LOCAL GOVERNMENT TAXATION
LGUs DO NOT HAVE THE INHERENT POWER TO TAX: Local Government
Units do not have the inherent power to tax. This power is delegated by
Congress under Art. X, Sec. 3 of the 1987 Constitution, by virtue of which the
Local Government Code was enacted. Accordingly, the LGUs power to tax
must always yield to the LGC which is a legislative act which is superior having
been passed by Congress itself which exercises the inherent power of the
state to tax. Thus, such power must be exercised within the limitations
imposed by the LGC, such as:
1. It can only be exercised through a valid ordinance;
2. Subject to the common limitations enumerated under Sec. 133;
3. It must not exceed the rates provided under the LGC, except their
authority to adjust the same under Sec. 191, once every five years.
Note that under Sec. 5 of Art. X of the 1987 Constitution, it is provided that
“Each local government unit shall have the power to create its own source of
revenue and to levy taxes, fees, and other charges subject to such guidelines
and limitation as the congress may provide, consistent with the basic policy
on local autonomy. Xxx”
NATIONAL TAXES LOCAL TAXES
TYPES Income Tax Local Business Tax
Value-Added Tax Real Property Tax
Excise Tax
Withholding Taxes
Estate and Donor’s Tax
Other Percentage Taxes
Documentary Stamp Tax
GOVERNING 1997 National Internal Local Government Code of
LAW Revenue Code 1991 (LGC)
ROLE OF BUREAU OF LOCAL GOVERNMENT FINANCE: The BLGF assists
the Department of Finance in the performance of its functions in overseeing
local treasury office in the implementation of the provisions of the LGC and
issues rulings and opinions to interpret such. However, such rulings and
interpretations relative to the levy and administration of local taxes, fees and
charges are merely directory and not mandatory.
It may extend technical assistance to LGUs in the preparation of tax ordinance
and in the clarification of issues and controversies arising from the impositions
and/or collections of taxes and fees under the provisions of the LGC.
FUNDAMENTAL PRINCIPLES:
Section 130. Fundamental Principles. - The following fundamental
principles shall govern the exercise of the taxing and other revenue-raising
powers of local government units:
(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
the 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 this Code shall
inure solely to the benefit of, and be subject to the disposition by, the local
government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein; and,
(e) Each local government unit shall, as far as practicable, evolve a
progressive system of taxation.
COMMON LIMITATIONS:
SECTION 133. Common Limitations on the Taxing Powers of Local
Government Units. — Unless otherwise provided herein, the exercise of
Cesar Nickolai F. Soriano Jr.
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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 herein;
(d) Customs duties, registration fees of vessel 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;
(f) Taxes, fees or charges on agricultural and aquatic products when sold
by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to 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 herein;
(j) Taxes on the gross receipts of transportation 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 this 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 herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business
Enterprises and cooperatives duly registered under R.A. No. 6810 and
Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperative 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.
Percentage Tax: “amusement tax” is a percentage tax. However, Sec. 133(i)
provides the exception: “except otherwise provided herein”. Since Sec. 140 of
the LGC specifically gave the province the power to impose amusement tax,
the same may be levied by the province regardless of it being a percentage
tax. Sec. 140 provides for the exception from Sec. 133(i).
SCOPE OF THE TAXING POWER
Type of Tax Province Cities Municipalities
Printing and Publication ✓ ✓ x
Franchise Tax ✓ ✓ x
Sand and other Quarry ✓ ✓ x
Resources
Amusement Tax ✓ ✓ x
Delivery Van and Trucks ✓ ✓ x
Business Tax x ✓ ✓
I. PROVINCE
 the province.
Imposition Rate and Base Exceptions Tax on Sand, Imposed on the ten percent
Tax on On the sale, fifty percent Transfer of Gravel and value of per cubic (10%) of fair
Transfer of donation, barter (50%) of one real property Other Quary meter of ordinary market value.
Real Property or any other percent (1%) of under RA No. Resources stones, sand,
Ownership mode of the total 6657, (Sec. 138) gravel, earth, and
(Sec. 135) transferring consideration otherwise other quarry
ownership or title involved or the known as the resources, as
of real property. fair market value Comprehensiv defined under the
in case monetary e Agrarian National Internal
It is likewise consideration Reform Revenue Code, as
applicable even in involved is not Program amended,
cases of mergers substantial. extracted from
or consolidations. public lands or
1
The fair market from the beds of
value, in this seas, lakes,
The seller, donor, case, is the one rivers, streams,
transferor, reflected in the creeks,
executor or prevailing and other public
administrator schedule of waters within its
shall pay the tax market values territorial
within sixty (60) enacted by the jurisdiction
days from the Sanggunian Professional Annual At such amount Professionals
date of the concerned and Tax professional tax and reasonable exclusively
execution or from not on the BIR- (Sec. 139) on each person classification as employed in
the date of the prescribed zonal engaged in the the the
decedent’s death. value.2 exercise or sangguniang government.
If the transfer is practice of his panlalawigan
subject to SEC profession may determine
approval, from requiring but shall in no
the date of government case exceed
approval examination. Three hundred
Tax on On the business fifty percent Receipts from pesos (P300.00)
Business of of persons (50%) of one the printing payable annually
Printing and engaged in the percent (1%) of and/or on or before the
Publication printing and/or the gross annual publishing of 31st of January
(Sec. 136) publication of receipts for the books or other Amusement Collected from Thirty percent The holding of
books, cards, preceding reading Tax the proprietors, (30%) of the operas,
posters, leaflets, calendar year. materials (Sec. 140) lessees, or gross receipts concerts,
handbills, prescribed by operators of from admission dramas,
certificates, the theaters, fees. recitals,
receipts, Department of cinemas, concert painting and
pamphlets, and Education, halls, circuses, The proceeds art
others of similar Culture and boxing stadia, shall be shared exhibitions,
nature Sports (now and other places equally by the flower shows,
Department of of amusement. province and musical
Education) as municipality programs,
school texts or where such literary and
references. amusement oratorical
Tax on On newly started One-twentieth places are presentations,
Capital business (1/20) of one located. except pop,
Investment percent (1%) of rock, or
(Sec. 136 the capital similar
and 137, 2nd investment concerts.
paragraph) Annual Fixed Annual fixed tax Five hundred None.
Franchise Any business fifty percent Tax For for every truck, pesos (P500)
Tax enjoying a (50%) of one Every van or Those liable
(Sec. 137) franchise percent (1%) of Delivery any vehicle used for this tax,
regardless of any the gross annual Truck or Van by manufacturers, however, are
exemption receipts for the (Sec. 141) producers, exempt from
granted by any preceding wholesalers, the tax on
law or other calendar year dealers or peddlers
special law.3 based on the retailers in the prescribed
incoming receipt, delivery or under Sec.
or realized, distribution of 143(g).
within the distilled spirits,
territorial fermented
jurisdiction of

1
(DOF-BLGF Opinion dated May 12, 2004) 3
Regardless of any exemption granted by law or other special law granted prior to January 1, 1992.
2
(DOF-BLGF Opinion dated April 21, 1997) (DOF-BLGF Opinion date May 12, 2006)
Cesar Nickolai F. Soriano Jr.
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LOCAL GOVERNMENT TAXATION
 liquors, soft computing the amount of the amusement tax. (BLGF Opinion dated April
drinks, cigars and 6, 1993)
cigarettes, and
other products as II. MUNICIPALITY
may be
determined by SCOPE: Except as otherwise provided under the LGC, municipalities may levy
the sangguniang taxes, fees and charges not otherwise levied by the provinces.
panlalawigan,
to sales outlets, LOCAL BUSINESS TAX
or consumers,
whether directly TWO ASPECTS:
or indirectly, 1. Regulatory – for the enforcement of local rules and the cost is being
within the reimbursed by the taxpayer. (e.g., Mayor’s Permit, Garbage, Sanitary,
province etc.)
2. Local Revenue – for the fund raised by the Local Government Unit
”Capital Investment" is the capital which a person employs in any (municipality or city) to defray its expenses.
undertaking, or which he contributes to the capital of a partnership,
corporation, or any other juridical entity or association in a particular taxing CHARACTERISTICS:
jurisdiction. (Sec. 131[f]) 1. It is an excise tax on the privilege to engage in business;
2. It is an annual tax.
“Franchise” refers to a right or privilege, affected with public interest which 3. It is a tax on the current year based on the gross sales or receipts of the
is conferred upon private persons or corporations, under such terms and preceding year.
conditions as the government or its political subdivisions may impose in the 4. Cities and Municipalities within Metro Manila may impose tax on business
interest of public welfare, security and safety. (Sec. 131[m]) 50% higher than that of municipalities in provinces. (Sec. 144 and 151)
5. May be graduated, fixed or percentage tax.
*Quarrying permits may only be issued by the provincial governor NOT the 6. Businesses under classification (a) to (g) of Sec. 143, can no longer be
DENR. taxed under (h).
7. Tax is payable on every separate or distinct establishment where
The proceeds shall be distributed as follows: business is conducted.
1. Province — Thirty percent (30%); 8. If the Company is not operated for profit, it is exempt from LBT except
2. Component City or Municipality where the sand, gravel, and other on activities conducted for profit. (DOF-BLGF Opinion dated March 27,
quarry resources are extracted — Thirty percent (30%); and 2007)
3. Barangay where the sand, gravel, and other quarry resources are 9. Two or more businesses:
extracted — Forty percent (40%). a. If subject to the same rate – tax is imposed on the combined gross
sales or receipts;
Amusement Tax: b. If subject to different rates – taxable gross receipts or sales are
reported independently.
Resorts, swimming pools, bath houses, hot springs, and tourist spots are not 10. Tax period is calendar year.
within the phrase “other places of amusement” 11. LGUs have the authority to increase the rates by 10% of the rates fixed
under the Code once in every five (5) years. (Sec. 191)
Section 131 (c) of the LGC already provides a clear definition: "Amusement
Places" include theaters, cinemas, concert halls, circuses and other places of CLUSTER TYPES AND MAXIMUM RATES:
amusement where one seeks admission to entertain oneself by seeing or
viewing the show or performances. CLUSTER TYPE MAXIMUM RATE
Manufacturers assemblers, 37 1/2% of 1%
As defined in The New Oxford American Dictionary, ‘show’ means "a spectacle repackers, processors, brewers, (Sec. 143[a])
or display of something, typically an impressive one"; while ‘performance’ distillers, rectifiers, and
means "an act of staging or presenting a play, a concert, or other form of compounders of liquors, distilled
entertainment." As such, the ordinary definitions of the words ‘show’ and spirits, and wines or
‘performance’ denote not only visual engagement (i.e., the seeing or viewing manufacturers of any article of
of things) but also active doing (e.g., displaying, staging or presenting) such commerce of whatever kind or
that actions are manifested to, and (correspondingly) perceived by an nature
audience. Wholesalers, distributors, or 50% of 1%
dealers in any article of commerce (Sec. 143[b])
Considering these, it is clear that resorts, swimming pools, bath houses, hot of whatever kind or nature
springs and tourist spots cannot be considered venues primarily “where one Exporters/Dealers of essential Not exceeding 50% of the rates for
seeks admission to entertain oneself by seeing or viewing the show commodities manufacturers, et al. and
or performances”. While it is true that they may be venues where people wholesalers, et al.
are visually engaged, they are not primarily venues for their proprietors or (Sec. 143[c])
operators to actively display, stage or present shows and/or performances. Retailers Gross sales/receipts:
(Pelizloy Realty Corporation vs. Province of Benguet) P400,000 or less: 2%
More than P400,000: 1%
Computation of Amusement Tax: (Sec. 143[d])
1. If the admission ticket includes the amusement tax of thirty percent Contractors 50% of 1%
(30%), as well as other impositions such as a cultural tax, flood tax, and (Sec. 143[e])
similar others, the balance of the admission price would no longer be Banks and other financial 50% of 1% on the gross receipts
subject to another 30% amusement tax; institutions of the preceding calendar year
2. If the amount of tax, as well as other impositions, is not indicated on the derived from interest, commissions
face of the admission tickets, the price or amount paid for admission and discounts from lending
shall not be deemed to include the amount of such tax impositions and, activities, income from financial
therefore, such price or amount paid for the ticket shall be the basis for leasing, dividends, rentals on
Cesar Nickolai F. Soriano Jr.
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LOCAL GOVERNMENT TAXATION
 property and profit from exchange
or sale of property, insurance
premium.
(Sec. 143[f])
Peddlers P50 annually
(Sec. 143[g])
Others 2%
(Sec. 143[h])
A. MANUFACTURERS:
1. Manufacturing involves a physical or chemical process that :
a. alters the exterior texture or form or inner substance of raw
material or manufactured or partially manufactured product, or
b. alters the quality of any raw materials, or
c. combines raw materials with other materials to put to a special use
to which such raw material in their original condition could not have
been put.
2. For the purpose of sale or distribution to others and not for own
use or consumption
3. Manufacturers who exports all of its products are only subject to tax on
exporters. (DOF-BLGF Opinion dated February 16, 1994)
B. WHOLESALERS/DISTRIBUTORS:
Wholesale means a sale where the purchaser buys or imports the commodities
for resale to persons other than the end user regardless of the quantity of the
transaction. (Sec. 131[z])
Distributor is the middleman between the manufacturer and retailer.
If engaged in both wholesale and retail: the taxpayer shall be liable for both
taxes. (BLGF Opinion dated June 23, 1993)
C. EXPORTERS/DEALERS OF ESSENTIAL COMMODITIES
EXPORTERS shall refer to those who are principally engaged in the business
of exporting goods and services, as well as manufacturers and producers
whose goods or services are both sold domestically and abroad.
The 1991 LGC does not embody any provision or classification for sale made
by an “indirect exporter”. Accordingly, a business engaged in the sale of goods
may only be classified as a (direct) exporter, manufacturer,
wholesaler/distributor, dealer or retailer.
However, exportation covers the Philippine F.O.B. value of export products
exported directly by a BOI-registered export producer to another export
producer or to an export trader that subsequently export the same: Provided,
that the sales of export products to another shall be only deemed export sales
when actually exported by the latter, as evidenced by lading certificates of
similar commercial documents. (LFC No. 4-93)
PEZA-registered enterprises: PEZA-registered export enterprises are
exempt from payment of local taxes while enjoying ITH [Article 78, Book VI
of E.O. 226 (Omnibus Investment Code)]. Note that after the ITH, the PEZA
registered entity shall be subjected to the 5% preferential tax rate, 2% of
which is due to the local government unit.
However, the local tax exemption under Art. 78 of the Omnibus Investment
Code does not extend to PEZA-registered enterprises who are not export
enterprises even if entitled to ITH. (DOF-BLGF Opinion dated May 12, 2004)
Not contrary to Sec. 133(m) on limitations on the power to tax: The
prohibition is only on the imposition of export taxes on the products or goods
thus exported. The business tax on exporters is a tax on the privilege to
engage in a business of exporting. The former has as its reference the
exported products, while the latter, the business of exporting itself. (BLGF
Opinion dated March 10, 1994)
ESSENTIAL COMMODITIES: include:
1. Rice and corn
2. Wheat or cassava flour, meat, dairy products, locally manufactured,
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processed or preserved food, sugar, salt and other agricultural, marine,
and fresh water products, whether in their original state or not
3. Cooking oil and cooking gas
4. Laundry soap, detergents, and medicine
5. Agricultural implements, equipment and post-harvest facilities, fertilizers,
pesticides, insecticides, herbicides and other farm inputs
6. Poultry feeds and other animal feeds
7. School supplies
8. Cement
Manufacturers of Vinegar, Soy Sauce and Fish Sauce: Vinegar, Soy Sauce and
Fish Sauce fall under the term “condiment” which means “a seasoning or
relish” to give special or additional flavor to food.
Considering condiment falls within the purview of the term “food”,
manufacturers of vinegar, soy sauce and fish sauce shall likewise be subject
to LBT at a rate of one-half (1/2) of the rate prescribed under Section 143 (a)
of the LGC. (DOF-BLGF Opinion dated July 8, 2004)
D. RETAILERS:
Retail is the sale where the purchaser buys the commodity for his own
consumption, irrespective of the quantity of the commodity sold. (Sec.
131[w])
Test to determine if company is wholesaler or dealer:
• Wholesaler - invoices are issued to companies or business
establishments for re-sale to end-users;
• Retailer – sales receipts are issued to individual consumers or end-users.
Barangays have the exclusive power to levy taxes on retailers where the gross
receipts/sales is P50,000 or less (in case of cities) or P30,000 or less (in case
of municipalities), at a rate not exceeding 1%. (Sec. 152)
Car Dealer: can either be a retailer or a dealer or both and should segregate
sales directly to end-users and to retailers. (BLGF Opinion dated June 25,
1998)
E. CONTRACTORS:
Contractors include persons, natural or juridical, not subject to professional
tax whose activity consists essentially of the sale of all kinds of service for a
fee, regardless of whether or not the performance of a service calls for the
exercise or use of the physical or mental faculties of such contractor or of his
employees.
The following are subject to contractors’ tax:
1. A company rendering management services. (DOF-BLGF Opinion dated
September 18, 2002)
2. Foreign Contractors;
3. Independent Power Producers (IPP) are considered contractors not
manufacturers. (BLGF Opinion dated April 5, 2004)
F. BANKS AND OTHER FINANCIAL INSTITUTIONS:
This cluster includes non-bank financial intermediaries, lending investors,
finance and investment companies, pawnshops, money shops, insurance
companies, stock markets, stock brokers and dealers in securities and foreign
exchange. (Sec. 131[e])
Banks and other banking institutions refer to persons or entities engaged in
the lending of funds obtained from public through the receipt of deposits or
the sale of bonds, securities or obligations of any kind and all entities regularly
conducting such operations.
Offshore banking units are subject to LBT. (BLGF Opinion dated Feb. 24,
1997)
G. PEDDLERS:
A Peddler means any person who, either for himself or on commission, travels
from place to place and sells his goods or offers to sell and deliver the same.
(Sec. 131[t])
Note that the tax on Peddlers under Sec. 143(h) does not apply to those
already subject to Sec. 141 (Annual Fixed Tax for Every Delivery Truck or Van
of Manufacturers or Producers, Wholesalers of, Dealers, or Retainers, in
Certain Products) under par. (b) thereof.
H. OTHERS:
This covers any other business not specified in preceding clusters (A-G) which
the Sanggunian may tax.
THE TREASURER OF MANILA and JOSEPH SANTIAGO, in his
capacity as the CHIEF OF THE LICENSE DIVISION OF CITY OF
MANILA, petitioners, vs. COCA-COLA BOTTLERS PHILIPPINES, INC.,
Respondent. G.R. No. 181845 August 4, 2009: Tax Ordinance No. 7794
imposes a tax on business on manufacturers (Sec. 14) and on those entities
subject to excise, VAT or Percentage Taxes under the NIRC (Sec. 21) but
providing exemption if they are already paying such taxes for their
business. Tax Ordinance No. 7988 was later issued removing such
exemption. Said ordinance was declared null and void by the SC. However,
before such decision, herein respondent was assessed deficiency LBT under
Sec. 14 and Sec. 21. HELD: Petitioners obstinately ignore the exempting
proviso in Section 21 of Tax Ordinance No. 7794, to their own detriment.
Said exempting proviso was precisely included in said section so
as to avoid double taxation.
The Court finds that there is indeed double taxation if respondent is
subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No.
7794, since these are being imposed: (1) on the same subject matter – the
privilege of doing business in the City of Manila; (2) for the same purpose
– to make persons conducting business within the City of Manila contribute
to city revenues; (3) by the same taxing authority – petitioner City of
Manila; (4) within the same taxing jurisdiction – within the territorial
jurisdiction of the City of Manila; (5) for the same taxing periods – per
calendar year; and (6) of the same kind or character – a local business tax
imposed on gross sales or receipts of the business.
Based on the foregoing case, if a business is already taxed under Clusters A
to G, it can no longer be taxed under H (Others) for such imposition will result
in direct double taxation.
Common Carriers are not subject to LBT under Sec. 143(h): Section
133(j) of the LGC prevails over Section 143(h) of the same Code.
Section 133(j) of the LGC is a specific provision that explicitly withholds from
any LGU, i.e., whether the province, city, municipality, or barangay, the power
to tax the gross receipts of transportation contractors, persons engaged in
the transportation of passengers or freight by hire, and common carriers by
air, land, or water.
In contrast, Section 143 of the LGC defines the general power of the
municipality (as well as the city, if read in relation to Section 151 of the same
Code) to tax businesses within its jurisdiction. While paragraphs (a) to (g)
thereof identify the particular businesses and fix the imposable tax rates for
each, paragraph (h) is apparently the "catch-all provision" allowing the
municipality to impose tax "on any business, not otherwise specified in the
preceding paragraphs, which the sanggunian concerned may deem proper to
tax[.]"
The omnibus grant of power to municipalities and cities under Section 143(h)
of the LGC cannot overcome the specific exception/exemption in Section
133(j) of the same Code. This is in accord with the rule on statutory
construction that specific provisions must prevail over general ones. A special
and specific provision prevails over a general provision irrespective of their
relative positions in the statute. Generalia specialibus non derogant.
It is clear that the legislative intent in excluding from the taxing power of the
local government unit the imposition of business tax against common carriers
Cesar Nickolai F. Soriano Jr.
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is to prevent a duplication of the so-called "common carrier's tax.” (City of
Manila vs. Judge Colet, GR No. 120051, Dec. 10, 2014)
Pipelines are likewise considered “common carriers” exempt from
LBT under Sec. 143(h): the definition of "common carriers" in the Civil
Code makes no distinction as to the means of transporting, as long as it is by
land, water or air. It does not provide that the transportation of the
passengers or goods should be by motor vehicle. In fact, in the United States,
oil pipe line operators are considered common carriers. Likewise, RA No. 387
(Petroleum Act) and the BIR (in BIR Ruling No. 069-83) likewise considered
pipeline operators as common carriers. (First Philippine Industrial Corporation
vs. CA – GR No. 125948, December 29, 1998)
TAX BASE: is the “gross sales/receipts” which include the total amount of
money or its equivalent representing the contract price, compensation or
service fee, including the amount charged or materials supplied with the
services and deposits or advance payments actually or constructively received
during the taxable quarter for the services performed or to be performed for
another person. (Sec. 131[n])
Local tax passed-on to customers is included in computing gross
sales/receipts. (BLGT Opinion dated May 20, 1997)
EXCLUSIONS:
1. Discounts if determinable at the time of sales;
2. Sales return;
3. Excise tax; and
4. VAT;
5. Foreign exchange profits are not among those enumerated as taxable
gross receipts of banks, thus, excluded from the taxing authority of the
LGU concerned. (BLGF Opinion dated July 23, 1996)
6. Does not include nor make mention of passive income such as interest
from savings and time deposits, dividends, as well as other income
derived from foreign currency variance as one of those that are
considered part or form part of the “gross sales or receipts” and therefore
such income are not subject to LBT. (DOF-BLGF Opinion dated
September 28, 2002)
7. Payments made by main contractors to subcontractors. (DOF Circular
dated June 13, 1995)
8. Refundable deposits. (DOF-BLGF Opinion dated September 11, 2006)
COMPUTATION OF LBT:
Step 1: Classify the business
Step 2: Group different activities according to clusters. Each clusters has its
own separate tax rates, hence different business activities subject to different
tax rates should be separately reported.
Step 3: Determine gross sales/receipts for all business activities within the
same cluster and consolidate.
Step 4: Compute the tax due for each cluster using the tax rate imposed by
the local tax ordinance
(TAX BASE) x (TAX RATE) = TAX DUE
Notes:
1. Incidental business may not be considered a separate business from the
principal activity.
2. One line of business does not become exempt by being conducted with
some other business for which a tax has been paid.
3. Ensure that the tax rate per local tax ordinance does exceed the maximum
rate in LGC.
OTHER TAXES, FEES AND CHARGES THE MUNICIPALITY MAY LEVY:
1. Fees and Charges on business and occupation and, except those
reserved for the province under Sec. 139, on the practice of any
profession or calling commensurate to regulation, inspection and
licensing before any person may engage in business or occupation, or
such practice of profession or calling. (Sec. 147)
2. Fees for reading and licensing of weights and measures. (Sec. 148)
3. Fishery rentals, fees and charges – municipalities have the exclusive
authority to grant fishery privileges in the municipal waters and impose
rentals, fees and charges. (Sec. 149)

SITUS OF TAX:
1. Entities maintaining branches/sales outlets in places other than the head
office, shall record the sale in said branch/outlet and the tax thereon
shall accrue and shall be paid to the municipality where such
branch/outlet is located.
2. If there is no such branch/outlet, the sales shall be recorded in the head
office and the tax due shall accrue and be paid to such city or
municipality where the head office is located.
3. Sales Allocation: shall apply if the sales are recorded in the head office
and the plant/factory/plantation/project is located in a different
municipality:
a. 30% of sales recorded in the head office shall be taxable in the
municipality/city where the same is located;
b. 70% of sales recorded in the head office shall be taxable in the
municipality/city where the factory/project office/plant/plantation is
located.
In case the plantation is located in a different municipality from the
factory/plant, the said 70% shall be further divided as follows:
i. 60% where the factory is located;
ii. 40% where the plantation is located.
In case there are two or more factories/project
offices/plants/plantations, the 70% share shall be distributed pro rata
among the localities where the said establishments are located.
Principal Office: the head or main office of the business appearing in the
pertinent documents submitted to the Securities and Exchange Commission
or the Department of Trade and Industry, or other appropriate agencies.
Branch or Sales Office: - a fixed place in a locality which conducts operations
of the business as an extension of the principal office.
Offices used only as display areas of the products where no stocks or items
are stored for sale, although orders for the products may be received thereat,
are not branch or sales offices, as herein contemplated.
A warehouse which accepts order and/or issues sales invoices independent of
a branch with sales office, shall be considered as sales office
Warehouse: buildings utilized for the storage of products for sale and from
which goods or merchandise are withdrawn for delivery to customers or
dealers, or by persons acting in behalf of the business. A warehouse does not
accept orders and/or issue sales invoices as aforementioned shall not be
considered a branch or sales office.
Plantation: a tract of agricultural land planted to trees or seedlings whether
fruit bearing or not, uniformly spaced or seeded by broadcast methods or
normally arranged to allow highest production. For purposes of this Article,
inland fishing ground shall be considered as plantation.
ACCRUAL AND PAYMENT OF TAX: Accrues every 1st of the January and
may be payable:
1. Annually – not later than January 20;
2. Quarterly – within 20 days of the first month of the quarter.
RETIREMENT OF BUSINESS (Sec. 145): the business shall submit a sworn
declaration of its gross receipts or sales in the year of retirement.
If the tax paid during the year be less than the tax due on said gross sales or
receipts of the current year, the difference shall be paid before the business
is considered officially retired. (Mobil Philippines Inc. vs. Treasurer of Makati;
GR No. 154092; July 14, 2005)
Regulatory Fees: are set only at a level that ensure full recovery of the costs
of issuing permit or license and surveillance. The LGU cannot use gross
receipts or capitalization as the basis thereof.
III. CITY
Cesar Nickolai F. Soriano Jr.
6 Arellano University School of Law 2011-0303
LOCAL GOVERNMENT TAXATION
Cities may levy the taxes, fees, and charges which the province or municipality
may impose at a rate more than the maximum rates provided for
provinces and municipalities but not exceeding 50%. (Sec. 151)
Independent Component Cities and Highly Urbanized Cities in provinces are
likewise covered by the above and such taxes, fees and charges levied and
collected by them shall accrue to them.
IV. BARANGAYS
Taxes Stores and Retailers where the gross receipts/sales is
(Sec. 152[a]) P50,000 or less (in case of cities) or P30,000 or less (in
case of municipalities), at a rate not exceeding 1%.
If the gross sales/receipts is higher than the above
amounts, the retailer shall be subject to the tax on
business imposed by the municipality or city.
Service Fees Reasonable fees or charges for services rendered in
or Charges connection with the regulations or the use of barangay-
(Sec. 152[b]) owned properties or service facilities such as palay, copra,
or tobacco dryers.
Barangay No city or municipality may issue any license or permit for
Clearance any business or activity unless a clearance is first obtained
(Sec. 152[c]) from the barangay where such business or activity is
located or conducted. For such clearance, the
sangguniang barangay may impose a reasonable fee.
Other Fees Reasonable fees and charges on the following:
and Charges 1. On commercial breeding of fighting cocks, cockfights
(Sec. 152[d]) and
cockpits;
2. On places of recreation which charge admission fees;
and
3. On billboards, signboards, neon signs, and outdoor
advertisements
V. COMMUNITY TAX
SECTION 156. Community Tax. — Cities or municipalities may levy a
community tax in accordance with the provisions of this Article.
AMOUNTS:
1. Individual - P5.00 and an additional P1.00 for every P1,000 of income,
to a maximum of P5,000; (Sec. 157)
2. Corporate – P500 and an additional tax, which in no case, shall exceed
P10,000. Additional tax shall include:
a. P2.00 for every P5,000 worth of property;
b. P2.00 for every P5,000 gross receipts. (Sec. 158)
EXEMPTIONS:
1. Diplomatic and consular representatives; and
2. Transient visitors when their stay in the Philippines does not exceed 3
months. (Sec. 159)
ACCRUAL AND PAYMENT: Community Tax accrues on the 1st day of
January of each year which shall be paid not later than the last day of February
of each year.
PLACE OF PAYMENT:
1. Individual – place of residence;
2. Corporation – principal place of business. (Sec. 160)
VI. COMMON REVENUE RAISING POWERS
Local government units may impose and collect:
1. Service Fees and Charges;
2. Public Utility Charges;
3. Toll Fees or Charges (but not upon members of the AFP and PNP, post
office personnel delivering mail, physically-handicapped, and disabled
citizens who are 65 years or older);
VII. LGU’s REMEDIES

LIEN: local taxes, fees, charges and other revenues constitute a lien, superior
to all liens, charges or encumbrances in favor of any person, enforceable by
appropriate administrative or judicial action, not only upon any property or
rights therein which may be subject to the lien but also upon property used
in business, occupation, practice of profession or calling, or exercise of
privilege with respect to which the lien is imposed. The lien may only be
extinguished upon full payment of the delinquent local taxes, fees and charges
including related surcharges and interest. (Sec. 173)
AUDIT: the treasurer may examine the books, accounts, and other pertinent
records of any person, partnership, corporation, or association subject to local
taxes, fees and charges in order to ascertain, assess, and collect the correct
amount of the tax, fee, or charge.
Such examination shall be made during regular business hours, only once for
every tax period, and shall be certified to by the examining official.
For this purpose, the records of the revenue district office of the Bureau of
Internal Revenue shall be made available to the local treasurer, his deputy or
duly authorized representative. (Sec. 171)
CIVIL REMEDIES: of the local government unit for the collection of local
taxes, fees and charges, and related surcharges and interests resulting from
delinquency are:
1. By administrative action through distraint or levy;
2. By judicial action.
Either of these remedies or all may be pursued concurrently or simultaneously
at the discretion of the local government unit concerned.
The remedies of distraint or levy may be repeated if necessary until the full
amount due, including all expenses, is collected. (Sec. 184)
The following are EXEMPT from distraint or levy:
(a) Tools and implements necessarily used by the delinquent taxpayer in his
trade or employment;
(b) One (1) horse, cow, carabao, or other beast of burden, such as the
delinquent taxpayer may select, and necessarily used by him in his
ordinary occupation;
(c) His necessary clothing, and that of all his family;
(d) Household furniture and utensils necessary for housekeeping and used
for that purpose by the delinquent taxpayer, such as he may select, of a
value not exceeding Ten thousand pesos (P10,000.00);
(e) Provisions, including crops, actually provided for individual or family use
sufficient for four (4) months;
(f) The professional libraries of doctors, engineers, lawyers and judges;
(g) One fishing boat and net, not exceeding the total value of Ten thousand
pesos (P10,000.00), by the lawful use of which a fisherman earns his
livelihood; and
(h) Any material or article forming part of a house or improvement of any
real property.
CIVIL PENALTIES: Section 168 of the Local Government Code, the
Sanggunian may impose:
1. Surcharge – not exceeding 25% of the amount of taxes, fees or charges
not paid on time;
Surcharge is a one-time penalty, not annual similar to an
interest: The surcharge is a civil penalty imposed once for late payment
of a tax. Contrast this with the succeeding provisions on interest, which
was imposable at the rate not exceeding 2% per month of the unpaid
taxes until fully paid. The fact that the interest charge is made
proportionate to the period of delay, whereas the surcharge is not,
clearly reveals the legislative intent for the different modes in their
application.
Indeed, both the surcharge and interest are imposable upon failure of
the taxpayer to pay the tax on the date fixed in the law for its payment.
The surcharge is imposed to hasten tax payments and to punish for
Cesar Nickolai F. Soriano Jr.
7 Arellano University School of Law 2011-0303
LOCAL GOVERNMENT TAXATION
evasion or neglect of duty, while interest is imposed to compensate the
State "for the delay in paying the tax and for the concomitant use by the
taxpayer of funds that rightfully should be in the government's hands."
If the legislative intent was to make the 25% surcharge proportionate to
the period of delay, the law should have provided for the same in clear
terms.
2. Interest – at the rate not exceeding 2% 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 potion thereof
exceed 36 months.
Note that unlike in national taxes and real property tax, the base of the
interest for local business taxes is inclusive of surcharge.
VIII. TAXPAYERS’ REMEDIES
1. PRESCRIPTION
PERIOD OF ASSESSMENT: local taxes, fees or charges shall be assessed
within 5 years from the date they become due. No action for the collection
of such shall be instituted after the expiration of such period. EXCEPT: in
case of fraud or intent to evade payment of taxes, fees or charges, the same
may be assessed within 10 years. (Sec. 194[a] and [b])
PERIOD OF COLLECTION: 5 years from date of assessment by
administrative or judicial action.
SUSPENSION OF PERIODS: during which:
a. The treasurer is legally prevented from making the assessment of
collection;
b. The taxpayer requests for a reinvestigation and executes a waiver in
writing before expiration of the period within which to assess or collect;
and
c. The taxpayer is out of the country or otherwise cannot be located. (Sec.
194[d])
2. PROTEST OF ASSESSMENT (Sec. 195)
a. After receipt of the notice of assessment from the treasurer, the taxpayer
may file a written protest within 60 days to contest the assessment,
otherwise the same will be final and executory;
b. The local treasurer shall decide the protest within 60 days from its filing;
• If protest is meritorious – treasurer shall issue notice cancelling
wholly or partially the assessment.
• If not meritorious – treasurer shall deny the protest with notice to
the taxpayer.
• The protest may likewise be considered denied if not acted upon
within the 60 day period.
c. The taxpayer shall have 30 days from the receipt of denial or from the
lapse of the 60 day period to appeal with the court of competent
jurisdiction. Otherwise, the assessment becomes conclusive and
unappealable.
3. CLAIM FOR REFUND:
No case or proceeding shall be maintained in any court for the recovery of
any tax, fee, or charge erroneously or illegally collected until a written claim
for refund or credit has been filed with the local treasurer. No case or
proceeding shall be entertained in any court after the expiration of two (2)
years from the date of the payment of such tax, fee, or charge, or from the
date the taxpayer is entitled to a refund or credit. (Sec. 196)
No evidence of a written claim for refund; not deemed admitted: if
the taxpayer failed to prove that they have filed a written claim for refund
with the local treasurer considering that such fact – although subject of their
Request for Admission which respondents did not reply to – had already been
controverted by the latter in their Motion to Dismiss and Answer, regardless
if they filed the judicial claim for refund within the 2 year period, the same
must be denied.

Records show that petitioners filed their Request for Admission with the RTC
and also served the same on respondents, requesting that the fact that they
filed a written claim for refund with the City Treasurer of Manila be admitted.
Respondents, however, did not – and in fact, need not – reply to the same
considering that they have already stated in their Motion to Dismiss and
Answer that petitioners failed to file any written claim for tax refund or
credit. In this regard, respondents are not deemed to have admitted the truth
and veracity of petitioners’ requested fact. (Metro Manila Shopping Mecca
Corp. vs. Toledo, GR No. 190818, June 5, 2013)
If refund is granted: it shall not be refundable in cash but shall only be
applied to future tax obligations of the same taxpayer for the same business.
If the taxpayer has no other tax obligations, it shall be applied in full in the
first quarter of the next calendar year.
Any unapplied balance of the tax credit shall be refund in cash in the event of
termination of business in the locality.
No Need for WRIT OF EXECUTION: instead of moving for the issuance of
a writ of execution relative to the aforesaid Decision, petitioner should have
merely requested for the approval of the City of Manila in implementing the
tax refund or tax credit, whichever is appropriate. In other words, no writ was
necessary to cause the execution thereof, since the implementation of the tax
refund will effectively be a return of funds by the City of Manila in favor of
petitioner while a tax credit will merely serve as a deduction of petitioner’s tax
liabilities in the future.
In fact, Section 252 (c) of the Local Government Code of the Philippines is
very clear that "[i]n the event that the protest is finally decided in favor of the
taxpayer, the amount or portion of the tax protested shall be refunded to the
protestant, or applied as tax credit against his existing or future tax liability."
It was not necessary for petitioner to move for the issuance of the writ of
execution because the remedy has already been provided by law.
residential Decree No. 1445 and Administrative Circular No. 10-2000 involve
a settlement of a claim against a local government unit, the same finds no
application in the instant case wherein no monetary award is actually awarded
to petitioner but a mere return or restoration of petitioner’s money, arising
from an excessive payment of tax erroneously or illegally imposed and
received.
It could not have been the intention of the law to burden the taxpayer with
going through the process of execution under the Rules of Civil Procedure
before it may be allowed to avail its tax credit as affirmed by a court judgment.
(Coca-Cola Bottlers Philippines, Inc. vs. City of Manila, GR No. 197561, April
7, 2014)
IX. MISCELLANEOUS PROVISIONS:
SECTION 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.
Residual Powers: the LGUs may exercise the power to levy taxes, fees or
charges on any base or subject not otherwise specifically enumerated under
the LGC, except:
1. Those taxed under the Tax Code;
2. The taxes, fees or charges shall not be unjust, excessive or oppressive,
confiscatory or contrary to declared national policy;
3. There must be a valid ordinance;
4. There must be public hearing conducted prior to enactment of the
ordinance.
Cesar Nickolai F. Soriano Jr.
8 Arellano University School of Law 2011-0303
LOCAL GOVERNMENT TAXATION
Rule of Pre-emption: if the National Government elects a particular area as
subject to tax, it impliedly withholds from the local government unit the
delegated power to tax the same fields or area.
Section 187. Procedure for Approval and Effectivity of Tax,
Ordinances and Revenue Measures; Mandatory Public Hearings. -
The procedure for approval of local tax ordinances and revenue measures
shall be in accordance with the provisions of this Code: Provided, That
public hearings shall be conducted for the purpose prior to the enactment
thereof: Provided, further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on appeal
within thirty (30) days from the effectivity thereof to the Secretary of
Justice who shall render a decision within sixty (60) days from the date of
receipt of the appeal: Provided, however, That such appeal shall not have
the effect of suspending the effectivity of the ordinance and the accrual
and payment of the tax, fee, or charge levied therein: Provided, finally,
That within thirty (30) days after receipt of the decision or the lapse of the
sixty-day period without the Secretary of Justice acting upon the appeal,
the aggrieved party may file appropriate proceedings with a court of
competent jurisdiction.
Procedure in questioning the validity of Tax Ordinance:
1. Appeal to the Secretary of Justice (“SOJ”) within 30 days from the
effectivity of the ordinance.
2. SOJ shall render a decision within 60 days from receipt of appeal.
3. Appeal shall not have the effect of suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee, or charge levied
therein.
4. Within 30 days after receipt of the decision or the lapse of the 60 period
without the SOJ acting upon the appeal, the aggrieved party may file a
declaratory relief petition with the RTC.
Sec. 187 only covers “tax” ordinance: The LGC defines the term
"charges" as referring to pecuniary liability, as rents or fees against persons
or property, while the term "fee" means "a charge fixed by law or ordinance
for the regulation or inspection of a business or activity.
Since the main purpose of Ordinance No. 18 is to regulate certain construction
activities of the identified special projects, which included "cell sites" or
telecommunications towers, the fees imposed in Ordinance No. 18 are
primarily regulatory in nature, and not primarily revenue-raising. While the
fees may contribute to the revenues of the Municipality, this effect is merely
incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.
Considering that the fees in Ordinance No. 18 are not in the nature of local
taxes, and Smart is questioning the constitutionality of the ordinance, the CTA
correctly dismissed the petition for lack of jurisdiction. Likewise, Section 187
of the LGC, which outlines the procedure for questioning the constitutionality
of a tax ordinance, is inapplicable, rendering unnecessary the resolution of
the issue on non-exhaustion of administrative remedies. (Smart
Communications, Inc. vs. Municipality of Malvar, Batangas)
SECTION 191. Authority of Local Government Units to Adjust
Rates of Tax Ordinances. — Local government units shall have the
authority to adjust the tax rates as prescribed herein not oftener than once
every five (5) years, but in no case shall such adjustment exceed ten
percent (10%) of the rates fixed under this Code.
Section 192. Authority to Grant Tax Exemption Privileges. - Local
government units may, through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and conditions as they
may deem necessary.
Section 193. Withdrawal of Tax Exemption Privileges. - Unless
otherwise provided in this Code, tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-
profit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code.
Note, however, that exemptions granted after the effectivity of the LGC are
effective.
“In lieu of all taxes” provision found in existing franchises are withdrawn with
the enactment of LGC of 1991. However, if similar provision is found in
franchises subsequent to the effectivity of LGC of 1991, said grantees are
entitled to exemption from local franchise tax. (PLDT v. City of Davao, G.R.
No. 143867, March 25, 2003)
PART 2: REAL PROPERTY TAX
FUNDAMENTAL PRINCIPLES:
SECTION 198. Fundamental Principles. — The appraisal, assessment,
levy and collection of real property tax shall be guided by the following
fundamental principles:
(a) Real property shall be appraised at its current and fair market value;
(b) Real property shall be classified for assessment purposes on the basis
of its actual use;
(c) Real property shall be assessed on the basis of a uniform classification
within each local government unit;
(d) The appraisal, assessment, levy and collection of real property tax shall
not be let to any private person; and
(e) The appraisal and assessment of real property shall be equitable.
REAL PROPERTY: the Local Government Code does not have a definition of
what constitutes “real property”. However, the Code provides assessment
levels applicable to land, buildings, improvements and machineries.
Generally, the definition under Art. 415 of the Civil Code is applied.
Accordingly, the following are considered real property:
a. Immovable by nature – those which cannot be moved from place to
place, such as land, bldg., etc., mentioned in par. 1 & 8 (mines, quarries,
slag dumps) of this Article;
b. By Incorporation – essentially movables but are attached to an
immovable in such manner as to be an integral part thereof, such as
things (except land, buildings and roads) mentioned in par. 1, 2, 3, 4
and 6. e.g., trees and plants.
c. By Destination – the purpose for which they have been placed in an
immovable, partake the nature of the latter because of the added utility
derived therefrom. (4,5,6,7 and 9)
d. By Analogy or by law, as those mentioned in par. 10.
SUBJECT TO REAL PROPERTY TAX: The following are considered real
property subject to real property tax:
1. Underground tanks, elevated tank, elevated water tanks, water tanks,
gasoline pumps, computing pumps, water pumps, car washer, car hoists,
truck hoists, air compressors and tireflators in its gasoline stations - said
equipment and machinery, as appurtenances to the gas station building
or shed owned by Caltex (as to which it is subject to realty tax) and
which fixtures are necessary to the operation of the gas station, for
without them the gas station would be useless, and which have been
attached or affixed permanently to the gas station site or embedded
therein, are taxable improvements and machinery within the meaning of
the Assessment Law and the Real Property Tax Code. (Caltex vs. CBAA)
2. While the two storage tanks are not embedded in the land, they may,
nevertheless, be considered as improvements on the land, enhancing its
utility and rendering it useful to the oil industry. It is undeniable that the
two tanks have been installed with some degree of permanence as
receptacles for the considerable quantities of oil needed by Meralco for
its operations. (Manila Electric Company vs. CBAA)
For purposes of taxation, the term "real property" may include
things which should generally be regarded as personal property. It
is a familiar phenomenon to see things classed as real property for purposes
of taxation which on general principle might be considered personal property
(Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
NOT SUBJECT TO REAL PROPERTY TAX: Meralco's steel towers were held
not to be subject to realty tax, is not in point because in that case the steel
towers were regarded as poles and under its franchise Meralco's poles are
Cesar Nickolai F. Soriano Jr.
9 Arellano University School of Law 2011-0303
LOCAL GOVERNMENT TAXATION
exempt from taxation. Moreover, the steel towers were not attached to any
land or building. They were removable from their metal frames. Board of
Assessment Appeals vs. Manila Electric Company)
Appraisal of Real Property: shall be at its current and fair market value,
which is the price at which a property may be sold by a seller who is not
compelled to sell and bought by a buyer who is not compelled to buy.
The owner of the property shall initially determine the fair market value to be
indicated in the Tax Declaration. However, this does not bind the assessor in
making his own determination of fair market value. (Patalinhug vs. C.A., 229
SCRA 554)
IMPROVEMENTS:
An Improvement is a valuable addition made to a property or an amelioration
in its condition, which is intended to enhance its value, beauty or utility or to
adapt it for new or further purposes, amounting to more than a mere repair
or replacement of parts involving capital expenditures and labor and normally
requiring a building permit. (Art. 290(m), IRR)
MACHINERY:
For RPT purposes, Machinery embraces machines, equipment, mechanical
contrivances, instruments, appliances or apparatus which may or may not be
attached, permanently or temporarily, to the real property.
It includes the physical facilities for production, the installations and
appurtenant service, facilities, those which are mobile, self-powered or self-
propelled, and those not permanently attached to the real property which are
actually, directly, and exclusively used to meet the needs of the particular
industry, business or activity and which by their very nature and purpose are
designed for, or necessary to its manufacturing, mining, logging, commercial,
industrial or agricultural purposes.
Machinery that is permanently attached to land and buildings is subject to
RPT, even though this is actually, directly, and exclusively used for religious,
charitable or educational purposes. (DOF Local Finance Circular No. 1-02)
Note that the Constitutional exemption under Sec. 28(3) of Art. VI covers
churches and parsonages or covenants appurtenant thereto, mosques, non-
profit cemeteries, and all “land, buildings and improvements,” actually,
directly and exclusively used for religious, charitable, or educational purposes.
Machinery that is not permanently attached to real estate is:
a. Subject to the RPT if it is an essential and principal element of an industry,
work or activity without such industry, work or activity cannot function
b. Not subject to RPT, if it is NOT an essential and principal element of an
industry, work or activity. (DOF Local Finance Circular No. 1-02)
Machineries of General Purpose Use: including but not limited to office
equipments, (e.g., telephone equipment, microcomputers, facsimile
machines, telex machines, cash dispensers), furniture and fixtures, freezers,
refrigerators, display cases or racks, which are not directly and exclusively
used to meet the needs of a particular industry, business or activity shall not
be considered within the definition of machinery.
In BLGF Opinion dated June 15, 2012, the Bureau opined that machineries for
general purpose are not subject to RPT if they are not used directly and
exclusively for the conduct of trade or business of the Company. In this
instance, the computer equipment of Eastwest Bank fall under the category
of Machinery of General Purpose.
Appraisal of Machineries: (Sec. 224)
Appraisal is the act or process of determining the value of property as of a
specified date for a specific purpose. (Sec. 199[e])
1. Brand New – acquisition cost;
 "Acquisition Cost" for newly-acquired machinery not yet depreciated and
appraised within the year of its purchase, refers to the actual cost of the
machinery to its present owner, plus the cost of transportation, handling,
and installation at the present site. (Sec. 199[a])
2. All other cases – it shall be computed as follows:
Remaining useful life Replacement
x
Economic life Cost
"Remaining Economic Life" is the period of time expressed in years from
the date of appraisal to the date when the machinery becomes valueless.
“Economic Life" is the estimated period over which it is anticipated that
a machinery or equipment may be profitably utilized.
"Replacement or Reproduction Cost" is the cost that would be incurred
on the basis of current prices, in acquiring an equally desirable substitute
property, or the cost of reproducing a new replica of the property on the
basis of current prices with the same or closely similar material.
3. If machinery is imported, the acquisition cost includes freight, insurance,
bank charges, brokerage, arrastre and handling, duties and taxes, plus
cost of inland transportation, handling and installation charges at the
present site.
2. Agricultural: devoted principally to the planting of trees, raising of crops,
livestock and poultry, dairying, salt making, inland fishing and similar
aquacultural activities, and other agricultural activities
3. Commercial: devoted principally for the object of profit
4. Industrial: devoted principally to industrial activity as capital investment
5. Mineral: minerals, metallic or non-metallic, exist in sufficient quantity or
grade to justify the necessary expenditures to extract and utilize such
materials
6. Timberland
7. Special
Special classes include all lands, buildings, and other improvements thereon
actually, directly and exclusively used for: (1) hospitals; (2) cultural or (3)
scientific purposes, and (4) those owned and used by local water districts,
and (5) government-owned or -controlled corporations rendering essential
public services in the supply and distribution of water and/or generation and
transmission of electric power. (Sec. 216)
ASSESSMENT LEVELS (Sec. 218):
Assessment Level is the percentage applied to the fair market value to
determine the taxable value of the property. (Sec. 199[g])
The sanggunian concerned may fixed the assessment levels through
ordinances but shall not exceed the rates enumerated under Sec. 218, to wit:

Depreciation Allowance: a depreciation allowance shall be made for (a) On Lands:

machinery at a rate not exceeding five percent (5%) of its original cost or its CLASS ASSESSMENT LEVELS
replacement or reproduction cost, as the case may be, for each year of use:
Provided, however, That the remaining value for all kinds of machinery shall Residential 20%
be fixed at not less than twenty percent (20%) of such original, replacement,
or reproduction cost for so long as the machinery is useful and in operation. Agricultural 40%
(Sec. 225)
Commercial 50%
Note that depreciation allowance for RPT purposes is available only against
Industrial 50%
machineries and not for other assets which are generally subject to
depreciation, e.g., buildings and improvements. Mineral 50%

ADMINISTRATION: The following shall be primarily responsible for the Timberland 20%
proper, efficient and effective administration of the real property tax:
1. Provinces; (b) On Buildings and Other Structures:
2. Cities;
3. Municipalities within Metro Manila.
(1) Residential
DECLARATION OF REAL PROPERTY: Fair market Value

Over Not Over Assessment Levels

Under Sec. 202, it is the duty of all persons, natural or juridical, owning or
administering real property, including the improvements therein, to prepare P175,000.00 0%
and file a sworn statement declaring the true value of real property, taxable
or exempt, declaring the true value of the property which shall be the current P175,000.00 300,000.00 10%
and fair market value thereof.
300,000.00 500,000.00 20%
The declaration shall be filed with the assessor once every 3 years.
500,000.00 750,000.00 25%
New acquisitions: it shall also be the duty of any person, natural or juridical, 750,000.00 1,000,000.00 30%
acquiring real property to cause the declaration of real property within 60 days
from acquisition or upon completion or occupancy of the improvement, 1,000,000.00 2,000,000.00 35%
whichever comes earlier.
2,000,000.00 5,000,000.00 40%
Transfer of Real Property: a notice shall be submitted to the assessor 60 days
from the date of transfer containing the mode of transfer, the description of 5,000,000.00 10,000,000.00 50%
the property alienated, the name and address of the transferee.
10,000,000.00 60%
CLASSIFICATION OF REAL PROPERTY:
(2) Agricultural
Real property shall be classified, valued and assessed according to its actual Fair Market Value
use regardless of where located, whoever owns it, and whoever uses it. (Sec.
217) It may be classified as (Sec. 215): Over Not Over Assessment Levels

1. Residential: principally devoted to habitation P300,000.00 25%

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LOCAL GOVERNMENT TAXATION
 P300,000.00 500,000.00 30% Government-owned or controlled 10%
corporations engaged in the supply and
500,000.00 750,000.00 35% distribution of water and/or generation
and transmission of electric power
750,000.00 1,000,000.00 40%

1,000,000.00 2,000,000.00 45% Actual Assessment Levels: vary depending on the LGU since the
Sanggunian may fix the assessment levels, provided they do not exceed the
2,000,000.00 50% above rates.

General Revision of Assessments and Property Classification: the

(3) Commercial / Industrial
assessor concerned shall undertake a general revision of real property
Fair Market Value
assessments within 2 years after the effectivity of the LGC and every 3 years
Over Not Over Assessment Levels thereafter. (Sec. 219)

P300,000.00 30% Valuation of Real Property: In cases where (a) real property is declared
and listed for taxation purposes for the first time; (b) there is an ongoing
P300,000.00 500,000.00 35% general revision of property classification and assessment; or (c) a request is
made by the person in whose name the property is declared, the provincial,
500,000.00 750,000.00 40% city or municipal assessor or his duly authorized deputy shall, in accordance
750,000.00 1,000,000.00 50% with the provisions of this Chapter, make a classification, appraisal and
assessment or taxpayer's valuation thereon: Provided, however, That the
1,000,000.00 2,000,000.00 60% assessment of real property shall not be increased oftener than once every
three (3) years except in case of new improvements substantially increasing
2,000,000.00 5,000,000.00 70% the value of said property or of any change in its actual use. (Sec. 220)

5,000,000.00 10,000,000.00 75% Reassessment: made after the 1st day of January of any year shall take
effect on the 1st day of January of the following year. EXCEPT: reassessment
10,000,000.00 80%
due to partial or total destruction or to a major change of the property’s actual
use, or to any great and sudden inflation or deflation of real property values,
(4) Timberland or the gross illegality of assessment when made or to any abnormal cause,
Fair Market Value the reassessment shall be made 90 days after such cause or causes occurred
and shall take effect at the beginning of the next quarter next following the
Over Not Over Assessment Levels reassessment. (Sec. 221)

P300,000.00 45% Real Properties Declared for the First Time: shall be assessed taxes for
the period during which it would have been liable but in no case for more than
P300,000.00 500,000.00 50% 10 years prior to the date of initial assessment.
500,000.00 750,000.00 55%
Duty of Registrar of Deeds:
750,000.00 1,000,000.00 60% a. To prepare and submit to the provincial, city or municipal assessor every
year an abstract of his registry, which shall contain:
5,000,000.00 2,000,000.00 65% (1) Brief but sufficient description of the real properties entered
therein;
2,000,000.00 70% (2) Their present owners;
(3) Dates of their most recent transfers or alienation accompanied by
(c) On Machineries copies of the corresponding deeds of sale, donation or partition or
other forms of alienation.
Class Assessment Levels
Purpose: is to ascertain whether or not any real property entered in the
Agricultural 40% Registry of Property has escaped discovery and listing for the purpose of
taxation. (Sec. 209[a])
Residential 50% b. To require every person who shall present for registration a document
of transfer, alienation, or encumbrance of real property to accompany
Commercial 80% the same with a certificate to the effect that the real property subject
of the transfer, alienation, or encumbrance, as the case may be, has
Industrial 80% been fully paid of all real property taxes due thereon.

(d) On Special Classes: The assessment levels for all lands buildings, Failure to provide such certificate shall be a valid cause for the Registrar
machineries and other improvements; of Deeds to refuse the registration of the document. (Sec. 209[b])

Actual Use Assessment Level ASSESSMENT APPEALS:

Cultural 15% When not satisfied with the action of the assessor with regards the
assessment of property, the owner or person having legal interest may appeal
Scientific 15% to the Local Board of Assessment Appeals (LBAA) within 60 days from receipt
of the notice of assessment, by filing a petition under oath, together with the
Hospital 15% copies of the tax declarations and such affidavits or documents submitted in
support of the appeal. (Sec. 226)
Local water districts 10%

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11 Arellano University School of Law 2011-0303
LOCAL GOVERNMENT TAXATION
The LBAA shall decide the appeal within 120 days. If unsatisfied with the
decision of the LBAA, the owner or person having legal interest may appeal
to the Central Board of Assessment Appeals (CBAA) within 30 days from
receipt of such decision. The decision of the CBAA shall be final and executory.
(Sec. 229)
EFFECT OF APPEAL ON THE PAYMENT OF RPT: Appeal on assessments
of real property shall, in no case, suspend the collection of the realty taxes on
the real property involved as assessed by the provincial or city assessor,
subject to adjustment depending on the outcome of the appeal. (Sec. 231)
Thus, should the taxpayer/real property owner question the excessiveness or
reasonableness of the assessment, Section 252 directs that the taxpayer
should first pay the tax due before his protest can be entertained. (Olivarez
vs. Marquez 438 SCRA 679)
IMPOSITION OF REAL PROPERTY TAX (RPT)
RPT is an ad valorem tax on real property such as land, building, machinery
and other improvement administered by provinces, cities and municipalities
within Metro Manila.
BASIC RPT RATE: the local government unit may fix the rate of RPT
applicable to their respective localities but shall not exceed:
1. 1% - Provinces;
2. 2% - Cities and Municipalities within Metro Manila. (Sec. 233)
RPT Tax Base: is the assessed/assessment value, which is the product of
the assessment level and the fair market value.
Computation of RPT:
Fair Market Value xxx
Assessment Level xx%
Assessed Value xxx
RPT Rate:
Basic RPT 1/2%
Special Education Fund 1% 2/3%
RPT Due xxx
REAL PROPERTIES EXEMPT FROM RPT:
SECTION 234. Exemptions from Real Property Tax. — The following
are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands,
buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned or -controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemption from payment of real property
tax
previously granted to, or presently enjoyed by, all persons, whether natural
or juridical, including all government-owned or -controlled corporations are
hereby withdrawn upon the effectivity of this Code.
Cesar Nickolai F. Soriano Jr.
12 Arellano University School of Law 2011-0303
LOCAL GOVERNMENT TAXATION
Proof of Exemption of Real Property: under Sec. 206, every person who
claims exemption from real property tax shall file with the assessor within 30
days from the date of declaration of real property sufficient documentary
evidence in support of such claim including corporate charters, title of
ownership, articles of incorporation, by-laws, contracts, affidavits,
certifications and mortgage deeds, and similar documents.
If the required evidence is not submitted within the period prescribed, the
property shall be listed as taxable in the assessment roll. However, if the
property shall be proven to be tax exempt, the same shall be dropped from
the assessment roll. (Sec. 206)
If, however, it is not dropped therefrom and the exemption is insisted after
an assessment for unpaid RPT has been issued, the taxpayer may question
the validity of the assessment directly with the RTC, such assessment being
considered an illegal assessment, rather than an erroneous assessment. (see
Protest)
Moreover, the exemption is explicitly granted by law and need not be applied
for. (Testate Estate of Concordia T. Lim vs. City of Manila, GR No. 90639, Feb.
21, 1990)
Property is leased: in case a private person owns a land which is leased to
a school and the same is used actually, directly and exclusively for educational
purposes, the same is exempt from RPT.
The owner/lessor must file with the LGU a claim for exemption and submit
supporting document in accordance with Sec. 206 in order to list the property
in the assessment roll under exempt properties. Otherwise, the LGU will
assess the property for deficiency RPT. Failure to comply does not mean,
however, that the exemption will no longer apply, since under Sec. 198(b),
the actual use is the basis for the assessment. Accordingly, any assessment
of deficiency RPT issued by the LGU may be directly questioned before the
RTC – the case being one of illegal assessment, not with the treasurer, LBAA,
CBAA.
SPECIAL LEVIES ON REAL PROPERTY
SPECIAL LEVIES: In addition to the Basic RPT, provinces, cities or
municipalities within Metro Manila may impose:
1. Special Education Fund – 1%; (Sec. 235)
2. Tax on Idle Lands – 5%; (Sec. 236)
3. Special Levy on lands benefited by public works funded by the LGU – not
to exceed 60% of the actual cost of the project, payable in 5-10 years,
distributed among to various land owners benefited. (Sec. 240)
IDLE LANDS: shall include:
(a) Agricultural lands, more than one (1) hectare in area, suitable for
cultivation, dairying, inland fishery, and other agricultural uses, one-half (1/2)
of which remain uncultivated or unimproved by the owner of the property or
person having legal interest therein. Agricultural lands planted to permanent
or perennial crops with at least fifty (50) trees to a hectare shall not be
considered idle lands. Lands actually used for grazing purposes shall likewise
not be considered idle lands.
(b) Lands, other than agricultural, located in a city or municipality, more than
one thousand (1,000) square meters in area one-half (1/2) of which remain
unutilized or unimproved by the owner of the property or person having legal
interest therein.
(c) Regardless of land area, residential lots in subdivisions duly approved by
proper authorities, the ownership of which has been transferred to individual
owners. (Sec. 237)
Idle Lands Exempt From Tax: by reason of force majeure, civil
disturbance, natural calamity or any cause or circumstance which physically
or legally prevents the owner of the property or person having legal interest
therein from improving, utilizing or cultivating the same. (Sec. 238)
Accrual: Special Levy shall accrue on the 1st day of the quarter next following
the effectivity of the ordinance imposing such levy. (Sec. 245) Any owner
affected by a special levy may avail of the remedies provided under Chapter
III, Title Two, Book II of the LGC on Assessment Appeals. (Sec. 244) (See
Assessment Appeals)
COLLECTION OF REAL PROPERTY TAX:
The RPT shall accrue on the 1st of January and shall constitute a lien on the
property which shall be superior to any other lien, mortgage, or encumbrance
of any kind whatsoever, and shall be extinguished only upon the payment of
the delinquent tax. (Sec. 246)
Duty to collect: is with the city or municipal treasurer. However, they may
deputize the barangay treasurer, provided:
1. The barangay treasurer is properly bonded for the purpose; and
2. The premium for the bond shall be paid by the city or municipal
treasurer. (Sec. 247)
Notice of Time for Collection: the city or municipal treasurer shall, on or before
the 31st of January, in the case of the Basic RPT and SEF, post notice of the
dates when the tax may be paid without interest at a conspicuous and publicly
accessible place at the city or municipal hall. Said notice shall likewise be
published in a newspaper of general circulation in the locality once a week for
two (2) consecutive weeks. (Sec. 249)
PAYMENT OF REAL PROPERTY TAX: may be done through four
instalments, due on the following dates:
a. March 31;
b. June 30;
c. September 30;
d. December 31. (Sec. 250)
Discounts:
a. Prompt payment – payment before due date of the quarterly RPT due;
not exceeding 10%;
b. Advance payment – payment of the entire RPT in the first quarter; not
exceeding 20% (Sec. 251)
PROTEST: Sec. 252
a. No protest shall be entertained unless the taxpayer first pays the tax.
There shall be annotated on the receipts the words “paid under protest.”
The requirement of "payment under protest" is a condition sine qua non
before a protest or an appeal questioning the correctness of an
assessment of real property tax may be entertained. (Camp John Hay
vs. CBAA, GR No. 169234, October 2, 2013)
b. The protest in writing must be filed within 30 days from payment of the
tax to the treasurer, who shall decide the protest within 60 days.
c. The tax portion shall be held in trust by the treasurer concerned.
d. If decided in favour of the taxpayer, the amount paid shall be:
b. Refunded;
c. Applied to existing or future tax liability.
e. If the protest is denied or upon the lapse of 60 days from the filing
thereof, the taxpayer may appeal to the LBAA within 60 days from receipt
of the decision, who shall decide within 120 days;
f. If unsatisfied with the decision of the LBAA, appeal may be had before
the CBAA within 30 days from receipt of the decision.
The above procedure applies only to erroneous assessments, not illegal
assessments.
Illegal vs. Erroneous Assessment: An erroneous assessment
“presupposes that the taxpayer is subject to the tax but is disputing the
correctness of the amount assessed.” With an erroneous assessment, the
taxpayer claims that the local assessor erred in determining any of the items
for computing the real property tax, i.e., the value of the real property or the
portion thereof subject to tax and the proper assessment levels. In case of an
erroneous assessment, the taxpayer must exhaust the administrative
remedies provided under the Local Government Code before resorting to
judicial action.
Cesar Nickolai F. Soriano Jr.
13 Arellano University School of Law 2011-0303
LOCAL GOVERNMENT TAXATION
On the other hand, an assessment is illegal if it was made without authority
under the law. In case of an illegal assessment, the taxpayer may directly
resort to judicial action without paying under protest the assessed tax and
filing an appeal with the Local and Central Board of Assessment Appeals.
In NPC vs. Municipal Government of Navotas (GR No. 192300 dated November
24, 2014), a claim of exemption under Sec. 234(c) of the LGC was considered
a legal issue. Thus, direct resort to the RTC was correct and payment under
protest was held as not necessary.
The Supreme Court added that the issue in this particular case is clearly legal
given that it involves an interpretation of the contract between the parties vis-
à-vis the applicable laws, i.e., which entity actually, directly and exclusively
uses the subject machineries and equipment. The answer to such question
would then determine whether petitioner is indeed exempt from payment of
real property taxes. Since the issue is a question of law, the jurisdiction was
correctly lodged with the RTC.
Once assessment is issued, remedy is a complaint for injunction NOT
declaratory relief: A petition for declaratory relief is not the proper remedy
once a notice of assessment was already issued.
Instead of a petition for declaratory relief, the PEZA should have directly
resorted to a judicial action. The PEZA should have filed a complaint for
injunction, the “appropriate ordinary civil action” to enjoin the City from
enforcing its demand and collecting the assessed taxes from the PEZA. After
all, a declaratory judgment as to the PEZA’s tax-exempt status is useless
unless the City is enjoined from enforcing its demand.
Thus, the procedure for illegal assessments would be:
1. Taxpayer shall file a complaint for injunction before the Regional Trial
Court to enjoin the LGU from collecting real property taxes;
2. The party unsatisfied with the decision of the RTC shall file an appeal,
not a petition for certiorari, before the CTA, the complaint being a local
tax case decided by the RTC case decided by the RTC. The appeal shall
be filed within 15 days (should be 30 days); and,
3. Decision of the CTA is appealable to the SC under Rule 45 raising pure
questions of law. (Atty. Lock, 2015)
4. Claim of exemption under a BOT contract in relation to Sec. 234(C) (NPC
vs. Navotas).
Cases of Illegal Assessments:
a. If the taxpayer questions the authority of the assessor to make the
assessment and collect the tax. (Ty vs. Trampe)
b. If the issue is the proper party liable for the tax (Estate of Concordia
Lim)
c. Amount of protest to be paid is huge and the properties were already
levied and to be auctioned-off. In this sense, appeal to the LBAA is not
a plain, adequate and speedy remedy. (Bayan Telecommunications)
Proper party to contest the assessment: Section 226 of the LGC lists
down the two entities vested with the personality to contest an assessment:
(1) the owner and, (2) the person with legal interest in the property. A person
legally burdened with the obligation to pay for the tax imposed on a property
has legal interest in the property and the personality to protest a tax
assessment on the property.
This is the logical and legal conclusion when Section 226, on the rules
governing an assessment protest, is placed side by side with Section 250 on
the payment of real property tax; both provisions refer to the same parties
who may protest and pay the tax:
SECTION 226. Local Board of SECTION 250. Payment of Real
Assessment Appeals. - Any owner Property Taxes in Instalments. -
or person having legal interest The owner of the real
in the property who is not property or the person having
satisfied with the action of the legal interest therein may pay
provincial, city or municipal assessor the basic real property tax xxx due
in the assessment of his property thereon without interest in four
may, within sixty (60) days from the (4) equal instalments xxx.

date of receipt of the written notice
of assessment, appeal to the Board
of Assessment Appeals of the
province or city xxx.
The liability for taxes generally rests on the owner of the real property at the
time the tax accrues. This is a necessary consequence that proceeds from the
fact of ownership. However, personal liability for realty taxes may also
expressly rest on the entity with the beneficial use of the real property, such
as the tax on property owned by the government but leased to private persons
or entities, or when the tax assessment is made on the basis of the actual use
of the property. In either case, the unpaid realty tax attaches to the
property but is directly chargeable against the taxable person who
has actual and beneficial use and possession of the property
regardless of whether or not that person is the owner.
The NPC, neither being the owner nor the possessor/user of the machineries
subject of the RPT assessment, is not the proper party to question the validity
of the assessment.
Build-Operate-Transfer: The NPC contends that it should nevertheless be
regarded as the beneficial owner of the plant, since it will acquire ownership
thereof at the end of 25 years.
In Cario v. Ofilado, we declared that legal interest should be an interest
that is actual and material, direct and immediate, not simply
contingent or expectant. In the present case, the NPCs ownership of the
plant will happen only after the lapse of the 25-year period; until such time
arrives, the NPC's claim of ownership is merely contingent, i.e., dependent on
whether the plant and its machineries exist at that time. Prior to this event,
the NPCs real interest is only in the continued operation of the plant for the
generation of electricity. This interest has not been shown to be adversely
affected by the realty taxes imposed and is an interest that NPC can protect,
not by claiming an exemption that is not due to Mirant, but by paying the
taxes it (NPC) has assumed for Mirant under the ECA.
Contractual stipulation to assume payment of the RPT: the NPC indeed
assumed responsibility for the taxes due on the power plant and its
machineries, specifically, all real estate taxes and assessments, rates and
other charges in respect of the site, the buildings and improvements thereon
and the [power plant]. At first blush, this contractual provision would appear
to make the NPC liable and give it standing to protest the assessment. The
tax liability we refer to above, however, is the liability arising from
law that the local government unit can rightfully and
successfully enforce, not the contractual liability that is enforceable
between the parties to a contract as discussed below. By law, the tax
liability rests on Mirant based on its ownership, use, and possession of the
plant and its machineries. does not clothe the party legal interest for purposes
of contesting an assessment.
The contractual assumption of the obligation to pay real property tax, by itself,
is not sufficient to make one legally compellable by the government to pay for
the taxes due; the person liable must also have use and possession of the
property.
The NPC is neither the owner, nor the possessor or user of the property
taxed. No interest on its part thus justifies any tax liability on its part other
than its voluntary contractual undertaking. Under this legal situation, only
Mirant as the contractual obligor, not the local government unit, can enforce
the tax liability that the NPC contractually assumed; the NPC does not have
the legal interest that the law and jurisprudence require to give it personality
to protest the tax imposed by law on Mirant. (NPC vs. Quezon, GR No. 171586,
July 15, 2009)
Beneficial Use Doctrine: Sec. 234(a) exempts from real estate taxes real
property owned by the Republic, unless the beneficial use of the property is,
for consideration, transferred to a taxable person.
Cesar Nickolai F. Soriano Jr.
14 Arellano University School of Law 2011-0303
LOCAL GOVERNMENT TAXATION
This exemption, however, must be read in relation with Sec. 133(o) of the
LGC, which prohibits LGUs from imposing taxes or fees of any kind on the
national government, its agencies, and instrumentalities.
Thus read together, the provisions allow the Republic to grant the beneficial
use of its property to an agency or instrumentality of the national government.
Such grant does not necessarily result in the loss of the tax exemption. The
tax exemption the property of the Republic or its instrumentality carries
ceases only if, as stated in Sec. 234(a) of the LGC of 1991, beneficial use
thereof has been granted, for a consideration or otherwise, to a taxable
person.
However, when the beneficial use thereof is contracted to a taxable person,
its exempt status is lost; such party being liable for the RPT.
As we declared in Testate Estate of Concordia T. Lim, the unpaid tax attaches
to the property and is chargeable against the taxable person who had actual
or beneficial use and possession of it regardless of whether or not he is the
owner. Of the same tenor is the Courts holding in the subsequent Manila
Electric Company v. Barlis and later in Republic v. City of Kidapawan. Actual
use refers to the purpose for which the property is principally or predominantly
utilized by the person in possession thereof.
Moreover, in this case, the lessee was contractually liable to shoulder the
liability. (GSIS vs. City of Manila, GR No. 186242, Dec. 23, 2009)
If the action consists of recovery of RPT paid for in behalf of another
who is the party alleged to be liable, the case falls within the
jurisdiction of the RTC not the LBAA: In this case, the subject property
was foreclosed by GSIS and was the highest bidder in the auction sale. For
failure to redeem, the title passed to GSIS. Later on, GSIS allowed the estate
of the previous owner to redeem said property and deed of sale was executed.
Prior to the transfer of property, the LGU required the payment of the RPT for
the years the title was under GSIS. The estate paid the RPT under protest and
sought reimbursement from GSIS, which the latter refused. Hence, the
recovery of sum of money case filed before the RTC.
The Court held that the plaintiff-appellant (estate) correctly filed the action
for refund/reimbursement with the lower court as it is the courts which have
jurisdiction to try cases involving the right to recover sums of money.
Section 30 of the Real Property Tax Code (now Sec. 226 of the LGC) is not
applicable because what is questioned is the imposition of the tax assessed
and who should shoulder the burden of the tax. There is no dispute over the
amount assessed on the properties for tax purposes. Section 30 pertains to
the administrative act of listing and valuation of the property for purposes of
real estate taxation.
The issue on the existence or non-existence of the appellant's right to recover
the amounts paid hinges on the basic question of the validity of the tax
imposition. If the imposition is valid and in accordance with law, then there is
no right to recover. Otherwise, the amounts paid must be refunded by the
respondent City Treasurer of Manila acting in his official capacity.
To impose the real property tax on the estate which was neither the owner
nor the beneficial user of the property during the designated periods would
not only be contrary to law but also unjust.
However, GSIS is not liable: The Court rules, however, that the plaintiff-
appellant is not entitled to a reimbursement from the respondent GSIS
because: (1) the GSIS is exempt from payment of the real property tax under
Sec. 33 of the Revised Charter of the GSIS; and (2) the tax should be based
on "actual use" of the property. Section 40 of the Real Property Tax Code
(now Sec. 234 of the LGC) supports the view that not even the GSIS is liable
to pay real property tax on public land leased to other persons. (Testate Estate
of Concordia Lim vs. City of Manila, GR No. 90639, Feb. 21, 1990)
Summary: Liability to pay RPT vis a vis right to institute a protest
against assessment thereof:
1. Sec. 234(a): The party liable to pay the RPT is the owner or the person
having legal interest thereto;

Exemption under Sec. 234(a) does not extend to a taxable person who
leases the property. As such, the lessee thereof is liable for the RPT and
has legal standing to sue under the beneficial use doctrine;
In a contract to sell, where the title to the property is retained by the
vendor, but the possession is transferred already to the vendee, the
latter shall be liable for the RPT for the period prior to the transfer of
ownership. This is because beneficial ownership has already been given.
(City of Baguio vs. Busuego)
2. Sec. 234(c): Legal interest must be ACTUAL. Thus, exemption under
Sec. 234(c) will not apply until the local water districts and government-
owned or -controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power has
ownership or possession/use of the property. Under A BOT arrangement,
the GOCC’s right to the property remains contingent and not actual prior
to the expiration of the period.
Contractual obligation to shoulder the RPT under Sec. 234(c) binds only
the parties and the LGU may still assess the RPT due on the properties
held by private taxable persons. The GOCC who shoulders such liability
under a contract cannot clothe the GOCC with the personality to sue,
since it is not the owner or user/possessor thereof.
3. Between private persons: It follows that, in case of an operating
lease, the party still liable to pay the RPT is the owner/lessor. A
stipulation that the lessee will shoulder the RPT cannot bind the LGU,
and the LGU may still assess the RPT against the lessor/owner under the
law and the latter may seek reimbursement from the lessee under
contract; nor will the lessee have personality to file a protest/refund of
the RPT.
In effect, the RPT shouldered by the lessee in behalf of the lessor, may
be deemed as additional rentals to the latter, which it will use to pay for
the RPT; which, in turn, may be subject to Income Tax, EWT and VAT
(in appropriate cases).
The same is true with regards a contract to sell, where the vendor retains
the ownership.
Note: the Beneficial Use Doctrine is applicable only under Sec.
234(a) and in all other cases, the owner or the person having
legal interest is the one liable/have legal standing to sue.
No Motion for Reconsideration of Provincial Assessor’s decision: The
last action of the local assessor on a particular assessment shall be the notice
of assessment; it is this last action which gives the owner of the property the
right to appeal to the LBAA. The procedure likewise does not permit the
property owner the remedy of filing a motion for reconsideration before the
local assessor. (Fels Energy, Inc. vs. Province of Batangas, GR No. 168557,
February 16, 2007)
REFUND (Sec. 253):
a. When an assessment of basic real property tax, or any other tax levied
under this Title, is found to be illegal or erroneous and the tax is
accordingly reduced or adjusted, the taxpayer may file a written claim
for refund or credit for taxes and interests with the provincial or city
treasurer within two (2) years from the date the taxpayer is entitled to
such reduction or adjustment.
b. The provincial or city treasurer shall decide the claim for tax refund or
credit within sixty (60) days from receipt thereof.
c. In case the claim for tax refund or credit is denied, the taxpayer may
avail of the remedies as provided in Chapter 3, Title II, Book II of this
Code. (See Assessment Appeals)
ASSESSMENT OF DELINQUENCY RPT:
a. When the real property tax becomes delinquent, the Treasurer shall
cause a notice of the delinquency to be posted at the main entrance of
the provincial capitol, or city or municipal hall and in a publicly accessible
and conspicuous place in each barangay of the LGU concerned.
Cesar Nickolai F. Soriano Jr.
15 Arellano University School of Law 2011-0303
LOCAL GOVERNMENT TAXATION
b. The notice shall also be published once a week for 2 weeks in a
newspaper of general circulation in the locality.
c. The notice shall specify:
(2) The date upon which the tax became delinquent and shall state the
personal property may be distrained to effect payment
(3) That anytime before distraint of personal property, payment of the
tax with surcharges, interests and penalties may be made; and
(4) unless the tax, surcharges and penalties are paid before the
expiration of the year for which the tax is due, except when the
notice of assessment or special levy is contested administratively or
judicially, the delinquent real property will be sold at public auction,
and the title to the property will be vested in the purchaser, subject,
however, to the right of the delinquent owner of the property or
any person having legal interest therein to redeem the property
within one (1) year from the date of sale.
INTEREST ON UNPAID RPT:
In case of failure to pay the RPT when due, the taxpayer shall be subject to
2% interest per month on the unpaid amount for a maximum of 36 months.
(Sec. 255)
Note that non-payment of RPT, unlike any other taxes, does not result in the
imposition of a surcharge, only interests.
REMEDIES FOR COLLECTION: the treasurer concerned may avail of:
a. Levy on real property; or
b. Judicial action. (Sec. 256)
Levy: real property subject to such tax may be levied upon through the
issuance of a warrant on or before, or simultaneously with, the institution of
the civil action for the collection of the delinquent tax. The provincial or city
treasurer shall issue a warrant of levy, which shall be mailed to or served upon
the delinquent owner of the real property or person having legal interest
therein, the assessor and the Register of Deeds who shall annotate the levy
on the tax declaration and certificate of title, respectively.
The warrant shall operate with the force of a legal execution throughout the
province, city or a municipality, within the Metropolitan Manila Area. (Sec.
258)
Thereafter, there shall be public advertisement for the public sale. The sale
shall be made at the entrance of the provincial, city or municipal building, or
on the property to be sold, or at any other place specified at the notice of
sale.
Redemption: within 1 year from the date of sale; by paying the amount of
delinquent tax, including the interest due thereon, and the expenses of sale
and interest of not more than 2% per month on the purchase price from the
date of sale to the date of redemption. (Sec. 261)
Purchase of Property by the LGU for Want of Bidder: In case there is no
bidder, the local treasurer conducting the sale shall purchase the property in
behalf of the LGU concerned to satisfy the claim
Within one (1) year from the date of such forfeiture, the taxpayer or any of
his representative, may redeem the property by paying to the local treasurer
the full amount of the real property tax and the related interest and the costs
of sale.
If the property is not redeemed as provided herein, the ownership thereof
shall be vested on the local government unit concerned. (Sec. 263)
Resale: The sanggunian concerned may, by ordinance duly approved, and
upon notice of not less than twenty (20) days, sell and dispose of the real
property acquired under the preceding section at public auction. (Sec. 264)
Further distraint or levy: Levy may be repeated if necessary until the full
amount due, including all expenses, is collected. (Sec. 265)
Actions assailing the validity of tax sale: No court shall entertain any
action assailing the validity or any sale at public auction of real
property or rights therein under this Title until the taxpayer shall have
deposited with the court the amount for which the real property was sold,
together with interest of two percent (2%) per month from the date of sale
to the time of the institution of the action. The amount so deposited shall be
paid to the purchaser at the auction sale if the deed is declared invalid but it
shall be returned to the depositor if the action fails.

Neither shall any court declare a sale at public auction invalid by reason
or irregularities or informalities in the proceedings unless the substantive
rights of the delinquent owner of the real property or the person having legal
interest therein have been impaired. (Sec. 267)

Tax Lien: the basic real property tax constitutes a lien on the property subject
to tax, superior to all liens, charges or encumbrances in favor of any person,
irrespective of the owner or possessor thereof, enforceable by administrative
or judicial action, and may only be extinguished upon payment of the tax and
the related interests and expenses. (Sec. 257)

PERIOD WITHIN WHICH TO COLLECT RPT: 5 years when they become

due; 10 years, in case of fraud or intent to evade the payment of tax. These
periods are suspended upon the same ground for Tax on Business. (Sec. 270)

SPECIAL PROVISIONS

SECTION 276. Condonation or Reduction of Real Property Tax and

Interest. — In case of a general failure of crops or substantial decrease
in the price of agricultural or agribased products, or calamity in any
province, city or municipality, the sanggunian concerned, by ordinance
passed prior to the first (1st) day of January of any year and upon
recommendation of the Local Disaster Coordinating Council, may condone
or reduce, wholly or partially, the taxes and interest thereon for the
succeeding year or years in the city or municipality affected by the
calamity.

Section 277. Condonation or Reduction of Tax by the President of

the Philippines. - The President of the Philippines may, when public
interest so requires, condone or reduce the real property tax and interest
for any year in any province or city or a municipality within the Metropolitan
Manila Area.

SECTION 281. Fees in Registration of Papers or Documents on

Sale of Delinquent Real Property to Province, City or Municipality.
— All certificates, documents, and papers covering the sale of delinquent
property to the province, city or municipality, if registered in the Registry
of Property, shall be exempt from the documentary stamp tax and
registration fees.

SECTION 282. Real Property Assessment Notices or Owner's

Copies of Tax Declarations to be Exempt from Postal Charges or
Fees. — All real property assessment notices or owner's copies of tax
declaration sent through the mails by the assessor shall be exempt from
the payment of postal charges or fees.

Cesar Nickolai F. Soriano Jr.

16 Arellano University School of Law 2011-0303
LOCAL GOVERNMENT TAXATION