DOF issues guidelines for imposing local taxes, fees on professionals

The Department of Finance (DOF) has issued a new set of guidelines to local government units (LGUs)
on imposing and collecting taxes and other charges on professionals to ensure a fair, uniform and
proper implementation of tax laws and in line with ongoing efforts to streamline government
transactions to further improve the ease of doing business.

Among the salient features of Local Finance Circular (LFC) 001-2019, which was signed by Secretary
Carlos Dominguez III last June 12, 2019, is the exemption of professionals from paying business permit
fees for the operation of their offices or clinics.

Under the guidelines, while professionals still need to secure business permits from LGUs, such should
be at no cost at all during the registration or renewal of the operation of their clinics or offices, given
that such permits cannot regulate the practice of their profession. This is because regulations over the
practice of professions are within the exclusive domain of the respective agencies or regulatory boards
empowered by law to supervise and regulate professions, the DOF said.

LGUs, however, may impose a local business tax on professionals if they are verified to be engaged in
selling, trading or distributing goods of whatever kind or involved in trade and other business activities
that do not constitute the practice of their professions, the LFC states. In this case, the LGU can impose
a business permit fee during the registration and renewal of the operation of the office or clinic of the
concerned professional.

Under the LFC, the DOF-attached Bureau of Local Government Finance (BLGF) is tasked to monitor the
compliance by LGUs with the circular and provide technical assistance to aid them in following the
guidelines.

According to Finance Undersecretary Antonette Tionko, who heads the DOF’s Revenue Operations
Group, and recommended the issuance of the LFC, the new set of guidelines seeks to address reports
and complaints received by the DOF on the improper imposition of local taxes, fees and other charges
on professionals by LGUs.

The LFC’s objective is to ensure the “fair, uniform and proper implementation” of the provisions of
the Local Government Code governing the taxability of professionals relative to the practice of their
profession, and to complement efforts in streamlining and facilitating government transactions, as
mandated under Republic Act 11032 or the Ease of Doing Business Law.

The LFC also covers the imposition of the professional tax on employed professionals in both the
private and public sectors, said Tionko. “However, professionals exclusively employed in the
government shall be exempt from the payment of the professional tax, unless he or she has been duly
authorized to practice the profession outside of one’s official functions,” she added.

Under the LFC, “an individual or corporation employing a person subject to the professional tax shall
require payment by that person of the tax on his/her profession before employment and annually
thereafter,” Tionko said.
The professional tax imposed by LGUs shall “not exceed P300 or the rate provided under a duly
enacted local ordinance, subject to adjustment not exceeding ten (10) percent every five (5) years,”
the LFC said.

The LFC also provides for the rules in case of multiple practice of profession and the guidelines
governing the payment of such professional tax.

“A line of profession does not become exempt even if conducted with some other profession for which
the professional tax has been paid,” the LFC states. “Thus, a lawyer who is also a Certified Public
Accountant (CPA) must pay the professional tax imposed on each profession, if he (or she) is to
practice both professions.”

On the community tax on individuals, including professionals, the LFC states that such tax may be
imposed on “individuals and corporations.” Under the LFC, corporations do not include general
professional partnerships (GPPs), hence, they are exempt from paying the community tax.

The amount of community tax shall be “P5.00 plus Php1.00 for every P1,000.00 of income from the
exercise of profession, which in no case shall exceed P5,000.00,” the LFC states.

As for other fees, the LFC states that “LGUs may impose and collect other applicable fees and charges
(i.e. garbage fee, sanitary inspection fee, occupancy permit fee, etc.), the amount of which shall be
reasonably commensurate to the cost of regulation or provision of service, as may be provided under
a duly enacted local ordinance; provided, however, that no service charge shall be based on capital
investments or gross sales or receipts of the persons or business liable therefor.”

The LFC was crafted following consultations with, among others, the BLGF, the Departments of the
Interior and Local Government (DILG) and of Trade and Industry (DTI), local treasurers and
representatives from local government leagues, Tionko said.