Notes on Local Taxation

A Compilation base on 2023 Bar syllabus

Eduardo C. Delgado Jr. DM

Local Taxation

A. Local Government Taxation

1. General Principles
Each LGU 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. (Sec 5 Art X, 1987 Constitution)

The following fundamental principles shall govern the exercise of the taxing and other revenue-

raising powers of LGUs:

1. Taxation shall be uniform in each LGU;

2. Taxes, fees, charges and other impositions shall:

1.
1. be equitable and based as far as practicable on the taxpayer's ability to pay;

2. be levied and collected only for public purposes;

3. not be unjust, excessive, oppressive, or confiscatory;

4. not be contrary to law, public policy, national economic policy, or in the restraint

of trade;

3. The collection of local taxes, fees, charges and other impositions shall in no case be let

to any private person;

4. 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 LGU levying the tax, fee, charge or other

imposition unless otherwise specifically provided herein; and

5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

2. Nature and Source of Taxing Power

a Grant of Local Taxing Power Under the Local Government Code

Each local government unit shall exercise its power to create its own sources of revenue

and to levy taxes, fees, and charges subject to the provisions herein, consistent with the

basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to

the local government units. (Sec 129 LGC)

b Authority to Prescribe Penalties for Tax Violations

The sanggunian may impose a surcharge not exceeding twenty-five (25%) of the amount

of taxes, fees or charges not paid on time and an interest at the rate not exceeding two

percent (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 thirty-six (36) months.

c Authority to Grant Local Tax Exemptions

LGUs may, through ordinances duly approved, grant tax exemptions, incentives or reliefs

under such terms and conditions as they may deem necessary.

d Withdrawal of Exemptions

Unless otherwise provided in the LGC, 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 R.A. No. 6938, non-stock and non-profit hospitals and educational

institutions, are hereby withdrawn upon the effectivity of the LGC.

 3. Scope of Taxing Power
1. Each LGU shall exercise its power

1. to create its own sources of revenue and

2. to levy taxes, fees, and charges subject to the provisions herein, consistent with

the basic policy of local autonomy.

Such taxes, fees, and charges shall accrue exclusively to it.

2. LGUs may exercise the power to levy taxes, fees or charges on any base or subject not

otherwise specifically enumerated herein or taxed under the provisions of the NIRC:

Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive,

confiscatory or contrary to declared national policy:

Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted

without any prior public hearing conducted for the purpose.

3. Any question on the constitutionality or legality of tax ordinances or revenue measures

may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary

of Justice who shall render a decision within sixty (60) days from the date of receipt of the

appeal.

4. The power to impose a tax, fee, or charge or to generate revenue under the LGC shall be

exercised by the sanggunian of the LGU concerned through an appropriate ordinance.

4. Specific Taxing Power of Local Government Units

Province
 Professional Tax is paid where the taxpayer

1. practices his profession or

2. where he maintains his principal office in case he practices his profession in

several places.

Pelizloy Realty v. Province of Benguet 2013

‘Other places of amusement’ must be interpreted in light of the typifying characteristic of being

venues “where one seeks admission to entertain oneself by seeing or viewing the show or

performances” or being venues primarily used to stage spectacles or hold public shows,

exhibitions, performances, and other events meant to be viewed by an audience.

Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the

same category or class as theaters, cinemas, concert halls, circuses, and boxing stadia. It follows

that they cannot be considered as among the ‘other places of amusement’ contemplated by

Section 140 of the LGC and which may properly be subject to amusement taxes.

Alta Vista Golf and Country Club v. City of Cebu 2016

In light of Pelizloy Realty, a golf course cannot be considered a place of amusement. As

petitioner asserted, people do not enter a golf course to see or view a show or performance.

Petitioner also, as proprietor or operator of the golf course, does not actively display, stage, or

present a show or performance. People go to a golf course to engage themselves in a physical

sport activity.

Municipalities

May levy taxes, fees, and charges not otherwise levied by provinces.

Essential Commodities

1. Rice and corn;

2. Wheat or cassava flour, meat, dairy products, locally manufactured, processed or

preserved food, sugar, salt and other agricultural, marine, and fresh water products, whether

in their original state or not;

3. Cooking oil and cooking gas;

4. Laundry soap, detergents, and medicine;

 5. Agricultural implements. equipment and post-harvest facilities, fertilizers, pesticides,

insecticides, herbicides and other farm inputs;

6. Poultry feeds and other animal feeds;

7. School supplies; and

8. Cement.

"Contractor" includes persons, natural or juridical, 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.

Thus, a holding company cannot be assessed as a contractor.

City of Pasig v. Meralco 2018

Under the LGC of 1991, a municipality is bereft of authority to levy and impose franchise tax on

franchise holders within its territorial jurisdiction. That authority belongs to provinces and cities

only. A franchise tax levied by a municipality is, thus, null and void. The nullity is not cured by

the subsequent conversion of the municipality into a city.

Cities

1. 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.

2. 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.

Barangays

1. Taxes — On stores or retailers with fixed business establishments with gross sales of

receipts of the preceding calendar year of

1. P50K or less, in the case of cities and

2. P30K or less, in the case of municipalities,

at a rate not exceeding one percent (1%) on such gross sales or receipts.

2. Service Fees or Charges. — Barangays may collect reasonable fees or charges for

services rendered in connection with the regulations or the use of barangay-owned properties

or service facilities such as palay, copra, or tobacco dryers.

3. Barangay Clearance. — No city or municipality may issue any license or permit for any

business or activity unless a clearance is first obtained from the barangay where such business

or activity is located or conducted.

For such clearance, the sangguniang barangay may impose a reasonable fee.

4. Other fees and Charges. — The barangay may levy reasonable fees and charges:

1. On commercial breeding of fighting cocks, cockfights and cockpits;

2. On places of recreation which charge admission fees; and

3. On billboards, signboards, neon signs, and outdoor advertisements.

City of Davao v. Randy Allied Ventures 2019

WON RAVI is an NBFI subject to LBT under Section 143 (f) of the LGC.

NO. RAVI is a CIIF holding company. The SMC preferred shares held by it are considered

government assets owned by the National Government for the coconut industry. As held in the

same case, these SMC shares as well as any resulting dividends or increments from said shares
are owned by the National Government and shall be used only for the benefit of the coconut

farmers and for the development of the coconut industry. Thus, RAVI's management of the

dividends from the SMC preferred shares, including placing the same in a trust account yielding

interest, is not tantamount to doing business whether as a bank or other financial institution, i.e.,

an NBFI, but rather an activity that is essential to its nature as a CIIF holding company.

City of Davao v. AP Holdings 2020

As a CIIF holding company, is APHI liable to pay local business taxes on its dividend earnings

from its SMC preferred shares?

NO. In the recent case of City of Davao, et al. v. Randy Allied Ventures, Inc. (RAVI), the Court

ordained that RAVI, a CIIF holding company like APHI, was exclusively established to own and

hold SMC shares of stock. As such, it is not liable to pay local business taxes on the dividends

earned from its SMC preferred shares as the same shares are government assets owned by the

national government for the benefit of the coconut industry.

In order to be considered as an NBFI under the NIRC, banking laws, and pertinent regulations,

the following must concur:

1) The person or entity is authorized by the BSP to perform quasi-banking functions;

2) The principal functions of said person or entity include the lending, investing or

placement of funds or evidences of indebtedness or equity deposited to them, acquired by them,

or otherwise coursed through them, either for their own account or for the account of others; and

3) The person or entity must perform any of the following functions on a regular and

recurring, not on an isolated basis, to wit:

 a) Receive funds from one (1) group of persons, irrespective of number, through traditional

deposits, or issuance of debt or equity securities; and make available/lend these funds to another

person or entity, and in the process acquire debt or equity securities;

b) Use principally the funds received for acquiring various types of debt or equity securities;

c) Borrow against, or lend on, or buy or sell debt or equity securities.

APHI cannot be considered as a non-bank financial intermediary since its investment and

placement of funds are not done in a regular or recurring manner for the purpose of earning

profit. Rather, its management of dividends from the SMC shares is only in furtherance of its

purpose as a CIIF holding company for the benefit of the Republic.

All told, the City of Davao acted beyond its taxing authority when it imposed the questioned

business tax on APHI.

5. Common Revenue Raising Powers

1. Service Fees and Charges. — LGUs may impose and collect such reasonable fees and

charges for services rendered.

2. Public Utility Charges. — LGUs may fix the rates for the operation of public utilities

owned, operated and maintained by them within their jurisdiction.

3. Toll Fees or Charges. — The sanggunian concerned may prescribe the terms and

conditions and fix the rates for the imposition of toll fees or charges for the use of any public

road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and

constructed by the local government unit concerned:

Provided, That no such toll fees or charges shall be collected from

1.
1. officers and enlisted men of the AFP and members of the PNP on mission,

2. post office personnel delivering mail,

 3. physically-handicapped, and disabled, and

4. citizens who are sixty-five (65) years or older.

When public safety and welfare so requires, the sanggunian concerned may discontinue the

collection of the tolls, and thereafter the said facility shall be free and open for public use.

6. Community Tax
1. Cities or municipalities may levy a community tax.

2. Individuals Liable to Community Tax. — Every inhabitant of the Philippines

1. eighteen (18) years of age or over

2. who has been regularly employed on a wage or salary basis for at least thirty (30)

consecutive working days during any calendar year, or

3. who is engaged in business or occupation, or

4. who owns real property with an aggregate assessed value of P1K or more, or

5. who is required by law to file an income tax return

shall pay an annual additional tax of P5.00 and an annual additional tax of P1.00 for every

P1K of income regardless of whether from business, exercise of profession or from

property which in no case shall exceed P5K.

3. Juridical Persons Liable to 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 P500.00 and an annual additional tax,

which, in no case, shall exceed P10K in accordance with the following schedule:

1.
1. For every P5K worth of real property in the Philippines owned by it during the

preceding year based on the valuation used for the payment of real property tax under
 existing laws, found in the assessment rolls of the city or municipality where the real

property is situated - Two pesos (P2.00); and

2. For every P5K of gross receipts or earnings derived by it from its business in the

Philippines during the preceding year - Two pesos (P2.00).

The dividends received by a corporation from another corporation however shall, for the

purpose of the additional tax, be considered as part of the gross receipts or earnings of said

corporation.

4. Exemptions. — The following are exempt from the community tax:

1.
1. Diplomatic and consular representatives; and

2. Transient visitors when their stay in the Philippines does not exceed three (3)

months.

7. 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:

1. Income tax, except when levied on banks and other financial institutions;

2. Documentary stamp tax;

3. Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except

as otherwise provided herein;

4. Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and

all other kinds of customs fees, charges and dues except wharfage on wharves constructed

and maintained by the LGU concerned;

5. Taxes, fees, and charges and other impositions upon goods carried into or out of, or

passing through, the territorial jurisdictions of local government units in the guise of charges
for wharfage, tolls for bridges or otherwise, or other taxes, fees, or charges in any form

whatsoever upon such goods or merchandise;

6. Taxes, fees or charges on agricultural and aquatic products when sold by marginal

farmers or fishermen;

"Marginal Farmer or Fisherman" refers to an individual engaged in subsistence farming or

fishing.

7. Taxes on business enterprises certified to by the Board of Investments as pioneer or non-

pioneer for a period of six (6) and four (4) years, respectively from the date of registration;

8.

1. Excise taxes on articles enumerated under the NIRC, as amended, and

2. Taxes, fees or charges on petroleum products;

NB: ALL types of taxes on petroleum are prohibited.

9. Percentage or VAT (VAT) on sales, barters or exchanges or similar transactions on

goods or services

10. Taxes on the gross receipts of transportation contractors and persons engaged in the

transportation of passengers or freight by hire and common carriers by air, land or water,

11. Taxes on premiums paid by way or reinsurance or retrocession;

12. Taxes, fees or charges for the registration of motor vehicles and for the issuance of all

kinds of licenses or permits for the driving thereof, except tricycles;

13. Taxes, fees, or other charges on Philippine products actually exported,

14. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and

cooperatives duly registered under R.A. No. 6810 and R.A. No. 6938; and
 15. Taxes, fees or charges of any kind on the National Government, its agencies and

instrumentalities, and LGUs.

Batangas City, et al. v. Pilipinas Shell 2015

WON an LGU is empowered under the LGC to impose business taxes on persons or entities

engaged in the business of manufacturing and distribution of petroleum products.

NO. Section 133(h) of the LGC clearly specifies the two kinds of taxes which cannot be imposed

by LGUs:

1) excise taxes on articles enumerated under the NIRC, as amended; and

2) taxes, fees or charges on petroleum products.

Indisputably, the power of LGUs to impose business taxes derives from Section 143 of the LGC.

However, the same is subject to the explicit statutory impediment provided for under Section

133(h) of which prohibits LGUs from imposing "taxes, fees or charges on petroleum products."

It can, therefore, be deduced that although petroleum products are subject to excise tax, the

same is specifically excluded from the broad power granted to LGUs under Section 143(h) of

the LGC to impose business taxes.

Angeles University Foundation v. City of Angeles 2012

Considering that exemption from payment of regulatory fees was not among those “incentives”

granted to petitioner under R.A. No. 6055, there is no such incentive that is retained under the

LGC of 1991. Thus, petitioner is liable to pay the subject building permit and related fees.

8. Requirements for a Valid Tax Ordinance

1. It must NOT contravene the Constitution or any statute;

2. It must NOT be unfair or oppressive;

3. It must NOT be partial or discriminatory;

 4. It must NOT prohibit but may regulate trade;

5. It must be general and consistent with public policy; and

6. It must NOT be unreasonable.

9. Taxpayer's Remedies
a Protest

When the local treasurer or his duly authorized representative finds that correct taxes, fees,

or charges have not been paid, he shall issue a notice of assessment stating the nature of the

tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties.

Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a

written protest with the local treasurer contesting the assessment; otherwise, the assessment

shall become final and executory.

The local treasurer shall decide the protest within sixty (60) days from the time of its filing.

If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a

notice canceling wholly or partially the assessment. However, if the local treasurer finds the

assessment to be wholly or partly correct, he shall deny the protest wholly or partly with

notice to the taxpayer.

The taxpayer shall have thirty (30) days

1. from the receipt of the denial of the protest or

2. from the lapse of the sixty (60) day period prescribed herein

within which to appeal with the court of competent jurisdiction otherwise the assessment

becomes conclusive and unappealable.

 NB: Note that this does not require payment under protest unlike that in RPTs.

However, non-payment of local business tax may make the business illegal since a mayor’s

permit may not then be issued. Better just pay under protest.

b Refund

No case or proceeding shall be maintained in any court for the recovery of any tax, fee, or

charge erroneously or illegally collected until a written claim for refund or credit has been

filed with the local treasurer.

No case or proceeding shall be entertained in any court after the expiration of two (2) years

1. from the date of the payment of such tax, fee, or charge, or

2. from the date the taxpayer is entitled to a refund or credit.

c Action before the Secretary of Justice

. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures;

Mandatory Public Hearings. — The procedure for approval of local tax ordinances and revenue

measures shall be in accordance with the provisions of this Code:

1. Public hearings shall be conducted for the purpose prior to the enactment thereof.

2. Any question on the constitutionality or legality of tax ordinances or revenue measures

may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary

of Justice.

3. The SOJ shall render a decision within sixty (60) days from the date of receipt of the

appeal.

4. Such appeal shall NOT have the effect of suspending the effectivity of the ordinance and

the accrual and payment of the tax, fee, or charge levied therein.
 5. Within thirty (30) days after receipt of the decision or the lapse of the sixty-day period

without the SOJ acting upon the appeal, the aggrieved party may file appropriate proceedings

with a court of competent jurisdiction.

City Treasurer of Manila v. Philippine Beverage Partners 2019

WON a taxpayer who protested an assessment may later on institute a judicial action for refund.

YES. Petitioner contends that the assessment against respondent became final and executory

when the latter effectively abandoned its protest and instead sued in court for the refund of the

assessed taxes and charges.

The Court has settled in Cosmos that a taxpayer facing an assessment issued by the local

treasurer may protest it and alternatively:

1) appeal the assessment in court, or

2) pay the tax, and thereafter, seek a refund.

Where an assessment is to be protested or disputed, the taxpayer may proceed

1) without payment, or

the taxpayer's procedural remedy is governed strictly by Section 195. That is, in case of whole or

partial denial of the protest, or inaction by the local treasurer, the taxpayer's only recourse is to

appeal the assessment with the court of competent jurisdiction. The appeal before the court does

not seek a refund but only questions the validity or correctness of the assessment.

2) with payment of the assessed tax, fee or charge.

the taxpayer may thereafter maintain an action in court questioning the validity and correctness

of the assessment (Section 195, LGC) and at the same time seeking a refund of the taxes. In

truth, it would be illogical for the taxpayer to only seek a reversal of the assessment without

praying for the refund of taxes. Once the assessment is set aside by the court, it follows as a
matter of course that all taxes paid under the erroneous or invalid assessment are refunded to the

taxpayer.

Whether there is payment of the assessed tax or not, it is clear that the protest in writing must be

made within sixty (60) days from receipt of the notice of assessment; otherwise, the assessment

shall become final and conclusive. Additionally, the subsequent court action must be initiated

within thirty (30) days from denial or inaction by the local treasurer; otherwise, the assessment

becomes conclusive and unappealable.

Simply put, there are two conditions that must be satisfied in order to successfully prosecute

an action for refund in case the taxpayer had received an assessment.

One, pay the tax and administratively assail within 60 days the assessment before the local

treasurer, whether in a letter-protest or in a claim for refund.

Two, bring an action in court within thirty (30) days from decision or inaction by the local

treasurer, whether such action is denominated as an appeal from assessment and/or claim for

refund of erroneously or illegally collected tax.

WON the alleged deficiency taxes of respondent may be used to offset its claim for refund.

NO. The issuance of a notice of assessment is mandatory before the local treasurer may collect

deficiency taxes from the taxpayer. The notice of assessment is not only a requirement of due

process but it also stands as the first instance the taxpayer is officially made aware of the pending

tax liability. The local treasurer cannot simply collect deficiency taxes for a different taxing

period by raising it as a defense in an action for refund of erroneously or illegally collected taxes.

10. Assessment and Collection of Local Taxes

Situs
 1. For purposes of collection of the taxes under Section 143 of this Code, manufacturers,

assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled

spirits and wines, millers, 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 or 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.

2. The following sales allocation shall apply to manufacturers, assemblers, contractors,

producers, and exporters with factories, project offices, plants, and plantations in the

pursuit of their business:

1.
1. Thirty percent (30%) of all sales recorded in the principal office shall be taxable

by the city or municipality where the principal office is located; and

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.

3. In case of a plantation located at a place other than the place where the factory is located,

said seventy percent (70%) shall be divided as follows:

1.
1. Sixty percent (60%) to the city or municipality where the factory is located; and

2. Forty percent (40%) to the city or municipality where the plantation is located.
 4. In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or

more factories, project offices, plants, or plantations located in different localities, the seventy

percent (70%) sales allocation shall be prorated among the localities where the factories,

project offices, plants, and plantations are located in proportion to their respective volumes

of production during the period for which the tax is due.

5. The foregoing sales allocation shall be applied irrespective of whether or not sales are

made in the locality where the factory, project office, plant, or plantation is located.

The City of Makati v. The Municipality of Bakun and Luzon Hydro Corporation 2020

WON LHC's Makati office was a project office or a mere administrative office, in order to

determine whether or not it had a right to participate in the 70% portion of LHC's business tax.

Mere Administrative Office NOT entitled to a share of the 70%.

A project office has been defined as "equivalent to the factory of a manufacturer."

The subject tax is a tax on business, particularly one that is expressly imposed on gross sales

recorded. For this reason, it was relevant to the CTA's discussion to consider that invoices or

records of all sales are not handled by LHC's Makati office, nor does it operate any aspect or

primary purpose of LHC as provided in its Articles of Incorporation.

The rules on tax allocation in relation to tax situs under Sec. 150 of R.A. No. 7160 come into

play when a business subject to it does not operate a branch or sales office outside of its principal

office where all sales are recorded, but has a factory, project office, plant, or

plantation situated in different localities, whether or not sales are made in these localities.

Thus, even if no sales were recorded or undertaken at LHC's Makati office, Makati would have

been entitled to share with LHC's power plant sites in the 70% portion of the business tax if it

could be shown that the Makati office was a project office of LHC akin to a factory. The
enumeration itself - factory, project office, plant, or plantation — reveals the character of the

office contemplated by the provision. These are offices directly involved in production or

operations; hence, the inescapable conclusion that LHC's Makati office was a mere

administrative office.

a Remedies of Local Government Units

1. Local Government's Lien. — Local taxes, fees, charges and other revenues constitute a

lien, superior to all liens, charges or encumbrances in favor of any person, enforceable by

appropriate administrative or judicial action, not only upon any property or rights therein

which may be subject to the lien but also upon property used in business, occupation, practice

of profession or calling, or exercise of privilege with respect to which the lien is imposed.

The lien may only be extinguished upon full payment of the delinquent local taxes fees and

charges including related surcharges and interest.

2. Distraint and Levy. — By administrative action thru distraint of goods, chattels, or

effects, and other personal property of whatever character, including stocks and other

securities, debts, credits, bank accounts, and interest in and rights to personal property, and by

levy upon real property and interest in or rights to real property.

The remedies by distraint and levy may be repeated if necessary until the full amount due,

including all expenses, is collected.

3. Judicial action. — The LGU concerned may enforce the collection of delinquent taxes,

fees, charges or other revenues by civil action in any court of competent jurisdiction. The civil

action shall be filed by the local treasurer within the period prescribed in Section 194.

NPC v. City of Cabanatuan 2014

Section 168 of the LGC categorically provides that the LGU may impose a surcharge not

exceeding 25% of the amount of taxes, fees, or charges not paid on time.

The surcharge is a civil penalty imposed once for late payment of a tax. Contrast this with the

succeeding provisions on interest, which was imposable at the rate not exceeding 2% per month

of the unpaid taxes until fully paid. The fact that the interest charge is made proportionate to the

period of delay, whereas the surcharge is not, clearly reveals the legislative intent for the

different modes in their application.

. Authority of LGUs to Adjust Rates of Tax Ordinances. — LGUs shall have the authority

to adjust the tax rates as prescribed herein not oftener than once every five (5) years, but in

no case shall such adjustment exceed ten percent (10%) of the rates fixed under this Code.

Mindanao Shopping Destination v. Duterte 2017 En Banc

Section 191 of the LGC presupposes that the following requirements are present for it to apply,

to wit:

1) there is a tax ordinance that already imposes a tax in accordance with the provisions of

the LGC; and

2) there is a second tax ordinance that made adjustment on the tax rate fixed by the first tax

ordinance.

Section 191 has no bearing in the instant case because what actually took place in the questioned

Ordinance was the correction of an erroneous classification, and not, an upward adjustment or

increase of tax rates. The fact that there occurred an increase in payment due to the

reclassification is of no moment, because:

1) reclassification is not prohibited;

2) reclassification was made to effect a correction; and

 3) the taxes imposed upon the reclassified taxpayers, was not amended or increased from

that stated in the LGC.

However, while Davao City may rectify and amend their old tax ordinance in order to give full

implementation of the LGC, it, however, cannot impose a straight 1.25% at its initial

implementation of the LGC in so far as retailers are concerned. Davao City should, at the very

least, start with 1% (the minimum tax rate) as provided under Section 143(d) of the LGC. While

Davao City cannot be faulted in failing to immediately implement the LGC, petitioners cannot

likewise be unjustly prejudiced by its initial implementation of the LGC.

Considering that 11 years had already elapsed from its implementing in 2006, Davao City could

adjust its tax rate twice now which will make its adjusted tax rate for retailers pegged at 1.2%, in

accordance with Section 191 of the LGC. To clarify, from 2006-2011 (first 5 years), the initial

tax rate should start with 1%; from 2011-2016 (next 5 years) - 1.1%, thus, for the years 2017-

2021, the tax adjustment is 1.21%. However, for this purpose, Davao City should pass an

ordinance to give effect to the above-discussed tax adjustments.

De Lima v. City of Manila 2018

The Court is mindful that the interval of time between the two ordinances is 20 years, Ordinance

No. 7807 having been enacted in 1993, and Ordinance No. 8331 in 2013. However, this does not

justify the accumulation of allowable increases and then their subsequent one-time imposition.

The option to increase the tax rates under the LGC arises every five (5) years reckoned from the

enactment of the ordinance sought to be adjusted.

In the event that the LGU fails to make such adjustment within the five (5)-year period, the

option to increase the prevailing ordinance remains open until such right is exercised, at which

point, the five (5)-year period of limitation starts to run again.

On the other hand, were the LGU decides to make such adjustment, the basis for the increase

would be the prevailing tax rate.

b Prescriptive Period

1. Local taxes, fees, or charges shall be assessed within five (5) years from the date they

became due. No action for the collection of such taxes, fees, or charges, whether

administrative or judicial, shall be instituted after the expiration of such period.

2. In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may

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

3. Local taxes, fees, or charges may be collected within five (5) years from the date of

assessment by administrative or judicial action. No such action shall be instituted after the

expiration of said period.

4. The running of the periods of prescription provided in the preceding paragraphs shall be

suspended for the time during which:

1. The treasurer is legally prevented from making the assessment of collection;

2. The taxpayer requests for a reinvestigation and executes a waiver in writing

before expiration of the period within which to assess or collect; and

3. The taxpayer is out of the country or otherwise cannot be located.

B. Real Property Taxation

The Real Property Tax Code
 1. Fundamental Principles
The appraisal, assessment, levy and collection of real property tax shall be guided by the

following fundamental principles:

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

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

Even if the user is not the owner.

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

government unit;

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

private person; and

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

2. Nature
1. A tax on property.

2. A NATIONAL tax, not a local tax.

3. Imposition

Assessed Value = Fair Market Value Assessment Level

NPC v. Province of Pangasinan 2019

Whether the subject machinery and equipment are exempted from RPT under Section 234(c) or

Section 234(e) of R.A. 7160; whether the same can be considered as a special class of real

property under Section 216 of the same Act for a lower assessment of real property tax; or

whether NPC is entitled to the depreciation allowance under Section 225 thereof - all boil down

to the pivotal issue of whether NPC has legal personality and interest to claim for such

exemptions and privileges.

The Court has concluded that the tax exemptions and privileges claimed by NPC cannot be

recognized since it is not the actual, direct, and exclusive user of the facilities, machinery

and equipment subject of the cases.

Indeed, real property tax liability rests on the owner of the property or on the person with the

beneficial use thereof such as taxes on government property leased to private persons or when

tax assessment is made on the basis of the actual use of the property.

In this case, however, NPC is neither the owner nor the possessor or beneficial user of the

subject facilities. Hence, it cannot be considered to have any legal interest in the subject property

to clothe it with the personality to question the assessment and claim for exemptions and

privileges.

Until the transfer of the project to NPC, it does not have anything to do with the use and

operation of the power plant. The direct, actual, exclusive, and beneficial owner and user of the

power station, machineries, and equipment certainly pertains to Mirant. NPC, therefore, has no

legal personality to question on the assessment or claim for exemption and privileges with

regard to the tax liability attached to the subject properties.

The provisions invoked by NPC for entitlement to exemption and privilege are clear and

unambiguous. To successfully claim exemption under Section 234(c) of R.A. No. 7160, the

claimant must prove that

1) the machinery and equipment are actually, directly and exclusively used by local water

districts and GOCCs; and

2) the local water districts and GOCCs claiming exemption must be engaged in

a) the supply and distribution of water and/or

b) the generation and transmission of electric power.

Likewise, to successfully claim for differential treatment or a lower assessment

level under Section 216, in relation to Section 218 of the same Act, the claimant must prove that

the subject lands, buildings, and other improvements are

1) actually, directly, and exclusively used for hospitals, cultural, or scientific purposes;

OR

2) owned and used by local water districts and GOCCs rendering essential public services

in the supply and distribution of water and/or generation and transmission of electric power.

a Power to Levy

A province or city or a municipality within the Metropolitan Manila Area may levy an

annual ad valorem tax on real property such as land, building, machinery, and other

improvement not specifically exempted.

1. In the case of a province, at the rate not exceeding one percent (1%) of the assessed

value of real property; and

 2. In the case of a city or a municipality within the Metropolitan Manila Area, at the rate

not exceeding two percent (2%) of the assessed value of real property.

Special levies

1. Additional Levy on Real Property for the Special Education Fund. — Annual tax of one

percent (1%) on the assessed value of real property which shall be in addition to the basic

real property tax.

2. Additional Ad Valorem Tax on Idle Lands. — Annual tax on idle lands at the rate not

exceeding five percent (5%) of the assessed value of the property which shall be in addition

to the basic real property tax.

Idle Lands Exempt from Tax. — by reason of

1.
1. force majeure,

2. civil disturbance,

3. natural calamity or

4. any cause or circumstance which physically or legally prevents the owner of the

property or person having legal interest therein from improving, utilizing or cultivating the

same.

3. Special Levy by LGUs. — A province, city or municipality may impose a special levy

on the lands comprised within its territorial jurisdiction specially benefited by public works

projects or improvements funded by the local government unit concerned:

The special levy shall not exceed sixty percent (60%) of the actual cost of such projects

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

connection therewith.
 It shall not apply to lands exempt from basic real property tax and the remainder of the land

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

construction of such projects or improvements.

b Exemption from Real Property Tax

LGC provides for the exemptions from payment of real property taxes based on the ownership,

character, and use of the property. Thus:

1. Ownership Exemptions. Exemptions from real property taxes on the basis of ownership

are real properties owned by:

1.
1. the Republic,

2. a province,

3. a city,

4. a municipality,

5. a barangay, and

6. registered cooperatives.

2. Character Exemptions. Exempted from real property taxes on the basis of their character

are:

1.
1. charitable institutions,

2. houses and temples of prayer like churches, parsonages or convents appurtenant

thereto, mosques, and

3. non-profit or religious cemeteries.

3. Usage exemptions. Exempted from real property taxes on the basis of the actual, direct

and exclusive use to which they are devoted are:

1.
1. all lands, buildings and improvements which are actually directly and exclusively

used for religious, charitable or educational purposes;

2. all machineries and equipment actually, directly and exclusively used by local

water districts or by government-owned or controlled corporations engaged in the supply

and distribution of water and/or generation and transmission of electric power; and

3. all machinery and equipment used for pollution control and environmental

protection.

UP v. City Treasurer of QC 2019

WON UP is liable for RPT imposed on the subject property leased to Ayala Land.

NO. RA 9500 gave a specific tax exemption to UP which covers the land subject of the present

case. After the passage of said law, there is a need to determine whether UP's property is used

for educational purposes or in support thereof before the property may be subjected to real

property tax.

The Contract of Lease between UP and ALI shows that the development of the subject land is

clearly for an educational purpose, or at the very least, in support of an educational purpose.

Considering that the subject land and the revenue derived from the lease thereof are used by UP

for educational purposes and in support of its educational purposes, UP should not be assessed,

and should not be made liable for RPT on the land subject of this case.

Under RA 9500, this tax exemption, however, applies only to "assets of UP," referring to assets

owned by UP. The improvements are not "assets" owned by UP; and thus, UP's tax exemption

under RA 9500 does not extend to these improvements during the term of the lease.

4. Appraisal and Assessment

a Classes of Real Property
 1. Residential. — land principally devoted to habitation.

2. Agricultural. — land devoted principally to the planting of trees, raising of crops,

livestock and poultry, dairying, salt making, inland fishing and similar aquacultural activities,

and other agricultural activities;

3. Commercial. — land devoted principally for the object of profit.

4. Industrial. — land devoted principally to industrial activity as capital investment.

5. Mineral. — lands in which minerals, metallic or non-metallic, exist in sufficient quantity

or grade to justify the necessary expenditures to extract and utilize such materials.

6. Timberland or

7. Special. All lands, buildings, and other improvements thereon

1. actually, directly and exclusively used for

1. hospitals,

2. cultural, or

3. scientific purposes, and

2. those owned and used by

1. local water districts, and

2. GOCCs rendering essential public services in

1. the supply and distribution of water and/or

2. generation and transmission of electric power.

b Assessment Based on Actual Use

Real property shall be classified, valued and assessed on the basis of its actual

use regardless of where located, whoever owns it, and whoever uses it. (Sec 217 LGC)

Zero level assessment. Applies to residential land assessed at not more than P175K.
 The provincial, city or municipal assessor shall undertake a general revision of real property

assessments within two (2) years after the effectivity of this Code and every three (3)

years thereafter.

5. Collection
a Date of Accrual

The real property tax for any year shall accrue on the first day of January and from that date

it shall constitute a lien on the property which shall be superior to any other lien, mortgage,

or encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of

the delinquent tax.

b Periods to Collect

GR: 5 years from the due date.

EXC: If there is fraud, 10 years.

Suspended when

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

2. The owner of the property or the person having legal interest therein requests for

reinvestigation and executes a waiver in writing before the expiration of the period within

which to collect; and

3. The owner of the property or the person having legal interest therein is out of the

country or otherwise cannot be located.

c Remedies of Local Government Units

Administrative

1. Lien (Sec 257)

 superior to all liens, charges or encumbrances in favor of any person, irrespective of the

owner or possessor thereof, enforceable by administrative or judicial action, and may only be

extinguished upon payment of the tax and the related interests and expenses.

2. Distraint (Sec 254)

Personal property may be distrained to effect payment.

3. Levy (Sec 258)

After the expiration of the time required to pay the basic real property tax or any other tax

levied under this Title, real property subject to such tax may be levied upon through the

issuance of a warrant on or before, or simultaneously with, the institution of the civil action

for the collection of the delinquent tax.

Judicial. Civil action to be filed by the local treasurer.

Privatization and Management Office v. CTA 2019

WON petitioner, as an agency of the government, is exempt from posting a surety bond as a

condition to the suspension of collection of real property tax.

YES. The CTA may order the suspension of the collection of taxes, provided that the taxpayer

either:

1) deposits the amount claimed; or

2) files a surety bond for not more than double the amount.

These condition precedents were required by law in order to guarantee the payment of the

deficiency taxes assessed against the taxpayer, if and when the case is finally decided against the

said taxpayer.

The requirement of the bond as a condition precedent to the issuance of the writ of

injunction applies only in cases where the processes by which the collection sought to be made
by means thereof are carried out in consonance with the law for such cases provided

and NOT when said processes are obviously in violation of the law to the extreme that they have

to be suspended for jeopardizing the interests of taxpayer.

Verily, since the method employed by the respondent City in collecting the realty taxes

due - through the warrant of levy and the eventual public auction of a property of public

dominion - is not sanctioned by law, then it is NO longer necessary for the petitioner to file

a surety bond as a condition precedent to suspend the tax collection.

Indeed, the Republic of the Philippines need not give this security as it is presumed to be always

solvent and able to meet its obligations. Thus, the petitioner, being an agent of the national

government, is NOT required to put up a bond because to do so would be to indirectly require

the state to submit such bond.

Provincial Government of Cavite and Provincial Treasurer of Cavite v. CQM Management,

Inc 2020

The Provincial Government of Cavite and the Provincial Treasurer of Cavite were enjoined by

the CA from conducting a tax delinquency sale of the real properties of CQM Management, Inc.

In National Power Corp. v. Province of Quezon, et al., the Court explained that the liability for

taxes generally rests on the owner of the real property at the time the tax accrues as a necessary

repercussion of exclusive dominion. However, personal liability for real property taxes may also

expressly rest on the entity with the beneficial use of the real property. In either case, the unpaid

tax attaches to the property and is chargeable against the taxable person who had actual or

beneficial use and possession of it regardless of whether or not he is the owner.

Here, petitioners cannot conduct a tax delinquency sale of the Maxon and Ultimate properties

which are now owned by respondent. To do so would effectively make respondent liable for the

payment of real property taxes due on the Maxon property for the years 2000-2013 and on the

Ultimate properties for the years 1997-2013 when it did not yet own or had actual or beneficial

use of the properties.

Parenthetically, respondent is exempt from paying real property taxes over the Maxon and

Ultimate properties from the time it had acquired ownership and/or actual or beneficial use of the

properties pursuant to Section 24 of RA 7916, as amended by RA 8748.

As correctly ruled by the CA, there is nothing in Section 24 which requires prior concurrence

from the local government unit before respondent can avail itself of the exemption provided

under the law. In fact, under Section 35 of RA No. 7916, the only requirement for business

enterprises within a designated ECOZONE to avail themselves of all incentives and benefits

provided for under RA 7916 is to register with the PEZA. This requirement was satisfied by

respondent.

PEZA issued Memorandum Circular No. 2004-024 which provides in part that "PEZA-registered

economic zone enterprises availing of the 5% [gross income tax] incentive are exempted from

payment of all national and local taxes, except real property tax on land owned by developers."

In this case, there is nothing to indicate that respondent is a developer. Thus, considering RA

7916, as amended, its IRR, and Memorandum Circular No. 2004-024, it is evident that save for

the payment of 5% gross income tax, respondent is exempt from the payment of national and

local taxes including real property tax on the Maxon and Ultimate Properties.

6. Taxpayer’s Remedies
a) Contesting an Assessment
1. Pay under Protest;
 2. File protest with Local treasurer within 30 days from payment;

3. Appeal to LBAA 60 days from receipt of decision of local treasurer who is granted 60

days to decide.

4. Appeal to CBAA 30 days from receipt of decision;

5. Appeal to CTA En banc 30 days from receipt of decision via Rule 43;

6. Supreme Court 15 days from receipt of decision via Rule 45.

(1) Payment Under Protest; Exceptions

GR: No protest shall be entertained unless the taxpayer first pays the tax. (Sec 252

LGC)

EXCEPT:

1. local business tax;

2. in protesting RPT assessments, when the issue involved is a pure question of law.

b) Contesting a Valuation of Property

1. Contest to the LBAA 60 days from receipt of Notice of Assessment;

NO need to pay under protest.

LBAA has 120 days to decide.

2. CBAA — SC, same procedure.

(1) Appeal to the Local Board of Assessment Appeals

Any owner or person having legal interest in the property who is not satisfied with the action of

the provincial, city or municipal assessor in the assessment of his property may, within sixty (60)
days from the date of receipt of the written notice of assessment, appeal to the Board of

Assessment Appeals.

The Board shall decide the appeal within one hundred twenty (120) days from the date of

receipt of such appeal.

(2) Appeal to the Central Board of Assessment Appeals

The owner of the property or the person having legal interest therein or the assessor who is not

satisfied with the decision of the Board, may, within thirty (30) days after receipt of the decision

of said Board, appeal to the CBAA. The decision of the CBAA shall be final and executory.

(3) Effect of Payment of Taxes

Appeal on assessments of real property shall, in no case, suspend the collection of the

corresponding realty taxes on the property involved as assessed by the provincial or city

assessor, without prejudice to subsequent adjustment depending upon the final outcome of the

appeal.

c) Compromise of Real Property Tax Assessment

Condonation or Reduction of Real Property Tax and Interest. — In case of

1. a general failure of crops or

2. substantial decrease in the price of agricultural or agribased products, or

3. calamity

in any province, city or municipality, the sanggunian concerned, by ordinance passed prior to

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

Coordinating Council, may condone or reduce, wholly or partially, the taxes and interest
thereon for the succeeding year or years in the city or municipality affected by the calamity.

(Sec 276)

Condonation or Reduction of Tax by the President of the Philippines. — The President of

the Philippines may, when public interest so requires, condone or reduce the real property

tax and interest for any year in any province or city or a municipality within the Metropolitan

Manila Area. (Sec 277 LGC)