IRS CPA REVIEW
Iloilo City and Leganes, Iloilo
TAXATION
LOCAL TAXATION
Scope of local taxes
The provision under Local Government Taxation shall govern the exercise by
provinces, cities, municipalities, and Barangays of their taxing and other
revenue raising powers.
Fundamental Principles
The following fundamental principles shall govern the exercise of the taxing
and other revenue-raising powers of local government units:
1) Taxation shall be uniform in each local government unit;
2) Taxes, fees, charges and other impositions shall:
a) be equitable and based as far as practicable on the taxpayer's ability to
pay;
b) be levied and collected only for public purposes;
c) not be unjust, excessive, oppressive, or confiscatory;
d) not be contrary to law, public policy, national economic policy, or in
restraint of trade;
3) The collection of local taxes, fees, charges and other impositions shall in
no case be left to any private person;
4) The revenue collected pursuant to the provisions of this Code shall inure
solely to the benefit of, and be subject to disposition by, the local
government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein; and,
Each local government unit shall, as far as practicable, evolve a progressive
system of taxation.
Local Taxing Authority
The power to impose a tax, fee, or charge or to generate revenue under this
Code shall be exercised by the Sanggunian of the local government unit
concerned through an appropriate ordinance.
Types of local taxes
1) Taxes on real properties
2) Other local taxes
3) Other revenue-raising powers of local governments
Taxes on real properties
A) Real property tax
Appraisal
Appraisal is the process of determining the value of the property as of a
specific date for a specific purpose.
Assessed Value
Assessed value is the fair market value of the real property multiplied by
the assessment level. It is synonymous to the taxable value.
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Remedies
Any owner or person having legal interest in the property who is not
satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty days from the date of receipt
of the written notice of assessment, appeal to the Board of Assessment
Appeals of the province or city by filing a petition under oath together with
copies of the tax declaration and such affidavits or documents in support
of the appeal. (Sec. 226, Local Government Code)
The owner of the property or the person having legal interest who is not
satisfied with the decision of the Board of Assessment Appeals may within
thirty days after the receipt of the decision of the Board, appeal to the
Central Board of Assessment Appeals. The decision of the Central Board
shall be final and executory. (Sec. 229 par. C, Local Government Code)
The Court of Tax Appeals has the exclusive appellate jurisdiction to review
by appeal the decisions of the Central Board of Assessment Appeals in
the exercise of their appellate jurisdiction over cases involving the
assessment and taxation of real property originally decided by the
provincial or city board of assessment appeals. (Sec. 7 par. a (5) of RA
No. 1125, as amended by RA No.3457, 9282 and 9503 [Court of Tax
Appeals] )
A party adversely affected by a decision or ruling of the Central Board of
Assessment Appeals and the Regional Trial Court in the exercise of their
appellate jurisdiction may appeal to the Court by filing before it a petition
for review within thirty days from receipt of a copy of the questioned
decision or ruling. (Rule 8, Sec. 3 par. c of the Revised Rules of the Court
of Tax Appeals)
Exemption
All lands, buildings and improvements actually, directly and exclusively
used for religious, charitable or educational purposes are exempt from real
property tax. (Sec. 243 par. B, Local Government Code) The actual usage
is the determining factor whether it is exempt from real property taxation or
not.
Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, nonprofit religious cemeteries and all lands, buildings
and improvements actually, directly and exclusively used for religious,
charitable or educational purposes shall be exempt from taxation. (Art. VI,
Sec. 28, par. 3 of the Constitution)
Sec. 234 of the Local Government Code provides that the following
properties are exempted from payment of real property tax:
1) 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;
2) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, nonprofit religious cemeteries and all
lands, buildings and improvements actually, directly and exclusively
used for religious, charitable or educational purposes;
3) All machineries and equipments 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;
4) All real properties owned by duly registered cooperatives as provided
for under RA No. 6938; and
5) Machinery and equipment used for pollution control and
environmental protection.
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Time for filing and payment
The real property tax for any year shall accrue on the first day of January
and from that date it 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, Local Government Code)
The collection of the real property tax with interest thereon and related
expenses, and the enforcement of the remedies or any applicable laws,
shall be the responsibility of the city or municipal treasurer concerned.
(Sec. 247, Local Government Code)
The provincial, city or municipal assessor shall prepare and submit to the
treasurer of the local government unit on or before December 31 each
year, an assessment roll containing a list of all persons whose real
properties have been newly assessed or reassessed and the value of such
properties. (Sec. 248, Local Government Code)
The owner of the real property or the person having legal interest therein
may pay the basic real property tax and the additional tax for Special
Education Fund due thereon without interest in 4 installments; the first
installment to be due and payable on or before March 31; the second
installment, on or before June 30; the third installment, on or before
September 30; and the last installment, on or before December 31, except
the special levy, the payment of which shall be governed by ordinance of
the sanggunian concerned. (Sec. 50, Local Government Code)
The basic real property tax and any other tax levied shall be collected
within 5 years from the date they become due. No action for the collection
of the tax, whether administrative or judicial, shall be instituted after the
expiration of such period. In case of fraud or intent to evade payment of
the tax, such action may be instituted for the collection of the same within
10 years from the discovery of such fraud or intent to evade payment.
(Sec. 270 of the Local Government Code)
Tax rates
The real property tax is determined by multiplying the assessed value by
the tax rate. The applicable basic real property tax rates are to be fixed by
the local government unit:
1) In the case of a province, at the rate not exceeding 1% of the
assessed value of the real property;
2) In the case of a city or municipality within the Metropolitan Manila
area, at the rate not exceeding 2% of the assessed value of the real
property.
Assessment levels
The assessment levels are fixed by ordinance of the local Sanggunian
depending on the actual use of the property, at rates not exceeding the
following:
1) Lands
Class Assessment Levels
a) Residential 20%
b) Timberland 20%
c) Agricultural 40%
d) Commercial 50%
e) Industrial 50%
f) Mineral 50%
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2) Buildings and Other Structures
The rate progresses directly with the fair market value (FMV) as
follows:
o Residential – 0% for those with FMV of PhP175,000.00 or less to
60% for those with FMV of more than PhP10 million.
o Agricultural – 25% for those with FMV of PhP300,000.00 or less to
50% for those with FMV of more than PhP2 million.
o Commercial/Industrial – 30% for those with FMV of
PhP300,000.00 or less to 80% for those with FMV of more than
PhP10 million.
o Timberland – 45% for those with FMV of PhP300,000.00 or less to
70% for those with FMV of more than PhP2 million.
3) Machineries
Class Assessment Levels
a) Agricultural 40%
b) Residential 50%
c) Commercial 80%
d) Industrial 80%
4) On Special Classes: The assessment levels for all lands, buildings,
machineries and other improvements
Actual use Assessment Levels
a) Cultural 15%
b) Scientific 15%
c) Hospital 15%
d) Local water districts 10%
e) Government-owned or controlled
corporations engaged in the supply and
distribution of water and/or generation and
transmission of electric power 10%
B) Special Levies on Real Property
1) Special Education Fund Tax
In addition to the basic RPT, a province or city, or a municipality within
the MMA may levy and collect an annual tax of 1% on the assessed
value of real property which shall be in addition to the basic RPT. The
proceeds thereof shall exclusively accrue to the Special Education
Fund (SEF) to support public education.
2) Idle Lands Tax
A province or city, or a municipality within the MMA may levy an
annual tax on idle lands at a rate not exceeding 5% of the assessed
value of the property which shall be in addition to the basic RPT.
3) Special Levy
A province, city or municipality may impose a special levy on the lands
within its territorial jurisdiction specially benefitted by public works
projects or improvements funded by the LGU concerned. The special
levy shall not exceed 60% of the actual cost of such projects and
improvements, including the costs of acquiring land and such other
real property in connection therewith.
The special levy shall not apply to lands exempt from basic RPT and
the remainder of the land portions of which have been donated to the
LGU concerned for the construction of such projects or improvements.
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4) Other Impositions on Real Property
a) Socialized Housing Tax
In addition to the RPT and SEF tax, a socialized housing tax may
also be imposed by a province, city or municipality within the
MMA. The tax is 1/2 of 1% of the assessed value of all lands in
urban areas in excess of PhP50,000.00.
b) Tax on Transfer of Real Property Ownership
A province, city or municipality within the MMA may impose a tax
on the sale, donation, barter, or any other mode of transferring
ownership or title of real property at the rate of not more than 50%
of 1% in the case of a province and 75% of 1% in the case of a
city or a municipality in MMA of the total consideration involved in
the acquisition of the property or of the FMV in case the monetary
consideration involved in the transfer is not substantial, whichever
is higher.
C) Collection of taxes on real properties
The real property tax for any year shall accrue on the first day of January.
The basic RPT and the additional SEF tax may be paid without interest in
four (4) equal installments; the first installment to be due and payable on or
before March 31; the second installment, on or before June 30; the third
installment, on or before September 30; and the last installment on or
before December 31.
The special levy shall accrue on the first day of the quarter next following
the effectivity of the ordinance imposing such levy. Its payments shall be
governed by the ordinance of the Sanggunian concerned.
The tax on transfer of real property ownership shall be paid within sixty
(60) days from the date of the execution of the deed or from the date of the
decedent’s death.
Other local taxes
A) Provincial Taxes
1) Tax on business of printing and publication at a rate not exceeding
50% of 1% of the gross annual receipts for the preceding calendar
year. In case of newly started business, the tax shall not exceed 1/20
of 1% of the capital investment.
2) Tax on a business enjoying franchise at a rate not exceeding 50% of
1% of the gross annual receipts for the preceding calendar year. In
case of a newly started business, the tax shall not exceed 1/20 of 1%
of the capital investment.
3) Tax on sand, gravel and other quarry resources at a rate not
exceeding 10% of the fair market value in the locality per cubic meter
of ordinary stones, sand, gravel, earth, and other quarry resources,
as defined under the National Internal Revenue Code (NIRC), as
amended, extracted from public lands or from the beds of seas,
lakes, rivers, streams, creeks, and other public waters within its
territorial jurisdiction.
4) Professional tax on each person engaged in the exercise or practice
of his/her profession requiring government examination at a rate not
exceeding PhP300.00.
5) Amusement tax payable by proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadia, and other
places of amusement at a rate of not more than 10% of the gross
receipts from admission fees.
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6) Annual fixed tax not exceeding PhP500.00 for every delivery truck or
van used by manufacturers, producers, wholesalers, dealers or
retailers in the delivery or distribution of distilled spirits, fermented
liquors, soft drinks, cigars and cigarettes, to sales outlets, or
consumers, whether directly or indirectly, within the province.
B) Municipal taxes
There are 3 kinds of business taxes imposed by the municipalities:
1) a combination of a graduated-fixed and percentage business taxes;
2) percentage tax;
3) annual tax.
Combination of a graduated-fixed and percentage business taxes
1) Manufacturers, assemblers, repackers, processors, brewers, distillers,
rectifiers, and compounders of liquors, distilled spirits, and wines or
manufacturers of any article of
2) Wholesalers, distributors, or dealers in any article of commerce of
whatever kind or nature
3) Exporters, and manufacturers, millers, producers, wholesalers,
distributors, dealers or retailers of essential commodities;
4) Contractors and other independent contractors;
Percentage taxes:
5) Retailers, at rates of 2% for gross receipts of PhP400,000.00 or less
and 1% for gross receipts over PhP400,000.00;
6) Banks and other financial institutions at a rate not exceeding 50% of
1% of the gross receipts of the preceding calendar year derived from
interest, commissions and discounts from lending activities, income
from financial leasing, dividends, rentals, on property and profit from
exchange or sale of property, insurance premium;
7) Any business, not otherwise specified in the preceding paragraph at a
rate to be determined by the local Sanggunian. If the business is
subject to the excise, VAT or percentage tax under the NIRC, the rate
shall not exceed 2% of the gross sales or receipts of the preceding
calendar year;
Annual tax
8) Annual tax on peddlers engaged in the sale of any merchandise or
article of commerce, at a rate not exceeding PhP50.00 per peddler.
C) City Taxes
The city government may impose and collect any of the taxes, fees and
charges imposed by the province or municipality. The rates of taxes may
exceed the maximum rates allowed for the province or municipality by not
more than 50% except the rates of professional and amusement taxes.
The taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in
accordance with the provisions of this Code.
D) Barangay Taxes
The Barangays may levy taxes, fees, and charges, as provided in this
Article, which shall exclusively accrue to them:
Taxes on stores or retailers with fixed business establishments with gross
sales or receipts of the preceding calendar year of Fifty Thousand pesos
(P50,000.00) or less, in the case of cities and Thirty thousand pesos
(P30,000.00) or less, in the case of municipalities, at a rate not exceeding
one percent (1%) on such gross sales or receipts.
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E) Community tax
The city and municipal governments may impose community tax.
Individuals Liable of Community Tax
Every inhabitant of the Philippines 18 years of age or over:
a) who has been regularly employed on a wage or salary basis for at
least 30 consecutive working days during any calendar year, or
b) who is engaged in business or occupation, or
c) who owns real property with an aggregate assessed value of P1,000
or more, or
d) who is required by law to file an income tax return,
Shall pay an annual community tax of:
a) Basic tax - P5, and
b) Additional tax of P1.00 for every P1,000 of income regardless of
whether from business, exercise of profession or from property.
The additional tax shall not exceed P5,000.
In the case of husband and wife, the additional tax is based upon the total
property owned by them and the total gross receipts or earnings derived
by them.
Juridical Persons Liable to Community Tax
Every corporation no matter how created or organized, whether domestic
or resident foreign, engaged in or doing business in the Philippines shall
pay an annual community tax of:
a) Basic tax - P500, and
b) Additional tax of:
i) P2 for every P5,000 worth of real property in the Philippines
owned by the corporation during the preceding year;
ii) P2 for every P5,000 of gross receipts or earnings derived by the
corporation from its business in the Philippines in the preceding
year.
The additional tax shall not exceed P10,000.
The dividends received by a corporation from another corporation however
shall, for the purpose of the additional tax, be considered as part of the
gross receipts or earnings of said corporation.
Exemptions
The following are exempt from the community tax:
a. Diplomatic and consular representatives; and
b. Transient visitors when their stay in the Philippines does not exceed
three (3) months.
Place of Payment
The community tax shall be paid in the place of residence of the individual,
or in the place where the principal office of the juridical entity is located.
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Time for Payment
The community tax shall accrue on the 1 st day of January of each year
which shall be paid not later than the last day of February of each year. If
a person reaches the age of 18 years or otherwise loses the benefit of
exemption on or before the last day of June, he shall be liable for the
community tax on the day he reaches such age or upon the day the
exemption ends. However, if a person reaches the age of 18 years or
loses the benefit of exemption on or before the last day of March, he shall
have 20 days to pay the community tax without becoming delinquent.
Persons who come to reside in the Philippines or reach the age of 18
years on or after the 1st day of July of any year, or who cease to belong to
an exempt class on or after the same date, shall not be subject to the
community tax for that year.
Corporations established and organized on or before the last day of June
shall be liable for the community tax for that year. But corporations
established and organized on or before the last day of March shall have 20
days within which to pay the community tax without becoming delinquent.
Corporations established and organized on or after the first day of July
shall not be subject to the community tax for that year.
Penalty for Delinquency
If the tax is not paid within the time prescribed above, there shall be added
to the unpaid amount an interest of 24% per annum from the due date until
it is paid.
Community tax Certificate
A community tax certificate shall be issued to every person or corporation
upon payment of the community tax. The community tax certificate
required to be presented for any government or private transaction shall
be the issued for the current year, except for the period from January until
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the 15 of April each year, in which case, the certificate issued for the
preceding year shall suffice.
A community tax certificate may also be issued to any person or
corporation not subject to the community tax upon payment of P1.00.
Other revenue-raising powers of local governments
A. Provinces, cities and municipalities
1) Service Fees and Charges
LGUs may impose and collect such reasonable fees and charges.
2) Public Utility Charges
LGUs may fix the rates for the operation of public utilities owned,
operated and maintained by them within their jurisdiction.
3) Toll Fees and Charges
LGUs may prescribe the terms and conditions and fix the rates for the
imposition of toll fees or charges for the use of any public road, pier or
wharf, waterway, bridge, ferry or telecommunication system funded
and constructed by the LGU concerned.
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B. Municipalities
1) Fees and charges on business and occupation and, commensurate
with the cost of regulation, inspection and licensing at rates to be
prescribed by the Sangguniang Bayan, except as reserved to the
province on the practice of any profession or calling.
2) Fees for the sealing and licensing of weights and measures at rates
to be prescribed by the Sangguniang Bayan.
3) Rentals, fees or charges on the use of municipal waters at rates
prescribed by the Sangguniang Bayan.
C. Cities
Fees and charges imposed by the province or municipality.
D. Barangays
Fees and charges for:
1) For services rendered in connection with the regulation or the use of
barangay-owned properties or service facilities.
2) For the issuance of a barangay clearance for any business or activity
located or conducted within the territorial jurisdiction of the barangay
before the city or municipality may issue a license or permit to said
business or activity.
3) On commercial breeding of fighting cocks, cockfights and cockpits.
4) On places of recreation which charge admission fees.
5) On billboards, signboards, neon signs, and outdoor advertisement.
End
