted principally to the planting of trees, raising of crops, livestock and poultry

dairying, salt making, inland fishing and similar aquacultural activities, and other agricultural activities, and is

not classified as mineral, timber, residential, commercial or industrial land.

Commercial land is land devoted principally for the object of profit and is not classified as agriculture,

industrial, mineral, timber, or residential land.

Industrial land is land devoted principally to industrial activity as capital investment and is not classified as

agricultural, commercial, timber, mineral or residential land.

Mineral lands are lands in which mineral metallic or non-metallic, exist in sufficient quantity or grade to justify

the necessary expenditures to extract and utilize such mineral.

All lands, buildings and other improvements thereon, actually, directly and exclusively used for hospitals,

cultural, or scientific purposes, and those owned and used by local water districts, and government-owned or

controlled corporations rendering essential public services in the supply and distribution of water and/or

generation and transmission of electric power shall be classified as special.

Assessment level and assessed value

Assessment level is the percentage applied to the fair market value to determine the assessed value of the property.

Assessed value is the fair market value of the real property multiplied by the assessment level. It is synonymous to

taxable value.

The assessment levels to be applied to the fair market value of real property to determine its assessed value shall be

fixed by ordinances of the sangguniang panlalawigan, sangguninang panlungsod or sangguniang bayan of a

municipality within the Metropolitan Manila Area, at the rates not exceeding the following:

6. LOCAL TAX

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Maximum Assessment Level rates I. Land

Class Assessment Level

Residential 20%

Timberland 20%

Agricultural 40%

Commercial 50%

Industrial 50%

Mineral 50%

II. Building and Other Structures 1. Residential

FMV Over But Not Over Assessment Level

0.00 P175,000 0%

P175,000 300,000 10%

300,000 500,000 20%

500,000 750,000 25%

750,000 1,000,000 30%

1,000,000 2,000,000 35%

2,000,000 5,000,000 40%

5,000,000 10,000,000 50%

10,000,000 60%

2. Agricultural


P300,000 25%

P300,000 500,000 30%

500,000 750,000 35%

750,000 1,000,000 40%

1,000,000 2,000,000 45%

2,000,000 50%

3. Commercial/Industrial


P300,000 30%

P300,000 500,000 35%

500,000 750,000 40%

750,000 1,000,000 50%

1,000,000 2,000,000 60%

2,000,000 5,000,000 70%

5,000,000 10,000,000 75%

10,000,000 80%

4. Timberland


P300,000 45%

P300,000 500,000 50%

500,000 750,000 55%

750,000 1,000,000 60%

1,000,000 2,000,000 65%

2,000,000 70%

II. Machineries

Class Assessment Level

Agricultural 40%

Residential 50%

Commercial 80%

Industrial 80%

Special Classes of Real Property

6. LOCAL TAX

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All lands, buildings, and other improvements thereon actually, directly and exclusively used for hospitals, cultural, or

scientific purposes, and those owned and used by local water districts, and government-owned or controlled

corporations rendering essential public services in the supply and distribution of water and/or generation and

transmission of electric power

What are the assessment levels for special classes of real property?

Actual Use Assessment Level

Cultural 15%

Scientific 15%

Hospital 15%

Local water districts 10%

Government-owned or controlled corporations

engaged in the supply and distribution of water

and/or generation and transmission of electric

power

10%

What are the RPT rates?

A. BASIC REAL PROPERTY TAX: (Maximum RPT rates:)

Coverage RPT rate

Cities and Municipalities within Metro Manila 2%

Provinces 1%

B. SPECIAL LEVIES ON REAL PROPERTY

Aside from the basic real property tax, a province, city, or a municipality within Metro Manila may levy the following

on real properties:

1. Special Education Fund Tax (SEF)

2. Ad valorem tax on Idle Lands

3. Special Levy or Special Assessment

1. Special Education Fund (SEF) – 1%

In addition to the basic RPT, a province or city, or a municipality within Metro Manila may levy and collect an annual

tax of one percent (1%) on the assessed value of real property, within their jurisdiction, in addition to the basic real

property tax.

The proceeds shall exclusively accrue to the special education fund.

2. Ad Valorem Tax on Idle Lands – 5%

In addition to the basic RPT, A province or city, or a municipality within the Metropolitan Manila Area, may levy an

annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed value which shall be in addition

to the basic real property tax.

What are Idle Lands?

1. Agricultural lands more than one (1) hectare in area, suitable for cultivation, dairying, inland fishery, and

other agricultural uses, ½ of which remain uncultivated or unimproved.

Exceptions

a. Lands planted to permanent or perennial crops with at least 50 trees to a hectare; and

b. Lands used for grazing purposes (Note: put goats or cows on your property).

2. Lands Other than Agricultural, located in a city or municipality, more than 1,000 sqm. in area, ½ of which

remain unutilized or unimproved

3. Residential lots in subdivisions, regardless of land area, 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.

Provided, however, that individual lots of such subdivisions, the ownership of which has not been transferred to

the buyer shall be considered as part of the subdivision, and shall be subject to the additional tax payable by

subdivision owner or operator.

Idle lands exempt from idle land tax

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Idle lands may be exempt from 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.

3. Special levy (special assessment) by local government units

This is imposed on lands comprised within its territorial jurisdiction specially benefited by public works projects or

improvements funded by the local government unit concerned.

Provided, however, That the special levy shall not exceed sixty percent (60%) of the actual cost of such projects and

improvements, including the costs of acquiring land and such other real property in connection therewith.

Provide, further, That the special levy shall not apply to lands exempt from basic real property tax and the remainder

of the land portions of which have been donated to the local government unit concerned for the construction of such

projects or improvements.

C. OTHER IMPOSITION ON REAL PROPERTY

1. 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 MMA. Consistent with the constitutional mandate that the ownership and enjoyment of property bear a social

function and to raise funds from the Program, all local government units are hereby authorized to impose additional

one-half percent (0.5%) tax on the assessed value of all lands in urban areas in excess of fifty thousand pesos (P50,000) (Sec. 43, RA 7279)

2. Tax on Transfer of Real Property Ownership The province, city or municipality within Metro Manila Area may impose a tax on the sale, donation, barter, or on any

other mode of transferring ownership or title of real property at the rate of not more than one-half percent (1/2%) in

province/municipality and three-fourth (3/4%) in cities of the total consideration involved in the acquisition of the

property or of the fair market value 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)

shall be exempt from this tax.

For this purpose, the Register of Deeds of the province or city concerned shall, before registering a deed, require the

presentation of the evidence of payment of this tax.

The Assessor shall likewise make the same requirement before cancelling an old tax declaration and issuing a new one

in place thereof.

It shall be the duty of the seller, donor, transferor, executor, or administrator to pay the tax herein imposed within

sixty (60) days from the date of the execution of the deed or from the date of the decedent’s death.

In general, the requirements for the payment of transfer tax are the following:

1. Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue;

2. Realty tax clearance from the Treasurer’s Office; and

3. Official receipt for payment of documentary stamp tax paid to the Bureau of Internal Revenue.

PAYMENT AND COLLECTION OF REAL PROPERTY TAX

Collection of real property tax 1. Date of accrual tax. – The real property tax for any year shall accrue on the first (1st) day of January.

2. Payment of real property taxes in installment. – Except the special levy, the payment of which shall be

governed by the ordinance, the owner of the real property or the person having legal interest therein may pay the

basic real property tax and the additional tax for the Special Education Fund (SEF) thereon without interest in four

(4) equal installments as follows:

1st installment – on or before March 31

2nd installment – on or before June 30

3rd installment – on or before September 30

4th installment – on or before December 31

3. Application of payment of real property taxes. – The payments shall first be applied to prior years’

delinquencies, interests, and penalties, if any, and only after said delinquencies are settled may tax payments be

credited for the current period.

6. LOCAL TAX

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4. Tax discount for advanced prompt payment. – If the basic real property tax and the additional tax accruing to

the SEF are paid in advance in accordance with the prescribed schedule of payment are provide above, a discount

of not exceeding twenty percent (20%) of the annual tax due may be granted to the taxpayer.

5. Interests on unpaid real property tax. – In case of failure to pay the real property tax (basic and special

levies) upon the expirations of the periods for payment, or when due, as the case maybe, shall subject the

taxpayer of interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until

the delinquent tax shall have been fully paid, but not to exceed thirty-six (36) months.

Condonation or reduction of real property tax and interest Condonation or reduction of real property tax and interest maybe done either thru an ordinance, or by the President

of the Philippines.

a. Condonation/reduction thru an ordinance. – In case of general failure of crops or substantial decrease in the

price of agricultural of agribased products, or calamity, the saggunian concerned, by ordinance passed prior to the

first (1st) day of January of any year and upon recommendation of the Local Disaster Coordinating Council (LDCC),

may condone or reduce, wholly or partially, the taxes and interest thereon for the succeeding year or years in the

municipality affected by the calamity.

b. Condonation/reduction by the President. – The President of the Philippines may, when public interest to

requires, condone or reduce the real property tax and interest for any year in any province or city or a

municipality within the Metropolitan Manila Area.

Period to collect real property taxes The basic real property tax and special levies shall be collected within five (5) years from the date they become due.

No action for the collection of the tax, whether administrative or judicial, shall be instituted after the expiration of

such period.

In case of fraud or intent to evade payment of the tax, such action may be instituted for the collection of the same

within ten (10) years from the discovery of such fraud or intent to evade payment.

The running of the prescriptive period within which to collect shall be suspended for the time during which:

1. The local treasurer is legally prevented from collecting the tax;

2. The owner of the property or the person having legal interest therein requests for reinvestigation and executes a

waiver in writing;

3. The owner of the property or the person having legal interest therein is out of the country or otherwise cannot be

located.

Person or office tasked to collect the tax The collection of the real property tax with interest thereon and related expenses, and the enforcement of the

remedies shall be the responsibility of the city or municipal treasurer concerned.

The city of municipal treasurer may deputize the barangay treasurer to collect all taxes on real property located in the

barangay.

Provided, That the barangay treasurer is properly bonded for the purpose which shall be paid by the city or municipal

government concerned.

Comparison of Local Taxation and Real Property Taxation Comparison Local Taxation Real Property Taxation

LGUs authorized to levy the taxes Provinces, Cities, Municipalities and Barangays Provinces, Cities and Municipalities in Metro

Manila Area

Power or Authority to grant tax exemptions Expressly provided (Sec. 192, LGC) No power to grant tax exemptions

Exemptions from real property tax granted

under Sec. 234, LGC is granted by Congress

Date of accrual Unless otherwise provided in the LGC, all local

taxes, fees or charges shall accrue on the 1st

day of January of each year; however, a new

taxes, fees or charges or changes in the rates thereof, shall accrue on the 1st day of the

quarter next following the effectivity of the

ordinance imposing such new levies or rates

(Sec. 166 LGC)

On the 1st day of January

Manner of payment Maybe paid in quarterly installments Four equal instalments

Time of payment Within first 20 days of January or of each

subsequent quarter as the case may be

January 20 First quarter

April 20 Second quarter

July 20 Third quarter

October 20 Fourth quarter

March 31 First quarter

June 30 Second quarter

September 30 Third quarter

December 30 Fourth quarter

Exception : Special Levy

Its payments shall be governed by the

ordinance of the Sanggunian concerned.

6. LOCAL TAX

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Comparison Local Taxation Real Property Taxation

Prescriptive period of assessment Within 5 years from the date they become due

(Sec. 194 [a])

No express provision on prescription of

assessment

Prescriptive period of collection Within 5 years from the date of assessment by

administrative or judicial action; within 10 years

from the discovery of fraud or intent to evade

payment

Within 5 years from the date they become due;

within 10 years from the discovery of fraud or

intent to evade payment

Remedies Government Remedies

1. Government’s lien

2. Civil Remedies

a. Administrative action

(1) Distraint (2) Levy

b. Judicial action for tax collection

Taxpayer’s Remedies

1.)Questioning the constitutionality of the

ordinance before the Secretary of Justice

2.)Protest against the assessment

3. Claims for refund or tax credit

Note: payment under protest is not

necessary

Government Remedies

1. Government’s lien

2. Civil Remedies

a. Administrative action

(1) Distraint (2) Levy

b. Judicial action for tax collection

Taxpayer’s Remedies

1.)Questioning the constitutionality of the local

tax ordinance before the Secretary of Justice

2.) Protest against the assessment with

(a) LBAA (Local Board of Assessment Appeals

)then to (b) CBAA (Central Board of Assessment

Appeals)

3. Claims for refund or tax credit

Note: payment under protest is generally

necessary

III. OTHER REVENUE –RAISING POWERS OF LOCAL GOVERNMENT

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.

3. Cities

Fees and charges imposed by the province or municipality.

4. Barangays

Fees and charges:

1. For services rendered in connection with the regulation or the use of barangay-owned properties or service

facilities.

2. 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.

3. On commercial breeding of fighting cocks, cockfights and cockpits.

4. On places of recreation which charge admission fees.

5. On billboards, signboards, neon signs, and outdoor advertisement.

COLLECTION OF TAXES, FEES AND CHARGES

All local taxes, fees and charges shall accrue on the first day of January of each year. However, new taxes, fees or

charges, or changes in the rates thereof, shall accrue on the first (1st) day of the quarter next following the effectivity

of the ordinance imposing such new levies or rates.

6. LOCAL TAX

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All local taxes, fees and charges shall be paid within the first twenty (20) days of January or of each subsequent

quarter, as the case may be. The payments may be made in quarterly installments.

PROBLEMS

Problem 1:Local Tax Ordinances Case 1: The City Mayor of Manila issued an administrative order requiring all retailers of beer to pay 1% of their sale

of such product. Is the administrative order enforceable?

a. The administrative order is enforceable

b. The administrative order is may or may not enforceable

c. Either A or B

d. The administrative order is not enforceable because such is not covered by any city tax ordinance

Case 2: Supposing that in the above case, the order was supported with tax ordinance passed by the city council,

except that, no public hearing was conducted pertaining to the said tax ordinance. Is the order enforceable?

a. The tax ordinance is still unenforceable

b. The tax ordinance is enforceable

c. Either A or B

d. The tax ordinance is still unenforceable because of the lack of required public hearing

Case 3: The city council passed a tax ordinance that is vague as to its authority to impose such tax. Can the affected

taxpayer raise the defense that the vagueness of the tax ordinance should be construed in favor of the taxpayer?

a. Yes, the issue involve is the tax liability of the taxpayer.

b. No, because the issue does not involve the tax liability of the taxpayer, but the authority of the enforcing

government unit. The ambiguity of power to tax is to be resolved liberally in favor of the taxing authority.

c. Either A or B

d. Neither A nor B

Case 4: The tax ordinance passed by the city council is being contested by the taxpayer claiming his exemption from

the tax. Can the affected taxpayer raise the defense that doubts on the liability of the taxpayer under the tax

ordinance should be construed strictly against the taxing authority?

a. No, because with regards to exemption, the burden of proof must be on the part of the tax authority.

b. No, because with regards to exemption, the burden of proof must be on the part of the taxpayer.

c. Either A or B

d. Neither A nor B

Case 5: A local tax ordinance was enacted in the local Sanggunian after public hearing. Could it be enforced even

without approval of the local executive?

a. No. Although appropriately exercised by the Sanggunian (legislative branch), it will still need the approval of the

mayor or provincial governor (executive branch)

b. Yes. Appropriately exercised by the Sanggunian (legislative branch), no need the approval of the mayor or

provincial governor (executive branch)

c. Either A or B

d. Neither A nor B

5. When may a Local Government Unit adjust local taxes?

a. Every 5 years c. Every year

b. Every 2 years d. Anytime the sanggunian deems it fit.

6. Mr. Compton sells shoes in Makati through a retail store. He pays the VAT on his gross sales to the BIR and the

municipal license tax based on the same gross sales to the city of Makati. He comes to you for advice because he

thinks he is being subject to double taxation. What advice will you give him?

a. Yes, there is double taxation and it is progressive.

b. The City of Makati has no taxing power.

c. Yes, there is double taxation and this is illegal in the Philippines.

d. Double taxation is allowed where one tax is imposed by the National Government and the other by local

government.

7. The Municipality of Icawat passed an ordinance imposing tax on installation managers. At that time, there was only

one installation manager in the municipality. Thus, only he would be liable for the tax. Is the law constitutional?

a. It is unconstitutional because it clearly discriminate against this person.

b. It is unconstitutional for lack of legal basis.

c. It is constitutional as it applies to all persons in that class.

d. It is constitutional because the power to tax is the power to destroy.

8. Philtele is a power generation and distribution company operating mainly in the City of Makati. It owns electric

poles which it also rents out to other companies that use poles, such as telephone and cable companies. Makati

passed an ordinance imposing a fee equivalent to 1% of the annual rental for these poles. Philete questioned the

6. LOCAL TAX

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legality of the ordinance on the ground that it imposes an income tax which local government units are prohibited

from imposing. Rule on the validity of the ordinance.

a. The ordinance is void the fee is based on rental income and is therefore a tax on income.

b. The ordinance is valid as a legitimate exercise of police power to regulate electric poles.

c. The ordinance is void. The 1% of annual rental is excessive and oppressive.

d. The ordinance is valid a LGU may impose a income tax.

9. Where the National Government elects to tax a particular area, it impliedly withholds from the local government the

delegated power to tax the same field. This doctrine is known as?

a. Preemption

b. Separatedness of Department of Government

c. Exclusive prerogative doctrine

d. Tax Jurisdiction

10. 1st statement: Local tax relief or exemption is granted in cases of natural calamities, civil disturbances, general

failure or crops , or adverse economic conditions which is substantially decreases prices.

2nd statement: Local tax incentives are granted only to new investments in the locality.

a. True, False

b. True, True

c. False. True

d. False, False

11. You were preparing your income tax return and had some doubt on whether a commission you earned should be

declared for the current year for the succeeding year. You sought the opinion of a lawyer who advised you to report

the commission in the succeeding year. You heeded the lawyer's advice and reported the commission in the

succeeding year. The lawyer's advice turned out to be wrong. In your petition against the BIR assessment, the court

ruled against you. Are you guilty of fraud?

a. Not guilty of fraud because you simply followed lawyer's advice.

b. Guilty of fraud because it was deliberate.

c. Not guilty. It is lawyer's fault.

d. Guilty for failure to consult an accountant.

Problem 2: Local Taxes on the Transfer of Ownership Assume that the maximum tax rates under the LGC are applied in each case.

Mang Antoy sold his land located in Bulacan to Mang Batak, who intends to use the land as site of his ABC Factory.

Mang Batak paid P500,000 to Mang Antoy for the land which has a fair market value of P700,000 at the date of sale.

How much would be the tax on the transfer of ownership?

Problem 3: Local Taxes on Publishing Mr. Pablisher reported the following receipts for the previous year:

Printing and publication:

Books prescribed by DEpEd P1,300,000

Books and print cards 1,000,000

Forms and leaflets 200,000

How much would be Mr. Pablisher local tax payable to Provincial Treasurer?

Problem 4: Sand, Gravel and Quarry Resources ABC Partnership is engaged in selling sand, gravel and other quarry resources. During the taxable year, the

partnership reported the following during the year:

Gross sales P10,000,000

Total collections during the year 9,000,000

Total market value of extracted sand, gravel

and quarry resources 5,000,000

Unsold sand, gravel, and other quarry resources 4,000,000

Required: How much would be the local tax payable to the provincial treasurer by ABC Partnership? Problem 5 : Local Taxes on Delivery Vehicles

Mang Kaloy is a peddler of cigarettes and candies in La Trinidad. His total cash sales in a day amount to P150.

Required: Using a 365 days in a year, how much is his maximum local tax as a peddler in La Trinidad?

6. LOCAL TAX

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Problem 6: Local Taxes on Delivery Vehicles Mr. Cruz is a manufacturer of Strawberry Wine. He has ten delivery vans to distribute his product. How much would

his annual local tax for the delivery units he is maintaining?

Problem 7: Municipal Business Tax Assuming that in the following cases, the municipality which has jurisdiction applies the following tax rates:

Wholesalers: Applicable Tax Minimum P 18

Preceding year’s gross sales:

More than P5,000 to P100,000 1/16 of 1%

More than P100,000 to P500,000 1/8 of 1%

More than P500,000 to P2,000,000 1/4 of 1%

More than P2,000,000 1/2 of 1%

Case 1: W is a wholesaler. For the preceding year, his gross sales amounted to P1,500,000 of which P200,000 were

sold to R, a retailer. R’s gross sales for the same period amounted to P600,000, of which P40% were on account. R

sales are 120% of cost.

Required: 1. How much would be the municipal tax to be collected from W?

2. How much would be the municipal tax to be collected from R?

Case 2: Supposing that the other retailer of Mr. W is Mr. JR. Mr. JR’s sales for the preceding year amounted to

P25,000, how much would be the municipal business tax of Mr. JR?

Problem 8 : Local Tax Rate

Case 1: Tax Ordinance 2000-001 of Baguio is imposing ¾ of 1% of the total consideration involved in the transfer of

real property ownership. Is the above imposition a violation of the LGC?

Case 2: The Tax ordinance of Baguio imposes a minimum annual tax of P247.50 to manufacturers, importers or

producers of any article of commerce. Is the above imposition a violation of the LGC?

Problem 9: Due Date and Amount of Community Tax

Case 1: For the given year 20X1 the following information from business:

Gross Receipts from Business Php900,000

Rental Income 650,000

Operational Expenses 400,000

Real properties 17,000,000

Compute Individual Community tax____

Compute Corporate Community tax____

Case 2: Juan Dela Cruz has a business with total assets of P500,000 and total receipts of P200,000 for 200A. How

much community tax he has to pay if he will pay it on April 30, 200B?

Problem 10: Professional Taxes

Mr. Avanza is a CPA-Lawyer who practices both professions. If the professional tax in the place where he is practicing

his profession is P150 per profession, how much professional tax is he required to pay?

Problem 11: Real Property Tax

Case 1: Maricel Pilar is the owner of a 1,200 sq. meter-residential lot which remains unimproved and idle. The

current fair market value of the land is P3,000,000. The property is located in the province. Assume the that the fair

value is equal to assessed value.

How much is the total real property tax including special additional tax?

Case 2:

Actual use of property: Residential Location: City within Metro Manila FMV per assessor’s officer (based on Tax Declaration):

6. LOCAL TAX

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Land–P350,000 Improvement – P350,000 Assessment Level for Land: 20% Assessment Level for Improvement: 20%

How much is the total real property tax including special additional tax (special education fund)?

Problem 12: Business Permit Assuming the annual business permit fee in Quezon City is P500 per business establishment.

If Mr. Aris is a single proprietorship business (not falling under those enumerated in Section 143 (a-g) with annual

sales of P9,000,000, how much would be his total fees and taxes to be issued with business permit?

Problem 13: Situs of the taxation:

Case 1. A company engaged in the bottling business has a branch office in Pasig, a principal office in Makati and a

sales outlet in Paranaque. All the sales made by the company are recorded in the Paranaque City office. The local

business tax of the company shall be paid -

a. 100% in Pasig City c. 100% in Makati City

b. 50% in Pasig City and 50% in Makati City d. 100% in Paranaque City

Case 2. A company engaged in the manufacturing business has the following offices:

a. Principal Office in Quezon City

b. Factory in Muntinlupa

c. Plantation in Sta Rosa Laguna

All sales are recorded in Quezon City. The local business tax of the company shall be paid as follows:

a. 70% in Quezon City, 30% in Sta Rosa, 0% in Muntinlupa

b. 100% in Quezon City, 0% in Sta Rosa, 0% in Muntinlupa

c. 30% in Quezon City, 28% (40% of 70%) in Sta Rosa and 42% (60% of 70%) in Muntinlupa

d. 30% in Quezon City, 42% (60% of 70%) in Sta Rosa and 28% (40% of 70%) in Muntinlupa

Case 3. Zion's Shoes head office is located on Ortigas, Pasig City. However, its manufacturing plant is in Taytay Rizal.

As the company accountant you were asked by Zion where to pay the 2% Business Permits. Zion's gross receipts is

P10 million.

a. Pay P200,000 Taytay, Rizal.

b. Pay P200,000 at Ortigas,Pasig City.

c. Pay P60,000 at Ortigas, Pasig City and, P140,000 at Taytay, Rizal.

d. Pay P140,000 at Ortigas, Pasig City P60,000 at Taytay, Rizal.

Documents

6. Taxation under the Local Government Code