Imposition and Collection of Local Taxes, Fees and Charges

March 27, 2009 DILG MEMORANDUM CIRCULAR NO. 042-09 TO : All Provincial Governors, City Mayors, Municipal Mayors, Presiding Officers and Members of the Sanggunians at All Levels, DILG Regional Directors and Others Concerned SUBJECT : Imposition and Collection of Local Taxes, Fees and Charges 1.0 Purpose This Memorandum Circular is issued to serve as a guide for, and as a reminder to, Local Chief Executives, Presiding Officers and Members of the Sanggunians at all levels, in the imposition and collection of local taxes, fees and charges. 2.0 Coverage All provinces, cities, municipalities and barangays except those in the Autonomous Region in Muslim Mindanao. 3.0 Definition of Terms As defined under Section 131 of the Local Government Code of 1991, and as reiterated in this Memorandum Circular, the term: (a) "Tax" refers to a charge levied by a local government on a product, income, or activity, the purpose of which is to generate public revenues to finance public goods and services; (b) "Fee" refers to a charge fixed by law or ordinance for the regulation or inspection of a business or activity; (c) "Charge" refers to a pecuniary liability, as a rent or fee against a person or property; (d) "Imposition" pertains to the act of levying a tax, fee or charge on a particular subject, which is done by way of an ordinance; and (e) "Collection" pertains to the act of collecting the tax, fee or charge. 4.0 Fundamental Principles Pursuant to Section 130 of the Local Government Code, the exercise of the taxing and other revenue-raising powers of local government units shall be governed by the following fundamental principles: EHTISC (a) Taxation shall be uniform in each local government unit; (b) Taxes, fees, charges and other impositions shall: (1) be equitable and based as far as practicable on the taxpayer's ability to pay; (2) be levied and collected only for public purposes; (3) not be unjust, excessive, oppressive, or confiscatory; (4) not be contrary to law, public policy, national economic policy, or in restraint of trade; (c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person; (d) The revenue collected pursuant to the provisions of the Local Government Code shall inure solely to the benefit of, and be subject to disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided in the said Code; and (e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation. 5.0 Common Limitations on the Taxing Powers of Local Governments Pursuant to Section 133 of the Local Government Code, the exercise of the taxing powers of provinces, cities, municipalities and barangays shall not extend to the levy of the following: (a) Income tax, except when levied on banks and other financial institutions; (b) Documentary stamp tax; (c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa , except as otherwise provided in the LG Code; (d) Customs duties, registration fees of vessels and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned; (e) Taxes, fees and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise; TECcHA (f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; (g) Taxes on business enterprises certified by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration; (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; (i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided in the LG Code; (j) Taxes on the gross receipts of transaction, contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in the LG Code; (k) Taxes on premiums paid by way of reinsurance or retrocession; (l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles; (m) Taxes, fees or other charges on Philippine products actually exported, except as otherwise provided in the LG Code; (n) Taxes, fees or charges, on Countryside and Barangay Business Enterprises and Cooperatives duly registered under R.A. No. 6810 and R.A. No. 6938 otherwise known as the Cooperatives Code of the Philippines, respectively; and (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. 6.0 Important Requisite in the Exercise of Taxing Powers by Local Governments Pursuant to Section 132 of the Local Government Code, the power to impose a tax, fee or charge or to generate revenue under the LG Code by every local government unit shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance. 7.0 Authorized Local Taxes, Fees and Charges For Provinces (a) Tax on Transfer of Real Property Ownership, at a rate of not more than fifty percent (50%) of one percent (1%) of the total consideration involved in acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is not substantial, whichever is higher (Sec. 135, LGC) ADHcTE (b) Tax on Business of Printing and Publication, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year. In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment (Sec. 136, LGC) (c) Franchise Tax, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year. In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment (Sec. 137, LGC) (d) Tax on Sand, Gravel and Other Quarry Resources, at a rate not exceeding ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources. The permit to extract sand, gravel and other quarry resources shall be issued exclusively by the provincial governor, pursuant to the ordinance of the sangguniang panlalawigan (Sec. 138, LGC) (e) Professional Tax, in an amount not exceeding Three Hundred Pesos (PhP300.00) (Sec. 139, LGC) (f) Amusement Tax, at a rate of not more than thirty percent (30%) of the gross receipts from admission fees (Sec. 140, LGC) (g) Annual Fixed Tax for every truck, van or any vehicle used by manufacturers, producers, wholesalers, dealers or retailers in the delivery or distribution of distilled spirits, fermented liquors, soft drinks, cigars and cigarettes, and other products to sales outlets or consumers within the province, in an amount not exceeding Five Hundred Pesos (PhP500.00). Such manufacturers, producers, wholesalers, dealers or retailers shall be exempt from the tax on peddlers (Sec. 141, LGC) For Cities Taxes, Fees and Charges which the province or municipality may impose, except as otherwise provided in the Local Government Code. The rates of taxes may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%), except the rates of professional and amusement taxes (Sec. 151) For Municipalities (a) Business Tax, in such amounts as embodied in the Local Government Code (Sec. 143, LGC) cSEaTH (b) Tax on Retirement of Business (Sec. 145, LGC) (c) Fees and Charges on business and occupation, in such amount commensurate with the cost of regulation, inspection and licensing (Sec. 147, LGC) (d) Fees for Sealing and Licensing of Weights and Measures, at a reasonable amount (Sec. 148, LGC) (e) Fishery Rentals, Fees and Charges (Sec. 149, LGC) For Barangays (a) Taxes on stores and retailers with fixed business establishments with gross sales receipts not exceeding PhP50,000 or less, in cities and PhP30,000.00 or less, in municipalities, at a rate not exceeding one percent (1%) of gross sales or receipts (Sec. 152, LGC) (b) Service Fees or Charges for the regulation or the use of barangay-owned properties or service facilities, at a reasonable amount (Sec. 152, LGC) (c) Barangay Clearance, at a reasonable amount (Sec. 152 (c), LGC) (d) Fees and Charges on the commercial breeding of fighting cocks, cockfights and cockpits, at a reasonable amount (Sec. 152, LGC) (e) Fees and Charges on places of recreation which charge admission fees, at a reasonable amount (Sec. 152, LGC) (f) Fees and Charges on billboards, signboards, neon signs and outdoor advertisements, at a reasonable amount (Sec. 152, LGC) 7.0 Common Revenue-Raising Powers of LGUs (a) Service fees and charges for services rendered, at a reasonable amount (Sec. 153, LGC) (b) Charges for the operation of public utilities owned, operated and maintained by the local government within its jurisdiction (Section 154, LGC) (c) Toll fees and charges for the use of any public road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government (Section 155, LGC) 8.0 Adjustment of Tax Rates As provided under Section 191 of the Local Government Code, local governments are authorized to adjust the tax rates prescribed in the LG Code but not oftener than once in every five (5) years, and in no case shall such adjustment exceed ten percent (10%) of the rates fixed in the Code. STcaDI 9.0 Distinction between Illegal Imposition and Illegal Collection of Taxes, Fees or Charges Illegal imposition pertains to the levy of taxes, fees and charges duly imposed by a local government unit on a certain subject through an appropriate ordinance but is, however, outside of the scope of its taxing and revenue-raising powers vis--vis the statutory scope of taxing powers of provinces, cities, municipalities and barangays as are conferred to them by the Local Government Code. It may include situations, such as, but not limited to: (a) When the taxes, fees or charges are unjust, excessive, oppressive, confiscatory or contrary to declared national policy; (Sec. 186, LGC) (b) When the imposition of taxes, fees or charges would amount to a restraint of trade; (Section 130, LGC) (c) When a local government adjust the rates of tax in violation of the provision of law; (Section 191, LGC) and (d) When a local government imposes fees and charges beyond its taxing powers. (Section 133, LGC) On the other hand, illegal collection of fees, taxes or charges pertains to those collections made without the benefit of a local revenue ordinance. This is tantamount to illegal exaction of taxes, fees or charges, there being no ordinance to support it. It may include other instances such as, but not limited to: aIHCSA (a) When a local government does not issue an official receipt for any tax, fee or charge collected; (b) When the collection of taxes, fees or charges is let to a private person; and (c) When a local government collects additional peddlers tax from the manufacturers, producers, wholesalers, dealers and retailers who have already paid the annual fixed tax on delivery trucks and vans (Sec. 141, LGC). 10.0 Administrative and Legal Sanctions Local Chief Executives, Presiding Officers and Members of the Sanggunians at all levels who fail to strictly adhere to the aforecited fundamental principles, limitations and requisites of the exercise of taxing power by a local government unit, or who ignore the same by failing to rectify defective tax ordinances, shall be dealt with accordingly. 11.0 Dissemination All DILG Regional Directors are directed to cause the immediate and widest dissemination of this Circular to all local government units within their regional assignments. (SGD.) RONALDO V. PUNO Secretary