Enhanced Business Permitting and Licensing System

Gross Sales or Receipts  Sec. 131 (n):

Gross Sales or Receipts include the total amount of money or 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, sales return, excise tax, and value-added tax(VAT)

Tax on Business

 Sec. 143 (a): On 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. Pepsi-Cola Products
Philippines, Inc. should be considered as a manufacturer for purposes of local business taxation. Maintaining sales offices for the
purpose of selling one’s own manufactured products is an activity incidental to manufacturing.

Tax on Business  Sec. 143 (b):

On wholesalers, distributors or dealers in any article of commerce of whatever kind or nature.

Legal foundation of LGU’s power to tax

• Section 5, Article X, 1987 Constitution Each local government unit shall have the power to create its own sources of revenues
and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.
• Section 129, Local Government Code (RA7160) Each Local government unit shall exercise its power to create its own sources
of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the local government units

Nature of the Taxing Power of LGU

• Not inherent, but a direct grant – Though not inherent, it is not a mere delegation by the legislative body but a direct grant
from the constitution

• Limited – Neither plenary nor absolute; subject to the guidelines provided by Congress

• Legislative – May be exercised only by the Sanggunian

• Territorial – Can only be exercised within the territorial jurisdiction of the LGU

Taxation powers of LGUs Common Revenue

–Raising Powers

• Reasonable fees and charges for services rendered (Sec. 153, LGC)

• Public Utility Charges (Sec. 154, LGC)

• Toll fees • Exceptions: 1) Officers & enlisted men of the AFP; 2)PNP members on mission; 3) post office personel delivering
mail; 4) physically handicapped and disabled citizens who are 65 years old or older; Specific Power of LGUs to impose taxes
(Business-Related LGU Taxing Powers) Power to Levy Community Tax Powers under the miscellaneous provisions
BARANGAY IMPOSITIONS Taxes

– on stores or retailers with gross sales or receipts of the preceding calendar year of ₱50,000 or less in the case of cities and
₱30,000 or less in the case of municipalities. Service Fees and Charges – They may collect reasonable fees or charges for services
rendered Barangay Clearance – no city or municipality may issue any license or permit unless a clearance is first obtained from
the barangay at reasonable rate. Other fess and Charges – reasonable fees and charges

Business taxes •

Those imposed by the local government unit on the privilege of engaging in business, occupation, and other
activities within its territorial jurisdiction. • The proceeds of these taxes accrue exclusively to local government unit
that imposes them, or may be shared with other local government units when provided by law

Gross Sales or Receipts

• Under Sec. 131(n) of the LGC : “Gross Sales or Receipts” – the total amount of money or its equivalent representing the
contract price, compensation or service fee, including the amount charged or materials supplied with the services, and the
deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be
performed for another person. “Gross Sales or Receipts” exclude discounts that can be determined at the time of sales, sales
returns and the excise taxes and value-added tax (VAT)
Gross Sales or Receipt Contract price, compensation or service fee INCLUDING

• Amount charged for materials supplied with the services • Deposits or advance payments actually or constructively received
during the taxable quarter for the services performed or to performed for another person EXCLUDING • Discounts, if
determinable, at the time of sale • Sales returns • Excise tax • Value added ta

Apply graduated fixed tax or percentage tax on

• Other businesses not in the Code

• At the rate or schedule that the Sanggunian may prescribe – But must not exceed the rates provided in Section 143 of the LGC

• For businesses subject to excise, value-added or percentage tax under National Internal Revenue Code, rate shall not exceed:
– for cities: 3% – for municipalities: 2% – of gross sales or receipt

Tax structure and rates for business taxes

• Combination of fixed and percentage rates, based on gross receipts & business classification

• structured as a graduated fixed tax, with each business classification falling under own tax schedule

• becomes a percentage tax after highest level is reached • Cities may impose rates 50% higher than rates allowed
municipalities

Collection of Business Taxes TAX PERIOD

•the calendar year MANNER OF PAYMENT

•Annual or in equal quarterly installments ACCRUAL

•On the 1st day of January

•On the first day of the quarter next following the effectivity of the ordinance (new) TIME OF PAYMENT •Within the 1st 20 days
of January

•1 st 20 days of the quarter following the effectivity of the ordninance (new) •For justifiable reasons, the sanggunian may
extend the time for payment without surcharges or penaltiesfor a period not exceeding 6 month
\ Situs Illustration 1

MTREAS Company is a duly registered company with an office in Baguio City. Its branch in Bawang, La Union made a total sales
of P4million in 2016. Where will MTREAS Company pay the business tax of the P4million sales?

Answer to Situs Illustration 1

Sec. 150(a), Local Government Code For purposes of collection of taxes on business, 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 a 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 be paid in such city or municipality. To simplify: • Where there is a branch or sales office or
warehouse – sales recorded at branch and tax accrues to LGU where branch is located • No branch • sales recorded at principal
office for taxation purposes and the tax shall accrue to the municipality where that principal office is located

Situs Illustration 2

• MTREAS Company is a duly registered company engaged in agricultural business with principal office at Baguio City. The
company has a huge vegetable plantation in Atok, Benguet. In the 2016, MTREAS Company recorded a total sales of P10million.
Where will MTREAS pay the business tax of the P10million sales?

Answer to Situs Illustration 2 Section 150 (b), Local Government Code (summarized) Where there is a factory, project office,
plant, or plantation in pursuit of business: – 30% of all sales recorded in the principal office - taxable by the city or municipality
where located – 70% of all sales recorded in the sales office – taxable by the city or municipality where the factory, project
office, plant or plantation is located.

Situs Illustration 3

• MTREAS Company is a duly registered company engaged in agricultural business with principal office at Baguio City. The
company has a huge vegetable plantation in Atok, Benguet. In the 2016, MTREAS Company recorded a total sales of P10million
for its canned vegetables processed in its factory in Bawang, La Union. Where will MTREAS pay the business tax of the
P10million sales?

Answer to Situs Illustration 3

Section 150 (b), Local Government Code (summarized) Where there is a factory, project office, plant, or plantation in pursuit of
business: – 30% of all sales recorded in the principal office - taxable by the city or municipality where located – 70% of all sales
recorded in the sales office – taxable by the city or municipality where the factory, project office, plant or plantation is located. –
The 70% will further be divided as follows:

• 60% to the city/municipality where the factory is located • 40% to city or municipality where the plantation is located

Situs Illustration 4

• MTREAS Company is a duly registered company engaged in agricultural business with principal office at Baguio City. The
company has a huge vegetable plantation in Atok, Benguet. In the 2016, MTREAS Company recorded a total sales of P10million
for its canned vegetables, P6million of which were canned cucumbers processed in its factory in Bawang, La Union and the
P4million from broccoli preserves made by their plant in Tuba, Benguet. Where will MTREAS pay the business tax of the
P10million sales?

Answer to Situs Illustration 4

Part of Section 150 (b), Local Government Code (summarized) Where there are 2 or more factories, project offices, plants or
plantations, located in different localities the 70% will be pro-rated among the localities where the factories, project offices,
plants, and plantations are located in proportion to their respective volumes of production during the peiod for which the tax is
due
Rules on Situs (summary)

• With branch, sales office or warehouse – Where located • No branch, sales office or warehouse – Sales recorded in principal
office and taxes accrue to such city or municipality • With factory, project office, plant or plantation in pursuit of business – 30%
- principal office – 70% - where factory, project office, plant or plantation is located • The 70% will be divided as follows: – 60%
to where the factory is located – 40% to where the plant is located • With 2 or more factories, project offices, plants or
plantation in different localities – PRORATE in proportion to volume of production

CONDITIONS OF PAYMENT MUST BE CLEAR TO ALL

Tax is payable for every separate or distinct establishment or place where business is conducted One line of business does not
become exempt because it is conducted together with some other business for which tax has been paid Tax on business must be
paid by person conducting same When person conducts two or more businesses subject to same rate of imposition, tax shall be
computed on combined total of gross sales or receipts When person conducts two or more businesses subject to different rates
of imposition, taxable gross sales or receipts of each business are reported independently and tax is computed on basis of
pertinent schedule

Submission of Certified Income Tax Return Copy

Annually, operators must submit a certified photocopy of their ITR on or before April 30. Deficiency in business tax arising from
differences in gross receipts between LGU documents and ITR shall be payable on or before May 20 with interest at rate of 10%.
Payments of deficiency tax made after May 20 will be subject to 25% surcharge and 2% interest for every month, counting from
Jan up to month payment is made