Local and RPTaxation CGBP 2017
Local and RPTaxation CGBP 2017
Local and RPTaxation CGBP 2017
by:
Atty. Nicasio C. Cabaneiro, CPA
Outline of this Seminar
• Discuss General Principles pertinent to Local and Real property
Taxation pursuant to Rep. Act No. 7160 (Local Gov’t. Code)
• Code was enacted on Oct. 10, 1991 and took effect on Jan. 01,
1992
Role of Congress
• Sec. 189 directs that there must be a public hearing prior to the
enactment of any local tax ordinance or revenue measure
“Not so Inherent” Power to Tax
• Power to Tax granted to local governments has boundary or limits
Note: Opening phrase of Sec. 133, “Unless otherwise provided herein” means that the
limitations are ABSOLUTE unless exceptions are specifically provided
Common Limitations on Taxing Powers of LGUs –
cont.
5. Taxes, fees and charges upon goods carried into or out of territorial
jurisdictions of LGUs
12. Taxes, fees or charges for the registration of motor vehicles and for
issuance of all kinds of licenses/ permits for driving except tricycles
Common Limitations on Taxing Powers of LGUs –
cont.
13. Taxes, fees or charges on PH products actually exported, except as
provided
Sales of products from Export Processing Zones are not subject to
Local Tax but preferential rate under Sec. 143c not exceeding ½ of
rates prescribed under Sec. 143a, b and d
PROVINCE
Scope of its taxing power – “Except as otherwise provided in this
Code, province may levy only the taxes, fees and charges as
provided in this article.”
Clarification on Excise Tax on Petroleum
• In the case of Petron Corp. vs. Tiangco (G.R. No. 158881, April
16, 2008)
• Court ruled that since law does not distinguish, LGUs are
prohibited from imposing not only excise tax on petroleum
products but all taxes, fees and charges
• LGUs may prescribe the terms and conditions for the imposition
of toll fees on use of any public road, pier or wharf funded and
constructed by them
• If taxpayer does not export its packaging materials but sells them
to export-oriented enterprises, it is locally taxable as manufacturer
under Sec. 143[a] of the LGC
Exclusionary Doctrine/ Principle of Pre-emption
• Where National Government elects to tax a particular area, it
withholds from the Local government the delegated power to tax
the same field
• This was ruled in the case of Victorias Milling Co. Inc. vs.
Municipality of Victorias, Negros Occidental, (G.R. No. L-
21183, Sept. 27, 1968)
• This is pursuant to Sec. 153 and 155 of LGC of 1991 (RA 7160)
Examples of Common Revenue-raising Powers
1. Reasonable fees and charges for services rendered (LGC, Sec.
153)
3. 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 LGU concerned
Examples of Common Revenue-raising Powers –
cont.
• Exception on reasonable fees and charges for services rendered
(LGC, Sec. 153):
1. Officers and enlisted men of the AFP
2. Members of PNP on mission
3. Post Office personnel delivering mail
4. Physically handicapped and disabled citizens who are 65 years
or older (LGC, Sec. 155)
Specific Powers of Provinces to
Impose Taxes
a. Tax on Transfer of Real Property Ownership
• Exemption from Transfer Tax has been granted to NHA (under
RA 7279), Urban Development and Housing Act of 1997
(which later became an enactment) and prevails over LGC
• Rate: 10% of FMV per cubic meter of sand, gravel and other
quarry resources
Sand & Gravel Fee
• In the case of Province of Cagayan vs. Joseph Lasam Lara
(G.R. No. 188500, July 24, 2013)
• It was ruled that resorts, swimming pools, bath houses, hot springs
and tourist sports are not considered among “other places of
amusement”, applying the Principle of Ejusdem generis
o Cockpits
o Cabarets
o Night or Day clubs
o Boxing Exhibitions
o Professional Basketball Games
o Jai-Alai
o Racetracks
g. Annual Fixed Tax for Delivery Truck, Van,
Manufacturer/ Producer/ Wholesaler/ Dealer/ Retailer
in Certain Products
• Those who paid Annual Fixed Tax in the province may undertake
deliveries in all municipalities within that province
• The rate that the city can levy may exceed the max rate (allowed for
province/ municipality) by not more than 50% except rates of
professional and amusement taxes
• Exercise of this power is allowed provided that taxes are not unjust,
excessive, oppressive, confiscatory or contrary to declared national
policy
• The co. also offers its well drilling and construction services to
overseas clients
• This is in consonance with the opinion rendered in favor of Gulf-Asia
Int’l. Corp. on May 30, 2005 that service contract totally
consummated outside PH shall not be subject to Local Business Tax
Local Business Tax on Toll Fees
• In the previous case, Court stated that the Corp. is not authorized
by BSP
• Exemption shall be granted in the next calendar year and only for a
period of 12 months
• Grant tax incentives to new investments and for a definite period not
exceeding one year
• The rule that Special Law must prevail over the provisions of a
General Law does not apply as legislative purpose to withdraw
tax privileges enjoyed under existing laws or charters
City of San Pablo, Laguna vs. Reyes (G.R. No. 127708, March
25, 1999)
Tax Exemptions Abolished by the LGC – cont.
• Withdrawal of tax exemptions provided in the LGC can only affect
franchises granted prior to the effectivity of the law
• “In lieu of all taxes” clause applies only to NIR Taxes and not to
Local taxes
• This clause from R.A. 7294 was rendered ineffective by the advent
of the VAT law
• The same may take effect only during the calendar year not
exceeding 12 months as may be provided in the ordinance
2. Judicial Action
• Either of these remedies may be pursued simultaneously at the
discretion of the LGU
Procedure on Distraint and Levy for Purpose
of Satisfying Local Taxes
1. Local Treasurer shall upon written notice, seize sufficient personal
property to satisfy the tax and other charges
o Petitioner’s revenue for taxable year will include gross receipts already
reported during the previous year and for which local business tax has
already been paid
o Sec. 143 of the LGC and Sec. 22e of Pasig Revenue Code provided
that tax should be based on gross receipts
Local Tax on Condo Dues
• Case of City Treasurer of Makati vs. BA Lepanto Condominium
Corp. (Oct. 25, 2005)
• This may be relaxed when the application can cause great and
irreparable damage
No Injunction Rule
• Unlike the Tax Reform Code of 1997 that provides the “No
Injunction Rule”, LTC does not prohibit an injunction against
collection of local taxes under Sec. 218
• “Unlike in NIRC, the Local Tax Code does not contain any specific
provision prohibiting injunction where local taxes are involved but
cannot negate the procedural rules under Rule 58.”
• If Local Treasurer does not act on written claim for refund and 2-
year prescriptive period is about to expire, taxpayer should initiate
the court action for refund and consider Treasurer’s inaction as
denial of his claim for refund
• It was opined that court may entertain the appeal as long as the
case for refund is filed within the 2-year prescriptive period and
written claim for refund or credit had earlier been submitted to Local
Treasurer
When Does Local Business Tax Accrues?
• SC made a distinction between Annual Income Tax and Local
Business Tax to determine when local business tax accrues
o Income Tax - tax on income realized in 1 taxable year but payable
on the ff. year
o Local Business Tax - paid for privilege of carrying on business in
the year tax is paid
• Otherwise, LGUs are all inviting the filing of suits against them
CTA Jurisdiction on Local Tax Cases
In the case of City of Manila vs. SM Prime Holdings, et.al. (Feb. 04,
2014), SC ruled that:
• From date of filing the protest letter, Treasurer has another 60 days
to resolve the protest
• Taxpayer should file an appeal to the Court within the given 30-day
period
• Where the act of a Public Official is the object of litigation, suit must
be filed in the RTC whose territorial jurisdiction encompasses the
place where the respondent official is holding office
• Taxpayer may direct his action against the erring public official if the
latter acted with malice or inexcusable negligence
Liability of Local Gov’t. Officials for Damages
• In the case of Philippine Match Co., Ltd. vs the City of Cebu
(G.R. No. L-30745, Jan. 18, 1978)
• The issue is whether Cebu City can tax sales of matches which
were perfected and paid for in Cebu City but were delivered to
customers outside the city
• It was ruled on appeal that Cebu City has the right to tax since
delivery to the carrier is considered delivery to the buyer
• Court also ruled that the City Treasurer should not be held liable for
damages since he acted within scope of his authority when he
interpreted the ordinance
Period for Filing Refund Claim
In the case of Allied Banking Corp. vs. Quezon City Local Gov’t.
(Sept. 15, 2006), SC ruled that:
• Claim for refund of Realty Tax may be pursued under Sec. 253 of
LGC within 2 years from finality of the decision
Withdrawal of Tax Incentives
• Withdrawal of Tax Exemptions provided in LGC can only affect
franchises granted prior to effectivity of the law
• “In Lieu of All Taxes” clause applies only on NIR Taxes and not to
Local Taxes
• Moreover, this clause in the franchise under Rep. Act 7294 was
rendered ineffective by the advent of the VAT Law
• Grant takes effect only during the calendar year not exceeding 12
months as provided in the ordinance
• CCBI filed a claim for tax refund for taxes paid under the void
ordinance
Double Taxation – cont.
• SC ruled that CCBI is entitled to refund because there was indeed
double taxation subjecting the company to both Secs. 14 and 21 of
Tax Ordinance. The ff. are being imposed:
a. Same Purpose – Contribute to the city revenues for conducting
business within the city
b. Same Subject Matter – Privilege of doing business within the city
City of Manila vs. Coca-Cola Bottlers, Inc. (G.R. No. 181845, August
4, 2009)
Double Taxation – cont.
• In the case of Super Grocers Inc. vs. Municipality of San Pedro
(CTA AC No. 86, Feb. 25, 2013)
• Exceptions:
1. Where no GFIs can provide necessary banking services
• INTRODUCTION
• Citing Caltex Phil Inc. vs. CBAA, it was ruled that in determining
whether machinery is a real property subject to RPT, the definition
and requirements under the LGC are controlling
• The Court in the case of Meralco vs. Lucena City Treasurer ruled
that they are “not exempted” from Real Property Tax and may
qualify as “machinery” subject to this tax
• The fact that property was declared in the name of certain parties
for taxation purposes does not constitute evidence of ownership
(SC Decision)
• Under Sec. 222 of the LGC, said property shall be assessed with
Back Taxes for not more than ten (10) years prior to date of initial
assessment
• LGU may exempt idle lands from additional levy by reason of force
majeure which prevents owner from utilizing the same
Proof of Exemption from Taxation of Real
Property
• Every person by or for whom real property is declared claiming
exemption shall file with the Assessor within 30 days from date of
declaration of real property
• Tax must be paid first before the Taxpayer can question the
assessment
LANDS:
Class Assessment Level
Residential 20%
Agricultural 40%
Commercial 50%
Industrial 50%
Mineral 50%
Timberland 20%
Buildings and Other Structures
Residential
Based on FMV – from 0% for those not over Php175K
60% for those over Php10M
Agricultural
Based on FMV – from 25% for those not over Php300K
50% for those over Php2M
Commercial/ Industrial
Based on FMV – from 30% for those not over Php300K
80% for those over Php10M
Timberland
Based on FMV – from 45% for those not over Php300K
70% for those over Php2M
Assessment of Property Subject to Back
Taxes
• Real Property declared for the 1st time shall be assessed for taxes
for the period during which it would have been liable but in no case
for more than 10 years prior to date of initial assessment
• It was ruled that when the beneficial use of real property owned
by the Republic or any of its political subdivision is vested to a
taxable person, the real property is subject to tax
• Ownership of such lands remains with the State unless they are
withdrawn by law or there is a Presidential Proclamation
Realty Tax on 2 Airports
1. MANILA INTERNATIONAL AIRPORT AUTHORITY
• Exempted from Realty Tax pursuant to the SC’s decision in MCIAA vs.
City of Lapu-Lapu and Elena Pacaldo (G.R. No. 181756 June 15,
2015.)
• This ruling has overturned the 1996 MCIAA ruling that it is not
exempted from realty tax, being a GOCC
• With this 2015 decision, MIAA & MCIAA were not declared as gov’t.
instrumentalities so they are exempted from Real Estate Tax
Exemption of Charitable Institution
• Previously, the rule on tax exemption of properties used for
religious, charitable or educational purposes has been abandoned
• SC also applied the doctrine laid down in the Lung Center of the
Phils. case that for a real property to be exempted from RPT, it must
be used directly and exclusively for religious, charitable and
educational purposes
• It is not the use of income from real property that will determine
whether that property is tax-exempt
Payment of Realty Taxes
• Real Property Tax may be paid in 4 equal installments:
• If Basic Realty Tax and SEF are paid in advance, a discount not
exceeding 20% of the Annual Tax due may be availed
Payment Under Protest
• In the case of Camp John Hay Dev. Corp. vs. CBAA (G.R. No.
169234, Oct. 2, 2013)
• Within the period prescribed by law, any person not satisfied with
assessment of the Assessor may file an appeal with the Local Board
of Assessment Appeals (LBAA) in the province or city concerned
• Within 30 days from receipt, owner may elevate his appeal to the
Central Board of Assessment Appeals
Camp John Hay Development Corp. vs. CBAA (G.R. No. 169234,
October 2, 2013)
Issuance of Writ of Possession
In the case of Republic of the Philippines (DOTC) vs. City of
Mandaluyong (Feb. 23, 2011), SC ruled that:
• Local gov’t. must confirm that subject properties are situated within
their territorial jurisdiction otherwise it would be acting beyond its
powers vested by law
Real Property to Satisfy Delinquent Tax
1. Warrant of Levy is issued by the Local Treasurer (LT) and mailed
to delinquent owner. Written Notice of Levy and Warrant are
served on the assessor and Register of Deeds
• Tax removal or reduction may take effect for the succeeding years
in the city or municipality affected by calamity
Other Court Rulings and Decisions on
Local and Real Property Taxes
Batangas City Treasurer vs. Pilipinas Shell Petroleum
(G.R. 187631 - 07/08/15)
Facts:
• Batangas city assessed Shell for business taxes of around Php400m
for manufacture and distibution of petroleum products from refinery in
Tabangao, Batangas city
• Shell argued that it is not liable pursuant to Sec. 133(h) that prohibits
LGC to impose tax on petroleum products and Art. 232(h) of the
implementing rules of LGC which states that:
“XXX Sale of oil, gasoline and other petroleum products shall not be
subject to any local tax imposed in this article”.
Batangas City Treasurer vs. Pilipinas Shell Petroleum
(G.R. 187631 - 07/08/15)
Issue:
Is Shell liable to pay Business Tax to Batangas city?
Batangas City Treasurer vs. Pilipinas Shell Petroleum
(G.R. 187631 - 07/08/15)
Rule:
• SC ruled that given the clear mandate under Sec. 133(h)
and Art. 232 of the IRR of the LGC of 1991, Batangas City
does not have the right to assess & collect business taxes
against Shell
Mactan- Cebu Int’l Airport Authority vs. Lapu-Lapu City
(G.R. 181756 - 06/15/15)
Issue:
Are real properties of Mactan – Cebu International Airport
Authority subject to Real Property Tax?
Mactan- Cebu Int’l Airport Authority vs. Lapu-Lapu City
(G.R. 181756 - 06/15/15)
Rule:
• No. Petitioner is an instrumentality of gov’t. so its properties actually
and solely used for public purpose are exempt from Teal Property Tax
Rule – cont.:
• The decision follows the 2006 MIAA case and not 1996 MCIAA case
• This case cited the previous rulings of PFDA, GSIS and PPA
Davao City Treasurer vs. Intestate Estate of Dalisay
(G.R. 207791 - 07/01/15)
Facts:
• Involves a sale at public auction by Davao City of the estate’s
properties for non-payment of Real Estate Tax
• Since there were no bidders during the auction, the city forfeited the
properties and cause annotation of declarations of forfeiture on the
corresponding TCTs of properties
Facts – cont.:
• Petitioner offered to redeem properties forfeited but the city refused
since the 1 year redemption period already expired
• The estate countered that the reckoning date should be the one
stated in the declaration of forfeiture which incidentally was belatedly
issued by Davao City due to its inefficiency
Davao City Treasurer vs. Intestate Estate of Dalisay
(G.R. 207791 - 07/01/15)
Facts – cont.:
• Davao City contended that the operative act of forfeiture is an act of
the Treasurer in getting the property for lack of bidders and not the
registration of any declaration of forfeiture because said document
only facilitates transfer of ownership of property
• The city also stated the odd timing in the issuance of declaration and
its contents observably benefit the estate
Davao City Treasurer vs. Intestate Estate of Dalisay
(G.R. 207791 - 07/01/15) - cont.
Issue:
What is the reckoning point in counting the one (1) year
redemption period?
Davao City Treasurer vs. Intestate Estate of Dalisay
(G.R. 207791 - 07/01/15)
Rule:
• Period to redeem must be counted from Date of Forfeiture and not
Declaration of Forfeiture
Rule:
• Period would become flexible because its extension would depend
not on Treasurer’s discretion but on his attitude and work ethics
• Hence, the estate cannot redeem the property anymore since the
period of redemption had already expired
Demaala vs. Commission on Audit
(G.R. 199752 - 02/17/15)
Issue:
Can an LGU impose and collect a Special Education Fund
(SEF) at less than 1%?
Demaala vs. Commission on Audit
(G.R. 199752 - 02/17/15)
Rule:
• Yes. Imposition of SEF is within the taxing power of LGU and is
consistent with the constitutional principle of local autonomy and
fiscal flexibility
Facts:
• CBC filed for a refund claim in the amount of Php155K with the
Manila Treasurer for taxes and fees paid under Ordinances nos. 7988
& 8011 after these were declared unconstitutional like in the case of
Coca Cola Bottlers vs. City of Manila
Facts- cont.:
• CTA did not focus on the issue of where it must be filed but noted that
Petition for Review was filed a day after the reglementary period
under Sec. 195 of LGC
• CBC appealed the case to CTA En Banc who affirmed the ruling of
CTA so petition was forwarded to SC
• CBC also said that assuming they were guilty of delay since it was
only a day, they should be excused
• CBC appealed the case to CTA En Banc who affirmed the ruling of
CTA so petition was forwarded to SC
Rule:
• SC ruled that refund claim should be dismissed since it was not filed
on time and before a Court of Competent Jurisdiction
• Refund claims are exception and that each claim for refund must be
proceeded in accordance with law
Facts:
• Trans-Asia is engaged in the business of building, owning, operating,
selling and leasing power generation plants for purchasing, importing
and leasing telecommunication and other kinds of equipment
• For the years 1996 to 2005, Makati City classified the corp. as
“Manufacturer/ Producer” for Local Business Tax purpose
Facts - cont.:
• RTC Makati ruled that the corp. is a “Manufacturer/ Producer” since it
is engaged in business of transforming fuel into electricity and selling
it to end-users
• This ruling was affirmed by the CTA Division prompting Makati City to
appeal to CTA En Banc
City of Makati vs. Trans-Asia Power Generation Corp.
(CTA En Banc 1086 - 01/21/15)
Rule:
• Trans-Asia is a “Manufacturer/ Producer” and not a “Contractor”
Rule:
• While Hi-Cement initially owned the power plant, the same was
later sold to Trans-Asia as the owner of the plant, the latter need
to operate it for a fee
Facts:
• Taxpayer is not a GOCC but a privately-owned corp. engaged in
transmission of electricity only and not in power generation so it
should be exempted from RPT
• It alleges that use of the conjunctive word “and” under Sec. 234 of
RPT Code shows the intent of law in granting exemptions from RPT
• Taxpayer alleges that if properties are not exempted from RPT then
these must be classified as “Special Class”
National Grid Corp. of the Phils. vs. CBAA, LBAA of
Cabanatuan (CTA En Banc 1086 - 01/21/15)
Rule:
• CTA EB disagrees. To avail of special tax rate, it must be a GOCC
engaged in the generation and transmission of electric power