LETTER FROM A CONCERNED LICENSED PROFESSIONAL

Dear Attorney,

I hope this letter finds you in good health. I am writing to respectfully request your legal insight into a situation concerning the computation of Mayor’s Permit fees in a particular municipality in the Philippines. I have come across a practice where the local government unit (LGU) bases the Mayor’s Permit fee on my declared gross receipts (as reflected in my income tax return) plus certain completed projects within the municipality. They then multiply that total by fifty-one percent (51%), and subsequently charge a rate of one percent (1%) on the resulting figure. This has led to a significant increase in my Mayor’s Permit fee obligations—from around PHP 17,000 in a previous year to over PHP 300,000 for the current period.

I would greatly appreciate your guidance on whether such a computation method is supported by law and what possible remedies might be available in the event that the LGU’s fee calculation is excessive or improperly implemented. For the sake of clarity and in compliance with professional confidentiality, I have omitted personal names, company names, and other identifying details. My objective is simply to understand and protect my rights and obligations under Philippine law in relation to local business taxation and licensing.

Thank you for taking the time to read this inquiry. I look forward to receiving your learned opinion.

Respectfully, A Concerned Licensed Professional

A LEGAL ARTICLE EXPLORING THE IMPOSITION AND COMPUTATION OF MAYOR’S PERMIT FEES IN THE PHILIPPINES

Author’s Note: The following discussion is provided for general informational purposes. It aims to lay out the pertinent legal principles and potential issues surrounding the calculation and imposition of business license or Mayor’s Permit fees by local government units in the Philippines. As with any legal concern, it is advisable to consult directly with a qualified attorney for advice specific to one’s circumstances.

I. Introduction to Local Taxation and Licensing

In the Philippines, local government units (LGUs)—comprising provinces, cities, and municipalities—derive their power to levy taxes, fees, and charges from the 1987 Philippine Constitution and from statutory enactments such as Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (hereinafter “LGC”). One of the key obligations of businesses operating within an LGU’s jurisdiction is securing a Mayor’s Permit (also referred to as a Business Permit). This permit is necessary for the lawful conduct of business and is typically renewed on an annual basis.

Under Section 143 of the LGC, LGUs may impose taxes on businesses based on gross sales or receipts. Additionally, Section 147 of the LGC allows local governments to levy fees and charges on business activities as a form of regulation. The aforementioned sections work together to empower local governments to implement regulatory measures that correspond to the nature and scope of the enterprise.

II. Legal Basis of Mayor’s Permit Fees

Regulatory Fee vs. Tax
A critical distinction in local taxation is whether the charge imposed is a fee (regulatory in nature) or a tax (revenue-raising in nature). While the LGC allows the LGU to set charges for the issuance of permits and licenses, any fee that ceases to be “merely nominal” and instead starts to raise revenue disproportionate to the cost of regulation may be scrutinized as a business tax rather than a regulatory fee.
Section 147 of the Local Government Code
This provision authorizes municipalities to impose reasonable fees and charges for services rendered. The Supreme Court has consistently held that such fees must be commensurate with the cost of regulation, inspection, or licensing.
Section 151 of the Local Government Code
Cities, as distinguished from municipalities, may impose the taxes, fees, and charges that provinces or municipalities may levy. Provinces levy professional taxes and certain other taxes, but the scenario discussed here focuses primarily on a municipal or city context where the LGU calculates a Mayor’s Permit fee.

III. Common Methodologies for Calculating Mayor’s Permit Fees

Fixed Rate/Flat Amount
Some LGUs adopt a system where the Mayor’s Permit fee is set at a flat rate for specific categories of businesses. The rate generally corresponds to the LGU’s costs in regulating these businesses (inspection, administrative overhead, compliance monitoring).
Percentage-Based Fee
Many LGUs impose a rate that is pegged to the gross sales or receipts of the business for the preceding year. This approach is facilitated by Section 143 of the LGC, which explicitly provides for local business tax on gross receipts. The LGU might then incorporate a corresponding regulatory fee, typically smaller than the local business tax, to reflect the costs of issuing the permit and ensuring compliance.
Tiered System
Some LGUs set tiered schedules wherein different rate brackets apply, depending on the volume of gross receipts. For example, businesses with receipts under PHP 500,000 might pay a certain fixed fee, while bigger enterprises generating more than PHP 10,000,000 would pay a higher rate. This classification is recognized, so long as it is reasonable and equitable.

IV. Potential Issues with the 51%-Based Computation

In the scenario described, the LGU computes the Mayor’s Permit fee by:

Taking the gross amounts declared in the Income Tax Return (ITR) and/or from completed projects in the municipality;
Multiplying that sum by fifty-one percent (51%);
Applying a rate of one percent (1%) to the resultant figure.

From a legal standpoint, the following concerns may arise:

Excessive Fees vs. Taxes
If the resulting amount is disproportionately large—e.g., from PHP 17,000 in one year to over PHP 300,000 in the next—there is a real question as to whether the municipality is imposing a regulatory fee or effectively charging a revenue-raising tax. Under Philippine jurisprudence, a regulatory fee should be related primarily to the cost of regulation and issuance of permits. Charging a very large amount, without explanation, could be construed as beyond mere regulation.
Changes in Local Revenue Ordinances
Local ordinances may have been revised, potentially increasing fees or changing the formula. An LGU has the power to revise its revenue code, provided the ordinance is duly enacted. If the municipal council passed a new ordinance justifying the 51% factor and the 1% rate, it must be consistent with the LGC, relevant rules, and not unduly burdensome. Compliance with publication and hearing requirements is essential.
- Publication Requirement: According to the LGC, ordinances involving local taxation must be published in a newspaper of general circulation or in conspicuous places for three consecutive weeks before it can take effect.
- Public Hearings: Mandatory public hearings are also required before any local revenue measure can be passed. If the LGU failed to follow these requirements, the ordinance might be challenged as invalid.
Basis for the 51%
While LGUs enjoy broad discretionary powers under the LGC, the rationale behind using a 51% figure is unclear. Ordinarily, if the local government uses a formula based on gross receipts or a fraction thereof, the legislative intent and the regulatory purpose behind the percentage should be transparent and well-supported by the local ordinance. If no clear basis exists for using 51%, or if the figure is arbitrary, it may be challenged.
Potential for Double Taxation or Overlapping Taxes
Under the LGC, certain professional services and construction-related activities might already be covered by specific local business taxes. If the local government is using completed projects’ contract amounts or gross receipts as the base, it should differentiate between what is purely regulatory and what might be considered a business tax. Overlaps or duplication of taxes could be called into question.

V. Legal Remedies and Courses of Action

If a taxpayer believes that the imposed Mayor’s Permit fee (or local business tax disguised as a permit fee) is excessive or unlawful, there are several avenues for redress:

Administrative Protest
Section 195 of the LGC outlines the remedy of protest against the assessment. Once a notice of assessment is received, a written protest can be filed with the local treasurer. The protest should clearly state the grounds for disputing the assessment (e.g., arbitrary computation, excessive charge, or ultra vires imposition). The treasurer then decides on the protest within a certain period. If denied, the aggrieved party can appeal to the Local Board of Assessment Appeals or, if dealing specifically with tax ordinances, to the proper authorities or courts.
Judicial Action
If the protest procedure does not yield a satisfactory outcome, taxpayers can elevate the matter to the Regional Trial Court (RTC), specifically in its capacity as a special court designated to handle local tax cases. The taxpayer may seek injunctive relief if collection or enforcement is imminent, though courts typically require payment under protest before an injunction is granted.
Declaratory Relief
If a taxpayer believes the ordinance or portions thereof are unconstitutional or invalid, a petition for declaratory relief may be filed. This is typically done in cases where the taxpayer wants to resolve the question of validity before any violation or enforcement transpires. However, compliance with the rules on local tax protest is generally a prerequisite or at least a practical approach to expedite resolution.
Request for Clarification from the LGU
In some cases, an informal approach may suffice to obtain a breakdown of the fees. Understanding how the LGU arrived at 51% is pivotal. If there is no legislative basis for the figure, the municipality may reconsider or revise its formula.

VI. Jurisprudential Insights on Local Taxes and Fees

Numerous Supreme Court rulings underscore the principle that while LGUs can impose local taxes and fees, these must not be confiscatory, unjust, or arbitrary. For instance, in Ormoc Sugarcane Planters’ Association, Inc. v. Court of Appeals, the Court emphasized that municipal power to tax is not absolute and must not contravene existing laws or constitutional principles. Moreover, in Pilipinas Shell Petroleum Corporation v. Municipality of Bauan, the Court overturned certain local tax impositions that effectively double-taxed a taxpayer under the guise of different headings but for the same taxable base.

The concept of “fair and equitable taxation” is similarly highlighted in these rulings, reiterating that the local government must balance revenue-raising with the legitimate interests of the taxed entities. When local governments push the boundaries of their taxing power, the judiciary often steps in to curtail measures that fail to adhere to the standard of reasonableness or the principle of due process.

VII. Potential Justifications an LGU Might Raise

On the other side, the LGU may argue:

Statutory Authorization
They may cite sections of their local revenue code or relevant ordinances. If the 51% multiplication factor is explicitly provided for in the local ordinance, the LGU might contend it was enacted in good faith to approximate a certain measure of business activity or overhead cost.
Regulatory Purposes
The LGU may state that the fee covers not merely the issuance of the permit but the cost of inspections, monitoring of compliance with building codes, environmental safeguards, and other business regulations. If these administrative and regulatory costs are shown to be extensive, the LGU could assert that the fee is justified.
Recent Revisions or Updating of Rates
If the municipality had a newly approved revenue ordinance that significantly revised rates across the board, the LGU could claim that the jump in fees (from PHP 17,000 to over PHP 300,000) reflects the updated rates that align with the current state of local business regulations.

VIII. Due Diligence for Business Owners and Professionals

Keep Records Organized
Maintain meticulous documentation of your gross receipts, project details, and prior fee payments. Having these records on hand allows you to verify the accuracy of any assessment and strengthens your position if you file a protest.
Monitor Local Legislation
The abrupt increase might be the result of a newly passed ordinance. It is prudent to check local bulletins, the municipal website (if available), or the local Sangguniang Bayan or Sangguniang Panlungsod (the municipal or city council) to see if new revenue measures were recently enacted.
Comply with Notice Requirements
When you receive an assessment or notice of fees due, read it carefully. Note deadlines for protests or appeals. The LGC imposes specific timeframes for challenging an assessment; failure to protest in a timely manner might lead to forfeiture of the right to question it.
Consult with an Attorney
Should there be any suspicion of an unlawful or unjust imposition, professional legal advice can help clarify issues and map out a strategy for resolution. Some LGUs are open to negotiation or compromise if the taxpayer can demonstrate legitimate concerns with the assessed amount.

IX. Procedural Framework in Protesting the Assessment

To provide clarity on the protest procedure under the LGC:

Filing of Protest (Section 195 of the LGC)
- Must be in writing, addressed to the local treasurer.
- State clearly the grounds for protesting the assessment.
- File within the period stated in the notice (generally within 60 days from receipt of the assessment).
Decision by the Treasurer
- The treasurer must render a decision within 60 days from receipt of the protest.
- A denial or inaction by the treasurer can be appealed further.
Appeal to the Court
- If denied or if the treasurer fails to act, the taxpayer may appeal to the appropriate court within 30 days from denial or the lapse of the 60-day period.
Payment Under Protest
- As a general rule, local taxes and fees should be paid under protest to avoid penalties and interest and also to preserve the right to seek a refund if the imposition is found invalid.

X. Analysis of the Hypothetical Scenario

Given the specific pattern—multiplying gross receipts by 51% and then imposing 1% on that new figure—the resulting amount can be substantial. If previously, the computed total was PHP 17,000 and this year it has skyrocketed to above PHP 300,000, questions to investigate include:

Whether the LGU has passed an updated ordinance detailing this new computation.
The basis for using 51%: is it designed to capture overhead or intangible components of the business?
The rationale for applying an additional 1% on a figure that might already have been taxed.
Whether the local business tax and the Mayor’s Permit fee might be getting conflated or duplicated.

If the local government is essentially re-categorizing a portion of gross receipts for a separate imposition (labeling it “Mayor’s Permit fee” but effectively treating it like an additional tax), then the municipality could be exceeding its authority under the LGC. The distinction between a legitimate regulatory fee and a disguised tax is crucial. If the municipality cannot justify the large jump in fees on regulatory grounds, that 300,000+ figure may be subject to legal scrutiny.

XI. Potential Legal Arguments

Argument of Excessiveness
By citing Supreme Court decisions that curb local government measures deemed exorbitant or unreasonable, a taxpayer could argue that the LGU’s formula lacks proportionality to actual regulatory costs.
Lack of Due Process
If the new computation formula was never subjected to proper public hearings or published as required, the taxpayer can claim the LGU violated procedural due process in local legislation.
Separation of Fees and Taxes
The taxpayer could highlight that many LGUs properly separate the business tax from the regulatory fee, ensuring that these do not overlap. If the LGU lumps the two together without clarity, the ordinance might be ripe for a legal challenge.
Equity Considerations
The principle of uniformity and equity in taxation might be invoked. If one business is singled out with a drastically disproportionate fee, the taxpayer may argue a violation of equal protection under the Constitution.

XII. Best Practices and Conclusion

For professionals and business entities facing such issues:

Stay Proactive: Obtain official copies of the local revenue code or ordinance that spells out the 51% base and the 1% rate.
Seek Clarification: Communicate directly with the municipal treasurer’s office to understand how they arrived at such an assessment.
Engage in Formal Remedies: If the explanation or justification is insufficient, file a protest within the statutory deadlines.
Consider an Audit/Legal Opinion: Legal counsel can conduct a thorough review to determine whether the local ordinance stands on solid legal ground.

Ultimately, while LGUs have broad powers to tax and impose fees, they are still constrained by the principles of reasonableness, uniformity, and transparency. A significant spike in fees—especially one lacking clear statutory or regulatory basis—warrants careful examination. If the LGU’s actions appear to be disproportionate or arbitrary, the aggrieved taxpayer is not without recourse. Philippine law provides various mechanisms to question or challenge local impositions and to seek remedies, whether administrative or judicial.

In closing, businesses and professionals are encouraged to remain vigilant about any sudden or unexplained changes in local fees and taxes. Proper documentation, prompt protest, and if necessary, recourse to the courts can ensure that one’s rights are upheld and that local governments remain faithful to the limitations set forth by the Local Government Code and by the Constitution. As always, the most prudent approach is to consult directly with legal experts who can offer tailored advice in navigating these concerns.

Disclaimer: This legal article is intended for general informational purposes only and does not constitute specific legal advice. Readers should consult a qualified attorney for advice on particular legal matters.