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Guide for Updating Local Revenue Code

PART I. GENERAL PRINCIPLES AND CONCEPTS OF LOCAL TAXATION

The power of local government to levy taxes, fees and charges is provided in the Constitution of
the Republic of the Philippines. Under Section 5, Article X, the Constitution provides:

“Section 5. Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic policy of local autonomy. Such
taxes, fees and charges shall accrue exclusively to the local governments.”

The guidelines and limitations mentioned in Section 5 are spelled out in Book 2 of Republic Act
(RA) No. 7160 (otherwise known as the Local Government Code of 1991) which provides the
legal basis and parameters for the taxing and revenue-raising powers of local governments. For
further guidance in LGUs’ exercise of taxing powers, relevant Opinions and Rulings by the
Bureau of Local Government Finance of the Department of Finance have been compiled in
Annex B.

Fundamental Principles

The exercise of the taxing and other revenue-raising powers of local governments is governed by
the following fundamental principles.

 Taxation shall be uniform in each local government unit;


 Taxes, fees, charges and other imposition shall:

 Be equitable and based as far as practicable on the taxpayer’s ability to pay;


 Be levied and collected only for public purposes;
 Not be unjust, excessive, oppressive, or confiscatory;
 Not be contrary to law, public policy, national economic policy, or in restraint of
trade;

 The collection of local taxes, fees and charges and other impositions cannot be let to any
private person (see Annex B, Excerpt 2);

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 The revenue collected shall be used solely for the benefit of, and be subject to
disposition by the local government unit levying the tax, fee, charge or other imposition
unless other otherwise provided; and
 Each local government shall, as far as practicable, evolve a progressive system of
taxation.

Exercise by LGU of their Taxing and Revenue-Raising Powers

LGUs exercise taxing and revenue-raising powers through the enactment of tax ordinances.
However, the Code provides common limitations to these taxing powers as provided for in
Section 133 of RA 7160, “Common Limitations on the Taxing Powers of Local Government
Units.”

In essence, the limitations are:

Table 1: COMMON LIMITATIONS

PROHIBITIONS REMARKS
Income Tax Local government units may levy local taxes
on banks and other financial institutions
based on gross receipts. The DOF has
provided guidelines on these impositions per
Local Finance Circular No. 1-93. (LFC No. 2-
07 dated Feb 26, 2007 amending Sections 2
and 5 of LFC 1-93)

Documentary Stamp Tax Only the National Government may impose


the excise tax upon the privilege, opportunity
or facility offered at exchanges for the
transaction of the business.

Taxes on estates, inheritance, gifts, legacies An exception is provided in Sec. 135 of the
and other acquisitions mortis causa LGC, where provinces and cities may impose
tax on the sale, donation, barter, or on any
other transferring ownership or title of real
property.

Transfer of real properties owned by religious


and charitable institutions which are sold or
transferred to private parties are subject to
transfer tax.

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Custom duties, registration fees of vessel and Except wharfage on wharves constructed and
wharfage on wharves, tonnage dues, and all maintained by the local government unit
other kind of custom duties, charges and dues. concerned.

Also, Sec. 149 of the LGC authorizes LGUs to


impose license fees for the operation of fishing
vessels of 3 tons or less.

Taxes, fees and charges and other impositions Import or export taxes or fees on goods and
upon goods carried into or out of, or passing commodities carried through into or out of
through, the territorial jurisdictions of local their respective territories would deter the free
government units in the guise of charges for flow of commerce in the country and cause
wharfage, tolls for bridges or otherwise, or considerable increase in the prices of
other taxes, fees or charges in any form commodities, to the prejudice on the
whatsoever upon such or goods or merchandise consuming public.
(see Annex B, Excerpt 12).

Percentage or value-added tax (VAT) on sales, Local government units are authorized to
barters or exchanges or similar transactions on impose fixed graduated taxes on gross sales.
goods or services except as otherwise provided
in the Code.

Taxes, fees or charges on agricultural and Sec. 131 provides a listing of covered
aquatic products when sold by marginal agricultural products and the definition of a
farmers or fishermen (see Annex B, Excerpt marginal farmer or fisherman.
13).
So that agricultural products and aquatic
products become taxable when:

 It is sold by persons other than the


farmer or fisherman, even without
undergoing any process.
 Sold on a commercial scale
 The products have been transformed
into manufactured products such as
sugar, charcoal, balut, sardines, etc.

Taxes on business enterprises certified to by DOF issued LFC No. 5-93 provides guidelines
the Board of Investments as pioneer or non- on this.
pioneer for a period of six (6) and four (4)
years, respectively from the date of registration
(see Annex B, Excerpt 14).

Excise taxes on articles enumerated under the Excise taxes can be in the form of specific or
National Internal Revenue Code, as amended, ad valorem taxes.
and taxes, fees or charges on petroleum

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products (See Annex B, Excerpt 15). Specific taxes are based on the unit or number,
weight or volume capacity or any other
physical unit of measurement of the objects
to tax.
Ad valorem taxes are based on the selling
price or other specific value of the goods.

Taxes on gross receipts of transportation Since transportation contractors are still subject
contractors and persons engaged in the to the business tax imposed on contractors by
transportation of passengers or freight by hire LGUs as stated in DOF Opinion, November 8,
and common carriers by air, land or water, 1995, it may be implied that LGUs may
except as provided in the Code (see Annex B, impose a business tax on bases other than gross
Excerpts 15a and 16). receipts, i.e., type of vehicle, number of
vehicles, capacity, etc. (for transport
companies with terminals or booking office)

Taxes on premiums paid by of reinsurance or Reinsurance is a contract by which an insurer


retrocession. procures a third person to ensure him against
loss or liability by reason of original insurance.

Retrocession is the rejection of the risk being


insured.
Taxes, fees or charges for the registration of LGUs may impose taxes, fees, or charges for
motor vehicles and for the issuance of all kinds the registration of tricycles.
of licenses or permits for the driving thereof,
except tricycles (see Annex B, Excerpt 17).

Taxes, fees or other charges on Philippine The prohibition does not apply to the
products actually exported, except as otherwise business of exporting said products which is
provided in the Code (see Annex B, Excerpt still covered by the business tax on exporters.
18). (DOF Opinion, March 10, 1994), Sec. 143(c)
of the LGC of 1991.

Taxes, fees, or charges, on Countryside and However, per DOF Opinion dated November
Barangay Business Enterprises and 14, 1994, the exception enjoyed by duly
cooperatives duly registered under R.A 6810 registered cooperatives does not include
and R.A 6938 otherwise known as the payment of service charges or rentals for the
“Cooperative Code of the Philippines” use of property and equipment or public
respectively (see Annex B, Excerpt 19). utilities owned by a local government such as
charges for actual consumption of water,
electric power, toil fees, use of public roads
and bridges, and the like.

Taxes, fees or charges of any kind on the This should be read in connection with Section
National Government, its agencies and 193 of the Code which withdraws exceptions
instrumentalities, and local government units or incentives granted to all persons, natural

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(See Annex B, Excerpt 20). or juridical, including government owned- or
controlled corporations except local water
districts, non-stock and non-profit hospitals
and education institutions.

Revenue Structure of LGUs

LGUs have two (2) major sources of funds, internally generated (local) and external (shares from
national revenues and foreign/local grants).

TABLE 2: LGU REVENUE STRUCTURE

NATURE BASIS/AUTHORITY

Local Sources

Tax Revenues

Property Taxes RA 7160, Governmental Powers


Business taxes and other local taxes RA 7160, Governmental Powers
Non-Tax Revenues

Receipts from economic enterprises RA 7160, Corporate Powers


Fees, user charges and other receipts RA 7160, Police Powers; Corporate Powers

External Sources

Statutory allotments/shares from National RA 7160


Government, Grants, Aids, Loans Foreign and Local Sources

Local Revenue Bases Available to Local Government Units

Local government units may impose taxes, fees and charges as follows:

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Table 3: LGU REVENUE BASE

TYPES OF
DEFINITION REMARKS EXAMPLES
IMPOSITIONS
Taxes Impositions under the Allocation among Property taxes
taxing power of LGUs LGUs of taxing
for the purpose of powers and Business taxes
raising revenues, e.g., distribution of
real property tax, proceeds, defined by
business tax and the law
other local taxes Franchise, community
tax, amusement, tax on
printing and
publication, etc
Regulatory Fees Charges made by law or Based on cost of Mayor’s permit fee on
ordinance for the regulation of the business; permit fees
regulation or activity for sealing and
inspection of business licensing of weights
or activities and measures; building
permit fees; permit fee
on zonal/
locational clearance;
permit fee for
inspection and
verification of
subdivision; permit fee
for tricycle operations;
permit fee for pedaled
tricycle; permit fee for
cockpit owners/
operators/ licensees/
promoters and cockpit
personnel; special
permit fee for
cockfighting; permit
fee on occupation/
calling not requiring
government
examination;
registration and transfer
fees on large cattle;
fees on impounding of
stray animals; cart or
sledge registration fee;

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permit fee on caretela
or calesa; permit fee for
agricultural machinery
and other heavy
equipment; permit and
inspection fee on
machineries and
engines; permit fee for
the storage of
flammable and
combustible materials;
permit fee for
temporary use of roads,
streets, sidewalk,
alleys, patios, plazas
and playgrounds;
permit fee for
excavation; permit fee
on circus and other
parades; permit fee for
the conduct of group
activities; permit fee on
film making;
signboards permit fees;

Permit to quarry on
sand, gravel and other
quarry resources;

Violation fees;
Other regulatory fees
Service Fees Fees collected for Amount Secretary’s/certification
services rendered or commensurate to the fees; local civil registry
for conveniences cost of services fees; police clearance
furnished by the LGU fees; sanitary
inspection fees; service
fees for various health
services; garbage
collection fees; dog
vaccination fees

IT/computer processing
fees

Tipping fees

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Charges Impositions for the Full cost recovery as Fishery rentals, fees
operation of public basis for amount of and charges; rentals of
enterprises in charge to be imposed personal and real
connection with the properties owned by
government’s exercise the municipality;
of its proprietary charges for parking;
functions municipal hospital
service fees;
waterworks system
charges; cemetery
charges; market fees
and charges;
slaughterhouse and
corral charges; toll fees
and charges; terminal
fees

Municipal Taxing Powers (Secs. 142-149 of the LGC and Secs. 153-157 of the LGC)

Municipalities may levy tax on business which varies according to business classification such
as:

 Manufacturing, assembling, repacking, processing, brewing, distilling, rectifying and


compounding of liquors, distilled spirits and wines or manufacturing of any article of
commerce of whatever kind or nature.

 Wholesalers, distributors, dealers, or retailers in any article of commerce of whatever


kind or nature.

 Pawnshops, boarding houses, lodging houses, hotels and motels, and signs, signboards,
billboards and advertisements.

Municipalities may also impose a deficiency tax upon the retirement of business.

Municipalities may levy fees and charges on specific items which include cart and sledge
registration, parades, registration of large cattle, building permit, civil registry, issuance of
official records, police clearance, impounding and /or sale of stray animals, burial permit and
exhumation of cadaver, dog license and bicycle permit, fees for sealing and licensing of weights
and measures.

In addition, municipalities can collect fees for the use of their facilities such as markets,
slaughterhouses and public utilities.

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Their authority extends to the exclusive right to grant fishery rights, licensing individual fishing
gears in municipal waters, including the fixing of rentals and fees.

Municipalities are also empowered to collect the community tax from individuals and juridical
persons.

Provincial Taxing Powers (Secs. 134-141 and Secs. 153-155 of the LGC)

The following taxes may be imposed by the province, although they share the proceeds:

 Real property tax – proceeds from the basic tax are shared between the province 35%,
municipalities 40%, and barangays 25%; while proceeds from the Special Education
Fund (SEF) are shared 50% for the province and 50% for the municipalities.

 Amusement tax – proceeds from the tax are shared equally by the province and the
municipality where the amusement place is located.

 Tax on sand, gravel and other quarry resources are shared between the province 30%,
municipalities 30%, and barangays 40%.

In addition, the province levies the following provincial impositions which accrue to them 100%:

 Tax on transfer of real property ownership

 Franchise tax

 Annual fixed tax for every delivery truck, van of manufacturers or producers, wholesalers
of, dealers, or retailers in certain products

 Professional tax

 Tax on business of printing and publication

 Idle land tax – However, the province can pass an ordinance providing for a sharing
scheme between the province, municipality and barangay in order to ensure effective
implementation of the idle land tax.

Cities’ Taxing Powers (Sec. 151 and Secs. 153-157 of the LGC)

Cities may levy taxes, fees and charges under the taxing authority of municipalities and
provinces (see above listing).

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Cities may also impose rates fifty per cent (50%) higher than the maximum rates allowed for
municipalities and provinces except for the occupation tax, amusement tax on admission, and
fees for the licensing of weights and measures, which shall be uniform.

In addition, cities can collect fees for the use of their facilities such as markets, slaughterhouses,
and public utilities.

Cities also collect the community tax from individuals and juridical persons.

Basic real property taxes collected by cities are shared in the following manner: 70% for the city
and 30% for the barangays.

Barangays’ Taxing Powers (Sec. 152 and Secs. 153-155 of the LGC)

Taxes on stores and retailers with fixed business establishments, with gross sales or receipts for
the preceding year that do not exceed P50,000 in the case of cities and P30,000 in the case of
municipalities.

Service fees or charges for services rendered in connection with the regulation or use of
barangay-owned properties or service facilities, such as palay, copra or tobacco dryers, parking
lots, etc.

Other fees and charges on

a. Commercial breeding of fighting cocks

b. Cockfights and cockpits

c. Places of recreation charging admission fees

d. Billboards, signboards, neon signs and outdoor advertisements

e. Impounding astray animals

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Table 4: SAMPLE/MENU OF LGU IMPOSITIONS

Cities, MMA, Munici-


Impositions Bases Provinces Barangays
Municipalities palities
A. TAXES
Land-Based Taxes
Real property tax Assessed value  na  na
Tax on transfer Total  na  na
of real property consideration in
acquisition or fair
market value
whichever is
higher
Idle land tax Assessed value  na  na

Special levy on Actual cost of    na


lands projects
and improvements
including cost of
acquiring land and
other real
properties
Socialized Assessed value of   na na
housing tax lands in urban
areas
Business and other Community-Based Taxes
Amusement tax Gross receipts  na  na
(See Annex B, from admission
Excerpt 3) fees
Annual fixed tax Per delivery truck,  na  na
on delivery truck van or vehicle
or van of
manufacturers or
producers,
dealers, or
retailers in
certain products
(See Annex B,
Excerpt 3)

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1
Business tax Gross receipts for   na 
the preceding
calendar year
Community tax Per person,   na na
income
RPT values
Franchise tax Capital  na  na
(See Annex B, investments for
Excerpt 3) newly started
business/
Gross receipts for
the preceding
calendar year for
existing business
Occupation tax Per occupation   na na
Type of
occupation
Professional tax Per profession  na  na
(See Annex B, Type of
Excerpt 3) profession
Tax on business Capital  na  na
of printing and investments for
franchise and newly started
publication (See business/
Annex B, Excerpt Gross annual
3) receipts for the
preceding
calendar year for
existing
businesses
Tax on business Type of tricycle   na na
of operating (motorized or
motorized and non-motorized)
non-motorized
tricycle
Tax on forest Annual gross   na na
concessions and receipts for the
forest products preceding year
Tax on mining Gross receipts for    na
operations the preceding year
Tax on peddlers May be based on   na na
1
On stores and retailers with fixed business establishments with gross sales or receipts of the preceding calendar
year of P50,000 or less in the case of cities and P30,000 in the case of municipalities, at a rate not exceeding 1% on
such gross sales or receipts.

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means of transport
used by peddler
Tax on sand, Fair market value  na  na
gravel and other per cubic meter
quarry resources
B. PERMITS AND REGULATORY FEES
2
Business permit Cost of regulating    na
the activity or
privilege
Building permit In accordance   na na
and related fees with schedule of
rates fixed by the
Sec of DPWH
Zoning and Rates covered by   na na
locational fee HLURB Circular
Development Cost of issuing    na
permit the permit and
surveillance
3
Excavation fees Cost of issuing    na
the permit and
surveillance
4
Signboards, Cost of issuing   na 
billboards and the permit and
outdoor surveillance
advertisements
5
Fees on Cost of   na 
impounding of impounding and
stray animals feeding
Fees for sealing Cost of issuing   na na
and licensing of the permit,
weights and calibration and
measures surveillance
Tricycle Cost of issuing   na na
franchise, the permit and
bicycles surveillance
Large cattle Cost of   na na
registration and registration and
transfer fees surveillance
Permit fee on Cost of issuing   na na
agricultural the permit and
2
Business permit on printing and publication, , delivery truck or van of manufacturers, producers, wholesalers,
retailers & dealers of certain products
3
On provincial roads
4
Local Government Code Sec. 152 d(3)
5
If devolved to barangays by municipalities or cities in their respective ordinances.

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machinery and surveillance
other heavy
equipment
Permit fee for Cost of issuing   na na
burial, cadaver the permit and
exhumation and surveillance
removal
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Permit fee for Cost of issuing   na 
cockfighting the permit and
surveillance
Permit fee for Cost of issuing   na na
cockpit owners/ the permit and
operators/ surveillance
licensees and
other cockpit
personnel
Permit fee on Cost of issuing   na na
film-making the permit and
surveillance
Permit fee on Cost of issuing   na na
parades the permit and
surveillance
Registration fees Cost of issuing   na na
on fishing boats the permit and
and caretela or surveillance
calesa
C. SERVICE FEES
Garbage Full-cost recovery    na
collection fees
Tipping fees for Full- cost    na
landfill recovery
Local registry Cost of issuing   na na
fees
Medical & Full-cost recovery    na
physical
examination fees
Police clearance Cost of issuing   na na
fees
Sanitary Cost of issuing   na na
inspection fees and inspection
Secretary’s Cost of issuing    na
/Certification fees

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Local Government Code Sec. 152 d(1)

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D. CHARGES
Ferry rentals Full-cost recovery    na
Fishery rentals Per hectare of area   na na
covered during lease
period
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Market fees Full-cost recovery   na 
Mineral lands rental Per hectare of area  na  na
covered during lease
period
Occupation fee on Per hectare of area  na  na
mining claims covered during lease
period
8
Parking charges Full-cost recovery    
Public utility charges Full-cost recovery    na
(terminal,
waterworks,
communications,
power, transport, etc)
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Public restrooms    
Rental of real At least full cost    na
property/equipments recovery
of LGU
Rental of cemetery Lease period    na
lots and
niches/columbary
Slaughter & corral Full-cost recovery   na na
fees
Toll fees Full-cost recovery    na
Tuition fees Full-cost recovery    na
Medical/dental fees Full-cost recovery    na
Recreational fees Full-cost recovery    na

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If barangays are operating public markets
8
If barangays are operating and maintaining parking spaces
9
If barangays are operating public restrooms

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Table of LGU Shared Taxes

Tax Provincial Sharing City Sharing

Basic RPT Province 35% City 70%


Municipality 40% Barangay 30%
Barangay 25%

SEF Prov. Sch. Board 50% City Sch. Board 100%


Mun. Sch. Board 50%

Idle Land Tax * Province 100% City 100%

Special Levy This could be imposed any LGU provided there is


proper consultation and duly approved ordinance.

* To encourage active participation of the barangays and municipalities in the


implementation of the idle land tax, the same sharing scheme with that of real
property tax may be adopted by the province through a duly enacted ordinance.

Tax Provincial Sharing City Sharing

Tax on Sand, Province 30%


Gravel & other
Quarry Component city/ Highly urbanized
Resources municipality 30% city 60%

Barangay 40% Barangay 40%

Tax Provincial Sharing City Sharing

Amusement Tax Province 50% City 100%

Municipality 50%

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Amusement Tax
Tax subject: patrons of shows and entertainment activities; collected and
remitted by proprietors, lessees and operators
Tax rate:
- Not to exceed 10% of paid admission fees
- No admission fees, no tax
Exemptions: operas, concerts, dramas, recitals, painting and art exhibitions,
flower shows, musical and literary presentations except rock and similar
concerts

Situs Rule: Taxing Complex Business Establishments


 Used on companies with multiple layers of operations: principal office,
branch or sales offices, factories, plantations and experimental farms
 Branch: a fixed place which conducts operations as extension of the
principal office; also called sales office
 Warehouse: a building used for storage of goods; if it accepts orders and
issues sales invoices, it is treated as sales office

Situs Rule: System of Allocating Gross Receipts to LGUs *

 If with branch, sales is recorded at branch and tax accrues to LGU where
branch is located
 If without branch, sales is recorded at principal office for taxation
purposes, but allocated as follows:
o 30% to LGU where principal office is located
o 70% to LGU where factory, project office or plantation is located
 If plantation and factory exist in different LGUs, allocation is:
o 60% of 70% share allocated to LGU where factory is located
o 40% of 70% share allocated to LGU where plantation is located
 If there are two or more factories or plantations, respective allocation
share is pro-rated to LGUs where these are located on the basis of
production during the period tax is due
* If volume of production cannot be determined, equal sharing among concerned LGUs
will be adopted. For newly established business, initial assessment will be based on
capitalization mobilized in each locality.

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Criteria in the Development of a Local Tax Policy

The Local Revenue Code is a reflection of the local tax policy of the LGU. It should be in
consonance with the Constitutional mandate and founded on a solid legal basis. Further, it
should be guided by certain philosophical framework and economic principles to ensure equity,
efficiency, sustainability and acceptability.

The following are the criteria in developing a local tax policy.

Revenue Adequacy and Elasticity

Revenue adequacy refers to the amount generated by the tax. It is desirable to


concentrate effort on taxes which are cost effective, e.g., those that:

o can raise sufficient revenues to more than cover the cost of collecting them

o contribute a substantial portion of the cost of services financed by local


governments

Taxes with relatively low yields may be imposed if these are used to correct market
distortions since low yielding taxes tend to:

o dissipate collection efforts

o increase administrative costs

Tax Elasticity is formally defined as the percentage change in tax yield over a given
period of time to the percentage change in GNP, income or tax base.

Simply put, it is the ability of the tax to keep up with the increase in tax bases.

It has two dimensions:

o growth of the potential tax base, and

o ease with which the tax exploits that growth

Equity

The second criterion is to look at taxes from the point of view of fairness. Two (2)
approaches are used to determine if a tax is fair or not.

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o under the benefit principle, it is considered fairer to tax individuals in proportion
to the benefits they get from government.

o under the ability to pay principle, individuals are taxed in relation to their wealth
or income. The higher the income, the more taxes one pays.

Economic Efficiency

Taxes, in general, influence the decisions of individuals to work, save, consume and invest.
From the point of view of economic efficiency, we want taxes that are non-distortionary or
neutral with respect to these decisions.

Taxes should not be too high to discourage investments nor too low to encourage diseconomies.

Administrative Feasibility

There are significant costs associated with administering the tax system. The administrative
cost of running a tax system depends on a number of factors like:

o kinds of records that need to be maintained


o complexity of the tax structure in terms of number of rates, exemptions, special
provisions

Taxes vary in the amount of time and money involved in assessing and collecting them
compared to the yield. The best scenario would be to collect taxes with minimal administrative
costs.

Political Acceptability

No tax is popular. Some taxes, however, are more unpopular than others. Political will is
needed to:

o impose taxes,

o determine a rate structure,

o decide who should pay and how they are assessed,

o collect taxes physically, and

o enforce sanctions against delinquents.

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Taxes and charges are vulnerable politically if they require rate adjustments to maintain or
increase their real value.

The only way to make taxes politically acceptable is to establish a strong connection
between the taxes collected and the services provided.

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PART II. UPDATING THE TAX ORDINANCE/LOCAL REVENUE CODE
Updating the tax ordinance is not simply a question of providing for all possible tax bases. The
updated Local Revenue Code should be a reflection of the local tax policy of the local
government unit. It should also be based on sound revenue projections of the LGUs’ financial
requirements and an understanding of the existing and potential revenue base of the LGU.

The Local Sanggunians, with the assistance of the Local Finance Committees, are mandated by
law to enact revenue ordinance and/or formulate/update Local Revenue Codes (Sec. 132, Sec.
447 (a) 2 (ii) and Sec. 316 of the Local Government Code). The Local Finance Committee
recommends the appropriate tax and other revenue measures for consideration of the
Sanggunian.

Updating the tax ordinance/local revenue code gives occasion for LGUs to revisit and amend
their existing ordinances in accordance with the Local Government Code (LGC) of 1991. It also
allows the inclusion of businesses or economic activities which are not covered under previous
tax ordinances.

To ensure the sustainability and buoyancy of various local taxes, the tax rates of the LGU
Revenue Code should be updated and rationalized once every five years (Sec. 191 – LGC) while
rates for regulatory/service fees and charges should be updated to make these fees and charges
commensurate to the cost of the regulation and the services provided.

There are several decisions to be made which will directly affect local taxation. Among these
are:

 decision on the types of taxes, fees and charges to be imposed

 rate of imposition

 tax subjects

 penalty provisions and fines (this can almost be double the original tax to be paid and can
serve as a deterrent for would-be tax delinquent)

 grant of tax relief (discounts for prompt payment, condonation of interests, deferred
payment schemes, etc.)

 tax incentives (deferment of taxes, waiver of taxes and fees, etc.)


Deciding which provision to retain, revise, delete and add is not a mechanical act on the part of
the LGU. Having a long list of fees and charges may lull local government officials into
thinking that there is a sufficient source of local revenues when in fact majority in the long list of

21
fees and charges may actually be yielding very little by way of actual revenues. A little
arithmetic may show that the cost of collecting some fees and charges may be higher than the
actual revenue yield. As noted earlier, it might be prudent for the LGU to concentrate their effort
on the collection of taxes, fees and charges with the highest yield.
The amount of fees to be charged will also need to be studied. Under certain instances, the rates
should reflect the development policy of the LGU. As a general practice, LGUs charge 100 to
1,000 times more for LCE’s permit of golf courses than they would other types of businesses.
This is because golf courses carry with them an environmental cost.

Given the above, the crafting of the local revenue code should be a result of a deliberate study of
the LGUs current and projected financial position, development priorities, and administrative
capability. Efforts to pursue local revenue generating initiatives must be anchored on a clearly
defined and community-owned development vision to promote and accelerate meaningful local
economic development.

With a carefully crafted Local Revenue Code, LGUs can look forward to having a landmark
legislation that can provide the LGU with the means to attain a measure of financial autonomy.

In updating the LGUs’ present tax ordinance or local revenue code, legal provisions of the 1991
LGC, its Implementing Rules and Regulations and other issuances will have to be considered.

Since development and its rewards are not free, LGUs need to enhance its local revenue and
resource generation efforts by exercising their taxing, regulatory and corporate powers to be able
to underwrite the cost of development at the same time equitably distribute the tax burden. A
regular updating and rationalizing of the Local Revenue Code is one potent too for local
development.

Table 5: GUIDE FOR UPDATING THE LGU REVENUE CODE

AREA OF CONCERN REMARKS


Definitions and Construction of Definitions are taken from:
Provisions
 Section 131 of the LGC 1991
 Section 3 of PD 231 (Local Tax Code)

LAND-BASED TAXES
Basic Real Property Tax and SEF  LGC allows a basic rate not exceeding 1% of
the assessed value

 An additional 1% SEF tax on the assessed


value is also provided, however, that the
proceeds accrue to the School Board and not
the province.

22
 Municipalities only have a share from the real
property tax since this is a provincial
imposition.

RA 9513, Renewable Energy Act of 2008, Sec. 15

Tax Discounts  This is optional depending on the Sanggunian.


If a tax discount is granted, the extent of
discount allowed for prompt and advanced
payment shall be specified.

 Art. 342 - IRR provides that prompt


payments may be given a maximum of 10%
discount while advanced payments may be
given a maximum of 20% discount.

Imposition of Fine The Sanggunian is authorized by the LGC to fix the


amount of penalty or fine for non-compliance.

Preparation of Schedule of Fair Market DOF Local Assessment Regulation No. 1-92
Value prescribes the rules and regulations for the conduct of
general revision of real property assessments.

Assessment Levels to be Applied to the See LGC Section 218 (Assessment Levels) for
Fair Market Value of Real Property applicable maximum assessment levels to be applied
to the fair market value of the real property.

The Sanggunian may lower the assessment levels.


Under this instance, it is advisable to make sure that
the fair market values provided approximates actual
market values or BIR zonal valuation.

RA 9513, Renewable Energy Act of 2008, Sec. 15

Depreciation Allowance for Machinery Sec. 225 - LGC provides a rate not exceeding 5% of
the original cost or replacement cost for each year of
use and the remaining value for all kinds of
machinery shall be fixed at not less than 20% of
such original, replacement, or reproduction cost for
so long as the machinery is useful and in operation.

RA 9513, Renewable Energy Act of 2008, Sec. 15

23
Redemption of Property Sold Sec 262 - LGC provides an interest of not more than
2% per month on the purchase price from the
date of sale to the date of redemption.

In addition, it allows an interest of not more than


2% per month for the entire amount paid by the
purchaser of the property to be redeemed.

Proceeds from the Resale of Real Estate The Sanggunian may include a provision stating that
taken for Taxes, Fees or Charges the proceeds of the sale shall be distributed to the
municipality and barangay in accordance with the
distribution formula in the LGC.

Penalties for Omission of Property from Sec. 517 - LGC provides for a punishment by
Assessment or Tax Rolls by Officers imprisonment of not less than 1 month but not
and other Acts more than 6 months, or by a fine of not less than
P1,000.00 but not more than P5,000.00 or both at
the discretion of the court.

Penalties for Any Officer Required to Sec. 517 - LGC provides for a punishment by
Perform Acts Related to the imprisonment of not less than 1 month but not
Administration of Real Property and more than 6 months, or by a fine of not less than
who Willfully Fails to Discharge Such P1,000.00 but not more than P5,000.00 or both at
Duties. the discretion of the court.

Penalties for Delaying Assessment of Sec 518 - LGC provides for a punishment by
Real Property and Assessment Appeals imprisonment of not less than 1 month but not
more than 6 months, or by a fine of not less than
P1,000.00 but not more than P5,000.00 or both at
the discretion of the court.

Penalties for Failure to Dispose of Sec 519 - LGC provides for a punishment by
Delinquent Real Property of Public imprisonment of not less than 1 month but not
Auction more than 6 months, or by a fine of not less than
P1,000.00 but not more than P5,000.00 or both at
the discretion of the court.

Rate of Imposition on Tax on Idle Lands Sec 236 - LGC provides for a maximum amount of
5% of the assessed value of real property.

Imposition of the Socialized Housing The Urban Development and Housing Act of 1992
Tax (RA7279) authorizes local government units to
impose the Socialized Housing Tax. As contained in
Sec. 43: ”all local government units are hereby

24
authorized to impose an additional one-half (0.5%)
tax on the assessed value of all lands in urban
areas in excess of Fifty Thousand Pesos
(P50,000.00).

Duly approved ordinances need to impose the


socialize tax
Penalty for Violation Sec 45 of 7279 provides that “any person who
violates any provision of this Act shall be imposed
the penalty of not more than six (6) years of
imprisonment or a fine of not less than P5,000.00
but not more than P100,000.00, or both, at the
discretion of the court.

However, many claim that the fine is excessive so the


Sanggunian may decide to apply instead the penalty
provision of Sec. 516 of the LGC which authorizes
the Sanggunian to prescribe fines or other penalties
for violation of tax ordinances but in no case shall
such fines be less than P1,000.00 nor more than
P5,000.00, nor shall imprisonment be less than 1
month nor more than 6 months.
Rate of Imposition of Tax on Transfer of Sec 135 - LGC provides for a rate not exceeding 50%
Real Property (See Annex B, Excerpt 1) of 1%.
COMMUNITY-BASED TAXES IMPOSABLE BY CITIES, PROVINCES,
MUNICIPALITIES AND BARANGAYS
Tax on Business of Printing and
Publication

Rate of Imposition Sec 136/151 - LGC provides for a rate not to exceed
75% of 1%

For newly-started business Sec 136/151 - LGC provides for a rate not to exceed
3/40 of 1% of the capital investment of a newly-
started business
Franchise Tax (See Annex B, Excerpt 7)

Rate of Imposition Sec 137/151 - LGC provides for a rate not to 75% of
1%

For newly-stated business Sec 137/151 - LGC provides that the rate shall not
exceed 3/40 of 1% of the capital investment of a
newly-started business
On Contractors and other Independent As defined in Sec. 131(h) - LGC
Contractors (See See Annex B, Excerpt Subject to the tax rate prescribed in Sec. 143(e) -
6) LGC

25
Imposition of Tax on Sand, Gravel and Sec 138 - LGC and Art 227 - IRR allow a rate of not
other Quarry Resources (See Annex B, more than 15% of market value in the locality per
Excerpt 4a) cubic meter.
The Sanggunian Bayan may opt to set a rate lower
than 15 %.
Professional Tax Sec 139 - LGC allows for a maximum rate of
P300.00 annually.

The Sanggunian has the discretion to fix a rate lower


than P300.00.
Amusement Tax (See Annex B, Excerpt Sec 140 - LGC provides for a rate not to exceed 10%
4) of the gross receipts from admission fees.

The Sanggunian has the option to set a rate lower


than 10%.
Annual Fixed Tax for Every Delivery Sec 141 of the Code allows a rate not to exceed
Truck or Van P500.00.

This is the maximum; the rates can actually be lower.


COMMUNITY-BASED TAXES IMPOSABLE BY CITIES AND MUNICIPALITIES
Business Tax The LGC classifies all types of business into 7
categories and specifies the amount of tax due per
taxable bracket. For details on maximum rates, see
Dealers (See Annex B, Excerpt 8) Sec. 143 of the LGC.
Manufacturers (See Annex B, Excerpt 9)
Retail and Wholesale Transactions (See The rates of taxes provided are maximum rates that
Annex B, Excerpt 11) cities or municipalities are authorized to impose. The
Sanggunian may adopt a lower schedule of graduated
rates. If the rates are lowered, the entire rate schedule
should be adjusted accordingly and not just the rates
for 1 or 2 brackets.

Pursuant to Section 143 (h) and Section 186 of the


LGC, subject to the limitations provided, other tax
bases found in the city or municipality may be taxed.
On Banks and other Financial Various schedules for different types of financial
Institutions (See Annex B, Excerpt 5) institutions such as banks, pawnshops, money shops,
finance companies, etc may be adopted by the
Sanggunian subject to the maximum rate of 50% of
1% of gross receipts derived from the taxable
sources. All other incomes or receipts of banks and
other financial institutions not allowed as taxable
sources may not be taxable by the city or
municipality.

26
Tax on Peddlers (See Annex B, Excerpt Section 143 of the LGC provides for the maximum
10) rate of P75.00 for cities and P50.00 for
municipalities. However, LGUs may opt to use a
schedule based on means of transport as classified
under the LTC, as follows:

Peddlers of any article or merchandise carried in


trucks of any other motor vehicle.

Peddlers of any article or merchandise carried in a


motorized bicycle, tricycle, or other similar
motorized vehicle other than those specified in (a)
above.

Peddlers of any article or merchandise carried in a


cart, caretela or other vehicle drawn by animals.

Peddlers of any article or merchandise carried on


bicycle, pedicab, or other similar vehicle.

Peddlers of any article or merchandise carried by


person.
Rate of Imposition on Tax on Mining Per Sec. 143 – LGC, for cities, the tax should not
Operations exceed 3% of the gross receipts during the preceding
calendar year.

For municipalities, the tax should not exceed 2% of


the gross receipts during the preceding calendar year.

LGUs should also take into consideration the


following national taxes imposed on mineral
products:
10% VAT on mineral products based on gross
receipts

Excise tax of P50.00 on coal and code per metric


ton

Excise tax of 3% based on actual market value of


the gross output on all non-metallic minerals and
quarry resources

Excise tax of 5% on actual market value of the


gross output on all metallic minerals.

27
Excise tax of 15% based on the fair international
market price
Tax on Forest Concessions and Forest This is a new taxable base for LGUs.
Products
The LGC lifted the limitations previously provided
under PD 231.

This revenue source is of special relevance to LGUs


with forests lands.

Sec. 143 – LGC allows a rate not exceeding 3% of


the annual gross receipts for cities.

For municipalities, the rate should not exceed 2% of


the annual gross receipts.
Tax on Business of Operating Motorized This is another new tax base for LGUs.
and Non-Motorized Tricycles
The suggested rates for cities are:
Motorized tricycle P720.00
Non-motorized tricycle P360.00

For municipalities:
Motorized tricycle P480.00
Non-motorized tricycle P240.00

The above rates are based on 3% for cities and 2% for


municipalities of the average daily income of P80.00
and P40.00 for motorized and non-motorized tricycle
respectively, operating 300 days a year.
PERMIT AND REGULATORY FEES 10
Types of permit and regulatory fees Except for fees for sealing and licensing of weights
imposable by cities and municipalities and measures, the Code does not specifically
enumerate the kinds of permit and regulatory fees
LGUS may impose. The fees included in the model
ordinance are simply sample of commonly imposed
fees that may be levied under Sections 147, 151 and
186.

In addition, as part of the devolved regulatory


functions to LGUs, the following fees may be
collected:

 Reclassification of agricultural lands

10
See Annex C: Guide in the Calculation of Regulatory Fees

28
 Enforcement of environmental laws
 Inspection of food products
 Quarantine and enforcement of the sanitation
code
 Processing and approval of subdivision plans
 Establishment and operation of tourism
facilities
 Small-scale mining permit

For each fee imposed by other LGUs, refer to Table 7


on Fees and Charges
Mayor’s Permit Sec. 147 – LGC explicitly provides that:

 Rate of Imposition  The fee imposed must be sufficient only to


cover the cost of regulation and surveillance
of a business or occupation.
 It cannot be based on capital investment and
on gross sales or receipts of the person or
business.

 Form of Imposition  The LGU may adopt any, or a combination of


the following forms of Mayor’s permit fee:

o Fixed rates for each kind of business


activity
o A schedule of graduated fixed rates for
each kind of business activity
o Similar businesses or activities are grouped
and assigned a fixed rate of permit fee
o A variation is to provide a schedule of
permit fees for each type of business based
on number of employees, floor space, etc.
Fees on Sealing and Licensing of Art. 65 of the Consumer Act of the Philippines
Weights and Measures provides for the following penalties:
 For violations of subsections (a) to (f) of the
Section in the model ordinance, upon
conviction a fine of not less than P200.00 but
not more than P1,000.00, or by imprisonment
of not more than 1 year, or both.
 For violations of subsection (g) for the first
time, a fine of not less than P500.00, or by
imprisonment of not less than 1 month but not
more than 5 years, or both.
 For violations of subsections (h) to (k), a fine
of not less than P300.00, or by imprisonment
of not exceeding 1 year, or both.
29
SERVICE FEES/USER CHARGES 11
Garbage Fee LGUs have the option to provide their own rate
structure, some of these options are:
 Classify businesses into different categories
(similar to that of the business tax) and impose
fixed rates for each category
 Classify business activities into 3 major
categories on the basis of expected volume of
garbage generated.
 Classify businesses into similar categories
(services of commercial and distributive
magnitude like hotels, schools, etc; personal
services like beauty parlors, barber shops, etc;
processing-production establishments such as
bakeries, extractive industries such as
factories, etc). these are then further
subdivided based on certain criteria such as
floor space, number of personnel, capacity,
etc.
Fishery Rentals or Fees (Duration of Sec. 29 of PD 704 (Fishering and Fisheries Law)
Lease) authorized LGUs to lease out corals, oyster culture
beds, or gathering of bangus fry or other species for a
period not exceeding 5 years.
Rental Fee on Mineral Lands E.O. 273 of the Value-Added Tax Law transferred the
collection of rentals on mineral lands from the BIR to
the city/municipality where the mining claim is
located. Sec. 216 of the NIRC provides the following
rates:
On coal-bearing public lands:
 P5.00 per hectare or fraction thereof for each
and every year for the first 10 years, and
 P10.00 per hectare or fraction thereof for
each and every year thereafter during the life
of the lease.

On public lands bearing quarry resources:


 P50.00 per hectare or fraction thereof for
each and every year for the first 10 years.

On all other mineral lands containing metallic and


non-metallic minerals under existing mining laws or
decrees:
 P10.00 per hectare or fraction thereof for each

11
See Annex D: Guide in the Calculation of Service Fees/User Charges

30
and every year thereafter during the life of the
lease.
Occupation Fee for Mining Claims This is part of local charges imposable by LGUs
since E. O. 273 (the VAT Law) transferred the
collection of this fee form the BIR to the
city/municipality where the mining claim is situated.

Proceeds from the collection shall accrue solely to the


city. For municipalities, the province has a 30%
share from the municipal imposition. In effect the
municipality retains only 70% of the fee.
GENERAL ADMINISTRATIVE AND PENAL PROVISIONS
Surcharges and penalties on unpaid Sec. 618 – LGC provides a surcharge not exceeding
taxes, fees or charges 25% of the amount of taxes, fees or charges not paid
on time and interest of the rate not exceeding 2% pr
month of the unpaid taxes, fees, or charges including
surcharge until such amount is fully paid but in no
case should the total interest on the unpaid or portion
thereof exceed 36 months.
Interests on other unpaid revenues Sec. 169 – LGC provides an interest on other unpaid
revenues at the rate not exceeding 2% per month
from the date it is due until it is paid but in no case
shall the total interest on the unpaid amount or a
portion thereof exceed 36 months.

31
PART III. GUIDELINES FOR TAX ORDINANCE PREPARATION
AND CODIFICATION

Since the revenue-raising powers of LGUs authorized under the Code are not self-executory, the
Local Sanggunians as the local taxing authority must enact the needed enabling ordinances.

TAX CODIFICATION

Tax Codification is the process of compiling all tax and revenue ordinances of a local
government units and arranging them systematically into chapters, articles, sections and
subsections.

The output of a tax codification project is a Local Revenue Code. The Code governs the
imposition, assessment and collection of all taxes, fees and charges within its territorial
jurisdiction.

Tax Codification is important because:

 The enactment of the LGC has substantially altered the revenue-raising powers of the
LGU. However, to be able to levy and collect the authorized impositions under the Code,
the LGU must pass a tax ordinance containing the rates and base of imposition, time and
manner of collection and other administrative provisions to effectively implement the
ordinance.

 A codified revenue ordinance serves as a guide and a handy reference for local officials
and taxpayers. The ordinance also provides the legal basis for the collection of taxes,
fees, and charges imposed by the local government.

 A revenue ordinance legitimizes and facilitates the orderly collection of various


impositions. This redounds to increased revenues which the LGU can program for basic
public services and local development projects.

STEPS IN TAX CODIFICATION

Step 1. Gather and compile all revenue ordinances, including their respective
implementing rules and regulations, if any.

32
Step 2. List all revenue ordinances chronologically, that is, from the earliest to latest
enactments in a tally sheet. The listing should show in separate columns the
following information:

 Ordinance number

 Date enacted

 Source, i.e., bound volumes of the minutes of Sanggunian sessions, LCE’s


file, Secretary to the Sanggunian’s file, etc

 Subject summary

 Changes in the form of notations where an ordinance specifically amends


or repeals an earlier ordinance

 Disposition or notation as to what happened to each ordinance listed.


Indicate whether an ordinance was discarded or retained
Step 3. Update the ordinances. Discard the ordinances that:

 Have been totally repealed under the LGC

 Duplicate another

 Are not within the taxing powers of the LGU

 Are discriminatory in nature or affect the free flow of commerce


Integrate only ordinances that are amendatory to the retained ordinances.

Step 4. Classify the ordinances according to the type or nature of impositions authorized
for the LGU.

Step 5. After updating the ordinances, prepare a list of business establishments and/or
activities in the LGU. Classify this based on the type of imposition which the
LGU is authorized to levy under the LGC. The purpose of his step is to identify
activities which have never been taxed or could have been under-taxed.

Step 6. Re-examine existing ordinances to identify which tax measure or measures need
improvement and in what area or areas. Revision entails restating ordinances in a
corrected and improved form which either mean repealing them, or adding or
supplementing the deficiencies of existing ordinances.

33
In terms of the language of the ordinance, the author12 states that this should be
simple, brief, clear and precise. He provides the following writing tips:

 Exclude unnecessary words.

 Avoid lengthening the sentence by the use of “Provided that” or


“Provided, however, that” “Provided further that”’ “Provided finally that”.
Their use tends to cause confusion and difficulty in the enforcement of the
Revenue Code.

 Use the present tense and indicative mood. The present tense is more
understandable and requires fewer words. For example, don’t say, “if any
person shall violate this ordinance he shall be fines.” Say, “Any person
who violates this ordinance shall be fined.” Write, “If it appears” instead
of “If it shall appear”’ and “If it is necessary” instead of “if it shall be
necessary”.

 One verb should be used to direct a legal action. It is not a good practice
to use two verbs in place of one, like “is authorized and empowered” to do
a particular act.

The dual verbs would create confusion since it can be construed as


mandatory or directory.

 Use definite references. If one refers to a particular section say “Sec.


5A.01” instead of saying “preceding section”. Write the section.
Reference by number of sections has advantage of clarity.
In drafting the Revenue Code, three (3) numbering systems are available.
Before the actual drafting, decide which numbering system is to be
adopted.

First Form of Numbering:

 All chapters are to be numbered in roman numerals.


 Sections that pertain to one subject matter are grouped together under
one article.
 A section number carries a decimal point. To the left of the decimal
point is the chapter number and the article letter. To the right of the
decimal point is the section number. Under each article, sections are
numbered consecutively starting with the number 01.

To illustrate: Sec 1A.01

12
Taken from book: Juan F. Rivera, How to Codify Ordinances – Do it Yourself, 1979

34
 In the future, should there be a need to add new sections at the end of
an article, what needs to be done is merely to continue with the next
arabic number. For example: If the last section is 1A.05, then the new
section is numbered, 1A.06.

 To add a new article with new sections under a chapter, designate the
new article with the next alphabet immediately following the last letter
and start section number with .01

 To insert sections between existing ones, e.g., between 1A,05 and


1A,06, another decimal point may be added and the new section may
be numbered with arabic numerals starting with 01. Thus, 1A.05.01,
and so forth.

Second Form of Numbering:

 Chapters and articles are numbered in roman numerals and capital


letters, respectively, and

 Sections under a chapter are numbered continuously from 1, 2, 3, etc.

Third Form of Numbering

 Sections from chapters 1 up to the last chapter are numbered


consecutively starting with the number 1.

Step 7. Consolidate various outputs to produce the draft Local Revenue Code (refer to
your copy of the MTP Sample Model Revenue Code).

Step 8. Review and finalize for presentation to the Sanggunian.

Following the outline of the model local revenue code provided, below are the basic guidelines
in preparing the chapters, articles, and sections:

35
Table 6: REVENUE CODE OUTLINE

REVENUE CODE REMARKS


OUTLINE
Chapter Each chapter must bear its own title descriptive of the subject
covered by it.

It is subdivided into sections. Whenever sections pertain to one


subject they can be grouped together under one article and given the
appropriate caption.

Article An article consists of several sections that pertain to a subject


matter.
It is generally divided into the following sections:

 Definitions
 Imposition of a tax or free
 Exemption
 Time of payment
 Surcharge for late payment
 Administrative provisions
 Interest on unpaid tax, fee or charge

Definitions (in an Article) The words defined in this section refer to those that are used and
have meanings applicable only in a particular chapter or article.

A word must be defined if it used in a sense other than its dictionary


meaning or if it is used in the sense of several dictionary meanings.

Definitions are placed at the beginning of a chapter or article.

Words defined under Chapter 1, Article B are those that used and
carry the same meaning throughout the Code.

Imposition of Tax or Fee This Section contains:

 Rate(s) of the imposition on the tax base


In general, the LGC provides for the maximum rate of
tax that may be imposed by the LGU, majority of which is
based on gross receipts or sales.

However, there are instances when the Sanggunian has the


option to provide an alternative rate structure subject to the
maximum rate provided in the LGC.

36
Imposition of Tax or Fee  Coverage of the tax

The tax base should be specific, definite and measurable.

This involves identifying the category into which a particular


business fails. In this connection, the Sanggunian should be familiar
with the nature of a specific business or activity in the LGU.

It would be best for the Sanggunian to identify the tax bases not
specifically enumerated in the LGC which may be included in the
Local Revenue Code.

Exemption This Section is included if the LGC provides exemption(s) from


the tax. Thus, if the LGC does not provide exemption(s) from a
particular tax, this Section is omitted from the Article.

The Sanggunian may grant tax exemption or relief through the


enactment of a separate ordinance in cases of natural calamities,
civil disturbances, general failure of crops, or adverse economic
conditions such as substantial decrease in the prices of agricultural
or agri-based products pursuant to Section 192 of the LGC.

Such exemption or relief takes effect only during the next calendar
year for a period not exceeding twelve (12) months as may be
provided in the ordinance.

Any exemption or relief granted to a type or kind of business applies


to all businesses similarly situated.

In the case of shared revenues such as the amusement tax, the


exemption or relief extends only to the LGU granting such
exemption or relief.

The authority of the Sanggunian to grant exemptions does not apply


to regulatory fees imposed by the LGU.

The tax exemption certificates issued by the LGU are non-


transferable.

The Sanggunian may likewise grant tax incentives in the form of


reduced rates, etc., to a new investment in the locality through the
passing of an ordinance prescribing the terms and conditions thereof
prior to the first day of January of any year.

37
Time of Payment This Section specifies the period within which the imposition is
payable.

It may also contain:

 The person to whom it is to be paid, e.g., Local Treasurer


and/or other duly authorized deputies, and

 The manner by which the imposition is to be paid.

Unless otherwise specifically provided in the LGC, all local taxes,


fees and charges shall be paid within the first twenty (20) days of
January or of each subsequent quarter.

However, the LGC empowers the Local Sanggunian for a justifiable


reason or cause, to extend the time for payment of such taxes, fees
and charges without surcharges or penalties, but only for a period
not exceeding six (6) months.

Moreover, unless otherwise provided in the LGC, the tax period of


all local taxes, fees and charges is the calendar year.

Surcharge for Late The Sanggunian may impose a surcharge


Payment
 Not exceeding 25% of the amount of taxes, fees or charges
not paid on time, and
 An interest at the rate not exceeding 2% per month of the
unpaid taxes, fees or charges including surcharges, until such
amount is fully paid.

But in no case shall the total interest on the unpaid amount or


portion thereof exceed 36 months.

The amount of surcharge may vary according to the type of tax, fee
or charge.
Administrative Provisions This Section contains provisions which are relevant to the
administration or implementation of a tax, fee or charge.
This Section may include steps involved in, and requirements for,
the payment of a tax or fee, as well as procedures in monitoring the
payment of the impositions, mechanisms to enforce collection of the
tax, etc.

Interest on Unpaid Tax, A general provision on the imposition of interest is provided in the
Fee or Charge LGC at a rate not exceeding two percent (2%) per month of the
unpaid tax, fee or charge, including surcharges, until such
amount is fully paid but not to exceed thirty six (36) months.

38
This rate applies if the Revenue Code does not provide the rate of
interest for any specific impositions.

This Section is included in the Article only if the LGU deems it


necessary to charge an interest on unpaid taxes, fees and charges.

The amount of interest may be uniform or may vary according to the


type of tax, fee or charge subject to the above-mentioned limitations.

Since the LGC allows the LGUs to identify the services and functions for which corresponding
fees and charges may be levied, below is a list of some such fees and charges being imposed by
other local government units.

Table 7: FEES AND CHARGES LGUs MAY IMPOSE

Regulatory Fees (Construction)


Building Permit Demolition Permit
Electrical Inspection Electrical Permit
Fire Certification Inspection Fees
Mechanical Inspection Mechanical Permit
Occupancy Permit Plumbing Permit
Sanitary Permit
Regulatory Fees (Business)
Agricultural Machinery Bicycle Permit
Other Heavy Equipment Boats Permit
Cart/Sledge Registration Caretela & Calesa Registration
Cockfights Cockpits
Film-Making Fishing
Gaffers, Referees, etc. Hawkers
Mayor’s Permit Mineral Lands
Mining Claims Occupation Fees
Parades Professional Fees
Sanitary Inspection Storage of Flammable & Combustible
Tricycle/Pedicab Operation Material
Tricycle Franchising Video Tape Rental
Weights and Measures

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Regulatory Fees (Non-Business)
Burial Civil Registry Fees
Court Fees Exhumation/Removal of Cadaver
Holding of Benefits Firearm’s Permit
Fiscal’s Clearance Impounding/Sales of Stray Animals
Large Cattle Registration Police Clearance
Marriage Permit & Solemnization Sheriff’s Fees
Tax Clearance Fees
Service Fees
Garbage Collection Health Services
Hospital Fees Overnight Parking
Parking Fees Physical Examination & Medical
Secretary’s Certification Certificates
Terminal Fee Toll Fees or Charges
Towing Charges Traffic Violations
Tuition Fees
Receipts from Economic Enterprises
Cemeteries Electrical Light and Power
Markets Slaughterhouses and Corrals
Waterworks System

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PART IV. ENACTMENT OF THE LOCAL REVENUE CODE

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 for cities and municipalities.

FOR CITIES

Step 1 a. A short note explaining the need for the ordinance is prepared
Filing and and signed by the proponents and attached to the ordinance.
Numbering b. Two (2) or 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 City
Revenue Code in the logbook and assigns a number to it.

Step 2 a. The secretary to the Sanggunian reports the ordinance to the


First Reading Sanggunian at its next meeting.
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, conduct of public hearings, and
debates.
.
Step 3 a. Within ten (10) days from filing of the tax ordinance, it shall
Publication, be published for three (3) consecutive days in a newspaper of
Posting and general circulation, or shall be posted simultaneously in at
Notification least four (4) conspicuous places within the territorial
jurisdiction of the city.
b. In addition to the publication or posting, the committee must
send a written notice on the proposed Revenue Code together
with a copy to interested or affected parties or those doing
business within the territorial jurisdiction of the city.
c. The notice must indicate the dates 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.

Step 4 a. During the public hearing, all affected or interested parties


Public shall be given opportunity to appear and present or express
Hearings their views, comments and recommendations, and such public

41
hearings shall continue until all issues have been presented
and fully deliberated upon and/or a consensus shall have been
obtained, whether for or against the enactment of the
proposed Revenue Code.
b. The Secretary to the Sanggunian Panlungsod must 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 a. The proposed Revenue Code shall then be considered on


Second Reading second reading in any regular meeting after it has been
reported out by the proper committee to which it was referred
to or certified as urgent by the City Mayor.
b. During the second reading, the Sanggunian shall deliberate on
the proposed Revenue Code. 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 City Mayor, it may be


submitted for final voting during the second reading.

Step 6 a. The draft ordinance shall be submitted to the Sanggunian for


Third and Final third reading.
Reading b. There being a quorum, the affirmative votes of the majority
of all the members present shall be necessary for the passing
of the ordinance.

Step 7
Approval a. The enacted revenue ordinance shall be presented to the City
Mayor 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 shall veto it and
return it with his objections to the Sanggunian, which may
proceed to reconsider the same.
d. The veto shall be communicated by the City Mayor 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.
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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.

Step 8 a. Within ten (10) days after the approval of the Revenue Code,
Publication or a certified true copy shall be published in full for three (3)
Posting of consecutive days in a newspaper of local circulation.
Approved b. In cases where there are no newspapers of local circulation,
Ordinance the same may be posted in at least two (2) conspicuous and
publicly accessible places.

Step 9 a. Unless otherwise stated in the Revenue Code, the ordinance


Effectivity shall take effect ten (10) days from the date a copy is posted
in a bulletin board at the entrance of the city hall.
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 at that date.

Step10 a. Any question on the constitutionality or legality of the


Appeal on Legality Revenue Code may be raised on appeal within thirty (30)
days from the date of its effectivity to the Secretary of
Justice.

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.

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.

43
FOR MUNICIPALITIES AND COMPONENT CITIES

Step 1 a. A short note explaining the need for the ordinance is prepared
Filing and and signed by the proponents and attached to the draft
Numbering ordinance.
b. Two (2) or 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
Local Revenue Code in the logbook and assigns a number to
it.

Step 2 a. The Secretary to the Sanggunian reports the ordinance to the


First Reading Sanggunian at its next meeting.
b. During the meeting, the draft Revenue Code is referred to the
Committee on Ways and Means or Finance Committee, as the
case may be, for study, conduct of public hearings, and
debates.
.
Step 3 a. Within ten (10) days from filing of the tax ordinance, it shall
Publication, be published for three (3) consecutive days in a newspaper of
Posting and general circulation, or shall be posted simultaneously in at
Notification least four (4) conspicuous places within the territorial
jurisdiction of the LGU. These may include plazas,
municipal halls, markets, churches, etc.
b. In addition to the publication or posting, the committee must
send a written notice on the proposed Revenue Code together
with a copy to interested or affected parties or those doing
business within the territorial jurisdiction of the city.

The notice must indicate the dates and venue of the public
hearing. The public hearing must be held at least ten (10) days
from the sending of notices or the last day of publication
whichever comes first.

Step 4 a. During the public hearing, all affected or interested parties


Public shall be given opportunity to appear, present or express their
Hearings views, comments and recommendations, and such public
hearings shall continue until all issues have been presented
and fully deliberated upon and/or a consensus shall have been
obtained, whether for or against the enactment of the
proposed Local Revenue Code.
b. The Secretary to the Sanggunian must prepare the minutes of
such public hearings and shall attach to it the position papers,

44
memoranda, and the like submitted by those who
participated.

Step 5 a. The proposed Revenue Code shall then be considered on


Second Reading second reading in any regular meeting after it has been
reported out by the proper committee to which it was referred
to or certified as urgent by the Local Chief Executive.
b. During the second reading, the Sanggunian shall deliberate on
the proposed Revenue Code. 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 Local Chief


Executive, it may be submitted for final voting during the second
reading.

Step 6 a. The draft ordinance shall be submitted to the Sanggunian for


Third and Final third reading.
Reading b. There being a quorum, the affirmative votes of the majority
of all the members present shall be necessary for the passing
of the ordinance.

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


Approval Local Chief Executive for approval.
b. If the Local Chief Executive approves the ordinance, he shall
affix his signature on each and every page of the ordinance.
c. If he does not approve the ordinance, he shall veto it and
return it with his objections to the Sanggunian, which may
proceed to reconsider the ordinance.
d. The veto shall be communicated by the Local Chief
Executive to the Sanggunian within ten (10) days, otherwise
the ordinance shall be deemed approved as if the local
Chief Executive 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.

45
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.

Step 8 a. The Secretary to the Sanggunian shall within three (3) days
Review by the after approval of the Revenue Code, transmit a copy of the
Sangguniang code to the Sangguniang Panlalawigan for review.
Panlalawigan b. Within thirty (30) days after receipt of the code, the
Sangguniang Panlalawigan shall examine the documents or
transmit them to the Provincial Attorney, or if there is none,
to the Provincial Prosecutor for immediate examination.
c. The Provincial Attorney or Provincial Prosecutor shall,
within a period of ten (10) days from receipt of the
documents, inform the Sangguniang Panlalawigan in writing
of his comments or recommendations which may be
considered by the Sangguniang Panlalawigan in making its
decision.
d. If the Sangguniang Panlalawigan finds that such an ordinance
is beyond the taxing powers conferred to a
municipality/component city, it shall declare such ordinance
invalid in whole or in part.
e. The Sangguniang Panlalawigan shall enter its action in the
minutes and shall advise the corresponding
municipality/component city of the action it has taken.
f. If no action is taken by the Sangguniang Panlalawigan within
thirty (30) days after the submission of such ordinance, the
same shall be presumed consistent with the law and therefore
valid.

Step 9 a. Within ten (10) days after the approval of the Revenue Code,
Publication or a certified true copy of the ordinance shall be published in
Posting of full for three (3) consecutive days in a newspaper of local
Approved circulation.
Ordinance c. 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 within the territorial jurisdiction of
the LGU.

Step10 a. Any question on the constitutionality or legality of the


Appeal on Legality Revenue Code may be raised on appeal within thirty (30)
days from the date of its effectivity to the Secretary of
Justice.

The appeal shall not have the effect of suspending the


effectivity of the ordinance and accrual and payment of the

46
tax, fee, or charge levied by the ordinance.

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.

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SOURCES OF INFORMATION:

1. Handbook of Local Government Administration: Center for Local and Regional


Governance

2. Institute of Local Government Studies, Local Legislators Toolbox

3. Local Government Code of 1991 and Its Implementing Rules and Regulations

4. Municipal Training Program Coursebook on Municipal Finance and Revenue


Administration

5. National Tax Research Center/Bureau of Local Government Supervision/Local


Government Academy, Model Local Revenue Code

6. Republic Act 7942, The Mining Act of 1995

7. Republic Act 9513, Renewable Energy Act of 2008

8. Urban Development and Housing Authority Act of 1992

9. Dr. Rosario Manasan’s lecture on developing a local tax policy

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ANNEX A. LIST OF PROFESSIONS REQUIRING GOVERNMENT EXAMINATION

Accountancy Aeronautical Engineering


Agriculture Architecture
Chemical Engineering Chemistry
Civil Engineering Criminology
Customs Broker Dentistry
Electrical Engineering Dietician
Engineering Electronics & Communications
Landscape Architecture Forestry
Marine Deck Officer Geology
Mechanical Engineering Interior Design
Medical Technology Librarian
Midwifery Marine Engine Officer
Naval Architecture Master Plumbing
Nursing Metallurgical Engineering
Optometrist Mining Engineering
Physician Marine Engineering
Occupational Therapy Nutritionist
Social Work Pharmacist
Veterinary Medicine Physical Therapy
Sugar Technology Sanitary Engineering

49

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