d. Taxation

Tax Exemptions

Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from real property tax. (PHIL. CONST., art. VI, § 28[3])

Principles of Taxation

• Taxation shall be uniform
• Taxes, fees and charges:
• Shall be equitable and based as far as practicable on the taxpayer’s ability to pay;
• Shall be levied and collected only for a public purpose;
• Shall not be unjust, excessive, oppressive, or confiscatory; and
• Shall not be contrary to law, public policy, national economic policy, or in restraint of trade;
• Collection shall in no case be left to any private person;
• Revenue shall inure solely to the benefit of the levying LGU, unless otherwise specified; and
• Each LGU shall, as far as practicable evolve a progressive system of taxation.

Sources of LGU Funds

• Taxes, fees and charges which accrue exclusively for their use and disposition
• Just share in national taxes which shall be automatically and directly released to them
• Equitable share in the proceeds from utilization and development of national wealth and resources within their territorial jurisdiction

LGUs may create their own sources of revenue

All LGUs are empowered to create their own sources of revenue and to levy taxes, fees, and charges subject to the provisions on local taxation consistent with the basic policy of local autonomy. The Sanggunian concerned through an ordinance has the power to impose a tax, fee or charge. The procedural requirements of public hearing and publication must be observed for purposes of compliance with the requirements of due process.

Nature of LGUs to tax

LGUs have no inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by the statute. Under the 1987 Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. Nevertheless, the fundamental law did not intent the delegation to be absolute and unconditional; the constitutional objective obvious is to ensure that, while the local government units are being strengthened and made more autonomous, the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; (b) each local government unit will have its fair share of available resources; (c)  the resources of the national government will not be unduly disturbed; and (d) local taxation will be fair, uniform, and just. (Ferrer v. Bautista, G.R. 210551, 2015).

To pass judicial scrutiny, a regulatory fee must be reasonable in relation to the cost and purpose of regulation. Revenue in excess of regulatory costs does not, by itself, convert the fee into an illegal tax; its purpose and effect must be assessed.

While local government units are authorized to burden all such other classes of goods with “taxes, fees and charges,” excepting excise taxes, a specific prohibition is imposed barring the levying of any other type of taxes with respect to petroleum products. (Petron Corporation v. Tiangco, G.R. 158881, 2008; Batangas City v. Pilipinas Shell Petroleum Corp., G.R. 187631, 2015).

Setting the rate of the additional levy for the special education fund at less than 1% is within the taxing power of local government units. It is consistent with the guiding constitutional principle of local autonomy. The option given to a local government unit extends not only to the matter of whether to collect but also to the rate at which collection is to be made. The limits on the level of additional levy for the special education fund under Section 235 of the Local Government Code should be read as granting fiscal flexibility to local government units. (Demaala v. COA, G.R. 199752, 2015).

By operation of Sec. 151 of the LGC extending to cities the authority of provinces and municipalities to levy certain taxes, fees, and charges, cities may therefore validly levy amusement taxes on cinemas subject to the parameters set forth under the law. (Film Development Council of the Philippines v. City of Cebu et al, G.R. 204418, 2015).

LGUs shall accrue exclusively to the LGU and to earmark

Taxes levied by LGUs shall accrue exclusively to the LGU and to earmark, if not altogether confiscate, the income to be received by the LGU from the taxpayers in favor of and for transmittal to the Film Development Council of the Philippines, is repugnant to the power of LGUs to apportion their resources in line with their priorities.

Real Property Taxation

Annual ad valorem tax on real property may be levied by a:

• Province; or
• City; or
• Municipality within Metropolitan Manila Area