How are taxes different from fees?

Local government units (LGUs) enjoy the constitutional mandate to levy taxes, fees, and charges subject to the limitations set by the Philippine Congress. (Section 5, Article 10, 1987 Constitution). Any dispute regarding the decisions of LGUs with respect to the imposition of local taxes may be brought to the Regional Trial Courts (RTCs).

The Court of Tax Appeals (CTA), on the other hand, is empowered to review decisions over local tax cases pronounced by the RTCs, pursuant to its power embodied in Section 7(a)(3) of Republic Act (RA) 1125, as amended by RA 9282.

In numerous decisions, the CTA has defined "local tax cases" as disputes involving the LGUs' imposition of taxes, fees, or charges on a taxpayer's property or business, including protests of assessments, claims for tax refunds or credits, and questions on the validity of tax ordinances. It also deals with cases arising from local business tax (LBT) and real property tax (RPT) assessments.

However, not all exactions by LGUs give rise to local tax cases that are appealable to the CTA. In the recent case of DOLE Philippines Inc.–Stanfilco Division v. The Sangguniang Panlunsod of the City of Davao (CTA AC 285, Oct. 2, 2024) (the "DOLE case"), the CTA Second Division said a matter is to be regarded a local tax case only if the levy involved is, in fact, a tax and not a fee. If the matter involves the levy of a fee, the CTA has no jurisdiction to review the RTC's decision.

Accordingly, the need to distinguish whether or not the levy is a tax or a fee is crucial in determining the CTA's jurisdiction. Such determination has implications in the appeal process from the RTC decision, which either proceeds to the CTA, a court of special jurisdiction taking cognizance only of cases clearly within its jurisdiction (i.e., local tax cases), or the Court of Appeals (CA), to which RTC decisions are generally appealable.

How are taxes different from fees?

Taxes are "the enforced proportional contribution from persons and property ... for the support of government and all public needs." (Republic v. Philippine Rabbit Bus Lines Inc., GR L-26862, March 30, 1970). They emanate from the State's inherent power to tax and are essential to the government's overall mandate.

Meanwhile, fees are distinctly defined under Section 131(l) of the Local Government Code (LGC) as "a charge fixed by law or ordinance for the regulation or inspection of a business or activity."

Primary Purpose Test

Under the Primary Purpose Test, if the exaction is revenue-generating, or if revenue is at least one of the real and substantial purposes, the exaction is rightfully classified as a tax. Otherwise, if the purpose is regulatory, the exaction is deemed to be a fee, even though it incidentally raises revenue.

In the DOLE case, the CTA held that while often subsumed under the broader term "charges" indicating pecuniary liabilities, fees imposed by LGUs serve a specific regulatory function. It is associated with the State's police power, recognizing that in promoting the public welfare, certain activities must be regulated, inspected, or supervised.

In this case, the Sangguniang Panlungsod of Davao City assessed the petitioner, DOLE Philippines, for Environmental Tax levied under Article 17 of its Watershed Code. The petitioner protested the assessment, which was denied by Davao City's Office of the City Treasurer.

Aggrieved, the petitioner then filed an appeal with the RTC of Davao City. After both its appeal and motion for reconsideration had been denied, the taxpayer elevated the matter to the CTA. In dismissing the case, the CTA Second Division applied the Primary Purpose test and held that it lacks jurisdiction over the case since the charge assessed is not a tax but a fee.

In so ruling, the CTA held that the exaction is primarily a regulatory act based on Article 17 of the Watershed Code, which expressly states that the fee is mainly for "watershed protection, conservation, and management."

In SM Prime Holdings Inc. v. Barangay 350, Zone 35, District III, City of Manila (CTA AC 278, Sept. 20, 2024), the CTA also held that a charge is presumed as a tax when no inspection is provided, nor standard, qualification, or hindrance set under a "guarding eye" comes with it. The case instructs that the nomenclature given by the law is not conclusive of the charge's nature.

In sum, the delineation and distinction between taxes and fees is critical in establishing the CTA's jurisdiction over appeals on local tax cases. This reinforces the need for LGUs to clearly determine and specify the purpose of their exactions, as misclassification could impact taxpayers' recourse in contesting local assessments.

Source: Manila Times

Trump seen bad for PH remittances

Remittances to the Philippines and receipts from the business process outsourcing sector could take a hit from US President-elect Donald Trump’s hardline immigration policies, while the possibility of diminished security support from Washington could stir up more tensions in the West Philippine Sea, said Japanese investment bank Nomura.

Those are the channels where the Philippines is most vulnerable after Trump won the race to the White House again following a divisive Nov. 5 election.

Zooming out, Nomura said in a commentary that Trump 2.0 will be negative for growth in Southeast Asia, albeit at varying degrees.

“The Philippines does not have a similar cushion and will be at risk from the impact on workers’ remittances from a possible tightening of US immigration policy and on the outsourcing sector,” Nomura said.

“Increased geopolitical tensions in the South China Sea due to the lack of US security support could put the Philippines on the front line. This could be an issue for the broader region, if China’s assertiveness in the disputed waters intensifies,” it added.

Global anxiety

The uncertainties over the recent US presidential election and the impact of a second Trump term on the global economy caused anxiety all over the world, and the Philippine peso is already feeling it.

The local currency finished the previous week past the 58-level again, a territory not seen in three months as election jitters powered up a rallying dollar, which is already getting a boost from expectations of slower rate cuts by the US Federal Reserve.

Trump staged a stunning return to power after securing more than the 270 Electoral College votes needed to win the presidency and defeat his democratic rival, Kamala Harris. As it is, the European Union is already planning to retaliate if Trump instigates a global trade war and slaps a universal tariff of up to 20 percent on all imports into the United States, as he warned.

In a separate commentary, ANZ Research said the likelihood of US manufacturers replacing Asian imports in the near term is low, although the Philippines, Malaysia and Taiwan “could be vulnerable to shifts in the electronic integrated circuit supply chains.”

Data from ANZ showed the Philippines’ exports to the United States accounted for 17.7 percent of the Asian country’s total outbound shipments between 2021 and 2023 on average, making the United States a major trading partner of the Philippines.

Meanwhile, American demand for Filipino products cornered 3.5 percent of the Philippines’ gross domestic product during the same period.

Overall, ANZ said Trump might train his protectionist policies on economies with large trade surpluses with the United States like China, Vietnam, South Korea and Taiwan.

Source: Inquirer

Civil forfeiture bill filed

House leaders filed a bill on Thursday, November 7, that seeks to transfer ownership of illegally acquired land and properties by foreign nationals to the government. 

Members of the House Quad Committee proposed House Bill 11403, or the Civil Forfeiture Act, in light of their suspicions that foreign nationals have unlawfully acquired several hectares of Philippine land by obtaining Filipino citizenship through fraudulent means.

Rep. Robert Ace Barbers (Surigao del Norte, 2nd District), overall chairman of the joint committee, said in an ambush interview that the bill is necessary to emphasize that foreign nationals are prohibited by the 1987 Constitution from having full ownership of Philippine land.

“When we discovered this, we found that they had also purchased a lot of questionable land because they are not Filipinos.… It should be clear that [foreign nationals] cannot acquire 100% of properties here,” he said in Filipino.

This aligns with Section 2 of Article XII, which stipulates that foreign ownership of corporations in certain industries is limited to a maximum of 40%.

It is also necessary to prevent seized land and properties from being sold while they are still under investigation, Barbers added.

The mega panel has been investigating the illegal operations of offshore scam hubs, or POGOs, in the country. Criminal activities, such as human trafficking and the illegal drug trade, have allegedly been uncovered in these establishments.

On October 21, the House Quad Comm handed over the documents it gathered related to the land ownership of Chinese nationals to the Office of the Solicitor General (OSG), urging the latter to probe these land titles.

Where will forfeited properties go?

Section 10 of the proposed legislation required agricultural land acquired through civil forfeiture proceedings to be distributed to qualified farmers.

Meanwhile, seized non-agricultural land must be allocated for use in schools, hospitals and other social welfare establishments.

Alternatively, non-agricultural land may be donated to the local government unit where it is located for the development of social service facilities.

The bill also cites Sections 7 and 8 of Article XII, which outlines that private lands can only be transferred to qualified individuals or entities, particularly Filipino citizens. 

Should Filipinos born in the country lose their citizenship, they may still acquire private lands within the limitations set by the law.  

Section 3 of the proposed Civil Forfeiture Act clarifies that any transfer of real estate property to a foreign national who is not legally qualified to own land in the Philippines is considered “null and void,” making the transfer legally invalid. 

Section 4 further establishes the presumption that any real estate acquired by a foreign national in the country is unlawfully acquired unless the foreign national can prove a legal exception.

According to the bill’s explanatory note, reinforcing existing laws prohibiting foreign land ownership strengthens their enforcement in addressing and eliminating corrupt practices, such as using late birth registration to circumvent the constitution.

This is the third bill filed by the House Quad Committee in response to its inquiry findings, following the first two bills that criminalize extrajudicial killings and ban POGOs in the country.

Source: Philstar