Bureau of Local Government Finance Opinion

June 10, 2015 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to Ms. AIDA D. ABREGANA, ICO-Regional Director, Region XI, Davao City, the herein 1st Indorsement dated March 31, 2015 relative to the letter-query of Ms. Marie Judy L. Damasin, OIC SB Secretary, Office of the Sangguniang Bayan, Monkayo, Compostela Valley Province, seeking opinion of the following issues: a) Applicability of Sections 168 & 169 of the Local Government Code of 1991 (LGC) in aid of legislation; b) Is the imposition for late payment at 10% per month surcharge of the amount due is excessive? and c) Aside from the 10% surcharge imposed, can the interest provided under Section 169 of the LGC still be collected? caITAC That Office viewed that the imposition of 10% surcharge is not excessive and that the interest rate of 2% can still be imposed in accordance with Section 168 of the LGC. The above issues were raised in view of the letter dated March 17, 2015 of Ms. Damasin wherein it was represented that the Municipality of Monkayo, Compostela Valley, collects fees and charges for the utilization of its Water System. Further, as embodied in Article 6, Section 5G.02 of Municipal Revenue Code of 2006, the Municipality of Monkayo collects ten percent (10%) per month on the amount due as surcharge for late payment. Moreover, in the event that the concessionaire fails to pay the amounts due for two consecutive months (total water consumption plus surcharge) then the disconnection will have to be made. Furthermore, in the attached series of letters, Mr. Carlito A. Urdaneta sought assistance for the review and amendment of Section 5G.02 (4) of the Municipal Revenue Code of 2006, particularly on the imposition of the ten percent (10%) interest on the amount of taxes due as well as opinions from different government offices. However, it seems that the issue(s) were not totally resolved. In connection thereof, Sections 168 and 169 of the LGC are quoted as follows: "Section 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. The sangguniang may impose a surcharges not exceeding twenty-five percent (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 interest on the unpaid amount or portion thereof exceed thirty-six (36) months. ICHDca "Section 169. Interests on Other Unpaid Revenues. Where the amount of any other revenue due a local government unit, except voluntary contributions or donations, is not paid on the date fixed in the ordinance, or in the contract, expressed or implied, or upon the occurrence of the event which has given rise to its collection, there shall be collected as part of that amount an interest thereon at the rate not exceeding two percent (2%) per month from the data it is due until it is paid, but in no case shall the total interest on the unpaid amount or a portion thereof exceed thirty-six (36) months." The above-quoted provisions of law, particularly Section 168, is clear that LGUs, in this case the Municipality of Monkayo, is authorized to impose surcharges and penalties on unpaid amount of taxes, fees and charges but not exceeding 25% of the amount of taxes, fees or charges not paid on time. In this connection, we are obliged to clarify that the 25% surcharge applicable to the unpaid amount of taxes, fees or charges should not be imposed on a monthly basis but applied only when the tax, fee or charge is not paid on time. Further, what is applicable on a monthly basis is the two percent (2%) interest on the unpaid amount of tax, fee or charge, but not to exceed thirty-six (36) months or equivalent to seventy-two percent (72%) total interest. In answer to Query No. 2, the ten percent (10%) per month surcharge is therefore excessive considering that if totaled on an annual basis, the total surcharge would amount to one hundred twenty percent (120%) or in excess of ninety-five percent (95%) of the rate provided in the Section 168, supra . In view of the foregoing, the Municipal Treasurer is therefore advised to make a representation with the Sangguniang Bayan for the purpose of introducing some amendatory provisions particularly in the imposition of surcharges on the unpaid taxes, fees and charges that will conform to the aforecited provision of the LGC. TCAScE It is hoped that this will help clarify matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director