local taxation part i business and other taxes

On-Line Bar Revieweron Taxation

Reynaldo G. GeronimoPartner

ChanRobles Internet Bar Review : ChanRobles Professional Review, Inc.

www.chanroblesbar.com : www.chanroblesbar.com.ph

Local TaxationPart I – Taxation of

business

What constitutional provision grants taxing power of local governments?

Art. X, Sec. 5: 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.

Compare local taxing power under the current constitution with that under the 1935 Const.?

• Under the 1935 Constitution, local governments had taxing power only on account of legislative delegation. Hence, it was ruled that Congress could revoke all the taxing powers of local governments.

• Under the current Constitution, taxing power is directly vested on local governments. Thus, Congress can only put limits, but not take away local taxing power entirely. 4

What are the fundamental principles of local taxation?

• Taxation shall be uniform in each local government unit.

• Taxes, fees, charges and other impositions shall:– Be equitable and based as far as practicable

on the taxpayers’ ability to pay.

– Be levied and collected only for public purposes;

– Not unjust, excessive, oppressive, or confiscatory;

– Not be contrary to law, public policy, national economic policy or in restraint of trade;

• The collection of taxes, fees, charges and other impositions shall not be let to any private person;

• The revenue collected pursuant to the provisions of the LGC shall insure 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

• Each local government shall, as far as practicable, evolve a progressive system of taxation

What are the common limitations on local taxing power?

Local taxing power, as a generally rule, cannot extend to:

1. Income tax, except on banks and other financial institutions;2. Documentary stamp tax;3. Taxes on estate, inheritance, gifts, and legacies and other acquisitions mortis causa;

4. 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;

5. 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 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 by the BOI as pioneer or non-pioneer for a period of six (6) and four (4) years respectively from date of registration 10

h. Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees, or charges on petroleum products;

I. Percentage or VAT on sales, barters or exchanges or similar transactions on goods or services;

j. Taxes on gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by law, land, or water;

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;

n. Taxes fees or charges on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A, No. 6810 and R.A. No. 6938, otherwise known as the Cooperatives Code of the Philippines;

o. Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.

What taxes may a province impose?A province may impose ONLY:

(a) Tax on transfer of real property ownership;(b) Tax on business of printing and publication;(c) Franchise Tax;(d) Tax on sand, gravel and other quarry

resources;(e) Professional Tax;(f) Amusement Tax;(g) Annual Fixed Tax for delivery trucks or van 14

What taxes, fees and charges may municipalities impose?

Municipalities may levy taxes, fees, and charges not otherwise levied by provinces, such as:

(a)Tax on business(b)Tax for sealing and licensing of weights(c)Fishery rentals, fees and charges

What is the scope of taxing power of cities?• The city may levy the taxes, fees and

charges which the province or municipality may impose.

• In highly urbanized and independent component cities shall accrue to them and distributed according to the LGC.

• The rates of city taxes may exceed the maximum rates allowed for provinces or municipalities by not more than 50%, except the rates of professional and amusement taxes. 16

What taxes, fees and charges may be imposed by barangays?

Barangays may impose:– Taxes on stores and retailers with fixed

business establishments with low gross sales– Service fees or charges– Barangay clearance fees– Other fees and charges

What are the common revenue raising powers of local gov’ts?

All local governments may impose:1. Service fees and charges for services

rendered;2. Public utility charges;3. Toll fees or charges.

What are the rules relating to the collection of local taxes?• 1. The tax period, unless otherwise fixed,

is the calendar.• 2. The obligation accrues on the first (1st)

day of January of each year;• 3. But the tax may be paid in quarterly

installments, within the first 20 days of January or subsequent quarters

What are the penalties that may be imposed for non-payment of local taxes?

• Surcharge of not more than 25%• Interest of not more than 2% per

month (but not more than 36 mos.)

What periods govern thecollection of local taxes?• Period of collection: within 5 years from

the date the taxes become due• In case of fraud or intent to avoid payment,

taxes may be collected within 10 years from DISCOVERY;

• Period of prescription suspended:– The treasurer is legal prevented– Taxpayer requests in writing for a

reinvestigation – Taxpayer abroad or cannot be located. 21

Thank YouGood Luck

local taxation part i business and other taxes

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