Chapter 10 - TAX

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<p>TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban JUICY NOTES (PROF. CABANEIRO) A2011 3</p> <p>LOCAL TAXATION</p> <p>Local taxation as decentralization</p> <p> The principles of local taxation under the 1987 Consititution simply means Decentralization. It does not mean that local governments are sovereigns within the state or imperium in imperio.</p> <p>IN GENERAL</p> <p>Two aspects of local taxation</p> <p>1. Levy of taxes, fees, charges and other impositions2. Real property taxation</p> <p>POWER TO LEVY TAXES, FEES, CHARGES AND OTHER IMPOSITIONS</p> <p>POWER OF LOCAL TAXATION</p> <p>Power of local taxation not inherent</p> <p> Each local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines are limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. [Section 5, Article X, Constitution]</p> <p> The power of local taxation is not inherent and is conferred on local government units by the Constitution. This is reiterated in Section 129 of the Local Government Code of 1991.</p> <p> Power is not plenary and absolute as it is subject to guidelines and limitations as may be provided by Congress.</p> <p> Basco v. PAGCOR; A municipal corporation has no inherent right to impose taxes. The power to tax must always yield to a legislative act which is superior for having been passed by the State itself which has the inherent power to tax. LGU cannot tax instrumentalities of the National Government, in this case, PAGCOR.</p> <p>Authority to prescribe penalties for tax violations and limitations</p> <p> Limited as to the amount of fine that they may impose as well as the length or period of imprisonment that they may provide.</p> <p>Fees and charges</p> <p> Fees means a charge fixed by law or ordinance for the regulation or inspection of a business or activity. [Section 131(i), Local Government Code]</p> <p> Charges refer to pecuniary liability, as rents or fees against persons or property. [Section 131(g), Local Government Code]</p> <p>Authority to grant tax exemption privileges</p> <p> With the grant of the power of taxation, local government units have also been given the power to grant tax exemptions corresponding to its taxing powers.</p> <p> Local government units may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary.</p> <p>Guidelines of Sanggunians On the grant of tax exemptions or tax reliefs1. May be granted in cases of natural calamities, civil disturbance, general failure of crops, or adverse economic conditions such as substantial decrease in prices of agricultural or agri-based products.2. Shall be through ordinance.3. Shall take effect only during the next calendar year for a period not exceeding 12 months.4. Any exemption or relief granted to a type or kind of business shall apply to all businesses similarly situated.</p> <p> On the grant of tax incentives1. Shall be granted only to new investments.2. Shall be for a definite period not exceeding one calendar year3. Shall be by ordinance passed prior to the first day of January of any year.4. Any tax incentive granted to a type or kind of business shall apply to all businesses similarly situated.</p> <p>Withdrawal of tax exemption privileges</p> <p> Unless otherwise provided in the Local Government 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 Republic Act No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of the Code.</p> <p>Authority of LGUs to adjust rates of tax ordinances</p> <p> Local government units shall have the authority to adjust the tax rates as prescribed in the Local Government Code not oftener than once every five (5) years, but in no case shall such adjustment exceed 10% of the rates fixed under the Code.</p> <p>Residual Taxing Powers of Local Governments</p> <p> Local Governments can also impose those taxes, fees and charges which do not fall within the scope of taxes which are enumerated under the LGC, as well as those which are levied on subject or bases which are not taxed under the NIRC or other applicable laws.</p> <p> Limitations:1. Constitutional Limitation2. Common limitations on the taxing power of LGU as prescribed in Sec. 133 of the LGC.3. Fundamental principles governing the exercise of the taxing power by local governments as prescribed under Sec. 130 of LGC.4. The requirement prescribed in Sec. 186 of the LGC which direct that the ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose.5. The principle of pre-emption.</p> <p>Preemption or exclusionary rule</p> <p> Preemption in taxation refers to an instance wherein the National Government elects to tax a particular area, impliedly withholding from the local government the delegated power to tax the same field. (Victorias Milling Co. Vs Municipality of Victorias Negros Occidental, Sept 27, 1968) Principally rests upon the intentions of the Congress. Inapplicability of the Doctrine:1. When congress allows municipal corporation to cover fields of taxation it already occupies.2. Beyond certain level of sales or receipts for the preceding year.3. If the subjects of the taxes levied by the National and Local Governments are different from each other.</p> <p>Double taxation</p> <p> Double taxation is not prohibited, except those between:</p> <p>1. Provinces and municipalities;2. Barangay and Cities, municipalities or provinces.</p> <p>SCOPES AND EXERCISE OF LOCAL TAXING POWER</p> <p>Local authority that shall exercise taxing power</p> <p> The power shall be exercised by the appropriate sanggunian or the sangguniang panlalawigan in the case of provinces, the sangguniang panglungsod in the case of cities, the sangguniang bayan in the case of municipalities or the sangguniang barangay in the case of barangays, through an appropriate ordinance. [Section 132, Local Government Code] The exercise of the power to tax by the local legislative assembly is subject to the veto power of the local chief executive.</p> <p>1. Ultra Vires2. Prejudicial to the public welfare</p> <p> However, the sanguniang may override the veto by a 2/3 vote of all its members.</p> <p>Procedure for approval and effectivity of tax ordinances and revenue measures</p> <p>1. Enactment and approval by sanggunian.</p> <p>The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of the Local Government Code. [Section 187, Local Government Code]</p> <p>2. Mandatory public hearings</p> <p>Public hearings shall be conducted for the purpose prior to the enactment thereof. [Section 187, Local Government Code]</p> <p>3. Publication requirements</p> <p>Within ten (10) days after their approval, certified true copies of all provincial, city and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local publication or, in the absence of newspapers of local publication, posted in at least two (2) conspicuous and publicly accessible places. [Section 188, Local Government Code]</p> <p>4. Furnishing of copies to local treasurer</p> <p>Copies of all provincial, city and municipal tax ordinances or revenue measures shall be furnished to the respective local treasurers for public dissemination. [Section 189, Local Government Code]</p> <p>Procedure for protest of tax ordinances</p> <p> Any question on the constitutionality of tax ordinances or revenue measures may be raised on appeal within 30 days from the effectivity thereof to the Sec. of Justice. [Sec. 187, Local Government Code].</p> <p> After the lapse of 30 days and declaratory relief before assessment; before payment</p> <p>Note: Appeal from where? The provision is not really clear but presumably after going through the same process of appealing legality of ordinances, i.e. from municipal to provincial sanggunian before going to the Secretary of Justice. Otherwise, direct appeal to the Secretary may be made.</p> <p> The Secretary of Justice shall render a decision within sixty (60) days from the date of receipt of appeal. [Section 187, Local Government Code]</p> <p> 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. [Section 187, Local Government Code]</p> <p> Within thirty (30) days after receipt of the decision or the lapse of the 60-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. [Section 187, Local Government Code]Prescription for filing of review</p> <p> Barangay ordinance file petition for review to municipal/city sangunian within 10 days from enactment.</p> <p> Municipal or Component city ordinance file with Provincial sanggunian within 3 days from approval.</p> <p> Chartered City/Provincial sanggunian file with Sec. of Justice within 30 days from effectivity.</p> <p> Review powers, of local treasurers and the Sec. of Finance, on the validity of revenue ordianances have been abrogated by the Local Government Code.</p> <p>No power of control by Secretary of Justice over LGUs</p> <p> Section 187 of the Local Government Code, which authorizes the Secretary of Justice to review the constitutionally or legality of a tax ordinance and, if warranted, to revoke it on either or both grounds is valid, and does not confer the power of control over local government units in the Secretary of Justice; as even if the latter can set aside a tax ordinance he cannot substitute his own judgment for that of the local government units. [Drillon v. Lim, 253 SCRA 135]</p> <p>Fundamental principles governing local taxation</p> <p>1. Taxation shall be uniform in each local government unit.</p> <p>2. Taxes, fees, charges and other impositions shall be equitable and based as much as possible on the taxpayers ability to pay.</p> <p>3. They shall be levied and collected only for public purposes.</p> <p>4. They shall not be unjust, excessive, oppressive or confiscatory.</p> <p>5. They shall not be contrary to law, public policy, national economic policy, or in restraint of trade.</p> <p>6. The collection of local taxes, fees, charges, and other impositions shall, in no case, be let to any person. Note: This overrules the Bagatsing ruling [Bagatsing v. Ramirez 7 SCRA 306]</p> <p> Asiatic v. Alikpala The mere collection of market stall fees may be let to a private entity, the same not being taxes. </p> <p> This is a doubtful decision since Sec. 130 of the LGC covers not only the collection of taxes but likewise all other impositions under the LGC.</p> <p>7. The revenue collected under the local Government Code shall inure solely to the benefit of, and subject to disposition by, the local government unit levying the tax, fee, charge or other imposition unless specifically provided therein.</p> <p>8. Each local government unit shall, as far as practicable, evolve a progressive system of taxation. [Section 130, Local Government Code]</p> <p>9. The interpretation of laws on the grant of taxing power to LGUs shall be liberally interpreted in favor of the LGU, But, doubts on the liability of the taxpayer under a valid tax ordinance is construed strictly against the LGU, except as regards to tax exemptions, incentives or reliefs.</p> <p>10. The National Government cannot deprive LGUs of their taxing power as this power is expressly granted and mandated by the Constitution. The laws may provide limitations, but they cannot totally abrogate the taxing power of the LGUs</p> <p>11. Congress cannot enact local tax law, only guidelines and limitations.</p> <p>Common limitations on the taxing powers of LGUs</p> <p> Unless otherwise provided therein, the exercise of the taxing powers of provinces, citites, municipalities, and barangays shall not extend to the levy of the following:</p> <p>1. Income tax, except when levied on banks and other financial institutions;</p> <p> A 5% tax on gross receipts of rentals or lease of spaces in a privately owned public market constitutes a valid license tax or fee for the regulation of the business rather than as Income tax.</p> <p>2. documentary stamp tax;</p> <p>3. taxes or estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein;</p> <p>4. Customs duties, registration fees of vessels and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and due, except wharfage on wharves constructed and maintained by the LGU concerned;</p> <p>5. Taxes, fees and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of LGUs 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;</p> <p>6. Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;</p> <p>7. Taxes or 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;</p> <p>8. Excise taxes on articles enumerated in the NIRC, as amended, and taxes, fees or charges on petroleum products;</p> <p>9. Percentage or value-added tax on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein;</p> <p>10. Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers of freight by hire and common carriers by air, land or water, except as provided in this Code;</p> <p>11. Taxes on premiums paid by way of reinsurance or retrocession;</p> <p>12. 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;</p> <p>13. Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein;</p> <p>14. Taxes, fees or charges on Countryside and Barangay Business Enterprises and cooperatives duly registered under Republic Act No. 6810 and Republic Act No. 6938, otherwise known as the Cooperative Code of the Philippines;</p> <p>15. Taxes, fees or charges of any kind of the National Government, its agencies and instrumentalities, and local government units. [Section 133, Local Government Code]</p> <p>Common limitations may be classified into the following categories</p> <p>1. Taxes which are levied by the NIRC2. Taxes, fees and charges which are imposed under the Tariff and Customs Code and other custom laws3. Taxes, fees and charges the imposition of which contravenes existing governmental policies or which are violative of the fundamental principles of taxation4. Taxes, fees and charges imposed under...</p>

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