TYPES OF LOCAL INCOME AND REVENUES COLLECTED BY LOCAL GOVERNMENT UNITS 1. Definition of Income.

Income refers to all revenues and receipts collected or received forming the gross accretions of funds of the local government unit. (Sec. 306 (i), LGC) 2. 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 of the Local Government Code of 1991, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. (Sec. 129, LGC) Local government units do not have the inherent power to tax (Basco vs. PAGCOR, 197 SCRA 52), except such power as may be delegated to them by law (p. 401, Tax Law and Jurisprudence, Second Edition, Vitug and Acosta), that is, the 1987 Constitution through R.A. No. 7160 or the Local Government Code of 1991. Thus, the power to impose a tax, fee or charge or to generate revenue under the Local Government Code of 1991 shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance. (Sec. 132, LGC) 3. Fundamental Principles. The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers of local government units:

a) Taxation shall be uniform in each local government unit. (Sec. 130 (a), LGC)
Equality and uniformity in local taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate within the territorial jurisdiction of the taxing authority or local government unit and not necessarily in comparison with other units although belonging to the same political subdivision. In fine, uniformity is required only within the geographical limitation of the taxing authority21 (p. 416, Tax Law and Jurisprudence, Second Edition, Vitug and Acosta). Thus, if the tax is a city tax, it must be uniform throughout the city; if the tax is a municipal tax, it must be uniform throughout the municipality (Notes on Sec. 130, LGC, p. 18, Philippine Law on Local Government Taxation, Annotated, 2000 Edition, Ursal). The uniformity required is only within the territorial jurisdiction of a province, a city, a municipality or a barangay(Art. 219 (a), IRR, implementing Sec. 130 (a), LGC). A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. Where the statute or ordinance applies equally to all persons, firms, and corporations placed in similar situations, there is no infringement of the rule on equality. Inequalities which result from the singling out of one particular class, in respect to other classes, for taxation and exemption infringe no constitutional limitation (p. 416, Tax Law and Jurisprudence, Second Edition, Vitug and Acosta). Uniformity is not equivalent to equality in taxation (p. 18, Philippine Law on Local Government taxation, Annotated, 2000 Edition, Ursal). The Supreme Court has ruled, It is not true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all circumstances, or negate the authority to classify the object of taxation. The classification made in the exercise of

21

Punzalan vs. City of Manila, 95 Phil. 46

this authority, to be valid, must, however, be reasonable and this requirement is not deemed satisfied unless: 1) It is based upon substantial distinctions which make the real differences; 2) These are germane to the purpose of the legislation or ordinance; 3) The classification applies, not only to present conditions, but , also, to future conditions substantially identical to those of the present; and 4) The classification applies equally to all those who belong to the same class. These conditions are not fully met by the ordinance in question. Indeed, if its purpose were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by dealers other than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from then tax.22 (p. 417, Tax Law and Jurisprudence, Second Edition, Vitug and Acosta). b) Taxes, fees, charges and other impositions shall:

1) Be equitable and based as far as possible on the taxpayers ability to

pay Sec. 130 (b) (1), LGC). Equitability is characterized by equity. It means being fair to all concerned and that it is without prejudice, favour or vigor entailing undue hardship. It is the word fairness that best describe equitable. If the tax is excessive, it is not fair. When the tax discriminates, aside from violating the rule of uniformity, it is not fair. If the tax is in restraint of trade (that is, it discourages investors), it is not fair. The taxpayers ability to pay must be considered. It cannot be absolute or it cannot be based in a hard and fast rule. Ability to pay is more equated with the progressive system of taxation, that is, the more you earn, the more tax you pay. Taxation must be based, as far as practicable, on ability to pay. (p. 209, Local Government Code Annotated, Nolledo) The question as to when a tax is said to be equitable, is related to the distribution of the tax burden itself. Thus, the most equitable tax system is that which is most closely in conformity with the standards of equity in the distribution of real income. (p. 19, Philippine Law on Local Government Taxation, Annotated, 2000 Edition, Ursal)

2) Be levied and collected only for public purposes (Sec. 130, (b) (2), LGC).
Public purpose requires that the proceeds of taxation are used to support the existence of the local government or the pursuit of its governmental objectives (p. 419, Tax Law and Jurisprudence, Second Edition, Vitug and Acosta). The tax should be designed to support the services of the Government and the recognized public needs. The tax must affect the area as a community rather than as individual (LGC Annotated by Nolledo).

3) Not be unjust, excessive, oppressive, or confiscatory (Sec. 130, (b), (3), LGC). The
tax must be reasonable in order not to be unjust or oppressive (LGC Annotated by Nolledo).

4) Not be contrary to law, public policy, national economic policy, or in restraint of

trade (Sec. 130 (b) (4), LGC). A tax is contrary to law if it is a tax beyond the authority of an LGU to impose (LGC Annotated by Nolledo). Thus, a local
22

Pepsi Cola Bottling Co. vs. City of Butuan, 24 SCRA 789

ordinance, to be valid, must not contravene the Constitution or any statute; not be unfair or oppressive; not be partial or discriminatory; not prohibit but may regulate trade; be general and consistent with public policy; and not unreasonable (US vs. Abendan, 24 Phil. 165). A tax must not be restraint of trade in that it must not deter the free flow of commerce in the country, and cause considerable increase in the price of commodities, to the prejudice of the consuming public (Sec 133(e), Annotated, Local Government Taxation, Ursal).

c) The collection of local taxes, fees, charges and other impositions shall in no case be
let to any private person (Sec. 130, (c), LGC). The Supreme Court has said that entrusting the collection of the fees to a private person does not destroy the public purpose of the ordinance, stating that so long as the purpose is public, it does not matter whether the agency through which the money is dispensed is public or private. (Bagatsing vs. Ramirez, L-41631, Dec. 17, 1976)

d) The revenue collected pursuant to the provisions of the Local Government Code shall
inure solely to the benefit of, and be subject to disposition by the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided in the same Code (Sec. 130 (d), LGC). In no case can the National Government share in local taxes even if provided by law. The Constitution provides that local taxes, fees and charges shall accrue exclusively to the local governments. (Sec. 5, Art. X, 1987 Constitution).

e) Each local government unit shall, as far as practicable, evolve a progressive system
of taxation. (Sec. 130 (e), LGC). A progressive tax is one where the tax rate increases as the tax base increases. In the case of tax on business, manufacturers pay more taxes per annum as their gross sales or receipts for the preceding year increases. (Sec. 130 (h), Annotated, Local Government Taxation, Ursal).

4. Valid Revenue Ordinance

A. For any revenue ordinance to be valid, it must conform with the provisions of Chapter
5, Title 1, Book II of R.A. No. 7160 or the Local Government Code of 1991, which define both substantive and procedural requirements therefor.

B. Procedural Requirements for a Valid Revenue Ordinance. The conduct of

public hearings shall be governed by the following procedure:

1) Pre-publication or Posting. Within ten (10) days from the filing of the
proposed tax ordinance or revenue measure, the same shall first be published for three (3) consecutive days in a newspaper of local circulation or shall be posted simultaneously in at least four (4) conspicuous places within the territorial jurisdiction of the LGU concerned. (art. 276 (b) (1), IRR, implementing Sec. 188, LGC) Conspicuous places include municipal halls, plazas, barangay halls, public markets, churches and other public places where the constituents converge.

2) Written Notices to Interested or Affected Parties. In addition to the

foregoing requirement on publication or posting, the sanggunian concerned shall cause the sending of written notices of the proposed ordinance, enclosing a copy thereof, to the interested or affected parties operating or doing business within the territorial jurisdiction of the LGU concerned. (Art. 276 (b) (2), IRR, implementing Sec. 188, LGC) Information must reach those that shall be directly affected by the imposition. For example, when the measure is on the business tax, the LGU may invite the business community in the public hearing. To ensure compliance with the requirement, sending of written notices is necessary. The notice or notices shall specify the date or days and venue of the public hearing or hearings.(Art. 276 (b) (3), IRR, implementing Sec. 188, LGC)

3) Public Hearing. (a) the initial public hearing shall be held not earlier than ten
(10) days from the sending out of notice or notices, or the last day of publication, or date of posting thereof, whichever is later.(Art. 276 (b) (3), IRR, implementing Sec. 188, LGC) (b) Public hearings shall be conducted prior to the enactment of the tax ordinance or revenue measure. (Sec. 187, LGC) (C) At the public hearing or hearings, all affected or interested parties shall be accorded an opportunity to appear and present or express their vie ws, comments and recommendations, and such public hearing or hearings shall continue until all issues have been presented and fully deliberated upon and/or a consensus is obtained, whether for or against the enactment of the proposed tax ordinance or revenue measure. (Art. 276 (b) (4), IRR, implementing Sec. 188, LGC) (d) The deliberations at the public hearing or hearings shall serve as inputs to the members of the sanggunian. After the sanggunian members have considered the views and comments, they may modify, pass or suspend judgment on the issue.

 No tax ordinance or revenue measure shall be enacted or approved in the absence of a public hearing duly conducted in the manner herein prescribed. (Art. 276 , IRR, implementing Sec. 188, LGC)

4) Preparation of Minutes. The secretary of the sanggunian concerned shall

prepare the minutes of such public hearing and shall attach to the minutes the position papers, memoranda, and the like submitted by those who participated. (Art. 276, (b) (5), IRR, implementing Sec. 188, LGC) The proceedings must be properly documented, so that, the sanggunian can readily access information on the peoples reaction on the proposal.

5) Approval. (a) Every ordinance enacted by the sangguniang panlalawigan,

sangguniang panlungsod, or sangguniang bayan, shall be presented to the provincial governor or city or municipal mayor, as the case may be. If the local chief executive concerned approves the same, he shall affix his signature on each and every page thereof. (Sec. 54 (a), LGC) (b) The local chief executive may veto any ordinance of the sangguniang panlalawigan, sangguniang panlungsod, or sangguniang bayan on the ground that it is ultra vires or prejudicial to the public welfare, stating his reasons therefor in writing (Sec. 55 (a), LGC), and return the same to the sanggunian (Sec. 54 (a), LGC). The veto shall be communicated by the local chief executive concerned to the sanggunian within fifteen (15) days in the case of a province, and ten (10) days in the case of a city or municipality; otherwise, the ordinance shall be deemed approved as if he had signed it. (Sec. 54 (b), LGC) The local chief executive may veto an ordinance or resolution only once. (Sec. 55 (c), LGC) (c) The sanggunian concerned may override the veto of the local chief executive by two-thirds (2/3) vote of all its members, thereby making the ordinance or resolution effective for all legal intents and purposes. (Sec. 54 (a), LGC) (d) Ordinances enacted by the sangguniang barangay shall, upon approval by the majority of all its members, be signed by the punong barangay. (Sec. 54 (c), LGC)

6) Publication of Tax Ordinances and Revenue Measures. (a) Within ten (10)
days after their approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation: Provided, however, That in provinces, cities and municipalities where there are no newspapers of local circulation, the same may be posted in at least two conspicuous and publicly accessible places. (Sec. 188, LGC) (b) If the tax ordinance or revenue measure contains penal provisions, the gist of such ordinance or revenue measure shall be published in a newspaper of general circulation within the province where the local sanggunian concerned belongs. In the absence of any newspaper of general circulation within the province, posting of such ordinance or measure shall be made in accessible and conspicuous public places in all municipalities and cities of the province to which the sanggunian

enacting the ordinance or revenue measure belongs. (Art. 276, IRR, implementing Sec. 188, LGC)

C. Substantive Requirements for a Valid Revenue Ordinance.23 To be valid, a

tax or revenue ordinance must conform to the following substantive requirements: 1) 2) 3) 4) 5) It It It It It 6) It must must must must must must not contravene the Constitution or any statute; not be unfair or oppressive; not be partial or discriminatory; not prohibit but may regulate trade; be generally consistent with public policy; and not be unreasonable. (US vs. Abendan, 24 Phil. 165)

D. Effectivity of Tax Ordinances or Revenue Measures. The tax ordinances or

revenue measures take effect upon compliance with the above procedural and substantive requirements.

E. Furnishing of Copies of Tax Ordinances and Revenue Measures. Copies of

all provincial, city, and municipal and barangay tax ordinances and revenue measures shall be furnished the respective Local Treasurers for public dissemination.

F. Review of Tax Ordinances or Revenue Measures. R.A. No. 7160 or the Local
Government Code of 1991, provides the following cautionary steps wherein tax ordinances or revenue measures of component cities and municipalities are reviewed by the sangguniang panlalawigan, and the ordinances of barangays by the sangguniang panlungsod or sangguniang bayan:

1) Review of Component City and Municipal Ordinances or Resolutions by

the Sangguniang Panlalawigan. (a) Within three (3) days after the approval, the secretary of the sangguniang panlungsod or sangguniang bayan shall forward to the sangguniang panlalawigan for review, copies of approved revenue ordinances and resolutions. (Sec. 56 (a), LGC) (b) Within thirty (30) days after receipt of copies of such revenue ordinances and resolutions, the sangguniang panlalawigan shall examine the documents or transmit them to the provincial attorney, or if there be none, to the provincial prosecutor for prompt examination. The provincial attorney or provincial prosecutor shall within a period of ten (10) days from receipt of the documents, inform the sangguniang panlalawigan in writing of his comments or recommendations, which may be considered by the sangguniang panlalawigan in making its decision. (Sec. 56 (b), LGC) (c) If the sangguniang panlalawiagan finds that such an ordinance or resolution is beyond the power conferred upon the sangguniang panlungsod or sangguniang bayan concerned it shall declare such ordinance or resolution invalid in whole or in part. The sangguniang panlalawigan shall enter its action in the minutes and shall revise the corresponding city or municipal authorities of the action it has taken. (Sec. 56 (c), LGC) (d) The review by the sangguniang panlalawigan of the component city and municipal revenue ordinances is limited to determining the legality thereof or if the same exceed the powers conferred upon by law to the sangguniang
23

See separate handout for a more detailed discussion of the substantive requirements of a valid revenue ordinance.

panlungsod or sangguniang bayan. Exceeding such powers is ultra vires and amounts to usurpation of the legislative functions of the city or municipal councils. (e) The review by the sangguniang panlalawigan is in the nature of legislative check and it is a measure by which the provincial government exercises its power of general supervision over component units. (f) If no action has been taken by the sangguniang panlalawigan within thirty (30) days after submission of such an ordinance or resolution, the same shall be presumed consistent with law and therefore valid. (Sec. 56 (d), LGC) (g) Pending review by the higher council, a revenue ordinance continues to be in force and effect. (h) Declaration of invalidity of the revenue ordinance is equivalent to disapproval thereof.

(i) The signature of the governor is required in relation to the resolution adopted
by the sangguniang panlalawigan, approving or disapproving the revenue ordinance or resolution enacted by the sangguniang bayan or sangguniang panlungsod. Review of Barangay Ordinances by the Sangguniang Panlungsod or Sangguniang Bayan. - (a) Within ten (10) days after its enactment, the sangguniang barangay shall furnish copies of all barangay ordinances to the sangguniang panlungsod or sangguniang bayan concerned for review as to whether the ordinance is consistent with law and city or municipal ordinances. (Sec. 57 (a), LGC) (b) If the sangguniang panlungsod or sangguniang bayan, as the case may be, fails to take action on barangay ordinances within thirty (30) days from receipt thereof, the same shall be deemed approved. (Sec. 57 (b), LGC) (c) If the sangguniang panlungsod or sangguniang bayan, as the case may be, finds the barangay ordinances inconsistent with law or city or municipal ordinances, the sanggunian concerned shall, within thirty (30) days from receipt thereof, return the same with its comments and recommendations to the sangguniang barangay concerned for adjustment, amendment, or modification; in which case, the effectivity of the barangay ordinance is suspended until such time as the revision called for is effected. (Sec. 57 (c), LGC)

G. Appeal on the Legality or Constitutionality of an Ordinance. Appeal on the

constitutionality or legality of an ordinance may be made to the Secretary of Justice or to the regular courts, as follows: a) Appeal to the Secretary of Justice:

1) Any question on the constitutionality or legality of tax ordinances or revenue

measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein. (Sec. 187, LGC)

2) The appeal to the Secretary of Justice extends only to the determination if the ordinance is constitutional or legal. The Secretary of Justice shall neither substitute his own judgment nor replace the same with another version. This appeal to the Secretary of Justice is one of supervision and not of control.
3) The decision of the Secretary of Justice can be further appealed to the President, pursuant to the principle of exhaustion of administrative remedies, in order for the courts to take cognizance of the appeal on the decision of the executive branch of the government.

b) Appeal through the Courts. Provided, finally, That within thirty (30) days
after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction.

H. Penalties for Violation of Tax Ordinances. The local government unit is

authorized to prescribe imprisonment or fines or penalties for violation of tax ordinances but in no case shall such fines be less than One Thousand Pesos (P 1,000.00) nor more than Five Thousand Pesos (P5,000.00), nor shall imprisonment be less than one (1) month nor more than six (6) months. Such fine or other penalty, or both, shall be imposed at the discretion of the court. The sangguniang barangay may prescribe a fine of not less than One Hundred Pesos (P100.00) nor more than One Thousand Pesos (P1,000.00). (Sec. 516, LGC)

I.

Attempt to Enforce Void or Suspended Tax Ordinances and revenue measures. The enforcement of any tax ordinance or revenue measure after due notice of the disapproval or suspension thereof shall be sufficient ground for administrative disciplinary action against the local officials and employees responsible therefor. (Sec. 190, LGC)

5. Power to Create Sources of Revenue and Local Taxing Authority. (a) 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 of R.A. No. 7160 or the Local Government Code of 1991, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. (Sec. 129, LGC) Local government units do not have the inherent power to tax. The power to tax inherently belongs to the State. However, the State may delegate this power through legislation which, in this case, through the R.A. No. 7160 or the Local Government Code of 1991. (b) As in all revenue measures, it is up to the particular local government to enact the necessary tax ordinance that would enable it to avail of its power to impose a given tax. 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. (Sec. 132, LGC) 6. Taxing Power of Provinces.24 Except as otherwise provided in R.A. No. 7160 or the Local Government Code of 1991, the province may levy only taxes, fees and charges specifically reserved to provinces, as follows: (Sec. 134, LGC) 1) Tax on Transfer of Real Property Ownership (Sec.135 , LGC); 2) Tax on Business of Printing and Publication (Sec.136 , LGC); 3) Franchise Tax (Sec. 137, LGC); 4) Tax on Sand, Gravel and Other Quarry Resources (Sec. 138, LGC);
24

Refer to the Local Revenue Tool Kit for Philippine LGUs in a separate handout.

5) Professional Tax (With required government examination) (Sec. 139, LGC); 6) Amusement Tax (Sec. 140, LGC); 7) Annual Fixed Tax for Every delivery Truck or Van of Manufacturers or Producers,
Wholesalers of, Dealers, or Retailers in, Certain Products (Sec. 141, LGC); 8) Real Property Tax (Sec. 232, LGC); 9) Additional Levy on Real Property for the Special Education Fund (SEF) (Sec. 235, LGC); 10) Additional Ad Valorem Tax on Idle Lands (Sec. 236, LGC); 11) Special Levy on Lands Benefited by Public Works, Projects or Improvements Funded by LGU concerned (Sec. 240, LGC); 12) Service Fees and Charges (Sec. 153, LGC); 13) Public Utility Charges (Sec. 154, LGC); and 14) Toll Fees or Charges (Sec. 155, LGC). 7. Taxing Powers of Municipalities. (a) Except as otherwise provided in the Local Government Code of 1991, municipalities may levy taxes, fees and charges not otherwise levied by provinces (Sec. 142, LGC), as follows:

1) 2) 3) 4) 5) 6)

Tax on Business (Sec. 143, LGC); Community Tax (Sec. 156, LGC); Real Property Tax (municipalities within Metropolitan Manila Area) (Sec. 232, LGC); Additional Levy on Real Property for the Special Education Fund (Sec. 235, LGC); Additional Ad Valorem Tax on Idle Lands (Sec. 236, LGC); Special Levy on Lands Specially Benefited by Public Works, Projects or Improvements (Sec. 240, LGC); 7) Fees and Charges on Business and Occupation (Sec. 147, LGC); 8) Fees for Sealing and Licensing of Weights and Measures (Sec. 148, LGC); 9) Fishery Rentals, Fees and Charges (Sec. 149, LGC); 10) Service Fees and Charges (Sec. 153, LGC); 11) Public Utility Charges (Sec. 154, LGC); and 12) Toll Fees and Charges (Sec. 155, LGC). (b) Rates of Tax within the Metropolitan Manila Area. - The municipalities within the Metropolitan Manila Area may levy taxes at rates which shall not exceed by fifty percent (50%) the maximum rates prescribed in the preceding Section. (Sec. 144, LGC) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not exceeding two percent (2%) of the assessed value of real property. (Sec. 233 (b), LGC) 8. Taxing Powers of Cities. Except as otherwise provided in the Local Government Code of 1991, the City may levy taxes, fees and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue them and distributed in accordance with the provisions of the same Local Government Code The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes. (Sec. 151, LGC) The taxes, fees and charges that may therefore be levied by the cities are the following:

1) 2) 3) 4) 5) 6) 7)

Tax on Transfer of Real Property Ownership (Sec.135 , LGC); Tax on Business of Printing and Publication (Sec.136 , LGC); Franchise Tax (Sec. 137, LGC); Tax on Sand, Gravel and Other Quarry Resources (Sec. 138, LGC); Professional Tax (Sec. 139, LGC); Amusement Tax (Sec. 140, LGC); Annual Fixed Tax for Every delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products (Sec. 141, LGC); 8) Tax on Business (Sec. 143, LGC); 9) Community Tax (Sec. 156, LGC); 10) Real Property Tax (Sec. 232, LGC); 11) Additional Levy on Real Property for the Special Education Fund (Sec. 235, LGC); 12) Additional Ad Valorem Tax on Idle Lands (Sec. 236, LGC); 13) Special Levy on Lands Specially Benefited by Public Works, Projects or Improvements (Sec. 240, LGC); 14) Fees and Charges on Business and Occupation (Sec. 147, LGC); 15) Fees for Sealing and Licensing of Weights and Measures (Sec. 148, LGC); 16) Fishery Rentals, Fees and Charges (Sec. 149, LGC); 17) Service Fees and Charges (Sec. 153, LGC); 18) Public Utility Charges (Sec. 154, LGC); and 19) Toll Fees and Charges (Sec. 155, LGC). 9. Power to Levy Other Taxes, Fees and Charges. Local government units may exercise the power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy: Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the purpose. (Sec. 186, LGC) 10. Taxing Powers of Barangays. (a) The barangays may levy taxes, fees, and charges, as provided in Article 4, Chapter 2, Title 1, Book II of R.A. No. 7160 or the Local Government Code of 1991, which shall exclusively accrue to them. (b) Taxes. On stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year of Fifty Thousand Pesos (P50,000.00) or less, in the case of cities and Thirty Thousand Pesos (P30,000.00) or less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales or receipts; (c) Service Fees or Charges. Barangays may collect reasonable fees or charges for services rendered in connection with the regulations or the use of barangay-owned properties or service facilities such as palay, copra, or tobacco dryers; (d) Barangay Clearance. No city or municipality may issue any license or permit for any business or activity unless a clearance is first obtained from the barangay where such business or activity is located or conducted. For such clearance, the sangguniang barangay may impose a reasonable fee. The application for clearance shall be acted upon within seven (7) working days from the filing thereof. In the event that the clearance is not issued within the said period, the city or municipality may issue the said license or permit;

10

(e) Other fees and Charges. The barangay may levy reasonable fees and charges: (1) On commercial breeding of fighting cocks, cockfights and cockpits; (2) On places of recreation which charge admission fees; and (3) On billboards, signboards, neon signs, and outdoor advertisements. (Sec. 152, LGC) 11. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided in the Local Government Code of 1991, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: (1) Income tax, except when levied on banks and other financial institutions; (2) Documentary stamp tax; (3) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided in the Local Government Code of 1991; (4) Customs duties, registration fees of vessel 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; (5) Taxes, fees, and charges and other impositions upon goods carried into or out of, or 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; (6) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; (7) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration; (8) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; (9) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided in the Local Government Code of 1991; (10) 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 the Local Government Code of 1991; (11) Taxes on premiums paid by way or reinsurance or retrocession; (12) 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; (13) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided in the Local Government Code of 1991; (14) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 681025 and R.A. No. 693826; and (15) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. (Sec. 133, LGC) 12. Non-Tax Revenues. Aside from revenues that they may be generated through their power of taxation, local government units have access to non-tax revenues27 from the following sources:

25 26

KALAKALAN Bilang 20 Cooperative Code of the Philippines 27 See summary of the non-tax revenues that may be levied by provinces, cities, and municipalities in separate handout.

11

1) Proceeds from fees and charges that local government units may impose in the exercise of their regulatory and proprietary powers; 2) Shares of local government units from revenues of the national government, including their share in the utilization and development of the national wealth or resources within their territorial jurisdiction and other sources defined by law; and 3) Other receipts from the disposal of assets and from donations and contributions. 13. Services Fees and Charges. Local government units may impose and collect fees and service or user charges for nay service rendered by it in an amount reasonably commensurate to such service: Provided, however, That no service charge shall be based on capital investments or gross sales or receipts of the person or business liable therefor. (Art. 244, IRR, implementing Sec. 153, LGC) In the same manner as local taxes, it is the sanggunian that is empowered to impose local fees and charges through appropriate ordinance or revenue measure. A. Fees

1) Basis of Fees. Fees are collected by a local government unit in the exercise of
its police power. They are imposed in relation to the services rendered in regulating business and other activities within its jurisdiction, such as the privilege to operate an establishment or the practice of a profession. The imposition of a fee must be accompanied by the performance of corresponding regulatory function, if not, the fee is unjustified.

2) Amounts That May be Imposed. Fees should be imposed at rates that are
considered reasonable. The reasonableness of a fee is commonly understood to mean that which should be more or less equated to the cost of issuing the permit or license and the cost of surveillance and services rendered in relation to the business or activity regulated. It is therefore important for local government units to prepare cost-computation schedules to support the rates of fees established. Business gross receipts and capitalization are not allowed as basis for determining the amount of fees, since they are unrelated to the cost of regulation.

3) Beneficiaries of Regulatory Services. There are two general categories of

regulatory services delivered by local government units: a) Those whose beneficiaries are in mass, whose pricing therefor cannot be allocated to individuals (such as traffic enforcement); and b) Those whose beneficiaries can be readily identified. The rates under this category can be more easily determined and, thus, set at reasonable levels. Local government units must be judicious, however, in selecting and identifying the proper subjects for service fees.

B. Charges. Local government units can also impose charges for the use of their
facilities. Many local government units own ferries, markets, slaughterhouses, hospitals, utilities, toll roads and bridges. While many such facilities and services have been assumed by the private sector, some local government units prefer to continue to operate them directly for two reasons: 1) It is strategically beneficial to the community as a whole, and/or 2) The private sector has not taken interest and prefers that these responsibilities continue to be performed by the local government units.

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14. Shares in the Proceeds of National Taxes. By provision of law, local government units share from the income generated by the national government from all taxes and revenue sources, as follows:

1) Internal Revenue Allotment (IRA) (Sec. 284, LGC) 2) Tobacco Excise Tax (R.A. No. 717128) 3) Proceeds from the utilization of national wealth within their territorial jurisdiction
(Sec. 289, LGC) and

4) Special shares from other national taxes, particularly on ECOZONES (R.A. 722729)
and on specified portions of the Value Added Tax. (Sec. 2, R.A. No. 764330)

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An Act to Promote the Development of the Farmers in the Virginia Tobacco Producing Provinces 29 Bases Conversion and Development Act of 1992 30 An Act to Empower the Commissioner of Internal Revenue to Require the Payment of the Value-Added Tax Every Month and to Allow Local Government Units to Share in VAT Revenue.

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