Tax Articles

Revisiting Local Taxation

By Atty. Rodel C. Unciano

With the able leadership of Senate President Vicente Sotto III and newly installed House Speaker Alan Peter Cayetano, the 18th Congress is expected to work overtime to fast-track the passage of the remaining packages of the Tax Reform for Acceleration and Inclusion.

I would like to add that we must not stop there. The revision of the Philippine tax system would not be complete without revisiting as well the landscape of local taxation. With the blurry prospect of transforming our system of government into federalism, which could have reshaped local taxation in the Philippines, I would say, it is now timely to look into the infirmities of the local tax system, where overhauling is now due.

To this day, the Local Government Code (LGC) of 1991, which is even older than the 1997 Tax Code, remains to be the principal law governing local taxation in the Philippines. Of course, the 1987 Constitution empowered each and every local government units to create their own sources of revenues and to levy taxes, fees, and charges. This means that each LGU, such as barangays, municipalities, cities and provinces, will have to pass ordinances governing local taxation in their respective jurisdictions.

This power is, however, subject to such guidelines and limitations as Congress may provide, consistent with the basic policy of local autonomy. As held in the 1983 case of Basco v. Pagcor, local governments do not have the inherent power to tax except such power as may be delegated to them by law. Hence, the need to revisit the laws governing local taxation.

Let me highlight some examples where I think revision is

Community tax. About seven years ago, in this section of BusinessMirror, I have written that community tax, if well administered, still stands as a good source of government income, particularly among cities and municipalities. This is still true today. However, for lack of proper implementation, LGUs have so much tax leakages on this item. To many of us, payment of community tax has become a mere compliance rather than an obligation. How many of us have faithfully paid our community tax this year?

Real property tax on immovables. The LGC of 1991 imposes RPT on immovables without definitive description on what constitutes immovables for RPT purposes. Under Section 218 thereof, among the real properties mentioned as subject to real property tax are lands, buildings and other structures, and machineries and other improvements. The Code, however, is not clear as to whether the enumeration stated therein is exclusive. Thus, some LGUs passed laws imposing RPT on other forms of immovable following the concept of immovables under Section 415 of the Civil Code of the Philippines. Thus, in some LGUs, trees are included among the properties subject to RPT. A more definitive provision on what constitutes properties subject to RPT is therefore necessary.

Absence of central agency implementing local taxation. While the objective of the Constitution is to provide for a more responsive and accountable local government structure instituted through a system of decentralization, a central agency, similar to the Bureau of Internal Revenue (BIR), must be created to oversee implementation of local tax laws.

While the Bureau of Local Government Finance has been issuing rulings relative to the levy and administration of local taxes, there is no provision in the Local Government Code of 1991 that explicitly confers such authority to the BLGF. In the 2001 case of PLDT v. City of Davao, the Supreme Court overruled an earlier opinion of the BLGF and held that BLGF is created merely to provide consultative services and technical assistance to LGUs on local taxation. Giving more authority to BLGF relative to the levy and implementation of local tax laws may expedite resolution of local tax issues without elevating disputes to the courts.

With three more years left in the Duterte administration, I remain hopeful for a passage of a law that shall provide for a more responsive and accountable local government structure consistent with the basic policy of local autonomy as enshrined in the Constitution.