DILG Legal Opinion No. 079-02

May 30, 2002 DILG LEGAL OPINION NO. 079-02 Vice-Mayor Norman V. Mendoza San Esteban, Ilocos Sur Dear Vice-Mayor Mendoza : This refers to your letter seeking legal opinion on whether or not a Local Government Unit (LGU) can use the declared total cost of a project instead of gross sales or receipts as basis for the computation of fees for a business permit/license or of taxes on business for the cellsite towers of Smart Communications, Inc. You stated that the proposed fees for business permit/license on the cellsite towers installed in that municipality is to be based on the declared total cost of said cellsite towers rather than the gross sales or receipts which, according to your reading of the Local Government Code, should be the basis in computing the business tax of this type of facility. Apart from this issue is another related issue raised by the Tax Manager of Smart Communications, Inc. It is the position of Smart that it should not be required to secure business permit for its cellsite towers because said company is not engaging in trade or commercial activity as its cellsite towers is purely for network operations. It cited the definition of "business" under the Code as that referring to trade or commercial activity regularly engaged in as a means of livelihood or with a view of profit. In answering your query, we find it imperative to distinguish a fee for a permit/license from a tax. A license fee is a police measure. On the other hand, a tax is a revenue measure. The amount collected for a license fee is limited to the cost of permit and reasonable police regulation. License fee is paid for the privilege of doing something. Tax is imposed on persons or property for revenue. Under the Local Government Code, license fees or charges may be imposed by the LGUs, through the sanggunian, either in consideration of the services rendered by LGUs or of engaging in business activity within the LGU. Section 153 of the same Code provides that LGUs may impose and collect such reasonable fees and charges for services rendered. Section 147 of the same Code, on the other hand, provides that the municipality may impose and collect such reasonable fees and charges on business and occupation and except as reserved to the province on Section 139 of the Code, on the practice of any profession or calling, commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or occupation or practice such profession or calling. AcaEDC Hence, imposing a business permit, which is actually a fee on business as distinguished from tax on business, by that municipality over the network towers of Smart Communication, Inc. pursuant to Section 147 of the Local Government Code, appears to be misplaced and not legally tenable since the same pertains to a fee on business. With that answer, we find it already irrelevant to discuss the basis of the fee. However, you may still impose a fee over the network towers but this time invoking Section 153 of the Local Government Code. Said section provides that "Local government units may impose and collect such reasonable fees and charges for services rendered". Accordingly, for regulation services and other kinds of services rendered, the municipality may impose a fee unto SMART Communications, the amount of which is such that is reasonable and commensurate to the services to be rendered relative to the cell towers. We hope we have enlightened you on the matter. Very truly yours, (SGD.) JOSE D. LINA, JR. Secretary Department of Interior and Local Government