Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

HOUSE BILLNO.__ 3997

Introduced by Honorable Jerry P. Trefias

EXPLANATORY NOTE

The autonomy of local governments is guaranteed by the Constitution.'An
integral aspect of the autonomy of Local Government Units (LGUs) is the fiscal
independence granted to the local governments. The fiscal autonomy of LGUs is
enshrined in the Constitution, to wit:

“Each Local Government unit shall have the power to
create its own sources of revenue, to levy taxes, fees and
charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy
of local autonomy. Such taxes, fees and es shall
accrue exclusively to the Local Governments.”

Yet the Local Government Code of the Philippines’ unduly deprives the
LGUs of their legally-collected business taxes by automatically allocating thirty
percent (30%) of these taxes to the city or municipality where the principal office
of a business is located. This notwithstanding the fact that the business
establishment and the point of sale are both located within the LGU that imposed
the business tax, allowing another LGU which has no stake or participation in the
sale that transpired to benefit from the taxable transaction. The system of allowing
the territory where the principal office is located to share in the business tax
proceeds of another LGU is clearly contrary to the Constitutional mandate of fiscal
local autonomy for LGUs.

‘Section 25, Article 1I.The 1987 Philippine Constitution.
® Section 5, Article X. The 1987 Philippine Constitution (emphasis supplied).
* Republic Act No. 7160 (1991)


In addition, the Local Government Code itself guarantees fiscal autonomy. It
proudly declares that it is the policy of the State that LGUs shall “enjoy genuine
and meaningful local autonomy to enable them to attain their fullest development
of national goals.” Moreover, local fiscal autonomy shall be promoted “through a
system of decentralization whereby local government units shall be given more
powers, authority, responsibilities, and resources.” * Hence, the Local Government
Code provision that automatically deprives LGUs of 30% of their business tax
collections from branch sales of commercial establishments is inconsistent with the
other provisions of the Code.

It is also noteworthy that the Local Government Code explicitly provides
that taxes, fees and charges imposed by LGUs shall accrue exclusively to the local
government units’ and that the revenue collected by the LGUs shall inure solely to
the benefit of, and subject to the disposition by, the local government unit levying
the tax, fee, charge or other imposition. \t is therefore inconsistent with the very
letter and spirit of the Local Government Code to allow another territorial
jurisdiction to enjoy the collections of business taxes of another LGU.

The power of taxation is founded on the reciprocal duties of support and
protection between the citizens and the state in every organized society. The situsof
business taxation is the territory that has jurisdiction to levy the business tax on
persons, properties, rights, or businesses. It is based on the symbiotic relationship
of the state and the citizens, as the commercial establishment enjoys the protection
granted by the political unit where it conducts business.’ Hence, it is solely the
LGU wherein the branch of a commercial establishment is located that has the
right to collect business taxes. It is the branch which makes the sale that is
protected and supported by the LGU. On the other hand, the political unit that
houses the principal office does not spend a single centavo in ensuring the welfare
of the branch establishment. In the present context, the political unit of the
principal office is sharing from the income of another LGU without incurring any
expenses.

‘The fiscal autonomy of LGUs is of great importance. The Supreme Court
observed that fiscal autonomy has received greater affirmation than ever following
the 1987 Constitution and the Local Government Code, and that “previous

* section 2, R.A. No. 7160

* Section 129, R.A. No. 7160

* Section 130, R.A. No. 7160

angelina Arardia-Villanueva, Taxation Simplified pgs 2 and 15 (2004)


decisions that have been skeptical of the viability, if not the wisdom, of reposing
fiscal autonomy to local government units have fallen by the wayside.”* The High
Tribunal also noted in the case of National Power Corporation vs. City of
Cabanatuan’ that:

“For a long time, the country’s highly centralized
government structure has bred a culture of dependence
among local government leaders upon the national
leadership. It has also ‘dampened the spirit of initiative,
innovation and imaginative resilience in matters of local
development on the part of local government leaders.’
The only way to shatter this culture of dependence is to
give the LGUs a wider role in the delivery of basic
services, and confer them sufficient powers to generate
their own sources for this purpose.”

In view of the foregoing, I earnestly urge the House of itatives to
strengthen local fiscal autonomy through the passage of a
[AS

® Petron Corporation vs. Tiangco, et al., G.R. No. 158881 (2008)
° National Power Corporation vs, City of Cabanatuan, G.R. No. 149110 (2003) (emphasis supplied)


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

5
HOUSE BILLNO.__ 295?

Introduced by Honorable Jerry P. Trefias

AN ACT AMENDING SECTION 150 (b), (c), AND (d)OF REPUBLIC ACT
NO. 7160, OTHERWISE KNOWN AS THE LOCAL GOVERNMENT
CODE OF 1991.

Be it enacted by the Senate and House of Representatives duly assembled:

Section 1. Paragraphs (b), (c), and (d), Section 150, of Republic Act No.
7160 are hereby amended to read as follows:

(b)FOR MANUFACTURERS, ASSEMBLERS, CONTRACTORS,
PRODCUERS, AND EXPORTERS WITH FACTORIES,
PROJECT OFFICES, PLANTS, AND PLANTATIONS IN THE
PURSUIT OF THEIR BUSINESS, ONE HUNDRED PERCENT
(100%) OF ALL SALES RECORDED IN THE PRINCIPAL
OFFICE SHALL BE TAXABLE BY THE CITY OR
MUNICIPALITY WHERE THE FACTORY, PROJECT OFFICE,
PLANT, OR PLANTATION IS LOCATED.

(©) In case of a plantation located at a place other than the place where the
factory is located, SAID ONE HUNDRED PERCENT (100%)
MENTIONED IN THE IMMEDIATELY PRECEDING
PARAGRAPH SHALL BE DIVIDED AS FOLLOWS:

(1) Sixty percent (60%) to the city or municipality where the factory is
located; and



(2)Forty percent (40%) to the city or municipality where the plantation is
located.

(d)In case where a manufacturer, assembler, producer, exporter or contractor
has two (2) or more factories, project offices, plants, or plantation located
in different localities, ONE HUNDRED PERCENT (100%) OF THE
TAXABLE SALES RECORDED shall be prorated among the localities
where the factories, project offices, plants, and plantations are located in
proportion to their respective volume or production during the period for
which the tax is due.

Section 2.Repealing Clause. - All laws, decrees, executive orders,
proclamations, rules and regulations, or parts thereof inconsistent herewith
are hereby repealed or modified accordingly.

Section 3.Separability Clause. — If any provision of this Act is held invalid
or unconstitutional, the other provisions not affected hereby shall remain
valid and subsisting.

Section 4.Effectivity Clause. — This Act shall take effect fifteen (15) days
after its publication in at least two (2) national newspapers of general
circulation.

Approved,