MODULE 3

LOCAL FISCAL ADMINISTRATION

Lesson 1 Local Taxation and Revenue Generation

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LOCAL FISCAL ADMINISTRATION

 INTRODUCTION

The local fiscal administration deals with the systems, processes, officials,
and personnel and the policy environment governing intergovernmental, and
inter-local fiscal relations.

This module will discussed thoroughly the different tiers of the

government and the respective officials and offices with the local level and
elaborate the functions in the LGU as well.

LEARNING OBJECTIVES
At the end of the lesson, the students shall be able to:
1. Elaborate and analyze the local taxation and revenue generation.
2. Classify different taxes
3. Explain the local budgeting and expenditure
4. Discuss the local government accounting
5. Define local borrowing as a mechanism for financial stability of a
local government.

 DIRECTIONS/ MODULE ORGANIZER

There are four (4) lessons in the module. Read and understand each
lesson carefully then answer the activities to find out how much you have
benefited from it. Work on these activities carefully and submit your output
to the instructor/professor.

In case you encounter difficulty, discuss this with the instructor during
the consultation hour via online.

Good luck and happy reading!

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LOCAL FISCAL ADMINISTRATION

Lesson 1

 LOCAL TAXATION AND REVENUE

GENERATION

Taxation

Taxation is defined as the act of levying upon a citizen by the taxing

authority or the government for purposes of supporting the sustaining its
programs and projects. Thus, taxation is considered as the “lifeblood” of the
government.

Purpose of Taxation

The main reason for imposing taxes upon the citizens is for the
government to to be able to deliver the basic services to the people in the
community. The government cannot run the administrative affairs without
funds being collected from the people and other business establishments.
Mostly, the government generates its income from taxes. Thus, this imply the
simply imply the importance of taxes for the existence of the government.

Taxation has four main purpose or effects. These are the four (4) R’s,
namely:

1. Revenue. This refers to the collection of sum of money for purposes of

spending to the services.
2. Redistribution. This a way of transferring wealth from the richer to the
poorer persons.
3. Repricing. This is a way which encourages/discourages consumption.
4. Representation. The rulers tax citizens, who then demand
accountability. This is in consonance with the American slogan that “no taxes,
no representation”. This is the impact of collecting taxes from the citizens,
thus, this demand greater accountability to the taxing authority.

National Tax Law

The 1987 Philippine Constitution sets limitations on the exercise of the

power to tax. The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation. (Article VI, Section 28,
paragraph 1)

Tax law in the Philippines covers national and local taxes. National taxes
refer to national internal revenue taxes imposed and collected by the
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national government through the Bureau of Internal Revenue (BIR) and local
taxes refer to those imposed and collected by the local government.

As mentioned in the Section 2, Article X of the 1987 Philippine

Constitution, “the territorial and political subdivision shall enjoy local
autonomy”. Thus, the local government units such as the province, city,
municipality, and barangay has given the power to generate its revenues.

Local Government Tax Law

Local government taxation in the Philippines is based on the

constitutional grant of the power to tax to the local governments. Local taxes
may be imposed, as the Constitution grants, to each local government unit,
the power to create its own sources of revenues and to levy taxes, fees, and
charges which shall accrue to the local governments (Article X, Section 5).
With respect to national taxes, local Government units shall have a just share,
as determined by law, in the national taxes which shall be automatically
released to them (Article X, Section 6).

Here is the list of local government taxes in the Philippines

Provinces:
♦ Tax on transfer of real property ownership. A tax on the sale, donation,
barter, or on any other mode of transferring ownership or title of real
property at the rate of not more than fifty percent (50%) of one percent (1%)
of the total consideration involved in the acquisition of the property or of the
fair market value in case the monetary consideration involved in the transfer
is not substantial, whichever is higher. The sale, transfer or other disposition
of real property pursuant to R.A. No. 6657 shall be exempt from this tax.
(Section 185, Art. 1 Chapter 2 Book II of LGC)

♦ Tax on business of printing and publication. A tax on the business of persons

engaged in the printing and/or publication of books, cards, posters, leaflets,
handbills, certificates, receipts, pamphlets, and others of similar nature, at a
rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year. The receipts from the printing
and/or publishing of books or other reading materials prescribed by the
Department of Education, Culture and Sports, as school texts or references
shall be exempt from the tax. (Section 136 Art. 1 Chapter 2 Book II of LGC)

♦ Franchise tax. A tax on businesses enjoying a franchise, at a rate not

exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts
for the preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction. (Section 137 Art. I Chapter 2 Book II of LGC)

♦ Sand and gravel tax. A tax levied and collected not more than ten percent
(10%) of fair market value in the locality per cubic meter of ordinary stones,
sand, gravel, earth, and other quarry resources, as defined under the
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National Internal Revenue Code, as amended, extracted from public lands or

from the beds of seas, lakes, rivers, streams,creeks, and other public waters
within its territorial jurisdiction. The proceeds of the tax on sand, gravel and
other quarry resources shall be distributed as follows: Province - 30%;
Component city or municipality where the sand, gravel, and other quarry
resources are extracted - 30%; and Barangay where the sand, gravel, and
other quarry resources are extracted - 40%. (Section 138 Art. I Chapter 2 Book
II of LGC)

♦ Professional tax. A tax on each person engaged in the exercise or practice

of his profession requiring government examination at such amount and
reasonable classification as the sangguniang panlalawigan may determine but
shall in no case exceed Three hundred pesos (P=300.00). (Section 139 Art. I
Chapter 2 Book II of LGC)

♦ Amusement tax on admission. Tax to be collected from the proprietors,

lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement at a rate of not more than thirty
percent (30%) of the gross receipts from admission fees (Section 140 Art. I
Chapter 2 Book II of LGC)

♦ Annual fixed tax per delivery truck or van of manufacturers or producers of

or dealers in certain products. An annual fixed tax for every truck, van or any
vehicle used by manufacturers, producers, wholesalers, dealers or retailers
in the delivery or distribution of distilled spirits, fermented liquors, soft
drinks, cigars and cigarettes, and other products as may be determined by
the sangguniang panlalawigan, to sales outlets, or consumers, whether
directly or indirectly, within the province in an amount not exceeding Five
hundred pesos (P500.00). (Section 141 Art. I Chapter 2 Book II of LGC)

Municipalities:

 Tax on business on (a) manufacturers, assemblers, repackers, processors,

brewers, distillers, rectifiers, and compounders of liquors, distilled spirits,
and wines or manufacturers; (b) wholesalers, distributors, or dealers in
any article of commerce of whatever kind or nature; (c) exporters, and
on manufacturers, millers, producers, wholesalers, distributors, dealers
or retailers of essential commodities; (d) retailers; (e) contractors and
other independent contractors; (f) banks and other financial institutions;
(g) peddlers engaged in the sale of any merchandise or article of
commerce; and (h) any business, not otherwise

 Fees and charges on business and occupation and, except as reserved to

the province in Section 139 of this Code

 Fishery rental or fees and charges. Municipalities shall have the exclusive
authority to grant fishery privileges in the municipal waters and impose
rentals, fees or charges
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LOCAL FISCAL ADMINISTRATION

 Fees for sealing and licensing of weights and measures; and Community
tax.

Cities:

 The city may levy and collect among others any of the taxes, fees and
other impositions that the province or municipality may levy and collect.

Barangays:

 Taxes and fees on stores or retailers with fixed business establishments

with gross sales or receipts of the preceding calendar year of Fifty
thousand pesos (P=50,000.00) or less, in the case of cities and Thirty
thousand pesos (P=30,000.00) or less, in the case of municipalities, at a
rate not exceeding one percent (1%) on such gross sales or receipts

 Service charges for services rendered in connection with the regulation or

the use of barangay-owned properties or service facilities such as palay,
copra, or tobacco dryers;

 Barangay Clearance - No city or municipality may issue any license or

permit for any business or activity unless a clearance is first obtained
from the barangay where such business or activity is located or
conducted;

 Other Fees and Charges: (1) On commercial breeding of fighting cocks,

cockfights and cockpits; (2) On places of recreation which charge
admission fees; and (3) On billboards, signboards, neon signs, and
outdoor advertisements.

Fundamental Principles of LGU Tax Powers.

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
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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.

Common Revenue-Raising Powers

(1) Service Fees and Charges. - Local government units may impose and
collect such reasonable fees and charges for services rendered.
(2) Public Utility Charges. - Local government units may fix the rates for the
operation of public utilities owned, operated and maintained by them within
their jurisdiction.
(3) Toll Fees or Charges. - The sanggunian concerned 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 local
government unit concerned: Provided, That no such toll fees or charges shall
be collected from officers and enlisted men of the Armed Forces of the
Philippines and members of the Philippine National Police on mission, post
office personnel delivering mail, physically-handicapped, and disabled
citizens who are sixty-five (65) years or older. When public safety and
welfare so requires, the sanggunian concerned may discontinue the
collection of the tolls, and thereafter the said facility shall be free and open
for public use.

Collection of Taxes

 The tax period of all local taxes, fees and charges shall be the calendar
year.
 All local taxes, fees, and charges shall be paid within the first twenty (20)
days of January or of each subsequent quarter, as the case may be. The
sanggunian concerned may, for a justifiable reason or cause, extend the
time for payment of such taxes, fees, or charges without surcharges or
penalties, but only for a period not exceeding six (6) months
 The sanggunian may impose a surcharge not exceeding twenty-five
percent (25%) of the amount of taxes, fees or charges not paid on time
and an interest at the rate not exceeding two percent (2%) per month of
the unpaid taxes, fees or charges including surcharges, until such amount
is fully paid but in no case shall the total interest on the unpaid amount or
portion thereof exceed thirty-six (36) months
 All local taxes, fees, and charges shall be collected by the provincial, city,
municipal, or barangay treasurer, or their duly authorized deputies. The
provincial, city or municipal treasurer may designate the barangay
treasurer as his deputy to collect local taxes, fees, or charges
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Procedure for Approval and Affectivity of Tax ordinances and Revenue

Measures
(1) Public hearings shall be conducted for the purpose prior to the
enactment;
(2) Any question on the constitutionality or legality of tax ordinances or
revenue measures may be raised on appeal within thirty (30) days from the
affectivity thereof to the Secretary of Justice who shall render a decision
within sixty (60) days from the date of receipt of the appeal;
(3) The aggrieved party may file appropriate proceedings with a court of
competent jurisdiction after lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal.
(4) Publication of Tax ordinances and Revenue Measures shall be made after
10 days of approval for 3 consecutive days in a newspaper of local circulation,
posted in at least two (2) conspicuous and publicly accessible places and
furnish certified true copy of ordinance to local treasurers for public
dissemination.

 LEARNING ACTIVITY
1.1
Is the power of taxation inherent in the local government?Explain. (3
points for coherence, 2 points for organization)

1.2
In a graphic organizer, identify the taxes that belongs to the National
Government and LGUs. (10 points)

1.3
Make a power point presentation regarding your respective municipality.
The presentation should contain a maximum of 5 slides with the following
content on each slide: a short background on the economy/product of the
municipality, financial performance for the year 2020 and 2021, sources
of revenue. At the end of the slide, In 5 to 10 sentences make a
conclusion. (20 points)

1.4
Choose one LGU from other countries and in the Philippines.
Make a comparative analysis on the sources of its revenues. Identify the 5
best practices and 5 problems with respect to sourcing out revenues.
What are the measures to address the problems encountered by the
LGUs.(25 points)