Bureau of Local Government Finance Opinion

January 17, 2000 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Daniel C. Lantion No. 6 Quezon Street Bayombong, Nueva Vizcaya Sir : This has reference to your letter dated April 22, 1999 to the Provincial Legal Officer, Bayombong, Nueva Vizcaya, copy furnished the Department of Finance, seeking clarification and/or opinion on the following issues: 1) Are the Motorized Tricycle Operators Permit (MTOP) and Franchise fee considered "Franchise Tax?" 2) Is the P100.00 Franchise fee considered as an excess payment for a franchise tax or fee granted by the Sangguniang Bayan under Art. 100 (3) (vi)? 3) Whether the amount of P170.00 collected by the Municipal Treasurer of Bayombong, Nueva Vizcaya from tricycle operators is legal, there being no authority in Tax Ord. No. 03, 5-1992. On Query No. 1 Section 131 of Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (LGC) as implemented under Article 220 (l) and (m) of the Implementing Rules and Regulations (IRR) states: DSIaAE Art. 220. Definition of Terms. When used in this Rule, the term: xxx xxx xxx (l) Fee means a charge fixed by law or ordinance for the regulation or inspection of a business activity. It shall also include charges fixed by the law or agency for the services of a public officer in the discharge of his official duties. (m) Franchise is a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of public welfare, security and safety. From the foregoing definitions, it is very clear that a fee is distinct and different from a franchise and therefore, MTOP and Franchise Fee cannot be considered as Franchise Tax. On Query No. 2 The power to impose franchise fee, upon prior public hearing, is vested with local governments, through the enactment of the appropriate ordinance pursuant to Section 186 of the Code which states: Sec. 186. Power to Levy Other Taxes, Fees or Charges. Local government units may exercise the power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue Code as amended, or other applicable laws: Provided, That the taxes, fees or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy: Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the purpose. Section 186 does not prescribe any fixed amount or ceiling for the rates of a fee or charge that the local sanggunians may impose in a local tax ordinance. However, it is well-settled in jurisprudence that fees and charges must only be commensurate to the expenses incurred or for the service rendered by the local government unit in the regulation or inspection of a business activity. 1 For this purpose, we find no reason to say that the P100.00 franchise fee is excessive. TAECaD On Query No. 3 It must be pointed out that before any tax, fee or charge may be collected from a taxpayer, the same must first be levied under a duly enacted tax ordinance. In the absence of such tax ordinance, there will be no basis for the collection of any tax, fee or charge from said taxpayer. IHCSET Very truly yours, (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge Footnotes 1. Cu Unjieng v. Patstone , 42 Phil. 818; City of Iloilo v. Villanueva , 105 Phil. 337. <http://www.blgf.gov.ph/downloads/opinion/localtax/2000/a1999-1005.pdf> last visited on October 2, 2013.