Bureau of Local Government Finance Opinion

February 18, 2016 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to OIC-Regional Director for Local Government Finance, Region 10, Cagayan de Oro City, the within indorsement dated January 29, 2016, relative to the letter dated January 19, 2016 of Atty. APOLLO A. MAGUALE, Secretary to the Sanggunian, Office of the Sangguniang Panlalawigan, Malaybalay City, Bukidnon, requesting comments/recommendations/legal opinion as to the power of local government units (LGUs) to collect Business Taxes and the limitations of authority to adjust tax rates pursuant to the pertinent provision of the Local Government Code (LGC) of 1991. Issue No. 1 Power of LGUs to Collect Taxes on Businesses The specific provision of the LGC that authorizes the imposition and collection of local business taxes (LBT) is Section 143 of the LGC, summarized as follows: Kind of Business Tax Base Tax Rate (Maximum Ceiling) a) On manufacturers, assemblers, Gross sales or At a rate not exceeding repackers, processors, receipts for the 37.5% of 1% of the brewers, distillers, rectifiers, preceding calendar amount in excess of and compounders of liquors, year P6,500.00 (plus distilled spirits, and wines or P24,375.00 for the manufacturers of any article of P6,500.00 gross sales commerce of whatever kind or or receipts) nature. b) On wholesalers, distributors, or Gross sales or At a rate not exceeding dealers in any article of receipts for the 50% of 1% of the commerce of whatever kind or preceding calendar amount in excess of nature. year P2,000.00 (plus P10,000.00 for the P2,000.00 gross sales or receipts c) On exporters, and on Gross sales or At a rate not exceeding manufacturers, millers, receipts for the one-half (1/2) of the rates producers, wholesalers, preceding calendar prescribed under sub- distributors, dealers or retailers year sections (a) (b) and (d) of essential commodities. d) On retailers Gross sales or First P400,000.00 2% receipts for the More than P400,000.00 preceding calendar 1% year e) On contractors and other Gross sales or At a rate not exceeding independent contractors receipts for the 50% of 1% of the preceding calendar amount in excess of year P2,000.00 (plus P10,000.00 for the P2,000.00 gross sales or receipts f) On banks and other financial On the gross receipts At a rate not exceeding institutions at a rate not of the preceding 50% of 1% exceeding fifty percent (50%) calendar year derived of one percent (1%) on the from interest, gross receipts of the preceding commissions and calendar year derived from discounts from interest, commissions and lending activities, discounts from lending income from financial activities, income from financial leasing, dividends, leasing, dividends, rentals on rentals on property property and profit from and profit from exchange or sale of property, exchange or sale of insurance premium. property, insurance premium. g) On peddlers engaged in the Gross sales or Not exceeding P50.00 sale of any merchandise or receipts for the per peddler annually. article of commerce, at a rate preceding calendar not exceeding Fifty pesos year (P50.00) per peddler annually. h) On any business, not otherwise Gross sales or At a rate not exceeding specified in the preceding receipts for the 2% paragraphs, which the preceding calendar sanggunian concerned may year deem proper to tax. It is worth mentioning however, that in case of a city, the rates of taxes may exceed the maximum rates allowed for the province or municipality by not more than 50% except the rates of the so-called mandatory impositions like professional and amusement taxes. (Section 151, LGC) Issue No. 2 Authority of LGU to Adjust Tax Rates For the immediate resolution of the issue, Section 191 of the LGC is quoted as follows: "Section 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances . Local government units 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." Based on the abovequoted provisions of Section 191 of the LGC, LGUs shall have the authority to adjust tax rates as " prescribed [t]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 the said Code. It must be stressed that the phrase " prescribed herein ," refers to tax rates under Title One, Book II of the LGC and not existing rates of taxes in the local tax code of the LGU concerned. It may be worth pointing out however that if the issue of tax adjustment deals exclusively with the authority of a municipal government, it may be concluded that Municipality may adjust tax rates within the confine of Section 143 of the LGC. Further, the adjustment, which is allowed once every five (5) years, refers only to taxes but not to regulatory fees, service charges, and impositions made in the exercise of the police and/or proprietary functions of LGUs such as Mayor's permit, business license, market fees and stall rentals and the like. Stated otherwise, when it comes to regulatory fees and service charges, municipalities/cities may adjust/increase the existing rates at the discretion of the local sanggunian based on its sound grasp of the prevailing economic condition within their territorial jurisdiction. Provided, however, that the requirements and procedures pursuant to Sections 187 and 188 of the Code are complied with. CAIHTE If necessary, the BLGF Central Office can extend technical assistance to the Sanggunian concerned thereat in the updating of their respective Revenue Code or Tax Ordinance, in coordination with your Office. Be guided accordingly. (SGD.) JOCELYN T. PENDON OIC-Executive Director ATTACHMENT SYNOPSIS: BLGF Opinion on the Authority of LGUs to Impose and Collect Business Taxes and Authority to Adjust Tax Rates Pursuant to the LGC Section 143 of the Local Government Code (LGC) provides the kinds of businesses that a municipality and a city, in relation to Section 151 thereof, can impose and collect local business tax (LBT). On the other hand, Section 191 of the same Code provides that LGUs shall have the authority to adjust tax rates as " prescribed [t]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 the said Code. It must be stressed that the phrase " prescribed herein " refers to tax rates under Title One, Book II of the LGC and not existing rates of taxes in the local tax code of the LGU concerned. However, the 10% maximum adjustment ceiling refers only to taxes but not regulatory fee, service charges and impositions made in the exercise under the police power and proprietary function, respectively, of LGU concerned. (BLGF dated 18 February 2016, addressed to BLGF Region 10, Cagayan de Oro City, copy furnished the Office of the Sangguniang Panlalawigan of Bukidnon) 1st Indorsement January 29, 2016 Respectfully forwarded to the OIC Executive Director, Bureau of Local Government Finance, 8th Floor, EDPC Bldg., Bangko Sentral ng Pilipinas Complex, Roxas Blvd., Manila, the herein letter dated January 19, 2016 of Atty. Apollo A. Maguale, Secretary to the Sanggunian, Sangguniang Panlalawigan, Bukidnon, Malaybalay City, relative to the request for comments/recommendations/legal opinion relative to the power of LGUs to collect Business Taxes and the limitations of authority to adjust tax rates pursuant to the provisions of Local Government Code of 1991. The power of cities and municipalities to impose business taxes is derived from Sec. 151 and Sec. 143 respectively of the local government code. The provisions specifically enumerated the seven (7) categories of business the LGUs may impose to persons or individual engaged in those activities, based on the gross receipts of operations of the preceding year. The amount of tax due per taxable bracket is also specified in the said sections. The rates of taxes are maximum rates that cities or municipalities are authorized to impose. The Local Sanggunian though, may adopt a lower schedule of graduated rates, but in no case shall it exceed of what is prescribed in the code. However, even the rates of taxes provided in Sections 143 and 151 are already at the maximum, local government units still has the authority to adjust rates of taxes progressively of not more than 10% of the rates once in every five (5) years. Specific provision of LGC provides: "SECTION 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances . Local government units 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. The above quoted provision also sets the limitation of the extent of the authority of LGU to adjust tax rates not to exceed ten percent (10%) as fixed under LGC. On the premise above, this Office submits its official stand that LGUs may adjust its tax rates not oftener than five (5) years at the rate not exceeding ten percent (10%) of the rates of schedule of graduated tax of an existing revenue code or tax ordinance. This is also viewed on the premise that tax rates of the LGU revenue code and tax ordinances should be updated and rationalized once every five years to ensure its sustainability in financing quality projects that would redound to the benefits of their constituents. For affirmation and guidance. (SGD.) HERMINIGILDA G. GARSULA OIC Regional Director Republic of the Philippines Province of Bukidnon City of Malaybalay Office of the Sangguniang Panlalalwigan Email address: [emailprotected] January 19, 2016 Notice of Invitation Ms. Herminigilda G. Garsula OIC-Regional Director Bureau of Local Government Finance 6th Div. Corner Tejero Street Patag, Cagayan de Oro City Dear Ms. Garsula: The Chairman of the Committee on Laws, Hon. Jay S. Albarece , Board Member, 1st District, is requesting you to submit your comments/recommendations/legal opinion relative to the power of the LGU/Municipality/City to collect Tax on Business and the Limitations as provided therein and the provisions under Article 281 specifically on the authority of the LGU's to adjust tax rates as provided by the Implementing Rules and Regulations (IRR) of R.A. 7160 in relation to Section 191 of the same Code. DETACa Thank you and God bless. Very truly yours, (SGD.) ATTY. APOLLO A. MAGUALE Secretary to the Sanggunian