Local tax autonomy

Local tax autonomy

by Fulvio D. Dawilan

In this jurisdiction, taxes are imposed by two taxing authorities, i.e., the national government and the local government units. The proscription against double taxation is not violated when the national government imposes tax on an object of commerce and at the same time allows the local government units to impose taxes on the same subject.  The national government and the local government unit are separate taxing authorities which may impose taxes within their respective jurisdictions.

Undoubtedly, the mandate to impose taxes granted to the local government units has long been established in the Constitution. Consistent with the basic policy of local autonomy, each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges. To carry out this power, a local government unit needs to enact an ordinance before it may impose tax on any article of commerce of whatever kind or nature.

Because of this principle of local autonomy, some local government units have passed ordinances they deem appropriate for their purposes even to the extent of disregarding some of the fundamental principles enshrined in the Local Government Code. Some have even adopted interpretations different from the commonly understood meaning of the law. Is this the essence of local autonomy?

May local government units oblige businesses to pay taxes at will? The autonomy granted to local government units in the creation of the sources of revenue is not absolute. It is subject to limitations explicitly stated in the Constitution itself. While local government units have the authority to create their own sources of revenues, that power is subject to the guidelines and limitations as the Congress may provide. 

Any local tax ordinances should therefore cover subjects and impose rates of taxes that are within the limits provided in the  national legislations.  In enacting the Local Government Code, Congress laid down the fundamental principles governing the taxing and other revenue-raising powers of the local government units. It also provided limitations on the taxing powers of local government units. Aside from the Local Government Code, there  are also limitations or exemptions specified in some other special laws. Still, some local tax enforcement officers have gone beyond their boundaries by imposing taxes and other charges on exempt businesses, transactions or products.

Some local government units may have realized that taxpayers in their jurisdictions are enjoying exemptions from local business taxes. To be able to collect from these taxpayers in some other forms, they have increased their regulatory fees. For fear of doing business without a license since the local government unit may withhold the issuance of mayor’s permit, the  poor taxpayer is sometimes left without an option but to pay the taxes and fees being assessed.

Jurisprudence dictates that the regulatory fees are   imposed in the exercise of police power primarily for purposes of regulation. Being such, it must be reasonable and commensurate with the cost of regulation, inspection and licensing of a business or occupation or practice of a profession or calling. For fees and charges to be reasonable, these should be proportionate or equal to the cost of issuing the license or permit and the expenses incurred in the conduct of the necessary inspection or surveillance. Amounts collected which are beyond the costs of regulation may be considered excessive.

The enormous responsibility of local government units to provide the needs within their respective jurisdictions can not be discounted. In achieving that responsibility, funds are necessarily required. Thus, the necessity for enacting revenue measures aimed at increasing their revenue collections. In doing so, however, it should not be enforced at the expense of innocent or unwilling taxpayers. Taxes, fees, and charges, no matter how big or small, should be levied within the limits of the law. Revenue measures and revenue collection efforts should be restricted to the limitations provided in the Local Government Code and other special laws.

On the part of the taxpayers, it is incumbent upon them to be vigilant in evaluating the legitimacy of the taxes being levied. If you believe that the imposition is unjust, excessive or unreasonable, there is always a remedy. 

(The author is a tax partner at Punongbayan & Araullo, a member firm within Grant Thornton International Ltd. For comments and inquiries, please e-mail the author or call 886-5511.)