Authority of Barangays to Impose and Collect Fees Based on Capital Investments or Gross Sales/Receipts

June 8, 2017 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Anthony Mark A. Guttierez Atty. Sophia P. Inoturan C & G Law 30/F 88 Corporate Center Salcedo Village, Makati City SUBJECT : Authority of Barangays to Impose and Collect Fees Based on Capital Investments or Gross Sales/Receipts Dear Atty. Gutierrez and Atty. Inoturan : This refers to your letter dated 20 February 2017, requesting for confirmation, in behalf of AP Renewables, Inc. (APRI), that barangays have no authority to impose and collect fees based on capital investments or gross sales/receipts. It is represented that APRI is a corporation duly organized and existing under Philippine law, with principal office in Bonifacio Global City, Taguig City, and is the operator of the 458.5 MW Makban Geothermal Power Plant located in the Municipality of Sto. Tomas, Batangas and the Municipalities of Bay and Calauan, Laguna. A perusal of your letter reveals that APRI was assessed for clearance fees in CY 2017 based on its gross sales for the preceding calendar year by Barangays Sta. Elena (Municipality of Sto. Tomas, Batangas), Limao (Municipality of Calauan, Laguna), and Bitin (Municipality of Bay, Laguna), which were paid by APRI under protest. Hence, the present request for confirmatory ruling for the lack of authority of said barangays to do so. In treating the issue, Section 152 (c) of Republic Act No. 7160, otherwise known as the Local Government Code (LGC), is instructive, to wit: "(c) Barangay Clearance No city or municipality may issue any license or permit for any business or activity unless a clearance is first obtained from the barangay where such business or activity is located or conducted. For such clearance, the Sangguniang Barangay may impose a reasonable fee . The application for clearance shall be acted upon within seven (7) working days from the filing thereof. In the event that the clearance is not issued within the said period, the city or municipality may issue the said license or permit." (emphasis supplied) The exercise of such authority of a barangay, being the smallest level of local government unit (LGU), is among the common revenue-raising powers of LGUs, as provided for by Sec. 153 of the LGC, as follows: "SEC. 153. Service Fees and Charges. Local government units may impose and collect such reasonable fees and charges for services rendered." (emphasis supplied) In addition, the following provisions of the Implementing Rules and Regulations (IRR) of the LGC are equally informative and directive: "ARTICLE 233. Fees and Charges. The municipality may impose and collect such reasonable fees and charges on businesses and occupations and, except as reserved to the province in Article 229 of this Rule, on the practice of any profession or calling before any person may engage in such business or occupation, or practice such profession or calling provided that such fees or charges shall only be commensurate to the cost of issuing the license or permit and the expenses incurred in the conduct of the necessary inspection or surveillance . No such fee or charge shall be based on capital investment or gross sales or receipts of the person or business liable therefor ." (emphasis supplied) "Art. 244. Common Revenue-Raising Powers. Provinces, cities, municipalities, and barangays: (a) May impose and collect fees and service or user charges for any service rendered by LGUs in an amount reasonably commensurate to such service provided that no service charge shall be based on capital investments or gross sales or receipts of the persons or business liable therefor." (emphasis supplied) As expressed by the legal maxim "verba legis non est recedendum" (from the word of a statute there should be no departure), 1 the said provisions of the LGC and its IRR are clear that barangays are allowed to impose a reasonable fee for the purpose of securing a barangay clearance, and that the levy of fees and charges shall not be based on capital investment or gross sales or receipts of any one liable to said impositions. Verily, to allow barangay treasurers to assess clearance fees based on the gross sales for the preceding year would amount to a replication of violation, as the higher level LGU, which the municipality, is already clearly prohibited by the LGC to base such fee or charge on capital investment or gross sales or receipts of the person or business liable therefor. Hence, any assessment and collection of fees or charges by a barangay not aligned with the LGC and its IRR are will result to unjust, unfair and illegal imposition. Moreover, in the recently received Resolution MTO OSJ Case No. 01-2017 dated 19 April 2017 promulgated by the Department of Justice (DOJ), it declared Resolution No. 1 of Barangay Bitin, Bay, Laguna, which authorized the imposition of business clearance and working permit clearance fees based on 0.025% of annual gross income of the company, " null and void for non-compliance with the prescribed procedure prior to and after its enactment , in contravention of the Local Government Code of 1991 and the Implementing Rules and Regulations of the said Code." Certainly, a void ordinance has no force and legal effect, and the imposition made by an ordinance nullified and voided by the DOJ is deemed invalid and illegal. Hence, a written claim for refund or tax credit with the local treasurers of the place where it paid the said assessed fees pursuant to Section 196 2 of the LGC may be considered as a remedy. In this connection and to rectify the practice of assessing clearance fees from business taxpayers based on gross receipts, this Bureau has advised the aforementioned barangays to ensure that the assessments conform with the LGC and its IRR. This Opinion is issued based on the information provided and to guide local treasurers in collecting taxes and other local impositions. If upon subsequent verification or submission of information proves the contrary, this Opinion will be deemed null and void. We hope we have provided clarity on the matter. Very truly yours, (SGD.) NIO RAYMOND B. ALVINA OIC-Executive Director Footnotes 1. Francisco v. The House of Representatives , G.R. No. 160261, November 10, 2003. 2. Section 196. Claim for Refund of Tax Credit. 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 from the date of the payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit.