Validity of Barangay's Imposition of Business Clearance Fee Based on the Capital Investment

July 3, 2015 DILG LEGAL OPINION NO. 020 S. 2015 Hon. Marylou San Buenaventura Sangguniang Panlungsod Member Caloocan City, Metro Manila Dear SP Member San Buenaventura: This refers to your 29 April 2015 letter requesting this Department's opinion relative to the barangay's imposition of business clearance fee based on the capital investment vis--vis Article 233 1 of the Implementing Rules and Regulations of Republic Act No. 7160 (RA 7160), specifically as follows: "1. Is the fee or charge mentioned in the 2nd paragraph of Article 233 applicable only to municipality as stated in the 1st paragraph? Or applicable also to other LGUs including the barangay ? 2. Is it legal and within the power of Barangay 16 to impose barangay clearance fee based on capital as mentioned in said barangay ordinance?" Based on your letter the SP is currently reviewing an ordinance enacted by Barangay 16 of Caloocan City to collect fees and charges from establishments located within its jurisdiction, to wit: "Section 3. Barangay Business Clearance. the rate of fees for application to operate New Business and Renewal shall be as follows: New Renewal xxx xxx xxx c. Small Scale Business P200.00 P150.00 (w/ capital of below P50,000) d. Medium Scale Business P250.00 200.00 (w/ capital of P50,000-P200,000) Large Scale Business 450.00 350.00 (w/ capital of above P200,000)" Hence, this request. Local Government Units (LGUs) are statutorily endowed with the power to create sources of revenue pursuant to Section 129 2 of Republic Act No. 7160, otherwise known as the Local Government Code (hereinafter, the "Code") subject to the fundamental principles and common limitations provided under Sections 130 and 133 of the Code. In the case of barangays , their taxing powers are provided under Section 152 3 of the Code, which includes therein the authority to impose barangay clearance fee. It should be emphasized however that the LGUs power to impose fees and charges should not be based on capital investments or gross sales or receipts of the person or business liable therefor following Article 244 (a) 4 of the Implementing Rules and Regulations (IRR) of Section 153 5 of the Code. Clearly, the barangay business clearance fee imposed in the subject ordinance should not be based on capital investment of the person or business liable for the same. We hope to have enlightened you on the foregoing. HESIcT Very truly yours, (SGD.) AUSTERE A. PANADERO Undersecretary Footnotes 1. 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 of 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 receipts of the person or business liable therefore. 2. SEC. 129. Power to Create Sources of Revenue . Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. 3. SEC. 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 or 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 regulation 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. 4. ARTICLE 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 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 therefore. 5. SEC. 153. Service Fees and Charges . Local government units may impose and collect such reasonable fees and charges for services rendered.