Bureau of Local Government Finance Opinion

September 25, 1998 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Nila B. Suan Certified Public Accountant A-26 RSG I, Calbayog Street Mandaluyong City M a d a m : This refers to your letter dated April 2, 1998 posing the following queries: 1. Under the Local Government Code (LGC), Municipal Governments are authorized to impose Business Taxes and Fees. What is the difference between a tax and a fee? Is it possible to disguise a tax by calling it a fee? 2. Suppose a Municipal Government prescribes that the basis of the Mayor's Permit fee to be imposed and collected from business establishments shall be Section 143 of the LGC except that the rates of fees shall be 50% of the rates imposed under the said section. Does this not constitute double taxation? Is this not in fact another tax in the guise of a fee? In this connection, it is informed that as a matter of policy, this Bureau does not express official views on hypothetical queries but for purposes of information only. On Query No . 1 . A collection of a fixed sum which bears no relation at all to the cost of inspection and regulation, may be considered a tax. Thus, if the generating of revenue is the primary purpose of the ordinance and regulation is merely incidental, the imposition is a tax. On the other hand, a fee is generally imposed to cover the cost of regulating an activity or privilege and is essentially derived from the exercise of police power. On Query No . 2 . Article 233 of the Implementing Rules and Regulations (IRR) implementing Section 147 of the LGC provides as follows: "Article 233. Fees and Charges . The municipality may impose and collect such reasonable fees and charges on business and occupations and, except as reserved to the province under Article 228 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 and charges shall be only commensurate to the cost of issuing the license or permit and the expenses incurred in the conduct of the necessary inspection or surveillance. "No fee or charge shall be based on capital investment or gross receipts of the persons or business liable thereof." Although the LGC has not prescribed any rate for the fees which a local government unit may impose and collect, nevertheless the aforequoted Article requires that such fees be reasonable and commensurate with the cost of regulation, inspection and licensing. Accordingly, the imposition of Mayor's permit fees should not be based on the gross receipts prescribed under Section 143 of the LGC. We trust that this will help clarify matters. CSDTac Very truly yours, (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-In-Charge