2013 (Taxation) Bar Exam Questions: Multiple Choice Question 15

[Discuss/answer the question below. Or see Taxation Instructions; Taxation Essay Questions: 12, 3, 4, 5, 6, 7, 8, 9, 10, 11 and 12; Taxation Multiple Choice Questions: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 1416, 17, 18, 19 and 20; See also 2013 Bar Exam: Information, Discussions, Tips, Questions and Results]


Pheleco is a power generation and distribution company operating mainly from the City of Taguig. It owns electric poles which it also rents out to other companies that use poles such as telephone and cable companies. Taguig passed an ordinance imposing a fee equivalent to 1% of the annual rental for these poles. Pheleco questioned the legality of the ordinance on the ground that it imposes an income tax which local government units (LGUs) are prohibited from imposing.

Rule on the validity of the ordinance. (1%)

(A) The ordinance is void; the fee is based on rental income and is therefore a tax on income.

(B) The ordinance is valid as a legitimate exercise of police power to regulate electric poles.

(C) The ordinance is void; 1% of annual rental is excessive and oppressive.

(D) The ordinance is valid; an LGU may impose a tax on income.


  1. B?

    the tax ordinance is more of a business tax than a tax on income and it does not exceed the 2% of annual gross sale or receipts on business tax under the LGC.

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