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121.local Business Taxes - FDD.12.10.09 PDF
121.local Business Taxes - FDD.12.10.09 PDF
In terms of rates and amounts, reference to the LGC and the respective local tax
ordinance is again necessary. Local tax codes normally group taxpayers into different
classifications, each classification with its own basis and applicable tax rate. But one
thing is uniform the local business tax is computed based on the gross sales or
receipts for the preceding calendar year. The reference to the preceding calendar year
as basis of the computation of local business tax is specifically provided in no less than
the Local Government Code. There is no basis of the practice of some local treasurers
in requiring taxpayers to pay their local taxes based on amounts reported in the financial
statements of the year prior to the immediately preceding year.
Besides, the revenue as declared in the financial statements may not necessarily be the
correct basis of the local business tax. For some classes of taxpayers, mostly those
engaged in providing services, the reference is the gross receipts of the preceding
calendar year, and not the revenue. From an accounting standpoint, revenue and gross
receipts are two different things and may not be used interchangeably.
For taxpayers using the accrual method of accounting, the financial statements reflect
income or revenue which accrued to it during the period, which includes income earned
but not necessarily received or paid. If the basis of the tax under the ordinance is the
gross receipts, then only the portion of the revenues which were actually and
constructively received should be considered in determining the tax base. Otherwise, as
the Supreme Court said in another case (G.R. No. 176667, November 22, 2007), this
may result in the constitutionally proscribed double taxation inasmuch as same item
of income may be taxed in the period it is reported as revenue and again in the year of
its receipt.
The reference to the previous years figure brings another issue - whether the local
business taxes that accrues in January first of each year pertains to the previous year or
the current year. Business taxes are paid for the privilege of carrying on a business in
the year the tax was paid. Notwithstanding that the tax is computed based on prior
years figure, the business taxes paid in the year is for the privilege of engaging in
business for the same year, and not for having engaged in business for the previous
year.
The use of the previous calendar years gross sales or receipts is merely the basis for
the amount of business taxes due for the privilege of carrying on a business in the year
when the tax was paid. This is specifically significant for retiring businesses because if
the taxes had already been paid for the year it is retiring based on previous years figure,
the taxpayer shall be required to pay only the difference in the amount if the tax
collected, based on the previous years gross sales or receipts, is less than the actual
tax due based on the current years gross sales or receipts.
Delay in the payment of local business taxes attracts surcharges and interests. Thus,
taxpayers are enjoined to declare correctly and pay their taxes on time. On the part of
the local tax authorities, while they have the authority to create their own sources of
revenue and to levy taxes, the same should be pursued within the guidelines provided in
the LGC and their own respective tax ordinances.