DIVINE WORD COLLEGE OF LAOAG

School of Business and Accountancy

Bachelor in Management Accounting

Taxation Under the Local Government Code

Syllabus:

 Fundamental principles, scope and taxation power of LGUs

 Scope and different type of local taxes
 Tax base and tax rates
 Venue and time payment

Introduction

Republic Act No. 7160, Local Government Code of 1991

This code was enacted to law, transferring control and responsibility of

delivering basic services to the hands of local government units (LGU).

- R.A No. 7160 was approved on October 10, 1991 and was later enter into
force on January 1, 1992.

Scope

The provisions herein shall govern the exercise by provinces, cities,

municipalities, and barangays of their taxing and other revenue-raising powers (Sec.
128).

Power To Create Sources of Revenue

Under R.A No. 7160 Sec. 129, whereas 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.

Local Taxes - Local taxes are taxes that are imposed and collected by the local
government units in order to raise revenues to enable them to perform the functions
for which they have been organized
 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
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 the 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. (Sec. 130)

Limitation on the taxation power of LGUs (Sec. 133).

LGUs cannot impose the following:

a. Income tax (except on bank and financial entities)

b. DST
c. Estate and Donor’s taxes d Customs Duties
d. Taxes on goods passing through the LGU
e. Taxes on agricultural and aquatic products sold by marginal farmers and
fisherman
f. Taxes on BOI-registered enterprises
g. Excise taxes on articles under the Tax Code and taxes on petroleum products
h. Percentage tax and VAT
i. Taxes on gross receipts of transportation contractors
 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
j. Taxes on premium paid by way of reinsurance
k. Taxes on registration of motor vehicles
l. Taxes on Philippine products actually exported
m. Taxes on Countryside and Barangay Business Enterprises and cooperatives
n. Taxes and fees on the National Government

Special Taxation Power of LGUs

Taxation Power of Provinces

1. Tax on transfer of real property ownership

2. Tax on business of printing and publication
3. Franchise tax
4. Tax on sand, gravel and other quarry services
5. Professional tax
6. Amusement tax
7. Tax on delivery truck/van

Taxation Power of Municipalities

1. Tax on various types of businesses

2. Rates of Tax within the Metropolitan Manila Area
3. Tax on retirement of business
4. Rules on payment of business tax
5. Fees and charges for regulation and licensing
6. Situs of tax collected

Taxe Base (Provinces)

Tax Imposable by
Tax Base Tax Rate
province

Selling Price or Market

1. Transfer Tax Not more than 1/2%
Value (whichever is higher)

2. Tax on business of Annual gross receipts for Not more than 1/2% on newly
printing and publication the preceding year started business, not
exceeding 1/20 of 1% of
 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
capital

Not more than 1/2% on newly

Annual gross receipts for started business, not
3. Franchise Tax
the preceding year exceeding 1/20 of 1% of
capital

Fair market value per cubic

4. Sand and gravel tax Not more than 10%
meter

5. Professional tax Not exceeding P300

6. Amusement tax on Gross receipts from Amended RA 9640 Not more

admission admission fees than 10%

Not exceeding P500 per

7. Tax on delivery truck/van
delivery vehicle

A. Tax on Transfer of Real Property Ownership

- Transaction subject to tax - Sale, donation, barteror on any other mode of
transferring ownership or title of real property.
- Tax Base – Whichever is higher;
 The total consideration involved in the acquisition of the property
(selling price) or
 The fair market value in case the monetary consideration involved in
the transfer is not substantial
- Tax Rate - Not more than fifty percent (50%) of the one percent (1%)
- Time of Payment - Within 60 days from the date of the execution of the deed
or from the date of the decedent's death.
- Exception - Transfer under the comprehensive agrarian reform program

B. Tax on Business of Printing and Publication

- Transaction subject to tax - The province may impose 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
- Tax Base – Gross annual receipts for the preceding calendar year
o in case of newly started business, the tax base shall be the capital
investment.
 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
- Tax Rate – Not exceeding fifty 50%) of one percent (1%)
o in case of newly started business, the tax rate shall not exceed one-
twentieth (1/20) of one percent (1%) of the capital investment
- Exceptions - The receipts from the printing and/or publishing of books or
other reading materials prescribed by the DepEd as school texts or references
shall be exempt from the business tax

C. Franchise Tax
- Transaction subject to tax – business enjoying a franchise
- Tax Base - Gross annual receipts for the preceding calendar year based on
the incoming receipt or realized, within its territorial jurisdiction.
o in case of newly started business, the tax base shall be the capital
investment.
- Tax Rate – Not exceeding fifty 50%) of one percent (1%)
o in case of newly started business, the tax rate shall not exceed one-
twentieth (1/20) of one percent (1%) of the capital investment

D. Tax on Sand, Gravel and other Quarry Resources

- Transaction subject to tax - Sand, gravel and other resources extracted
from public lands or from the beds of seas, lakes, rivers, streams, creeks and
other public waters within its territorial jurisdiction.
- Tax Base - Fair market value in the locality per cubic meter of ordinary
stones, sand, gravelearth and other quarry resources
- Tax Rate - Not more than ten percent (10%).
- Distribution of Tax Proceeds - The proceeds of the tax on sand, gravel and
other quarry resources shall be distributed as follows
o Province Thirty percent (30%);
o Component city or municipality where the sandgravel, and other quarry
resources are extracted - Thirty percent (30%); and
o Barangay where the sand, gravel, and other quarry resources are
extracted Forty percent (40%).
 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
- The permit to extract sand, gravel and other quarry resources shall be issued
exclusively by the provincial governor, pursuant to the ordinance of the
sangguniang panlalawigan.
E. Professional Tax
- Transaction subject to tax- Exercise or practice of profession requiring
government licensure examination (They are those who have passed the CPA
board examination or any board or examinations conducted by the
Professional Regulation Commission (PRC)E.gA CPA who is also a Lawyer
must pay for professional tax imposed on CPA and that fixed for Lawyer, if he
is to practice both professions).
- Tax Base - At such amount and reasonable classification as the sanggunian
panlalawigan may impose.
- Tax Rate – Not to exceed P300
- Exception - Professional exclusively employed in the government shall be
exempt from the payment of this tax.
- Date of Payment - Payable annually on or before January 31 or before
beginning the practice of the profession.
- Place of payment - Province where he practices his profession or where the
principal office is located.

F. Amusement Tax
Amusement and amusement places as defined under the LGC
Amusement is a pleasurable diversion and entertainment. It is
synonymous to relaxation, avocation pastime or fund.
Amusement places include theaters, cinemas, concert halls, circuses
and other places of amusement where one seeks admission to entertain
oneself by seeing or viewing the show or performance (Sec. 131 (b) and (c)
LGC)
- Transaction subject to tax - Ownership, lease or operation of theaters,
cinemas, concert halls, circuses, boxing stadia, and other places of
amusement.
- Tax Base - Gross receipts from admission fees.
 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
o In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the
provincial treasurer before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the
cinematographic films.
- Tax Rate - Not more than 10% of gross receipts from admission fees
(amended RA 9640)
- Distribution of Proceeds - Tax shall be shared equally by the province and
municipality where such amusement places are located.
- Exception - The holding of operas, concerts, dramas, recitals, painting and
art exhibitions, flower shows, musical programs, literary and oratorical
presentations
- The following are the amusement places upon which provinces or cities
cannot impose amusement taxes;
o Cockpits
o Cabarets
o Night and day clubs
o Boxing exhibitions
o Professional basketball games
o Jai-Alal
o Racetracks

There can be no imposition of amusement taxes on the above amusement

places since the National Internal Revenue Code already imposes amusement
taxes.

G. Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or

Producers, Wholesalers of, Dealers, or Retailers in, Certain Products
- Transaction subject to tax - 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.
 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
- Tax Base - Every truck, van or any vehicle
- Tax Rate - Not exceeding P500
- Exception - Exempt from tax on peddlers imposed by municipalities.

Taxe Base (Municipalities)

Person/Entities Subject to Tax:

(Sec. 143 A) Manufacturers, assemblers, re-packers, processors, brewers, distillers,

rectifiers and compounders of liquors, distilled spirits and wines or manufacturers of
any article of commerce of whatever kind or nature

Tax Base – on the taxpayer’s gross sales or receipts for the preceding calendar
year.

Tax Rate - Graduated annual fixed tax:

Person/Entities Subject to Tax:

 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
(Sec. 143 B) Wholesalers, distributors or dealers in any article of commerce of
whatever kind or nature

Wholesale - A sale where the purchasers buys or imports the commodities for resale
to persons other than the end user regardless of the quantity of the transaction.

Tax Base - Based on the gross sales or receipts for the preceding calendar year.

Tax Rate – Graduated annual fixed tax:

Person/Entities Subject to Tax:

(Sec. 143 C) Exporters and manufacturers, millers, producers wholesalers,

distributors, dealers or retailers of the following essential commodities

Tax Base – Gross sales or receipts

Tax Rate - Not exceeding one-half (1/2) of the rates prescribed under subsections
(a) (b) and (d) of this section.

Person/Entities Subject to Tax:

 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
(Sec 143 D.) Retailers

Retail - A sale where the purchaser buys the commodity for his own consumption
irrespective of the quantity of the commodity sold.

Tax Base - Gross sales or receipts for the preceding calendar year P400,000 or less

Tax Rate – Annual percentage tax of 2%

- In case of sales or receipts exceeding P400,000, the annual percentage tax of

1%

Exception - Gross sales or receipts in cities P50,000 or less, and gross sales or
receipts in municipalities P30,000 or less

Note: Taxed by barangays

Tax Rate - not exceeding 1% of such gross sales or receipts

Person/Entities Subject to Tax:

(Sec. 143 E) Contractors and other independent contractors

Contractor - Includes persons, natural or juridical not subject to professional tax

under Section 139 of the Code, whose activity consists essentially of the sale of all
kinds of services for a fee, regardless of whether or not the performance of the
service calls for the exercise of the use of the physical or mental faculties of such
contractor or his employees.

Tax Base - Gross receipts for the preceding calendar year

Tax Rate – Graduated annual fixed tax:

 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting

Person/Entities Subject to Tax:

(Sec. 143 F) Bank and other financial institution

Tax Base - Gross receipts of the preceding calendar year derived from interest,
commission and discount from lending activities, income from financial leasing,
dividends, rentals on property and profit from exchange or sale of property insurance
premium.

Tax Rate – not exceeding 50% of 1% on the gross receipts

Person/Entities Subject to Tax:

(Sec 143 G.) Peddlers engaged in the sale of any merchandise or article of
commerce.

Peddler - Any person whose, either for himself or on commission, travels from place
to place and sells his goods or offers to sell and deliver the same.

Tax Base - Per peddler

Tax Rate – Not exceeding P50

Person/Entities Subject to Tax:

(Sec. 143 H) On any business, not otherwise specified above which the Sanggunian
concerned may deem proper to tax: Provided, that on any business subject to the
excise, value-added or percentage tax under the National Internal Revenue Code. as
amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts
of the preceding calendar year.
 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
Tax Base - Gross sales or receipts

Tax Rate - Graduated schedule imposed by the Sanggunian concerned, but in no

case to exceed the rates prescribed in Sec. 143

City Taxes (Sec. 144)

Cities have the broadest tax powers, embracing both specific and general tax
powers as provinces and municipalities may impose.

The rates of taxes that the city may levy may exceed the maximum rates
allowed for the province and municipality by not more than fifty percent (50%) except
the rates of professional and amusement tax.

Tax on Retirement of Business (Sec. 145)

1. A business subject to tax shall, upon termination thereof, submit a sworn

statement of its gross sales or receipts for the current year.

2. If the tax paid during the year be less than the tax due on said gross sales
or receipts of the current year, the difference shall be paid before the business is
considered officially retired.

Payment of Business Tax (Sec. 146)

1. Taxes shall be payable for every separate or distinct establishment or place

where business subject to the tax is conducted and one line of business does
not become exempt by being conducted with some other business for which
such tax has been paid.
2. The tax on a business must be paid by the person conducting the same.
3. In cases where a person conducts or operates 2 or more of the businesses
mentioned in Section 143 of LGC which are subject to:
 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting
a) Same rate of tax- the tax shall be computed on the combined total
gross sales or receipts of the said 2 or more related business.
b) Different rates of tax- the gross sales or receipts of each business shall
be separately reported for the purpose of computing the tax due from
each business.

Collection of Taxes

Tax Period and Manner of Payment (Tax period for the collection of taxes)

It is based on calendar year, unless otherwise provided.

Manner of payment of the taxes

It may be paid in quarterly installment

Accrual of tax

Business tax accrues on the 1st day of January of each year.

New taxes, fees or charges, or changes in the rates thereof which shall accrue on
the 1st day of the quarter next following the effectivity of the ordinance imposing such
new levies or rates

Time of Payment

Withing 20 days of January or of each subsequent quarter.

It may be extended by the

sanggunian for justifiable
reasons, without surcharge or
penalties.
Extension cannot exceed 6
months

Barangay Taxes
The barangay may levy taxes, fees, and charges, as provided in this Article,
which shall exclusively accrue to them:
 DIVINE WORD COLLEGE OF LAOAG
School of Business and Accountancy
Bachelor in Management Accounting

Source of Revenue
 On stores or retailers with fixed business
Tax Base - Gross sales or receipts from preceding calendar year of P50,000
or less (for barangay in cities); and P30,000 or less (for barangay and
municipalities)
Tax Rate - Not exceeding 1% of such gross sales or receipts

 Service fees or charges

Tax Base - Services rendered in connection with the regulation or the use of
barangay-owned properties or services facilities such as palay, copra, or
tobacco dryers.
Tax Rate - Reasonable fees or charges

 Barangay Clearance

Tax Rate - Reasonable fee as the Sanggunian Barangay may impose

 Other fees and charges

Tax Rate - Reasonable fees and charges as the Barangay may levy

Penalties on Unpaid Taxes, Fees or charges

Penalties for unpaid taxes, fees or charges:
1. Surcharge of 25% on taxes, fees, or charges not paid on time
2. Interest not exceeding 2% per month of the unpaid taxes, fees or charges
including surcharges, until the amount is full paid.
In no case shall the total interest exceed 6 months
Collection of Local Revenues by Treasurer.
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.
In case a bond is required for the purpose, the provincial, city or municipal
government shall pay the premiums thereon in addition to the premiums of bond that
may be required.