Tax Compliance Checklist for Local Business tax (LBT)

Company:
Channel Account:
TIN:
Period Covered:
Contact Person:
Title:
Contact No.:

OBJECTIVE:

The objective of the review is to determine if the Company is in compliance with the LBT laws and
regulations such that the risks and exposure of the Company on LBT related issues noted in the
examinations and when applicable, recommend corrective measures to address the issues.

INSTRUCTIONS:

This checklist is to be accomplished by the senior associate/ associate / in-charge of the engagement and
is to be reviewed by the senior associate / director / senior director and engagement partner. This checklist
should be accomplished for all tax audit engagements (e.g., Tax Compliance, Due Diligence, etc) and
shall form part of the tax audit working papers.

This must be completely accomplished in INK. When an item in the checklist has been performed, place
a (/) underneath the “Done” column and state the result of the action taken. If not, indicate “Not Done”
underneath the “Done” column and state the reasons for not having done the procedures called for. For
questions not applicable to the particular engagement, place the letters “NA” underneath the “Done”
column together with a brief explanation. The senior associate / in-charge may also refer to the pertinent
LBT provisions and regulations as aid in the performance of the examinations.

This checklist must be accompanied with working papers to support the procedures done in the review.
To easily identify issues noted in the examinations, the word “TRM” shall be indicated in red ink in the
pertinent working papers. A summary of findings noted shall also be attached to this checklist.

Prepared by:
TROG SA/A Initials Date

Reviewed by:
TROG SD/D/AD Initials Date

Approved by:
TROG Partner Initials Date

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 Tax Compliance Checklist for Local Business Tax (LBT)

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GENERAL

1. Determine the nature of the Company’s business.

Based on the actual business activities conducted
by the Company, ascertain the local business taxes
(LBT) to which it is subject.

2. Secure from Company a listing and/or copies of

official receipts and mayor’s permits of all LBT
paid or accrued during the year showing such
details as nature, amount, date of payment, payee,
references, etc.

Ascertain whether LBT was paid within the first

20 days of January and for each subsequent
quarter in case of installment payments.

3. Obtain a listing of branches, sales outlets,

warehouse, plantation, factories, and/or service
establishments of the client.

Ascertain whether each of the offices maintained

by the Company qualifies as a taxable
establishment in a particular locality.

Under the Rules and Regulations implementing

the Local Government Code (LGC) of 1991,
branch or sales office, warehouse and factories are
defined as follows:

Branch or Sales Office — a fixed place in a

locality which conducts operations of the business
as an extension of the principal office. Offices
used only as display areas of the products where
no stocks or items are stored for sale, although
orders for the products may be received thereat,
are not branch or sales offices as herein
contemplated. A warehouse which accepts orders
and/or issues sales invoices independent of a
branch with sales office shall be considered as a
sales office

Warehouse — a building utilized for the storage

of products for sale and from which goods or

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 Tax Compliance Checklist for Local Business Tax (LBT)
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merchandise is withdrawn for delivery to
customers or dealers, or by persons acting in
behalf of the business. A warehouse that does not
accept orders and/or issue sales invoices as
aforementioned shall not be considered a branch
or sales office.

Plantation- a tract of agricultural land planted to

trees or seedlings whether fruit bearing or not,
uniformly spaced or seeded by broadcast methods
or normally arranged to allow highest production.

4. Obtain from the Company updated copy(ies) of

applicable ordinance(s) governing the imposition
of LBT.

5. If the Company is registered with BOI, secure a

copy of the Company’s BOI Registration
Certificate and ascertain from the incentives
granted whether the Company is exempt from
LBT.

6. In case the Company is registered with PEZA and

is paying 5% preferential tax, check whether the
2% thereof (40% of the 5% preferential tax) was
paid in the municipality where the Company’s
principal place of office is located. (Section 24 of
RA No. 7916).

TAX BASE

7. Ascertain the tax base used:

a. gross sales of the preceding calendar year – if

Company is engaged in sale of goods;

b. gross receipts of the preceding calendar year

– if Company is engaged in sale of services.
(Section 143 of the LGC)

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Under Section 131 (n) of the LGC, “gross

sales or receipts” is defined to include the
total amount of money of its equivalent
representing the contract price, compensation
or service fee, including the amount charged
or materials supplied with the services and
deposits or advance payments actually or
constructively received during the taxable
quarter for the services performed or to be
performed for another person excluding
discounts if determinable at the time of sales,
returns, excise tax and value-added tax..

Ascertain whether gross sales or gross receipts

from other income have been included in the
LBT base.

Check whether passive income such as interest

income earned from banks which has been
subjected to final tax (7.5% or 20%) has not been
included in the tax base.

8. Reconcile the reported tax base against figures per

Financial Statements (FS).

9. Ascertain nature of deductions from the tax base.

Check propriety of these deductions.

Trace from relevant supporting documents the

discounts and returns deducted from the gross
sales or receipts.

Discounts may be deducted from the LBT base

provided it is indicated in the invoice at the time
of sale and the grant which does not depend on the
happening of the future event. Otherwise, the
same shall not be excluded from the tax base.

Sales returns and allowances in the month/quarter

which the refund or credit is made for sales
previously recorded as taxable sales; this should
be supported by credit memo.

10. If Company is engaged in two or more businesses

in the same locality mentioned under Section 143
of the Local Government Code (LGC) which are
subject to the same rate of tax, ascertain that the

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tax is based on the combined gross sales or
receipts of the related businesses. (Article 242 (b)
of the IRR)

TAX RATE

11. Ascertain the propriety of the tax rates used

against the ordinance of the city/municipality
where the principal office, factory or branch office
is located.

In case the ordinance(s) is(are) not available, use

the rates prescribed under LGC.

SITUS OF TAX

12. If a Company maintains or operates a branch or

sales offices elsewhere, all sales made in the
branch or sales office should be recorded therein
and the tax paid to the local government where the
said branch or sales office is located. ( BLGF
Opinion dated January 17, 2002)

On the other hand, if a Company has no such

branch or sales office in the locality where the
sale is made, the sale should be recorded in the
principal office along with the sales made by the
said principal office and the tax shall accrue to the
city or municipality where the principal office is
located. (BLGF Opinion dated January 29, 2002)

13. If a Company maintains a factory or plantation in

a locality other than where the principal office is
located, check the allocation of gross
sales/receipts for LBT purposes. It is proper to
make a diagram showing the allocation of
sales/receipts for each municipality where the
factory(ies) or/and plantation(s) is/are located.
Please take note of the following:

a. if a Company maintains a factory, project

office, plant or plantation in a locality other
than where the principal office is located,

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thirty percent (30%) of all sales recorded in
the principal office should be reported and
the tax due thereon paid to the local
government where the principal office is
located, while the remaining seventy percent
(70%) should be reported and the tax paid to
the local government where the factory,
project office, plant or plantation is located.

b. if a Company maintains a plantation located

at a place other than the place where the
factory is located, the seventy percent (70%)
above should be further subdivided; sixty
percent (60%) to the local government where
the factory is located and the remaining forty
percent (40%) to the local government where
the plantation is located.

c. if a Company has two or more factories

situated in different localities, the seventy
percent (70%) sales allocation mentioned in
paragraph (a) should be prorated among the
localities where the factories are situated in
proportion to their respective volumes of
production during the period in which the tax
is due.

d. if the Company is a manufacturer or

producer that engages the services of an
independent contractor to produce or
manufacture some of their products, the
factory or plant and warehouse of the
contractor utilized for the production and
storage of the manufacturers’ products shall
be considered as the factory or plant and
warehouse of the Company.

e. If the Company is a prime contractor, check

whether the payments to sub-contractors
have been deducted from the tax base.

Should the contractor, whose principal place

of business is located in the City of Makati is
duly licensed by or accredited by the
Philippine Contractors Association Board
(PCAB) and the City of Makati, undertake to
furnish the materials and labor in the
construction work, the cost of such materials

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and labor shall be deducted from his gross
receipts for the purpose of determining the
tax due from such cotractor.

14. If a Company has sales made by route trucks,

vans, or vehicles –

a. For route sales made in a locality where a

manufacturer, producer, wholesaler, retailer or
dealer has a branch or sales office or
warehouse, the sales recorded in the branch,
sales office or warehouse and tax due thereon
is paid to the LGU where such branch, sales
office or warehouse is located.

b. For route sales made in a locality where a

manufacturer, producer, wholesaler, retailer or
dealer has no branch, sales office or
warehouse, the sales are recorded in the
branch, sales office or warehouse from where
the route trucks withdraw their products for
sale, and the tax due on such sales is paid to the
LGU where such branch, sales office or
warehouse is located.

NEWLY STARTED BUSINESS

15. If the Company’s business is newly started in a

particular locality or transferred thereto, ascertain:

a. For the quarter in which the business starts to

operate – the initial tax to be paid is based on a
certain percentage of the capital investment as
provided by the applicable local ordinance.

b. For the succeeding quarters of the year:

 Tax Rate – ¼ of the rate prescribed by the

applicable local ordinance.

 Tax Base – Gross sales for the preceding

quarter should be used.

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 Tax Compliance Checklist for Local Business Tax (LBT)
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TERMINATION OF BUSINESS

16. If the Company terminated its business in a

locality or transferred to another locality, ascertain
the following:

a. Whether the Company submitted a sworn

statement of its gross sales for the current year
to the city/municipal treasurer.

b. If the tax paid during the year was less than the
tax due on said current year gross sales,
whether the difference was paid before the
business was officially retired.

17. Determine if the Company has pending claims for

refund for erroneous payment or overpayment of
LBT. Ascertain that the claim has been duly filed
with the city or municipal treasurer within two (2)
years from the date of payment from the time the
taxpayer is entitled to such refund.

© SGV & Co. Tax Reporting and Operations Group