No. Section 133 of the Local Government Code (RA 7160) draws a firm line: unless the Code itself provides otherwise, provinces, cities, municipalities, and barangays cannot levy a specific list of taxes that are reserved to the national government — including income tax, VAT, documentary stamp tax, and estate/donor's tax. This list exists precisely to prevent the layered, overlapping taxation that would result if every local government unit could tax the same national tax base on top of the BIR.
The Statutory List: What LGUs May Never Tax
Section 133 enumerates the common limitations on the taxing powers of local government units, listing taxes that fall entirely outside their authority regardless of level (province, city, municipality, or barangay). The most consequential items for most businesses are: (a) income tax, except when levied on banks and other financial institutions; (b) documentary stamp tax; (c) taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa; and (i) percentage or value-added tax (VAT) on sales, barters, exchanges, or similar transactions on goods or services, except as otherwise provided in the Code. Also barred are customs duties and related import/export charges, excise taxes on NIRC-enumerated articles and petroleum products, taxes on goods merely passing through an LGU's territory, and taxes on the national government itself, its agencies, and other LGUs.
Why the Line Is Drawn This Way
The structure reflects a basic allocation of fiscal authority: the national government, through the Bureau of Internal Revenue, taxes income, value added, and estate transfers uniformly across the country under the National Internal Revenue Code, while local government units are given their own separate revenue base — business taxes, real property tax, and local fees — under the rest of the Local Government Code. If a city could also impose its own income tax or VAT on top of the national one, businesses and individuals would face the same economic activity taxed twice by two different levels of government using two different sets of rules. Section 133 prevents exactly that overlap by carving these tax types out of local authority entirely.
A Few Built-In Exceptions Worth Knowing
Section 133 is not absolute. Two examples show how the exceptions work: banks and other financial institutions are the one carve-out from the income tax bar, meaning an LGU can tax them under a separate provision of the Code; and the VAT/percentage tax bar applies “except as otherwise provided herein,” which is why LGUs are still able to impose a local business tax measured by gross sales or receipts — a tax on the privilege of doing business locally, not a VAT on the transaction itself, even though both are computed off similar revenue figures. The distinction between a local business tax (allowed) and a local VAT-equivalent (barred) is exactly the kind of line Section 133 is meant to enforce.
What This Means If Your Business Gets a Local Assessment
If a local treasurer's office issues an assessment that functions like income tax, VAT, or a tax on an estate transfer — rather than a legitimate local business tax, real property tax, or a fee tied to a specific local service or permit — that assessment is vulnerable to challenge as beyond the LGU's statutory taxing power under Section 133. Businesses facing an unfamiliar local levy should first ask which category it falls into: a fee for a local service or permit, a tax on the privilege of doing business locally (generally valid), or something that functions as one of the nationally-reserved taxes (generally invalid at the local level).
Practical Takeaways
- LGUs cannot impose income tax, VAT, documentary stamp tax, or estate/donor's tax — those are reserved to the national government under Section 133 of RA 7160;
- This bar exists specifically to prevent the same tax base from being taxed twice by two levels of government;
- LGUs may still charge a local business tax on gross sales or receipts — a tax on the privilege of doing business locally, which is a separate, allowed category;
- An unfamiliar local assessment that looks like a national tax in local disguise can be challenged as exceeding the LGU's authority under Section 133.
Frequently Asked Questions
Can a city impose its own income tax on top of the BIR's income tax? No. Section 133 of the Local Government Code (RA 7160) expressly bars local government units from levying income tax, except when the tax is imposed on banks and other financial institutions.
Can a municipality charge VAT on sales within its jurisdiction? No. Percentage tax and VAT on sales, barters, exchanges, or similar transactions on goods or services are on the list of taxes local government units cannot impose, except as otherwise specifically provided in the Local Government Code.
If LGUs cannot impose income tax or VAT, what can they tax a business for? LGUs can impose a local business tax measured by gross sales or receipts, which is a tax on the privilege of doing business within the locality rather than a tax on income or value added, plus real property tax, local fees, and charges tied to specific permits or services.
What can I do if a local government tries to assess something like a local income tax? You may challenge the assessment as exceeding the LGU's statutory taxing authority under Section 133, since income tax, VAT, documentary stamp tax, and estate/donor's tax are expressly reserved to the national government.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.