a guide in reviewing component city/municipality revenue ... · pdf filethese codal mandates...

A Guide in Reviewing Component City/Municipality Revenue Codes

OUTLINE

I RATIONALE

II AREAS FOR REVIEW

III ACTION TAKEN BY REVIEWING AUTHORITY

I. Rationale

In the midst of the recurring global crisis resulting in the financial strain on government, local government units (LGUs) are face with the challenge to fully marshal local taxing, regulatory as well as proprietary powers to generate the needed revenues and resources to finance the delivery of basic services.

The Local Government Code of 1991 defines the legal framework by which LGUs

can generate revenues and mobilize resources. It has given LGUs some degree of autonomy in making revenue raising decisions, such that LGUs have the option to impose the various tax subjects enumerated in the Code and they may set the tax rates within a certain limit through an approved local revenue ordinance. They are also allowed to make tax rate adjustments once every five years. These codal mandates have provided some degree of dynamism as well as certainty in the revenue-raising powers of LGUs.

However, such revenue generating and regulatory powers of LGUs are not open-

ended, they must be exercised based on some guiding principles and must be within the parameters and limits provided by law.

A growing number of complaints from the business sector and ordinary taxpayers

seem to indicate a possible and unwitting abuse or misuse of such powers on the part of the LGUs, thus negatively affecting compliance. It is also noted that some LGUs have adopted revenue and regulatory measures beyond their taxing and regulatory powers.

It becomes imperative then to strengthen the existing oversight and review

mechanisms related to enactment of LRCs/revenue ordinances to ensure equity and fairness, prudence and better compliance.

It is in this light that this Guide is formulated in order to provide the reviewing

authorities the necessary tools in ensuring the legality and rationality of LRCs/local revenue ordinances.

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This Guide is intended for local officials tasked to review local revenue codes. The Guide uses the Model City Revenue Code which includes provincial and municipal impositions as working reference.

II. Areas for Review

AREAS FOR REVIEW OF THE LOCAL REVENUE CODE

In general, a higher level Sanggunian shall review the following with respect to the Revenue Ordinance submitted to it: • consistency with constitution and national laws • Scope of taxing and regulatory power • Rate/frequency of increase • Compliance with mandatory procedures

Consistency with constitution and national laws The 1987 Constitution vests on each local government unit (LGU) “….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.” (Section 5 Article X of the 1987 Constitution) Scope of taxing and regulatory power including rate/frequency of increase Sections 135, 136, 137, 138, 139, 140, 141, 143 (a), (b), (c), (d), (e), (f), (g) and (h) Sections 147, 148, 149, 151, 152 (a), (b), (c), (d), 153, 154, 155, 156, 157, 158 Section 191 Sections 391 (2), (7), (14) Sections 444 (2), (3) (iv), (v), (vi), (vii), (ix) Sections 447(1) (ii),(iii),(iv),(v),(vi), 447 (2) (vi), (vii), (viii), (ix), (x), (xi), (xiv), (xv) Section 447 (3), (4), (5) RA 7279 Section 43 Section 133

CHAPTER I. GENERAL PROVISIONS

Article A. Short Title and Scope

Article B. Construction of Provisions

Article C. Definition of Terms

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FOCUS: Chapter I, General Provisions. Articles A, B and C are provisions common to revenue codes/ordinances. They are generally accepted in the form and style presented.

CHAPTER II. City Taxes

ARTICLE A. Real Property Taxes

ARTICLE B. Tax on Idle Lands

ARTICLE C. Special Levy on Lands

ARTICLE D. Socialized Housing Tax

FOCUS: Land-based taxes are easily explained. Except for special levy, the taxes are based on assessed values of real properties.

The rates of levy are:

• Basic Real Property Tax

o Provinces – not exceeding one percent (1%) of the assessed value of the real property

o Cities and municipalities in the Metropolitan Manila Area – not exceeding two percent (2%) of the assessed value of the real property

• Additional Levy for the Special Education Fund – For provinces, cities and municipalities within the Metropolitan Manila Area, a fixed uniform rate of one percent (1%) of the assessed value of the real property. The levy is in addition to, and collected at the same time as, the basic real property tax.

• Idle Land Tax – A province, city or municipality within the Metropolitan Manila Area: not exceeding five percent (5%) of the assessed value of the real property which shall be in addition to the basic real property tax.

• Special Levy on Lands – LGUs may impose a special levy on lands especially benefitted by public works or improvements funded by the LGU. The special levy shall not exceed sixty percent (60%) of the cost of such projects and improvements, including the cost of acquiring land and such other real property in connection therewith.

o Sec. 240 of LGC provides that: “A province, city or municipality may impose a special levy on the lands comprised within its territorial jurisdiction especially benefited by public works projects or improvements funded by the LGU concerned: provided, however, that the special levy

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shall not exceed sixty (60) percent of the actual cost of such projects and improvements, including the costs of acquiring land and such other real property in connection therewith: provided, 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 LGU concerned for the construction of such projects or improvements.”

o Sec. 241 of LGC stipulates that: “A tax ordinance imposing a special levy shall describe with reasonable accuracy the nature, extent, and location of the public works projects or improvements to be undertaken, state the estimated cost thereof, specify the metes and bounds by monuments and lines and the number of annual installment for the payment of the special levy which in no case shall be less than five (5) nor more than ten (10) years. The Sanggunian concerned shall not be obliged, in the apportionment and computation of the special levy, to establish a uniform percentage of all lands subject to the payment of the tax for the entire district, but it may fix different rates for different parts or sections thereof, depending on whether such land is more or less benefited by the proposed work.”

o Sec. 242 of the LGC states that: “Before the enactment of an ordinance imposing a special levy, the Sanggunian concerned shall conduct a public hearing thereon; notify in writing the owners of the real property to be affected or the persons having legal interest therein as to the date and place thereof and afford the latter the opportunity to express their positions or objections relative to the proposed ordinance.”

o Sec. 243 of the LGC provides that: “The special levy authorized herein shall be apportioned, computed and assessed according to the assessed valuation of the lands affected as shown by the books of the assessor concerned, or its current assessed value as fixed by said assessor of the property does not appear of record in his books. Upon the effectivity of the ordinance imposing special levy, the assessor concerned shall forthwith proceed to determine the annual amount of special levy assessed against each parcel of land comprised within the area especially benefited and shall send to each landowner a written notice thereof by mail, personal service or publication in appropriate cases.”

o Sec. 244 of the LGC stipulates that: “Any owner of real property affected by a special levy or any person having a legal interest therein may, upon receipt of the written notice of assessment of the special levy, avail of the remedies provided for in Chapter 3, Title Two, Book II of the LGC.”

o Sec. 245 of the LGC states that: “The special levy shall accrue on the first day of the quarter next following the effectivity of the ordinance imposing such levy.”

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The Socialized Housing Tax – LGUs are authorized to impose an additional one-half percent (0.5%) tax on assessed value of all lands in urban areas in excess of fifty thousand pesos (Php50,000.00). (Republic Act 7279)

“Urban areas” refers to all cities regardless of their population density and to municipalities with a population of at least five hundred per square kilometer.

ARTICLE E. Tax on Transfer of Real Property Ownership (Section 135)* ARTICLE F. Tax on Printing and Publication (Section 136)**

ARTICLE G. Franchise Tax (Section 137)**

ARTICLE H. Professional Tax (Section 139)***

ARTICLE I. Amusement Tax on Admission (RA 9640)***

ARTICLE J. Annual Fixed Tax on Delivery Vans (dealer, manufacturer, wholesaler

* The fair market value under Section 135 refers to the current approved schedule of market values used by the assessor.

** Provision on newly started business applies only to tax on printing and publication, and franchise.

*** Uniform rate for provinces and cities.

FOCUS: Taxes under Articles E, F, G, H, I and J impositions allocated to provinces which cities may also impose at rates not exceeding fifty percent (50%) of the amounts allowed for the province, except the rates for professional and amusement taxes.

The tax on sand, gravel and other quarry resources is not included in the Model as it is the province that has the exclusive authority to impose such tax. It is only in the case of highly urbanized city, where the City Mayor issues the permit to extract sand, gravel and other quarry resources.

ARTICLE K. Graduated Tax on Business

FOCUS: Business taxes under Sections 143 of the Local Government Code (LGC), viz:

a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits and wines

b) On wholesalers, distributors or dealers in any article of commerce of whatever kind or nature

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c) On exporters and on manufacturers, millers, producers, wholesalers, distributors, or dealers of essential commodities

d) On retailers

e) On contractors and other independent contractors*

f) On banks and other financial institutions

g) On peddlers engaged in the sale of any merchandise or article of commerce

h) On any business, not otherwise specified in the foregoing enumeration

Items a), b) c) and e) are provided with graduated schedule of fixed taxes; while items d), f), g) and h) are percentage taxes. These impositions are enumerated in Section 143. “(T)he Sanggunian concerned may prescribe a schedule of graduated tax rates for item h) but in no case to exceed the rates prescribed (t)herein.”

A distinguishing characteristic of this set of taxes is that the tax base (except for peddlers) is gross sales or receipts for the preceding calendar year.

Tax rates can be increased by not more than 10% once every 5 years is provided by the Code (Section 191).

* Definition of Contractor- expand the enumeration of contractors to include other businesses providing services for a fee.

ARTICLE L. Other Taxes on Business pursuant to Sections 186 and 143 (h)

a) Tax on Mobile Traders – An annual tax of one percent (1%) on the gross receipts of any person, who either for himself or commission, travels from place to place and sells goods or offers to deliver the same, using a vehicle.

[Provinces were authorized under Presidential Decree 231 to impose taxes on peddlers engaged in the sale of any merchandise or article of commerce within the province using trucks, motorized bicycles, tricycles or other motorized vehicles. The tax on mobile traders is impossable on peddlers using vehicles who sell or deliver goods within the city or municipality.]

b) Tax on Ambulant and Itinerant Amusement Operators – A fixed tax per day prescribed by the Sanggunian.

c) Tax on Mining Operations (Department of Finance’s Local Finance Circular No. 2-09)

c.1 Mining companies which exclusively operate for the extraction of minerals, metallic or non-metallic, the tax rate shall not exceed two percent (2%) of their gross receipts pursuant to Section 143(h) of the LGC Imposed under the ordinance of the local government unit (LGU) concerned.

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c.2 Mining companies whose operations include the processing of extracted minerals to

finished products shall be taxed on their gross receipts pursuant to Section 143(a) of the LGC imposed under the ordinance of the LGUs concerned.

c.3 Liability Pay to Real Property Tax – Any person, grantee or concessionaire who shall undertake and execute mining operations (exploration, development and commercial utilization) of certain mineral deposits existing within the mining area shall be subject/liable to real property tax.

c.4 Payment of Mayor’s Permits and Other Regulatory Fees – Mayor’s permits and other regulatory fees shall be collected before the start of the mining operation of a mining company pursuant to Sections 147 and 151 of the LGC and as implemented under a duly-enacted revenue code of the LGU concerned.

d) Tax on Forest Concessions – An annual tax not exceeding two percent (2%) of the gross receipts for the preceding year.

e) Tax on Newly-Started Business – A tax of one-twentieth (1/20) of one percent (1%) of the capital investment. apply only to printing and publication, and franchise.

FOCUS: Taxes under Article L are basically impositions under Section 186 of the LGC.

In discussing taxes based on gross sales/receipts, it might be helpful to mention in passing tools for checking/validating taxpayers’ declarations, e.g., examination of the books of accounts and pertinent records, obtaining/sharing information from other government agencies, obtaining financial statements supporting income tax returns, use of the Presumptive Income Level, in determining gross receipts of business. The assumption used must be understood by the tax payer.

A Sanggunian may grant tax exemption. A Municipal Mayor cannot, however, waive the collection of inspection fees, since it is levied under the police power. (DILG Opinion No. 148-1964)

The Rule of the Situs of the Tax also needs emphasis. It is observed that many are not aware that:

1. “… businesses, maintain or operating branch or sales outlet … shall record the sale in the branch or sales outlet making the sale or transaction, and the tax hereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located.”

2. “Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant or plantation is located.”

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Another mechanism that LGUs could avail of is the Presumptive Income Level Technique. The methodology is simple but needs explanation and illustration.

CHAPTER III. PERMIT AND REGULATORY FEES

FOCUS: General Considerations

• Regulatory fees are impositions in the exercise of the police power, the power to regulate business and activities.

• Fees shall be commensurate to the cost of regulation, inspection and licensing (Section 147, LGC)

• Fees and charges shall be commensurate to the cost of issuing the license or permit fee and the expenses incurred in the conduct of the necessary inspection or surveillance (Article 233, Implementing Rules and Regulations)

• No such fee or charge shall be based on capital investment or gross sales or receipts of the person or business (Article 233, Implementing Rules and Regulations)

• Barangay, clearances and certifications shall not exceed regulatory fees imposed by the municipality/city concerned (Section 152 of the Code and Article 240 (c and d) of IRR)

ARTICLE A. Mayor’s Permit Fee of Business

The Model suggests the use of the Philippine business classification set by DTI, for establishing the size and extent of business operations for purposes of fixing and rationalizing the fees for Mayor’s Permit. This scheme would abide by the prescription that no regulatory fee shall be based on capital investment or gross sales or receipts as provided in Article 233 of the IRR. This will also provide a convenient measure for determining the commensurate cost of issuing the license and the expenses incurred in the conduct of the necessary inspection or surveillance in the performance of LGUs’ regulatory function.

Enterprise Scale Asset Limit Work Force

Micro-Industries Php150,000 & below No specific Cottage Industries Above Php150,000 to Php1.5 M Less than 10

Small Scale Industries Php1.5M to Php15M 10-99 Medium-Scale Industries Php15M to Php60M 100-199 Large-Scale Industries Above Php60M 200 or more

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ARTICLE B. Fees for Sealing and Licensing of Weights and Measures

The provisions in the Local Revenue Codes should conform with the Consumer Act of 1992, Republic Act 7394.

ARTICLE C. Building Permit Fees

The Local Revenue Codes should adopt the Revised Rates of Building Permit Fees prescribed by the Department of Public Works and Highways pursuant to the National Building Code.

ARTICLE D. Permit Fee for Zonal/Locational Clearance (adopt updated HLURB Rates)

ARTICLE E. Permit Fee for Inspection and Verification of Subdivision (adopt updated HLURB Rates)

Articles D and E are in pursuance of Sections 457 (2) (ix) and 457 (2) (x) for cities and Sections 447 (2) (ix) and 447 (2) (x) in the case of municipalities.

The following permit fees are imposed under the police power for regulation purposes:

ARTICLE F. Permit Fee for Tricycle Operation

Establish minimum standard size and seating capacity of side cars to ensure convenience and safety of the riding public.

ARTICLE G. Permit Fee for Pedaled Tricycle (barangay)

ARTICLE H. Permit Fee for Owners/Operators/Licensees/Promoters and Cockpit Personnel

ARTICLE I. Special Permit for Cockfights

ARTICLE J. Permit Fee for Occupation/Calling not Requiring Government Examination

ARTICLE K. Fees for Registration and Transfer of Large Cattle

ARTICLE L. Fees for Impounding Astray Animals (barangay)

ARTICLE M. Cart of Sledge Registration Fee (barangay)

ARTICLE N. Permit Fee on Caretela or Calesa (barangay)

ARTICLE O. Permit Fee for Agricultural Machinery and Other Heavy Equipment

ARTICLE P. Permit Fee for Inspection of Machineries and Engines

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ARTICLE Q. Permit Fee for Storage of Flammable and Combustible Materials

ARTICLE R. Permit Fee for Temporary Use of Streets, Sidewalks, Alleys, Parks and Playgrounds

ARTICLE S. Permit Fee for Excavations

ARTICLE T. Permit Fee for Circus and Other Parades

ARTICLE U. Permit Fee for Conduct of Group Activities

ARTICLE V. Permit Fee for Film Making

FOCUS:

1. Rationalizing rates

2. Preventing issuance of permits for illegal activities

3. Guarding against impositions in restraint of trade, e.g., “taxes, fees and charges and other impositions upon goods carried into or out of, or passing through the territorial jurisdiction of local government units in the guise of wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise.” (Common Limitations) (Section 133 (e), LGC)

An LGU may impose a market entrance fee, but not a market outgoing fee. (DOF Opinion, April 15, 1993).

CHAPTER IV. SERVICE FEES

In general, fees are collected for the services of a public officer and/or for services provided by the LGU.

ARTICLE A. Secretary’s/Certification’s Fees

ARTICLE B. Local Civil Registry Fees

ARTICLE C. Police Clearance Fees

ARTICLE D. Sanitary Inspection Fees

ARTICLE E. Service Fees for Health Examination

ARTICLE F. Garbage Collection Fees

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ARTICLE G. Dog Vaccination Fees.

FOCUS:

1. Cost recovery

2. Pricing

CHAPTER V. CITY CHARGES

City charges are imposed in the exercise of the proprietary nature (as legal persons)

of LGUs.

ARTICLE A. Fishery Rentals, Fees and Charges (Fishery Code)

ARTICLE B. Rentals of Personal and Real Properties Owned by the City

ARTICLE C. Charges for Parking

ARTICLE D. Hospital Charges

ARTICLE E. Waterworks System Charges

ARTICLE F. Cemetery Charges

ARTICLE G. Market Fees and Charges

ARTICLE H. Slaughterhouse and Corral Fees

ARTICLE I. Toll Fees or Charges

FOCUS:

1. Cost recovery

2. Pricing

CHAPTER VI. COMMUNITY TAX

CHAPTER VII. GENERAL ADMINISTRATIVE PROVISIONS

ARTICLE A. Collection and Accounting of City Taxes and Other Impositions

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ARTICLE B. Civil Remedies for Collection of Revenues

ARTICLE C. Taxpayer’s Remedies

ARTICLE D. Miscellaneous Provisions

CHAPTER VIII. GENERAL PENAL PROVISIONS

CHAPTER IX. FINAL PROVISIONS

Rate and frequency of increase Section 191 of the Local Government Code

Compliance with mandatory procedures

As required by the Local Government Code, the draft Revenue Code needs to be legally enacted through a legislative act of the Sanggunian and approved by the Local Chief Executive. Below are the processes involved in said enactment (and/or review of Local Revenue Codes) for cities and municipalities. Step 1 Filing and Numbering

a. A short note explaining the need for the ordinance is prepared and signed by the proponents and attached to the ordinance.

b. Three (3) copies of the draft ordinance are filed with the Secretary to the Sanggunian at least three (3) days before a regular or special session.

c. The Secretary to the Sanggunian records the proposed Revenue Code in the logbook and assigns a number to it.

Step 2 First Reading

a. The Secretary to the Sanggunian reports the ordinance to the Sanggunian at its next meeting. The proposed ordinance shall be included in the calendar of business for the next session.

b. During the session, the draft Revenue Code is referred to the Committee on Ways and Means or Finance Committee, as the case may be, for study and the conduct of committee hearings. There shall be a Technical Working Group (TWG) created to study the proposed ordinance, to be composed of the LFC members and the Legal Officer, to be chaired by the Chair of the Ways and Means Committee.

c. The Committee shall report to the plenary its action within fifteen (15) days from date of referral.

Step 3 Publication, Posting and Notification

a. Within ten (10) days from filing of the proposed tax ordinance by the appropriate Committee, it shall be published for three (3) consecutive days in a newspaper of general circulation, or shall be posted simultaneously in at least four (4) conspicuous places within the territorial jurisdiction of the city. LGUs who have websites shall post the proposed ordinance on its

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website. b. In addition to the publication or posting, the committee shall

send a written notice of the proposed Revenue Code together with a copy thereof and duly acknowledged, to interested or affected parties operating or doing business within the territorial jurisdiction of the city.

c. The notice shall indicate the date(s) and venue of the public hearing. The public hearing must be held at least ten (10) days from the sending out of notices, or the last day of publication whichever, comes later. (A certification by the newspaper as to the publication and by the City/Municipal Administrator as to posting, shall be submitted together with the proposed ordinance by the Sanggunian.)

Step 4 Public Hearings

a. During the public hearing, all affected or interested parties shall be given opportunity to appear and present or express their views, comments and recommendations.

b. The Secretary to the Sanggunian shall prepare the minutes of such public hearings and shall attach to it the position papers, memoranda, and the like submitted by those who participated.

Step 5 Second Reading

a. The proposed Revenue Code shall then be calendared for second reading after it has been reported out by the proper committee to which it was referred to or certified as urgent by the LCE.

b. During the second reading, the members shall be given the opportunity to express their views, comments and recommendations for or against the proposed ordinance. Various amendments to the provisions of said ordinance shall then be made.

c. The Secretary shall prepare copies of the proposed ordinance in the form it was passed on second reading and provide each member of the Sanggunian with a copy of the proposed ordinance at least three days before the scheduled third and final reading.

If the ordinance is certified as urgent by the LCE, it may be submitted for final voting during the second reading.

Step 6 Third and Final Reading

a. The draft ordinance shall be submitted to the Sanggunian for third reading.

b. There being a quorum, the affirmative votes of the majority of all the members of Sanggunian including ex-officio members shall be necessary for the passing of the ordinance.

Step 7 Approval a. The enacted revenue ordinance shall be presented to the LCE

for approval. b. If the latter approves the ordinance, he shall affix his signature

on each and every page of the document. c. If he does not approve the ordinance, he may veto it in whole

or in part(s) and return it with his objections and/or notations

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to the Sanggunian. d. The veto shall be communicated by the LCE to the

Sanggunian within ten (10) days, otherwise the ordinance shall be deemed approved as if the Local Chief Executive had signed it. The Local Chief Executive may veto an ordinance only once.

e. The Sanggunian may override the veto of the Local Chief Executive by two-thirds (2/3) vote of all its members thereby making the ordinance effective for all legal intents and purposes.

All approved ordinances shall be numbered consecutively throughout the calendar year and continuously from year to year, using the last two (2) digits of the calendar year in which it is enacted, followed by the denominated number .

III. Action Taken by Reviewing Authority (Step 8 only) Step 8 Review by Higher Level LGU

In case of component city and municipality:

a. Within three (3) days after the approval, the secretary to the Sangguniang Panlungsod o Sangguniang Bayan shall transmit to the Sangguniang Panlalawigan for review, copies of approved ordinances and resolutions and adopting the local development plans and public investment programs formulated by the local development councils.

b. Within thirty (30) days after receipt of copies of such 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 the 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. It is advisable that the Provincial Treasurer should be asked to comment on the proposed ordinance.

c. If the Sangguniang Panlalawigan 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 advise the corresponding city or municipal authorities of the action it has taken.

d. 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 the law and, therefore, valid.

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In case of barangay: 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. The Sangguniang Panlungsod or Sangguniang Bayan, as the case may be, shall examine the documents or transmit them to the City/Municipal Attorney. Within ten (10) days upon receipt of such documents, the City/Municipal Attorney shall inform the Sangguniang Panlungsod or Sangguniang Bayan in writing of his/her comments or recommendations which may be considered by the Sangguniang Panlungsod or Sangguniang Bayan, as the case may be, in making its decision. It is advisable that the City/Municipal Treasurer should be asked to comment on the proposed ordinance.

b. 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.

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.

Step 9 Publication or Posting of Approved Ordinance

a. Within ten (10) days after the approval of the Revenue Code, a certified true copy shall be published in full for three (3) consecutive days in a newspaper of local circulation.

b. In cases where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places, or shall be posted simultaneously in at least four (4) conspicuous places within the territorial jurisdiction of the LGU. LGUs with websites shall post the approved ordinance on its website.

Step 10 Effectivity

a. Unless otherwise stated in the Revenue Code, the ordinance shall take effect ten (10) days from the date it was published in a newspaper of local circulation or after a copy is posted in a bulletin board at the entrance of the city hall, whichever comes first.

b. In case the effectivity of the Revenue Codes falls on any date other than the beginning of the quarter, it shall be considered as falling at the beginning of the next ensuing quarter and the taxes, fees, or charges due shall begin to accrue on that date.

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Step11 Appeal on Legality

a. Any question on the constitutionality or legality of the Revenue Code may be raised on appeal within thirty (30) days from the date of its effectivity to the Secretary of Justice.

b. The Secretary of Justice shall render a decision within sixty (60) days from the receipt of the appeal.

c. 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 the appropriate proceedings with a court of competent jurisdiction. The appeal shall not have the effect of suspending the effectivity of the ordinance and accrual and payment of the tax, fee, or charge levied by the ordinance.

ANNEXES DOF-BLGF OPINIONS AND RULINGS

Excerpt 1: Tax on Transfer of Real Property

Republic of the Philippines Department of Finance

BUREAU OF LOCAL GOVERNMENT FINANCE Manila

1st Indorsement July 4, 2008

Respectfully referred to the City Treasurer of Quezon City, for appropriate action the herein letter dated July 1, 2008 of Mr. Enrique de Zuzuarregui, Vice President, AZ 17/31 Realty, Inc., requesting in behalf of his co-owners, an official clarification on what shall serve as the tax base relative to the imposition of the transfer tax (75% 0f 1%) prescribed under Section 25 of the Quezon City Revenue Code, as amended.

X X X In this connection, reference is made to Section 135 and 199(1) of the Local

Government Code of 1991 (LGC) which provides as follows:

“SEC. 135. Tax on Transfer of Real Property Ownership. – (a) The province 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 fifty percent (50%) of one percent (1%) 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 R.A. No. 6557 shall be exempt from this tax.

“SEC. 199. Definitions. - When used in this Title:

“(a) x x x “(l) ‘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;

“x x x.”

On the other hand, Section 25 of the Quezon City Revenue Code, as amended

provides:

“SEC. 25. Imposition of Tax. – There is hereby imposed a tax at the rate of seventy five percent (75%) of one percent (1%) of the sale, donation, barter, or any mode of transferring ownership of title of real

property within the territorial jurisdiction of Quezon City based on the total consideration involved in the sale of property or of the fair market value and/or zonal value of the property in case the monetary consideration involved in the transfer is not substantial, which is higher. (Underlining supplied)

X X X Under the same Section 135, it is clear that the tax base shall only be either

the total consideration involved in the acquisition of the property, or its fair market value, which, as presumed, is the market value of the subject property reflected or indicated in the prevailing Schedule of Market Values prepared by the City Assessor and duly-enacted by the Sangguniang Panlungsod. It must be born in mind that local government affairs and operations are governed by the LGC and, therefore, unless there are express and explicit provisions that a local tax shall be based on zonal values prescribed by the BIR or any valuation determined by a national agency, the same may not serve or be utilized as basis for determining a local tax.

This Bureau, therefore, is of the view that Section 25 of the Quezon City

Revenue Code, as amended which provides among others that the zonal value of the property shall be used as basis for purposes of computing the transfer tax partakes of the nature of an amendments of the LGC and, thus, beyond the authority of the Sangguniang Panlungsod of Quezon City which enacted the Quezon City Revenue Code, as amended.

Accordingly, that Office is hereby advised to make representations with the

City Mayor and the Sangguniang Panlungsod towards the amendment of the pertinent portion of Section 25 of the Quezon City Revenue Code, as amended, in order to conform with the provisions of Section 135 of the LGC. That Office may not compute the tax on transfer of properties on the basis of zonal valuations prescribed by BIR for lack of any legal ground therefor.

Mr. Zuzuarregui is being furnished a copy of this indorsement for his

information and guidance. Be guided accordingly.

Excerpt 2: The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person.



June 9, 2003

Dr. Victor B. Endriga City Treasurer Quezon City S i r : This refers to your letter dated July 4, 2002, addressed to the Secretary of the Department of Finance, forwarded to this Bureau for appropriate action, relative to the proposed scheme by that Office to allow the collection of real estate and business taxes thru authorized and accredited banks to remedy the perennial problem of accommodating the taxpayers during collection periods, especially during the peak season which usually occurs on the first quarter of every year.

X X X

In response, Ms. Amorsonia B. Escarda, Director IV, Cluster I-NCR, Local Government Sector of the COA, in her letter dated May 19, 2003, stated that: “While we consider the proposal to be laudable, we however do not recommend implementation of the scheme as it would run counter to the provisions of Section 130(c) of R. A. 7160 which provides that ‘The collection of local taxes, fees and charges and other impositions shall in no case be let to any private person.’ Unless the said provision of law is amended, local governments have no legal basis to adopt the revenue collection system being implemented by the national government thru the Bureau of Internal Revenue and Bureau of Customs.” (emphasis ours) Be guided accordingly. Very truly yours,

Republic of the Philippines

Department of Finance BUREAU OF LOCAL GOVERNMENT FINANCE

Manila

2nd Indorsement January 9, 1997

Respectfully returned, to the Regional Director for Local Government Finance,

Region XII, corner Corcuerra and Lim Sr. Streets, Cotabato City, the herein preceding indorsement requesting opinion relative to the City Ordinance No. 2895, s. 1996 of Iligan City, entitled “AN ORDINANCE AUTHORIZING THE ACCEPTANCES OF PAYMENT OF LOCAL TAXES ACCRUING TO AND/OR PAYABLE THE CITY OF ILIGAN UNDER CITY ORDINANCE NO. 2193, S. 1993 OTHERWISE KNOWN AS ‘THE LOCAL REVENUE CODE OF 1993' AS AMENDED AND/OR SUCH OTHER REVENUE GENERATING ORDINANCES THROUGH THE DIFFERENT BANKING INSTITUTIONS BASED IN ILIGAN CITY.”

It appears that the said Ordinance was enacted for some reasons, among others,

that the system will minimize if not eventually eradicate incidents of malversation of funds incurred by some revenue tax collectors of the City.

X X X

“SEC. 170. 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 treasurer, 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 under this Code.” From the aforequoted provisions of the law, it is the view of this Bureau that the

collection of a tax, fee or charge is an inherent function of local treasurers, and, therefore, cannot be let to a private person or entity. “'To allow a private party to collect public money is fraught with dangerous consequence (fraud, delay, ineptness, etc.) without being bound by official oaths of public officers. (The Local Government Code of 1991 Annotated, Jose N. Nolledo).”

Moreover, the said provision of law is express and explicit hence, the enactment of

City Ordinance No. 2885 authorizing the acceptance of payment of local taxes through the different banking institutions partakes the nature of an amendment to the LGC and, thus, beyond the authority of the Sangguniang Panlungsod of Iligan City which enacted the subject Ordinance.

The City Treasurer of Iligan City should be advised to confer with the City Mayor

on the matter.

(Sgd) LORINDA M. CARLOS Executive Director

Excerpt 3: Overlapping Taxing Powers of Cities and Provinces


DEPARTMENT OF FINANCE Manila

2nd Indorsement July 20, 1993

Respectfully returned, thru the Regional Director, Bureau of Local

Government Finance, Region VII, 3rd Floor Cebu Kang-ha Foundation Building, Juan Luna Street corner Lapu-Lapu Street, Cebu City, to the City Treasurer, City of Tagbilaran.

This refers to the basic letter of the City Treasurer of Tagbilaran City

requesting opinion as to whether the Province of Bohol may levy and collect the amusement tax within the city limits of Tagbilaran City considering that said city is already imposing the said tax.

In this connection, reference may be made to the pertinent provisions

of Sections 140 and 151 of the Local Government Code, quoted hereunder.

“SEC 140. Amusement Tax. – (a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators by theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees.”

“x x x.” “SEC. 151. Scope of Taxing Powers. - Except as otherwise

provided in this Code, the city may levy the 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 to them and distributed in accordance with the provisions of this 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 the professional and amusement taxes.”

From the above quoted provisions of the Code, it appears that the law

does distinguish as to the class or kind of city which may exercise the taxing powers of the province. Hence, since we may not distinguish where the law does not distinguish, all cities, whether component, independent or highly urbanized, are empowered under the Code to levy the taxes, fees and charges that provinces and municipalities are authorized to impose.

While there is no mention in Section 151 of the Code regarding the

accrual of tax collection to component cities, this omission may be supplemented by the fundamental principle of local taxation that “the revenue collected pursuant to the provisions of this Code shall inure solely to the

benefit of, and be subject to the disposition by, the local government unit levying the tax, fee, charge or oilier imposition unless otherwise specifically provided herein” (Sec. 130). It may be added that 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 basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.”

Under the old Local Tax Code, there was an unequivocal provision that

the exercise of the tax powers of the city extends to all the taxes, fees and other impositions that the province or municipality may levy and collect, to the exclusion of the national and provincial governments (Sec. 23, PD 231 as amended by PPD 426). Stated differently, the exercise by the city of the taxing powers given to provinces deprives the latter of its authority to impose a similar tax and grants exclusive power to the city to levy and collect such taxes, fees and charges.

Accordingly, following settled interpretation of local tax laws and the

spirit of present legislation, this Department holds that the Province of Bohol may not impose local amusement taxes on amusement places specified by law within the city limits of Tagbilaran City.

By authority of the Secretary:

(Sgd) JUANITA D. AMATONG Undersecretary

Excerpt 4: Amusement


DEPARTMENT OF FINANCE BUREAU OF LOCAL GOVERNMENT FINANCE

MANILA

August 21, 1993 Mr. Felix Q. Flores Tagapangulo ng Lupon sa Panalalapi Tanggapan ng Sangguniang Panlalawigan Sta. Cruz, Laguna S i r :

This refers to your letter dated March 12, 1993 requesting opinion regarding the phrase “and other places of amusement” used in Section 2.24 of Article VI of the Provincial Tax Ordinance No. 01-92 enacted by that province and the query whether “cockpits” and “resorts” fall within the said phrase. . . . X X X

As to the meaning of “other places of amusement”, attention is invited

to the provisions of Section 131 (b) and (c) of the Local Government Code of 1991 as implemented by Article 220 (b) and (c) of the Implementing Rules and Regulations (1RR) of the Code, which provides:

“ART. 220. Definition of Terms. - When used in this Rule, the term:

“(b) Amusement is a pleasurable diversion and

entertainment. It is synonymous to relaxation, avocation, pastime, or fun;

“(c) Amusement Places include theaters, cinemas, concert

halls, circuses and other places of amusement where on seeks admission to entertain oneself by seeing or viewing the show or performance.”

It could be noted that paragraph (c) above only mentions

establishments that are deemed included within the definition of amusement places. Hence, said provision does not exclude places that provide entertainment, relaxation, pastime or fun to a person where he pays a fee for admission thereto. The term “other places of amusement” would, therefore, include “cockpits” and other “resorts” where the general public usually seeks admission for entertainment, fan or relaxation. To construe otherwise would reduce paragraph (c) above to the literal sense and at the same time, overlook the meaning and import of the preceding paragraph (b) under which the policymakers inserted in the law the definition of the very term “amusement”. X X X

We hope this clarifies matters.

Very truly yours, (Sgd) LORINDA M. CARLOS

Executive Director

Excerpt 4a: Tax on sand, gravel and other quarry resources

Republic of the Philippines DEPARTMENT OF FINANCE

BUREAU OF LOCAL GOVERNMENT FINANCE MANILA

August 21, 1993 Mr. Felix Q. Flores Tagapangulo ng Lupon sa Panalalapi Tanggapan ng Sangguniang Panlalawigan Sta. Cruz, Laguna S i r :

X X X

Anent the second query, the governing provision of law on the matter is Section 138 of the same Code as implemented by Art. 227 (a) of the Implementing Rules and Regulations (IRR) of the Code, which states:

“Art. 227. Tax on Sand, Gravel and Other Quarry

Resources. - (a) The province may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, such as but not limited to marl, marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from the beds of seas. lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction.” (Underlining supplied) It is clear that only “quarry resources extracted from public lands” are

subject to local taxes. Thus, quarry resources extracted from private lands is (are) not within the taxing power of the local government unit, the land being private property.

We hope this clarifies matters.

Very truly yours,

(Sgd) LORINDA M. CARLOS

Executive Director

Excerpt 5: Banks and other financial institutions



2nd Indorsement

November 15, 2002

Respectfully returned to the City Treasurer, Pasig City, the herein preceding indorsement requesting opinion/ruling on the taxability of the Philippine Stock Exchange (PSE) in view of the subjoined letters dated February 8, 1999 and March 18, 1999 of Atty. Enrico G. Valdez, in behalf of PSE addressed to that Office and this Bureau, respectively, protesting the assessment for local taxes from 1994 to 1997 amounting to P7, 337,000.00.

XXX In 1994, PSE established its principal office and one of its trading floors at

the Philippine Stock Exchange Centre at Pasig City. The other trading floor is located at the Philippine Stock Exchange Plaza at Makati City. Since that time, PSE has not paid any business tax to Pasig City and to Makati City due to its position that its income as a stock market is not subject to any local tax.

However, on January 5, 1999 PSE received a letter dated December 21, 1998

from that Office demanding the payment of P7,337,000.00 representing the local tax assessment for the years 1994 to 1997. Apparently, PSE was classified as falling under "banks and other financial institutions" under Section 143(f) of the Local Government Code of 1991 (LGC).

On February 11, 1999, PSE through its Counsel, protested the assessment

on the ground that its income from 1994 to 1997 are not among those taxable income of banks and other financial institution under Section 143(f) of the Local Government Code (LGC) of 1991, enumerated as follows:

1. interest 2. commissions and discounts from lending investors; 3. income from financial leasing; 4. dividends; 5. rentals on property and profit from exchange or sale of property 6. insurance premium On the other hand, enumerated hereunder is the nature of PSE's income: 1. Listing Related Income These are the fees collected from companies applying for initial public

offering ("IPO") or additional listing. 2. Membership Related Income (a) Entrance Fees

These are the fees collected from members for the following;

i. Transfer from individual to corporate - PHP 10,000.00 ii. Change in nominee - PHP 50,000.00 iii. New Member - PHP 200,000.00

(b) Monthly Assessment Fees

These are monthly dues charged to members. (c) Lounge Membership Fees These are the fees collected from officers of listed companies and broker

firms in order to get access to or use the Member's Lounge. 3. Trading Related Income These are the fees collected from date vendors, wire agencies, daily

quotations and members who have connections to trading terminals. Thus, comparing the nature of PSE's gross receipts with the gross receipts

subject to local tax, it is quite clear that none of the former falls under the enumerated gross receipts subject to local tax.

In view of the foregoing, that Office reconsiders PSE as taxable under either

Section 143(e) or Section 143(h) of the LGC. Section 131(e) of the LGC provides as follows:

"Section 131. Definition of Terms. - When used in this title, the term; x x x

"(e) Banks and other Financial Institutions - include non-

bank financial intermediaries, lending investors, finance and investment companies, pawnshops, money shops, insurance companies, stock markets, stock brokers and dealers in securities and foreign exchange, as defined under applicable law, or rules and regulations thereunder;

"x x x."

On the basis of the aforequoted definition, there is no doubt that PSE may be

considered as a financial institution falling well within the contemplation of Section 131(e) of the Code.

In view thereof, it may be stated that a person legally engaged in Section

143(f) activities, cannot be taxed under Section 143(h), on such activities. Section 143(h) is quite clear that a city or municipality may only impose a tax on any business “not otherwise specified in the preceding paragraphs.”

It is pointed out that the “business” in which PSE is engaged in is already

specified in Section 143(f) and is therefore expressly excluded from the coverage of Section 143(h).

Be that as it may, it may be stated that, cities and municipalities may

impose tax pursuant to Section 143(f) only on the following activities: a) gross receipts derived from interest, commissions and discounts from

banking activities;

b) income from financial leasing, dividends, rentals on property;

c) profit from exchange or sale of property, insurance commission. Premises considered and based on the facts represented indicating PSE’s

gross receipts are not among those taxable income enumerated under said Section 143(f), the City Treasurer of Pasig cannot assess PSE for business tax under either Section 143(f) and 143(h).

It is hoped that matters are clarified.

Excerpt 6: Business Tax on Contractors



February 8, 2008

Mr. DOGIE A. PASTRANA Manager Aklan Cable Television Co., Inc. D. Maagma St., Kalibo, Aklan S i r : This refers to your letter dated January 22, 2008, relative to the taxability of the operation of the Aklan Cable Television, Co., Inc. (ACTCI) in some municipalities, that province. In view hereof, the following queries were raised:

“1. Can the municipalities impose taxes on us because of the cable connections we have installed in the electric poles of the electric cooperative based [t]here. We are paying an annual franchise tax in the provincial government based on the gross receipts of the preceding year; and (sic)

X X X The applicable provision of law is Section 143(e) of R.A. No. 7160, otherwise known as the Local Government Code of 1991 (LGC), that provides:

“SEC. 143. Tax on Business. - The municipality may

impose taxes on the following businesses: “x x x

(e) On contractors and other independent contractors, x x

x:

On the other hand, Section 131 of the LGC defined “contractor” as follows:

“Contractor” includes person, natural or juridical, not subject to professional tax under Section 139 of this 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 or use of the physical or mental faculties of such contractor or his employees.

ACTCI undoubtedly, is engaged in the business as “service provider” and may be classified under the category of a “contractor”. In view hereof, ACTCI is liable for the payment of the local business tax (LBT) based on the gross sales/receipts derived from its operation in all the municipalities covered by its franchise.

X X X We hope that we have clarified matters. Very truly yours,

Excerpt 7: Franchise Tax vis a vis Business Tax



February 8, 2008

Mr. DOGIE A. PASTRANA Manager Aklan Cable Television Co., Inc. D. Maagma St., Kalibo, Aklan S i r : This refers to your letter dated January 22, 2008, relative to the taxability of the operation of the Aklan Cable Television, Co., Inc. (ACTCI) in some municipalities, that province. In view hereof, the following queries were raised:

X X X

“2) Is the franchise tax imposed by the provincial government synonymous to the business/license taxes imposed by each municipalities (sic) which is also based on the gross receipts. Are there impositions the same except the account name.” (sic)

Representations are made that ACTCI is a holder of a franchise to operate a cable television company in the Province of Aklan. Furthermore, ACTCI services other municipalities in Aklan through connections attached to the electric poles of each respective electric cooperative based thereat. As informed, each municipality within your area of operation is imposing the business tax as well as regulatory fees. These host municipalities are imposing the business tax based on gross receipts of the preceding year, aside from the Mayor’s permit fee, thus, the above query.

X X X

With respect to the query on “Franchise Tax” (Section 137, LGC) and “Business Tax” (Section 143, LGC), the impositions may be similar in some aspects but for taxation purposes the terms are different and distinct from each other.

The term “franchise tax”, which is defined as “a charge imposed in

consideration of granting a franchise, operative because the person taxed assents expressly or impliedly” [Agpalo’s Legal Words and Phrases, p. 318,

citing Payan Electric Co. v. Collector of Internal Revenue, 103 Phil. 819 (1958)], is a provincial imposition but is also imposable by cities (Section 151, LGC). On the other hand, “business tax”, which is imposed based on the gross sales or receipts of the business being taxed for the preceding calendar year, is imposable both by cities and municipalities. One similarity however, is that both impositions are based on GROSS SALES or RECEIPTS of the preceding calendar year.

However, for purposes of clarification, since the said impositions are

synonymous or the same in nature, the same may be imposed simultaneously by provinces and municipalities based on the same gross sales or receipts of the preceding year. For as long as the impositions are not imposed twice by the same taxing authority based on the same gross sales or receipts of the same entity, the levy does not fall under the principle of “double taxation”.

We hope that we have clarified matters. Very truly yours,

Excerpt 8: Dealers



April 4, 2008

Mr. Nemesio C. Solomon Jr. General Manager Honda Cars Cebu Inc. Nivel Hills, Cebu City S i r :

This refers to the letter dated March 17, 2008 of Ms. Ma. Teresa Y. Lugue, Chief Financial Officer of Honda Cars Cebu, Inc. relative to the letter addressed to Mr. George F. Blaylock dated January 16, 2004 on the classification of car dealers in Quezon City which was classified and taxes as “dealer” in accordance with Section(s) 143(b), 151 and 191 of the Local Government Code of 1991(LGC).

In view of the above a request for confirmation is being made that the classification of car dealers in Quezon City is also applicable to Honda Cars dealership in Cebu City, Cagayan de Oro and Iloilo City.

X X X In this connection, please be guided with the following rules: 1. If a “car dealer” can show proof that he entered into a dealership

agreement with the producers or manufacturers of a car, he shall be classified as a “dealer:

2. If no dealership agreement can be shown, this Bureau’s ruling

dated 25 June 1998 shall prevail, thus, “a business entity shall be considered a retailer when it sells directly to end-users. However, if it sells to retailers, then it shall be classified as a dealer. If it acts in both capacities, then it should segregate its sales as retailer and as a dealer in order that the appropriate tax could be applied.

Accordingly, Honda Cars Cebu Inc. should comply with Rule No. 1 to

be classified and taxed as dealer otherwise Rule No. 2 shall apply.

Very truly yours,

Excerpt 9: Manufacturers


MANILA

2nd Indorsement November 5, 1993

Respectfully returned to the Acting Municipal Treasurer, Pasig, Metro

Manila, the preceding indorsement together with all the attachments. This refers to the basic letter of BRL Food Services and Management

Inc. (BRL for brevity) requesting clarification on the correct classification of

its businesses located in the two (2) different municipalities, Pasig and Makati. Metro Manila

It is represented that BRL under letter dated May 26, 1993,

maintains an office located in Pasig, Metro Manila where it prepares and cooks all the foods delivered and sold at it sales outlets located at Makati SM Food Court. SM Makati. Since the operation in 1985, BRL allegedly pays its local and national taxes as restaurant operator. However, recently that Office reclassified BRL's business from restaurant operators to a manufacturer and wants to tax 30% of the sale made by BRL at its outlet in Makati, hence, the aforecited query.

That Office under 2nd Indorsement dated July 20, 1993, contends

that the business narrated earlier which BRL is engaged in “categorically fits the definition of a manufacturer in pursuance with the provisions of paragraph (o) Section 131 of RA. 7160:”

“Sec. 131. Definition of Terms. - When used in this Title,

the term: “x x x “(o) Manufacturer includes even person who. by physical

or chemical process, alters the exterior texture or for or inner substance of any raw material or manufactured or partially manufactured products in such manner as to prepare it for special use or uses to which it could not have been put in its original condition, or who by any such procedure, alters the quality of any such raw material or manufactured or partially manufactured products so as to reduce it to marketable shape or prepare it for any of the use of industry, or who by any such process, combines any such raw material or manufactured or partially manufactured with other materials or products of the same or of different kinds and m such manner that the finished products of such process or manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption."

“x x x .”

It can be seen from the abovequoted provisions of law that a

manufacturer is engaged in the manufacturing of goods which is quite different from the activity of cooking food engaged in by BRL. Hence, BRL does not fit in any of the activities described in the law which a manufacturer is engaged in. As such, BRL is not a manufacturer. Rather, BRL is engaged in the operation of Carinderia which refers to any public eating place where foods already cooked are served at a priced. (Sec. 2(u-1), Local Tax Code)

Relative to the actual business operation of BRL, it is informed that

representatives of this Bureau who were instructed to conduct a field verification and ocular inspection of the office and facilities of BRL confirmed

in their reports that BRL Foods Management Service is actually preparing and cooking foods in the office located thereat which foods are afterwards delivered in Makati with a delivery receipt as proof of the delivery The foods are warmed before selling. All sales are recorded in Pasig. Recording of BRL also show that the municipality is trying to collect 70% business tax on the sales realized in Makati which also wants to collect 100% business tax on the same, thus resulting in alleged double taxation.

In this connection, it is informed that the provisions of the law

applicable is Sec. 150 of R.A. 7160, quoted hereunder:

“Sec. 150. Situs of the Tax. - For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, producers, exporters, wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other businesses, maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no such branch or sales outlet in the city of municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality.” From the abovequoted provisions of the law, it is clear that the law

mandates that business maintaining sales outlet in the place other than where its principal office is located “shall record the sale in sales outlet making the sale x x x”. Hence, the Municipal Treasurer of Makati should instruct BRL to comply with the provisions of the law in recording the sales of its sales outlet in the municipality where it is located, so that the tax thereon shall accrue and shall be paid to the municipality which is Makati.

Moreover, the municipality of Pasig can only collect from BRL's office

located therein Mayor's permit/license fee and other fees and charges which a municipality may impose under its tax ordinances on the subject.

Report of action taken hereon within five (5) days from receipts hereof

is requested.

By authority of the Secretary: (Sgd) LORINDA M. CARLOS

Executive Director Bureau of Local Government Finance

Excerpt 10: Peddlers


Manila

3rd Indorsement January 26, 1994

Respectfully returned thru the Regional Director for Local

Government Finance, Department of Finance, Region VII, 3rd Floor MSK Bldg.. Juan Luna Street Corner Lapu-Lapu Street, Cebu City to the City Treasurer, Dumaguete City, the herein 2nd Indorsement of that Office relative to the claim for refund on the special peddler’s tax imposed and collected from Pepsi-Cola Products Philippines, inc. (PCPPI) by the city, allegedly exorbitant, excessive and in clear violation of the provision of Sec. 15-A of the Local Tax Code (PD 231), as amended, the law then enforced.

Records show that the Sangguniang Panlungsod of Dumaguete City under Resolution No. 329, enacted and passed Ordinance No, 108 on November 17, 1988 imposing the special peddler’s tax under SEC. l(a) of Art. 12 which states:

“Art 12. Special Peddler‘s Tax.

“Sec. 1. Annual Fixed Tax per Delivery truck or van of Manufacturers or Producers of, or dealers in certain products. Manufacturers or producers of, dealers in -

(a) Distilled spirits, fermented liquors, soft

drinks, cigar and cigarettes delivering or distributing their products to sales outlets, or selling to consumers, whether directly or indirectly within the City of Dumaguete be subject to annual fixed tax per delivery truck or van – (Five hundred pesos) P500.00. (Underlining supplied)

Records further show that Ordinance No. 108, s- 1988 had been

forwarded to this Department for review only on September 21, 1990 per Resolution No. 229, series of 1990, by the Sangguniang Panlalawigan of the Province of Negros Occidental, copy enclosed. This Department therefore, under a 1st Indorsement dated June 10, 1991, copy also enclosed, suspended the said ordinance on the ground that the increase of the rate of the subject tax is beyond that provided for under the Local Tax Code, as amended.

Accordingly, Ordinance No. 108, s. 1988 was revised and amended by the Sangguniang Panlungsod under Ordinance No- 248 (Tax Ordinance No. 50 series of 1991), entitled “An ordinance adopting the recommendation of the Department of Finance as to the reduction of rates of the Local Tax Code of the City of Dumaguete (series of 1989)”, only on December 31. 1991. The amendment reduced the rate of the special peddler’s tax from P500.00 to PI 13.00 per delivery truck or van enumerated under SEC. I (a), Art. 12 of the ordinance.

In the light of the foregoing, that Office is hereby instructed to inform

the Manager of the PCPPI Sales Office thereat that the excess amount of peddler’s tax PCPPI paid shall be refunded in the form of lax credits to be applied to future lax obligations of the said company.

Be guided accordingly.

By authority of the Secretary: (Sgd) LORINDA M. CARLOS

Executive Director Bureau of Local Government Finance

Excerpt 11: Retail & Wholesale Transactions


Manila

2nd Indorsement June 23, 1993

Respectfully returned thru the Regional Director for Local

Government Finance, DOF, Region X, Gonzalo Go Bldg., Corner Burgos and Gomez Streets, Cagayan de Oro City, to the City Treasurer, Butuan City.

In her basic letter dated February 17, 1993, referred to this

Department by the BLGF Regional Office, Region X, in Cagayan de Oro, the City Treasurer of Butuan informed that a certain corporation, Dy Teban Hardware and Auto Supply with fixed business establishment in Butuan City, is engaged in the wholesale and retail of hardware and auto supplies and declared a gross sale of P 53,206,976.43 for cy 1992.

The City Treasurer further informed that Dy Teban Hardware and

Auto Supply was assessed Sixty percent (60%) and Forty percent (40%) of the declared gross sales as wholesaler and retailer, respectively. It appears further that the said gross sales was also used in computing the additional Community Tax due on the corporation pursuant to Sec. 158(2) of RA 7160, the Local Government Code of 1991.

On he other hand, Dy Teban Hardware and Auto Supply and the

members of the Chinese Chamber of Commerce of the said city contend the following:

1. The tax on ‘Retailers’ refers only to small sari-sari stores or

retailers and not on bigtime retailers such as their firms; and

2. In the payment of the additional Community Tax “the IRR refers to

the amount of net income and not gross sales.” Hence, the City Treasurer of Butuan poses the following queries: 1. May a business engaged in “Wholesale” and at the same time

“Retail” business be subject to separate taxes on businesses falling under Section 143(b) for Wholesales, Distributors or Dealers and Section 143(d) for Retailers under the Code?

Answer: Yes, a business engaged both in “Wholesale” and “Retail” is

subject to pay the business taxes provided for in the duly-enacted tax ordinance of the city pursuant to Sec. 143(b) on wholesalers in any article of commerce of whatever kind or nature, and Sect. 143(d) on retailers as implemented by Art. 232(b) and (d) of the IRR. In addition, such business should secure two (2) separate permits or business licenses for wholesale and retail. Sections 146 (a) and (c) of RA 7160 as implemented by Art. 242 (a) and (c) of the IRR expressly provide:

“ART. 242. Related or Combined Businesses. – (a) The conduct or operation of two or more related businesses provided or under Article 232 of this Rule by any one person, natural or juridical, shall require the issuance of a separate permit or license to each business. “x x x. “(c) However, if the businesses operated by one person are governed by separate tax schedules or the rates of the taxes are different, the taxable gross sales or receipts of each business shall be reported independently and the tax thereon shall be computed on the basis of the pertinent schedule.”

2. Are the definitions of “Retail” and “Wholesale” under Section

131(w) and (z) of the Code and Art. 220(w) and (z) of the IRR, as well as Section 146(c) of the Code and Art. 242(c) of the IRR, the basis in determining whether a business is engaged in “Retailing” and at the same time in “Wholesaling”?

Answer: Yes, the definitions of “Retail” and “Wholesale” should be

used as basis for classifying business establishments considering that these are legal provisions and must be strictly complied with. Art. 220(w), aforecited, defines “Retailer” as sale where the purchaser buys the commodity of his own consumption, irrespective of the quantity of the commodity sold. Such definition refers to both small and big business firms engaged in retail sales. It is, therefore,

wrong to consider that the business of retail” should refer only to sari-sari stores and not on big firms.

3. Can the gross sales or receipts declared by a corporation be used

as the basis for computing the additional community tax due? Answer: Yes, Article 246(c)(2) of the IRR expressly provides:

“ART. 246. Levy or Imposition. – The levy or imposition of a community tax by a city or municipality shall be governed by the following rules and procedural guidelines:

“ x x x. “(c) Juridical persons liable to the payment

of the Community Tax – Every corporation, no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of Five Hundred Pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten Thousand Pesos (P 10,00.00) in accordance with the following schedule:

“x x x “(2) For every Five Thousand Pesos (P

5,000.00) of gross receipts or earnings derived from the business in the Philippines during the preceding year – Two Pesos (P 2.00). (Underlining supplied)

“x x x.”

On the basis of the foregoing, the City Treasurer of Butuan should be guided as follows: (a) Dy Teban Hardware and Auto Supply should secure separate Mayor’s permits/licenses for the wholesale and retail business it is engaged in; (b) Said establishment should pay separate business taxes on the basis of actual gross receipts for the wholesale and retail businesses according to the schedule of rates provided for in the city tax ordinance. It will not be accurate to just assume a 60%-40% ratio in computing the taxes due; and (c) The same firm is subject to the annual basic Community Tax of P 500.00 and additional tax of P 2.00 for every P 5,000.00 gross sales but not to exceed P 10,000.00.

By authority of the Secretary: (Sgd) JUANITA D. AMATONG Undersecretary

Excerpt 12: 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

REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE


2nd Indorsement June 22, 1998

Respectfully returned, thru the Provincial Treasurer, to the Sangguniang

Panlalawigan, both of Daet, Camarines Norte. This refers to Resolution No. 208-79 enacted by the Sangguniang Bayan of

Jose Panganiban, that province, entitled “A RESOLUTION APPROVING ORDINANCE NO. 010-97 FIXING THE RATES OF OUTGOING FEES FOR FOREST PRODUCTS, MATERIALS IN BULK TRANSPORTED OUTSIDE THE JURISDICTION OF THE MUNICIPALITY OF JOSE PANGANIBAN".

Upon perusal of said ordinance, this Bureau finds that the Municipality

imposes an outgoing fee at the rates provided as follows:

a) Bamboo Poles

or Split

= =

Per 6 wheeler truck or below Per 10 wheeler truck

= =

P 50.00

100.00

b) Anahaw Trunks or Split

= =


= =

50.00

100.0

c) Coconut Trunks Lumber

= =


= =

50.00

100.0

d) Handicraft Materials in Bulk

= =


= =

50.00

100.0

e) Materials in = Plastic, Scrap, Empty bottles, Scrap of Iron,

Steel, etc. =

=


= =

50.00

100.0

By way of comment, it may be stated that the imposition of such fee is not

proper or valid in view of the provisions of Section 133(e) of the Code which states:

“Sec. 133. Common Limitations on the Taxing Powers of Local Government Units –

“x x x; “(e) 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 the form whatsoever upon such goods or

merchandise; “x x x”

It bears emphasis, however, that the foregoing views are expressed in

line with the provisions of Article 287 of the Implementing Rules and Regulations (IRR) implementing the Local Government Code (LGC) and not a declaration of the illegality of the ordinance as the matter falls exclusively within the jurisdiction of the Department of Justice. (Sgd) LORINDA M. CARLOS Executive Director

Excerpt 13: Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen



June 19, 1995 Mr. Bievenido S. Cosmiano Madrid, Surigao del Sur S i r :

This refers to your letter dated February 20, 1993, requesting clarification of the provisions of Sections 3(x), 5(k) and (e) of PD 231, otherwise known as the Local Tax Code, as amended.

In this connection, it is informed that PD 231 has been specifically

repealed by R.A. No. 77160, otherwise known as the Local Government Code of 1991 (LGC) which took effect on January 1, 1992.

For your information and guidance, the aforementioned Section 3(x),

(k) and (e) of PD 231, are provided for under Sections 131(q), 133(f) and (l) of the LGC, which read as follows:

“Sec. 131. Definition of Terms – When used in this Title,

the term: “(A) x x x (q) Motor Vehicle means any vehicle propelled by any

power other than muscular power, using the public roads, but excluding road rollers, trolley cars, street sweepers, sprinklers, lawn mowers, bulldozers, graders, fork-lifts, amphibian trucks, and cranes if not used on public roads, vehicles which run only on rails or tracks, and tractors, trailers, and traction engines of all kinds used exclusively for agricultural purposes;

“x x x. “SEC. 133. Common Limitations on the Taxing Powers of

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

“(a) x x x

“(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;”

“(l) Taxes, fees or charges for the registration of motor

vehicle and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles;

“x x x”

It maybe noted from the aforecited Section 133(f) of the Code, it is clear that LGUs are not authorized to impose taxes, fees and charges for the registration of motor vehicles as well as the issuance of licenses or permits for the driving thereof. Such prohibition in relation to the definition of “motor vehicle”, reveals, among others, that traction engines of all kinds used exclusively for agricultural purposes are not included. Hence, LGUs may impose at least,\ fees, under a duly enacted ordinance, for the registration and issuance of permits or licenses for the driving of those excluded from the definition of motor vehicles. Such imposition may be justified by the extraordinary wear and tear caused on roads and streets by such vehicles and for reasons of public safety.

Relative to your request for information and clarification regarding

the taxes and fees allegedly imposed by the National Food Authority (NFA) on farmers who sell their products in the form of milled palay or rice, please be informed that the same has been referred to the said Authority for appropriate action, under a 1st Indorsement of even date, copy enclosed.

Very truly yours,

(Sgd) LORINDA M. CARLOS Executive Director

Excerpt 14: Taxes on business enterprise 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



March 25, 1997

Mr. Gerardo T. Ebrada Finance Office Hopewell Power (Philippines) Corp. Suite 202, CTC Building 2232 Roxas Boulevard Pasay City S i r :

This refers to your letter dated January 23, 1997 requesting clarification regarding the provisions of Section 133 (g) of the Local Government Code (LGC) of 1991.

Representations are made that Hopewell Power (Philippines) Corp. (HPPC) is engaged in the operation of 2 x 350MW Coal Fired Thermal Power Plant located in Pagbilao, Quezon. Said corporation was registered with the Board of Investments (BOI) on December 28, 1990 as a pioneer enterprise under Certificate of Registration No. 90-623.

In this connection, the following queries were raised: 1. From what local government taxes are the corporation

exempt? 2. When shall the exemption from paying business taxes cease?

a) Six (6) years from the date of registration - which is

December 28, 1996, or b) Six (6) years from the date of effectivity of the income tax

holiday - which is six (6) years after the date of commercial operations

3. What is the basis of computing local government taxes when

the exemption period has lapsed? a) Construction year b) Partial year of operations c) Operations years

4. If the starting year of paying local taxes is 1997, can 1996

receipts which are still under BOI tax exemption be the basis for computing the assessment9 If not, what is the basis?

On Query No. I

HPPC, as a BOI-registered pioneer enterprise, shall be exempt from the payment of local business taxes imposable by provinces, cities and municipalities under pertinent provisions of the Local Government Code of 1991 (LGC) for a period of six (6) years from the date of its registration, or from December 28, 1990 up to December 27, 1996

However, during the period of exemption, said corporation shall still be liable to pay the Mayor's permit and other regulatory fees or service charges that the local government unit may have imposed under a duly-enacted local tax ordinance, the exemption being applicable to local taxes only. On Query No. 2

Section 133 (g) of the Local Government Code of 1991 (LGC) provides that "local government units shall not levy taxes on business enterprises certified to by the Board of Investments (BOI) as pioneer for a period of six (6) years. Accordingly, as stated above, HPPC shall be exempt from the payment of local business taxes until December 27, 1996. On Query No. 3

HPPC shall pay the business tax imposed by the municipality of Pagbilao under a duly enacted tax ordinance on the basis of gross receipts/sales realized beginning December 28, 1996. on such date or a period of collection prescribed in the ordinance The phrase “gross sales for the preceding year”, does not mean gross sales for one complete year or twelve (12) months, but also contemplates situations where a business started to operate or ceased exemption on a date other than January first of the calendar year, and, therefore, realized ''gross sales for” only a fraction of the year. On Query No. 4

For CY 1997, the local tax shall be based on gross sales or receipts realized, if any, during the four remaining days of the year, i.e., from December 28 to 31, 1996. For CY 1998 and thereafter, the basis shall be the gross sales/receipts realized during the preceding calendar year.

We hope that this will help clarify matters.

Very truly yours,

(Sgd) LORINDA M. CARLOS

Executive Director



2nd Indorsement September 4, 2007

Respectfully returned to the ICO-Regional Director for Local Government Finance, Region XII, Cotabato City, the within indorsement dated August 6, 2007 relative to the letter dated July 26, 2007 of Ms. MELANIE B. BRACAMONTE, Municipal Treasurer, T’boli, South Cotabato, seeking clarification on the tax exemption privileges of a Board of Investment-registered enterprise. Representations are made that Upland Banana Corporation (UBC), a company engaged in the production of Fresh Cavendish Banana has been operating in said municipality since 2005 up to the present. During this period, the company has been paying its taxes and other fees due the municipality. For the current tax year (2007), the company has paid its local business tax up to the 2nd quarter. However, in the ensuing 3rd quarter of the current year, UBC failed to pay quarterly business tax installment. In a letter dated July 24, 2007, the OIC-Municipal Treasurer thereat, demanded the settlement of said obligation on time to avoid additional charges. In reply, Mr. Bobby G. Fondevilla, Board Secretary of UBC, informed that UBC is already a BOI-registered enterprise as New Export Producer of Fresh Cavendish Banana on a Non-pioneer status pursuant to the Omnibus Investment Code of 1987 (E.O. 226). In view of the foregoing, the Municipal Treasurer of T’boli, South Cotabato is seeking opinion on the following issues:

1. Is the availment of the exemption on local taxes per provision of Section 133(g) of the Local Government Code (LGC) of 1991 automatic?

2. Will it be possible for the exemption on local taxes to commence

on the following year after the approval of the registration with the Board of Investment (BOI) considering that the business taxes derived from said establishment have been included in the Estimated Income for the current year?

Issue No. 1:

The provision of law governing the matter is Section 133(g) of the LGC of 1991, quoted hereunder:

SEC. 133. Common Limitations on the Taxing Powers of Local

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

“ x x x. “(g) Taxes on business enterprise 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:

“x x x.” (Underscoring ours)

Although the abovequoted provision of law directly speaks of the limitation in the exercise of the taxing powers of local government units on certain business activities, impliedly discernible from the precept of the same law is that while LGUs are barred from exercising its taxing power, BOI-registered enterprises are bestowed with the entitlement or privilege of exemption from local impositions. The reckoning of which is set by the date of registration appearing in the Certificate of Registration.

However, for the purpose of implementing the aforequoted provision of the Code, the Department of Finance issued Local Finance Circular (LFC) No, 5-93 dated October 22, 1993, pursuant to Article 287 of the IRR, prescribing the limitations, manner and procedures for the imposition of local business taxes on BOI-registered enterprises, the pertinent portion of which is quoted hereunder:

“Sec. 4. Availment of Exemption. - (a) Within sixty (60) days - “(i) from receipt of the Certificate of Registration from the

BOI, or “(ii) from the effectivity of the tax ordinance or revenue

measure imposing a tax on business, or “(iii) from the effectivity of these guidelines, whichever comes

later, the President or any duly authorized representative of the registered enterprise, shall submit a certified true copy of said Certificate of Registration to the local treasurer concerned together with a request for a Certificate of Exemption for the appropriate period, as indicated in Sec. 3 above.

“x x x.”

In this connection, it must be pointed out that guidelines issued by this Department relative to the levy and administration of local taxes, fees

and charges pursuant to Article 287 of the IRR are only intended to guide, among others:

(a) local elective officials in the enactment of local tax ordinances or

revenue codes; (b) local treasury offices in collecting taxes and other local

impositions, as well as in determining or computing tax discounts or penalties and surcharges; and

(c) the taxpaying public as to the proper interpretation and

application of the law and rules governing local taxation.

Such guidelines, however, cannot, as they are not meant to, amend provisions of law, particularly the LGC of 1991. Accordingly, in reply to your query (Query No 1), it is the considered view of this Bureau that the 60-day period prescribed under LFC No. 5-93 abovementioned is only directory and not mandatory, therefore, the failure of any business to observe the same will not render taxable what the law has expressly exempted from local taxation.

However, be reminded that the tax exemption granted to BOI-

registered enterprises applies only to taxes, specifically the tax on business, but not to regulatory or proprietary fees and service charges, including such penalties or surcharges imposed thereon for failure to pay on time, that may have been provided for under a duly-enacted tax ordinance of the local government concerned.

In addition, considering that the BOI has approved the period of

availment of incentives (non-pioneer enterprise) to be reckoned from the date of registration, clearly, UBC shall be considered exempt from the payment of local business taxes for a period of four (4) years. Issue No. 2:

With respect to the issue sought to be clarified herein, reference should be made to DOF Local Finance Circular No. 5-93 aforementioned, particularly Section 3 thereof, which provides as follows:

“Sec. 3. Exemption of pioneer and non-pioneer enterprises. “(a) Pursuant to Sec. 133(g) of the LGC and Art. 321(g) of

its IRR, business enterprises certified to and registered with the Board of Investments (BOI) as pioneer or non-pioneer shall be exempt from local business taxes for a period of six (6) and four (4) years, respectively, from the date of registration;

“x x x “(c) Pioneer and non-pioneer enterprises registered with

the BOI on or after the effectivity of the LGC shall be exempt from local business taxes for a period of six (6) and four (4) years, respectively, starting from the date indicated in the certificate of registration issued by the BOI.

“x x x.” (Underscoring ours)

On the basis of the abovequoted provisions of the said Circular which

implements Section 133(g) of the LGC of 1991, this Bureau holds the view that UBC is entitled to exemption from local business taxes under its Certificate of Registration No. XI-2006-135 during the four-year period from October 31, 2006 to October 30, 2010. Therefore, deferring the availment of tax exemption for one year after the approval of UBC’s registration with the BOI would be violative of the terms and conditions set forth in said certificate of Registration and the pertinent provision of the LGC.

Viewed in the light of the foregoing, UBC is still liable for the 3rd quarter local business tax (LBT) installment plus an additional LBT which pertains to its October 1-30, 2006 gross sales considering that UBC’s exemption commenced only on October 31, 2006 and further that its 2007 LBT liability pertains to its 2006 gross sales (Section 143, LGC). Be guided accordingly.

Excerpt 15: Excise tax on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products


Department of Finance BUREAU OF LOCAL GOVERNMENT FINANCE

Manila April 25, 2000 Mr. Themistocles R. Montalban Cayag-an, San Pedro Albuera, Leyte S i r : This refers to your letter dated February 7, 2000 requesting clarification on several issues raised therein. It is your claim that Section 133(h) of the Local Government Code (LGC) of 1991 provides the limitation on the power of local government units to impose taxes, where taxes are already imposed under the National

Internal Revenue Code, while Section 138 of the same Code refers to the authority of the Provincial Government to impose a tax of not more than 10% of the market value per cubic meter on sand and gravel. On the other hand, quarry resources is defined under Section 151(H)(4) of the National Internal Revenue Code (NIRC) as any common stone or other common mineral resources as the Bureau of Mines and Geo-Sciences may declare to be quarry resources. Thus, the following queries were posed:

Is Section 138 of the LGC not in conflict with Section 133 thereof? If sand and gravel is classified as quarry products or non-metallic

mineral resources, then the Provincial Government can not impose sand and gravel tax because the NIRC, under Section 151(2) already imposes an excise tax at 2% on quarry resources based on the market value of the gross output.

Sections 133(h) and 138 of the LGC provide as follows: “Section 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: “(a) x x x; “(h) Excise tax on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; “x x x.” “Section 138. Tax on Sand, Gravel and Other Quarry

Resources. – The province may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction. “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. “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%).”

It appears that the prohibition in Section 133(h) is the imposition of tax on the products or goods while the tax as provided under Section 138 is a tax on the privilege to engage in the quarrying or extraction of said products. It is worthwhile to mention that the imposition of a national tax to a person/business establishment does not exempt the same from being subjected to a local tax. The reason for this is the fact that said taxes are imposed by two separate and distinct taxing authorities which are the National Government in the case of a national tax, and the provincial government with respect to provincial tax. With respect to the issuance of permit to extract sand and gravel the following issues are being raised:

1. What is then the function of the Bureau of Mines on the matter particularly in regard to the environmental protection and problems, which results in the excessive extraction of sand and gravel, particularly along river beds?

2. What is the function of the Municipal Government in this regard?

3. Can the inhabitants or land owners along the rivers oppose to the

extraction of sand and gravel along the river beds, if as a result of the extraction of sand and gravel along the river beds it destroys the river banks and the bringing of water from the river to the irrigation system to the rice field is made impossible?

In this connection, enclosed for your information and reference is a

copy of R. A. 7942, otherwise known as the Philippine Mining Act of 1995, Chapter VIII pertains to the issuance of permits by the Provincial Governor and by the Mines and Geo-Science Bureau, while Chapter XI of the same Act provides for the safety and Environment Protection.

The third issue has been referred to the Commissioner, Bureau of

Internal Revenue, under a 1st Indorsement of even date, copy enclosed, inasmuch as the matter falls under the jurisdiction of said Bureau.

It is hoped that this will help clarify matters. Very truly yours,

(Sgd) ANGELINA M. MAGSINO (Deputy Executive Director) Officer-In-Charge

1) Petroleum Products a) Exporting, importing and trading of Petroleum Products



April 1, 2008

Mr. Barnett Cromwell C. So General Manager REPHIL STATION INC. Antipolo City S i r : This refers to your letter dated March 24, 2008 regarding your pending application for renewal of business permit with Antipolo City. Representations are made that REPHIL STATION INC. (REPHIL for brevity) is engaged in the business of importing, exporting and trading of all kinds of petroleum products and by-products on wholesale and retail basis. It is claimed hat under Section 133 (h) of RA 7160 otherwise known as the Local Government Code of 1991 (LGC), LGUs are proscribed from collecting business taxes on petroleum products. However, in view of the said renewal, REPHIL is required by the OIC of BPLO and the Head of City Legal Division to “furnish a Certificate of Tax Exemption coming from the government agencies stating that it is exempt from local tax as prescribed by the existing laws and regulations of the Government.” It appears that this Bureau has already furnished REPHIL a copy of Local Finance Circular No. 1-05 dated December 8, 2005, prescribed the guidelines governing the powers of local government units to impose taxes, fees and charges on petroleum products and new entrants in the oil industry pursuant to the LGC.

Section 3 of the said Circular provides that “(a) Pursuant to Section 13(h) of the LGC and Article 221(h) of the IRR, local government units are prohibited from imposing taxes, fees and charges on petroleum products, which include the sale or petroleum products by gasoline stations, dealers, resellers or retailers. x x x.”

On the basis of the representations laid out above, REPHIL is considered exempt from the payment of business tax on its business of importing, exporting and trading of all kinds of petroleum products and by-products on wholesale and retail basis.

It bears emphasis however, that the sale of tire, batteries and other

accessories (TBA) as well as services rendered by REPHIL are subject to business taxes.

It is hoped that this will clarify matters.

Very truly yours,

b) Liquefied Petroleum Products (Local Finance Circular [LFC] No. 1-05)



1st Indorsement February 16, 2009

Respectfully referred to the City Treasurer, Muntinlupa City, the

herein letter dated February 9, 2009 of Mr. Michael G. Inalisan, Vice President/COO, MACRO Liquid Petroleum Gas Co., Inc. (MACRO for brevity) regarding the applicability of Section 133 of the Local Government Code (LGC) of 1991.

Representations are made that MACRO is in the business of LPG

distribution and by virtue of Section 133(h) of the LGC, is not subject to local business tax.

It is claimed that inspite of repeated representations made by said

company, the Muntinlupa BPLO has over the past two years, continued to impose the business tax on MACRO.

MACRO cited the letter dated April 3, 2003 of this Bureau addressed

to Mssrs. Luis F. Banzon (President, LPG Institute of the Philippines) and Adelio R. Capco (President, Petron Gasul Dealers Association) which categorically states that “LPG is not subject to local business tax.”

In this connection and in addition to above opinion, it is worth mentioning that the Department of Finance (DOF) issued Local Finance Circular No. 1-05, dated December 8, 2005, copy enclosed, prescribing the guidelines governing the limitation on the powers of provinces, cities and municipalities to impose taxes, fees and charges on petroleum products as provided for under Section 133(h) of the LGC in relation with Section 143(c-3) thereof.

Section 3 of the LFC provides as follows:

“Section 3. Exemption from Local Taxation. – (a) Pursuant to Section 133(h) of the LGC and Article 232(h) of the IRR, local government units are prohibited from imposing taxes, fees and charges on petroleum products, which include the sale of petroleum products by gasoline stations, dealers, resellers or retailers. However, the same of tires, batteries and other accessories (TBA) as well as services rendered by them are subject to business taxes.

“x x x.”

In this connection, that Office is hereby instructed to make

representations with the BPLO to ensure compliance with the aforesaid provision.

Advice of action taken hereon within five (5) days from receipts is

requested.



February 25, 2009 Atty. EULALIO G. GAITE Legal Officer IV Office of the City Legal Officer Iligan City S i r :

This refers to your undated letter seeking opinion/confirmation as regards the 3rd Indorsement dated May 22, 2007 of this Bureau attached to the letter of Atty. Leo M. Zarazosa in behalf of Petronas Energy Philippines requesting for tax exemption on the sale of Liquefied Petroleum Gas (LPG).

In this connection, attached for your information and reference is the

said 3rd Indorsement dated May 22, 2007 of this Bureau, the pertinent portion of which is quoted hereunder:

“x x x, it can be said in the instant case, while the law

subjects to the payment of business tax all exporters, manufacturers, producers, wholesalers, distributors, dealers or retailers of cooking oil and cooking gas under Section 143(c)(3) of the Local Government Code, the same law, however, does not contemplate to cover the sale of LPG as the same was categorically exempted under Section 133(h) of the same Code.

“Such interpretation is in consonance with the apparent

intent of the legislature to remove petroleum products from the taxing power of local government. In support of the said interpretation are the Department of Justice (DOJ) Resolution dated September 17, 1993 and the pronouncement made by the Energy Regulatory Board (ERB), embodied in our letter dated April 1, 2003 addressed to Mr. Luis Banzon, President of LPGIP and Mr. Adelio r. Capco, President, PGDAI. Under the said DOJ Resolution, it was ruled that local government units imposing taxes on petroleum products are violating the law, as doing so is contrary to law, public policy and national economic policy. The ERB, on the other hand, declared that “additional taxes on petroleum business are detrimental to the economy and disruptive of business and industrial plants and policies, and should at all times be avoided especially at this time when the government is in the process of implementing its economic recovery programs.”

“It being apparent that the intent of the law is to exempt

the sale of LPG from the payment of business tax, the previous ruling of this Bureau on the matter should thus be affirmed.” For further clarification, attached is Local Finance Circular No. 1-05

dated December 8, 2005, prescribing the guidelines governing the powers of local government units to imposed taxes, fees and charges on petroleum products and new entrants in the oil industry pursuant to Republic Act no. 7160, otherwise known as the Local Government Code (LGC) of 1991.

It is hoped that this will help clarify matters. Very truly yours,

Excerpt 15a: Haulers of Petroleum Products (LFC No. 1-05)



January 8, 2010

Mr. JOHN JONATHAN L. LACSON Executive Vice President MIS Maritime Corporation Suites 212-217 Cityland III V. A. Rufino corner Esteban Streets Legaspi Village, Makati City S i r :

This refers to your letter dated December 17, 2009 requesting confirmatory ruling that MIS Maritime Corporation (MIS for brevity) is exempt from the coverage of local business taxes imposed under Section 143 of the Local Government Code of 1991 (R.A. No. 7160), as implemented by the Makati City Revenue Code.

Representations are made that MIS is a domestic corporation

organized and existing under Philippine laws with office at Suites 212-217 Cityland 3, V. A. Rufino corner Esteban Sts., Legaspi Village, Makati City, Metro Manila. MIS is engaged in the business of transporting petroleum products (via oil tankers) coming from the local oil refineries for distribution to various oil depots and installations in the Philippines.

It is submitted that the local government of Makati City, which has

jurisdiction over the principal office of MIS, has persistently assessed and collected local business taxes on freight revenue of the company pursuant to Section 143 of the LGC, as implemented under a duly-enacted revenue of said city.

However, MIS contends that the company is exempt from the

payment of local business taxes for its freight revenue derived from its business operation as transportation contractor/hauler of petroleum products citing Section 133(j) of the LGC, quoted as follows:

“SEC. 133. Common Limitations on the Taxing

Powers of Local Government Units. – Unless otherwise

provided herein, the exercise of the taxing powers of provinces, cities, municipality, and barangays shall not extend to the levy of the following:

x x x (j) Taxes on the gross receipts of transportation

contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code; (emphasis ours)

“x x x.”

The abovequoted Section 133(j) of the LGC was further clarified in

Section 3 (b) of Local Finance Circular No. 1-05 dated December 8, 2005, which provides:

“Section 3. Exemption from Local Taxation. – (a) Pursuant

to Section 13 (h) of the IRR, local government units are prohibited from imposing taxes on x x x.

(b) Haulers of petroleum products who operate as

transportation contractors or independent common carriers shall be exempt from local taxes pursuant to Section 133 (j) of the LGC. x x x.” (emphasis ours) In view of the abovequoted provisions of the LGC and LFC N. 1-05,

and for the early resolution of the herein issue, attached is a copy of our letter dated November 2, 2007, addressed to Atty. Liberato R. Lapiña of Castillo and Lapiña Law Firm, bearing on a similar issue, the dispositive portions of which are quoted as follows:

“x x x, it is the view of this Bureau that the abovenamed

companies may be considered as transport contractors or common carriers and therefor, exempt from taxes on its gross receipts pursuant to Section 133 (j) of the LGC. However, it may be pointed out that said Section is qualified by the phrase “Unless otherwise provided.” The qualifying phrase should be interpreted as referring to Section 186 of the Code which provides that local government units may exercise the power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated therein. Accordingly, the local government units concerned may impose a tax on the tax base other than the gross receipts of transportation contractors or common carriers.”

We hope this will help clarify matters.

Very truly yours, (Sgd)

MA. PRESENTACION R. MONTESA Executive Director Copy furnished:

The City Treasurer Makati City

Excerpt 16: Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code



October 15, 1999 Atty. Paulino C. Petralba Atty. Virginia B. Viray CASTILLO LAMAN TAN PANTALEON & SAN JOSE Law Offices The Valero Tower Bldg., 122 Valero Street Salcedo Village, Makati City Sir/Madam: This has reference to your letter dated August 16, 1999 requesting opinion, in behalf of your client, Albar Shipping and Trading Corporation (ASTC), as to whether or not local government units may impose business taxes on a shipping company based on its charter fees. It is represented that ASTC, with principal address at 1649 Molave Street corner East Service Road, United Hills Village, Parañaque, is a corporation organized and existing under Philippine laws. It is represented further that ASTC realized its charter fees exclusively from carriage of goods for cross-trading abroad, pursuant to its primary purpose. Section 133 of R. A. 7160 otherwise known as the Local Government Code (LGC) of 1991 provides:

“Section 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces,

cities, municipalities, and barangays shall not extend to the levy of the following: “x x x “(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carrier by air, land or water, except as provided in this Code.”

On the basis of the abovequoted provision of law, it is very clear that local government units may not impose business taxes on the charter fees of ASTC. It is hoped that this will help clarify matters. Very truly yours, (Sgd) ANGELINA M. MAGSINO (Deputy Executive Director) Officer-In-Charge

Excerpt 17: Taxes, fees or charges for the registration of motor vehicle and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles;



May 13, 1997

Mr. Antonio A. Buenafe Vice Mayor Castillejos, Zambales S i r :

This refers to your letter dated February 11, 1997 requesting legal opinion relative to the propriety of Ordinance No. 95-12 imposing an annual permit fee on operators of transport services

Upon perusal of the subject portion of the Ordinance, this Bureau finds that Section 3U.01 thereof imposes an annual permit fee on business engaged in “transport services for-a-fee” based on the number of vehicles

being used while Section 3V.01 imposes an annual registration fee for every motorized tricycle in the municipality.

Section 133 (J) and (1) of the Local Government Code of 1991 (LGC)

provide as follows:

“SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities and barangays shall not extend to the levy of the following:

“ x x x “(j) Taxes on the gross receipts of transportation

contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code.

“x x x

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

“x x x.”

From the foregoing provisions of the Code, it may be noted that local governments may not impose taxes on the business of transportation contractors. By way of comment, therefore, if a business is not among those subject to tax under the Code, the local government unit may not legally require such business to secure and pay Mayor's permit before engaging in the business. However, regulatory fees and service charges may be levied and collected from such businesses.

On the other hand, it may be stated that as provided for under Section 133(1) of the Code, that municipality may impose an annual registration fee for even motorized tricycle being operated therein.

We trust that this will help clarify matters.

Very truly yours, (Sgd) LORINDA M. CARLOS

Executive Director



February 16, 2009

HON. ALDOUS L. PITOS SB Member Office of the Sangguniang Bayan Mobo, Masbate S i r :

This refers to your letter dated January 20, 2009 requesting clarification whether the Municipality of Mobo is authorized to issue a Mayor’s Permit for the operation of motorcycles for hire.

Representations are made that the said municipality is composed of

29 Barangays, 14 of which are located along the national highway while the rest are not passable by passenger vehicles. Motorcycles for hire serve as the means of transportation in going to the Poblacion. In this regard, owners of the motorcycles for hire are requesting that Office of the Municipal Mayor for the issuance of a Mayor’s Permit in order to legalize their business operation.

In this connection, reference is made to the provision of Section 133(l)

of the Local Government Code (LGC) of 1991, quoted as follows:

“Section 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipality, and barangays shall not extend to the levy of the following:

“(a) x x x

“(l) Taxes, fees or charges for the registration of motor

vehicle and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles;

“x x x.”

It is clear that LGUs are authorized to impose taxes, fees and charges

for the registration of motor vehicles as well as the issuance of licenses or permits for the driving thereof considering that these functions are performed by the Land Transportation Office.

Be that as it may, the business operations of motorcycles for hire is

now allowed by law although these are considered common carriers authorized by law. These vehicles have no common carriers’ insurance sufficient to answer for any liability that may occur to passengers and third parties in case of accident. Thus a Mayor’s permit shall not be issued for operation thereof “for that which is prohibited or does not legally exists, cannot be regulated.” (People vs. Esquerra, et al 81 Phi. 33)

Very truly yours,

Excerpt 18: Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein


Manila

March 10, 1994 Atty. Delfin H. Decierdo Legal Counsel Metaphil Inc. 2290 Abominco Bldg. Pasong Tamo Ext. Makati, Metro Manila S i r :

This refers to the letter dated February 21, 1994 of Metaphil, Inc. (MI) requesting interpretation on the provisions of the Local Government Code (LGC) of 1991 quoted as follows:

“SEC. 133. Common Limitations on the Taxing and Other

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

“x x x. “(m) Taxes, fees, or other charges on Philippine products

actually exported, except as otherwise provided herein: “x x x.” “SEC. 143. Tax on Business. - The municipality may

impose taxes on the following businesses: “x x x.

“(c) On exporters, and or manufacturers, millers,

producers, wholesalers, distributors, dealers or retailers of essential commodities enumerated hereunder at a rate prescribed under subsections (a), (b) and (d) of this Section:

“x x x.”

It is your contentions that Philippine products actually exported are

tax exempt from the local business tax, except when the products exported fall under the essential products category.

In this connection, please be informed that the prohibition in the

abovequoted provision is the imposition of export taxes, fees and other levies on the products or goods thus exported. But the business tax on exporters as provided under Section 143, par. (c) of the LGC is a tax on the privilege to engage in a business of exporting. The former has as its reference the exported products, while the latter, the business of exporting itself. Hence, the provisions of Section 143, par. (c) do not fall within the ambit of nor would it be in conflict with the prohibition enunciated under Section 133, par. (m) of the LGC.

It is pointed-out, however, that all exporters, regardless of whether

they are exporters of essential commodities, would be taxable at the rate provided under Section 143, par. (c) of the LGC. The qualifying phrase “of essential commodities” is construed to apply only to the class of businesses immediately preceding it. It could not be extended to the business of “exporting” for such is dissociated by the “comma” and the conjunction “and” following it.

We hope this will clarify matters.

Very truly yours,


(Sgd) LORINDA M CARLOS Executive Director

Bureau of Local Government Finance

Excerpt 19: Taxes, fees or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. 6938) otherwise known as the “Cooperatives Code of the Philippines: respectively; and

a) Exempt



November 14, 1994 The General Manager Cooperative Rural Bank of

Misamis Occidental Inc. Oroquieta City S i r :

This refers to Resolution No 93-N41-A of the Cooperative Rural Bank of Misamis Occidental Inc. (CRBMOI) manifesting that the provisions of Articles Nos. 61 and 62 of RA 6938, otherwise known as the Cooperative Code of the Philippines, granted exemptions from national and local taxes as well as fees.

In this connection, please be informed that this Department has expressed a uniform view on previous cases that said exemption may be recognized and applied on the basis of the clear mandate of the law as reflected in the letter of the DOF, dated July 24, 1992, to the North Cotabato Free Farmers Cooperative. Inc., copy enclosed, the pertinent portion of which is quoted hereunder:

“It was noted from your abovestated letter that North Cotabato

Free Farmers Cooperative, Inc. (NCFFCI) is actually protesting the legality of business taxes, fees or charges imposed by local government units in that area on cooperatives existing therein, notwithstanding the provisions on tax exemption of cooperatives under RA, 6938, otherwise known as the Cooperative Code of the Philippines. Such being the case, your attention is invited to the provisions of Sections 133 (n) and 193 of the Code which read as follows:

‘SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities and barangays shall not extend to the levy of the following;

‘(n) Taxes, fees, or charges on Countryside and

Barangay Business Enterprises and cooperatives duly registered under RA 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (RA No. 6938) otherwise known as the "Cooperative Code of the Philippines' respectively: and

‘x x x.

‘SECTION 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under RA. No. 6938, no-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.’ “From the foregoing provisions of the Code, it appears that

cooperatives duly registered under RA. 6938 are not subject to any tax, fee or charge imposed by any local government.” Moreover, all real property owned by duly registered cooperatives

under R A, No. 6938 are also exempt from real property taxes pursuant to Sec. 234(d) of the Code.

It may be stated however, that the exemption enjoyed by such

cooperatives does not include payment of service charges or rentals for the use of property and equipment or public utilities owned by a local government such as charges for actual consumption of water, electric power, toll fees for use of public roads and bridges, and the like.

We hope that this will clarify matters.

Very truly yours, By authority of the Secretary:

(Sgd) JUANITA D. AMATONG

Undersecretary

b) Not Exempt



February 25, 2009

Mr. GUILLERMO L. CARISMA, JR. General Manager

Cooperative Bank of Cotabato Maharlika Highway Lanao, Kidapawan City S i r : This refers to your letter dated February 16, 2009 requesting legal opinion or clarification on the taxability of the Cooperative Bank of Cotabato (CBC) on local taxes such as the real property tax (RPT) and other local taxes fees and charges.

It is represented that CBC, formerly the Cooperative Rural Bank of North Cotabato, Inc. (Kilusang Bayan Bangko Rural ng Hilagang Kutabato), with head office at Maharlika Highway, Lanao, Kidapawan City, is duly registered with the Cooperative Development Authority (CDA) under R.A. 6938.

It is submitted that the CBC received a Statement of Account dated

28 October 2008 from the City Treasurer’s Office, Kidapawan City on the real property tax delinquency for the property it owns located at Lanao, said city. CBC was advised to settle first the delinquency before the City Assessor’s Office can issue an updated Tax Declaration of said property.

It is contended however that as provided in Article 62, Par. 3 of R.A.

6938, otherwise known as the Cooperative Code of the Philippines, “x x x all cooperatives, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes.” It is also provided in Section 133 (n) of R.A. 7160 otherwise known as the Local Government Code of 1991 (LGC) that “the exercise of the taxing powers of provinces, cities, municipalities and barangays x x x shall not extend to the levy of taxes, fees, or charges on x x x cooperatives duly registered under Republic Act Numbered Sixty-nine hundred and thirty-eight (R.A. 6938) x x x.” Further, it is also provided in Section 234 of the LGC that “[A]ll real property owned by the duly registered cooperatives as provided under R.A.6938 ” shall be exempt from the payment of real property tax.

CBC, in its letter dated 25 November 2008, submitted to the City

Assessor’s Office (CAO) its justification for its claim for exemption from the payment of RPT. However, the City Assessor, in her letter dated 9 December 2008, disregarded CBC’s assertion citing the following:

1) CBC’s audited Financial Statement as of CY 2004 reveals that the

Accumulated Reserves and Undivided Net Savings totaling P42,818,234.00 is over and above the amount required for exemption under Article 62(1) of R.A. 6938, which provides that “Cooperatives with accumulated reserves and undivided net savings of not more than ten million pesos (P10,000,000.00) shall be EXEMPT FROM ALL NATIONAL, CITY, PROVINCIAL, MUNICIPAL, and BARANGAY TAXES OF WHATEVER NAME AND NATURE” (emphasis ours);

2) Claim for exemption under Article No. 62 (3) of R.A. 6938 pertains

to the applicable percentage taxes made on transactions with banks, insurance companies and even non-members; and

3) Article 61 (Tax Treatment of Cooperatives), R. A. 6938 is not

applicable in the case of CBC considering that it is of public knowledge that it is accepting non-member depositors on loans, savings and time deposits and even real estate transactions.

In resolving the herein issue, Section 234 (d) of R.A. 7160, otherwise

known as the Local Government Code of 1991 (LGC) is quoted as follows:

“Section 234. Exemption from Real Property Tax. – The following are exempt from payment of real property tax:

“x x x. “(d) All real property owned by duly registered cooperatives as

provided for under R. A. No. 6938. x x x” On the other hand, Article 62(1) of R.A. 6938, as implemented under

DOF-CDA Joint Circular No. 1-90 dated November 7, 1990 further clarified the granting of real property tax exemption to cooperatives viz:

“In line with Article 2 of Republic Act No. 6938, otherwise

known as the “Cooperative Code of the Philippines,” the Department of Finance and the Cooperative Development Authority hereby issue Joint Circular No. 1-90 establishing the procedural guidelines for the availment of the privileges of Article 62 of the said act, which provides:

“Art. 62. Tax and Other Exemptions. – Cooperatives

transacting with both members and nonmembers shall not be subject to tax on their transactions to members. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following exemptions:

(1) Cooperatives with accumulated reserves and

undivided net savings of not more than Ten Million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature. Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importations of machineries, equipment and spare parts used by them and which are not available locally as certified by the Department of Trade and Industry x x x.”

Evidently, CDA-registered cooperatives like CBC, shall enjoy real

property tax exemption if its Accumulated Reserves and Undivided Net Savings are not more than Ten Million Pesos (P10,000,000.00).

However, in a letter dated December 9, 2008 of the CAO of

Kidapawan City, it was stated, based on the audited Financial Statement of CY 2004, that the accumulated reserves and undivided net savings of CBC totaled to P42,818,234.00. In view hereof, CBC may not qualify to claim exemption from paying RPT for its property located at Lanao, said city for

failure to meet the requirements set forth in the abovequoted provision of R.A. 6938 and as clarified under DOF-CDA Joint Circular No. 1-90.

Accordingly, this Bureau is of the opinion that CBC is not exempt

from the payment of real property taxes, local taxes, fees or charges as provided for under Sections 133(n) and 234(d) of the LGC and other pertinent laws aforequoted unless it can show proof that its total accumulated reserves and undivided net savings are not more than P10,000,000.00 as required under the law.

We hope that we have clarified matters, Very truly yours, MA. PRESENTACION R. MONTESA Executive Director

Excerpt 20: Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.


Manila

1st Indorsement May 3, 1993

Respectfully referred to the Municipal Treasurer, Mandaluyong, Metro

Manila. This refers to the letter dated October 23, 1992 of Mr. Felicisimo O.

Joson, Jr., Administrator of Philippine Overseas Employment Administration (POEA) requesting exemption from paying the penalty imposed on delayed payment of transfer tax.

It appears that POEA purchased a lot and building from Delta Motors

Corporation (DMC), and occupied the same since 1984. To effect the transfer of ownership from DMC to POEA, the latter is being required to pay the transfer tax to that municipality. However, it appears that it took POEA four (4) years to finally obtain from the Department of Budget and Management (DBM) an allocation for payment of said tax, for reason that there has been no appropriation therefore. Hence, the above request.

In this connection, attention is invited to Section 5 (o) of the Local Tax

Code, as amended the law in force in 1984, which is quoted hereunder:

“SEC. 5. Common limitations on the taxing powers of local

governments. - The exercise of the taxing powers of provinces, cities, municipalities and barrios shall not extend to the imposition of the following

“x x x; “(o) Taxes on any kind on the national and local

governments. “x x x.”

The above provisions of the Local Tax Code aforementioned is carried

over in the Local Government Code of 1991, particularly Section 133(o) thereof which provides that the taxing powers of LGUs shall not extend to the levy of “Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.”

Accordingly, POEA, being a national agency, is exempt from the

payment of the tax on transfer of real property being imposed and collected by that municipality. Therefore, further action on their request for exemption from paying the penalty imposed on delayed payment of the said tax is no longer necessary.

Be guided accordingly,


(Sgd) JUANITA D. AMATONG

Undersecretary



3rd Indorsement January 11, 2001

Respectfully returned to the City Treasurer, Pasig City, the herein preceding indorsement. This refers to Memorandum Order Nos. 51-2000 and 49-2000 of the City Mayor of that City regarding the delineation of functions of the Business Permit and License Office (BPLO), License Division, Office of the City Treasurer, EDP and payment of taxes and fees.

In the said Memorandum Order No. 51-2000, the following functions, among others, have been delineated to the BPLO:

1. Determination of gross sales of the taxpayers including deficiency tax base.

2. Recommend tax assessment to the City Treasurer through the License Division.

In this connection, enclosed for your information and guidance is a

copy of the 1st Indorsement dated June 14, 1996 to the City Treasurer, Kaloocan City, bearing on similar issues, the pertinent portion of which is quoted as follows:

“x x x, the City Treasurer is the one responsible for the

administration, assessment, collection and enforcement of all local taxes, fees and charges thereat, which includes the amusement tax. Therefore, the transfer of the administration, assessment, collection and enforcement of the amusement tax from that Office to the Business Permits and Licensing Office under the Office of the City Mayor is not founded on, or supported by, any provision of the Code.” On the other hand Memorandum Order No. 49-2000, states among

others that “No Letter of Confirmation in relation to the examination of the books of account of taxpayers shall be accepted unless an audited financial statements and results of confirmation are attached.”

It must be pointed out that the examination of books of accounts of

businessmen pursuant to Section 171 of the Local Government Code of 1991 (LGC) is an inherent function of local treasurers. However, it is likewise pointed out that the City Mayor is clothed with the power of general supervision and control over local administrative affairs pursuant to Section 455(1) of the same Code, and as such, shall, “Examine the books, records and other documents of all offices, officers, agents or employees of the city and, in aid of his executive powers and authority, require all national officers and employees stationed in or assigned to the city to make available to him such books, records, and other documents in their custody, except those clarified by law as confidential.


(Sgd) BENJAMIN A. GERONIMO Executive Director


BUREAU OF LOCAL GOVERNMENT FINANCE

MANILA

2nd Indorsement March 30, 2011

Respectfully returned to the OIC-Regional Director for Local Government Finance, Department of Finance, Region XI, Davao City, her within indorsement dated February 21, 2011, relative to the request of the Assistant City Treasurer of Digos City, Davao del Sur for an opinion whether the City (Digos) can collect an amusement tax from the Province of Davao del Sur which sponsored a Philippine Basketball Association (PBA) game in December 4, 2010.

Perusal of the attached communications provides the following

information: 1) In a letter dated December 8, 2010, the Asst. City Treasurer of

Digos City demanded from the Office of the Provincial Treasurer the remittance of the 10% of the gross receipts of admission fees derived by the provincial government from a PBA game held on December 4, 2010 sponsored by the said provincial government;

2) In a letter-reply dated December 15, 2010 addressed to the Asst.

City Treasurer of Digos, the Provincial Treasurer, Davao del Sur contended, among others, that amusement tax on professional basketball games is a national tax and not a local tax, citing the Decision rendered by the Supreme Court (SC) in the case PBA vs. Court of Appeals, et al, G. R. No. 119122 dated August 8, 2000, which provides:

“From the foregoing it is clear that the "proprietor, lessee or operator of . . . professional basketball games" is required to pay an amusement tax equivalent to fifteen per centum (15%) of their gross receipts to the Bureau of Internal Revenue, which payment is a national tax. The said payment of amusement tax is in lieu of all other percentage taxes of whatever nature and description.

xxx xxx xxx

Even up to the present, the category of amusement taxes on professional basketball games as a national tax remains the same. This is so provided under Section 125 of the 1997 National Internal Revenue Code. Section 140 of the Local Government Code of 1992 (Republic Act 7160), meanwhile, retained the areas (theaters, cinematographs, concert halls, circuses and other places of amusement) where the province may levy an amusement tax without including therein professional basketball games.”

3) In reply to the letter dated December 23, 2010 of the Asst. City Treasurer of Digos, seeking opinion whether or not the City (Digos)

can collect amusement tax from the Province of Davao del Sur based on the Tax Ordinance of that City relative to said PBA game, that Office concurred and held the view of the Provincial Treasurer that professional basketball games are beyond the taxing authority of local governments based on the said SC Decision.

As can be appreciated from the above information, the Asst. City

Treasurer of Digos and the Provincial Treasurer of Davao del Sur seemed headed toward a different course. The Provincial Treasurer, on the one hand, was inclined to believe that a professional basketball game, like the PBA game held in the City of Digos and sponsored by the Provincial Government of Davao del Sur, was beyond the taxing authority of the City Government in view of the aforequoted SC Decision.

On the other hand, the Asst. City Treasurer was of the position that

the provincial government, in sponsoring the said PBA, should pay the corresponding amusement tax on the admission fees collected during the PBA game, pursuant to Section 2J.02 of the New Digos Tax Code of 2005.

As can be gleaned from the above information, the contention of the

Provincial Treasurer of Davao de Sur was hinged on the SC Decision, in the case PBA vs. CA, et al., which specifically declared that professional basketball games like the PBA game are subject to national tax through the Bureau of Internal Revenue (BIR) but not to local taxation by a local government unit like Digos City.

Further, the Provincial Treasurer in his letter dated December 15,

2010 ratiocinated by stating, thus “x x x, since the national government elected to impose amusement tax on the conduct of professional basketball games, it in effect withholds from the local government the imposition of another tax by clearly providing in Section 125 of the NIRC that the tax shall be in lieu of all other percentage taxes of whatever nature and

description.” Clearly, from the above discussions the Provincial Treasurer and the

Assistant City Treasurer of Digos City had taken different positions on the issue.

Section 140, of R.A. 9640, the law amending Section 140 of the LGC,

and in relation to Section 151 of the LGC, provides that “[T]he province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than ten percent (10%) of the gross receipts from the admissions fees. x x x."

Further, Section 151 of the LGC, provides as follows:

“SEC. 151. Scope of Taxing Powers. - Except as otherwise

provided in this Code, the city, may levy the 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 to them and distributed in accordance with the provisions of this Code. (Emphasis ours)

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.”

It must be pointed out however, that the immediate preceding provision of law is qualified by the phrase “Except as otherwise provided in this Code”. The qualifying phrase should be interpreted as referring to Section 133 of the Code which explicitly provides that the exercise of taxing powers of local government units, in this case, the City of Digos, shall not extend to the levy of taxes of any kind on local government units, thus:

“SEC. 133. Common Limitations on the Taxing

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

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

Government, its agencies and instrumentalities, and local government units.” (Boldfacing and underscoring for emphasis)

Clearly, the abovequoted provision of law needs no further

interpretation and applying the plain language of the law on the issue at hand, it is very clear that the City of Digos is prohibited from imposing any kind of tax on a local government unit like Davao del Sur.


ANNEXES

GUIDE IN THE CALCULATION OF REGULATORY FEES

Local Chief Executives have the authority to “issue licenses and permits and suspend or revoke the same for any violation of the conditions upon which said licenses or permits had been issued, pursuant to law or ordinance”.

The LGU may impose reasonable fees and charges on business, but no such fee or charge shall be based on capital investment, or gross sales or receipts.

Case A. If the LGU has a separate business permit or licensing office/unit.

Step 1: Divide the total expenses of the office/unit for the preceding calendar year by the number of permits/licenses issued.

Step 2: Stratify the result by business classification of business and its size (e.g. asset size or number of employees).

Case B. If the LGU has no separate BPLO/BPLU and personnel are temporarily assigned only during the tax payment period to perform the work of processing the applications and preparing the permits/licenses.

Step 1: Add the monthly salaries of the personnel involved.

Step 2: From the sum in Step 1, add 50% of the amount representing the MOOE.

Step 3: Divide the amount derived from Steps 1 and 2 by the number of permits/licenses issued to arrive at the per unit cost of the permit issued.

Step 4: Stratify the result by business classification of business and its size (e.g. asset size or number of employees).

Or calculate regulatory fee using the same principle as the calculation of service fees illustrated in Annex D.

ANNEXES

SAMPLE CALCULATION OF SERVICE FEES / USER CHARGES USING COST ACCOUNTING

Schedule 1

SERVICES

FEES

currently

imposed

LABOR MATERIALS TOTAL VARIANCE

I. Examination 15.00 40.45 4.50 44.95 (29.95)

Examination with

Medicine 15.00 16.42 342.00 358.42 (343.42)

Examination with

Certification 20.00 48.04 4.50 52.54 (32.54)

Medico-Legal 170.00 2,677.41 28.66 2,706.07 (2,536.07)

II. Laboratory

Urinalysis 30.00 328.48 22.00 350.48 (320.48)

CBC 80.00 328.48 42.00 370.48 (290.48)

FBS/RBS 80.00 328.48 57.50 385.98 (305.98)

Pap Smear 60.00 868.78 46.80 915.58 (855.58)

III. Dental Extraction 50.00 124.85 600.90 725.75 (675.75)

Dental Cleaning

349.25 116.70 465.95 (465.95)

Schedule 1a

STEPS RESOURCES NO. OF

MINUTES

RATE/

MINUTES

TOTAL

COST

I. Examination Pre-Assessment Nurse 5 2.53 12.65

Equipment 5 0.10 0.50

Supplies 4.00

Examination Doctor 5 5.56 27.80

44.95

Examination with

Medicine Medicines 342.00

Pharmacist 5 3.28 16.42

403.37

Examination with

Certificate Pre-Assessment Nurse 5 2.53 12.65


Supplies 4.00


Certification Nurse 3 2.53 7.59

52.54

Medico-Legal Pre-Assessment Nurse (HEPO) 10 3.08 30.82


Supplies 4.00


Equipment 10 0.05 11.78

Laboratory Medical Technologist 20 6.39 527.80

Doctor 10 5.56 55.60

Doctor (Consultant) 1 2,000.00 2,000.00

Materials

Equipment 20 0.03 11.88

Certification Nurse 3 2.53 7.59

2,706.07

II. Laboratory

Urinalysis Pre-Assessment Nurse 5 2.53 12.65


Supplies 4.00


Laboratory Doctor (Consultant) 1 272.73 272.73


Supplies (Strips) 15.00

Medical Technologist 5 3.06 15.30

335.18

CBC Pre-Assessment Nurse 5 2.53 12.65


Supplies 4.00




Supplies (Pipet, Reagents) 35.00


355.18

FBS/RBS Pre-Assessment Nurse 5 2.53 12.65


Supplies 4.00




Supplies (Strips) 45.00


370.68

Pap Smear Pre-Assessment Nurse 5 2.53 12.65


Supplies 4.00



Equipment 10 0.03 11.30

Supplies (Cotton Plidgets &

Reagents) 31.00


387.78

III. Dental Extraction Pre-Assessment Nurse 5 2.53 12.65


Supplies 4.00

Examination Dentist 20 3.85 77.00


Supplies (Medicine) 591.00

Dental Aide 20 1.76 35.20

690.55

Dental Cleaning Pre-Assessment Nurse 5 2.53 12.65


Supplies 4.00

Examination Dentist 60 3.85 231.00

Equipment 60 0.17 12.20

Supplies 100.00

Dental Aide 60 1.76 105.60

360.35

Schedule 1b

Position Basic Pay PERA Hazard

Pay

Year-

end

Bonus

Cash

Gift GSIS S & L PHIC HDMF S.I.

Hazard

Prem.

Total

Monthly Per day Per Hr. Per Min.

Nurse I

15,853.00

2,000.00

1,585.30

1,321.08

416.67

1,902.36

1,650.00

187.50

100.00

100.00

1,585.30

26,701.21

1,213.69

151.71

2.53

Doctor

38,560.00

2,000.00

3,856.00

3,213.33

416.67

4,627.20

1,650.00

375.00

100.00

100.00

3,856.00

58,754.20

2,670.65

333.83

5.56

Medical Technologist II

19,786.00

2,000.00

1,978.60

1,648.83

416.67

2,374.32

1,650.00

237.50

100.00

100.00

1,978.60

32,270.52

1,466.84

183.36

3.06

Dental Aide

10,149.00

2,000.00

1,014.90

845.75

416.67

1,217.88

1,650.00

125.00

100.00

100.00

1,014.90

18,634.10

847.00

105.88

1.76

Dentist III

25,734.00

2,000.00

2,573.40

2,144.50

416.67

3,088.08

1,650.00

312.50

100.00

100.00

2,573.40

40,692.55

1,849.66

231.21

3.85

Medical Technologist II

21,849.00

2,000.00

2,184.90

1,820.75

416.67

2,621.88

1,650.00

262.50

100.00

100.00

2,184.90

35,190.60

1,599.57

199.95

3.33

Pharmacist

21,488.00

2,000.00

2,148.80

1,790.67

416.67

2,578.56

1,650.00

262.50

100.00

100.00

2,148.80

34,683.99

1,576.55

197.07

3.28

HEPO II

19,982.00

2,000.00

1,998.20

1,665.17

416.67

2,397.84

1,650.00

237.50

100.00

100.00

1,998.20

32,545.57

1,479.34

184.92

3.08

Pathologist

Medico Legal/patient

2,000.00

2,000.00

2,000.00

2,000.00

2,000.00

Ordinary Cases/patient

18,000.00

18,000.00

818.18

272.73

Schedule 1c

EQUIPMENT etc. Acquisition

Cost

Estimated

Life

Yearly

Depreciation

Monthly

Depreciation

Depreciation/

day

Depreciation/

hour

Depreciation/

minute

Weighing Scale 15,000.00 4.00 3,750.00 312.50 14.20 1.78 0.03

Blood Pressure

Apparatus 10,000.00 2.00 5,000.00 416.67 18.94 2.37 0.04

Stethoscope 5,000.00 2.00 2,500.00 208.33 9.47 1.18 0.02

Thermometer 300.00 0.25 1,200.00 100.00 4.55 0.57 0.01

Examination Table 15,000.00 10.00 1,500.00 125.00 5.68 0.71 0.01

Linen 500.00 0.50 1,000.00 83.33 3.79 0.47 0.01

Gauzeneck lamp (bulb) 2,500.00 1.00 2,500.00 208.33 9.47 1.18 0.02

Cotton Plidgets

0.28

Speculum 300.00 0.25 1,200.00 100.00 4.55 0.57 0.01

Gloves

11.00

Microscope (bulb) 20,000.00 5.00 2,000.00 166.67 7.58 0.95 0.02

Test Tube 500.00 0.25 2,000.00 166.67 7.58 0.95 0.02

Glass Slides 300.00 0.25 1,200.00 100.00 4.55 0.57 0.01

Centrifuge 50,000.00 10.00 5,000.00 416.67 18.94 2.37 0.04

Urine Cap

2/patient

Glucometer 4,000.00 1.00 4,000.00 333.33 15.15

7.58

Dental Equipment 150,000.00 10.00 15,000.00 1,250.00 56.82 7.10 0.12

Dental instrument &

Accessories 20,000.00 5.00 4,000.00 333.33 15.15 1.89 0.03

Sterilizer 6,000.00 3.00 2,000.00 166.67 7.58 0.95 0.02

Medicines Unit Unit Cost

Antibiotics 500mg tab 8.00

Paracetamol 500mg tab 2.00

Vitamin C 500mg tab 3.00

Cough (Tablet) 500mg tab 5.00

18.00

Note: In the cost accounting conducted above, only the personal expenses (Schedule 1b) and depreciation of equipment (Schedule 1c) were considered; the overhead expenses, e.g. power, water and office space, were not included. In spite of that, there are significant variances in the actual cost of service vis a vis the service fees or charges being imposed by the LGU (as shown in Schedule 1). In fact, the LGU may opt to include even the overhead expenses for purposes of full cost accounting.

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