Local Tax Code for LGUs

Constitutional basis and purpose

The law is enacted to codify local taxation rules by consolidating scattered tax laws into a uniform system of local tax administration.
The law is designed to delineate taxing powers of local government units in conformity with the Constitution, to avoid multiple and competitive local impositions.
The law aims to generate adequate local resources without overburdening taxpayers.
The law is meant to transform local government units into effective instruments of national development and progress through sufficient revenue-raising powers.

Coverage and who can tax

Section 1 provides that the Code governs the exercise by provinces, cities, municipalities, and barrios of their taxing and other revenue-raising powers.
Section 4 requires that, whenever taxing or revenue-raising power is exercised under the Code, it must be exercised by the proper local legislative body:
- Provincial board for provinces;
- City council or municipal board for cities;
- Municipal council for municipalities;
- Barrio council for barrios.
Section 5 limits what these local governments may not impose (see “Common limitations” below).

Core principles guiding local taxes

Section 2 requires local taxation and revenue-raising to follow these fundamental principles:
- Taxes must be uniform in each local political subdivision.
- Taxes and impositions must be based as much as possible on the taxpayer’s ability to pay.
- Taxes must be levied and collected only for public purposes.
- Taxes must not be unjust, excessive, oppressive, or confiscatory.
- Taxes must not be contrary to law, public policy, or national economic policy, nor in restraint of trade.
- Collection of local taxes and impositions must not be let to any person.
- Monies collected under the Code must benefit solely the local government imposing the tax or fee, and must be subject to its disposition, unless otherwise specifically provided in the Code.
- Each local political subdivision must evolve a progressive system of taxation.

Definitions used in the Code

Section 3 defines the following terms expressly:
- “Agricultural product” includes yields of the soil such as corn, rice, wheat, rye, hay, ordinary salt, fish and fish by-products, poultry, livestock, and animal products, whether in original form or after simple processes for preservation/market preparation; character is not lost by processing for expanded marketability.
- “Amusement” means a pleasurable diversion and entertainment, synonymous with recreation, relaxation, avocation, pastime, or fun.
- “Amusement places” includes theaters, cinematographs, concert halls, circuses, and other places where admission is sought for viewing or for direct participation.
- “Brewer” includes persons manufacturing fermented liquors for sale/delivery, but excludes manufacturers of tuba, basi, tapuy, or similar domestic fermented liquors whose daily production does not exceed two hundred gauge liters.
- “Business” means commercial activity customarily engaged in as a means of livelihood with independence of judgment and power of decision.
- “Calling” means one’s regular business, trade, profession, vocation, or employment not requiring passing of an appropriate government board or bar examination.
- “Capital” is actual estate in money or property owned by an individual or corporation, liable to creditors, passing to a receiver in insolvency.
- “Capital investment” is capital contributed to an undertaking or common stock of a partnership, corporation, or other juridical entity/association.
- “Charges” refers to pecuniary liability as rents or fees against property/persons/organizations.
- “Confiscatory” means undue seizure or forfeiture of private property in favor of the public treasury.
- “Corporation” includes joint-stock company, partnership, association, insurance company, or any other juridical entity.
- “Dealer” is one who buys and sells merchandise/goods/chattels like a merchant.
- “Fee” means a charge fixed by law or agency for services of a public officer.
- “Gross receipts” includes all monies and properties received for services or articles sold/exchanged/leased, without deductions; it is the whole amount before cost of production is deducted.
- “Hotel” includes any house/building/portion regularly harboring or receiving transients/guests; treated as living quarters with privilege to accept any number of guests and serve food.
- “Levy” means an imposition or collection of assessment/tax/tribute/fine.
- “License” is a right or permission granted by competent authority to engage in business/occupation or transaction.
- “Local government” includes provinces, cities, municipalities, and barrios.
- “Lodging house” includes any house/building/portion regularly harboring transients for compensation; taverns or inns are lodging houses.
- “Manufacturer” includes persons altering exterior texture/form or inner substance, reducing products to marketable shape, or combining materials so the finished product can be used for special uses not possible in original condition.
- “Market premises” refers to open space in market compound, part of market lot consisting of bare ground not covered by market buildings, usually occupied by transient vendors during market days.
- “Motel” includes lodging quarters with a common enclosed garage or individually enclosed garage for parking motor vehicles.
- “Motor vehicle” includes vehicles propelled by power other than muscular power on public roads, excluding listed road-rolling/trolley/street-sweeper/etc., rail-only vehicles, and tractors/trailers/traction engines used exclusively for agricultural purposes.
- “Occupation” means regular business/employment or activity principally taking up time/thought/energies; includes any calling/business/trade/profession.
- “Operator” includes owner, manager, administrator, or any person responsible for operating a business establishment/undertaking.
- “Oppressive” means unreasonably burdensome, unjustly severe, or harsh.
- “Peddler” means a person who travels place to place and sells or offers to sell and deliver goods; whether wholesale or retail peddler is determined by wholesale dealer/retail dealer definitions in the Code.
- “Person” includes every physical or moral, real or juridical being susceptible of rights and obligations or being subject of legal relations.
- “Privilege” means a right or immunity granted as a peculiar benefit/advantage/favor.
- “Profession” means a calling requiring passing an appropriate government board or bar examination.
- “Public market” means any place/building/structure designated as such by the local board/council.
- “Rental” means value of consideration (in money or otherwise) for enjoyment or use of a thing.
- “Residents” means natural persons with habitual residence where they exercise civil rights and fulfill civil obligations, and juridical persons whose creation/recognition fixes residence; otherwise juridical persons are residents where legal representation is established or principal functions are exercised.
- “Retail” means sale for purchaser’s own consumption irrespective of quantity.
- “Revenue” includes taxes, fees, and charges collected by the state or political subdivision into the treasury for public purposes.
- “Services” means duties/work/business performed or discharged by a government official or by a private person (as the case may be).
- “Stall” means an allotted space or booth in a public market where merchandise is sold or offered for sale.
- “Tax” means an enforced contribution, usually monetary, levied by the law-making body for supporting governmental needs.
- “Unjust” means deficient in justice and fairness.
- “Vessel” includes any sort of boat/craft/artificial contrivance used or capable of being used for transportation on water.
- “Wharfage” means a fee assessed against cargo of a vessel engaged in foreign trade based on quantity/weight/measure received and/or discharged.
- “Wholesale” means sale where purchaser buys for resale regardless of quantity.

Common limitations on local taxing powers

Section 5 prohibits provinces, cities, municipalities, and barrios from imposing these taxes/impositions:
- Documentary stamp tax.
- Taxes on forest products and forest concessions.
- Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa, except as otherwise provided in the Code.
- Taxes on income of any kind whatsoever.
- Taxes or fees for registration of motor vehicles and for issuance of all kinds of licenses/permits for driving thereof.
- Customs duties, registration fees of vessels (except as otherwise provided in the Code), and wharfage on wharves, tonnage dues, and all other types of customs fees/charges/dues—except wharfage on wharves constructed and maintained by the local government concerned at rates not exceeding those fixed by the Tariff and Customs Code.
- Taxes of any kind on banks and insurance companies.
- Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies.
- Export taxes, fees, or other levies on Philippine finished/manufactured/processed products and products of Philippine cottage industries.
- Taxes and other impositions on goods carried into or out of, or passing through, territorial jurisdictions of local governments in the guise of unreasonable charges for wharfage use of bridges, or otherwise, or any other taxes in any form upon such goods/merchandise.
- Taxes or fees on agricultural products when sold by the farmer or producer thereof, whether in original form or not.
- Percentage tax on sales, except as otherwise provided in the Code.

Taxes and limits for provinces

Section 6 provides that, except as otherwise provided, a province may impose the taxes, fees, or charges specifically mentioned in the provincial article.
Section 7 allows a provincial tax on transfer of real property ownership:
- Tax applies to sale, donation, barter, or any other mode of transferring ownership or title of real property.
- The rate must not exceed one-fourth of one percent of the total consideration involved in the acquisition or of the assessed value, whichever is higher; if no specific consideration exists, use assessed value.
- Transfers pursuant to Republic Act No. 3844, as amended are exempt.
- The Register of Deeds must require presentation of evidence of payment before registering any deed.
- For this tax, “real property” refers only to lands, buildings, and machineries intended by the owner for an industry or works carried in a building or on land and tending directly to meet needs of that industry/works; “buildings” are structures more or less permanently attached to land, excluding those merely superimposed on soil.
Section 8 allows a provincial tax on the business of printing and publication:
- Applies to businesses printing/publishing specified newspapers/magazines/reviews/bulletins appearing at regular intervals with fixed subscription/sale prices and published in the province.
- Applies to printing/publishing books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and similar materials at not exceeding one-half of one percent of gross annual receipts for the preceding calendar year.
- For newly started businesses: rates must not exceed one hundred pesos for a printer, fifty pesos for a publisher, and one hundred and fifty pesos for one who is both a printer and publisher.
- Receipts from printing/publishing Department of Education and Culture prescribed school texts/references are excluded from gross receipts subject to tax.
Section 9 authorizes provincial franchise tax:
- Provincial authority exists notwithstanding provisions of special laws to the contrary.
- Tax is imposed on businesses enjoying franchise based on gross receipts within territorial jurisdiction.
- Rate must not exceed one-half of one percent of gross annual receipts for the preceding calendar year.
- Newly started business: rate must not exceed three thousand pesos per year.
- Revenue sharing: 60% accrues to the province’s general fund and 40% accrues to the general fund of municipalities serviced by the business based on gross annual receipt derived by the franchise holder.
- Newly started business: 40% is divided equally among municipalities serviced by the business.
Section 10 allows a provincial sand and gravel fee:
- Province may levy and collect a fee not exceeding seventy, five centavos per cubic meter of ordinary stones, sand, gravel, earth, and other materials extracted from public/private government lands, or beds of seas/lakes/rivers/streams/creeks, and other public waters within provincial jurisdiction.
Section 11 shifts selected taxes to provinces:
- Taxes in Sections 12, 13, 14, 15, and 16 previously exercised by the National Government or the municipal government are thereafter exercised by the provincial government, to the exclusion of the national or municipal governments.
- To avoid revenue loss, the province must levy and collect taxes as provided in Sections 12, 13, and 14.
Section 12 requires an annual occupation tax on all persons engaged in exercise/practice of professions or callings:
- Tax is seventy-five pesos for enumerated professions/callings including lawyers, medical practitioners, architects, interior decorators, certified public accountants, civil/electrical/chemical/mechanical/mining/sanitary engineers, pharmacists, medical technologists, insurance agents and sub-agents, customs brokers, marine surveyors, actuaries, registered master plumbers, registered electricians, veterinarians, dentists, optometrists, opticians, commercial aviators, professional appraisers or connoisseurs of tobacco and other domestic or foreign products, licensed ship masters and marine chief engineers.
- Mechanical plant engineers, junior mechanical engineers, and certified plant mechanics are subject to seventy-five pesos, unless they are professional mechanical engineers and have paid the corresponding fixed tax for mechanical engineers.
- Tax is fifty pesos for enumerated professions/callings including land surveyors, chief mates, marine second engineers, registered nurses, chiropodists, tattooers, masseurs, pelotaris, jockeys, professional actors/actresses, stage performers, hostesses, statisticians, commercial stewards and stewardesses, flight attendants, insurance adjusters, dietitians, and embalmers.
- The Secretary of Finance must include other professions/callings within the purview of the occupation tax and set their corresponding tax rates based on prevailing circumstances, and such tax takes effect two months after publication in a newspaper of general circulation.
- Payment is required to the province where the person practices or pursues the calling, or where the person maintains principal office if practicing in several places.
- A person who has paid the occupation tax is entitled to practice throughout the Philippines without being subject to any other national or local tax, license, or fee for practice of that profession/calling.
- Any individual or corporation employing a person must require payment of the privilege tax on occupation before employment and annually thereafter.
- Occupation tax is payable annually on or before the thirty-first day of January; those starting after January must pay the full tax before engaging therein.
- One line of occupation/calling does not become exempt by being conducted together with another occupation/calling for which the tax has been paid.
- Professionals exclusively employed in the Government are exempt from payment.
- Collection and remittance: municipal treasurers collect and remit to provincial treasurer within ten days following the end of the month of collection.
- Revenue sharing: seventy percent of proceeds accrue to province’s general fund; thirty percent is divided equally among municipalities.
- Provincial treasurer must release municipalities’ shares within thirty days following remittance by municipal treasurer.
- Persons subject to occupation tax must write or print in deeds, receipts, prescriptions, reports, books of accounts, plans/designs, surveys, and maps the number of the official receipt issued to them.
Section 13 requires a provincial tax on admission collected from proprietors, lessees, or operators of theaters/cinematographs/concert halls/circuses/other amusement places:
- 20% if admission is one peso or less.
- 30% if admission exceeds one peso.
- For theaters or cinematographs, tax must be deducted/withheld and paid to provincial treasurer through municipal treasurer before gross receipts are divided between proprietors/lessees/operators and film distributors.
- Exemption: operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and oratorical presentations are exempt except film exhibitions and radio or phonographic records thereof.
- Due dates: taxes due and payable within the first twenty days of the month following each quarter, determined from true and complete returns of gross receipts from the preceding quarter.
- If not paid within the time fixed: taxpayer is subject to surcharges, interests, and penalties prescribed by the Code.
- Willful neglect to file return and pay tax within time, or fraudulent return/false return willfully made: taxpayer pays surcharge of fifty percent of the correct tax due, in addition to interests and penalties under the Code.
Section 14 obligates provinces to collect fees for sealing and licensing weights and measures per schedule:
- Linear metric measures: one peso if not over one meter; two pesos if over one meter.
- Capacity metric measures: one peso if not over ten liters; two pesos if over ten liters.
- Weights (metric instruments):
  - Not more than thirty kilograms: two pesos.
  - More than thirty but not more than three hundred kilograms: three pesos.
  - More than three hundred but not more than three thousand kilograms: five pesos.
  - More than three thousand kilograms: six pesos.
- Apothecary balance/precision balance: fee is doubled.
- Complete sets of weights for each scale/balance are sealed free of charge; each extra weight: fifty centavos.
- Fees are paid where the business is conducted; peddlers/itinerant vendors using only one weight or measure pay in their place of residence.
- Municipal treasurers must keep full sets of secondary standards for testing; these are compared with fundamental standards at the National Institute of Science and Technology at least once a year.
- If found sufficiently accurate, instruments are distinguished by label/tag/seal and accompanied by a certificate showing variation from fundamental standards.
- If variation is of sufficient magnitude to impair utility, instrument is destroyed in the National Institute of Science and Technology.
- Proceeds accrue entirely to the municipalities where collected.
- Provincial board prescribes necessary regulations for use of weights and measures.
Section 15 imposes an annual tax on peddlers within the province, at rates not exceeding those listed:
- Peddlers carrying merchandise by trucks or other motor vehicles: P30.00 per annum.
- By motorized bicycle/tricycle or similar motorized vehicles (not in letter (a)): P15.00.
- By cart/carretela or animal-drawn vehicles: P30.00.
- By bicycle/pedicab or similar vehicles: P5.00.
- By person: P2.00.
- In addition: peddlers of textiles, jewelry, perfume, and other luxury articles must pay five pesos.
Section 16 authorizes a provincial annual rental fee for use of municipal waters/rivers/lakes/log ponds:
- Rate not exceeding five centavos per square meter of water space occupied.
- Revenue sharing: 60% to the province and 40% to the municipality (or municipalities in equal shares) where the log pond is located.
Section 17 limits provincial power:
- Province cannot levy business tax.
- Province cannot levy fishery rental and license fees.
- Province cannot levy taxes on articles subject to specific tax under the National Internal Revenue Code provisions.
- Province cannot levy taxes and other impositions enumerated in Section 5, Chapter I.
- Province cannot levy municipal fees and charges under Section 20 of this Code.

Taxes and limits for municipalities

Section 18 provides that, except as otherwise provided, a municipality may levy taxes, fees, or charges in this article at rates not exceeding those in the specific sections.
Section 19 authorizes municipal tax on business:
- For manufacturing/importing/exporting/producing/wholesaling/retailing/dealing in articles of commerce, with amounts based on gross annual sales for the preceding calendar year and tax rates per bracket, including:
  - Less than P1,000.00: P10.00.
  - P1,000.00 or more but less than P2,000.00: P20.00.
  - P2,000.00 or more but less than P3,000.00: P30.00.
  - P3,000.00 or more but less than P4,000.00: P45.00.
  - P4,000.00 or more but less than P5,000.00: P65.00.
  - P5,000.00 or more but less than P6,000.00: P80.00.
  - P6,000.00 or more but less than P7,000.00: P100.00.
  - P7,000.00 or more but less than P8,000.00: P120.00.
  - P8,000.00 or more but less than P10,000.00: P160.00.
  - P10,000.00 or more but less than P15,000.00: P240.00.
  - P15,000.00 or more but less than P20,000.00: P360.00.
  - P20,000.00 or more but less than P30,000.00: P520.00.
  - P30,000.00 or more but less than P40,000.00: P750.00.
  - P40,000.00 or more but less than P50,000.00: P1,000.00.
  - P50,000.00 or more but less than P75,000.00: P1,500.00.
  - P75,000.00 or more but less than P100,000.00: P2,200.00.
  - P100,000.00 or more but less than P150,000.00: P3,200.00.
  - P150,000.00 or more but less than P300,000.00: P3,900.00.
  - P300,000.00 or more but less than P500,000.00: P7,000.00.
  - P500,000.00 or more but less than P750,000.00: P11,250.00.
  - P750,000.00 to P1,000,000.00: P16,000.00.
  - Over P1,000,000.00: add P200.00 for every P50,000.00 or fraction thereof in excess of P1,000,000.00.
- Newly started business: tax must not exceed one-tenth of one percent of capital investment, but not less than the minimum of P25.00 fixed above.
- Special rate for manufacturing/producing/importing agricultural implements, fertilizers, medicinal drugs, or dairy product: one-half of the rates above-prescribed.
- Collection rule for branches/sales offices: sales in branch/sales office are recorded there and tax accrues to local government where branch/sales office is located; if no branch/sales office where sale is effected, tax accrues to local government where principal office is located.
- Combined-related businesses rule: where a single person/juridical entity conducts two or more related businesses under the specified (a) or (b) categories, computation is based on combined total gross receipts.
- For cafes/cafeterias/ice-cream and refreshment parlors/restaurants/soda fountain bars/carinderias/food caterers: a separate bracket schedule based on gross annual sales for the preceding calendar year sets annual tax amounts starting at P30.00 for less than P2,000.00 and scaling through higher brackets, including P750.00 for P45,500.00 to P50,000.00, plus P5.00 for every P1,000.00 or fraction thereof in excess of P50,000.00; newly started business: tax not less than minimum P30.00.
- For service-rendering business establishments (enumerated categories): a separate bracket schedule based on gross annual receipts for preceding calendar year sets annual tax amounts including P25.00 for less than P5,000.00 and scaling upward through P18,000.00 for P400,000.00 to P500,000.00, plus P100.00 for every P10,000.00 or fraction thereof in excess of P500,000.00; newly started business: rate not exceeding one-tenth of one percent of capital investment but not less than P25.00.
- For liquor/labeled businesses:
  - Wholesale dealers in foreign liquors: P800.00.
  - Wholesale dealers in domestic liquors: P400.00.
  - Retail dealers in foreign liquors: P200.00.
  - Retail dealers in domestic liquors: P100.00.
  - Brewers: P2,000.00.
  - Distillers of spirits: P1,500.00.
  - Rectifiers of distilled