Taxing Power of Local Government Units (LGUs) Under Political Law and Public International Law

Constitutional and Statutory Framework

The taxing power of Local Government Units (LGUs) in the Philippines is derived primarily from Section 5, Article X of the 1987 Constitution, which grants LGUs the power to create their own sources of revenue. This is further elaborated in Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (LGC), which provides the legal framework for the taxing power of LGUs.

The constitutional provision empowers LGUs to:

Exercise their taxing power directly, subject to the limitations established by law;
Create their own sources of revenue;
Levy taxes, fees, and charges as provided under the Local Government Code;
Allocate shares in the national taxes, through mechanisms such as the Internal Revenue Allotment (IRA), now termed as the National Tax Allotment (NTA) under the Mandanas-Garcia ruling.

Scope and Limitations of LGU Taxing Power

1. General Rule on Taxation (Sec. 129, LGC)

LGUs are empowered to create their own sources of revenue and to levy taxes, fees, and charges within their territorial jurisdictions, subject to limitations outlined in the Local Government Code and other special laws.

2. Limitations on LGU Taxing Power

LGU taxing powers are not absolute. The Constitution and the Local Government Code place various limitations on the exercise of these powers, including:

Non-delegability: The power to tax cannot be delegated to private entities.
Uniformity and Equality: Taxes must be uniform and equitable within the LGU's jurisdiction.
Public Purpose Requirement: Taxes must be levied for a public purpose.
Constitutional and Statutory Prohibitions: LGUs are prohibited from levying certain taxes, such as those explicitly reserved for the national government (e.g., income tax, customs duties).

3. Specific Taxes that LGUs Can Levy

Sections 134 to 151 of the Local Government Code enumerate the specific taxes that LGUs are empowered to impose. These include:

Provinces:
- Tax on transfer of real property ownership.
- Tax on businesses engaged in the printing and publication of books and other materials.
- Franchise taxes on businesses operating within the province.
- Tax on sand, gravel, and other quarry resources.
- Professional tax.
Cities:
- Cities are granted broader taxing powers, allowing them to levy all the taxes that provinces and municipalities can impose, including additional revenue-generating mechanisms like amusement taxes.
Municipalities:
- Tax on business establishments within their jurisdiction (such as manufacturers, retailers, and wholesalers).
- Fees and charges on business registrations and services provided by the municipality.
Barangays:
- Tax on stores or retailers with a gross sales of Php 50,000 or less within cities or Php 30,000 or less within municipalities.
- Service fees for services rendered by barangay officials or employees.

Procedures and Requirements for Taxation by LGUs

The Local Government Code outlines the procedural requirements for LGUs when exercising their taxing powers:

Ordinance Requirement: Taxes can only be imposed through ordinances enacted by the sanggunian of the LGU concerned.
Publication and Public Hearing: Before the imposition of taxes, the proposed ordinance must be published, and a public hearing must be conducted to allow taxpayers to voice their concerns.
Tax Rates and Bases: The tax rates and bases are established by law, and LGUs may not exceed the statutory limits.

Taxation and Public International Law

Under public international law, LGUs must ensure that their taxing ordinances do not violate international treaties and obligations to which the Philippines is a party. For instance:

Non-Discrimination: LGUs cannot impose taxes that discriminate against foreign entities or individuals in violation of international treaties or agreements.
Bilateral Investment Treaties (BITs): Taxation measures affecting foreign investors must comply with the protections provided in BITs, such as fair and equitable treatment and non-expropriation without compensation.

National Tax Allotment (NTA) and the Mandanas-Garcia Ruling

The Supreme Court decision in the Mandanas-Garcia case significantly affected the fiscal autonomy of LGUs by ruling that LGUs are entitled to a larger share of the national taxes. The Internal Revenue Allotment (IRA) was reinterpreted to include all national taxes, not just internal revenue taxes. The implementation of this ruling, which began in 2022, increased the fiscal resources available to LGUs, thus impacting their capacity to deliver services and fund local projects, including those supported by their own taxing powers.

Collection and Remedies

1. Taxpayer Remedies:

Taxpayers who wish to contest the legality or validity of taxes imposed by LGUs can file:

Administrative appeals before the Secretary of Finance or the Department of the Interior and Local Government (DILG), depending on the issue.
Judicial remedies via a petition for review in courts, typically starting at the Regional Trial Court.

2. LGU’s Power to Collect:

LGUs have the authority to enforce the collection of local taxes, fees, and charges through:

Issuance of warrants of distraint and levy;
Civil action for collection in courts;
Administrative remedies, including imposing interest and penalties for non-payment.

Autonomy and Fiscal Responsibility

While the taxing power of LGUs enhances local autonomy, they are also held to standards of accountability and fiscal responsibility:

Audit and Oversight: The Commission on Audit (COA) audits LGUs to ensure proper management and expenditure of locally generated funds.
Limitations on Borrowing and Debt Servicing: LGUs are subject to debt ceilings, and their capacity to borrow is contingent on their ability to generate revenues.

Conclusion

The taxing power of LGUs under the Philippine legal system is an essential component of local autonomy, allowing provinces, cities, municipalities, and barangays to create their own revenue sources. This power is framed by constitutional, statutory, and regulatory guidelines to ensure proper, equitable, and responsible use. However, while LGUs enjoy broad taxing powers, these are subject to various limitations, including respect for national policies and international obligations.