Payment under protest

By Reynaldo E. Maniego III, 2 January 2014

Our constitution vests in local government units (LGUs) the right to levy and collect taxes which shall accrue exclusively to their respective territorial jurisdiction. Taxes pave the way for the LGUs to maintain their autonomy. With the power to tax, the LGUs are guaranteed a stable source of revenues needed to pay for necessary expenditures and fund their various programs and projects.

Distinct to local government taxation is the mandatory requirement to pay the assessed Real Property Tax (RPT) before a protest against the assessment can be rightfully filed. Unfair as it may seem, such requirement finds basis under our law, specifically Section 252 of the Local Government Code (LGC) of 1991 (Republic Act No. 7160), which provides that no protest shall be entertained unless the taxpayer first pays the tax. The taxpayer is required to annotate or write on the tax receipts the words “paid under protest”.
Only after such payment has been made may the taxpayer file a protest in writing (within 30 days from said payment of tax) to the provincial, city, or municipal treasurer, who shall render a decision on the protest within 60 days from its receipt. If the protest is denied or upon the lapse of the 60 day period, the taxpayer may avail of the administrative remedies provided under Chapter 3, Title Two, Book II of the LGC, specifically under Sections 226 to 231. These provisions refer to the procedural and substantive aspects of appeal before the Local Board of Assessment Appeals (LBAA) and Central Board of Assessment Appeals (CBAA). An appeal directly filed with the Boards of Assessment (LBAA or CBAA) will not prosper without satisfying first the protest requirements set out in Section 252.The protest contemplated under Section 252 pertains to questions on the reasonableness or correctness of the amount assessed and does not involve a legal question but a question of fact. For instance, if a taxpayer disputes the reasonableness of an increase in a real property tax assessment, he is required to first pay the tax under protest. Otherwise, the protest will not be entertained.

On the contrary, no protest is required when the taxpayer questions the very authority and power of the assessor to impose the assessment and to collect the tax -- the issue being a legal question. It challenges not merely the amount of the increase in the tax but the very validity of such increase. As it is a question of law, the taxpayer may bring the matter before the courts to decide. An example is illustrated in a Supreme Court (SC) case where the taxpayer questioned the increased real estate taxes imposed by and being collected in Pasig City effective from the year 1994, premised on the legal question of whether or not Presidential Decree No. 921 was repealed by the LGC (321 Phil. 81, 101-102 [1995]).In some cases, the determination of whether the issue involves a question of fact or a question of law may be obscure. For instance, is payment under protest required when the taxpayer claims exemption from the payment of RPT under a specific provision of law or statute?

This was discussed in the SC case G.R. No. 169234, Oct. 2, 2013, where the court ruled that a claim for tax exemption, whether full or partial, does not deal with the authority of local assessor to assess real property tax but questions the correctness of the assessment. As determined by the court the petitioner failed to declare and prove the subject real properties as tax-exempt. The SC cited Section 206 of the LGC, which requires that every person by or for whom real property is declared, who shall claim tax exemption for such property, shall file sufficient documentary evidence in support of such claim with the provincial, city or municipal assessor within 30 days from the date of the declaration of such real property. As the taxpayer had failed to submit the evidence within the prescribed period, the subject properties remained listed as taxable in the assessment roll. The SC said that the issue, being a question of fact, should be resolved by the local board. Therefore, compliance with the applicable provisions of the LGC, particularly as to the requirement of payment under protest, is mandatory.

However, it is worth noting that the requirement of payment under protest under Title 2, Chapter 6 of the LGC, specifically refers to “Collection of Real Property Tax”. Unless the respective charters or local tax ordinances of the LGUs extends the application to include other taxes apart from RPT, there is no legal basis to support such imposition. Nonetheless, one should be conscious of these considerations, especially since payment of RPT is now just around the corner.

And while some may not agree to the policy of “pay-before-protest”, there is a compelling consideration to secure the stability and self-reliance of local governments. By empowering LGUs through taxation, local communities are assured of funding for needed services and developmental programs for its people. In legislating fiscal policies, the state may at times need to take firm steps to guarantee the greater welfare of the citizenry over individual rights.


The author is a senior consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network. 


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.