Thursday, April 16, 2015

The constitutional basis for local government taxation (revised text)

The right of local government units to collect taxes due must always be upheld to avoid severe tax erosion. This is consistent with the State policy to guarantee the autonomy of local governments and the objective of the Local Government Code “that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest development as self-reliant communities and make them effective partners in the attainment of national goals.”[1] The power to tax, said the Supreme Court, “is the most potent instrument to raise the needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people.”[2] As the Court explained in another case:
…Local government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel of national line agencies.
Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian.[3]
In Manila Electric Co. v. Province of Laguna,[4] the Supreme Court explained that the objective of the Constitution is to ensure that, while the local government units are being strengthened and made more autonomous, the legislature must still see to it that
  1. The taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions;
  2. each local government unit will have its fair share of available resources;
  3. the resources of the national government will not be unduly disturbed; and 
  4. local taxation will be fair, uniform, and just.[5]


[1] NAPOCOR v. Central Board of Assessment Appeals, G.R. No. 171470, January 30, 2009.
[2] NAPOCOR v. Central Board of Assessment Appeals, G.R. No. 171470, January 30, 2009.
[3] National Power Corporation v. City of Cabanatuan, G.R. No. 149110, April 09, 2003.
[4] Manila Electric Co. v. Province of Laguna, G.R. No. 131359, May 05, 1999.
[5] Manila Electric Co. v. Province of Laguna, G.R. No. 131359, May 05, 1999.

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