General Principles – Secs. 130 and 132

Nature of Local Taxing Power

Local taxation is the authority of a province, city, municipality, or barangay to raise local revenues through taxes, fees, charges, and other impositions for public and local purposes. It is a fiscal aspect of local autonomy, but it is exercised only within the authority conferred by the Constitution and by statute.

The Local Government Code recognizes that local government units may create their own sources of revenue and levy taxes, fees, and charges, but the power is not unlimited. A local government unit may impose only those revenue measures allowed by law, in the manner required by law, and subject to the fundamental principles governing local taxation.

Local taxing power is legislative in character. The liability of a taxpayer must come from a valid ordinance enacted by the sanggunian of the local government unit concerned. An assessment, demand letter, permit condition, executive order, contract, or administrative practice cannot create a local tax where no valid ordinance imposes it.

Section 132: Exercise Through Ordinance

Section 132 provides that the power to impose a tax, fee, or charge, or to generate revenue under the Local Government Code, shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance. The provision identifies both the proper organ and the proper legal instrument.

The proper organ is the sanggunian because taxation is a legislative act. The local chief executive implements ordinances, the treasurer assesses and collects local revenues, and other local officers may administer regulatory systems, but the decision to impose the local revenue measure belongs to the local legislative body.

The proper legal instrument is an ordinance because a local revenue imposition affects property rights and imposes enforceable obligations. The ordinance must identify the subject of the tax, fee, or charge, the persons liable, the rate or amount, the tax base or measure, the period covered, the time and manner of payment, and the consequences of nonpayment when penalties are imposed.

An ordinance must be enacted by the sanggunian of the local government unit that has statutory authority over the subject. A province cannot impose a municipal tax, a municipality cannot impose a provincial tax, and a barangay cannot impose a revenue measure reserved to a higher local government unit. Cities generally exercise both provincial and municipal taxing powers when allowed by law.

The ordinance requirement also protects taxpayers against informal exactions. A fee collected as a condition for a permit, clearance, license, or local service must be traceable to a valid ordinance and to lawful local authority. If the ordinance is absent, void, or beyond the delegated power, the collection has no legal basis.

Revenue Measures Covered

The principles apply to local taxes, fees, charges, and other local impositions. The label used by the ordinance is not controlling because the nature of the exaction is determined by its substance, purpose, and operation.

• Tax is an enforced contribution imposed for public revenue. Its primary purpose is to raise funds for governmental functions, and the amount need not be limited to the exact cost of a particular service to the taxpayer.
• Regulatory fee is imposed under local regulatory authority to defray the cost of inspection, supervision, licensing, or control of an activity. It must bear a reasonable relation to the cost and purpose of regulation.
• Service charge is collected for the use of local property, facilities, utilities, or services. It is ordinarily connected to a benefit, privilege, or service supplied by the local government unit.
• Other imposition covers local revenue measures authorized by law although not described by a traditional label. Its validity still depends on statutory authority, a proper ordinance, and compliance with the fundamental principles of local taxation.

Uniformity Within the Local Government Unit

Section 130 requires that taxation be uniform in each local government unit. Uniformity means that persons, properties, businesses, transactions, or privileges belonging to the same class within the territorial jurisdiction of the taxing local government unit must be taxed alike.

Uniformity does not require identical taxes among different local government units. Local autonomy permits one city to adopt a different rate or structure from another city, and one municipality to choose a different revenue policy from another municipality, as long as each acts within statutory limits.

Classification is allowed when it rests on substantial distinctions, is germane to the purpose of the ordinance, applies equally to all members of the same class, and is not limited to existing conditions only. A local tax may therefore distinguish between manufacturers and retailers, essential and nonessential businesses, small and large enterprises, or different local privileges if the distinction is real and related to the revenue measure.

A tax is not uniform when the ordinance singles out a person or business without a reasonable basis, applies different burdens to taxpayers similarly situated, or uses a classification that is arbitrary, hostile, or unrelated to the purpose of the local imposition.

Equity and Ability to Pay

Section 130 requires local taxes, fees, charges, and other impositions to be equitable and, as far as practicable, based on ability to pay. Equity requires a fair distribution of the local burden according to relevant differences among taxpayers and activities.

Ability to pay may be reflected through graduated rates, brackets based on gross sales or receipts, distinctions based on scale of operations, or different treatment of activities with different economic capacities. The requirement is practical rather than absolute because local governments must also maintain administrable revenue systems.

Equity is violated when the amount imposed is grossly disproportionate to the subject taxed, when the basis chosen has no rational connection to capacity or privilege, or when the ordinance shifts an unreasonable share of the local fiscal burden to a narrow class without a legitimate public reason.

Public Purpose

Local revenue measures must be levied and collected only for public purposes. A public purpose exists when the revenue supports governmental, proprietary, developmental, regulatory, welfare, infrastructure, environmental, health, educational, peace and order, or other local functions authorized by law.

The public purpose requirement is satisfied even if private persons incidentally benefit from the expenditure, provided the primary object is public. Local funds may finance services, facilities, and programs that improve local governance and community welfare, but they may not be raised for a purely private end.

The purpose of the levy is judged from the ordinance, the statutory authority invoked, and the actual operation of the measure. A measure stated as public may still fail if its real effect is to transfer public money or coercive taxing power for private advantage without a legitimate local objective.

Limits Against Oppression and Confiscation

Section 130 prohibits local impositions that are unjust, excessive, oppressive, or confiscatory. This limitation applies even when the local government unit has general authority over the subject and has enacted an ordinance in proper form.

A tax is unjust or excessive when the burden is plainly disproportionate to the object of the levy or to the class affected. A fee is oppressive when the amount is far beyond the cost of regulation or service and operates as a revenue tax without statutory authority. A charge is confiscatory when it effectively deprives the taxpayer of property or makes lawful business commercially impossible without a valid regulatory basis.

Local taxation may influence business behavior, but it cannot be used to destroy a lawful trade, suppress competition for private ends, or impose a burden so heavy that the power to tax becomes a power to prohibit. When regulation is the object, the amount must remain reasonably connected to the cost and necessities of regulation.

Consistency With Law and Public Policy

Local revenue ordinances must not be contrary to law, public policy, national economic policy, or in restraint of trade. The local government unit acts under delegated authority and cannot defeat statutory limitations, national exemptions, or policies that Congress has made controlling.

An ordinance is contrary to law when it imposes a tax beyond the powers granted to the local government unit, taxes a subject withheld from local taxation, disregards mandatory procedures, or conflicts with a valid national statute. Local fiscal autonomy allows initiative, but not contradiction of superior law.

An ordinance is contrary to public policy or national economic policy when it frustrates a declared national program, discriminates against lawful commerce without local justification, or uses local taxation to obstruct activities that national law protects or promotes. The limitation preserves the balance between local autonomy and national economic unity.

A revenue measure is in restraint of trade when it unduly impedes the movement of goods, services, or business activity through unreasonable, discriminatory, or protectionist burdens. Local governments may tax businesses operating within their jurisdiction, but they may not use taxation to erect unlawful barriers to commerce.

No Delegation of Collection to Private Persons

Section 130 states that the collection of local taxes, fees, charges, and other impositions shall in no case be let to any private person. Collection is a sovereign and fiduciary function involving assessment, demand, receipt, custody, accounting, and enforcement of public funds.

The prohibition prevents tax farming, private profit from coercive revenue collection, and surrender of public accountability. A private entity cannot be made the collector of local taxes, cannot be allowed to keep a percentage as compensation for collection, and cannot exercise coercive powers that belong to public officers.

Local governments may obtain lawful technical, administrative, or technological assistance when permitted by procurement and auditing rules, but the authority to assess, collect, receive, account for, and enforce local revenues must remain with accountable public officers.

Benefit and Disposition of Local Revenues

Revenue collected under the Local Government Code inures solely to the benefit of, and is subject to disposition by, the local government unit levying the tax, fee, charge, or other imposition, unless the law specifically provides otherwise. The principle connects the burden imposed with the fiscal autonomy of the levying local government unit.

The levying local government unit controls the local revenue through its budgetary and appropriation processes, subject to statutory restrictions, auditing rules, and public purpose limitations. The revenue cannot be diverted to another local government unit or to a private person unless a specific law authorizes the disposition.

Where the law prescribes sharing, allocation, remittance, or special use of particular revenues, the statutory rule prevails. Otherwise, the general rule is that the local government unit that lawfully imposed and collected the revenue enjoys its benefit.

Progressive System of Taxation

Section 130 directs each local government unit, as far as practicable, to evolve a progressive system of taxation. Progressivity means that the burden should, where feasible, increase according to capacity, privilege, benefit, scale of activity, or other relevant measure of economic ability.

The directive does not invalidate every flat fee or uniform charge because some local exactions are regulatory, service-based, or administratively simple by nature. It does require local governments to design revenue measures with fairness in mind and to prefer structures that avoid placing the same practical burden on taxpayers with materially unequal capacities.

Progressivity is commonly reflected in graduated business tax rates, brackets based on receipts, differentiated license fees, and reasonable classifications that impose heavier burdens on larger or more profitable operations. The principle works with, and does not replace, the requirements of uniformity, equity, and legality.

Operational Effects of the General Principles

Relationship Between Power and Limitation

Sections 130 and 132 work together. Section 132 gives the procedural and institutional rule that the sanggunian must act by ordinance. Section 130 supplies the substantive standards that every local revenue ordinance must satisfy.

A local revenue measure is therefore examined by asking whether the local government unit has statutory authority over the subject, whether the sanggunian enacted an appropriate ordinance, whether the ordinance operates within the territorial and legal competence of the local government unit, and whether the measure complies with uniformity, equity, public purpose, legality, non-oppression, public collection, revenue disposition, and progressivity.

The power is broad enough to make local governments fiscally viable, but it remains bounded because taxation directly affects property and commerce. Local autonomy authorizes local revenue initiative; the fundamental principles prevent that initiative from becoming arbitrary, confiscatory, privately administered, or inconsistent with national law.