NATURE AND SOURCE OF LOCAL TAXING POWER: Each local government unit shall have the power to create

e its own sources of revenue and to levy taxes, fess, 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. (Sec.5, Art. X, 1987 Constitution) The power to tax is primarily vested in Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer by virtue of a valid delegation as before, but pursuant to direct authority conferred by Sec.5, Art. X of the Constitution. Under the latter, the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however, must be consistent with the basic policy of local autonomy. (Mactan Cebu International Airport Authority vs. Marcos et al) Under the present constitutional rule, 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. (Manila Electric Company vs. Province of Laguna et al.) Doubts will have to be resolved in favor of municipal corporations. (City Government of San Pablo, Laguna et al. vs Reyes, etc. et al.)

GRANT OF LOCAL TAXING POWER UNDER EXISTING LAW: PROVINCES- may levy a tax on transfer of real property ownership, franchise tax and tax on sand, gravel and other quarry resources, etc. MUNICIPALITIES- may levy taxes, fees and charges on business which are not otherwise levied by provinces such as those imposed on manufacturers, dealers, exporters, contractors etc. CITIES- may levy taxes, fees and charges which the provinces or municipalities may impose. BARANGAYS- may levy taxes, fees and charges on retailers under certain limitations as well as collect fees or charges for services rendered in connection with the regulations or use of barangay-owned properties. POWER TO PRESCRIBE PENALTIES VIOLATIONS AND LIMITATIONS THEREON: FOR TAX

Local government units are authorized to prescribe penalties in the tax ordinances that they may enact. The power to prescribe penalties is however limited as to; 1.) the amount of fine that they may impose and 2.) to the length or period of imprisonment that they may provide. SEC. 516. Penalties for Violation of Tax ordinances. The sanggunian of a local government unit is authorized to prescribe fines or other penalties for violation of tax ordinances but in no case shall such fines be less than One thousand pesos (P=1,000.00) nor more than Five thousand pesos (P=5000.00), nor shall imprisonment be less than one (1) month nor

more than six (6) months. Such fine or other penalty, or both, shall be imposed at the discretion of the court. The sangguniang barangay may prescribe a fine of not less than One hundred pesos (P=100.00) nor more than One thousand pesos (P=1,000.00). POWER TO GRANT LOCAL TAX EXEMPTIONS: SEC. 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. Condonations partake of the nature of tax exemptions. SEC. 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. The sangguinians granting exemptions, tax incentives and tax reliefs may be guided by the following: 1.) On the grant of TAX EXEMPTIONS or TAX RELIEFS; a. Tax exemptions or tax reliefs may be granted in cases of: i. Natural calamities; ii. Civil disturbance

iii. General failure of crops iv. Adverse economic conditions such as substantial decrease in prices of agricultural or agri-based products. b. Grant of exemptions or relief shall be through an ordinance; c. Any exemption or relief granted to a type or kind of business shall apply to all businesses similarly situated; d. Any exemption or relief granted shall take effect only during the next calendar year for a period not exceeding 12 months as may be provided in the ordinance. In the case of shared revenues, the exemption or relief shall only extend to the local government unit granting such exemption or relief. 2.) On the grant of TAX INCENTIVES: a. The tax incentives shall be granted only to new investments in the locality and the ordinance shall prescribe the terms and conditions therefor. b. The grant of tax incentives shall be for a definite period not exceeding 1 calendar year. c. The grant of tax incentives shall be by ordinance passed prior to the first day of January of any year. d. Any tax incentive granted to a type or kind of business shall apply to all businesses similarly situated.

POWER TO ADJSUT LOCAL TAX RATES: SEC. 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. RESIDUAL TAXING POWERS OF LOCAL GOVERNMENTS: 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 subjects or bases which are not taxed under the National Internal Revenue Code or other applicable laws. SEC. 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. Limitations on their residual taxing powers: 1.) Constitutional limitations;

2.) Common limitations on taxing power of LGUs prescribed by Sec.133 of LGC. 3.) Fundamental principles governing the exercise of the taxing power by the LGUs prescribed by Sec.130. (the requirement that they must NOT NE UNJUST, EXCESSIVE, OPPRESIVE, CONFISCATORY, or CONTRARY to declared national policy) Sec.186, LGC. 4.) The requirement prescribed in Sec.186 of LGC which directs that ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose; and 5.) The principle of preemption. PREEMPTION or EXCLUSIONARY RULE: 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. The doctrine principally rests upon the INTENTION of Congress. (Victorias Milling Co. Inc., vs. Municipality of Victorias, Negros Occidental) FUNDAMENTAL PRINCIPLES OF LOCAL TAXING POWER: SEC. 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 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 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. CATEGORIES OF THE FUNDAMENTAL PRINCIPLES: Principles which are either inherent or constitutional limitations on the taxing power, in general: a) b) c) d) Uniformity of taxation; Equitability and progressivity of taxation; Public purpose of taxes; and Taxes must accrue exclusively to the benefit of the local government unit.

a) Local taxes must not be unjust, excessive, oppressive or confiscatory; b) They must not be contrary to law, public policy, national economic policy or in restraint or trade; and c) The collection of local taxes, fees and charges and other impositions shall in no case be let to any private person. COMMON LIMITATIONS ON LOCAL TAXING POWER: Known as common limitations because they apply to ALL local government units and which are actually taxes and impositions which the LGC excludes from taxing power of local governments. SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of 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; LGUs are not preempted from imposing the tax if the subject of taxation is the income of 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;

Principles which are statutory in origin:

 Duplication is authorized so preemption here does not exist.; Sec.135 and 151, LGC. (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; May either be Specific or Ad Valorem. The limitation applies only when what is being taxed is the article itself, and not the business in which said article is manufactured or sold.

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein; LGC authorizes its imposition of the graduated annual sales tax if the gross sales amount to P6,500,000 or more. The percentage tax rate is 37.5% of 1% based on the preceding years sales. On wholesalers, distributors or dealers, when their sales receipts for the preceding calendar year amounts to P2,000,000 or more, the tax is 50% of 1% on the gross sales or receipts. On contractors, if their gross receipts in the preceding calendar year amount to P2,000,000 or more, the local tax due is 50% of 1% on their gross receipts. Percentage Tax- a tax imposed when there is a set ration between the amount of the tax and the volume of the sales. (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 "Cooperatives 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. CLASSIFICATION OF EXCLUDED IMPOSITIONS: 1. Taxes, which are levied under the NIRC. These are preempted taxes except in some cases. (Par. a,b,c,h,i,j) 2. Taxes, fees and charges which are imposed under the TCC and other special laws. Preemption applies. (Par. d) 3. Taxes, fees and charges where the imposition of which contravenes existing governmental policies or which are violative of the fundamental principles of taxation. (Par. e,f,g,k,m,n.o) 4. Taxes, fees and charges imposed under special laws. (par. L)