Amusement tax ordinances on the rise

By Emir M. Castro, 2 September 2011

Entertainment via cinema is a beloved pastime of Filipinos, especially with the release of blockbuster movies like Harry Potter, Transformers, X-men, etc.

However such pleasure is not without its cost, with tickets ranging from P180-P450.

In an effort to ease the cost on the public and the moviemaking industry, Republic Act (RA) No. 9640 was enacted in June 2009 amending Sec. 140 of the Local Government Code (LGC) by reducing the maximum allowable local amusement tax rate to 10% from 30%.

Curiously, however, the new rate has not been consistently applied and many local government units (LGUs) have continued to enforce the 30% tax rate, arguing that the reduced rate of 10% may be implemented only by virtue of an amendment to their respective local tax ordinance.

Their line of reasoning, in effect, puts local tax ordinances above national law.

To examine the soundness of applying national law over local tax ordinances, one has to look at Article X Sec. 5 of the 1987 Constitution.

This section states that LGUs have the right to their own sources of revenues, subject to guidelines and limitations set by Congress.

Various Supreme Court decisions, which are considered as part of the law of the land, have also reiterated that all local tax ordinances shall bow to guidelines and limitations set by Congress through legislation.

While the Constitution guarantees autonomy for LGUs, Congress can enact laws that limit their taxing power.

RA 9640 is clearly a constitutional exercise of congressional power to enact, alter or repeal laws.

Hence, its implementation cannot be hindered by a local tax law or ordinance.

The question now is, what is the status of local tax ordinances imposing the maximum 30% amusement tax? Have they been automatically repealed by RA 9640?

To answer this question, it may be relevant to look at Art. 278 of the rules and regulations implementing the LGC. This provision states that where rates levied in a tax ordinance are higher than the taxes, fees, or charges prescribed under the LGC, the lower rates shall be enforced.

The repealing clause of RA 9640 further provides that ordinances which are inconsistent with any provisions of the act are hereby repealed or modified accordingly.

Clearly, based on these provisions, enactment of a new ordinance lowering the maximum amusement tax rate to 10% from 30%, as provided by RA 9640, is not necessary to implement said new rate at the local level.

The amendment to Sec. 140 of the LGC, by virtue of RA 9640, has automatically rendered ineffective local tax ordinances imposing the maximum amusement tax of 30%.
No further local law is required in order to implement the 10% maximum amusement tax provided in RA 9640.

It is also noteworthy that the Department of Finance -- Bureau of Local Government Finance, in the exercise of its advisory function, has issued Memorandum Circular No. 021-09, instructing all treasurers of LGUs to comply with the 10% amusement tax rate set by RA 9640.

Hence, LGUs clearly no longer have the authority to collect the 30% amusement tax since local tax ordinances concerned have been automatically repealed upon the effectivity of RA 9640.

Their argument that an enabling local tax ordinance must still be approved to implement RA 9640 does not hold water and can be questioned.
I believe that local autonomy is an important element in the development and progress of our country.

However, every right has corresponding constitutional limitations.

While LGUs are considered autonomous and are granted the right to their own sources of revenue, this authority must be exercised within the bounds of law consistent with the basic policy of local autonomy.

While the 30% amusement tax is a major source of revenue for LGUs, it should be noted that the same tax is also one of the factors that has hampered the growth and development of our local movie and film industry.

RA 9640 is a laudable legislation intended to help this industry. It should not be rendered useless simply because some local officials may have overlooked the basic fundamental principle that the power to tax does not always involve the power to destroy.

Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.