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 Mr. Eduardo P. Sanchez, Sr. Punong Barangay, Barangay Limao Municipality of Calauan, Laguna Attention: The Barangay Treasurer Barangay Limao, Calauan, Laguna SUBJECT : Authority of Barangays to Impose and Collect Fees Based on Capital Investments or Gross Sales/Receipts Dear Mr. Sanchez : This has reference to the letter of AP Renewables, Inc. (APRI), dated 20 February 2017, to this Bureau, regarding the authority of barangays to impose and collect fees based on capital investments or gross receipts of persons/businesses liable therefor. Representations are made that APRI was assessed a clearance fee based on gross sales for the preceding calendar year, which was paid to the barangay by APRI under protest. In treating the matter, this Bureau must emphasize the limited taxing powers of barangays being the smallest level of local government unit (LGU), provided under Section 152 of Republic Act No. 7160, otherwise known as the Local Government Code (LGC) of 1991, as follows: Section 152. Scope of Taxing Powers. The barangays may levy taxes, fees, and charges, as provided in this Article, which shall exclusively accrue to them: (a) Taxes On stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities and Thirty thousand pesos (P30,000.00) or less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales or receipts . (b) 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 . (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 . (d) 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. The exercise of such authority is also covered by 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) Relatively, 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) Applied in the instant case, the clearance fees imposed and collected by barangays from business establishments, as a requirement for the issuance of Mayor's Permit, should be reasonable, commensurate to cost of service or regulation and should not be based on capital investment or gross sales or receipts of the person or business liable therefor. 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, the concerned party may avail of the remedy in law to file a written claim for refund or tax credit pursuant to Section 196 1 of the LGC. While it may be true that LGUs have the discretion to exercise their power to raise local revenues, the same is not absolute as it is subject to certain limitations set by law. Well-settled is the rule that for an ordinance to be valid, it must not only be within the corporate powers of the LGU to enact and must be passed according to the procedure prescribed by law, it must also conform to the following substantive requirements: 2 (1) Must not contravene the Constitution or any statute ; (2) Must not be unfair or oppressive ; (3) Must not be partial or discriminatory ; (4) Must not prohibit but may regulate trade ; (5) Must be general and consistent with public policy ; and (6) Must not be unreasonable . In view of the foregoing, this Bureau recommends for your guidance that appropriate action be made to ensure that existing revenue measures do not result in erroneous, unfair and illegal assessments, and must comply with the provisions of the LGC and its IRR. You may coordinate with the BLGF Regional Office No. IV-A for any assistance on the revenue generation program of your barangay. Thank you. Very truly yours, (SGD.) NIO RAYMOND B. ALVINA OIC Executive Director Footnotes 1. 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. 2. Tatel v. Municipality of Virac , G.R. No. 40243, 11 March 1992, 161; Solicitor General v. Metropolitan Manila Authority , G.R. No. 102782, 11 December 1991; Magtajas v. Pryce Properties Corp., Inc. , G.R. No. 111097, 20 July 1994.