08 Tax 2 Finals (Lgc Totcc)
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Transcript of 08 Tax 2 Finals (Lgc Totcc)
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LOCAL TAX
(Sections 128 to 196 of R.A. No. 7160)
I. LOCAL GOVERNMENT UNITS & SCOPE OF
LOCAL TAXATION
Territorial jurisdiction:
1. Provinces
2. Cities
3. Municipalities
4. Barangays
II. POWER TO CREATE SOURCES OF REVENUE
Power to tax of the LGUs is NOT an inherent power. It isa delegated power from direct authority of the
Constitution and not by Congress. Without the
Constitution, LGUs have no power to tax.
Local Government Code is a product of an enactment by
Congress of a law for local taxation as authorized by the
Constitution.
Reason for giving LGUs power to tax:
Pursuant to LOCAL AUTONOMY provision of the
Constitution specifically to safeguard the viability and
self-sufficiency fo each and every LGU by directly
granting them the power to raise its own sources of
revenues
LGUs only have RESIDUAL TAXING POWERS
- Only those taxes not imposed by the National
Government through the Bureau of Customs (BOC)
and the BIR may fall within the taxing power of the
LGU. It cannot overlap generally because of the
principle of avoidance of double taxation.
SEC. 186. Power To Levy Other Taxes, Fees or Charges . - Local
government units may exercise the power to levy taxes, fees or
charges on any base or subject not otherwise specifically
enumerated herein or taxed under the provisions of theNational Internal Revenue Code, as amended, or other
applicable laws: Provided, That the taxes, fees, or charges shall
not be unjust, excessive, oppressive, confiscatory or contrary to
declared national policy: Provided, further, That the ordinance
levying such taxes, fees or charges shall not be enacted without
any prior public hearing conducted for the purpose.
LIMITATIONS of the residual taxing power of LGUs:
1. Constitutional Limitation
2. Fundamental Principles
3. Public Hearing requirement
4. Principle of Pre-emption or Exclusionary Rule
5. Common limitations on the taxing power of LGUs
Exclusionary Rule
- Where the Natl govt elects to tax a particular area,
the delegated power of the LGUs to tax the same
field is impliedly limited.
- Where the Natl govt elects to tax a particular area
(subject matter of taxation), impliedly withholding
form the local government the delegated power totax the same field.
- Example: The Natl govt already subject AAA Corp
to income tax, the LGU could no longer subject it to
income tax. However, the LGU can still impose
business taxes (different subject matter of taxation)
Natl govt > LGU
III. AUTHORITY TO GRANT TAX EXEMPTION
PRIVILEGES
SEC. 192.Authority to Grant Tax Exemption Privileges. - Local
government units may, through ordinances duly approved,
grant tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary.
LGUs can grant:
a. tax exemptions
b. tax incentives
c. tax reliefs
Requisite: Duly approved Ordinance
Note: LGUs can grant tax exemptions however,
this is not an inherent power. Since the power to tax of
LGUs is not inherent, the authority to grant tax
exemption is also not inherent.
Tax exemption, relief or incentive does NOT extend to
exemption of REGULATORY FEES. These fees are under
the police power of the LGUs.
IV. WITHDRAWAL OF TAX EXEMPTION
PRIVILEGES
SEC. 193. Withdrawal of Tax Exemption Privileges. - Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or -controlled
corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code.
Entities exempt from Local taxation (Categorical
Exemption):
1.
Local water districts
2. Cooperatives duly registered under R.A. No. 6938
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It is one of the differences between local
taxes and national taxes. In local taxation,
both RP and local taxes, the collection of
taxes cannot be delegated to any private
firm, including banks.
Public funds cannot be used to hire private
lawyers
4. The revenue collected shall inure solely to the
benefit of and be subject to disposition by the LGUlevying the tax, fee, charge or imposition unless
otherwise provided in the LGC
5. Each LGU shall, as far as practicable, evolve a
progressive system of taxation.
VI. LOCAL TAXING AUTHORITY
VII.
LOCAL TAX ORDINANCE Procedure forApproval and Effectivity
It must observe:
a. Substantive due process
- must observe the fundamental principles provided
in Section 130
- Local tax ordinance must be within the confines of
the LGC. Any provision that is beyond the scope of
authority granted by the LGC makes such
provision void. (meaning those that are provided
in the LGC should be followed, i.e. maximum ofprofessional tax is P300 per profession, LGU
cannot impose 400)
b. Procedural due process
B.1 Approval of the ordinance by the Sanggunian
concerned
SEC. 54. Approval of Ordinances. - (a) Every ordinance
enacted by the sangguniang panlalawigan, sangguniang
panlungsod, or sangguniang bayan shall be presented to
the provincial governor or city or municipal mayor, as the
case may be. If the local chief executive concerned
approves the same, he shall affix his signature on eachand every page thereof; otherwise, he shall veto it and
return the same with his objections to the sanggunian,
which may proceed to reconsider the same. The
sanggunian concerned may override the veto of the local
chief executive by two-thirds (2/3) vote of all its members,
thereby making the ordinance or resolution effective for
all legal intents and purposes.
(b) The veto shall be communicated by the local chief
executive concerned to the sanggunian within fifteen (15)
days in the case of a province, and ten (10) days in the
case of a city or a municipality; otherwise, the ordinance
shall be deemed approved as if he had signed it.
(c) ordinances enacted by the sangguniang barangayshall, upon approval by the majority of all its members, be
signed by the punong barangay.
SEC. 55. Veto Power of the Local Chief Executive. - (a)
The local chief executive may veto any ordinance of the
sangguniang panlalawigan, sangguniang panlungsod, or
sangguniang bayan on the ground that it is ultra vires or
prejudicial to the public welfare, stating his reasons
therefor in writing.
(b) The local chief executive, except the punong barangay,
shall have the power to veto any particular item or items
of an appropriations ordinance, an ordinance or resolution
adopting a local development plan and public investment
program, or an ordinance directing the payment of moneyor creating liability. In such a case, the veto shall not affect
the item or items which are not objected to. The vetoed
item or items shall not take effect unless the sanggunian
overrides the veto in the manner herein provided;
otherwise, the item or items in the appropriations
ordinance of the previous year corresponding to those
vetoed, if any, shall be deemed reenacted.
(c) The local chief executive may veto an ordinance or
resolution only once. The sanggunian may override the
veto of the local chief executive concerned by two-thirds
(2/3) vote of all its members, thereby making the
ordinance effective even without the approval of the local
chief executive concerned.
Local Chief executive may approve or veto the
ordinance. (Note: Barangay captain has no veto
powers)
- If vetoed, the Sanggunian may override the
veto by 2/3 vote of all its members
B.2 Mandatory Public Hearing
- to afford due process to the oppositors
SEC. 187. Procedure for Approval and Effectivity of Tax
ordinances and Revenue Measures; Mandatory Public
Hearings. - The procedure for approval of local taxordinances and revenue measures shall be in accordance
with the provisions of this Code: Provided, That public
hearings shall be conducted for the purpose prior to the
enactment thereof
B.3 Publication of ordinances
SEC. 188. Publication of Tax ordinances and Revenue
Measures. - Within ten (10) days after their approval,
certified true copies of all provincial, city, and municipal
tax ordinances or revenue measures shall be published in
full for three (3) consecutive days in a newspaper of local
circulation: Provided, however, That in provinces, cities
and municipalities where there are no newspapers of local
circulation, the same may be posted in at least two (2)
conspicuous and publicly accessible places.
Publicationpublished in FULL
- meaning the Entire Ordinance
- after approval there must be
dissemination to the local treasurer of
the respective LGU for them to have it
published within 10 days from date of
approval
- published in newspaper of LOCAL
circulation for 3 consecutive days
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- If there are no such newspaper, then post
in at least 2 conspicuous and public
accessible places
Question on the constitutionality or legality
Section 187. Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue
measures may be raised on appeal within thirty (30) days from
the effectivity thereof to the Secretary of Justice who shall render
a decision within sixty (60) days from the date of receipt of the
appeal: Provided, however, That such appeal shall not have the
effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein:
Provided, finally, That within thirty (30) days after receipt of the
decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved party
may file appropriate proceedings with a court of competent
jurisdiction.
- Raise on appeal to Secretary of Justice within
30 days from effectivity
- SOJ given 60 days after receipt of appeal to
give decision
- After SOJ, appeal to RTC
o 30 days after adverse decision
o
30 days after end of 60 days fromreceipt of SOJ without decision
Void or Suspended Tax Ordinances
Effect of appeal:
- Does not suspend the effectivity of the
ordinance nor the accrual and payment of the
tax, fee or charge levied. Hence, the ordinance
remains valid until adjudged unlawful or
unconstitutional.
Refund of taxes from a void tax ordinance
- allowed only if declaration of nullity of the
ordinance is based on the ground of void ab
initio
SEC. 190. Attempt to Enforce Void or Suspended Tax
ordinances and revenue measures. - The enforcement of any
tax ordinance or revenue measure after due notice of the
disapproval or suspension thereof shall be sufficient ground for
administrative disciplinary action against the local officials and
employees responsible therefor.
Administrative cases may be filed against an erring local
government official who continues to enforce the ordinance
that has been declared as void.
Penalties for Violations of Tax Ordinances
SEC. 168. Surcharges and Penalties on Unpaid Taxes, Fees, or
Charges. - The sanggunian may impose a surcharge not
exceeding twenty-five percent (25%) of the amount of taxes,
fees or charges not paid on time and an interest at the rate not
exceeding two percent (2%) per month of the unpaid taxes, fees
or charges including surcharges, until such amount is fully paid
but in no case shall the total interest on the unpaid amount or
portion thereof exceed thirty-six (36) months.
SEC. 516. Penalties for Violation of Tax ordinances. - The
sanggunian of a local government unit is authorized to
prescribe fines or other penalties for violation of tax ordinancesbut in no case shall such fines be less than One thousand pesos
(P=1,000.00) nor more than Five thousand pesos (P=5000.00),
nor shall imprisonment be less than one (1) month nor more
than six (6) months. Such fine or other penalty, or both, shall be
imposed at the discretion of the court. The sangguniang
barangay may prescribe a fine of not less than One hundred
pesos (P=100.00) nor more than One thousand pesos
(P=1,000.00).
LIMIT25% surcharge
Interest 2% per month of the unpaid taxes, fees or
charges includingsurcharges (up to 36 months interest
only)
i.e. unpaid taxes of 1Million in 2007
Surcharge limit is 250,000
Interest is 2% of 1,250,000 up to 36 months only
VIII. COMMON LIMITATIONS ON THE TAXING
POWER OF THE LGUs
SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. - Unless otherwise providedherein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
(a) Income tax, except when levied on banks and other
financial institutions;
- Income tax is already imposed by the Natl
govt (Principle of Pre-emption / Exclusionary
Rule)
- Banks and other financial institutions
(including money chargers, pawnshops etc.)
are imposed income taxes since they arehighly profitable institutions (not a high-risk
business)
(b) Documentary stamp tax;
- already covered by the NIRC
(c) Taxes on estates, inheritance, gifts, legacies and
other acquisitions mortis causa, except as otherwise
provided herein;
- already covered by NIRC.
-
Except those subject to taxes on transfer orreal property by provinces and cities (Sec. 135
and 151)
Tax Ordinance No. 7988 is null and void as said ordinance was
published only for one day in the 22 May 2000 issue of the Philippine
Post in contravention of the unmistakable directive of the Local
Government Code of 1991 to publish it for 3 consecutive days. Also any
amending ordinance to Tax Ordinance No. 7988 is null and void. If an
order or law sought to be amended is invalid, then it does not legally
exist, there should be no occasion or need to amend it. (Coca-ColaPhilippines, Inc. vs. City of Manila)
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(d) Customs duties, registration fees of vessel and
wharfage on wharves, tonnage dues, and all other
kinds of customs fees, charges and dues except
wharfage on wharves constructed and maintained by
the local government unit concerned;
- wharfage on wharves constructed and
maintained by the local government unit
concerned still taxable
(e) Taxes, fees and charges and other impositions upongoods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or
otherwise, or other taxes, fees or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic
products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the
Board of Investments as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively from
the date of registration;
A domestic corporation certified by the Board of
Investments is not absolutely tax exempt.
If pioneer enterprise6 years exempted
If non-pioneer enterprise4 years only
Pioneer enterprise - first to establish such kind of
business in the Philippines
(non-pioneeralready existing)
(h) Excise taxes on articles enumerated under the
National Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
- For petroleum products there is a Blanket
exemption, meaning it is tax exempt on the
business and the product itself
- For other business subject to excise taxes, only
the article or product itself is exempt, the
business can still be taxable either as
manufacture, retailer, exporter, wholesaler
etc.
(i) Percentage or value-added tax (VAT) on sales,barters or exchanges or similar transactions on goods
or services except as otherwise provided herein;
- already covered by the NIRC
- However, for local business taxes, if you reach
the maximum amount, that can already be
equated to percentage taxes (i.e. 37.5% of 1%
of gross receipts for manufacturers if 6.5M or
more)
(j) Taxes on the gross receipts of transportation
contractors and persons engaged in the transportation
of passengers or freight by hire and common carriersby air, land or water, except as provided in this Code;
- already covered as percentage taxes in NIRC
- However, gross receipts of tricycle operators
are still subject to local taxes
(k) Taxes on premiums paid by way of reinsurance or
retrocession;
- Hence, premiums on insurance are as a rule
covered
-
Only the reinsurance is exempt since theyhave already been previously subjected to
local taxes
(l) Taxes, fees or charges for the registration of motor
vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except tricycles;
- already covered by special laws
- Taxes, fees or charges for the registration of
tricycles and the issuance of licenses for
tricycles belong to the LGUs, including the
power to tax on their gross receipts
(m) Taxes, fees, or other charges on Philippine products
actually exported, except as otherwise provided herein;
- Local tax on every product exported is not
allowed
- However, exporters are subjected to local
taxes on their business of exporting
Petron Corporation vs. Mayor Tobias M. Tiangco, et.al. SCGR No. 158881, April 16, 2008
A tax on a business is distinct from a tax on the article itself, or for
that matter, that a business tax is distinct from an excise tax.
However, such distinction is immaterial insofar as the latter part of
Section 133(h) is concerned, for the phrase "taxes, fees or charges on
petroleum products" does not qualify the kind of taxes, fees or
charges that could withstand the absolute prohibition imposed by
the provision. The language of Section 133(h) makes plain that the
prohibition with respect to petroleum products extends not only to
excise taxes thereon, but all "taxes, fees and charges."
Land Transportation Office vs. City of Butuan, SC GR No.
131512, January 20, 2000
The newly delegated powers to the LGU pertain to the franchising
and regulatory powerstheretofore exercised by the LTFRB and not
to the functions of the LTO relative to the registration of motor
vehicles and issuance of licenses for the driving thereof. Clearly
unaffected by the Local Government Code are the powers of LTO
under R.A. No. 4136 requiring the registration of all kinds of motor
vehicles "used or operated on or upon any public highway" in the
country.
The devolution of the functions of the DOTC, performed by theLTFRB, to the LGUs, is aimed at curbing the alarming increase of
accidents in national highways involving tricycles. It has been the
perception that local governments are in good position to achieve
the end desired by the law-making body because of their proximity
to the situation that can enable them to address that serious
concern better than the national government.
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(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprises and cooperatives duly
registered under R.A. No. 6810 and Republic Act
Numbered Sixty-nine hundred thirty-eight (R.A. No.
6938) otherwise known as the "Cooperatives Code of
the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and
local government units.
- It contravenes the existing govt policy or
violative of the fundamental principles of
taxation
IX. COMMON REVENUE-RAISING POWERS OF
LGUS
1.
Service Fees and Charges
2. Public Utility Charges
3. Toll fees or charges
SEC. 153. Service Fees and Charges. - Local government
units may impose and collect such reasonable fees and
charges for services rendered.
Ex. For whatever type of basic services (i.e. parking fees,
garbage collection)
SEC. 154. Public Utility Charges. - Local government
units may fix the rates for the operation of public utilities
owned, operated and maintained by them within their
jurisdiction.
- As long as it is the LGU that owns the public
utility (i.e. LGUs except barangays can operate
bus operations and impose common charge to
passengers)
SEC. 155. Toll Fees or Charges. - The sanggunian
concerned may prescribe the terms and conditions and
fix the rates for the imposition of toll fees or charges for
the use of any public road, pier or wharf, waterway,
bridge, ferry or telecommunication system funded and
constructed by the local government unit concerned:
Provided, That no such toll fees or charges shall be
collected from:
a. Officers and enlisted men of the Armed Forces of the
Philippines (AFP) and members of the Philippine National
Police (PNP) on mission,
b. Post office personnel delivering mail,
c. Physically-handicapped, and
d. Disabled citizens who are sixty-five (65) years or older.
e. When public safety and welfare so requires, the
sanggunian concerned may discontinue the collection of
the tolls, and thereafter the said facility shall be free and
open for public use.
Toll fee a charge for the use of public road, pier or
wharf, waterway, bridge, ferry or telecommunication
system funded and constructed by the local government
unit concerned
Reason for charging toll fees recovery of the costs of
these public roads and other infrastructures
Not all are subject to toll fees. There are individuals who
are exempt as stated above.
X. SCOPE OF THE POWER TO TAX
4 LGUS can tax: Province, city, municipality and
barangay.
Least taxing powerBarangay
Most taxing power Cities because it may levy taxes,
fees and charges which the province or municipality may
impose. It can also impose up to 50% higher than what
the province or municipality may impose.
Taxing power of Province and municipality is mutuallyexclusive. One pre-empts the other. Whatever is taxable
by the province can no longer be taxed by municipality
and vice-versa.
The city pre-empts the municipality and the province.
When the city taxes a specific subject, the municipality
and the province can no longer tax them.
A. Province (Secs. 134-141)
1. Tax on Transfer of Real Property Ownership or
Local transfer tax (LTT)
SEC. 135. Tax on Transfer of Real Property
Ownership. - (a) The province may impose a tax on
the sale, donation, barter, or on any other mode of
transferring ownership or title of real property at
the rate of not more than fifty percent (50%) of one
percent (1%) of the total consideration involved in
the acquisition of the property or of the fair market
value in case the monetary consideration involved
in the transfer is not substantial, whichever is
higher. The sale, transfer or other disposition of real
property pursuant to R.A. No. 6657 (CARL
Comprehensive Agrarian Reform Law) shall be
exempt from this tax.
(b) For this purpose, the Register of Deeds of the
province concerned shall, before registering any
deed, require the presentation of the evidence of
payment of this tax. The provincial assessor shall
likewise make the same requirement before
cancelling an old tax declaration and issuing a new
one in place thereof. Notaries public shall furnish
the provincial treasurer with a copy of any deed
transferring ownership or title to any real property
within thirty (30) days from the date of
notarization. It shall be the duty of the seller, donor,
transferor, executor or administrator to pay the tax
herein imposed within sixty (60) days from the date
of the execution of the deed or from the date of thedecedent's death.
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Any mode of transfer of RP ownership, such
as sale, donation, barter, succession, exchange
(whether mortis causa or inter vivos, onerous
or gratuitous)
Exceptions:
a.) Transfers pursuant to CARL (transfers from
the landlord to the tenant or the farmer)
b.) Sale of socialized housing.
c.) Transfer of personal property
RATE: At of 1% (50% of 1%) based on the
total consideration or the FMV if the total
consideration received is not substantial,
whichever is higher
Example: A religious institution donated a
parcel of land to a non-stock non-profit
foundation. Subject to LTT?
YES. The provision of the LGC is clear that all
modes of transfer of RP ownership, regardlessof who the owner is subject to LTT.
LTT is taxed on TRANSFER regardless of
ownership (whether transferee or transferor is
religious institution, non-stock, non-profit
foundation) It is a privilege of transferring the
RP ownership to another person. It is an excise
tax.
The exemption provided by the Constitution
for religious institutions only relate to real
property taxes. It does not include local
transfer tax.
Constitutional exemption only relate when it is
actually, directly and exclusively (ADE) used for its
purpose. Transferring property cannot be
considered ADE use.
RPT vs. LTT
RPT LTT
property tax directed
against the property itself
excise tax; a tax on the
privilege of transferring RPownership
Is Capital gains tax (CGT) and LTT valid for the
same transfer?
Yes. This is not considered direct double
taxation in its strict sense. It is only indirect
double taxation which is allowed. They have
different taxing authority (natl govt and LGU)
BURDEN to pay LTT
It is the duty of the seller, donor, transferor,
executor or administrator (source of the RP) to
pay the LTT.
However, the parties may agree among
themselves that the transferee will pay it to
the taxing authority. Nonetheless, this is only
biding between the parties. If the transferee
fails to pay, the LGU will still go after the
transferor who is the statutory taxpayer.
Time of Payment
Within 60 days from:
a.) Date of the execution of the deed /
notarization (i.e. deed of sale/donation)
or
b.) Date of the decedents death (for
transfer through succession)
c.) Date of execution of final deed of sale
if property sold through public auction (if
not redeemable)
d.) Date of lapse of redemption period ifforeclosed
Register of Deeds will not transfer ownership
of the RP in the new owners name unless
theres clearance from both agencies of the
governmentthe BIR and the LGU.
There are 3 persons who are instrumental in
the collection of LTT:
1. Registrar of Deeds
2. Local treasurer
3. Notary public (NP)
Every notarization of a deed of sale or deed of
conveyance of RP, the NP is required to inform
the office of the local treasurer within 30 days
in order to put into record that theres a
collectible in favor of the government.
2.
Tax on Business of Printing and Publication (Sec.
136)
SEC. 136. Tax on Business of Printing and
Publication.- The province may impose a tax on the
business of persons engaged in the printing and/or
publication of books, cards, posters, leaflets,
handbills, certificates, receipts, pamphlets, and
others of similar nature, at a rate not exceeding
fifty percent (50%) of one percent (1%) of the gross
annual receipts for the preceding calendar year. In
the case of a newly started business, the tax shall
not exceed one-twentieth (1/20) of one percent
(1%) of the capital investment. In the succeeding
calendar year, regardless of when the business
started to operate, the tax shall be based on the
gross receipts for the preceding calendar year, orany fraction thereof, as provided herein. The
receipts from the printing and/or publishing of
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books or other reading materials prescribed by the
Department of Education, Culture and Sports, as
school texts or references shall be exempt from the
tax herein imposed.
Tax on the business of printing and publishing
NOT on the business of selling
Includes persons engaged in the business of
printing and/or publication of books, cards,
posters, leaflets, handbills, certificates,receipts, pamphlets, and others of similar
nature
Except: Printing and/or publishing of books or
other reading materials prescribed by the
Department of Education as school texts or
references
RATE: In case of a newly started businesstax
shall not exceed 1/20 of 1% of the capital
investment
In case of a business operating for more than a
yeartax shall be of 1%of the gross annual
receipts for the preceding calendar year
Example:
Start of operationsFebruary 2011
Capital investment2M
Gross annual receipts for 20110
Gross annual receipts for 20122M
Tax due:
2011 tax shall not exceed 1/20 of 1% of
the capital investment
So 1% of 2m = 20k
20k/20 = 1,000 business tax for 2011
2012 0 tax liability (base it on the
preceding calendar years gross annual
receipt)
201310k (1/2 of 1% of 2M)
1.
Franchise Tax (Sec. 137)
Franchise - is a right or privilege, affected with
public interest, which is conferred upon private
persons or corporations, under such terms and
conditions as the government and its political
subdivisions may impose in the interest of public
welfare, security, and safety.
SEC. 137. Franchise Tax. - Notwithstanding any
exemption granted by any law or other special law,
the province may impose a tax on businesses
enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross
annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within
its territorial jurisdiction. In the case of a newly
started business, the tax shall not jhexceed one-
twentieth (1/20) of one percent (1%) of the capital
investment. In the succeeding calendar year,
regardless of when the business started to operate,
the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as
provided herein.
Local franchise tax (LFT) is different fromnational franchise tax imposed under the
NIRC.
Notwithstanding any exemption granted by
any law or other special law
If one is already subject to franchise tax (as
percentage tax under NIRC), it will still be
subject to local franchise taxes.
Tax upon those businesses enjoying a
franchise at a rate not exceeding of 1% of
the gross annual receipts for the preceding
calendar yearbased on the incoming receipt,
or realized, within its territorial jurisdiction.
Includes receivables for consummated sales
even if no payment has been received
However, in case of a newly started business,
the tax shall not exceed 1/20 of 1% of the
capital investment.
Franchises covered include those engaged in
telecommunications, television, broadcasting,
water, electricity franchises granted by the
National Government.
EXAMPLE: VECO, PLDT, and other public utility
companies.
Taxicabs, and other transportation contractors
are not subject to local franchise taxes
because under the common limitations
provided in Sec. 133, LGUs are pre-empted or
prohibited from imposing taxes on
transportation contractors
Holders of Certificate of Public Convenience
(CPC) are not considered franchise holders,
hence, not subject to LFT
EXAMPLE:
A telecommunications company in 2012 had
gross receipts of 100M and had 50M in
accounts receivable. What is subject to the
LFT?
150M (100 + 50)
All throughout the LGC, basis of taxes is usually the
gross receipts of the preceding calendar year
except LFT which includes incoming receipts or
uncollected gross receipts so long as there was a
consummated sale.
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This is one instance thats different. LFT is not only
imposed on the gross receipts of the preceding
calendar year but it also includes as well
uncollected gross receipts or incoming so long as
its realized receipts from the customer.
If the franchise holder is operational in many LGUs
(i.e. PLDT operating nationwide), each LGU will
claim its own stake in every operational business
within the unit.
Apportion the gross receipts coming from
every LGU and pay thereon the taxes to which LGU
it belongs. You have to determine the tax for each
LGU concerned.
PLDT vs PROVINCE OF LAGUNA
In sum, it does not appear that, in approving 23 of R.A. No. 7925
(equality of treatment n the telecommunications industry), Congress
intended it to operate as a blanket tax exemption to all
telecommunications entities. Applying the rule of strict construction of
laws granting tax exemptions and the rule that doubts should be
resolved in favor of municipal corporations in interpreting statutory
provisions on municipal taxing powers, we hold that 23 of R.A. No.
7925 cannot be considered as having amended petitioner's franchise
so as to entitle it to exemption from the imposition of local franchise
taxes.
Exemptions from taxation are highly disfavored, so much so that they
may almost be said to be odious to the law. He who claims an
exemption must be able to point to some positive provision of law
creating the right. The tax exemption must be expressed in the statute
in clear language that leaves no doubt of the intention of the
legislature to grant such exemption. And, even if it is granted, the
exemption must be interpreted in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority.
Sec. 137 of the LGC provides for PLDTs liability to pay LFT despite of
the special exemption granted under the charter of PLDT. In lieu of
all taxes exemption does not make it not be liable to local franchise
taxes.
The withdrawal of all exemption privileges except for the 4 already
mentioned (local water district, non-stock non-profit hospitals, non-
stock non-profit educational institutions, cooperatives registered
under the CDA) supports this principle. Only exception would be
when a special ordinance granting an exemption for special cases or
circumstances.
NPC vs PROVINCE OF ISABELA
Section 193 of the LGC withdrew, subject to limited exceptions, the
sweeping tax privileges previously enjoyed by private and public
corporations. Contrary to the contention of Napocor, Section 193 of
the LGC is an express, albeit general, repeal of all statutes granting tax
exemptions from local taxes.
It is a basic precept of statutory construction that the express mention
of one person, thing, act, or consequence excludes all others as
expressed in the familiar maxim expressio unius est exclusio alterius.Not being a local water district, a cooperative registered under R.A.
No. 6938, or a non-stock and non-profit hospital or educational
institution, petitioner clearly does not belong to the exception. It is
therefore incumbent upon the petitioner to point to some provisions
of the LGC that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly
states that the LGUs can impose franchise tax "notwithstanding any
exemption granted by any law or other special law." This particular
provision of the LGC does not admit any exception. x x x
Franchise tax may still be imposed despite any exemption enjoyed
under special laws
Nonetheless, petitioner seeks to avoid paying the franchise tax byarguing further that it is not liable therefor under Section 137 of the
LGC because said tax applies only to a "business enjoying a franchise."
It contends that it is not a private corporation or a business for profit.
Again, we do not agree.
In section 131 (m) of the LGC, Congress unmistakably defined a
franchise in the sense of a secondary or special franchise. This is to
avoid any confusion when the word franchise is used in the concept of
taxation. As commonly used, a franchise tax is "a tax on the privilege
of transacting business in the state and exercising corporate
franchises granted by the state." It is not levied on the corporation
simply for existing as a corporation, upon its property or its income,
but on its exercise of the rights or privileges granted to it by the
government. Hence, a corporation need not pay franchise tax from the
time it ceased to do business and exercise its franchise. It is within this
context that the phrase "tax on businesses enjoying a franchise" in
Section 137 of the LGC should be interpreted and understood. Verily,
to determine whether the petitioner is covered by the franchise tax in
question, the following requisites should concur: (1) that petitioner
has a "franchise" in the sense of a secondary or special franchise; and
(2) that it is exercising its rights or privileges under this franchise
within the territory of the respondent city government. Napocor fulfills
both requisites.
Although as a general rule, LGUs cannot impose taxes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities, this rule admits of an exception, i.e., when specific
provisions of the LGC authorize the LGUs to impose taxes, fees or
charges on the aforementioned entities. Section 137 of the LGC is one
of those exceptions. It authorizes the province to impose a tax on
business enjoying a franchise, at a rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction.
In enacting the LGC, Congress empowered the LGUs to impose certain
taxes even on instrumentalities of the National Government.
NPC is characterized as a private enterprise for profit in the
generation and sale of electricity, thus, purely private and a
commercial undertaking, which is not usually a sovereign function of
the government. Therefore, NPC cannot invoke the last provision
under Sec. 133 on common limitations against the taxing power of
the LGU. NPC is still liable to LFT.
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2.
Tax on Sand, Gravel and other Quarry Resources
(Sec. 138) or Sand and Gravel Tax (SGT)
SEC. 138. Tax on Sand, Gravel and Other Quarry
Resources. - The province may levy and collect not
more than ten percent (10%) of fair market value in
the locality per cubic meter of ordinary stones,
sand, gravel, earth, and other quarry resources, as
defined under the National Internal Revenue Code,
as amended, extracted from public lands or from
the beds of seas, lakes, rivers, streams, creeks, andother public waters within its territorial jurisdiction.
The permit to extract sand, gravel and other quarry
resources shall be issued exclusively by the
provincial governor, pursuant to the ordinance of
the sangguniang panlalawigan. The proceeds of the
tax on sand, gravel and other quarry resources shall
be distributed as follows:
(1) Province - Thirty percent (30%);
(2) Component city or municipality where the
sand, gravel, and other quarry resources are
extracted - Thirty percent (30%); and
(3) Barangay where the sand, gravel, and
other quarry resources are extracted - Forty
percent (40%).
Sand and Gravel tax - tax imposed on ordinary
stones, sand, gravel, earth and other quarry
resources extracted from public landsor from
the beds of seas, lakes, rivers, streams, creeks,
and other public waters within the territorial
jurisdiction of the LGU concerned.
RATE: Not more than 10% of FMV in the
locality per cubic meter of the quarry resourceextracted
This refers to the FMV as of the moment that
youve made the extraction and not the FMV
when you sell it or deliver it for sale to an end-
user.
"Quarry resources" shall mean any common
stone or other common mineral substances as
the Director of the Bureau of Mines and Geo-
Sciences may declare to be quarry resources
such as, but not restricted to, marl, marble,
granite, volcanic cinders, basalt, tuff and rock
phosphate: Provided, That they contain nometal or other valuable minerals in
economically workable quantities.
3. Land dug up from a residential area or from
your own backyard is not subject to SGT
because it is not PUBLIC LAND.
Hence, private lands are exempted from SGT
under the LGC. However, they are still subject
to SGT under NIRC.
It is not a requisite that you are engaged in the
business of extraction and selling the sand and
gravel to be liable for SGT. It is an excise tax on
the extraction of quarry resources from public
lands or public waters and not on the business
of extraction and selling the quarry resources.
The activity of extraction is taxable regardless
of the purpose.
ONLY the provinces have the authority to give
the permit to quarry resources in all areas of
the country but since every extraction would
also affect the city, municipality and the
barangay, they get a share from the SGT.
Province 30%, component city or
municipality30%, barangay40%
Having suffered the most from the extraction,
barangays would receive 40% share of the
taxes collected.
5. Professional Tax (Sec. 139)
SEC. 139. Professional Tax. - (a) The province may
levy an annual professional tax on each person
engaged in the exercise or practice of his profession
requiring government examination at such amount
and reasonable classification as the sangguniang
panlalawigan may determine but shall in no case
exceed Three hundred pesos (P=300.00).
(b) Every person legally authorized to practice his
profession shall pay the professional tax to the
province where he practices his profession or where
he maintains his principal office in case he practices
his profession in several places: Provided, however,
That such person who has paid the corresponding
professional tax shall be entitled to practice his
profession in any part of the Philippines without
being subjected to any other national or local tax,
license, or fee for the practice of such profession.
(c) Any individual or corporation employing a
person subject to professional tax shall require
payment by that person of the tax on his profession
before employment and annually thereafter.
(d) The professional tax shall be payable annually,
on or before the thirty-first (31st) day of January.
Any person first beginning to practice a profession
after the month of January must, however, pay the
full tax before engaging therein. A line of profession
does not become exempt even if conducted with
some other profession for which the tax has been
paid. Professionals exclusively employed in thegovernment shall be exempt from the payment of
this tax.
LEPANTO CONSOLIDATED MINING CO vs HON. AMBANLOC
Tax on the sand and gravel does not require that it must be for
business purposes or for commercial undertakings. Notwithstanding
its incidental nature, as long as theres an act of extraction, there
should be imposed SGT.
The mining contract or the mining lease agreement entered into with
the government by Lepanto does not make it an agent of the National
Government. Entering into contracts with the government for mining
or mining lease contract does not make the other party an agent nor
a representative of the state but rather an independent contractor.
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(e) Any person subject to the professional tax shall
write in deeds, receipts, prescriptions, reports,
books of account, plans and designs, surveys and
maps, as the case may be, the number of the official
receipt issued to him.
Professional tax - is a tax on each person
engaged in the exercise or practice of his
profession requiring government examination
(i.e. teachers, CPAs, engineers or those
professions governed by the ProfessionalRegulations Commission or the IBP.
Other professions that do not require
government examination are exempted from
professional tax (i.e. professional athletes,
media men).
2 requisites for imposition of Professional Tax:
1. Must be a professional in a profession
requiring government examination
2. Must be engaged in the practice of such
profession
- Both requirements should be met
Such professionals are liable for a maximum of
P300 PT every year. P300 per profession,
hence, if you are a CPA Lawyer, the maximum
PT that can be imposed is P600 regardless if
you are practicing in different LGUs.
The P300 limit cannot be increased even if the
imposing authority is the city (notwithstanding
its right to impose a 50% higher rate)
Remember, a city can impose up to the extent
of 50% higher than what the provinces or
municipalities can impose but excluding the
PT, which at all times remain at 300, and
amusement taxes. So the same rates for all
kinds of LGUs with respect to PT and
amusement taxes unless a law is subsequently
passed.
SITUS of Professional tax:
General Rule: LGU where you practice your
profession
However, if you practice in different localities,
you have to pay it where your principal office
is located.
Note:
A municipality cannot impose
professional taxes. Only a city or province can
impose PT. Imposition by city pre-empts the
province.
PT is payable annually on or before January 31.
This is for the purpose of issuing a PT receipt
(PTR) and then obtain a PTR number.
If you first begin practice after Jan. 31, then
pay the PT before engaging in such practice.
NOTE: Every employer who hires professionals
are obligated to inform there employees to
get PTRs.
Exception to PT: Professional exclusively
employed by the government
Hence, if you are not exclusively employed by
the government meaning you are alsoengaging in part-time teaching or other
professional work, then you are still subject to
PT.
The PT of every professional is different from
mayors permit.
A mayors permit is a permit to operate
business while PT only applies to professionals
in order to enjoy the practice of profession (no
need to get mayors permit).
But once individuals or professionals form a
general professional partnership or any
partnership, a separate mayors permit is
required for the partnership. This permit does
not preclude the professionals from paying
professional tax.
6. Amusement Tax (Sec. 140)
SEC. 140. Amusement Tax. - (a) The province may
levy an amusement tax to be collected from the
proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia, and
other places of amusement at a rate of not more
than ten percent (10%) of the gross receipts fromthe admissions fees
(b) In the case of theaters or cinemas, the tax shall
first be deducted and withheld by their proprietors,
lessees, or operators and paid to the provincial
treasurer before the gross receipts are divided
between said proprietors, lessees, or operators and
the distributors of the cinematographic films.
(c) The holding of operas, concerts, dramas, recitals,
paintings, and art exhibitions, flower shows,
musical programs, literary and oratorical
presentations, except pop, rock, or similar concerts
shall be exempt from the payment of the tax hereinimposed.
(d) The sangguniang panlalawigan may prescribe
the time, manner, terms and conditions for the
payment of tax. In case of fraud or failure to pay
the tax, the sangguniang panlalawigan may impose
such surcharges, interest and penalties as it may
deem appropriate.
(e) The proceeds from the amusement tax shall be
shared equally by the province and the municipality
where such amusement places are located.
a.
Amusement - is a pleasurable diversion andentertainment. It is synonymous to relaxation,
avocation, pastime, or fun.
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b. Amusement places - includes theaters,
cinemas, concert halls, circuses and other
places of amusement where one seeks
admission to entertain oneself by seeing or
viewing the show or performances.
Amusement tax (AT) is imposed for every
admissionto amusement places at 10% of the
gross receipts.
It is a tax on the admission. Whether you areactually amused or not, it does not matter.
What is taxed is the admission.
This is different to the amusement tax under
the NIRC
Cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, Jai-
Alai and racetracks taxable by amusement
taxes under the NIRC are not subject to local
AT. According to the limitations of the residual
taxing power, whatever is already taxed under
the NIRC, the LGU can no longer encroach.
However, boxing exhibitions wherein World or
Oriental Championships in any division is at
stake shall be exempt from amusement tax:
Provided, further, That at least one of the
contenders for World or Oriental
Championship is a citizen of the Philippines
and said exhibitions are promoted by a
citizen/s of the Philippines or by a corporation
or association at least sixty percent (60%) of
the capital of which is owned by such citizens
b. Statutory taxpayers for Local AT
They are the proprietors, lessees or operators
(not all of them for the same activity) of the
following amusement places:
Theaters
Cinemas
Concert halls
Circuses
Boxing stadia
And other places of
amusement
EXEMPT Amusement Places:
Operas
Concerts
Dramas
Recitals
Paintings and artexhibitions
Flower shows
Musical programs
Literary and oratorical
presentations
o Except pop, rock, or
similar concerts
The exemption also includes benefit shows,
athletic metes, physical programs and
performances. Theyre still exempt from AT.
Rationale: They are artistic forms of
entertainment which the State promotes.
c. If the ticket for an amusement place does not
detail the components of the price, it means
to say that the 10% AT will be computed based
on the total cost of the ticket.
d. Collection of Amusement taxes does not
preclude the collection of business taxes
7. Annual Fixed Tax for Every Delivery Truck or Van
of Manufacturers / Producers / Wholesalers (Sec.141)
SEC. 141. Annual Fixed Tax For Every Delivery
Truck or Van of Manufacturers or Producers,
Wholesalers of, Dealers, or Retailers in, Certain
Products.
(a) The province may levy an annual fixed tax for
every truck, van or any vehicle used by
manufacturers, producers, wholesalers, dealers or
retailers in the delivery or distribution of distilled
spirits, fermented liquors, soft drinks, cigars and
cigarettes, and other products as may be
determined by the sangguniang panlalawigan, to
sales outlets, or consumers, whether directly or
indirectly, within the province in an amount not
exceeding Five hundred pesos (P500.00).
(b) The manufacturers, producers, wholesalers,
dealers, and retailers referred to in the immediately
foregoing paragraph shall be exempt from the tax
on peddlers prescribed elsewhere in this Code.
Two Requisites:
1. Truck, van or any vehicle used by a.)
manufacturers, b.) producers, c.) wholesalers,e.) dealers or f.) retailers
2. In the delivery or distribution of:
a. distilled spirits,
b. fermented liquors,
c. soft drinks,
d. cigars and cigarettes, and
e. other products determined by
sangguniang panlalawigan
Hence, if you are in the business of delivery
and hauling but not a manufacturer, producer,
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wholesaler, dealer or retailer of the above
items, then, you are not subject to this tax.
The business is not subject to local taxes
because it is a transportation contractor
outside the reach of LGUs but subjected to tax
by the National government.
Tax amount not exceeding P500 for every
delivery truck, van or vehicle
B. Municipality (Secs. 142-150)
The scope of the taxing powers of the municipality is
limited. They may levy taxes, fees, and charges not
otherwise levied by provinces.
1. Fees and Charges (Sec. 147)
SEC. 147. Fees and Charges.-The municipality may
impose and collect such reasonable fees and
charges on business and occupation and, except as
reserved to the province in Section 139 of this Code,
on the practice of any profession or calling,
commensurate with the cost of regulation,
inspection and licensing before any person may
engage in such business or occupation, or practice
such profession or calling.
The municipality can impose fees and charges
on businesses and occupation except for those
that have been subjected already to
professional taxes by the province or the city.
Hence, they cover only those professionals not
requiring government examination (i.e.
computer engineers, media men)
No maximum amount fixed as long ascommensurate with the cost of regulation,
inspection and licensing
2. Fees for Sealing and Licensing of Weights and
Measures
SEC. 148. Fees for Sealing and Licensing of Weights
and Measures.- (a) The municipality may levy fees
for the sealing and licensing of weights and
measures at such reasonable rates as shall be
prescribed by the sangguniang bayan.
(b) The sangguniang bayan shall prescribe the
necessary regulations for the use of such weightsand measures, subject to such guidelines as shall be
prescribed by the Department of Science and
Technology. The sanggunian concerned shall, by
appropriate ordinance, penalize fraudulent
practices and unlawful possession or use of
instruments of weights and measures and prescribe
the criminal penalty therefor in accordance with the
provisions of this Code. Provided, however, That the
sanggunian concerned may authorize the municipal
treasurer to settle an offense not involving the
commission of fraud before a case therefor is filed
in court, upon payment of a compromise penalty of
not less than Two hundred pesos (P=200.00).
Municipalities and cities can impose fees for
the sealing and licensing of weights and
measures.
a. LGUs go to wet markets to check upon the
weights and measures and put in stickers to
those who have passed the test.
3. Fishery Rentals, Fees and Charges(Sec. 149)
SEC. 149. Fishery Rentals, Fees and Charges . - (a)
Municipalities shall have the exclusive authority to
grant fishery privileges in the municipal waters andimpose rentals, fees or charges therefor in
accordance with the provisions of this Section. (b)
The sangguniang bayan may:
(1) Grant fishery privileges to erect fish corrals,
oyster, mussels or other aquatic beds or bangus fry
areas, within a definite zone of the municipal
waters, as determined by it: Provided, however,
That duly registered organizations and cooperatives
of marginal fishermen shall have the preferential
right to such fishery privileges: Provided, further,
That the sangguniang bayan may require a public
bidding in conformity with and pursuant to an
ordinance for the grant of such privileges: Provided,
finally, That in the absence of such organizations
and cooperatives or their failure to exercise their
preferential right, other parties may participate in
the public bidding in conformity with the above
cited procedure.
(2) Grant the privilege to gather, take or catch
bangus fry, prawn fry or kawag-kawag or fry of
other species and fish from the municipal waters by
nets, traps or other fishing gears to marginal
fishermen free of any rental, fee, charge or any
other imposition whatsoever.
(3) Issue licenses for the operation of fishing
vesselsof three (3) tons or less for which purpose
the sangguniang bayan shall promulgate rules and
regulations regarding the issuances of such licenses
to qualified applicants under existing laws.
Provided, however, That the sanggunian concerned
shall, by appropriate ordinance, penalize the use of
explosives, noxious or poisonous substances,
electricity, muro-ami, and other deleterious
methods of fishing and prescribe a criminal penalty
therefor in accordance with the provisions of this
Code: Provided, finally, That the sanggunian
concerned shall have the authority to prosecute anyviolation of the provisions of applicable fishery laws.
4. Tax on Business(Sec. 143)
Local business tax (LBT) is the major source of
revenues for every city or municipality. This is not
imposable by:
a.) province or the b.) barangay
What is the LBT?
LBT is a tax based on gross receipts or gross
sales not on income. It is a tax on theoperation of the business and also as under
the police power of LGUs in regulating the
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business.
It is not an income tax. So whether you are
operating at a gain or loss, you are still subject
to local business tax. This is used as a measure
to regulate businesses. Non-payment of LBT
based on the preceding calendar years gross
sales or receipts shall not allow you to validly
operate during the year.
It is a prerequisite for the issuance of mayorspermit.
It partake the nature of percentage tax when
the limit of each graduated table for different
taxpayers is reached (see Sec. 143 of LGC) i.e.
37.5% of 1% for manufacturers.
Example: On January 20, 2011 (deadline of
LBT), every business should pay the LBT based
on 2010 gross sales or receipts.
Based on the gross receipts of the preceding
calendar year, whether or not the company is
actually on a calendar or fiscal year basis.
(Review: calendar year JanDec, fiscal year
any 12 month period starting on a month
other than January)
The basis of computation of the LBT remains
fixed at gross sales or receipts of the preceding
calendar. There could be no other basis not
the income, not the production, not the
output, and not the fiscal year.
Businesses subject to LBT
a.
Manufacturers, assemblers, repackers,processors, brewers, distillers, rectifiers,
and compounders of liquors, distilled
spirits, and wines or manufacturers of
any article of commerce of whatever
kind or nature
There is a fixed tax up to the point of the
highest bracket wherein it becomes
already a percentage tax of 37 % of 1%.
b. Wholesalers, distributors, or dealers in
any article of commerce of whatever
kind or nature
These are businessmen who do not have
anything to do with the manufacturing or
production or processes of the products
that they are dealing, distributing, or
delivering wholesale.
They shall be taxed at fixed amount of
taxes depending on its bracket of sales or
receipts but the highest bracket is not
exceeding 50% of 1%. However, such rate
may be raised by the cities to more than
the limit provided so long as its not more
than 50% higher.
EXAMPLE: When one is a manufacturer
and wholesaler or distributor at the same
time, he will only pay as manufacturer
because the distribution is only incidental
of being a manufacturer.
However, if youre a manufacturerof one
product and a distributor of another, you
will now be liable for both classification
as manufacturer of your own product and
distributor of someone elses product.
c.
Exporters, and on manufacturers,millers, producers, wholesalers,
distributors, dealers or retailers of
essential commodities enumerated
hereunder:
1. Rice and corn
2. Wheat or cassava flour, meat, dairy
products, locally manufactured,
processed or preserved food, sugar, salt
and other agricultural, marine, and fresh
water products, whether in their original
state or not
3. Cooking oil and cooking gas
4. Laundry soap, detergents, and
medicine
5. Agricultural implements, equipment
and post- harvest facilities, fertilizers,
pesticides, insecticides, herbicides and
other farm inputs
6. Poultry feeds and other animal feeds
7. School supplies; and
8. Cement
RATE: Not exceeding of the rates
prescribed under manufacturers,
wholesalers, and retailers.
Hence, the maximum rates are:
Manufacturers of 37.5% of 1%
Wholesalers of 50% of 1%
Retailers of 2% or of 1%
(depending on amount)
This category actually is a concession
since it has a lower rate compared to
other categories. Rationale: It involves
exportation which is favored by the State
and essential commodities (non-luxury
goods or items)
This category contemplates two
classification:
A. Exporters whether essential or non-
essential commodity
B. Manufacturers, millers, producers,
wholesalers, distributors, dealers or
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retailers of essential commodities
If you are a manufacturer, wholesaler,
distributor, or retailer of an essential
commodity, you need to pay only of
what is due to other manufacturers,
wholesalers, distributors, or retailers.
d. Retailers
Retailers are those who are engaged in asale where the purchaser buys the
commodity for his own consumption,
irrespective of the quantity of the
commodity sold. They are those who sell
products to end-users.
RATE: 2% or 1%
If gross sales or receipts for the preceding
calendar year is:
400k or less2%
More than 400k1%
However, barangays shall have the
exclusive power to levy taxes on gross
sales or receipts of the preceding
calendar year if:
A.) 50k or less, in case the barangay is
located in cities
B.) 30k or less, if located in
municipalities.
This is one area wherein the barangays
can pre-empt both the municipalities andthe cities in imposing LBT to retailers.
When you are both a wholesaler and a
retailer, you are subject to BOTH as
wholesaler and retailer. You have
different sales as wholesaler and retailer.
Unlike if both wholesaler and
manufacturer wherein you pay the lesser
rate as manufacturer only. This is because
he usually has no income for the
distribution, therefore, only as a
manufacturer.
EXAMPLE:
If youre a retailer of both essential
commodities and non-essential
commodities, how will you be taxed?
There would be a separate computation
for essential commodities and for non-
essential commodities.
2% or 1% on non-essential commodities
and 50% of 2% or 50% of 1% if essential.
e. Contractors and other independent
contractors
RATE: not exceeding 50% of 1% of gross
receipts of the preceding calendar year
Contractors- includes persons, natural or
juridical, not subject to professional tax
under Section 139 of this Code, whose
activity consists essentially of the sale of
all kinds of services for a fee, regardless
of whether or not the performance of the
service calls for the exercise or use of the
physical or mental faculties of suchcontractor or his employees.
The term "contractor" shall include
general engineering, general building and
specialty contractors as defined under
applicable laws; filling, demolition and
salvage works contractors; proprietors or
operators of mine drilling apparatus;
proprietors or operators of dockyards;
persons engaged in the installation of
water system, and gas or electric light,
heat, or power; proprietors or operators
of smelting plants; engraving, plating,
and plastic lamination establishments;
proprietors or operators of
establishments for repairing, repainting,
upholstering, washing or greasing of
vehicles, heavy equipment, vulcanizing,
recapping and battery charging;
proprietors or operators of furniture
shops and establishments for planing or
surfacing and recutting of lumber, and
sawmills under contract to saw or cut logs
belonging to others; proprietors or
operators of dry- cleaning or dyeing
establishments, steam laundries, and
laundries using washing machines;proprietors or owners of shops for the
repair of any kind of mechanical and
electrical devices, instruments, apparatus,
or furniture and shoe repairing by
machine or any mechanical contrivance;
proprietors or operators of
establishments or lots for parking
purposes; proprietors or operators of
tailor shops, dress shops, milliners and
hatters, beauty parlors, barbershops,
massage clinics, sauna, Turkish and
Swedish baths, slenderizing and building
saloons and similar establishments;
photographic studios; funeral parlors;
proprietors or operators of hotels, motels,
and lodging houses; proprietors or
operators of arrastre and stevedoring,
warehousing, or forwarding
establishments; master plumbers, smiths,
and house or sign painters; printers,
bookbinders, lithographers; publishers
except those engaged in the publication
or printing of any newspaper, magazine,
review or bulletin which appears at
regular intervals with fixed prices for
subscription and sale and which is not
devoted principally to the publication ofadvertisements; business agents, private
detective or watchman agencies,
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commercial and immigration brokers, and
cinematographic film owners, lessors and
distributors.
General Professional Partnerships are
considered as independent contractors.
f.
Banks and other financial institutions
This is the exception on the limitation
wherein income tax are computed forbanks and other financial institutions
RATE: Not exceeding 50% of 1% on the
gross receipts of the preceding calendar
year
Gross receipts of banks and financial
institutions--
It is derived from interest, commissions
and discounts from lending activities,
income from financial leasing, dividends,
rentals on property and profit from
exchange or sale of property, insurancepremium.
It appears that this is an exclusive list of
what will comprise the gross receipts of
banks and other financial institutions.
Hence, fees or charges not among the
gross receipts stated above, then, it will
not be covered by the LBT on banks and
financial institutions.
Example: filing fees, service fees,
administrative charges imposed by banks.
They will not be covered by this provision.
There are 2 taxes to which the bank will
be liable for under the LGC:
1. Income tax
2. LBT
Income tax is based on income. LBT is
based on gross receipts.
Note: There is no law yet which
clarifies what is the basis of income tax
on banks. Not even the LGC provides for
it. In fact, the IRR proscribe LGUs from
imposing taxes against the income of
banks.
Nonetheless, it would appear that banks
are subject to these 2 taxes.
"Banks and other financial institutions"
include non-bank financial intermediaries,
lending investors, finance and investment
companies, pawnshops, money shops,
insurance companies, stock markets,
stock brokers and dealers in securitiesand foreign exchange, as defined under
applicable laws, or rules and regulations
thereunder.
Pawnshops and Money changers are
included
Insurance companiesare included.
Gross receipts of insurance companies
include:
The premiums collected, interestearnings, if it owns property and rentals
coming from such property is also
included, income from acquired assets,
cash dividends, etc.
g. Peddlers engaged in the sale of any
merchandise or article of commerce
Peddler - means any person who, either
for himself or on commission, travels
from place to place and sells his goods or
offers to sell and deliver the same.
RATE: annual tax of not exceeding 50.
It is a fixed tax.
h. Any business not otherwise specified
Categories A - G are not exclusive. This is
a catch all provision.
Special requirement for this catch-all
provision to apply:
1. Having a special ordinance for that
purpose
2. With a prior public hearing
3. It must not be excessive, unjust,
confiscatory or following the fundamental
principles of taxation and
4. It must not violate the common
limitations found under Sec. 133.
Tax rates within the Metro Manila Area(Sec. 144)
SEC. 144. Rates of Tax within the Metropolitan
Manila Area. - The municipalities within the
Metropolitan Manila Area may levy taxes at rateswhich shall not exceed by fifty percent (50%) the
maximum rates prescribed in the preceding Section.
The tax rates within the Metro Manila Area may be
50% more than what the municipalities can impose.
The rate for municipalities within Metro Manila
Area is the same as a city.
Tax period (Sec. 165)
SEC. 165. Tax Period and Manner of Payment. -
Unless otherwise provided in this Code, the tax
period of all local taxes, fees and charges shall be
the calendar year. Such taxes, fees and charges may
be paid in quarterly installments.
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Tax period calendar year (whether or not the
taxpayer follows calendar of fiscal year for income
tax purposes)
Accrual of tax (Sec. 166)
SEC. 166. Accrual of Tax. - Unless otherwise
provided in this Code, all local taxes, fees, and
charges shall accrue on the first (1st) day of January
of each year. However, new taxes, fees or charges,
or changes in the rates thereof, shall accrue on thefirst (1st) day of the quarter next following the
effectivity of the ordinance imposing such new
levies or rates.
LBT accrues on the 1st
day of January of each year.
However for new taxes, fees or charges or changes
in the rates, they shall accrue on the 1st
day of
quarter next following the effectivity of the
ordinance imposing such new levies or rates
TAX BASIS : Gross sales or receipts excluding
returns, discounts and allowances
Time and manner of payment (Sec. 167)
SEC. 167. Time of Payment. - Unless otherwise
provided in this Code, all local taxes, fees, and
charges shall be paid within the first twenty (20)
days of January or of each subsequent quarter, as
the case may be. The sanggunian concerned may,
for a justifiable reason or cause, extend the time for
payment of such taxes, fees, or charges without
surcharges or penalties, but only for a period not
exceeding six (6) months.
Time for payment : On or before January 20
Otherwise you will be subject to surcharges and
penalties. In addition, no mayors permit is issued
when local taxes are not paid.
However, the sanggunian concerned may extend
the time to not exceeding 6 months
Local taxes can also be paid quarterly - Within 20
days of each quarter
If you opt to pay quarterly, simply divide your LBT
into 4 and you pay by installment on or before the
20
th
day of the first month of every quarter (Jan. 20,Apr. 20, Jul. 20, Oct. 20).
This does not apply to other fees and charges. You
cannot pay in installments the other fees and
charges of the government. Only the LBT can be
payable quarterly.
When you say that business taxes accrue on Jan. 1
of each year, it does not mean that it is a tax of the
previous year. It accrues Jan. 1 of each year payable
on or before Jan. 20 and payment of which gives
you the right to carry-on legally your business.
The basis is the preceding year, however, it is a
tax on the current year. i.e. business tax for year
2012 is based on gross receipts during year 2011
but paid on year 2012 (on or before January 20)
In income taxes, the tax paid this year the basis is
the preceding year and it also pertains to income
taxes last year. i.e. income tax for year 2011 is
based on gross receipts during year 2011 but paid
on year 2012 (on or before April 15)
LBT are somewhat imposed in the exercise of the
regulatory power of the state in order to regulate
businesses and is a prerequisite before a permit can
Mobil Phils. vs. City Treasurer of Makati, GR No. 154092
(2005)
Local business tax v. income tax
Business taxes imposed in the exercise of police power for regulatory
purposes are paid for the privilege of carrying on a business in the
year the tax was paid. It is paid at the beginning of the year as a fee
to allow the business to operate for the rest of the year. It is deemed
a prerequisite to the conduct of business.
Income tax, on the other hand, is a tax on all yearly profits arising
from property, professions, trades or offices, or as a tax on a persons
income, emoluments, profits and the like. It is tax on income,
whether net or gross realized in one taxable year. It is due on or
before the 15th day of the 4th month following the close of the
taxpayers taxable year and is generally regarded as an excise tax,
levied upon the right of a person or entity to receive income or
profits.
The business tax, like income tax, is computed based on the previous
years figures. This is the reason for the confusion. A newly-started
business is already liable for business taxes (i.e. license fees) at the
start of the quarter when it commences operations. In computing the
amount of tax due for the first quarter of operations, the business
capital investment is used as the basis. For the subsequent quartersof the first year, the tax is based on the gross sales/receipts for the
previous quarter. In the following year(s), the business is then taxed
based on the gross sales or receipts of the previous year. The
business taxes paid in the year 1998 is for the privilege of engaging in
business for the same year, and not for having engaged in business for
1997.
Erricson Case
Gross Receipts for income tax purposes vs. Gross Receipts for LBT
purposes
Gross Receipts for income tax purposes computed on accrual basis.
Includes those actually or constructively received plus those which are
yet to be received
Gross Receipts for LBT purposes only includes those actually or
constructively received (smaller in scope)
SC ruled that you cannot change the basis for computation of the LBT.
Do not confuse it with the computation of gross receipts for income
tax purposes.
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be given. Any tax that accrues on Jan. 1 as a LBT is a
tax really for that current year.
Payment of business taxes, multiple business
establishment / lines (Sec. 146)
SEC. 146. Payment of Business Taxes. - (a) The
taxes imposed under Section 143 shall be payable
for every separate or distinct establishment or place
where business subject to the tax is conducted and
one line of business does not become exempt bybeing conducted with some other business for
which such tax has been paid. The tax on a business
must be paid by the person conducting the same.
(b) In cases where a person conducts or operates
two (2) or more of the businesses mentioned in
Section 143 of this Code which are subject to the
same rate of tax, the tax shall be computed on the
combined total gross sales or receipts of the said
two (2) or more related businesses.
(c) In cases where a person conducts or operates
two (2) or more businesses mentioned in Section
143 of this Code which are subject to different rates
of tax, the gross sales or receipts of each business
shall be separately reported for the purpose of
computing the tax due from each business.
If a person operates 2 or more businesses
mentioned in Sec. 143 which are taxed;
computation shall be based on:
1. Combined total gross sales/receipts if subject to
the same tax rate
Rationale: the Higher your gross receipts, the
higher bracket you belong, the higher tax thatwill be due from you until you reach the limit.
2. Separate reports on gross sales/receipts if
subject to different tax rates (i.e. retailer and
manufacturer)
Situs of the tax (Sec. 150)
SEC. 150. Situs of the Tax. - (a) For purposes of
collection of the taxes under Section 143 of this
Code, manufacturers, assemblers, repackers,
brewers, distillers, rectifiers and compounders of
liquor, distilled spirits and wines, millers, producers,
exporters, wholesalers, distributors, dealers,contractors, banks and other financial institutions,
and other businesses, maintaining or operating
branch or sales outlet elsewhere shall record the
sale in the branch or sales outlet making the sale or
transaction, and the tax thereon shall accrue and
shall be paid to the municipality where such branch
or sales outlet is located. In cases where there is no
such branch or sales outlet in the city or
municipality where the sale or transaction is made,
the sale shall be duly recorded in the principal office
and the taxes due shall accrue and shall be paid to
such city or municipality.
(b) The following sales allocation shall apply tomanufacturers, assemblers, contractors, producers,
and exporters with factories, project offices, plants,
and plantations in the pursuit of their business:
(1) Thirty percent (30%) of all sales recorded in
the principal office shall be taxable by the city or
municipality where the principal office is located;
and
(2) Seventy percent (70%) of all sales recorded in
the principal office shall be taxable by the city or
municipality where the factory, project, office,
plant or plantation is located; and
(c) In case of a plantation located at a place other
than the place where the factory is located, said
70% mentioned in subparagraph (b) of subsection
(2) above shall be divided as follows:
(1) 60% to the city or municipality
(2) 40% to the city or municipality where the
plantation is located
(d) In cases where a manufacturer, assembler,
producer, exporter or contractor has two (2) or
more factories, project offices, plants, orplantations located in different localities, the
seventy percent (70%) sales allocation mentioned in
subparagraph (b) of subsection (2) above shall be
prorated among the localities where the factories,
project offices, plants, and plantations are located
in proportion to their respective volumes of
production during the period for which the tax is
due.
(e) The foregoing sales allocation shall be applied
irrespective of whether or not sales are made in the
locality where the factory, project office, plant, or
plan is located.
Situs for LBT:
Its the place where the sale is consummated
associated with the delivery of the articles of
commerce, which are the subject matter of the
contract.
Branch- an extension of the principal office of the
business. There must really be business operation.
This does not include an office displaying products
but does not maintain stocks or items for sale. It is
merely a display office and not a branch. LGUshaving jurisdiction over the display area would not
have a right to share in the taxes of the gross
receipts for the entire operation.
Rules as to the collection of LBT
Rule 1: In case of persons maintaining/operating a
branch or sales outlet making the sale or
transaction, the sale shall be recorded in said
branch or sales outlet and the tax shall be paid to
the municipality/city where the branch or sales
outlet is located.
Rule 2: Where there is no branch or sales outlet inthe city/municipality where the sale is made, sale
shall be recorded in the principal office and the tax
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shall be paid to the city/municipality where such
principal office is located.
Rule 3: In the case of manufacturers, contractors,
producers, and exporters having FPOP, proceeds
shall be allocated as follows:
30% of sales recorded in the principal
office shall be made taxable by the
city/municipality where the principal office is
located
70% shall be taxable by the
city/municipality where the FPOP is located
Plant is somewhat similar to a factory. Project
offices include construction projects and the like.
Rule 4: In case the plantation is located in a place
other than the place where the factory is located,
the 70% in Rule 3 will be divided as follows:
60% to the city/municipality where the
factory is located
40% to the city/municipality where theplantation is located
Whenever theres a factory and/or plantation
operated by the principal office, it will
automatically share in whatever is reflected or
recorded as sales by the principal office.
Rule 5: In case of 2 or more FPOP in different
localities, the 70% shall be prorated among the
localities where the FPOP are located in proportion
to their respective volume of production.
PRORATED based on volume of production (not
distributed equally)
Note: if the sale is consummated in a place
where there is no branch however the place where
it was sourced can be traced, then 100% of such
sale will accrue to the source as if there was a
branch there.
Example:
Same illustration as above. Sale was made in
Dalaguete where there was no branch however, it
can be traced that the goods sold were from the
factory in Boljoon. 100%