DILG Memo Circular 2012531 Bd8bbf3770
DILG Memo Circular 2012531 Bd8bbf3770
Guide on How to
Review the Local
Revenue Code
(LRC) by Higher
LGUs
TABLE OF CONTENTS
1.1 Rationale
In the midst of the recurring global crisis resulting in the financial strain on
government, local government units (LGUs) are face with the challenge to fully marshal
local taxing, regulatory as well as proprietary powers to generate the needed revenues and
resources to finance the delivery of basic services.
The Local Government Code of 1991 defines the legal framework by which
LGUs can generate revenues and mobilize resources. It has given LGUs some degree of
autonomy in making revenue raising decisions, such that LGUs have the option to impose
the various tax subjects enumerated in the Code and they may set the tax rates within a
certain limit through an approved local revenue ordinance. They are also allowed to
make tax rate adjustments once every five years. These statutory mandates have
provided some degree of dynamism as well as certainty in the revenue-raising powers of
LGUs.
However, such revenue generating and regulatory powers of LGUs are not open-
ended, they must be exercised based on some guiding principles and must be within the
parameters and limits provided by law.
A growing number of complaints from the business sector and ordinary taxpayers
seem to indicate a possible and unwitting abuse or misuse of such powers on the part of
the LGUs, thus negatively affecting compliance. It is also noted that some LGUs have
adopted revenue and regulatory measures beyond their taxing and regulatory powers.
The guideline first discusses the rationale and objective of its issuance. It further
amplifies the importance of the review function of higher level LGUs and describes their
roles and responsibilities in reviewing the local revenue measures of their component
LGUs.
Section 129 of the LGC provides that Each local government unit shall exercise its
power to create its own sources of revenue and to levy taxes, fees, and charges subject to the
provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local government units.
However, such power is not absolute because Congress provided limitations in the LGC
pursuant to Section 5, Article X of the Philippine Constitution which is quoted hereunder:
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 and
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.
Such limitations are provided in Section 133 of the LGC. Further, Section 5b of the LGC
also provides that In case of doubt, any tax ordinance or revenue measure shall be construed
Guidelines in Reviewing the Local Revenue Measures Page 5
strictly against the local government unit enacting it, and liberally in favor of the taxpayer. Any
tax exemption, incentive or relief granted by any local government unit pursuant to the
provisions of this Code shall be construed strictly against the person claiming it.
a. Sangguniang Panlalawigan
Shall review all ordinances approved by the sanggunians of component cities
and municipalities and executive orders issued by the mayors of said
component units to determine whether these are within the scope of the
prescribed powers of the sanggunian and of the mayor. [Sec. 468(1)(i)],
(Sec. 56).
b. Sangguniang Panglungsod
Shall review all ordinances approved by the sanggunian barangay and
executive orders issued by the punong barangay to determine whether these
are within the scope of the prescribed powers of the sanggunian and of the
punong barangay. [Sec. 458(1)(i)], (Sec 57).
c. Sangguniang Bayan
Shall review all ordinances approved by the sanggunian barangay and
executive orders issued by the punong barangay to determine whether these
are within the scope of the prescribed powers of the sanggunian and of the
punong barangay. [Sec. 447(1)(i)], (Sec 57).
The review function of higher level LGUs over the LRCs/revenue ordinances of
their component LGUs is of paramount importance in promoting equity, fairness and
legality of such LRCs/revenue ordinances.
The review would ensure that LRCs/revenue ordinances of component LGUs are
properly formulated and crafted based on fundamental principles and statutory
requirements of local taxation, and aptly anchored on a coherent philosophical
framework.
Step 2. Within thirty (30) days after receipt of copies of such ordinances and
resolutions the sangguniang panlalawigan shall examine the documents
or transmit them to the provincial attorney, or if there is none, to the
provincial prosecutor for prompt examination. [Sec 56 (b)]
Step 1. Within ten (10) days after its enactment, the Sangguniang Barangay
shall furnish copies of all Barangay revenue ordinances to the
Sangguniang Panlungsod or Sangguniang bayan concerned for review as
to whether the ordinance is consistent with law and city or municipal
ordinances. [Sec 57 (a) of LGC]
MEASURES
An ordinance levying taxes, fees and charges, prescribing the rates thereof
for general and specific purposes, and granting tax exemptions, incentives or
reliefs shall be approved by majority vote of all members of the sanggunian. [Sec
458(2)(ii), Sec 447(2)(ii)]
The rates of taxes that the city may levy may exceed the maximum rates
allowed for the province or municipality by not more than fifty percent (50%)
except the rates of professional and amusement taxes (Sec 151). As such, the
rates of the professional and amusement taxes for provinces and cities shall be
P300.00 for professional tax, and 10% for amusement tax (as amended by R.A.
9640).
Pursuant to Sec 191 of the LGC, Adjustment of tax rates of tax ordinances
is governed by the following conditions:
f. Adjustments of tax rate shall not be oftener than once every five (5)
years. For this purpose, the date of the effectivity of the revenue
measures is the start date of the five (5) year period.
1. Tax rate adjustment shall not exceed ten percent (10%) percent of the
rates prescribed in the LGC.
1) Sangguniang Panlalawigan.
2) Sangguniang Panglunsod.
3) Sangguniang Bayan.
4) Sangguniang Barangay.
5) Taxes, fee 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;
Import or export taxes or fees on goods and commodities carried
through into or out of their respective territories would deter the free
flow of commerce in the country and cause considerable increase in
the prices of commodities, to the prejudice on the consuming public.
15) Taxes, fees or charges, of any kind on the National Government, its
agencies and instrumentalities, and local government units.
This should be read in connection with Section 193 of the Code which
withdraws exceptions or incentives granted to all persons, natural or
juridical, including government owned- or controlled corporations
except local water districts, non-stock and non-profit hospitals and
educational institutions.
4. Tax on Sand, Gravel and Other Quarry Resources (Sec 138), (Art 239)
b. Land-Based Taxes
4. Special Levy by Local Government Units (Sec 240, 241, 242, 243, 244,
245)
- Fees and charges shall be commensurate to the cost of issuing the license
or permit fee and the expenses incurred in the conduct of the necessary
inspection or surveillance (Art 233 of IRR)
- No such fee or charge shall be based on capital investment or gross sales
or receipts of the person or business. (Art 233 of IRR)
Legal bases : Sec 147, Sec 458(3)(ii), Sec 447(3)(ii), Sec 458(4)(v), Sec
447(4)(v)
Remarks : The use of the Philippine business classification set by DTI,
for establishing the size and extent of business operations
for purposes of fixing and rationalizing the fees for Mayors
Permit is an acceptable practice. This scheme would abide
by the limitation that no regulatory fee shall be based on
capital investment or gross sales or receipts as provided in
Article 233 of the IRR. This will also provide a convenient
measure for determining the commensurate cost of issuing
the license and the expenses incurred in the conduct of the
necessary inspection or surveillance in the performance of
LGUs regulatory function
Legal bases : Sec 148, Sec 458(2)(xv), Sec 447(2)(xv), R.A. 7394
Remarks : R.A. 7394 provides for a stiffer penalty of five (5) years
imprisonment for violators.
15. Permit Fee for Agricultural Machinery and Other Heavy Equipment
(Sec )
17. Permit Fee for the Storage of Flammable and Combustible Materials
18. Permit Fee for Temporary Use of Roads, Streets, Sidewalks, Alleys,
Patios, Plazas and Playgrounds
Legal bases :
Remarks :
e. Service Fee
Service fees are collected for services rendered or for conveniences
furnished by the LGU. Such fee amount is commensurate to the cost of providing
the service. The following are the common service fees imposed by LGUs:
1. Secretarys Fee.
Fees collected for services rendered by the civil registrar office of the
LGU.
Fees paid for each police clearance certificate obtained from the
station commander of the Philippine National Police located in the
LGU.
Fees collected from every dog owner whose dog is vaccinated within
the territorial jurisdiction of the LGU
f. Charges
Legal bases : Sec 458(2)(v), Sec 447(2)(v), Sec 458(3)(iii), Sec 447(3)(iii)
Remarks : Rental rates of the properties shall be based on full cost
pricing in order to generate revenues and have enough funds
for the maintenance of such properties.
Legal bases : Sec 458(5)(v), Sec 447(5)(v), Sec 458(5)(vi), Sec 447(5)(vi)
Remarks : To regulate traffic and the use of streets
FOCUS: Chapter I, General Provisions. Articles A, B and C are provisions common to revenue
codes/ordinances. They are generally accepted in the form and style presented.
FOCUS: Land-based taxes are easily explained. Except for special levy, the taxes are based on
assessed values of real properties.
The rates of levy are:
Basic Tax (under Article A. RPT)
o Provinces not exceeding one percent (1%) of the assessed value of the
real property
o Cities and municipalities in the Metropolitan Manila Area not exceeding
two percent (2%) of the assessed value of the real property
Additional Levy for the Special Education Fund For provinces, cities and
municipalities within the Metropolitan Manila Area, a fixed uniform rate of one
percent (1%) of the assessed value of the real property. The levy is in addition
to, and collected at the same time as, the basic real property tax.
Idle Land Tax A province, city or municipality within the Metropolitan Manila
Area: not exceeding five percent (5%) of the assessed value of the real property
which shall be in addition to the basic real property tax.
Special Levy on Lands LGUs may impose a special levy on lands especially
benefitted by public works or improvements funded by the LGU. The special
levy shall not exceed sixty percent (60%) of the cost of such projects and
improvements, including the cost of acquiring land and such other real property in
connection therewith.
o Sec. 240 of LGC provides that: A province, city or municipality may
impose a special levy on the lands comprised within its territorial
jurisdiction especially benefited by public works projects or improvements
funded by the LGU concerned: provided, however, that the special levy
shall not exceed sixty (60) percent of the actual cost of such projects and
improvements, including the costs of acquiring land and such other real
property in connection therewith: provided, further, that the special levy
shall not apply to lands exempt from basic real property tax and the
remainder of the land portions of which have been donated to the LGU
concerned for the construction of such projects or improvements.
o Sec. 241 of LGC stipulates that: A tax ordinance imposing a special levy
shall describe with reasonable accuracy the nature, extent, and location of
the public works projects or improvements to be undertaken, state the
estimated cost thereof, specify the metes and bounds by monuments and
lines and the number of annual installment for the payment of the special
levy which in no case shall be less than five (5) nor more than ten (10)
years. The sanggunian concerned shall not be obliged, in the
apportionment and computation of the special levy, to establish a uniform
percentage of all lands subject to the payment of the tax for the entire
district, but it may fix different rates for different parts or sections thereof,
depending on whether such land is more or less benefited by the proposed
work.
Guidelines in Reviewing the Local Revenue Measures Page 28
o Sec. 242 of the LGC states that: Before the enactment of an ordinance
imposing a special levy, the sanggunian concerned shall conduct a public
hearing thereon; notify in writing the owners of the real property to be
affected or the persons having legal interest therein as to the date and
place thereof and afford the latter the opportunity to express their positions
or objections relative to the proposed ordinance.
o Sec. 243 of the LGC provides that: The special levy authorized herein
shall be apportioned, computed and assessed according to the assessed
valuation of the lands affected as shown by the books of the assessor
concerned, or its current assessed value as fixed by said assessor of the
property does not appear of record in his books. Upon the effectivity of
the ordinance imposing special levy, the assessor concerned shall
forthwith proceed to determine the annual amount of special levy assessed
against each parcel of land comprised within the area especially benefited
and shall send to each landowner a written notice thereof by mail, personal
service or publication in appropriate cases.
o Sec. 244 of the LGC stipulates that: Any owner of real property affected
by a special levy or any person having a legal interest therein may, upon
receipt of the written notice of assessment of the special levy, avail of the
remedies provided for in Chapter 3, Title Two, Book II of the LGC.
o Sec. 245 of the LGC states that: The special levy shall accrue on the first
day of the quarter next following the effectivity of the ordinance imposing
such levy.
The Socialized Housing Tax LGUs are authorized to impose an additional one-half percent
(0.5%) tax on assessed value of all lands in urban areas in excess of fifty thousand pesos
(Php50,000.00). (Republic Act 7279)
Urban areas refers to all cities regardless of their population density and to municipalities
with a population of at least five hundred per square kilometer.
FOCUS: Taxes under Articles E, F, G, H, I and J impositions allocated to provinces which cities
may also impose at rates not exceeding fifty percent (50%) of the amounts allowed for the
province, except the rates for professional and amusement taxes.
The tax on sand, gravel and other quarry resources is not included in the Model as it is the
province that has the exclusive authority to impose such tax. It is only in the case of highly
FOCUS: Business taxes under Sections 143 of the Local Government Code (LGC), viz:
a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits and wines
b) On wholesalers, distributors or dealers in any article of commerce of whatever kind or
nature
c) On exporters and on manufacturers, millers, producers, wholesalers, distributors, or
dealers of essential commodities
d) On retailers
e) On contractors and other independent contractors*
f) On banks and other financial institutions
g) On peddlers engaged in the sale of any merchandise or article of commerce
h) On any business, not otherwise specified in the foregoing enumeration
Items a), b) c) and e) are provided with graduated schedule of fixed taxes; while items d), f), g)
and h) are percentage taxes. These impositions are enumerated in Section 143. (T)he
Sanggunian concerned may prescribe a schedule of graduated tax rates for item h) but in no case
to exceed the rates prescribed (t)herein.
A distinguishing characteristic of this set of taxes is that the tax base (except for peddlers) is
gross sales or receipts for the preceding calendar year.
Tax rates can be increased by not more than 10% once every 5 years is provided by the Code
(Section 191).
* Definition of Contractor- expand the enumeration of contractors to include other businesses
providing services for a fee
ARTICLE M. Other Taxes on Business pursuant to Sections 186 and 143(h)
a) Tax on Mobile Traders An annual tax of one percent (1%) on the gross receipts of any
person, who either for himself or commission, travels from place to place and sells goods
or offers to deliver the same, using a vehicle.
[Provinces were authorized under Presidential Decree 231 to impose taxes on peddlers engaged
in the sale of any merchandise or article of commerce within the province using trucks,
motorized bicycles, tricycles or other motorized vehicles. The tax on mobile traders is
impossable on peddlers using vehicles who sell or deliver goods within the city or municipality.]
b) Tax on Ambulant and Itinerant Amusement Operators A fixed tax per day prescribed by
the Sanggunian.
c) Tax on Mining Operations (Department of Finances Local Finance Circular No. 2-09)
c.1 Mining companies which exclusively operate for the extraction of minerals, metallic
or non-metallic, the tax rate shall not exceed two percent (2%) of their gross receipts
pursuant to Section 143(h) of the LGC Imposed under the ordinance of the local
government unit (LGU) concerned.
c.2 Mining companies whose operations include the processing of extracted minerals to
finished products shall be taxed on their gross receipts pursuant to Section 143(a) of the
LGC imposed under the ordinance of the LGUs concerned.
FOCUS: Taxes under Article M are basically impositions under Section 186 of the LGC.
In discussing taxes based on gross sales/receipts, it might be helpful to mention in passing tools
for checking/validating taxpayers declarations, e.g., examination of the books of accounts and
pertinent records, obtaining/sharing information from other government agencies, obtaining
financial statements supporting income tax returns, use of the Presumptive Income Level, in
determining gross receipts of business. The assumption use must be understood by tax payer
A Sanggunian may grant tax exemption. A Municipal Mayor cannot, however, waive the
collection of inspection fees, since it is levied under the police power. (DILG Opinion No. 148-
1964)
The Rule of the Situs of the Tax also needs emphasis. It is observed that many are not aware
that:
1. businesses, maintain or operating branch or sales outlet shall record the
sale in the branch or sales outlet making the sale or transaction, and the tax hereon
shall accrue and shall be paid to the municipality where such branch or sales
outlet is located.
2. Seventy percent (70%) of all sales recorded in the principal office shall be
taxable by the city or municipality where the factory, project office, plant or
plantation is located.
Another mechanism that LGUs could avail of is the Presumptive Income Level Technique. The
methodology is simple but needs explanation and illustration.
The Model suggests the use of the Philippine business classification set by DTI, for establishing
the size and extent of business operations for purposes of fixing and rationalizing the fees for
Mayors Permit. This scheme would abide by the prescription that no regulatory fee shall be
based on capital investment or gross sales or receipts as provided in Article 233 of the IRR. This
will also provide a convenient measure for determining the commensurate cost of issuing the
license and the expenses incurred in the conduct of the necessary inspection or surveillance in
the performance of LGUs regulatory function.
ARTICLE D. Permit Fee for Zonal/Locational Clearance (adopt updated HLURB Rates)
ARTICLE E. Permit Fee for Inspection and Verification of Subdivision (adopt updated HLURB
Rates)
Articles D and E are in pursuance of Sections 457 (2) (ix) and 457 (2) (x) for cities and Sections
447 (2) (ix) and 447 (2) (x) in the case of municipalities.
The following permit fees are imposed under the police power for regulation purposes:
In general, fees are collected for the services of a public officer and/or for services provided by
the LGU.
FOCUS:
1. Cost recovery
2. Pricing
City charges are imposed in the exercise of the proprietary nature (as legal persons) of LGUs.
INPUT:
RA 7279 Socialized Housing Tax
Section 132 of LGC. LGU is the local taxing authority.
Include in the general opening statements the authority of city to impose franchise tax,
amusement tax. Rules of interpretation in in the IRR.
Get the issuance by DILG on tax codification process for possible inclusion
Agreement of the city/municipality on imposing charges. In case of garbage collections
by the city/municipality and barangays
Provide an explicit statement defining the use of the barangay clearance. Not for
operating a business but as a requirement for the city or municipality to start the
processing of renewal/registration of business.
Check on the e-commerce act on publication of revenue ordinances. No need for
publication if published on the web?
Steps in enacting a revenue ordinance. Publication for approved ordinances vs. Posting
for public hearing?
Issue on the 30days prescriptive period on the review. No action taken? To be issued
by DILG for clarification
Where can the sangguniang bayan refer the revenue measures they are reviewing?
Define legal action on the review of revenue measures.
See Sec 146 of LGC
Franchise
Cooperatives
Preparatory steps in review process